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15 February 2017

WHY THE NEXT

DECADE WILL SHAPE

THE CENTURY There is a convergence of forces in the next decade that will impact the rest of

the century. But we consistently underestimate the impact of changes and

western democracies are losing their abilities to renew themselves. In a

nutshell, we are mostly reactive and resist new conditions.

André Du Sault MBS (LBS), MPA (Harvard) sdaconseil@sympatico.ca C 514 777-1538

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WHY THE NEXT DECADE WILL SHAPE THE CENTURY Converging forces in the next decade will imprint the century. A potent combination of high tech

globalization, digital forces, (un)sustainable development and geopolitics will likely upset our lives. As

these fundamental forces essentially represent exponential changes, most of us are unfortunately wired

to underestimate the speed and impact of those changes. Personal fate will vary with outlook. Sadly,

some people are just plain blind to major changes and get trampled by them. Some correctly see

changes ahead but their innate resistance to change impedes them to take action. They hope for the

best, but often get the worst. Smart operators will take a fair reading of today's pace of changes, take

action but still miss the future by a wide margin because of the exponential nature of today's changes

(see chart 1, and think about the rise of China). Making projections on the basis of exponential growth

often falls outside the range of our experience and abilities. But when we think in decades, they make

sense. Expect to be resolutely tested in the course of the next decade as never before.

Chart 1 - Why most of our predictions on change are wrong

WE HAVE A DIFFICULT TIME RESPONDING TO NEW CHALLENGES

What we have learned in these past 16 years in the West and Canada, it is that any form of coordinated

response to a profound change has generally turned out to be either too slow, inadequate or both. We

have seen that kind of response with past financial bubbles, turning points in globalization and climate

changes. How can this be explained? Most public institutions, bureaucratic by nature, have now

become far more reactive and passive than pro-active for a variety of reasons. Entrenched interests in

the public sphere, such as the high mandarins of administration, are principally more concerned about

avoiding mistakes than risking a new course. They play conservative and protect positions. They know

politicians are quick to shift the blame to bureaucrats whenever adverse outcomes bubble up to the

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surface of news media. Government departments have thus learned to shy away from transparency and

accountability. Public unions, always a major stakeholder, usually concur since they are more concerned

about members than reforms. They usually advocate higher funding before improvements. As a result

performance in critical public services has generally declined even if deficits have shot up. In Quebec the

Robillard Commission Report on program performance review published in June 2015, amply illustrated

this state of public affairs.

In the private sector, we have witnessed scores of companies blowing up their corporate values for the

sake of short term profitability. We know that institutional pressures for profits are tremendous upon

public companies. Nevertheless it has become a little too easy for a string of major companies to

disregard basic social responsibility. For example, Volkswagen got ensnared in a diesel emission scandal

where corporate responsibility ran deep. Many pharmaceutical companies have received very large

fines (at times exceeding a $1B) for promotional malpractices. Wall Street now even considers them as

part of the cost of doing business! Mining companies are notorious for leaving behind environmental

contamination and social costs. If in most companies there are more than one executive willing to put

profit before values and principles at critical decision points, in most political parties there are politicians

and militants more than happy to put convenience, partisanship and winning the vote before the public

good.

Add in the multiple stories about inequity such as the one recently reported in Barron's, where 'the

share of all income going to the top 0.1% approached 100% of all the recovery in total income since the

lows of 2009'. We need not be surprised to see public resentment breaking out in the open during

elections. Globalization and financial markets have created the famous or infamous 1%. Western

capitalism and governance need repair but it remains difficult to see where the leadership will come

from. Politicians have lost credibility, financial markets get away with murder and corporations are

pressed to squeeze every ounce of profit. Municipalities usually enjoy a larger degree of freedom in

launching new initiatives, but they also represent the order of government most subject to corruption in

America. Could NGOs in turn provide fresh leadership? Henry Mintzberg advocates a bigger space for

them in his book 'Rebalancing Society'. But lack of funding, scale, and governance often work against

them. Therefore if governments have a hard time to tackle a single big change, just imagine their

response when 2 or 3 big forces converge in the next decade. Let us consider the terms of some of

these forces.

1. TECH GLOBALISATION: UP ONE MORE GEAR

After more than 500 free trade agreements were signed in the last few decades, globalization is slowing

down and taking a pause. If Western nations were the main promoters and beneficiaries of such

agreements from the 60s to the 90s, the winds have now turned to favor Asian nations, along with the

rise of China.

The flurry of free trade agreements (FTA) have changed the nature of global winners. Early FTA such as

NAFTA (1984-89) were about lowering tariffs and facilitating the integration of regional economies.

Now 20 years later, FTA have come to greatly favor, on a global scale, either the cheapest producers

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(China, India...) or the best makers in quality, technology and design (Germany, Switzerland, USA). We

are way past regional integration as multinationals can now leverage lowest costs, lowest taxes and

highest investment subsidies to their advantages worldwide, with little concern for home countries.

This change in the rules and beneficiaries is leaving behind a sour taste with voters and workers left

behind in the West. Dani Rodrik, from Harvard University, asserts that globalization can at some point

tear societies apart, undermine democracy and widen inequality and social conflict, as many countries

lack the social buffers to handle trade dislocations. He quotes: ‘Countries have the right to protect their

own social arrangement, regulations, and insitutions and that’s more important than squeezing the last

bit of purported efficiency gains from trade. As a counterpart in Asia, China pulled 800 million people

out of poverty, an astonishing feat. This balancing act between global gains and losses has built tensions

around globalization that are proving difficult to manage.

Most trade agreements used to work their effect in slow motion, leaving time for signing countries to

find the correct pace of adjustments. This time adjustment was upset when China joined the WTO in

2001. The speed and scope of their industrial revolution has since been exponential and has caught off

guard a large swath of institutions, governments and companies. The pace of China's economic

development has been driven by both a natural desire of enrichment and a hunger for geopolitical

power. Their voracious appetite for technology acquisitions by all means, even dubious ones, has

unmasked intentions going well beyond economic motives. If Japan primarily used joint-ventures as

their object of tech transfers, China has added tech hacking as a faster means of technology acquisition.

This strategy has probably cut 10 years in their industry development. This is the missing buffer that is

hurting a lot.

Unfortunately for those countries caught in between the best and cheapest, typically in the middle tech

range such as Canada, Asian competitors are redefining the quality/price ratio to their advantage in a

host of value chains like machinery, transportation, industrial manufacturing, etc. Japanese companies

had been the trailblazers in the 70s and 80s when they succeeded in moving up the value chain by

redefining quality/price ratios in cars, electronics, etc. Consider that the television was invented in the

USA in the 1960s, only to see Japan capturing the bulk of industry in a matter of less than 20 years with

higher quality and lower prices. We are now seeing a repeat of this challenge from China, but on a

larger and faster scale. For incumbents in the West, it has proven difficult to simultaneously lower their

cost base, and increase quality, technology and design (chart 2). A few succeed, but by far many

medium size companies fail to raise their management capabilities. It seems we have not learned the

lessons of the 1980s.

China, four times bigger than Japan, has mostly followed Japan's blueprint in industrialization:

Leveraging volume for cost advantage, moving up in the value chain, protecting the domestic market,

and subsidizing their champion exporters. Japan Inc became frighteningly powerful in the 1980s.

Today, China Inc has the full weight of a government bent on winning at all costs. Chinese companies

have now reached the stage where they can upset most middle tech sectors, including medical device,

white goods, electronics, transportation equipment, etc. The cumulative impact of the rise of China in

the past 15 years has shaken the economic model of Western institutions. Just as Western companies

were figuring out the scope of the competitive challenge around 2006, the financial crisis of 2008 hit

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them like a storm and cause the West to bear a delay of 10 years in finding the proper response to this

competitive challenge. And the challenge is still growing. Armed with a strong cost advantage, the

emerging champions of Asia and China are fast developing competitive capabilities in added services,

customization, innovation and long term relationships. The best Chinese companies have become

extremely competitive. This management approach has yielded formidable results in emerging countries

all over the world for China. For mid-size economies like Canada, the economic future will lie in

handling 3 challenges: 1. capturing a share of the rising digital economy as it grows to replace

traditional businesses, 2. growing new challengers and champions capable of competing on a world

scale basis, 3. raising our technology game from R&D to commercialisation. In general, most companies

will need to significantly improve their management game, whether in the start-up phase of 1-25

employees, the difficult scale-up phase of 25-100 employees, or as a challenger in the range of 100-500

employees. Growing new Canadian champions will require a wide range of top level management skills

to be put in place.

