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Financial Innovation and Global Security

It is no secret that there is a highly symbiotic relationship between economic affairs and national security. One is hugely influential on the other. In today’s hyper-dependent global economy this is perhaps truer than ever, and it would seem that opportunities for (and threats to) financial services can be readily identified by monitoring this relationship. Below are some global security-related issues which will continue to drive financial innovation for the foreseeable future.

  • Poverty: What was once a matter of humanitarian intervention is increasingly viewed as a matter of national security. Poverty breeds instability, something markets abhor. We should expect, then, that there will be an increasing urgency in coming years to develop market-based antipoverty solutions. We have seen a great deal of innovation in this area already, and even one IPO (Compartamos), but the mainstreaming of microfinance remains elusive and the subject of much debate.
  • Islamic Finance: Clearly a high strategic priority for both the United States and the West is fully integrating the global Muslim community into the global economy. While governments have been reluctant to identify and approach this as the strategic priority that it is, banks have seized upon this market opportunity. There also will be opportunities for the cultivation, financing, and strategic guidance of companies devoted to capital markets development in this region. Iraq is clearly at the forefront of need in this space, and there will be an increasing need for the development of other national and transnational systems in the region, such as Lebanon, perhaps a Palestinian state, and perhaps one day Iran as well.
  • Aging Populations: A looming global pension crisis presents a significant threat to financial stability. The current credit crisis notwithstanding, we will likely begin to see an acceleration in the shift from public to private management of resources, thus providing a huge opportunity for banks, brokers, and asset managers.
  • Climate Change: We expect to see a great deal of capital poured into the development of alternative energy and related "green" enterprises. We also expect to see further expansion in carbon trading, climate-related derivatives, and the development of alternative instruments to underpin the new green economy.

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