Should we brace for storm while navigating through 2018?

Velina Tchakarova
Feb 17, 2018 · 24 min read

It has been almost two months now since we entered the turbulences of the New Year, and we already feel quite overwhelmed by the complex of concurrent alarming issues in the global affairs. In this regard, we should not be under any illusion that we possess the necessary means that can help us grasp the vast changes currently shaping the life of people, nations, or even big multinational organisations. The main message from the global elites’ gathering in the Davos ivory tower in January had a similar tone. They identified four areas of global significance — environmental degradation, cybersecurity breaches, economic strains and geopolitical tensions — as “the urgency of facing up to systemic challenges has intensified over the past year amid proliferating signs of uncertainty, instability and fragility”. Generally, they concluded that the systemic challenges are “fractures and failures affecting the environmental, economic, technological and institutional systems on which our future rests.” Moreover, there is, according to the Davos elites, a high possibility that the current generation’s problem solving might take the world to the brink of a system breakdown.

In short, complexity has clearly become too overwhelming, but our approaches to deal with it — too reductionist. Should we brace for storm while navigating through 2018, if the pace of change is continuously accelerating and the risks’ interconnections continue deepening?


Theoretical background and Global System concept

Before moving to the concrete analysis, I would like to emphasize that the conceptualization of the Global System stems from the systems thinking and the pioneer work of the Austrian biologist Ludwig von Bertalanffy, further expanded by the works of systems theorists from the last few decades (See Global System Transformation: What to Expect from System Transition?). Against this background, the Global System concept encompasses the main socio-economic subsystems and their complex interplay similar to the interconnection of the natural systems explained by the Earth system science (e.g. balance of eco systems). This Global system concept identifies five socio-economic systems that are undergoing major transformational changes at present — the global finance and monetary policy, economy, trade, and energy. In this regard, I assess those global processes and structures in emergence that show indices and signals for a system shift and thus produce systemic risks that might spread as a contagion along the global networks (e.g. the financial crisis 2007).

As the Earth system science made progress in identifying nine planetary boundaries, that might provide the tipping point of natural systems facing collapse, I came to the realization that the current socio-economy systems so far lack the designation of similar planetary limits. There is, however, a need to identify the “planetary boundaries” of the main socio-economic systems in order to address those systemic risks to the global economy, finance and monetary policy, trade, and energy, which might lead to dysfunctionality or even produce tipping points leading to the collapse of the Global System.

One might ask whether such systemic risks are not too abstract or insubstantial for the daily business of global affairs. The very fact that global elites gather annually in Davos to address the most urgent issues regarding these very same socio-economic systems that constitute the Global System is sending a clear signal. Furthermore, the titles of each annual Davos meeting become more and more alarming, with the last one named: “A shared future in a fractured world”, implying that the shattered fundamentals of the global affairs make it almost impossible to share a common future, as the “geostrategic fractures have re-emerged on multiple fronts with wide-ranging political, economic and social consequences.” Even more so, “there are multiple concepts about how that world system should be now, it’s not just contending actors in one system but contending actors and contending systems.” Obviously, global elites are worried not only about the lack of collective actions and approaches to solving the global problems, but also about the lack of vision for the humanity as such.

What follows is a holistic assessment considering those systemic dysfunctionalities that might unleash greater turbulences in 2018 and create even more imbalance within the current Global System in transformation. It is noteworthy that I only deliver a systemic perspective (a helicopter’s view) on current system processes and structures, which, however, does not consider social developments and processes within states and societies at micro level of analysis.


Systemic Risks

Before elaborating on the main socio-economic systems and the most urgent systemic risks they are currently producing, I would like to stress the three most urgent issues in 2018 that I consider to be of utmost importance for the global affairs from the perspective of the Global System concept (ranked according to their importance):

* a probable to highly probable system crisis in the global financial and monetary system

* growing system bipolarity between the U.S. and the Dragonbear (China and Russia)

* the further nuclearization of North Korea, which might result in a probable to highly probable military option by the U.S. (pre-emptive strike against North Korea).

