0:05

Hello everyone and welcome to

0:07

the Ecosystemic Futures podcast presented

0:09

by NASA Convergent Aeronautic Solutions

0:12

Project in collaboration with Russian

0:14

works. A global firm helping

0:16

organizations and nations navigate ecosystem

0:18

transformation. As our world is

0:21

increasingly digital and interconnected, ecosystemic

0:23

models are reshaping society, industry,

0:25

the economy and policy, and

0:28

they are reframing how we

0:30

build for resilient futures, ecosystemic

0:32

futures investigates these expensive and

0:35

hyperconnecting paradigm and explores frameworks

0:37

to help us achieve more beneficial

0:39

futures. I'm your host today, I'm

0:41

Marco Uncieta, co-founder of Uncet and

0:43

Design Advisers. I'm an economics PhD,

0:45

former chief economist and head of

0:48

business innovation strategy at G, and

0:50

prior to that I worked in

0:52

policy and in finance. My expertise

0:54

lies at the intersection of global

0:56

economic and financial trends with technology

0:58

and innovation. My guest today is

1:01

Rita McGrath who is perhaps the

1:03

best person with whom to have

1:05

a discussion on how our world

1:07

is changing in very profound ways.

1:09

Rita McGrath is a best-selling author,

1:11

she is a sought-after advisor and

1:14

speaker, and a longtime professor at

1:16

Columbia Business School. She is one

1:18

of the world's top experts on

1:20

strategy and innovation, consistently ranked among

1:22

the top 10 management thinkers in

1:24

the world, including the number one

1:27

award for strategy by Thinker-Swifty. Rita's

1:29

recent book on strategy inflection points

1:31

is seeing around corners, which is

1:33

exactly what we need to do

1:35

now. how to spot inflection points

1:37

in business before they happen. She

1:40

is also the author of four

1:42

other books, including the best-selling, the

1:44

end of competitive advantage. Rita, it's

1:46

such a great pleasure to have

1:48

you with us today. Welcome to

1:50

the podcast. It's so lovely to be

1:53

here and to be with your rears

1:55

and listeners. Anything else you want to

1:57

say about yourself? We could just talk

1:59

about your... bio for an hour

2:01

but anything more that you think

2:03

is relevant to our conversation and

2:05

our listeners should know. Oh well

2:07

I was once voted one of the

2:10

25 smartest women to follow on Twitter.

2:12

That is pretty impressive. That is

2:14

pretty impressive. I will actually rank

2:16

as one of the 25. people

2:18

across genders and every other classification.

2:20

So let's kick it off, Rita.

2:23

Today we're going to tackle some

2:25

very big themes. But with you,

2:27

given your experience and your prominence

2:29

as a business advisor, we're also

2:31

going to do it from a

2:33

very pragmatic angle. So let's start

2:35

with the main big idea for

2:38

our discussion. You've been arguing that

2:40

the world has reached an inflection

2:42

point and that we are now in

2:44

the midst of a transition towards a

2:46

very different way. Can you tell our

2:48

audience in what ways you think the

2:50

new world is going to differ from

2:52

the old one? What are we leaving

2:54

behind and what are we going to?

2:56

That's a great question. So this

2:59

is all based on the work

3:01

of Carlada Perez, who is a

3:03

Venezuelan economist who studies really long

3:05

cycles in capitalism. And it's a

3:08

very good inflection point story because

3:10

What she argues is that there

3:12

are some innovations that are so

3:14

profound that they change not only

3:16

what's technologically possible, but they change

3:19

the society that is based on

3:21

these technologies. And so we're coming

3:23

to the end of this whole

3:25

consensus around mass markets, which was...

3:27

you know, initiated by the development

3:30

of the assembly line, Ford's assembly

3:32

line was the revolution there, but

3:34

also cheap energy, so fossil fuels,

3:37

which then allowed us to build

3:39

suburbs full of houses, full of

3:41

appliances, highways, air travel, you know,

3:44

that whole kind of hundred. 20-year-long

3:46

sort of stretch from the early

3:48

1900s to today really based on

3:51

those fundamental technologies. And what Perez

3:53

argues is that these phases in

3:55

capitalism almost look like an

3:58

S-curve. So there's a period.

4:00

And I would say, you know.

4:02

sort of 1940s, 50s, 60s, 70s, there's

4:04

this period of steady productivity growth where

4:06

everybody's benefiting, productivity is going up, there's

4:09

a potential for a golden age, you

4:11

know, workers benefit from the riches that

4:13

are created. But what happens with those

4:15

technologies is eventually, you know, people have

4:18

bought all the appliances they need to

4:20

buy. The growth and the productivity development

4:22

start to slow down because that era

4:25

is kind of getting exhausted. capital goes

4:27

looking for the next big thing. And

4:29

in our specific case, capitals found digital.

4:32

The invention of the microprocessor in 1971

4:34

sort of coincided with the beginning of

4:36

this sort of flattening of productivity increases

4:39

from the petrochemical fuel cycle. So where

4:41

we are now is in this transition.

4:43

We're moving from this world that we

4:46

kind of understand and know, which was

4:48

based on things like free trade, you

4:50

know, globalization, the kind of Thomas Friedman,

4:53

the world is flat, that sort of

4:55

set of assumptions, into a world which

4:57

is much more digital, where we're buying

4:59

more services and fewer goods. This idea

5:02

of dig stuff out of the ground,

5:04

make something with it, use it, and

5:06

then throw it back in the ground

5:09

in the form of land waste. You

5:11

know, that's really not going to be

5:13

viable. Clearly, our dependence on fossil fuels

5:16

has all kinds of negative effects, and

5:18

eventually we're going to run out. You

5:20

know what? So we need to invent

5:23

different ways of energy. And so there's

5:25

a whole kind of sociological and technological

5:27

revolution, but we're right in the middle

5:30

of. So the old thing hasn't quite

5:32

gone away and far from it, right?

5:34

And the new thing hasn't yet really

5:37

become widespread enough to beat to radically

5:39

change our lives. Now we can begin

5:41

to see the early warnings of what's

5:43

coming in. I think one of the

5:46

big things I'm looking at right now

5:48

is dematerialization. Things that used to require

5:50

a physical object, and the probably music

5:53

would be the easiest way to understand

5:55

this, right? You used to have to

5:57

buy records, you used to have to

6:00

buy CDs, you pay for 18 songs.

