Articles published in January, 2002

I was lucky enough to join the team working on Shell’s 2001 global scenarios, People and Connections.
The scenarios will age, but with a 20-year time horizon there should still be plenty of interest in them for several years. They discuss political, economic, social, environmental and technological trends – as well as energy, of course.

From “The Next Twenty Years”, published 2002 Another version of this essay was a prize winner in the Shell/Economist “World in 2050″ competition.

A historian looks back from 2021 at the failed forecasts of 2001…

We may well laugh, but the first thing I should say is that many of the predictions of 2001 looked a good deal better at the time than they do now in 2021. We mustn’t be too harsh in judging the forecasters of the past. On the other hand, it is curious that those eager soothsayers didn’t pick up some of the more obvious trends. They had one thing right: Those buzz-words “globalization” and “digitization” referred to something important, however fuzzily. Perhaps the commentators were paying too much attention to the hype to understand the real significance of what was happening.

The Great Disappointment

Let’s take digitization first. Looking back at the comic books and science fiction of the 1950s, it is clear that the expectation was of jet-packs, teleportation, and spaceships by the year 2001—if the Martians didn’t spoil things for us. Even serious attempts at prediction—for example, a Hudson Institute report in 1967—were suggesting that a third of a century later we would be flying around on personal platforms, curing hangovers with impunity and enjoying electricity that was (you guessed it) “too cheap to meter.” In 2001, people should have noticed the distinct absence of any of those joys.

In fact, the only predictions that lived down to reality were those of communications and computing technology. This rather modest success was much overblown, because the people writing and talking about the information economy were the same people whose jobs had become significantly easier as a result—journalists, management consultants, and academics. Perhaps not entirely surprising, then, that instead of concluding in the year 2001 that technological progress had been enormously disappointing, everyone saw the glass as half full and, despite the stock market doldrums, toasted a golden age of technological progress.

They were right—but right for the wrong reasons. A longer perspective might have given them a more considered view. The most basic grasp of history would have told them that the clusters of inventions starting in the late 19th century looked far more promising an engine for the betterment of mankind than any silicon “revolution.” Electric light, air conditioning, the internal combustion engine, sanitation, chemical processing—these were inventions which connected isolated communities, transformed night into day, caused mortality rates to plunge—now that was progress! Even the information revolution of the latter half of the 20th century looks less revolutionary when compared with the inventions of 1865-1915: the telephone, radio, television, moving pictures and the phonograph. Not to mention the telegraph, which recently celebrated its 175th anniversary.

Standing on Ye Shoulders of Giants

But the same historical perspective might also have promised hope. Inventions such as the electric motor made no impact on industrial efficiency at first. They were being used directly to replace steam engines. It was only when factory workers had their own small electric motors that efficiency improved. The organizational change gave each worker more responsibility; pay and conditions had to be modified. In short, everything had to change before the true benefits of the technology were felt.

In the same way, it took a while for information technology really to prove its worth, not because of the much-touted “increasing returns” to network technology. (Sure, bigger networks have exponentially more interconnections than smaller ones, but even twenty years ago it should have been clear that most of those connections would be used for trivia.) It simply took a long time to reorganize society to take advantage.

The objects that surround us are the result of many previous innovations—made possible by the invention of electricity, biotechnology, financial instruments, computers, and the seed drill, to name a few. And each of those innovations was made possible by previous successful discoveries. As Isaac Newton said (mocking his diminutive rival Robert Hooke), “If I have seen further it is by standing on ye shoulders of giants.”

As more and more ideas are created, the number of new ways in which they can be combined grows factorially. (I recall explaining to someone at the time that this was “like exponentially only faster.”) The resources devoted simply to sifting through different possibilities became enormous. Would you believe that in the year 2001, management consultants, investment bankers and venture capitalists were widely regarded as parasites?

In the end, one of the main uses of information technology was the spread, testing and funding of ideas. Academic journals, even in 2001, were becoming useless except for the quality certification services they provided. When quality certification became reliable for digital products, the best articles were widely distributed very quickly. Not the naive quality certification (“twenty readers rated this book 3.17 out of a possible 5″) but the real stuff. And that was just the beginning—the part that was imaginable twenty years ago. As information technology shifted around ideas and money in support of those ideas, better and better innovations were made more and more quickly. This wasn’t really possible, though, until a serious shakedown took place: from the way fund managers were paid to the structure of research funding, “knowledge workers” in 2010 had to change as surely as factory workers in 1910.

Business as Usual

What were we to make of “globalization?” If what was meant by that word was partly to do with international economic integration, and partly to do with global institutions, then, again, the forecasters should have had a few clues.

In the 1920s and 1930s, the barricades went up and international trade suffered. Fortunately, this experience has not been repeated over the last twenty years, and the process of increasing trade has continued. This process, which was really the continuation of a very long trend, made the average person richer, and created confusion, insecurity and very visible losers, much as it always had done.

