Inflection Point

In this interesting podcast, Alex Tabarrok repeatedly points out there is no one answer on what works, and there’s no certainty on what comes next. Nah, he wasn’t talking of life in general; he was making those comments on the topic of what it takes to sustain economic growth:

1.  Traditional wisdom says the must-have’s for economic growth include strong institutions, rule of law, free markets and democracy. But then, he says, there’s the elephant in the room: China.
2. It used to be fashionable to point at India and China’s populations as problems not just for those countries, but increasingly for the world as they get richer, and consume and pollute more. Then again, both countries will invest more in R&D as they get richer, and having more people would increase the odds of new ideas and solutions to today’s problems. “People as stomachs” or “People as brains”, he calls the two views. Which is right?
3. Today, China’s growth looks unstoppable. But he points out, a couple of decades back, Japan looked like the economic superpower that might surpass the US. And Japan just stagnated since then.

No clear answers. No sure outcomes. It’s not a good feeling, and yet there it is.

Add to all of that a narrative that has stopped working. This is the state of the world today, writes Yuval Noah Harari in 21 Lessons for the 21^st Century. In the last century, we had 3 stories vying for supremacy, he says: the fascist story, the communist story, and the liberal story. By the end of the century, the liberal story had won. So today in 2019, why does the liberal story lie in tatters?

Harari believes the liberal political system was a child of its times:

“(It was) shaped during the industrial era to manage a world of steam engines, oil refineries, and television sets.”

It also responded to, and learnt from, the competing stories:

“The liberal story learned from communism to expand the circle of empathy and to value equality along with liberty… (so it included) working-class people, women, minorities and non-Westerners.”

Given its success, the liberal narrative soon assumed it was a “set-menu approach” - To be successful and rich, a society needed all the prescribed courses: free markets, privatization, free trade, global integration, democracy, rule of law, minority rights, multilateral cooperation, individualism, and ease of immigration.

But increasingly, with the rise of artificial intelligence, Big Data, algorithms that run the world, and biotech, it is clear that the liberal system doesn’t fit anymore nor is it able to adapt fast enough. The societal changes are radical:

“Very soon somebody will have to decide how to use this power… Philosophers are very patient people, but engineers are far less patient, and investors are the least patient of all. If you don’t know what to do with the power, market forces will not wait a thousand years for you to come with an answer.”

And so, as the liberal system fails to stay relevant with AI and biotech, there is a vacuum. And who’s to even say that there is one narrative for all of mankind?

“Maybe each country should adopt a different idiosyncratic path, defined by its own ancient traditions?”

Countries have shifted to a “buffet mentality”, picking only those courses from the liberal narrative that they like and ignoring the rest. No, not just China, but even the US with its isolationist trend, Britain with Brexit, an oligarchic Russia under Putin, and “strongmen” in India and Turkey. Since all permutations are on the table, we hear terms like “illiberal democracy”.

So yes, tough times ahead:

“We are still in the nihilistic moment of disillusionment and anger, after people have lost faith in the old stories but before they have embraced a new one.”

So how do we move forward?

“The first step is to tone down the prophecies of doom, and switch from panic mode to bewilderment. Panic is a form of hubris. It comes from the smug feeling that I know exactly where the world is heading – down. Bewilderment is more humble, and therefore more clear-sighted.”

Eventually, we will come up with a new/adjusted narrative, one that includes “artificial intelligence, Big Data algorithms and bioengineering”. After all, as Harari says:

“Humans think in stories rather than in facts, numbers or equations, and the simpler the story, the better.”