A position paper on the forces converging into the next decade, which will create more volatility. We constantly underestimate changes and resist new conditions.

1. 1
15 February 2017
WHY THE NEXT
DECADE WILL SHAPE
THE CENTURY
There is a convergence of forces in the next decade that will impact the rest of
the century. But we consistently underestimate the impact of changes and
western democracies are losing their abilities to renew themselves. In a
nutshell, we are mostly reactive and resist new conditions.
André Du Sault
MBS (LBS), MPA (Harvard)
sdaconseil@sympatico.ca
C 514 777-1538

2. 2
WHY THE NEXT DECADE WILL SHAPE THE CENTURY
Converging forces in the next decade will imprint the century. A potent combination of high tech
globalization, digital forces, (un)sustainable development and geopolitics will likely upset our lives. As
these fundamental forces essentially represent exponential changes, most of us are unfortunately wired
to underestimate the speed and impact of those changes. Personal fate will vary with outlook. Sadly,
some people are just plain blind to major changes and get trampled by them. Some correctly see
changes ahead but their innate resistance to change impedes them to take action. They hope for the
best, but often get the worst. Smart operators will take a fair reading of today's pace of changes, take
action but still miss the future by a wide margin because of the exponential nature of today's changes
(see chart 1, and think about the rise of China). Making projections on the basis of exponential growth
often falls outside the range of our experience and abilities. But when we think in decades, they make
sense. Expect to be resolutely tested in the course of the next decade as never before.
Chart 1 - Why most of our predictions on change are wrong
WE HAVE A DIFFICULT TIME RESPONDING TO NEW CHALLENGES
What we have learned in these past 16 years in the West and Canada, it is that any form of coordinated
response to a profound change has generally turned out to be either too slow, inadequate or both. We
have seen that kind of response with past financial bubbles, turning points in globalization and climate
changes. How can this be explained? Most public institutions, bureaucratic by nature, have now
become far more reactive and passive than pro-active for a variety of reasons. Entrenched interests in
the public sphere, such as the high mandarins of administration, are principally more concerned about
avoiding mistakes than risking a new course. They play conservative and protect positions. They know
politicians are quick to shift the blame to bureaucrats whenever adverse outcomes bubble up to the

3. 3
surface of news media. Government departments have thus learned to shy away from transparency and
accountability. Public unions, always a major stakeholder, usually concur since they are more concerned
about members than reforms. They usually advocate higher funding before improvements. As a result
performance in critical public services has generally declined even if deficits have shot up. In Quebec the
Robillard Commission Report on program performance review published in June 2015, amply illustrated
this state of public affairs.
In the private sector, we have witnessed scores of companies blowing up their corporate values for the
sake of short term profitability. We know that institutional pressures for profits are tremendous upon
public companies. Nevertheless it has become a little too easy for a string of major companies to
disregard basic social responsibility. For example, Volkswagen got ensnared in a diesel emission scandal
where corporate responsibility ran deep. Many pharmaceutical companies have received very large
fines (at times exceeding a $1B) for promotional malpractices. Wall Street now even considers them as
part of the cost of doing business! Mining companies are notorious for leaving behind environmental
contamination and social costs. If in most companies there are more than one executive willing to put
profit before values and principles at critical decision points, in most political parties there are politicians
and militants more than happy to put convenience, partisanship and winning the vote before the public
good.
Add in the multiple stories about inequity such as the one recently reported in Barron's, where 'the
share of all income going to the top 0.1% approached 100% of all the recovery in total income since the
lows of 2009'. We need not be surprised to see public resentment breaking out in the open during
elections. Globalization and financial markets have created the famous or infamous 1%. Western
capitalism and governance need repair but it remains difficult to see where the leadership will come
from. Politicians have lost credibility, financial markets get away with murder and corporations are
pressed to squeeze every ounce of profit. Municipalities usually enjoy a larger degree of freedom in
launching new initiatives, but they also represent the order of government most subject to corruption in
America. Could NGOs in turn provide fresh leadership? Henry Mintzberg advocates a bigger space for
them in his book 'Rebalancing Society'. But lack of funding, scale, and governance often work against
them. Therefore if governments have a hard time to tackle a single big change, just imagine their
response when 2 or 3 big forces converge in the next decade. Let us consider the terms of some of
these forces.
1. TECH GLOBALISATION: UP ONE MORE GEAR
After more than 500 free trade agreements were signed in the last few decades, globalization is slowing
down and taking a pause. If Western nations were the main promoters and beneficiaries of such
agreements from the 60s to the 90s, the winds have now turned to favor Asian nations, along with the
rise of China.
The flurry of free trade agreements (FTA) have changed the nature of global winners. Early FTA such as
NAFTA (1984-89) were about lowering tariffs and facilitating the integration of regional economies.
Now 20 years later, FTA have come to greatly favor, on a global scale, either the cheapest producers