6:02

you really only wanted one, today you

6:04

don't even buy music, you rent it,

6:07

it flies through the air and lands

6:09

on some device. That whole set of

6:11

things in between, the record player, the

6:14

music player, the boom box, whatever it

6:16

is that's all gone. And you got

6:18

it all on one device, which has

6:21

also replaced all these other things, you

6:23

know, flashlights and listening devices and cameras

6:25

and who knows, all in your smartphone.

6:27

Yeah we've gone through all those let

6:30

me stay on this specific topic for

6:32

a second because it makes me think

6:34

of where the next big breakthrough is

6:37

needed. When you talk about the dematerialization

6:39

of things like music, for example, what

6:41

you said is absolutely correct, the one

6:44

material link that remains is energy, because

6:46

we can do it immaterial as you've

6:48

described, but there are servers somewhere being

6:51

cooled and consuming more and more energy.

6:53

So would you say that at this

6:55

stage to proceed towards this dematerialization trend?

6:58

energy, both energy generation, energy storage, breakthroughs,

7:00

being probably the key issue to look

7:02

at. I think we're seeing a huge

7:05

amount of activity around that. Absolutely. Energy

7:07

storage in particular is quite a thing

7:09

because, you know, the sun doesn't shine

7:11

all day long and, you know, and

7:14

the wind doesn't blow all the time.

7:16

So if you can't store that energy,

7:18

you can't really rely on it. The

7:21

other thing, and I was at just,

7:23

you know, I was talking to somebody

7:25

in the military, I was talking to

7:28

somebody in the military, you know, fleets

7:30

or vessels or something, oil is a

7:32

fantastic material for energy because it's portable

7:35

that can come with you. But if

7:37

you have to rely on distributed energy

7:39

sources, that poses remarkably complex problems. So

7:42

unless you can get a battery or

7:44

something that stores energy that's functionally equivalent

7:46

to what, you know, gasoline does today,

7:49

you're going to have to completely rethink

7:51

how you power your armed vehicles, for

7:53

example. No, that is exactly right. In

7:55

fact, let me take a step back

7:58

now, when you were giving your view,

8:00

the broad view of how this big...

8:02

changes are taking place. I loved it

8:05

because you're bringing together the initial impulse,

8:07

which is the technologies, changes in technology,

8:09

which when they become disruptive enough, then

8:12

have big impact on reshaping our economy

8:14

and our social structure. Now on the

8:16

economists, one area where of course I

8:19

get very excited, and I'm thinking of

8:21

the following. Part of what's been happening

8:23

over the past couple of decades at

8:26

least, is financial flows in our global

8:28

capitalist system have become dominant. I remember,

8:30

for example, when I started working at

8:33

the International Monetary Fund back in the

8:35

early 90s, the IMF used to be

8:37

the only game in town in the

8:39

sense that if a country was in

8:42

trouble, it only had the IMF to

8:44

provide funding. Then private financial markets became

8:46

so big that the IMF has become

8:49

virtually irrelevant. Now this dominance of financial

8:51

flows creates almost two sides to the

8:53

story. One is the risk of financial

8:56

bubbles. We're always worried, we look at

8:58

the stock market and we wonder, is

9:00

it the bubble is going to pop?

9:03

Is it going to be a disaster?

9:05

The other part though is how capital

9:07

gets allocated in the economy. So these

9:10

financial flows are financing investments. So there

9:12

seems to... be a trade-off between cycles

9:14

of hype and excitement and therefore the

9:17

risk of bubbles and on the other

9:19

side the investment the funding and investment

9:21

that actually goes into innovation technology and

9:23

fuels these changes you were talking about

9:26

how should we think about this balance

9:28

Well, the bubble part is absolutely predictable

9:30

and what Garlotta would tell you is

9:33

it's an essential feature of capitalism. It's

9:35

not a bug. So what happens during

9:37

the bubble period, and I think if

9:40

you use the dot-com bubble just as

9:42

a case in point to make it

9:44

memorable for people, what you had throughout

9:47

the 90s was this incredible investment in

9:49

infrastructure for the internet, you know, all

9:51

you had to do was say, oh,

9:54

I've got an internet business model and

9:56

venture capitalists like throwing money at you.

9:58

So it built out our... technology infrastructure,

10:01

it built up things like optical cables

10:03

under the sea, it built out the

10:05

capacity for high-speed broadband, which everything else

10:07

depends on. Now, when the bubble burst,

10:10

in 2001, most of the investors lost

10:12

their shirts. I mean, you know, even

10:14

really famous investors like Fred Wilson lost

10:17

90% of his wealth. But here's the

10:19

thing. Once the bubble bursts, what it

10:21

leaves behind is this infrastructure, you know,

10:24

the broadband cable, into the infrastructure of

10:26

computers on every desk. And what then

10:28

happens is capital kind of gets whipsawed,

10:31

right? It gets extracted from this kind

10:33

of casino-like bubbly economy, and now it

10:35

has to partner with the real economy

10:38

to produce real productivity gains. And the

10:40

financial guys hate this because, you know,

10:42

during the bubble you can make... tremendous

10:45

amounts of money just, you know, on

10:47

the ebbs and flows of capital, when

10:49

you have to start putting that capital

10:51

to work in the real economy, the

10:54

outrageous returns become less likely. But what

10:56

you're building on is real returns based

10:58

on real business models. And what capitalism

11:01

does is it seesaws between the two.

11:03

No, it's excellent. In fact, it's something

11:05

that I was looking at very deeply

11:08

when I was working at GE, because

11:10

that was exactly our concern, right? Becoming

11:12

a digital industrial company, we were caught

11:15

in between. So we did not benefit

11:17

from the excitement of digital companies, but

11:19

we kept saying, look, it's different because

11:22

eventually these digital technologies need to get

11:24

traction and align themselves with the physical

11:26

world. This is what we're trying to

11:29

do, but it's harder and it's slower.

11:31

So it's an excellent point. Rita, we're

11:33

talking about something that a big transition

11:35

that probably also involves a change in

11:38

the nature of the capitalist system as

11:40

we know it. And it's in line

11:42

with what you were saying earlier. previous

11:45

transitions in technology have also led to

11:47

different economic models. So I'm curious if

11:49

we can unpack a bit the kind

11:52

of changes we can expect in our

11:54

economic system. And my first question... partly

11:56

driven again by my own experiences, do

11:59

you think big corporations still make sense?