This prognosis stems from the analysis on the system processes and structures in the above mentioned socio-economic systems, considering also multiple regional dynamics and constellations around the world. Based on the Global System approach, I will outline the signals of change and systemic risks regarding the main socio-economic systems.

Finance and Monetary policy

The ground for a probable to highly probable system crash in the global financial and monetary system rises once again after the first comprehensive financial contagion of the global finance and monetary systems in 2007, whose causes were identified post factum leading to the emergence of systemic risks for the very first time. This time, however, a system crisis might surpass any expectations in terms of possible impact or unexpected consequences because the next bubble could appear everywhere, even more so hiding behind the stock and bond market (stock market crash), but mostly emerging from the unprecedented monetary stimulation of the Central Banks in the advanced economies (Central Banks bubble). Some experts have indeed started pointing to the likelihood of a new, much bigger financial crisis in 2018. What are the concrete systemic signals that must be paid attention to in 2018?

As stressed, the most urgent issue is linked to an increasing volatility within and outside of the financial/monetary system that is connected with the stock market, the balance sheet of the Central Banks as well as their further QE program respectively interest rate hikes policy. The stock market and S&P gains in 2017 would most likely not be repeated in 2018 due to geopolitical and macroeconomic pressures adding to the volatility. A first big low occurred at the end of January with the Dow Jones falling by 666 points amid inflation fears. Two additional corrections by more than 1000 points took place afterwards, while the former even “shed as much as 1,597 points at its low, and closed out the session 1,175 points, or 4.6%, down at 24,345”. Such fluctuations are likely to take place more regularly than in the previous year creating an enhanced uncertainty and fuelling panic among investors, business and decision makers.

The Central Banks policy based on QE programs and bonds purchases constitute another systemic problem as they continue sticking to measures that have not been tested yet throughout their history. The giant construction called Central Banks monetary stimulation has been built based on a trust in a decision, whose implications have not been proven efficient in modern history. Now that the global economy started showing signs of recovery for the very first time since the financial crisis in 2007, there is a recipe what to do (gradual end of the QE), but no one can tell about the real impact once the monetary experiment of quantitative easing is completed. If it failed, who would bail out the Central Banks? James Rickards has an answer and it points to a system lock down. FED interest rate hikes (at least three in 2018 according to the current scenarios) and the inflation target remain among the greatest unknowns. By keeping the interest rates low, a chain of processes is being unleashed with unpredictable effects.

Some system patterns have started emerging regarding the role of the Central banks, the decline of the US Dollar and the search for monetary alternatives such as cryptocurrencies or Gold as an insurance against fiat money. For instance, it is to be expected that Gold price will be up in 2018 due to more volatility, geopolitical risks and the increasing fear of a financial crash. Countries will continue repatriating or stockpiling Gold this year. The Dragonbear — a term I coined in 2015 to outline the newly emerging systemic bond between Russia and China as a response to the global dominance by the U.S. — has been deliberately increasing the amount of Gold reserves in their national financial systems, and 2018 will not be different than the previous years. Some European countries started repatriating their Gold reserves from abroad.

In the past year we have witnessed an unprecedent rise of cryptocurrencies, most spectacularly Bitcoin surged up to $20,000 in December. However, the cryptocurrencies’ rise led to a polarisation among investors, business and analysists trying to make sense of the crypto long-term impact on the system. On the one side, there is still a lot of enthusiasm and optimism regarding their future with prognoses pointing to Bitcoin reaching even $100,000 at some point. On the other side, common sense tells a different story. For instance, only 4% of bitcoin owners possess most of the bitcoin (80% of which has been already mined). Six of the largest asset managers also ruled out Bitcoin in their prognosis for 2018. Saxo Bank, known for its rather daring forecasts, even claimed that Bitcoin would peak above $60,000 in 2018 before crashing to its fundamental “production cost” of $1,000 the following year. Apart from all pros and contras regarding the cryptocurrencies and their role for the transformation of the monetary system, I would like to outline one important systemic signal and it is again linked to the Dragonbear. It is very likely that Russia and China will co-engineer the bitcoin crash, introducing states regulation, ban or other forms of countermeasures in 2018, which will be followed by other counties (e.g. India, South Korea etc.) too.