Chart 2 - The economic challenge to the Canadian economy

You might think or wish that globalization is pausing for a while but it is far from over as many nations in

Asia undertake to migrate from their middle tech positions in pursuit of the high tech green fields. The

whole region of Asia will maintain an extraordinary mix of low labor costs, rising middle classes (good for

consumption and economies of scale) and multiple technology hubs. It has built itself into the most

competitive continent with a vast trade network. Massive R&D investments in Asia done in the last 15

years are likely to hatch in the next decade, just as it did for Japan in the 80s. Over 1250 R&D centers

from multinationals have opened up in China alone, both for cost reasons and market entry

requirements. Small and middle size countries, such as Canada, have been at the losing end of this shift

in R&D assets, because they now represent small markets and expensive R&D resources relative to Asia.

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For instance, Montreal has witnessed a string of foreign R&D capacities in global industries such as

pharmaceuticals, telecoms..., leaving town in the last 10 years. Middle income countries are likely to

continue to feel the pinch in the next decade. The combination of small domestic markets, ageing

populations and a sub-par performance in technology innovation will negatively impact on their

economic growth.

Finally, the Chinese economy is predicted to overtake the USA as the biggest economy towards the

closing of the 2020s decade in nominal terms. When you are the top gun in trade and economic growth,

you are equally the top boss at the international institutions. Expect China to bear weight on the

international scene commensurate to that future No 1 position. Though the No 1 position is within

sight, China will nevertheless need to succeed in handling its very high debt position and in its transition

to a high technology status without festering a crisis. If they do succeed, they might the facto control a

large swath of world trade. Some might devilishly wish for a repeat of the 1990 financial crisis that

stopped Japan's rise in its tracks, but such a financial correction is only likely to slow down the rise of

China. Contrary to Japan, China has built and controls a very extensive network of foreign trade assets

in ports and installations, all strategically positioned along their main trade routes. If Japan played

within the rules of the Western liberal order, China, leverages the liberal order to strengthen its own

mercantile system.

2. THE DIGITAL ECONOMY: NEW ECONOMY, NEW ORGANISATIONS

The digital revolution is marching on as Silicon Valley is pressing its advantages. In December 2013, the

technology world crossed a landmark: smart phones topped for the first time the world mobile handset

market, thereby pushing the planet into a new digital age, built on platforms and applications.

Software runs factories, virtual reality is moving into stores and artificial intelligence is already replacing

operators, substituting all kinds of repetitive processes. It is about to uberize the professional class as

well. We need only witness developments in the retail sector: the templates to deal with online

customers are being optimized through a constant flow of innovations sprouting from a myriad of

players. The new digital templates provide a combination of choice, information, logistics and services

that will eventually serve as a springboard to other sectors, such as professional services. It is thus just

a matter of time before cross-fertilization to the professional fields take place, assisted by cloud

technologies, predictive analytics and artificial intelligence to improve accessibility, create more

transparency and stimulate value-added services. New digital technologies all carry the potential for

exponential changes.

To compete with Silicon Valley, and adjust to the digitalization of industries, traditional companies have

undertaken to 'digitalize' their own internal operations. This is the beginning of a deep trend led by the

digital transformation initiated by giants like General Electric. GE, betting on the Internet of Objects, is

aiming to become the hybrid of a cloud company with automated manufacturing. Rohit Talwar, CEO of

Fast Future Research, adds that 'Such companies do not treat data and digital technology as expenses,

but as a bedrock to design their future organizations’. They are not alone in responding to this digital

challenge. Car companies have opened more than 20 R&D centers in Silicon Valley, as the stakes on the

future of the car have pushed up levels of stress in the industry. As a matter of fact, most industries are

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plugging into Silicon Valley in the hope to catch the right side of the digital wave. They will see that

digital technologies will force them to digitalize their companies. Silicon Valley companies have been

incredibly efficient at removing pain points in the customer experience journey. A lot of traditional

companies are still dragging their feet about how to truly focus on the customer, map their experience

and organize processes to deliver the promised value. Digital enterprises are winning hands down on

the customer needs. Yet acquiring and switching to a digital mindset does not come naturally and

effortlessly.

