🔮 Horizon scan: Understanding the next decade

As part of my work for the World Economic Forum Summit in Davos this week, I am sharing with world leaders what I deem to be the most important issues to understand - and address in the next decade. You can find my full horizon scan on the WEF’s Strategic Intelligence platform, and understand how it fits into the Forum’s work in this agenda blog.

TL;DR

The coming year will demand an adroit private sector and a deft public one, and strong stomachs all around. Breakthrough technologies, like artificial intelligence, renewable electrification and deep tech will provide opportunities for research and development, innovation, and deployment-at-scale, as well as large-scale benefits to productivity, lower prices and decarbonisation. All of these areas face significant risks, many of which intersect with the geopolitical friction and macroeconomic volatility that forms the backdrops. Nations will find the definitions of ally, partner, competitor and rival becoming muddled, as they search for strategic autonomy and competitive advantage, especially in technology-rich sectors. Governments will become more active in steering their economies and fostering new alliances. This could allow them to re-engage with their citizens but all this will require choreographing new capabilities, greater receptiveness and additional investment. The gloom of tighter capital supply, a lower tolerance for risk and pallid or negative economic news will be the sombre baseline accompanying this performance.

If you have more time to read about each horizon, keep going.

AI as Unreliable Infrastructure

This year will be a milestone in the evolution of artificial intelligence

This year will be a milestone in the evolution of artificial intelligence as a capable and infrastructural technology, through the increasing availability of foundation models. Today’s foundation models are based on large-language models, which only debuted in 2018. These are already proving themselves to be productivity tools in white-collar activities, such as academic research, text summarisation and, even writing high-quality software code. Large-language models have surprised many. They have quite remarkable abilities to generalise across different tasks and transfer learning from one type of task to another. They also show “emergent” properties, that is, abilities that are not present in smaller models but appear at a particular larger scale. Foundation models may prove to be the first type of AI that has the qualities of infrastructure, analogous to the electrical grid that enables washing machines, subways, and factory production lines.

These developments will lead to an exponential increase in machine-generated content. The growth of misinformation is a risk. But perhaps more pernicious is simply that uncontrolled AI-generated content will flood our attention circuitry, weakening our ability to critically assess what we read. The race for larger models also raises some issues. Bigger ones are expensive to train, which may result in a handful of firms securing chokeholds over a key part of 21st-century information and intelligence infrastructure. This also hints at the risk of a concentration of power within a few decision-makers in the private rather than public sector; societal decisions without societal involvement.

Rivals with Benefits

Breakthrough technologies could increasingly be used as tools for strategic or military advantage

Technological development is reaching a turning point where those who develop first will have immense advantages. If you can’t achieve strategic autonomy, you’ll have to ally with those that can. And the sheer size of America’s Inflation Reduction Act and associated green subsidies has woken traditional allies up to a world of new tensions. This is the new fractal reality of overlapping cooperation and competition. Large blocs like the EU can allocate resources for advanced technologies at some scale. Smaller nations may be forced into more explicit alignment with particular countries. Or they may club together to leverage collective power, for example over critical mineral resources, to extract economic or political concessions. Businesses will face manageable but irritating costs to build greater resilience in their supply ecosystems but may also, as some internet firms have had to do for decades, decide how they operate in different geographies. Breakthrough technologies, which could potentially be the backbone of new global public goods, may increasingly become used as tools for strategic or military advantage. One priority this year must be to work out how to reinforce non-zero-sum thinking, especially around exponential technologies (and the underlying material and supply ecosystem that supports them.)

Keeping the Current Flowing

Electrifying everything will be the path to replacing the fossil economy

Wind, solar, nuclear and hydrogen will provide electrons. Electrolysers and other new industrial processes will provide important carbon-neutral intermediates. Heat pumps, batteries and other storage will tackle heating and transportation. And a smarter, digitised two-way grid will shuffle these electrons around with great resilience. However, this journey has three speedbumps which will require coordination between the public sector, policymakers and the private sector. First, new frameworks ranging from permitting, and licensing to market structure, are required to foster the development of renewable energy infrastructure. There are significant regulatory barriers to nuclear, especially SMRs (small modular reactors), which may prove crucial to reducing energy poverty in the Global South. Second, the growing demand for key materials for storage, in particular lithium, may result in short-term backlogs and price rises. Thirdly, several potential technologies, such as electrolysers, new storage methods and bioreactors, are very early in their development and, as such, expensive. Driving down prices will require clear signals that markets for these technologies will exist: only with these signals will the risk capital flow into these firms, enabling them to iterate, reduce unit costs and expand markets.

