Yale economist to world: Don't panic. Embrace uncertainty and innovation.

Yale economist to world: Don't panic. Embrace uncertainty and innovation.

Jeffrey Garten explored the massive shifts taking place in the global economy with an audience at<a href="http://www.mercycorps.org/portland"> Mercy Corps' Action Center</a>. Photo: Kyla Springer/Mercy Corps.
Jeffrey Garten explored the massive shifts taking place in the global economy with an audience at Mercy Corps' Action Center. Photo: Kyla Springer/Mercy Corps.

Presented by Jeffrey Garten at Mercy Corps

The world is not ending, and the sky is not falling. But the rise of the global South and East promises to reward the world's most innovative risk-takers.

Despite virtually all the underpinnings of the global economy shifting, we have reason to be “extremely optimistic.” To an audience at Mercy Corps, international economist and Yale School of Management professor Jeffrey Garten shared a critical appraisal of the shifting world economy, noting that only two such “super-cycles” have occurred in the last 500 years: the industrial revolution and post-World War II recovery. Garten observed that today's historic transformation is shifting the engine of demand--once emanating from the U.S. and Europe, it will now be driven most strongly by emerging markets.

Ten years ago, Garten estimated, emerging markets accounted for perhaps 28 percent of the global economy. Today, it’s over 50 percent.

“This is a massive shift in the gravity of the world economy from the West to the East and the South,” said Garten. “Emerging markets, whether it’s China, India, Brazil, Turkey, South Africa, or Nigeria, are where all the locusts of demand and investment will be.”

“In the last 30 years, the middle class outside the U.S. grew from about 700 million to 1.8 billion people,” he said. In the next 30 years, the World Bank predicts it will grow to five billion.

This massive increase in the number of consumers who want the luxuries of “the West” has incredible implications for health, food, water, infrastructure and communications. Though we can’t predict the full repercussions, we know it will mean hyper-urbanization.

Every day, 180,000 people move from the country to the city in emerging markets. That means six New York cities arise every year in emerging markets.

Though hyper-urbanization may not seem like a positive change right now, he admitted, urban centers have always been the motors of global advancement and innovation. Garten’s optimism arises from his expectation that this urban growth will be the birthplace of the next great advancement for humanity, if we can harness it.

In super-cycles, explained Garten, geopolitics change drastically. After the Industrial Revolution, Europe and the U.S. changed from agrarian to manufacturing societies, with the U.S. and England running the show. After World War II, much of the industrialized world was leveled, but recovery took on a speed unseen before, and Germany and Japan joined the U.S. in running the show. In Garten's analysis, today we have an "extreme multilateral" situation where no one is running the show, and serious disagreements about the rules of the game.

“We may never again see global trade negotiations like the kind we knew. There are just too many differing views about how they should be conducted.”

“When I put all these elements together I see a world of very rapid change, very disorienting change. It’s breaking down of all the models that we used to know, with big changes...especially in the way companies are going to behave.”

In this setting of extreme volatility, Garten described the characteristics global organizations need to be competitive: a very clear purpose, set of principles and strategic vision that provide guidance through all the gray areas. Plans should be challenged every six months and constantly reevaluated.

“You have to ask yourself: Does this strategy help us be resilient and adaptable? Because like soldiers entering a war, the minute the first bullet is fired, all the plans fall by the wayside,” said Garten. At the peak of a super-cycle, "the organizational winners will be those that are...constantly envisioning new scenarios, and asking 'what if.'"

An organization must be obsessed with innovation at every level, from the janitor to the boardroom. “If I wanted to find out whether an organization is innovative, I’d probably sit down with the CEO and ask:

Tell me three things you’ve been working on, two of which are likely to fail. If you aren’t working on anything that’s likely to fail, you’re not far enough out on that edge.

Jeffrey Garten's lecture was sponsored by Global Envision and hosted at Mercy Corps' Action Center in Portland, Oregon.

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