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Three different dimensions of disruption

Glen Hodgson
Senior Fellow

This article was originally published in The Globe and Mail on October 10, 2017.

Modern life is complicated, and disruption is one of the main reasons why. Many different forces of disruption are at play today, changing how we live and work. The Conference Board of Canada regularly identifies risk or uncertainty when it does an economic forecast, and disruption is bigger than either of these. It can create new business and political winners – as well as big losers.

There has been good research on technology and disruption, but to our knowledge there is no single or agreed-upon framework for understanding disruption. But we can identify three dimensions of how disruption may be better defined, understood and used to spark innovation and guide adaptation.

Technological disruption: Technological disruption is hardly new, but it has widened in recent years and attained a global reach. The combination of the Internet, smart devices and digitization is changing how providers of goods and services connect with consumers. The consequences of connectivity are being felt by many bricks-and-mortar retailers, taxis, hotels, newspapers, movie theatres and their supply chains and investors. Central bankers are struggling with how to adjust monetary conditions in an environment where unemployment has fallen but inflation remains muted, in part because of the effects of e-commerce.

The next wave of technological disruption includes the Internet of Things, artificial intelligence, automated and electric vehicles, low-carbon energy technology, widespread robotics, biotechnology, nanotechnology and other innovations. Joseph Schumpeter's famous waves of "creative destruction" are bound to continue, benefiting consumers and highly innovative businesses – and challenging the status quo.

Geopolitical disruption: The past year or so has seen a populist backlash to globalization, free trade and investment – Donald Trump's election and Brexit being prominent examples. Business leaders and policy makers around the globe are being forced to reconsider aspects of their business models, political alliances and trade and investment relationships. In parallel, we have seen rising authoritarianism and a retreat of liberal democracy in many places, including Russia, Turkey, Central Europe and the Middle East, plus the use of technology to disrupt democratic elections.

Yet in recent months, a pro-free trade response has appeared in Canada, Japan, China, France, Germany, the Netherlands, Mexico, Australia and New Zealand. For Canada, the Comprehensive Economic and Trade Agreement has come into force, and discussions on a revised Trans-Pacific Partnership are proceeding – minus the United States. It may be premature to say definitively that we are reaching the peak of anti-globalization disruption, but some important leading indicators are now visible.

Numerous other heightened geopolitical risk factors exist today. North Korea's nuclear ambitions are a destabilizing force globally. Proxy civil wars rage in Syria and Yemen. Russia and Ukraine are at war. Venezuela is slowly imploding. And the Greek debt crisis could return. Each could upset the political order and economic prospects for a region or the globe.

Structural disruption: Structural disruption is unlikely to be evident every day, but it can have a steady transformative impact on business and society. Three types of structural disruption stand out.

The first is demographics. Populations are aging throughout the industrialized world, including China. Older populations limit the supply of labour and weaken economic growth potential. In the future, growth can't be relied upon as much to pay for services that citizens value.

Next is the evolution of international trade and global value chains. Even before the rise of the anti-globalization movement, growth in international trade and investment was slowing, and global value chains had reached a point of maturity. These trends are troubling – trade used to be the cutting edge of economic growth, but it has become a laggard.

Then there is climate change. Target caps for greenhouse gas emissions have been set, and countries are beginning to introduce carbon pricing systems and related policies. The transformation toward a lower-carbon economy has begun, but the pathway is neither well defined nor likely to be straight or smooth.

As we have argued previously, this is still the "beginning of the beginning" for climate policy. Recent Conference Board of Canada research detailed how massive investment in electrification will be required to de-carbonize the Canadian economy successfully over the decades to come. The public may ultimately have to accept a different lifestyle.

Strategic thinking, innovation and adaptation will become even more important qualities for business leaders, policy makers and the public in a world where disruption is a frequent, widespread and recurring reality.

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