There are also systemic patterns within the currencies’ roller-coaster shaped by the decline of the US Dollar as well as the currency controversy between the U.S. and China, which is expected to deepen in 2018 with the USD further witnessing downfall and China adjusting its financial and monetary policy to slower growth. For instance, China already announced that it may halt the purchases of US treasuries. As a response, however, the U.S. could halt Chinese imports, which would drive its economy down. Further signals in this direction could be linked to China downgrading the US credit rating from A- to BBB+ as a reaction to Trump’s tax package, which allegedly is set to add $1.4 trillion over a decade to the $20 trillion national debt burden. Furthermore, the Chinese ratings company pointed to the virtual solvency of the US federal government as the possible trigger of the next financial crisis.

With the Dow and the S&P 500’s rally reaching record highs and lows, while the stock market is facing high volatility and fluctuations, one should be very cautious regarding the common attitude towards the wide-spread optimism. There are, indeed, systemic patterns generating big unknowns that might arise from a sudden possible stock market correction that lasts longer than expected and causes unintended consequences (e.g. contagion of panic selloffs), the unexpected FED default on the US national debt as already alleged by the U.S. Treasury, the continuous drop of the US Dollar, the contagion of credit defaults that could endanger the Chinese financial and monetary system with respectively global consequences as well as coordinated attempts of anti-system players (the Dragonbear) to reverse the status quo, which is still centered around the dominance of the US Dollar as the global reserve currency. It looks like 2018 might provide some shock effects.


Economy

Global economy finally experienced a recovery after the financial crisis in 2007 but the outlook is not that optimistic for the future. According to the Bank for International Settlements (BIS), the real situation with the global economy is similar to the pre-2008 crash era when investors, seeking high returns, borrowed heavily to invest in risky assets, despite moves by Central banks to tighten access to credit. Many years ago, Goldman Sachs encouraged its employees to be “long-term greedy.” It was and, in fact, still is the motto of Wall Street, Big Banks, Big Oil and other system players, whose rationale is aimed at maximizing profits and the unlimited growth. This was the way of thinking and operating that actually produced a dysfunctional Global System facing wealth centralization, chronic inequality, a global debt that is triple as much as the global GDP and increasing financialization of the economy. These are now the main systemic risks that are affecting the global economy by creating dysfunctional patterns of system behavior.

Global inequality reports have been outlining the marginalization of the middle class and the growing gap between the very wealthy (0,1%; 0,01% and 0,001%) and the rest of the population in the advanced economies. The weakening of the middle and the working class is already having implications on the social construct, particularly on the ability of social groups to neutralize the polarization and the re-emergence of extremes on the far-left and far-right of the political spectrum. As a result, the polarization reflects the reshuffle of political elites and parties, which again hinders the newly emerged governments to re-balance social dis-balances. Particularly interesting is the report by Ray Dalio on the two economies (The Top 40% and the Bottom 60%) and the growing inequality in the American society outlining these systemic patterns that are commonly characteristic of the advanced economies and essentially explaining one of the systemic causes for Trump’s election. Global elites are indeed starting to realize that inequality might become one of the major threats to liberal democracies in the developed world. Emerging economies, on the other hand, will be witnessing further strengthening of politically active groups, mostly due to the emergence of a strong middle class in their societies, as a result of a better access to technologies (Internet, smartphones etc.) as well as socio-economic and political transformations (e.g. Iran revolts since the beginning of 2018).

To sum it up, one should look at inequality as a systemic risk that is additionally exacerbated by the phenomenon of wealth centralization. Both have shown a worrying trend of having systemic effects following the financial crisis. Just recently, the Oxfam annual report for 2017 delivered a devastating message at Davos claiming that the richest 1% bagged 82% of all the wealth created last year, while poorest half of world (50%) got nothing.

The next prominent systemic risk to the global economy is the growing global debt and the danger of a sudden debt crisis spreading a contagion through the whole global network. The global debt jumped to record $217 trillion or 327% of the global GDP, which also reflects the unhealthy economic growth in the Global System. It is noteworthy that the US Treasury warned it would only be able to pay all of the federal government’s bills through February, if the federal debt limit isn’t lifted. Furthermore, the US government is set to borrow nearly $1 trillion this year, an 84 percent jump from last year. The Chinese growing debt issue also constitutes a problem of unproportionate scale as it might not only cripple the economy but also spread over the Asian continent and worldwide. Currently, the total US debt amounts to more than $63 trillion and China’s debt — to $33 trillion.

