Rawi Abdelal | Imagining the Next Global Economy

the title of this presentation is Imagining the next global economy I want to make one strong argument to you and then the rest of what I'd like to discuss is a series of interpretations of major macroeconomic and geopolitical trajectories of the world here's the argument we are moving away from the global system in which we have grown up professionally over the last 20 or 25 years and the new system will resemble very little the system in which we have been living and doing business the Contours of this new system are emergent we don't know exactly what they will be but they will be I believe different so this is a moment of inflection in the history of the global economy and part of our job for the next hour or so is to try to imagine what the trends are that will reshape the system and then what elements of the system will be different and how that affects our personal lives and our professional lives so we're going to be talking about macroeconomic issues and geopolitical issues the macroeconomic issues have primarily to do with an increasingly powerful backlash against the global system against globalization often in the form of populist movements and political parties on both the left of the political spectrum and on the right of the political Spectrum at the same time so a kind of weakening of the center of the political Spectrum across many parts of the world certainly in the United States and in many parts of Europe and then we're also going to talk about some of the implications as well as the origins of the war in Ukraine as the central geopolitical fact that is transforming the system as we know it so what I'd like to suggest is that we are in the third Act the final and third Act of the global system as it currently is we've already lived through act one and act two so I thought I would start with this piece of advice that the great Russian playwright Anton Chekhov used to give to Young playwrights who wrote to him asking for his thoughts about how they could become better playwrights and the advice was always the same it came in different versions but this was the most common version he would write and he responded to so many of these letters what a sweetheart he would write if a gun is placed on the mantle in the First Act it must be fired in the third so it's an invitation to a kind of economy of Storytelling if you're a playwright and you describe a Country House in Russia act one scene one there's a family gathered they're sitting on this kind of furniture there's a fireplace and then there's a mantle and on the mantle is a gun that gun better turn out to be important otherwise don't go to the trouble of describing it everything in the story should be essential so somebody's got to shoot that gun at some point by the end so part of the story that I'd like to share with you is thinking about the fragility of our system today both in macroeconomic terms and in geopolitical terms is that there have been guns on mantels in act one and in act two of this global system and now in act three they are going off both figuratively and unfortunately horrifically literally a few thoughts about how we got here part of what is happening around us is a moment in the never-ending cycle of the rise and fall of great powers so what I've done in this chart is something very simple I've taken National output so national GDP as a share of world GDP over time for the great Powers over the last 150-ish years these data are adjusted for local prices so for the nerds in the room purchasing power parity exchange rates and as you can see one of the iconic stories of the last 30 years of this global system has been the return of China to its center after having been at the center of the global system Once Upon a Time as an important great power and if we adjust for local prices China has already overtaken the United States to become the world's largest economy oh dear there we go these are more recent data and at nominal exchange rates rather than at purchasing power parity exchange rates we can see the same broad trajectory the rise of China or the return of China and the same structural changes the relative decline of the United States as a share of world output the relative decline of the European Union as a whole as a share of world output so broadly the relative decline of the West a shift in the center of economic gravity in the world system away from the west and toward other more Dynamic economies in the world especially in Asia increasingly in Africa and in Latin America and then if we piece all of these elements together so we're living through this great power transition great power transitions don't happen every lifetime but it is happening in hours these great power transitions are also associated with structural changes in how well integrated the global economy is this is a composite of data that measure the integration of markets for goods services and capital across the borders of sovereign states and if we look from a historical perspective we can see that by this narrow measure of what globalization is the integration of markets for goods and services and capital across borders of sovereign states we have lived collectively not in our lifetimes but over the modern world economies history through two great eras of globalization the first lasted from 1870 to 1914. it was destroyed by a great power transition a great power transition that led to World War during the 1920s there was an effort to rebuild the system along the same principles that had existed before and that effort failed because of rising geopolitical tensions but also Rising domestic political challenges with regard to the legitimacy in the eyes of people of the global system and globalization in particular Rising left-wing populism Rising right-wing populism the destruction of the center of the political spectrum and then eventually the second world war by the end of which we had definitively destroyed that first Great era of globalization than in our lifetimes a second Great era was formed by these measures our era of globalization is nothing special it is about as well economically integrated across the borders of sovereign states as the previous era was of course organized very differently along many dimensions there's nothing inevitable about globalization there's nothing inexorable about it we go on these wild Cycles and as we sit here today one question I'd like to ask you to consider is where we're headed next with regard to how globalized the system is I imagine a few trajectories there's the Blue Line in which we could imagine that in the next 10 or 15 years we might have more globalization than we have today or perhaps we preserve about as much globalization as we have today and then the third possibility which I think we should take increasingly seriously is that we are headed into a world of fragmentation and de-globalization perhaps not an utter collapse like the last time the system broke at least I hope not but insofar as that is a realistic possibility in an increasingly likely one we should prepare ourselves for what that world will be and perhaps also think about what we can do to avoid a more calamitous fragmentation I am not in the future prediction business to be clear that is a business model for lunatics and I am not a