Modern economics needs an upgrade. We need a New Future of Economics to enable us to better predict and prevent economic crises, stimulate growth, create more jobs, and, especially, incorporate innovation into economic thinking. There is one big question I don’t think economists are well equipped to answer: What is the role of knowledge, innovation, and technology in creating economic value for the future?
You can’t get ten economists to agree with each other about the state of the economy—good luck getting economists to forecast the future of the economy. Economics makes most folks feel bewildered because there is so much complexity and so little clarity.
Economics doesn’t address many of the key change drivers that are shaping our world or will prepare us for the future. Some of my best friends are economists, and in their defense, they don’t completely disagree with me; it is just that what we need economics to do, it cannot: forecast what’s coming and how to deal with it in order to prosper.
Now, before I charge on here, you might well ask: Why do I care? Our economic system will shape much of what will affect our future. Economics is about distributing goods, labor, money, markets, and industries. Economics should also be about how to run the economy better—stimulate growth, enable jobs, support business, and avoid risk. If you want to become Future Smart, then you need to prepare for the future by understanding how economics will enable you to better predict the changes that are coming.
Economists struggle with this forecasting business because their capacity to predict with precision is, frankly, limited. They can explain the economy, but they have a spotty record on prediction. The last global crisis in 2008 was an example of heroic after-the-collapse fixing of a dangerous global event that could have created a massive financial meltdown (which it did, but not to the extent it could have).
You might ask now: Why didn’t our economists—any economists—predict this? Or, to be even bolder, why did they not prevent this crisis? The simple answer is that they would have if they could have. This is the point of this book.
Being predictive about the future may well protect and preserve that future. The answer is that economics is not equipped to deal with the massive and complex modern social and technological scenarios that create economic change that shape the data on capital, jobs, currency, trade, commodities, and stock markets, to name a few factors. Bubbles about to burst—such as what occurred during the 2008 financial crisis—the dot-com blowout, or the inflated housing market usually are recognized after they all dive, not well before the crisis emerges. This has historically been a problem for economists.
We need to make economics Future Smart—able to predict and prevent risk factors that might take down national or global economies. Also, if we could create this Predictive Economics, we might be able to figure out with accuracy how to generate jobs and revitalize an economy. I cannot think of anyone who could argue against that desire for upgrading economics. And the likelihood is that another global financial crisis is brewing, but how would we really know? The only logical challenge is to understand how we can upgrade economics and make it predictive by incorporating key trends like innovation industries that are creating new capital, productivity, jobs, and wealth.
Let’s consider what is not well integrated into economics, what they don’t consider, what is outside of their awareness but that they should look at. Technology, networks, connectivity, innovation, energy, supercomputers, big data, and globalization are not well considered—in fact, they are left out of economic analyses. Economics is, for the most part, a hodgepodge of market, capitalist, or socialist theories based on who you are and where you are in the world. Though the basic relevant elements, such as the nature of labor, wealth, and supply and demand, are similar, the very nature of what makes up an economy has changed fundamentally over the past few decades.
Technology industries have changed wealth creation and jobs growth. Globalization and capital flows among nations have altered markets and productivity. An alternative energy economy will emerge in the future, and economic analyses should recognize that nontraditional drivers of what constitutes an economy are important to understand. And different economic models, with various blending of social welfare and market economies, persist around the planet.
Economists have not kept up, and even the postindustrial nod to technology (i.e., after the Industrial Revolution) is not enough to help prepare us for the future. How we know economics needs an upgrade is that the advanced economies of the world, chiefly now in North America, Europe, and Asia (though tomorrow in perhaps Africa and Southeast Asia)—the catalysts of the global economy—are facing uncertainty, higher unemployment, low productivity, and slower growth, and there is little that current economic theory can do to predict what may come and what we should do now.
These economies face problems such as chronic unemployment, resistance to growth, attacks on free enterprise, tight capital markets, asset-value erosion, and an overreliance on government stimulus, or not enough stimulus. If these economies continue to fail to recognize that the world has changed so we had best alter our economic theories to embrace these changes, then there is trouble ahead—not just the proverbial head winds that economists like to talk about, but serious social challenges. The test for the validity of economics is how well it prepares us for the future, how well it helps us avoid and prevent economic crises, and how well we can address current problems effectively.
High Finance Meet High Technology
The credit that economists should get on the actions taken once crises have emerged is notable but inferior to being able to predict and prevent crises. Ironically the very things that economists fail to understand—technology’s role in the economy, jobs, and prosperity—is what may save modern economics. Advanced supercomputers that can simulate Big Data to model economies and create multiple network-based scenarios to then predict outcomes and prevent risks would be the very tool set that modern economists should embrace.
High finance has not met high technology, and it should. We need a mash-up—the convergence of computer science, networking, and economics—like a climate-changed planet needs a global air conditioner on hot day in Dallas. Data science needs to enable economists to build Predictive Economic Models to better forecast risk by understanding the massive data complexity of factors that make up the economy. Supercomputers that model the extreme complexity of astrophysics and nuclear war can certainly also focus on creating the New Future of the Global Economy.
Beyond predicting risk as well as the next global crisis, this would be useful in order to better understand how to design a more productive, employment-rich, innovation-driven, purposeful economy based on Uber-Prosperity. There is no possibility of designing a New Future for the economy unless we use Big Data, cloud computing, data science, computer science, the Internet, and computer simulations to create a Predictive Global Economic Model.
We cannot model all of the complexity, huge data sets, machine intelligence, infinite scenarios, job info, trade, economic, social, and financial information to simulate the future without building an entirely new way to model economics. And we need to add in all of the factors that economists leave out of their models that they don’t use today, including technology, networks, knowledge innovations, new digital business models, mobile, and connected systems. You get the idea. We need to disrupt economies to make it relevant for creating the future economy we desire.
Some steps in the right direction demonstrate the viability of this strategy: Google Trends data was useful in predicting daily price moves in the Dow Jones industrial average, which consists of thirty stocks. Research has found identifying trends by looking at the effects of media information on price changes in stock exchange markets as a predictor of the economic performance of markets.
