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Business News/ Opinion / Why 2016 was the year of black swans

The term “black swan" connotes an extremely rare, unexpected, and surprise event of great magnitude, which has the potential to change the course of history. Such an event, which is considered highly unlikely, if not impossible, before it occurs, is inevitably rationalized post facto. While black swan events generally have a negative connotation, some of them might be the harbinger of more positive developments in the long run. On both accounts, the unprecedented number of disruptive events have made 2016 the year of black swans.

Consider the following: The unexpected Brexit outcome delivered a body blow to the already tottering European Union (EU) reeling from the unprecedented refugee and migrant crisis (the largest since the end of World War II). This, followed by the defeat of the Italian prime minister in an equally ill-advised referendum on the future of the country, has the potential to unravel the EU. Simultaneously, despite the impending military defeat of the so-called Islamic State (a black swan event of 2014, which inspired a spate of terrorist attacks worldwide), the extremist ideology of the movement continues to prevail in the region and globally. The mother of all black swan events of 2016 was, doubtless, the victory of Donald Trump in the US election. Trump has validated his anointment as the world’s most formidable disrupter-in-chief by his controversial nomination of a significant number of military and corporate men, some with pro-Russia leanings, to his imminent cabinet.

On the flip side, the selection of António Guterres as the ninth UN secretary-general was equally unexpected (given the penchant of Security Council permanent members to appoint feckless leaders) and augurs well for the world body.

Similarly, India’s deeply disruptive demonetization exercise might yet produce constructive consequences. Equally, the unexpected support to start negotiation for a treaty to ban nuclear weapons has put the concept of deterrence, the cornerstone of the post World War II world order, on notice and surprised many states that depend on these weapons for their security but facilely talked about disarming them.

Finally, the grant of the Nobel prize for literature to a troubadour, albeit an exceptionally talented one, might also presage a new direction for the stodgy award.

Clearly, no single set of explanations can rationalize these myriad black swan events, which were driven by very specific circumstances and factors. Yet, a number of common elements made 2016 an exceptional year for unexpected developments.

First, as historian Margaret MacMillan noted in a thoughtful essay, “The Rhyme Of History: Lessons of the Great War", are the twin factors of globalization and the rise of an aspirant middle class. The latter trend was particularly notable in the emerging economies, such as India and China, which benefited significantly from the former phenomenon. Yet, globalization also spawned resentment and strident nationalism among the middle class in the developed world, notably the US and Europe, which saw their relative prosperity stagnate or even decline in some instances. For example, in the US Midwest (which powered the Trump tsunami), populations have experienced increase in joblessness and decline in life expectancy. Ironically, despite the advantage of globalization, the nationalist appeal is also resurgent in emerging economies.

Second, despite the overall improvement in global prosperity, economic inequality is on the rise. For instance, according to a 2012 study, the richest 1% of Americans owned 42% of all US wealth—the highest since the Great Depression. The fact that Trump’s victory also gave the Republicans control of the White House, the House of Representatives and the Senate (for the first time since 1928, which might have contributed to the Great Depression a year later), coupled with the corporate bias in his cabinet nominees, does not augur well for economic inequality being remedied anytime soon. Similar income inequality haunts Brazil, India, Russia and South Africa.

Third, political apathy in some cases coupled with the increasing appeal of a right-wing, populist, nationalist narrative (magnified by the fabrication and circulation of “post-truth" facts via the echo-chamber of online social media) has led to unlikely and deeply divisive political outcomes. For instance, in the US election, nearly 50% of the electorate did not vote. Worse, of those eligible to vote, nearly 30% did not even register to vote. Those who did vote were swayed by false news stories and the vacuous sales pitch of a better and brighter future. In contrast, the high turnout (with over 74% of the electorate voting) along with a successful counter-narrative appeal in Austria, which saw the defeat of the far-right, might be the exception that proves the rule.

Finally, the growing isolationist tendency has led politicians to shrug off their global leadership role. Even an avowed multilateralist like President Barack Obama mused about leading “the world without becoming its policeman" in his last state of the union address. However, without investing to remake “the international system we built after World War II (which) is now struggling to keep pace with this new reality", Obama might have paved the way for a more chaotic global order with ineffective institutions.

These trends are likely to produce an increasing number of black swan events in the future. Welcome to a brave, disruptive, chaotic and, most likely, dangerous new year.

W.P.S. Sidhu is visiting professor at New York University’s Center for Global Affairs and non-resident senior fellow at the Brookings Institution.

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Updated: 19 Dec 2016, 08:22 AM IST
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