In the latest Forbes list of the world's richest people, mainland China shows up as home to 64 billionaires, the highest number outside the United States. The speed of this wealth shift is surprising even to Peter Bisson, chair of McKinsey & Co.'s knowledge committee and leader of the multinational consulting firm's global forces study. He is a close watcher of the shift in economic power to emerging markets. He was also part of the army of McKinsey's global partners, 1,400 in all, who descended on Toronto last week for their annual meeting. Mr. Bisson's message was that amid tumultuous change there is cause for hope, particularly for resource-rich Canada.
What are your starting assumptions about the global economy?
The financial crisis is just a little earthquake in a long process of fundamental economic realignment. It is a comma rather than a period. People keep talking about a "new normal" and there is no new normal. Instead, we are partway through a 40-year trend of restructuring how different economies work, the balance of economic power and things like that.
And globalization is basically a good thing. It has lifted huge numbers of people out of poverty and it is effectively irreversible, short of total catastrophe. Even so, business leaders must be very unsettled.
The navigational aids about how things work have shifted. A lot of the institutions that have guided global development and collaboration seem to be struggling to cope. It's bumpy. What we describe as the "Washington consensus" - including the sense that "markets will cause a fine outcome, and don't worry"- is not a shared philosophy any longer.
Yet despite the end of an implicit liberal market orthodoxy, it has not been replaced by anything - and that leaves business leaders at sea.
How do you bring them back to land?
There are what we call "crucibles of innovation." The first one is the Great Rebalancing: For the first time in hundreds of years, there will be more growth in emerging markets than in developed markets. We are doubling the size of the global middle class. We are adding billions of people to it, which can be a good thing, despite the stresses it causes.
Goods and services that meet the needs of these people are "value-based products" - they have to be tailored to the needs and price points that work in those markets.
For a Western company, what are the implications?
As [Harvard business professor]Clay Christensen says: You often see the upset come from someone who starts at the lower end of the market. We find a disconnect between market share in terms of revenue and in unit share - the share of a market in unit sales. The opportunity for some Asian companies to get unit-share leadership is very powerful right now.
Take the construction equipment market, and list the largest companies in the world. Revenue share is clearly dominated by Western companies, but plenty of Chinese companies are pretty damn serious competitors in terms of unit sales. Those Chinese companies, most of whom nobody has heard of, already have 30 per cent of the market share in emerging markets outside China. The tendency will be for them to move up the value chain.
Are there other realities businesses have to confront?
There is a need to drive productivity in the developed economies. Because of demography, we don't have the ability to add all that much to the labour force. Almost all our true GDP growth has to come from productivity in most of the Western world.
But the work force in a lot of the West still fits a 20th century economy. For example, in the U.S., there is only 3 per cent unemployment in the most highly educated groups, but 30 per cent unemployment in the bottom 10 per cent of education. We are drifting toward this chronically unemployed group because skill sets don't match.
Demography is running against us, as compared with the emerging markets, which have demography and urbanization going for them. So we have to deal with the productivity challenge and the lack of alignment in our work force.
Is there any hope?
Look at the productivity variability of different types of workers. The range in performance among manufacturing workers is, very close - let's say, X amount - but for knowledge workers, the range is more like 5X. It means the management science of how to get the most out of knowledge workers is still evolving.
We've had 80 or more years to work on the Taylorist model of how factories work [built on the work of early 20th century industrial scientist Frederick Winslow Taylor] but what do you do with a bunch of software developers? We are still in the early stages on that one.
The other hopeful sign is the adoption of technology to drive better decision-making and support. We are seeing that in these data-driven decision algorithms in customer support and just-in-time supply chains. Woven into this is what we call "the Internet of things." We are placing sensors everywhere to allow us to monitor and do a better job of process control and finding where waste is in any system.
But what if we don't get productivity growth?
We will all have to live with a bit less.
You have talked about a new development called the global grid.
We have global capital markets, global trade markets and an unbelievable flow of information. That has enabled those just-in-time supply chains. The typical manufacturing company relies on 35 different contract manufacturers around the world. It is a very dense web of interconnection with money and information, as well as products, flowing.
So every company is now a global company; they are on this web. They might think of themselves as only manufacturing in Canada and selling in Canada, but they are competing with someone who might be sourcing from China or using intellectual property from Israel. The most innovative ones are capturing the value of this global grid in their DNA.
How does a resource-producing country such as Canada fit in?
Canada is a big beneficiary. This huge [emerging markets]urbanization and this doubling of the world's middle class drives very significant real increases in resource demand of pretty much all types. Energy gets all the press, but it's everything. They're saying China will have about 230 cities of more than a million people. That's a lot of glass and steel.
Also, there is the need to produce substantially more food. With the shift in wealth, you have a shift in consumption patterns toward more proteins, and you have enormous pressure on demand. With supplies of a lot of this stuff being volatile or tricky, we paint a picture of steadily rising demand but also a lot of price volatility. There is a need to plan for a wide range of outcomes over a period of time. Just look at the volatility of oil prices over 18 months - it's staggering.
What's the outlook for governments?
You have to recognize the enormous burden on the state because you've got this economic transformation. You've got a lot of winners and losers in that. The state is responsible for making sure the losers aren't too badly hurt. It has to be the safety net.
States need to make sure their decisions are succeeding on this global stage, As a government, you are accountable for your citizens having decent jobs in a world where you are competing against all these other people. It's a tough place.
Inequality between nations is evening out; inequality within nations is getting worse. That is politically volatile, and you can't escape that reality.
What does it mean for business?
The risk in the system today is more on the individual. On average each year, 15 per cent of U.S. households can now expect their incomes to fall as much as 50 per cent. That's a third higher than in the 1970s.
So you've got this restless innovation and this constant search for lower costs and better products. Job stability is harder to achieve. Government, as the guarantor of last resort, is picking up the stress inherent in this process. Business has to work with government to solve these problems.
Title: Director, McKinsey & Co., Stamford, Conn.
Born: New Hampshire, June 28, 1957
Undergraduate degree from Dartmouth College, Hanover, N.H.
MBA from Harvard Business School
Joined McKinsey in 1983.
Formerly headed McKinsey's telecommunications practice. More recently, regional leader of the Americas' strategy practice.
Has worked in New York, Copenhagen and Washington, D.C.