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Historical growth boosting the technological revolution

The world economy is facing robust and renewable growth that will boost all the processes that are currently generating the industrial revolution, believes Chief Economist and VP Martin Fleming from IBM. But to become a leading nation, three problems need to be overcome.
In the coming weeks, DI Business will be focusing on the digital society of the future – and the importance of digitisation to the individual, the business community and society at large. Some of the world’s sharpest minds give their unique perspectives on digitisation.

Brexit may be taking up a great deal of space in the media and even generating fear for the economic future of the eurozone.

Regular terrorist attacks also create tremors across the world.

Other emotive topics of the world stage – from immigration and job security to free trade and the power and credibility of governments – do not sit well alongside words like faith, hope and optimism – no matter whether the debate is taking place in Denmark or in the United States.

But at IBM headquarters in Armonk in upstate New York, which manages the company’s 375,000 employees worldwide, they are in no doubt that there is cause for optimism.

“The global economy is emerging from a period that has been all about significant adjustment and adaptation after the great recession and financial crisis of 2008/2009,” says Martin Fleming, IBM’s chief economist and VP for Business Performance Services.

“Some countries were quicker to adapt – the United States and the United Kingdom, for example – while it took Europe and the eurozone several years to react. But we are now finally about to complete the process – just like China and a number of Asian countries are also well on the way to solving some very toxic economic problems. So all in all, we are laying the foundations for a very long period of more robust and renewable growth,” he says and adds that a renewal of the global economic infrastructure will be on the cards.

“We are still in the initial phases of this global transformation of the economy and the way in which we do business which will take several decades to complete. But this will create the opportunity for a new historical epoch in the world economy.”

Big boom on the way

Martin Fleming does not shy away from comparing the future he envisages with the growth that followed the Great Depression and the crisis of the 1930s – a long period of time when people gave up hope, but then things suddenly picked up and generated a huge boom and significant improvements to living standards.

“This is very similar to the situation in the 1930s when growth was not something anyone dared to hope for, but where significant improvement to living standards then became a reality. There is every reason to believe that we will experience a similar period of solid growth over the next few decades.”

According to Martin Fleming, the combination of several convergent events and trends form the basis for IBM’s strong belief in the future:

First and foremost, it is about the fact that things have now been cleared up after the financial crisis and recession – by reducing the ability of the banks to speculate in short-term profit, for example. New, more stringent capital requirements have been applied to the financial sector to ensure that it has more effective buffers in place.

Massive public debt has also been significantly reduced, the West’s GDP is growing again, many governments have increased investment in infrastructure and information technology and more jobs are being created – not least in the United States, but also in Southern Europe where unemployment is falling and wages have started to rise. Germany is also showing signs of having a very healthy economy.

“So gradually, as the momentum picks up, we will experience positive developments where one improvement will lead to the next,” he says.

Black clouds dissolving

According to Fleming, greater forces are at work which will consolidate developments: the fourth industrial revolution.

“When we now talk about the Internet of Things and new digital services that we have all started to take for granted – irrespective of whether they appear in a commercial context or in our private lives – it is really just the beginning of all the opportunities that await us in the coming years,” declares IBM’s chief economist and says that the next step will be that all things will have built-in cognitive functionality so that tools and machines will be able to learn on their own – plus over time become gradually smarter and more intelligent as we use them.

“So we are in an era where, coupled with the prospect of economic growth, we are enjoying a technological revolution. But this contributes to consolidating the trend and leads to a future of completely new job opportunities, rising interest rates and improved wages. Technological developments will mean new opportunities for all those who otherwise are faced with losing their old jobs and familiar lives.”

Martin Fleming is strongly convinced that the black clouds now hanging over us and obscuring our view of a bright future will eventually dissolve.

“The relatively slow growth seen in the global economy in the past 6-7 years has led to rising frustration in many quarters and countries,” he says referencing the Brexit vote, general dissatisfaction with governments the world over and the rise of extremist political parties."

“The relative lack of opportunity in society that we had got used to has just added to this frustration, especially among a wide section of employees, but also among certain business leaders and politicians. That is why it is not at all surprising that we have seen a majority of people in the United Kingdom calling for fundamental change. We are also seeing it in the United States where similar frustration is being expressed in the political landscape. We will also be seeing it in many European countries. But this is all a reflection of events from the past and the challenge of understanding what awaits us in the future.”

The three parameters

Martin Fleming is convinced that Brexit, for example, will only have limited significance outside the United Kingdom. The rest of the world will recover.

But there are three parameters that will be crucial if countries want to be at the forefront when the fruits of the coming boom are to be harvested:

“Both in the United States and in Western Europe – but also in many other countries – a great debate on government power and credibility, free trade and finally immigration has been going on in recent years. Three topics that I am sure will continue to be extremely controversial and where we need to take action as we look to the future,” says Martin Fleming, who believes that these could become our Achilles heel in attempting to win the future.

“Those countries that are able to solve these problems most effectively will have the best chances of success.”   

Top tip from Martin Fleming, IBM’s chief economist and VP for Business Performance Services
Martin Fleming believes that more investment is required in human capital infrastructure. He also believes that physical infrastructure should be a priority investment:
“Together, this will most likely lead to stronger growth, faster rising wages and enhanced job opportunities.”
He believes that we will increasingly see large cities compete on these parameters:
“In time, we will probably see urban areas all over the world which will attempt to differentiate themselves in the global marketplace for attracting and retaining the highly qualified. So my advice is to focus on the potential of large cities.”
Technological developments will mean new opportunities for all those who otherwise are faced with losing their old jobs and familiar lives.
MARTIN FLEMING, IBM’S CHIEF ECONOMIST AND VP FOR BUSINESS PERFORMANCE SERVICES
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PUBLISHED: 11/17/2016 LAST MODIFIED: 11/17/2016