The Deep Future Is Coming: Prepare Yourself
WHY YOU SHOULD CARE
Because someone is creating the “deep future.” Do you know who?
The author is managing director of Parthenon-EY, in Singapore. His views do not necessarily represent those of Ernst & Young LLP or any other member firm of the global EY organization.
On a winter’s day, the wind whips down Königsallee (literally, the “King’s Alley,” or the “Kö” for short) in Dusseldorf, but it’s not cold enough to keep shoppers from the glowing boutiques and galleries. It is a well-dressed street in a well-put-together town.
The same scene plays out on Sloane Street in London (which has a supercar parking problem), Rue St.-Honoré in Paris, New York’s Fifth Avenue, Ginza in Tokyo and other high streets I find myself on in the course of work. These cities are pulsing with prosperity, growing ever outward from the core; once-derelict neighborhoods are now gentrified, and house prices are racing upward without pause.
How do we reconcile this prosperity with a crushing mountain of debt accumulated to power us out of the Great Recession and stagnant wages? I was at a lunch just off the Kö at the storied Industrie Club, where the rooms are named after the industrial powerhouses of north Germany, their products a catalog of the obscure but necessary — seamless tubes, machining equipment, heavy-duty ball bearings and the like. These things are the units in which we measure economic output.
Yet my host, a senior European businessman, was holding forth on a new world where ball-bearing production is an outmoded way of keeping economic score. He explained that a century ago, at the Battle of the Somme, 1.2 million men, a whole generation, died over four months to win 40 miles of land. Sixty thousand British soldiers died in just the first day at the Somme, the greatest single-day casualty count in British history.
Now we have gone an unprecedented 70 years without conflict between Great Powers; we have the right to be optimistic. Rather than building dreadnoughts, those fearsome World War I machines of death on water, we are making investments in our future, such as AI and personalized medicine, which will improve quality of life on the same order as fundamental breakthroughs like spectacles and antibiotics.
What of stagnant incomes and massive debt? Well, the problem, according to this senior European businessman, is that we don’t know how to keep score in a new form of capitalism. Can we find ways to measure and reward innovations that do not quickly create monetized gains? Why not reinvent capitalism to acknowledge new, “deep future” ways of creating value?
To some extent, the “unicorns” of Silicon Valley could be early avatars of deep future capitalism. With unicorns we allocate massive amounts of capital to concepts that could be duds — or could change the way we live totally (e.g., Theranos, Airbnb, Uber). And sometimes they do (e.g., Amazon).
We support unicorns for years, perhaps a decade, before we demand profitability. Perhaps, given the assumption of increased geopolitical stability, we tend to invest in deep future advances at a greater scale than in prior decades. Indeed, the number of unicorns has risen from 39 in 2013 to 155 in Q1 2016.
In previous eras, societies invested in deep future concepts through universities. Vast amounts of capital were allocated to laboratory research, usually by the state, with no expectation of immediate profit. Over time, though, the research generated massive returns.
Consider two defining advances of the 20th century: the discovery of the genome at Cambridge University and the first atomic reactor, built in a squash court at the University of Chicago. Their investors, the British and American taxpayer, respectively, did not demand a quarterly earnings call. Now, increasing amounts of capital are going into deep future investments outside of academia and within a corporate structure.
We have yet to determine whether the corporate model is better at investing in innovation than the taxpayer-university model, but it is worth a shot. Under the old model, global productivity growth has halved since the 1970s. Meanwhile, budgets of universities in developed countries are shrinking — with fewer resources allocated to research than to teaching.
Indeed, the shared location of research and teaching at universities is largely a mid-19th-century innovation courtesy of Alexander von Humboldt. Yet, like the passing of his fame (there were once more streets named after Humboldt than any person in the world), the paradigm of university-led research may also dim.
Could it be that game-changing deep future investments, made possible by increasing global stability, define a new capitalism? It’s a tempting thought, though as Dr. Henry Kissinger warns in his recent book (only he can title a book World Order with credibility), a greater proportion of the world’s land mass and population lives under no governance today than in the prior century. Epochal changes are usually accompanied by growing pains.
Meanwhile, we are borrowing and investing in our collective deep future. Those rivers of capital wend their way from central banks to investors, and thence to employees and suppliers, washing up, at last, in those estuaries of instant gratification called shopping malls and high streets. Perhaps Dusseldorf’s King’s Alley should be renamed Unicorn Alley — in honor of the seas of capital, invested in our deep future, which keep the shops open and buzzing.