12:01

Well, that's a fascinating question because with

12:03

the advent of digital technologies and most

12:06

recently with the advent of AI, what

12:08

we're increasingly seeing is the unit of

12:10

value creation is small teams or even

12:13

individuals. And what we're seeing, it's ironic

12:15

to be talking about this in a

12:17

show based on ecosystems, but you could

12:19

envision the equivalent of today's large companies

12:22

being these constellations, these ecosystem-connected constellations of

12:24

much smaller groupings. Because what we're also

12:26

seeing is, you know, back in the

12:29

day, when you were roll-pull making refrigerators,

12:31

right, your competitive advantage came from either

12:33

scale. So, you know, you... rounded off

12:36

the cost of doing these things over

12:38

the more that you could sell the

12:40

better so you had scale economies or

12:43

scope so if you sold refrigerators you

12:45

also sold wash your dryers and you

12:47

also sold things where you could use

12:50

a similar capability set or whatever and

12:52

that we favored large corporations who could

12:54

do things with high quality in a

12:57

mass market sense there was such demand

12:59

that you know if you made refrigerators

13:01

you were pretty much going to sell

13:03

everyone you could make and that was

13:06

a very mass size company favoring sort

13:08

of arrangement. In today's world, I don't

13:10

know that we're going to need those

13:13

massive companies because what we'll have is

13:15

products that are not only personalized, but

13:17

customizable. So you might have a million,

13:20

I'll call them washer dryers, but if

13:22

they're digitally equivalent of a digital equivalent,

13:24

each want could be tailored to what

13:27

each individual user. wants or needs. So

13:29

I think the rationale for having these

13:31

big giant companies is much lower than

13:34

it was. A couple of other things

13:36

that I think are important for people

13:38

to understand because these things stretch across

13:41

an individual human lifetime. So we, nobody

13:43

living today, really remembers a time before

13:45

we had the kind of corporate law.

13:47

that we have today that favors the

13:50

publicly traded, generally accepted accounting principles, you

13:52

know, run company, where it was mostly

13:54

around the ownership of assets, right? Today,

13:57

the value represented by today is large

13:59

publicly traded companies. Only about 20% to

14:01

30% of what creates their future value

14:04

is represented by physical assets. The rest

14:06

of it's all intangible in digital. And

14:08

that to me implies we're going to

14:11

need a different kind of... corporate charter,

14:13

if you will. So we're not setting

14:15

up railroads anymore, or maybe we are,

14:18

but they're very different kinds of railroads

14:20

that we used to have. And if

14:22

you think about our labor systems, right?

14:25

Our labor systems are a lot of

14:27

our assumptions about how we manage employees

14:29

are based on an employer employment relationship,

14:31

which is relatively durable. All of our

14:34

labor laws are around that relationship, right?

14:36

So we've got to rethink what does

14:38

health insurance mean for a gig worker?

14:41

Five organizations in the course of a

14:43

typical week. I may not be an

14:45

employee. I may be a unit of

14:48

one value creator and I lend my

14:50

services to other firms. So I've thought

14:52

for a long time... that we're increasingly

14:55

moving towards a model where the way

14:57

that we provide good and services in

14:59

the economy is much closer to the

15:02

way we make movies than to many

15:04

other models. So if you look at

15:06

a movie, a big release movie, and

15:09

you sit down in the movie theater

15:11

and the credits start rolling and it's

15:13

like five minutes in because they've got

15:15

55 different logos and brand names and

15:18

these guys all come together to create

15:20

a product, to create this project. And

15:22

it's not a hierarchy. a classical sort

15:25

of organization at all, it's much more

15:27

of an ecosystem of people who have

15:29

bring to the table these different skill

15:32

sets and so forth. So I think

15:34

it's a really interesting question to think

15:36

about. Do we need Exxon Mobil-sized companies

15:39

in the future? It's fascinating. And also

15:41

a lot of what you're saying, Rita,

15:43

seems to converge towards the idea of

15:46

flexibility, right, because large companies have become...

15:48

of scale, but they become less flexible.

15:50

Now you mentioned in the case of

15:53

publicly traded companies, you mentioned the fact

15:55

that now a lot of their value

15:57

is based on intangible assets rather than

15:59

tangible assets. There is also thinking of

16:02

listed companies, another change we're seeing in

16:04

financial markets, which is fewer companies are

16:06

actually getting listed, right? So we're seeing

16:09

a decline in IPOs, we're seeing the

16:11

importance of public markets declining. We're seeing

16:13

more privately held companies and we're seeing

16:16

the rise of private credits and private

16:18

equities. So more flexible forms of financing

16:20

for companies. Now this also has implications

16:23

for how pensioners, savers, households, excess financial

16:25

benefits of investing in these companies. But

16:27

there is something else there that also

16:30

points to companies looking for more flexibility.

16:32

Is that right? Well, I think that's

16:34

absolutely true. If you think about some

16:37

disruptive event that might be problematic. You've

16:39

got two ways of dealing with it,

16:41

right? The first is you can try

16:43

to anticipate it and get ahead of

16:46

it and hopefully prevent it if it's

16:48

a negative disruption. The other way is

16:50

you can build increased resilience so that...

16:53

If something does happen, you can adjust

16:55

accordingly. And that's where the flexibility comes

16:57

in. What I would observe is that

17:00

most corporate leadership today over-invests in prevention

17:02

and under-invests in resilience. Interesting. That's a

17:04

very interesting and very important point. Let

17:07

me bring you back also here as

17:09

we're discussing how the capitalized system, the

17:11

market system is changing. bring you back

17:14

to the idea you mentioned at the

17:16

beginning, which is the idea of dematerialization,

17:18

because I am not really a fan

17:21

of the de-growth idea that you hear

17:23

in some circles that essentially we need

17:25

to reduce economic growth. There is something

17:27

very punitive about it, like the idea

17:30

that we have to do penance and

17:32

we have to become poorer and lower

17:34

living standards, and I find that uninspired.

