TheEXPLORING Future

Expl or i ng The Future

PRINT: DOUBLE-HIT OF YELLOW: 106, DARK BLUE: 295, RED: 485 + BLACK

People and Co nnections – Global Sc en ario s to 2020

Which people and connections will be mostpowerful and influential in shaping the future?
A globally interconnected meritocracy basedon individual freedom and the American
dream? Or many networks reflecting thepersisting power of culture and history?

People andConnections
Global Scenarios to 2020
Public Summary

ALTER SPINE TO FIT PAGESPRINT: DOUBLE-HIT OF YELLOW: 106, DARK BLUE: 295, RED: 485 + BLACKALTER SPINE TO FIT PAGES

Shell International builds a set of global
scenarios every three years to explore theoverarching challenges arising from changes
in the business environment that need to be
faced by its businesses. These scenarios
provide a useful context for testing ourstrategies and plans and help us to anticipate
significant changes in the world around us.
This booklet contains a summary of our mostrecent scenarios, which look out to 2020.
We hope that these stories of the future help
stimulate other journeys of exploration.

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Page 1T he
EXPLORING Future

People andConnections
Global Scenarios to 2020
Public Summary

Global Business Environment
Shell International 2002

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We welcome yourquestions and views
Global Business Environment (PXG)
Shell International Limited

Contents

4

Foreword

6

Introduction

9

The Global Scenarios of the1990s

12

TINA and ‘The Three Rs’

Shell Centre
London SE1 7NA

1pxg@si.shell.com
www.shell.com/scenarios© Shell International Limited (SI), 2002.
Permission should be sought from SI before
any part of this publication is reproduced, stored

15

Geographies of Connection

25

From Geographies to Scenarios

26

Business Class

28

Connected Freedom

in a retrieval system, or transmitted by any othermeans. Agreement will normally be given,2

provided that the source is acknowledged.

The companies in which Royal Dutch Petroleum
Company and The “Shell” Transport and Trading
Company, p.l.c. directly or indirectly own
investments are separate and distinct entities.

33

The New Medievalism

38

Cutting-edge Strategies

43

The Great Game of Gas

52

Overview of Selected Country Scenarios

54

Prism

56

Connections that Matter

64

The New Regionalism

72

Heart of Business

78

The Long Oil Game

86

Overview of Selected Country Scenarios

89

Scenarios and the World We Live In

89

The Terrorist Attacks in the US

93

Some Questions to Consider

and the Global Scenarios

34

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Page 4Foreword
Businesses can succeed only by thinking about the future – how markets andbusiness conditions may change, the best strategies for managing threats andseizing opportunities, and the robustness of their investments. This is particularly
true for energy companies, who must make long-term investments in volatile
conditions. The importance – and difficulty – of engaging with future possibilities has
been brought into sharp focus since September 11th.
Looking forward often amounts to little more than extrapolating from the present or
fixing on some particular change. In Shell, we have been using scenarios for 30 years to
explore wider possibilities. Scenarios are not prophecies or preferences. They arechallenging, coherent, and credible alternative stories about the future, incorporatinga spectrum of ideas. They are designed to help us challenge our assumptions, focus on
key uncertainties, understand drivers and dynamics, and test our strategies and plans.
Our Global Scenarios are produced every three years as a key part of our planning
process. During the 1990s they explored the possibilities of an increasingly integrated
world, subject to powerful globalising forces. The recently completed 2020 scenarios
build on this understanding to consider how globalisation is shaped by the reactionsof people with diverse motivations, including powerful and enduring cultural values.
They explore the interplay of the different and developing ways people connect witheach other – in ‘geographies of connection’. These include circles of influence andinterconnectedness – both global and local – and the relationship between‘heartlands’ and their outward-looking ‘edges’.
The scenarios contrast two futures. ‘Business Class’ offers a vision of ‘connected
freedom’, as global elites and the dominant influence of the United States lead theworld towards continuing economic integration. However, this is a world of continual
challenge to established authorities, with power diffusing from states to otherinstitutions. In ‘Prism’, ‘connections that matter’ reflect the persisting power ofcultural values, driving multiple approaches to modernity. Countries combine tofollow their own development paths – based on their particular economic, political,
and social circumstances – in the context of new regional structures.
These futures present different business challenges. One challenge, explored in‘Business Class’, is the need for ‘cutting-edge strategies’ – understanding thedifferentiating, value-creating cutting edge of the business and having the global
speed, agility, and resilience to meet volatile conditions and seize fleeting
opportunities. ‘Prism’ explores the qualities needed at the ‘heart of business’ tomake it trusted as a valuable contributor in diverse environments.
In both scenarios, the real determinant of success will be the quality of people
engaged in an enterprise, how they relate to each other and to others, and how theirtalents are developed and harnessed.
The scenarios also explore the ways in which vital energy technologies and systems
may develop in response to consumer needs, security concerns, environmentalpressures, and regulatory processes.
Creating such scenarios depends on tapping into a wide range of ideas and expertisefrom outside our own ranks. Listening to what people think in response to them isequally important for developing our understanding. In a number of ways, scenarios
help us engage with others on important issues.
Such worlds present challenges far beyond business. We hope you find them at least
thought-provoking and look forward to hearing your views.

Philip Watts
Chairman of the Committee of Managing Directors
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Page 6Introduction

1

Using Scenarios

Scenarios are a tool for helping managers plan for the future—or rather
for different possible futures. They help us focus on critical uncertainties:
the things we don't know about that might transform our business, andthe things we do know about that might involve unexpecteddiscontinuities. They help us understand the limitations of our 'mental
maps' of the world—and to think the unthinkable, anticipate theunknowable, and utilise both to make better strategic decisions.

In broad terms, managers can use scenarios:

Scenarios are alternative stories of how the world may develop. They are
not predictions, but credible, relevant, and challenging alternative stories
that help us explore 'what if' and 'how'. Their purpose is not to pinpoint
future events, but to consider the forces that may push the future along
different paths. They help managers understand the dynamics of thebusiness environment, recognise new possibilities, assess strategic
options, and take long-term decisions.

Identifying Emerging Challenges•

To identify emerging challenges in the global business environment and toprepare accordingly.
•

To test and develop strategy.

•

To develop focused challenges.

•

To establish a common platform for scanning, learning, andcommunicating.

Scenarios offer an opportunity to see different possible developments, andconsequently new risks and opportunities that a business might face.
Identification of underlying future risks, as seen from the vantage point ofpossible futures, is likely to be more valuable than just a restatement of therisks seen through the lens of conventional wisdom.

Testing and Developing Strategy

Shell companies pioneered the use of scenarios for strategic planning in
the 1970s and since then, have applied them to a wide range of decisionmaking situations. Shell planners have also been involved in developing
scenarios with such bodies as the World Business Council for Sustainable
Development and the Intergovernmental Panel on Climate Change, as
well as in using scenarios to help build a shared vision of the future individed societies, such as South Africa in the early 1990s.

Much of our evaluation of projects, policies, and strategies is based on
forecasts extrapolating from the past and present, combined with somesensitivity analysis. However, many major projects have long lead times andare born into environments that are, in many respects, radically different fromthose in which they were conceived. Scenarios provide detailed descriptionsof the contexts in which projects may come to fruition, and so enable us totake a more comprehensive review of possible risks before the decision toproceed is taken. Scenarios also embody factors that are not easily

There is no limit to the stories we could tell about the future. Somescenario exercises create a wide range of alternative scenarios. But Shell
experience is that for developing our strategic thinking, it is moreproductive to focus on just two thought-provoking scenarios—such as
the two we present in People and Connections.

6quantified. Therefore, we are able to see a broader range of risks moreclearly. For example, the scenarios may highlight new political risks,changing customer preferences, and new critical success factors.

7

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Page 8Using Scenarios continued

Developing Focused Challenges

Scenarios need to embody relevant, challenging contexts for managers. Someof these challenges will be broad, sweeping changes, and these are typicallycovered in global scenarios. However, managers also need to take account offorces of a more specific nature—for example, those relating to a particular

The Global Scenarios of the 1990s

1

The scenarios of the 1980s were strongly coloured by the high oil prices
and recession of the early part of the decade, the subsequent oil pricecollapse, speculations about the longevity of the USSR, and concerns overclimate change and sustainable development. All these issues were
explored from within the mental framework of a Cold War World.

business or region. Global scenarios can provide a foundation for this detailed
work, leading to more directly focussed challenges for managers.

Establishing a Common Platform for Scanning,

But by the end of the 1980s, it was clear we had entered a new era. The
1990s explored the new shape of a more integrated world that was subject
to powerful global forces.

Learning, and Communicating

Scenarios can be used as a common base for discussion and as a starting
point for identifying new business risks and finding new options for growth.
By challenging the mental maps of managers, they also contribute to ongoinglearning, not only about the business environment and potential emerging
challenges, but also about the implications of those challenges for a particularbusiness. In a world of information ‘overload’, scenarios can also help
managers prioritise information needs and to absorb and use information
more effectively. When scenario summaries are shared with external
stakeholders, they often provide a useful platform for mutually beneficial
discussions about the coming business environment and the role of ourcompany within it.

8

1992
In 1992, the forces of globalisation and liberalisation were being felt
around the world. With the fall of the Berlin Wall, the century-longstruggle among the three ideologies of fascism, communism, andcapitalism seemed to have been won by capitalism. But the triumph ofcapitalism posed new threats to governments and societies who had muchto lose. The key question of the 1992 scenarios was: will the forces of
economic and political liberalisation be embraced (New Frontiers)? Or
will they be resisted (Barricades)? New Frontiers was driven by rapid
growth in developing nations and mutually beneficial relationships
between rich and poor. This recognition of interdependence wasaccompanied by the beginning of virtuous circles in which, for example,
liberalisation led to higher output and income, which led to better healthand education, which, in turn, led to additional income rises, and so on.
The need for adaptation to rapid change was a theme that was lateremphasised in the 1995 scenarios and again in 1998. Barricades
introduced an ‘energy is bad’ theme that basically pitted rich nations
against poor ones. The poor were marginalised, and the opportunities for
growth in rich and poor countries alike were missed, affecting world
GDP in the long term. The ‘politics of identity’—with its emphasis on
national interests—weakened international institutions and left many
global problems without effective solutions.

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Page 101995
By 1995, it seemed clear that the forces of globalisation, liberalisation, andtechnology were irresistible—‘TINA’ (‘There Is No Alternative’). To someextent, the 1995 scenarios were built on New Frontiers with the question
being not "Will the world embrace or resist TINA?" but rather, "What formof embrace will be most successful?" At the time, there seemed to be twocontenders for the prize: a US-style capitalism versus a more communitarian
approach. Just Do It! was a fast-moving world of technology innovation,
hypercompetition, ‘bubbles of value,’ customisation, individuality, and ad
hoc networking. It was a self-organising world in which governments wereneither quick enough nor competent enough to match the dynamic powerof corporations and in which the stretching of the social fabric dictated by
TINA was even more pronounced. Da Wo (‘Big Me’) emphasised the longterm health that can come to societies and businesses that organise with aview to the future and a vision of the whole. The actors in this scenario saw
their own destinies as being bound up with that of the larger whole and werewilling to sacrifice the ‘little me’ for the ‘big me’ of the corporation, country,
or family. Where Just Do It! stressed individualism and libertarianism, Da
Wo emphasised cohesion and the idea that ‘governments matter’.
1998
Just as the 1995 scenarios were, in part, built upon New Frontiers, the1998 scenarios were built on Just Do It! as the only successful kind of
response to TINA. In effect, the 1998 scenarios were an exploration of
two aspects of TINA: ‘TINA above’ (The New Game) and ‘TINA below’(People Power). The New Game stressed the challenge of global problems
and the development of new international institutions and theformalisation of rules for the health of the global economy. Increased
global competition meant that companies not only had to learn andimplement best practice but also had to master strategic design in orderensure sustained profitability. People Power explored the effects of growing
numbers of people who became wealthier and better educated than everbefore. The flowering of diversity and increased volatility contributed to
the rapid obsolescence of institutions.

