Innovation Breakthroughs - Five Opportunities to Reshape the World

It would be easy to see the core scenario for the world as a war in Ukraine expanding to the broader European stage, inflation undoing the standards of living of billions, the pandemic hitting China and running free the world over mutating into something far worse and diluting and diverting attention from Climate Change goals and the UN Sustainable Development Goals. The February 2022 Sign of the Times 1looked at the key event risks facing the world today and concluded that the world is heading into a period of increasing global risk, in which the downside potential for the world in the coming year in terms of peace, prosperity and stability far outweigh the impact of any upside. The paper concluded that the nature of today’s major risks would likely encourage zero-sum competition for the world and inhibit multilateral collaboration, which would require a challenging process of reinvention for the world’s institutions, alliances and even values, in order for these to address key global challenges.

Three months on, the premise regarding downside risk appears to be playing out, with Russia having escalated its conflict with the Ukraine, and with inflation in key countries spiking to 8% or higher. And while China has not invaded Taiwan, Sino-Western relations are at an all-time low due to the interrelated nature of global risks, and pandemic risk continues to play out, this time in China, providing for a less auspicious start to 2022 than many would have had hoped for.

Despite the near-term net downside risk, the prospects for the world over the medium to long term are somewhat brighter, however. Besides being shaped by events, the world’s trajectory is also impacted by innovations and ideas, with breakthrough innovations throughout history being among the primary drivers of human progress. With an increasing portion of the world’s R&D and financing resources being spent on addressing major global challenges, the probability of near-to-medium term technology breakthroughs that can fundamentally transform the world scenario, for better or for worse, should rise.

This month’s Sign of the Times looks at five potential innovation breakthroughs which, if realised, could positively shape the world over the near-to-medium term, outlining their potential implications and key execution considerations.

 

The Role and Power of Innovation

One key message of the February 2022 Sign of the Times was that the management of today’s interrelated global risks required a level of international cooperation that likely exceeded the ability of the current global order to deliver. With the current world order in a clear state of transition2, the Sign concluded that it would need to be transformed or reinvented if the world is to address the challenges it faces.

There are few forces in the world that can compete with innovation in terms of its power to disrupt the current order and to shape a new one. Virtually all human progress to date has been driven by new ideas that drive social, technological, political, and socio-economic change, with technological innovations and breakthroughs providing the basis for rapid and punctuated change. While this has of course been the case throughout history, the exponential growth of knowledge creation is accelerating technological progress and shortening the time between the paradigm shifts that it creates: The Industrial Revolution in the 18th century was c.12,000 years after the Neolithic (Agricultural) Revolution, but the Technological Revolution of the 19th century started just over a century later, and this was followed less than a century later by the Digital Revolution in the 1960s. In each revolution, a series of related breakthroughs enabled a period of rapid political, economic, and social change that in turn transformed the existing world order and drove global civilisation forward (see table below).

Every revolution, or paradigm shift, consisted of a series of interrelated breakthroughs, which reinforced each other at scale to drive long term civilisational change. Taking a short-term snapshot, each breakthrough needs to be individually achieved, as well as refined, scaled, adopted, and integrated into existing systems, a process that historically has taken years or even decades.

Any near-term technological breakthroughs the world is likely to make are of course unlikely to help avert the downside risks of near-term global events, like Russia’s invasion of Ukraine or spiralling inflation, and these risks will need to be managed with existing technologies and in the confines of the existing world order.

Over a longer timeframe of a few years to a decade however, We are in the midst of a revolutionary level of innovation driven change today that will make the industrial era archaic and usher in change to every aspect of our lives … to wage war is a waste when the opportunity exists to create a far better world for all, and power will come from doing exactly that technological breakthroughs have the potential to help address some of the root causes of today’s event risks, while also providing the basis for a new world order to emerge. This will involve developing solutions to many of the world’s key challenges: climate change and the energy transition, sustainable development across and within countries, and the transition to post-industrial economies.

