President Xi Jinping Warns of Gray Rhino Risks

China must be on guard against highly improbable, unimaginable “black swan” events while also fending off highly probable but often neglected “gray rhino” risks, Chinese President Xi Jinping told senior Communist Party officials at the opening ceremony of a study session at the Party School of the CPC Central Committee January 21st.

Xi spoke shortly after newly released economic data showed that in 2018 China’s economy had slowed to the lowest rate in 28 years.

“In the face of a turbulent international situation, a complex and sensitive environment, and the arduous task of reform … We must be highly vigilant against ‘black swan’ and ‘grey rhinoceros’ incidents,” he said. Xinhua News Agency issued a full statement on his talk.

Xi cited areas in which China faces major risks: politics, ideology, economy, science and technology, society, the external environment, and party building.

His comments generated worldwide news coverage, from Australia to Indonesia to Argentina, and helped send U.S. stocks down over concerns about the effect of a slowing Chinese economy on global growth.

Columnist Ana Fuentes of Spain’s El Pais newspaper wrote, “More than black swans, it appears that 2019 will be the year of gray rhinos, threats that we have identified but have not been able to or known how to stop.” Top on her list was the crisis of governability in the West.

THE GRAY RHINO: How to Recognize and Act on the Obvious Dangers We Ignore, was released in China by CITIC Press in February 2017 and has become an influential best-seller.

Books That Inspired Me in 2018

Wishing you all a very Happy New Year and peaceful and prosperous 2019!

Wrapping up 2018, I’m reflecting on the books I’ve read over the past year that have made the biggest impressions. They reflect a range of interests, from ruminations on the nature of risk and uncertainty, to how we classify personalities and attitudes, to a memoir of celiac disease, to a wide-ranging list of fiction.

Risk

Before he died on New Year’s Day 2015, Ulrich Beck was as close to a cult figure as a German academic sociologist could get. In the first five years after its publication, his classic book Risk Society sold more than 60,000 copies. Yes, with four zeroes. He’s not an easy read, but amid the dense academic prose in Risk Society and the later World at Risk are flashes of brilliance.

In similar tone and style, Zygmunt Bauman’s Liquid Times: Living in an Age of Uncertainty reflects on “a society impotent, as never before, to decide its own course with any degree of certainty, and to protect the chosen itinerary once it has been selected.”

Personalities

Merve Emre tells the story of the mother-daughter team who invented the ubiquitous Myers-Briggs personality test, leading to the $500 million psychometric testing industry and the controversies that surround it, in The Personality Brokers: The Strange History of Myers-Briggs and the Birth of Personality Testing

In Rule Makers, Rule Breakers: How Tight and Loose Cultures Wire Our World, Michele Gelfand explores the cultural context of just what the title says: how wedded groups of people are to the rules they’ve set up to shape their society, and how willing they are to take risks in breaking those rules.

Celiac Disease

After she saw me put our waiter through the Celiac Inquisition as we caught up over brunch, a mutual friend of author Paul Graham recommended his memoir of learning to live with celiac disease, In Memory of Bread. His account of how he ended up in the hospital and was diagnosed is epic: an orgy of traditional bread baking (and eating) and craft beer brewing (and drinking). His baking tips are helpful. But what I really loved was how he put into words the worst part of celiac disease: the angst it causes in social meal situations. I gave it to a friend who also cannot eat wheat or other gluten products, and she loved it as much as I did before passing it on to her (also gluten-free) daughter.

Fiction

When Scott Turow spoke at a recent Authors Guild event here in Chicago, I picked up a copy of his recent international legal drama, Testimony, involving the atrocities of the collapse of the now-former Yugoslavia. I’m enjoying it as much as his earlier books, which gave me a glimpse of Chicago many years before I moved here.

Two of the year’s most celebrated novels fully deserve the praise heaped on them.

Madeline Miller’s Circe, a #1 New York Times bestseller, tells the story of the witch who turned Odysseus’ men into pigs. Since my dad has a master’s in classics and I grew up on Greek and Roman mythology, I particularly loved this fresh take on the Odyssey and related myths.

The family of “Marsh Girl” Kya, the protagonist of Delia Owens’ Where the Crawdads Sing, abandons her in their home in a swamp when she is seven years old. She raises herself, furtively interacting with the townspeople until their stories intertwine. Both a mystery and coming of age story, the book benefits from Owens’ own expertise as a naturalist.

Most of the other fiction I’ve read over the past year comes from around the world.

I cannot say enough how much I loved Turkish best-selling author Elif Safak’s The Architect’s Apprentice, the story of a boy turned elephant caregiver, architect, and man, and his interactions with royalty and ruffians in Ottoman-era Istanbul. Amazing detail, characters, and plot.

Two Chinese contemporary authors explore the nature of uncertainty through the (mis) adventures of two protagonists making their way through contemporary Beijing.

Orange Prize Finalist Xiaolu Guo’s semi-autobiographical Twenty Fragments of a Ravenous Youth is the story of a plucky would-be actress who leaves her country home for a career in Beijing.

The narrator of Xu Zechen’s Running Through Beijing has just been released from prison, and has to figure out how to make a life out of air permeated by the fine yellow dust that so often descends on Beijing. He hawks pirated DVDs and tries to make sense of old and new relationships.

After my trip to South Korea late last year (with a day trip to the DMZ), I discovered several wonderful authors. Min Jin Lee’s Pachinko, a National Book Award finalist, is an epic family saga set in the wake of the Korean War, which drives the protagonists to a complicated new life in Japan.

I picked up Han Kang’s Human Acts in Seoul on the recommendation of a Korean friend who said that it was even better than her Man Booker Prize winning novel, The Vegetarian. She tells the story of the violent student uprisings that took the lives of some of her characters, exploring people’s motivations in taking extreme risks on behalf of family members, friends, and their society.

My friend also recommended Gong Ji-Young’s Our Happy Time, perhaps an odd title for a book about a suicidal young woman and a death row inmate. But it works. The subject interested me in part because I’d heard about Korea’s high suicide rate, but what made the book work was the portrayal of the struggles of the main characters.

And from Japan, Keiko Furukura, the title character of Sayaka Murata’s Convenience Store Woman, is a singular personality, probably somewhere on the spectrum. An unlikely but welcome heroine, she breaks with social expectations and makes her own way through life in Tokyo.

I’ll be continuing my literary tour of the world in 2019 and am looking for books to add to my list. What books have moved you recently?

This article is part of my new weekly series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections. 

Click the blue button on the top right hand of this page to subscribe to “Around My Mind” and get notifications of new posts. Please don’t be shy about sharing, leaving comments or dropping me a private note with your own reactions.

Why the Cocks Fight Meet the Author at Bronx Community College Dec 4

Michele Wucker spoke at Bronx Community College December 4, 2018 in a “Meet the Author” event with students and faculty. Bronx Community College reported on the event HERE.

Michele’s first book, WHY THE COCKS FIGHT: Dominicans, Haitians, and the Struggle for Hispaniola is a 2018 Bronx Community College One Book, One College, One Community selection. The One Book program invites the entire campus to read one book and join together in events and projects exploring and celebrating the themes of the work.

BCC chose WHY THE COCKS FIGHT “because of the many opportunities it provides to examine the complexities of citizenship and race, imperialism and identity, which have particular relevance in today’s global political climate.”

BCC created a study guide for the book. This year’s events included an essay contest whose winners were announced at the December 4th event, a workshop and musical performance with Yasser Tejeda and Palotré, and an art project in which students designed alternative versions of the book cover.

 

FT Beyond Brics: China’s Biggest Financial Risk Is the US

Washington’s devil-may-care attitude has become Beijing’s top priority

Michele Wucker published this op-ed on the Financial Times beyondbrics blog November 13, 2018.

In its new annual financial stability report, China’s central bank has again sounded the alarm that “grey rhino” risks — clear and present dangers that are often neglected — continue to threaten the economy.

The report focused on China’s real estate market and high levels of local government, household and corporate debt, consistent with the concerns of Chinese and international observers.

Indeed, a popular narrative among western analysts is that China’s debt is a likely trigger for the next financial crisis. But the finger on that trigger is US complacency about risk.

President Xi Jinping has made containing financial risk a top priority and top officials have been vocal and active in addressing the danger areas they have identified.

By contrast, you could be forgiven for thinking that US officials had forgotten about the financial crisis that exploded a decade ago, not to mention the global dangers posed by 10 years of extremely loose monetary policy.

Washington’s approach appears to be to ignore warning signs and count on being able to frame the inevitable crash as a surprise “black swan” that “nobody saw coming”.

