With all its up-and-downs, and whatever limitations one may want to highlight, the bulk of countries around the world have been a remarkable source of economic success at the global level since WWII. The build-up of a new world order at the same time, the very success is becoming a double-edged sword, as short-run effectiveness can sow the seeds of organizational failure by hindering long-term adaptability.
Countries and organizations need to develop ambidextrous capabilities - organizations and governance arrangements that celebrate stability and incremental change, as well as experimentation and discontinuous change simultaneously.
Failure to do so inevitably constitutes a one-way ticket to paralysis or extinction. Inevitably, there are times when prevailing cultures must change to reflect new developments that inevitably challenge the world or what economists call “structural changes”. The list of challenges (and the difficulties to adapt to them), and the consequent confrontations over the last decades is long and bewildering. Just to mention a few, digital technology and the development of AI, and the disruption they caused in status quo politics has bred chronic cynicism; the never-ending ideological battle between capitalism and socialism, and the loss of trust in institutions are some illustrations of the conflict between the emerging and existing world order.
What seems to become increasingly evident is how different stages of economic and products development require different competencies, strategies, structures, cultures and leadership skills. The transition must be navigated by discontinued organizational change - either proactively or reactively. The US has become a dominant “culture” in such approach.
But more importantly, there is a dark side to this success. As firms and countries grow, they develop structures, processes, and systems to handle the increased complexity of their work. These structures and systems are interlinked, making proposed changes increasingly difficult, costly, and time-consuming to implement. Structural inertia a resistance to change in the size, complexity, and interdependence in the organization’s structures, systems, and formal processes - sets in. Moreover, there is now substantial competition among major economies, alternative technologies, organizational arrangements, etc., that is putting an increasing challenge in further development, especially among developed economies.
Significantly more pervasive constraints come with organizational age and success. As organizations mature, parts of their learning is embedded in the shared expectations about how things are to be done. These expectations are manifest in the informal norms, values, and in myths and heroes that have evolved over time. Fixing the culture is the most critical and difficult - part of transformation. The very culture associated with countries’ or firms’ earlier success oftentimes becomes part of their downfall.
Resolving issues through consensus and “push back”, an arrogance bred by previous success, and a sense of entitlement leads to a preoccupation with status quo, with processes and formalities, rather than understanding of the changing market and this success breeds an arrogance and internal focus that becomes almost xenophobic, so idiosyncratic and entrenched in an overwhelming bureaucracy that they cannot change easily; proud, inward-looking and resistant to change, unable to overcome entrenched interests.
More often than not, such changes end up requiring new leaders, with revolutionary or temperamental zeal, capable to confront or break the status quo - a Wolfensohn in the World Bank to engender the “Strategic Compact” to modernize the institution; a Napoleon, who in effect triggered the “emancipation” that enabled many downtrodden to integrate and prosper for a while in Europe; a Ben Gurion to re-establish the Land of Israel, etc. Most of such people are prepared to “rattle the cages” and change the course of events, though normally with their share of dislocations, transitional costs, and at times improvisations.
Perhaps Niccolò Machiavelli noted it best, some four hundred years ago, how difficult it is to undertake fundamental changes while achieving smooth transitions by saying that:
“There is no more delicate matter to take in hand, nor more dangerous to conduct, nor more doubtful in its success, than to be a leader in the introduction of changes. For he who innovates will have for enemies all those who are well off under the old order of things, and only lukewarm supporters in those who might be better off under the new.”
Looking at the bigger picture, though, it is becoming painfully evident that we are living in increasingly volatile and complex times. Yet many countries find themselves trapped with policies and governance arrangements that are inadequate to respond to emerging needs. Unless there is a more decisive pace and orientation of change, we may be inadvertently committing to a race towards obsolescence, incapable of facing confusing times, and addressing choppier and challenging conditions.
Every few years there is a moment when some adjustment is needed to align policies to evolving conditions, with some years defined by a single shock and others by a turning point in markets. This time it seems different because it points to something more durable: a world in which volatility is no longer a phase to get through, but a condition to be managed, with multiple adjustments having to take place in tandem. The subject of this article, ‘Riding the Wave’, reflects that shift. Public or private investors are not standing still, but neither are they making reckless moves. Instead, they (or the more successful ones) are adjusting, reappraising the evolving situation, testing new tools and approaches, diversifying where possible and holding on to the principles that have always defined investment on safety, liquidity and long-term value - all requiring continuous focus on stakeholders that ultimately have to live with the associated changes.
