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The Flat World and Black Swans

November 18, 2015
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The Flat World and Black Swans

Why I believe that Russia is an ideal “Black Swan Robust” society

Whether or not the world is at all flattening, could be considered a mute, but very debatable point at the moment. One thing, however, which needs nor merits debate, is the rise in appearances of black swans, in the global works of things.

Robert Plant, associate professor at the School of Business Administration, University of Miami, in Coral Gables, Florida, contends that, “rather than being flat, the world is as lumpy as it ever was. Perhaps we can stretch the metaphor and imagine the lumps moving a little, as well as shrinking and growing over time. But the only place the world is flat is on a map.”

He further states that, the flat theory has perhaps been publicly debunked following the recent high frequency trading “revelation,” that some trades happen faster than others due to the distance the trade has to travel. Clearly, the speed of light traveling down a data-pipe at 299,792,458 mps still means that proximity is still an advantage.

Another aspect that defies the flat theory is resource availability; primary among that category is energy. The U.S. has recovered its economic inertia in large part due to fracking as a source of cheap and local energy.

Technology advances also defy the flat theory, localized production of products using advanced systems such as design software that minimizes parts and assembly, and on-demand production through 3-D printing also negates the idea of equal market access for everyone. Again proximity to market is an advantage.

The flat theory also fails when it advocates that human capital is global due to technology and travel. This ignores the role of regulation and the policies of each nation state through restrictions on travel, Intellectual property, work permits and access to markets. They are all limiting factors. Highly talented individuals are unlikely to wish to work in restrictive intellectual and cultural environments.

Therefore, Professor Plant somewhat effectively debunks the theory that the world is flat. Or does he? For he suggests that world – rather than being flat is “Lumpy,” and that the only time the world is ever flat, is when a map of the world is spread out on a table.

Therefore, this begs the question. Exactly what shape is the world? Is it flat, round or “lumpy” and flat or “lumpy” and curved?

Back in the day – not so long ago

When I had finished school, in 1978, there were no such further educational college courses in areas such as international business and marketing – at least as far as I can remember? Certainly there were no such books as The World is Flat, by Thomas. L. Friedman and The Black Swan. The Impact of the Highly Improbable, by Nassim Nicholas Taleb. And, there certainly were not the readily-available courses, for foreign students, learning English, in subjects as say Business English as there are today.

The teaching of Business English, to students, learning English, belonged only to those who could afford to attend the best colleges and universities, in say the UK and the USA.

What we had were, instead were courses in short-hand typing, commerce and civil/criminal law – apart from building and engineering courses, that is. There were no dedicated courses in the areas of business management and marketing.

As a result, there were not the plethora of study books available, at that time, in subjects such as marketing and globalisation was never discussed nor even taught. Globalisation just did not exist as a subject to be taught, back then. At least not in the state system of education. These were subjects, which were taught, only in the bastions of the elite, private colleges and top-class universities.

Things like obtaining a job were also relatively much easier back in the day. If you had a good connection, somewhere in a company – even a local one, there was usually no CV/Resume required, no background checks made and, thus, rarely were too many questions asked. All that was required was for you to be able to do the job and get on with it. Questions were rarely asked about previous employment and/or reasons for leaving.

As far as things like that were concerned, the world was rather “curved.”Everything followed the “curve.” Go to school, then leave school and either go onto college or university or just go get a job – usually locally. Start creating and climbing your career ladder. Get married have children, buy the house and the car and get a dog or two – stay with the company for the next 20-odd years: then become grandparents and then retire and tend the garden, while still being in the matrimonial bliss, to the very same woman you married 50 odd years ago, until one’s eventual death do you part.

That was always the "curve," and it was a fairly predictable curve. Life revolved around the family, one’s job and home-making: with the man of the house going to work and the lady of the house, doing the shopping, cooking, cleaning and bringing up the children.

Even the TV ads of the day, for, Fairy Liquid, for example, reflected that scenario and, indeed, encouraged it. That (scenario of the traditional nuclear family) was a key component of their TV commercial marketing mix – with their accent on its being kind to the hands that washed dishes. However, the hands that did the dishes, were always the camera’s close-up shots of women’s, finely manicured hands: having finished washing up all the dishes – not us men’s hands.

Indeed, up until the time I left Russia in the spring of 2013, Procter & Gamble were still using that very same, safe, tried and tested TV marketing mix appeal, for their Fairy Liquid brand, for the Russian market, because traditionally…few Russian men washed the dishes, if there was a woman in the house. Even though, most young Russian women were putting their studies and career-planning ahead of getting married, after the year 2000, Procter & Gamble were still using that same, old TV campaign scenario, for their Fairy Liquid, for quite some time.

So what is a flat world, if indeed, it really exists?

Physically…the flat world does not, of course, exist. Although, several years ago – prior to Columbus accidently discovering South America, many people believed the world to be, perhaps, square and that he would sail off the edge of the earth and into space and his certain death.

Thomas. L. Friedman first coined the phrase, “The World is Flat,” in his book of the same title published on 5th April, 2005. He came to realise how the sudden explosion of the Internet was changing and leading the pace, of globalisation, while on a trip to Bangalore, while he was filming in a call centre there.

