global trends & risks 2015 gpf conference keynote

Global Trends and RisksFramework Considerations on Systemic Change

Seán Cleary

Global Philanthropy Forum ConferenceApril 22, 2015

Past the worst in the U.S.?

Where are we now?• Coordinated monetary easing and fiscal

stimuli avoided implosion - followed by series of UMPs

• Focus on capital adequacy (quantity and quality) - and liquidity of banks; efforts to avoid regulatory arbitrage

• Fiscal, financial and structural reforms needed to repair banking systems, achieve fiscal sustainability

• Trade-offs between stability and economic growth – deflationary risk in Eurozone; low rates in U.S.; Europe APP (€60 bn/month for 19 months); Japan wider quantitative & qualitative easing

• Long-term debt up; UMPs impacted EMs – higher nominal yields $1.1tn flows to EMs - $470bn > L-T structural trend: drove up equity markets, exchange rates – asset bubbles. “Tapering” pulled it back; low rates encouraging new surge

• Moral hazard exacerbated; global imbalances moderated – household debt overhang in AEs

OECD, 15th September, 2014

Global Trends to 2030

• Continuation of geo-economic trends – CoG Atlantic to Pacific - inflection points

• Higher returns to capital; falling returns to labour – rising inequality and social tensions

• Breakthrough disruptive congruent technologies

• Return of geopolitics– Rise in migratory flows

• Weakening paradigm of representative democracy

– Reversion [in some areas] to more-primitive identities

– Onset of post-Westphalian order• Gaia in the Anthropocene

– Rising pressure on planetary boundaries

Geo-economic trends continue……the unwinding of an era

Growth Trends

Shifting Geo-economics

• Global GDP – 2000: – US 31% – Japan 14% – EU 26% – China 3.7%– ASEAN 1.5% – LAC 6.6%

• Global GDP – 2018– US 21.6%– Japan 6%– EU 20% – China 15.3%– ASEAN 3.3%– LAC 8.3%

Globalization and World Order, The Royal Institute of International Affairs, May 2014

…and out to 2030

50 per cent of global GDP in Pacific in 2015 – significance of TPP, and TTIP

Economic history in context

India’s decline; China’s/ Europe’s rise

China’s 1st peak; The rise of the West

W. Europe’s peak

U.S. peak

Higher returns to capital; falling returns to labour…and rising inequality

13

Rising inequality Rising wealth/income

Falling interest rates

10-year Yield 20-year Yield

% o

f nat

iona

l inc

ome

%Rising leverage

Wealth, Debt, Inequality and Low Interest Rates: Four big trends and some implications,

Adair Turner, 26.03.2014

World capital to income ratio

[In]equality and Social Pathology

• Richard Wilkinson and Kate Pickett (University of York) - The Spirit Level: Why More Equal Societies Almost Always Do Better: – high measures of income

inequality strongly correlated with dangerous social pathology in all societies

– greater equality of income correlates with better social indicators across the range.

• Based on a global analysis, as well as across all 50 states in the USA

• Data cover physical and mental health, educational performance, child well-being, trust and community life and social mobility, teenage births, obesity, drug abuse, violence and imprisonment

• Even the privileged in unequal societies suffer higher pathologies than their peers in more equal societies

Breakthroughs in disruptive congruent technologies

…reinforcing returns to capital

Economic landscape changing• Robotics,3D-printing, driverless/electric

cars, new energy exploration, efficient alternative energy, composites. Close to tipping point, challenges significant

• Acceleration in CPU capabilities and big data drive continued automation of repetitive actions - manual (assembly), or mental (accounting/audit, legal discovery/precedent search; general medicine – baby heart models

• Disruptive technology breakthroughs - new unforeseen shifts in employment patterns and opportunities

• Concentration/acceleration of innovation - falling cost/rising investment in info-, bio-, nano– and cognotech further enhance returns to capital (RoI/Ro technology ownership) rather than labour

http://www.thefinancialist.com/3-d-printing-from-toys-to-jet-engines/

“…college grads age 22 to 27 are stuck in low-paying jobs that don't even require a college degree. The percentage of young people languishing in low-skill, low-paying jobs is 44%, a 20-year high. Only 36% of college grads have jobs that pay at least $45,000, a sharp decline from the 1990s, after adjusting for inflation. …the percentage of young people making below $25,000 has topped 20%, worse than in 1990.”

Another way of looking at it…

Implications for income and education • Power law distribution of wealth/income:

U.S. 1% share national wealth/income doubled in 30 years; manufacturing wage static; middle class lost decade after 2001.

• Continuing demand for personal services – price increases for prestige items. Sharp rise in: aging (>60s 11.7% (2013) to 21.1% (2050)); urbanizing (>51% of 7.2bn (2014) to 67% of 9.4bn (2050); consumption; and expectations. By 2050, 2.3bn more on planet; 3bn more in middle class; but 3 bn slum dwellers - unless breakthroughs.

• Mid-20th century education unsustainable: Integrate from preschool through VTE/university, enable continuous learning, upskilling, horizontal/ diagonal migration. Digital provision of knowledge and VTE, but access/attainment uneven.

• Flexibility, adaptability, social capital/social cohesion needed to manage transitions.

Opportunities and risks• Opportunities: new flows of goods, services,

finance, people, data/information and disruptive technologies (3d printing/additive manufacturing) may collapse global supply chains – and create many new opportunities in substitution, optimization, and virtualization

• Creation of new ideas, large-frame pattern recognition, and complex communication

• Disruption likely from: – asynchrony between technological

capabilities and normative frameworks– geopolitical, environmental or pandemic-

based dislocation of global tourism, migration and supply chains

– ecological catastrophe overwhelming planetary boundaries in the context of complex adaptive systems

– hubris – exceeding our ability to understand and thus manage our socio-economic and bio-geospherical CASs

‘Governing’ technology• Technologies embedded in socio-economic/socio-

political systems: Change produces both expected and unexpected social, cultural, economic and political outcomes. Marshall McLuhan, “We shape our tools and thereafter our tools shape us.”

– Many socio-technological systems (energy, info - nano-, bio, neuro-, cogno- etc) each with unique regulatory environment/stakeholders

– Technological change not linear - highly dynamic, some innovations endorsed over others – drive new trajectories

• How to advance public good – balance economic/political/social welfare – e.g.

– Ethical and economic considerations (e.g., neurocognitive technologies – pressures to promote and to restrict

– Challenges of convergence – e.g., when does biotech/nanotech reach into health; or robotics into military ethics/policy? Transhumanism…?

• Technology governance is social policy: Seek to govern technology, while enabled and governed by technology: As we seek to guide (and constrain) technological change, technologies guide (and reshape) our sense of what policy can/should be.

Bostrom & Yudkowsky, The Ethics of Artificial Intelligence, 2011 - increasingly complex decision-making algorithms inevitable and desirable – so must be transparent to inspection, predictable to those they govern, and robust against manipulation.

Return of geopolitics

• From the Mediterranean to Central Asia• In East Asia• On Russia’s borders

Zones of geopolitical tension

Tensions in East China Sea

Offset by regional monetary swap arrangement China/Japan - Chiang Mai Initiative (2000)

Tensions in the South China Sea

The Putin Doctrine

• First imperative: maintaining nuclear superpower status and strategic parity

• Second objective: maintaining Russia’s status as a great power

• Third objective: regional hegemony - effect political, economic, military, and cultural reintegration of the former Soviet bloc under Russian leadership

Political systems transforming• Weakening of paradigm of representative democracy• Reversion [in some areas] to more-primitive identities• Onset of post-Westphalian order• Rise in migratory flows

…past the apogee of representative democracy?• Social media empowered millennials - 76% own

smartphone; most online >6 hours/day – but 52% say their country’s political system doesn’t represent their values/beliefs: >60% in Europe and LatAm, 53% in USA, 44% in Asia, 41% in the ME/Africa. Family (85%), school (61%) and friends (56%) (technology 30%) have shaped their outlooks, government influenced only 8%

• “Most important way to make a difference in the world”: 42% “access to [quality] education”; 41% “protecting the environment” (+24% “promoting sustainable energy”; 39% “eliminating poverty” (+ 24% “providing basic food/shelter to people”)

• 62% believe can impact, as individuals, on local issues; only 45% believe possible through the political system. Very high percentages believe digital networking is effective in influencing outcomes; 40% believing they can have a global impact

• …but Facebook and Twitter haven’t built organizations or leaders …

Bangkok, Rio, Kiev and Hong Kong

A democratic polity doesn’t fall from the sky… • Democracy not just overthrow of an autocrat, or even

popular elections: It Involves constitutional entrenchment of:

– fundamental human rights, including rights of assembly and political organisation;

– the rule of law and equality before the law– the separation of powers; and – free elections, usually based on adult suffrage

• Elected representatives exercise power subject to the law, under a constitution protecting the rights and freedoms of individuals and limiting the right of the majority to override minority interests

• Liberal democracy requires all parties to accept:– legitimacy of the state and the political system – the principle of sovereignty of the people– equal rights to participate in society and the

economy, and – political competition

• Personal and economic freedoms associated with the “middle class” and a broad-based civil society, probably essential – deferment of immediate gratification

• Free elections alone don’t bring transition from autocracy to democracy. A wider shift in political culture and establishment and entrenchment of institutions of democratic government are needed.

