7 Shocks and Finland

Transcription

7 shocks and Finland
7 SHOCKS AND FINLAND
Project Report
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International Institute for Applied Systems Analysis (IIASA)
Schlossplatz 1
A-2361 Laxenburg, Austria
Phone: (+43 2236) 807
http://www.iiasa.ac.at
February 2012
Disclaimer
This publication documents work undertaken by IIASA researchers. Note, however, that the material
presented here does not represent the official opinion or policy of the Institute, but reflects only the views of
the authors.
2
Welcome to a world of uncertainties!
This report presents the materials, analyses and conclusions produced during the Seven Shocks and
Finland project, an activity of IIASA Exploratory Projects in June -December 2011. The primary
objective of the project was to investigate the nature of the uncertainties and the resilience
requirements that emerge from the complexity of the global social, political, economic and social
systems. The shocks ( which were created at IIASA) presented in this document were the instruments
to serve that purpose, and should not be seen as fully-developed, stand-alone research cases.
Our ambition was to examine resilience requirements from a decision makers’ perspective, and to
define concrete actions and examples to improve national resilience. We wish to extend a special
thanks to the six ministries, five government agencies and public sector operators, four industrial
federations and three Finnish companies that provided both intellectual and financial support for this
study. We are also very pleased to acknowledge the virtual contributions of nearly 300 experts,
especially in providing the critical and creative input for the November 24-25 analysis session at
IIASA. This input was crucial to the success of the project..
From the methodological perspective, the project was extremely successful. We hope that the policy
principles and concrete actions and examples presented in this report are useful as raw material for
resilience planning, both at the national and the organizational level.
John L. Casti
Leena Ilmola
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1. Executive summary
2. Methodology
Shocks, definitions, and general principles
Data sources
Analysis methods and their theoretical background
Analysis process
3. Scenarios
Scenario description for each of the shocks
1. The European Monetary Union breaks down
2. Nokia’s is bought out and leaves Finland
3. Pulp and paper industry leaves Finland
4. China suffers weaker growth and introspection
5. Internet crashes
6. Floods and droughts cause severe damage in
Europe
7. The price of energy drops by 90%
4. Policy portfolio
Method description
Produced action ideas
Results of the assessment
5. Conclusions
Attachments
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1. EXECUTIVE SUMMARY
The main idea of the 7 Shocks project was to use seven different shocks as instruments for
collecting insights about resilience. The cases presented in this report are based on open
source information and interviews. They are internally coherent and fact-based, but not
studied in depth. Some of the cases deserve to be studied in a standalone research project.
The results presented below are based on the detailed analysis of the shock environment
before the shock occurred and our observations afterwards. We invited 187 participants to
come up with resilient action ideas and assess their feasibility across all seven shocks. The
material collected was processed and conclusions were drawn by 30 experts attending the
Analysis Seminar organized by IIASA in Laxenburg, Austria on 24-25 November 2011.
What do 7 shocks teach us?
Resilience is an outcome of three elements:
1. Adaptation to changing environment;
2. Agility in using new opportunities; and
3. Active renewal; the capacity of systems to learn and reconfigure themselves.
Adaptation
When uncertainties are increasing and the cost of surprise is accumulating, it seems wise to
invest in resilience. Sectors relying on a few large companies or a worldwide value chain are
vulnerable. A more resilient structure is an ecosystem of small and medium-sized companies
that are agile and quick to change their offerings according to the needs of consumers. Even
if some of these companies fail, the ecosystem as a whole is sustainable. Glocalized networks
operate locally, but also interact with other local networks as well as globally. The resilient
economy is based on a portfolio of diverse sectors that react to shocks in different ways.
When one of the subsectors loses its foothold because of the shock, another benefits from
the change. Networks are adaptive structures if the members of the network are ready to
change their role and function when required. The nature of the global system is increasingly
volatile, which means that all members of the network – both public and private sector –
should be able to change their roles according to the requirements of the global
environment. The adaptation should be immediate (for example, users create the product
themselves) or the role shift is built in to the controlling system (regulation).
 Ensure small networked production. The bigger the systems, the more far-reaching the
consequences of failure. Cell-like production of goods and services is also dependent on
global networks, but its resilience is better. The first player to restore services gains an
advantage over slower competitors. (Actions Portfolio)
 Create Finnish Mittelstand to replace Nokia. Build an adequate network to serve slightly
smaller companies operating globally so that they can enhance their activities if Nokia
ever left Finland. (Actions Portfolio)
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 We have to communicate uncertainties so that the public has is strongly motivated to
prepare for shocks; we could produce “a surprise kit” that is for sale in the leading
(supermarket) chains.
Agility
Adaptation keeps us alive, but it does not automatically imply growth. The life cycles of
products, services, and ideas are getting shorter. To grow we have to be agile enough to use
the opportunities that a fast changing environment provides. Agile nations are fast to release
some of their resources (people and money) and use the temporary opportunities their
environment provides.
Agile structures have either slack (extra resources) in the organization so that they can react
immediately, or they are based on distributed networks and/or co-creation. Users simply
innovate/produce the new service when it is needed. Fast innovations are combinations of
old and new technologies, existing products with innovative service layers and unique
offerings that use both public and private resources. Low predictability favors diverse,
relatively low investment experiments. If the portfolio of experiments is diverse enough,
some of its elements will be useful in whatever happens in the environment.
 Invest in new rapidly exploitable knowledge combinations. Combine old and new and cut
back on developing longer-term development. New innovations lie in the cross-section of
traditional clusters. Rethink the traditional economic clusters (apartment buildings in
shipyards). (Actions Portfolio )
 Specialize in fast piloting. When market conditions change, new pilot projects take off.
They start in those companies and countries that are most advanced in their
development work at that point. (Actions Portfolio)
 Experiment with public policies in different pilots; early failures should be recognized if
possible
 Support entrepreneurship by applying sweat equity principle (experts or founding
partners work is compensated for by shares of a company) and a “failure insurance” that
covers some of the losses of an entrepreneur.
Active renewal
In the aftermath of a shock, a system uses the shock as a trigger for renewal and it tries to
learn and improve its performance. The focus of a resilient system is on fast learning and
improvement of resilience in preparation for the next shocks.
Resilient systems are able to self-organize. When the shock has disrupted the system
(imported energy into the system), the system will in the best case reconfigure itself with
minimal centralized control. The system has to accept creative destruction and immediately
legitimize the procedures it has developed for future use. This requires fast reactions from
the policymaking and regulatory system.
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Renewal is based on learning. Learning systems have a high number of feedback loops. At the
country level this means that vertical dialogue between authorities and the public as well as
horizontal communications in social networks and communities should be enhanced. The
third dimension, a constant interaction with the environment provides us with an
opportunity for early failure, so that resources can be reallocated early to the next
experiments.
 Invest in maintaining trust in the society. Even Internet failure does not cause as many
problems in Finland as it does elsewhere. We can mutually agree that suppliers dispatch
goods to stores, trusting that they will eventually be paid. Likewise, stores will advance
store credit to consumers.
 Immediate collection of best practices after the shock. Use games or “Pirkka-niksit” for
collecting ideas from public.
 Social resilience requires the society to have a strong sense of fairness. Increasing
segregation of our society should be resisted. (Analysis Seminar, Group A5)
 Strengthen the social capital of those who are in danger of losing it. Strengthen the social
capital of individuals at all levels by widening the scope of opportunities. Good
instruments are taxation, education, and encouragement of self-organized citizen
initiatives.
 Economic resilience by everyone working because trust increases social resilience.
Substantial additional investment is needed in the learning-by-doing model) in the work
place. Employees invest in the company during bad times by working for free.
Resilience Portfolio
The portfolio generated in the 7 Shocks and Finland project presents a list of actions that are
useful in an uncertain environment, with some of the actions even being rather
controversial. The resilience portfolio is only an input to strategic planning, and the final
choice of resilience strategies are made in the course of that process.
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Core actions are those that are useful across all of the 7 shocks. Contingent actions are seen
to be useful in only one to three of the shock situations. Current actions are those that are
included in current action plans. In the top lef-hand corner we see a list of new actions that
should be initiated. In principle, the rule is that if resource constraints are severe and
resilience requirements are increasing, we should shift resources from contingent actions to
core actions.
Usefulness of top 14 resilient actions.
The study, the first of its kind, scanned for resilience requirements at the national level. The
choice was made because increasing systems dependencies make it is essential to look first
at both the economic and social systems level in the global context. The obvious next step is
to dig deeper and run the same process at a sector/organization level.
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2. METHODOLOGY
Extreme events are the game changers of modern life. They give rise to surprises that
can turn our lives upside down, creating huge loss of life and financial damage that
can dramatically alter our economic, social, financial, and political life.
To calculate the probability of a "normal event" taking place, we usually have large
databases of past occurrences; extreme events, or “X-events,” however, are too rare
for standard tools to be used for prediction. We have to employ other methods to
evaluate the likelihood not only of the X-event itself, but of the damage it may do
if/when it happens.
The concept of a “shock” is a key element in our work. We see shocks as being
disturbances that strike a system from causes residing outside the system itself. In
this sense, shocks for us are not systemic but come from the system’s operating
environment. Typical examples would be something like the collapse of a major
industrial sector, the long-term failure of a communication system like the Internet,
or a dramatic shift in weather patterns. These are the types of events that we’re
talking about when we speak of “seven shocks” for Finland.
The concept “shock” has been used mostly1 in connection with disaster or sudden
crisis, but it is important to note that in this study we refer to shock as an external
disruption. This disruption may be either positive or negative from the systems
perspective; the consequences of the disruption can also be either negative or
positive (or both).
The recentGovernment Resolution (16.12.2010) on The Security Strategy for Society
has excellent scope; in addition to national sovereignty and territorial integrity its
scope also includes basic values. The Strategy describes a comprehensive set of
threat scenarios and well defined principles for crisis management, but it still focuses
only on risks under special circumstances. This research project is complementary to
the Security Strategy for Society approach to the extent that it is looking not only at
resilience requirements provoked by increasing risks, but also at the overall
uncertainty of global system.
1
OECD Future Global Shocks – Improving Risk Governance 2010
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Shocks require resilience
The literature2 contains some very ambiguous definitions of resilience, most of them
based either in ecology or psychology. The definition that we use as a starting point
for defining the resilience concept used in this study is formulated by Boin et all (op.
cit p. 9):
Resilience is the capacity of a social system (e.g. an organization, city, or society) to
proactively adapt to and recover from disturbances that are perceived within the
system to fall outside the range of normal and expected disturbances.
Even from this definition one of the main elements is missing; the opportunity that
the disruption generates by changing the operating conditions. In the Game Changers
project (please find more information on www.exevents.fi) we defined resilience as a
concept consisting of two elements
1) Adaptability – the capability to absorb an extreme event or shock; and
2) Agility – the capacity to benefit from the new situation the shock
generates
As analysis of the 7 Shocks has provided us with greater understanding, we must add
something to the definition. When we perceive society (or an economy) as a social
system, an external shock will usually destabilize the system; but even if the system
absorbs the shock it cannot reverse time and is thus unable to return exactly to the
same state as before.3 In the best case scenario, the shock triggers a reorganization
process that will not only improve its resistance or resilience to further shocks, but
lead to renewal or/and innovation. In short, the social system learns from the
experience.
Thus we will add one more element to our resilience definition:
3) Assimilation – the capability for using shock as a trigger for
renewal/improvement
2
Mark de Bruijne, Arjen Boin and Michel van Eeten, (2010) Resilience: Exploring the Concept and Its Meanings.
In Designing Resilience, eds Lousie K Comfort, Arjen Boin and Chris C. Demchak, University of Pittsburgh Press
2010
3
Carl Folke (2006) Resilience: The emergence of a perspective for social–ecological systems analyses in Global
Environmental Change 16 (2006) 253–267
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Objectives
The objectives for the Seven Shocks and Finland initiative were described in May 2010:
The project will collect understanding on long-term national resilience requirements
that have emerged from increasing uncertainties in the global physical and social
environments. …The project will investigate the implications of 7 different shocks for
Finnish society, and create a portfolio of actions that may be undertaken to increase
the resilience of the country to absorb these shocks.
