Remarks at WEF Industry Strategy Meeting
WEF Industry Strategy Meeting
As you know, I serve as co-Chair of the World Economic Forum Global Future Council on International Security, where we have been considering how the forces unleased by the Fourth Industrial Revolution—in which the digital, physical, and biological worlds are merging—will rewrite geopolitical maps in the near future. I also served, from 2014 to January of 2017, as co-Chair of the President's Intelligence Advisory Board for President Obama; and before that, on the National Commission for the Review of the Research and Development Programs of the United States Intelligence Community. Today, I am delighted to offer you an overview of some of the factors likely to shape prosperity and power in 2030.
To begin, the era following the Cold War in which the United States led the international order clearly is changing. Russia and China are exerting regional power—and by 2030, there will be a new degree of economic power in emerging economies, including Nigeria, Iran, Egypt, Indonesia, Mexico, and Turkey. The speed at which they are emerging is unprecedented. Globally, over two billion more people will enter the middle class by 2030.
However, it is not merely GDP that determines geopolitical power. Other key factors include…
- First, access to, and control of, key strategic resources—especially energy-related resources;
- Second, the ability to adapt to climate change;
- Third, human capital and changing demographics; and
- Fourth, the influence of rapidly advancing Fourth Industrial Revolution technologies.
By 2030, the changes wrought by these four factors, and how they intertwine, will create intersecting vulnerabilities with potentially cascading consequences for all sectors—as well as significant opportunities your businesses may seize.
Let us begin with energy. There is no development without it, which today remains very linked to fossil fuels, and countries derive power from that.
Oil and natural gas also create complex trading relationships, both within, and in defiance of, regional boundaries. Russia is rich in natural gas and oil, and has used those riches to geopolitical advantage, for example, in the Ukraine and the European Union.
But, we are moving to a lower-carbon world, which is driven by …
- climate change;
- steep cost reductions in, and access to, renewable energy;
- as well as by purely geopolitical concerns—such as a desire to loosen any one country's grip on another.
As Russia becomes more aggressive towards the West—including reportedly interfering in democratic elections in the U.S. and Europe—other sources of energy offer Europe the prospect of cutting its imports of gas and oil from Russia.
Around the world, more energy will be produced locally—including off-grid renewable energy that will bring power to those who do not yet have access to electricity.
Let us look more closely at China. The International Energy Agency expects global renewable energy capacity to expand by 43% between 2017 and 2022, driven by upward revisions of solar capacity in China and India. China alone will be responsible for 40% of global renewable capacity growth.
China's Thirteenth Five-Year Plan, ratified by the National People's Congress in 2016, positions the nation for even greater power in a lower-carbon world. Its key themes include…
- a focus on innovation to steer growth,
- ensuring that this growth is green and sustainable, and
- broadened trade relationships and pathways—represented by its Belt and Road Initiative—to help create the infrastructure for an overland trade route to Europe through Iran, already a key trading partner for oil; and a maritime Silk Road, that extends through South Asia.
The Belt and Road program encompasses 65 countries representing 30% of global GDP, and 75% of known energy reserves. This represents a continuation of China's longstanding policy of trading or developing infrastructure for access to key markets and resources.
In a lower-carbon world, however, the most critical strategic resources will shift. There will be a materials-based revolution, with new struggles for access to, and control of, non-fuel mineral resources. This will both expose and create new resource-related interdependencies. For example, this U.S. Geological Survey map suggests the degree to which the United States is dependent on China for mineral commodities that are essential in technology, security, and energy.
As the transportation sector moves towards electrification, critical resources include key materials for lithium ion-batteries; and, currently, lithium production or reserves are concentrated in a few nations:
- As much as 51% of identified lithium resources globally are in the Lithium Triangle of Chile, Argentina, and Bolivia.
Cobalt is used primarily in the battery industry, specifically in the cathode component of batteries. The battery industry uses 42% of global cobalt production. Hence, no cobalt means no Tesla. Most of the remaining cobalt produced is used in industrial and military applications such as alloys for jet engines and gas turbines, magnetic steels, and some stainless steel.
- 58% of cobalt is mined in the conflict-ridden Democratic Republic of the Congo.
Graphite has numerous uses, including in electronic materials. It also is used for energy storage.
- 67% of the world’s graphite is produced in China.
There are potentially catastrophic price shocks and security risks if the supply chains for these materials are disrupted, absent diversification or the development of substitute materials.
Climate change will bring on its own security risks. While the risks to Africa include threats to rain-fed agriculture due to drought, both India and China have low-elevation coastal cities vulnerable to sea-level rises and storm surges—cities such as Guangzhou and Shenzhen in China, and Mumbai and Kolkata, in India. In the United States, an analysis by the Union of Concerned Scientists found that, by 2035, in its "intermediate" or "high" emissions scenarios, 170 coastal communities in the United States are likely to face chronic flooding. At the same time, certain regions, California included, face increased drought risks.