4. 4
(China, India...) or the best makers in quality, technology and design (Germany, Switzerland, USA). We
are way past regional integration as multinationals can now leverage lowest costs, lowest taxes and
highest investment subsidies to their advantages worldwide, with little concern for home countries.
This change in the rules and beneficiaries is leaving behind a sour taste with voters and workers left
behind in the West. Dani Rodrik, from Harvard University, asserts that globalization can at some point
tear societies apart, undermine democracy and widen inequality and social conflict, as many countries
lack the social buffers to handle trade dislocations. He quotes: ‘Countries have the right to protect their
own social arrangement, regulations, and insitutions and that’s more important than squeezing the last
bit of purported efficiency gains from trade. As a counterpart in Asia, China pulled 800 million people
out of poverty, an astonishing feat. This balancing act between global gains and losses has built tensions
around globalization that are proving difficult to manage.
Most trade agreements used to work their effect in slow motion, leaving time for signing countries to
find the correct pace of adjustments. This time adjustment was upset when China joined the WTO in
2001. The speed and scope of their industrial revolution has since been exponential and has caught off
guard a large swath of institutions, governments and companies. The pace of China's economic
development has been driven by both a natural desire of enrichment and a hunger for geopolitical
power. Their voracious appetite for technology acquisitions by all means, even dubious ones, has
unmasked intentions going well beyond economic motives. If Japan primarily used joint-ventures as
their object of tech transfers, China has added tech hacking as a faster means of technology acquisition.
This strategy has probably cut 10 years in their industry development. This is the missing buffer that is
hurting a lot.
Unfortunately for those countries caught in between the best and cheapest, typically in the middle tech
range such as Canada, Asian competitors are redefining the quality/price ratio to their advantage in a
host of value chains like machinery, transportation, industrial manufacturing, etc. Japanese companies
had been the trailblazers in the 70s and 80s when they succeeded in moving up the value chain by
redefining quality/price ratios in cars, electronics, etc. Consider that the television was invented in the
USA in the 1960s, only to see Japan capturing the bulk of industry in a matter of less than 20 years with
higher quality and lower prices. We are now seeing a repeat of this challenge from China, but on a
larger and faster scale. For incumbents in the West, it has proven difficult to simultaneously lower their
cost base, and increase quality, technology and design (chart 2). A few succeed, but by far many
medium size companies fail to raise their management capabilities. It seems we have not learned the
lessons of the 1980s.
China, four times bigger than Japan, has mostly followed Japan's blueprint in industrialization:
Leveraging volume for cost advantage, moving up in the value chain, protecting the domestic market,
and subsidizing their champion exporters. Japan Inc became frighteningly powerful in the 1980s.
Today, China Inc has the full weight of a government bent on winning at all costs. Chinese companies
have now reached the stage where they can upset most middle tech sectors, including medical device,
white goods, electronics, transportation equipment, etc. The cumulative impact of the rise of China in
the past 15 years has shaken the economic model of Western institutions. Just as Western companies
were figuring out the scope of the competitive challenge around 2006, the financial crisis of 2008 hit