My own organization’s use of news, social media, big data, and web sources to forecast global risk, business, social sentiment, and behavior trends—a system called Trend Trakker—has further explored how forecasting select trends is possible from large data sets. But no one as yet has modeled the complexity of Big Data in the global economy as I am suggesting with a comprehensive, predictive, real-time, Big Data simulation that we could all benefit from in order to manage risk, predict how economies will behave, or prevent the next crisis as a consistent deliverable.
Companies that crunch big data, such as Bottlenose (http://bottlenose.com), focus on examining the social media and media universe. They show the potential for expanding our understanding of complex trends and prediction. The Sonar product from Bottlenose also examines global risk factors that have become useful for brands and companies to consider what is going on where, by who, and what it may mean. Large firehouse analytics that are focused on the now make Bottlenose a valuable resource to gain actionable insight into the global mind via what topics are trending. This is a step up substantially from what Twitter, Google, and Facebook provide.
Blab (http://blabpredicts.com), a company in the social media prediction market, also mines multiple terabytes of data but focuses on prediction for brands. Blab predicts over the next seventy-two hours what will occur or what the conversation will be like, again over social media. This claim for identifying what will be trending is an interesting new take on the Big Data industry, and as with all deep learning systems, it evolves. There is potential for applying these global online social media tools to create predictive economics.
The emergence of Smart Machines—networked computer intelligences—may enable us to model larger data sets, such as the Global Economy Model I suggest. Once directed, Smart Machines will be able to crunch exabytes of data in order to analyze multiple complex scenarios and identify patterns that today defy human perception. Black boxes, a code word for the special-purpose computers that analyze opportunities that humans do not find, could be better used by economists, not just their brothers-in-arms who use these tools for high-speed trading at the local hedge fund. I suspect they will begin to use this technology, especially as the increased sophistication of the financial markets challenges economists to look forward rather than backward.
Our ability to stimulate markets and resolve these problems is failing in great part because we don’t fully understand how the global economy has changed, especially in the advanced nations, which have been the largest contributors of global GDP. But perhaps this won’t be so in the future when developing economies surge. It’s like when older doctors resist noninvasive robotic surgery and other technological innovations that would lead to healthier patients and billions of dollars saved because these advances required skills they did not have or understand the value of.
It’s tough to convey how economics needs to change when you’re looking in the rearview mirror of what worked just fine and your power and expertise are based on a set of ideas and mindsets that most believe in—even if they’re wrong. Adam Smith is turning over in his grave.
In an era of fast change, when innovations disrupt every traditional rule and mindset, the disaster may be that we wait too long to adopt a new mindset and that we are unfit to adapt, learn, and predict. We don’t see or imagine what is possible because we refuse to see it. This is what is happening in economics. Time to hack economics?
Economic theories that involve the redistribution of wealth through taxation may be politically popular in Europe but have little to do with driving new investment, producing jobs, stimulating authentic productivity, attracting capital, and—the largest factor inventing the future—transforming economies by investing in building technology-rich economies and Innovation Ecosystems that create value that generates wealth, jobs, and new business formation. Somebody just has to tell the truth here.
Sorry to tell my European friends who have been preaching the dystopian end of capitalism for ten years, but if there were a better way to grow an economy, lift up the fortunes of citizens, increase jobs and productivity, I don’t see it yet. And in all fairness, the US model of capitalism needs a refresh as well if it is to shape a prosperous New Future of Economics.
The elephant in the room—and the driving change in business—is technology. Social media, nanotech, cognitive computing, genetics, networks—technological innovations have been and shall be the chief shapers of the economy. This is where we will find the jobs, the start-up companies, the new markets, and the new customers. There are few mainstream economists who have integrated this essential shaper of the economy into economics. This is, of course, amazing, as the trillions of dollars and Euros of new wealth creation attributed to technology businesses is clear, yet economists have not rallied to embrace a new economic model that integrates technology as a creator of new value, wealth, and business.
Yet our economic theories have not really been altered so that we can both recognize and integrate technology and innovation into new economic theories. And if there is a smarter way to create more equality, which is such a rage, other than stimulating growth, educating people, and investing in tech innovation–based industries, I have not seen it.
The idea of taxing the successful to achieve equality rather than investing in job training, education, and innovation R&D seems illogical. We need a million Silicon Valleys if we are to transform the world to give equality a chance, to create a level playing field of education and quality of life by growing a billion new jobs, industries, or entrepreneurs. Government investments with the private sector to create the next high tech powerhouses that will generate jobs should be the focus of government—or just get out of the way and allow the private sector, the unfettered market, and free enterprise do what it does best—create widespread prosperity, innovation, and wealth.
Some evidence: the relationships of innovation to jobs, capital, and labor are not well understood. In fact, after all of the trillions of wealth creation and new enterprises, digital markets, and e-commerce that we have all observed (Apple is the largest company in the world in value), economists are still refusing to upgrade their dismal science to embrace the obvious. Technology has had an immense economic impact and shall continue to affect jobs, growth, markets, productivity, asset values—all of the stuff that makes up an economy. Technology as a contributor of the economy is a value driver and a wealth and job creator that should be altering the very fundamentals of economics.
I hashed this out with a friend, a former Harvard professor and White House economic head. I railed on about why economics doesn’t integrate technology and innovations into economic theory. Though he was sympathetic, I was not making any progress with him, as logical as I thought I was being. The point is that we need new economic thinking to get ready for the future. And we need leaders who understand this to do some critical new thinking about stimulating economies, jobs, and prosperity—before the next war takes this off our minds, which has been the case every few decades, like clockwork.
Neuro-economics and behavioral economics are also not factored into modern economics. The authentic ROI, return on innovation, cannot be measured if economists are not looking at it as a metric; instead, they are looking at the traditional paradigm about economics, but that era is over. Even the newest ideas about factoring in innovation’s impact on markets have not been well received or are used inconsistently.
We need fresh thinking about a New Economics for the New Future we are creating through the rapid explosion of innovations on the near horizon. The Nano-Economy—a microeconomy with an underlying value driver of the larger economy—is one example.
The nanotech microeconomy is the global market value of the over $1 trillion worth of jobs, markets, and products that design matter at the atomic scale, using nano-materials. The Microeconomies of the Future may be a more accurate perception of the economic drivers of business, wealth creation, jobs, and capital. Microeconomies are global and have the distinction of having some primary technology at the core of the economy that will generate new opportunities for job, enterprise, and wealth creation.