lunatic so I'm not here to tell you what's going to happen next but what we should do I think is Imagine scenarios realistic plausible scenarios and then assign our own probabilities to them what's the probability that we get more globalization in the future than we have had in the past 25 years I don't know what your sense is I put that at no higher than 0.1 10 probability what's the probability we can save this era of globalization without fragmentation without its destruction I put the probability of that at no higher than 0.3 percent so for me as I survey the landscape I see something like a 0.6 probability that we're headed into a world of fragmentation that affects all of us our day-to-day lives how we move money around the world how we move products around the world how production chains are organized this would be an enormous transformation in how we do business and how we live all of this is amidst Rising wealth inequalities and income inequalities within Nations and what I'd like especially to emphasize is that there are two elements of the story of income and wealth inequality that are worth our consideration one is the material fact of it we can measure it and see what it looks like and then the other is the social fact of it how people experience it what it means to them whether it feels fair and why it might feel unfair not everybody probably has has heard of a thing called the genie index or the genie coefficient some of you will have some nerdy economics professor drag you through this once upon a time it's a simple measure of income inequality the higher the index the more unequal the distribution of income is in a society I've taken two countries and compared two versions of their Genie coefficients one is the gross Genie index and one is the net the gross Genie index is the income inequality that prevails before the state intervenes to tax and transfer income and the net Genie index is the level of income inequality that prevails after the state has intervened everybody with me okay good so two countries France in the United States both of which experienced a sharp increase in income inequality over the last 30 years at the gross level but at the net level their trajectories diverged the United States gross Genie coefficient increased by even more a net Genie index increased by even more than the gross which simply means that our tax system has become less Progressive over time in France however the net Genie index today is lower than it was 30 years ago so the French state has put up this considerable fight against Rising income inequality and has taxed and redistributed income so thoroughly that the prevailing level of income inequality in the country is actually lower it's a kind of natural experiment so in most of Western Europe certainly in the United States the center left of the political Spectrum making note about the rising tide of populists sentiment and the backlash against the system the people who felt left behind by globalization and the center left said well the people seem mad maybe they will be less mad if we give them money if we just redistribute income from the winners of the system to those who feel that they have lost and the center right responded more or less by saying I'm not sure we know exactly what the answer is but I don't think that's going to work and the French tried it and it didn't work so this natural experiment reveals a lot I think Marine Le Pen nearly became the president of France she might become the president of France on April 24th the French are no less disaffected than the Americans the American people only believe 40 percent of them that globalization is a Force for good sixty percent of Americans believe globalization is a force for bad the numbers for France are even more dire only 37 percent of French citizens believe that globalization is a Force for good the French are even more mad than the Americans about how the system functions I'm a Harvard Business School Professor which means that in part it is my job to over interpret small collections of data so I'm going to make a grand pronouncement about what I think this means this natural experiment it's not about the money it's not mostly about the money never has been if we're about the money we could buy our way out of the crisis the French tried to buy their way out of the crisis it didn't work what did the French get instead very high persistent unemployment underemployment what do we get from derive depriving people of the opportunity to contribute meaningfully in the labor market we deprive them of the dignity and meaning and purpose that comes from work overall then it is not that we have an income gap it is that we have a dignity Gap and if we frame the problem in that way I think we can finally begin to talk about sensible policy Solutions that would achieve results that might preserve the system not as it is but perhaps in a better way so to conclude this from a different playwright my favorite Tom stoppard and the sense that I have about where we are in the evolution of the system with regard to both the macroeconomic challenges that create political challenges for us and the geopolitical conflicts that create further pressures on the system and what that is as an invitation to us so he wrote the predictable and the predetermined unfold together to make everything the way it is how nature creates itself on every scale the Snowflake and the snowstorm the future is disorder that's the alarming part but there's an exciting part that he narrates as well it's the best possible time to be alive when almost everything you thought you knew is wrong and if that's how we should begin thinking about this emergent global system that we need to rethink so many of our practices inside our firms within our societies and our governments in the context of how the economic architecture and the security architecture of the world is changing forgetting how much we think we knew about how the old system functioned is in a way an invitation to creativity in our practices we have to rethink almost everything and perhaps in so doing we will as this new system emerges end up creating a system that's more stable that has a more robust distribution of dignity and meaning and purpose in the lives of the people who work with us and with whom we live in our Societies in our communities it's an opportunity to recognize that what we thought we knew about how globalization functioned will not be relevant for how it will function for this next emergent phase so that's the note of optimism on which I thought I would end my presentation um I regret that there's not better news about what's going on in globalization and in geopolitics but today's a day to look at the world as it is and it is a difficult one thank you for spending the first hour of this gorgeous day with me and I'm grateful for the chances to be able to meet you all over the course of the day and this evening and I hope that the rest is wonderful thank you [Applause]

Channel: Stern Strategy Group: Speaking & Advisory and PR

Views: 646

Keywords: Rawi Abdelal, Advisory Services, Keynote Speaker, Global Economy, Geopolitics, Economic Trends, Policy and Government, Uncertainty, Organizational Transformation, Harvard Business School

Id: lsdWTtsbgK8

Length: 19min 46sec (1186 seconds)

Published: Mon Sep 25 2023