By Dr. Mariana Bozesan
As we are slowly emerging from the emergency of the COVID-19 pandemic, we are all yearning for normality and certainty in an uncertain world. Across the world, many of us are disturbed by the lack of leadership, poor behavior, and the inability of governments to implement policies that could address the pandemic; a pandemic for which we could have prepared, had we heeded the previous warnings of experts and scientists. Yes, governments carry the heaviest burden, and they are not known for being too progressive and foreword thinking, but what is the private hand doing? What is the role of private industry and capital in leading toward a better future for us all? How can creativity, innovation, and entrepreneurship contribute to raising the bar to a better future? How can we all join forces and lead in a world that suffers from unethical and deeply misguided, private social media that are undermining not only our highest human values, but also science and with it the accumulated wisdom of humanity for personal gain and profit? Luckily, it is the leadership of such experts and scientists paired with exponentially growing technology and business expertise that brought us relief to the pandemic and keeps giving us hope
It could very well be that COVID-19 is just a dress rehearsal for what is awaiting humanity, given the trajectory on which the state of the world is currently advancing. But we cannot give up. We must not. So, let us see what could be some important key acupuncture points that, if addressed, could safely propel us into the future we all want.
1.2 Between Deflationary Tech, Inflationary Economics and Existential Threats
1.2.1 Deflationary Technologies
Current challenges should not deter us from the indisputable fact that humanity is on average better off today than five decades ago, according to research by the Oxford-based Our World in Data organization. Notwithstanding the unprecedented population growth over the past 100 years, we live during one of the most peaceful, advanced, and stimulating eras in human history. And, despite pandemics, we are more likely to die from unhealthy lifestyle choices, suicide, or old age than from starvation, war, terror attacks, or infectious diseases. Since 1820, global poverty has been reduced from 94% to 9.6% in 2015, and global income has been increased on average tenfold with falling global child mortality rates from 18.2% in 1960 to 4.3% in 2015. Moreover, literacy rates have also increased—from 12% in 1820 to 87% in 2014—and most countries in the world now have democracy as their form of government. As a result, the majority of people have today a standard of living that is comparable to that of an average Westerner in the 1950s. This progress would have not been possible without the utilization of fossil fuels, ongoing double exponentially growing technologies, but also human curiosity, creativity, fortitude, a willingness to grow beyond oneself, and a sense of wonder and purpose.
However, as a species, we are now challenged as never before. For millennia, we lived a relatively short time, were mostly limited to a certain geographic area, and performed mostly the same tasks in the same ways as our ancestors did. Because our lives were fairly predictable, all we needed for our survival was to think linearly and act locally. That all changed through technological progress that evolved exponentially and began acting globally, which most humans cannot understand under normal circumstances. The COVID-19 pandemic showed us how difficult it is for most people—governments as well as the general public including world leaders—to wrap their minds around exponential curves because they do not see the doublings coming and thus do not respond either adequately or in a timely fashion. This could also explain why some governments had a hard time responding to advice from the science community since the first COVID-19 lockdown in March of 2020. Both the exponential numbers and their growth are difficult to process and therefore difficult to believe in, let along respond to in order to save people’s lives. But we have no choice. According to Peter Diamandis “tomorrow’s speed of change will make today look like we’re crawling” and humanity is now at that seminal point of technological evolution where its exponential growth is becoming explosive and massively disruptive. If we want not only to survive but also to thrive in the 21st century, we must quickly learn to think, and most important to act, exponentially and globally. But that is easier said than done. While the complexity around us is accelerating making it difficult to keep up with the avalanche of information, emails, explosion of technological advances, the price of technology and its application in every area of life from transportation, to food, to education keeps dropping too. Once a device or application has been developed, the cost of replicating it is essentially zero. The best example is your smartphone. Before its invention, you had to pay a lot of money for a separate camera, a computer to browse the internet, a GPS device to find your way, a watch, or a simple mobile phone, to name a few devices, all of which you now get as part of your relatively cost-effective smartphone.
The technology explosion operates deflationary in the long run. However, there is one important caveat: We must ensure that the growth of exponential tech occurs in a sustainable manner and within the limits of the nine planetary boundaries that we will discuss further below. Moving forward, our leadership must be science-driven and wisely inform the profound preparation needed to address our grand global challenges. Next, let us take a look at the second constraint in which humanity operates, namely inflationary economics.
