By Accident or Design

Transcription

1 By Accident or Design Optimism from a Dismal Scientist Mark Cliffe Chief Economist, ING Group Designing the Next Economy - DMI Design Thinking Conference Santa Monica, California 18 th June 2013 June

2 The more dismal science Economists are living up to their billing with fashionable crisis lit June

3 A design fault? The global financial crisis dealt a major blow to faith in market capitalism and economic theory Policy-makers failed to predict it, amid talk of a Great Moderation now some admit to flying blind Occasional crises are wired into capitalism "the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. Federal Reserve chairman Bernanke March 2007 as investors (and borrowers) get carried away and are then carried out June

4 Pessimism about long term prospects Recovery has been disappointing There is talk of a lost decade even a generation Aging populations are a burden while education is blamed for an underclass lacking the basics and an excess of graduates June

5 Monetary stimulus threatens new bubbles FTSE World equity index versus Global* PMI Manufacturing PMI (lhs) FTSE World equity index (rhs) Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Quantitative easing has boosted the financial markets more than the real economy raising fears of more disastrous bubbles June

6 Debt deleveraging a headwind to growth Headwinds from deleveraging by governments, finance and household sectors and clumsy re-regulation June

7 Companies reluctant to invest Corporate sector is relatively healthy but wary of investing (partly due to uncertainty and volatility) as usual, marketing and R&D have been cut back too June

8 Pessimism about technology Soul-searching extends to technology innovation is said to have slowed Would you swap these for these? June

9 Race against the Machine Others argue technology will be too successful destroying jobs, even of semi-skilled and knowledge workers June

10 Emerging market doubts Pessimism even extends to emerging markets China s middle income trap Lack of creativity Malign effects of State Capitalism Source: EPA June

11 Pessimism is contagious Pessimism may turn self-fulfilling High unemployment and inequality may have corrosive effects: Political tension, populism and protectionism Unhappiness Back-tracking on sustainability initiatives June

12 Pessimism is cyclical Economist poll of forecasters, GDP growth GDP YoY% Economists poll of forecasters, 1Q forecast of following year Psychological overreaction to crisis Forecasters typically miss turning points They tend to extrapolate the recent past June

13 Policy turns towards growth Policy-makers have avoided the mistakes of the 1930s Deleveraging won t last forever US household net worth % of disposable personal income Corporate sector has resources 800% 700% % of dpi 500% 400% 600% 300% 500% 200% 400% 100% 300% '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 Assets Net worth Liabilities (rhs) 0% June

14 Creative Destruction? Stability per se, is not the ultimate policy goal, but prosperity The Austrian School talks of Creative Destruction Financial crisis revealed malinvestment, notably in real estate June

15 Resources are shifting to new uses $bn (saar) 1, , US Output by sector - this recovery Output per sector - last cycle Structures Services Non-durables Durables Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun M ar-01 M ar-02 M ar-03 Durables Non-durables Services Structures The US economy is rebalancing manufacturing has done well Structural reforms and liberalisation are being pursued, also in Europe and Japan June

16 New forms of financing 12% 10% 8% 6% 4% 2% 0% -2% US Lending to non-fin private sector %YoY and contributions Debt instruments Bank loans -4% '00 '02 '04 '06 '08 '10 '12 Other loans Capital markets stepping in Banks will be more robust, smarter (although not foolproof!) Long term on-line market places, P2P lending June

17 Necessity is the mother of invention Shocks often prompt bursts of innovation Formal research is important Invention often comes from happy accidents of practitioners and hobbyists through trial and error Stay young, stay foolish the trick is to fail fast the US still excels in such risktaking June

18 Innovation is not dead Disruptive technologies huge potential Futurology like all forecasts, tends to extrapolate known technology Many innovations (and start-ups) fail Be wary of neomania or technophoria BUT we tend to underestimate new technology it s hard to predict the Next Big Thing "I think there is a world market for maybe five computers. Thomas Watson, chairman of IBM, 1943 June