The scenarios of the 1990s explored the economic and political
implications for the future of three significant global forces—
globalisation, liberalisation, and technology. The scenarios of the new
century add a third dimension to the economic and the political—the
exploration of the social consequences of these forces, and their effect, inturn, on the global business environment.

1

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Page 12TINA and ‘The Three Rs’

Increasing globalisation, the relentless onrush of new technology, and theliberalisation of markets continue to be primary shapers of the future. We
may think "There Is No Alternative" to these trends—TINA. But at the
beginning of the 21st century, we have to look more closely at these forces
and school ourselves in ‘the three Rs’ that people may use to resist
TINA—Regulations, Restraints, and Rules.
People want the efficiencies that market liberalisation brings—but they also
want appropriate government regulation to assure, for example, continuityof electricity supply at a reasonable price. Technology, too, has a powerfulforward momentum—but the applications of biotechnology andnanotechnology, just to name two, raise enormous ethical dilemmas andthe possibility of restraints on implementation. And while technology ispushing out the boundaries of what it means to be human, globalisation ispushing in the boundaries of culture and family under pressure from aninrush of unfamiliar ideas, products, and services from multinational
companies, and images from movies, television, global brands, and theInternet. Globalisation, like liberalisation, will continue—but there will be
new rules of engagement over time.

12

Is TINA, then ‘overturned’? No. But we need to explore the regulations,
restraints, and rules that will modify these impersonal global forces
because under these forces are real human beings—people who often do
not act in the rational, self-interested way they are ‘supposed to’ ineconomic theory. Some of the most powerful forces in human history(Christianity, for example, or Islam, or Buddhism) do not have their
deepest roots in the economic soil. And even when they do (arguably, forexample, in the American Revolution), the by-products of these forces
can have powerful and unexpected consequences. People have a way of
upsetting the status quo, especially when they act together under the force
of deeply held values galvanised by a new ideal or by newcircumstances—or when they feel threatened.

Latecomers to the new global economic game are faced with threats andopportunities over which they have very little control. Many poor
people, entirely unequipped to compete in the global marketplace inwhich they find themselves, scramble to make a living for their families.
Those in the developed world, who’ve been in the game longer, are betteroff economically—but they often feel they’re not much better off when it
comes to controlling their own destinies. Governments and ethnic,
religious, and cultural groups clutch at their autonomy, threatened on all
sides. And those members of the global class who look beyond thestresses of the moment worry about one of the biggest threats of all—thatsoon there won’t be a global environment capable of sustaining the worldthat the global economic game is creating.

1

The forces of globalisation, liberalisation, and technology, while
continuing to determine the future, must be considered separately, and indetail. Globalisation of communications will certainly continue;
governments are not likely to give up markets as the determining factor
in setting prices; and technology alone has less power to determine thefuture than how people actually use the technology. In each area, people
will determine what aspects of these global forces will persist.
People have always used technology to enlarge their capacity to act. But
now more than ever, the combination of powerful new technologies andour increased interconnectedness work together to amplify the often
unpredictable behaviour of human beings.
The growth oftelecommunications technology, our increased travel, our capacity toknow more about each other than we’ve ever known, the interconnected
global economy, and the integration of our markets, our politics, andeven our daily lives—all amplify our actions. We are all interconnected—
one human being in a small country can wreak havoc on global
communication infrastructures overnight; one terrorist group can bring amajor city to a standstill, with ripple effects on the worldwide economy.
But the forces of globalisation, liberalisation, and technology also function
as the sources of possible transformation. Human beings can launch a13

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worldwide crusade that ends with the banning of landmines. Protest
movements can pop up unexpectedly, organised with lightning speed andminimal expense. Media outlets with millions of viewers worldwide cangalvanise public opinion around an issue with a few well-chosen images.
This increasing interconnectedness means that the future will be shaped
not only by markets and technology but also by the dynamic interplay ofthe many different ways that people are connected. Four of thesegeographies of connection are key to understanding the future.

Geographies of Connection

1

European stargazers look up at the night sky and see Orion and Ursa Major
and Cassiopeia and all the other constellations that culture has inherited.
But even though the stars are the same, other cultures look up and see
entirely different constellations. In the same way, we can look at the globe
and see multiple geographies [from geo, earth + graphein, to write]—we‘write’ the patterns we see that make sense of our earth.
No matter what the future holds, it will arise out of the interplay of fourinterconnected geographies: global circles of connection; the globe ofnations; the numerous geographies of heartland and edges; and the earth,which is a geography of mountains and rivers and land and life itself.

14

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Circles1

Innumerable circles of influence and interconnectedness shapehuman activity in the world. Some of these circles are global—
international non-governmental organisations (NGOs), forexample—and some are local—the gardening club, for example,
or the bowling league. All contribute to the complex identities
of contemporary individuals.
While networks of people sharing the same values have existed
throughout human history, what’s different now is the varied scope andscale of interconnectedness, and the fact that these associations are lessand less bounded by time and space. The circles of connection can beboth global and minute—the international association of butterfly
collectors, for example. But whatever the scale, the individuals who form
these circles find both meaning and identity in the shifting spheres ofrelationships to which they belong.
The geography of Circles raises important questions for the future:• To which circles of connection do you belong, and which of thesewill most influence your future?
• How will the new constellations of interconnectedness shape
the world?
• Which circles of connection will prove to be the most powerful?

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Nations1

For most of modern history, the geography of nations has been oneof the most powerful shapers of the world. With the rise of global
capitalism, some have argued that nation states are becoming lessimportant and that many of their traditional functions are
increasingly difficult to perform in the new global economy. But
whatever the scope of these constraints, it is not ‘the end of history’for nations.
Key questions for the future:• What expectations do you have of your own nation?
• How will national boundaries and the sense of identity that comeswith them shape the world to come?
• Which will prove to be more powerful: the connections amongpeople from different nations or the interconnections among nations?

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Heartland and Edges

1

Within many regions, an internal geography of heartland—with its
more traditional values and rooted activity and culture—is encircled
by outward-oriented cities populated by people who often have very
different values and lifestyles.
There have always been ways of characterising national constituencies as‘conservative and liberal’ or ‘rural and urban’. What intensifies these
splits, however, is the increasing connectedness of the edges of one nation
with the edges of other nations—in many cases the edges ‘touch’ eachother more closely than they do the heartland.
Heartland and Edges is a geography not just of nations but also ofcompanies and individual human beings, who may experience their own
conflicts between their traditional identities and the imperatives of aworld that offers rewards for leaving those identities behind.
This dual geography raises questions:• What place do you call ‘home’, and to what extent will globalisation
change it?
• Will the sense of identity associated with the heartland prove to be
more powerful than the homogenising forces of globalisation?
• Is there a ‘heartland’ path for nations to follow in theirdevelopment, different in profound ways from conforming to the global
cutting edges?

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Page 22The Earth

1

In this century, for the first time in human history, we realise howinterdependent we all are—we must take account of the geography ofthe ‘whole’ earth, with all its interconnected systems.
No matter what story we tell about the future, we must ask:
• How will our human activities affect the earth?
• Will the geographies of connection evolve to protect and nurture theearth’s natural systems?

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Who will be most powerful and influential in shaping:

From Geographies to Scenarios

How the questions raised by the multiple geographies are resolved will
have a profound influence on the options available to business. In
particular, depending on their outcomes, businesses will be facing
different ‘rules of the game’, social orders, political agendas, and people’s
preferences. The regulations, rules, and restraints that modify the large,
impersonal forces of globalisation can develop in a number of ways.

The Regulations behind liberalisation ?

The Rules of globalisation ?

The Restraints on technology ?

Of all the possible stories that could be told about the future, two seem
to offer the most insight into the important issues we face. The firstscenario, Business Class, explores what happens when the connected
freedom of the globally interconnected elite and the only remaining
superpower, the US, lead the world towards greater economic integration
and a dream of economic prosperity for all. In this scenario, cities andother rising sources of power diminish the influence of national
governments in a kind of ‘new medievalism’, while businesses pursue
cutting-edge strategies to meet the volatile conditions of the time. Gas is‘the great game’ in energy because consumers want it for health andenvironmental reasons, businesses want it as a source of new wealth, andthe growth of fuel cells relies on it.

?

The network of the
globally connected elite
Business Class
Connected Freedom
The New Medievalism
Cutting-edge Strategies
The Great Game of Gas

1

Many networks rooted
in culture and history
Prism
Connections that Matter
The New Regionalism
Heart of Business
The Long Oil Game

The second scenario—Prism—questions the monochromatic world ofglobal integration and explores, instead, the persisting power of culture
and history—the connections that matter—and the pursuit of multiple
modernities as they emerge in a new regionalism. In these diverse
environments, the heart of business is the ability to gain access and trust.
Oil remains the dominant global fuel for another two decades,
supporting a long oil game and allowing successful energy companies tobuild a platform for transition to a post-oil world.
By rehearsing these futures, we hope to improve our capacity to see andrespond not only to problems or products or processes, but to people—
the real sources of power and the real drivers of change.

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Connected Freedom

The world of Business Class is not run by business; but it is run like abusiness with a focus on efficiency and individual freedom of choice. In
this world, globalisation has brought tangible benefits to both rich andpoor societies. Growing inequality can be tolerated as long as people see
opportunities to improve their lives and have the liberty to pursue theirown dreams.

Since 1980:

countries who had access to• Life expectancy has increased

contraception has increased

from 61 to 68 years.

almost tenfold – from 4% to• In developing countries, life

35%.

expectancy has increased from• Cereal production per hectare

58 to 65 years.

has increased 20%.

• Adult literacy has risen from• Infant mortality has fallen

63% to 75%.

from 8% to 5.4% – and in theConnected Global Elites• Primary school enrolment haspoorest countries, from 9.7% toHighly interconnected global elites form the cuttingedges of almost every area of the world. Their power
is disproportionate to their numbers, in part becauseof their wealth, and in part because the principles withwhich they agree constitute the operating frameworkof global institutions such as the World Bank, theIMF, and the WTO.

increased from 81% to 90%.

6.8%.

A new global community
is taking root, but it is doing
so at the top.
Robert Kaplan, author

One reason global elites fly high in Business Class is that the pilot of thesystem, the US, remains the only global superpower for the twenty-year
period. What this means, in effect, is that the global elites in all countries
that aspire to growth go along with the way the US shapes economic
policy—the so-called ‘Washington Consensus’.
These elites can be living in any nation in the world—but wherever they
are, they are most likely to be urban dwellers. Business Class is a world oflarge and powerful interconnected megacities. Within this world, there
is a great deal of mobility, with elites moving to the points of greatest
synergy and opportunity, and poorer people eager to move towards
opportunity whenever they can.