17:37

But there is no doubt that the

17:39

current model of economic growth, as you

17:41

pointed out, is putting enormous stress on

17:44

resources. Sometimes to finance, to feed the

17:46

consumption of actual goods, it's probably incurring

17:48

now very rapidly decreasing returns in terms

17:51

of how much happiness we derive from

17:53

then. So you mentioned the switch to

17:55

services, the switch to dematerialization. How do

17:58

you see this evolving in terms of,

18:00

I guess, how we as humans maintain

18:02

higher and higher living standards while reducing

18:05

the pressure on resources? Sure. So if

18:07

you think about, take a box of

18:09

craft macaroni and cheese, just as an

18:11

example, and back in the 50s, right,

18:14

this was a middle class luxury item,

18:16

right? This was something that if you

18:18

aspired to it, you bought, you bought,

18:21

you know, you bought jello and you

18:23

bought craft macaroni and cheese, and, you

18:25

know, there was this whole kind of

18:28

kind of, kind of, kind of, category

18:30

of consumer packaged goods in the food

18:32

area, which were considered to be just

18:35

amazing, right? They were affordable, they were

18:37

luxurious, without any particular cooking skills. You

18:39

could come up with consistent outcome all

18:42

the time. It was, you know, considered

18:44

to be time-saving. My point is just,

18:46

back then, those were considered luxuries. along

18:49

comes Julia Child and you know her

18:51

group of people basically say oh that's

18:53

not the way to cook and so

18:55

here today what we got what have

18:58

we got you know organic vegan tofu

19:00

that's been you know whatever my point

19:02

being what's considered luxury today is almost

19:05

like a throwback to much closer to

19:07

nature, farm to table, let's grow food

19:09

close to where it's going to be

19:12

consumed, let's not truck it 3,000 miles.

19:14

So in a way what you've got

19:16

is the leaders of the culture, the

19:19

people who are declaring what is luxurious

19:21

today. They're all about, oh it's one

19:23

cow and I know where the meat

19:26

came from, I know the name of

19:28

it, it's all traceable, it's all grown

19:30

close to where it's going to be

19:33

consumed, it's grown and organic. My point

19:35

is my point is... All that stuff,

19:37

you know, back in the 1700s, that's

19:39

what they had. They had organic, locally

19:42

sourced from food. And that sort of

19:44

ensuing ways of capitalism sort of brought

19:46

us these sort of food industrial conflicts

19:49

that we have right now. But if

19:51

you think about where the leaders, the

19:53

thought leaders in culture are going, it's

19:56

back to that natural all source. What

19:58

would you say only specific example reader

20:00

couldn't you argue that it actually... That

20:03

doesn't help us that much in reducing

20:05

the resource footprint in the sense that

20:07

if all of us have to move

20:10

towards locally sourced and organic food, we're

20:12

going to have to expand the agricultural

20:14

system in a completely different way. You

20:17

have to change it. You have to

20:19

change it. So we're starting to see,

20:21

I mean, even today, you know, here's

20:23

some of the early warnings, we're starting

20:26

to see vertical farms, you know, farms

20:28

based in cities in buildings, that's that.

20:30

is a sector. It's projected to grow

20:33

really rapidly. Right now, you know, the

20:35

best it can kind of do is

20:37

let us and stuff like that. But

20:40

it's, you know, they're learning every day.

20:42

They're going to get better and better.

20:44

So you're starting to see even in

20:47

urban areas. You've got bees on the

20:49

roof now, you've got sources of nature

20:51

sort of interweaving with the urban architecture

20:54

now. You've also got these farms where...

20:56

They will sell directly to consumers like

20:58

on certain days of the year, that

21:01

kind of thing. And you're also seeing

21:03

the ability to create goods and materials

21:05

with a much smaller footprint. So to

21:07

go away from food for a minute

21:10

and think about, let's say, auto production.

21:12

I mean we're used to thinking of

21:14

scaled auto production as these long assembly

21:17

lines these huge buildings and everything but

21:19

Hyundai in Singapore has created a vertical

21:21

factory to create cars and they're essentially

21:24

on-demand cars so the car starts off

21:26

in the first floor. And it makes

21:28

its way up this building with different

21:31

robots tacking different things on it. It's

21:33

fascinating to kind of watch. And then

21:35

by the time it gets to the

21:38

seventh floor, there's a beautiful sort of

21:40

drive, and the car arrives on the

21:42

seventh floor, the owner gets the keys

21:45

and drives off down the building. in

21:47

a sort of a triumphant array. Now

21:49

why does this make any sense at

21:51

all? Because Singapore is a high-cost country,

21:54

land is very scarce, you know, it's

21:56

just got every conceivable traditional logical argument

21:58

about car manufacture and would rule this

22:01

thing out. But if you think about

22:03

it, Singapore has really high taxes on

22:05

imported cars. So if it's made there,

22:08

they don't have to bear that. Secondly,

22:10

the cars are incredibly customized in what

22:12

Hyundai is betting. is that eventually we're

22:15

going to get to a stage where

22:17

we won't actually own one kind of

22:19

car, we will have access to various

22:22

kinds of transport mechanisms. So you'll want

22:24

something different if it's Saturday and you're

22:26

taking your kid to their sports, then

22:29

if it's a holiday and you're packing

22:31

your whole family in to go some

22:33

distance, right? And you may conceivably just

22:35

to have access to a whole fleet

22:38

of vehicles which are managed in a

22:40

radically different way than those that we

22:42

manage right now. So I think the

22:45

challenge for our imaginations for our imaginations

22:47

is And you know, even with food,

22:49

how do we rethink some of our

22:52

assumptions about the way these systems work

22:54

so that we can, you know, have

22:56

a better life? And I'm with you,

22:59

I'm not into the degrowth, you know,

23:01

we must all cower in the woods

23:03

and suffer. What was that old song

23:06

about now we just need nuts and

23:08

berries, right? This was a parking lot.

23:10

I think that world, that some dystopian

23:13

world is what many people are going

23:15

to voluntarily sign up for, and for

23:17

a change like this to happen. you

23:19

know, like processed macaroni and cheese was

23:22

better than what we had before and

23:24

something more natural and local and whatever

23:26

is better. We may also want to

23:29

think about changing the pattern of demand.

23:31

So I was talking to a guy

23:33

that runs a supermarket and he said,

23:36

you know, when I was a kid.

