Let me start off with a quote from one of my former bosses He said, 'Look, fortunes are going to be made but the trick is figuring out where the risk is going to come from.' On the one hand, we're sitting here today without much visibility on what those risks are but we need to be able to figure out what those risks are because they will determine how successful we are in the future The reality is, we don't focus on those risks but the truth is, in years to come, we'll hit ourselves in the forehead and say, 'How could we not have seen that?' All you will remember is that we didn't see it. So I'm here today to talk about those types of risks. Risks in economics, risks in politics in particular. We can have a conversation afterwards on what's the risk in the social sphere might be. I've been cautioned that my speech has to be positive So I will let you know that at the very end I have a few constructive, positive things to say. Economics. It is absolutely clear to me that the defining challenge that we face today is how we're going to create economic growth. How are we going to restore growth in the developed world without having to rely on QE in the United States, across Europe and Japan, but also how are we going to ensure economic growth continues across the emerging markets where 90% of the world's population lives today?' Moreover, where over 70% of the population is under the age of 25. Last year in October 2014 , the IMF stated that as far as they were concerned, in their world economic outlook, that the world would never, ever see the growth rates that we saw before 2007. McKinsey this year put out a fascinating report projecting 50 years out and arguing that growth rates globally are going to plummet to around 2%. That's nearly 50% lower than what we've seen over 50 years. Take a look across the emerging markets Countries that have at least 50 million people are growing at incredibly low rates. Places like South Africa have 1.4% growth forecasted, and Brazil just last week, with the World IMF Conference, in their estimates, Brazil will be contracting this year. Why does this matter? It matters because in order for us to meaningfully put a dent in poverty, and to be able to increase per capita incomes, we need to be growing by at least 7% a year. Whether it's Argentina, Russia, Brazil, India etc. Nigeria. Have a look at the top 15 countries that at least 50 million people each in the emerging world and this will make you worry. It's not just economics where we have this bubbling risk that we tend to ignore. Also in politics There's clearly a rise in political disorder. The Economist Intelligence Unit last year put out a report stating that 65 of the world's 150 countries that they looked at would see significant increases in political and social risk Meanwhile, Horizon 2025 has put out a report saying that 80% of the world's population will be living in fragile states by 2025 ' General Martin Dempsey who is the Joint Chief of Staffs in the United States today has argued that this is the most dangerous period that he's ever seen in his life. Partly driven by ideological views from religion, but also from the scarcity of natural resources and concerns around depleting water around the world. I might add at this point that we live in a very unique period of time and I know Andy showed you the graph of population growth. It's really worth stressing the point that in the 1960s the world population was at 3 billion. Today it's over 7 billion We will not see the world's population plateaux out until 2100 according to demographers, at which point we'll be 10 billion people on the planet. It's really important for us to understand that we happen to be living in a very unique period of time where the confluence of factors such as demographics, natural resource depletion, concerns around income inequality, and the disruption of technology are now setting in. All of these factors are creating a situation where economic growth could stall and is stalling and could actually become a big problem for the way we live. How are governments and public policy members addressing these issues? If I haven't depressed you enough I'm about to depress you even more On the one hand, we have issues around trade. Pascal Lamy, who was the Head of the WTO in 2013 raised the alarm that trade around the world has actually come down, and that at that point if you look back 10 years, we have actually not seen an increase in trade around the world Part of the reason we're seeing a decline in trade is protectionism Not just in developed countries but also developing countries Not just naked, what I call naked protectionism where they're adopting tariffs and quotas, but more insidious types of protectionism in all forms of factors of production, whether it's capital or labour. This is actually causing a concern around global trade which economists for a long time have argued is a key pillar of our ability to create economic growth and reduce poverty. Cross border flows have declined If you look at a report by the Institute of Finance but also McKinsey about six months ago, they've argued that cross border flows, particularly with the risk of the United States raising its interest rates have caused a suction of capital from the emerging world back into the developed world The consequences of this are that we see significantly lower investment in public goods such as education, healthcare and infrastructure, but also we see the cost of capital rise across the emerging world. Another key factor, another trend, is that we're seeing the rise of state, and by that I mean the rise of the role of government. Not just in emerging countries where governments do have the responsibility to provide public goods, perhaps beyond what we see in developed markets but that they also are the arbiter of capital and labour. But we're also seeing a rise of state in developed countries where governments are providing significantly more welfare payments. About a year and a half ago Angela Merkel, chancellor of Germany, stood up and said, 'We should be worried about 7, 25 50.' Her audience looked perplexed because people didn't know what she was talking about She said, 'Europe is 7% of the world's population. It's 25% of world GDP and represents 50% of welfare payments. If you add the United States to that number, you have about 13% of the world's population, 50% of world GDP and nearly 90% of world welfare payments.' Clearly this is unsustainable If you look at the top 10 biggest employers, largest employers around the world today any guesses for who the largest employer is? First and second are government The United States Military with approximately 3.2 million, number 2 is the Chinese
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army. Only the number 3 on that list is the first time we see a private company. In this case, Walmart, with 2.1 million people. I won't go through the full list but perhaps unsurprisingly Indian Railways is on there. British NHS. Basically 7 out of the 10 are governments. So there is significant pressure for governments to expand and provide opportunities, and I think the question earlier on about people, what will happen with all this technology? I think we will see a greater expansion of government. Now as I said, I'm not really here to depress you but these are the facts The question then becomes, 'Well what are we going to do about it? 'What should we do about it?' I'm reminded that October 2013 a ship capsized in Lampedusa which is a small island off Italy. Around 360 Africans drowned including a woman who was found having drowned with her 7-month-old baby which she had given birth to during when she was drowning who was still attached to her umbilical cord. The reason I tell this story is because Pope Francis quickly came out and said 'This is a new level, a new low of globalisation of indifference.' It was largely because there was really almost no media coverage of what had happened. As I look out into the future and think about economic growth, issues around political strictures and how it is we're able to create the economic growth that we so desperately need I think it's really important to encourage us as a minimum to not become globally indifferent How does that happen? It means that we have to call to task our political systems to actually perform, and a part of that is really looking at these systems, political and economic systems, and challenging them to be the best that they can be. As part of doing that it may mean that we have to shed some of our ideological beliefs that these systems are inherently good. It's not to say that we think that people should not have free rights or human rights but it's to really credibly with a cold towel over our heads really look at our systems and see where the opportunity for improvement may lie. Unfortunately, I'm running out of time, so I can't go into great detail on what those solutions may be, but of course you can buy my next book which will have that information Thank you so much.