#34 The G|O Briefing, January 28, 2021

Climate change: can our brain process it? - A major upheaval in supply chains in the making

This is an onsite, slightly edited republication of the complete G|O Briefing newsletter

Today in The Geneva Observer, climate change, with two quotes to set the scene, and a prospective look at how technology will remodel supply chains—a surprisingly popular subject of conversation since the pandemic.

“We’ve already waited too long to deal with this climate crisis, and we can’t wait any longer.  We see it with our own eyes, we feel it, we know it in our bones, and it’s time to act.”

Those were the words of 78 year old Joe Biden, announcing yesterday his decision “to supercharge our administration’s ambitious plan to confront the existential threat of climate change.” Remembering his age matters in this context, because the supposed generational divide when discussing climate change can be misleading (see below),  and distracts us from the work ahead. After the nightmare years of Donald Trump, listening to Joe Biden and John Kerry outline the new administration plan was truly invigorating. It is even more so considering fighting climate change might be one of the single areas of real cooperation between the US and China.

“The voice of the people is clear—they want action on climate change.”

These words belong to Cassie Flynn, head of the United Nations Development Program Climate Promise, as the agency unveiled a mega-survey conducted in more than 50 countries with 1.2 million people.  Two-thirds of them consider climate change as a global emergency, 69% among those aged 14-18 years, 58% for those over 60. Hardly a generational divide indeed.  Taken together, the US announcement—or Switzerland’s which also unveiled its net-zero 2050 strategy yesterday—and the results of the UN survey carry great political significance. As 2020 was one of the hottest years on record, “The key message,” said Flynn, “is that, as governments are making these high-stakes decisions, the people are with them.”

The Peoples’ Climate Vote | United Nations Development Programme
With 1.2 million respondents, the Peoples’ Climate Vote is the largest survey of public opinion on climate change ever conducted. Using a new and unconventional approach to polling, results span 50 countries covering 56% of the world’s population.

In this context, how is it that our individual and collective response seems to be slow? Inadequate in comparison with the challenge, according to a recent study from Tobias Brosch, holder of the chair for Psychology of Sustainable Development at the University of Geneva. “One reason for the failure to show a rapid concerted reaction to climate change is the fact that human information-processing mechanisms are not optimized to recognize the threat that is posed by climate change,” he writes in a recent research policy brief published by the Geneva Science Policy Interface (GSPI). As mitigating climate change requires rapid behavioral shifts towards a more sustainable lifestyle, policy interventions informed by behavioral insights can help guide us by communicating the environmental impact of concrete behavior. That can in turn, be efficient to avoid demoralization. A short interview with Professor Brosch is below but we truly encourage you to read his paper. Not only does it help us better understand our own response to the climate crisis, it also offers precious policy recommendations.

GSPI Policy Brief: Behavioral insights for climate action - Geneva Science-Policy Interface
Launch of new GSPI Policy Brief on behavioural insights for climate action at the United Nations in Geneva.

Three questions to Tobias Brosch

Philippe Mottaz: What is your reaction to Joe Biden's sweeping climate change announcement yesterday?

Tobias Brosch: I think it's very significant after four years of climate change denial by Donald Trump and his administration. It is particularly meaningful coming from the US, where the question of climate change is highly politically charged. The announcement from the president contributes to the acceptance of climate change as a fact. Being aware is the first necessary step to take action.

The urgency to fight climate change requires rapid changes in our behavior. But, as you write, as climate change is largely removed from our direct sensory experience—it is slow-moving and abstract—it hinders our ability to act. Climate change, you say, is a challenge to our human brain. We see, since Greta Thunberg, a new generation of activists that have made that switch. How much of a driver for change are those movements?

Fighting climate change is a collective effort. It requires the engagement of governments, business, and civil society. There is a tension between fear and hope. I think that those movements make us realize we are not alone in grappling with our fear and that together we can act, so there is hope. The “moralization” of climate change also acts as a powerful driver for change. Behaviors, society standards, that were accepted in the past are no longer tolerated today. Slavery was legal at one point. Smoking was considered cool. The flight shame phenomenon is a clear indication of such a change. But we also have to reckon with what psychologists call the value-action gap, the mismatch between beliefs and behavior, a challenge since fighting climate change relies on behavior changes.

