Innovations as possible solution to World’s risks and problems or Why innovations matter? (Part 1 of 2)

No man is an Island, intire of it selfe; every man is a peece of the Continent, a part of the maine; if a Clod bee washed away by the Sea, Europe is the lesse, as well as if a Promontorie were, as well as if a Mannor of thy friends or of thine owne were; any mans death diminishes me, because I am involved in Mankinde; And therefore never send to know for whom the bell tolls; It tolls for thee.

—John Donne

Well, you know in my life I follow Einstein’s example and try to spend around 80% of efforts for formulation of a question, and only 20% of my resources then are devoted to finding a particular solution. So, quite a lot I’m writing about business incubation and will be doing that in the future. But why is it so important to think about business incubation or innovations and innovation ecosystems or about entrepreneurship in general?

The answer is actually is on the surface. My approach to it would be consider the whole world system, identify main problems and risks, estimate why are they important and what is done in order to mitigate or eliminate those risks, what is actually the situation and how innovations could influence the situation in the world.

World’s problems and risks

The World faces significant amount of problems and risks nowadays. Below I will list main types of problems that have been reported by World Economic Forum in 2013. I would like to focus on key categories and provide a real-life urgent example under each category. Among the most important problems are (World Economic Forum Report, 2012):

  • Economic risks
    • By 2030 costs on asset renewal of the world’s infrastructure will grow up to $70 trln.
    • The distribution of total liquid net worth in the world per person in 2012 shows that 0.1% (8,891 mln people) owns more than 80% of total liquid net worth (Henry, 2012) (see Figure 1).
    • Transnational corporations form a giant bow-tie structure, and 737 MNCs control 80% of total world’s wealth.
  • Environmental risks
    • By 2030 costs of ecological and climate problems, discharge of shortage of energy and drinking water will be around $95 trln.
  • Geopolitical risks
    • World economy is on the verge of recession. The problems with employment can lead to protests in 45 from 118 countries.
    • Mismanagement of population ageing.
    • Rising debt
  • Societal risks
    • 1 in 5 of the world’s people – 1.2 billion – live on less than one dollar a day, 1 in 3 have no access to electricity, and 1 in 2 lack basic sanitation. 50 countries have lower per capita incomes now than a decade ago (Lalkaka R. , 2007)
    • Income inequality in OECD countries is at its highest level for the past half century. The average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago (OECD, 2011) (see Figure 2).
    • The richest 1% of adults alone owned 40% of global assets in the year 2000 (United Nations University, 2011). The three richest people possess more financial assets than the lowest 48 nations combined. The combined wealth of the “10 million dollar millionaires” grew to nearly $41 trillion in 2008. Pareto rule is still very solid. 20% (or even less) own the 80% of the assets.
  • Technological risks
    • Diffusion of weapons of mass destruction, cyber-attacks, etc.

    Global Distribution of Wealth 2012

    Global Distribution of Wealth 2012

Figure 1 – The distribution of total liquid net worth in the world per person in 2012

Key transnational corporations that own the world’s assets

Key transnational corporations that own the world’s assets

Figure 2 – Key transnational corporations that own the world’s assets

The Distribution of Economic Inequality in 2012

The Distribution of Economic Inequality in 2012

Figure 3 – The Distribution of Economic Inequality in 2012

Analysis of current trends, dynamics of the world development allows to conclude that the world is on track for disaster. Such issues as capital and assets concentration and centralization leads to huge economic inequality. Governments failed to solve mentioned problems together. Thus, political commitment and resources have yet to be mobilized. Major systemic financial failure is the risk number one for over the past five years according the WEF Report. Therefore, I can conclude that current political, economic, fiscal and legal methods fail to solve the problems of the World.

 “Current political, economic, fiscal and legal methods fail to solve the problems of the World.”

Why is it so and what was done up to date in order to eliminate the risks I’m talking about?

