DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

Signp

osts

Supplement to Global Scenarios to 2025

Critical uncertaintiesand the “TrilemmaTriangle”

The Shell Global Scenarios to 2025 explores how forces of market incentives, communities, and regulation or coercion by the state advance societies’ objectives of efficiency and growth, security and social cohesion. Societies typically aspire to all three objectives and those that are more successful find ways of achieving them in mutually reinforcing ways. However, these forces can sometimes display elements of mutual exclusiveness – one cannot always be simultaneously freer, more secure and more socially cohesive – leading to difficult choices and trade-offs, particularly in the wake of sudden shocks such as 9/11 or Enron. Global Scenarios to 2025 explores the three dilemmas – a Trilemma – involved in the pursuit of these objectives.

The Trilemma Triangle provides a map of relations and interactions among market participants, civil society and states. In particular, it examines the interplay of three complementary, but occasionally competing, objectives of efficiency, social cohesion and justice and security. Using this analytical framework Global Scenarios to 2025 developed three alternative scenarios – Low Trust Globalisation, Flags and Open Doors – that capture the potential trade-offs facing society among these diverse, complex objectives in which two objectives dominate at the expense of the third.

The difficulty of achieving a satisfactory balance among these goals is a source of challenge for decision makers – in business, government and society. The three scenarios analyse potential ways in which these trade-offs will be accomplished. They also recognise that this balance may be more difficult to strike in the immediate wake of crises that create new political imperatives and that these crisis responses can have persistent effects.

In simplified terms, the balances of forces – or imbalances – in the three scenarios are as follows:• Efficiency and security tend to dominate in Low Trust

Globalisation• In Flags, security and social cohesion trump efficiency• Open Doors sees efficiency and social cohesion at the fore

This of course does not mean that the third objective is altogether absent in each of the scenarios. Rather, it is partially compromised in the face of achieving one or both of the other objectives.

Signp

osts

Supplement to Global Scenarios to 2025

Foreword 3Introduction to the Shell Global Scenarios to 2025 5Critical uncertainties and the “Trilemma Triangle” coverThe Scenarios in Brief 6Signposts 2006–Fundamentalobjectivesandforce 7Signposts:Securityandtrustthroughcoercionandregulation 8 Efficiencyandgrowththroughmarketsandprivateinitiative 12 Socialcohesionthroughforceofcommunity 16From Signposts to Scenarios–Whereareweheading? 20

Contents

Shaping our future

Global headlines are dominated by events that are clearly important in the immediate present. But their significance for the future is more difficult to interpret. As I write, an uneasy ceasefire is holding in Lebanon, world powers are deciding how to react to North Korean nuclear tests, global economic growth remains robust despite both high oil prices and a softening US economy and violence continues unabated in Iraq and Afghanistan. How should we assess the long-term implications of these developments? What do they tell us about how the future may unfold?

TheShellGlobalScenariosto2025,publishedin2005,providesananalyticalframeworktohelpunderstandhowtoday’sgeo-political,economic,andsocialaspirationsandforcesareshapingourfuture.Thisbookletcomplementstheoriginalreportbyreviewingselectedrecentglobaldevelopments-signposts-since2005.Itillustrateshowthescenariosframeworkcanbeappliedtohelpmakesenseofcomplextrainsofeventsandhighlightskeycontemporarytrendsinworldaffairs.

Since9/11andtheEnronscandalwehaveexperiencedaglobalbusinessenvironmentwithastrongfocusonenhancedphysicalsecurityandtightermarketregulation,whichhasgivenrisetonewtensionsandtrade-offsbetweenassertivestatepoliciesandcontinuedmarketliberalisation.Morerecently,therapidexport-ledgrowthofmanydevelopingcountriesandtheirimpactonglobalenergypriceshashelpedtofuelanewwave

of‘resourcenationalism’,aswellasariseinprotectionistpressuresinWesternEuropeandNorthAmerica.Thiscomplexinterweavingofpolitical,economicandsocialtrendscanleadtheworldinseveralpossibledirections,whichtheShellGlobalScenariosseektomapoutthroughthreestylizedscenarios.WecallthemLowTrustGlobalisation,FlagsandOpenDoors.

Ofcourse,thecomplexitiesoftoday’sglobalbusinessenvironmentcannotbedistilledintoasinglescenarioandweidentifyelementsofallthreescenariosinrecentdevelopments.TheLowTrustGlobalisationscenarioseestheprioritisationofeconomicefficiencyandsecurityatthepartialexpenseofsocialcohesionandexamplesofthiscanbeseenindevelopmentsintheUnitedStatesandChina,whereincomeinequalitieshavewidenedsignificantlyinthefaceofstronggrowth.IntheFlagsscenario,concernfornationalidentityandsocialcohesiontrumps

Forew

ord

“This framework helps to

understand how today’s

geo-political, economic,

and social aspirations and

forces are shaping our future “

�

considerationsofeconomicefficiency,givingriseforexampletoeconomicprotectionismoralossofpoliticalappetiteforfurtherliberalisationasseeninthecollapseoftheDoharoundoftradenegotiations.ThereareperhapsfewerexamplesoftheOpenDoorscenariobeingplayedout,buttherecentelectioninSwedenillustrateshowsocialcohesionandeconomicefficiencycandrivethepolicyagenda.

Overall,thesignpostsfoundinrecentdevelopmentsrevealsignificantfault-linesandopposingpressures,suggestingthatanoverall,dominantdirectionfortheworldremainshighlyuncertain.However,itdoesappearthatsecurityandsocialcohesiondominatetheday-to-dayagendasofthekeyglobalplayers,whilemarketforcescontinueto

“I have found it valuable to view

developments through the lens of

the Shell Global Scenarios, and

I hope you will also “

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

assertthemselvesinexorablyandtheglobaleconomyremainsrobust.WearethereforecurrentlylivinginaworldthatpredominantlyreflectstheLowTrustGlobalisationscenario,withastrongcomponentofFlags.Atleast,thatisoneoftheconclusionsIdrawfromthereview,butperhapsyouwilldrawothers.Inanyevent,IhavefounditvaluabletoviewdevelopmentsthroughthelensoftheShellGlobalScenarios,andIhopeyouwillalsofindthistobethecase.

