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Worldwide political developments reshaping business exposures

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PHILADELPHIA — Five “tectonic shifts” in global affairs are changing the nature of geopolitics and the risks that businesses face, according to Gen. Michael Hayden, the former director of the National Security Agency and a principal at The Chertoff Group L.L.C., a global advisory firm.

“I’ve seen a more dangerous world; I’ve never seen it more complicated,” he said at a meeting sponsored by Lockton Cos. L.L.C. on Sunday prior to the opening of the Risk & Insurance Management Society Inc.’s annual conference in Philadelphia.

The first shift is the nature of power and the changing power of states. Nation states play a less dominant role in global affairs and, with the rise of terrorism, “substate actors and even individuals are empowered,” said Gen. Hayden, who is a retired four-star U.S. Air Force general.

The growth of technology has empowered individuals, and power — which was once centralized — has been pushed out to the edge, he said.

How empowered groups and individuals will act will also change, Gen. Hayden said.

“Most of the things that could go bump tonight are probably not going to be the result of a malevolent state power,” he said.

And cyber attacks will become a much more significant global threat, Gen. Hayden said.

“We’ve become accustomed to the threat of terrorism; we’ve only begun to consider the threat in the cyber domain,” he said, noting that North Korea’s alleged cyber attack on Sony Corp. marked a shift in global affairs as a foreign power acted to coerce and punish a U.S. company.

The second shift is that things that were thought permanent are proving not to be, Gen. Hayden said.

In particular, the world order established following World War I and World War II is melting, including the U.S.-dominated financial system and borders established in Europe and the Middle East. Iraq and Syria have changed permanently, and changes in regime will not return the countries to previous norms, he said.

The third shift is nuclear proliferation, with regimes such as North Korea developing nuclear weapons, Gen. Hayden said.

“There’s a whole bunch of states out there that are brutal, ambitious and nuclear,” he said. Russia is also adding to its nuclear arsenal, which will mean that the U.S. will spend more on nuclear arms; Pakistan is already a nuclear power; and Iran will become a nuclear power in a few years, Gen. Hayden said.

The fourth shift is the rise of China and how the country will be embraced as a global power.

“These guys are not our enemy, and there’s no good reason for them to be our enemy,” he said.

China has seen remarkable growth and an economic and social transformation over the past several decades, but the country faces challenges going forward, he said.

The one-child policy that had been in place will create a demographic problem in terms of providing social benefits for an aging population, the country is facing environmental problems, and there is still a large disparity between rich and poor in China, Gen. Hayden said.

One direction that China could go in to shift focus away from internal problems is to encourage nationalism and further encroach on international boundaries in the South China Sea, he said.

The fifth shift is the U.S. and what role it will embrace for itself.

President Donald Trump seems suspicious of the outside world and willing to beat it back, but many of his advisers represent the traditional post-World War II consensus view of geopolitics and the U.S. dominant position the world, so it is still unclear which direction he will move the country in, Gen. Hayden said.