5. 5
them like a storm and cause the West to bear a delay of 10 years in finding the proper response to this
competitive challenge. And the challenge is still growing. Armed with a strong cost advantage, the
emerging champions of Asia and China are fast developing competitive capabilities in added services,
customization, innovation and long term relationships. The best Chinese companies have become
extremely competitive. This management approach has yielded formidable results in emerging countries
all over the world for China. For mid-size economies like Canada, the economic future will lie in
handling 3 challenges: 1. capturing a share of the rising digital economy as it grows to replace
traditional businesses, 2. growing new challengers and champions capable of competing on a world
scale basis, 3. raising our technology game from R&D to commercialisation. In general, most companies
will need to significantly improve their management game, whether in the start-up phase of 1-25
employees, the difficult scale-up phase of 25-100 employees, or as a challenger in the range of 100-500
employees. Growing new Canadian champions will require a wide range of top level management skills
to be put in place.
Chart 2 - The economic challenge to the Canadian economy
You might think or wish that globalization is pausing for a while but it is far from over as many nations in
Asia undertake to migrate from their middle tech positions in pursuit of the high tech green fields. The
whole region of Asia will maintain an extraordinary mix of low labor costs, rising middle classes (good for
consumption and economies of scale) and multiple technology hubs. It has built itself into the most
competitive continent with a vast trade network. Massive R&D investments in Asia done in the last 15
years are likely to hatch in the next decade, just as it did for Japan in the 80s. Over 1250 R&D centers
from multinationals have opened up in China alone, both for cost reasons and market entry
requirements. Small and middle size countries, such as Canada, have been at the losing end of this shift
in R&D assets, because they now represent small markets and expensive R&D resources relative to Asia.

6. 6
For instance, Montreal has witnessed a string of foreign R&D capacities in global industries such as
pharmaceuticals, telecoms..., leaving town in the last 10 years. Middle income countries are likely to
continue to feel the pinch in the next decade. The combination of small domestic markets, ageing
populations and a sub-par performance in technology innovation will negatively impact on their
economic growth.
Finally, the Chinese economy is predicted to overtake the USA as the biggest economy towards the
closing of the 2020s decade in nominal terms. When you are the top gun in trade and economic growth,
you are equally the top boss at the international institutions. Expect China to bear weight on the
international scene commensurate to that future No 1 position. Though the No 1 position is within
sight, China will nevertheless need to succeed in handling its very high debt position and in its transition
to a high technology status without festering a crisis. If they do succeed, they might the facto control a
large swath of world trade. Some might devilishly wish for a repeat of the 1990 financial crisis that
stopped Japan's rise in its tracks, but such a financial correction is only likely to slow down the rise of
China. Contrary to Japan, China has built and controls a very extensive network of foreign trade assets
in ports and installations, all strategically positioned along their main trade routes. If Japan played
within the rules of the Western liberal order, China, leverages the liberal order to strengthen its own
mercantile system.
2. THE DIGITAL ECONOMY: NEW ECONOMY, NEW ORGANISATIONS
The digital revolution is marching on as Silicon Valley is pressing its advantages. In December 2013, the
technology world crossed a landmark: smart phones topped for the first time the world mobile handset
market, thereby pushing the planet into a new digital age, built on platforms and applications.
Software runs factories, virtual reality is moving into stores and artificial intelligence is already replacing
operators, substituting all kinds of repetitive processes. It is about to uberize the professional class as
well. We need only witness developments in the retail sector: the templates to deal with online
customers are being optimized through a constant flow of innovations sprouting from a myriad of
players. The new digital templates provide a combination of choice, information, logistics and services
that will eventually serve as a springboard to other sectors, such as professional services. It is thus just
a matter of time before cross-fertilization to the professional fields take place, assisted by cloud
technologies, predictive analytics and artificial intelligence to improve accessibility, create more
transparency and stimulate value-added services. New digital technologies all carry the potential for
exponential changes.
To compete with Silicon Valley, and adjust to the digitalization of industries, traditional companies have
undertaken to 'digitalize' their own internal operations. This is the beginning of a deep trend led by the
digital transformation initiated by giants like General Electric. GE, betting on the Internet of Objects, is
aiming to become the hybrid of a cloud company with automated manufacturing. Rohit Talwar, CEO of
Fast Future Research, adds that 'Such companies do not treat data and digital technology as expenses,
but as a bedrock to design their future organizations’. They are not alone in responding to this digital
challenge. Car companies have opened more than 20 R&D centers in Silicon Valley, as the stakes on the
future of the car have pushed up levels of stress in the industry. As a matter of fact, most industries are