All this makes the achievement, roll-out and sharing of further technological breakthroughs a critical requirement for world progress. Among the many possible breakthroughs that can have a positive impact on the world, five stand out given their disruptive power and/or their potential for nearer term scaling. These five breakthroughs are individually very different in nature: some are driven by single ‘big’ innovations (such as a new energy technology), some are the cumulative result of many incremental advances in existing technologies in rapid succession (like AI), some may happen as a result of an ‘adoption tipping point’ (such as digital currencies or virtualisation platforms), and others are systemic innovations such as a re-writing of systems that underpin the world (like the rules of capitalism).

 

Five Technological Breakthroughs

  • New Energy Breakthroughs Create a Bridge to Net Zero

    The Breakthrough Scenario: Each Incremental Breakthrough Building to a Non-Carbon Energy Base and/or a Major Breakthrough of a More Functional Energy Source. In this scenario, one or more potential energy breakthroughs could create a viable bridge for the global economy to reach net zero emissions by 2050, including incremental innovations on existing technologies (e.g., battery technology for electric vehicles4 or carbon capture and storage technology5) or more fundamental breakthroughs that unlock new sources of cheap, abundant, clean, and more ‘functional’ energy (such as nuclear fusion6).

    Implications: One or More of these Innovations Could Drive a ‘Tipping Point’ which Helps the World Rapidly Shift to a Net Zero Trajectory and/or Create a New Apex Superpower. Innovation could change the current global emissions trajectory to a ‘net zero’ trajectory by 20507. Beyond facilitating the transition to a more sustainable energy system, the commercialisation of new sources of clean and renewable energy will also help ensure energy security for developing countries and all net oil and gas importing countries (and reduce their dependence on Russia and other large exporters). However, history suggests that radical breakthroughs enable the rise of new geopolitical superpowers.

    Execution Considerations: Competition and Collaboration will Determine Existential Transformations from Addressing Climate Change to Who is the Leading Superpower. Climate change is a global problem and facilitating the energy transition in an even manner across the world requires collaboration on policies, cross-border investment for infrastructure, and technology sharing. The challenge of facilitating a rapid energy transition is less about making new scientific and technological breakthroughs, and more about implementation and execution of existing technologies that allow the commercialisation and scaling of new energy, industrial and transportation systems; in particular in developing economies where per capita energy consumption is likely to increase exponentially (e.g., in India and Africa). A radical breakthrough scenario may be achieved through existing transnational collaborations efforts, such as the International Thermonuclear Experimental Reactor (ITER)8 , but also various national efforts such as the National Ignition Facility (NIF) at Lawrence Livermore National Laboratory (LLNL) in California9. The success of any of these national efforts, backed by investments to transform their economic, industrial, and technological position, could lead to significant shifts in geopolitical power, and major benefits for the innovators.

  • Advances in Artificial Intelligence (AI) Unleash New Industries

    The Breakthrough Scenario: Increasing Sophistication over Time Driving Productivity and/or the Creation of Entirely New Industries. The rapid growth and adoption of AI technologies is set to continue unabated, leading to greater automation and personalisation across sectors, together with altogether new use cases, which will drive incremental global output through improved productivity, personalisation and quality of goods and services (see chart). However, given how individual changes are likely to create a network effect that transforms the whole, breakthroughs in AI could lead to new industries and changes to existing industries which are difficult to predict12.

    Implications: AI Will Create Tremendous Value, and Will Also Destroy the Old Industrial Era Order. The adoption of AI has the potential to deliver a 14% increase in global GDP by 2030 through improvements in productivity, personalisation and quality of products and services, with established applications and use cases across virtually every sector13, however AI also has the potential to destroy the value of existing workforces, rendering many jobs redundant or obsolete. It is thus a force for creating huge value and exacerbating income inequality, exacerbating further the divergence between returns on capital vs. labour. The gains from AI will need to be well distributed across socio-economic classes, and not be offset by net job losses, with large-scale re-training and re-tooling of the global industrial era workforce that stands to potentially lose from greater automation, as well as rethinking the purpose of work itself.