All in all, would you say that we have reached a tipping point in realizing climate change is real, that a shift is finally underway?

Yes, I think we have reached such a point.

( This interview was edited and condensed for space and clarity )

The New Upheaval in the World Economy

A new study by McKinsey, the business consultancy, entitled “The next normal arrives: Trends that define 2021—and beyond,” predicts that up to a phenomenal 25 percent of global trade in goods could shift by 2025 as a result of supply chain rebalance and shift. The deadliest pandemic in over a century has helpedexpedite this shift by the supply shortages and bottlenecks of vital materials including PPEs, medicines, critical parts and components, and electronics, and now shortages in vaccine production capacity and supplies.

The next normal arrives: Trends that will define 2021--and beyond
The COVID-19 pandemic has changed the world, and its effects will last. Here are some business trends for 2021 that business leaders should keep in mind.

G|O contributor John Zarocostas asked Robert Koopman, Chief Economist and Director of Economic Research and Statistics at the World Trade Organization, to give us his perspectives on the changes underway and how they may impact global trade. Before his WTO appointment in November 2014, Mr. Koopman served as Director of Operations and Chief Operating Officer for the United States International Trade Commission. He holds a Ph.D. in economics from Boston College and is also an Adjunct Professor of Economics at the Graduate Institute, Geneva.

John Zarocostas: A new report by McKinsey, the business consultancy, says that as a result of supply chain rebalance and shift—accelerated by the complications witnessed during the ongoing COVID-19 pandemic, as much as a quarter of goods exports, or $4.5 trillion, could shift by 2025. Which export sectors may be more affected by trade diversion in this initial period?

We have seen supply chain realignments for a number of years, even prior to the pandemic.  Those sectors that have been shifting to new countries have typically been ones that can be taken up by the capability levels of the new countries. The pandemic has led to some companies looking for multiple suppliers of parts and components, but again, driven by those parts and components where other countries have those capabilities.  Given the way global trade data is harmonized at fairly aggregate sectoral levels, it is hard to determine specifically those parts and components whose sourcing is shifting to other countries.

The study clarifies multinationals are not going to ship all or most of their production back to their home markets (reshore) and will take advantage of regional expertise to tap fast-growing consumer markets.  How much will this shift intensify regional and intra-regional competition to attract these manufacturing entities?

Thus far, global data trends do not support major shifts to onshoring. In the trade data we see substantial trade diversion to other countries, and perhaps some benefits to “nearshore” countries.

How much will these rapid developments put the WTO's poorest members at a disadvantage and can Aid for Trade by the WTO, multilateral agencies, and bilateral donors, help?

It appears that a number of poorer countries have been benefiting from supply chain diversification—even prior to the health crisis. The WTO’s poorest members often face challenges integrating into global supply chains related mainly to how modern businesses are run—the need for good data connections, good logistics and trade infrastructure, and institutional arrangements that facilitate cross border commerce.  A number are clearly making progress, but more remains to be done and WTO programs such as Aid for Trade can help.

Aside from the pandemic complications and concerns about security and resiliency, how much of this shift is likely to also be driven by rapid technological changes in manufacturing that are also narrowing the cost differential among developed countries and many emerging developing economies? McKinsey highlights, for example, that companies that adopt industry 4.0 principles (i.e., the application of data, analytics, human-machine interaction, advanced robotics, and 3-D printing ) can offset half of the labor-cost differential between China and the United States.

Technological change is playing a big role in changing the economic relationship between sectors within countries, but also in trade between countries.  Labor costs have been rising rapidly in China for some time, which has driven some of the offshoring of Chinese production to nearby countries. These trends will continue. And labor costs are only a part of the equation. Finally, technological changes tend to affect all countries, not just one or a few. How they sort out depends on many factors.

-Interview by John Zarocostas

Today's Briefing: Philippe Mottaz - John Zarocostas

Edited by: Paige Holt