The potential for intersecting vulnerabilities with cascading consequences is high. Is climate change going to drive migrations beyond recent refugee crises? Encourage the spread of infectious diseases? Increase dissatisfaction with the performance of governments in vulnerable regions such as South Asia, and encourage instability? Disrupt global supply chains? Alter access to key resources? The answers to these questions easily can be, and in some cases already are, "yes."
Speaking of resource access, shrinking ice cover in the Arctic Circle is opening new resources and trade routes to exploitation—including an estimated 30% of undiscovered conventional natural gas reserves and 13% of undiscovered conventional oil reserves. Control of these resources and routes is likely to be a source of geopolitical tensions among the U.S., Russia, Canada, Norway, and other nations.
As you clearly understand here, as part of Silicon Valley, a critical component of geopolitical power is human resources. The world population will grow from 7.6 billion to 8.6 billion by 2030. India soon will overtake China as the most populous country. By 2050, Nigeria will overtake the United States to become the third most populous nation on Earth.
The world is diverging demographically, with the developed world aging, and the developing world experiencing a youth boom. By 2030, the divides are already extreme—with much of Africa having a median population age under 20, while countries in Europe, China, Russia, and Japan have median ages more than twice that.
For the developed world, a scarcity of full-time workers will make it challenging to maintain GDP growth. Productivity growth, brought on by advances in artificial intelligence (AI) and robotics, may be key here. At the same time, automation and AI may increase the share of GDP that goes to capital rather than labor, thereby worsening inequality within societies. Ironically then, choices that corporations make to exploit new technologies can exacerbate social instability.
India, Pakistan, Egypt, Nigeria, and Kenya all will have growing working age populations between 15 and 64. But do they have the opportunities, education, infrastructure, and governance to take advantage of their human capital? Working age populations will grow the most in South Asian and African countries where average education levels are among the lowest.
India will have ten million new working age residents per year in the coming decades—but needs to improve its energy, manufacturing, transportation, and education infrastructure to accommodate this growth. The contrast between India’s thriving technology sector and its less spectacular manufacturing sector exposes the gap between the excellent elite education it offers in its universities—and poor overall basic education. There also is a broader entrepreneurship and productivity gap in the industrial sector, once one moves beyond IT and pharmaceuticals.
Both India and China will have another challenge to social stability, as cultural preferences for boys have skewed sex ratios in their favor, making it harder for marriage-age males to find partners.
Recent history suggests that states with youthful populations—and insufficient opportunities—are the most prone to intra-state political violence. In the Middle East, large youth populations, and the failure of governments in Egypt, Syria, Libya, Yemen, and Iraq to provide sufficient opportunities, have encouraged instability.
Ironically, the increasing expectations of a rising global middle class also may fuel dissatisfaction with the prevailing leadership—and provoke instability—and mass displacements of people.
The migrations provoked by such instabilities—in combination with the sense that globalization has not benefitted the middle classes in the developed world—are a source of demographic clashes, giving rise to geopolitical tensions, and a new nationalism in the U.S., the E.U., and elsewhere—especially as developed nations with aging populations may find that their people do not have the skills required to create and use the technologies of the future.
Migration can offer a long-term benefit to nations with aging and shrinking populations. Because of immigration, the United States was not projected to grow as old as nations such as Russia, Italy, Germany, Spain, and Japan: The United Nations has predicted a median age of 40 in the U.S. in 2030. But, will current immigration policy changes alter that trajectory? Net-net, migration is projected to account for 82 percent of population growth in high-income countries by 2050.
A question then is, can new technologies enable intergenerational linkages in ways that create greater productivity and innovation, and thereby confer economic strength, by educating a broader swath of the population, and building economies that simultaneously take advantage of the energy, the forward-thinking and risk-taking of the young, and the wisdom and experience of older populations? This will require a new kind of intergenerational contract that has yet to evolve.
One challenge is clear: Technology is making governing more difficult. Technological diffusion—and communications connectivity—can lead to social control slipping away from the primacy of the state, in several directions at once.
Technology fosters and supports transnational alliances of multi-national corporations, non-governmental organizations (NGOs), or other multi-lateral organizations, at one end of the spectrum—or transnational terrorist or criminal groups at the other end. With the advent of social media, technology allows, as well, internal groups to challenge central governments, and to create instability without large militaries, economies, or populations.
Of course, these shifts are not merely due to connectivity—but also to the fact that many technologies of the Fourth Industrial Revolution can be easily weaponized by state and non-state actors. ISIS used commercial drones to carry bombs in Mosul; grenade launchers can be manufactured using 3D printers; CRISPR gene editing may facilitate the creation or virulence of biological weapons. Cyber-physical systems offer new angles of attack—as seen in a recent cyber-assault on a petrochemical plant in Saudi Arabia designed to cause an explosion. Only a mistake in the hackers’ code prevented this violence.