ThispublicationwaspreparedbytheShellScenarioTeamandbyShellCorporateAffairs.Inparticular,IwouldliketothankChoKhong,ChiefPoliticalAnalyst,StevenFries,ChiefEconomist,andJamesSchofield,Editor,fortheireffortsinbringingthispublicationforward.

Jeremy B. Bentham – Vice President, Global Business Environment

�

Overthelastthreedecades,ShellhasdevelopedtheGlobalScenariostohelpdeepenourunderstandingofthebusinessenvironmentinwhichtheGroupoperates,toidentifyemergingchallengesandtofosteradaptabilitytochange.ThescenariosareusedtohelpreviewandassessGroupstrategy.Thescenariosthemselvesarenotforecastsofthefuturebutratherarecrediblealternativeviewsofthefutureglobalbusinessenvironmentthatcanchallengeassumptionsorestablishedviews.

TheGlobalScenariosto2025arestructuredaroundbothpre-determinedtrendsandcriticaluncertainties.Thepredeterminedtrendsarecommonacrosseachofthethreeofthescenarios.Thecriticaluncertainties,whichoverlaytherelativelycertaintrends,areusedtobuildcrediblealternativevisionsofwhatthefuturemayhold.Thecontrastingwaysin

whichtheseuncertaintiesareresolvedcriticallyshapethealternativescenariosfortheglobalbusinessenvironment.

Thetrendsto2025thatcanbepredictedwithsomedegreeofconfidencearethoseinvolvingdemographics,globalisationandkeygeo-politicalactors.Overthescenariohorizon,theworld’spopulationissettoincreasefromaround6billionto8billion,withalmostallofthegrowthoccurringindevelopingcountries.Thiswillfurtherreinforcethegrowingcontributionthatdevelopingcountriesaremakingtotheworldeconomy.Atthesametime,theincreasedglobalisationofrecentdecades–madepossiblebymarketliberalisationandtechnologicaladvances–willbevirtuallyimpossibletoreverse.Thistrendhasenabledasignificantriseinlivingstandardsandhashelpedmany–butnotall–

developingcountriestobeginclosingthegapinlivingstandardswithindustrialisedcountries.Goingforward,thekeygeo-politicalactorswillbetheUnitedStatesandChina.ReflectingtheeconomicriseofAsia,theglobalbusinessenvironmentwillmorelikelybeshapedbyrelationshipsacrossthePacificthanovertheAtlantic.

Whiletheabovearereasonablycertain,therearecriticaluncertaintiesfacedbysocietiestodaythatmayberesolvedinseveralpossibleways.Inparticular,twocriseshaveunfoldedsince2001-namely9/11andtheEnronscandal-thathaveaffectednationalsecurityandtrustin

themarketplace.Bothhavehighlightedvulnerabilitiesinourglobalisedworldandmanysocietiesnowexpectthestatetoleadtherestorationofphysicalsecurityandmarketintegrity.Societies’demandforchangeinresponsetothetwocrisesisacceleratingthetransformationoftheState’sagendaandmethods.Thisroleinvolvesbothdirectintervention–fightingterrorismandpolicingthemarket–aswellasstrongeremphasisontransparency,disclosureandgoodgovernance.Theprecisewaysinwhichthesecriticaluncertaintiesareresolvedshapethethreescenarios.

Intro

ductio

n to

Shell G

lobal Scen

arios to

2025

“The scenarios are not

forecasts but rather credible

alternatives of the future “

Shell Global Scenarios to 2025

5

Low Trust Globalisation

•Thisisa“proveittome”world,ascepticalworld.Thekeywordsarecompliance,compliance,compliance.It’saboutplayingbytherules,andaboutbeingveryawareofthediversityofjurisdictionsthatwillcometoyouwiththeirverydifferentandoftenoverlappingdemands.

•Aworldoflawyersandaccountantswithacultureofblame.Whenthingsgowrong,regulationandlitigationareseenasanswers.Actionisreactiveratherthanproactive.Peopledonotoperatewithasensethatcommonproblemscanbedealtwithinadvance.

•Heavycompliancerequirementsbringhightransactionscostsinmarketsandfostergreaterbusinessscale:marketsaredominatedbylarge,verticallyintegratedcompaniesthatcancontrolthepotentialliabilitiesinthewholesupplychain.Valueprotectionisasimportantasvaluecreation.Complianceanditscostandscaleimplicationsalsocreatelargebarrierstomarketentrybysmallandmedium-sizedcompanies.

•IntheworldofLowTrustGlobalisation,listedcompaniesarelargemultinationals.Bondfinancingispopular.Smallandmedium-sizedcompaniesaretakenoutofthepubliceyebytheprivateequityindustry.

•Theabsenceofmarketsolutionstothecrisisofsecurityandtrust,rapidregulatorychange,overlappingjurisdictionsandconflictinglawsleadtointrusivechecksandcontrols,encouragingshort-termportfolioflowsandarbitrageaswellasverticalintegrationofbusinesses.

Flags

•Flagsisa“followme”world,wherepeoplearedogmaticabouttheircodesandcauses.

•Althoughstillinterconnectedwiththerestoftheworld,peopleandcommunitiesfeelastrongerneedtoexpresstheirownidentityintermsofthegroup/club/nation/religiontowhichtheybelong.

•Flagsisfragmentedandpolarised–bothinternationallyanddomestically.Peopledistrustelites,theydistrustotherswithwhomtheycannotcloselyidentify.Theywanttoshowtheirdifferencesfromothersbystatingitclearlyandsaying‘no’toanythingcountertotheirnorms,viewsorbeliefs.

•Opposedgroupsinsocietytrytocapturethestatefortheirownobjectives,byonerouteoranother:votes,violenceormoney.Orgovernmentswavethenationalflag,encouragingunityamongthediversegroupsandcommunitiesbyremindingthem‘weallbelongtothesamecountry.’Carefulcountry-riskmanagementisapriority.