• Secondary school enrolment
has increased from 60% to 68%.

Income inequality is rising, but• In the poorest countries,

the gap in human development

secondary school enrolment has

is falling.

grown from 49% to 59%.
• The percentage of women of

In general, national governments in Business Class function to facilitate
the technological and commercial aspirations of individual companies
and citizens. The ‘social contract’, in most cases, is a form of minimal

Source: World Development Indicators 2000

childbearing age in the poorest

Which Gap Matters Most?
Development gap

Income gap

Gap between HDI* of OECDand developing countries

Gini measure ofinternational inequality

0.55

0.55

0.50

0.50

0.45

0.45

0.40

0.40

0.35

0.35

0.30

0.30

0.25

0.25
1980

28

2

A Better World?

1990

1997

* Human Development Index

29

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The Global Elite, 2000
People with incomes above $50,000

In 2000, some 125
million people, fromevery country in theworld, will qualify
as members of the'global elite'.
By 2020 this could
rise to over 300
million people.

mln
40

30

20

10

0
US

Europe

Japan

China

BrazilIndia

safety net that individuals may choose to strengthen for themselves bypurchasing their own tailored insurance plans from among the many
offered by global service companies.

2

Connections and Contagions

To increase connections also increases ‘contagions’—terrorism, drugs,
ethnic violence, illegal migration, environmental degradation, arms
trafficking, and the global spread of diseases by both animals andhumans. Another contagion is financial vulnerability. The more closely
integrated economies become, the more likely it is that movements in theeconomies or currencies in one country create a fall-out effect in others.
But ‘contagion’ has a positive side, too. As global elites and others
become more aware of problems around the world and how these
problems might affect them personally, they begin to turn their attention
to solving a number of them.

Source: Based on World Bank data

The Washington Consensus

The term ‘Washington• Tax reform to lower marginal

Consensus’ describes the key

rates and to broaden the tax base.

reforms most neo-liberal• Interest rate liberalisation.

economists believe should be• A competitive exchange rate.

universally applied:• Trade liberalisation.
• Liberalisation of foreign direct• Fiscal discipline.

investment.

• Public money for primary• Privatisation.

health care, primary education,• Removal of barriers to market

and infrastructure.

entry and exit.
• Secure property rights.

30

The increasingly integrated global economy and the effects ofglobalisation in culture, language, and ways of doing business are knitting
the world together far more effectively than any global government could
have hoped to do. The ideology of freedom within an emerging set ofrules of the game, large rewards for large risks, a global
It just so happened meritocracy, and creative responses to customer needs
that I have been fortunate, is attractive to many different kinds of groups, not justa product of a great to the connected global elites.
system, a great country,
and I’m being able to Business Class Values
realise my dream, and in Membership in many circles of interest is a constantfive weeks, I’m going to source of potential learning as well as conflict. In
be blasting off.
Business Class, it’s not uncommon to belong to a circleof employees in an extractive industry, for example,
Dennis Tito, US citizen and space tourist
while also belonging to a circle of those protecting
nature from the environmental effects of such
extraction. But the leaders of both the industry andthe environmental organisations belong to the same31

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larger circle of interconnected global elites. Key tomovement within all these circles is individual freedomof choice. This emphasis on freedom and choicemeans that boundaries of all sorts become moreporous—new family configurations replace the nuclear
family model, for example, and migration acrossnational boundaries raises new issues in global politics.
In Business Class, the US is an exemplar not justbecause of its economic might, but also because of theideals, including equality of opportunity andindividual liberty, on which it was founded. "We’re in
the midst of a great experiment," one observer says.
"Will the American Dream become a dream withinreach of all humanity? Or will it simply create a world
where the rich get richer and the poor stay poor, withno hope of a better life for their children?"

The New Medievalism[The sentiment in the
Declaration of
Independence] gave liberty
not alone to the people ofthis country, but hope to all
the world, for all future time.
It was that which gave
promise that in due time theweights would be lifted fromthe shoulders of all men,and that all should havean equal chance.
Abraham Lincoln, US President, 1861-65

2

In Business Class, power continues to be diffused beyond states to manyother institutions, including non-government organisations, markets,business, and the media. This splintering process gives increasing room
for manoeuvre among established authorities, and leads many people tothe uneasy conclusion that no one is really in charge. The levers of
power are difficult to identify even when the world as a whole isbecoming more transparent.
The Politics of Protest

There will be othergroups [protesting at Davos],and many aren’t NGOs,
they’re fringe politicalgroups opposed to themarket economy in general.
But the people genuinely
interested in making a
difference will be in theCongress Centre.
Klaus Schwab, Founder of the World Economic ForumAs pressure on governments increases—in part
because of the demands of ageing societies—and theircapacity to act diminishes, citizens become morecynical about both mass politics and governance.
Many people feel compelled to seek alternative modesof political expression—through participating indemonstrations staged as media events, for example,
or in various forms of direct pressure by NGOs andother interest groups. Corporations are also active inthe policy-making arena, pushing their own agendas.
The public sees multinationals, especially, as having alarge impact on global policy, and these companies areoften targeted as a prime cause of global problems.

‘The New Medievalism’

In a world where no one is in charge and where governments have nomonopoly on power, a kind of ‘new medievalism’ arises. Rather than neat,
self-contained national markets and nation-states, with political authority
unambiguously asserted within defined geographic boundaries, a mesh ofmultiple authorities and competing loyalties arises, based on networked
relationships.
32

33

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As political decentralisation continues, cities and even some smaller, local
communities set their own global agendas alongside states andcompanies. A foreign company has to satisfy not only the laws of the hostgovernment, but also the demands of local and provincial authorities, its
own home government interests, the rules set by inter-governmentalorganisations, and the concerns of the non-government organisations.
In this world of competing powers, the US, although reluctant to lead, isa powerful influence. Like an emperor of medieval times, the US often
has to accommodate the moral authority of over-arching but lesspowerful institutions like the UN with its ‘pope’, the Secretary General.
While the US does serve its own interests, these interests coincide withrising global prosperity, so the world as a whole benefits, even thoughdeveloping countries sometimes find it difficult to adapt to US policies.
One reason for this consistency of interests is that the glue holding theworld together is the dynamic of the economy and the aspirations ofpeople in nations all over the world.

In a world where
nobody is in charge,
many groups
hold veto powerover a deal.

Deal ‘Clearance’

National
government

2

Regional
government

Local
community

Globalanti-trust

LabourStandards
Intl.

WWF

The Economics of Business Class

The relatively unbridled global capitalism of Business Class leads to highly
volatile economies. There are many short-term crises, and in weakereconomies, these have long-lasting effects. But for agile young
economies, high risks can bring high rewards as well.

34

The global economy, piloted by the US, keeps flying—but some people
have more room to manoeuvre than others. Even though developing
countries are doing better than ever, and more people are being lifted outof poverty than ever before, rising expectations lead some in the ‘economy
class’ areas of the world to perceive themselves as struggling to make it;others in very poor nations don’t have the means to take off from groundlevel at all. A great deal of resentment is directed towards the cuttingedges from the heartland, but at the same time, the shift in most parts of
the world from the rural and traditional to the urban and the modern
continues and even intensifies.

Local
NGOs

AmnestyIntl.

JV
sustainable
development
committee

Bank social
screeningcommittee

Municipal
government

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In general, the global economy continues on its path of liberalisation andintegration in spite of the increased inequality and volatility that resultsfrom economic integration. This is a world of economic peaks and valleys,prone to speculation and ‘bubbles’. The logic of global capitalism leads toa relentless pursuit of efficiency, which, in turn, leads to high polarisationand volatility because capital and high quality labour move quickly towhere the profits are made—the rich get richer because they’re better placed
to take advantage of opportunities. There are frequent, herd-like capital
flows—one year, capital pours into local start-ups, the next everyone invests
in China.
Transparency also increases, largely as a result of the deepening
interconnectedness enabled by communications technology, but also
through the enforcement of global rules of the game. Some countries,
such as China and India, travel so fast on the wheels of partial reform that
their economies overheat and derail, ripping the frayed social fabric. The
financial markets are unnerved and punish the vulnerable, innocent andguilty alike. This turmoil leads to a significant economic shock in 2006
and a gradual recovery up to 2010. In the second decade, there is a
restructuring of economies and an increased adherence to the
Washington Consensus—an adherence that is the ticket to fly in theworld of Business Class.

36

There is sustained
high productivity in
US and Europe.
Economic volatility
is pronounced inemerging markets.

2

Growth Rates
China

BrazilUSEU% real GDP
10

5

0
2000

2005

2010

2015

2020

37

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Cutting-edge Strategies

The tension between heartland and cutting edges in Business Class ismirrored in the world of business as well, where a key to success is therelationship between what is ‘core’ to the business and central for value
creation—what distinguishes it from others—and what can beoutsourced or treated as of less strategic importance.

When so many
functions arecontracted out,
what distinctive
capability—or‘core’—remains?

Employeebenefits

The
Corporation

38

Human
resources

Training
OfficesupportThe Core-poration 2010

Employeebenefits

The ‘Scarcity Shift’

The nature of global competition, with its commoditisation, universal
benchmarking, and lack of tolerance for the mediocre, means that rents are
driven down in many areas. Corporations are under enormous pressure tosustain any sort of competitive advantage in this environment of ‘Scarcity
Shift’—the shift of rents to the few resources that remain scarce. These
scarce resources are usually a unique asset position, a powerful brand, or thebest employees. The competitive pressure from the global cutting edges is
so intense that unique asset positions are always threatened; and having a
powerful brand is effective only if a company can continually renew its
product and services suite; but attracting and retaining the best people is
the greatest challenge of all.

Strategy,
Research

Distribution

The ‘Core-poration’In Business Class, multinational corporations are organised along global
business lines and are adept at spreading risks with wide portfolios and atlaunching new offerings on a global scale. Globalisation has increased thenecessity for corporations to be the best exemplars of the global businessmodel, establishing ‘best practice’ in quality, service, and other measured
results. Increasing transparency creates a demand for clear reference points andcriteria by which progress can be measured. Ranking and other transparent
comparisons allow anyone to see which company is the best performer in anyof a number of areas. A company that finds it is not the best in an area thenoutsources that function to a company that is better—thus increasing theperformance measurements of the ‘core’. Strategy, distribution, accounting,HR, pensions, IT, and corporate culture, for example, can all be outsourced.