At that time, these goals were formulated in two research questions :
What kinds of generic resilience requirements do the growing uncertainty of the
global environment generate for a small, open national economy and society?
What kinds of concrete actions are needed to create resilient structures?
Methodological challenges
These research questions are challenging because we have not been able to define a
theoretical framework that provides the concepts or methodologies needed. Risk
management or disaster theories are mostly focused on corrective actions and mitigation of
consequences. Even social systems approaches dealing with resilience do not have much to
offer. 4
Another feature of this research program is that in order to distinguish the generic features
of the type of resilience required in the current uncertain environment, we chose to analyze
7 very different shocks of which we have no experience. This type of research requires a
multidisciplinary approach.
In this case the most helpful frameworks come from complex adaptive system theory. These
frameworks provide us with understanding of the interaction between global systems and
national economic or societal systems. Complex adaptive system theory is also able to
describe dynamics that take place when a system is disrupted by a shock and how the
renewal process actually takes place.
We have approached the research question by using two different systems modeling
techniques describing first the systems description, then the trajectory of consequences that
potentially take place.
As we have no data on something that has not happened before, our approach was primarily
qualitative, with the data collected based on public sources (the project chose to use only the
published sources), interviews, and consistency checks with experts. The only exception was
use of the Global Trade Network simulator that was developed in the Game Changers
project.5 The simulation was used as a part of the analysis of the China scenario.
4
Boin op cit.
Please look for more information in: Casti, Ilmola, Rouvinen and Wilenius (2011), Extreme Events, Taloustieto
Oy www.xevents.fi pp. 94-961
5
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The aim of this project is to produce knowledge that will trigger a wide discussion about
resilience. This is why we have adopted a participatory method for the generation of the
concrete resilience portfolio. Altogether 180 participants provided us with 257 action ideas
and 15x25x7 assessments.
For analysis of the generic implications, we applied the systemic innovation concept
developed at the Alberta College of Art and Design6 which looks at the innovation generation
process as a system of feedback loops. The framework that proved to be very useful for
analysis of the renewal capability was the three-category description of the state before and
after a shock:
Before shock
After shock
Community
Who are acting, what are the
relationships between agents, what
defines borders between systems
Convention
Interaction rules that community is
obeying, it defines the ways individuals
can behave and tools they can use
Context
Context is the environment where a
community lives, to survive a community
has to have a stable relationship with its
environment.
Which agents have disappeared, are there
new agents, how relationships between
agents have changed, any changes in
borders between systems
Changes in rules, behaviors and tools,
changes in the thinking patterns and
concepts
Changes in context, and the relationship
between context and a community.
A modification of the ACAD concept map.
6
http://acad.ab.ca/sc_1_5.html#maps and also Geoghegan, M.C., Pangaro, P., CyberneticLifestyles.com,
New York, NY, United States International Journal of General Systems, Volume 38, Issue 2, February 2009,
Pages 155-173
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3. SHOCK SCENARIOS
3.1. European Monetary Union breaks down
Due the nature of the recent developments within the theme, IIASA will not publish this part of the
project report.
3.2. Nokia is bought out and leaves Finland
Please note: The exact figures of Nokia’s Finnish business, employees , and taxation statistics
have not been available to this study. The figures presented in this scenario description are
estimates and based mainly on diverse secondary sources (such as the media).
Scope of alternatives, choices, and justification for choices
The scope of alternatives for a drastic change in the relationship between Finland
and Nokia (this scenario is focused only on Nokia, and it does not include the
operations of Nokia-Siemens Networks) are: a) Nokia to develop as it is doing now
and ends up to transferring all of its production (Salo) and R&D from Finland, b)
Nokia is acquired and both the R&D and headquarters are removed fromFinland. The
third option, whichwas also used as one of the scenarios in the actions generation
phase of the 7 Shocks and Finland project, is that the major international ICT
corporation and Nokia merge and the choice of location of the headquarters is
Finland.
For the analysis focus we chose option b. We have some experience with respect to
the impact of diminished R&D activities in Finland: the most recent impacts in this
field are still being felt; corrective actions have been defined and some have already
been executed. The third option, new, bigger headquarters in Finland, is an
interesting shock that generates plenty of opportunities for Finland. This option will
be discussed in the November analysis seminar. Justification for the choice of the
third option is threefold: if it happens it will have a major impact on the
communications technology ecosystem in Finland, it will also impact on national R&D
investments and potentially even on the national identity. For analysis purposes the
time frame for this shock is relatively short; one year and the process starts in 2014.
13
Drivers for development of global communications technology market
The growth of the mobile phone device market is based on smart phones,7 the low
end products have volume growth, but prices have gone down drastically. The
competition for dominance in the ITC market is leading to mergers across the sectors
(Google and Motorola).8 Chinese producers(ZTE, HTC) are also entering the smart
phones market. Market development toward more diverse devices and value added
is based on differentiating the brand,9 and adding applications and services10 not yet
on the device.
Enablers
Nokia's market cap continues its downward trend.11 12 13 The collaboration with Microsoft is
promising but the share of the MS Windows mobile operating system is still less than 10% of
all smart phones sold.14 Nokia owners,15especially institutional owners in the USA, are
unhappy about the company’s recent performance. Institutional value investors are
increasingly giving way to activist vulture investors.
Shock triggers
Nokia fails to reach its targets of its service development on the MS Windows
operating system. Microsoft actively seeks ways to maintain its positioning in the ITC
world. The relative low value of Nokia shares makes it an attractive target.
Scenario:
Shock event – description
Nokia is leaving Finland. It is the year 2013. The trend of falling profits at Nokia that started in
2011 seemed to change its slope early in 2012, but then sales encounter serious challenges.
Apple launches a new kind of intelligent mobile phone and the Chinese ZTE has been able to
create global distribution channels for its radically cheaper devices. The market value of
7
IDC http://www.idc.com/getdoc.jsp?containerId=prUS22974611
The Vancouver Sun
http://www.vancouversun.com/business/BlackBerry+maker+left+Land+following+Google+Motorola+acquisitio
n/5262001/story.html
9
Pajarinen, Rouvinen ja Yla-Anttila: Mista arvo syntyy, Etla B 247
10
Gartner http://www.gartner.com/it/page.jsp?id=1764714
11
Bloomberg http://www.bloomberg.com/news/2011-04-07/htc-surpasses-nokia-s-market-value-assmartphones-drive-profit.html
12
http://www.itproportal.com/2011/06/02/nokia-market-value-equal-apple-quaterly-revenue/
13
http://www.ft.com/intl/cms/s/0/78586c86-6108-11e0-8899-00144feab49a.html#axzz1dfLMRCQ8
14
Please note that according to Gartner predicts that by 2015 the largest operating system is Android and the
second is Windows - http://www.gartnerinsight.com/download/Predicts2011
8
15
http://www.nokia.com/NOKIA_COM_1/About_Nokia/Financials/Financial_Statements/pdf_2009/Shares_09.pd
f
14
Nokia is now below 14 billion USD. Nokia is a very good acquisition for Microsoft, which uses
the higher category devices as the core of their new mobile phone business and sell the
lower category products in Asia. Microsoft announces in the 13 May press conference that
the headquarters of the Microsoft Nokia will be relocated to Hongkong and that R&D
activities in Finland will be closed down.
Impact systems description
First order impact mechanisms
The number of unemployed increases, with 20,00016 Nokia administration, marketing, and
R&D professionals being laid off. Even if some of the subcontractors continue serving the
new company, Digia will dismiss most of its 1,500 employees, and the same applies to
Ixonos, Sunmina, and Electrobit. The communications technology cluster has lost volume
since 2004, but still the impact on total exports of Finland is around 5%.17
Second order impact mechanism
The direct impact on unemployment of (academic, AMK) 18professionals is dramatic, with the
figures quadrupling. Around 7,000 former Nokia software developers and 2,000 software
professionals formerly employed by the subcontractors are unemployed.19 The most
problematic group is a group of middle-aged middle managers that do not have any
competence in running small and medium-sized companies. One-third of the R&D
investments disappear from Finnish statistics and the position of Finland will drop from 7th to
15th in the global patent statistics.20
16
http://www.nokia.fi/nokia/luvut/tunnuslukuja/henkilosto
Teknologiateollisuus: Vientiraportti (2010 total exports 37, 9 bn eur, telecommunications equipment 1,280
bn eur)
18
Akava http://www.akava.fi/files/3045/02_kuukausikuvat_tutkinnot_kuva3.pdf
19
http://www.digitoday.fi/bisnes/2011/03/02/nokia-pitaa-meego-osaajista-kiinni-lisapalkkiolla/20112999/66
20
World Intellectual Property Organization (WIPO) http://www.wipo.int/ipstats/en/statistics/patents/
17
15
Most of the new unemployed are relatively young professionals either with a technology or
business background. Nokia does not pay any taxes in Finland,21 but employees do. 22 The tax
revenues will drop with €200 million, and simultaneously social costs are increasing; 23
according to Pekka Tianen’s report, the total cost (unemployment payments, tax loss) is
€17,500 per unemployed person. This scenario this would in the worst case indicate an
annual cost of €350 million to the society.
21
http://www.uusisuomi.fi/raha/117434-nokian-verot-suomeen-025
22
http://www.digipaper.fi/akava/29884/ (the average monthly income is 2 700 eur, annual income 30 000, tax
per employee is around 10 000 eur/year > 200 milj. eur per year
23
http://www.sosiaalipoliittinenyhdistys.fi/Tiainen.pdf
16
Final outcome options
Young engineers and software developers are potentially active startup initiators and will generate
new kinds of companies. Many unemployed people with a good international business background
will probably be recruited by existing companies.24 All this will generate a positive impact on the
Finnish economy. The key question is, how long it will take for these positive injections to generate
the economic activity that would compensate for Nokia’s loss. Nokia’s share of GDP has dropped
lately, but it was still over 1%, close to €700 million in 2010.
24
Please note that the recent experience of Nokia lay-offs show that r&d professionals have been recruited
very efficiently.
17
3.3.
Pulp and paper industry leaves Finland
In this study "pulp and paper industry" refers to the forest-based industry producing, pulp,
paper, paperboard, and other paper products.25
Scope alternatives, choices and justification for choices
We studied three shock scenarios:
1.
Climate change changes the ecosystem of forests whereby harmful insects and diseases
(such as Bursaphelenchus xylophilus and Ips typographus that benefit from climate
change can damage a wide area of the Finnish forests). 26 27
2. A regulatory change in maritime transport that makes it unprofitable to produce any
pulp and paper products in Finland.
3. The third and the most extreme scenario option was that leading pulp and paper
companies leave the country . We chose the last option not only to meet the
extremeness requirement of the project, but to show a regulatory feature as one of the
drivers of the shock.
Drivers of the development of the global forest industry
The quest for increasing efficiency and optimization of the production cost per unit has led to
an increase in production unit size.28 The digitalization of printed communications has caused
a reduction in demand or even a slight decline in the developed world and slower than
expected growth in demand for printing paper in Asia29.
Enablers
The economic environment in Europe has suffered from turbulence, and demand has
declined more than anticipated. 30 The European pulp and paper industry is suffering from
aging infrastructure, small production units, and overcapacity.31 The global market
25
Metla Finnish Statistical Yearbook of Forestry 2010
http://www.tiede.fi/artikkeli/687/miten_kay_suomen_metsille_
27
Maa- ja metsatalousministerio
http://www.mmm.fi/fi/index/luonnonvarayhteistyo/luonnonvarauutiset/110610_puutavara.html
28
International Councis of Forest and Paper Associations
http://www.icfpa.org/who_we_are/our_members.php,
29
nd
YLE news November 2 2011
30
UPM Oyj http://www.upm.com/en/investors/key-financials/business-environmen
26
31
Liikenneministerion julkaisuja http://www.lvm.fi/c/document_library/get_file?folderId=339549&name=DLFE7317.pdf&title=Julkaisuja%2020-2009
18
consolidation process32 has been recently33 seen both in Finland and in Europe. At the same
time Chinese investors are looking for investment opportunities, and the Chinese
government is very interested in gaining more access to global resources.34 35
Shock triggers
In this scenario financial markets collapse, which pushes companies with lower liquidity to
negotiate for restructuring or even selling parts of the company. 36 At the same time, climate
change drives political decision makers. The EU decides to adopt special constraints on sulfur
dioxide emissions and apply special emissions regulations to marine transport fuel in the Gulf
of Finland and the Baltic Sea. The increased cost of these regulations is heavy for the pulp
and paper industry (half of the total Finnish sea transport consists of pulp and paper
products, the share of transport cost of paper products is one third of the final price. 37) 38.