Yet many smart people do see trouble coming and are sounding urgent warnings for the US and the global economy. The International Monetary Fund warned in April that global debt had hit a new record high of $164tn, or 225 per cent of GDP. The US, it noted, is the only advanced economy where debt is outpacing economic growth.

Albert Edwards of SocGen forecast that financial winter is on the way, George F Will wrote of the giant sucking sound of a debt spiral, and Bridgewater’s Ray Dalio predicted a looming new debt crisis. Dozens of other smart analysts are sounding the alarm.

Well aware of the looming challenges, by contrast, China has been trying to gradually let the air out of credit bubbles without bursting them and to guide the economy to “quality growth” that may be slower but is more evenly distributed and less volatile.

Neither feat would be easy, even without having to wrangle external shocks caused by the US administration either not knowing or not caring about the global impact of its policies. China’s officials have been open about the real risks facing its economy, and made no secret of their intentions to cool off overheated sectors.

Using a combination of regulations, increased enforcement and liquidity controls, China has targeted the grey rhino risks that senior officials raised in a key five-year policy-setting meeting in July 2017: high corporate debt, excessive liquidity, shadow banking, capital market vulnerabilities, real estate bubbles, and emerging online financial products and services.

Regulators have cracked down on wealth management products marketed as “less risky” while promising higher yields. With corporate bond defaults up 40 per cent in the first half of 2018 and thousands of peer-to-peer lending platforms allowed to fail, China’s government has sent a message that people cannot count on it to fix every problem.

By contrast, Trump and senior officials have trumpeted US economic strength and downplayed risks and weaknesses.

Until the market volatility of the past few weeks, Trump had repeatedly bragged about how US shares were hitting record after record high, while China’s market indices were down more than 20 per cent for the year.

But a recent Council on Foreign Relations analysis shows how Chinese shares closely track a slowdown in credit growth over the past year or so. This suggests that much of the drop was the direct result of China’s efforts to let the air out of asset bubbles.

The Trump administration’s cavalier approach to financial risk increasingly suggests that its economic policies will not end well.

As the US Congress was preparing to pass a massive tax cut in December 2017, senior Chinese officials called the US tax plan a grey rhino, citing its potential impact on capital flows and financial stability. Responding quickly, Beijing developed a contingency plan involving higher interest rates, tighter capital controls and more active currency intervention.

The new Trump-supported tax cuts are widening the budget deficit while pushing up the cost of interest on the deficit. Even as financial risks increase, Washington has been chipping away at safeguards and emergency powers that could help contain the next crisis.

To be sure, the US Federal Reserve has been gradually increasing interest rates and shrinking its balance sheet, in a delayed attempt at normalising monetary policy. But this has created new global instabilities as money rushes out of emerging markets.

In contrast to China’s more surgical approach to specific vulnerabilities, the US relying mainly on interest rates as a broad-brush economic lever threatens to bring all boats down with it.

China is so concerned about this devil-may-care approach to financial risk that its politburo recently announced that dealing with US-generated economic shocks was an even higher priority than de-risking.

Paradoxically, current US-China policy threatens to slow down reforms that investors would like to see, such as reducing overcapacity at state-owned enterprises and intervening less in currency markets.

Trump’s bellicose rhetoric has ignored that China has been gradually opening its economy: easing foreign investment rules on 15 industries, particularly financial services, and evidence of some progress on intellectual property issues. Both of these are in China’s interest: it sees the benefit of increasing equity financing compared with debt, and it wants to encourage homegrown technological advances.

To counter the economic drag that trade war-related fears were creating, China has loosened its monetary policy in recent months. Its earlier belt-tightening gave it some wriggle room to do so.

But were China to completely abandon its de-risking strategy, it would resume heading towards a feared “Minsky moment” when the country’s ability to support debt collapses.

If the US paid as much attention as China does to the dangers lurking in the global economy and markets, it wouldn’t let itself appear to be so intent on throwing a monkey wrench into China’s sensible efforts to reduce financial risk.

Recall that demand from China for western goods, combined with China’s aggressive fiscal policy, played a big part in getting the world out of the 2008 crisis.

At one point, hopes that China would bail out Europe were dashed when Chinese officials rightly chided western governments for irresponsible economic policies.