Microeconomies may be more important to understand as Capital Attractors that shape opportunity so public policy makers, venture investors, job seekers, and entrepreneurs can invest in these fast-growth Microeconomies. By investing in resources to stimulate jobs, education, and new ventures around the Microeconomies of the Future, this will stimulate jobs and global competitiveness and steer education in the right direction. Here is a sampling of the Microeconomies of the Future that I forecast will generate the most revenues, innovations, new organizations, and jobs.
They represent in global value (revenues, jobs, investment, research) over $7 trillion in US dollars today, increasing to over $10 trillion by 2025. Here is a global forecast of where to invest, what to start that new business in, or what next career or job might be Future Smart to pursue.
The Global MicroEconomies of the Future
• The Nanotech Economy
• The Mobile Economy
• The Neuro-Economy
• The Drone Economy
• The Cloud Computing Economy
• The Renewable Energy Economy
• The Smart Machine Economy
• The Connected Economy
• The Big Data Analytics Economy
• The Health Enhancement Economy
• The Knowledge Engineering Economy
Together these Microeconomies are the shapers of the future Global Innovation Economy. Microeconomies are smaller representations of the total economy. They act as economic drivers of change and are often not well understood or are not viewed as valuable in traditional economic thinking. Perhaps if we understood these Microeconomies as shapers of future change, we would be more Future Smart about stimulating future opportunities around these emerging Microeconomies. We need new thinking for a new era. But we owe this most to the public. Each of these Microeconomies is often shaped by dynamic innovations, new competitive advantages, and disruptive change. For example, if you add up the collective businesses value and revenues of the list of Microeconomies of the Future listed above and then look at the relative growth, capital investments, and job creation value, you will get a deeper understanding of what economists are missing today and should be forecasting tomorrow.
We owe the world an upgrade to economics to generate some Future Ready thinking so they can find new jobs, get educated for sustainable work, and live in economies that are growing and innovating beyond the limitations of today. Shifting our thinking to understand these Microeconomies of the Future is a good start.
These Microeconomies may get us to think differently about the economy. This is even critically more important as we look into the future, as I forecast there will be a tenfold impact of new technologies that will disrupt, change, and create new risks and opportunities over the next thirty years. So let’s look at updating economics to get us ready for 2020 and beyond.
The New Future of the Innovation Economy
Do you know how Facebook makes its money from relationships?
Do you understand how algorithms shape business strategy?
Can you predict how Alibaba will create new online markets?
Do you realize how Royal Dutch Shell decides to invest in new energy?
Do you know how Google predicts what you’re going to search for?
How does Apple create business value?
The combination of free enterprises connected across borders, distributed knowledge, emerging technology, and innovation’s disruption of markets all lay at the center of our global economy. The attunement of these factors, their interplay, makes for a robust economy. If you know this, you can stimulate more productive growth by investing in those economic drivers. If you don’t know this, then your ability as a leader, businessperson, consumer, teacher, inventor, or politician is going to be limited, or it may fail.
There are two economic ideas that are the predecessors of the Innovation Economy trend, which will transform business. The first is Schumpeter’s Gale named for Joseph Schumpeter, which says capitalism can only be understood as an evolutionary process of continuous innovation and creative destruction. This applies to all business, but it is especially relevant for entrepreneurship, which is continually dealing with the rapid process of invention, technology, and disruption. Entrepreneurship is the key force affecting all size of businesses and no longer refers to just start-up companies. Every business is being transformed by the culture of entrepreneurs, which creates value from innovation and change. Capital is being attracted by innovation-based companies that are undergoing extreme change.
The second idea is Evolutionary Economics, inspired by evolutionary biology, which deals with the study of processes that transform commerce for enterprises, industries, employment, production, trade, and growth. Evolutionary economics credits an up-trend in economic growth coming from a process of technological innovation. It is fair to say that these two influencing theories have not transformed modern economics as they should have so we could have a deeper insight into the future of our civilization, but maybe you should have a look at them, as they will help make clear the New Future of Economics.
Innovation Economics identified innovation as the chief influencer of productivity. This idea transforms economics by recognizing the valuable role that innovation plays in an economy. More innovation in an economy results in more productivity in the economy—a more robust economy. The observation in the value creation of new biotech drugs, Internet companies, and mobile commerce demonstrates innovation as the key driver of productivity—new jobs, wealth, and contribution to GDP.
Innovation Economics focuses on a theory of economic creativity that affects the organization, jobs, and labor itself by recognizing the type of work that generates innovation value. It also incorporates new ideas of information, computing, and communication technology into the global economy as productivity drivers.
Innovation Economics is based on a fundamental idea that separates it from traditional economics: the central goal of economic policy should be to stimulate higher productivity through greater innovation. More innovation-stimulus investing in research and development, education, entrepreneurship, venture capital, and training creates more productivity. This is in contrast to the two other conventional economic doctrines, neoclassical economics and Keynesian economics.
I forecast that Innovation Economics may just offer a new way to not only view but also understand economies—how we grow, change, or stimulate an economy. Future Smart strategies that focus on the new ROI—the Return On Innovation from investments in science, tech, education, and building a nation of entrepreneurs, of enlightened individuals—Game Changers of the Future—will transform the future economy. Innovation will lead the way.
If you want to get Future Ready, you want to understand this New Future of Economics.
By 2030 innovation industries will contribute to over 70 percent of the growth in the world economy. The future of the global economy is innovation. Innovation that creates value that can be monetized, resulting in new technologies, new jobs, new companies, new industries, and, ultimately, a new civilization. Innovation will drive productivity, labor, markets, and growth. Innovation creates new value that electrifies markets and job growth. Innovation drives foreign and domestic investment. Innovation drives security and defense.
Innovation will shape the future of all economies, the creation of economic wealth. Innovation is what makes workers globally competitive, attracts foreign investment, makes corporations want to hire smart talent, educates and prepares the future workforce, drives wealth creation, and increases prosperity. Innovation is also the fundamental DNA that will make products and services competitive.
As new cloud computing becomes the dominant model for all products and services, an era of Continuous Innovation will emerge. Cloud computing will enable every connected product or service to get updated, upgraded, and enhanced with new functionalities 24/7, forever.