To summarize, some analysts and experts already claimed that the next crisis will be much worse than the last financial crisis. James Rickards describes the cascade of interconnected effects that might lead to the next monetary system crash, pointing to the ‘scale of the system’. He identifies the total debt, the gross national value of derivatives, the US Dollar decline, the FED QE program, and the concentration of assets in the five largest banks as some of the possible triggers for the crash. Furthermore, Jim Rogers claimed that the next bear market would be the worst in his life because of more debt in system. Peter Schiff pointed out that the next financial crisis could start as a dollar crisis and a sovereign debt crisis, whereas the US government would face either a default on the national debt or the dollar crash. In fact, a global debt of $217 trillion was needed to raise the global economic growth to 2.9 percent in 2017.

Global Economy is obviously on an unsustainable course if these systemic risks continue being ignored. Moreover, there is a strong need for a paradigm shift. As a recent article outlines, the “over-consumption burdens societies with a variety of social and environmental problems”, which leads to the rethinking of the whole paradigm of the so called exponential growth, moving towards ‘degrowth’, ‘limited growth’, ‘circular economy’, and other sustainable concepts.


Global Trade: De-globalisation trends meet regional globalisation efforts

The current situation regarding the global trade system is linked to the globalization vs de-globalization trends. Currently, the U.S. has a trade deficit with both China and the EU, while the EU has a deficit only with China but not with the U.S. Moreover, the EU as a collective actor of still 28 member states and China are also two of the biggest traders in the world. Besides, China is now the EU’s second-biggest trading partner behind the U.S. and the EU is China’s biggest trading partner. It is expected that Trump will not only get involved into a trade controversary rhetoric with China (trade wars would emerge next to currency wars), but might engage into a trade competition with the EU too.

Moreover, regional dynamics will be further evolving along with the various trade negotiating platforms such as NAFTA in North America, TPP countries in Asia, which have signed an agreement without the U.S. in 2017, as well as China-led regional initiatives within the framework of the Belt and Road Initiative (BRI) and the Regional Comprehensive Economic Partnership (RCEP). In this regard, the strong trend of isolationism and protectionism launched by the U.S. will be facing an equally strong, centrifugal trend of regionalization through the consolidation of regional trade communities or even the expansion of ambitious global trade and infrastructure projects such as the BRI. Logically, the emerging Global System polarization between the U.S. and China will affect the global trade as well as regional constellations. The EU, Japan and the U.S. are set to announce a new alliance to take on China more aggressively over trade issues. The GeoQant delivers a good summary on the systemic risks to global trade linked to more isolationism and protectionism (2017: 8):

“To be sure, greater protectionism in the U.S. and the U.K. countries means a lot to global trade: America’s defection from the Trans-Pacific Partnership (TPP) and demand to renegotiate NAFTA undermines the potential for improved trade and investment environments in a host of countries, most conspicuously Canada and Mexico, while EU trade will be harmed frictions surrounding UK departure from the common market. These losses, however, look to be offset by gains in cross-border trade within (and potentially between) both Asia and South America.”

The global trade system will remain in the cycle of De-Globalisation 2.0. for a while, facing the centrifugal forces of newly emerging regional trade blocs and zones of protectionism. That might produce newly emerging systemic risks in the form of trade wars and isolationism leading to decoupling from the global flows of goods and services or even deliberately arranged, alternative trade systems.


Energy: The third energy transition

Leading international institutions and organisations are now pointing to the unique process of the third energy transition in human history. The further extensive usage of fossil fuels is no longer a sustainable paradigm for the 21st century as it already constitutes a significant systemic risk to the whole Global System due to the negative effects on humans and the environment. The environmental, climate and societal implications have not only been covered by sufficient scientific papers, whose findings had been suppressed over decades but are now being re-confirmed by the G-7 decision on global carbonization.

