W1siziisimnvbxbpbgvkx3rozw1lx2fzc2v0cy9xywrlie1hy0rvbmfszc9qcgcvymfubmvyx2rlzmf1bhrfmy5qcgcixv0

News

W1siziisijiwmtgvmdmvmtyvmdkvntivmtqvmjiyl1vuzgvyc3rhbmrpbmcgdghliejsywnrifn3yw4grwzmzwn0ichqyxj0ideplmpwzyjdlfsiccisinrodw1iiiwiodawedy1mfx1mdazyyjdxq

finance, Accountancy & Finance

Understanding the Black Swan Effect (Part 1)

One of the things I do every day, is read the newspaper…in  one form or another. I may not always have the time to read the original paper version and those days, the online version of BBC and CNN will do me just fine.

Recently, there seem to have been a fair few events that have taken the world by surprise. There are many things that these events are called, but until a while ago, I didn’t know that there was a whole book written about this phenomena called the Black Swan Effect. Queue a lot of reading and research…

If you ask me, Nassim Nicholas Taleb perhaps best described the black swan effect in the title of his book - The Black Swan (The Impact of the Highly Improbable). But while black swan events are by their very nature rare and unexpected, they’re happening at record-pace right now, all over the world. As for what exactly constitutes a black swan event, a scenario must satisfy the three following criteria:

  1. The event comes as a surprise
  2. The event has wide-reaching implications
  3. The event appears in hindsight to have been predictable

Looking back historically, there are plenty of obvious examples that qualify as textbook black swan events. The Second World War, 9/11, the collapse of the Soviet Union and even the rise of the Internet. But when looking at things from a modern perspective, it’s the black swan events of both today and the future that warrant the most immediate attention and consideration.

Being aware of possible (or perhaps even inevitable) black swan events means standing the best possible chance of riding them out successfully.

So going on what we know right now, exactly what kinds of black swan events could take place in the near future, having a significant impact on the way we do business?

The Collapse of the European Union

I think the winds of change are blowing through the EU and have long commented that a vote for Brexit would likely be the first stage in the domino effect of the EU unravelling as we know it. There are a number of countries including France, Germany and the Netherlands where there is growing pressure for their own referenda on leaving the EU. Personally, I think the unravelling of the EU would be catastrophic for the global economy.

As Brexit represents an absolute first in European history, the simple truth is that neither you, I nor anybody really knows what’s going to happen. Nevertheless, one increasingly plausible prospect is that of more European nations following the UK’s example, eventually rendering the EU an unviable and redundant concept. From a business perspective, breaking away from EU restrictions to form new trade deals with global nations could represent an unprecedented opportunity for growth. But at the same time, important partnerships and agreements that have been decades in the making could be laid to waste and never repeated.

It may or may not happen, but it’s a possible scenario too significant to overlook.

Another Global Financial Crisis

Around the world, financial institutions have staved off a “Great Depression” by printing money through Quantitative Easing. This has never been tried before and the longer-term effects of this strategy are unknown. Will it lead to a bigger problem down the line? National debt has continued to increase and the developed world as we know it is effectively bankrupt – I personally anticipate a new world economy emerging in the middle future.

It was more than a decade ago that economists and analysts began predicting a shift in economic power, as the evolution of both Indian and China accelerates. The West’s economic fortunes going forward remain a subject of great uncertainly, though all signs point to significant changes going forward. The difference with this potential black swan event being that not only will it be a much more gradual shift, but is also one that most of us have predicted and watched over for some time already.

You may be wondering why someone in recruitment would write about black swan effect, however, these are the type of events that shape our world and by one way or another have an impact in our lives. The two mentioned in this post are man-made…there are obviously also the ones that we simply don't have any control over!

Stay tuned for part 2, coming soon…