All leaders must focus on enhancing the Innovation Economy within their nations so as to stimulate jobs, innovation, global trade, and research and development. Growth is not sustainable by fiat from government subsidies, social welfare, or cheap funny-money loans that create bubble economies. Innovation comes from investments in education, job training, and research and development of new ideas.
The Innovation Economy: Exponential Change
Innovation Capital and the Power of Ideas are creating a New Innovation Economy. The Innovation Economy is the next evolution of economics. At its core is exponential technology change. It is the turbo-charged global economy that is fueled by the Power of Innovative Ideas. Exponential Technology is transforming our civilization—Internet, mobility, genetics, nano, neuro, quantum, innovation ecosystems, and the free markets, all driven by entrepreneurial companies and individuals that are creating the next economy.
The Innovation Economy is also about the fundamental connectivity of economies. The world’s largest economies today and tomorrow—China, the United States, India, Germany, Japan, and Brazil—have a foundation of cross-border sovereign investments that create global and economic prosperity. China holds over a trillion Euros and European sovereign bonds as well as another trillion-plus in US dollars and US sovereign bonds. The global trade flows between the United States and China alone are in the trillions.
The global trade flows between North America, the Eurozone, and Asia dominate the global economy and, at the same time, secure it. China needs the North American market to produce for, and North America needs cheap goods that China makes. China subsidizes the US and Eurozone economies by buying sovereign debt and currencies so as to play their role in protecting their market interests. The EU, Asian, and North American trade is the core of the global economy.
To illustrate this, during the 2008 financial crisis the Russians floated the idea of crashing the US economy by trying to convince the Chinese to dump their US bonds on the market. The Chinese leadership quickly rejected that idea, demonstrating the end of this kind of Cold War thinking. We are too connected now, and that connectivity is a chief driver of the Innovation Economy that is emerging and will dominate the future of the planet, creating prosperity and a higher quality of life.
For half a century the United States has occupied the center of the global economic system, and capitalism has been a rational model for growing economies, opening markets, and increasing GDP. The world has benefited, not just the United States. In the future the center of gravity may shift. Prosperity based on free enterprise propelled by technological innovation is the central focus of the Innovation Economy. If embraced as an economic model, the openness of markets, the rise of the new middle class, and poverty reduction all are positive signs that capitalism can be a source of global and sustained productivity.
Competition breeds opportunity and innovation. A new form of global capitalism—not just Western capitalism—is emerging, as both the Chinese and the Europeans will compete against each other as well as the United States in the future. Europe, as a productive social welfare model, and China, as a centrist capitalist model, will compete against the United States (North America), which is what I would call the Innovation Economic model. Technological innovations will lie at the center of the future of the US economy.
The advanced economies that, in 2000, consumed 75 percent of the world’s output will, by 2050, consume just 35 percent. And innovation will be at the core of the transformation of the emerging economies of the future.
One measure of Innovation Capital and the value of technology is the number of patents filed. With the United States and China in the lead, you can see where the future may take us. Patents lead to new innovations and companies that create jobs, opportunity, and wealth. Innovation, evidenced by up-trends in patent filings, is an excellent measure of innovation’s potential on a society.
Still, a vibrant and significant entrepreneurial class with patents but without venture capital to invest in the future makes little sense. There is not nearly the venture capital liquidity in the European Union that we find in the United States. Tomorrow’s innovations may come from Asia, Africa, and Turkey if those economies keep investing in innovation as they are today.
At some point all nations will realize that growth and productivity, security and stability come from investing in people, infrastructure, and education, thereby sparking investment and innovation to prepare them for the future.
A key unique shaper of the Innovation Economy model is also venture capital and the innovation culture that creates new patents, new digital business models, explosive innovation, knowledge jobs, products, and start-up companies. There is a dynamic Innovation Ecosystem of entrepreneurs, venture capitalists, banks, angel investors, suppliers, coders, producers, designers, factories, shops, and component makers emerging on the planet. What was once unique, the Silicon Valley phenomena, is now happening around the world.
The Innovation Economy—the increasing exponential economic and social value delivered from technological innovations—will grow as a force around the world in the future. This Innovation Ecosystem is supported by the ethos and culture of innovation, which is shaped by advocates like Steve Jobs, Sergy Brin, Elon Musk, Bill Gates, and Craig Venter, all of whom have a history of inventing the next big thing—from computers to biotech to electric cars.
By 2030 the Innovation Economy model that has emerged in the United States will become a model for the world economy, with some important changes. Innovation Economics will drive wealth creation, jobs, new industries, and cross-border trade. Innovation such as technologies—nano, bio, neuro, Internet—are the drivers of new businesses, jobs, products, and services that together shape an economy’s result: GDP. This model has innovation, free enterprise, and capitalism as the center of what drives growth in economies.
These changes are a balance of a purposeful social agenda, with investment and changes in education, and venture investment in new R&D. In addition, a more sustainable and social-enterprise business model with a purpose, one that embraces innovation but has a soul, will become the new Future Smart business model. If there were any hope about creating more equality, social mobility, affluence, and productivity, it will come from the Innovation Economy. This is a Future Smart economic model.
High-tech innovation—nano, bio, IT, neuro, and quantum—are more than tech innovations; they are economic forces that create jobs, industries, growth, and trade. The future of health care, the future of prosperity, the uplifting of cultures will all comprise the Innovation Economy for the future.
India and the majority of Asia will embrace this future and enjoy GDP growth in their economies. The European Union will have to resolve the rapid aging of their societies and the declining productivity by stimulating innovation and capitalism while balancing social investment, educating their large immigrant populations rather than investing in social welfare as a long-term strategy.
The future of the European Union depends on catalyzing authentic innovation-based growth like that of the Innovation Economy more so than what social welfare models can deliver. It is possible to build a socially responsible society with the engine of growth that is Techno-Capitalism.
Future Smart leaders who understand this will create a New Era of Enlightenment, a new era of invention and innovation. Across the pond the US challenge will be to integrate more social well-being into the Techno-Capitalism model. A fusion of social welfare economics and techno-capitalism will likely be the blend that will endure by 2035.
Future Smart nations invest in the future of their citizens by investing in research and development in innovation and everything that supports that investment, from improving education and job training to essential services such as education and health care. Furthermore they remove all barriers to entrepreneurship and business, as these are where the jobs come from, where the productivity comes from—not government.