23:38

there were seasons for things. You know,

23:40

you had strawberries at a certain time

23:43

of year. He said, today what happens

23:45

is just the price just changes depending

23:47

on where they have to get shipped

23:50

from. So we may be moving towards

23:52

a more appreciator appreciation of the seasonality

23:54

of things and not just sort of

23:57

have the commodity products available all the

23:59

time. year long that made that maybe

24:01

something we're actually pleased about you know

24:03

maybe it's some ooh it's strawberry season

24:06

that's special again no it's a very

24:08

good point you know I'm originally from

24:10

Italy and often I go back when

24:13

I go back I'm from a small

24:15

town in the center north of Italy

24:17

it's an area which has a strong

24:19

agricultural tradition And there you shift back

24:22

to the idea of eating what is

24:24

in season. And you learn to appreciate

24:26

the pleasure of, oh, now strawberries are

24:28

everywhere. Oh, now we have asparagus. And

24:31

it actually gives you a lot more

24:33

pleasure than having it available. You also

24:35

come to realize that there is

24:37

a trade-off between everything having

24:39

everything available always and the

24:42

quality. If it's available only

24:44

when it's in season where

24:46

you are. It tastes better. But

24:48

Rita, the example you gave on

24:50

vertical farming is exceptionally good. In

24:52

fact, we had a podcast episode

24:55

on this a few months ago.

24:57

It's relevant also to of course

24:59

the space exploration. There is another

25:01

element I wanted to. to unpack

25:04

with you, which is very topical

25:06

right now and it's protectionism. You

25:08

and I are recording this podcast

25:10

just the day after liberation days

25:13

or the day after that the

25:15

US government has announced these massive

25:17

tariffs on almost every trading

25:19

partner. And so these protectionism

25:21

really seems to have... come

25:24

back in fashion, everybody's talking

25:26

about reassuring of manufacturing, self-sufficiency.

25:28

I think there is also

25:30

a more subtle shift happening,

25:32

though. For one thing, this

25:34

protectionist trend has been in

25:36

place for a while, although

25:38

not as dramatically as we

25:41

have now seen. But something

25:43

is happening. Part of it

25:45

is the dissatisfaction with globalization

25:47

that pushes this resurgence of

25:49

protectionism and nationalism. I mean,

25:51

I would be curious to

25:53

hear Why do you think

25:55

this is happening? But secondly,

25:57

I'm curious from your perspective.

25:59

How do you see the evolution

26:01

of supply chains and production systems? Given

26:04

we are talking before about the importance

26:06

of ecosystems, how do ecosystems adapt to

26:08

these challenges? And how does this change

26:10

the distribution of economic opportunities within countries?

26:13

Oh, it's a fascinating topic. So I

26:15

would say the roots of our current.

26:17

dissatisfaction with the way globalization has enrolled

26:19

for many people really would begin with

26:22

the ascension of China into the World

26:24

Trade Organization which I believe was 2001

26:26

and what the prevailing belief in the

26:28

US at the time I mean if

26:30

you go if you listen to the

26:33

sort of newscast at the time, it

26:35

was all about, oh, this is going

26:37

to be fantastic. China's going to have

26:39

to play by the rules. It's going

26:42

to march westward in terms of its

26:44

philosophy and beliefs. It's going to produce

26:46

greater prosperity, greater democracy. They're going to

26:48

be great trading powers. It's such a

26:51

huge market. You know, all the American

26:53

companies who couldn't go into it. It's

26:55

going to be China. And very few

26:57

of those assumptions were actually born out.

27:00

exert a specific tariff in the form

27:02

of a tariff. But if you wanted

27:04

to do business in China, you may

27:06

remember at the time. You were required

27:09

to give up IP, you were required

27:11

to partner with local firms, you were

27:13

required to, I mean, there was a

27:15

whole long list of things that they

27:18

wanted from the West. You know, large

27:20

scale IP theft, I mean, this is

27:22

no secret, right? And just basically taking

27:24

the technologies and people were willing to,

27:27

you know, business leaders very consciously made

27:29

some of those tradeoffs because the rewards

27:31

were so great for doing that. And

27:33

I think this is a real failure

27:36

in terms of the sort of West's

27:38

way of negotiating with China. So as

27:40

an individual company, you were required to

27:42

have a China strategy. And so what

27:45

ended up happening was a lot of

27:47

labor, which up until that moment people

27:49

kind of thought of labor is a

27:51

fairly fixed locally bound thing right and

27:54

once but once you had basically cheap

27:56

global shipping which was facilitated by the

27:58

invention of the humble box you know

28:00

the box that It can go from

28:03

a ship to a box, to a

28:05

truck, to a whatever. Once you have

28:07

that, you could easily offload and unload

28:09

ships. And that in turn meant that

28:12

you could ship stuff from halfway around

28:14

the world and sell it cheaply. So

28:16

if you think about the traditional view

28:18

of globalization, there were products and certain

28:21

things that were not suitable. So anything

28:23

that was low in value and really

28:25

heavy and didn't have a lot of

28:27

value at the other end, you would

28:30

never subject to globalization. But once you

28:32

have practically free shipping, Then what happens

28:34

in Akan effect is then your labor

28:36

markets become now vulnerable to global standards

28:39

because you can manufacture anywhere in the

28:41

world that it's cheapest. And so what

28:43

happened basically was good paid American jobs

28:45

and you know I think many of

28:47

them were farmed out to China to

28:50

Mexico to other places and so for

28:52

a great many people globalization was not

28:54

great news. I mean if you think

28:56

about the globe in terms of humanity

28:59

yes globalization lifted billions of people out

29:01

of desperate poverty and produced a much

29:03

more productive world economy. But when you

29:05

think about the impacts at the local

29:08

level, you know, when the steel plant

29:10

closes down or the glass factory goes

29:12

out of business, there aren't jobs to

29:14

replace those that were lost. And so

29:17

there was a lot of sort of

29:19

very localized damage that was done by

29:21

this very version of globalization. So I

29:23

think what we're seeing now is a

29:26

lot of reaction to that, which is

29:28

hang on, you know, we want to

29:30

do what's right by our own people.

29:32

keep the economic activity we've created for

29:35

ourselves. And this is fine for the

29:37

big companies, big countries, right? So if

29:39

you're the US or China or India,

29:41

you know, you've got a huge local

29:44

demand, I mean, it's going to be

29:46

rough adjusting all those supply chains and

29:48

we'll get to this supply chain question

29:50

in a minute. But, you know, if

29:53

you're Norway or Ireland or the Philippines

29:55

or something where you don't have that,

29:57

you're going to have to get very

29:59

creative about how you create alliances, whose

30:02

sphere of influence are you under, who

30:04

are you actually going to be able

30:06

to trade with because those countries can't

30:08

keep their current standards of living without

30:11

trade. They just don't have large enough

30:13

domestic markets. So back to supply chains.