The total impact will rise the cost of paper products by 20% . Over 70% (in 2010 the share
was 50%)39 of global demand increase for paper products comes from China, and its
domestic production capacity is insufficient.
Scenario:
Shock event - description
All this speeds up the consolidation process of the global forest industry. Finland has
experienced closing of forest industry production units during the past 10 years, but even
with this experience , the events of spring 2015 shock Finnish society. In January the Chinese
company Chennming Paper acquires one of the Finnish forest industry companies. The
motivation behind this initiative is to gain access to the South-American eucalyptus fields,
because the Chinese new plantation program is far behind schedule. 40 In March, a second
Finnish paper company , a company that still has significant Finnish production, loses its
exports, and then encounters severe liquidity problems. In March, this company goes into
bankruptcy. The third Finnish-based pulp and paper company has a major role in the
European market, and when the European economy falls into a deep recession, the market
value of the company drops and it ends up being a target of a hostile takeover by a global
investment consortium.
32
http://dealbook.nytimes.com/2011/09/06/international-paper-wins-temple-inland/
http://www.engineeringnews.co.za/article/tribunal-approves-750m-sappi-m-real-merger-2009-07-08
34
Economist (check the pages)
35
Reuters http://www.reuters.com/article/2011/08/24/us-china-wto-rareearths-idUSTRE77N1RI20110824, New York
Times http://www.nytimes.com/2011/07/06/business/global/06wto.html
36
Suomen Pankki; Metsaateollisuuden rakennemuutos ja sen vaikutukset
http://www.suomenpankki.fi/fi/julkaisut/euro_ja_talous/euro_ja_talous_vanhat/Documents/ET_3_2009.pdf
37
Interview Juhani Karvonen, Suomen metsayhdistys
38
http://www.lvm.fi/c/document_library/get_file?folderId=339549&name=DLFE-7317.pdf&title=Julkaisuja%2020-2009
39
http://www.pulpmillwatch.org/countries/china/
40
http://www.pulpmillwatch.org/countries/china/
33
19
The first order impact
The production of pulp and paper is now practically finished in the country. Over 200,00041
Finns are facing a threat of immediate unemployment. The eastern and northern parts of the
country – and especially the Kymenlaakso area – will lose one-third of its industrial jobs. The
pulp and paper mills are using their existing raw materials stocks and the company’s own
forests, so the wood sales collapse immediately. The shock will also have a direct impact on
logistics services, 15, 000 truck drivers and most of the 5,000 forest workers will lose their
jobs.42
Second order impacts
Pulp and paper products are responsible for the 75% of forest industry exports. In 2010 it
was 16% of the total goods exports.43
Half of the current forest imports (€2 million in 2010) will continue , but instead of importing
timber and pulp, Finland will import more paper and board products.
41
Federation of Finnish Forest Industries, statistics
Metsateollisuus ry, P. Laine http://www.metsakeskus.fi/NR/rdonlyres/22C42C98-58CB-448E-97DB22DEE0766524/8102/01_1_Laine_Mets%C3%A4teollisuudenKilpailukyky.pdf
43
Finnish National Board of Customs
42
20
Even if the income from wood sales (stumpage) is only 12% of the annual income of the
average Finnish farmer, it plays a prominent role because it is a source of funding for larger
investments44 and for the generation shift.
At its worst, the shock (when the impact of all the pulp and paper industry’s share of the
forest cluster, total employment , and related secondary jobs are included) doubles the
number of unemployed people from the 2010 figures ( 224,000) from 8.4% to 16%. The total
cost of unemployment amounts to a 45 loss of tax income, unemployment, and pension
benefits. The cost per person is estimated46 to be €30,000, which implies that the additional
cost will be around €6 billion per year.
This burden has a heavy geographical concentration, falling mostly on the areas where 47 the
pulp and paper industry is the only, or one of the biggest, employers. This means that these
areas will need additional support from the state.
Forest industry employment in Finland.48
Third order impacts
The saw mill industry will also be impacted by the shock. The price of raw materials for the
saw mills is reduced because the cutting costs are shared with the paper producers. It is
impossible and uneconomical to harvest only the sawmill materials, and leave the wood to
be used mainly for pulp mills to the forest. In addition, the sale of sawmill by-products (wood
chips and sawdust) to pulp mills forms a significant and stable revenue stream for sawmill
operators. The loss of this income would have an immediate negative impact on their
profitability. 50 m3 fiber wood49 has no profitable usage and the sawmill has to cover all the
harvesting costs . It is evident that the supply of energy wood will increase dramatically and
its price will drop. This will also affect where and how it is profitable to harvest energy wood.
44
Interview, Juhani Karvonen, Suomen metsayhdistys
Pekka Tiainen: Tyottomyyden kustannukset Stakes http://www.stakes.fi/yp/2000/3/003tiainen.pdf
46
Pekka Tiainen: Tyottomyyden kustannukset Stakes http://www.stakes.fi/yp/2000/3/003tiainen.pdf, Statistics
of Finland, Income index 1998-2010
47
TEM 2011, Jukka Hytönen –Ilkka Mella – Anu Pousi: ÄKILLISEN RAKENNEMUUTOKSEN ALUEET 2007-2011
48
TEM 2011, Jukka Hytönen –Ilkka Mella – Anu Pousi: ÄKILLISEN RAKENNEMUUTOKSEN ALUEET 2007-2011
49
http://www.metla.fi/index.html
45
21
The annual loss of tax income from forest industry is €3 billion.50 The Finnish economy would
lose €13 billion.51 52 Around 50 million m3 of wood raw material must also look for new
usages.53
The structural change that has already started54 will be faster than anticipated. With
increased bio-energy production the amount of imported fossil fuels will decrease. This will
compensate for some of the loss of pulp and paper industry exports. The key question here is
the time needed for adaptation. New types of jobs will be generated both for the farming
and also the wood processing areas. And the competence that was the basis of the Finnish
forest industry will be transformed to other types of production (energy, sawmill, building). 55
But this will take years.
50
P. Laine http://www.metsakeskus.fi/NR/rdonlyres/22C42C98-58CB-448E-97DB22DEE0766524/8102/01_1_Laine_Mets%C3%A4teollisuudenKilpailukyky.pdf
51
Finnish Forest Industries statiscs service http://www.forestindustries.fi/statistics/tilastokuviot/, share of wood products
and saw mill products is 21% of the total value of the forest industry
52
Helsinki University - Ruralia report: 700 milj. Eur in 2010-2015, please CHECK IF RATIONALE IS RIGHT
53
http://www.metla.fi/tiedotteet/metsatilastotiedotteet/2011/kaytto10.htm
54
Hetemaki, Hanninen Metlan tyoraportteja 122 http://www.metla.fi/julkaisut/workingpapers/2009/mwp122.htm
22
3.4. China suffers weaker growth and introspection 2020
Scenario:
The USA is still the world's sole super power, while China is rapidly emerging as a super
power and is the only country that can realistically challenge the US for global dominance.
Meanwhile, their economic ties between China and the USA are now so important that since
2007 they have been described as 'Chimerica' - two sides of a single economy that comprises
a third of global GDP. Therefore, any deterioration in this relationship would be detrimental
for global political, economic, and financial stability. There are several areas where the two
countries are in conflict, or at least have sharply differing views that color the trade picture.
Global Economy
-
trade and exchange rates
China’s holdings of US Treasuries
demand for energy
Geopolitical Issues and Global Security
-
narrowing competitive power gap
Taiwan
future of North Korea
competition for key resource regions
Ideological and Philosophical Issues
-
democracy
human rights
religious freedom
Scope alternatives
The basic assumption governing all three scenarios we examine is that:
China challenges US dominance
This challenge has three variations, each leading to a kind of “sub-scenario”:
I.
China is increasingly assertive, belligerent even, in all areas of conflict and contention
(the “hard” path). In this scenario the wildest card is actual military confrontation
between China and the USA.
II.
China is still assertive but exercises it assertiveness in a more subtle way, often
through diplomatic channels, denial of resource exports and the like (the “soft”
path).
23
III.
China weakens due to internal stresses of an economic, political, and social nature,
while the USA somewhat miraculously reemerges as the dominant global power. This
scenario involves progressively slower Chinese growth, while the USA regains
confidence and influence.
Drivers of the development of the China collapse
Export declines; internal pressures grow from rising middle-class; general social
unrest arises from income inequality; there is tension between the USA and
Europe over exchange rates; unsustainable growth
Enablers
Weak banking system; tension between government and market in implementing policy;
success and complacency; break of global commodity bubble;
Shock triggers
Rare earth embargo; Taiwan confrontation; North Korean actions ; saber rattling
miscalculation;
24
Sub-Scenario I
Between 2010 and 2015, an aggressive China increases its trade in Asia. The Asian
partners then turn their back on the Chinese in 2015, returning to the USA as their main
trading partner until 2030.
The result is that by 2030 China is by far worse off than any of the other countries – it
achieves 40% less GDP than in the baseline scenario. Finland also suffers, being off the
baseline by 4.7%.
All Finland sectors do badly as well, with the worst-performing ones being billions of
dollars lower than in the baseline case. The outcome of the worst-performing sectors of
the Finnish economy are described below.
Scenario I Finnish Sector Performance
difference from baseline (bn USD)
0,05
-0,05
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0
Paper prod
Motor veh
-0,1
Electronics
Machinery
-0,15
-0,2
-0,25
Sub-Scenario II56
Between 2010 and 2020, China slowly increases exports to Asia following a careful, yet
determined, strategy to push the USA out of the Asian import market.
By 2030 all economies do well, particularly China, which achieves 12% higher GDP than in
the baseline scenario. Finland also does marginally better, showing an increase of 1.7%.
56
Please note that the outcomes of the GTN simulation for sub-scenarios II and III will be presented in the
Analysis Seminar Nov 23.
25
Scenario II Finnish Sector Performance difference
from baseline (bn USD)
0,04
0,035
0,03
0,025
0,02
0,015
0,01
0,005
0
Paper prod.
Motor veh.
Electronics
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Machinery
Sub-Scenario III
Between 2010 and 2020 China shrinks by 3% while the USA grows by 1%, then after 2020
China shrinks by 5% per year for the next 10 years.
As a result, Mexico, Canada, and USA all do well. Finland does 4% worse than in the
baseline case. Perhaps surprisingly, this performance is worse than in a world with the
more aggressive China of Sub-Scenario I.
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Scenario III Finnish Sector Performance difference
from baseline (bn USD)
0
-0,02
-0,04
-0,06
-0,08
-0,1
-0,12
-0,14
-0,16
-0,18
-0,2
Paper prod.
Motor veh
Electronics
Machinery
26
3.5.
Internet crash
What do we mean by the Internet - definition
The Internet is a global system of interconnected computer networks that use the standard
Internet Protocol Suite (TCP/IP) 57 to transmit data by packet switching. It carries various
information and services, such as electronic mail, online chat and the interlinked web pages
and other documents of the World Wide Web. 58
For the Internet shock we have three alternative shock options and three space
alternatives. When we arrange shocks according to the severity of their impact
potential, we end up with three options: the first is when the Internet becomes
increasingly unreliable, while the second is the total collapse of the Internet, but with
the warning signs identified before. The third and the most severe by its immediate
consequences is the case where the Internet collapses without any widely perceived
advanced warning for an unknown period of time.