All in all, though, it seems that we have to get off the treadmill of incrementalism, and face the world with fundamental recasting of strategies. Yet, for the better part of the last decade, a multitude of multilateral institutions, international conventions, principles, and standards have led to a plethora of statements, institutions, and plans of action each with their own inner logic, goals, and processes, involving a myriad of protocols and conferences, which detract attention from ultimate results and outcomes that should be sought.
At a more basic level, it seems unavoidable that the moment has come to seriously test assumptions, encounter unfamiliar ideas, sharpen thinking, and work with others who may see the world differently. As official institutions are being asked fundamental questions about their purpose and value, their answers cannot simply be asserted or assumed. They must be demonstrated through the depth and quality of their work, the seriousness of intellectual contributions, opportunities, and experiences that can be created and, most importantly, producing tangible results. We will need to hold fast to what is essential about our institutions while also asking, honestly and rigorously, where we must adapt in order to serve that mission more fully.
Navigating productive tensions like these is part of what makes in the end progress so indispensable, vital and effective. We have witnessed societal tensions in too many places, and we will have to be prepared to listen and learn more discerningly. To this end, we must seek out a broad range of perspectives, welcome respectful disagreement and unexpected collaboration, and work to uphold old founding values of excellence, open inquiry, intellectual honesty, creative imagination, and a deep commitment to probing and learning.
In a world with increased unpredictability, where uncertainty is becoming the new normal, policymaking has to refocus towards the enabling environment (rather than direct goal setting or top-down decision-making), incentive structures and pricing policies (including those associated with externalities, like climate change). More often than not, strengthening of supporting institutions (their transparency, vehicles of accountability, conditions for cooperation across organizations) should facilitate involvement of the private sector, which has the flexibility, know-how, market access and operational connections, financial and human resources to assess and take appropriate risks.
More broadly, it is the emphasis on enabling conditions that can trigger each party to address the problems that they are able to overcome. This approach stands a better chance to deal with the myriad concerns that need to be addressed in areas such as the climate change agenda. The planning systems that have enabled the development of the power sectors for over a hundred years have produced stellar results throughout most of the world. Much of the power and energy supply (and the associated increase in carbon emissions) has been, however, built up through formidable infrastructures requiring increased resources - debt, capital and income generation. This process cannot go on forever, as we are nearing an affordability crisis, particularly for medium and lower segments of society, quite aside from the climate change implications.
This situation must be recognized through proper regulatory (particularly pricing) reforms that emphasize improved supply efficiency (i.e. achieving more with less), enhanced demand management (e.g. to encourage off-peak and/or reduced consumption) and proper reserve capacities, greater attention to diversification of energy sources thereby generating incentives to reposition investment requirements that respond to growing demand with limited claims on financial and other resources.
We are in an early stage of reconfiguring an international framework to accommodate all parties and respond to changes taking place, including the loosening of the rules-based international order that has been built since the end of WWII. As so many crises that have emerged since the dawn of humanity, this one will also be overcome, to continue the much needed development that is required in much of the world.
Rather than resisting these trends, it would be better to get in front of them and help lead the way to a system that is closer to current reality, and better suited to achieve needed results. In sum:
Conflicts on scarce commodities, global warming, and the like will not be the first, nor the last major challenge to human capabilities. Predictions of global doom have proliferated throughout history, yet the sky hasn’t fallen, for one reason: human ingenuity. The threat of the so-called “population bomb” - the idea that “hundreds of millions of people” would starve to death in the 1970s as rapid population growth exhausted finite food supplies in the end - didn’t happen. Agricultural innovation enabled global food production to grow faster than population in nearly every part of the world. Similarly, deadly diseases including once-dreaded HIV/AIDS and, most recently, COVID, were overcome by ingenuity, developed through incentives facilitating conditions to confront such crises.
If history is to be of any guide, it’s unlikely that we are going to see much progress until we are confronted with a crisis. This is in fact what happened in several countries that were jolted into action to produce much needed corrective action.
In the end, a good many of the solutions are bound to be technical - such as meeting the growing energy or other requirements of further world development through some form of genuine decarbonized power generation or alternative systems. There are several experiments being carried out around the world, and while it is too early to say which ones will be the most appropriate ones, policies must encourage a “race to the top” and help mobilize resources (human, financial and whatever else) to come up with solutions that produce solutions under changed resource availability constraints.
