Each of these should be considered as parts of a new deal on capitalism. But there is also a third strand that looks to the future and responds to the thirst for something new. It says that capitalism itself must be redesigned. Private enterprise and public policy need to be realigned to the creation of public value and this requires changing how we think about economics. Mazzucato claims that recent economic thought is out of touch with how capitalist systems actually produce value.
While the rich discipline of economics is about much more than the ideal free market, its core models still formalize the idea that wealth is produced almost entirely by competitive private companies. This encouraged policymakers to advance free-market policies that overlook the importance of other institutions and stakeholders. Understanding capitalism, however, requires seeing that economies are embedded within social and political institutions.
It involves studying the evolving networks between economic actors and identifying historical path dependencies. This broader approach explains why in Germany, for example, automation has increased job security and globalization has increased employment. In , together with Michael Jacobs, Mazzucato published Rethinking Capitalism , a collection of articles from distinguished thinkers who challenge the conventional wisdom on a range of topics from fiscal policy to inequality.
It concludes that many of our economic theories are not only inadequate but lead to poor policies that often have harmful impacts. Mazzucato argues that to nurture public value, the state has a key role to play. The state uniquely has the time-horizon and the financial and organizational capacity to create and shape new markets. Embedded in the innovation process with firms and research institutes, it can also influence both the rate and direction of technological development.
In the s, the US government kickstarted the information and communications technology industry, financing the research that led to its most basic technologies — the internet and GPS. As Dmitri Zenghelis and Carlotta Perez suggest in Rethinking Capitalism, if we have any hope of meeting global emissions targets and delivering sustainable and inclusive growth, we need more than just clean energy.
We need to reduce the material density of the whole economy.
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This means creating new business models that focus on durable products, maintenance-as-a-service and remanufacturing. On the consumption side, it means promoting renting over owning, and broadening the sharing economy. While the downstream benefits for new and existing businesses would be large, the market cannot manage the transition by itself. The intensity of hydrocarbons in the economy, the cost of replacing the infrastructure of mass production, and the preference for short-term profits create strong incentives for the status quo.
Governments therefore need to take the initiative, helping companies with the upfront costs of resetting production systems and rethinking how we build cities and move goods and people around. Business departments need to establish ecosystems for collaboration and expand the role of state investment banks. It is taking a lead in high-risk, capital-intensive technologies that are unattractive to private investors, such as offshore wind. The financial rewards from green growth can build public wealth. The state could establish public wealth funds that manage royalties from the technologies it sponsors and returns from shares held in green companies.
It shows that capitalism can work — if people have capital. A shift to a global economy built on green growth promises a number of additional benefits. Not only would it restart growth in advanced economies, creating jobs for those displaced by technology. It would also open the door to sustainable prosperity for the global South. Early deaths attributable to pollution, currently about 9 million each year , would fall. Geopolitical tensions that exist because of the uneven distribution of fossil fuels would ease.
Push and pull factors driving migration to the North would weaken. Together with a tax regime that reduces excessive inequality, and a rethink on the boundaries of global markets, a commitment to green growth can ensure that more people have an interest in the capitalist system. They are the basis for a new deal.
Zac Tate , Economic strategist, Hottinger Group. The views expressed in this article are those of the author alone and not the World Economic Forum. Technology has always created jobs as well as destroying them, but there is evidence that the engine of technological job creation is sputtering. The Oxford Martin School estimates that only 0. We can shape the dynamics of the 4IR. Careful governance can guide the distribution of benefits and impact on global risks, because the evolution of new technologies will be heavily influenced by the social norms, corporate policies, industry standards and regulatory principles being debated and written today.
The salmon still cannot be sold in the United States, pending an update to labelling regulations. Such regulatory delays can mean social and economic benefits are missed — but when health, the environment and broader social impacts are at stake, a cautiously deliberative approach is prudent. How best to strike this balance is currently causing debate, for example, in efforts to accelerate the regulation of self-driving vehicles.
For example, public concerns about genetically modified foods have consistently exceeded scientific assessments of the risks associated with them, and concerns about climate change have not precluded public opposition to wind farms. Given the power of the 4IR to create and exacerbate global risks, the associated governance challenges are both huge and pressing, as further discussed in Part 3. It is critical that policy-makers and other stakeholders — across government, civil society, academia and the media — collaborate to create more agile and adaptive forms of local, national and global governance and risk management.
