I. Ten years from now, the world will be very different than it is today.
There is a series of macro trends at work that are impacting global commerce as much as they are affecting daily life. The cumulative effect of these trends will ensure that 10 years in the future, the world will be very different than it is today, with a dramatic increase in the global flow of goods, including increases in imports to the U.S., governments playing an increasingly influential role in the healthcare of their citizens, and increased competition for global resources. Therefore, to understand the future of the food and medical products industries, it is imperative to first have a clear understanding and perspective on these trends.
A. The great rebalancing.
The vibrancy of emerging-market growth will not be the only major disruption reshaping the global economy in the next decade, but it may prove to be the most profound. This decade marks the tipping point in a fundamental long term economic rebalancing that will likely leave traditional Western economies with a lower share of GDP in 2050 than they had in 1700.
Two cycles are at play. The first is declining dependency ratios, reflecting an increase in the overall proportion of a population that is working-age. Virtually all major emerging markets are undergoing demographic shifts well-proven to unleash an economic shift: simultaneous labor force growth and rapidly declining birth rates. The second is the largest urban migration in history. Nearly one-and-a-half-million people move to cities each week, almost all in developing markets. The resulting economic impact is a rapid increase in output per worker as people move off subsistence farms and into urban jobs. China and India are seeing labor productivity grow at more than five times the rate of most Western countries as traditionally agrarian economies become manufacturing and service powerhouses.
B. The productivity imperative.
Emerging markets are riding a virtuous growth cycle, propelled by larger and younger working populations. In the rich nations of the developed world, by contrast, low birth rates and graying workforces will make it enormously difficult to maintain what economist Adam Smith called “the natural progress of opulence.” These countries’ best hope for keeping the wealth creation engine stoked is improved productivity—producing more with fewer resources.
Paradoxically, doing that well across an economy is also the only way to generate lasting employment gains. The great tension here arises at the level of politics. Over time, the world’s rebalancing demands greater consumption and lower savings among the large developing countries, even as developed ones—the U.S. foremost among them—save, invest, and export more. Fostering policies that raise productivity, and avoiding or altering policies that impede it, will help ensure a smooth transition.
To eke out even modest GDP increases, Organization for Economic Co-operation and Development (OECD) nations must achieve large productivity gains. In the 1970s, the U.S. could rely on labor force growth to generate roughly 80 cents of every $1 gain in GDP. During the next decade, this ratio will roughly invert. Accordingly, OECD nations are going to need to look for all sources of increased productivity. This will lead to greater levels of imports, changes to manufacturing processes, and increased pressure to reinvent the manufacturing process.
C. The global grid
The last two decades have witnessed the rise of networks of unimaginable density and complexity. Money, goods, data, and people now cross borders in huge volumes and at unprecedented velocity. Since 1990, trade flows have grown 1.5 times faster than global GDP. Cross-border capital flows have expanded at three times the rate of GDP growth. Information flows have increased exponentially. The breakneck growth of these networks has resulted in a massive global communications and information grid that enables high volumes of rich and regular real-time interactions.
These days, a typical manufacturing company relies on more than 35 different contract manufacturers around the world. Auto and airplane manufacturers rely on tens of thousands. Trade in intermediate goods as a percentage of total trade has doubled. Meanwhile, dense links are being formed in a host of new directions. Trade flows between China and Africa, for example, have been growing by 30 percent annually, creating robust commercial networks that barely existed a few years ago. Similarly, Asia has supplanted North America and Europe as the Middle East’s largest trading partner. Emerging-market-to-emerging-market transactions are on the rise.
D. Pricing the planet.
The tension between rapidly rising resource consumption and environmental sustainability is sure to prove one of the next decade’s critical pressure points. Natural resources and commodities account for roughly 10 percent of global GDP and underpin every single sector in the economy. No one will sit on the sidelines in this debate. The interplay of three powerful forces -- growing demand, constrained supply, and increased regulatory and social scrutiny -- will determine what resources we use, how we use them, and what we pay for them.
Demand will grow – even the most conservative projections for global growth over the next decade suggest that the demand for oil, coal, iron ore, and other natural resources will rise by at least a third. Supply will be constrained and will come from harder-to-access, more costly and more politically unstable environments. We have already begun to see the impact from this as evidenced by rising commodity costs that have led to global food inflation.
Finally, there will be increased regulatory and political scrutiny. Around the world, political leaders, regulators, scientific experts, and consumers are gravitating to a new consensus based on fostering environmental sustainability. For businesses, this new sensibility will present itself in three ways: stricter environmental regulations, increasing demand from consumers, and employees that demand greater environmental responsibility by their employers. This increased scrutiny and regulation will force manufacturers and producers to adopt new processes and employ emerging technologies to meet the needs of their consumers and broader stakeholder groups.
E. Government and the marketplace
While we expect the steady advance of market capitalism to continue, government is likely to play an ever-larger role over the next decade for three reasons. First, even before the financial crisis hit, governments everywhere found themselves increasingly called upon to mitigate the sometimes negative impact of globalization on individual citizens. Second, the crisis itself has prompted large-scale direct government intervention, both through fiscal stimulus and movement toward increased regulation. That tilt in the power balance has been reinforced in much of the world by the perceived failings of the free-market model and the success so far of a Chinese model that, while market-oriented, assumes that the state will continue to play a leading role.
Third, the spread and dispersal of economic power around the world is making it harder to reach consensus on multilateral approaches to setting the rules of global interactions and fostering more bilateral and regional deal making. These more local arrangements remain largely market-based. Yet for business, the continuing shift away from a single set of rules will inevitably make seizing opportunities globally more challenging. It will also require companies to engage across many fronts with many critical regional and national government actions.