In this age of global uncertainty, where in the world can we look for guidance? |
When Donald Trump stood on the White House lawn in April 2025 holding a large, laminated poster announcing the first round of trade tariffs to be imposed on different countries, the Trade Policy Uncertainty Index shot through the roof.
Every month, this index, which is overseen by five board members of the Federal Reserve (America’s central bank), crosschecks the frequency of usage of terms relating to trade policy and uncertainty in seven leading newspapers including the New York Times and the Guardian. Here’s the chart since 1960:
US Trade Policy Uncertainty Index:
Trump’s so-called “liberation day” sparked volatile shifts in the value of financial products and currencies as governments across the world scrambled to respond. The levels of uncertainty were unprecedented – the outbreak of the COVID pandemic was nothing in comparison, according to the index.
In highly complex systems, conditions of uncertainty and even ignorance – where we don’t know what we don’t know – are extremely common. These conditions become even more likely when such systems, such as those which control global finance, are opaque and poorly regulated. Add in a maverick US president and an administration determined to overturn the status quo, and the old, orderly assumptions are thrown out of the window.
Uncertainty is where we don’t know the likelihood of different things happening: we can’t predict, we can’t manage, we can’t control. For many people, conditions of uncertainty result in precarious jobs, insecure housing and rising inequality. Vulnerabilities including mental illness can become even more exposed when life is so uncertain – only serving to accentuate these perceptions of uncertainty.
However, for a lucky few, uncertainty is an opportunity to make a fortune. Financial capitalism thrives off uncertainty and asymmetric information, which may be encouraged by some who can pocket the profit, betting on the unknowns.
In politics too, uncertainty is being capitalised on. Rising economic precarity in the wake of COVID-19 has been linked with increased support for populist parties in many European countries. And this nationalist politics sweeping much of the world reduces the possibilities of transnational collaboration and multilateral regulation.
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There are real and present dangers in this age of uncertainty. But through my research at the Institute of Development Studies, I have witnessed inspiring innovations that I believe could be applied across other fields of work and life. My latest book, Navigating Uncertainty: Radical Rethinking for a Turbulent World, explores the strategies used to counter uncertainty in fields as seemingly different as corporate finance and pastoral farming, in settings stretching from southern Zimbabwe to the Midlands of England.
The book highlights some surprising commonalities between these different worlds in their use of diverse sources of knowledge, social networks and human interactions. Above all, I believe the loss of the central role of people in today’s complex systems is the greatest danger of all.
The 2008 financial crisis can be explained in part by a lack of such human engagement, and the reliance on a trading system where the assumption of control turned out to be highly misleading.
The international financial system involves a multitude of players, each with different sorts of information about the future. In the build-up to the crisis, many new financial instruments were devised to extract profit. The investment banks – Goldman Sachs, Merrill Lynch, Morgan Stanley – perfected the art of managing the huge amounts of cash generated in the financial system through a range of derivative instruments, including the fateful mortgage-backed securities that triggered the crash. But the bewildering array of acronyms and actors involved meant few actually understood the system and its dynamics.
At the centre of this complex web of financial interactions were mathematical models designed to offset uncertainty and provide control. The notorious Black-Scholes-Merton equation helped manage the transactions that were occurring in ever greater volumes and super-fast speeds, with billions of dollars being exchanged in nanoseconds across high-speed internet links.
However, when you are overly confident in risk-based models within a narrowly defined regulatory system, uncertainties have the nasty habit of creeping up behind you and catching you by surprise. As Andy Haldane, then chief economist at the Bank of England, commented in the aftermath:
The financial cat’s-cradle became dense and opaque. As a result, the precise source and location of underlying claims became anyone’s guess. Follow-the-leader became blind-man’s buff. In short, diversification strategies by individual firms generated heightened uncertainty across the system as a whole.
The crisis was rooted in what