In a worrying sign of deteriorating commitment to global cooperation, states are stepping back from mechanisms set up to underpin international security through mutual accountability and respect for common norms. The exit of major stakeholders from economic agreements such as the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership also carries geopolitical significance. In Syria, the drawn-out nature of the war indicates how the absence of a great-power accord handicaps the United Nations, compounding the difficulties of brokering a settlement to a conflict with multiple stakeholders at global, regional and non-state levels, or even organizing a limited intervention to facilitate humanitarian relief or protect civilians.
The death toll among non-combatants — including from chemical weapons — has been met with despairing rhetoric but no effective action to enforce long-standing humanitarian laws and norms. In parallel to their withdrawal of support for collective solutions, major powers now openly trade accusations of undermining international security or interfering in their domestic politics.
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For years President Putin has accused the United States of seeking to undermine global stability and Russian sovereignty, and in the US National Security Agency blamed Russia for interference in the presidential election. In response to the general loss of faith in collective security mechanisms, regional powers and smaller nations are increasingly exploring the acquisition of new conventional weapons capabilities, offensive cyber weapons and even nuclear ones.
Notwithstanding the normative and practical obstacles confronting a state seeking nuclear capability, political leaders in nuclear and non-nuclear weapons states alike have increasingly made reference to the utility of nuclear weapons in the context of changing threat perceptions and wavering confidence in alliance structures. If this rhetoric turns into policy, it could entail a huge diversion of resources into a new nuclear arms race and a jump in the risk of pre-emptive strikes aimed at preventing an adversary gaining nuclear capability.
In summary, developments in present numerous reminders that international security requires collective commitments and investment to define a positive vision, as well as political will to make responsible trade-offs and commit resources Box 1. As technological, demographic and climate pressures intensify the danger of systems failure, competition among world powers and fragmentation of security efforts makes the international system more fragile, placing collective prosperity and survival at risk. Five factors aggravate the impact on global risks of the current geopolitical atmosphere of rising competition, loss of trust and heightened suspicion:.
Part 1 - Global Risks 2017
First, international cooperation is giving way to unilateral or transactional approaches to foreign policy just as a host of issues — such as global growth, debt and climate change — demand urgent collective action. If allowed to fester, such issues could spawn a range of new problems with costs falling disproportionately on fragile communities. Second, the inter-connected nature of the global system produces cascading risks at the domestic level.
In Syria, for example, failures of governance have produced civil conflict, driving migration that transfers economic, social and political pressures into countries already experiencing frustrations with low growth and rising inequality, fuelling radicalization and acts of violence. Third, a declining sense of trust and mutual good faith in international relations makes it harder to contain the resulting pressures through domestic policy. The current climate of mutual suspicion can exacerbate domestic political tensions through accusations of outside actors interfering to shape popular perceptions via proxy forces, media manipulation or threatening military gestures.
Fourth, technological innovation exacerbates the risk of conflict. A new arms race is developing in weaponized robotics and artificial intelligence. Cyberspace is now a domain of conflict, and the Arctic and deep oceans are being opened up by remote vehicle access; in each case, there is no established system for policing responsible behaviour. Existing counter-proliferation methods and institutions cannot prevent the dissemination of technologies that exist in digital form.
Fifth, while risks intersect and technologies develop quickly, too often our institutions for governing international security remain reactive and slow-moving.
As Figure 2 illustrates, a cluster of interconnected environment-related risks — including extreme weather events, climate change and water crises — has consistently featured among the top-ranked global risks for the past seven editions of The Global Risks Report. Environmental risks are also closely interconnected with other risk categories. For example, changing weather patterns or water crises can trigger or exacerbate geopolitical and societal risks such as domestic or regional conflict and involuntary migration, particularly in geopolitically fragile areas.
Further progress was made during in addressing climate and other environmental risks, reflecting firm international resolve on the transition to a low-carbon global economy and on building resilience to climate change:.
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The year also saw positive empirical evidence that the transition to a low-carbon economy is underway:. However, the pace of change is not yet fast enough. Global greenhouse gas GHG emissions are growing, currently by about 52 billion tonnes of CO 2 equivalent per year, 47 even though the share from industrial and energy sources may be peaking as investment and innovation in green technology accelerates see Box 1.
