Fri, Nov 04, 2022 page9

• The world is on the cusp of a new era

  The turbulence of today could give way to a new era of progress

  • By Chris Bradley
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  There are some decades when only a year’s worth of change happens, and some years when a decade’s worth of change happens. The past three years — marked by the COVID-19 pandemic, Russia’s invasion of Ukraine and a full-blown cost-of-living crisis, all playing out against a backdrop of heightened geopolitical tensions — feels like the latter.

  It feels all too similar to the years surrounding the early 1970s oil shock, after which it took about 20 years for stability to return. Can we write a new narrative of progress more quickly this time?

  We have been through clusters of challenging events before. The three that stand out are the immediate aftermath of World War II (1944-1946), the 1971-1973 oil crisis and the breakup of the Soviet empire (1989-1992).

  Like an earthquake, each changed the global landscape with the sudden release of powerful underlying forces that had been building up around a fault line. Each also changed the rules governing key features of our world, ushering in a new era.

  However, through it all, progress has continued.

  So, are we on the cusp of a new era? To answer that question, a McKinsey Global Institute paper considers five major dimensions of today’s world: global order (the institutions, frameworks and rules that shape international affairs); technology (the platforms and applied sciences enabling development and innovation); demographics (important trends and socioeconomic contours across populations); resources and energy (the systems for transporting and converting energy and materials for use); and capitalization (the drivers of global supply and demand, and the overall trajectories of finance and wealth).

  Historic landmarks

  All these dimensions are viewed with the history of past epochal shifts in mind. After the earthquake of WWII came an economic boom that lasted until about 1971. The UN and the Bretton Woods institutions were established, and the US dollar became the de facto global reserve currency, pegged to gold. Economies and societies shifted from wartime mobilization to peacetime reconstruction.

  At the 1945 Potsdam Conference, the US officially ended its isolationist policies and assumed its hegemonic mantle. Former Soviet leader Joseph Stalin negotiated the division of Europe and raced to develop the Soviet Union’s nuclear capabilities. The foundations for the first era, the “postwar boom,” were set.

  However, then came the “era of contention,” which ran from about 1971 to 1989. The expensive and difficult war in Vietnam divided the US and revealed the limits of its power.

  In 1971, then-US president Richard Nixon suddenly suspended the dollar’s convertibility into gold, and the era of fiat money began. In 1973, an oil shock — caused by OPEC members seeking to leverage their assets — contributed to deep recessions and 15 years of heightened energy costs.

  Momentum shifted toward the East: Japan’s GDP overtook Germany’s and Nixon visited China, breaking a 25-year diplomatic freeze between the two countries.

  Then, starting in the late 1980s, underlying stresses unleashed another earthquake, inaugurating another new era. The Berlin Wall fell, the Soviet Union collapsed and Europe’s geopolitical deck was reshuffled. Pro-democracy movements swept across Europe, Asia and Africa.

  The Maastricht Treaty was signed in 1992, signaling a leap forward in Europe’s economic and political integration. China, after halting progress, fully recommitted to its market reforms with then-Chinese leader Deng Xiaoping’s (鄧小平) “southern tour” of 1992. Meanwhile, the Gulf War became a showcase of US military power.

  The World Wide Web was also born in 1989, creating the scaffold for a digital revolution. China and India went on to join the global economy, unlocking the single largest reduction in poverty that humanity had ever seen. This period is dubbed the “era of markets.”

  That brings us to the age of remarkable progress in health, wealth, education and the deepening of global interconnections. People have become much better off. Three decades ago, about 35 percent of the world’s population lived in extreme poverty. Today, that share has dropped to less than 9 percent.

  The new era

  The cumulative effect has been astonishing, and the rules governing it all quite stable — at least until now.

  We do not know what could emerge from today’s turbulence. Although we can discern directions of travel, complex questions in each of the five domains remain unresolved. In terms of global order, there seems to be a tendency toward multipolarity, but it remains to be seen what that would look like in practice.

  Would the economy remain global in nature, and would we find new workable mechanisms for non-economic cooperation? Could years of relative moderation in international politics give way to more polarization?

  With respect to technology, while the key drivers of digitization and connectivity appear to be approaching saturation, a new wave of technologies — including artificial intelligence and biotech — can create another surge of innovation. What impact might this have on work and the social order, and how can technology, institutions and geopolitics interact?

  On demographic issues, a young world is evolving into an aging, urban one in which noncommunicable diseases become the main health concern.

  Moreover, inequality within countries might increasingly challenge the social fabric. Will we “age gracefully,” or will capital and institutions fail to respond appropriately to inequality?

  On resources and energy, there is a strong desire to shift investment toward lower-carbon sources, but total investment in all forms of energy appears to be struggling to keep pace with needs. Can the world find an affordable, resilient and feasible path to climate stability? What dynamics will play out between those who have critical resources and those who do not?

  Finally, economic growth rates appear to be normalizing, and growing leverage and credit could evolve into balance-sheet stress. The Organisation for Economic Co-operation and Development century could continue to give way to the Asian century.

  In the early throes of a seismic shift — as seems likely — leaders must both prepare for the possibility of a new era and position themselves to shape it. The current vantage point may invite pessimism.

  However, through all the previous ups and downs, progress has marched on. Our times demand action, but history offers great hope.

  Chris Bradley is a director of the McKinsey Global Institute and a McKinsey & Co senior partner in Sydney.

  Copyright: Project Syndicate
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