•Securityispursuedthroughisolationandgatedcommunities.Globalmobilityofpeopleandmoneyisseriouslyhamperedandtradeiscurtailed.

•Businesseswithstrongnationalidentitiesfarewellandaregrantedstateprotectionthroughsubsidiesandthetaxsystem.

•Highmilitaryspendingpromotesinnovation–forexample,infuelefficiency.

Different scenarios - different worldsSummary

6

Signp

osts 20

06

fundamental objectives and forces

Open Doors

•OpenDoorsisa“knowme”world,aworldoftrust:inglobalsystems,andinglobalisation.Itispragmatic,proactiveandco-operativeworld.Peoplecooperatewithotherstodealwithfutureproblems,becauseitisthemostefficientwaytodealwiththem.

•Underpinningtrustistheprecautionaryprinciple,whichbroadlystatesthatcautionshouldprevailwherethepossibilityofharmfuleffectsonhealthandtheenvironmenthavebeenidentifiedandscientificevaluationoftherisksprovesinconclusive.

•Inthisworld,governmentactsinthebackground,maintainingtrustandsecuritythroughincentivesandsoftpowerratherthanintrusivechecksandcontrols.Statesareinclusive,takingresponsibilityforthewiderconstituenciesinsociety.

•Reputationcanbeasubstituteforintrusivecontrols.Aworldofconstantquestionnairesbyratingagenciesandmedia.Reputationcarriesapremium,butalsomakescompaniesvulnerable.Voluntarybest-practicecodes,andcloselinksbetweeninvestorsandcivilsocietyencouragecross-borderintegrationandvirtualvaluechains.Networkingskillsandsuperiorreputationmanagementareessential.

•Competitiveadvantagethroughinnovationisshort-lived,butnottoinnovateisnotanoption.Companiesaredriventoinnovatemoretocompete.MorecapitalisavailableinOpenDoorstoinvestininnovation,becausefinancialmarketshaveahigherappetiteforrisk.

•Innovationsaredisseminatedfaster,becauseoftheopennessoftheglobalbusinessenvironment.

•Globalequitymarketsbecomemoreintegratedandlargesumsofventurecapitalchasesuperiorreturns.

InthefollowingpageswesetthecontextforourreviewoftheGlobalScenarios–LowTrustGlobalisation,FlagsandOpenDoors–developedintheTrilemmaTriangleandexplorehowrelevanttheyaretotoday’sworld.Todosowefirstsurveykeynewsstoriesofimportantrecentevents–signposts–thatpointtothestrengthofthefundamentalunderlyingobjectivesofmarketefficiency,security,andsocialcohesionandtheforcesthroughwhichtheseobjectivesareattained.

Eacheventorsignposttendstoillustratethestrengthofoneoftheunderlyingforcesinaparticularcontext.Forexample,thecollapseoftheDoharoundoftradenegationsrepresentsthestrengthofsocialcohesionandtheunwillingnessofpoliticianstotakeonvestedinterestsinthestatusquo.Incontrast,itssuccessfulconclusionwouldhaveindicatedapoliticalandsocialpriorityplacedonmarketefficiencyandgrowth.Whileeacheventcaninvolvesomeinteractionsortrade-offswithotherobjectives,theyareoftennewsbecauseitisan“extreme”eventinthesensethatitshowsthedominanceofoneobjectiveorforceoveranother,atleastintheimmediatepresent.Attheendofeachsetofnewsitemscoveringsecurity,efficiencyandgrowth,andsocialcohesion,weofferabriefoverallassessmentofthedriversofchange.

TheconcludingsectionofthisupdatewillthenviewtheseandothersignpoststhroughtheprismoftheGlobalScenariosto2025.Wedothistoshowhowthescenarioscanbeusedtoputtoday’seventsinabroadercontextinordertobettermonitorandinterpretthem.Thisanalysiscanalsobeusedtopointtothepossiblefuturedirectionsoftheglobalbusinessenvironmentandwhetheroneormoreofthescenarios,orindeedcombinationsofscenarios,arebeginningtoemerge.Inthiswaythescenariosthemselvescanbereviewed,andifnecessary,challengedaswemovetowards2025.

�

Security and trustthrough coercion andregulation

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

�

Signposts: security a

nd trust throug

h coercion a

nd reg

ulation

1: Terror threat grows TheNewYorkTimesnewspaperhaspublishedwhatitsaysarethefindingsofaclassifiedUSintelligencepaperontheeffectsoftheIraqwar.Thedocumentreportedlyblamesthethree-year-oldconflictforincreasingthethreatofterrorismandhelpingfuelIslamicradicalismworldwide.

Thislatestfinding,knownasaNationalIntelligenceEstimate,isthemostcomprehensivereportyet,basedontheconsideredanalysisofall16oftheUSintelligenceagencies.

AccordingtotheNewYorkTimes,whichhasspokentoofficialswhohaveeitherreadit,orbeeninvolvedindraftingit,thereportsaystheinvasionandoccupationofIraqhasspawnedanewgenerationofIslamicradicalismthathasspreadacrosstheglobe.

ItalsowarnsthatIslamicmilitantswhohavefoughtinIraqcouldfomentradicalismandviolencewhentheyreturntotheirhomecountries,muchasreturningJihadisdidafterthewaragainsttheSovietUnioninAfghanistaninthe1980s.

Itreportedlyconcludesthat,whileal-Qaedamayhavebeenweakenedsincethe11September2001attacks,theradicalIslamicmovementworldwidehasstrengthenedwiththeformationofnewgroupsandcellswhoareinspiredbyOsamaBinLaden,butnotunderhisdirectcontrol.

‘US report says Iraq fuels terror’ http://news.bbc.co.uk/2/hi/middle_east/5375064.stm

2: States struggle to find common response to nuclear proliferation

SixworldpowersyesterdayagreedtodiscusspossiblesanctionstopunishIranforfailingtohaltitsnuclearprogrammebutsaidtheywerestillopentonegotiationswithTehran.

