Partner: GCS
One of the most common narratives that Genesis Corporate Solutions hears when it engages with clients and potential clients is that distressed companies are battling to cope with the pace of change that is currently shaping the world.
But is this pace of change different to change experienced in years gone by? Humans have been dealing with change since the First Industrial Revolution, and the pace of change is no different. A turning point in the Second Industrial Revolution was the invention of flight. Less than eight years after the first 12-second flight, completed by the Wright brothers, Cal Rodgers flew across the US. Fifteen years after that, Charles Lindbergh flew nonstop from New York to Paris. And just 28 years after Lindbergh’s flight, Neil Armstrong walked on the moon.
Despite the fact that I have just pointed out that the current pace of change is no different than change that was experienced in the past; we are on the cusp of a new era. A recent report by McKinsey discusses this in detail.
A framework defining the new era
A new paper from the McKinsey Global Institute suggests a framework to imagine the new era, drawn from a historical perspective of the structural tectonics that underpinned the world we have today and how they might play out in the next era. Working out how to respond to the current moment and the path ahead is complex and requires boldness. We invite you to join us in a conversation about the future.
The McKinsey report points out that the world is reminded most of the aftermath of the oil shocks in the early 1970s, which shared features resonant with today: an energy crisis, a negative supply shock, the return of inflation, a new monetary era, rising multipolar geopolitical assertion, resource competition, and slowing productivity in the West. The aftershocks came in many waves and took almost 20 years to resolve. The return of stability required investment in energy independence by non-OPEC countries and painful monetary stabilization, including double-digit interest rates and recessions associated with the US Federal Reserve under Paul Volcker. In addition, there was strong political will, personified by Ronald Reagan, Margaret Thatcher, and Deng Xiaoping.
But there are differences between now and the earthquake of the early 1970s that arguably magnify the reasons for concern. Today’s world is much more globally entwined, financially leveraged, and carbon constrained. This time, can we do better and write a new narrative of progress more quickly?
The McKinsey report adds that, of course, we could be overblowing the momentousness of current events. However, this is different from other tremors like the Asian financial crisis in 1997, the dot-com bust in 2000, and the global financial crisis in 2008. Most of these events were on the demand side and were largely contained in a region or a sector. Today, however, we face a supply-side crisis, inherently physical rather than psychological, against a backdrop of a shifting geopolitical landscape upon which the crisis needs to be resolved.
Photo By: Getty Images
Disrupting 30 years of calm
The McKinsey article points out that moreover, today’s earthquakes have largely come as surprises, shaking the world after a 30-year era of relative calm. In truth, for all of us authors, and we suspect most of our readers, our professional lives have played out on one clear and consistent global landscape—one where perhaps we have embedded many implicit assumptions and beliefs about how the world works, which are now under direct challenge.
The McKinsey report points out that, we start the next era—if indeed one is about to unfold—from a fundamentally different point from which we started the prior one. The world at the turn of the 1990s had a much more obvious gap between the developed and the developing worlds: huge populations poor in energy and resources, more people living in rural areas outside of the orbit of global markets and capital, more people uneducated, and disconnected from each other and from the world’s information. In the previous era, the world converged much more into a globalized economy, with rapid catch-up growth for billions of people where we managed peacefully to keep the gains. Without question today’s world is better, but with this growth there is also much more disruption to established constituencies, more pangs of imbalance, and more powerful new players asserting their place at the global table.
What could that new era look like? The die is not yet cast. While there is a current direction of travel, there are also complex unresolved questions, which will determine how the situation plays out. To try to build a map for the new era, McKinsey looked at five domains.
World Order
In the world order, there is a tendency toward multipolarity, which in turn may imply realignment into regionally and ideologically aligned groups.
The McKinsey report points out that this immediately raises questions of what might that multipolarity look like in practice; will the economy remain global in nature, and will we find new workable mechanisms to cooperate beyond the economy? Moreover, years of relative moderation in international politics seem to be giving way to more political polarization between blocs. How effectively will global and local institutions and leadership adapt to, and shape, this different world order?
PhotoBy: Canva
Technology platforms
The McKinsey report adds that, across technology platforms, the key drivers of the most recent era’s digitization and connectivity seem to be approaching saturation. Yet a set of already potent transversal technologies, particularly artificial intelligence (AI) and bioengineering, may combine to create another big surge of progress in the next era.
At the same time, combined with the forces described, technology may move to the forefront of geopolitical competition and call into question the very meaning of being human. Again, big questions remain. What impact will the next wave of technologies have on work and social order? How will technology, institutions, and geopolitics interact?
Demographic forces
The McKinsey report points out that in demographic forces, a young world will evolve into an aging, urban world, the age of communicable diseases may give way to an age of noncommunicable diseases, and inequality within countries may increasingly challenge the social fabric. How will countries, institutions, and individuals adapt to demographic changes—will we age “gracefully”? How will capital and institutions respond to inequality?
Today, we have been forced to refocus on resource and energy systems where recent underinvestment combined with geopolitical disruption has created real vulnerability. There is a strong desire to shift investment toward low-carbon energy, but total investment in all forms of energy appears to be struggling to keep pace with energy needs. Resilience, feasibility, and affordability concerns may challenge the velocity of the transition. Critical resources for the future economy are becoming economic and geopolitical pinch points. Question marks abound. How will the world navigate an affordable, resilient, and feasible path to climate stability? What dynamics will play out between those who have critical resources and those who do not?
Capitalisation
Finally, let’s look at capitalisation, the long-term trend toward capital-deep and financialized economies. The McKinsey report points out that economic growth rates appear to be normalizing. Growing leverage and credit may evolve into balance sheet stress. The OECD [Organisation for Economic Co-operation and Development] century will, on its current course and speed, give way to the Asian century. Will we find the next productivity engine to drive growth? Will the rise and rise of the global balance sheet be reversed?
The report concludes by pointing out that, if we are indeed in the early throes of a seismic shift—as the evidence appears to suggest—leaders must both prepare for the possibility of a new era and position themselves to shape it. The current vantage point may invite pessimism. Yet, through all the ups and downs of the world, progress has marched on and performed the miraculous. Our times demand action, but history also offers great hope.
Moses Singo is a Partner at Genesis Corporate solutions and is a Junior Business Rescue Practitioner.