Goals of the World

Well, of course leaders of the top economies, countries and world’s organizations are aware of problems that the World faces. In order to minimize or mitigate this set of risks different types of international organizations, summits, forums were created such as WorldBank, United Nations, IMF, WTO, G-8 and G-20 Summits. As a consequence 193 United Nations (UN) countries have agreed to achieve 8 Millennium Development Goals (MDGs) that were officially established following the Millennium Summit of the UN in 2000. These goals were:

  1. eradicating extreme poverty and hunger,
  2. achieving universal primary education,
  3. promoting gender equality and empowering women
  4. reducing child mortality rates,
  5. improving maternal health,
  6. combating HIV/AIDS, malaria, and other diseases,
  7. ensuring environmental sustainability, and
  8. developing a global partnership for development

Careful review of the progress towards reaching these goals shows that it’s unbalanced. In general experts were forced to admit that Goals #1, 2, 4, 6, 8 are likely to be missed by a wide margin (Guardian, 2012). Some of the countries have reached almost all of them and some have not, especially those that were in bad position 15-20 years ago (Sub-Saharan Africa, Asia, part of Latin America).  Most critics argue that this is due to several reasons (Millennium Development Goals Report, 2010) such as:

  • global governance failure,
  • shortsightedness and greed of world leaders,
  • corruption,
  • unsustainable population growth,
  • chronic fiscal imbalances,
  • failure to overcome food and water supply shortages,
  • national or elites interests take precedence over the global interests.

Moreover, world faced financial crisis in 2008 that forced governments to think about their own countries and economies instead of global problems. So, where we are now and what is happening?
I believe that we are on the track to collapse. However, before explaining my reasoning, I would encourage readers to pass small poll and answer a question: Do you think we are on the track to collapse: yes or no?

Meadows’s “Limits to Growth”

In relation to the World’s problems, it is important to remember the most groundbreaking academic work carried out by a group of scientists 40 years ago under the leadership of Dennis Meadows (American scientist and Emeritus Professor of Systems Management). In 1972 they conducted a prominent study for an international think tank, the Club of Rome, to model several possible future scenarios of the World development. MIT researchers developed a World Model and simulated the consequence of interactions between the Earth’s and human systems. They assumed that there are physical limits to growth for the Planet and humanity as far as the resources are finite on it. Five variables were examined in the original model, on the assumptions that exponential growth accurately described their patterns of increase, and that the ability of technology to increase the availability of resources grows only linearly. These variables are: world population, industrialization, pollution, food production and resource depletion.

Possible Scenario of World's Development 2013

Possible Scenario of World’s Development 2013

Figure 4 – Possible Scenario of World’s Development

If human beings will continue to consume more than nature is capable of providing, global economic collapse and precipitous population decline could occur by 2030.

The results of the work were shocking and triggered numerous criticisms of the authors, their work, methodology they used, and conclusions they have made. These main results are stated below:

  • Model showed that population and industrial growth are inherently exponential; and that exponential growth will take global society to any existing limit quickly, wherever that limit is.
  • The global ecosystem is now far above its carrying capacity.
  • Two of the scenarios saw “overshoot and collapse” of the global system by the mid to latter part of the 21st century, while a third scenario resulted in a “stabilized world.”
    • The business-as-usual scenario estimated that if human beings continued to consume more than nature was capable of providing, global economic collapse and precipitous population decline could occur by 2030.
    • However, the study also noted that unlimited economic growth was possible, if governments forged policies and invested in technologies to regulate the expansion of humanity’s ecological footprint.

Then numerous scientific groups took the model and compared the predictions with real-life data. They recognized that the predictions were very accurate. Model predictions correlate with reality. The latest comparison was made by Australian physicist Graham Turner.

“He compared real-world data from 1970 to 2000 with the business-as-usual scenario. He found the predictions nearly matched the facts. “There is a very clear warning bell being rung here,” he says. “We are not on a sustainable trajectory.” (Strauss, 2012)

“Collapse or stabilized world”, this is how we should place a question. Predictions that we can make today are:

  • The reality will become evident in the nearest future (within 30 years)!
  • If current trends continue, limits of growth will be reached sometime within the next one hundred years.
  • We are following the collapse scenario. Economics & industrial capacity will crash and human populations decline rapidly.

