In December 2024, I participated in the 29th plenary meeting of the Montevideo Circle, which took place in Mexico City. I was invited to discuss the impact of conflicts, a challenging task, in the context of a meeting convened to discuss “Trust in Contemporary Society.”
When we began the debates of the Montevideo Circle, in 1996, its founders proposed that we analyze an epochal change. It was a difficult and challenging task. However, we had some parameters that allow us to evaluate the impacts of the more or less conflictive changes, that took place in recent decades.
For example, we dared to predict, with some confidence, that negotiations for regional economic integration (always conflictive, as those of us who participate in them know), offered great possibilities of achieving a positive impact on national economies through higher levels of trade and investment and, therefore, they would allow us to increase and modernize the structure of the labor market.
With these parameters, over the last 28 years, the Montevideo Circle has analyzed and debated the rivalries, conflicts, and characteristics that defined an epochal change marked by: a) the arrival of emerging economies at the forefront of the international economy; b) the emergence of a new global middle class; c) the need to recognize the value of natural capital, due to the environmental crisis that our planet is suffering, and d) the arrival of the second machine age, in the context of a revolution in information and telecommunications technologies.
What I would like to suggest here is that the conventional wisdom that helped us in the past to evaluate the impacts of the political and economic changes and conflicts that we are going through, is today in crisis.
Let me offer an expample: what does conventional wisdom suggest about current times?
In the regular economic analysis sessions organized by American investment funds, which I join ifrom time to time, for example, a tough road was predicted for the stock markets in the current decade, due to high inflation rates. However, the S&P index is up and exceeds 6,000 points today and specialists see it at 6,600 by the middle of this year. Its top 10 assets, which represent 34% of the fund, have increased by 15% in 5 years.
The winter of Artificial Intelligence was also predicted for the decade of 2020. However, this decade seems to be the “gold rush” of Artificial Intelligence. Beyond the gold rush of artificial intelligence represented by the technological giants, the density of data centres grew by 8%, the chip market multiplied by 14, and the energy consumption multiplied by 3.
The death of cryptocurrencies was also predicted, and in fact cryptocurrencies lost 1.4 trillion in value in 2022, but now, they reach values in the region of 3 trillion.
The decline of the oil & gas industry was also predicted. However, conventional energies increased, and in the S&P index, energy is at its highest level since 2014.
These are just a few examples that I present with the intention of postulating that our ability to predict the impacts of policy measures, changes and conflicts has been reduced.
In my opinion, this is explained, to a certain extent, because we are increasingly faced with an ever more fragmented reality. In this context of fragmentation, understanding the interactions between policy decisions, economic dynamics and social response becomes increasingly relevant.
A more fragmented reality prevents us from obtaining direct conclusions (such as those we obtained by applying conventional wisdom) and forces us to pay more attention to interactions. The same phenomenon, for example, the integration of global trade and investment markets, is considered a key element to explain the reduction of inequality between countries and, at the same time, the increase in inequality within national economies.
Let us take the case of global trade. In this field, we are facing a historic phenomenon. The index of trade openness is declining for the first time since the Second World War.
Between 2008 and 2021, it was around 60%, now falling to 57.2%. However, this process of fragmentation experienced by globalization shows us a more complex phenomenon, where exports from Russia and China to the G7 fell by 10 percentage points in five years, while those of the United Kingdom increased by 10% in that period.
The decline in the Trade Openness Index, explained by the increase in border measures that obstruct trade (which rose from 1,800 in 2020 to 3,200 in 2023), does not prevent global trade from growing by 2.7% this year and a growth of 3% is forecast in 2025. How can this be explained?
There are several reasons, but I would like to highlight two. The first indicates that trade flows have become more complex, in addition to trade in commodities, physical inputs and manufactured products, these flows increasingly include services, data and information, services between people, tele-migration, etc.
And secondly, one third of global trade is intra-firm and another third is between large global companies and their suppliers. Large global companies are increasingly powerful and rival the world’s large economies in terms of stock market value. If we were to admit them into the group of 20, Apple would be in sixth place, Microsoft in eighth, Nvidia in tenth, Alphabet in 14th and Amazon in 16th.
How then do we assess the impact of the changes, of the conflicts, of the different realities we face?
My proposal is based on enriching our conventional wisdom by looking closely at the interactions between political changes, technological disruption and the radical uncertainty we face, since these interactions define a fragmented reality that allows for different impacts depending on the level of analysis for the same phenomenon.
