There are times when one needs to choose a direction for the future, and the eventual outcome of that choice will be very important.
In these instances, following the crowd may not be the best choice.
This can apply to scientists. For example, up to about 1900, the theories of classical physics were accepted to be foundational, until successive scientists started investigating the anomalies in those theories. Their work created a breathtaking revolution in physics, providing us with quantum mechanics, relativity, and the birth of modern physics.
This can apply to a scientist about to start a career as a professor. Following the crowd will not distinguish one’s career and will make it difficult to secure research funding among a competitive field. The aspiring scientist has chosen something new, because there is a belief that important discoveries are waiting to be found in the chosen unexplored space, where fewer others are also venturing.
This can apply to some styles of investing. Such investors want to find an opportunity that is not appealing to most everyone else. This makes the entry price cheap. If the contrarian point of view turns out to be true, the original investment becomes very valuable.
“What important truth do very few people agree with you on?”
Venture capitalist Peter Thiel, presents this question in the very first chapter of his book, Zero to One: Notes on Startups, or How to Build the Future. His style is in contrarian investing. He says this is a question he asks to anyone interviewing for a job, which means this includes entrepreneurs.
Entrepreneurs have chosen to invest themselves into building something that does not yet exist. because it will fulfill something that they believe to be true. Yet, it does not exist, because other people did not believe it was worth doing.
The job of investors is to discern the validity of the entrepreneur’s perspective. During diligence, this question is probed with increasing depth.
- There is the high level insight: this is about the industry and the general opportunity.
- Focus on the specific company is about evaluating the “truths” of the market size, the amount of time and resources to create the product for the market, the capability of the entrepreneur, and so on.
Let’s just look at high level insights that fulfill this question. Good answers provide us with directions for where important future opportunities lie.
Thiel explains that a good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”
Here was his answer:
My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do—using only today’s tools—the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.
That answer was provided over 5 years ago. Let’s do an update and also go into more depth to discern actionable themes.
The OECD economic outlook
The OECD, a forum of 36 countries describing themselves as committed to democracy and the market economy, releases a global economic outlook twice a year. The most recent one was released this week: Weak Trade and Investment Threaten Long Term Growth.
Few people read this lengthy report. OECD’s chief economist gives the executive summary in this two minute video, but most people don’t even study the executive summary.
Everyone gets it as a news bite, from local news sources and maybe social media if it even reaches there. Below are some samples from around the world.
The point I want to make is that “most people” is not homogenous. In this example, it is country-specific, and even within countries, news is being directed at fragmenting tribes. The business analogy is that markets are segmented too.
Since we are talking about “globalization”, lets look at the news around the world. Note that the OECD report is interpreted to suit what the news source wants to reinforce among its audience, or what an autocratic government wants its people to hear, or to exemplify the dominant cultural theme within the country.
Internationally, the sound bite shaping mainstream business is that we can no longer rely on central banks. Governments need to do more:
- Financial Times: OECD urges governments to take ‘urgent’ stimulus action
- Reuters: OECD sees global growth at decade-low, blames governments’ indecision
In the United States, there are nuances. One is about trade conflicts. Another is government inaction. Yet another is about impending disaster in general. Another is about long term malaise because of the confluence of climate change, environmental policy, trade conflicts, and long term structural changes in global economic systems.
- Wall Street Journal (USA): Global economy to stagnate if trade uncertainty persists
- Bloomberg (USA): The world may have a bigger problem than a potential recession
- New York Times (USA): same as Reuters’s article above
- Fox News (USA): The world could be headed for a Great Stagnation
In Canada, only one major newspaper picked up the OECD report, and focused on government inaction. I had to go to a local news source for more coverage, which also focused on government inaction.
- Globe and Mail: OECD says governments’ failure to act on major challenges contributing to slowest global growth in a decade
- The Chronicle Herald (Nova Scotia): OECD sees global growth at decade-low, blames governments’ indecision
In England in the UK, it was about Brexit and government inaction:
- The Telegraph (Britain): OECD calls for ‘bold action’ to halt global economic slump
- The Guardian (Britain): UK growth will dip to 1% even if no-deal Brexit avoided, warns OECD
In Scotland in the UK, it was about a weakening domestic economy:
- The National (Scotland): UK growth to remain under pressure amid darkening global outlook, warns OECD
In Ireland, not in the UK, it was about an improving domestic economy:
- Irish Times (Ireland): Wages to keep growing in Republic, says OECD
In countries with increasingly autocratic governments, they were promoting an improving economy:
- Hungary Today (Hzzungary): OECD Raises Hungary GDP Forecasts for 2019 and 2020
- Daily Sabah (Turkey): OECD upgrades Turkey’s growth amid weak global outlook
In China, it was about economic slowdown due to trade and political uncertainty:
- Xinhua (China): OECD lowers 2020 global growth forecast as challenges persist
And here are some more samples:
- Times of Israel (Israel): Though ‘robust,’ Israel’s economic growth expected to slow in coming years
- Al Jazeera (Qatar): OECD sounds alarm on deep-seated threats to global economy
- Economic Times (India): OECD trims global 2020 growth forecast
- Financial Review (Australia) OECD tips better economic growth for Australia
- Sydney Morning Herald (Australia): The world may have a bigger problem than a potential recession
- Business Times (Singapore): OECD warns global growth ‘weakest since financial crisis’
My answer to “what important truth do very few people agree with you on?”
I show the above to illustrate that globalization is not one homogeneous theme proceeding ever faster along a single dimension. That was the feeling since circa 1990, exemplified by books like “The World is Flat.”
Globalization has been around since the beginning of human history, when civilizations and nations started coming into contact with each other.
It is that globalization is enabled by technology providing new methods for people to come in contact with each other:
- warm and durable clothing, and methods of their construction, that enabled prehistoric migrations across continents by walking,
- land transportation (horse, train, combustion engine, electric motors),
- shipping and evolving improvements in shipping technologies,
- air travel and technological improvements on the efficiency and costs of that mode,
- currency exchange enabled by communications and information technologies,
- information and news enabled by telephone, internet and wireless,
- data enabled by all manner of digital technologies now.
Globalization is not new. Technology may enable it to happen faster, but that is also not new. This acceleration and growth is causing the environmental sustainability problem noted by Thiel in his answer to his question.
What is new is that technologies have reached a point where they have enabled something that, in the past, could not be moved between nations and civilizations and which, even among tribes within a single nation, could not move nor be amplified: the globalization of cultural values.
This is the phenomenon that is catalyzing social and political conflicts all around the world today.
These are new, big challenges for the social scientist and the political scientist to solve today.
For the physical scientist, the future is not all about AI and machine learning and “tech” in the digital sense. The world is rooted in physical things, and the problems of sustainability and human health and the health of all species involve the science of matter: chemistry, physics, and biology.
The mainstream thinking is that these are problems for central banks and governments. The complexity of the world make these problems too many and too difficult for central banks and governments to solve. They require the engagement of companies and entrepreneurs with new ideas.
We need to think differently to undo economic malaise and environmental devastation and social conflict. Achieving that will unlock new economic growth.