Medium projections - politics and society

Pa#rickSmellie

ForTheHugoGroup

July/August2017

Big theme - acceleration•  Everythingisspeedingup

•  Humansareadaptableandhavealwaysadaptedtotechnologicalchange•  IsthegreatlyacceleraGngpaceoftechnologicalchangeathreattothatadaptability?

•  SourcesofacceleraGon•  GlobalisaGon•  Climatechange•  Digitaltechnology

•  TheimpactoftheseacceleraGngforcesonsociety,poliGcs,economies,andbusinessesofthefuture•  Howwell-adaptedisdemocracytotheseforces?•  EspeciallyinanageofdisruptedWesternpoliGcs?•  Howwell-equippedareNZbusinessandpoliGcalleaders?

Who says?

•  ThomasFriedman–Market,MotherNature,andMoore’sLaw“MoreMoore’slawisdriving

–moreglobalisaGon

–andmoreglobalisaGonisdrivingmoreclimatechange,

–andmoreMoore’slawisdrivingmorepotenGalsoluGonsto climatechangeandahostofotherchallenges–andatthesameGmetransformingalmosteveryaspectofmoderlife.”

On the bright side

On the downside – rise of the ‘useless class’• Robots,arGficialintelligenceandmachinelearningkilljobs• Willnewcareersemergefastenough?•  Ifnot,whathappens?• CondiGonsripefor:•  Socialunrest•  ErosionofdemocraGc‘consensus’poliGcs•  LuddiGsm

• CondiGonsalsoripeforUniversalBasicIncome/socialpolicyinnovaGon

Who says?

•  YuvalNoahHarari–ABriefHistoryofTomorrow“…whenwehearofsuperhumans,wesensethat…ouridenGty,ourdreams,andevenourfearswillbeirrelevant,andwewillhavenothingmoretocontribute”.

“LiberalsupholdfreemarketsanddemocraGcelecGonsbecausetheybelievethateveryhumanisauniquelyvaluableindividual.Inthe21stcentury,threepracGcaldevelopmentsmightmakethisbeliefobsolete.”

The three developments

• Humansloseeconomicandmilitaryusefulness•  Replacedbydigital,roboGcandAIalternaGves•  RiskthepoliGcalsystemstopsvaluingpeopleasithastradiGonally

•  The‘system’willconGnuetovaluehumanscollecGvely,butlesssoindividually•  Somehumanswillbehighlyvalued,butnotthemassofthepopulaGon•  Ofcourse,thispoliGcsalreadyexists•  Maybehighlyexacerbatedbyemergeofa“neweliteofupgradedsuperhumans”

machine-learnt customer service will need to be better than this …

Big theme: fairness, inequality, trust

Howtrueisthisforyou?

Senseofinjus2ceLackofhopeLackofconfidenceDesireforchange

Nearly Half Believe the System is Failing Them

Not at all true

1 in 3 are uncertain

Completely true

System failing System working

Approximately

47% 53%

31% 32%

22% 15%

9 8 7 6 5 4 3 2 1

NZGlobal

A First World issue

• WithimplicaGonsinthefollowingpolicyareas:•  Tax–capital/wealthtaxes•  IncomeredistribuGon–UBI•  Housing•  ImmigraGon•  Health

• NZremainsanoutlierasanetopGmisGcFirstWorldcountry

Emerging economies more optimistic

Global outlook

Poles of autocracy forming•  Russia,China,Turkey,Iran,broadlyaligned

•  Withsomebadfriends:NorthKorea,Syria•  China’sclaimstotheSouthChinaSea,disciplineinHongKong

• Westernblocleadershipweakened,by•  therefugeeexodustotheEU•  Brexit•  USandEUwarwearinessinAfghanistan,MiddleEastandNorthAfrica•  Trump’sabdicaGonofleadership•  Withsomebadfriends–parGcularlySaudiArabia•  NocertaintyaboutGermanleadershipunGlaeerAugustpresidenGalelecGons–Merkelrepresentsstability

•  Japanverykeentore-arm•  ChinasofarmaintainingstrongGeswithdevelopedworldeconomiesdespitemilitaryprovocaGons

Challenges to democracy•  VerylowvoterturnoutinkeydemocraGccountries

•  France,USpresidenGalelecGonssub-50%•  WidespreaddisillusionmentwithpoliGcs,authorityfigures•  ManytradiGonalpoliGcalparGeschallenged•  VoterfaGgueinsomecountries

•  Againstthat:popular,youngworldleadersemerging•  TrudeauandMacron–bothmore‘neo-liberal’thaniscommonlydiscussed

•  Maverickelderstatesmenarealsofavouredbytheyoung•  SandersandCorbyn

•  EUelecGonssofarthisyearhavefailedtobringultra-rightparGestopower•  BenefitsofproporGonalrepresentaGonvoGngforpoliGcalstabilitybecomingevident?

•  Butyearningforsomesortof‘newpoliGcs’willbeamajortheme

US – will Trump last?

• CurrentcontrolofSenateandHouseinjeopardyatmid-termelecGonsinNov18• Globalleadershipdiminishing•  Leavesgeo-poliGcalvacuum• USeconomyrecoversanyway•  Trumpagendastalls• DemocratsandRepublicansbothneedcompellingalternaGvecandidatesfor2020–noneyetemerging•  ImpeachmentonRussia–remainsunlikely

China – global ambitions vs domestic challenges

•  TalkofChinesegloballeadershipoverhyped?•  FinancialsystemweaknessessGllconsGtuteasubstanGaldownsiderisk• HongKong/internaldissenttointensify?•  Especiallyifgrowthslowsorwealthisdestroyed

• XiJinpingconsolidaGngpower•  CurrentlydescribingChina-RussiarelaGonsasthebestthey’veeverbeen

Europe•  FranceunderMacron•  IsheThatcherorModi?•  Hugelypopular,butreformagendais‘neo-liberal’•  Howfastcanhemove?•  Highunemployment/unbalancedperformancevsGermanylikelytoconGnuemediumterm

• Germany•  MerkeldealingwithTrump•  Re-elecGoninAugustlikely,andcrucial•  Remainsanindustrialpowerhousewithaffordablehousing

Brexit

•  SoeBrexitbecomingmorepoliGcallypopular•  BritonssGlladapGngtothelossofglobalinfluenceinexchangefordomesGcsovereignty•  BrexitnegoGaGonsstarGngtounpeelthat•  8to10yearprocess•  FinancialservicesmayleaveLondon•  ButprobablynotlegalservicesbasedonUKlaw–internaGonalcontract-wriGng,arbitraGon,liGgaGon•  DowningStappearstobelookingtoNZforanswers

Russia•  PuGn’sKleptocracy•  FocusedonlyonanimperialvisionvisionofRussia’srighmulplaceintheworld•  Keyissue:economyremainsfrail

•  OngoinglowoilpricespoliGcallydangerous•  MilitaryposturingimportantfordomesGcaudiences•  Infiveyears’Gme,PuGnwillsGllbemeddling•  ButwillhopefullynothavegonetowaragainsttheWest

Australia•  EconomyunderperformingbutsGllwealthy•  ConstantPMchanges,withmorelikely,indicateknockstonaGonalself-confidence

•  Largeprojectedbudgetdeficitsneedfixing,butpublicdebtisverylow

•  Facesahugeclimatechangechallenge•  Likelytomuddlealongwellenoughasanexportmarket?•  IncreasinglyimportanttotheUSasamilitarypartner•  MorenervousandhawkishthanNZonSthChinaSea,regionalthreats

• WillpressureNZondefence

NZ issues

22

Big theme: NZ becomes more fundamentally attractive as a place to live•  Safe-tolerant•  Clean–includingnotcorrupt•  OpGmisGc•  HighqualitypublichealthandeducaGon•  StrongeconomicgrowthandjobcreaGon•  IncreasinglydiversepopulaGon•  Increasinglydiverseeconomy–smartindustriesstarGngtofire•  English-speaking• Migrantsdon’tlearndownsidesGllaeerarrival

Implications – it’s going to feel busier

•  NetmigraGonwillremainstronglyposiGve•  TourismwillconGnuetoboom•  NZerswillkeepreturning,especiallyexpatBoomers•  MoreNZerswillkeepchoosingtostay•  IrrespecGveofpoliGcalrhetoric,NZwillremaina#racGvetohighnetworthmigrants,whoarelikelysGlltobewelcomed•  Monthlyinflowsofnon-NZmigrantslikelytoconGnuestrong•  InternaGonaleducaGonwillremainamajorsourceofmigrants•  RSEbeingexpanded

•  Pressureonhousingcosts,publicinfrastructurewillconGnuetobuildinpopularareas

•  Localgovtwillneedmorefreedomifit’storespondwell•  Dowebecomehighprofile/richenoughtobecomeasoeterrortarget?