1.2.2 Inflationary Economics
Several years before the financial crisis of 2008, experts like Nouriel Roubini were warning about an impending collapse of the financial system. We all know what happened, that nothing substantial changed, and that we still have the same systemic issues. In the light of the global and national response to the COVID-19 crisis, it would be safe to assume that our economic system in its current form is not well equipped to provide the necessary paradigm shift. Why? For one, because it is designed to allocate more money to an already bankrupted system, one that must be (made) profitable in the short-term and not one that society and the planet need in the long-term. Through the policy of quantitative easing that has become the norm since 2008, our economic model is only serving itself and must continue to grow to prevent its own collapse. Furthermore, it is based on debt and not on real assets and it is borrowing from future generations while devaluing existing currencies due to ongoing low interest rates. At the same time, it is failing to transform itself to become sustainable and it does not address humanity’s grand global challenges. No wonder people are losing trust in their governments, which becomes obvious through increasing political, societal, and financial polarization. The economic system has become inflationary, it creates inequality, and it is not sustainable long-term because it is barely meeting the needs of the current generation while compromising the ability of future generations to meet their needs.
Ensuring the Future of Life
Under existing circumstances, experts doubt that democratic parliaments are likely to pass new regulations such as carbon taxes, higher prices for fossil fuels, and/or electricity in the short term, and in time to address the grand global challenges out of fear of losing voters. Such inaction would be dangerous and could lead to democratic gridlock and annihilation under existing elites, or even to the destruction of democracy under new elites, instead to the reformation of democracy.
In order to succeed, governmental representatives would have to undergo a radical mindshift to get rid of the overwhelm caused by the complexity of the grand global challenges and acknowledge that transformation is feasible (see discussion below). That presupposes political unification and the willingness to transform several democratic systems starting with the financial and economic ones which are based on short-term thinking, profit-only orientation, outdated metrics, old dogmas, and most of all fear and inertia. Such large-scale leadership supported by legislative incentives and transparency would also encourage the private sector to move faster toward a sustainable financial and economic system.
There is hope. It comes, for example, from the European Commission that recently launched the European Green Deal. This action plan is aimed at implementing a sustainable finance model to transform the economy of the European Union such that in can meet the goals of the Paris Agreement and Agenda 2030 of the United Nations. This long-term strategy intends to achieve carbon neutrality by 2050 and it is accompanied by important documentation such as the Financing a Sustainable European Economy as well as the Taxonomy Technical Report, and the Sustainability-related Disclosures such as Climate Benchmarks and ESG Disclosures.
The European Commission has been recently joined by the Chinese government and their 5-year plan aiming to divest their investments from fossil fuels to green tech, and from US President Biden’s Green New Deal plan.
Taking Advantage of Capital Abundance
The great advantage of inflationary economics is the availability of capital abundance (through Venture Capital funding, Crowdfunding, Cryptocurrencies, or Sovereign Wealth Funds). The only question is who gets it and how to get it to fund the transformation. Venture funding has been a more traditional source of startup capital over the past five decades, helping to birth household names from Apple and Google to Amazon and Uber, to name a few. Despite the pandemic, in 2020, U.S. venture capital investments reached the new staggering record of $156 billion (or about $428 million every day!), and increase from $136.5 billion in 2019; in Asia, VC capital ended up at nearly $80 billion, and European venture reached $40 billion in the same period. Despite its market size, the European situation is disturbing because it dropped by 12% in 2020 which could be detrimental to the development of a sustainable, equitable and socially more balanced economy. Current movements toward increasing nationalism, xenophobia, involuntary unemployment, involuntary migration, potential for war are the result of fear, angst, and anger caused by growing inequality and excessive politics of austerity that has created the lowest level of investment since the end of WW II. Through the negative interest rate politics, people’s savings are being wasted which equals to disowning them while at the same time creating a huge gap in infrastructure investments, social housing, schools, education, and digitalization, all of which got exacerbated through the pandemic lockdown. As a result of governmentally mandated austerity, the real estate prices are going through the roof because there is too much capital sitting around and not being invested.
On the crowdfunding side we experience a similar capital abundance. The idea of crowdfunding is not new. In the history of humanity, people have tried all along to raise funds for their ideas from a crowd of people such as friends and family, who believed in them (peer-2-peer lending). With the rise of the Internet, however, crowdfunding became a new online industry, an alternative product of entrepreneurial finance, that took off in 2008 after the financial crisis in order to fill the gap for start-up funding. Its extraordinary growth shows that crowdfunding has the potential to disrupt the investment industry in a meaningful way because it leveled the playing field by bypassing antiquated start-up funding through bank loans by attracting small capital investments to projects, business, and other causes from a large number of individuals via the Internet. Since its inception as a modern funding product, crowdfunding has exploded exponentially through more than 2000 platforms worldwide and is said to grow by $124.35 billion during 2020-2024 with a CAGR of 18% in that period. Internet and mobile access are at the core of this development with an estimated 80.9 percent of people having Internet access in developed economies in 2018 compared to 45.3 percent of persons living in developing markets. The global online access rate was 51.2 percent. The consequences of this connectivity from the economic let alone the social and cultural point of view is remarkable. Not only are there billions of additional minds and intelligences being added to the collective intelligence, but these minds have the potential to become both entrepreneurs providing new business ideas that seek funding online but to be also providers of cash/capital, in short, crowdfunders. This is not only true for the developed world but also for the emerging world. In 2013, the World bank had estimated that the emerging world has the potential to leapfrog the developed world in crowdfunding thanks to their 344 million households that are now able to financially invest via crowdfunding in community businesses. By 2025 they should have the ability to deploy US$96 billion per year in crowdfunding investments with China in the lead and accounting for US$59 billion per annum. Crowdfunding has already become such a significant economic engine that large corporations such as GE, Motorola, Hasbro, or the electronics giant Anker have begun to use these platforms as a way to validate their products. What does that mean? It means that somebody in one part of the world who has a great idea will get the capital she needs to start her company. That was never before possible. This revolutionized the start-up capital worldwide and could become the best vehicle to ensure the future of life on this planet, if guided in a sustainable manner.
The same could hold true for another source of massive abundance of deployable capital, namely state-owned Sovereign Wealth Funds, which hold an estimated $9.94 trillion in global assets under management at the end of 2020.
The main question remains: How can we leverage this capital abundance to ensure the future of life within the context of deflationary technology, inflationary economics and the grand global challenges.
1.2.3 Existential Threats and Grand Global Challenges
One year after the WHO issued the first pandemic warning and suggested global lockdowns, we note that the pandemic may have bumped annual emissions, but it did not arrest their long-term trend toward exponential growth. At the same time, though, the ways in which many sector trends defied the pandemic allow us to consider how we might embark on much greater decarbonization. According to the latest Bloomberg NEF’s Executive Factbook, Europe and the Northern Hemisphere experienced their warmest year on record with temperatures 0.4°C warmer than 2019 that was formerly the warmest year in recorded history. In 2020, the Arctic and northern Siberia reached the largest annual temperature deviation between 1981 and 2010 with more than 6°C above average making the wildfire season unusually active, lengthy, and releasing 244 million metric tons of CO2, a third more than in 2019. 2020 was not only the second-warmest year on record, but humanity’s impact on our planetary system has never been more obvious allowing us to better understand planetary boundaries and developing better ways for greater decarbonization. From power supply to transport, from construction to digitalization, from food production chains to capital markets, we now have a better understanding about their intimate interconnectivity and how the systems pertaining to our global economy must be transformed to ensure the future of life.
Climate change is not the only existential threat we are facing. After nuclear threat, AI poses a third significant threat, particularly if it evolves to superintelligence, a major challenge for which we are not ready now and which Elon Musk deems more dangerous than nukes, but for which we are not ready as we can see from its growing influence in social media. We must awaken to the reality that our current digital infrastructure (hardware and software) must be regulated and developed quickly to counteract the already existing monopolies of AI-driven, private platforms that rule the social media and are undermining democratic institutions. They have already taken a life of their own, unmitigated by law and legislation, and have become massively pathological, and manipulative to maximize their profit at the expense of human development and global unity. The resulting cultural wars manifesting as ongoing attacks on reason and science by the ignorant pose a present danger to reason and the future of consciousness. This must change now and be replaced by regulated social engineering and be driven by the democratic protection of privacy, as well as high moral and values.
