History is commonly presented in one of two ways, either a linear advancement from a state of barbarism towards increasing levels of ‘progress,” or a cyclical repetition of advancements and regressions played out over time with increasing magnitude as technology facilitates more far-reaching effects with each cycle. Both approaches can provide useful frameworks to interpret events but lack utility when trying to understand economic trajectories on a more actionable timeline.
By economic trajectory I refer to the shape and structure of country, regional, and global economies, not something as mundane as year-over-year GDP forecasts. The shape of economies seems to move in more of a step-function pattern — generally in equilibrium until something happens that dramatically changes the game, creating a new equilibrium. Calling this a step function is not entirely accurate, as it evokes the implication that the steps are going up similar to the linearity argument, but the point is that things happen at various intervals that change the dynamic.
I call these pivot points global catalysts. In some cases global catalysts are socio-economic forces, such as the general increases in literacy and lifespan. Many catalysts are technological, such as antibiotics, the internal combustion engine, mass production, and the computer. Global catalysts can also be political, such as socialism or the Second World War. The commonality of these themes is that they impact the shape of the global system in a meaningful fashion, changing the way that businesses and public entities operate, compete, and grow.
The cycle time for catalysts seems to be shortening. The change in primary naval locomotion from sail to steam (coal) was so important and pervasive that it very literally changed the map, as lumber plantations were replaced by island coal depots as strategic outstations – a transition that took thousands of years to occur. The transition from coal to oil power was equally transformative and took several hundred years. We are less than a hundred years into the age of oil, and I will be personally astonished (yet dead) if we don’t cycle into the next “age” on a dramatically shorter cycle.
Cycles are shortening because of technology and connectivity. Technology provides more tools and accelerants towards the development of catalysts, with computing power being akin to gasoline thrown on the catalyst development fire. Globalization and the connectivity of people also matters, as ideas, tools, and catalysts now spread and embed more broadly and quickly.
When viewed at the macro level with the benefit of hindsight, the equilibrium shifts seem generally positive. We are glad to have computers and goods made more cheaply and to get places faster. The downside in changing from one state to another is that it is by definition inherently disruptive. For each great industrial conglomerate that has been born as a result of these pivots, others were destroyed. Creative destruction may be good for humanity, but it is destructive nonetheless, and destruction is typically seen as a negative by the business and public sector executives who end up on the losing end.
Thus it becomes incredibly important to understand the global catalysts that are occurring now, or will likely happen in the near future. If one believes our hypothesis that the cycle time for system-changing catalysts is in fact shortening, this becomes a critical, perhaps the most critical, task for a business or public leader. It is a truly difficult task; identifying catalysts as they are happening is not as simple or obvious as it seems, nor is deciding what to do about them. Objects come into focus in the rearview mirror with distance. Inevitability is only mentioned in history and business books when the risk of being wrong is removed.
So then, where do we look? How do we decide what constitutes a catalyst, and more importantly, how do we decide what to do about it to protect our interest or position our enterprise to win in the new equilibrium? This is not a simply answered question, as evidenced by the remnants of once-great corporations left by the wayside, most of which were led by smart, well-intentioned executives. We at Grayline have built a business, framework, and field of study attempting to help answer this question. These are hard, complex problems that require teams of dedicated, focused professionals whose efforts will only be recognized as successes or failures when history lets us know if we were right.
What Defines a Catalyst for Grayline
Our intent at Grayline is not to try and be expert at everything. We are interested in catalysts broadly, but from the broad universe of potential catalysts we only select specific focus areas. Our selection criteria are a mix of internally developed guidelines and client direction, ensuring that we focus on issues that matter, in which we can excel.
Scope: The issue must be broadly, structurally important to the global system.
Importance: It must have the likelihood, or at least potential, to impact how businesses operate and compete.
Timing: It must be near-term enough that companies and public-sector organizations would consider making investments now to mitigate risk or realize potential emerging opportunities resulting from the issue.
Expertise: It must be a topic where we can gather enough expertise to have an impactful view.
Information: There must be enough available information to build a core data set to support our team and clients.
Investable: The issue must have attracted or have the potential to attract the entrepreneurial talent and capital that will ultimately build solutions.
These guidelines are not set in stone and will continue to evolve with the business, but they help us focus our expertise where it is most relevant and actionable.
Initial Focus Catalysts
These are some initial areas where we have chosen to focus our efforts:
Demographics: Declining birth rates in developed economies are leading to aging populations and shrinking labor pools. This trend is a result primarily of changing economic patterns higher up the value chain and the economic burden of children in developed economies, as opposed to the economic benefit they provide in developing economies. The first impact of this theme is a change in the shape, consumption patterns, and service requirements of consumer markets as the average age of people buying goods and services increases. The second impact is that at some point scarcity will increase the cost of labor, necessitating changes to immigration patterns and driving investment towards automation solutions that decrease labor requirements.
Manufacturing: The continued development and eventual widespread adoption of additive manufacturing (3D printing) will change the shape of global trade. A significant portion of global shipping is predicated on the low-end manufacturing model, where simple items (door hinges) and subcomponents for more complex products (iPhones) are produced wherever in the world they can be made most cheaply, then shipped to an assembly facility or directly to consumer markets. Additive manufacturing will decrease the cost variance between manufacturing items locally and in developing markets, incentivizing more localized or regionalized manufacturing. This will impact shipping, logistics, job creation, and the economics of companies that manufacture goods. Importantly, it will also impact the global security dynamic and potentially remove the historical path that countries have to develop their economies and move up the value chain.
Urbanization: World populations are increasingly moving to urban centers, dramatically increasing population densities in cities worldwide. This trend is a result of economic activity patterns, knowledge economy infrastructure, and agricultural automation – all of which we expect will continue to exert pressure towards continued urbanization going forward. The result of these pressures is more large cities and mega-cities worldwide, which creates a new set of transportation, sanitation, and infrastructure requirements for cities and changes market dynamics for companies. New technologies, processes, products, and engineering solutions will be created to address the unique issues resulting from the unprecedented rate and scale of urbanization that is happening now.
Power: Battery technology is rapidly developing, due in part to the investments and advances companies such as Tesla have made to support electric cars. Next-generation battery technology that overcomes the constraints of current lithium-ion models will have a far-reaching impact, specifically when they scale to grid-storage capacity. The economic viability of some forms of renewable energy will be drastically increased by effective grid storage technology, which facilitates the localization of energy production and consumption. This has the potential to change the shape of energy production, storage, and consumption in developed countries.
Technology: Ongoing advances in technology will obviously continue to evolve the shape of economies, markets, and global economic systems. Within the broader context of technology, there are a number of developments that have the potential to be catalysts for a more dramatic step-function change to the global system. Among these technologies are advances in genomics and biotechnology which could reframe the human life span, driving a multitude of second- and third-order effects. Machine learning and artificial intelligence also have the potential for system-wide catalytic effects, if automation more drastically replaces wide swaths of the labor force. Significant advances in weapons of mass destruction that facilitate their creation and use by individuals and non-state actors are another, less desirable potential catalyst. There are a number of other technologies that are potentially on the cusp of being global catalysts, which we are continuing to explore.
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