7. 7
plugging into Silicon Valley in the hope to catch the right side of the digital wave. They will see that
digital technologies will force them to digitalize their companies. Silicon Valley companies have been
incredibly efficient at removing pain points in the customer experience journey. A lot of traditional
companies are still dragging their feet about how to truly focus on the customer, map their experience
and organize processes to deliver the promised value. Digital enterprises are winning hands down on
the customer needs. Yet acquiring and switching to a digital mindset does not come naturally and
effortlessly.
Chart 3 - What the digital economy has in store for us
With slow growth rates in the West increasingly reminiscent of secular stagnation conditions,
digitalization will first save costs and then spur sales for the early adopters of digital marketing. This will
in turn set in motion a train movement. Other companies will have to follow the digital pioneers in
optimizing their own digital ecosystems. These are now the days when traditional marketers meet face
to face with the young digital disrupters in their early 30s, teaching them about how wobbly their digital
business stands, and how late they are in the digital game. Expect more automation, robotization, and
artificial intelligence moving into the office, just as a clash of generations manifests itself around the
corner. The future of work and organizations is already in transformation as digital technologies will
see the millennials act as their main carriers. They will soon get the license to change their organisations
as well.
3. AGEING AND MILLENIALS: MORE THAN A NEW GENERATION
According to the United Nations, world population reached 7 billion in 2011, will pass 8 billion in 2024, 9
billion by 2040, and near 10 billion around 2050. Africa and South American and some parts of Asia will
lead this population growth. There is little doubt that this inexorable increase in population will impact
on resources, crops, asset prices, energy uses, climate change, conservation, etc. Behind this scenario of
a few more billion people on earth, there lurk 3 important trends: 1.ageing populations in industrialized

8. 8
countries, 2. a worldwide middle class rising faster than population growth, 3. the upcoming generation
of millennials, harbinger to a digital society .
Many industrialized countries are reaching the tipping point of a decline in the working force. Japan has
been on this track for nearly 10 years, which is just about the time for the pain to become more acute.
The easy solution of stepping up immigration has worked for a while. But it has also been demonstrably
circumscribed for political reasons in the West. Even in the USA where the continuous flows of Latino
and Asian immigrants have long been mitigating the ageing population effect, notably in comparison to
Europe, the Trump election has rang a bell that security and immigration were now square in the center
of the political agenda. In Quebec, the working force peaked in late 2014 and should follow a gentle
decline until the 2020s (hopefully). It remains to be confirmed whether multiculturalism as a national
policy can accommodate a larger proportion of immigrants and maintain social order. The policy worked
well in boom times, but has been less than tested in turbulent periods.
Chart 4 - The effect of ageing workforce
Population ageing is also flashing a significant change in generation. We will reach a 'BBBB' moment in
about 5 years: Bye Bye Baby Boomers. The next 2020-2030 decade will see the millennials moving in
positions of control in increasing numbers. If the millennials of the 1960s gave impetus to the Quiet
Revolution in Quebec, what might this incoming generation do as the old millennials-turned-baby
boomers retire? They certainly behave, communicate and buy differently. In a class of Bcom students,
40% raised their hands when asked who bought 90% and more of their total purchases on line. They
expect speed and seamless service. They travel and entertain differently. They reward brands that
integrate their values. They stay home longer in exchange for a better lifestyle budget. They will
redefine work as we move from traditional in-office work, to distant and autonomous work, to hired
agents for organized community projects . The sharing and networked economy will take further hold
ahead, as multiple applications remove the pain points of everyday life transactions, increase speed and

9. 9
lower expenditures. The Trump campaign team of millennials ran the election as a growing start-up
operation, with great efficacy on a small budget. Just possibly will we see millennials reinvent politics,
suburbs, transportation, etc. But just possibly.
Yet not all will be golden to millennials. As companies will increasingly rely on their creative output in
the fields of R&D, design, innovation, new apps..., they will also want to scoop up the best years of their
young creative workers. Current practice in several creative agencies is to hire young professionals with
6-7 years of experience and keep them for 6-7 years. Hiring and engaging the smart millennials will also
lead to a redefinition of roles. Job interviewers ought not be taken aback by assertive millennial
interviewees, such as heard recently during an interview at a renowned professional firm: 'What's the
provenance of the fish served in your cafeteria?' Millennials will change the nature of work, and
companies will change the nature of careers. Lifelong learning will become inevitable as the inflexion
point when the depreciation of intellectual capital exceeds learning, hits professional millennials at an
ever younger age.
4. SUSTAINABLE DEVELOPMENT: GETTING HOTTER
Chart 5 - Global warming emissions from the WRI
India and China will eventually decide the fate of climate change and sustainable development. The
mere increase of their population and their economic aspiration of their rising middle class for a better
life will continue to put pressure on worldwide resources: timber, crops, fisheries, wildlife, water, etc.
The rapid development of Asian middle classes has now pushed up prices on most commodities prized
by Western consumers, such as coffee, tea, chocolate, meat, fruits & veggies, etc . The Western worker
has had to swallow a bitter pill: not only has he had to bear a fall in real income and but also a price