2

The Corporation 2001

Strategy,
Research

Distribution

The
Core-poration
Human
resources

Training

Officesupport39

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The High Flyers of Business Class

With their portable pensions and benefits and their emphasis onindividual mobility and success, the best employees are ‘free agents’.
People look for the leverage that comes from improving their own
personal portfolios—and thus their value as free agents on the open
market. What Business Class employees look for in a job, in other words,
is exactly what will give them the opportunity to move on to the next,
better job—or to launch a business of their own.
Government Referees and Consumer Kings

Regulation in Business Class is focussed on market efficiency. Governments
attempt to regulate the playing field through anti-trust legislation, but forthe most part, the effects of competition are left to fall as they will. Only
those entities that are ‘too big to fail’ are rescued, simply in order to avoid
breakdowns of the system as a whole. But the global scale of these firms
implies that such rescue efforts are beyond the capacity of almost all states
except the US or US-led multilateral interventions—thus handing overanother advantage to US firms and their investors on the global playing
field. This advantage becomes especially important as China opens up,
joining the WTO and encouraging foreign investment.
Consumers are smarter than ever before; some would even say ‘cynical’. They
are well informed—or their various purchasing agents are, for Internet
purchasing services offer comparative information on almost every aspect ofcommercial life. In this world where everything is measured, there are ‘points’awarded for social conscience and ‘corporate virtue’, and many NGOs
specialise in advertising brand ratings along a scale of social responsibility
indicators. Multinational corporations may look as if they hold the reins of
power, but, as with many other aspects of this world, it is the individual rather
than the institution or business entity that is empowered.

What employees
look for in a job isexactly what will
give them theopportunity to moveon to the next,
better job – or tolaunch a businessof their own.

2

Employee Mobility% more than 2 yrs at first job% more than 5 yrs at first job
100

75

50

25

*
0
pre 1971

1971-91

1991-93

1994-96

Employee’s graduation year
Source: McKinsey. * Shell estimate

Work and Life
• A survey of workers in• The largest private employer inthirteen industrialised countries

the US is Milwaukee's

found that a desire for a decent

Manpower, Inc., a temp agency.

balance between work and life
was rated more highly than a• The main causes ofgood salary everywhere but

international assignment failuresin Russia.

are ‘domestic reasons’ (at 76%),

Gemini Consulting

followed by ‘dual career issues’• "CEOs are increasingly(59%), ‘location’ (41%), ‘career

suffering from stress, sleep

risk’ (34%), and ‘package

deprivation, heart disease,offered’ (28%).

loneliness, failed marriages,

PricewaterhouseCoopers, 2000.

and depression, among otherproblems. And those woes are

40

Purchasing agents are only one of the many global service industries in
Business Class. As opportunities increase, and people are faced with morechoices, they begin to look for ways to increase efficiency in order to savetaking toll on the bottom-line"
Davos World Economic Forum, 1999.

41

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time. This emphasis on efficiency, enabled by labour-saving technology,means that more and more aspects of individual life are run as though
they were businesses with out-sourcing—taking care of children, runninga government, gathering support for an NGO. Service industries do very
well; and commodities do best when they are packaged as services,
catering to individual choice.
In addition to individually designed services, a new category of ‘beyondproduct’ offerings built around 'experience' and 'meaning' become
increasingly successful. These personally tailored offerings go beyond theold customer segmentation categories into a world of new challenges,
such as the challenge to ‘know’ the customer ‘personally’, even in relation
to his or her situational consumption—the tendency to buy on impulse
or switch brands depending on mood, setting, social environment, etc.
Customers must be wooed on a purchase-by-purchase basis rather thanbound by an ongoing loyalty.

The Great Game of Gas

2

Like the boom in the railway infrastructure of the nineteenth century thattransformed the world of manufacturing, the growth of gas infrastructurein the early years of the twenty-first century transforms the energy
landscape. Gas is ‘the great game’ in energy because consumers want itfor health and environmental reasons, businesses want it as a source of
new wealth, and the growth of fuel cells relies on it.
Deregulation was not
the main reason forbreakdown in supplies in
California, but [it was]because production wasdivorced from demand as aresult of constraints on thevarious players.

A Consumer-Driven WorldIn Business Class consumers drive energy markets. Busypeople demand more convenient and flexible energy
services that address their growing health concerns—andthey have more choices than ever before. Liberalisationand increased competition in energy markets provide aplatform for global innovation in energy services andnew, disruptive energy technologies.

The Illusion of ChoiceBusiness Class is a world of unlimited choice—but, in reality, a world of
micro-variations. In many areas, because of razor-thin profit margins, bestpractice, finely tuned customer research, and psychologically astuteadvertising campaigns, a kind of global standard emerges for mostproducts. Variety occurs not at the core of the product, but on the edges.

42

Corporate image is such an important part of Business Class that
corporate executives benchmark themselves in relation to their ratings inapproval polls of the sort that used to be reserved for politicians and,before that, for entertainment celebrities. This trend is exacerbated by
the decline in brand loyalty, which is accompanied by increasing demandsfor ‘responsiveness’ of branded products. One indication of the growing
demands placed on high-profile corporate brands is the rise of equally
high-profile—and effective—consumer boycotts. For many people inBusiness Class, boycotts seem more relevant than voting because
corporations seem to have more power than governments.

Liberalisation is increasingly successful because bothconsumers and governments learn from the experienceof California and Brazil and from other poorly co-ordinated deregulation
policies. The benefits of liberalisation are clear—lower prices and theunleashing of innovation. Under increased liberalisation, for example,
European power consumers enjoy lower prices as well as a wide range of
new energy and consumer services.

Jean Syrota, French electricity regulator, 2001

Many liberalised markets go though difficult periods as the new rules are
established. It takes a few price shocks before people realise that market
prices can be volatile and that governments are not going to bail them out
if problems arise. Traders soon provide a range of risk-management
products to energy consumers wanting greater energy security. Eventually,
governments remain directly involved in markets only for over-arching
functions such as setting minimum environmental standards and ensuring
the availability of spare capacity.

43

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People and Oil Politics

Regimes in the Middle East come under increasing strain, withdemonstrators often filling the streets, apparently to voice theiropposition to Israel and the US, but in reality, also to protest the politicalstatus quo. There is little Arab unity in response to this increasing unrest.
Client states cling to the US for protection, but are often criticised bytheir own people for doing so. The US tries to remain in the backgroundand to keep the oil flowing.
By 2014, low investment over the previous years has left little excess
capacity in the oil supply chain. A production cutback produces a pricehike much greater than intended, and oil markets sit in a precarious
position. Non-OPEC conventional production has peaked and isdeclining. The lack of economic diversification and the prospect of
declining oil demand in the not-too-distant future through growing fuelcell vehicle sales encourages some Gulf States to use their 55% market
share to generate very high prices. But high prices threaten to damage theeconomies of core growth markets like China. The US also reacts, andunder intense pressure, OPEC oil producers concede with a supply
increase that pulls prices back to the $30-$40 range.
‘The Great Game of Gas’

In contrast to oil, with its declining attractiveness, gas—seen as a clean,
low-cost source of power—is clearly the fuel of the new century. An
important aspect of the growth of gas demand is the success of industrial
CO2 trading systems. This spurs governments in wealthy countries to
auction emission rights, a development that ultimately leads to theestablishment of international agreements on CO2 management.
Growing demand encourages gas exploration—and on the supply side,
the optimists turn out to be right. By 2020 ultimately recoverable world
gas resources are much larger than estimated at the turn of the century,
rising to 3300 billion barrels of oil equivalent.

"Gas and electricity markets• 29% have switched gas

continue to be characterised bysuppliers, 19% in power.

increased innovation in the• Domestic gas bills reduced byrange of complementary£1 billion annually.

products offered, with ‘dual fuel’• Electricity bills reduced by £0.3

taken up by increasing numbers

billion annually.

of customers."• 4 million customers switched

OFGEM (UK Regulator)

to BG for electricity.
Source: UK OFGEM, 2000

Strong oil demand
keeps prices high to
2005, promoting
a supply glut,investment cut backs,
and subsequently arising OPEC
market share.

Oil Prices
2000 $/bbl
50

40

30

20

10

0
1990

44

2

Five Years of Liberalisation in the UK

2000

2010

2020
45

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With sales growing globally at just under 4% a year,gas provides the backbone for the distributed andindividual energy services and technologies that
consumers demand. Many people are willing to pay
for high quality power; others are simply seeking lower
prices or more choice and better service. These
consumer demands and the increasing availability of
low-cost combined heat and power services spur the
rapid growth of distributed fuel cell power. Although
the proportion of power derived from fuel cells andother distributed power sources is still relatively small,this is the area where innovation and structuralchanges are focused.

Within five years
I'll be able to go down to
Wal-Mart and pick a
microgenerator off the
shelf to power my house.
I will connect it to the gas
pipe and generate power
as well as heating my houseand producing hot water.
And it will be muchcheaper than the grid.

2

Strategic Bets in Gas Resources and Infrastructure
If gas is to be the backbone ofwithin a radius of four thousand

the future energy system, twokilometres. Pipeline development

major strategic bets face gas

on this scale is feasible, but

suppliers:

costly and politically complex.

• Developing major cross-border

Nonetheless, the delivered cost

pipelines to connect remote gasof this gas should be competitive

fields to customers, for example

with alternatives such as coal,in Asia.

particularly as environmental• Securing low cost or

costs are increasingly included instrategically placed gas

final costs.

resources.
Kurt Yeager, President and CEO, EPRI, 2000

For most major markets (Europe,
China, India, North America,

In spite of the growing popularity of gas, selling energy units is not thelargest game. The big prizes go to:• Companies that acquire strategic resources or that place large bets andcreate the enabling gas infrastructure, particularly large cross-border
pipelines and strategically placed LNG terminals.
• Companies that manage the customer’s complete energy services.
• Companies that place the right strategic bets on ‘disruptive technologies’.

Brazil) abundant low-costsources of future gas supply lie

Gas pipelines

Major gas supply

Yakutsk

Turkmenistan

SakhalinWest Baikal
Tarim

Iran

Ordos
SichuanNatuna

Large opportunities exist in all markets. In the world of Business Class,successful developers make big bets, but skilfully lay off much of this risk
to future users and capital markets. The US government acts as a broker
for large pipeline projects to China, India, and Turkey.

Major gas demand

46

47

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2

Spot the Critical Enabling Technology
A key issue for energy suppliers anddistributors is whether to enter the businessPrimaryenergyConversion
technology(energy carrier)Distribution
technology

Conversion
technology(motive power)

End-usefunctionalityof commercialising ‘disruptive’ technology,
and if so, where to place strategic bets.
And how much is needed to stay in the

Crude oil

Fuel quality(desulphurisation)

game, let alone influence its outcome? In
the transport business, fuel manufacturers,
LPG/CNG(gas)

automakers, and emerging competitors facea bewildering array of technology choices.
Is it possible to identify the critical futuretechnologies?

Gas

Ceramics(internal
combusionengine)Membranes(de-carbonised
fuel refining)

Petroltank(gasoline/
diesel)Coal

Electronic
controls(hybrids)

Catalysts(gas-to-liquids)

Boxed fuels(liquid fuels)

Biomass

Enzymes(bio-refining)

Mobility

Batteries(pure electric)

Compressedhydrogen(on-sitemanufacture anddistribution)

Renewables

Electrolysis(hydrogenproduction)

Fuel cells(FCEV)

Hydrides/Carbonnanotubes(hydrogenstorage)

Waste

48

Catalytic
Partial
Oxidation(hydrogenreforming)49

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Even for successful companies, ‘The Great Game of Gas’ is not easy.
Progress on gas infrastructure is volatile and uneven. Companies have tomediate or accommodate the interests both of host countries and of the
US. In 2006 the economic crises in China and India slow thedevelopment of gas markets and make some of the early infrastructure
investors look foolish. But those who persist control some of the mostvaluable assets in the new century, not only in terms of return, but also
as supports for a ‘clean’, earth-friendly image.
Beyond 2020, gas continues to establish energy dominance, while oilstarts to decline. Fuel cells are improving transport efficiency and opening
the market to new fuels, reversing a fifty-year trend of increasing oil use
in transport. Oil grows only in low-cost heating markets andpetrochemicals. The only energy game in town is gas—and the cuttingedge for the future lies in developing and using new technologies basedon gas for products and services that consumers want.