Syria offers an example of the intersecting vulnerabilities with cascading consequences that can result from the collision of intrastate, interstate, and transnational tensions. Conflict between the government and rebel groups that began protesting during the Arab Spring became both a proxy war between the U.S., Russia, and a number of other nations, and a war against ISIS—creating 5.6 million refugees, streaming to other countries—and altering politics in the European Union, and elsewhere, including the United States.
In Mexico, the government is facing another kind of threat: conflict between drug-related criminal organizations—and politicians, soldiers, law enforcement, and civilians—with 80,000 to 100,000 deaths since 2006.
On the other hand, there are states, such as China, that are using technologies to exert control, monitor social behavior, and reward behavior that conforms to the desires of the government.
At the same time, China is focused intently on innovation and technology, and moving away from manufacturing, at a low-cost, products invented elsewhere. The role of education, research, and innovation is well established in creating economic and social power—and this is only likely to increase in the Fourth Industrial Revolution.
Scientific and technological leadership is important for China's military power, but also for its international political and economic leadership. In 2016, China announced that, under its 13th Five-Year Plan, it would increase public and private R&D spending from 2.1 percent to 2.5 percent of GDP—approaching the 2.7 percent the United States spends. China would also raise the quality and volume of its patents; increase the contribution of scientific and technological advances to economic growth; and invest in human capital.
The U.S. National Science Board believes that 2018 may be the year when investments in research and development in the Chinese economy may surpass that in the American economy. China now publishes more articles in peer-reviewed scientific and engineering journals than the United States. Last year, these included a paper in Science announcing a successful test of quantum entanglement over more than 750 miles. Quantum entanglement refers to the fact that particles can be connected so that action on one alters the other, though they are separated by distance. This physics may yield a new, more secure kind of global communications network—and China is clearly poised to lead.
China's investments in the infrastructure of science are impressive: Of the 500 most powerful supercomputers in the world, 202 are in China.
Its investments in human capital are equally impressive. With its Thousand Talents Plan, China has recruited more than 7,000 scientists, engineers, and entrepreneurs to China: both Chinese citizens who studied at the best universities abroad, and foreign-born scientists eager to set up laboratories in a nation where their research is unlikely to be threatened by budget cuts. China is busily implementing a "sea turtle/sea gull" strategy. "Sea turtles" are older, accomplished Chinese-born scientists and engineers drawn back "home" to China by various perks—both monetary and career-related. The "sea gulls" are Chinese-born scientists and engineers still in mid-career, who are offered certain appointments in China, and travel back and forth between their countries of residence and China.
But, China is internally developing its own human capital. In 2007, China had already surpassed the United States in the number of doctoral degrees it awarded in the natural sciences and engineering. By 2030, across OECD and G20 nations, China and India together will produce 50% of the 25-to-34 year olds with tertiary education, and the U.S. just 8%.
Clearly, China is following a path taken by the United States in the years following World War II—with government support for fundamental research and development, much of it conducted by universities, leading to the breakthroughs that power industry and that educate the next generation at the very frontiers of knowledge. In its stated priorities in science—including quantum communications; quantum computing; brain research, cybersecurity; robotics; gene science; and big data applications—it also seems to be following research universities in the United States, and elsewhere, in their strategic research thrusts.
One of the linchpins of the Fourth Industrial Revolution will be an Intelligent Internet of Intelligent Things—in which the network linking key devices and systems is smart and recognizes opportunities and vulnerabilities in data streams—and the devices it connects also are smart, and able to adapt to changing conditions. This is crucial to addressing many challenges and opportunities, from cybersecurity, to advanced robotics, to personalized medicine, to using the tsunami of digital data humanity is generating.
Geography is, to some extent, destiny—as control of strategic resources amply demonstrates. But the technologies of the Fourth Industrial Revolution will play strongly against emergent and historical geopolitical alignments.
There will be a new energy equation, one in which more energy will be produced locally, as well as new definitions of critical strategic resources around the globe.
Climate change will expose new vulnerabilities and new shocks to the global order—as well as reinforce the value of global coordination and cooperation.
Demographics will force a new reckoning between the aging developed world and the youthful developing world.
Fourth Industrial Revolution technologies will both undergird significant transnational alliances—and deepen intrastate divisions.
Together, these forces argue strongly for a new outlook on the part of companies in various industries with respect to how they position themselves globally, and for new governmental and corporate mechanisms to promote peace and prosperity around the globe. I look very much forward to joining my fellow prognosticators—the strategists in industry—to consider what those mechanisms might be.