According to the 7 shocks methodological framework of extreme events, we take the
last option for more detailed study.
The scope of geographical alternatives is global shock, Europe-wide shock or a
Finland-wide collapse of the Internet. As ITC connections between Finland and other
parts of the world are very vulnerable, disruption of these connections has a high
potential to harm Internet users in Finland. It is also possible that one of the impacts
of a major disruption of electricity production and distribution would have a similar
local impact. Both of these alternatives and their impact on Finnish society have been
analyzed59 but we could not confirm reliably the mechanism behind potential energy
outages, so the theme is not included to this scenario description. Some of the
features of a Europe-wide disruption will be covered in another shock scenario (see
pages xxx) so we look at the global scope of an Internet failure.
Drivers for development of the Internet
Capacity building is driven by an increasing interest in growing opportunities that the
Internet provides to economies and businesses. The potential for improvement of
productivity and options for better services drive businesses. (Who owns the router
57
http://en.wikipedia.org/wiki/Internet
Stanford Encyclopedia http://fact-archive.com/encyclopedia/Internet
59
The Finnish National Emergency Supply Management Agency (NESA)
http://www.huoltovarmuus.fi/documents/3/TYS_20061_Viestinta_ja_sahkonjakeluverkkojen_keskinaiset_riippuvuudet.pdf
58
27
infrastructure?)60 Telecommunications operators have a strong incentive to invest in
routers and wireless and cable-based networks. Demand for increased capacity is
evident; digitalization of production and communications, as well as the volume of
entertainment, put special pressure on the improvement of capacity.61 The growth in
the use of mobile devices connected to the Internet is increasing rapidly, and many
Europeans already spend more time using the Internet on the move than they spend
reading newspapers.62 63 At the same time, bandwidth-heavy entertainment
applications such as video on-demand increase their consumer penetration in fixedline Internet use.
Enablers
The global operator market is centralizing due to recent mergers.64 Price
competitionbetween operators and profitability requirements have slowed down
investments in technology. If the global economy has a double-dip recession and
Western economies end up in a long recession,65 government investments will not
close the gap between demand and supply. According to the OECD, government
investments in communication networks are highly correlated to the economic
situation.66
The OECD also states that recent growth is causing domain name shortage; the stock
of unallocated IPv4 addresses has nearly run out (and IPV 6addresses are not in use yet). It
urges quicker adoption by industry as the only long-term solution for ensuring the capability
of the Internet to connect billions of people and devices.
Shock triggers
A highly connected, global Internet offers hackers (hacking = an unauthorized access to a
computer system with the intent of causing harm.67 ) attractive68 opportunities. 69 70 In fact,
60
Ludwig von Mises Institute Tim Swanson’s blog http://mises.org/daily/2139,
http://thenextweb.com/insider/2011/10/12/who-owns-the-internet/,
61
http://www.intgovforum.org/cms/
62
http://www.mobilemarketingmagazine.co.uk/content/study-highlights-growth-mobile-internet-usage
63
OECD broadband statistics (December 2010)
http://www.oecd.org/document/4/0,3746,en_2649_34225_42800196_1_1_1_1,00.html
64
http://www.rcrwireless.com/article/20110329/reality_check/reality-check-anchoring-among-consolidatingnetwork-operators/
65
The Economist http://www.economist.com/node/21536872
66
OECD: Network Developments in Support of Innovation and User Needs
http://www.oecd.org/document/58/0,3343,en_2649_34223_44245946_1_1_1_1,00.html
67
John Draper: History of Hacking (2011) http://www.virusresearch.de/hacking/hacking.html
68
http://www.dnaindia.com/analysis/column_hacking-cultures-dramatic-rise-in-india_1469904
69
http://www.mcafee.com/us/mcafee-labs/resources/peer-reviewed-research.aspx
70
Web Applications Security Consortia http://projects.webappsec.org/w/page/13246995/Web-HackingIncident-Database (Statistical summary)
28
hacking has increased by 36% 71 this year. Malware incidents also seem to be more
severe. (ref. IRAHSS conference in Singapore October 17.10.18.10.2011).
Scenario:
Even though the Internet has recently shown signs of unreliability, it’s a great
surprise to everyone when one Monday afternoon the Internet collapses. Experts
identify “the problem” by Thursday: capacity overflow. But it takes ten days for the
true problem to be discovered. The DNS system has been hacked by a criminal
organization that has been able to take over most of the existing DNS servers.72
First order impact mechanisms
Primary impact


Communications between global companies fail due to the absence of
system-to-system communications (finalizing sales, receiving shipping
notifications, payment confirmations, etc ) and e-mail.
Internet banking fails and private persons and small businesses cannot settle
their bills.
Secondary impacts
71
http://www.softwarelicensingblog.com/2011/03/articles/software-licensing/intellectual-property-magazinecomputer-hacking-and-ip-theft/
72
Please note that it is unclear how the local name servers are able to operate without a connection to the root
servers. This issue should be further investigated.
29



Information distribution through Web sites fails all over the world, disrupting
travel (schedules, reservations), mass communications (media Web sites) and
public sector services.
Internet-based services and those services that use the Internet as a
distribution channel collapse.
E-mail communications and social networking sites are unavailable.
Potential impacts (not confirmed, but proposed by the interviewed experts)
o Corporate/organization communications networks (intranets, extranets,
corporate e-mail) are logically separated networks but they use the same
routers and servers as the Internet does. It is unclear if the operators’
systems will be disrupted by an Internet failure.
o Power generation in nuclear power plants, fossil fuel power plants, and wind
mills is arranged so that the information networks are physically separated
(dedicated point-to-point networks) from the ITC networks used for public
communications. Hydropower is remotely controlled and its dependency on
the Internet is unclear. Power distribution networks should be independent
of Internet operations, but this cannot be confirmed by the experts who
were interviewed.
o Mass communications, such as the print media, are powerful in this situation;
there will be some constraints with television broadcasting. Radio
broadcasting will be unharmed.
o Point-of-sale systems mostly use logically separated connections to banks
(called bank network) for payment transaction confirmations necessary for
acceptance of the debit/credit card payment (only some stand-alone
automats operate off-line). According to the experts, it is probable 73 that the
collapse of Internet connections will cause disruptions to the POS
communications and card payment confirmations would not be possible. The
payment information is sent from the shop to the banks through the same
dedicated bank network.
73
Interview
30
Second order impacts



Corporate communications: Even if some of communications are transferred to
faxes and mobile communication channels, most of the system-to-system
communications related to raw material purchases, sales, orders, and deliveries
are inoperable.
Internet banking: Consumers try to use ATM services, so the need for cash money
is about 8-10 times higher than normal. ATM capacity74 is inadequate, and
Finland does not have enough banknotes.75 Even if banks could increase the
processing of manual payments tenfold, only 20% of this could be done in the
branch offices. 76
All voice communication is transferred to the mobile networks: The volume will
exceed the capacity and either mobile phone traffic will experience several
failures or the mobile phone network will collapse totally.
74
Interview.
Interview
76
Interview
75
31
Third order impacts




When the payment system does not work, liquidity problems will arise, especially
for small and medium-sized product and service providers.
Disruptions of raw material and component deliveries cause temporary closing of
production facilities. Global value chains do not work.
Most of the delivery information that relies on mobile system-to-system
communication do not work, which results in disturbances in logistics hubs and
total collapse of the delivery systems (food and products to the shops).
Grocery stores may have to curtail or close their operations within 2-3 days77
because they have nothing left to sell.
Potential impacts
o Fuel supplies will experience problems and this will limit the use of private cars
and harm goods transportation logistics.
o The Finnish media uses the Internet for data and information transfers. So an
outage will disrupt mass communications.
77
National Emergency Supply Agency: Final report of the LOGHU3-project
(http://huoltovarmuus.fi/mediabank/443.pdf)
32
The sequence of events described above will lead to a situation where food delivery
systems fails and people will experience shortages of food. Simultaneously, there is
lack of information and uncertainty as to how to manage everyday life.
There are two potential reactions:
1) The population join together and help each other to manage the situation with
means such as:
2) Accepting payments by promissory notes.
 Farmers and neighbors share stored food
 Warehouses sell their food directly
 Local municipalities directly communicate to their citizens about alternatives
2) The population will become chaotic and people will steal what they can; riots and
looting takes place widely across the country.
33
3.6.
Extreme Weather
The storms of the century have arrived. Climate warming is visible in Europe, as average
temperatures have risen by 1.5°C since the turn of the millennium in 2000. Rainfall has
dramatically increased, which has caused record high flooding in Europe.
Climate change has had a major impact on weather in the Nordic countries. Cyclones are no
longer rare. The disastrous storm of fall 2010 that decimated the Finnish forests is tame
compared with the storms of the next couple of decades (and maybe beyond).
Summers are longer and hotter, with winters now shorter, colder, and wetter. The Finnish
climate is becoming increasingly humid, thereby increasing snow levels and coverage and
creating much more ice on roads and in the trees and fields.
The storms damage electricity supply, and roads damaged by the ice gives rise to failures in
the food distribution network. Problems also frequently arise with the district heating and
water supply networks.
The inter-European payment transfer system (SEPA) has serious problems sending money
where it needs to go, as the combined impact of power failures and flood damage drastically
reduces the flow of information between 31 SEPA countries and the processing center.
Backup systems are much slower than anticipated in coming online, so that the bill that you
paid to the Osuuspankki bank does not reach Saastopankki bank
Scope alternatives
For the Extreme Weather shock we had several shock options to consider, ranging from
drought to floods to bitter cold, ice and snow. According to the 7 shocks methodological
framework of extreme events, we chose flooding for the object of the more detailed study,
since this is the consequence of global warming that is most likely to affect all of Europe, not
just the Nordic region.
The geographical scope ranged from a European-wide shock to a more localized shock in
Finland alone. As we see below, this choice was justified by one of the objectives of the
study: to look for opportunities the shock may provide to Finland, not just the problems.
Drivers of the development of extreme weather
CO2 emissions, greenhouse effects; dependence on fossil fuel; dramatically increased
variation in climate with colder and shorter winters and longer summer periods
Enablers
Weakness of political decision making; cost saving (efficiency) in infrastructure maintenance;
fragile, brittle infrastructure; lack of international cooperation
34
Shock triggers
Flood control systems are underdeveloped, not enough dams; construction standards that
prevent the earth from absorbing water; a tradition that “locks-in” historical decisions
Temperatures in Europe have increased by an average level of 1.5° Celsius above 1990 levels,
leading to dramatically increased flooding and rainfall in central and eastern Europe, which in
turn impacts Scandinavia, bringing on increasingly severe storms accompanied by tornadoes.
The increased temperatures in the Scandinavian region lead to a wetter climate, in general,
which brings heavier snow and more ice so that winter storm damages increase. All of this
has a major impact on infrastructures78 that are not built to meet these extreme weather
conditions. But there are benefits, as well.79
78
“Global Warming Could Cost Europe Up to EU65 Billion a Year.” European Commission News Release, 25 November
2009.
(The final report of the PESETA project (Projection of economic impacts of climate change in sectors of the
European Union based on bottom up analysis), makes an assessment of the annual economic impacts of climate
change in Europe in agriculture, river flooding, coastal systems and tourism without considering adaptation
policies.)
79
Behrens, A., A. Georgiev, and M. Carraro. “Future Impacts of Climate Change Across Europe.” CEPS Working
Document No. 324, February 2010.
(The paper reviews the potential impacts of climate change on 11 key indicators and 3 large regions covering the
entire EU. The paper concludes that Northern Europe might even experience some positive effects, while the
Mediterranean area will mostly be negatively affected. On balance, the impact of climate change on poorer countries
will also impact northern countries, as growing water scarcity and other repercussions in Mediterranean countries
could pose social and security challenges through increasing risks of conflicts and migration pressures.)
35
Impacts from weather disasters, flooding80, and contamination of the public water supply are
negative, although relatively modest in all cases.