Iransaysitsatomicprogrammeisonlyforpowergeneration.TheWestsuspectsIranwantstomakeanuclearbomb,andtheUNSecurityCouncilhadsetanAugust31stdeadlineforTehrantostopuraniumenrichment.

“Furtherpressureisneeded,”BritishforeignsecretaryMargaretBecketttoldreportersaftertalkswithministersfromtheUnitedStates,France,Germany,RussiaandChina.

InJuly,aUNresolutionauthorisedtheSecurityCouncilto“adoptappropriatemeasures”-underarticle41,Chapter7-whichreferredtocommercialordiplomaticsanctionsbutexcludedmilitaryforce.

TheUS,backedbyBritain,hassuggesteditistimetoconsideraSecurityCouncilresolutiontoimposesanctionsafterfourmonthsoftalksbetweentheEUandTehranfailedtoyieldanIranianpromisetohaltatomicwork.

>>>

�

>>>ButRussiaandChina,underliningdivisionsamongthesixworldpowers,agreeditwas“absolutelyunacceptable”tothreatenforceandtalkofultimatumswascounter-productive,RussiandeputyforeignministerAlexanderAlexeyevsaidyesterday.

‘World powers consult on Iran sanctions’, Sophie Walker, 7 October 2006, Irish Times, © 2006, The Irish Times.

�: NATO expansion fuels security concerns

InanothersignofthecoolingofUkraine’spro-Westernzeal,thenewprimeministersaidhiscountryisputtingeffortstojointheNorthAtlanticTreatyOrganizationonholdbecauseofalackofpublicsupportforthemove.

“Wehavetotakeapause,”PrimeMinisterViktorYanukovychsaidyesterdayaftermeetingwithNATO’schiefinBrussels.HesaidUkrainewouldformallylaunchitsbidtojointhealliance,butonlyafterareferendumontheissue.

TheKremlinhaslobbiedhardagainstUkraine’sentry.TheKremlinsaidthatasaNATOmember,UkrainewouldbeathreattoRussiansecurityandwarnedKievthatanymovementstowardmembershipwouldworsenrelations.

BesidesmanytradetieswithRussia,UkrainemustworryaboutitsdependenceonRussiannatural-gasdeliveries.UkraineisinthemidstofnegotiationswithRussiafornextyear’sshipments.

UkrainianPresidentViktorYushchenko,whowasswepttopowerintheOrangeRevolution,hassaidUkrainewouldn’t“veeroneiota”fromplanstojoinNATO.

BeforeagreeingtonameMr.Yanukovychprimeminister,hepushedhimtosignaso-calledmemorandumonnationalunitythatpreservedtenetsofaWestern-orientedagenda–includingNATOmembership.ButthepactappearstobenonbindingandtoovaguetoforceMr.Yanukovychtoanyconcreteaction.

‘Ukraine puts efforts to join NATO on hold’, Alan Cullison, 15 September 2006, The Wall Street Journal, © 2006, Dow Jones & Company, Inc.

�: Market regulations place heavy burden on small business

ChristopherCox,chairmanoftheSecuritiesandExchangeCommission,yesterdayissuedarobustdefenceofSarbanes-Oxleylegislation,sayingitwas“importanttokeepinmind”thatmanyofitselementshadbeenadoptedbyotherregulatorsoverseas.

ThelawhasstirredcontroversyintheUS,withmanyinthebusinessandfinancialcommunityblamingitsmoreonerouscompliancerequirementsforaddingunwantedcoststobusiness.

>>>

Security and trust through coercion and regulation

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

10

Signposts: security a

nd trust throug

h coercion a

nd reg

ulation

>>>IthasalsobeenblamedforforcingforeigncompanylistingsabroadtoLondonandHongKong,damagingthecompetitivenessoftheUScapitalmarkets.

MrCoxsaid:“AsweconsidertheeffectofSarbanes-OxleyonUScompetitiveness,itisimportanttokeepinmindhowbroadlymanyofitstenetshavebeentakenupoverseas.”

HecitedtheestablishmentofindependentauditorwatchdogssimilartothePublicCompanyAccountingOversightBoard(PCAOB),whichoverseesUSauditors.

HepointedoutthattheEuropeanUnionhadadoptedadirectiverequiringallmemberstatestocreateanauditoroversightbody.MarkOlson,PCAOBchairman,concededtheenactmentandimplementationofSection404ofSoxhadbeena“symbioticover-reaction”bythePCAOB,SECandauditorstopastbusinessscandals.

Section404isthemostcontentiouspartofSoxandrequiresCEOstohaveoutsideauditorschecktheirassessmentsofacompany’sinternalcontrols.

‘Cox defends “Sox” to the House’, Jeremy Grant, 20 September 2006, Financial Times, © 2006, The Financial Times Limited.

5: Assessment

ThedriveforenhancedsecuritythroughmilitaryinterventioninIraqanddiplomaticinitiativestoimposesanctionsonIran,inresponsetoitscontinuednuclearprogramme,havebeenamongthemostsignificantsecurity-relatedissuessince2005.

ThedisputebetweenRussiaandUkraineoverthepriceofnaturalgas–adisputethatresultedinthetemporarydisruptionofenergysuppliesnotonlytoUkrainebutalsototheEU–increasedthispreoccupationwithsecurityformanyEUgovernmentsandreinforcedconcernsoversecurityofsupply,alreadyhighonpoliticalagendas.Abackdroptothisdisputewasthefuturegeo-politicalorientationofUkraine.

Atthesametime,thecostsofrebuildingmarkettrustthroughmoreeffectiveregulationbecamemoreapparent.Thesecostshavebecomeparticularonerousonsmallandmedium-sizedfirmsandhaveresultedintheshiftofinternationalsecuritiesawayfromNewYorktoLondon.

Thesearealldeepandcomplexissuesthatarelikelytoremainopenandunresolvedforsometime.Theyarethereforelikelytocontinuetodominatepoliticalagendas.

