Preparing our local economies for the future that global megatrends will drive
Time. We all experience it. Whether individually, with others, or as a community. We all know that over time things change. Some things improve, some pass on, other things just stay the same. And, at the risk of stating the obvious, over the 12 years from now to 2035 things will change.
So, to gain a sense of what 2035 could be like, consider what has happened over the last 12 years. Our most recent, and ongoing, collective experience is the current COVID-19 pandemic. There were the floods earlier this year, and before all this we went through the 2019 Black Summer. We can’t forget the MH17 and MH370 airline disasters, the flow-on from the 2012 Arab Spring, nor the significant impact of the Global Financial Crisis. And plenty more besides.
However, throughout this same period we may have lost sight of: the rise to prominence of the electric vehicle, the almost 90% drop in the price of electricity generation from renewable sources, the increasing ubiquity of cloud computing, the dominance of the gig economy and firms that are aligned with the word “Uber”, let alone advances in technology such as CRISPR gene editing, artificial intelligence and in the smart phones we carry around with us.
Throughout these last 12 years a lot has happened. Over the next 12 years, to 2035, even more will happen.
Applying this thought to ourselves and our work - we know what we are developing today, and we can perhaps remember what we were developing all those years ago. But the question is, what will we be developing in 12 years time? What will 2035 look like?
In order to answer this question, and even to perhaps prepare for what this future could hold, we need to understand the concept of trends. For trends shape how things change over time.
Now, a trend is the demonstration of a consistent pattern over time. And a demonstrated pattern of events implies that there is something causing them to happen. This something can be defined as a driving force, or a change driver. In other words, over a period of time we can observe a set of issues, occurrences or episodes that seem to be related and we can safely assume that this trend is being caused by a driver of change.
Take the Australian fertility rate, for example. With the slow decline in this rate over the post-World War II era, the average age of Australians is rising (29 years in 1980, 35 years in 2000, and 38 years in 2020). While the trend we observe is that our population is getting older, there is much debate as to what is driving this change – is it education, prosperity, health, societal norms, a combination of these factors, or some other agent of influence? Nevertheless, this ageing trend has been established by the demonstration of a consistent pattern in our population data over time.
The trends that will matter
Whilst we observe trends in our local economies, housing styles and retailer offerings for example, it is the more significant trends that is the focus of this article. These global megatrends hold a far greater sway over our communities and industries than we can resist.
The two global megatrends under consideration here are climate change and increasing computerisation.
Climate change because the scale of the release of greenhouse gases is global in nature and global in impact. And increasing computerisation because of the ubiquity of digital technology across all aspects of life in any country and the exponential, and continuing, rate at which its power has been improving.
Both are shaping, and will continue to shape, our local economies up to and past 2035.
Firstly, regarding the nature of climate change - the energy that Earth receives from the Sun is central to how our climate works. The Earth and the atmosphere operate just like the greenhouses used in certain types of farming (eg. market gardeners that grow tomatoes in glass houses). In both cases, light and heat from the Sun is used to stabilise climatic conditions. For Earth, incoming solar energy is transferred back upwards through reflection (ie. from areas of sand, snow and ice), evaporation (returning as precipitation), and infrared radiation (from areas of land, water and vegetation). It is the physics of this last form of energy, infrared radiation from the Earth’s surface back into space, that causes climate change.
For just as the walls of a market gardener’s glass house traps heat, so too does carbon dioxide and methane in Earth’s atmosphere. Hence, the greater the concentration of these greenhouse gases in the atmosphere, the greater the greenhouse affect upon the Earth.
For the centuries prior to 1950, the concentration of the dominant greenhouse gas (carbon dioxide) has been measured at less the 300 parts per million. Since that time, CO2 concentration has risen about 40%.
The impact of this rising greenhouse effect, which will continue well into the future across all eco-systems, has been understood by the scientific community for many years. Because of the set of well-established scientific physical principles, the record of the distant past found in nature, the data from 150 years of scientific measurements, and the development of increasingly accurate computer-based climate models, we all are becoming more aware of what climate change will do to the Earth and its inhabitants.
And secondly, the nature of increasing computerisation. Moore’s law, a computer industry axiom, declares that the power of a computer chip will double every two years. A declaration that has held true for over five decades.
This phenomenon of the computer industry is driven by three things: 1. the physics of being able to reduce the size of the miniature semiconductor components which comprise computer chips; 2. the economics of offering more functionality at a cheaper price as the computer chip improves; and 3. the manufacturing process that become more complex as the computer chip technology advances.
The impact of this exponential rise in the power of computer chips can be seen in many places. One example is the ever rising speed and amount of data that we can consume per unit of time (ie. how well could you stream a high definition movie say 10 years ago). Another is the always improving ability to effectively run more complex algorithms with broader ranges of real time data (eg. electric vehicles are able to operate at higher levels of the Society of Automotive Engineers’ “Driving Automation Scale”). A third example is the continual reduction in the size of computers (eg. the current smallest computer is the size of a dust mite that can be injected into the human body to measure temperature).
The impact upon industry sectors
Climate change and increasing computerisation will continue to have an impact upon all industry sectors, regardless of the profile of your local economy. Some sectors will be directly impacted, others influenced because of changes in the sectors they are linked to.
