Six Mega Trends – 2018

“Existentially all the water on earth is all the water we have.” – Lower Tennessee Watershed, Henry County, Tennessee USA – Photo: R. Wottrich

“If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people.” – Confucius

Charting global mega-trends is perhaps a fool’s errand, but there is order in the fractal universe – if you know where to look. Certain historical currents run strongly and are perhaps not immediately apparent, but nevertheless their impact will be felt in 2018 and beyond.

1. Insurance and Climate Change

Zillow recently reported that $400 billion in Florida real estate values could be at risk from climate change by 2100. Property insurers will not be willing to insure real estate unless rates are substantially raised. Homeowners will naturally lower coverages to fit their budgets. Many will move away. Behaviors will change.

Meanwhile many homeowners whose homes were flooded by Hurricane Harvey have no flood insurance – they cannot afford it. But a wealthy owner of a $2 million home on Bird Key in Florida gladly pays $25,000 a year for that same flood insurance. That owner knows their claim will likely be in the hundreds of thousands, so the federal flood ‘insurance’ subsidy is a bargain.

Right now insurance rates are set on arbitrary vectors, such as zip codes. But risk analysis and big data will fine tune these methodologies and homeowners at the greatest risk from climate change will face enormous insurance rates – many will move.

These mismatches in insurance coverage and uneven federal flood insurance subsidies will ultimately be reflected at the ballot box, changing political behavior in favor of working to control and plan for climate change.

2. The Energy Revolution

The United States has become the largest energy producer in the world. This is nothing less than a tsunami in the world political order, as the ripples of surging U.S. fracking production of oil and gas reach across the globe. Venezuela, Russia, and other oil producers are struggling with oil under $50 bbl. Saudi Arabia has been forced to sell more oil than seems logical, just to defend its market share. Economies the world over are benefiting from the drop in energy costs, which ultimately will spur their GDPs.

This American shale oil revolution is occurring primarily on private land, as America is perhaps the only nation on earth to allow private citizen ownership of energy assets. When the U.S. federal government loosens antiquated bans on exporting oil, coal to liquid (CTL) and liquefied natural gas (LNG), this revolution will take on even greater importance. The dropping price of oil is a reflection of lackluster global economies, but it will not stop the tide of U.S. energy independence and all that means to the world order.

3. Robotics and the Great Decoupling

The unrelenting convergence of robotics and ‘cloud’ systems integration is putting irresistible pressure on employment opportunities across the globe. Make no mistake, digital convergence is a jobs shredder – it leaves behind a wake of disenfranchised workers ill equipped to jump the cloud-based divide.

This is not a new concept. Erik Brynjolfsson, a professor at the MIT Sloan School of Management, and his colleague Andrew McAfee have been making the case that Moore’s Law advances in computer technology is the proximate cause of anemic jobs growth over the past several years.

To Brynjolfsson the pattern is apparent: “As businesses generated more value from their workers, the country [USA] as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation.” Brynjolfsson and McAfee call this the ‘great decoupling.’

4. Water Wars

Water resources are dwindling across America. The Ogallala Aquifer, which sprawls across eight Western states, is the largest and most important agricultural aquifer in America. Estimates are that it will be exhausted in 20 years.

According to the WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation (JMP), 37 percent per cent of the world’s population – over 2.5 billion people – lack adequate clean water for bathing and cleaning, and nearly 1 billion people still use unsafe drinking water sources.

Aquifers the world over are being drained by inefficient agricultural irrigation methods. Over 70 percent of the water in the US is used for agriculture. In California almonds account for $11 billion of the state’s GDP and represent 80 percent of the world’s almond production. But it takes over 1,900 gallons of water to produce one pound of almonds, which cost under $7 a pound at Costco. Water rationing is in America’s future and it will not be pretty.

Existentially all the water on earth is all the water we have. But in 1950 our world population was a bit over 2.5 billion, while today it is roughly 7.5 billion. When an advanced civilization visits our earth one billion years from now they will ask, “What were they thinking?”

5. Deconstructing Education

Higher education is still modeled after a centuries-old monastic tradition of exclusionary practices that myopically shower enormous benefits on an exceptionally privileged few. Available data suggests that 50 million students worldwide attend traditional colleges and universities; constituting just .7 percent of the world’s population.

Higher education resources are mismatched. In 2010 only 44 percent of U.S. professors reported that they spent more than 9 hours a week teaching in the classroom. Meanwhile college students have amassed over $1.3 trillion in student-debt, granting universities and colleges what amounts to a stealth taxpayer subsidy and carte blanche to raise tuitions across the board. Higher education tuition has increased 1,000 percent since 1989, as exemplified by a Harvard Professor’s average 9-month salary today of over $225,000.

Meanwhile in New York City, Department of Education (DOE) high school teachers removed ‘for cause’ and other severed tenured staffers remain in limbo. Sources estimate 200 to 400 of these folks sit in ‘rubber rooms’ and are paid for years while awaiting disciplinary hearings. Their salaries total $15 million to $20 million a year; money that could go to teaching children.

But help is on the way. On-line e-learning resources have increased exponentially across the globe, driven by Internet connectivity. You can watch any course taught at M.I.T for free on iTunes U. Major universities are putting substantial education content on-line for minimal or no cost, begging the comparison to matriculation costs of $50,000 a year and higher for ‘in residence’ students.

There are many nuances that collectively define the on-campus higher education experience. There will always be a place for the few who can afford that experience, or for fields such as medicine requiring extensive hands-on real time instruction. But do not for a moment underestimate the enormously disruptive influence of technologies that can educate the hundreds of millions of people across the globe who desperately want an education, which now can be viewed on a smart phone app.

6. Jobs for Young People

Just a few years ago China had a 12.5 percent GDP growth rate versus a U.S. rate of less than one percent. Today China struggled to hit 6.7 percent in 2016, while the U.S. second quarter GDP growth rate was 3 percent. Such volatility should be considered a harbinger of the future.

U.S. workers “not in the labor force” exceeds 94 million; a labor participation rate of 62.7 percent in August of 2017. Yet its unemployment rate for 18-25 workers is 8.8 percent, versus the general unemployment rate of 4.3 percent.

In China over 7 million college graduates poured into its economy in 2016, yet available jobs came with lower income expectations – resulting in 77.2 percent of graduates ‘showing an interest in entrepreneurship.’

Both the U.S. and Chinese economies suffer from mismatched labor markets – critical skilled labor shortages in key industries – as educational institutions struggle to match accelerating employment trends.

The unemployment rate across the European Union remains above 10 percent, but the larger problem is the EU’s inability to employ its young people. In Italy real unemployment is roughly 15 percent, but exceeds 45 percent for its young people! Unions and governments protect employed union workers, who represent a ‘set-in-place’ aging workforce. Young workers are left out in the cold.

A recent EU Higher Education Authority (HEA) survey shows that one in four EU graduates who found employment last year were working overseas, compared to one in ten in 2008. This represents an EU brain drain that it can hardly afford.

Perhaps the overriding question facing economies across the globe is, “How can we employ our own young people?”

Richard L. Wottrich, CEO & Senior Consultant, DSI Global View LLC