In this regard, 2018 will be a year with some old patterns of behaviour but also breakthroughs regarding the energy transition. The shift considering the Big Oil is linked to the emergence of a new leading exporter — the U.S., which will be taking place simultaneously with the reshuffle in global oil demand on the side of emerging economies such as China and India. This means that the U.S. will be competing along with Saudi Arabia and Russia, while expanding its supply portfolio. Generally, the Crude Oil has surged by almost 50% in the last 6 months, putting prices at a 3-year high. Some analysts even predicted that the oil would rise as high as $80 a barrel, citing geopolitical risks in Middle East and a fall in the OPEC output. However, the long-term trend of decarbonization is against the re-emergence of Oil. Signals such as the Rockefellers’ decision to withdraw from Exxon are significant for the direction of this trend. Big Oil decline will remain the most systemic risk to the global energy system if it happens too fast or misses the window of opportunity to adjust to a post-Oil era. Still, the Big banks have financed 158 companies with $290 billion for their extreme fossil fuel activities in the last 2 years.

Furthermore, American Oil will play a decisive role in shaping the global energy system. The US exports of crude Oil and petroleum products have more than doubled since 2010.

Some of the key features of the upcoming problematic are summarized in an article, whose finding are outlined as following:

  • “The security of America’s oil supply and stability in global oil trade remain critical components of U.S. national security.”
  • “While the potential exists for rapid shifts in energy systems at the regional level, energy transitions tend to occur slowly on a global scale. Geopolitical forces, by contrast, are far more volatile. However, trends in oil geopolitics point in the opposite direction”.
  • “The Trump administration’s transactional approach to international relations has intensified the uncertainty of an already volatile period among oil exporting states.”

Since the onset of the Arab Spring uprisings in 2010, instability has been exacerbated by fiscal stresses of low oil prices, the rise in tension between Sunni and Shia Muslim-dominated regions and the attendant proxy wars in Syria, Iraq, Yemen and Libya, crumbling stability in Venezuela and a breakdown in relations among Gulf oil sheikdoms. Most recently, the Trump administration has aggravated regional geopolitical tensions by taking sides in the intra-Gulf dispute. It has also created broad rifts with long-standing allies over its announced intention to withdraw from the 2015 Paris climate agreement,” according to the same article.

Certainly, the third energy transition will be shaped by various other significant factors such as the global energy demand, particularly due to China’s and India’s demand, the new realities in the global gas and renewable markets as well as the potential risks to the global energy system. The most significant ones are linked to environmental degradation, climate change and negative effects on the eco systems. In this regard, the effects are encompassing the natural systems and can already be tracked back empirically (See the nine planetary boundaries, studies on burning of fossil fuels, Big Oil suppression of scientific studies). Moreover, unsustainable solutions regarding the global energy next to the implications from the environmental degradation might lead to abrupt or sudden shortfalls. For instance, the 9 billion euro in climate-smart investments is good news for the energy transition but the $290 billion of direct and indirect financing by international banks for extreme fossil fuels over the last three years — not so much. Also, cryptocurrencies such as Bitcoin are slowing the effort to achieve a rapid transition away from fossil fuels. By 2019, the network is projected to require more electricity than the entire U.S. currently uses, whereas by 2020, it will use as much electricity as the entire world does today.

To summarize, one can’t replace Big Oil through more Gas or more nuclear energy supplies, if they are still damaging the ecosystems and affecting the natural environment of the Global System. Certainly, new technologies (clean and environmentally friendly ones) will be the major driving force behind the global energy transition but old habits enforced or strengthened through geopolitical and geoeconomic calculations will further lead to systemic disruptions. Indeed, there are already positive trends in this direction with national governments deciding to shut down coal-fired power plants by 2030 (Denmark) or banning all new Oil and Gas exploration (France), to name just a few.


What to expect regarding regional dynamics amid emerging Global system bipolarity?