Solution to the challenges of the World

Considering the World problems, inability to solve these problems, as well as to reach the Millenium goals, predictions of the World’s collapse, I would argue that obvious ethical decision would be to change current situation. However, there are very important questions that should be answered first:

1. Why global problems producing such a great impact are still cannot be solved? What are possible explanations and reasons?

2. In which world we will leave and what should be our actions according to the situation? What actions have a true power to change it?

Finding the answers to the questions could take a whole set of scientific publications and works. Bearing in mind that the main theme of the current work is importance of innovations, I will take only few of the whole range and expand them. Thus, we will take the reasons that have been found by experts in economy in World Economic Forum (2013), and knowledgeable author in business incubation Mr. Lalkaka. Reasons of inability to solve the problems are (according to the experts) (Lalkaka R. , 2007):

  • Global governance failure. Knowledge to attack most of the problems (e.g. poverty and disease) exists.  But political commitment and resources have yet to be mobilized.
  • Growth advocates change the justification for their paradigm rather than changing the paradigm itself. Politics and the market are inherently unsuited to adopt constructive policies that can lead to sustainable development.
  • Knowledge Rights (IP) unfairly deny the right to a better life.
  • Racial, religious and gender violence, and cultural differences make us all less secure.
  • Governments are still concerned about their local economies and local goals.
    • E.g. official development assistance to poor countries is about $125.6 billion a year (OECD data, 2012). Whereas, subsidies to agriculture in rich nations are $350 billion, and world military stands at over $1.7 trillion in annual expenditure (Stockholm International Peace Research Institute (SIPRI), 2012), and has been rising in recent years.
    • World faced financial crisis in 2008 that forced governments to think about their own countries and economies instead of global problems.
    • Unwillingness of MNCs to shift the paradigm of short-term profits towards long-term development.
    • Unsustainable population growth.
    • Chronic fiscal imbalances.
    • Failure to overcome food and water supply shortages.
    • Shortsightedness and greed of world leaders.
    • Corruption (World Economic Forum Report, 2012).
World Military Expenditures 1988-2011

World Military Expenditures 1988-2011

Figure 5  – World Military  Expenditures 1988 -2011

As we can see from the list above solution hardly could come from the top of the society’s pyramid. Governments pursue their own interests, interests of their nation (sometimes). Otherwise, why we spend so much for military every year? More often governments solve particular tasks for elites. Corporations that own almost all of the world’s wealth are mostly interested in the increasing revenues of their shareholders. The current system can’t be changed in a moment, because it is huge, complex and already has certain ”direction of development” , moment of inertia. Historical analogies tell us that there should be a top-down and bottom-up approach combined in order to solve the problem. Only combination and synergy of both could bring tangible result in a foreseeable future.

I would like to admit that the World faces tremendous amount of problems: economic, environmental, geopolitical, social, technological. Social, institutional, political mechanisms fail to solve these key problems and prevent exponential growth. World modeling showed that we are on the way to collapse if we will not change our attitude towards consumption of nature resources, technological pace and number of people. There is one possible way to cope with these problems, which is Innovations Managed Development (through innovations and entrepreneurship). Solution of the problems should come from the bottom, not from the top of the society’s pyramid.

Why is it so? What innovations can give to the world? Why they can be considered as one of the possible solutions to the world’s problems, especially to the “limits to growth” issues? Will think about it in the next post…

Good luck!

P.S. I would like also to add some interesting report that I have found recently about 30-years update of the Meadows work.


2 thoughts on “Innovations as possible solution to World’s risks and problems or Why innovations matter? (Part 1 of 2)

  1. Pingback: Why Entrepreneurship Matters (Part1) | Entrepreneurship Matters

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