30:15

One more thing on the globalization front

30:17

and the protectionism front. Another thing that

30:20

you'll see in these big transitions in

30:22

capitalism is the countries that are the

30:24

leaders will often shift. So if you

30:26

think about the industrial revolution, that put

30:29

the UK, well Britain, I guess it

30:31

would have been at the time, in

30:33

the driver's seat for things like, you

30:35

know, global colonialism, a lot of things

30:38

that we look at sort of a

30:40

stance today, but it put that country

30:42

on top kind of economically, its influence

30:44

was tremendous. And the influence, you know,

30:47

changed country to country as these large

30:49

technological shifts flowed through. So where we

30:51

are right now, right, is China's made

30:53

no... mystery of its ambitions. It wants

30:56

to be the dominant global power. So

30:58

does the U.S. perhaps India, you know,

31:00

open question. So we're in this sort

31:02

of moment where who's going to be

31:04

the dominant country is kind of up

31:07

for grabs. And that will also show

31:09

up in things like protectionism and not

31:11

wanting to be too open. In terms

31:13

of supply chains, we're already seeing people

31:16

are... willing to give up those last

31:18

few pennies of supply chain optimization to

31:20

build more supply chain resilience. And I'm

31:22

seeing people picking up plan B, C,

31:25

D. And we're also using new technologies

31:27

around supply chains in a really clever

31:29

way. So to go back to my

31:31

buddies at Kraft Heinz, one of the

31:34

clever things they've done is they've created

31:36

a digital twin of their supply chain.

31:38

And so if there's a disruption in

31:40

the real world, so say a port

31:43

gets closed or there's a strike or

31:45

a supplier doesn't deliver, what they do

31:47

is they feed that data into the

31:49

digital twin using AI. And what the

31:52

AI then does is it runs through

31:54

every possible response the supply chain could

31:56

make to that event. It says, okay,

31:58

based on the parameters you've asked me

32:01

to optimize, this is the course of

32:03

action I would recommend. And now that

32:05

digital solution can find its way back

32:07

into the real world. And that's the

32:10

choice they may. you know, computations and

32:12

various in their own heads as quickly

32:14

as the AI can. Exactly. It's an

32:16

excellent example of a strong application of

32:19

AI and based on this here is

32:21

what I'm looking for some reassurance from

32:23

you. So you know you have outlined

32:25

very clearly where we have failed to

32:28

see the costs and risks of globalization

32:30

and what the impact has been. However,

32:32

you've also pointed out the globalization did

32:34

have some very significant benefits in terms

32:37

of economic growth, efficiency, cheaper goods. So

32:39

does technology now allow us to regain,

32:41

rebuild a lot of resilience? with a

32:43

moderate cost in terms of lost efficiencies.

32:46

Because the concern otherwise is that as

32:48

the world fragments and companies or governments

32:50

try to achieve self-sufficiency or at least

32:52

greater strategic security, and companies reshuffle and

32:55

reorganize their supply chains for greater resilience,

32:57

the concern is we will pay a

32:59

high price in terms of more expensive

33:01

goods and in terms of... of lower

33:04

economic growth. So do you feel from

33:06

your discussions with business leaders that technology

33:08

can help us ameliorate this trade-off? Oh,

33:10

it absolutely can. It absolutely can. But

33:13

what I think we need to get

33:15

smarter about, and this is where I

33:17

do have concerns, is We need, so

33:19

do you think about the internet, right?

33:21

What allowed the internet in most of

33:24

the world, not in China, but in

33:26

much of the world? What allowed it

33:28

to be such a powerful force where

33:30

there were standards bodies behind it? So

33:33

we're saying, here's the rules of the

33:35

road, here's what a URL is, here's

33:37

how we know if you own it

33:39

or somebody else would, but here's the

33:42

property regime, right? So I think we

33:44

need. call it a standard body for

33:46

the global digital economy that can be

33:48

seen as respectable, fair, you know, a

33:51

wise arbiter of choices, not victim to

33:53

anyone, country or company. that would allow

33:55

us to then have these digital goods

33:57

be allocated in a more equitable way.

34:00

So I think, yes, technology could be

34:02

very powerful in helping us kind of

34:04

operate in a resilient way without imposing

34:06

a lot of costs, but I do

34:09

think there's some missing ingredients, right? I

34:11

think right now governments are not... If

34:13

you look at the post-World War II

34:15

way that governments constructed... what happened after

34:18

that horrible conflagration. America very consciously said

34:20

we're going to take the lead here,

34:22

you know, packs Americana, we're going to

34:24

house the UN, we're going to invest

34:27

in the Marshall Plan, we're going to

34:29

rebuild our enemy, Europe, we're going to

34:31

complete the overhaul, what happens with Japan,

34:33

to the level of actually installing a

34:36

new constitution in that country. America was

34:38

a very activist government in those days.

34:40

They were also guided by a Vannevere

34:42

Bush, would be a great example, for

34:45

it directly to Roosevelt, tying together this

34:47

idea of military, science, the academies, you

34:49

know, this sort of layer of knowledge,

34:51

and very conscious decisions were made that

34:54

America's going to give up some potential

34:56

interest in order to have this dominant

34:58

global power, be the peacekeeper, kind of

35:00

be the, you know, be the overall.

35:03

And that was very consciously done. And

35:05

what I'm not seeing yet is where

35:07

is the vinegar Bush of our generation?

35:09

Where is that wise sort of let's

35:12

look at things from systems level and

35:14

see how we want to tie these

35:16

things together? So Bush was amazing. I

35:18

mean, he was the one that actually

35:21

was, you know, figured out that part

35:23

of the problem with the way that

35:25

we were fighting the Second World War

35:27

was all these different. innovators were operating

35:30

in isolation from one another. And so

35:32

what he did was he took and

35:34

he brought together the sort of theorists

35:36

and the practitioners. He brought together the

35:38

scientists and the artists and he really

35:41

had them problem solving together in ways

35:43

that even today are just quite remarkable.