The Global system bipolarity will likely be shaping regional dynamics considering the formation of old and new alliances and partnerships. China’s global rise will be accelerating this year. Many experts and analysts have not seen China-Russia growing security cooperation or enhanced coordination in international issues as a form of geopolitical signalling. Moreover, most of them predicted a low possibility of a strategic or military alliance between China and Russia due to the increasingly asymmetrical power balance between them over the last years. However, they ignored the systemic bond of the Dragonbear through the coordination and consolidation of mutual efforts in the field of trade and economy (merging of initiatives by the Eurasian Economic Union and the Belt and Road Initiative in Central Asia), finance and monetary policy (China-Russia RMB Investment Fund, Gold and national currencies projects, swipes and initiatives) or energy (long-term Oil and Gas projects, greater energy interdependence).

Russia will be facing challenging times to reposition itself as Moscow can neither become the Western ally in the classical terms nor be Beijing strategic partner on an equal base. However, the systemic controversy between the U.S. and China puts Russia into a free rider position. So far, Moscow has been strengthening the Dragonbear systemic bond of unprecedented coordination, networking and cooperation in all military and non-military fields.

Russia’s geostrategy will be further evolving along a vertical axis of geopolitical interests, stretching from the Arctic and the Baltic Sea, to the common European neighborhood (near abroad), to South Caucasus, Black and Caspian Sea, to the Middle East, the Mediterranean Sea, and eventually to North Africa. The intersection of the vertical expansion of Russian interests from the Arctic, the Baltic, to the Black and a Mediterranean Sea, to Middle East and of horizontal expansion of the Chinese interests from Asia to Europe through the BRI strengthens the systemic bond of the Dragonbear. In this regard, the U.S. Administration will be facing coordinated positions and actions by the Dragonbear on multiple occasions, among which:

  • North Korea
  • Eurasia (Central Asia)
  • Iran
  • Afghanistan
  • Venezuela
  • International and regional institutions

Out of the many significant geopolitical developments, I expect with high probability, which is not to say that I endorse such policy outcome, that the U.S. might launch a pre-emptive strike against North Korea’s nuclear program in 2018, if diplomatic negotiations fail or the international community remains separated (the West vs the Dragonbear) in its efforts to resolve the issue. So far, there is a certain optimism that the Olympics diplomacy between North and South Korea might work and lead to a breakthrough in this sensitive issue. It is likely that the U.S. will launch a limited tactical strike as a response to any further North Korea’s progress toward a long-range nuclear weapons program. North Korea will be the hottest spot at the Global system level and will require by far the greatest interest and attention as all three key geopolitical actors are involved in this key issue — the U.S., China, and Russia. Against the background of their divergent geostrategies, it seems that the U.S. will likely chose the scenario of unilateral actions against North Korea, as the coordination of positions by the Dragonbear might become too dominant or even threaten the American interests in the region. For the U.S. administration, the nuclearization of North Korea is the clear red line and any further nuclear missile tests would make it more assertive. As the likelihood of a US military strike will be much higher in 2018, one should also expect a coordination behind closed doors between USA and China on North Korea (e.g. partition of North Korea with a Chinese zone of influence in case of an emergent military strike).

Further regional dynamics and developments that need consideration from the Global System perspective:

  • Regional dynamics in the Middle East will get hotter not only in terms of climate change but also in terms of geopolitics with newly arising regional constellations regarding the Saudi Arabia-Iran controversy, the Syrian war, and the Qatar crisis, just to name a few.
  • The Syrian quagmire and the Iran-Saudi-Arabian controversy will continue affecting the Middle East with comprehensive implications beyond the region. The Syrian partition will face a new phase of intensification with both Russia and Turkey becoming more active despite the negotiated de-escalation zones. The Dragonbear will step in, take on Syria’s reconstruction and will intensify cooperation with Iran in the Middle East in 2018.
  • Eurasia will witness an intensification of the defense cooperation and military exercises by the Dragonbear, an institutional cooperation (SCO, Eurasian Economic Union, AIIB, BRI), the launch of new military bases in 2018–2020 is likely, and the expansion of SCO activities in Central Asia will include countries such as Iran and Turkey.
  • China will be pushing for a Polar Silk Road within its BRI framework, indicating a strong geoeconomic interest in coordinating and cooperating with Russia in the Arctic.
  • US-Israel-Saudi Arabia and US-Israel-India will be further emerging and forming as US-led regional platforms in the Middle East and South Asia as opposed to the China-Russia-Iran and China-Pakistan-Afghanistan regional dynamics promoted by the Dragonbear.
  • In the Info-Pacific region, US-led QUAD security cooperation between Japan, Australia and India will be deepened as opposed to China’s rise and its regional efforts to approach the neighbors (BRI, AIIB).
  • Europe will face intensive developments considering the consolidation of the EU and the further cooperation modus operandi between its EU members of different speeds, regions or circles of influence. Brexit will further shape the strategic level of the EU decision making and affect the balance between the big European countries, resulting in UK-France and France-Germany constellations in key areas. There will be polarization along the pro-US and pro-Russian politics within the EU as well as along the dividing lines between Old and New Europe in terms of migration, competences of the EU at institutional level, border security etc.