His theory was that the advent of the Internet was levelling out the highly competitive playing field of globalisation and that going global, was no longer the exclusive domain of the big, Western companies, with deep pockets. The Internet was to be a leveller, for everyone, wishing to promote themselves to a worldwide audience.

The Internet was also to become an integral part of companies’ complex, global supply chains systems: for companies such as Dell, AOL, and Microsoft. Friedman's capitalist peace theory called The Dell Theory of Conflict Prevention is discussed in the book's penultimate chapter.

Therefore, I suggest, that as an intangibly and virtually-connected world…the world has become flatter – albeit with a few “lumps.” Nobel Prize-winning economist Joseph Stiglitz, however, has been highly critical of Friedman's book:

"Friedman is right that there have been dramatic changes in the global economy, in the global landscape; in some directions, the world is much flatter than it has ever been, with those in various parts of the world being more connected than they have ever been, but the world is not flat. Not only is the world not flat: in many ways it has been getting less flat."— Joseph E. Stiglitz (2007): Making Globalization Work. p.56–57

The Black Swan

The book, The Back Swan, The Impact of the Highly Improbable, written by Nassim Nicholas Taleb, was published on 17th April, 2007. In his book, he wrote extensively about the risk management methods used by the finance industry and warned about financial crises, subsequently profiting from the late-2000s financial crisis. He also advocated hard for what he calls a "black swan robust" society, meaning a society that can withstand difficult-to-predict events.

He also warned of the pseudo-stability in Syria, “Dictatorships that do not appear volatile, like, say, Syria or Saudi Arabia, face a larger risk of chaos than, say, Italy, as the latter has been in a state of continual political turmoil since the second war,” he stated. An excellent summarisation I feel.

The book's position is, according to Wikipedia, is that a Black Swan event depends on the observer—using a simple example, what may be a Black Swan surprise for a turkey is not a Black Swan surprise for its butcher—hence the objective should be to “avoid being the turkey" by identifying areas of vulnerability in order to "turn the Black Swans white.”

Also that, the main idea in Taleb's book is not to attempt to predict Black Swan events, but to build robustness to be able to negate the ones that occur and being able to exploit positive ones.

Why I believe that Russia is an ideal “Black Swan Robust” society

The Russian people know a whole lot about unexpected, black swan events – they've had years of practical experiences of them. From Hitler’s surprise attack on them, during Operation Barbarossa to the recent events surrounding their country, regarding Ukraine, the Crimea and now Syria – plus, of course, learning how to cope with the sanctions imposed on them, by the West. And, even, respond in kind. Historically, the surprise, black swan events, as far as the history of Russia is concerned – they even go way back in time: even long before Hitler’s failed invasion of Russia.

The positive results, which appeared, as a result of the EU-imposed food sanctions, was the fact the South America and other countries were only too willing to step in and fill the gap and, moreover, the smaller, domestic Russian producers were in a good position to also ramp up their production – increase their capacities, hire more personnel and, thus, increase their market share, in their very own, domestic market.

Therefore, Russia was fully able to rapidly exploit these positive’s, which had come about as a direct result of the negatives, of the EU sanctions.

This observation of mine, has shone true, I feel, when I recently asked a Russian businessman, why so many Russian businesspersons tend to focus more on getting a return for their investments ASAP; rather than take a more long-term view of developing the business, as most people do in the West, over a period of many years. I.e. For the long-term.

His answer to me was quite simple. “Because we Russian’s, he said are never too sure about what might happen tomorrow.” “If, for whatever reason, there will be a change of government – suddenly. Who will end up running the country and what team will they be putting in place for that?” “Who will be who and doing exactly what, in the Kremlin?”

While it is easy for many people to criticize Mr. Putin, for not investing enough of the money, earned from oil, in infrastructure…he did make sure that enough money was set aside for a rainy day: for when the price of a barrel of crude dropped and, moreover, Russia’s outstanding debts – running into billions of dollars, were all paid up. And, let us not forget. He has dragged that country back up off its knees and the pit of despair and misery for the Russian people.

Additionally, it is one thing to say that Russia, should have been weaning itself away from merely relying on being able to sell its huge gas and oil reserves for income. That’s the easy part. Actually doing it and achieving it is something quite different, in a country the size of Russia. Additionally, that is something which cannot be achieved in a mere twenty-odd years; after seventy years of communism.

Russia needs time and it needs the same level of guaranteed political stability, which Mr. Putin has brought to the country – going forward, into the future. For it is still playing catch-up to the West, in many areas, which I am sure any Russian politician and/or businessperson, would agree with my observation, concerning this issue.

However, the fact of the matter is...Russia has been leading the way in scientific research in many areas – including nano-technology and laser-optics remedies/treatment. Russia has always been a world-leader in physics and a pioneer of space travel. In fact, the US (as is the UK) is now wholly reliant on Russian know-how, at the moment, for getting their people into space – to the space station.

Additionally, since I have been there, since 1995, I have witnessed huge investments in rail transport – with a new high-speed rail link between Moscow and St. Petersburg; with more planned to other cities. Additionally, there will soon be a new, high-speed motorway – linking Moscow and St. Petersburg.

These (above reasons) then, are why I suggest that Russia is, indeed, an ideal “Black Swan Robust” society.

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  1. In your opinion, what are the US long-term goals for Russia?
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