50

Shortly after 2020,
gas overtakes oil
as the dominantprimary energy
source as fuel cells
diffuse widely instationary andtransport applications.

2

The Great Game of Gas:
Oil and Gas Demand
Gas

Oil

mln boe/d
150

75

0
1970

1990

2010

2030

51

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Overview of Selected Country Scenarios

Connected
International Elite

Increasing
Global Linkages

SocialVolatility

MarketLeads State

Impressive recovery fromanticipated recession.
Technological and economic
exemplar, as technology dividend
comes through. Leader in shaping
global values and aspirations.

Successful, ‘self-made’
individuals, linked throughcommon goals and values, exert
influence at home and abroad andcluster in megacities.

US builds global networks,
attempting to set up level playing
fields, which, however, advantage
the US ‘rulemaker’. US isreluctant global ‘sheriff’.

Protest feeds off strong local
concerns and is rooted in a
distrust of government and big
business. NGOs exert influence
through ‘class actions’. Courts
become more activist, awarding
huge damages to some causes.

Effective but unobtrusive
government with an ethos (notalways lived up to) of nonintervention. Emphasis on
deregulation. High growth, morevolatility, hypercompetition.

Rapid expansion to over 24
member states. Loosely
integrated beyond inner core ofsix, with internal tensions overlack of common policies in an
increasingly unstableneighbourhood.

Increasingly internationalised
youth, torn between many
identities.

Decentralisation results in Stateceding power to regions and cities.
A pan-European utilities network
emerges. US remains close andimportant ally. Unstable Russia
poses an increasing security
threat. EU’s foreign policy actions
remain limited.

Cities, regions, nation-states, andthe EU compete with each other.
Increasing urban-rural divide.
Individual quality of life is key
concern.

Diversity of economic models andcultural and value patterns.
Failure to agree on immigration
policy to provide labour for aging
EU population. Fairly high growth,
unevenly spread.

Youth expectations and new
economic sectors drive change.
Deep structural reforms. National
debt crisis precipitates recession,
but momentum for change
rebuilds.

Successful innovators and new
breed of entrepreneurs emerge as
the ‘new heroes’ of Japan.
Women and ethnic minorities help
form more open, fluid, anddiverse society.

Japan secures permanent seat on
UN Security Council. More
independent of US. Foreign direct
investment enables new entrants,
forcing Japanese companies toreform from within.

Increasing inequality drives social
volatility. Rise of new consumer
groups and active civil society.
Ageing population and otherissues addressed through publicprivate partnerships and newphilanthropic foundations.

Innovative companies drive
growth and competition withminimal government
management. Economic volatility.
Power shifts from political tomarket and legal arenas.

Radical reform without effective
control. Consumer boom followedby recession. Hardliners resumecontrol, but eventually replacedby cautiously pro-market ‘fifth
generation’ leadership.

New technocratic elite and theirsupporters, the international
investors and advisers. In second
decade, ‘fifth generation’leadership emerges.

Increasing bilingualism, especially
English and Mandarin. Globallyconnected megacities.

Unemployment, provincial
decline, and corruption trigger
social unrest and clampdown,
followed by more slowly paced
reform.

Rise in spending power of middle
classes. Radical reform of staterun enterprises and more small
and medium-sized enterprises.
Only efficient businesses survive.

Initial rapid-growth strategy
through liberalisation andprivatisation. Overheatedeconomy vulnerable to monsoon
failure and loss of export markets.
Crash in 2007. Social andpolitical turmoil. New expectations
for government enabler.

Increasing influence of ‘self-made’
people and non-resident Indians
within Indian megacities.

Share of global trade doubles, butloss of higher value domestic
consumer market to China andKorea. Urban elite preference forforeign branded goods leads torise in imported consumer goods.

Rising under- and un-employment,
despite expanding urban services
job market. Widening inequality
and social unrest in first decade.
Urban elites turn away frompolitics and stress povertyalleviation philanthropy.

Break with state-oriented past in
favour of market competition andprivate initiative. Increase ininvestments in spite of inadequate
regulatory frameworks.

Decline of institutions andgovernments. Empty centre
ravaged by famine, war, anddisease, but vibrant,
entrepreneurial rim.

Individuals linked into global
economy. ‘Do-it-for-yourself’
mentality enabled by returning,
wealthy diaspora. Businessalliances cut across clanboundaries.

Distributed technology (mobile
phones and propane fuel cell)
replaces old infrastructure. IT
connects rural economies tointernational commodity prices.

Gaps within and between
countries widen. Western angry
fringes shift aid to local NGOs.
Entrepreneurial pockets on the
coast face high security costs.

Increasing demand for African
goods. High penetration of
women in commerce. Job market
premium for young people. AIDS
epidemic drives rise in rural
wages. Collective subscriptions
fund infrastructure.

Summary

To support the Global Scenarios, a number of country
scenarios were built to explore how Business Class
would play out on a national and regional level.
This table highlights key areas of a selected few ofUSthose scenarios.

EU

Japan

China

India

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Scenario

Prism

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Connections that Matter

What shapes the future is not what we have in common but the interplayof our differences. Just as a prism breaks up the single light that strikes it
into many different bands of coloured light, so, too, human experience
breaks up our one species into many different nationalities, ethnic
groups, religions, language groups, aspirations, values, physicalgeographies, and all the other distinctions that characterize us. We lookat the world through our differences rather than our similarities—
through the particular lens or colouring of our culture.
So when it comes to human affairs, a monochromatic globalisation is notinevitable. There is an alternative—many alternatives, in fact, because
people see and value in very different ways. Prism is the story of how thesealternatives play out over the next twenty years.
The Connections that Matter

While Prism has its interconnected circles of global
elites, the circles of connection that matter in thisworld are those that overlap and that last through time.
Pressures of modernisation continue in Prism—butwhat makes the future different from the immediate
past is that people look to their roots, their heritage,
and their families as the source of values around which
to organise their lives. So strong, over time, are theseconnections based on values and roots that in two
decades, the world assumes a very different aspectfrom what prophets of globalisation had predicted at
the turn of the century. Prism is a world that has gone
beyond the modernist emphasis on efficiency,
functionality, and global homogeneity toward therealisation of ‘multiple modernities’ that incorporate
diverse cultural values and practices.
56

3

Multiple Modernities

One of the mostimportant implications of‘multiple modernities’ isthat modernity andWesternisation are not
identical; Western patternsof modernity are not the only
authentic modernities,
though they enjoy historicalprecedence and continue
to be a basic reference
point for others.
Shmuel N. Eisenstad, Professor Emeritus ofSociology, The Hebrew University of Jerusalem

Will all industrial societies one

urbanisation, and the spread of

day converge on a single pattern

education. For many, the USSRof modernity? Is such a

had seemed to be doing well. But

convergence taking place? Is thewhat prospects exist for non-

US to be taken as the measure

western modernities to succeed?

used to determine the success or
failure of other societies seeking

Islam is seen by some toto prove themselves modern?

repudiate the basic premises of

The answer to these questions

Western modernity, not least the

may be no!

idea of inevitable progress andindividual emancipation.

Traditions remain an active agent

However, in some countries, thein defining the modernisation

rise of a rich civil society, theprocess. Non-western civilisations

growth of higher education, theremain important for the self-

increasing ease of travel, and theunderstanding of the modern

proliferation of media and means

west. And one cannot operateof communication raise thearound the world without an

possibility of an opening up for a

intimate knowledge of distinctly

distinctive Muslim modernity.

different cultures.

India seems to be incontestably

Differences are rooted in ethnicity,that is influenced by its Hindu

language, land, class, age, andheritage and its significant Muslim

faith. The challenges posed tominority.

localism by globalising trends in

The fact that Confucian East Asia

trade, finance, information, andhas provided an alternative modeldisease are not easily resolvable.

of modernisation for Thailand,

Nor is the outcome clear.

Malaysia, and Indonesia signifies

modern – developing a modernity

that Buddhist and Islamic
We have examples of failed

modernity are not only possible,

modernity, of which the Soviet

but also highly probable.

experiment is the one best
understood. Until recently, many

Rather than one modernity, we

argued for increasing convergence

may be living in a world of many.

with the West, as measured interms of industrialisation,

Source: Daedalus,Winter 2000

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The Heart of the Heartland

In Prism people are interested in economic well-being and growth. But
they are also interested in the health of their own communities, inreligious imperatives, and in national pride. The globally interconnected
elites may occupy a disproportionate space in economic conferences,international institutions, and global news stories—but they form a
relatively thin film over a much bigger world. And even the global elites
have long-term associations and roots in their local cultures.
This growing connection to the heartland is encouraged bycommunications technology, which stimulates a very different pattern ofdevelopment from the rural-urban-suburban pattern of industrialisation.
New businesses take firm root in both rural and semi-urbanised regions,and some countries, such as China, encourage the growth of ‘secondary
cities’ in order to draw people away from the crowded coastal areas
further into the heartland.

A key challenge
identified in
China's 10th fiveyear plan is the
rapid increase inurbanisation. The
aim is to avoid
excessive economic
concentration in
the major coastal
cities by shifting
economic activity
to inland'secondary cities'.

3

China’s Secondary Cities
Number of cities 0.1–0.5 mln
244

226

Ningxia

Beijing
Provinces
Heilongjiang

Shanxi

Liaoning
Jilin
Xinjiang
Gansu
Qinghai
Tibet
Sichuan

Hubei
Hunan

Guizhou
YunnanTianjin
Hebei

Inner
Mongolia

FujianGuangxi

Shaanxi
Shandong
Henan
JiangsuShanghai
Anhui
Zhejiang
Jiangxi
Guangdong‘Our Way’

Those who saw no alternative to the onrush of globalisation consistently
under-rated the power of two coupled human aspirations: identity andbelonging. When basic economic needs are satisfied, people often use
their newfound freedom and prosperity to express their own identities. If
there were a theme song for the world of Prism, it would be ‘My Way’—
not the ‘my way’ of unfettered individualism, but the ‘our way’ of all thecircles of family, roots, country, language, culture, and land.
Corporations, too, have to pay attention to community identity in thisworld because collective values increasingly shape individual lifestyles. In
Prism, the environments for business vary from one community toanother. Some communities exhibit resistance to ideas that upset
established religious or social norms—and since many issues are handled
at the local level, a wide variety of behaviours can be found.
58

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Prism isn’t all sweetness and light. The shadow side of diversity is theincreased likelihood of boundary disputes, from the level of gang against
gang to the subtler boundary disputes of European versus American
patent law. And the dark side of an ‘our way’ emphasis on identity is
prejudice against those of a different value system or background.
Demagogues use diversity and identity as ways to arouse passion andattract followers. But in a world of great diversity, there is room even for
intolerant or repressive regimes.

Many developedand some
developing nations
are experiencing
unprecedented
growth in the
proportion of their
populations aged
65 and over.

