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Brand Signature area June 2013 0

Mark Cliffe

Chief Economist, ING Group

Designing the Next Economy - DMI Design Thinking Conference

Santa Monica, California

18th June 2013

By Accident or Design

Optimism from a Dismal Scientist


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The more dismal science…

Economists are living up to their billing with fashionable ‘crisis lit’…


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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…

…as investors (and borrowers) get

carried away…

…and are then carried out

"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


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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


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Monetary stimulus threatens new bubbles

“Quantitative easing” has

boosted the financial markets

more than the real

economy…

…raising fears of more

disastrous bubbles

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FTSE World equity index versus Global* PMI

Manufacturing PMI (lhs)

FTSE World equity index (rhs)


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Debt deleveraging – a headwind to growth

Headwinds from deleveraging

by governments, finance and

household sectors…

…and clumsy re-regulation


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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


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Pessimism about technology

Soul-searching extends to technology…innovation is said to have slowed

Would you swap these… …for these?


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‘Race against the Machine’

Others argue technology

will be too successful…

…destroying jobs, even of

semi-skilled and

knowledge workers


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Emerging market doubts

Pessimism even extends to

emerging markets

• China’s ‘middle income trap’

• Lack of creativity

• Malign effects of ‘State

Capitalism’

Source: EPA


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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


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Pessimism is cyclical

Psychological over-

reaction to crisis…

Forecasters typically

miss turning points

They tend to

extrapolate the

recent past

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07 08 09 10 11 12 13 14

GDP YoY%

Economists poll of forecasters, 1Qforecast of following year

Economist poll of forecasters, GDP growth 2007-2013


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Policy turns towards growth

• Policy-makers have avoided the mistakes of the 1930s

• “Deleveraging” won’t last forever

• Corporate sector has resources

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Assets Net worth Liabilities (rhs)

% of dpi

US household net worth % of disposable personal income


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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


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Resources are shifting to new uses

The US economy is rebalancing – manufacturing has done well

Structural reforms and liberalisation are being pursued, also in Europe and Japan

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US Output by sector - this recovery

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Structures

ServicesNon-durables

Durables


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New forms of financing

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US Lending to non-fin private sector

%YoY and contributions

Bank loans

Debt

instruments

Other

loans

• Capital markets stepping in

• Banks will be more robust,

smarter (although not fool-

proof!)

• Long term – on-line market

places, P2P lending


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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…

• …the trick is to ‘fail fast’…

• …the US still excels in such risk-

taking

“Stay young, stay foolish”


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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


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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)


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Third Industrial Revolution is still an infant

The impact of

disruptive

technologies can

take decades to

come through…


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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


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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!


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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)


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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

Tax reform – radical simplification could

incentivize investment and reduce inequality

(the 99% have a say…)

Source: Nature


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New energy for growth

Shale boom is going global…

…and technology and taxes

may give long term impetus

to alternative energy Source: Dow Jones


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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

message

Source: unifiedtao-en.blogspot.com


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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


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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


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Emerging markets - still catching-up

Implementation is more important

than invention…

…and emerging markets are

learning fast…

…and leapfrogging to the latest

technology


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Emerging markets drive growth elsewhere

• ‘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

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Advanced Emerging & developing World

%YoY

Emerging markets growing faster


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Chinese consumers are coming!

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350m

2012 2022

Source: McKinsey

Urban households Millions, by disposable household income

Poor

<$9000

Lower middle

class

$9 - $16000

Upper

middle class

$16 -

$34000

High

incomes

>$34000

From 174mln middle class households to 272mln in 2022


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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


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Design fuels trade

Design differentiates, and

fuels trade…

…reducing the need to

compete on price

Correlates with business

success (including exports)

– but causation runs both

ways

Big companies spend more,

but start-ups can challenge

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Source: UNCTAD – defines creative industries as: art, crafts,

audio visuals, design, new media, publishing and visual arts.

World exports of creative industries


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Brand Signature area june 2013 33

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...

12. …which can drive growth and trade


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Q&A

[email protected]

Tel. +44 20 7767 6283

www.markcliffe.com

@markcliffe

mailto:[email protected]

http://www.markcliffe.com/


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