The winter damage includes wet snow, ice load, damages to power lines, cost of winter
traffic, electricity transmission failures, and sewage system failures leading to public health
problems. There is also the cost of winter traffic and road maintenance, which increases by
30% as does the cost of road and rail network reconstruction. Transport of both goods and
people will slow down, and lakes will be contaminated.
On the other hand, some aspects of the economy improve, such as crop yields, forest
density, biodiversity, hydropower, and tourism. On balance, Scandinavia, in general, and
Finland,81 in particular, is the sole region of Europe that has benefited from global warming.
But even this region does not remain totally undamaged in either its economy or
infrastructure.
A special case:82
As a special case we have been looking at one of the potential implications to Finland, a
situation where extreme weather in Europe harms the infrastructure. As a direct example we
are using the Single European Payment system.
Drivers of SEPA development83



80
Efficiency of the payment system (cost and speed)
Increasing number of transactions between European countries
European integration ( Economic Monetary Union)
Goodrich, G. “Drought,, Fire and Grain Production in Russia.” Centre for Research on Globalization, 10 August 2010
(Theme: The Russian wheat crop is a commodity of critical importance to Moscow’s domestic tranquility and foreign
policy. Despite the severity of the heat, drought, and wildfires, Moscow’s wheat output will cover Russia’s domestic
needs. Russia will also use the situation to merge its neighbors into a grain cartel.)
81
“Finland’s National Strategy for Adaptation to Climate Change. Ministry of Forestry and Agriculture, Helsinki,
2005. (Summary of Finnish experts views on the impact of global climate change on Finland.)
82
Please note that the shock is low probability, high impact shoc.
83
ECP SEPA description
http://www.europeanpaymentscouncil.eu/knowledge_bank_download.cfm?file=EPC05509%20version%203.0%20Shortcut%20to%20SEPA.pdf
36
Single European Payment members (source: European Payment Council
http://www.europeanpaymentscouncil.eu/index.cfm
Scenario
Finnish banks are having a crisis meeting. The inter-European payment system has had
failures during the weekend and now it seems that the recent flooding and storm damage
have caused major power outages. The cumulative impact of these disruptions is fatal to the
information transfer networks in Europe. Unfortunately simultaneously the SEPA technology
experts find out that the power generation for the backup systems does not work as
expected. The SEPA-based payment systems of all of the 32 SEPA member countries are out
of order. The bill that a Finn pays to the Osuuspankki bank does not reach the right account
in the Saastopankki bank.
Implications




Liquidity problems for consumers and small businesses
Rush to the branch offices that will not have a sufficient service capacity
Production delays in companies with low liquidity
Slow-down effect on European economies that depends on the length of the
disruption.
37
3.7.
Energy scenario
The development of the energy prices is dominated by uncertainties. The amount of
fossil fuel reserves is unknown, the political situation in some of the large oilproducing countries is turbulent and some new technologies seem to be close to
break through and mass production. In this scenario we have processed two
alternative scenarios: the case when the price of oil reaches USD 400 per barrel
(currently around USD 95) and as an extreme alternative, the situation where the
production and distribution cost of energy is dropping 90% from the existing level.
This scenario description will focus on the most shocking option, the radical cut in the
cost of energy, for two reasons. Of all of the 7 shocks, this would be capable of
changing the deep structures of our economy and it would have also major
implications for the global geopolitical situation.
We had three scope options; at this time all of these are related to the observation
point of the development trajectory. The most interesting of all would be to look at
the situation where the new energy forms have been implemented and they have
changed the economic, political, and social structures. This alternative would have
required a significant commitment of original research effort because we could not
identify any recent studies, scenarios, or simulations for this specific case. The second
option was to focus the attention of this study on the changes in the social system
just before the direct economic impact takes place, when the alternative solutions
are credible enough to support the wide perception of the price drop. The third
option was to look at the situation where the old and new paradigms of energy
production are fighting over the dominant position.
Our choice was to design a two-phase scenario; in the first phase we describe the
triggering events that lead to the second phase, the widely shared perception of the
widespread adoption of new energy forms and their impact on energy prices.
Drivers of the development
Widespread concern has been building for a number of years. The 2016 oil crisis has
underlined for many just how vulnerable and helpless the non-oil-producing nations
could be, and the issue is exacerbated by the popular press which see an opportunity
to make political capital. With assistance from a number of notable celebrities, the
issue gains momentum and leads to a rapidly increasing popular call for energy
"independence." A youth movement in particular begins to drive a rapid change in
attitude and a cultural shift follows. Alternative energies are seen to be "cool"; they
38
attract investment and the leading scientists and engineers in these fields themselves
gain celebrity status.
Following a period of intense investment and experimentation, a number of
candidate technologies appear to be ready for exploitation.
Enablers
This scenario is made possible by the coincidence of a number of factors.
Simultaneously, public and political will become aligned and are matched by
technology opportunity.
Of paramount importance, a number of technological breakthroughs are able to
channel the enthusiasm and funding in promising directions. Alongside the
"traditional" approaches such as solar and ("shallow") geo-thermal, a range of new
and ambitious schemes is under way, including space-based solar power, the rapid
spread of salt-water farming, and new insights into the physics of low energy nuclear
reactions.
Shock triggers
With the "pressure cooker" effect for change already well developed, the threat of
disruption to oil supplies from the Middle East is enough to flip public opinion into a
state of "panic" and to create an insatiable appetite for immediate investment in
alternative means of creating energy so as to protect homes, families, and
businesses. The net effect has the hallmarks of an investment bubble.
Scenario
It is year 2020. Decision makers, frightened about the fast emergence of climate
warming, are investing in alternative energy technologies. The global economic
situation is not good, but the 2016 oil crisis drove crude oil prices to USD 400 per
barrel, and that also makes all the alternative technologies attractive investment
targets in the eyes of the private and corporate investors.
39
The heavy investment input creates results. As an outcome, new energy technology
companies and startups introduce new technologies that are both radically different
and better; some are nearing readiness for mass production. These technologies
produce energy with low CO2 emissions at a fraction of the price of fossil fuels. On
average, the wholesale price of electricity drops to 90% of its former level. The lower
demand for fossil fuels, will push also the price of oil down.
40
The impact is dramatic and is felt at all levels of society. At a micro level, people’s
diets are changing to reintroduce energy-intensive products such as exotic fruit,
imported beef; overseas holiday trips are planned and there is a strong demand for
electric cars. New houses are built further away from city centers and builders do not
invest in insulation; “… soon we will insulate with electricity." Cheap energy becomes
a substitute for some previously scarce resources and artificial food is produced.
Some of the old energy giants have lost the game; and as new dispersed systems,
where energy is produced at or near to the point of use, do not require such vast
investments in infrastructure, smaller companies are able to serve the market.
After a long debate, politicians have finally decided that these new energy sources
should not be taxed as heavily as under the old system and the government has
implemented a new austerity plan to cover the loss of the energy taxes (10% of the
budget, €4.2 billion in 201284).
The shared perception is that the new energy sources will increase productivity, and
the global economy is finally entering a cycle of growth.
84
http://www.energia.fi/ajankohtaista/uutiset/valtion-talousarvioehdotus-2012-vm-ehdotus-2282011
41
The process that this scenario presents has the potential to lead to overall economic
growth, but as a side effect the political turbulence it generates in fossil fuel
exporting countries may lead to new flows of asylum seekers.
42
Technology sources used
Geothermal drilling would, if exploited, tap into a far wider resource of 200-300°C rock 2-5 km below
the earth's surface, rock which can now be relatively easily reached with modern oil drilling
technology that is today able to go down a 10km (6 miles). Today, although deep wells are already
tapping into these hot, but often caustic and corrosive liquids, they are not currently being used to
generate power.
(http://evworld.com/article.cfm?storyid=1985)
For an assessment of future geothermal energy by an MIT-led interdisciplinary panel, see:
The Future of Geothermal Energy: Impact of Enhanced Geothermal
Systems (EGS) on the United States in the 21st Century
Available at: http://geothermal.inel.gov/publications/future_of_geothermal_energy.pdf
"The [US] White House has challenged the solar industry to produce clean electricity at $1 per watt...
The Department of Energy has recently completed testing on just such a humble breakthrough. The
Optical Cavity Furnace is a new piece of equipment for making solar cells that is about to rock the
photovoltaic industry by slashing costs and increasing efficiency... by reducing the cost of producing
solar cells by nearly three-quarters, this new technology represents another big step on the path to
making clean energy the cheap kind of energy."
see Major Solar Cell Breakthrough About to Rock the Photovoltaic Industry
(http://oilprice.com/Alternative-Energy/Solar-Energy/Major-Solar-Cell-Breakthrough-About-to-Rockthe-Photovoltaic-Industry.html)
In addition, "nano-plastic photovoltaic that generates electricity from sunlight and costs a fraction of
what current silicon-based PV costs" may lead to further reductions.
(http://evworld.com/article.cfm?storyid=1985)
"A [UK] Cambridge-led team has designed a giant battery that can store energy using two silos filled
with crushed rock. Wind energy is used to heat a gas that passes between the two silos, storing the
energy as temperature difference. When electricity is needed, the heated gas transfers silos and is
cooled, driving a turbine in the process. The company behind it, called Isentropic, says its system can
store as much energy as pumped hydro in less space with fewer costs. It's also claiming 80%
efficiency and a system cost of between $10 and $55 per kilowatt-hour."
(http://www.energyandcapital.com/articles/energy-storage-technologies/1269)
(http://www.guardian.co.uk/environment/2010/apr/26/gravel-batteries-renewable-energy-storage)
Another promising energy storage technology is molten salt. Solar thermal companies are using tanks
of molten salt to store the heat their units produce.
Salt water agriculture, including the production of biofuels, is recently attracting strong interest and
research investment.
(http://newenergyandfuel.com/http:/newenergyandfuel/com/2010/01/20/seawater-fed-bio-jetfuel-research-underway/)
43
"A Japanese/Algerian effort called The Sahara Solar Breeder Project employs a simple concept
revolving around the pure silica in the sand of the Sahara Desert. The silica can be used to build vast
solar arrays which will then provide the power and means to build more solar arrays in a classic
breeder model." (http://energy.mpnodes.info/2011/02/21/sahara-solar-to-power-half-the-world-by2050-–-slashdot/)
"A Swiss company says it has developed rechargeable zinc-air batteries that can store three times the
energy of lithium ion batteries, by volume, while costing only half as much."
(http://energy.mpnodes.info/2011/02/21/high-energy-batteries-coming-to-market-technologyreview/)
A fresh approach to 'hot' fusion is being developed by General Fusion in Canada. Their approach is
based on “magnetized target fusion” concepts first developed about 30 years ago, but
commercialisation is anticipated before 2020.
"The closest to a potential reactor scheme is what General Fusion is proposing.” R. Kirkpatrick, Los
Alamos National Laboratory [Popular Science, January 2009]"
(http://www.generalfusion.com/)
(http://www.newscientist.com/article/mg21128251.400-star-power-small-fusion-startups-aim-forbreakeven.html)
44
4. POLICY OPTIONS
Research lay out
Data collection was performed in two phases using a Web-based toolset. In the first phase,
invited participants from the partner organizations were asked to read a brief description of
a scenario, and then to brainstorm what are responses that would enable Finland to survive
and perhaps even flourish in the changed circumstances. There were 10 scenarios altogether,
the selected 7 seven scenarios and 3 extreme opposite scenarios. For respondents'
convenience they were grouped into 4 groups, from which each respondent was able to pick
and process one or several groups. Repeat visits were allowed and even encouraged.
All in all, the first phase was visited 128 times. Responses were anonymous for reasons of
confidentiality and unobstructed creativity, so there may have been a number of repeat visits
by same users. Altogether 245 actions and strategies were suggested.
For the second phase, the research team had selected the final and synthesized a
representative set of 25 actions to counter the shocks. Each action was evaluated for its
perceived benefit in each of the seven environments.
The second phase was visited 59 times. To ensure sufficient coverage for all shock
environments, the responses were not completely anonymous. Each environment was
assigned to certain key people whose visits were logged so that they could be reminded to
participate if necessary. This worked, as most action/environment combinations received
between 14 and 17 evaluations.
Method description
The Xevents project is studying the twin challenge of increasing complexity and systemic risk
from a very particular perspective. We focus on extreme events, events having a low
likelihood of occurrence but potentially large impacts, as a planning instrument. We claim
that by focusing attention on extreme environments shaped by the relevant uncertainties,
we are able to define borders of the Space of Uncertainty, the area that defines the
requirements for systemic resilience.
The choice of planning method is always dependent on the context and environment. The
method we describe is designed for long-term planning in systemic environments.
Space of Uncertainty (SoU)
Design Principles
Planning for “unknown unknowns” is in principle a challenge for the imagination; we have to
extend our understanding by pushing the borders of our existing thinking outward from our
45
current perception of what is relevant, what is logical, what is causal. These creativity
requirements do not exclude the need for systematic procedures. Just the opposite, in fact.
1. In order to define the borders of uncertainty, we focus on extremes; low
probability events/drivers and descriptions of environments defined by the
extreme ends of uncertainties. Detailed step-by-step descriptions are given
below.
2. We process a large number of options, which is why we transform qualitative
descriptions to quantitative ones.
3. Scanning and assessing uncertainties requires the contribution of a large number
of diverse experts and stakeholders. Our methods are Web-based and
participatory.
4. The final evaluation requires a face-to-face elaboration of decision makers in a
workshop.
5. The ultimate goal of long-term planning is to support decision making in the
short-term. Thus it is important to create and evaluate options and incorporate
these into our planning such ways that we can prepare for/or benefit from the
extreme events.
Our development work is defined by leading design challenges; the tools to be developed
should be pragmatic, generic ,and easy to apply in everyday planning work by either public or
private sector organizations.
The Process Step-by-step
Step 1: Key uncertainties
The process begins by scanning uncertainties and defining the key uncertainties. In the 7
Shocks and Finland project the participants had an opportunity to choose 7 out of 14
different shocks that were driven by different uncertainties.
Step 2: Environments shaped by extreme states of uncertainties
To minimize the time required by the project partners of the 7 Shocks and Finland we
developed seven shock scenarios (extreme scenarios) and also for methodological purposes
three extreme opposite scenarios.
The opposite scenarios were
1. Flourishing modern bio-refineries (opposite to “Forest industry leaves Finland”)
It is year 2020. Wood has taken on a whole new prominence as raw material!
The effects of global warming are obvious, and the use of fossil fuels is limited by regulations.
Taxation increases rapidly the cost of using non-renewable energy sources. Crude oil
production has peaked, which also lifts prices. Shipping raw material globally is expensive,
which hits Finnish pulp and paper exports. Renewable energy sources (solar, wind) have
pushed aside wood from energy production.
46
Everywhere in the northern hemisphere there are new bio-refineries under construction.
These refine coniferous cellulose into molecules used in the chemical, textile, and electronics
industries. Construction industry innovations that are stronger than steel but much lighter are
under development. Finland has decided to position itself as the global hub of this new
materials science.
2. The price of energy drops by 90% (opposite to “Energy price increases 300%”)
It is the year 2020. Decision makers everywhere are shaken by the effects of climate change,
and invest massively in the development of alternative energy sources. The oil crisis of 2016
pushed the prices to USD 400 per bbl, and this makes even ambitious development projects
interesting to investors, despite global economic recession. These result in new kinds of
energy technologies and companies, which bring to market different sources of renewable
energy. These lower energy prices drastically, while also reducing CO2 emissions. The average
price of energy collapses 90% globally. At the same time, the electricity transmission grid
gains ”smart” features that help to decrease transmission prices, thus amplifying the effect of
new generation technologies.
People opt for longer commutes as electric cars proliferate and electricity is cheap. Energy
efficiency in construction becomes a waste of resources as it is more economical to increase
production by covering buildings with solar panels and photoelectric coatings. Cheap energy
pushes aside other raw materials. Old utility companies have to choose, either to enter the
new playing field or to succumb to cheaper competitors. All this also has a drastic impact on
wood energy. Politicians have finally yielded to tax freedom for new energy forms, and as a
consequence public finances are undergoing a 10% overall budget cut to fill the hole created
by missing energy tax revenues.
When new energy solutions change industrial structures and productivity improves, the world
economy faces a powerful acceleration of growth.
3. Strengthening European integration (opposite to "Euro falls apart")
European politicians finally found a sensible solution to the 2011 euro crisis, and managed to
calm the financial markets. This increased the stature of the EU in the eyes of its citizens. At
the same time, coordination of economic and fiscal policy was strengthened to prevent
similar crises from recurring.
Accelerating climate change speeded up the need for common legislation, and finally
European citizens feel a shared sense of destiny, which also enables a common foreign and
security policy. As global growth accelerates from 2017 onwards, preconditions for more
tightly controlled economic policy are in place. Finally, serious talks about a true European
federal government can begin.
Step 3: Success strategies
There are countries that do well under global competition, even under the extreme
circumstances defined in the previous step. Here we analyzed 7 shocks and the additional
47
descriptions and asked participants to define what agent(s) will succeed in this type of
environment. What sorts of capabilities are needed and what is typical for the operations of
the most successful player/agent in this environment. What are the development actions
that should be initiated to create the required capabilities? The list of development actions is
the input for the next phase. This task can be either Web-aided or workshopped
Step 4: Multicriteria action assessment
The development actions are assessed with regard to (context-dependent) multiple criteria
on a qualitative or a quantitative scale. The main criteria measure how an action contributes
to building success in each of the shock environments. Other criteria may measure, for
instance, current feasibility of an action idea, fit to existing capabilities, the investment
required, or value of existing operations. Depending on the context, some of these
assessments can be carried out by analysts. For instance, action ideas that seem to be valid
under many different extreme futures should receive a high assessment in all these futures.
Additional items for assessment can obtained by a Web questionnaire or through a
workshop.
Step 5: Resilient portfolio
Robust Portfolio Modeling (RPM) methodology is used to identify all efficient portfolios that:
i) satisfy the relevant constraints (e.g., the feasibility or fit with current strategy, limited
number of actions that can be pursued); and ii) optimally help to build success across the
possible extreme futures. Usually there are many efficient portfolios, as the information
about the model parameters is incomplete (e.g., futures’ likelihoods, benefits of actions,
importance of the assessment criteria, etc.). However, based on computation of all efficient
portfolios we can usually identify: i) core actions that are included in all efficient portfolios
and should therefore be pursued; ii) contingent actions that are included only in efficient
portfolios; iii) exterior actions that are not included in any efficient portfolios (see Figure 1).
48
Figure 1 Robust Portfolio Modeling
Complete descriptions of the 25 ideas selected for evaluation
Promote innovation for
a rainy days
Prepare to increase selfsufficiency in food
production
Security and resilience
requirements for
information networks
Tax incentives for urban
local food
Tax incentives for
energy self-sufficient
housing
Switch to exchange
economy with no
currency
Develop services that
require little energy
Build more nuclear
power to hedge against
price shocks
Let the forest industry
disappear
National "Google time," in which every (employed) citizen can use maybe a fifth of
their time to work on resilience-improving ideas for extreme environments.
As the crisis lengthens, local food production would become increasingly vital.
Seasonal radio shows, that give tips for fishing and gathering berries and
mushrooms. Small, currently worthless fish should be caught and turned into fishfingers.
Let's build systems that consist of several smaller systems - local networks and
separated cloud services which are connected by an integrating layer in order to
keep the whole system from crashing in case one part of it goes down. All routing is
implemented in such a way that these networks can be connected to alternate
cloud services if one part collapses,
Local food production should be encouraged through taxation breaks. For example,
using your balcony as a greenhouse should be tax deductible according to its
production.
Direct support or tax deductions for micro production equipment. For example,
miniature wind generators on all yards and balconies.
Golden era for small producers. Back to the barter economy.
Investment in companies offering expert services. These are not as dependent on
energy prices, and are able to continue their business more or less as usual, even
when faced with higher energy prices.
Building additional nuclear capacity offers protection from price shocks. Price of
uranium fuel is a small fraction of the cost of electricity generation.
We should allow forest industry to wither away in Finland, and develop servicebased and other timber-sector jobs. These are less cyclical.
49
Invest in new rapidly
exploitable knowledge
combinations
Let's combine old and new knowledge that already exists, and cut back on
developing longer-term development with higher expertise requirements.
Invest in trade outside
the EU
Establish a Nordic
monetary union
Government strongly encourages companies to diversify their exports to countries
and regions outside the EU, such as Russia, Asia, and Africa.
Nordic countries start collaborating on the same export markets, in order to
compete with other countries more effectively. The possibilities for a Nordic free
trade area and currency union are investigated.
We should make sure that our global companies have the necessary employee
resources when market growth picks up. If they are the only operating companies,
demand for them goes up and they need more people. Let's train reserves in
advance.
Finland could control any market or a globally used service that is not currencydependent, but in which other countries would be connected to our systems. For
example tax collection.
Train workforce as the
reserve for global
companies
Manage a single global
service
Create Finnish
Mittelstand to replace
Nokia
Increase respect for
every type of work
Building a sufficient network of globally operating slightly smaller companies that
get a boost to their activities if Nokia leaves Finland.
Create an ICTecosystem
In an ecosystem, individual knowledge workers can network globally and sell their
expertise to anywhere in the world.
Exploit Finland's neutral
and apolitical
reputation
Finland's image as an apolitical and neutral country needs to be utilized. For Chinese
(as well as others) it is safe to trade with Finns, to work for a Finnish company, or to
buy Finnish products.
Invest in sustainable
well-being know-how
The whole world badly needs a new vision and societal model based on sustainable
wellbeing. Finland could be the forerunner of this trend, based on our strong social
model.
Even Internet failure does not cause as much problems in Finland as it does
elsewhere. We can mutually agree that suppliers dispatch goods to stores, trusting
that they will eventually be paid. Likewise, stores will advance store credit to
consumers.
We'll specialize in piloting. When market conditions change, new pilot projects take
off. These start in those companies and countries that are most advanced in their
development work at that point.
Invest in maintaining
trust in the society
Specialize in fast
piloting
Start a major PR campaign to promote the idea that any form of self-employment is
beneficial, and unemployment is damaging.
Commercialize forest
into an investment
product
Land area does not grow, forest area is declining, and forest are good carbon sinks.
Based on this, Finnish forests are productized as an investment opportunity and sold
by the hectare to international investors.
Finland a global ITservice center for public
authorities
Finland has the world's most efficient tax-collection system, medical administrative
systems, and other public sector IT systems. These could be sold as cloud services to
the whole world, producing cash flow without having to shift large amounts of
physical matter.
Make Finland the
center for Asian and
Russian connections
Creating a new kind of hotspot for growing start-ups together with Russian
entrepreneurs, could turn Finland into an European innovation hub.
Take care of small
networked production
The bigger the systems, the more far-reaching the consequences of failures. Cell-like
production of goods and services is also dependent on global networks, but its
resilience is better. The first player to restore services gains an advantage over
slower competitors.
50
Results of the assessment
The objective of the second Web survey was to evaluate the utility of the 25 actions in each
of the 7 environments. More specifically, the experts were asked which of the actions - if
taken now or in the near future – would most help Finland to succeed in each environment.
The assessments were given graphically by placing the most useful actions near to the center
of the evaluation panel and the least useful actions on the borders. The distances were
mapped to a continuous utility scale ranging from 0 (not useful at all) to 100 (very useful).
The survey resulted in 8 to 18 assessments for each action-environment pair and the
resulting average utilities are presented in Table 1.
Table 1 Actions’ utilities in each environment
RPM was used to compute all efficient portfolios using the utilities in Table 1. Experts’ views
on the environments’ relevance/importance were used to restrict the environments’ weights
in the RPM model. Figure 2 shows the composition of efficient portfolios containing 8 actions
(i.e., about one-third of 25 actions). All of these portfolios contain actions 1, 3, and 6, which
call for promoting trust in society, small networked production, and innovation. Most of the
efficient portfolios also include actions 2 and 11, which relate to security of information
networks and Finland’s know-how on well-being.
