AICD's new chief economist Mark Thirlwell outlines the key trends shaping the global economy, technology and international relations.
I grew up in a steel town called Consett, in the north-east of England. One of the formative parts of my childhood was watching what had basically been a one-industry town adapt to that industry being shut down. In 1980, the Consett Steel Works closed after being the single dominant employer in the region. As a consequence, Consett had one of the highest unemployment rates in Europe. I saw how political and economic shocks can change the environment you’re in.
Another part of my childhood was growing up in the Middle East. My father was building infrastructure in Saudi Arabia and Kuwait. That experience was the opposite end of the economic spectrum. These were economies that had just experienced a huge windfall in terms of oil revenue. They were trying to figure out how to do rapid development and growth.
Two different world views
I had these two very different views of the world as a kid. That got me thinking, “What’s happening here? How do I understand this stuff?”
I developed an interest in the intersection of geopolitics and economics after reading a book called The Rise and Fall of the Great Powers by Paul Kennedy. He tried to pull together economics, military history, and grand strategy. He wrote this huge, sweeping narrative from the rise of the Hapsburgs through to the rise of the US and the British Empire sandwiched in between. I was really taken by it.
I was fascinated by the idea of pulling together history, economics and politics and telling these big stories about how the world works.
For example, compare Australia and Argentina back at the turn of the last century. Both were resource-rich, southern hemisphere economies with the potential to grow dramatically, but then they took very divergent paths. You can’t explain all of that just by saying, “It’s the fundamentals.”
I think you also have to explain it by comparing the quality of governance and institutions.
Governance has always been right at the core of what’s important for economies, and in the current era we are — again — rediscovering that importance.
When it comes to analysis on the economy and economic issues that AICD provides to members, there are two types.
If you think about the range of issues you grapple with as an economist, there’s what I call the bread-and-butter stuff. So, what’s the cyclical story around the economy, very traditional market economics? What’s the Reserve Bank of Australia doing with interest rates? What’s the to and fro between what’s happening in the labour market versus what’s happening in the housing market? How’s that going to influence the interest rate decision and the short-term growth outlook?
That’s obviously a useful and important part of what you look at, but it’s only one part of the story. If you think about the overall environment you’re operating in, the key lesson now is you’ve also got to spend time thinking about the big forces that are going to shape the economy beyond those short-term cyclical stories.
Going back to the financial crisis, we’ve gone through a period of a challenging and rapidly evolving external environments. If you look at indications of policy uncertainty out there at the moment, they’re really high. To take one example, a lot of what’s happened in the global economy and here in Australia in recent years has been shaped by the rise of China. Now that China has passed through that first part of its rise, it’s time to grapple with the “What next after the initial rise of China?” story. One aspect of that is the balancing story between the US and China, which obviously matters a lot for us.
A second example is the huge technology and innovation story out there which is influencing everything from the way global supply chains function to the future of work itself. How do those things change both the economy, things such as wage growth and distribution, potential profit expectations, and the role of competition and government policy?
Technological change and globalisation are reshaping the way politics works. As politics changes, that alters the governance framework within which we all have to operate, and we’re seeing that on a whole range of issues pushing in on us, from changes about how people think about regulation, and changes to how people think about companies’ responsibilities; from a narrow definition of shareholder welfare through to bigger debates about, “Well, what’s your corporate responsibility, and how is that changing in this changing world?”
You can see these big forces out there. I see my role as helping directors understand these key issues by pulling them together as part of a coherent framework.
This edited article was first published in AICD’s The Boardroom Report.
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