11

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

Efficiency and growththrough markets andprivate initiative

12

Signposts: effi

ciency and

grow

th through

markets a

nd p

rivate initia

tive

1: Business environment improving

Africaismakingstridesincuttingredtapeandimprovingbusinessregulation,accordingtoareportpublishedtodaybytheInternationalFinanceCorporation,theprivatesectorarmoftheWorldBank.

Two-thirdsofAfricancountriesimplementedatleastonepro-businessreformoverthepastyear.WithTanzaniaandGhanaamongthetopreformingnations,thestudyfinds.

OtheractiveAfricanreformersincludeBenin,BurkinaFaso,Cameroon,Gambia,Madagascar,Malawi,Mali,Mozambique,Niger,NigeriaandZambia.Thesecountrieshavesimplifiedbusinessregulationandsomehaveimprovedpropertyrightsandmadeiteasiertostartcompanies.

TheDoingBusinessReport,publishedannuallybytheIFC,showsthatinspiteoftheseadvances,Africaranksastheworld’sworstregulatedregion.

MichaelKlein,chiefeconomistattheIFC,toldtheFinancialTimes“thereisanoverwhelmingsensethatgovernmentscontinuetomovealongthisagendatowardsimprovement”.

Hesaidthepushforbetterregulationwasincreasinglyamatterof“consensusbetweenleftandright”withleftwinggovernments,forinstance,keentogivepoorpeopleformalpropertyrights.

Hesaidwhatmatteredmostwastosignala“regimeshift”towardsamorepro-business,betterregulatedeconomy.

“ThissenseofunstoppableprogressreleasedalotofdynamisminChina,IndiaandVietnam,”hesaid.

‘World Bank praises pro-business reforms in many African countries’, Krishna Guha, 6 September 2006, Financial Times USA, © 2006, The Financial Times Limited.

2: China spurs growth

Theglobaleconomyislikelytogrowata5%ratethisyearandnext,whichwouldmakeforthestrongestfour-yearexpansionsincetheearly1970s,accordingtotheInternationalMonetaryFund’snewsemi-annualeconomicforecast.

“Theglobalexpansionwasbroad-basedinthefirsthalfof2006,withactivityinmostregionsmeetingorexceedingexpectations,andrecentindicatorssuggestthepaceofexpansionisbeingmaintainedinthethirdquarter,”theIMFsaidinitsWorldEconomicOutlook,releasedyesterday.

DespiteanexpectedslowdownintheUSA,theEuropeanUnionandJapan–andhistoricallyhighpricesforoilandmetals–theIMFhasraiseditsgrowthforecastsbyone-quarterpercentagepointfor2006and2007overthepastsixmonths,largelybecauseofsteadygrowthinChinaandotherdevelopingcountries.

TheoutlookforslowergrowthinwealthiercountriesreflectshigherinterestratescarriedoutbytheFederalReserveand

>>>

1�

>>>othercentralbanksastheyattempttokeepalidoninflation.TheIMFsaidinflationconcernsarethemainrisktoitsforecast;otherrisksincludefurtheroil-priceincreasesandamorerapidthanexpectedcoolingoftheUSAhousingmarket.

‘IMF sees strength in global growth despite soft spots’, Campion Walsh, 14 September 2006, The Wall Street Journal, © 2006, Dow Jones & Company, Inc.

�: Immigration and liberalisation of labour flows

MigrantworkersfromeasternandcentralEuropehavenottakenjobsfromunemployedBritons,accordingtoagovernmentstudy.

Some329,000easternandcentralEuropeans,morethanhalfofthemfromPoland,haveregisteredtoworkintheUKsincetheircountriesjoinedtheEuropeanUnioninMay2004.

Thestudy,commissionedbytheDepartmentforWorkandPensionsandpublishedyesterday,foundtherewas“nodiscerniblestatisticalevidence”thatmigrantworkersfromtheso-calledA8accessioncountrieshadcontributedtotheriseinclaimants.“Overall,theeconomicimpactofmigrationfromthenewEUmemberstateshasbeenmodest,butbroadlypositive.”

OnlyBritain,IrelandandSwedenoftheprevious15EUmembershaveallowedunrestrictedaccesstotheirlabourmarketstoworkersfromA8countries.AEuropeanCommission

studyearlierthismonthurgedothermemberstofollowsuit.ItsaidfearsofaninfluxofcheaplabourandwelfaretourismhadprovedgroundlessandBritain,IrelandandSwedenhadenjoyedhigheconomicgrowthandhighemploymentdespiteopeningtheirlabourmarkets.

TonyMcNulty,immigrationminister,saidworkersfromtheaccessioncountrieswere“fillingimportantvacancies,supportingtheprovisionofpublicservicesincommunitiesacrosstheUKandmakingawelcomecontributiontooureconomyandsociety”.‘Workers from new EU states have had ‘broadly positive’ impact‘, Andrew Taylor, 1 March 2006, Financial Times, © 2006 The Financial Times Limited.

�: Foreign listings and liberalisation of international capital

LondonhasseenasurgeoflistingsbyRussiancompaniesinthepastyearbuttheforthcomingpipelineofdealsisevenmorestaggering.

In2005Russiancompaniesraisedcloseto£3bnonLondon’smainexchangeandthejuniormarket,Aim.Sofarthisyear,Russiangroupshavealreadyraised£4.8bn,thebulkofwhichhascomefromtheflotationofRosneft,thestate-controlledoilgroup,whichraised£3.5bn.

>>>

Efficiency and growth through markets and private initiative

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

1�

Signposts: effi

ciency and

grow

th through

markets a

nd p

rivate initia

tive

>>>AccordingtoarecentstudybyChrisWeafer,chiefstrategistatAlfaBank,about80RussianIPOsareatvariousstagesofpreparation,withapossiblefundingtargetofUS$18.5bninthenext18months.

Ofthis,aboutUS$5.5bnisearmarkedtoberaisedbyyear-end.Russiancompaniesarelikelytodomoredomesticlistingsbutgloballistingswillremainhigh,analystssay.ButwhileinvestorshavehooveredupshareofferingsofRussiancompaniesinthepast,thereisgrowinguncertaintyaboutappetiteforfuturedeals.