Kindling Deeptech’s Promethean Fire

Deeptech ventures require more than traditional venture capital, from governments as well as companies

We’ve started to see the benefits of deep tech, whether it be RNA-based vaccines, global satellite communication networks or artificial intelligence. Promising fields from materials, to the bioeconomy, nuclear fusion and quantum computing also show promise to help deliver essential solutions to achieve the Global Goals. To foster these breakthroughs, we must address three risks. The first is to find repeatable and accessible funding pathways for deep tech ventures. Such ventures may have longer gestation periods and entail more binary choices than traditional software technologies. In the new risk-averse, parsimonious environment, these new Prometheans may be starved of capital. Companies are holding more cash than ever. Accessing their balance sheets as co-investors could go some way to alleviate the problem. Government activity through grants, matching funds or clear signals that markets for emerging technologies will exist, will be important. Clear and transparent signalling about the importance of a given sector, possibly through the tool of procurement, whether it is advanced materials, the bioeconomy or quantum computing, could help raise interest. Geopolitical competition could also retard these sectors, as researchers reduce cooperation and specialist supply chains, for chips and components, atrophy through import and export restrictions.

Old government, new tricks

Climate change has pushed several countries to adopt a new doctrine of “catalytic government”

Turbulent times, uncertain markets and the pressing need to tackle climate change have pushed several countries to adopt a new doctrine I call “catalytic government”. This approach sees governments identifying national goals (for example, a resilient, secure green one, built on advanced technologies) by fostering entrepreneurialism, financial investment and security in critical sectors. This has worked in supporting emerging technologies, such as GPS, the Internet and the RNA platform. It has also had success, historically, in creating new markets in renewables. However, this is a new dance move for a public sector that has for five decades allowed the market to set the industrial agenda. Will government bureaucracy be able to develop the competencies for their new catalytic role? Will the players be able to develop suitable public-private partnerships? Can politicians favour science-based levers? Even in historically stable democracies, it is often too tempting for political leaders to invert arguments and send the wrong kind of signal to the market. But effective catalytic policies will increase national appeal and become a core competitive advantage.

Investing in democratic legitimacy

Governments need to act to eliminate potential faultlines to reap a transition dividend

For several years, democracy was perceived to be in retreat. The past few months have reversed that assessment: populism has stumbled in the US and Europe, and autocratic regimes have stumbled. And being more actively involved in shaping national priorities - focusing on strategic autonomy, advanced technology and the green transition - democracies are doing more for their citizens than the supply-side oriented vintage of the 1980s. But the spectre of weakening economic growth and inflation in staples presents real challenges for economies of all sizes. Governments need to act to eliminate potential faultlines to reap a transition dividend. Short-term investments in education from primary to University and beyond will be critical. So too will be fostering new classes of citizen engagement, such as deliberative democracy. Taiwan’s vTaiwan digital consultation platform is one such example, another is the Brussel Capital Region’s recently formed permanent Citizens’ Assembly on Climate. Ultimately, governments will need to figure out how to turn pitchforks to ploughshares.

Expensive Money

As markets adjust their risk appetite, 2023 will be a year of uncertainty and staggering variability

In 2022, money became expensive as central banks around the world raised rates aggressively. As markets adjusted their risk appetite to this new monetary reality and the arrival of increasing inflation rates, technology and innovation investments took a hit: a drubbing in public markets was accompanied by a drying up of riskier venture capital. Prospects for 2023 speak to more uncertainty than certainty and the highlight of the forecasts for the largest equity markets in the world is their staggering variability. This economic outlook thus provides an unavoidable grim backdrop for 2023. For deep tech innovators, the challenge will be to secure the different tranches of funding for risky development or larger, more complex deployment and scale. For governments, it will be to find funds to invest in a more active state and provision of increasingly required welfare. For industry, the tightrope will be to meet shareholder expectations in a downturn or to take the opportune moment to invest in their own exponential transformation.

See the full World Economic Forum programme here, and register to join me tomorrow at 09:00 CET here.