the roots of our crisis presentation to the thunderbird school of global management european alumni...

The Roots of our Crisis:Global Trends

and what you can do about them

Professor Prabhu [email protected]

McKinsey Global Institute, this morning:

•The era of easy growth is over

•The world economy enjoyed an exceptionally brisk pace of growth over the past 50 years, with corporations and households alike reaping the rewards.

•But in the next 50 years, global economic growth will slow by almost half, falling from 3.8 percent annually to 2.1 percent.

Asia PacificChina, Russia Launch South China Sea Naval War Games

By THE ASSOCIATED PRESSSEPT. 12, 2016, 5:42 A.M. EDT

Photo released by China's Xinhua News Agency:a Russian naval ship arrives in Zhanjiang in Guangdong Province, southern China, Monday, Sept. 12, 2016

http://www.nytimes.com/pages/world/asia/index.html

Which is the most important geo-political development to watch?

•The future of China?

•The (mis)fortunes of ISIS - and the Islamist threat generally?

•Brexit and the future of the EU?

•The outcome of the US election?

• ....

The Economist Intelligence Unit Current view of the USA

Headline: “The US economy will expand by around 1.6% in 2016”.

Caveats: The strong dollar and weak business investment will prevent faster growth.

Prediction: The Federal Reserve will increase the policy interest rate once in 2016, and tighten only gradually in 2017-18

Assumptions: Strong private consumption will be supported by steady job creation, decent real wage growth and higher consumer borrowing.

The Economist Intelligence Unit Current view of China

Real GDP:

This year: 6.6%

Next year: 6%

2018: 4.2%


Real GDP:

This year: 6.6%

Next year (2017): 6%

2018: 4.2%

(but “some recovery is likely in subsequent years as investment stabilises”)


Real GDP:

This year: 6.6%

Next year (2017): 6%

2018: 4.2%

(but “some recovery is likely in subsequent years as investment stabilises”)

Question: is China politically sustainable at anything approaching 4.2%?

With expansive monetary policy’s lack of impact, nothing is now taboo!

•Negative interest rates

•The abolition of cash

•Helicopter money

Crisis: seven symptoms

1. Debt, instability


1. Debt, instability 2. Unsustainability


1. Debt, instability2. Unsustainability3. Exponential inequality, pay differentials


1. Debt, instability2. Unsustainability3. Exponential inequality, pay differentials4. Financial economy vs. real economy

1. Debt, instability

2. Unsustainability

3. Exponential inequality, pay differentials

4. Financial economy vs. real economy

5.Corporations that are irresponsible



1. Debt, instability2. Unsustainability3. Exponential inequality, pay differentials4. Financial economy vs. real economy5. Corporations that are irresponsible6. Crisis in care for the elderly

https://www.weforum.org/agenda/2016/09/5-ways-to-prepare-for-tomorrows-ageing-population

There will be more elderly than children, as The number of people aged over 60 is set to double by 2050. Are we prepared?


1. Debt, instability2. Unsustainability3. Exponential inequality, pay differentials4. Financial economy vs. real economy5. Corporations that are irresponsible6. Crisis in care for the elderly7. Family breakdown

The underlying cause:

Our global economic and political structures make unrealistic

assumptions

The underlying cause:Our global economic and political structures make unrealistic assumptions:

•People are mainly decision-making units


• People are mainly decision-making units

•Money is the most effective measure of value


• People are mainly decision-making units• Money is the most effective measure of value

•Relationships are no more than political or economic

connections


• People are mainly decision-making units• Money is the most effective measure of value• Relationships are no more than political or economic connections

BUT:

•People are more than individuals



BUT:

•People are more than individuals•Wealth means more than money



BUT:

•People are more than individuals•Wealth means more than money

•Society and Community are more than mere connections

Call for a Copernican Revolution

Relational Thinking™ means:

•A different worldview: seeing issues through a relational lens

A relational lens…

"...if our relationships are so fundamental to our well-being, why do we keep forgetting to take account of them in our strivings? Wouldn't we be better off if we got into the habit of viewing all our endeavours through a lens that focused on their implications for our relationships?"Ross Gittins, Economics EditorSydney Morning Herald


• A different worldview: seeing issues through a relational lens

•New goals, values and working practicesfor individuals, organisations and nations

The credibility question

•Can a focus on something as ordinary as relationships really make such a difference?:

“Get relationships right and the economic, social, environmental issues are more likely to sort themselves out!”

•Really?

•Look at the fruits!


• A different worldview: seeing issues through a relational lens

• New goals, values and working practices of individuals, organisations and nations

•A new way of measuring, influencing & managing relationships: Relational Proximity Framework

Relational Proximity™

Further Resources

The Roots of our Crisis:Global Trends

and what you can do about them

Professor Prabhu [email protected]

ADDITIONAL SLIDES FOR Q & A

Economic policy proposals:

1. Households: from bank mortgages to shared equity for housing finance; debt counselling

2. Companies: move to delivering stakeholder value, not just financial returns to shareholders/ directors; Relational reporting by companies/parastatals

3. Financial institutions: reconnect providers and users of capital: “No investment without involvement! No profit without participation! No reward without responsibility!”4. Government: Remove tax incentives on debt finance to encourage equity in corporate finance; support co-location of relatives & family associations; non-debt finance of university fees

Mckinsey Global Institute hopes - 1

Demand: Given near-zero interest rates, fiscalpolicy must explore new infrastructure- and social-financing models, monetary policy may need more unorthodox ideas, and microeconomic policy makers must continue to assess regulatory barriers to growth. Private-sector leaders can also adopt new mind-sets and strategies to find opportunities for productive investment.


Productivity: Digitization could contribute more than $4 trillion by 2025, at a conservative estimate.

Expansion of global flows could spur further growth: if all countries had matched the top quartile of connected countries over the past decade, global GDP today would be $10 trillion, or 13 percent higher.

The Internet of Things could usher in the next wave of technology-driven productivity growth.


• Inclusion. To realize the benefits of broader-based economic growth and halt growing inequality, all leaders must help boost labor-market participation and smooth social costs that are a by-product of growth.

• For example, equalizing labor-market participation by women could add up to 26 percent to global GDP by 2025.

Relational Thinking & Personalism

•Same understanding of reality, and the same normative values

•Same concerns about individualism and collectivism, and many aspects of materialism

•Different starting points: individualism & collectivism vs. capitalism/statism

•Different view of personal & public relationship

• I-Thou encounter vs third party impact

the roots of our crisis presentation to the thunderbird school of global management european alumni...

Economy & Finance