    Execution Considerations: New Modes of Governance Needed to Ensure that the Gains and Losses are Balanced, and Potential Threats are Managed. While AI can enhance productivity over time, it can also exacerbate unintended consequences in the absence of careful design (for example, predictive policing algorithms based on arrest data can amplify racial profiling, and the AI in self-driving cars needs to make life and death decisions when faced with imminent collisions). Solving for these issues will require (i) the creation of transparent shared international standards and practises for AI design, accompanied by national regulations and international bodies to enforce them; (ii) intellectual property sharing mechanisms to ensure that AI does not further increase the divide between developed and developing countries, and (iii) mechanisms to encourage competition and collaboration between companies and countries.

  • Adoption of Digital Currencies Drives Inclusion and Trade

    The Breakthrough Scenario: Increased Adoption of Digital Currency to Drive Trade and/or Shift to a New Inclusive Global Financial System. Central banks in major markets (US, China, Europe, India, Japan) and others across the world, move rapidly to launch their own ‘Central Bank Digital Currency’ (CBDC), paving the way towards modern, efficient, and resilient payments systems, with universal access to digital payments, and increased financial inclusion as private firms leverage this infrastructure to provide financial services to underserved segments17.

    Implications: Lower Cost Remittances, More Trade Financing and Universal Access to Digital Payments. Worldwide adoption of CBDCs would also help make cross-border payments more efficient, reducing the high cost of remittances (which many developing countries rely on) and addressing the c.US$1.7 trillion gap in trade financing18, while modernising payments systems by increasing the proportion of payments done digitally and reducing usage of physical cash and cheques (from c.US$40 trillion currently), thus making payments systems more secure and efficient. Reducing the cost of making digital payments also has the potential to spur innovation by private firms and make it viable to provide high-quality financial services to population segments that remain under-served, thereby driving growth and development. It can also reduce the flows of illicit money and channel these funds back into the financial system. The role of private sector digital money will need to be addressed in the process.

    Execution Considerations: Design to Meet Key Policy Objectives Required to Ensure CBDCs are More than a Passing Trend. Central bank backed digital currencies need to be designed with clear and specific policy goals in mind (e.g., financial inclusion, more efficient payments systems, cross-border payments etc.) and their implementation needs to ensure that they do not destabilise the financial system and are safe and secure and hence trusted by consumers. Key design features, such as whether these CBDCs can carry interest or not, any quantitative restrictions, anonymity and privacy provision and limits, offline and cross-border payments applications, will determine the extent to which these currencies are effectively adopted19. From a medium-to-long term perspective, central banks will have no choice but to develop safe and effective digital currency options, in order to ensure they can maintain control over their monetary policies, by ensuring that consumers are not resorting to private cryptocurrencies or other countries CBDCs.

  • The ‘Metaverse’ Creates a Technological Paradigm Shift

    The Breakthrough Scenario: Rapid and Widespread Adoption of Virtual, Augmented, and Mixed Reality Devices, Tools and Platforms Leading to a Paradigm Shift. The rapid adoption of virtualisation devices and tools creates a ‘metaverse’ of virtual and semi-virtual worlds22, leading to an evolution of how humans interact with technology – and with each other through technology – and creates a new ecosystem of tools and applications to replace the communications and media tools of today, with a profound impact on other industries (see graphic above) that combine the physical and digital worlds (such as virtual travel, experiences, and entertainment).

    Implications: The Use of Virtual Reality Will Broaden from Entertainment to Productivity Enhancement. While virtual and augmented reality is currently primarily used in gaming, there are a vast number of consumer and enterprise applications already in development which can impact almost every industry online and in the physical world. As such, the metaverse is the beginning of creating an entirely new economy, allowing people to travel, dress, drive, learn and enjoy virtually, and indeed create their own virtual worlds; and spawning the full spectrum of companies from those that function completely in the virtual sphere to those that operate in the physical and use the virtual to augment physical world performance. It also has the potential to address fundamental human issues around access to high quality education and healthcare, for example.

    Execution Considerations: Further Innovation to Spur Adoption along with a Reimagination of Digital Governance. Virtual worlds already exist and have for some time, but their mass adoption has been limited by a variety of factors (including the ‘immersive-ness’ of the experience, the level of interactivity and the limitations on the computing required) and solving these is the key to driving mass changes in consumer behaviour. The transition to human interactions in virtual worlds (something which was forced on humanity during the pandemic) will also create new questions about identity, privacy, data security and governance which will need to be addressed. This new world will require a re-examination of physical world affairs, as well as how they relate to and operate in the virtual world, such as human rights, security, operational standards, and governance mechanisms. The challenge takes the current issues surrounding social media to a whole new level of complexity.

  • Technology Drives an Evolution to a More Inclusive Form of Capitalism

    The Breakthrough Scenario: Technology Provides for Scaled Access to Economic Opportunities Regardless of Geographic, Demographic, Gender, or Income Levels. The expansion of data connectivity (to the bottom of the pyramid) and new technologies such as social media and peer-to-peer commerce, combined with a shift in the way financial assets are allocated and intermediated, drives a rapid transition to a new form of capitalism with a change in incentive structures of market participants (consumers, companies, investors, governments) to focus on the interests of a broad array of stakeholders (beyond shareholders) including communities, consumers, employees, governments, and the environment. This leads to the innovation of new business models designed to address the world’s biggest issues, from climate change to poverty and hunger, financial inclusion, access to education and healthcare and preserving biodiversity, leading to broad-based growth within and across countries.

    Implications: New Business Opportunities and Changing Flows of Capital Necessitate Changes in the Way Businesses are Governed and Regulated. The potential implications of such a shift in the capitalist model are broad. For one, it will lead to the scaling of new innovative business models designed to address the bottom-of-the-pyramid, environmental challenges, and the UN Sustainable Development Goals (SDGs). Secondly, it will entail a shift in the way individuals and consumers allocate their own capital and provide the data for them to ‘de-fund’ activities they deem harmful and shift the allocation of capital towards areas they deem important, many of which will be the same consumer themes of today, but also to socially responsible and environmental impact conscious investments. Thirdly, it will lead to a change in the way business is governed and regulated. The transition, as such, will be about both creating new assets which drive the sustainable economy and transplanting and re-engineering existing assets, resources, and human capital towards a new purpose.

    Execution Considerations: Creating the Environment Top-down to Change the Flow of Capital while Facilitating a Bottom-up Disruption. The SDGs, which are critical to ensure that the current form of capitalism is sustainable, are at risk of being missed (see chart above). Technology, as an agent for mass inclusion, economically delivered, allows for new profitable models to be delivered to the world’s two-thirds that are not active or at-all participants in formal financial systems. The opportunity can be executed top down with governments, financial institutions, corporations, and entrepreneurs, in particular, targeting previously inaccessible or unprofitable customers that they never served with offerings. Other innovations may well see peer-to-peer systems where individuals and MSMEs launch collaborative networks of exchange, a global peer-to-peer Amazon or eBay to serve each other and solve common issues. At the same time, an opportunity exists to harness the lessons from the pandemic to accelerate the transition. ESG and impact investing is fast becoming the norm in finance, and technologies and businesses that can drive impact at scale on sustainability and inclusion already exist. Making this the ‘norm’ for how business is conducted, however, requires policy, regulatory and tax interventions that mandate and incentivise change. However, for these to work, market participants’ value maximisation will need to be aligned with the common good, which in turn can be facilitated through entrepreneurship, incentives, skill development and new financial instruments.

 

A Net Upside Global Breakthrough Outlook

Given the February 2022 Sign’s finding that downside risk for the world outweigh any upsides in the near term, the question arises whether the potential breakthroughs above could represent net global upside for the world over the medium-to-longer term. The implications of technological breakthroughs are neither one-sided nor straightforward, of course, giving rise to the question of what the ‘right’ risk-weighted outlook for the world should be: positive or negative.