51
Figure 3 shows the compositions of all efficient portfolios. The size of the portfolio is
displayed on the horizontal axis and the colors correspond to the share of efficient portfolios
of a specific size that include each action: red (green) indicates that the actions is included in
none (all) of the efficient portfolios of fixed size. For instance action 1, “Invest in maintaining
trust in the society” is included in all efficient portfolios composed of four or more actions. In
turn action 22, “Specialize in fast piloting” is not included in any efficient portfolio that
contains less than five actions.
Figure 2 Composition of efficient portfolios of containing 8 actions.
Figure 3 Composition of all efficient portfolios of different sizes.
52
53
5. CONCLUSIONS
The principal idea of the 7 Shocks project was to use seven different shocks as instruments
for collecting insights about resilience. The cases presented in this report are based on open
source information and interviews. They are internally coherent and fact-based, but not
studied in depth. Some of the cases, such as the impact of Internet on the Finnish energy
system and the complex, indirect impact mechanisms of the potential loss of the pulp and
paper industry, should be studied in a stand-alone research project. One of the alternative
futures, life without the European Economic and Monetary Union, needs to be analyzed
using proper econometric modeling.
The results presented below are based on the detailed analysis of the shock environment
before the shock has occurred and our observations afterwards. In this way, we have been
able to reveal some of the generic features that seem to be independent of the nature of the
specific shock.
What causes lack of resilience?
The 7 shocks under investigation call for an environment that makes the shocks possible.
According to the analysis, these enabling drivers are as follows::
The basic assumption that has guided both the economic and political decision making has
been the requirement for constant growth. The leading driver of this development is
globalization, which has led to increasing systemic dependencies and vulnerabilities in our
economy and society. Globalization has facilitated continuous growth, but it has also
generated structures that are fragile and too rigid in a fast changing environment.
Increased productivity has been an outcome of the advanced division of global roles. By
specializing, we have been able to optimize efficiency. This environment has required large
production units that are able to minimize the price per unit produced. Productivity
54
development has had another facilitator: new emerging economies have been able to
provide the global system with cheap labor, as well as consumers who seek cheap products.
The same efficiency requirement has also been one of the drivers of the integration of
European national economies (free flow of resources) or the inter-European payment system
SEPA (optimization of speed and transaction cost). The global systems have been successful;
the principle of markets as an efficient allocator of resources and the self-sustaining Internet
have done their job well enough; it seems that both of these global systems are able to
optimize themselves without the visible intervention of the public sector.
The very same idea of specialization and power of large units has also led to the situation
where decision-making power has been channeled to experts (“technocrats”). In the case of
SEPA, decisions are made by technical experts and in the EMU design process by economists
and by a political elite. Our power grid is naturally designed by energy experts from large
power companies.
The design choices presented above are good ones and are justified in an economy of
constant growth and a relatively stable environment.
55
Results of the Shock Analysis
The aim of the shock analysis was to gather insights about resilience requirements. As
defined at the beginning of the report, resilience is an outcome of three elements:
adaptation, agility and systems capability to learn and reconfigure itself; active renewal. Each
of these resilience components can be divided into three systemic features: the purpose,
structure, and function of a system.
Purpose is essential for a social system. The social system differs from an ecological system
because it has a self-defined or given purpose and can change its structure and function if its
purpose changes. By structure, we mean the power structure, production structure, and
consumption structure. The third feature refers both to the flows of information and matter
within the system and to the ways it takes place, to the dynamics of the system.
Resilience element
Adaptation
Agility
Active renewal
Purpose
from risk minimization
to uncertainty as a
planning principle,
resilience as one of the
decision making criteria
uncertainty as an
opportunity, speed
fast learning,
maximization of
diversity
Structure
portfolio, ecosystems,
sme’s
Function
role shifting (volatility,
growth/recession),
speed of reaction
users/citizen power,
distributed networks,
self-creation
maximize number of
feedback loops
fast combinations
(public&private),
experiments
fast interaction in
vertical and horizontal
networks, external
interaction
Shock impact analysis framework.
Adaptation
Purpose:
The main goal of economic planning is growth. The new criteria we introduce to decision
making is resilience. When uncertainties are increasing, and the cost of surprise is
accumulating, it seems wise to invest in resilience. In the planning procedures this implies
that traditional risk management and risk minimization are not adequate for dealing with
uncertainty. Uncertainty has to be considered as one of the basic assumptions of strategic
and even tactical planning.
Examples:
 Social resilience requires a strong sense of fairness of the society. Increasing segregation
of our society should be resisted. (Group work)
 Primary needs will have a higher priority in a world of surprises. Citizens should be
prepared for a world in which everything may not operate as we expect Group work)
56
 Prepare to increase self-sufficiency in food production. As the crisis lengthens, local food
production will become increasingly vital. Seasonal radio shows offer tips for fishing and
gathering berries and mushrooms. Small, currently worthless, fish should be caught and
turned into fish fingers. (Actions Portfolio)
 The focus of our trade policy should be directed toward diversity. It is essential to build
trade connections to Asia, Russia, and Africa in order to avoid the impact of potential
problems with our main trading partner countries. (Actions portfolio)
Structure:
Current systems – financial, value networks, Internet – are worldwide. In an environment in
which resilience becomes more important, large global networks have to be split into smaller
overlapping networks. We are speaking about globalized networks operating locally, but
which are also interacting with other local networks as well as with global networks.
Our study showed that sectors relying on a few large companies/production units (ref to
Game Changers) are vulnerable, because they are too rigid to change when the structure of
global consumption/regulatory environment is changing. A more resilient structure is an
ecosystem of small and medium-sized companies that are agile and quick to change their
offerings according to the needs of the consumers. Even if some of these companies fail, the
ecosystem as a whole is sustainable.
The resilient structure is based on portfolio of diverse units/subsectors that react to shocks in
different ways. When one of the subsectors/companies/businesses/technologies loses its
foothold due to the shock, another subsectors/companies/businesses/technologies benefit
from the situation.
Examples:
 Security and resilience requirements for information networks. Let's build systems that
consist of several smaller systems - local networks and separated cloud services which
are connected by an integrating layer so that the whole system can be kept from
crashing if one part of it goes down. All routing is implemented in such a way that these
networks can be connected to alternate cloud services if some part collapses. (Actions
Portfolio)
 Create Finnish Mittelstand to replace Nokia. Build an adequate network to serve slightly
smaller companies operating globally so that they can enhance their activities if Nokia
ever left Finland. (Actions Portfolio)
 New trade policies that focus on diversifying both the export countries (Russia, Asia,
Africa instead of EU) and structure of exported products. (Actions Portfolio,)
 Develop services that require little energy. Investment in companies offering expert
services. These are not as dependent on energy prices, and are able to continue their
business activities more or less as usual, even when faced with higher energy prices.
(Actions Portfolio)
57
Function:
Networks are adaptive structures if the members of the network are ready to change their
role and function when required. This idea comes from traditional Keynesian policymaking.
But instead of changing the nature of production during the recessionary periods in the
economy Finland has allowed it workforce to go fishing and to fund their livelihoods through
unemployment benefits. The nature of the global system is increasingly volatile which means
that all members of the network – both public and private sector – should be able to change
their roles according to the requirements of the global environment. The adaptation should
be immediate, either in the way that the production is arranged so that it is based on selfservice (users are creating the product by themselves) or the role shift is built in to the
controlling system (regulation).
One of the groups of the Analysis Seminar (Group B5) was challenged to identify the missing elements
that were not covered in the actions scanning and assessment. The picture above was presented as
one of their conclusions.
Examples:
 We have to communicate uncertainties so that citizens have strong self-motivation for
the preparedness and produce “a surprise kit” that is for sale in the leading supermarket)
chains. (Group C3, B1)
 Production of public services. Importance of supporting new kinds of co-production
models in producing services on a local level. What kind of communication channels
should be used at the moment (citizen panels); how important is it to react to the
feedback that we get from the citizens and to communicate to them what we have done.
(Group B1) In the production of public services we could apply new kinds of coproduction models on a local level.
58
 Strengthen the social capital of those who are in danger of losing it. Strengthen social
capital of individuals at all levels by widening the scope of opportunities. Good
instruments are taxation, education, and encouragement of self-organized citizen
initiatives. (Group A5)
 Everyone working increases economic resilience, because trust increases
social resilience. Substantial additional investment into learning-by-doing
model (oppisopimuskoulutus) in work places. Employees invest in the
company during bad times by working for free. (Group B2)
Actions that increase
vulnerability
Agility
List is based on the work of
Group B3 in the Analysis
Seminar.
Purpose:
Adaptation keeps us alive, but it does not automatically imply growth. The life
cycles of products, services and ideas are getting shorter and the pressure of
increasing uncertainty strengthens this phenomena. Social systems seek
stability and high predictability, both features that are not favorable for
growth in volatile environments. In order to grow we have to actively use the
opportunities that a fast changing environment provides. We call this element
of resilience agility. Agile nations/sectors/organizations are able to release
some of their resources (people and money) and use the temporary
opportunity the environment provides. Growth as a purpose of the system is
valid, but stability is not. Instead of predictability, controllability and
manageability we must seek surprising opportunities and be quick to utilize
them. Maximizing speed is one of the purposes of a resilient system.
Examples:
 Take care of small networked production. The bigger the systems, the
more far-reaching the consequences of failures. Cell-like production of
goods and services is also dependent on global networks, but its resilience
is better. The first player to restore services gets an advantage over slower
competitors. (Actions Portfolio)
Structure:
Agile structures are based either on their resource management model; there
is enough slack in the organization so that it can react immediately to an
opportunity, or its structure is based on distributed networks. An agile network
can activate those parts that are useful in the new situation (and those
resources that are not needed will participate in production in another
network). The most agile structures are based on co-creation. Users are simply
innovating/producing the new service when it is needed. The new trend of
self-creation is a good example of this.
59
Grey economy. If we
increase respect for every
type of work, will this also
cover the informal
economy that is decreasing
trust on institutions and
funding base of public
services.
If we focus our training so
that we will have workforce
reserves - How do we know
in advance that the given
training is the correct one?
Shifting from EMU to the
Nordic monetary union
would mean once again
that we will not have an
independent monetary
policy.
Activities that are never
discontinued; such as
regulatory models, wagesetting system in the
economy etc.
Lack of geographic
mobility. Ownership-based
housing is tying people to
one area. We should apply
no-recourse mortgages?
Examples:
 Promote innovation for a rainy day. National "Google time", in which every (employed)
citizen can use maybe 20% of their time to work on resilience-improving ideas for
extreme environments. (Actions Portfolio). The right proportion should be 70 for
production, 20% for organized development and 10% for improvised development.
(Analysis seminar, Groups A1 and A5 )
 Support entrepreneurship by applying sweat equity principle (experts or founding
partners work is compensated by shares of a company) and a “failure insurance” that
covers some of the losses of an entrepreneur. (Group B4)
 Invest in strong basic education that will operate as a strong platform for fast
applications. (Group A3)
 Maintain a high quality infrastructure (information infrastructure, roads) because they
are the prerequisites for fast reactions. (Group A4)
 Develop services that require little energy. Investment in companies offering expert
services. These are not as dependent on energy prices, and are able to continue their
business more or less as usual, even when faced with higher energy prices (Actions
Portfolio). Be ready to improve both the number and quality of skilled labor for service
industries (Group A4).
Function:
Surprising and fast emerging opportunities require new kinds of innovation. Instead of yearslong innovation investments, the agile organization is investing in capabilities that enhance
combinations. Fast innovations are combinations of old and new technologies, existing
products with innovative service layers and unique offerings that use both public and private
resources. Low predictability favors diverse, relatively low investment experiments. If the
portfolio of experiments is diverse enough, some of them will be useful in whatever happens
in the environment. The same applies to the portfolio of country level alliances, if the
portfolio consists of a broad enough set of alternatives, the agile country can shift emphasis
from one partnership to another according to the situation.