I have advised my European clients of this strategy: it is not sustainable to provide the size and scale of rich social entitlements and also hope to stimulate economic growth and productivity. We all would like to have it all, but there is a price. It will buy votes, but it is a Band-Aid at most. Kicking down the road the pain to effectively deal with structural reform, technology investments, higher education, and jobs training until the next generation can deal with the inability to modernize your technology, education, and jobs is a recipe for long-term disaster.
At the same time, the United States cannot create a sustainable future with the increased drag on the future economy of social entitlements of an aging society any more than the Europeans can. Consistent, organic growth and productivity that comes from revitalizing education and the business sector with innovation in every industry is the only long-term strategy for making sustainable economies that survive.
The aging US and EU economies face long-term challenges to economic sustainability that require a rethinking of what type of future we want and what the cost of that future will be. This is the fundamental existential challenge that all societies will face given slower economic growth and higher demands for social welfare from aging populations.
How well we navigate this future will determine the future security and economic state of the planet, not just a nation or region. In the future aging—as a phenomenon, more than a trend—will bankrupt nations that did not plan for this future. The drag on economic growth and vitality will be the aging of society unless significant resources are planned decades ahead of the 100 to 500 million aging citizens across Europe, North America, Japan, and Asia, particularly China, by 2040. No one is prepared for this future.
The United States may be neck-and-neck with China for the future engines of growth, as two of the leading and most connected economies on the planet. The Eurozone will be third, as a grouping of economies after North America. After Germany at fourth comes a cluster of countries with less than a trillion dollars of GDP separating them today, but they might break out of the Eurozone and become the dominant economies in Europe by 2030. France and Britain are in the top grouping. Brazil, Russia, Japan are all major economic forces today, but all of this might change by 2030 or before.
Malaysia, Mexico, Turkey, Thailand, India, and Indonesia are quickly growing economies and could soon pass Italy, Brazil, and France. Russia’s future could change for the better with the Arctic oil rush or crash if a new energy source is found. This might offset Russia’s decline in life expectancy due to the inadequate health care system.
Indonesia, Turkey, and Malaysia (due to oil) could be the new leading growth economies, especially if they can bring their populations into the global markets by increasing the quality of their manufacturing sectors and upgrading their innovations and tech infrastructure to compete with India and China.
Singapore, though small in size, is an innovation global leader and will be successful due to social stability, business-friendly climate, and visionary leadership about innovation that keeps it on the forefront of high technology. If most nations just followed Singapore’s polices and strategies, they would thrive by 2025 or before. I see Singapore moving into the future. Even with few natural resources and under 5 million people, they are Future Smart.
It is likely that Europe, especially France, Spain, and Italy, may well drop in leading rankings due to drags on their economies by social welfare, taxation, and aging populations. The lack of replacement workers and low investment in next-generation research and development could spell danger ahead. The Eurozone must stimulate and encourage the next generation of entrepreneurs or else their job creation capacity will not keep pace with the growth demands of the economy.
The United States faces similar serious issues, as, in the future, low-tech jobs and even knowledge jobs are not going to be plentiful, and this will create a drag on the US economy. Many of the industries in climate change and strategic exponential technologies of nano, neuro, computing, Internet, and biotech will transform the markets of the near future and drive new economic value—jobs and GDP.
China’s Future
China is rising to take over the top economic spot by 2040 or sooner unless the “China Fails to Get Rich Before China Gets Old” scenario happens. What could derail China’s future would be the crushing impact and economic drag of China’s aging society in the future, when there is not enough growth and new workers to offset the older generations’ social needs and reduced contribution to GDP. In this scenario China would not become a leading economy unless worker replacement and economic prosperity is addressed.
There might be an argument for China as well as Japan and other Elder Societies being sustained by huge investments to replace lost labor due to aging populations with Smart Machines, which would accelerate GDP. Smart Machines are high performing, can work more hours, are more competitive than humans, and cost less to operate. I think this likely scenario, the Smart Machine Microeconomy, is coming by 2030.
Italy and Japan are examples of nations that are depopulating and not replacing a retiring workforce or attracting skilled immigrants to keep GDP strong for the future, which puts the future at risk. Without massive Smart Machines such as robots to offset lower labor pools and dropping productivity, these fast-depopulating societies will decline economically. Japan understands this trend and has enacted policies to offset it; Europe is slow to embrace their inevitable robot future, so they are experimenting with creating a more culturally diverse population.
Bring on the robots! This will actually enable the European social welfare model in which Smart Machines will generate the highest productive growth of the economy. I forecast the Smart Machine Microeconomy will provide for humanity a future of less work, more progress, and at a higher quality of life. The challenge will be how to deal with the Human–Smart Machine Jobs Gap and the social decline of quality if we don’t invest in tech innovations quickly or deeply enough that will integrate Smart Machines into our societies to pick up the productivity slack.
There will be an almost ten- to fifteen-year gap between having the large scalable and affordable Smart Machines required to make a significant economic and productivity impact as we make the transition into the Smart Machine Economy in Europe. The United States and Asia will lead this Smart Machine Economy. Africa, China, and India will resist, but eventually, to balance out global trade and to be competitive, they all will embrace the economic logic of the Smart Machines,
Robots to offset aging societies are coming and will be viable alternatives even to immigration. Robots have no political affiliations and don’t join labor unions. We can see this future emerging now, as Foxcomm ordered thousands of robots to replace human workers after worker protests disrupted their ability to produce Apple’s iPhones. Until governments step in, look for tech investments over labor in the future. The battle between the Smart Economy, based on Knowledge Values versus labor, and capital-based economies will emerge by 2025.
There is an intimate economic connectivity between China and the United States, as China invests in US treasuries and the United States is China’s largest customer. Even with local domestic markets picking up, I see a stable future for the global economy as well as that for China and the United States. Each of these respective Superpowers, certainly the two largest economies in the future of 2020 and beyond, have enough internal growth factors to weather crises and increase productive growth for generations.
China and Europe have a similar interlinking of economic interests, with holdings of billions of Euros/dollars of sovereign debt that has created a new fundamental Economic Global Intimacy that is unique in history. This investment is also a stabilizing force for the future of China as well as the world economy. China’s robust economy and investments in the US dollar and treasuries as well as the Euro and sovereign assets will go far in stabilizing China as well as the world economy. China is the New World Superpower, and given its access to capital and strong GDP, it has every interest in being a stable economic force on the planet for the foreseeable future.
