The future of the world economy: the price of our values
What does the future of the world economy look like? In his keynote address, Arturo Bris, Professor of Finance and Director of the IMD World Competitiveness Center (WCC), unpacked the three key trends that have emerged globally; technology, sustainability and a new geopolitical landscape, and the trade-offs that policymakers have to grapple with in order to achieve equitable economic growth.
Bris delivered the keynote address, “The Future of the World Economy – the price of our values”, at IMD’s Orchestrating Winning Performance program in Singapore. He spoke of the biggest challenges facing the post-pandemic global economy as countries look to reignite economic growth. The solution to the challenges we face, he believes, will require international coordination.
An uncertain world with conflicting macro trends
“We live in a very uncertain world, and uncertainty now is much bigger than ever,” Bris said, setting the scene for his thought-providing 45-minute keynote discussion.
Bris explained that there are three key trends at play globally when considering how to ignite economic growth: technology, sustainability, and a new type of global realignment.
“We know certain things but the things we know are not compatible with each other,” said Bris.
Bris said that the importance of each of the three trends, when taken in isolation, is obvious. For example, there is no question that we should be sustainable in our companies and our countries, and when it comes to technological advancement, it is a key differentiator for the future, both at a corporate and a country level. But there are trade-offs and difficult choices that will have to be made.
“This dilemma, for example, requires us to price sustainability in terms of technological advancement and the reverse. We cannot do everything together.”
Inflationary pressures at play
The global macro environment is characterized by a new wave of inflationary pressures. For the first time in decades there is a combination of two different phenomena: demand pressures and supply pressures. Demand pressures, driven by monetary policies during the pandemic, has resulted in consumers in some countries spending at rates not seen in recent years as economies have opened up. In parallel, the war in Ukraine has negatively impacted supply chains and access to energy. The two types of inflationary pressures require different governmental policies, but these have very different macro-economic impacts. It is not possible to know which of the two inflationary types will dominate and this is causing further market uncertainty.
“Different countries in the world are impacted in different ways,” said Bris. “This is important to take into account because inflation becomes a global phenomenon, and it triggers different responses in different countries.” Central banks are intervening and using tools of monetary policy to curtail inflation; however, he explained that this may trigger a further recession and inflation may be here for the long-term.
A new geopolitical landscape
“Global inflation and war in Ukraine are triggering a reorganization of world geopolitics,” Bris said.
Goldman Sachs has called this neobalization, which is a new type of globalization in which two different blocks are emerging, that have both social and economic implications. One of the economic implications are that countries are looking for closer markets. The economic problems are triggering a new set of international relations, which will have profound implications.
“Neobalization is going to make economic growth harder,” said Bris.
“There will be new economic blocks and more protectionism. The challenges for economic growth for countries depending on the external sector are going to be much harder. We are not going to be better off in the coming years, levels of prosperity will not improve.”
Bris explained that geopolitical turmoil negatively impacts sustainability; “when European countries did not have access to energy as a result of geopolitical problems, we saw sustainability sacrificed from one day to the other”.
Technology, sustainability, and economic growth at conflict
“If we look at technology, sustainability and challenges to growth, they are at odds with each other in many different ways,” Bris said. “With technology you create value for a few, you produce more with fewer people, but those left out of the market become poorer.”
“We cannot have digital nations that remain at the same time sustainable,” said Bris, as he argued that it is not possible, at a country level, to excel at technology and sustainability.
Why is this the case? Digital transformation is creating massive inequalities within countries. For example, consider that for one successful wealthy tech entrepreneur in Silicon Valley there are at least ten people working in basic income jobs.
“The digital divide is very problematic across many levels,” said Bris.
Technology creates massive income disparities across countries. The United Nations has identified that 35% of the world’s population does not have access to the internet and, for many, internet access is unaffordable. The divide also impacts gender inclusion with a marked divide being seen in many countries in access to technology by gender, further exacerbating inequality.
Yet, while the digital divide is problematic, to make the world more sustainable requires investing in more technology, especially when combatting climate change. “Data shows that investment in technology, such as green or blue hydrogen, is necessary to provide those emerging markets, that are producing significant carbon emissions, the ability to transform their sources of energy,” said Bris.
The way forward
Bris said that he believes that individual actions cannot resolve any of these dilemmas. Instead the world needs some type of international coordination or central authority to address bigger issues.
“If you leave individuals to make these decisions, you will land up with a suboptimal social result.”
Bris said that policymakers have a very problematic set of choices. “You can’t do everything [focus on technology, sustainability, and economic growth] at the same time. If you make the country more digital, you exacerbate digital inequalities and you may lose the next election. If you focus on sustainability, it can come at the expense of economic growth and then you are going to lose the next election anyway. And if you don’t focus on either of these, then you are not doing the right thing. So you are left with a compromise that you need to settle, and here political leadership is exceptionally important.”