19 An impressive list of disruptive technologies 1. Internet of Everything 2. Mobile internet 3. 3D Printing 4. Knowledge work automation 5. Advanced Robotics 6. Genomics 7. Advanced materials 8. Cloud technology 9. Self-driving vehicles 10.Renewable energy 11.Energy storage 12.Advanced oil and gas recovery Source: McKinsey Global Institute Analysis (ING interpretation) June

20 Third Industrial Revolution is still an infant The impact of disruptive technologies can take decades to come through June

21 Big Data Mega, Micro, Messy Masses of micro data, messy and unstructured: what does it mean? We know What When (realtime), Where (GPS,NFC) How but what s the why? Monitor, track, survey, analyze emotions and motivations Data > analysis > knowledge > wisdom June

22 Big Design: personalization, localization New technologies based on Big Data, 3D printing, smart machines and mobiles may redefine business models Mass customization and personalization Localization and on-demand production = big demand for design! June

23 Technology diffusion accelerates Global diffusion of knowledge and learning multiplying number of innovators New forms of collaboration between: Researchers Suppliers Customers Machines (AI and machine learning, voice and video recognition) June

24 Smarter government? Government needs to get IT - scope for productivity improvements Use of new technology Localized delivery On-line education (MOOCs) Personalized and preventative medicine (genomics, wearable sensors) Infrastructure, utilities and transport Crime and security Environment and energy Source: Nature Tax reform radical simplification could incentivize investment and reduce inequality (the 99% have a say ) June

25 New energy for growth Shale boom is going global Source: Dow Jones and technology and taxes may give long term impetus to alternative energy June

26 What is growth anyway? GDP was intended as a measure of output, not well-being Non-market goods and services are excluded, while Bads are included Prices vs. value - hedonic adjustment for quality Corporates are getting the sustainability Source: unifiedtao-en.blogspot.com message June

27 Averting mass unemployment Fears of technological unemployment are not new Jobs destroyed are replaced elsewhere millions in emerging markets are lifted out of poverty and aging will shrink labour forces, lowering unemployment although better health will lengthen working lives June

28 Good deflation a positive supply shock Rapid technical progress can be a source of good deflation supply driven lower prices increases prosperity and spending and demand for other goods and services Source: Zazzle June

29 Emerging markets - still catching-up Implementation is more important than invention and emerging markets are learning fast and leapfrogging to the latest technology June

30 Emerging markets drive growth elsewhere 10% 8% 6% 4% 2% 0% -2% -4% -6% Emerging markets growing faster %YoY '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 Advanced Emerging & developing World West has what China wants and its companies own much what of it produces US leadership is no accident design, technology, and brands (58 of the global top 100) Europe has the edge in luxury goods, culture and tourism ( Switzerland to the World ) emerging market brands will claim a bigger share of a bigger market June

31 Chinese consumers are coming! From 174mln middle class households to 272mln in m 300m 250m 200m 150m 100m 50m 0m Urban households Millions, by disposable household income High incomes >$34000 Upper middle class $16 - $34000 Lower middle class $9 - $16000 Poor <$9000 Source: McKinsey June

32 Design a growing luxury Design is (ironically) ill-defined Functional economies of scale led to standardization BUT cost-effective personalization= huge demand for design Aesthetic - emotional and sensory, social status and fashion Design is a luxury that grows faster than income but that makes it more cyclical Luxury is not just for a rich elite June

33 Current US$, bln Design fuels trade World exports of creative industries Services Goods Design differentiates, and fuels trade reducing the need to compete on price Correlates with business success (including exports) but causation runs both ways Source: UNCTAD defines creative industries as: art, crafts, audio visuals, design, new media, publishing and visual arts. Big companies spend more, but start-ups can challenge June

34 Conclusion 12 reasons for optimism 1. Dismal economists are too pessimistic 2. Policy-makers are learning, by trial and error, and austerity won t last forever 3. Crisis is shifting resources to more productive uses 4. New ways of financing are developing 5. The list of potentially disruptive technologies is impressive 6. Connectivity is still in its infancy 7. Network effects promise accelerated learning 8. Technology will create jobs as well as destroy them 9. Emerging markets still have a lot of catching up to do 10. and will fuel demand 11.Developed world still has leadership in design and technology which can drive growth and trade june

35 Q&A Tel June

36 June