GThe global economy has become highly fragmented as a result of fierce competition among global powers for economic security and leadership. Trends such as countries imposing tariffs and other trade barriers, technological decoupling, and disruptions to capital flows currently show little sign of abating. This is happening against a backdrop of rising geopolitical tensions and an overall shift towards multipolarity. The economic costs of fragmentation are high, with the International Monetary Fund estimating that in the long run, increased international trade restrictions could reduce global output by up to 7%, or $7.4 trillion.
But this economic fragmentation coincides with a unique opportunity to begin building more productive, inclusive, and sustainable economies around the world. Such intelligent economies are underpinned by breakthroughs in a wide range of technologies, from digital to energy technology to biotechnology. The challenge facing all players now is to find ways to maximize the growth benefits of this innovation momentum while minimizing the harms of fragmentation. More creative dialogue and cooperation are urgently needed to seize this opportunity and avoid slipping into what IMF Managing Director Kristalina Georgieva described earlier this year as a “lukewarm 20s” characterized by low growth and rising debt problems.
The 15th annual meeting of the New Champions, taking place this week in Dalian, China, is bringing together leaders from business, government, civil society and international organizations to discuss how these solutions can be found and deployed.
Navigating between sovereignty and interoperability
Technologies such as artificial intelligence, quantum computing and biotechnology that will drive the next wave of economic activity and growth are prompting significant policy shifts due to the significant implications of capturing these fast-growing markets. Going forward, there will be a strong need to balance the competing imperatives of sovereignty and security on the one hand, and openness and interoperability on the other.
Restricting the flow of key cutting-edge technologies just as these sectors begin to flourish will have global implications. The IMF recently estimated that high-tech unbundling (including energy systems) could cost global GDP by 1.2% and Asian GDP by 1.5%. While recognizing the importance of these technologies at the national level, it remains important to maintain some degree of open innovation and collaboration at this critical juncture. These are principles that have successfully reduced costs and brought technologies to market in the past. Ensuring interoperability, i.e., developing systems that can work in conjunction with each other, rather than creating competing siloed systems, will ensure we can maximize the benefits that can be gained from these innovations. Of course, going beyond interoperability to coordination and cooperation further expands certain opportunities.
People and the Earth at the Center
The benefits of an intelligent economy must be centered on people and the world we live in, and technological advances will affect everything from jobs, skills and wealth distribution to healthcare, education and public services. One of the most urgent of these impacts is the need to reskill and upskill the global workforce to meet the demands of tomorrow’s economy.
According to the World Economic Forum Future of Jobs Report According to a report released last year, technology is expected to disrupt 44% of workers’ core skills and take up 23% of structural employment in the labor market over the next five years. Therefore, a combination of public policy and private sector efforts is needed to ensure that technological advances deliver strong net benefits to workers through increased productivity and overall new job creation.
Equally, these outcomes must translate into tangible momentum and scale-up efforts to mitigate the effects of climate change and ensure a greener world. The World Economic Forum is committed to driving this through initiatives such as the Jobs Consortium and the Reskilling Revolution, which aim to transform skills and create good jobs around the world, and the First Movers Coalition, which leverages corporate climate commitments to drive demand and adoption of emerging climate technologies.
Unleashing the convergence of energy technologies
Much work remains to be done to realize the energy transition. Just when action is needed most, a series of geopolitical and macroeconomic obstacles are hindering global efforts. According to the International Renewable Energy Agency (IRENA), a $5 trillion annual investment in energy transition technologies will be needed to achieve the goal of limiting global average temperature increase to 1.5°C. This will require a simultaneous tripling of renewable energy and a doubling of energy efficiency.
Technological innovations currently under development could create the needed momentum to realistically reach these targets. These innovations are wide-ranging and include smart infrastructure networks, carbon capture technologies and more.2the development of hydrogen fuel cells as an alternative to traditional power generation, scientific breakthroughs in nuclear fusion as a long-term energy solution, and the scaling up of sustainable aviation fuels as part of the greening of the aviation fuel sector, to name a few. These innovations will create new jobs and economic sectors while directly contributing to the global energy transition, a goal that requires joint efforts of all countries.
While the dark clouds of conflict, protectionism and a fragile multilateral system have so far “reallocated” rather than reduced international trade and investment flows, it is essential that future growth is inclusive, accessible and fairly distributed to meet the needs of our most pressing existential opportunity: the global energy transition. The transition to a new economic model in which integrated and interoperable technologies strengthen resilience and enable transformation is crucial. Policymakers need to maintain a strong focus on international economic cooperation, and countries need to rethink trade governance so that security is better compatible with market liberalization and shared global development.