1.3 Transformation is Feasible
We know what to do but, unfortunately, we rarely do what we know to achieve our goals. An example in point are the 17 SDGs of the United nations. They are ambitious, transformational goals aimed at the creation of a prosperous humanity. However, some of them are in grave contradiction with others, which increases the risk of one favorite goal being pursued at the expense of the others. For example, if we pursue goal #1, Eliminate Poverty, by burning fossil fuels such as coal, it will be impossible to achieve goal #14, Life below water, or #13 Climate Action because we will continue to emit CO2 into the atmosphere, increasing climate change.
However, there is a better way to implement the SDGs within planetary boundaries and scientists show us in their Transformation is Feasible paper how to set our systems within the next ten years to ensure the future of life. These are:
- Energy: Accelerate renewables growth to halve emissions every decade starting with 2030 and create a global energy democracy.
- Differentiated Growth: Roll out sustainable development models in developing countries.
- Food: Shift to sustainable food chains and agriculture to decrease carbon footprint of food production.
- Active inequality reduction: Address extreme unfairness, create jobs despite automation and AI, and redistribute total output and wealth.
- Investment in girls’ and women’s education, gender equality, health, family planning to stabilize the world’s population.
Next, I will briefly propose a recovery model from an early stage investing perspective based on the Integral Investing framework that has been developed and successfully tested since 1993.
1.4 A Quick Job Creation and Recovery?
Small to medium enterprises (SMEs) are a significant economic force globally—with a contribution of about 90% of businesses and more than 50% of employment worldwide, according to the World Bank. Formal SMEs contribute up to 40% of national income (GDP) in virtually all economies. Yet, they have suffered most during the pandemic lockdowns and need the quickest help. As we have seen, exponentially growing technologies are deflationary and are thus shifting the inflationary world economy right under our eyes. At the same time, massive amounts of capital are available and must be allocated in line with the requirements of systemic change to sustainably restart the economy post pandemic and to enable accelerated job creation in the new green economy. This transformative action is key when addressing the big question on how investors, businesses people and entrepreneurs alike can contribute particularly from an early stage investing perspective, and for developed countries too. As we have seen, capital is not the issue, so why is it that start-up entrepreneurs particularly in Europe lack the necessary capital to start and/or to grow their businesses. Yes, reasons are many, but the most important one is de-risking. By integrating traditional VC investing criteria with sustainability criteria as well as eliminating 80% of the risk associated with the team, stakeholders can reduce their risk significantly. This is the Integral Investing (the Theta Model) framework that is described in detail in my book and report to the Club of Rome, entitled Integral Investing. Integral Investing makes it obvious that financial sustainability is inseparable from the environmental, social, cultural, and an ethical impact, as well as individual self-actualization, joy, and personal happiness (in short, the 6Ps: Parity of People Planet and Profit with Passion and Purpose); and provides the path toward their implementation in early stage investing.
De-risking criteria for sustainability play a role not only for SMEs, but in all other asset classes particularly as the impending governmental Green Deals discussed earlier get adopted and must be implemented by all financial institutions. These must take sustainability factors very seriously because if they don’t their financial losses risk to become significant. For example, in their latest Rethink report, James Arbib and Tony Seba claim that we will soon be facing a quickly growing global financial bubble around energy assets from conventional coal, gas, nuclear, and hydro power. They insist that (1) we can achieve carbon neutrality more quickly and cheaply than expected, (2) energy assets are severely mispriced, (3) coal, gas, nuclear, and hydro power are no longer competitive and are doubly mispriced, (4) solar and wind power have reached cost parity and are cheaper than coal, gas, nuclear, and hydro power sooner than expected, and (5) governments must begin to protect people, new companies or industries from the financial risk of the conventional energy asset bubble.
A look closer at the state of the world from a more integral perspective divulges that the context in which humanity is currently operating and which has not changed through the pandemic, is flanked by deflationary exponential tech, inflationary economic systems, and existential threats that include climate emergency, nuclear risks, and unsafe AI. In the final analysis, it becomes obvious that one of the most important tasks of world leaders must be to massively accelerate the mindshift toward a level of consciousness that can save humanity from extinction. To ensure the future of life, all efforts must be geared toward the global implementation of the Paris Accord and UN SDGs within planetary boundaries by 2050.