At a recent FT | IE Corporate Learning Alliance breakfast, FT editors and PwC partners discussed geopolitical risks and what these mean for business. Michael Skapinker, Executive Editor, FT | IE Corporate Learning Alliance, Roula Khalaf, Deputy Editor FT, and Gideon Rachman, Chief Foreign Affairs columnist, led the discussion.

Below are some corporate learning insights arising from the event:

Changing geopolitical assumptions. For some 30 years, businesses have operated within a relatively favourable political environment that assumed the ongoing spread of free-market democracy. However, company risk analysts now need to consider four trends that are challenging the ‘Davos-style’ consensus around the benefits of an open global economy.

  • US under Trump. President Trump’s emphasis on strong sovereign states rather than multilateralism has undercut the US’s traditional global leadership role as rule-setter and policeman. A new ‘transactional’ approach to international affairs not only pays lip service to existing rules but heightens the dangers of political mistakes and misunderstandings.
  • Rising authoritarianism. Mr Trump’s affection for political strongmen, the rise of populism, and the related loss of self confidence in liberal western values has opened the field for authoritarian regimes such as China and Russia to extend their influence.
  • Shifting alliances. Assumptions around the stability and durability of pre-existing alliances are changing. The Middle East is in flux, as seen, for example, in collaboration between Russia, Turkey and Iran.
  • Emotional politics. Fuelled by social media and fake news, policymaking is being driven by emotional factors rather than rational empirical discussion. Recent revelation of offshore tax avoidance in the ‘paradise papers’ may be one small example of how changing sentiment can impact international business.

Weakened trade regimes. President Trump’s aversion to multilateralism is undermining the credibility of trading systems such as NAFTA, but without offering a viable alternative. Similarly, the WTO (Britain’s supposed fall-back in the event of a hard-Brexit) has been weakened after the US blocked the appointment of judges to the WTO’s seven-member appellate board. The board might soon be reduced to just three, from the US, China and India—countries most likely to have an interest in the outcome of a dispute. Global brands and portfolio investors are now considering whether to retrench to more established markets within stable trade blocs.

Dangers of the all-powerful state. For many years, it was assumed that political and economic liberalisation was a pre-condition for economic growth. However, authoritarian states such as China, with its relatively efficient bureaucracy, are increasingly seen as viable alternatives. Extractive industry firms have long operated successfully in authoritarian regimes, while other investors have welcomed clampdowns on corruption. But as China’s own corruption drive shows, strong executive power can easily spill into arbitrariness, harming investors that find themselves on the wrong political side. Even in democratic regimes such as Brazil, anti-corruption measures can be so far-reaching as to undermine faith in the entire political system.

Global migration. Migration has become a major policy driver in developed economies. But this highly emotive issue too often conflates legal and illegal migration, or refugees with essential skilled workers and even overseas students. Immigration pressures are only likely to intensify. Africa’s fast-growing population (with an average age of 19) will continue to seek opportunities in a wealthy, ageing Europe, causing ever greater social and political tensions.

Business activism. How far should business lobby to preserve a favourable operating environment? Although some political advocacy can be overt, companies generally prefer quiet industry-based lobbying to avoid adverse publicity. However, many executives report diminishing influence in the corridors of power. Mr Trump has abolished his business advisory council, while the UK government has been unwilling to provide a confidential forum for business to express its views. Companies operating in authoritarian markets may have to consider the reputational risks of being seen to support corrupt regimes. In general, executives seem less inclined to get involved unless political risks directly affects their bottom line. As such, companies in the UK appear more exercised by Brexit than what a future far-left labour government might bring.