The intimate connectivity of the three economic zones—North America, Europe, and China—will help stabilize a decline in the United States or the European Union and other more fragile parts of the world economy. This is in the interests of all parties who will shape the New Future.
The population of the United States will grow to 500 million with a grand opening of immigrations by 2020 or before, and this will be highly productive for increasing jobs and offsetting depopulation and an aging society. By 2025 or, likely, before, huge tech-infrastructure investments, research, and development in science and tech as well as energy independence will set up the United States and North America as a region that will dominate the global economy on par with or beyond China.
A smaller, leaner, smarter Eurozone is possible if it handles its immigration, jobs, and social welfare policies and offsets the entitlements with tech investments and education to bring the next generation of immigrants and knowledge entrepreneurs to the market. Without this huge incentive-based transition from an entitlement to an Entrepreneur Society, the Eurozone, minus Germany, the UK, and possibly the oil-rich Scandinavian nations of Norway, will decline in economic importance by 2025. Germany’s rise, though, will help the Eurozone unless they bail out the European Union. I bet they stay and dominate the Eurozone in the future, as they do today.
Germany and the United Kingdom are the productivity leaders in the European Union—always have been. If the rest of the European Union was to model their education and trade schools, industrial sectors, and productivity strategies based on Germany, the European Union would be able to boast of their increased growth. I don’t see this happening in the future, but it could. The EU nations transforming their economies based on the German model would indeed be Future Smart.
Rising Stars
Turkey, though not part of the Eurozone, will play an important role in collaborating with European markets and will rise in economic and political power to rival most of the EU states. The trade and energy alliance of Germany and Turkey could be an interesting stability pillar for the future. Old ideologies will need to play a lesser role as economic access to markets and the Connected Planet trend provides growth and commerce. Turkey, as a model of a moderate economic Islamic society where innovation has a positive role in shaping a more productive society, is important for the future of the planet.
Another pillar that will shape the future of Europe is, of course, a resurgence of an Aggressive Russia. Emboldened with energy assets and a nostalgic thirst for expansion, Russia’s interactions with Europe and Turkey, the rising economic star of a greater Europe, will shape the future of Europe—if the EU allows it. Innovation, especially around alternative energy, could be a corrective balance of power to counter a resurgent Russia. I don’t think the Europeans as a whole relish being Russia’s energy vassals. Innovation in energy and new technologies could be a Future Smart investment for the future well beyond their embrace of nuclear. Radical energy innovation is needed to turn this risk into an asset.
Game-Changing Societies for the Future
The Middle East, especially the small, oil-rich nations, will have stagnant growth but numerous and complicated risks. The quality of life in some of these nations is not sustainable unless there are investments beyond oil that stimulate modernity. These states are vulnerable to other states and nonstate actors who in the future could seek to take over these oil-rich and powerful small nations by offering that which the current rulers do not—an alternative future of governance. The rise of the Islamic State is one example. Be it democracy or theocracy, a liberal society or a religious one, it is likely that change is coming to the Middle East, where the most powerful attraction resides, energy.
If the Arab Spring could be transformed into a Silicon Valley and the Arab states were to embrace the Innovation Economy model, the increased productivity, security, and prosperity would be a game changer in our lifetimes. Peace and security for the entire Middle East; jobs and prosperity would lead to peace. This could come from a new global synthesis of leaders, both inside and out of the region, who have the courage to look to the future of the region—what the children of 2015 want for 2040. So many conflicts on the planet would benefit from all parties looking to a plan for the future. The Innovation Economy could be a model for a just, peaceful, and productive society with respect for traditional values. Rather than bombing each other, imagine building Innovation Ecosystems for trade, commerce, and prosperity. Imagine building a Game-Changing Society for the Future in the Middle East. What would that would say to the world?
The game changer in the Middle East is Israel, a robust and dynamically high-tech growing economy that could surpass Turkey, Indonesia, and even China. What would enable Israel’s growth in the future—or curtail it—is war. A Middle East peace would be an accelerator of the region’s economic growth. Imagine what Israel could teach its Arab neighbors about innovation and commerce. Imagine no more conflicts but instead collaboration to build productive societies, Game-Changing Societies for the Future.
Peace could add 10 percent to Israel’s GDP and direct that entire R&D from military into commercial economic value—swords into plowshares, so to speak. Israel’s Innovation Economy is one of the largest and most high tech, which, ironically, has been honed to a high degree of sophistication and performance by the threat of war since its founding. Eliminating this Threat Future as the predominant driver of innovation may be challenging, but a more peaceful Middle East would be a long-term sustainability driver of Israel’s future.
Of course, energy sustainability and figuring out immigration to drive proper jobs can be a driver of productivity but not without a larger plan that includes attracting and building an entrepreneur society. As the ideology of entrepreneurs is freedom, innovation, and experimentation, these goals face a big challenge, because this is the antithesis of the bureaucracies and socialized swelling governments of today. Changing this to embrace a leaner government that is accountable for innovation, job creation, and high-tech investments that make a difference could happen, but it is not likely without enlightened leadership that embraces enterprise over social welfare. In France this may not be possible.
Governments do a poor job at creating wealth and employment. The current political ideology across the pond in the United States as in Europe has the same outcome. Social welfare states that don’t plan for the future of jobs, innovation, energy, climate change, and education will not have a sustainable and prosperous future. There is little mystery here.
The most sustainable economies now have a more sophisticated understanding that what drives innovation, investment, jobs, productivity, and growth is lower taxes, free markets, and low regulation. What’s changed in economics is that most economists are living in theory of the nineteenth or twentieth centuries, before technological innovations had the size of economic impact on the economy they have today and shall have tomorrow. This is what has changed. This Game-Changing Trend, the impact of advanced technology on the economy, is the core difference that will define tomorrow’s economy.
Africa, the Next Superpower
The region I think holds the most new promise is Africa. Once known as the Dark Continent, it has been the fastest-growing regional economy after those in Asia. Governance is becoming better as modern societies start to take over from the tribal systems. Investments in resources, technology, manufacturing, and communications have made a difference. Though corruption is still a problem, Africans are becoming smarter and asserting their political clout at the polls. Democracy and productivity has spread—the real marker of change. Per capita income, what people earn per year, is on the up-trend.