Partofthisreflectsbroadertrendsinthemarket,whichhasseenavolatilefewmonthsandariseininvestors’aversiontorisk.Thereisalsoaconcernthatinvestorswillbeunabletotakeupthehugeamountofexpectedsupply.

‘The coming crop of Russian listings in London is expected to be huge’, FT report – Investing in Russia, 10 October 2006, Financial Times, © 2006 The Financial Times Limited.

5: Assessment

Recentsignpostssuggestthatthestrengtheningofmarketefficiencyandprivateinitiativeismoreprominentindevelopingcountriesthanintheadvancedeconomies.TheWorldBank’sannualsurveyofthecostsofdoingbusinessaroundtheworldshowedimprovementinthebusinessenvironmentindevelopingcountries,includingmanyinAfrica,whiletheIMF’ssurveyofglobaleconomicperformancehighlightedthemajorcontributionthatdevelopingcountriesaremakingtooverallgrowth.

TheUK’sdecisiontoallowmigrationfromnewEUmemberstateshasshownhowlabourmobilitycanenhanceeconomicperformance.Atthesametime,Russiancompaniesareincreasinglyembracinginternationalstandardsfordisclosure,transparencyandgovernanceinabidtoaccessinternationalcapitalmarkets.

Theseareallimportantexamplesofthecontinuinginfluentialroleofmarketforcesininternationalaffairs,althoughitisimportanttonotethattherehavebeenfewsuchmarketenhancinginitiativesinWesternEurope,NorthAmericaorJapanoverthepastyear.Manyoftheadvancesareindevelopingcountrieswheretheimperativeofefficiencyandgrowthis,perhaps,stronger.

15

Social cohesionthrough force ofcommunity

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

16

Signposts: socia

l cohesion through

force of comm

unity

1: Blow to world trade

…TheDohatradetalkshavecollapsed.OnJuly24th,attheendofyetanotherfutilegatheringoftradeministersinGeneva,PascalLamy,theWorldTradeOrganisation’sdirectorgeneral,formallysuspendedthenegotiations.

LaunchedintheQataricapitalin2001…theDoharoundwastobean“ambitious”efforttomakeglobalisationmoreinclusiveandhelptheworld’spoor,particularlybyslashingbarriersandsubsidiesinfarming,therich-world’smostmolly-coddledindustry.

Yet,despitetheirgrandrhetoric,theworld’sbigeconomieshavelongappearedunwillingtomakethepoliticalcompromisesthataDohadealrequires.

ThefaultlinesintheDoharoundaredeep.Americawantstoslashtariffs,arguing(rightly)thatthebestwaytohelppoorcountriesisthroughmoreopenmarkets.SinceAmerica’stariffsarealreadylow,thatputstheonusontheEuropeanUniontocutfarmtariffsandonbigemergingeconomiestoreducebarriersonfarmgoodsandindustrialproducts.

Emergingeconomies,incontrast,wantfewerfarmsubsidiesandlowertariffsinrichcountries,butareloathtoreducetheirownbarriersmuch.CountriessuchasIndiaarguethatinapro-poorDoharoundtheyneeddolittle.TheEUchidesAmericabothfordemandingunrealisticallylargetariffcutsfromothersandforofferingtoolittlefarm-subsidyreformofitsown.

‘In the twilight of Doha’, 29 July 2006, The Economist, © The Economist Newspaper Limited, London 2006.

2: Resource nationalism on the rise

EmboldenedbyVenezuelanPresidentHugoChavez’smovesagainstprivateoilcompanies,Bolivianationaliseditsnatural-gasindustry,orderingforeigncompaniestogiveupcontroloffieldsandacceptmuchtougheroperatingtermswithinsixmonthsorleavethecountry.

InadramaticsignofhowhighenergypriceshavesparkedaresurgenceofnationalismfromCaracastoMoscow,BolivianPresidentEvoMoralesyesterdayannouncedthenationalizationatthecountry’sbiggestnatural-gasfield,SanAlberto,andthenorderedarmytroopstotakecontrolofitandthecountry’sotherfields…

>>>

1�

>>>“Thetimehascome,theawaitedday,ahistoricdayonwhichBoliviaretakesabsolutecontrolofournaturalresources,”saidMr.Morales.TheformercocagrowerwonalandslidevictoryinDecemberelectionspartlyonapromisetonationalizethegasindustry,seenbymanypoorhereasthecountry’stickettoprosperity.

Mr.Morales’smovemimicsrecentmeasuresagainstBigOilbyMr.Chavez,acloseallyoftheBolivianpoliticianwhohasseizedonhighenergypricesinrecentyearstorewritetherulesofVenezuela’soilindustry.Mr.ChavezhasforcedmajoroilcompaniestoacceptaminoritystakeinfieldstheypreviouslyownedandputmoremoneyinVenezuelancoffersthroughhighertaxesandroyalties.

‘Bolivia seizes natural-gas fields in a show of energy nationalism’, David Luhnow and Jose de Cordoba, 2 May 2006, The Wall Street Journal, © 2006, Dow Jones & Company, Inc.

�: Social integration, exclusion and identity politics in Europe

AyaanHirsiAli,aSomali-bornDutchpoliticianknownforhercriticismofIslam,saidMondaythatherlifeintheNetherlandshadbecomeuntenablebecauseofsecurityissuesandacontroversyoverreportsthatshehadliedonherapplicationforasylumin1992.

HirsiAli,36,saidshewouldresignherseatinParliamentonTuesdayandspeedupherintendeddeparturefortheUSA,wheresheplanstotakeajobattheAmericanEnterpriseInstitute,aconservativethinktank.

AMuslimwhohasreceivedfrequentdeaththreatsfromIslamicmilitants,HirsiAli…hasfacedrisingpoliticalpressureoverchargesthatsheliedtotheimmigrationauthoritieswhenshefledfromanarrangedmarriageinSomaliatohideintheNetherlandsin1992.

HercriticsaccuseheroffurtherpolarizingthealreadydifficultimmigrationdebateandofalienatingratherthandefendingMuslimwomen.

