Fri, Jun 12, 2015 - Page 9 News List

Economic disruptions are daunting, but optimism should prevail

By Richard Dobbs, James Manyika and Jonathan Woetzel

Bold predictions based on intuition are rarely a good idea. Then-British education secretary Margaret Thatcher in 1973 famously said that the UK would not have a woman prime minister in her lifetime. IBM president Thomas Watson declared in 1943 that there was “a world market for perhaps five computers.” And, when movies with sound made their debut in 1927, Warner Brothers’ Harry Warner asked: “Who the hell wants to hear actors talk?”

At a time when four powerful forces are disrupting the global economy, upending most of our assumptions, such pronouncements on the future, shaped by intuition based on the past, are even more likely to be wrong. Each of these four “great disruptions” is transformational on its own, and all are amplifying the effects of the others, producing fundamental and unpredictable changes on a scale the world has never seen — and that will prove our intuition wrong.

The first great disruption is the shift of economic activity to emerging-market cities. As recently as 2000, 95 percent of the Fortune Global 500 was headquartered in developed economies. By 2025, nearly half of the Fortune Global 500 companies will be based in emerging economies, with China home to more of them than the US or Europe.

Cities are at the vanguard of this shift. Nearly half of global GDP growth from 2010 to 2025 will come from 440 emerging-market cities, many of which Western executives may not even know exist. They are places like Tianjin, a city southeast of Beijing with a GDP that is practically on par with Stockholm’s today — and could equal all of Sweden’s by 2025.

The second great disruption is the acceleration of technological change. While technology has always been transformative, its impact is now ubiquitous, with digital and mobile technologies being adopted at an unprecedented rate. It took more than 50 years after the telephone was invented for half of US homes to have one, but only 20 years for cellphones to spread from less than 3 percent of the world’s population to more than two-thirds. Facebook had 6 million users in 2006; today, it has 1.4 billion.

The mobile Internet offers the promise of economic progress for billions of emerging-economy citizens at a speed that would otherwise be unimaginable. It also gives entrepreneurial upstarts a greater chance of competing with established firms.

However, technological change also carries risks, especially for workers who lose their jobs to automation or lack the skills to work in higher-tech fields.

The third disruption is demographic. For the first time in centuries, our population could plateau in most of the world. Indeed, population aging, which has been evident in the developed world for some time, is now spreading to China and soon will reach Latin America.

Thirty years ago, only a few countries, home to a small share of the global population, had fertility rates substantially below the replacement rate of 2.1 children per woman. In 2013, about 60 percent of the world’s population lived in countries with sub-replacement fertility rates. As the elderly increasingly outnumber working-age people, pressure is building on the labor force, and tax revenues, needed to service government debt and fund public services and pension systems, are diminishing.

The final disruption is the world’s increasing interconnectedness, with goods, capital, people and information flowing ever more easily across borders. Not long ago, international links existed primarily among major trading hubs in Europe and North America; now, the web is intricate and sprawling. Capital flows among emerging economies have doubled in just 10 years, and more than 1 billion people crossed borders in 2009, more than five times the figure in 1980.

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