European Union that becomes more and more like Schroedinger’s cat, the affluent middle-class angry at globalization, growth of silver economy – these are but some of the factors that will affect business next year, as concluded at Business Strategy 2017 conference.
#Middle-class blaming globalization for income stagnation and rising support in favour of protectionism
The middle-class in wealthy western countries is very clearly dissatisfied with the fact that their material welfare has not improved in the past decade. Now those people search for the ones responsible for this misfortune. Because people mostly blame globalization, society expresses the desire to switch to reverse and halt liberalization of international trade. Poor people and emerging market economies would benefit the most from globalization.
«There could be potential negative consequences to the rise of protectionism tendencies. We have become a country of medium-high income thanks to trade with the world’s richest countries. This is why it is in Latvia’s interest to avoid a ‘heavy’ Brexit. It is also highly important to maintain good mutual relations with China. There should also be no delays with Rail Baltica’s construction,» – says advisor to Bank of Latvia Andris Strazds.
#Geopolitical earthquakes to continue, EU to become more like Schroedinger’s cat
Even now, at the end of 2016, it is crystal clear that the order that formed after the end of the Cold War is no more. But there is no answer to the question what comes next. According to the bank’s advisor, the EU is becoming more like Schroedinger’s cat. This means the EU continues to exist, but the fundamental freedoms in it are secured and are not at the same time. The same country is both in and outside the common market; free travel within the Schengen Zone exists and does not exist at the same time; energy and digital unions are formed and not formed at the same time.
«We cannot affect the world’s geopolitical situation, but we can make the business environment in Latvia more attractive for investments by making the tax system and legal regulations more predictable and by improving overall quality of education,» – says OP Corporate Bank Plc Latvian office manager Elmars Priksans.
#Active seniors or ‘silver economy’ will play a bigger role
Developed countries, especially Western Europe, are not prepared for the expected rise of life expectancy to 90 years. To restore balance between generations, massive changes will be necessary. For example, less than 10% of the world’s population lives in Europe. It forms approximately a quarter of the world’s economy. Its residents are paid more than half of the world’s social benefits.
Active seniors offer a way out – the so-called silver economy. «In 2022, the proportion of 25-34 year old economically active residents will be one-fifth smaller than it is now. The number of employed people aged 55-64, on the other hand, will grow significantly. It is clear that we will no longer be able to rely as much on the next generation in the future. To avoid excessing payments to outsourcing services, it is necessary to think about keeping existing talented workers in place,» – said KPMG Baltics lead partner Armine Movsisjan at Business Strategy 2017 conference.
Investments in training, especially in modern technologies, communication of clear career plans, more flexible work conditions, appropriate pay – what can we expect from older workers? Loyalty and life wisdom that can only be acquired through life experience, she added.
#Time to start adapting to rough changes in business game rules
Technological change, including automation and modern energy help create historic changes in industry. Digital and sharing economy – Uber, Airbnb and other similar services – these are by some of the changes we can expect in the future. A study by PwC concluded that five sharing economic sectors helped create revenue worth USD 15 billion in 2014.
Because new game rules are in development, businessmen and politicians have to come up with a vision and goal that will motivate them and the rest of society, says PwC lead partner Zlata Elksniņa-Zaščirinska.
«According to results of the study in Latvia, businessmen there have trust issues. But it is mutual cooperation that is vital in order for companies to successfully adapt to tendencies that are changing the world. Politicians have to stick to their priorities no matter how hard it is to do so. Businesses should also be able to deal with challenges that appear from new regulations and emerging technologies,» – explains Elksniņa-Zaščirinska.
#Welfare in debt
Debt burden of developed governments is one remaining headache. It reaches 86% of GDP on average in Europe. This results in welfare in debt, which is not a sustainable solution. It is equally hardtop predict the possible side-effects of the non-traditional monetary policy solutions employed by world’s central bank.
According to Strazds, «non-traditional monetary policy cannot secure economic growth; it can only push forward a little bit. If the monetary policy has no support from reforms meant to improve competitiveness and productivity, it is only a matter of time before we are struck by another crisis.»