Smart US policy would be to pay as much attention as China to heading off the grey rhino risks facing the global economy, and the role each country can play. An agreement ending the trade war would be a start. But unless the US takes financial risk more seriously, the threat to the global economy will remain — and China won’t be the main culprit.

Emerging markets guest forum beyondbrics is a forum on emerging markets for contributors from the worlds of business, finance, politics, academia and the third sector. 

Read this article at FT.com.

BuzzFeed News on the Dominican Republic, the US, and Citizenship

BuzzFeed reporter Emily Tamkin interviewed Michele Wucker and quoted her in Trump Wants To Cancel Birthright Citizenship. The US Has Already Helped One Country Do That, a November 12, 2018 article about the Dominican Republic’s stripping of citizenship to Dominicans of Haitian descent.

Donald Trump’s plan to end birthright citizenship by executive order was immediately denounced by legal scholars as an illegal intrusion on the Constitution’s 14th Amendment. But the United States knows something about ending birthright citizenship because it played an active role in helping another country bring it to a close — the Dominican Republic.

That role, which was unfolding before Trump became president, has long been the subject of criticism — from the Organization of American States, the Inter-American Commission on Human Rights, and former Peace Corps volunteers who served in Haiti, which shares the island of Hispaniola with the Dominican Republic. Trump’s criticism of birthright citizenship and call for a wall on the US–Mexico border have renewed concerns that the US is inflaming the Dominican Republic’s already hostile xenophobic attitudes toward its Haitian minority.

:

“US human rights organizations were very vocal against the court ruling in 2013, and were very vocal in documenting some of the problems, particularly as it came into force in 2015,” Michele Wucker, author of Why the Cocks Fight: Dominicans, Haitians, and the Struggle for Hispaniola, said.

Read the whole article on Buzzfeed.

Around My Mind: Michele’s new LinkedIn Series

Subscribe to my new weekly LinkedIn series, “Around My Mind” – a regular walk through the ideas, events, people, and places that kick my synapses into action, sparking sometimes surprising or counter-intuitive connections. I’ll show how the topics I ponder connect in sometimes surprising ways. Many of my musings will relate to gray rhinos –the obvious yet neglected risks we face but often ignore not just despite but because they are so obvious. I’ll also spend a lot of time considering markets and the global economy; the Fourth Industrial Revolution and the future of work; immigration and demographic change; policy ideas big and small; cultural attitudes toward risk; and how the human mind works –and how these play out in both day to day life and in business and around the globe. SUBSCRIBE HERE.

Image from Yang Liu, East Meets West. Berlin: Taschen, 2015

How do we get from Point A to Point B? Not just a particular A to B, but in general. Do you think of yourself of taking a linear or meandering path?

The answer might not be as, well, direct as you might think.

As a journalist and policy analyst, I long thought of myself as taking the rational, direct approach. Yet there have been many times when this strategy led me only to butt my head against a brick wall. By necessity, I had to learn to go around, particularly when working across cultures. For someone with a Midwestern background that prioritizes order and frowns on uncertainty, it was an acquired skill, to put it kindly.

As I’ve spent more and more time in Asia, particularly since China has incorporated into its financial risk strategy the gray rhino metaphor I coined for obvious but neglected dangers, I’ve realized two important things. First, my approach to problems is very different from most Americans. Second the Western ideal of rationality is not as rational as we’d like to think; it’s more of an illusion.

My gray rhino metaphor makes the simple point that we need a fresh look at the obvious because humans tend to tune out ever-present risks and thus are surprisingly vulnerable.

Gray rhino theory thus directly contradicts Western ideals of rationality and agency: if something is obvious, so the thinking goes, of course we’re dealing with it –so if something goes wrong, it must be because it was beyond our ability to foresee and predict. This is not direct, clear thinking: it is circuitous rationalization.

Many Asians, by contrast, intuitively understand what I mean, and apply gray rhino thinking to everything from financial risk to urban safety to personal lives.

What explains this difference? The answer lies partly in how different cultures process information –in systems or silos, in close or broad focus– and in how members see themselves and their ways of thinking.

The Chinese designer Yang Liu, who grew up in both China and Germany, expressed the differences between Asian and Western thinking in her 2015 book of infographics, East Meets West. The image that I’ve included above this post involves the difference between Asian and Western views of connections and contacts; Westerners see a greater number of bilateral relationships, while Asians see a much more complicated web of connections.