3

Population Aged 65 and Over
EU

India

US

Sub-Saharan Africa

China
%
20
16
12

Circles of Community

Now that the Internet has matured, people find ingenious and very
fulfilling ways to organise virtual, long-term communities, forging
meaning and identity through new interests and networked associations.
In time, some of these communities emerge into the ‘physical’ realm.
Whether old or new, the communities of Prism identify and attempt toaddress many important problems—including the issue of ageing
populations in all the developed countries.

8
4
0
1980

1990

2000

2010

2020

Source: World Bank, World Development Indicators, 2001

The emergence of these new communities rejuvenates rather thanreplaces the old circles of power and influence. Rumours that ‘the nationstate is dead’ turn out to be greatly exaggerated. Governments are
significant actors in this world, charged with supporting the economic
health of their citizens—but also with nurturing the kind of social
cohesion that helps make societies function and prosper. This means
more than a safety net to catch the ones who fall; it means a floor to raise
as many people as possible.

60

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In Prism, this shaping hand of government operates
very differently from one country to another because
notions of progress vary from place to place. Whileregional circles of influence and power develop aroundthe world, very few global agreements are negotiated.
But this lack of global co-operation does not stop
progress in key areas of sustainable development, forexample. In the absence of global institutions andglobal policemen, regional agreements offer much
more powerful instruments for reform than any global
agreement could. Sometimes, long-term partnerships
between groups lead to the development of newparadigms for co-operation and problem solving.
Whether the issue is sustainable development or
military defence, the overlapping circles ofcommunity lead to powerful alignment on new
approaches.

If Islam is sound for
all times and places,
then we must act as if
the Prophet justinformed us of this Book[the Koran].
Muhammad Sharurbook43

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The New Regionalism

Prism is the story of the values of the heartland—how the powerfulaspirations of different groups create many new worlds.
Globalisation—a World Wide and an Inch Deep

By 2001, the success of the one dominant ideology remaining after thefall of communism has sparked off a reaction against it. People no longer
trust that economic liberalisation and a rising tide of opening markets
will lift all boats. They harbour real anxieties over growing inequalities
and a relentless globalisation that seemingly destroys choice and places
power in unaccountable hands.
Adding force to the anti-globalisation reaction is the disappointing
economic performance of the US. Soon after the turn of the century, theUS economy slumps, creating a ripple effect in Europe and deepening themalaise in Japan. Politicians in a number of countries call for a reduction
in dependence on the US economy and begin to question the principles
laid out in the Washington Consensus.
Meanwhile, the US slump spreads to Europe and Japan, pricking any
delusions about the ability of these regions to go for economic growth
separately. They also recognise that one source of strength and resilienceof the American economy is its large size and diversified structure—so
there may well be an advantage in greater regional integration that goes
well beyond trade. In particular, countries seek closer and multifaceted
ties to their neighbours for both political and economic security, and toincrease their bargaining power in international markets.

Transcending the Washington Consensus
The fundamental sources of• Ignore the vital importance ofdissatisfaction with the so-calledbasic services (for example,‘Washington Consensus’ have

health and education) for growth.

less to do with individual policy• Reject certain measures, suchprescriptions—which may indeed

as government subsidies andbe appropriate under particularother kinds of more direct

circumstances—than with theintervention, which have been

universality ascribed to them,crucial in development successwith what they omit, with thestories (for example, East Asia

limitations of the logic on which

and China).

they are based, with what many

• Disregard the brutal

perceive as the ham-fisted way

experiences of transition

the prescriptions are forced on

economies, the failure toreluctant governments, and, of

stimulate growth in Latin

course, on their failures in

America and Africa, and the role

practice. In particular, theof naive liberalisation in

Washington Consensus is in

inducing the Asian crisis.

disrepute because it is seen to:

Washington Consensus

Alternative or Augmented Views

Fiscal discipline

Exaggerated fiscal discipline, especially that which ignores cyclicalaspects and sustainability issues, is unsound economics.
Simplistic approaches ignore legitimate trade-offs confronting
governments, e.g., education funding.
The devil is in the details--superficial ‘reform’ can be harmful.
Some regulations in the banking system (e.g., deposit rate controls
and entry restrictions) can reduce moral hazard.
Capital account liberalisation must be approached very
cautiously. There is an emerging consensus against ‘pegged rates’.
The fragmentation of markets by poor infrastructure or local
middlemen can have long-term adverse impacts.
Benefits can be captured only if there are effective and transparent
regulatory frameworks as well as adequate absorptive capacity.
Private monopoly can be even worse. Misguided processes(e.g., Russia) can have major long-term effects.
A balanced approach is needed to define the appropriate role of thestate. There is also a need for proper phasing and sequencing.
Property systems are not self-enforcing and depend upon legal
procedures, social trust, and civic norms.

Redirection of public
expenditure
Tax reform
Market-determined
positive real interest rates
Competitive exchange
rates
Trade liberalisation
Openness to foreign
direct investment
Privatisation of state
enterprises
Deregulation
Legal security forproperty rights

64

3

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Page 66‘Our-Way’ Economics

Each country or region finds its own development path based on its
individual economic, political, and social circumstances. And while
markets are wide open, many regions inhibit the flow of short-term
capital, having learned from the Asian financial crisis not to pursue
austerity policies in the face of financial crisis, but to support credit lines
and maintain production.
Countries, like China, for example, can outstrip thosethat have liberalised quickly, like Russia. Supporters of
the Washington Consensus point out that Russia’sliberalisation, like California’s liberalisation of energy
markets, was imperfect at best, and no reflection onliberalisation in itself. But in Prism, people’s
perceptions have more influence than elitist analysis,
and they prefer to face the future ‘our way’.

We will not do anythingthat harms our economy
because first things first
are the people who livein America.

In the aftermath of
90's excesses, theindustrialised world
experiences slow
growth. In contrast,
developing countries
achieve moderately
high and stable
growth by following
customized development strategies
rather then asimplistic orthodoxy.

3

Growth Rates
China

BrazilEUUS% real GDP
10

5

0

George Bush, US President, March 2001

2000

2005

2010

2015

2020

Politics of the Heartland

In Prism, national politics addresses local aspirations and culture to build adomestic consensus on how to engage with globalisation. In each country arich and wide political discourse wells up from the heartland about what toprotect, what to accept, and where to open up. And in addressing its culture
and history, each country has to define its own community, the essence ofwhat it means to belong.

66

The heartland is neither unified nor silent. The Internet and othertechnologies of connection have enabled groups with more focused views
to assume a real political voice. Where deep values are concerned, ‘fringe
movements’ leap up out of the middle class. But it’s not just fringe groups
that go onto the streets–middle-class protestors, like the UK fuelprotestors of the early part of the century, find sympathetic support in theheartland. And because in Prism there are overlapping circles ofconnection, people can band together to work for a cause rather thanbeing able to unite only by what they are against.

Many different
social interests andconcerns contend
for the support of
the heartland; somestrike a chord withdeep values andclosely held beliefs.

Prismatic Politics
Globalrejecters

Fundamentalists

GreensHeartland(Not-so-silent
Majority)
The Far
Right

Libertarians

The New Right

Globalaccepters
Inclusive

Exclusive
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Page 68‘The New Regionalism’

During the early twenty-first century, regional groupings begin to
emerge, each with its own ‘consensus’ about the recipe for economic
success, and each highly focused on trading within its own region. This
‘New Regionalism’ is not a recycled version of trade protectionism andregional economic blocs. Rather, these regions represent concentrationsof political and economic power, based on a regional ‘heartland’ typeidentity, yet outward-oriented and open to external market forces.
The new regions negotiate with each other, and shifting networks ofinterconnections among them bind the groupings to each other. These
networks prove to be more flexible and effective than global institutions
in overcoming political frictions. Provided agreements can be reachedamong members, regions ‘lock in’ positions on environmental control ortrade before seeking agreement at the global level. ‘The New Regionalism’is therefore a halfway house to multilateral cooperation on a global scale,and is indeed more effective at achieving a global consensus.
In a world of international rather than global initiatives, national
identities assume increasing importance, and not just for governments,
who insist on preserving autonomy of action. The framework of a market
economy depends on legitimacy of governments; and that legitimacy, inturn, depends on governments delivering what their citizens think isimportant. Countries must manage the difficult task of balancing welfare
concerns with efficiency and the promotion of their own national
interests in the global marketplace. This attention to a greater integrationof social goods with economic imperatives leads to lower inequalities
within countries. Social concerns take the form of local civic action—
while people are linked globally, they are primarily active locally.

3

Economic versus Social Policy
The assumed dichotomy between(for example, children,

economic and social policy isforeigners in property markets),

false, in part because economic

what can be exchanged (formeasures are usually

example, labour services of

instrumental in achieving social

children), specific rights andends—and vice versa, as, forobligations (for example,

example, in the way educationbuilding codes) and the process

helps achieve economic ends. Inof exchange itself (for example,

addition, economic systems are

information disclosure). These

embedded in social systems, andregulations have evolved as

any market must be definedtechnologies, economic

with respect to rights andstructures, and the balance ofobligations of the participants.

power among interest groups

These rights, in turn, are thehave changed over time. Thus,

outcome of explicit or implicit

the debate between economic

social bargains achieved throughand social policy proponents canovert or unconscious politicalusually be boiled down to one

processes.

between those who prefer the

All markets are based on somestatus quo in terms of present

rules of the game, which govern

rights and obligations versus

who can or cannot participate

those who prefer change.

The Limits of the Market

Regulation of exchange:
fraud, default

Excluded people:
children, foreigners,
non-licensees$

Excluded goods:
pornography, sex, drugs,
people, guns

Regulation of use:zoning, HSE, fire regulations

68

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Obligations and Aspirations

In Prism the powerful aspirations of many different national and regional
communities create a new world of brightly flourishing diversity. But
resistance against globalisation has its own shadow. Politicalentrepreneurs arise to feed on nationalist sentiment, seeking popularsupport outside of the mainstream consensus. The technology ofglobalisation also makes surveillance by the state, especially over people,
much easier and more pervasive. In particular, many countries begin to
impose tighter controls over the movement of their people, and ‘two-tier’domestic societies arise, incorporating rigid divisions between citizens
and non-citizens.
In spite of occasional government interference in their lives, people in Prism
actively support governments that are responsive to their concerns. Most
protests, therefore, are mounted against governments rather thancorporations, on the assumption that governments can do something aboutproblems. This expectation of governments is especially clear in relation to
the ageing populations of the OECD, who are becoming less willing totolerate the erosion of social safety nets and loss of control that seem toaccompany uncontrolled globalisation and liberalisation. In Prism, anincreasingly wealthy and educated world is also increasing its awareness ofsocial obligations—to the ageing, the young, the poor, the disadvantaged.
Gradually, as the threat of a monochromatic global world culture fades
away, the differences between communities, nations, and regions becomematters of pride rather than prejudice—the celebration of a rainbow ofhuman communities offering many different ways to look at the future.