Africa will not be far behind South America by or before 2025 and may go well beyond it achieving Superpower scale. South America just fifteen years ago was dominated by powerful elites exclusively, now a middle class has emerged. Africa’s long-term growth will increasingly reflect interrelated social and demographic changes creating new domestic engines of growth. Key among these will be urbanization, an expanding labor force, and the rise of the middle-class African consumer.
In 1980 just 28 percent of Africans lived in cities. Today 40 percent of the continent’s 1 billion people are urban dwellers—a proportion roughly comparable to China’s and larger than India’s. By 2025 that share could rise to 50 percent, and Africa’s top twenty cities will have a combined spending power of over $1.8 trillion.
In March 2013 Africa was identified as the world’s poorest continent, where poverty is extreme. The history of Africa as a European postcolonial carve-out did not help to make matters better. Most often Africans themselves did not divide the African states, so ancient tribal lands and traditional borders were abandoned and new borders were drawn. This has contributed to the conflicts that have marred the continent. Few visionary leaders have emerged.
We are used to hearing about how conflict ridden and poor Africa is. Now most of Africa is characterized in this way, and although it is true, it’s changing fast—faster than you think. And the economic data is getting better, as is the quality of life, pointing to a New Africa awareness perhaps. The rate of return on foreign investment is higher in Africa than it is in any other continent. So something important is shifting in Africa—key trends in investment, infrastructure, growth, resource extraction, and education—and this is leading to a New Africa that may be in line for becoming a new Superpower.
The World Bank expects that by 2025 most African countries will reach middle-class status, which in Africa is about $1,000 per capita, or per person, a year, if current growth rates continue. Africa was the world’s fastest-growing continent, at 5.6 percent a year, and GDP is expected to rise by an average of over 6 percent a year through 2023. Growth has been consistently on the up-trend, with over 75 percent of African countries pushing 4 to 6 percent or higher growth rates. This is impressive growth for a continent known more for refugees, conflict diamonds, war, and corruption. What if there were a power shift here that might further accelerate a New Africa?
From Tigers to Lions
Over the past decade the Lion Economies of Africa have grown faster than the East Asian Tigers. Six of the ten currently fastest-growing countries in the world are in Africa. Africa’s telecommunications, construction, banking, and retailing are booming. Private-investment inflows were over $100 billion over the past twenty years. I forecast we could be looking at over $500 billion by 2030.
Most of Africa’s economies face serious challenges, including poverty, disease, and high infant mortality. Yet Africa’s collective GDP, at $1.6 trillion, is now roughly equal to Brazil’s or Russia’s, and the continent is among the world’s most rapidly growing economic regions. For Africa to get to $3 to 5 trillion by 2025 is not hard to forecast. This acceleration is a sign of dogged progress and potential that may surprise the world.
According to the UN, as a continent, Africa has more than 12 percent of the world’s oil reserves, 40 percent of its gold, and 80 to 90 percent of its chromium and platinum. Africa is also home to 60 percent of the world’s underutilized arable land and has vast timber resources.
The idea that these abundant natural resources can be the driver for a united African innovation revolution is on the mind of many leaders. This will require visionary Future Smart thinking from the continent’s business and political leaders to overcome the silo thinking that continues to hold back the building of a successful Africa as a Superpower rather than a collection of nations—small, disconnected, and vulnerable.
Africa has a chance to take a great leap forward into embracing innovation and modernity, learning from all of the other nations in creating peace, security, and prosperity. The strategic opportunity is there. Will Africa emerge in our future and realize its potential for greatness?
Africa Resource Exchange: 2025
By 2025 a new generation of enlightened, educated, and visionary Future Smart leaders of African nations will form a regional Resource Exchange, where they offer a stock exchange based exclusively on Africa’s natural resources. The aim is for the African nations to better manage Africa’s resources, not unlike what the oil-rich nations did when they formed the Organization of the Petroleum Exporting Countries (OPEC). Forming OPEC centralized pricing and made individual petro-states a geopolitical power to be recognized.
This organization of states around a resource, oil, held by developing nations was in modern times a global paradigm shift. This was the first time developing nations were able to organize a trading bloc to deal with much more powerful and developed nations, global multinationals, and the Western oil companies.
This example will lead Africa to become the new Superpower. Africa will then join the other Superpowers in the world in leading a new global economy based on Future Smart resource management and innovation. This order brought by the Exchange will eliminate corruption and streamline revenues direct from the market to the nation with transparency and accountability.
There are many reasons why this scenario may not happen, including a lack of Future Smart leaders, the inability of the African nations to find common ground, the lack of governance and continual corruption, and the absence of a vision of the future. If that is the case, then this scenario will not emerge. But I forecast that there is a strong possibility that with the global demands on Africa’s resources in a world of resource scarcity, Africa may just emerge as a Superpower. Stay tuned.
The Connected Planet is coming in a future when old alliances, traditional economic models, and new innovations drive change. It is likely that how we earn our livelihood, work, and jobs will change in fundamental ways. The economics of yesterday will not hold up in a world of digital products, cloud computer services, renewable credit trading, and the fantastic new digital Innovation business models that have not even been conceived of yet. Some of what is imagined in these forecasts will create vast wealth—weather machines, nano-bio devices, renewable smart grids, and next-gen computers.
The future innovation ecosystems of collaboration, driven by mobile commerce, crowdsourced business models, and more will invigorate new global trade. There will still be winners and losers in the global economy—fast adapters, predictors, and laggards who resist the future—perhaps with good reason. There will still be buyers and sellers, supply and demand, and customers looking for that next good deal. Entrepreneurs will come out on top here. Regardless of the innovation, the market, the location, there will always be an entrepreneur who can see a need, identify a problem, and provide a solution—for the right price.
And as long as there are customers for his or her service or product, there will always be a market, be it over the smartphone between villages in India or across the world in London or San Francisco. But the future of the global economy will be based on Future Smart individuals who learn to leverage the innovation tools to reach new customers, build new products, create new ventures, forge new industries, and predict what the New Future may bring.
