Future World

WHAT WILL THE NEW NORMAL LOOK LIKE IN THE POSTPANDEMIC WORLD? HOW WILL MEGA TRENDS, FROM CLIMATE CHANGE AND DIGITAL TRANSFORMATION TO DEMOGRAPHIC DEVELOPMENT, POLITICAL CHANGES IN EUROPE AND NEW ECONOMIC TENDENCIES, IMPACT THE WORLD WE KNOW? WE DISCUSSED IT WITH GIANMARIO VERONA, RECTOR OF BOCCONI, AND MICHAEL SPENCE, NOBEL LAUREATE IN ECONOMICS AND SENIOR PROFESSOR AT SDA BOCCONI, SCHOOL OF MANAGEMENT

Has the Covid-19 pandemic changed the mega trends that are shaping the world we will live in 10 years from now? Sarfatti25 sat down – in person! - with Bocconi University Dean Gianmario Verona and Nobel laureate Michael Spence, Senior Professor of Economics at Bocconi School of Management, to get their take on the interaction between post-pandemic recovery and pre-existing macro forces like climate change, digital transformation, challenges for SMEs, the geopolitical shift in the global economy, populism, and the risk of inflation. Here’s what they said.

What are some of the main mega-trends you see on the horizon? What do governments and companies need to do to be prepared to deal with them? 
MICHAEL SPENCE One that I think is irreversible is the shift of the global economy to Asia. The elephant in the room is China. But the next giant is just as big, and that’s India. This trend has lots of implications in terms of where economic power and influence is now, and where it will lie in the future, and what companies, governments and others need to consider as they ease into this new world.  The second one for me is digital transformation of the economy. There are large sectors -- like tech or like finance now -- that have a big digital footprint. Then there are other sectors that were just toddling along and minding their own business, like healthcare – and I am not talking about biomedical science – or construction. We are going to see an acceleration. The notion that we are going to revert to the inertia we saw before the pandemic and fall asleep again seems wrong. And the third one is climate change. I think there will be a very substantial pickup in the trajectory of taking it seriously instead of just talking about it. Global emissions are roughly 36 to 38 billion tons of C02 per year. That’s at least three times anything remotely viewed as safe.

GIANMARIO VERONA In terms of mega trends facing corporations in the future, I think digital transformation and what we call the sustainability challenge are the two fundamental ones. Digital transformation has been happening since the late 1990s, but now clearly it is providing the opportunity to use data to reconfigure entire corporations and industries. We have seen this in media and retailing, and we are now seeing it in education. All industries will be revolutionized by data.  Think about vaccines, and about how researchers who shared data were able to come up with a solution in just eight months, something that has never happened before. This is a problem in a country like Italy characterized by small and medium sized firms, because they will take longer to achieve this transformation, which is happening in the next 10-15 years. And the other thing is climate. Corporations like to use these three words: ESG, environmental, social and governance. So not only climate change, but an organization’s entire social impact. This means shifting towards a stakeholder-based model. All CEOs now are also evaluated in terms of what they do in this arena.
Let’s move to the economy. Which sectors will perform best post-pandemic?
SPENCE Two observations that I think are relevant. There has been a major transformation in the way value is being created, a shift from tangible to intangible assets. The luxury brands aren’t worth what they are worth because they have a whole lot of plants. No, it’s Brands, and increasing digital assets, data, the ability to use it. The other is that entrepreneurial activity used to be concentrated in few geographical areas. if it was digital, it was Silicon Valley. Now it’s global. You have unicorns being built everywhere … China, Indonesia, India, Europe. Then if I had to pick the sectors, just diving into it, I would say fintech is one. If you look at Alibaba and its push into financial services, you’ll see that the combination of the ecommerce data, mobile payments data, and financial data makes them do a better job of lending money to households and very small businesses. Health care is another. What strikes me as most interesting about health care, telemedicine, or machine learning in areas of medicine, is the startling inclusiveness of the growth patterns. And that story gets repeated over and over again. In addition to these complicated, slightly scary transformations, there is this remarkable set of opportunities, whether it is in finance or health care or other things, to expand the accessibility to crucial types of services.

VERONA I will build on what Mike said. Value creation in the future will come from putting together consumer data in different ways that satisfy demand. In the past it was about products. Now it is about finding the way to connect the dots. This is in principle. In terms of types of industry, for sure science and digital will be the most important in the next few years. But for all industries there will be the opportunity to create additional value. This calls for a change in the strategic perspective of an organization. In the past, companies have always thought mainly about products first, and convincing consumers afterwards. Now the world is demand-driven. We have data. Companies need to pull together data and find ways to provide services to consumers. Amazon and Google are the champions in this area. For sure, the digital sector will be the one that’s the most important. Those industries that can innovate more quickly with an approach that is demand-driven more than supply-driven are clearly those that will grow faster. And in general, digital industries and life science industries are probably the two that will grow faster.
What do small- and medium-sized companies need to do in order not to be left behind?
VERONA It is a cultural problem. Let’s talk about design and luxury, which is important for Italy. There are a few organizations that have learned that the data around the design and the way the consumer connects with that design is as important to the business as the product itself. But many have not. The pandemic has helped us to overcome some of the “digital inertia” Mike mentioned because it forced us to embrace new behaviors and new logic. But SMEs have the problem of limited resources. I am personally very concerned, because they should be helped to embrace these new challenges. The Next Generation EU fund is very important in terms of overcoming inertia and achieving digital transformation and sustainability. And what I am seeing in Italy with the Resilience Plan that Prime Minister Mario Draghi has launched is that it could convince firms and sectors to embrace digital and become more sustainable in the way they produce products

SPENCE It’s a big challenge at all levels. If you want the productivity effect at the macro level, you need the SMEs on board or you don’t get the result. How do you help them? I completely agree with what Gianmario says. When I ask a question like that, India is an interesting case. They have a tiny fragmented retail sector full of mom-and-pop companies. What happened there was rather than the big players like Walmart and Carrefour coming into the market and blowing them away, Indian entrepreneur Mukesh Ambani’s phone company, Reliance Jio, expanded the country’s mobile internet access and digital platforms. He sold mobile phone services at such a low price that Jio now has over 400 million users. They basically digitized India in terms of access. Now the game plan is to build digital infrastructure that supports retail sector with better management of supply chains and data. So rather than blow small retailers away, they are getting behind them and turning them to more modern operations. It’s at an early stage, but that is the kind of thing that is possible.

How will our lives be transformed after 2027 when the Next Generation EU is finished? What will the impact be?
VERONA The plans we see coming out of Italy Spain and France have been designed carefully and in line with the mega trends that Mike mentioned at the very beginning. Down the road, there’s the geopolitical and also economic problem that Mike raised. We have the U.S. and China as two economic powerhouses, and Europe is in the middle. In the past, Europe seems not to have had a strategy. Now we are trying to catch up a little bit. Mario Draghi talks about the Marshall Plan. Most of Italy’s leading companies were born in the 1950s and 1960s after World War II, thanks in part to the Marshall Plan. If Next Generation EU can boost the economy the way the Marshall Plan did, probably things will be a bit more balanced internationally, and Italy can play a stronger role. And Europe can be much stronger than it has been in the recent past.  The problem is about the execution of this plan. There is a risk of political instability in Europe. And I am concerned about the dynamics of politics in France and Germany.

SPENCE I am pretty optimistic. When you spend a lot of time studying growth patterns, you realize that the scarce resource is human talent. And there is a ton of it right around here. If you remove the obstacles barriers and restraints, you could have an explosion of innovative activity. With a really top flight government like the one Italy has now, which knows exactly how to find and remove obstacles to growth, the potential is just enormous. To inject a note of skepticism, governments have absolutely crucial roles. If a government either doesn’t know what it was doing or was busy doing something not in the public interest, nothing good is going to happen. Markets, private sectors, entrepreneurs and dynamic companies are important. But so are governments. And governance. So listening to Gianmario with the new commitment to Europe with our really good government here, sure, there are fragmented centrifugal forces all the time. we feel it in America with the Trump people. One third of the electorate thinks the election was stolen. We are not exactly all together. But I think there is real progress.
On the topic of governments, does the level of cooperation during the pandemic bode well for the future?
VERONA If you think about Europe before the pandemic, the legitimacy of Europe itself was being questioned by populism. And all of a sudden, governments have come together. I want to be optimistic in the years to come. I hope history will tell us a lesson we can learn.

SPENCE We think of it in terms of governments. But the scientific community tends to ignore national boundaries and talk to each other. And they did in this case. It wasn’t new, but it was impressive.

What is your outlook for inflation? How concerned are you?
SPENCE I think you have to take it seriously. After the 2008 financial crisis and the follow-on sovereign debt issues in the eurozone, most of the luggage was carried by central banks and fiscal responses were relatively muted. And fast forward to today, now we have much bigger fiscal responses. And instead of a different fiscal/monetary balance, we have the central banks still “all in.”

VERONA This is my view. The peculiarity of this crisis, unlike the financial crisis, it has been a crisis of demand and supply. Right? A shock. It is more like a war. Now there is the need to make money available to stimulate consumption. And this is different from the last crisis. So what Mike is saying is clear, and we need to pay a lot of attention to that.

Anything you would like to say to sum up?
SPENCE I would only add that most of what we have talked about here will require the engagement  of  the corporate sector. The corporate commitment to the multi-stakeholder model is important.  Employees are stakeholders in this new world. They are not disposable inputs. Of course, you need government, social security systems, educational institutions and others. But you can’t do it without the corporate sector.

by Jennifer Clark