Emphasis Added : futurism, scenarios

Scenarios for the Outcome of the Economic Crisis Part 4: New Blood or Blood in the Streets?

Rob — Mon, 06 Apr 2009 14:58:00 GMT

The final two scenarios look at the potential outcomes of a world in which the established centers of institutional power have crumbled before the onslaught of bottom-up insurgency.

In A Thousand Flowers Bloom, this insurgency is led by the global Millennial generation, united and empowered by knowledge networks and fueled by an entrepreneurial approach to problem-solving. Countries with large populations of younger people reap a demographic dividend that helps them surge past the tired, aging nations beset by debt and legacy infrastructure. This new world is dynamic, media-saturated and cosmopolitan.

Shards of Glass represents the triumph of populism, for good and ill. Here, power has devolved because existing institutions collapsed under their own weight and dragged the system down with them. Communities, localities, small businesses and cooperative organizations flourish, but so too do religious extremists and fanatics of all stripes. Technology, knowledge and economic growth are stalled. These are the "exciting times" of which the Chinese proverb warns.

A Thousand Flowers Bloom

Mao provided the image, but Adam Smith's ideas of free markets and free minds dominate in a world refreshed by youth and new sources of cultural energy.

Quadrant: Bottom-up innovation, rapid and robust growth.

Brief Description: Young, rising economies armed with new technology and a sense of purpose unleash a wave of entrepreneurial innovation, upending the economic order

Business Climate: Freewheeling, vibrant and innovative companies emerge seemingly from nowhere with revolutionary new products and business models, spurring an upsurge in new investment. Many of these new companies move to acquire established industrial-age businesses at bargain prices as ways to enter new markets and leverage the trust of familiar brands. Government regulations exist, but the demands of the market, consumers and partners tend to be higher in any case.

Information Work: A collaborative global creative class, made up largely of ambitious young people from fast-growing global regions, powers economic growth with their ideas and conversations. Employers vie for the best talent on a global scale. People and communities make use of new technology to achieve work-life balance, manage their financial and healthcare choices, and pursue their independent career paths.

Consumer Experience: Consumers are bewildered by nearly limitless choices, constant changes to products and features, and companies that come and go quickly, often leaving behind inadequately supported products. Consumers use networks and technology as a filter to identify their best choices and support each other when companies leave them behind.

Social/Political Climate: Regions and cultures, moreso than countries, are engaged in intense competition for primacy and attention. Occasionally this bursts into incidents of violence and chauvinism or sectional discord. Politics is fractious and an extension of the fast-moving consumer culture: loud and boisterous, but not always coherent or pragmatic.

How We Got Here: As the economic superpowers of the 20^th century squandered their advantages during the downturn of 2009, rising economies capitalized on infrastructure investments, political reforms, falling prices of technology, and the energy of their young, tech-aware and ambitious workforces to surge to prominence. Newly-wealthy entrepreneurs in these fast-growing regions bought up household-name institutions and assets in the developed world at bargain-basement prices. Prosperity helped tamp down the embers of extremism and historical conflict, creating room for political liberalization and the establishment of durable civic institutions.

Shards of Glass

An angry mob, fed up with injustice and choked with resentment, has taken a sledge hammer to the plate-glass shop window of the world economy, leaving this scenario in its wake.

Quadrant: Sluggish, stagnant economy, bottom-up insurgency.

Brief Description: Institutional failures lead to populist uprisings, religious fundamentalism and isolationism, hindering economic recovery and increasing political turmoil

Business Climate: Many of the pillars of the global economy have failed, and their local and regional replacements lack the resources to operate at the same level. Capital is scarce and government does not have the power or the prestige to safeguard transactions, so it is difficult for anyone to scale up and take advantage of the market gaps. Managers have to think tactically because of resource constraints and operational uncertainties that cloud strategic vision.

Information Work: Much creative class and professional work has a poor reputation, owing to popular resentment of elites who tried to cling to their privileges at the expense of workers in other sectors. Energy, agriculture, industrial arts, construction and transportation jobs are most relevant to the economy as it exists, and consequently there is not much of a wage premium for information work.

Consumer Experience: With little money and few choices, the consumer does not have much to say.

Social/Political Climate: Domestic politics in most countries is full of blame, finger-pointing, and scapegoating, with little productive discourse. The surge in the youth populations of South Asia, Africa and Latin America - concentrated among the urban and rural poor - has led to an upsurge of fanaticism and violent nationalism, including some bloody confrontations and atrocities. With no authoritative sources of news following the collapse of global media and local papers, most people get their information from narrow channels that suit their ideological biases.

