Examples include natural disasters such as Hurricane Katrina; Britain’s unexpected decision to leave the European Union (EU); President Donald Trump winning the U.S. election, or a revolutionary technological breakthrough such as the internet or mobile phone.
In financial terms, a grey swan is not as cataclysmic as a black swan, with the latter so improbable and unprecedented that nothing in the past could realistically point to its occurrence.
The grey swan is rare, yet it is discussed as an event that is possible, a known entity and something that is considered highly unlikely to happen.
COVID-19, therefore, is an example of a grey swan.
There have been plagues before.
In London, in 1655, a quarter of the population succumbed to the Black Death. And long after the victims of that particular pandemic were buried under Blackheath, other pandemics and plagues have changed the world. As recently as 1924, in what was described as the last urban plague, rats were again the root cause of the trouble and this time in the United States of America (Los Angeles). The point here is that whilst the grey swan itself has significant impact, what happens next is potentially even more interesting.
How will people – and markets – react? What innovations and behaviour shifts will it drive? When we consider COVID-19 specifically, and for businesses and markets as we enter the “next phase”, it is clear that some shifts – such as the accelerated decline of the town centre, the incredible growth in online marketplaces, shifts in consumer demand, trends in AI, and shifting employment patterns – will lead to a great rebalancing across many areas of the economy, both locally and globally.
The effects of the grey swan often causes an enduring change in the world and how it works.
But COVID-19 is not the only factor at play here. Is 2020 the year of the grey swans, plural?
Alongside the global change caused by the Coronavirus pandemic, consider the potentially changing fates of some of the giants of modern industry and technology.
I refer to big tech’s “big three” – Amazon, Facebook and Google.
Amazon is surely the biggest beneficiary of COVID-19. Fuelled by the need of the populous to shop online, Amazon rocketed to 60% growth and (US) $3,800 a share, making Jeff Bezos the richest man on earth with a net worth close to $200 billion. Yet Amazon are currently the subject of an anti-trust lawsuit brought by the EU’s competition commissioner Margrethe Vestager, Europe’s crusader in chief, who has already taken on and won a case against Google for a similar charge, to the tune of €8.2 billion.
Vestager and her commission alleges that in violation of anti-trust laws the eCommerce giant,
“systematically relies on data it collects from independent companies that sell through its marketplace, and then uses that data to benefit its own retail business which competes against those firms.” – Sky News
In the United States, a coalition of attorneys general from all 46 states of the union, backed by the Federal Trade Commission (FTC), have brought a case against Facebook alleging that the original social network,
“is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct.” – FTC.gov
The charge describes that Facebook has,
“engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anti-competitive conditions on software developers—to eliminate threats to its monopoly. This course of conduct harms competition leaves consumers with few choices for personal social networking, and deprives advertisers of the benefits of competition.” – FTC.gov
Finally, Google has been brought to trial by the US Department of Justice and a further 11 US states. The charges described the means by which Google pays billions of dollars each year to ensure that it is the default browser installed on each and every new device, be it mobile, laptop, tablet, or desktop computer.
Google either owns or controls the distribution channels for almost 80% of searches in America alone. Lawyers have alleged that Google has gotten so big that it now “exists as both a noun and a verb” and that it exercises the power to deny its competition the chance to be competitive. – BBC
To be genuine grey swans these events in the world of technology and business are required to have been foreseeable, highly unlikely and still entirely possible.
Grey swans require precedent. And of that, we have plenty. The world and its rulers – be they governments, monarchs, or both – have a history of breaking up those pioneering businesses that simply grow too big.
As far back as the 12th and 13th Centuries, the Knights Templar established their brand by conquering Jerusalem in 1099, and then systematically went about creating what was arguably the world’s first multinational business, trading primarily in wool but also in soft commodities like crops and wine.
When Pope Innocent II issued a Papal Bull in 1139 allowing them free passage throughout the world and exemption from its taxes, it all reads rather ‘Amazon’.
Over the next 150 years, the Knights Templars grew to hold staggering power and influence, supporting the campaigns and claims to power of both Popes and Kings, which all read rather ‘Facebook’.
At one point they owned the island of Cyprus until those Kings and Popes conspired to crush the Templars on Friday the 13th October in 1307. Grey swan.
Centuries later, in 1600, a group of London merchants were granted exclusive trading rights with the East Indies, which extended eastwards from the Cape of Good Hope in Africa to the Cape Horn in South America. A monopoly that meant no other British subject could legally trade-in that territory – which all reads rather ‘Google’.
The British market was flooded with goods from all over the world, and the ‘Mighty East’ was responsible for changing consumer culture, garments that were previously designed purely for durability became items of seasonal fashion – again, reminding us rather too much of Amazon.
The East India company went public for staggering monies and with a private army (twice the size of the British regular army) became politically motivated. The company grew so dramatically in size, wealth and influence that it changed from a formidable trade business to a tax collector in its own right. In 1858 the British crown took control of the company, its forces, its possession and wealth. Grey swan.
This Christmas, while lords are leaping and geese are laying, has there ever been such a flock of grey swans swimming? And how will this change the world, and global markets, in 2021?