Gaia in the anthropocene• Rising pressure on planetary boundaries

• Increasing incidence of extreme weather events

Gaia in the anthropocene

• Biological organisms and inorganic surroundings form a self-regulating, complex bio-geosphere enabling and sustaining life on the planet. [James Lovelock, Lynn Margulis]

• Human society (CAS) core component of the bio-geosphere (a larger CAS): Adaptive change in bio-geosphere formerly main cause of uncertainty

• Today in Anthropocene aggregate human behaviour using technological capacity is primary destabilising element – oceans, atmosphere, N&P cycles, fresh water usage, destruction of biodiversity

• Managing this is imperative

The impossible is already here

China’s scale enables solar PV breakthroughs

• Solar energy could be top source of electricity by 2050, due to plummeting costs, International Energy Agency, October 6, 2014– solar photovoltaic (PV)

systems could generate up to 16% of the world’s electricity by 2050; while

– solar thermal electricity (STE) - from “concentrating” solar power plants - could provide a further 11%.

Distributed grids; supertlight vehicles; modular housing; urban farming

Recycled plastic printed housing; and silk-leaf photosynthesis – Royal College of Art

World's first 3D-printed apartment building in ChinaMichelle Starr, CNET, January 19, 2015

• In March 2014, WinSun printed 10 houses in 24 hours, using a 3D printer, construction material and industrial waste, in a base of quick-drying cement with special hardening agent

• In January 2015, WinSun delivered 5-storey apartment building and 1,100 m₂ villa, in Suzhou Industrial Park

• 3D printer array, developed by Ma Yihe, is 6.6 m. high, 10 metres wide and 40 m. long. It fabricates large pieces at WinSun's facility; assembled on-site, with steel reinforcements and insulation

…and in development

Disruptive technology, capital and business models• New CIT - big data, ubiquitous sensors, and

mobile connectivity creating new economies of scope and scale due to massive cheap, granular, and actionable information

• Energy tech. integration: Across RE, EVs (PIGS* to SEALS**) smart grids, and storage - creating new performance standards and synergies

• Capital innovation: Sophisticated investors shifting capital flows and lowering cost of capital

• Disruptive business models: New business models in disruptive companies (e.g. Uber, Tesla, SolarCity, Nest, Crowley Carbon) creating value and fostering innovation – Mobility as a System

• Corporate innovation: Google and Apple in mobility, Apple and Walmart in RE, and Cargill in shipping are rattling incumbents.

• Cities and regions: Local governments showing leadership in regulatory reform for climate mitigationAdapted from Rocky Mountain Institute, February 2015

*PIGS: Personally-owned, independently used, gasoline, steel vehicles **SEALS: Shared, environmentally-aligned, autonomous, lightweight vehicles

Understanding and Mitigating Risks

WEF Global Risks 2014Risk Interconnection Map

WEF Global Risks 2015Risk Interconnections map

Global Megatrends – A systemic view

• Continuation of geo-economic trends - inflection points

• Higher returns to capital; falling returns to labour – rising inequality and social tensions

• Breakthrough disruptive congruent technologies

• Return of geopolitics

• Political systems transforming

Weakening paradigm of representative democracy

• Gaia in the Anthropocene

Rising pressure on planetary boundaries

Embedded, complex adaptive systems and a spontaneous symmetry break

• Human society is complex adaptive system, incapable of directive control; embedded in larger more complex adaptive system –bio-geosphere

• Symmetry break occurs when working of complex system transitions from a symmetric but ill-defined state, to more clearly-defined state. In spontaneous symmetry breaking, underlying laws are unchanged, but the system changes spontaneously from a symmetrical, to an asymmetrical, state

• Profound, multivariate asymmetry between scale and depth of global economy, absence of a commensurate, inclusive community, and the defective state of global polity, may make spontaneous symmetry break inevitable

Mitigating and managing risk in uncertain conditions

• Invest in insight and foresight – first-rate, relevant information, skills

and knowledge

• Brace for certainty of turbulence; accept need to manage risks inherent in uncertain conditions – ensure organic ability to anticipate

rapid and discontinuous change– resilience allowing for adaptation

and management of shocks one could not foresee.