The Geopolitics of the Future
Geopolitics is about the interests, conflicts, alliances, differences, and policies that nations have with other nations. Geopolitics is also about the impact of politics and government on individuals. Ideas shape geopolitics: How does capitalism and free enterprise jive with social welfare, theocratic, dictatorships, or communistic states? How can we increase more equality and fairness? It’s the differences and similarities as well as the dance of how we relate as cultures—the good, the bad, and sometimes ugly that defines peace, order, trade, and stability on the global stage. In the future certain key trends will influence geopolitics, from conflict to collaboration between nations, nonstate actors, and, increasingly, organizations:
• Competition for resources (water, food, metals)
• Demographics (shifting values, population mobility, impact on cities)
• Energy access (oil and gas, renewables)
• Tech innovations (knowledge industries)
• Colliding worldviews (capitalism, social welfare, communism, Islam, transhumanist, liberal, conservative, protectionist, mercantilist)
• Religion and modern society
• Individual freedoms
• Rise of Smart Machines
The geopolitics of the future will likely be messy, as each of these strategic drivers of change—energy, tech, worldviews, climate, and resources—will exasperate, complicate, and stress relations among nations.
Arctic Race
Take the Arctic melt, a once-in-a-millennia change as the ice retreats, opening up trade routes across the top of the world for the first time in the history of the planet. The larger Arctic Race is for the natural resources—probably one of the largest oil reserves in the world as well as other resources yet to be discovered. At least five nations, including the United States, Canada, and Russia, are laying claims. One Russian adventurer placed a Russian flag on the seabed to claim the land for Russia. That must have been a very cold dive.
The point is that the competition for energy resources that will emerge between nations over a new resource-rich area could be substantial. It will not be a conflict-free future, but perhaps order will be embraced. Change is never a factor that nations do well, and geopolitics, the clash of ideas, and different agendas do often become hot exchanges.
There are over ten microwars raging on the planet today in Asia, Africa, the Middle East, and South America. I expect the future of these conflicts over energy, ideology, territory, and power to expand in the future. Many of these conflicts masquerade as religious differences but, nonetheless, remain strategic conflicts over global and regional power, territory and resources, and sovereignty.
Flash Zones
There are ten Flash Zones where conflict and clashes over culture and resources may breakout in the future. Most of these are due to other change consequences such as climate, technology, energy, or even prosperity and progress, such as in Africa.
The Ten Flash Zones of the Future
1. Arctic Race (fossil fuel resources race)
2. India-Pakistan Clash (traditional competitors)
3. Resurgent Russia (flexing its muscles)
4. Africa Rising (China exploits rebuffed by leaders)
5. Expansionist Islam (chief target: Middle East oil kingdoms, pan-Euro-Islam, radical versus moderate)
6. Cyberspace (new concepts of virtual sovereignty, virtual geopolitics in a virtual world, cyber hacking, competition among nations and corporations)
7. Asian Ocean conflicts
8. Dark Networks (criminal and terrorist groups)
9. Deep-Space Commerce (off-world commerce, asteroids, planets, terraforming new worlds, space mining)
10. Innovation Ecosystems (e-commerce, mobile, markets)
Nation-states must prepare for these challenges and threats. The changes in climate, declining energy, resource scarcity, and rogue technology were not issues twenty years ago. Non-state actors and dark networks—global networks of criminal and terrorists—were not a factor to the extent that they will be in the future. We are facing converging changes, and in the future the complications between nations as well as cultures within nations will challenge global peace and security.
Future Flash Zone Scenarios
• China seeks to protect its interests in Africa by direct engagement.
• Fully autonomous drones and robots fight wars.
• Super Intelligence, AI, wakes up and becomes self-aware.
• New energy technologies and resources upset jobs and the economy.
• Criminal, terrorist, and nonstate actors hack the Internet to extort nations and corporations.
• Japan invests in a satellite-based missile defense system.
• A new era of Smart Machines, networked computer intelligences, alters the global balance of power.
• Climate change will shape global political alliances.
• The modern Islamic state will rise, countering religious fundamentalists.
• China’s space program leads to a Mars colony.
• A resurgent Russia uses energy to shape political power in the EU.
• Digital currency upends monetary order.
• The United States will disengage from global conflicts.
• A new Space Race becomes a competition among nations.
• The oceans become energy and food resources.
• Large multinational corporations challenge sovereign authority.
• Failed states become havens for global crime and terrorism.
• Climate change will destabilize supply chains, law, and global governance.
The geopolitics of the future will, on one hand, be about trade, innovation, and progressive globalization, which are all positive developments, and this shall be a force for peace, commerce, and prosperity. On the other hand, new threats such as cyber-hacking, robo-wars and the proliferation of advanced technologies such as nano, neuro, bio, and quantum will catalyze terrorism, and rogue actors will also be part of our future. Conflict will shape the future as it has in the past. Even disruptive technologies such as digital currency will provide nuanced threats to established power and global order.
The Battle for the Future: Individual Rights
There is a one primary ideological conflict that will define the future. This dominates all conflict on the planet today, and so it shall in the future. This is the Battle for the Future of Individual Rights. Who shall determine the rights of individuals in the future? There are two parties in this conflict.
First, there are governments, organizations, and religious and nonstate actors who believe that their authority should control individuals. Through sovereign law, religion, ideology, surveillance, edict, and the control of information technologies, they reinforce their mandate.
Second, there are societies, organizations, and individuals themselves, all of whom uphold the individual’s rights to freedoms, choice, and liberty.
The balance and conflict between these two global ideologies—one that upholds the democratic rights of the individual and one that seeks to control, manipulate, and coerce individuals—will define global conflict in the future. In the end it is simply whose values do you embrace for your future? No individual has ever asked for less freedom, nor shall they in the future. The tensions of the state versus the individual, especially in an era of the Internet and Twitter, when the control of information and influence is “in the wild,” will make for a New Future that favors the power of the individual. The rights of the individual, upheld by the state, is the only sustainable endgame that comes without social conflict and disruption in the near and far future. Religious, fundamentalist, and government autocrats take notice. Individual rights and essentially a New Future of distributed political power enabled by networks, beyond borders or ideologies, will define our future. This New Future when politics, technology, and the rights of the individual meet will result in more freedom and opportunity spread throughout the world.
There is a great possibility that the increased Innovation Economy, the connectivity of markets, and the intimacy that brings the world together with commonly shared interests will offset future conflict scenarios. I believe we are moving closer to this future.