Regarding primary industry, climate change will continue to have a negative impact upon income (eg. profits are down by 22% in Australia over the last 20 years). It will impact, for example, water availability, farming techniques, crop yield, livestock viability and the sustainability of fish stocks.
Regarding the extraction industry, apart from operational actions in response to Scope 1, 2 & 3 emissions, climate change will drive market demand. For example, as renewable forms of energy rely upon rare metals and rare earths more mines for will have to be developed. Increasing computerisation, on the other hand, has led to the usage of technologies such as drones, robotics and the internet of things. The promise of quantum computing may well give rise to the discovery of new materials, potentially turning marginal ore bodies into valuable feedstock.
Regarding the manufacturing industry, climate change will continue to have an impact upon inputs, process and market demand. That is, confidence in the supply of raw materials may well be disturbed by environmental events, more processes will be affected by moves to improve energy efficiency, and the desire and need for climate appropriate goods will continue to shape what is produced. Of note is that the global megatrend of increasing computerisation will support this industry’s transition to a smaller carbon footprint.
Regarding utilities, the obvious impact that climate change is having is upon the dampening of the demand for gas as well as forcing the reconfiguration of electricity generation, transmission and distribution. Also changing patterns of rainfall will affect water availability and storage. And for waste services changing climatic conditions will affect relevant infrastructure and the composition of what is treated.
Regarding construction, materials, labour and processes are affected by climate change. For example, in the decarbonisation of cement and steel and the environmental standards of other materials. Similarly, increasing computerisation is influencing all stages of the lifecycle of whatever is being constructed. Whether, for example, this be in robotics during construction and intelligent management systems during the long-lasting operational phase.
Regarding tertiary industries such as wholesale trade, retail trade, accommodation and food services, as well as the transport, postal and warehouse services, climate change will primarily be felt in the operations of such businesses. For example, driving the use of energy efficient buildings and vehicles, responding to weather impacts upon distribution routes and storage facilities and affecting the availability of what is on offer for either sale to locals or to be seen and experienced by visitors. As with other industries, increasing computerisation will continue to improve the efficiency of operations of each of these industries as well as expand the services that are on offer.
Regarding quaternary industries such as the information, media and telecommunications industry, the financial and insurance services industry, and the rental, hiring and real estate industry, climate change will continue to have an impact upon the services delivered and their supporting infrastructure. Likewise with computerisation. As the technology improves an increasing number of tasks will be automated, more confidence will be placed in judgements made by decision engines, and new forms of value will be created from data.
Although I have written in detail elsewhere about each of the 19 ANZSIC industry divisions, the picture of how things will change over the coming 12 years is clear. While climate change and increasing computerisation will have a direct impact upon some sectors, others will be affected due to flow-on effects.
Answering the question
Given that the effects of greenhouse gases are with us for the foreseeable future, and that advances in computer technology will not be stopping any time soon – what will 2035 look like? What will we be developing?
We’ll be developing economies in which mitigation and resilience efforts in response to climate change will be continuing. Because of this there will be risks to, and opportunities for, businesses in each of the industry divisions. Whether they either shift focus to reduce risk (mitigation), or to fortify themselves to handle the risks they face (resilience).
One implication of this is that your local economy will be completely dependent upon renewable energy – that will obviously impact transport-related businesses (eg. mechanics, trade schools, service stations, after-market retailers) and those supplying energy (eg. home solar, virtual power plants, green hydrogen producers). Another is that food security may become a problem because of say weather events interrupting transport routes, damaging warehousing logistics, and causing problems with local and international food producers (eg. local lettuce and bananas, oranges from California and seafood from Thailand)
And we’ll be developing economies that are continually exposed to increasing computerisation. Here, digitisation and digitalisation are the watch words. Digitisation is the conversion of the physical to the digital (eg. PDF of a scanned file, or the output of an IoT sensor), and digitalisation is the use of digital technology to change business processes (eg. marketing workflow). It is all about data and automation.
One implication of this particular global megatrend is that business success will rest upon the richness of the data that is collected, and how well it is used. It means that people will need good thinking skills (eg. critical, creative and/or systems thinking) and those with these skills will become valuable employees. Another implication is that a mindset and practice of continual innovation with respect to digital technology will be paramount.
In 2035 we will be developing local economies whose businesses have been significantly altered by climate change mitigation and resilience efforts, where those businesses are highly digitised and digitalised.
Preparing for what lies ahead
Assuming that there are only three or four economic development strategy cycles between now and 2035, it seems that the foundations of what our local economy will look like then will be set in the next few years.
For our view of the future influences the decisions we make today.
If we accept that the two global megatrends of climate change and increasing computerisation will impact all industry divisions, as outlined in this article, what should our response be? What business support mechanisms, what policy positions and economic development strategy themes do we need to change? Do we need to refocus the structure of our economic development teams?
Will our next economic development strategy be an improvement on what has gone before, or should it be laying a foundation for subsequent strategy documents?
It goes without saying that we are all aiming to grow healthy and prosperous communities. Our goal is to develop our locales as attractive places to live. Importantly, all of this is underpinned by a well-functioning local economy. It follows, then, that as these two global megatrends shape our world and our local economies, there may well be the need to challenge our thinking and our preconceived notions of what our economy will look like in the years ahead.
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