10. 10
increase in most assets and consumption goods. The great consumption years of the 1990s with
declining prices have already faded in memory.
India and China have growth expectations of 5-6% per year for the next 10 years. Obviously the type of
energy harnessed to fuel such growth will bear a big impact on climate change. Renewable energies
have rapidly progressed and can now offer a competitive alternative to carbon energy sources in a
widening scope of applications, as Jeremy Rifkin advocates in his book 'The zero marginal cost society'.
We may very well see the beginning of a major transition in energy in the next decade. Still, coal and
petrol will remain the main power sources to the world until 2030 and beyond. As such climates will
surely continue to change, and not for the better. The pricing of climate change risks and asset
valuation will soon attract institutional investors. This will be a game changer. One of the biggest risks
of climate changes remains the occurrence of a string of 4-5 years of bad crops and famines afflicting
fragile agricultural regions, such as North Africa or the Middle East. A severe food crisis could rapidly
trigger a host of international problems from a severe migration crisis to the outright failure of a state.
We have already witnessed such micro events in the last decade. As a result water politics are fast rising
in the agendas of the World Bank and United Nations.
With higher world population and industrialization spreading to other nations, will conservation become
a luxury? We frequently have to turn to small marginalized nations like Costa Rica, Guyanas and
Suriname, to recognize true reservoirs of nature and wildlife. How will the larger countries such as
Canada, Russia and Brazil, well endowed by space and nature, handle the conflicting aims of economic
development and conservation? Can they find visionary positions in this era of multiple and conflicting
interests?
5. GEOPOLITICS: MAKE CHINA GREAT AGAIN
When China built its first outpost on reclaimed islands in the South China Sea in the Fall of 2015, it lay
the first peg of the new Great Game. Building fishing camps, commercial buildings and military
installations on these islands was akin to building a new fence. Once built, it is hard for neighbors to
remove it. This is a turning point.
The Great Game referred to power plays in Central Asia during the British Empire, with the Indian colony
serving as the pivot point to the Empire. During 150 years, neighboring countries such Russia, Persia,
Tibet, Afghanistan and Central Asian states all played accomplices in a multitude of efforts to break the
hold of Great Britain over India, with no avail. Keys to the empire included stability in the Middle East,
control of the Indian Sea, and in particular of the Moluccas strait near Singapore, and finally secured
trade access to China and Japan. This was the recipe of the British Empire until WW1. Then world
leadership passed on to America, a more innovative republic than the royal lands of Europe. The
American industrial revolution was built on the telegraph and telephone, the car and petrol, and a half-
century of big innovations.

11. 11
Chart 6 - The British Empire controlled the corridor
Chart 7 - Pax Americana and military bases, also dominant in the corridor
Pax Americana as well has needed to control the same corridor from Europe to SE Asia, with a string of
military bases. For America, the pivot shifted from India to the Middle East for both economic and
energy reasons. It is no wonder America has maintained a play of strong alliances with Saudi Arabia
and other oil producers in the region. The invasion of Iraq and its aftermath has however cast doubt

12. 12
about the ability of America to stabilize the balance of powers in the region. The cost to the treasury
has been enormous relative to the interests gained in the region.
Underneath the radar, it is Pax Sinica that has considerably arisen. Unlike Japan during their economic
rise to power, China has been busy building an international and formidable network of maritime assets.
According to the Financial Times, China has direct investments in two thirds of the world's container
ports, the fastest growing coast guard fleet, an armada of over 200,000 fishing vessels, and expanding
military installations in the Europe-Asia corridor.
The typical pattern in China's strategy has been to claim that maritime assets in foreign lands were
meant solely for commercial purposes, until the time military facilities were later discreetly added under
the veil of stability and protection necessities. This has fit into China's strategy of 'One belt, one road', in
support of their domestic exporters. The Asian Infrastructure Investment Bank and its one trillion dollar
loan portfolio will add political leverage. Regional free trade agreements led by China and security
organizations such as the Shanghai Cooperation Organization in Central Asia, will work to activate this
China Belt. The clash of two rival systems in the same corridor looks rather inevitable. A new Great
Game has thus begun between an incumbent now weary of international obligations, and a challenger
willing to expand influence in his own style, as fast as possible.
Chart 8 - China's trade network, WEF