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Heart of BusinessHeartland Business Contexts

Prism is not an easy world for business outsiders hoping to enter a newforeign market. Multinationals face the problems of competition in a
number of very different regions, each with its own specificrequirements, its own set of values, and its own strong governments toenforce them. While there are rich rewards for those companies that can‘break the code’ of entry into national business arenas, corporations
have to balance conflicting demands from one region to the next anddeal with the attendant uncertainties of how actions in one place cancreate new expectations or adverse reactions in another. Corporations
must pay attention to community identity in this world because
collective values increasingly shape individual lifestyles. What makes
this more difficult is that the communities within which companies
must operate are many and varied.
In Prism, while the US is strong in its own hemisphere, and is still theworld’s largest economy, it no longer dominates the world stage in theway that it had in the latter part of the twentieth century. And while the‘Asian Tigers’ are a relic of the past, the consistently strong growth of theChinese economy brings other nations along in its wake. The so-called‘Asian Dragon economies’ that come into their own from 2015 onwards
do so under the leadership of China.

72

Heartland Business Opportunities

3

In a world in which the local and the national are increasing inimportance, multinationals turn their attention to their local businesses,
exploring new opportunities and often employing and training local staff
as a source of competitive advantage. Becoming part of the community isa big investment, requiring a focus on relationships, not on steps in thevalue chain. Successful companies know how to lever their reputation
and relationships to provide a wide range of services.
Heartland opportunities require the right fit of:• Local knowledge—especially important in a service-oriented world.
• Best global practices—but adapted to local needs.
• Cutting-edge technologies.
• Individually tailored customer offerings that take into account the
local context.
• Individually tailored employee packages—with a greater emphasis on
the relation of work to family and community.
• Service support.
• Close management of corporate identity.
Putting these pieces together is like finding the solution to a complex
puzzle. You have to have a vision that can work across many different
cultures and yet be tailored for the local environment. You can’t be
everywhere. And yet you and your reputation will be seen everywhere.

73

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Access and Partnerships

Access to markets is a challenge in Prism, mainly
because governments and customers prefer the
products and services of local firms. In order to be
successful, multinationals have to operate beyond mere
short-term advantage—they have to earn the right ofaccess and the license to grow by being long-term
partners in the development of positive, socioculturally tailored goods and services for nations andcommunities. These emerging partnerships are not justwith other companies or even with country regions,but with the people themselves in those regions.

3

Can You Buy Your Way In?

There is a great revivalof the co-operative idea,
not owning resources
together but doing things
together, exchanging
experiences, taking careof each other. Companies
set the scene for this.
Richard Normann, business analyst

Struck by the difficulties of• Japanese shareholders arebuilding a business from scratch

usually long-term investors,

in foreign climes, ambitious

including customers, suppliers,

global companies may try to buy

and banks.

their way in. But striking• Japan's accounting practices

acquisition deals may not be so

are less transparent than thoseeasy, either. Even in one of theof the US, and do not follow US

world's most advanced

practice. Even after the reforms

economies, Japan, the hurdles

enacted in 2000, it is often

can be tremendous. It is not thatdifficult for an outsider toJapan is backward—it’s justpenetrate highly aggregateddifferent from the US model.

accounts.
• Japanese boards are not ‘one-

In addition to skills in finding partners and in developing relationships,
companies must also be flexible enough to translate the system of trust inlegal instruments, such as contracts, into trust in relationships. It’s often
the company with the relationship rather than the company with theinitial contact and contract that wins in the end.
While there are challenges in this world, there are advantages, too. The
greater willingness of governments to become active partners inpromoting social and economic health means that many kinds ofventures are supported with a ‘safety net for risk’—limited liability, forexample, or bankruptcy laws, which, although they may promote ‘moral
hazard’, also encourage entrepreneurship.

Unlike US companies, forman bands’ but shareexample, Japanese companies

responsibility in a complex way,

do not exist primarily for theoften involving other institutions,benefit of shareholders; in fact,

regulators, and former chairmen.

shareholders are quite low in• Japanese executives have non-the pecking order, a position thatportable perks. They often lackis deeply embedded not only inseverance arrangements,

corporate custom, but also in

because being laid off was never

the finer points of law and thepart of the original plan. So

application of governmental

when it comes to an acquisition

guidance.

or a merger, they haveeverything to lose and nothing
to gain.
And once you have mastered allthat, why not try China?

74

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The Problem of Corruption

In Prism the ‘connections that matter’ can be abused. Because groups ofpeople tend to be connected with each other rather than with othergroups, they are highly reliant on the lynchpins, the people who cancontrol access between one group and another. A second pathway tocorruption is the flexibility of rules. Often rules are ignored as unsuitable
for local needs or the current situation. The emphasis on local tailoringof rules means that in some cases, real accountability is elusive. And
where accountability fails, corruption of one kind or another is hovering
nearby.

Although pervasive
corruption affects
all, it affects
the poor
disproportionately,
and remains achallenge of manysocieties.

3“Corruption hurts the little guy” Ecuador
Cost of bribes as % of revenue
Micro business (less than 11 workers)
Small business
Large business (more than 99 workers)

8.0%
5.0%
2.0%

Cost of bribes as % of income
Poor household (less than $110/month)Medium household
Rich household (more than $329/month)

4.5%
2.0%
1.5%

Work-Life Integration

Employees in Prism increasingly insist that their jobs contribute to theirpersonal lives and that work be interconnected with community life andvalues. They are attracted to companies that have a strong sense ofidentity and purpose—not just brand identity and a drive to makemoney, but a sense of ‘who we are’ as a corporation and a purpose that isconnected to the larger world and lives as something more than a slogan.
Holding the Parts Together

76

Corporations in Prism must be able to put together complex
arrangements that endure—and to deal with complex and difficult
political situations when they arise. To have both the necessary flexibility
and the depth, multinationals find they must manage heartland andedges in their own workforce in relation to the country they are in. For
example, employees in a company's operating units in different country
heartlands may share their corporation's values, but not have much elsein common. The edges formed by the expatriate staff in those companies
may have more in common with other expatriates working in different
branches and in different locations than with their immediate colleagues
in the local operating unit. In Prism, just as individuals must balance
their work and their individual lives, so, too, companies must manage thedelicate balancing act of being a global cutting-edge organisation in aworld of heartland identities.

Source: World Bank, World Development Report 2000/2001

Increasingly,
employees demandthat their work andthe organisations
they work for arecompatible with theirpersonal values.

My Values and My Work UK
Agree

NeutralDisagree“I chose my current
organisation because
I believe in what
it does and what
it stands for.”

59

28

11

“What I do and theorganisation
I work for, gives
people an ideaof what I am like.”

66

20

14

“I would not work foran organisation
whose values I did
not believe in.”82

Source: The Industrial Society (UK), 2001

12 6

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The Long Oil Game

Lessons from Power Sector Reforms in Developing Countries

A Security-Driven World

Based on experience in• In countries with little record of

In Prism, concerns over energy security and theenvironment, and a sense that liberalised energy
markets will not deliver the ‘right’ solutions set thescene for more active government intervention.
People support this intervention because in the earlyyears of Prism, they are first battered by an economic
downturn; then lulled into a false sense of security
when oil prices drop; and then shocked awake to asense of their own vulnerability by a sharp rise in
prices. Following further ‘failures’ in key gas and power
markets, they are convinced of the need of government
intervention on behalf of the common good.

developing countries over thesound regulations, governments

past decade, a number ofhave to carry an unduly highlessons have emerged on power

proportion of investment risks

sector liberalisation andthrough performance andprivatisation:

payment guarantees.

Deregulation is oneof the worst and least
thought-out grand public
experiments in this century.
There has virtually been
no debate on the merits
for core consumers.
Tyson Slocum, Public Citizen, 2001

The Response to Oil Price Volatility

From the low in 2003, oil prices rise for the next few years, peaking in2006 at $40/bbl. Outrage over these high prices is voiced everywhere.
Some people vent their anger at energy suppliers. Others lobby
governments for new regulatory policies, arguing that effective
intervention is needed:• To minimise the adverse national security implications of risingdependence on energy imports;• To minimise the impact of volatile and potentially very high oil or gas prices;• To ensure affordable energy supplies for all members of society; and• To promote more efficient energy technologies and alternative energy
sources in order to reduce the impact of energy on the environment.

3• Unbundling is possible while• The legal and regulatory

ensuring proper supply co-framework and utility

ordination and security.

restructuring should precede• A competitive power pool

privatisation to avoid problems

based on spot pricing is toowith stranded assets.

complex for all but the most

• State ownership should be

advanced developing countries.

divested before the next election.

• Where cash collections are• Following reforms and until ainadequate, first priority should

good regulatory record has been

be distribution and supply

established, protection against

improvement.

major uncertainty in tariffs andlicensing is needed in order toattract investors.

Source: R. W. Bacon and J. BessantJones, Privatization and Liberalization of theElectric Power Industry in Developing Countries,
IBRD, 2001

‘Our Way’ to Energy Security

78

Most governments respond by establishing national energy policies
designed to provide secure, stable, and clean energy. These policies stay inplace even when oil prices start to come down (as they do in 2010) because
they are tailored to local conditions, differing from country to country.

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Page 80

Security of supply drives countries to concentrate on making best use of
their own indigenous resources—some, for example, support a strong
push towards renewables; others develop more efficient, clean coaltechnologies; and advances in CO2 sequestration aid the development of
unconventional oil and coal resources. Renewables also play an importantrole in meeting energy security needs.

Strongly supported
by governments,and led by wind
power, renewables
achieve commercial
viability in somemarkets by 2010
and grow rapidly
through to 2020.

Renewables – Breakthrough and Growth
Solar thermal

Wind

Solar PV

Biomass power

Geothermal

Biofuels3

mln boe/d
25
20

Security and the Environment

Fears about energy security are accompanied by concerns about theenvironment, especially about those aspects of the environment that are
locally pressing, such as air pollution. Governments respond with a wide
range of policies, but most focus on taxation and regulation. Taxes andstandards vary by location and level of consumption, both within andbetween regions. In many places they are maintained at high levels to
discourage energy consumption and carbon emissions, while new energy
technologies, such as renewables, are supported, particularly in their earlystages of development. Despite experiments with various trading systems,
use of market-based instruments, such as tradable carbon permits, islimited—they are seen as too blunt and uncontrollable. People believe that
only governments can ensure progress in sustainable development.

15

10

5

0
2000

2005

2010

2015

2020

Regulation and the Public Good80

In Prism, governments and the public do not believethat markets will be able to deliver a clean
environment, energy security, and energy services tothe poor. Decisions on the nature of the required
regulation remain firmly in the political realm because
governments are in the best position to mediate
between competing demands. People also believe that
it is not desirable to unbundle these different public
goods. For example, improving local air quality could
exacerbate CO2 emissions or energy security. A
balance needs to be struck—and only governments
can achieve this balance.

Energy deregulation
and reliance on consumer
preferences can only go sofar, because they do nottake into account critical"public goods" of energy
security and environment
protection.
"Strategic Energy Policy: Challenges for the
21st Century," Baker Institute, April 2001

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While governments support competitive markets, they use a range of
instruments to achieve their objectives. Many use taxes and enforce
standards. Some establish comprehensive rules requiring all suppliers toprovide minimum levels of spare capacity and to use energy technologies
with lower environmental impact. In some markets these obligations are
tradable, but this is the exception. In any event, the specific policies andregulations are less of an issue than the fact that it is governments andregulators who decide on what services and standards will be provided.
Another area of government activity is involvement in the development ofmajor new energy infrastructure, such as gas pipelines. But governments
promote cross-border gas pipelines only when they are satisfied that risingdependency on imported energy will not adversely impact supply security.

