So Goes The World

2.4, 1.1, 1.4, 1.8, 3.2, 2.4, 2.2, 2.4, 1.7, 1.6, -11, 7.6, 4.1. If you guessed that this series is the percentage yearly GDP growth of the United States since 2010, then congratulations, you are wrong.

It’s actually the UK. The US is: 2.7, 1.6, 2.3, 1.8, 2.3, 2.7, 1.7, 2.2, 3.0, 2.3, -2.8, 6, 2.0. Whatever, both are anaemic. My message to Biden and Sunak (we’re not on first name terms just yet) is, “Get on with it, lads.”

Now, those of you who consistently read this blog (so about five of you) will know that my prime wish is for us to increase economic growth by creating new markets, tech innovation and achieving more than we have previously. Everything else is downstream of economic growth. You will also be aware that I’m very much in the camp of “good but could be better” when it comes to world progress. We’ve done a lot of good, but we can, and should, do so much more.

But I’ve got a solution, you’ll be glad to hear.

We must revisit an old friend: as Joseph Schumpeter beautifully phrased it, creative destruction. Creative destruction is when innovation and technological change destroy incumbent business models, technology, industries and companies. It’s unequivocally a good thing.

You see it everywhere: I read an article the other day that analysed the density of buildings and workers in London versus where bombs fell during the Blitz.

The article is well worth a read. It says: “Were it not for the buildings and businesses that shot up in the decades after the bombings, London’s GDP would be 10% smaller, equivalent to a loss of £64bn ($81bn) per year in today’s money.” They end by saying: “By building back denser and allowing businesses to thrive, the city turned an attempt to destroy it into a catalyst for growth.” Now, I’m not suggesting we find the ghost of Göring and thank him, nor am I suggesting that we bomb London for future economic benefit. Hull, maybe.

Of course, this isn’t unique to London; Japan industrialised and became an economic miracle after the destruction of the Second World War; then there is the success of the Marshall Plan and the reconstruction of (West) Germany. Out of the ruins of the Second World War, Japan and Germany became global economic superpowers.

Now, predicting what the future looks like is hard. I don’t even know what I’m having for tea tonight, so how am I supposed to know what will happen in ten years? I can tell you this, though - out with the old and in with the new would be a good mantra to get us started. We need to build: build new markets, build new companies, build super conglomerates, build new technology, and build new business models.

What we need is more technology, more venture funding, more speculative bets, more futurism, more R&D, more innovation, and more crazy ones.

But I will make one prediction about the future: don’t listen to the gloom and doom merchants. The world, on a global scale, will continue to get better. Technology will continue to bring about productivity improvements, technology will continue to improve our way of life, and globalisation will continue apace.

A significant proportion of the credit for the last 25 years of growth and progress has to be bestowed upon the tech ecosystem due to relentless innovation (although that might not be the case for the next 25 years, there is work to be done in heavy industry and manufacturing).

Let’s look at the tech ecosystem: by raw US dollars, the USA, China and the UK are the top three countries for venture capital in the world. On a per capita basis, Singapore, Estonia, Israel, the USA, Sweden, Switzerland and the UK rank highly. There’s no guarantee it will continue, of course, and it’s far, far from the only factor, but these nations are setting themselves up well for future growth.

Of course, venture capital isn’t the only source of innovation; align the right incentives, and even monopolies can innovate.

The start-up of today becomes the next Google, Alibaba or Spotify. After all, every company was a start-up one day. The underappreciated aspect of the technology and start-up system is that, yes, whilst some people have become fabulously wealthy off the back of their ideas through forming companies and selling goods and services, most of the benefits and value do not accrue to the founders or early investors. The technology spillover effect, or positive externalities, if you like, is substantial and world changing. Though it’s hard to quantify, the social returns from R&D are around twice as high as private returns. There’s an old phrase, “as California goes, so goes the country”. Perhaps we can update that to “so goes the world”. It’s why you can use your iPhone to get a Grab to get you back home from a night out in Bali (and then get a nasi goreng delivered at 3 a.m.)

Sure, the tech hubs of Silicon Valley, New York, Beijing, Shanghai, London, Shenzhen and Bengaluru get great benefits, but so does the world, and it will continue to do so for as long as VC is still seen as a tech bet and not only an asset class.

Thanks for reading, I’ll see you next time!