13. 13
Chart 9 - China's network of ports
Chart 10 - China's fledging naval installations
In 2013, Sir Samuel Brittan, star economist at the Financial Times, wrote about 'The decline of Western
Dominance'. Most experts expected a gradual shift of power to Asia taking place within the Liberal
order established after WW2. But this is not what we are witnessing. China is creating its own China-
based system and is clearly lodging a challenge to the America-North Atlantic alliance. As they move
and expand their direct sphere of control, we are seeing the return of the old behaviors from the 'China
with the mandate from heaven', and not just at home. There is a general feeling that trade with China

14. 14
works more often than not to their side and way. They take advantage of liberal ways in the West, but
impose the Chinese ways at home, with multiple restrictions on investments, technology and rights.
Playing fields remain largely uneven. This should bring the end of illusion for all the advocates that once
believed China would westernize and not just modernize. This is also the end of illusion for the Western
consumer, who has pushed credit a notch too far, the end of illusion for the Western worker if he does
not raise his productivity game, and the end of the Western politician if he keeps responding to narrow
special interests and not the public good.
This is the first time that America will face a challenge of that magnitude. The Cold War challenge came
up from a totalitarian regime in the Soviet Union who could not keep up with American capitalism. At
the end, Gorbatchev needed to cut a deal with Reagan and wrap up the Cold War. But the cost of
winning over Soviet communism over a long period hid several unfortunate misreading and blunders by
America in the territory of Asia. Notably the Korean and Vietnam wars were carried out in the name of
stopping the domino-effect of Communism. This strategy ultimately proved ill-devised and very costly.
It moreover froze relationships between America and China for 30 years, until Nixon met with Mao in
1972. There has been much talk and many books about how China was lost to the West in WW2.
The next chapter will require a great deal of deft diplomacy, in a corridor of countries where America
does not hold a spotless record, and where China is becoming more and more assertive, more generous
with cash and more attuned to local authoritarian regimes. The super cycle in commodities financed the
rise of many of these authoritarian regimes in the developing world (several in the Europe-Asia
corridor), happy to lend an ear to the leadership of China. We shall see how the Trump administration
will jostle and position to pull back from a declining standing in world affairs.
The traditional North Atlantic alliance between America and Europe, guarantor of the rule of law in the
Western hemisphere, lies in a weakened state. The European Union is still reeling from the 2008 crisis
and struggles to repair its Union. Western political parties across the spectrum have fared little better.
Most have pushed up partisanship to the point of corrupting their core democratic values, thereby
losing both trust with their population and their ability to attract solid and trustworthy candidates. New
parties, often at the extremist edges, have suddenly appeared from nowhere in response to a political
establishment that succumbed to the lures of the financial establishment. Remember the widespread
deregulation of the financial industry in the USA in the 1990s that culminated into two financial crises in
the following decade. More parties also entail the spread of votes on the full political spectrum which
makes it more difficult to create stable coalitions. They end up providing the conditions for a breach in
populism. Without a strengthening of the Atlantic alliance, we should not be surprised to see China
pushing forward its own agenda of world order.
THE DECADES COME AND GO, BUT BAD MISTAKES LEAVE PRINTS
We saw in the 1970s and 1980s the rise of Japan as an economic power, a rise which in turn induced the
creation of NAFTA and the common European market and currency. But for the Japanese, it all ended
in their financial crash of 1990. Both the stock market and real estate were blown out of proportion by