Chart 3 - What the digital economy has in store for us

With slow growth rates in the West increasingly reminiscent of secular stagnation conditions,

digitalization will first save costs and then spur sales for the early adopters of digital marketing. This will

in turn set in motion a train movement. Other companies will have to follow the digital pioneers in

optimizing their own digital ecosystems. These are now the days when traditional marketers meet face

to face with the young digital disrupters in their early 30s, teaching them about how wobbly their digital

business stands, and how late they are in the digital game. Expect more automation, robotization, and

artificial intelligence moving into the office, just as a clash of generations manifests itself around the

corner. The future of work and organizations is already in transformation as digital technologies will

see the millennials act as their main carriers. They will soon get the license to change their organisations

as well.

3. AGEING AND MILLENIALS: MORE THAN A NEW GENERATION

According to the United Nations, world population reached 7 billion in 2011, will pass 8 billion in 2024, 9

billion by 2040, and near 10 billion around 2050. Africa and South American and some parts of Asia will

lead this population growth. There is little doubt that this inexorable increase in population will impact

on resources, crops, asset prices, energy uses, climate change, conservation, etc. Behind this scenario of

a few more billion people on earth, there lurk 3 important trends: 1.ageing populations in industrialized

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countries, 2. a worldwide middle class rising faster than population growth, 3. the upcoming generation

of millennials, harbinger to a digital society .

Many industrialized countries are reaching the tipping point of a decline in the working force. Japan has

been on this track for nearly 10 years, which is just about the time for the pain to become more acute.

The easy solution of stepping up immigration has worked for a while. But it has also been demonstrably

circumscribed for political reasons in the West. Even in the USA where the continuous flows of Latino

and Asian immigrants have long been mitigating the ageing population effect, notably in comparison to

Europe, the Trump election has rang a bell that security and immigration were now square in the center

of the political agenda. In Quebec, the working force peaked in late 2014 and should follow a gentle

decline until the 2020s (hopefully). It remains to be confirmed whether multiculturalism as a national

policy can accommodate a larger proportion of immigrants and maintain social order. The policy worked

well in boom times, but has been less than tested in turbulent periods.

Chart 4 - The effect of ageing workforce

Population ageing is also flashing a significant change in generation. We will reach a 'BBBB' moment in

about 5 years: Bye Bye Baby Boomers. The next 2020-2030 decade will see the millennials moving in

positions of control in increasing numbers. If the millennials of the 1960s gave impetus to the Quiet

Revolution in Quebec, what might this incoming generation do as the old millennials-turned-baby

boomers retire? They certainly behave, communicate and buy differently. In a class of Bcom students,

40% raised their hands when asked who bought 90% and more of their total purchases on line. They

expect speed and seamless service. They travel and entertain differently. They reward brands that

integrate their values. They stay home longer in exchange for a better lifestyle budget. They will

redefine work as we move from traditional in-office work, to distant and autonomous work, to hired

agents for organized community projects . The sharing and networked economy will take further hold

ahead, as multiple applications remove the pain points of everyday life transactions, increase speed and

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lower expenditures. The Trump campaign team of millennials ran the election as a growing start-up

operation, with great efficacy on a small budget. Just possibly will we see millennials reinvent politics,

suburbs, transportation, etc. But just possibly.

Yet not all will be golden to millennials. As companies will increasingly rely on their creative output in

the fields of R&D, design, innovation, new apps..., they will also want to scoop up the best years of their

young creative workers. Current practice in several creative agencies is to hire young professionals with

6-7 years of experience and keep them for 6-7 years. Hiring and engaging the smart millennials will also

lead to a redefinition of roles. Job interviewers ought not be taken aback by assertive millennial

interviewees, such as heard recently during an interview at a renowned professional firm: 'What's the

provenance of the fish served in your cafeteria?' Millennials will change the nature of work, and

companies will change the nature of careers. Lifelong learning will become inevitable as the inflexion

point when the depreciation of intellectual capital exceeds learning, hits professional millennials at an

ever younger age.

4. SUSTAINABLE DEVELOPMENT: GETTING HOTTER

Chart 5 - Global warming emissions from the WRI

India and China will eventually decide the fate of climate change and sustainable development. The

mere increase of their population and their economic aspiration of their rising middle class for a better

life will continue to put pressure on worldwide resources: timber, crops, fisheries, wildlife, water, etc.

