Time to align: The forces of globalisation, technology, and financial growth need to be reset for the future
Next week PwC will be represented at the Think20 (T20), a gathering of global think tanks in the lead-up to this year’s Group of 20 summit in Germany. The T20’s mission is to deliver a series of reports and thought leadership to aid the G20 leadership and inform the thinking of all the member governments at the summit. Our work this year feels particularly significant: while there is much progress to celebrate, it is increasingly clear that the forces we’ve long relied on to drive growth are in dire need of reassessment and realignment. An in-depth look at our report on this critical issue appeared yesterday in Strategy & Business, and I want to share some of the key findings and themes here.
To put it mildly, this is no small task. For years, we have operated on the assumption that the forces of globalization, technological innovation, and financial growth would be the rising tide that lifts all boats. To be sure, these three forces have carried us a long way forward. After World War II, this trifecta drove global economic growth and social progress — two goals that were generally viewed as going hand in hand.
Faster and faster: Beginning in the 1980s, the paradigm began to shift. We witnessed the fall of the Berlin Wall, outsourcing, financial deregulation, and a communications revolution, including the creation of the Internet. Prosperity seemed to accelerate, with economic activity and global trade increasing throughout much of the world. On average, life expectancies went up and billions of people emerged from poverty. But cracks in the system were being to show. For example, researchers have found that middle class households in industrialized countries were scarcely better off economically in 2008 than they had been 20 years before.
Inapt indicators: Over the past 60 years, economists, governments, and the private sector have relied heavily on two primary indicators of success: Gross domestic product (GDP) at the macro level, and shareholder value at the micro level. As it turns out, these metrics omitted important parts of the economic and societal story:
- GDP, for example, does not fully capture the negative effects of economic growth, such as people who drop out of the job market. Thus, although GDP shows an average increase in global prosperity, it has masked significant income stagnation and decline.
- Shareholder value, long the primary indicator of commercial success, has driven a growing emphasis on short-term results. One increasingly easy path to those results is combining new technologies and new markets. Spurred by the very rational desire to increase shareholder value, businesses opted to stay competitive by shifting activities and employment from one part of the world to another — often on a huge scale.
When the global financial crisis hit in 2008, these weaknesses were laid bare. And because of the more globalised, connected world, the crisis’s impact was particularly fast and furious. Almost a decade later, many people continue to experience significant challenges in their daily lives.
What next? As we chart our path forward, we need to remember the progress that each driver — globalisation, technology, and financial growth — has delivered. Well-managed market economies have consistently proven better than the alternatives. Moreover, we can’t stop the tide: the globalised world is here to stay, with all its challenges and opportunities. Technology, disease, migration, ideas, and climate — to name a few — do not respect national borders. That said, we believe the following ideas and recommendations will serve as important guideposts as we begin the urgent and essential task of realigning our economic and social systems.
- Economic growth does not always equal social progress. This is a fundamental shift from the prevailing economic views of the past several decades. Our new framework must aim to leverage market economies to achieve the societal outcomes we desire. This includes explicitly setting financial and societal goals that reflect the needs of local communities, cities, regions, and countries; prioritising basic human needs; and looking beyond overly simplified indicators like GDP.
- Go local. Cities, towns, and villages are the natural meeting places for social progress and economic success. We need to rethink the roles of the nation state and of globalisation to ensure we enable our communities to thrive. Global connectedness and local initiative can go hand in hand.
- Beyond financial performance. Financial performance is a necessary but not a sufficient element of success in a market economy. We need to look beyond GDP and shareholder returns so that our metrics for success reflect societal goals.
- Technology doesn’t care, but we must. Automation, machine intelligence, and disruption of communities are some of the threats technology poses to increasingly significant parts of the global population. But emerging technology also holds the promise to help us by creating new industries and jobs. Adjusting our global and local economic systems to foster a beneficial place for technology in our society is critical.
- Educate for the future. Lastly, but never least, people need the right skills for a successful future. Cooperation between governments and businesses should be scaled up to ensure that our global workforce can thrive in an increasingly technology-enabled environment.
The challenges are enormous and the task is daunting, but the stakes are too high to look the other way. The future is now. Let’s get to work.