Globalization and Optimism

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Isolationism, fragmentation, and pessimism always fail. Globalization has been everyone’s favorite punching bag for a while. It is hard to feel optimistic about its prospects. However, globalization has a better future. If you are a fan of globalization, cooperation, and comparative advantage, the last decade has been extremely challenging. Ten years ago was a time of optimism on a global scale. However, economic and geopolitical forces have combined to add friction and fragmentation to global exchange. The benefits are now even greater and with everyone’s self-interest and mutual benefit, this geopolitical stalemate will pass – more quickly than is commonly thought today. Cooperation, integration, and mutual benefit win in the end. It is time to be optimistic once again.

Discovery, Innovation, and Crisis

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Our most intractable problems cannot be solved with behavior modification, conservation, or our existing technology, regardless of its advanced or widespread applications.

Only new knowledge creating innovative solutions can address our most intractable problems. This can only be achieved through basic scientific discoveries and then combining these discoveries with enterprise-based innovation, commercial discipline, and competition. Innovation, creativity, and competitive dynamics create the most effective innovations, the best solutions, and the most sustainable companies. Developing the best public policy as well as the best structure to enable innovative and creative solutions, as well as the economic incentive to scale these opportunities and make them economically sustainable.

Central planning, bureaucratic industrial policy, government-led economic management, and dictatorial focus have always failed, and always will.

Industrial Policy – Stupidity by Another Name

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Zero-sum thinking has begun. Despite comparative advantage, mutual cooperation, and specialization proving indisputably more beneficial than any other approach to economic interaction, this ideal is under threat. Rules and norms for economic integration lifted hundreds of millions of people out of poverty, created an order-of-magnitude increase in the average wealth of the Western population, and benefited countless hundreds of millions enabling a way of life otherwise unimaginable post-World War II. Now that system is under threat as developed countries subsidize alternative energy, attract manufacturing via expensive subsidies, and restrict the flow of goods and capital. Mutual benefit is out; national gain is now the highest priority. In other words, stupidity and zero-sum thinking have taken over. A handful of bureaucrats, regardless of how brilliant each may be, can never equal the mind of the market. Management and control usually spell disaster eventually. Managed focus on technological development for products and services the central government believes have greater substantial benefit to the overall society may not be calamitous, but the law of unintended consequences has not been repealed. It will be inefficient, substandard, and create potentially dangerous side effects. Innovation, creative freedom, and unstructured thought are essential components to the development of any technology of substance and disruptive benefit.

The Broken Road of Innovation

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Discovery, innovation, and practical application are never a straight line and, the best analogy is “the broken road.” Our greatest discoveries and advancements have confusing, uneven, and broken pathways that often lead somewhere astonishing – even though at the outset the initial steps could never envision this as a final destination. Artificial intelligence is the embodiment of this concept. A powerful tool that can lead anywhere given the imagination and unlimited creativity of its users. There may be nowhere more impactful, generating therapies for unmet medical needs in record time, than artificial intelligence’s ability to mimic evolution in minutes. The real outcomes are still unpredictable, but the potential is unfathomable. AI languages that produce pictures seem to be initially relegated toward a combination of Tik-Tok influencers, outraged artists, and those with limited imaginations and creative skills. But now, AI-generated pictures can use text to direct specific protein designs with properties of shape, size, and/or function that make it possible for these new proteins to perform specific tasks on demand. This breakthrough may lead to more efficient and effective drug development and, the discovery in minutes of what evolution would otherwise have taken millions of years to develop.

Looking Forward

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Most current innovations have yet to reach their potential, and new innovations are essential to address the most critical issues we confront, whether that is climate change, food scarcity, water shortages, or more effective distribution of innovation itself. Advanced technologies can be many things, but several areas, including artificial intelligence, life sciences, and software innovations provide the most potent platform for new opportunities, disruptive innovation, and value creation. Software will disrupt the most important industries in the world, especially finance, life sciences, and communications. These will be the fundamental innovations that will drive value creation over the course of the next year, and from now on.

A New Vision for Artificial Intelligence

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A new vision for artificial intelligence is using smaller more relevant data sets for dynamic learning generating more effective outcomes and better predictions. This model uses cognitive architecture, learns, transfers learning, and retains knowledge – enabling more valuable and compelling artificial intelligence applications. This approach is more closely related to the brain’s actual structures and much more effective than “neural networks,” which is a catchy name but the similarity to the brain’s actual functioning is in name only. Real advancement in artificial intelligence must live in reality, not theoretical marketing. The current state of artificial intelligence shows the shortcomings of big data and trial-and-error approaches. A new AI vision can be a more effective solution. Smaller data sets, more relevant information, dynamic data, and algorithms will lead to more appropriate outcomes, better tools, and more effective applications.

The Next Ten Years

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The onslaught of market-making bad news seems almost a daily event. A gloomy picture of slowing economic growth, elevated inflation, and confusing fiscal and monetary policy has added a lethal mixture to the market’s performance. Fiscal stimulus is sidelined, and monetary policy is constricting economic growth and entrepreneurial innovation. It makes for a gloomy outlook and an even more depressing long-term perspective. The next 10 years look more like a lost decade. High-growth company valuations have been significantly discounted, and over time as discount rates drop, their valuations are likely to increase substantially. Higher-yielding fixed income securities will be a standout performer as interest rates are reduced, the higher-yielding BDCs, REITs, leveraged loan securities, and high cash flow instruments, along with high-dividend equities, will prove extremely attractive and are currently available at bargain prices. Providers of value and users of value will be the winners for the next decade. Those generating real cash flow and disruptive innovation will define the next decade.

Predictions and Nonsense

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Predictions usually end up being nonsense. We simply draw a trajectory from what we know today. But innovation is a discontinuity. Things are unpredictable because innovation does not come from consensus thinking. It comes from small groups and individuals with a spark of entrepreneurship, intelligence, and vision.
One of the fundamental tenets of predicting technology is that most forecasters get things spectacularly wrong.

A Monster Is on the Loose

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The rewards for innovative success have become enormous and unpalatable, especially among the five technological giants (Amazon, Apple, Facebook, Google, and Microsoft) forcing these firms to spend absurd amounts of money on lobbying in Washington DC. It’s an expensive and wasteful distraction, but essential in this brave new world. If nothing else, it clogs innovation. It is to our detriment – and the world is literally burning while politicians fiddle – and even more disastrously – impede innovative activity. Applying friction to free thinking and new ideas never ends well.

Does the Future Need Us?

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Brilliance combined with quirkiness and rule-breaking perpetuates an image of daring entrepreneurs and risk-taking capitalists generating outsized wealth. This simply doesn’t happen unless what is created matters. While we might question how much one needs to play a videogame or interact with social media, an advanced society needs advanced solutions to the intractable problems it faces. As John F. Kennedy said, “Our problems are man-made, mankind can solve them, as well.” Perhaps. The harsh reality is that brilliant, hard-working entrepreneurs and thoughtful investors lose much more often than they win. We need their risk-taking and willingness to lose. It’s how we win. We need the benefits technological innovation delivers even if we don’t understand that innovation’s ultimate purpose.