The rapid development of Asian middle classes has now pushed up prices on most commodities prized

by Western consumers, such as coffee, tea, chocolate, meat, fruits & veggies, etc . The Western worker

has had to swallow a bitter pill: not only has he had to bear a fall in real income and but also a price

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increase in most assets and consumption goods. The great consumption years of the 1990s with

declining prices have already faded in memory.

India and China have growth expectations of 5-6% per year for the next 10 years. Obviously the type of

energy harnessed to fuel such growth will bear a big impact on climate change. Renewable energies

have rapidly progressed and can now offer a competitive alternative to carbon energy sources in a

widening scope of applications, as Jeremy Rifkin advocates in his book 'The zero marginal cost society'.

We may very well see the beginning of a major transition in energy in the next decade. Still, coal and

petrol will remain the main power sources to the world until 2030 and beyond. As such climates will

surely continue to change, and not for the better. The pricing of climate change risks and asset

valuation will soon attract institutional investors. This will be a game changer. One of the biggest risks

of climate changes remains the occurrence of a string of 4-5 years of bad crops and famines afflicting

fragile agricultural regions, such as North Africa or the Middle East. A severe food crisis could rapidly

trigger a host of international problems from a severe migration crisis to the outright failure of a state.

We have already witnessed such micro events in the last decade. As a result water politics are fast rising

in the agendas of the World Bank and United Nations.

With higher world population and industrialization spreading to other nations, will conservation become

a luxury? We frequently have to turn to small marginalized nations like Costa Rica, Guyanas and

Suriname, to recognize true reservoirs of nature and wildlife. How will the larger countries such as

Canada, Russia and Brazil, well endowed by space and nature, handle the conflicting aims of economic

development and conservation? Can they find visionary positions in this era of multiple and conflicting

interests?

5. GEOPOLITICS: MAKE CHINA GREAT AGAIN

When China built its first outpost on reclaimed islands in the South China Sea in the Fall of 2015, it lay

the first peg of the new Great Game. Building fishing camps, commercial buildings and military

installations on these islands was akin to building a new fence. Once built, it is hard for neighbors to

remove it. This is a turning point.

The Great Game referred to power plays in Central Asia during the British Empire, with the Indian colony

serving as the pivot point to the Empire. During 150 years, neighboring countries such Russia, Persia,

Tibet, Afghanistan and Central Asian states all played accomplices in a multitude of efforts to break the

hold of Great Britain over India, with no avail. Keys to the empire included stability in the Middle East,

control of the Indian Sea, and in particular of the Moluccas strait near Singapore, and finally secured

trade access to China and Japan. This was the recipe of the British Empire until WW1. Then world

leadership passed on to America, a more innovative republic than the royal lands of Europe. The

American industrial revolution was built on the telegraph and telephone, the car and petrol, and a half-

century of big innovations.

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Chart 6 - The British Empire controlled the corridor

Chart 7 - Pax Americana and military bases, also dominant in the corridor

Pax Americana as well has needed to control the same corridor from Europe to SE Asia, with a string of

military bases. For America, the pivot shifted from India to the Middle East for both economic and

energy reasons. It is no wonder America has maintained a play of strong alliances with Saudi Arabia

and other oil producers in the region. The invasion of Iraq and its aftermath has however cast doubt

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about the ability of America to stabilize the balance of powers in the region. The cost to the treasury

has been enormous relative to the interests gained in the region.

Underneath the radar, it is Pax Sinica that has considerably arisen. Unlike Japan during their economic

rise to power, China has been busy building an international and formidable network of maritime assets.

According to the Financial Times, China has direct investments in two thirds of the world's container

ports, the fastest growing coast guard fleet, an armada of over 200,000 fishing vessels, and expanding

military installations in the Europe-Asia corridor.

The typical pattern in China's strategy has been to claim that maritime assets in foreign lands were

meant solely for commercial purposes, until the time military facilities were later discreetly added under

the veil of stability and protection necessities. This has fit into China's strategy of 'One belt, one road', in

support of their domestic exporters. The Asian Infrastructure Investment Bank and its one trillion dollar

loan portfolio will add political leverage. Regional free trade agreements led by China and security

organizations such as the Shanghai Cooperation Organization in Central Asia, will work to activate this

China Belt. The clash of two rival systems in the same corridor looks rather inevitable. A new Great

Game has thus begun between an incumbent now weary of international obligations, and a challenger

willing to expand influence in his own style, as fast as possible.