Auckland

•  PoliGcswillincreasinglytrumpcost-benefitanalysisforinfrastructurechallenges

•  Railtotheairport-govtsuddenlyopenit?•  PortrelocaGon(orreducGonfromcurrentfootprint)

•  Infrastructurefundingshouldbeunlockedforsummer2018/19•  ExpectinfrastructurebondsandSpecialPurposeVehiclestohandledebt•  AcitywherefewerNZerswillchoosefirsttolive•  PotenGalforotherNZcentrestocompeteoncost,qualityoflife,a#racGngnewindustry•  Supplymuststarttocatchup–butintheshortterm,themarketisbinding

Public infrastructure

•  VerysubstanGalbillcomingforundergroundinfrastructurereplacement•  Plusnewurbangrowth•  ParGallocalgovtfinancingsoluGonsclose

•  SpecialPurposeVehicles•  PPPsandCrowncapitalreducelocalgovtbalancesheetexposure

•  OpposiGonparGesmorewillingthancurrentgovttoletcouncilsofftheleashonnew,userpaysfinancingschemes

A new generation of investors

•  Unaffordablehousing+growingKiwiSavernest-eggs•  NextgeneraGonstartsadulthood:

•  MoreindebtedaeerterGarystudyAND•  Lessabletocontemplatehomeownershipowingtounaffordability

•  Offsetby:•  KiwiSaversavingsAND•  NormalisaGonofrenGng

•  CreaGng:•  Amoreinvestment-literatepopulace•  GreatershareholderacGvism•  GreatercompeGGonfromsavingsandinvestmentproductproviders

•  Enhancedandmademoreaffordablebydigitaltechnology

Energy: customers take control

•  Affordableba#erieskey•  Solarrooeopbecomingviable,butsGllrequiresgridconnecGon•  Ba#eriesendthat–butslowly•  NZ’ssuitabilitytoEVstodriveuptake

•  FurthersourceofconsumerdecouplingfromtradiGonalenergysources

•  IoTtodriveefficientenergyusetonewlevels•  Loyaltychallengetoincumbentretailers•  Newproducts

The next generation of utilities regulation•  Electricity:

•  Tensionbetweennetworkmonopoliesandoff-grid,micro-generators

•  Tensionbetweennetworkmonopoliesandgen-tailersovercontestableservicesandpotenGalcross-subsidiesfromregulatedassetbase

•  PoliGcalbarometertoriseastheseissuesplayoutagainstabackdropofslowlyrisingenergyprices

•  EVs–howbiganopportunity?–expectsurprises•  TelecommunicaGons:

•  newba#legroundasregulatedmonopolyChorusseekstopreservevaluewhileretailersby-passwithmobiletechnologies

The new technologies changing everything

Blockchain – about to boom?

•  Useofblockchainforqualityassurance,logisGcs,fintechratherthancrypto-currencyverymuchinitsinfancy•  Capacitytocutcosts/improvesystemefficienciesratherthandisrupt•  Andtocreatenewconsumerofferingsby,forexample,moneGsingunitsofproductorservicevalue•  Private,permissioneddistributedledgers,unlikeBitcoin,willsmoothregulatoracceptance,espinfintech

Future of food and farming

The challenge to NZ’s backbone sector

•  Pastoralfarmingisbeingexposedasharshonthenaturalenvironment,especiallyfreshwaterresources

•  FerGliserusehaspropelledglobalfoodproducGonexponenGallysincethe1950s

•  UnderpinsthemiracleoffeedingapopulaGonof7billionheadingfor9billion

•  FerGliserproducGonisgreenhousegas-intensive•  Landandwaterresourcesunderstrain•  AlternaGvestotradiGonalfarmingrequired•  Manufacturedmeat,milkandotherproteinsubsGtutesarrivingatscale• Whatiftheworldhastostopslaughteringandmilkingsomanyanimals?

The resource use challenge

Irrigation – an uphill battle

• Ruataniwhadamsetbacksshowhowhardsuchschemesaretoconsent• PoliGcallyunpopular•  Associatedwithdairyexpansion•  Andfreshwaterqualityconcerns

• Moredifficultwithachangeofgovt•  Labour/Greenscommi#edtochargingforwater

•  SlowprogressonwaterallocaGon=stalledprogressforirrigators

Major legislative reforms•  SplitngtheResourceManagementAct•  PlanninglegislaGon•  Environmentalbo#om-linelegislaGon

• UnderNaGonal:•  financialmarketconductandregulaGon

• UnderLabour:•  incomeandwealthtaxes

• Upandcoming:•  Assisteddying•  Marijuana/recreaGonaldrugreform

Areas of regulatory riskUnderNaGonal:•  Transportfuels•  ConstrucGon•  Supermarkets•  Electricity

UnderLabour:•  ExecuGvepay•  CollecGveandindividualbargainingreform• Watercharging

Cyber-security

Cyber-security – key considerations

• ProliferaGonofa#acksinevitable• NSA‘exploit’soewaretheescreateawholenewballgame•  SpeedofdeploymentisacceleraGng• Paymentsystemsandpoint-of-paymentremainkeyvulnerabiliGesfora#ackers• Corporateculturekeytoresponse•  Disclosingbreachesisvital-reward,don’tpunish•  Passwordcontrol–therulesandtecharechanging•  Lettheexpertsdotheirjob–‘truth’willtakelongertodeterminethanrumourwilltaketospread