Leaving aside important factors like how, why, when, by whom and for what purpose technologies are deployed, any disruptive technology deployed at scale in today’s interconnected world will give rise to second The net outlook for the world from a radical set of technological breakthroughs already in play is clearly a positive one, pointing to long-term upside, despite more near-term, event driven downside risk and third order consequences (both positive and negative) that are difficult to fully anticipate. Social media was predicted to democratise access to information, create communities and empower individuals, but has perversely done almost the opposite: spreading misinformation, driving social polarisation, and weakening trust in democratic institutions. Technologies can drive both of course with fossil fuels delivering historic breakthroughs in global growth and development while driving climate change to levels that threaten to undermine the progress of centuries in decades.

But the biggest risk of breakthrough technologies, just like any tool, comes through the user. The well understood caution that fire provides warmth and light, but can also injure, kill, and destroy depending on the wielder is highly relevant. Artificial intelligence and digital currencies will likely be subject to a similarly wide range of outcomes.

All these caveats aside, however, it is incontestable that technology, on balance, has driven global progress, on a millennia-long trendline of increasing peace, prosperity, and freedom. The net outlook for the world from technological breakthroughs therefore is clearly a positive one, pointing to long-term upside, despite more near-term, event driven downside risk.

 

Exponential Compounding Growth

Taken together the impact of the five breakthroughs points to another key feature of progress, its exponential, compounding, and irreversible nature. The five are all already underway and will progress at different paces, interacting with each other, and building on previous innovations to create an accelerating pace of change. In the current context, where near-term downside risks are already playing out to great effect, it is difficult to visualise a world transformed by these breakthroughs in the immediate term to outweigh the downsides.

However, taking a longer-term view of human progress suggests that this transformation could occur rapidly, with the next decade being an exciting and pivotal time, given the following factors:

  1. Exponentially Compounding Innovation. Humankind’s ability to innovate is limitless, and innovation builds upon previous innovations, resulting in an ever-accelerating pace of technological change; the rate of change driven by the innovation, adoption and diffusion of new technologies is therefore often significantly faster than history suggests.

  2. A World with (Near-) Limitless Capital. The world financial system has grown exponentially, with total financial assets now in excess of US$400 trillion, and the ability and willingness exist to invest in innovation and establishing technological superiority for competitive advantage at the country, industry, and entrepreneur level; value creation and returns are directly linked to doing so.

  3. 25% Increase in the World’s Population. The world’s population will grow to 10 billion people by 2050, from c.8 billion today. Meeting the demands of this growth is both a need and an opportunity for the world, and ones that will require breakthrough innovations and better efficiency to fully address.

  4. Exponential Growth in the Digital World. The potential growth of digital worlds and information is near-limitless. As more and more people are connected, and as more and more aspects of every life is digitised, the digital world will continue to grow exponentially, leading to a continuous pattern of disruption of industries, driving a transition from the old order to the new.

  5. The Empowerment of the Individual. Innovation and digitisation irreversibly empower the individual to function as an independent actor, unconstrained by national borders, institutional limitations, or physical constraints, thereby leading to even greater creativity and innovation.

 

Conclusion

While the near-term outlook may be net negative due to various event risks including the ongoing conflict in Ukraine and spiralling inflation globally, the medium-to-long term outlook appears significantly brighter due to the potential impact of several critical breakthrough innovations which are already underway. The potential for a new energy breakthrough, or advances in AI, the adoption of digital currencies, the potential for a new virtual reality-based technology paradigm and a shift in the nature of capitalism itself, all point to major transformational changes ahead.

