How to Deal with the Looming Balkanization of the World Economy?

Commentary
Pekka Virkki/Mission Grey

”Balkanization, division of a multinational state into smaller ethnically homogeneous entities. The term also is used to refer to ethnic conflict within multiethnic states. It was coined at the end of World War I to describe the ethnic and political fragmentation that followed the breakup of the Ottoman Empire, particularly in the Balkans. (The term Balkanization is today invoked to explain the disintegration of some multiethnic states and their devolution into dictatorship, ethnic cleansing, and civil war.)”

Encyclopedia Britannica

Recently, I had a fascinating discussion with Risto Siilasmaa. The Finnish engineer is best known for founding F-Secure and acting as the Chairman of Nokia from 2012 to 2020. Siilasmaa, a global startup guru specializing in geoeconomics, provided much food for thought as international politics, world economy, and trade relations enter an increasingly insecure period during which even a world war cannot be ruled out as a potential short-term scenario.

We agreed that while there has been widespread discussion on decoupling between the US and China – as well as alliance formation tying China, Russia, and Iran closer together – the world is far from bipolar. Many countries still fall between the Western and Eastern (if you wish) blocs: e.g. India has refused to take definite sides regarding the Russian aggression against Ukraine, not to mention the role of the Gaza war in complicating the Western relations with ”the Global South”.

This increasing – and increasingly multifaceted – global competition threatens to downplay the economic benefits of globalization by creating a new wave of trade wars, sanctions, and other disruptions decreasing the efficiency of production and predictability of supply chains.

​Siilasmaa labeled this development as the Balkanization of the world economy.

The phenomenon can manifest as protectionist policies, unilateralism, and rising tariffs, as countries seek to reduce their economic interdependence and support domestic industries. Fragmented and inconsistent regulations can significantly hinder the development and adoption of new technologies, potentially stifling innovation and economic growth.

Thus, businesses operating in a Balkanized world market face many significant challenges that can hinder their competitiveness – challenges often ignored during the last three decades of relative global stability.

That era is over. But how should businesses respond?

According to Siilasmaa – and yes, as a Co-Founder of Mission Grey, I very much agree – GenAI can revolutionize risk management by efficiently operationalizing the huge amount of data we have to manage geopolitical, geoeconomic, regulatory, and other risks. The global economy may become more Balkanized, but the available tools to deal with such complexity are massively better than they used to be.
 

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Image by Professor Gustav Droysen (Hg.), Professor G. Hertzberg (Zeichnung) - G. Droysens Allgemeiner Historischer Handatlas, Verlag Velhagen und Klasing, Bielefeld / Leipzig 1886, Public Domain, https://commons.wikimedia.org/w/index.php?curid=29656611