Trends that might make or break nations

Among the most disruptive discoveries to change the course of history was the monsoon wind.

Ever since Arab sailors recognised that a recurring wind pattern allowed them to cross the Indian Ocean swiftly, trade was never the same.

That is, until the invention of the steam engine. Boats grew larger, carried more sailors and cargo, and the location of ports no longer depended on the wind's path.

Time and again, new discoveries and innovations have disrupted markets by creating novel products and services, upending the linear trajectory of events.

Companies and governments unable to adapt to these dramatic changes have collapsed or faded away. India, not for the first time in its history, stands at such a cusp.

In a new book, No Ordinary Disruption: The Four Global Forces Breaking All The Trends, McKinsey researchers Richard Dobbs, James Manyika and Jonathan Woetzel offer a stimulating analysis of the major trends that might make or break nations.

By combining data from disparate fields, they make a compelling argument about the disruptive forces that are reshaping the world before our eyes.

Readers may be familiar with the first such force - the shifting of economic centres of gravity from Europe and the Americas to Asia.

But few would guess that nearly half of global gross domestic product growth in the next 10 years will come from 440 unknown cities such as Kumasi and Foshan.

The second force - the accelerated impact of technology - is again well known but the examples the authors provide are eye- opening. For instance, China's e-retail market has grown at a compound annual growth rate of 110 per cent since 2003 and is now the world's second-largest.

Even then, total sales by Alibaba on China's busiest shopping day - US$9.3 billion (S$12.4 billion) - were three times the overall online sales in the United States on an equivalent day.

The third force is demographics, as a fast-ageing population confronts plunging fertility rates.

Unless productivity increases dramatically, the shrinking working population will not be able to sustain the cost of caring for the growing number of the aged. At the same time, computers and robots may replace up to 200 million knowledge workers by 2025.

The final disruptive force is the breathtaking interconnectivity between trade, the movement of capital, people and information.

Lessons learnt in one country are used to gain market advantage in another. GE's Indian arm develops a quarter of its new healthcare products for world markets.

The authors claim that the four disruptions accelerated and fed on one another, producing compounded effects that one or the other alone could not have had.

They predict that technology will continually lower production costs, and that billions of people connected to market information will generate a network effect to make "those systems more valuable - and create more value for those who can tap into them".

The catch is that in order to tap into valuable systems, countries must prepare themselves. They write: "Unless India significantly steps up investment in its cities, the infrastructure deficit may wipe out urbanisation's productivity dividend."

The cost: an estimated US$1.2 trillion by 2030. It is a tall order, but history shows that disruptive forces beat companies and countries every time. Failure to adapt swiftly could see the centres of economic gravity shift further away from the subcontinent.

The writer is editor-in-chief of YaleGlobal Online, published by the MacMillan Centre, Yale University.

This article was first published on May 21, 2015.
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