InatelephoneinterviewfromTheHagueonMonday,shesaidshehadlearnedthatasaresultoftheasylumapplicationcontroversyshemightbestrippedofherDutchcitizenship.ShesaidthatwasthelaststrawinaseriesofsetbacksthatmadeherdecidetoleavefortheUSAayearearlierthanplanned.

‘Islam critic plans Dutch departure, Somali-born MP at centre of a storm’, Marlise Simons, 16 May 2006, The New York Times, printed in the International Herald Tribune,© 2006 International Herald Tribune.

Social cohesion through force of community

Low

Tru

st G

loba

lisation Open D

oo

rs

F lags

EfficiencyMarket incentives

Social cohesion, justiceThe force of community

SecurityCoercion,

regulation

1�

Signposts: socia

l cohesion through

force of comm

unity

�: Proud to be Japanese

Byadistance,ShinzoAbethisweekwontheelectionforthepresidencyofJapan’srulingLiberalDemocraticParty(LDP),thedaybeforeheturned52.OnSeptember26thparliamentwillappointMrAbetotheprimeministership,afterJunichiroKoizumi’sextraordinaryfive-and-a-halfyears.

MrAbesprangintothepubliceyefouryearsago,withanuncompromisingstandoverNorthKorea’sadmissionthatithadkidnappedJapanesecitizensduringthe1970sand1980s.Justthisweek,aschiefcabinetsecretary,heannouncedafreshroundoffinancialsanctionsagainstNorthKoreainresponsetoitsmissiletestsinJuly.MrAbe,certainly,isanardentnationalist,byJapan’sstandards.

HewantsJapantoplayamoreassertiveroleabroad,andtobeprouderandlessembarrassedaboutitspast.HeproposesthatJapan’spacifistconstitutionberewrittentoallowthearmedforcesmoreeasilytotakepartinoverseasmissions,andhewantslegislationtomakeschoolsteachahistorythatismoresuffusedwithpatriotism.

Fornow,hischiefdiscernibleforeignintentionlooksratherhopeful:MrAbeisrespondingtosignalsfromaChinesegovernmentdesperatetoimprovebilateralrelationsthatMrKoizumi’svisitstotheYasukunishrinehaveundermined.Heseemstowanttoresumetheleader-to-leadersummitsthatChinasuspendedwithMrKoizumi.‘Abe steps up – Japan’s new leader’, 23 September 2006, The Economist, © The Economist Newspaper Limited, London 2006.

5: Assessment

Theforcesofnationalismandpopulismcanbeseenacrossmuchoftheworld,butperhapsthesinglemoststrikingeventisthecollapseoftheDoharoundoftradenegotiations.Whilethereasonsforthefailureofthetalksarecomplex,highamongthemwastheunwillingnessofkeyindustrialisedanddevelopingcountriestoexposepoliticallyandsociallysensitivesectorslikeagriculturetogreaterglobalcompetition.

Butthestrengtheningofnationalistsentimentscanbeseeninotherareasaswell.InEurope,tensionsacrossChristianandMuslimcommunitiespersist,demonstratednotonlybythecaseofHirsiAliintheNetherlands,butalsobycontroversiesaroundreligiousdressintheUnitedKingdom.InJapan,thenewprimeministerhastakenstronglynationalisticstancesinpastroles,althoughhisapproachtosensitivehistoricalandgeo-politicalissuesasleaderremainsunclear.

Atthesametime,therehasbeenasignificantriseinresourcenationalismindevelopingcountries.ThisismostclearlyillustratedbytheBoliviannationalisationofitsnaturalgassector,butthistrendcanalsobeseenincountriessuchasVenezuelaandRussia.

1�

From the signposts above and others, we see clear indications that all three fundamental objectives and driving forces – security and state power, efficiency and market incentives, and social cohesion and force of community – are shaping events in today’s world. As emphasised in Global Scenarios to 2025, it will be the eventual balance among these forces that will determine the direction in which the world goes.

Intheshortrun,itappearsthatsecurityandsocialcohesionaregreaterpoliticalimperativesthanmarketefficiency,particularlyinwesternEurope,NorthAmericaandJapan.EventslikethewarinIraq,tensionsoverIran,identitypoliticsinEuropeandresurgentnationalisminJapancontinuetodominatetheheadlines.Moreover,concernsoverthepossibilityofanothermajorterroristattackinwesternEuropeorNorthAmerica,whichsecurityservicesdeemhighlylikely,continuetogrowandrestrictionsonairtravelhavetightenedasaconsequence.Thesetrendsreinforcetheextensionofstatepower.

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

So where are we heading?

20

From

signposts to

scenarios –

Where a

re we hea

ding?

Thepastyearhasalsoseenthesecurityagendaexpandbeyondterrorismtoincludeenergysecurity.TheyearbeganwiththeRussianattempttoblockgassuppliestoUkraine,whichignitedawaveofconcernbywestEuropeanstatesoverthesecurityoftheirenergysuppliesandpotentialover-dependenceonRussia.Energysecurityhasbeenaleitmotifofgovernmentconcernsthroughoutthepast12months.

InareasasdiverseaswesternEuropeandChina,concernsoverthesocialconsequencesofmarketliberalisationcontinuetofesterandfindpoliticalexpression.

InEurope,thesearemostclearlydemonstratedbygrowingprotectionistsentiment.ButthereisalsoincreasinguneaseoverimmigrationandcontinuedexpansionoftheEuropeanUnionwithpoliticiansandbureaucratsinBrusselsseenbymanyasoutoftouchwiththeanxietiesofthepopulationsofmanywestEuropeancountries.

InChina,evenanunelectedleadershiphasbeenforcedtorespondtotheconcernsofsociety,disavowingthe“growthatallcosts”policyofthepreviousJiangZeminleadership,andpromulgatingamoresustainablepolicythataddressesthesocial,

economicandenvironmentalimbalancesthathaveopenedupasaresult,andwhichthreatenthestabilityoftherulingregime.

