For U.S. Economy, Growth Equals Innovation

McKinsey's Patrick Viguerie discussed global strategy at a Goizueta Dean's Speaker Event on Feb. 21. PHOTO: Tony Benner

More than half of international business leaders believe that their business model will undergo fundamental transformation in the next ten years, according to a “Global Trends” report from McKinsey & Company.”

The study also found that 70 percent of business executives think developed economies will have an extended period of low growth and economic downturn; 30 percent believe another global level recession is on the horizon.

Nearly 60 percent believe the Eurozone is likely to come apart or significantly restructure.

So what happens next?

Patrick Viguerie, Director, McKinsey-Atlanta, Head of Strategy Practice for the Americas, said figuring out what’s next is the largest question facing the business world. Speaking as part of the Dean’s Leadership Speaker Series, Viguerie offered no predictions, instead “a teaser on forces that will shape the world in the next ten years.”

“The end of World War II led to a high growth, volatile world,” Viguerie said. “In the mid-1980s, we reached the Great Moderation, a very stable period of growth.”

That stability is no more.

“Many things on our unthinkable list became more thinkable last fall,” he said.

Right now we are in “a state of paralysis,” he added. “There is $2 trillion sitting on US company balance sheets; another trillion offshore. That’s 20 percent of our GPD sitting idle.”

A look at the past 20 years puts this situation in better context. Twenty years ago, Viguerie said, China was a minor player in the world economy. The world’s policy making board was the G7. The World Wide Web was an academic paper.

China is now the second largest economy. The G7 is the G20. Cellphone subscriptions are at more than six billion — 1.2 billion of these are smart phones.

Viguerie shared with the audience five areas experts believe will face the greatest change in the next decade.

The first of these, the “Great Rebalancing” is well underway. Until the nineteenth century, Asia produced roughly two-thirds of the world GDP. That changed with the Industrial Revolution. Western GDP rose. Fewer children were born and there were fewer mouths to feed.

“Today the growth rates have crossed over,” he said, as emerging markets like China and India undergo massive urbanization and create their own middle class markets. In the next ten years, more than half of the world’s GDP will come from outside the developed world, notes Viguerie.

How can Western countries maintain growth? That is the “Productivity Imperative,” said Viguerie. Growth comes by increasing the number of laborers/or the number hours they work, or by increasing the productivity of the work force.

Western markets are graying. With a smaller workforce, it is imperative innovative business models be developed to expand output to much higher levels, even as there is a mismatch between educational levels and job requirements. The education gap between the U.S. and the rest of the world has been halved in the last 30 years.

“The good news for the U.S. is that we’re still growing,” said Viguerie. “We’re still the most dynamic economy in the world.”

But it is an economy deeply woven into the “Global Grid,” the international web of trade that characterizes today’s markets. Information is the biggest “product,” and we are far from exploiting all its uses, said Viguerie. Devices like smart phones offer potential to powerfully change even the most basic business models. Industry is just beginning to grasp the implications of this massive interconnection and amount of data and many issues haven’t even been defined.

Businesses and government must now factor in “Pricing the Planet” as a consequence of their actions,” Viguerie said.

Environmental issues are no longer radical; they are sound principles that help the bottom line.

“Entire businesses have shifted. Most of the growth is occurring in places that are expensive and difficult to reach,” said Viguerie. An example: UPS now programs its routes to make no left turns, resulting in less idling and greater fuel savings.

All of this growth takes place in the “Market State.” Countries compete for jobs, trying to drive growth within their borders, but the global market doesn’t care. When governments intervene with trade policies, executives brace for negative impact.

– Sarah Banick

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