How We Got Here: Chastened by populist backlash following bungled attempts to bail out dying industrial-age institutions during the 2009 downturn, governments stepped back and let them fail, with calamitous results. The wave of unemployment and wealth destruction dragged the global economy into a full-fledged Depression, which created fertile conditions for the spread of extremist politics and apocalyptic religious sects. Communities banded together and began developing local resources, but distrust between groups, social classes, countries and ethnicities remains high.

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Scenarios for the Outcome of the Economic Crisis Part 3: Institutional Stagnation or Managed Growth?

Rob — Fri, 03 Apr 2009 15:11:00 GMT

This post looks in detail at the two top-down scenarios described in the previous post: Petrified Forest (sluggish economy) and Atlas Stands Tall (robust economy).

Both of these scenarios assume that large institutions - big businesses, industry groups, governments and regional blocs, and incumbent economic elites - will maintain their leadership positions, despite the pressure on them from populists, outsiders, and insurgent competitors.

In the case of Petrified Forest, the recalcitrance of these institutions to accept change creates a stalemate that prolongs the economic downturn and inaugurates an era of slow growth and declining opportunities. This represents the predictions of various groups who claim that the recovery policies proposed in the United States and elsewhere do not do enough to solve the problem, incur unsustainable amounts of debt, and/or leave failed strategies and incompetent individuals in place.

Atlas Stands Tall represents the opposite outcome. In this scenario, the coordinated efforts of governments and the more-or-less willing acquiescence of incumbent elites to reform measures successfully reverses the downturn, restores confidence, and lays the basis for a more sustainable growth model moving forward. Although this scenario embodies the best-case promises of the Obama Administration and its supporters, it recognizes that stability also likely means less economic dynamism, less entrepreneurial innovation, and the kind of "father knows best" cultural stasis that characterized a similar era, the 1950s.

Petrified Forest

Ancient oaks stand immobile and immovable in the twilight, their inner life-force turned to stone, clinging to their old forms because that is all they know.

Quadrant: Top-down governance, sluggish/stagnant economy.

Brief description: Large organizations (businesses and governments) refuse to allow change, fight among themselves to preserve control of a shrinking resource base.

Business Climate: Nearly a decade of flat growth has pushed businesses into an instinctive defensive crouch where all new investment must be justified by cost-savings. Defense of market share is the driving imperative, along with a constant search for cheaper labor and supply. Export-oriented sectors suffer from high tariffs. Commodity and energy prices continue to escalate, putting more tension on a frayed global economy.

Information Work: Employers hold the upper hand as work is scarce. People generally work long hours and accept reduced pay and benefits. Successful firms are continually implementing process efficiencies designed to drive greater productivity from existing people and equipment. Entrepreneurism is on the wane because no one is willing to risk venture capital.

Consumer Experience: The consumer is king, as companies terrified of losing market share make every possible concession to the fickle, demanding market. Price-wars are fierce, although the high cost of commodities keeps some products out of the reach of all but the most affluent.

Social/Political Climate: Governments and big businesses employ every manner of surveillance and intimidation tactics to keep a surly and resentful public in line. Part of this is justified by ongoing concerns about security and external enemies.

How We Got Here: Half-hearted and ill-conceived attempts to reverse the economic downturn in 2009 did not achieve results, but squandered huge amounts of resources and drove the debt load of developed countries through the roof. This debt overhang dragged down economic growth for more than a decade, as industrial-age institutions did everything in their waning power to forestall inevitable changes. Countries turned inward to address mounting social problems, leading to increasing international friction, trade wars, and security concerns.

Atlas Stands Tall

In haughty defiance of Ayn Rand's libertarian titan, this revived Atlas embodies the collective will of the world community and proudly shoulders the burdens of social, economic and political harmony.

Quadrant: Top-down governance, fast recovery/robust growth.

Brief Description: Coordinated actions of governments, central banks and large businesses lead to economic recovery. A new cooperative model of capitalism emerges.

Business Climate: Industrial activity is regulated and harmonized by an assertive government that uses modern IT and management practices to diminish boom-and-bust cycles. Free trade is vibrant between partners adhering to international environmental, labor and product safety standards, with non-compliant governments sanctioned or facing barriers.

Information Work: Most information workers work for large companies or the government, and enjoy relatively secure healthcare, pension, and work/life balance benefits, although wages are highly taxed. Creative class professionals associate easily with colleagues around the world.

Consumer Experience: Consumers are empowered but largely satisfied. Companies are on a very tight regulatory leash and attempt to rebuild trust by being proactively transparent.

Social/Political Climate: Incumbent world powers attempt to manage the smooth entry of rising economies into the global system and lean heavily on disruptive players to reduce conflict. Diversity is celebrated. Political discourse is generally pragmatic rather than ideological.

How We Got Here: Cool, steady decision-making by governments and central banks in the heat of the financial crisis of 2009 paid off in a relatively rapid and robust recovery. Large institutions and incumbent elites were permitted the time and space to regroup, in exchange for their support of public investments in healthcare, infrastructure, and greater regulation. A coordinated international response defused political tensions in the Middle East and South Asia, building confidence in the renewed leadership of the United States and its allies.

Next: The Insurgent Scenarios: New Blood Refreshes the System or Old Blood Drowns It?

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Scenarios for the Outcome of the Economic Crisis: Part 2

Rob — Thu, 02 Apr 2009 19:48:00 GMT

In the previous post, I talked about the critical uncertainties and driving themes (forecasts) that formed the starting point for thinking about the outcomes of the financial crisis. Now comes the fun part: developing the scenarios themselves.

In my view, the two critical uncertainties hanging over the future are whether economic growth will resume or continue to be sluggish, and whether the primary mode of leadership will be top-down or bottom up.

Think about each of these uncertainties as defining an axis of a graph. The horizontal (X) axis represents economic growth. At the left pole of the axis is the slow-growth/stagnation outcome, and at the right pole is rapid recovery.

The predominant leadership mode is graphed on the vertical (Y) axis, with top-down decision-making at the northern pole, and a more bottom-up/insurgent model defining the southern pole. (see below)

With the uncertainties mapped as poles of each axis, the graph now defines four quadrants (clockwise from upper left):

Sluggish economy with top-down leadership
Recovering economy with top-down leadership
Recovering economy led by outsiders and bottom-up insurgents
Sluggish/depressed economy with decentralized leadership

Each quadrant of the graph represents a distinctly different picture of the future, or scenario. To add further color and character, I have assigned each scenario a descriptive name: Petrified Forest, Atlas Stands Tall, A Thousand Flowers Bloom, and Shards of Glass.

So what are the primary characteristics of each scenario? How and why are they importantly different?

Petrified Forest postulates a world where large organizations retain control, but have not succeeded in restoring economic growth. The logic of this outcome is fairly easy to see: the incentives motivating each large organization, be it an industry group, individual business, national or local government, etc., all dictate that each should hold onto its own prerogatives, making collective action impossible. Necessary reforms are stymied at every turn, creating a world where big interests scramble over a constantly-shrinking pie.

Atlas Stands Tall is the mirror opposite of this, where the collective action of the large stakeholders succeeds in restarting economic growth. It is a world of greater stability but less innovation. Disruptions are seen as threats to the new equilibrium, whether they are genuinely worrisome regional conflicts or the legitimate aspirations of outsiders trying to break into the club.

A Thousand Flowers Bloom paints an alternative way out of the financial downturn - one lead by emerging economies, bottom-up business models, innovation, and a rising global generation of new talent. This world is much more dynamic and fast-paced, but prone to risks, bubbles, and outbreaks of institutional amnesia that typically accompany high-velocity culture.

Shards of Glass represents the triumph of bottom-up populism, for better and worse. In this future, the failures of large institutions have deepened the crisis and strengthened the hand of extremists of all stripes, even as power devolves to more human-scale communities and organizations.

In the next posts, we will examine each scenario in more detail, looking at a few key questions. What is the business climate like in each future? What is the role of information work and information workers? How does the consumer experience differ? What are the social-economic forces at work? And finally, how did we get to this future - in other words, what signs should we look for as indicators that we may be moving in this direction?

Those questions can be addressed by looking at how the dynamic themes play out in the different conditions of each scenario. Stay tuned.

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Four Scenarios for the Outcome of the Economic Downturn: Introduction

Rob — Wed, 01 Apr 2009 17:59:00 GMT

As part of my work with Dan Rasmus at Microsoft, we're revisiting the scenario planning framework we developed in 2003 (as explained in our book, Listening to the Future) in light of current events. The following few posts will outline my own "unofficial" (e.g., not Microsoft-sanctioned) view of potential outcomes to the economic crisis. This post will explain the process and lay out my assumptions.

Scenario Planning 101

As former Defense Secretary Donald Rumsfeld once observed, "there are known unknowns and unknown unknowns." Both of these complicate the planning process, as Rumsfeld found out firsthand, but at least with "known unknowns," you can construct some contingency strategies in case you are not, you know, greeted as liberators, even if that was the plan going in. Scenario planning tries to identify critical uncertainties: factors where an unexpected outcome could lead to dramatically different future circumstances. The goal is then to construct a series of "what-if" questions to flesh out a finite set of plausible stories that describe the destinations at the end of each fork in the road.

Good scenarios should tell a story, and also answer questions that the scenario-builder(s) may not have considered at first. For example, a scenario built on good social/political/economic assumptions should be able to tell you whether you will be driving a flying car or riding a donkey in that version of the future, even if transportation wasn't one of the initial conditions being investigated.

Critical Uncertainties

These are the two "known-unknowns" that define the poles of my scenario matrix. That is, I suspect the disposition of these questions will define the characteristics of the next 10 years, but I do not want to assume an outcome for either of them:

Economic circumstances - will the downturn continue for a long period, leading to slow and/or poorly distributed global growth, economic hardship, continued defensive investments, and disputes over who gets what resources... or, will a recovery happen relatively quickly, leading to a restoration of confidence, new opportunities and new innovation

Leadership mode - will large organizations such as big businesses, governments, central banks and powerful institutions dominate the decision-making process, or will control devolve to self-organized communities, insurgent groups, and other "outsiders" to the traditional process?

Driving Themes

Driving Themes are forecasts of trends or dominant events that we can reasonably expect to happen within the timeframe of the planning project, based on analysis of current data. They include things like demographics, technological innovation in particular areas, policies that governments or businesses may try to pursue, and changes to the culture. The themes themselves are the product of informed speculation, and may not be 100% accurate, but what's really important is how the character of the themes changes depending on the outcomes of the critical uncertainties. For example, the prospect of a large youth population looks very different in a world where economy recovery is rapid and robust, versus one where growth is sluggish.

Part of the process of generating the scenarios is running the driving themes through the wind-tunnel of the critical uncertainties to figure out the specifics of each possible future. That sounds abstract right now, but it will be clear in future posts how it actually works.

Here are the driving themes - e.g., my best guesses about stuff that might happen -- that I identified for my scenario-development process:

Industrial-age institutions face the moment of truth as economic circumstance make old models increasingly unsustainable. Do they exhaust their resources fighting against change, resist necessary reforms, and use their local political leverage to extract subsidies? Do they reinvent themselves? Do they accommodate change or get acquired by rising insurgents? Or do they simply collapse, leaving a yawning vacuum and enduring economic devastation?

More of the world gets connected - increases in broadband, wireless and mobile connectivity, plus the falling prices of powerful new devices, brings information within the reach of unprecedented numbers of the world's population. Does this lead to greater innovation, disruption of traditional social/economic power structures, political upheaval?

The demographic divide between Old World and Young World widens - aging populations in Europe, Japan and Russia place unbearable strains on health and pension systems, just as regions in South Asia, Africa and Latin America start reaping the "demographic dividend" of billions of working-age Millennials. Will young populations lead to prosperity or increased aggressive nationalism? Will aging countries wither away or open their borders?

Governments press strong regulations on businesses and consumers to promote environmental and energy imperatives, fair trade and labor practices, or subsidies for preferred industries. Is the effort coordinated and effective, or does it break down? Do better methods of regulation emerge from networks, via transparency and reputation systems?

The global creative class coheres, united across borders by technology and shared values. Is it a force for innovation, discredited by malfeasance and scandal (e.g., financial analysts) or bogged down in a culture war against nationalists, traditionalists, and competing economic interests?

The entire world of beliefs and cultures get maximum exposure as technology connects like-minded people, allows religious sects to proselytize, and opens formerly-cloistered communities to wider scrutiny. Do new ideas and beliefs create new sources of inspiration, or does increasing fundamentalism make compromise and pragmatic dialogue impossible?

Companies adapt to sophisticated consumers and invest heavily in technologies and practices to engage in dialogues, accept input via public networks, deliver customized products and new delivery models, and manipulate the information space using better marketing techniques. Do consumers embrace their new responsibilities, or was there hidden value in the mass market model after all?

Social networking and collaborative capabilities reach the saturation point - information and relationships are fluid and accessible everywhere, all the time, on every device. Old industries like print journalism and publishing die away. Does something better replace them, or do the old structures of linear knowledge simply disintegrate?

Technology penetrates the physical world (via sensors, GPS systems, RFID, etc) - will it provide greater transparency or greater centralization of control and information?

Next: The scenarios.

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