Chart 8 - China's trade network, WEF

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Chart 9 - China's network of ports

Chart 10 - China's fledging naval installations

In 2013, Sir Samuel Brittan, star economist at the Financial Times, wrote about 'The decline of Western

Dominance'. Most experts expected a gradual shift of power to Asia taking place within the Liberal

order established after WW2. But this is not what we are witnessing. China is creating its own China-

based system and is clearly lodging a challenge to the America-North Atlantic alliance. As they move

and expand their direct sphere of control, we are seeing the return of the old behaviors from the 'China

with the mandate from heaven', and not just at home. There is a general feeling that trade with China

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works more often than not to their side and way. They take advantage of liberal ways in the West, but

impose the Chinese ways at home, with multiple restrictions on investments, technology and rights.

Playing fields remain largely uneven. This should bring the end of illusion for all the advocates that once

believed China would westernize and not just modernize. This is also the end of illusion for the Western

consumer, who has pushed credit a notch too far, the end of illusion for the Western worker if he does

not raise his productivity game, and the end of the Western politician if he keeps responding to narrow

special interests and not the public good.

This is the first time that America will face a challenge of that magnitude. The Cold War challenge came

up from a totalitarian regime in the Soviet Union who could not keep up with American capitalism. At

the end, Gorbatchev needed to cut a deal with Reagan and wrap up the Cold War. But the cost of

winning over Soviet communism over a long period hid several unfortunate misreading and blunders by

America in the territory of Asia. Notably the Korean and Vietnam wars were carried out in the name of

stopping the domino-effect of Communism. This strategy ultimately proved ill-devised and very costly.

It moreover froze relationships between America and China for 30 years, until Nixon met with Mao in

1972. There has been much talk and many books about how China was lost to the West in WW2.

The next chapter will require a great deal of deft diplomacy, in a corridor of countries where America

does not hold a spotless record, and where China is becoming more and more assertive, more generous

with cash and more attuned to local authoritarian regimes. The super cycle in commodities financed the

rise of many of these authoritarian regimes in the developing world (several in the Europe-Asia

corridor), happy to lend an ear to the leadership of China. We shall see how the Trump administration

will jostle and position to pull back from a declining standing in world affairs.

The traditional North Atlantic alliance between America and Europe, guarantor of the rule of law in the

Western hemisphere, lies in a weakened state. The European Union is still reeling from the 2008 crisis

and struggles to repair its Union. Western political parties across the spectrum have fared little better.

Most have pushed up partisanship to the point of corrupting their core democratic values, thereby

losing both trust with their population and their ability to attract solid and trustworthy candidates. New

parties, often at the extremist edges, have suddenly appeared from nowhere in response to a political

establishment that succumbed to the lures of the financial establishment. Remember the widespread

deregulation of the financial industry in the USA in the 1990s that culminated into two financial crises in

the following decade. More parties also entail the spread of votes on the full political spectrum which

makes it more difficult to create stable coalitions. They end up providing the conditions for a breach in

populism. Without a strengthening of the Atlantic alliance, we should not be surprised to see China

pushing forward its own agenda of world order.

THE DECADES COME AND GO, BUT BAD MISTAKES LEAVE PRINTS

We saw in the 1970s and 1980s the rise of Japan as an economic power, a rise which in turn induced the

creation of NAFTA and the common European market and currency. But for the Japanese, it all ended

in their financial crash of 1990. Both the stock market and real estate were blown out of proportion by

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the usual mix of high liquidity, speculation and corruption. The country suffered a well known lost

decade that has now stretched for several decades. But for America, luck struck twice in 1990.

Not only did America see the Japanese economic challenge whittle down, but the Cold War with Russia

ended at about the same time. With both rivals out of the way, America embarked on a decade of

deregulation and globalization, consumption and speculation. Deregulation was a driving force in the

telecoms and financial industries, which would both later, generate crises of their own in the following

decade. A climate of declining interest rates further stimulated consumption and private equity went on

rampant surge of transactions in what they called their golden decade. China fed Wal-Mart with ever

lower prices throughout much of the 1990s but could not prevent Asia from fumbling into their 2nd

financial crisis in 1997. But they did learn to distance themselves from the IMF and western banks. At

the turn of the century, few in the West could see any hint of a dark cloud on the horizon. Alas the

worms had already entered the apple.