35:45

And then he was instrumental in creating

35:47

our great institutions, institutions. Health, National Science

35:50

Foundation, all those things. And I think

35:52

we're at risk of undermining that legacy

35:54

without having anything yet that's clearly going

35:56

to replace it. It's a very important

35:59

point because it's even more important here

36:01

now than it was back then, right?

36:03

Because today, with the changes we've seen

36:05

in technology. Technologies have become much more

36:08

interconnected. So has the economic system. The

36:10

value that we find in innovation is

36:12

more and more found at the intersection

36:14

of different disciplines. And so having that

36:17

broad look, that systemic look at how

36:19

the world is operating, what we need

36:21

to do, would be a lot even

36:23

more important today than it was back

36:26

then. So if we're losing it now,

36:28

that's a big problem. I would agree.

36:30

Yeah, that much being said. I mean,

36:32

I'm not saying those institutions need to

36:35

be the way that they were original

36:37

to design. I mean, they're, what, 70

36:39

years old now. So it's not bad

36:41

to have a period of reason and

36:44

rethinking of something because the world has

36:46

changed. You know, that... No, absolutely. In

36:48

fact, I would say, I mean, arguing

36:50

that you'd be surprising if institutions which

36:53

were put in place 70 or 80

36:55

years ago were still good enough today.

36:57

The U.S.S. Constitution is an exception, but

36:59

international institutions from the WTO to the

37:02

IMF to wait. You can't expect them

37:04

to function as effectively now, given how

37:06

profoundly the world has already been thinking

37:08

about how it's changing going forward. On

37:11

this one, Rita, another question I had

37:13

for you is the following. In this

37:15

transition, how do you see the evolution

37:17

of the relationship between government and private

37:20

sector? Balance of power, division of labor,

37:22

collaboration, how should we expect this to

37:24

evolve going forward? Well, we've had here

37:26

in the US, we've had almost an

37:29

anti-government ideology, I would date it going

37:31

back to the sort of Ronald Reagan

37:33

Margaret Thatcher. era, where it was like

37:35

we want to shrink governments to be

37:38

so small that we can flush it

37:40

down the toilet. And I think that's

37:42

short-sighted. And the reason is that capitalism

37:44

doesn't have an ideology, right? Capitalism is

37:47

a system in which capital gets directed

37:49

towards wherever the people that have it

37:51

think it can. do its best use.

37:53

And so that best use might be,

37:56

you know, creating huge large-scale crematoriums for,

37:58

you know, concentration camps, or its best

38:00

use might be, you know, creating wonderful

38:02

public spaces. I mean, capital... doesn't have

38:04

a thing. So what does government do?

38:07

Government provides the guardrails, creates the rules,

38:09

establishes the playing field on which capitalism

38:11

operates. So if you leave capital into

38:13

its own devices, right, what do you

38:16

get? You get pollution, you get child

38:18

labor, you get, you know, all kinds

38:20

of things that as a society we

38:22

really don't want to be endorsing. So

38:25

government needs to come in to create

38:27

that sort of set of constraints under

38:29

which capital operates. So I think... a

38:31

healthy respect for government and is really

38:34

important. If you go back to the

38:36

1960s, 1970s, being a high-ranking government official

38:38

was seen as something really honorable. We

38:40

were serving your country, you were building

38:43

the future. And I think since then

38:45

the reputation of government's kind of taken

38:47

a hit the public understanding of what

38:49

government even does is kind of a

38:52

mystery. Now, business people, they don't like

38:54

taxes, they don't like having their, you

38:56

know... freedom to do whatever it is

38:58

they want to do to be rained

39:01

in at all. And so there's always

39:03

going to be attention, right? But I

39:05

think the two sets of institutions need

39:07

to respect each other, and I think

39:10

they need to understand they have a

39:12

different job to do. So when I

39:14

hear people blather on about, oh, you

39:16

know, government should be run like a

39:19

business, no. They should not. Governments exist

39:21

to fill in the gaps when markets

39:23

fail. A lot of our big problems

39:25

cannot be solved by market mechanisms. So

39:28

I'll give you an example some years

39:30

back. You may recall, there was this

39:32

discovery that the ozone layer was shrinking,

39:34

right, that there was a hole in

39:37

the ozone layer. It was the way

39:39

people talked about it. And no private

39:41

sector company was going to solve that,

39:43

because the villain in this case were

39:46

chlorofluorocarbons that bonded with oxygen in that,

39:48

you know, bonded with the ozone molecules

39:50

to take them out of the ozone

39:52

layer and do something else with them.

39:55

It was government that signed the Montreal

39:57

Protocol. It was all to all, every

39:59

country on the planet signed this protocol,

40:01

which is astonishing. And they basically said

40:04

CFCs are no longer going to be

40:06

a legitimate material to be used, because

40:08

the greater harm. to the greater society

40:10

is so extreme that we simply can't

40:13

allow this anymore. And so I think

40:15

government exists to say, this is where

40:17

it's okay, you know, you want to

40:19

compete like crazy on who's got the

40:21

best video game or whatever, go for

40:24

it, but if it's going to be

40:26

a threat to our natural order, if

40:28

it's going to create excessive amounts of

40:30

risk and danger for people. if it's

40:33

something that's really bad for human health

40:35

or well-being, that's where we're going to

40:37

say, no, you're not allowed to do

40:39

that. So, you know, this goes all

40:42

the way back to the tragedy of

40:44

the comments, right, where if you had

40:46

a field, then everybody's still allowed to

40:48

graze their cattle in that field, and

40:51

in the short run, they might make

40:53

a little bit of money, but in

40:55

the long run, you lose the value

40:57

of the field because it would be

41:00

destroyed. And I think that's where government

41:02

comes in. Exactly. So what you're pointing

41:04

to Rita is, for me, is we

41:06

should obsess less about the size of

41:09

government, wanting it very small or very

41:11

large, and more about the quality of

41:13

government, the focus on what it's supposed

41:15

to do, the incentives, as you said,

41:18

with the old pride in serving your

41:20

country. And you had mentioned earlier, Singapore.

41:22

Now, Singapore is also an example of

41:24

a country where the government sector works

41:27

spectacular. well. And so there are actually

41:29

models around us that we could look

41:31

at. So it's a very important point.