The cumulative and transformational impact of the potential innovation-led breakthroughs indicates the potential for unlimited human progress in principle, accelerating human well-being and prosperity globally. The cumulative and transformational impact of the potential innovation-led breakthroughs indicates the potential for unlimited human progress in principle, accelerating human well-being and prosperity globally New technology and ways of doing business will inevitably lead to a constant cycle of re-invention of industries and consumer behaviour, and both financial and human capital will seek out opportunities to drive these changes rather than be waylaid by them. These breakthroughs will allow more and more of the world’s 10 billion people (by 2050) to participate more fully in the world, and they will also drive productivity, suggesting that despite the disruptions that they will inevitably create, the net impact from them will be significantly positive. ‘The Limits of Growth’ thesis will need to be re-examined in light of these changes to the parameters of our existence.

Innovation and technological change have rarely been a straight line, and invariably run into conservative societies’ resistance to change. Entrenched systems and interests can slow down progress and change for a period of time, sometimes until change is forced upon them. The current global situation – an ongoing war in the Ukraine, inflation and broken supply chains, a never-ending pandemic, a backlash against increasing inequality, growing nationalism, and populism – points to the current period being one where resistance faces off against progress. And as such, the coming years may well entail what is effectively a period of conflict between the past and the future before the benefits of progress are sufficiently large and universal to be recognised by all.

 

Notes

  1. Please see February 2022 Sign of the Times, Global Risks Require a Renewed Global Alignment
  2. Please see March 2017 Sign of the Times, The Shape of the World to Come Part III: The Path to a New World Order
  3. Source: International Energy Outlook 2021, US Energy Information Administration; estimate for incremental demand from all electric vehicle fleet based on analysis by Thomson Reuters
  4. Source: Forbes
  5. Source: Bloomberg
  6. Source: BBC
  7. The current global emissions trajectory is expected to result in global temperatures increasing by 2.7-3.1 degrees Celsius by 2100; a ‘net zero’ emissions trajectory by 2050 would limit the rise in global temperatures to 1.5 degrees, Source: UN Intergovernmental Panel on Climate Change
  8. Source: www.iter.org
  9. Source: www.llnl.gov
  10. Source: IDC
  11. Source: PwC’s Global Artificial Intelligence Study: Exploiting the AI Revolution
  12. For example, recently UK-based AI firm DeepMind was able to develop a program which can predict a protein’s 3D structure based on its amino acid sequence, a breakthrough which has the potential to transform biology and the life sciences industry by radically compressing the time it takes to design new drugs and therapies, Source: Nature Magazine
  13. Sources: PwC, MIT Technology Review
  14. Sources: https://coinmarketcap.com overall market capitalisation for all private cryptocurrencies as of the end of each quarter Central Bank Digital Currency
  15. Central Bank Digital Currency
  16. Sources: Atlantic Council, based on data from the Bank of International Settlements, International Monetary Fund, John Kiff Database
  17. Sources: IMF, Behind the Scenes of Central Bank Digital Currency, Feb-2022
  18. Sources: World Economic Forum
  19. Sources: IMF, Federal Reserve Board
  20. Source: Grand View Research
  21. Source: Jon Radoff, Medium, Market Map of the Metaverse
  22. Source: Wired
  23. 2021 Capital as a Force for Good Report, available at www.forcegood.org; Note: The SDGs have been divided into four categories in order to assess their funding requirement:
    • People (includes SDG-2: Zero Hunger, SDG-3: Good Health and Wellbeing and SDG-4: Quality Education)
    • Planet (includes SDG-12: Responsible Consumption and Production, SDG-13: Climate Action, SDG-14: Life Below Water, and SDG-15: Life on Land)
    • Physical & Virtual Infrastructure (includes SDG-6: Clean Water and Sanitation, SDG-7: Affordable and Clean Energy, SDG-9: Industry, Innovation, and Infrastructure) and SDG-11: Sustainable Cities and Communities
    • Prosperity (includes SDG-1: No Poverty, SDG-5: Gender Equality, SDG-8: Decent Work and Economic Growth and SDG-10: Reduced Inequalities)

    A fifth category, Peace & Partnership (which includes SDG-16: Peace, Justice and Strong Institutions, and SDG-17: Partnership for the Goals), has not been explicitly quantified in the referenced estimate.