Another drawing in Liu’s book represents a Western approach to problem solving as footsteps marching straight through the middle of a dot, contrasting with the Asian approach of walking right around the edge. And yet another shows Western self-representation as a straight line between two dots, compared to a circuitous line between two dots for Asians.

After looking at Liu’s images, I was startled to realize that I identified much more closely with the Asian views than the Western ones. I grew up in the Midwest and Texas, made my first trip abroad to Germany and Belgium, and worked in Latin America early in my career, this came as something of a surprise.

Liu’s book goes to show that not every Asian or Westerner is like every other, so it’s important not to let stereotypes constrain how we see other people.

Her images also show the importance of complex systems thinking –something I will explore over the course of this series. Great power comes from embracing serendipity, and from stepping back and take a big-picture look at the connections between our ideas and experiences.

My friend Jerry Michalski maps his brain using The Brain app that shows not just what he’s been thinking about, but how those thoughts and ideas connect to each other. He’s amassed hundreds of thousands of entries.

Since I’ve been writing and speaking a lot about risk lately, the first thing I looked for was what Jerry had thought about risk.

Jerry’s been working on trust building lately, so naturally he included an article connecting risk, trust, and impact. The piece’s premise was a familiar theme for me –that promoting innovation means supporting “good” risk—but it added some welcome nuance, particularly that you can’t support risk without building trust.

The authors cited a survey of philanthropy by the Open Road Alliance that found donors and grantees rarely had frank and open conversations about risk and unexpected obstacles. The result is that foundations generally fail to provide enough support for grantees should events take an unforeseen turn.

One of the Open Road Alliance’s recommendations, thus, was that grantmakers open a conversation about risk throughout the application process, signal an acceptance of the presence of risk, and formally exploring partners’ risk appetites.

I could not agree more. In fact, I’ve been spending much of my time lately having exactly this sort of discussion with people of all kinds of risk sensitivities and preferences, and exploring how people manage differences within relationships and teams. Part of that involves understanding how we came to our attitudes about the risks and opportunities in our lives, and that those paths are not as linear as we might think.

This column is about many things, but above all about the connections among many parts that both make up the backbones of systems and connect to other systems. I’ve called it “Around My Mind” to reflect the wide range of ideas and connections among them, as opposed to a more traditional and linear “On My Mind.” I’d love for you to join me on this journey.

I’ll be writing more about these issues in this weekly “Around My Mind” series. You can subscribe by clicking the blue button on the top right hand of this page. If you like it, I invite you to subscribe and share with others. Please don’t be shy about leaving comments or dropping me a private note with your own reactions.

SIMWomen September 27, 2018

Michele Wucker led a gray rhino workshop on the Reskilling Revolution at SIMWomen 2018 in Schaumburg, Illinois, on September 27.

A reskilling revolution unrivaled in size, scope and scale is upon us. Even as mobile, virtual reality, AI, blockchain and other new technologies yet to come change how companies do business and how customers consume goods and services, they also require a massive reskilling in your people. Things have never changed so fast, yet will never be this slow again. How prepared are you for this looming challenge? Are your people in the right roles with the right skills? If not, how will you get them there? Test your re-skilling readiness and hone your strategy in this interactive workshop based on the simple yet powerful “gray rhino” framework. Companies have used this flexible tool to prepare for Brexit before the vote; Asian leaders are using it to shape their AI, education, and financial policies; and your organization can harness the gray rhino to create a sense of urgency around re-skilling and develop a strategy to make it happen.

Details and registration information HERE.

Leadership Lessons of the Tango

Strategy + business, August 28, 2018

By Michele Wucker

Everything I learned about management and leadership I learned at…the dance studio?

Well, yes. As a beginner student of the Argentine tango two decades ago, I used to come home reflecting on how much of what I learned from the micro interactions in class applied to everyday life. Those lessons in communication, adaptability, and teamwork stayed with me for many years, and resonate anew now that I’ve taken up the dance again.

Tango dancers, business leaders, and rising stars tend to demonstrate drive, persistence, concentration, and commitment. They also are ambitious, competitive, and impatient. These Type A personality qualities are often the ingredients for success in business and in life. But they also can lead to problems if not managed well. This is especially so for teams in which — just as in the tango — both leaders and followers share these high-performance traits.

READ THE FULL ARTICLE at strategy+business