15. 15
the usual mix of high liquidity, speculation and corruption. The country suffered a well known lost
decade that has now stretched for several decades. But for America, luck struck twice in 1990.
Not only did America see the Japanese economic challenge whittle down, but the Cold War with Russia
ended at about the same time. With both rivals out of the way, America embarked on a decade of
deregulation and globalization, consumption and speculation. Deregulation was a driving force in the
telecoms and financial industries, which would both later, generate crises of their own in the following
decade. A climate of declining interest rates further stimulated consumption and private equity went on
rampant surge of transactions in what they called their golden decade. China fed Wal-Mart with ever
lower prices throughout much of the 1990s but could not prevent Asia from fumbling into their 2nd
financial crisis in 1997. But they did learn to distance themselves from the IMF and western banks. At
the turn of the century, few in the West could see any hint of a dark cloud on the horizon. Alas the
worms had already entered the apple.
The official membership of China into the WTO in 2001 marked the beginning of a new decade that
initially looked rosy for the West. But it was the turn of the West to get entangled in two financial crises
of their own making in 2001 and 2008. Silicon Valley survived the 1st one and went on to build giant
companies. Banks and financial institutions were guilty of the 2nd one, dragging down the whole
country and nearly sinking Europe. The after effects are still being felt: Interest rates have remained at
inordinately low levels. At the other end of the world, China kept rising. From 1978 to 2005, a whopping
$550 billion of FDI were invested in the Chinese industrial revolution. For the West, the price tag of
these gargantuan outsourcing projects was also to outsource future growth options to China. What the
Western consumer was gaining in lower prices, the Western worker would pay for later in lost salaries
and lost jobs.
In this current decade of 2010s, America's notorious resilience showed up again as the economy
recovered, but not without hurting core values in their model of democracy and meritocracy. Europe
fell into a similar rut as that of Japan, having to burden an on-going lost decade in economy and
governance. This has given China enough confidence to challenge the Western order and to press still
ahead, reducing the margin of maneuver for the West. Elections in Europe this year will give us an
indication of how the major powers will align or misalign in the coming years. This could further
fragment the world order and make it susceptible to a crisis triggered by one of those unfortunate
events.
In 2020 the Communist Party of China will celebrate its centenary and America will be undergoing new
Presidential elections. We can expect the Chinese leaders to hold firm on economic growth, social
stability and expanding nationalism. They should keep their economic engine humming at plus 6% until
that anniversary. The major financial risks will likely be more manifest after 2020. America will probably
focus on divisive domestic issues, thereby casting doubts across the whole network of alliances built in
the last 70 years. The network will not unravel, but America’s soft power will soften. China will thus
enlarge its sphere of influence at the irritation of America. With Republicans in control of congress,
could America again overreach militarily and economically in Asia, as they did after September 11 when
they invaded Iraq with less than convincing fundamentals? There they poked at a hornet's nest for

16. 16
plenty of stings. How this rivalry between America and China plays out in the corridor of influence from
Europe to SE Asia will be one of the great stories of the next decade. America's record in Asia is at best
mixed and they will need all the help they could get from Europe.
A number of trends will carry on into the 2020s: the digital economy, income and wealth disparities, a
rise in nationalism, weak governance in democracies, increasing wealth and power in Asia translating
into military build-ups, extreme weather occurrences, millennials changing work, etc. This brew of
forces could simply feed one into another, inflate pull-apart forces, engender severe international crises
or even lead to a perfect storm. Complexity will require anticipation, agility and opportunism. Western
governments will either choke or regain their footing and their values. Industries will definitely change
and leave behind winners and losers. Individuals will be baffled or lead revolutions.
Standards of living in the West have held up for a majority, but at the cost of much higher debt level.
This is unlikely to continue for very long. At the turn of the Century, the challenge for most
industrialized nations was to mobilize their pool of small and medium size companies to face the China
threat. Most failed. At the turn of the next decade, the new challenge for industrialized societies will be
to change their governance and find their place in the new world order. This is going to be difficult for
countries relying too heavily on their government for vision and action. Most governments have been
managing their budget on a rationing basis for the last 2 decades in order to control deficits. Key
ministries have been rationed year after year: Do whatever you can within this budget envelope. The
grinding side effect has been to erase any notion of excellence in public service and level down quality
standards with time. We have built a culture of 'good enough' in the society. But 'good enough' will
not cut it in the next decade.
We should pray hard for world growth returning above the 4% rate, which generally makes everyone
about happy. Otherwise we will see most predictions going wrong, and down.
André Du Sault
MBA (LBS), MPA (Harvard)
C 514 777-1538
Mr. Du Sault has travelled and worked in over 80 countries. He advises executives on strategy, innovation and
leadership. He is a regular lecturer at McGill, ETS and the executive Centre Laurent Beaudoin (U Sherbrooke).
He is Governor of the Harvard Club of Quebec, awarded for excellence and leadership in 2016.