Despitethesesocialconcerns,globalisationcontinuestorunitscourseandtodeliverstronggrowthinmanydevelopingcountries.Thismaywellprovetobethemoredecisivetrendoverthelongerterm.Indeed,recentsignsofprotectionismmaywellbeevidenceofresistancetothepersistentmarchofmarketliberalisation,ratherthanatippingpointmarkingthereversalofglobalisation.Overthelastyear,theworldeconomyhasprovedremarkablyresilientdespite

thefailureoftheDohatraderoundandanumberofadverseeconomictrends,includinghigherenergypricesandahousingslumpintheUSA.Wealsoseeincreasinglyimaginativeuseofmarketincentivesandmarket-basedsolutions,suchasCalifornia’sinitiativetoreducegreenhousegasemissionsthroughacarboncredittradingscheme.

WhatdoesthismeanforthescenariossetoutinGlobalScenariosto2025?Theysetoutatriangularspacewhoseapexesareformedbyourthreefundamentalobjectivesanddrivingforcesandthescenariosthemselvesplayoutacrossthisspace,with

“It appears that security and social

cohesion are greater political imperatives

than market efficiency “

21

manypossiblecombinations.Giventhiscomplexity,nooneapexwillshapeworlddevelopmentswithoutbeingcheckedorhavingtocombinewithortakeaccountofothers.Theconsequenceisaworldofcomplexinteractionsandtensions.

Statesarestrengthening,butstatesarealsocontinuingtoglobalise.Economicintegrationandcooperationisbalancedwithgrowingconcernsoversecurityandtheneedfortighterstatecontrolofmarketsandsociety.Societiesdonotrejectthestate’semphasisonmarket-basedefficiencyandpeopleareincreasinglylinkedglobally,buttheir

concernsremainverymuchfocusedaroundthemselvesandthecharacteristicsoftheirownspecificsocialcontexts.

Lookingaheadoverthenexttwentyyears,allthreeofourglobalscenarios–LowTrustGlobalisation,FlagsandOpenDoors–remainvalid.Theyexpress,inarchetypalform,theinteractionsandtensionsplayingoutamongourthreesetofobjectivesandforces.Whereweareintheworldmay,however,determineourperspectiveonthequestionofwhichscenarioisdominant.

LookingatRussiatodaywithitstenserelationswith

Georgia,securityconcernsoverNATOexpansionandstrategicinterestsshapingitsenergypolicies,weseeacalculatedrealpolitiknationalismcharacteristicofLowTrustGlobalisation,butalsoevidenceofaFlags-typeresponsebythestatetosocialpressuresthroughincreasespendingonsocialprogrammes.Incontrast,Sweden’sSeptemberelectionresultsshowacountrydeterminedtopreserveitsmuchvauntedhightaxandhighwelfaresocialmodel,whilerespondingtopopulardemandsforgreaterchoiceandhigherqualityinitspublicserviceprovision,thedilemmathatliesattheheartofOpenDoors.

Asalreadymentioned,noonescenarioisentirelydominant.However,itdoesappearthatsecurityandsocialcohesiondominatetheday-to-dayagendasofthekeyglobalplayers,whilemarketforcesstillcontinuetoassertthemselvesinexorablyandtheglobaleconomyremainsrobust.WearethereforelivinglargelyinaworldthatisperhapsacombinationofthescenariosofLowTrustGlobalisationandFlags.Asignificantevent,suchasanaturaldisaster,terroristattack,economicvolatilityorregionalconflictcoulddragtheworlddecisivelytowardsamoreentrenchedFlagsscenario.Ifeconomicgrowth

“A significant event, such as a natural disaster

or terrorist attack could drag the world decisively

towards a more entrenched Flags scenario “

22

From

signposts to

scenarios –

Where a

re we hea

ding?

remainsstrong,conflictsdonotescalateandnonaturalorterroristcatastropheshit,theLowTrustGlobalisationscenariowillplayoutmorestrongly.

Ourdiscussionsuggeststhatwealsoneedtoconsidertheextenttowhichothercombinationsofourthreescenariosarepossible.Thefeaturesthatcharacteriseeachoneindividually–theglobalsolutionsofOpenDoors,theanarchyanddistrustofFlags,andtheadhocglobalcoalitionsandstructureofstatecontrolsofLowTrustGlobalisation–willnotoccurwithoutreferencetotheothers.Noneofourthreefundamentalobjectives

anddrivingforcesislikelytodissipate.

Moreover,theeventsof9/11–oneoftheshapingmomentsofour2005globalscenarios–demonstratednotonlyhowglobalisedourworldandourperspectiveshavebecome,butalsohowlocalisedaresomeoftheemergingpowerfulactorsthataremakingtheirpresencefeltwithinthisglobalisingworld.Statesincreasinglyfindthemselvescaughtinthemiddleofthisglobal-localaxis,havingtorespondtothecontrarydemandsofbothsides.Wecannolongerentertainthecertaintiesofthe1990saboutwheretheworldisgoing.Rather,

fromtoday’svantagepoint,thosecertaintiesappearassimplicities.Thetriangularspaceopenedupbythethreedrivingforcesofthe2005globalscenarioslooksincreasinglylikeaverycomplexterrainacrosswhichwehavetonavigateourfutureintoday’sageofuncertainty.

2�

Order information:Theoriginalpublicationof‘ShellGlobalScenariosto2025’isavailabletopurchasethroughthefollowingdistributors:

UKThe Eurospan GroupT:+44(0)2072400856F:+44(0)2073790609E:orders@edspubs.co.uk

USInstitute for International EconomicsT:+18005229139F:+17036611501E:IIEmail@presswarehouse.com

INTERNETBooksarealsoavailableonAmazon.co.ukandAmazon.com(tofindthebooksearchforShellGlobalScenarios)

Royal Dutch Shell plcGlobal Business EnvironmentCarelvanBylandtlaan302596HRTheHagueTheNetherlands

©February2007

2�

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST

DEMOGRA

PHY

GLOBA

LIS

ATION

CLIM TE CHANGE

AFRICA

SECURITY

TRUST