Conclusion

Against the background of emerging systemic risks to the main socio-economic systems and the regional dynamics arising from their interplay, it needs to be stressed once again the significance of the three key issues that might endanger the balance of the Global System due to the possibility of unintended consequences or a system dysfunctionality.

What does all of it mean for the daily geopolitics and geoeconomics? The polarization of the Global System based on a possible system bipolarity between the U.S. and China, followed by intensifying dynamics at regional level in the form of multiple and various actors’ constellations is most likely to further evolve in 2018. It also means that the polarization at system, regional, and national level will increase through the interplay of centrifugal forces. This will create more speed and uncertainty than ever often challenging the actors with either-or decisions. Old competitors are becoming partners again (US-India, China-Russia, Russia-Turkey) and stable alliances begin to crumble (e.g. US-NATO, US-European allies, US-Pakistan, BRICS). The decisive moment will be, however, the systemic constellation between the US, China, and Russia, and how it will evolve and impact whole regions. My prognoses from the last few years have been correctly pointing to the Dragonbear as the main systemic challenge for the U.S. When Trump became the new president a year ago, it seemed like the U.S. would be ready to take concrete measures to break the Dragonbear by entering a partnership with the weaker part of it — Russia. Now that this scenario has been dismissed, Washington would have to face China’s rise and the Dragonbear’s consolidation simultaneously. In this regard, India will become the key free rider in Asia, which will affect the geopolitical balance by entering alliances with either US (most likely), Russia (still good partnership), or China (least likely).

In summary, the analysis pointed to the ‘systemic’ nature of the growing number of interconnected risks in the main socio-economic systems that are still being addressed separately and mostly at the top-down level of Davos-alike elites instead through a holistic approach. Thus, it highlights the necessity of holistic understanding of the interconnectedness of the main components of the Global System as the next financial crash or economic crisis would spread the contagion throughout the rest of the systems resulting in a major collapse or perishing conditions in the long term. It is not that we were not witnessing much intensity in the global affairs in the previous years. Rather than that, the sum of all systemic changes and shifts will be increasingly the cause for unintended consequences from interconnected systemic risks in 2018 and the years ahead. Apparently, the most destructive influence on the current Global System comes from the global finance and monetary systems. The 2008 financial crisis was only a prelude to the real system collapse or re-balancing. The Central Banks are prolonging it for now. Thus, it is advisable to brace for storm while navigating through the year 2018 as systemic risks are becoming increasingly cascading with “a rapid rate of change, complexity, uncertainty, and interconnectedness”.

In a Global System out of balance, global economy, trade, finance, monetary and energy systems might be running amok, which could backfire due to the serious environmental degradation of the planet. Given that a “bad system will beat a good person every time” (W. Edwards Deming), imagine what a good system would be able to do.


Velina is Senior Research Fellow at the Austrian Institute for European and Security Policy (AIES) in Vienna, Austria. Her work includes research, consulting and lectures on Global System Transformation and geostrategy of global actors.

This post would not have been possible without the valuable contribution and constructive criticism of Adam Karlsson, who is currently doing an internship at AIES.

    Velina Tchakarova

    Written by

    Velina is Head of Institute at the Austrian Institute for European and Security Policy (AIES) in Vienna. https://velinatchakarova.wixsite.com/globalsystem

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