More interesting was the development of global governance. The persistent failure of the United Nations and its predecessors had lead many sensible observers to conclude that there would never be a “world government”—whatever that was supposed to mean. They reckoned without two factors: the progress of the rule of law, and the tendency for a revenue stream to create its own governing body.

Auctioning the Sky

Let’s start with that second point. The environment increasingly came to be regarded as a scarce communal resource that needed to be rationed, and the appropriate subject of government regulation and taxation. The ultimate tool for the allocation of scarce resources is the auction. The forecasters at the turn of the century had a couple of clear signals of this. Environmental concerns had been brewing for many years, but in the 1990s, the threat of climate change had finally created powerful commitments and the beginning of an international apparatus to monitor them. At the same time, auctions of radio-spectrum in the U.S., and a few years later in Europe, started to raise enormous sums of money.

Put those two trends together and the result is hardly surprising: global auctions of carbon dioxide emission permits. A global auction is appropriate, because carbon dioxide emissions were a global problem. (Most other environmental problems were addressed, or otherwise, by national and regional governments.)

The Global Gravy Train

Initially, the effects of the carbon auctions were very positive. There was a predictable shakedown and rapid closure of inefficient plants. Major financial institutions immediately participated in the quarterly auctions, buying permits and banking them in anticipation of high future prices. This meant that the actual reductions in emissions were far more dramatic in the short run than anybody expected. Traditionally favored sectors such as coal were protected by subsidies for a time, but by and large the auctions were very effective—and very lucrative.

Which is the point that seemed to be missed by so many contributors twenty years ago. The naive view is that enormous revenue is a good thing. It certainly can be. But it also encourages destructive pie-grabbing and government waste. Looking at the damage done to mineral-rich economies like Venezuela and Oman should have given them pause for thought. Nigeria is a case in point. From 1950 to 1972, a struggle for independence, civil war and minuscule oil revenues did not stop the economy growing at 3.2% per person per year. In the years from 1973 to 1994, the oil revenue went up fifty-fold to $240 billion, and the growth rate collapsed to 0.1%. It would not be entirely misleading to suggest that the economy had been destroyed because few people cared about anything except getting their share of the oil money.

That lesson seemed to be lost on most forecasters. Initial annual revenues of three quarters of a trillion dollars were higher than might have been expected, but would not have astonished anyone who had considered the possibility of an auction. But the initial carbon auctions in 2010 raised as much as the World Bank had lent that decade. The fight to control the revenue was predictable, and as 2020 approached, the Climate Fund—a combination of United Nations committees and bloated descendants of the Bretton Woods institutions—was spending that money on increasingly ill-advised projects.

There have been some gains, of course. Income tax has fallen dramatically in many countries and been replaced by revenues from environmental licenses. But at the same time, healthy competition between jurisdictions has been softened by the ability to persuade the Climate Fund to prop up bad ideas. Think about the old European Union’s “Common Agricultural Policy,” writ large.

As the alternatives to carbon dioxide production have starting to take over, the global institutions are already looking for new sources of income. Reform of these institutions is one of the largest challenges facing us today.

The Rule of Man or the Rule of Law?

The second trend in global governance was more positive. For centuries, successful economies had been helped along by legalistic tendencies: the “rule of law” rather than the “rule of man.” S.E. Finer argued that this innovation took place in the Roman Empire, and gained popularity in the middle ages. Certainly, in the principle of the separation of powers it was widely recognized.

What should have been obvious to any observer at the end of the 1990s was that this process was not stopping at national boundaries. War crimes trials were making the news, but subtler and more fundamental changes were happening. The World Trade Organization had replaced GATT—an organization based on power—with a judicial institution based on getting people to do what they had previously agreed. This was the kind of institution the world had been looking for: one based less on force and more on legal process. After a jittery start, the success of the WTO led to the regulation of other international issues along similar, judicial grounds. Not every attempt was successful, but that long process has continued.

The rule of law has also spread in another way. In the late 1990s, citizens of countries with poor legal systems with a grievance against local firms, were taking advantage of better courts elsewhere by suing their parent companies in the United States, Canada and Europe. As “foreign direct liability” became recognized, it was a small step to private provision of law. Professional service firms followed the trend in 1980s California, and diversified into private dispute resolution services. A quicker, fairer process meant that in many cases both litigants would agree to take the matter to a private court—all the local courts had to do was to agree to uphold those decisions.

These innovations were not perfect and not universal—especially when legislators and litigators colluded, as in the U.S. tobacco cases of the 1990s. But overall, they did a great deal to help provide the legal infrastructure that had held back development in so many parts of the world. Whether done via public or private means, importing effective institutions has been one of the great leaps forward of the past twenty years.

The Lessons of History

In the words of Winston Churchill, “The further backward you look, the further forward you can see.” By looking backward in the year 2001, our forecasters could have predicted that sudden, arbitrary revenue flows create inefficient institutions. They could have understood how modest the “information revolution” really was, but also what it might eventually make possible. And they would have noted the slow advance of judicial institutions and speculated where that might lead. The lesson to learn from history is that few people ever will.