The official membership of China into the WTO in 2001 marked the beginning of a new decade that

initially looked rosy for the West. But it was the turn of the West to get entangled in two financial crises

of their own making in 2001 and 2008. Silicon Valley survived the 1st one and went on to build giant

companies. Banks and financial institutions were guilty of the 2nd one, dragging down the whole

country and nearly sinking Europe. The after effects are still being felt: Interest rates have remained at

inordinately low levels. At the other end of the world, China kept rising. From 1978 to 2005, a whopping

$550 billion of FDI were invested in the Chinese industrial revolution. For the West, the price tag of

these gargantuan outsourcing projects was also to outsource future growth options to China. What the

Western consumer was gaining in lower prices, the Western worker would pay for later in lost salaries

and lost jobs.

In this current decade of 2010s, America's notorious resilience showed up again as the economy

recovered, but not without hurting core values in their model of democracy and meritocracy. Europe

fell into a similar rut as that of Japan, having to burden an on-going lost decade in economy and

governance. This has given China enough confidence to challenge the Western order and to press still

ahead, reducing the margin of maneuver for the West. Elections in Europe this year will give us an

indication of how the major powers will align or misalign in the coming years. This could further

fragment the world order and make it susceptible to a crisis triggered by one of those unfortunate

events.

In 2020 the Communist Party of China will celebrate its centenary and America will be undergoing new

Presidential elections. We can expect the Chinese leaders to hold firm on economic growth, social

stability and expanding nationalism. They should keep their economic engine humming at plus 6% until

that anniversary. The major financial risks will likely be more manifest after 2020. America will probably

focus on divisive domestic issues, thereby casting doubts across the whole network of alliances built in

the last 70 years. The network will not unravel, but America’s soft power will soften. China will thus

enlarge its sphere of influence at the irritation of America. With Republicans in control of congress,

could America again overreach militarily and economically in Asia, as they did after September 11 when

they invaded Iraq with less than convincing fundamentals? There they poked at a hornet's nest for

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plenty of stings. How this rivalry between America and China plays out in the corridor of influence from

Europe to SE Asia will be one of the great stories of the next decade. America's record in Asia is at best

mixed and they will need all the help they could get from Europe.

A number of trends will carry on into the 2020s: the digital economy, income and wealth disparities, a

rise in nationalism, weak governance in democracies, increasing wealth and power in Asia translating

into military build-ups, extreme weather occurrences, millennials changing work, etc. This brew of

forces could simply feed one into another, inflate pull-apart forces, engender severe international crises

or even lead to a perfect storm. Complexity will require anticipation, agility and opportunism. Western

governments will either choke or regain their footing and their values. Industries will definitely change

and leave behind winners and losers. Individuals will be baffled or lead revolutions.

Standards of living in the West have held up for a majority, but at the cost of much higher debt level.

This is unlikely to continue for very long. At the turn of the Century, the challenge for most

industrialized nations was to mobilize their pool of small and medium size companies to face the China

threat. Most failed. At the turn of the next decade, the new challenge for industrialized societies will be

to change their governance and find their place in the new world order. This is going to be difficult for

countries relying too heavily on their government for vision and action. Most governments have been

managing their budget on a rationing basis for the last 2 decades in order to control deficits. Key

ministries have been rationed year after year: Do whatever you can within this budget envelope. The

grinding side effect has been to erase any notion of excellence in public service and level down quality

standards with time. We have built a culture of 'good enough' in the society. But 'good enough' will

not cut it in the next decade.

We should pray hard for world growth returning above the 4% rate, which generally makes everyone

about happy. Otherwise we will see most predictions going wrong, and down.

André Du Sault MBA (LBS), MPA (Harvard)

C 514 777-1538

Mr. Du Sault has travelled and worked in over 80 countries. He advises executives on strategy, innovation and

leadership. He is a regular lecturer at McGill, ETS and the executive Centre Laurent Beaudoin (U Sherbrooke).

He is Governor of the Harvard Club of Quebec, awarded for excellence and leadership in 2016.