The year is set to be the warmest on the instrumental record according to provisional analysis by the World Meteorological Organisation. Every day we spew million tons of heat-trapping global warming pollution into our atmosphere. The accumulated amount of all that manmade global warming pollution is trapping as much extra heat energy as would be released by , Hiroshima-class atomic bombs exploding every single day.
All that extra heat energy is disrupting the hydrological cycle, evaporating water vapor from the oceans and leading to stronger storms, more extreme floods, and deeper and longer droughts, declining crop yields, water stresses, the spread of tropical diseases poleward, and refugee crises and political instability, among other problems. Our efforts to solve the climate crisis are a race against time, but the technologies embodying the Fourth Industrial Revolution 4IR , and the implications of these changes for business and society, contain hope for the acceleration of the necessary solutions to the climate crisis.
We are seeing a continuing sharp, exponential decline in the costs of renewable energy, energy efficiency, batteries and storage — and the distribution of technologies that allow for the spread of sustainable agriculture and forestry — giving nations and communities around the world an opportunity to embrace a sustainable future based on a low carbon, hyper-efficient economy. In fact, in many parts of the world, renewable energy is already cheaper than that of fossil fuels.
In some developing regions of the world, renewable energy is leapfrogging fossil fuels altogether, much in the same way mobile phones leapfrogged land-line phones. Sixteen years ago, projections said that by the world would be able to install 30 gigawatts of wind capacity. In , we installed Fourteen years ago, projections said that the solar energy market would grow 1 gigawatt per year by — that goal was exceeded by 17 times over. In , we beat that mark by 58 times and was on pace to beat that mark 68 times over.
In fact, the cost of solar energy has come down 10 percent per year for 30 years. Similar developments are likely to occur across the board as new developments in electric vehicles, smart grids and micro grids, advanced manufacturing and materials, and other areas continue to accelerate climate action. We are already seeing revolutions unfolding in areas like car sharing, forest monitoring, and data-driven reductions in industrial energy usage.
But it is not just the technologies of the 4IR that are directly making a difference: The Internet of Things has introduced a world of hyper-connectivity that allows us to approach decision-making in an entirely new manner.
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Our increased connectivity — between one another and to the material world — enables us to transfer information and materials more efficiently to greater numbers of people. All of this is making the tools we need to solve the greatest challenges we face more effective and more ubiquitous at a previously unseen pace. We are going to prevail in our collective effort to solve the climate crisis, and it will be in large part due to our increasing ability to mitigate the burning of dirty fossil fuels through the opportunities presented to us by the 4IR.
Increasingly, legal action is being taken against national governments in an attempt to force action on environmental issues. As warming increases, impacts grow. The Arctic sea ice had a record melt in and the Great Barrier Reef had an unprecedented coral bleaching event, affecting over kilometres of the northern reef. The Indian government advised that at least million people were affected by drought in With power and influence increasingly distributed, however, there is a growing recognition that the response to environmental risks cannot be delivered by international agencies and governments alone.
Some promising recent examples come from the financial sector: The Tropical Forest Alliance also offers the promise of advancing new multi-dimensional approaches to help reduce deforestation from global supply chains, such as the recent Africa Palm Oil Initiative. Taking a systemic view also implies accounting for new risks that could be created by successful action to address environmental risks.
For example, the transition to a low-carbon future will require measures in some economies to absorb potential labour-market impacts. Ensuring a just transition will be important for societal stability. Issue-specific and organization-specific silos will need to be dismantled across the public and private sectors throughout the world economy.
In their place, new multi-actor alliances and coalitions for action will need to be built, cutting horizontally across traditional boundaries of interest, expertise and nationality.
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The rise of such multidimensional cooperation to manage our global environmental commons will be challenging in the international context described above, but essential if we are to respond adequately to the structural risks posed by climate change, extreme weather, and water crises. Foreign Policy, 7 November The Origins of Power, Prosperity, and Poverty. Press release, 29 January Asia, India , 20 April The Guardian, 9 March The Telegraph , 7 March Climate Home News, 17 January Media release, 26 October Democratic Challenges, Democratic Choices.
An Anatomy of Inclusive Growth in Europe. Bloomberg , 23 September ; updated 28 September National Bureau of Economic Research. The Economist , 10 September Democracy in an Age of Anxiety. The Economist Intelligence Unit. GMF, 12 April Global Trends in Renewable Energy Investment How susceptible are jobs to computerisation?
Foreign Policy , 21 April The Race between Education and Technology. Belknap Press of Harvard University Press. The Global Trade Slowdown: