Resource limits and slow-moving institutions may hamper economic growth


What will happen to the global economy in 2025? Some see grim prospects for the future of global economic affairs.


Sean Gallup

Editor's note: "Tomorrow and tomorrow and tomorrow" is a three-part series on the future of the global economy in 2025. Read part 1: Tomorrow and tomorrow and tomorrow: The global economy’s path to 2025; Read part 2: Competitive edge will sustain US economic advantage in 2025

Six reasons to see the global economy in 2025 as a glass half empty.

1. 2012 is a harbinger of 2025:

Western economies have stalled and there are few opportunities to really accelerate within their borders. The global economy desperately needs growth from elsewhere, but growth continues to come from countries with tons of institutional gaps, voids and constraints. Without a closing of the gap between fast growing and slow-moving economies, the emerging markets bubble will burst or deflate as India, China, Russia and Brazil have started doing already over the course of 2012.

2. An inconvenient revolution:

We are fundamentally altering the balance between revolutionary change and the natural limits of non-renewable resources and of the human condition. We will run low on natural, mineral and fossil fuel resources, clean water and air, and arable land.

Climate change will have a systemic impact across the planet. In combination with these natural constraints, the human condition can be described this way: people are too old or too young or they are being packed into more congested areas. More than 50 percent of the world already live in urban areas; while a billion are in slums. This trajectory is unsustainable.

3. Pyramid scheme at the bottom of the pyramid:

This is not Africa’s turn. A look at McKinsey’s “Lions on the Move” reveals a troubling pattern across that continent. The study separates the oil exporters, the diversified economies, and the transition and pre-transition nations. The oil exporters are essentially extractive economies and will perennially suffer from a “resource curse.” The diversified cluster comprises mostly “Arab Spring countries” and South Africa. All these nations have highly uncertain political futures. The transition economies, while promising, are too small by way of GDP or GDP per capita to make a substantive difference.

It is telling that in this picture, Botswana, with a population of only 2 million, is among the few truly good news stories in a continent of 1 billion. The Chinese-Indian-Brazilian interest in the continent is largely extractive and the trickle down benefits of such relationships are limited.

4. Game over for game changers:

Big innovation is dead and so are any dramatic transformations in productivity. There are no genuine game changers or breakthrough technologies that will change our lives in a practical sense in the foreseeable future, according to several, well-respected writers. George Mason University’s Tyler Cowen and Northwestern’s Robert J. Gordon, for example, have independently sounded the alarm for innovation and growth in the US. And if it is over for the US, what hope is there for the rest of the world?

5. The end of US competitiveness:

Fundamental geopolitical forces are working against the investments needed in sustaining competitive advantage. NSF, NIH funding is down; Bell Labs and Xerox PARC are no longer the forces they used to be. American higher education faces a financial crisis in the coming decade. The US has no “Cold War” that galvanizes a sustained political commitment to resources being put into fundamental innovation (à la DARPA, NASA, Manhattan Project, etc.).

There is really no innovative rival that can help re-create such conditions. China is too top-down to truly be an innovation leader. The EU and Japan are both struggling with other structural problems. The war on terror or cyber war is too diffuse and will not be a substitute for the Cold War. Over time, the much-celebrated entrepreneurs will have no foundational innovations — such as the internet, web, wireless, biotech, nuclear —to build on.

6. Democratic Capitalism hits a wall:

In the emerging economies, the context simply cannot afford democracy. As natural resources become scarce, their ownership yields a premium; the state or a powerful group of plutocrats control the economies. Moreover, as it becomes necessary to preserve focused areas of growth and shift the costs onto others, only the state has the leverage to pull it off. Democratic institutions are too cumbersome. They are slow moving, bureaucratic and corrupt — not to mention easily manipulated by interest groups. All this means that there is a need for a strong center.

There are economies of scale and a need for basic infrastructure and continuity in institutions and policies, as well as a need for peace and diplomacy on the international front. Regulations and licenses are essential to keep some checks and balances before fast growing economies fall prey to the risk of runaway capitalism. The 2008 crisis and its aftermath only emphasize these risks. Typically, all of this gives disproportionate power to the state.

Well, there you have it, a range of forecasts looking toward 2025. There is as much to disagree with, as there may be ideas that resonate. What do you think? Let the debates and fanciful flights of imagination begin. I will join in with comments on what follows.

Perhaps we can abandon the idea of standing on the shoulders of giants; they were often wrong. Collectively, we can stand on the shoulders of many ordinary people and see farther. Perhaps, with our collective tomorrows, we can dream of defying Macbeth’s fate and avoid the way to dusty death.

Read part one in this series: Tomorrow and tomorrow and tomorrow: The global economy’s path to 2025

Read part two in this series: Competitive edge will sustain US economic advantage in 2025

Bhaskar Chakravorti is the senior associate dean of International Business & Finance at The Fletcher School at Tufts University. He is founding executive director of Fletcher’s Institute for Business in the Global Context. He has taught innovation and entrepreneurship at Harvard Business School and Fletcher and was a leader of McKinsey’s Innovation and Global Forces practices as a partner based out of the Boston office. He is the author of the book, "The Slow Pace of Fast Change." The Institute recently started its Fletcher Futures project: