Recently I was sitting down to lunch with an eminent group of people from the financial services sector in New York. Those present, who had come to hear me talk about the future of the global economy, were chief financial officers, a few non-executive company directors, and several partners from large accounting firms, an investment banker and a venture capitalist. Perhaps twenty people in all.
Before introducing me our host, the CFO of a large bank, invited each guest (all men) to say a few words about the economy.
Some spoke about the unsustainable levels of consumer debt. One was of the opinion that central bankers had lost their way. Others were concerned about fallout from the sub-prime debacle and the likelihood of a recession in the US. Two or three doubted the strength and duration of the current commodities boom. One spoke passionately about the damage being done by rogue traders. A deep paranoia regarding the influence of hedge funds, sovereign wealth funds and private equity was also apparent.
There was general agreement in the room: we are living in uncertain times and global markets are in a state of chaos – perhaps even meltdown.
What I heard were only off-the-cuff remarks. At a surface level they were either factual or cautiously predictive. I heard nothing outrageously inaccurate. However their comments deeply troubled me. Why?
Most of their economic forecasts were deeply pessimistic, steeped in convention and exceedingly parochial. But there was something else I could not quite put my finger on. Slowly it dawned on me. Almost to a person, these highly reputable, astute and experienced professionals actually had very few clues about what was going on in the world – other than in their own industry. Their observations were reactive, short term and drawn from standard journalistic clichés. Their thinking,
I concluded, was totally out of touch with today’s realities.
For example, nobody linked the energy crisis, the fact that we are fast running out of clean water, or even the rising price of food, with the economy. Climate change and global warming barely rated a mention. No consideration was given to innovation as a force for change in emerging economies like Mexico, Vietnam and Brazil. Nor was any profound view put forward concerning structural flaws inherent in the global system of debt that maintain inequities between developed and developing nations.
On the other side of the ledger, nobody in the room seemed to appreciate that financial services is the most obscenely successful industry the world has ever seen. Without exception the group was surprised to learn that banking revenues and profits are likely to double over the coming decade in spite of the current turmoil in global markets. These forecasts had not the slightest correlation with their views of the world. I was staggered.
What strategic intelligence were these people using to inform them of global patterns and emerging dynamics? What questions were they posing to ensure their own strategies were risk-free and future-proof? What sources did they use in the acquisition of such uncritical views? Was it the Economist? The Wall Street Journal?CNN perhaps?
Did they really expect the future to mirror the past? Yes! Did they not realize we are living in times of exponential change? That corporations are no longer able to mind their own business, quarantined from the rest of society, as they have done in the past? Had they no comprehension of the new forms of capitalism required in order for humankind to survive and prosper? No. Quite clearly not! They were moles in some kind of unfathomable darkness.
These economists and financiers relied on signs in the market. But they were the signs of yesteryear. Signs that once conveyed what was happening but that now presaged only fear and confusion. This was at once their comfort zone and their blind spot. In effect, these individuals were accessing knowledge created from within an obsolete paradigm. A paradigm that makes no sense whatsoever today. No wonder they were confused and pessimistic.
So what should they be noticing and responding to that would have given them a hint of hope? There are at least three significant factors that help shed light on today’s circumstances:
Firstly we in the West have milked our resources dry. Modern financial systems promised miracles. As it turns out this was an illusion. They quickly seduced the avaricious and the astute and wrought havoc on nations, corporations and individuals instead. The quality of life created over a century or two is now utterly unsustainable. We have plundered the planet to the extent that many human activities threaten the very conditions we need for life. Industrial economism’s end game has arrived.
This heralds a prolonged era of transformative change. And I do mean transformative. Over the coming few decades we will need to redesign the entire material basis of our civilization. Only then might we be able to survive the challenges posed by global warming, endemic poverty, and the conflicts arising from water and food shortages.
Secondly the demographic pendulum is swinging. We are witnessing a reversal of fortunes in Asia where, just as they did before the industrial revolution, China and India will once again account for well over half of the world’s GDP by 2050. Global reserves, too, have fundamentally shifted. Out of a total of $5 trillion of global reserves, Asia has more than 60%. China alone has $1.5 trillion in reserves and is adding between $300 and $400 billion each year. That is separate from the $200 billion the Chinese have stashed away in Hong Kong. Compare this with the US, for example, which has just $70 billion of reserves. In a remarkably short space of time, Asia has become a capital provider to the rest of the world.
Thirdly, the economies of Asia will soon counterbalance anything that happens elsewhere in the world. Traditionally economic rules of engagement (as in trade and commerce) have been dictated by the one billion or so people living in the US, Japan and Europe – the (so-called) developed world. Today there are about five billion people in the (so-called) developing world. By 2050 this figure will have risen to approximately eight billion people while the population in the developed world will have remained more or less constant.
By 2025 China will have about 600 million people with incomes ranging between US$13,000 and $US50,000 - in current terms. In the same time frame India, which started later in terms of its own economic development, will be growing ten times from 50 million to 550 million people. Between these two countries we will see the emergence of a new middle class which will exceed the middle class of Europe and will be an emerging force in its own right.
And don’t write off Africa. The West’s paternalistic and colonial views are being upstaged with outreach activities from Asia. Fresh dialogue is resulting in new opportunities emerging between Africa and the countries of Asia, in particular China and India.
Growth in these economies is amazing. And this is a population that is no longer ignorant but wired in to the rest of the world. The future of global society is dependent upon these people, many of whom adhere to the Islamic faith. Clearly their needs can no longer be ignored by the West.
But unless some practical steps are taken to bring about appreciative links between those in the so called developed world and those in the so called developing world we will be headed for a very unsettled period in the years to come. And our economists will still be trying to work it all out!
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