41:33

Rita, the last question I would like

41:36

to ask you to explore with you

41:38

is the following. Really, this really goes

41:40

to another one of your points of

41:42

strength in your recent research. We've discussed

41:45

how the world is changing, what we're

41:47

living behind, what we're moving towards, how

41:49

and why. Now, when a transition like

41:51

this one takes place, it will probably

41:54

one. take significant time to unfold. And

41:56

secondly, as it does, it will probably

41:58

change and evolve in ways that we

42:00

can't yet completely anticipate. So what is

42:03

a smart way to see to identify

42:05

the early warning signals, the signposts? What

42:07

is a smart strategy to follow this

42:09

transition along and be cognizant of the

42:12

signals that tell us, ha? Here we

42:14

have to pay attention, we have to

42:16

shift in a certain way. So I'm

42:18

very taken with the work of the

42:21

late Ari de Hughes on this. He

42:23

wrote a wonderful book called The Living

42:25

Company and he was at the time

42:27

working with Royal Dot Shell which was

42:30

one of the very earliest companies to

42:32

take seriously this notion of scenario planning

42:34

and what he talks about is creating

42:36

what he calls memories from the future

42:38

which I think is a fascinating wonderful

42:41

concept. Isn't it? I know and what

42:43

he talks about there is he said

42:45

well what you want to think about

42:47

is imagine multiple possible futures. So the

42:50

way our brains are wired is we

42:52

tend to sort of start at point

42:54

A and we think we're going to

42:56

go to point B and then we

42:59

plan for that right and that's not

43:01

the way to plan for high uncertainty

43:03

situations. What you want to be doing

43:05

is saying there are multiple possible possible

43:08

scenarios. Right? And what I'm going to

43:10

do is identify some of those, and

43:12

then I'm going to work backward and

43:14

say before that thing could happen, what

43:17

are some things that have to observe

43:19

in the world, right? That would sort

43:21

of alert me to the fact that

43:23

this is becoming more or less likely.

43:26

So let's take a specific example right

43:28

now. Autonomous cars. And what the whole

43:30

world has done with autonomous cars is

43:32

we've kept pretty much everything else about

43:35

the car the same, except we were

43:37

placed the driver. it's still that four

43:39

wheels, it's still as wide as two

43:41

horses butts, which is where the original

43:44

width of roads and things came from

43:46

back in the days of the Roman

43:48

chariots, right? So there's a whole lot

43:50

that hasn't changed, we're just replacing the

43:53

driver. And what we know about the

43:55

future is you can't just change one

43:57

thing because one thing changes into all

43:59

these other things. So if you imagine

44:02

the success of autonomous cars and you'll

44:04

connect it to this idea I had

44:06

earlier about, maybe we... and you know,

44:08

engage mobility systems when we need them.

44:11

If you put those two ideas together,

44:13

you could easily conceive of a world

44:15

in which humans no longer drive, right?

44:17

So that, that the whole environment is

44:20

free of human chaos and human idiosity.

44:22

And you could get rid of, imagine,

44:24

you could get rid of stoplights, you

44:26

don't have to paint the roads anymore.

44:29

In fact, you don't even need to

44:31

have bidirectional roads, right? The cars would

44:33

just know how to avoid each other

44:35

and get where they're going in the

44:38

most efficient way. And if you sort

44:40

of imagine that future, well, what would

44:42

have to be true before that could

44:44

happen? Well, we'd have to have, you

44:47

know, the technology would have to be

44:49

good enough. And we know in controlled

44:51

environments, it actually is already good enough.

44:53

We'd have to have legal infrastructure. So

44:55

who owns these things? Who's responsible if

44:58

they make a mistake? Who pays if

45:00

there's some egregious area? But you could

45:02

kind of work through all those things

45:04

until you get to right here now

45:07

today. Here's what I can observe right

45:09

now. And then logically then. Now what

45:11

that's going to tell you is not

45:13

a prediction that this thing for sure

45:16

is going to happen. What it's going

45:18

to tell you is I'm seeing more

45:20

evidence, this is becoming more likely. And

45:22

therefore, in my brain, like I've got

45:25

this memory from the future, oh, I

45:27

should pay attention. And so it's a

45:29

way of training your brain to say

45:31

what is worth paying attention to and

45:34

what isn't. As an excellent way of

45:36

putting it, Rita, we've covered a lot

45:38

of ground. It's been a fascinating discussion.

45:40

Is there a particular message you want

45:43

to be sure our audience takes away

45:45

from this conversation? Anything you really don't

45:47

want them to miss? Oh, well, as

45:49

a leader, I think, you're a human,

45:52

right? humans don't like uncertainty. It's frightening.

45:54

Even if we weren't crazy about what

45:56

we had, we at least we know

45:58

it, right? And so being asked to

46:01

go and think of something that we

46:03

haven't had yet and it's completely new

46:05

and it's completely different is very scary

46:07

for a lot of people. So one

46:10

of the things I think leaders can

46:12

do is absorb some of that uncertainty.

46:14

For today, here are the assumptions we're

46:16

going to operate on. For today, here's

46:19

what I need you to be doing.

46:21

For today, here's how our team is

46:23

going to work. So kind of create

46:25

a little cocoon almost of psychological safety

46:28

and willingness to sort of say, you're

46:30

in a safe space, you're good. And

46:32

when the next step comes, we will

46:34

make it, and I have faith in

46:37

you, and I believe in you, and

46:39

when the challenge comes, I think we're

46:41

up to it. You know, you know,

46:43

that kind of, and you have to

46:46

be authentic, and you have to be

46:48

authentic, and you have to be authentic,

46:50

cope with levels of uncertainty that most

46:52

people have never experienced in their lifetimes

46:55

is a pretty valuable thing for a

46:57

leader to be doing. That's fantastic. Professor

46:59

Rita McGrath of Columbia University Business School

47:01

and one of the best thought leaders

47:04

I know. This was a fantastic conversation.

47:06

Thank you so much for helping me

47:08

and our audience think through this massive

47:10

transition that we're embarking on. It's been

47:12

such a pleasure having you. Thank you.

47:15

And thanks everyone for joining us today

47:17

and please check out the new episodes

47:19

as we continue to explore the convergence

47:21

of innovation, technology and new business models

47:24

and how this convergence is reshaping industry

47:26

and what it means for our ecosystemic

47:28

futures. Follow us, subscribe on Apple Podcast

47:30

or wherever you get your podcast from

47:33

and you can always learn more reply

47:35

to be a guest speaker at Shoshinworks.com.

47:37

Thank you everybody.