Interpreting Complexity Ecomomics & Trade
In an increasingly fragmented world, middle powers will grow in importance
Head of our global trade advisory practice, Shannon O’Neil, assesses the opportunities for firms that engage effectively with middle powers
“The Ukraine crisis is an illustration of what the new world that is taking shape may look like.”
The coming decade in international relations will be defined by middle power economies – countries too small to rival the global hegemonic status of the US or China but big enough to exert influence in their own regions. Some, like Germany or Japan, may assert their power through economic means such as trade or investment. Others, like Iran, by exerting strategic influence over their neighbors.
Russia’s invasion of Ukraine fits this pattern, amounting to the first middle power conflict of this new age and unleashing new waves of disruption that are reverberating through economies, markets and societies.
At MAP, we see the rise in middle powers as a symptom of the shift in globalization that has been taking place over the last several years from a process of integration to one of fragmentation. And a fragmenting world is a more complex world, characterized by instability and volatility in markets, politics and society.
The Ukraine crisis is an illustration of what the new world that is taking shape may look like. It will be marked by greater instability and cycles of crisis and disruption that firms, governments and individuals must learn to navigate. Additionally, we believe the World Bank, the IMF and other international organizations should fundamentally reassess how they view the global economy, formulating a ‘middle powers strategy’ for allocating resources and investments.
This type of reassessment has happened before. First, in 1981, the World Bank’s International Finance Corporation coined the term ‘emerging markets’ to describe investment opportunities in developing economies then referred to as the ‘third world’. Two decades later, Goldman Sachs conceived the BRICS grouping, comprising Brazil, Russia, India, China and South Africa, predicting these large and populous economies would account for a greater proportion of global growth.
Both analyses heralded fundamental reconsideration of corporate strategies and asset allocation by investors. Now, activity by the middle powers should prompt similar reassessments by company boards and investment committees alike.