Examples:
 Invest in new rapidly exploitable knowledge combinations. Let's combine old and new
and cut back on developing longer-term development. New innovations lie here in the
cross-section of traditional clusters. Rethink the traditional economic clusters (shipyards
make apartment buildings). (Actions Portfolio and Group B2)
 Specialize in fast piloting. We'll specialize in piloting. When market conditions change,
new pilot projects take off. They are started with those companies and countries that are
most advanced in their development work at that point. (Actions Portfolio)
 Experimenting with public policies in different pilots, early failures should be recognized
if possible (Group A2)
Active renewal
60
Purpose:
In the most of the context resilience refers only to absorption of the shock. In this study we
go further. After the shock, the system is not able to return to the same state, but will be
qualitatively different after the shock has happened. The system may either collapse or
continue as a “retarded” system. In the best case, a system uses the shock as a trigger for
renewal and it tries to learn and improve its performance. This element requires a shift in the
purpose of the system. In the long run it may be wise to give up growth for a while and focus
on fast learning and improvement of resilience for the next shocks.
Structure and function:
Resilient systems are able to self-organize. When the shock has disrupted the system
(imported energy into the system), the system will in the best case reconfigure itself without
or with minimal centralized control. In order to benefit from this phenomenon, the system
has to accept creative destruction and immediately legitimize developed procedures for
future use. This requires fast reactions from the policymaking and regulations system.
Examples:
 Invest in maintaining trust in the society. Even Internet failure does not cause as many
problems in Finland as it does elsewhere. We can mutually agree that suppliers dispatch
goods to stores, trusting that they will eventually be paid. Likewise, stores will advance
store credit to consumers.
Renewal is based on learning. Learning systems have a high number of feedback loops. At the
country level this means that vertical dialogue between authorities and citizen, decision
makers and subordinates should be enhanced. New opportunities for vertical interaction in
government operations, modern social networks and smaller local communities should be
supported. Early detection of change provides time to learn, so constant information
exchange with external connections is also a typical feature of renewing organizations. The
interaction provides us with an opportunity for early failures, so that resources can be
reallocated early to the next experiments.
Example:
 Enable existing spontaneous activities of small communities such as food circles,
urban culture events and restaurant days. (Group work)
 Bottom-up crisis planning, where citizens are one of the planning resources. (Group
work)
 When a large company fails it means a release of resources. Actions should be
coordinated by immediately setting up committees that consist of sector/cluster
experts, public-private organizations and local people. The role of the committee is
to coordinate actions, to exchange information and to facilitate initiatives. (Group
work)
 Immediate collection of best practices after the shock. Use games or “Pirkka-niksit”
for collecting ideas from public. (Groupwork)
61
 If the shock causes immigration, and immigrants are successfully integrated into
society, we will have several benefits: new positive entrepreneur culture that also
changes Finnish entrepreneur culture. If immigrants are evenly distributed in Finland,
rural areas will also recover and it opens up new services all over the country. (Group
work)
Resilience Portfolio
Decisions have to be made daily. In the best case, decisions serve both current goals and
enhance shock resilience. The basic resilience portfolio was defined in the actions
assessment process and processed further at the Analysis Seminar, which took place at IIASA,
Laxenburg, Austria, on November 24-25, 2011.
Resilience portfolio as articulated in the Analysis Seminar.
Core actions are those that are useful across all of the 7 shocks that were analyzed.
Contingent actions are seen to be useful in only one to three of the shock situations. Current
actions are those that are included in current action plans. In the top left hand corner we see
a list of new actions that should be initiated. In principle, the rule is that if resource
constraints are severe and resilience requirements are increasing, we should shift resources
from contingent actions to core actions
62
This picture is the same as in Chapter 4; however the actions assessed are now arranged
according to their usefulness.
The outcome of this process shows that the core actions seem to be twofold by their nature.
As one of the groups in the Analysis Seminar noted, the majority of the actions in this list,
such as an increase in equality, strong basic education, infrastructure enforcement and trust
building are generic in that they develop the basic resilience capabilities of the society. The
other core actions group of this study consists of fast and concrete actions such as activating
the crisis portfolio, using household services taxation treatment or retargeting trade
activities.
New actions initiated in this study require structural changes in society and the economy.
During the discussions in the Analysis seminar all the groups articulated one theme over all
the others: social resilience. Trust is essential to social resilience and one of the central
means presented was a new kind of collaboration; citizens as partners in resilience building.
The portfolio generated in the 7 Shocks and Finland project presents a list of actions that are
useful in an uncertain environment, with some of the actions even being rather
controversial. The resilience portfolio is only an input to the strategic planning and the final
choice of resilience strategies are made in the course of that process.
The study was a first of its kind and it was scanning for resilience requirements at the
national level. The choice was taken because on account of the increasing systems
dependencies, it is essential to look first at both the economic and social systems level in the
global context. The obvious next step is to dig deeper and run the same process at a
sector/organization level.
63
64
Attachment 2
KEY EXPERTS INTERVIEWED
IIASA
•
Tapio Palokangas
•
Keywan Riah
•
Anatoly Shvidenko
•
Quianlai Luo
•
Landis MacKellar
•
Zac Bharucha
Other experts
•
David-Holland Smith DSTL
•
Chin Lum Kwa PMO, Singapore
•
Michael Jackson, Shaping Tomorrow., UK
•
Veli-Matti Mattila FKL
•
Paivi Pelkonen FKL
•
Matti Jauhiainen NESA
•
Ralf Sonntag NESA
•
Ari Sifverberg Fingrid
•
Liisa Heikinheimo TVO
•
Markku Orval Fortum
•
Timo Kaukonen Fingrid
65
Attachment 3
Three China Scenarios
Baseline Assumption:
All countries grow with their last 8 years GDP growth rate, export growth rate, and import
growth rate.
For Finland, in 2010 these values were
GDP Growth Rate = 1.69%
Export Growth Rate = 6.53%
Import Growth Rate = 10.06%
For Finland in 2011 these values are:
GDP Growth Rate = 1.85%
Export Growth Rate = 6.67%
Import Growth Rate = 9.8%
The difference is due to positive GDP growth (3.12%) that occurred in 2010
The Main Assumption governing all three scenarios is
China challenges US dominance
This challenge comes in three different forms:
I.
II.
III.
China is increasingly assertive, belligerent even, in all areas of conflict and contention
(the “hard” path). In this scenario the wildest card is actual military confrontation
between China and the US.
China is still assertive but exercises its assertion in a more subtle way, often through
diplomatic channels, denial of resource exports and the like (the “soft” path).
China weakens due to internal stresses of an economic, political and social nature,
while the US somewhat miraculously re-emerges as the dominant global power. This
scenario involves progressively slower Chinese growth, while the US regains confidence
and influence.
China Scenario Translations into “SimSpeak”
In order to convert the foregoing verbal scenarios into a language the simulator understands,
we must engage in a kind of “simspeak”, in which a somewhat more detailed story is told in
numbers rather than words. Here is the numerical story for Scenario 1:
66
Scenario 1 - Between 2010 and 2015, an aggressive China increases trade in Asia. The Asian partners
then turn their back on the Chinese in 2015, and return to the USA as the main trading partner until
2030. (This is now modified as Between 2012 and 2017 China is aggressive, later for 10 years China
Exports to Japan, India and Indonesia shrink, and Chinese GDP growth is 5%, USA Exports to Japan
India and Indonesia increase)
2012
2012
2012
2012
2017
2017
2017
2017
2017
2017
2017
5
5
5
5
10
10
10
10
10
10
10
CHI
CHI
CHI
CHI
CHI
CHI
CHI
USA
USA
USA
CHI
EXPORT
EXPORT
EXPORT
GDPD
EXPORT
EXPORT
EXPORT
EXPORT
EXPORT
EXPORT
GDPD
10
10
10
12
-30
-30
-30
30
30
30
5
IND
INDO
JAP
(setgdp)
IND
INDO
JAP
JAP
IND
INDO
(setgdp)
Scenario 1 – Results shown as departures from the baseline scenario, which is always
at the 0 level.
Finland GDP Growth
3,5
3
2,5
2
1,5
1
0,5
0
0
-5
GDP Performance in 2030 difference from baseline scenario (in %)
SPA NOR UK HOL TR BEL ITA DEN CAN MEX FRA SWE GER FIN USA SAF RUS IND BRAINDO JAP CHI
-10
-15
-20
-25
-30
-35
-40
-45
Interpretation: By 2030 China is by far the country that’s worst off – it achieves 40% less
than in the baseline scenario. Finland also suffers, being off the baseline by 3.7%.
All Finland sectors do badly, with the worst ones billions of USD lower than in the baseline
case. Here are the worst-performing sectors
67
38mvh
40ele
41ome
31ppp
-0.055
-0.164
-0.188
-0.2
Finland Sectors Export Performance in
2030
38mvh
36nfm
32pc
35is
33crp
40ele
41ome
31ppp
0
-0,1
-0,2
-0,3
Sector Performance over years
0,05
-0,05
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0
31ppp
38mvh
-0,1
40ele
41ome
-0,15
-0,2
-0,25
Scenario 2 - between 2012and 2022 China slowly increases exports to Asia (5% to Japan, India and to
Indonesia) and achieves 11% GDP growth every year, following a careful, yet determined, strategy to push the
US out of the Asian import market.
2012
2012
2012
2012
10
10
10
10
CHI
CHI
CHI
CHI
EXPORT
EXPORT
EXPORT
GDP
5
5
5
1
JAP
IND
INDO
gdpevent
68
Scenario 2 – Results
Finland GDP Growth
3,5
3
2,5
2
1,5
1
0,5
0
GDP Performance in 2030 difference from
baseline scenario (in %)
12
10
8
6
4
2
0
CHI JAPINDOBRA IND USA RUS SAF FIN GER CANMEX FRA SWEDEN UK ITA BEL TR HOL NOR SPA
Interpretation: By 2030, all economies do well, particularly China, who achieves 12% higher
GDP than in the baseline scenario. Finland also does well, showing an increase of 0.06%.
31ppp
41ome
40ele
38mvh
0.038
0.035
0.031
0.01
2030
0,04
0,02
0
31ppp
41ome
40ele
33crp
35is
69
32pc
36nfm
38mvh
0,04
0,035
0,03
0,025
31ppp
0,02
38mvh
0,015
40ele
0,01
41ome
0,005
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0
Scenario 3 - between 2012 and 2020 China underperforms by 3% below its baseline while the USA grows 1%
above its baseline, then after 2020 China underperforms by 5% for the next 8 years.
2012
2012
2020
8
8
8
CHI
USA
CHI
GDP
GDP
GDP
-3
1
-5
gdpevent
gdpevent
gdpevent
Scenario 3 – Results
Finland GDP Growth
3,5
3
2,5
2
1,5
1
0,5
0
70
GDP Performance in 2030 difference from baseline scenario (in %)
10
0
MEXCAN USA UK NOR ITA TR SPA HOL BEL DEN SWE FRA GER FIN SAF RUS IND BRAINDO JAP CHI
-10
-20
-30
-40
-50
Interpretation: Mexico, Canada and USA all do well. Finland does 3.27% worse than the
baseline.
USA vs China GDP in millions USD (Baseline)
45000
40000
Axis Title
35000
30000
25000
USA
20000
CHI
15000
10000
5000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0
USA vs China GDP in billions USD
30000
25000
15000
USA
CHI
10000
5000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Axis Title
20000
71
Interpretation: China was normally expected to overtake USA by 2021 (baseline forecast),
but this scenario delays this by 5 years.
38mvh
40ele
41ome
-0.048
-0.146
-0.166
2030
38mvh
36nfm
32pc
35is
33crp
40ele
41ome
31ppp
0
-0,05
-0,1
-0,15
-0,2
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
0
31ppp
-0,05
38mvh
40ele
-0,1
41ome
-0,15
-0,2
72
73

7 Shocks and Finland

Transcription

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