Policy Leap - the Chicken and the Egg
One of the thorniest problems• But capacity will not be built

in privatisation andwithout long-term contracts.

deregulation is the ‘policy• But long-term contracts requireleap’. A fledgling deregulated

the approval of competitionindustry cannot survive without

policy authorities.

surrounding markets—• They also require risk-hedging

but the surrounding markets

mechanisms.

will not readily develop• But these mechanisms will not

before deregulation.

develop until the market has

Electricity deregulation ismatured.

especially complex: technically,• And the market will not

the problems can be solved—

mature until liberalisation has

but the difficulty is that thetaken place.

3

hoops must be leapt

By 2006, the combination of oil price volatility, concern over theenvironment, the fear of another economic downturn, and the use of‘energy security’ as a political issue has resulted in a critical mass of public
opinion forming around the goal of energy efficiency in many countries.
Governments exploit the synergies between these concerns to drive newlevels of energy efficiency.

82

through simultaneously.

The process could unfold in
one of several ways:

The hoops:

1) Some regulation remains• The marginal consumer has toor is introduced in place of total

receive price signals.

liberalisation; 2) Industry• This means getting consumers

manages to solve the co-to accept price volatility.

ordination problem and leap

• But getting consumers tothrough the hoops; 3) Erratic

Access and Partnerships

accept price volatility requires

progress is made through a

In the second decade of Prism, oil prices and oil demand growth are bothlow, and the few growth opportunities remaining are unevenly spread
across the world. The key to sustainable growth is access to the fastgrowing markets—but access is possible only when companies have acredible local face. The great challenge is to gain and hold one of the few
profitable positions offered.

some kind of guarantee ofseries of compromises; 4) And,

lower average prices.

of course, the possibility remains• But prices will not fall untilthat deregulation reverses

additional capacity is built.

course.

In the world of Prism, being selective about locations and partnerships
really matters because companies cannot usually bear the high entry andinfrastructure development costs expected in all markets. Opportunities
lie closer to the customer—but only if companies can handle the new
government regulations and the specific demands of individual markets.

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The Long Oil Game

Towards 2020, deeper problems of the industry become clear, andanalysts are beginning to talk about the end-game of oil and gas.
Competition from advanced coal, renewables, and nuclear has slowed
growth in oil demand, and growth in gas demand is only modest. In thisenvironment, few of the companies have the capacity to migrate togreener pastures.

Economic slumps
and disagreements
within OPEC, whichtake time to resolve,
lead to pricevolatility to 2010.
Eventually, led by
the Gulf states,
OPEC pursues avolume strategy thatkeeps prices low.

But there is an unexpected opportunity for companies in the ‘long oil
end-game’. With low demand, and prices in the 10-12 $/bbl range, theend-game of oil is potentially longer than might have been predicted. Oilremains the dominant global fuel for another two decades. Those energy
companies that survive have an extended life, and their large cash flows,
generated in successful key markets, provide a platform for transition.

3

Low Oil Prices
2000 $/bbl
40
Increasing
unconventional
production andweak oildemand growth30

Gulf Statesforced into
volumestrategy asmarketshare falls

20

10

0
2000

Sustainable Titans—2020 and Beyond

In Prism, those few companies that have succeeded in establishing accessand partnerships at the local level have an opportunity to build energy
infrastructures in the developing world. Partnerships between private
enterprise and governments create novel business opportunities for the
21st-century. ‘Our way’ energy and economic policies make it difficult
for companies to adopt a ‘one-size-fits-all’ global strategy. But energytitans with access and partnerships have a wide set of options. They also
have an additional advantage in that they attract the most highly soughtafter employees—people whose idea of an ‘employee value proposition’ isstrongly focused on ‘values’ and the opportunity to make a difference tothe world in which they live.

Slow growth in oil
demand and low
oil prices create
difficult challenges
for companies
attempting toachieve sustained
growth.

2010

2020

The Long Oil Game: Global Oil Demandmln boe/d
120

100

80

60

40

20

0
1970
84

1990

2010

2030
85

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Overview of Selected Country Scenarios

Summary

Heartland
ValuesOverlapping
Circles ofConnection

Self-sufficiency

Importanceof LocalKnowledge

To support the Global Scenarios, a number of country
Global technology lead erodes.
Under economic slump, US pulls
back from global commitments toconcentrate on western
hemisphere.

Recession and war against
terrorism encourages a significant
increase in the role ofgovernment.

Emphasis on forging strong intraregional associations, especiallywith Latin America, rather thanshaping global institutions. Traderelated friction with EU and Asia.

Integrated North American gas
market with piped gas imported
via Mexico—later joined by
Venezuela LNG.

Corporate social responsibility
defined as demonstrating good‘local’ citizenship.

EU

Deeply cohesive EU, catalysed inpart by strong, centralised Russia.
Expansion is paced and limited.
Slower growth in early years,
followed by sustained recovery.
Increasingly, assertive actor inworld affairs.

Newest members catalyse a new
vision of European culture, liberty,
and democracy, leading to astronger sense of European
regional identity. Social protection
redefined as productive, justifyingsocial safety nets.

Germany defines the new multiethnic vision and wields dominanteconomic and political influence.
Unfettered free flows of people
across internal boundaries knit
members closer together.
Tightening of external frontiers.
Rise of far right.

Energy security concerns pushregional self-sufficiency and resultin a diversity of energy mix indifferent member states, including
expansion of renewables andnuclear.

Emphasis on unitary European
heritage, culture, and identity
creates a ‘soft’ advantage inproviding services and products
within EU markets.

Strong emphasis onenvironmental concerns as part of
the return to tradition, including
respect for traditional rural
practices. Japan emerges as
innovative exemplar of green
technology wave.

Cohesive society with strong
sense of national identity. Those
who don’t fit, leave.

Japan

As government-initiated reforms
start to bite, pressure returns for a
muddle-through approach toproblems. Renewed sense ofJapanese pride with inward focus.
Japan loses regional influence toChina, but is at peace with itself.

An inward-looking society and a
declining economic powerhouse.
Less export-driven, in relative
terms. Companies focusing on
Asia see China’s excellent growthand prefer its prospects to thoseof Japan.

Painful deregulation proves adisaster and is reversed. Highdegree of regulation and tradition
makes access to outsiders
difficult.

China

Fourth-generation leadership coopts broad-based support.
Gradual, controlled economic andlegal reform. Steady growth. Defacto common market with
Taiwan. China at top table ofworld affairs.

Conservative middle class fears
anarchy. Business people,
intellectuals, and critics brought
within the ruling establishment.
Gradual liberalisation andmovement towards multi-party
political system after 2020.

Stability and security throughbalancing Chinese values andwestern modernisation.
Communist Party modernises.

Move towards federal
decentralised structure withinframework of unitary state.
Interconnected Asian regional
economy, driven by greater
domestic and inter-regional
demand, with China as growthengine.

Long-term relationships matter.
Foreign companies adopt Chinesecharacteristics just as Chinesecompanies take on foreign
characteristics to do businessabroad. Need to respond to
government requirements forbalanced growth.

India

Because of stalled efforts on avariety of fronts, the global
economic slump, and the loss of a
key state election, political leadersdefine new agenda for social andstructural transformation. Focus on
inclusive, broad-based development
based on stronger social cohesion.

Middle-class consensus sought.
Market-friendly economic strategy
aims at equitable growth but iswary of bureaucratic state power.
Infrastructure projects at statelevel. Energy demand growthleads to security concerns. Focus
on public spending efficiency.

Interlocking groups in cities,
towns, and villages, and multilateral bargaining among thesegroups. Middle classes mobilised
to participate in politics. Indian
regions strengthen cultural ties
with neighbours.

Long-term gas import deals.
Economy less affected by global
market swings, leading to lessvolatile, more sustained growth.
Booms in manufacturing,
construction, and non-farmactivities. Subsidies shift fromconsumption to investment.

Employment shifts from microenterprises to medium-sized firms,
often located in mid-sized cities,
where government promotes
housing and construction. Moremature fiscal federalism.
Outsiders need to know thespecific state, not just ‘India’.

Populist policies, but with amoderate and sensible edge. Big
issues: AIDS; urban
unemployment; land reform; and,in South Africa, blackempowerment.

African leaders take advantage of
popular opinion in the OECD tosecure massive debt relief.

AfricaSuccessful reforms in the 1990s
result in a business-friendly Africa.
Strong growth in first decade.
Significant regional integration
through regional political andeconomic groups. But key
challenges not addressed.

Some development attempts failbecause of lack of suitability towater-poor region. Africa turns
away from mono-crop agriculture.

Market-friendly regulation andlabour-intensive jobs. Emphasison black economic empowerment
and domestic energy suppliers.
Companies operating in some
African countries still face PR
difficulties back home.

scenarios were built to explore how Prism would playout on a national and regional level. This tablehighlights key areas of a selected few of those scenarios.

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Scenarios and the World We Live In

S e p te m b e r

4

The Terrorist Attacks in the US and the Global Scenarios

The terrorist attacks on the World Trade Center and the Pentagon appear
as a defining moment, marking a new phase in the impact of globalisation
around the world. These attacks were targeted against a highly fragile setof networks and relationships that make up our globalised world, andappear to have changed this world irrevocably. The nature of the US
response will further test those networks. How might our global
scenarios help us understand the implications of these events?
Business ClassIn Business Class, the US pulls together a global coalition against terrorism,
allying itself with the interconnected global elites from other societies, whoshare its beliefs and empathise with its concerns. In a number ofdeveloping countries, however, this successful coalition-building widens
the gap between the connected edges, instinctively drawn towards
supporting the US, and their heartlands, whose people have other, more
immediate concerns, or else even relish the sight of an overweening US
hegemon being ‘taken down a peg or two’. These rifts prove particularly
turbulent in the Middle East, where the concerns of the heartlands are, atleast for some people, openly hostile and where many in the connectededges are at best equivocal; for in the Middle East, the internationalised
elite is fragmented, with elements pitted against each other and withconcerns far removed from many of its fellow regional citizens.
The US continues as the only global superpower. Indeed, as has happened
before in US history, crisis serves to strengthen American society and to
involve it more constructively abroad. Despite moves to tighten security,
the American commitment to an open society and to individual liberties
is too deeply ingrained to be substantially changed even by a crisis of thismagnitude. The need for international cooperation to fight global
terrorism leads the US towards a policy of cooperative engagement
designed to strengthen international institutions and global regimes. But

89

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Page 90even with a significant increase of cooperative engagement, theinternational system continues to be shaped by US concerns andinitiatives.

taken to be values of toleration and pluralism, they are neither exclusively
western nor exclusively modern. Prism is not a world in which we see aclash of civilisations.

Issues such as terrorism are really beyond the competence of individual
nation-states to handle; and over the long term, the US recognises that it
is in its own interests to respect the sensitivities of other states, and to
pursue its anti-terrorism agenda through effective global institutions andregimes, which it seeks to reform. Under US leadership, international law
begins to play a greater role in:• Regulating the international system.
• Reforming and strengthening the UN system and its associatedfunctional specialised agencies.
• Encouraging the de facto emergence of an international human rights
regime (encroaching on the domestic conduct of states).

The war against terrorism leads western governments to introduce new
security measures and even tighter controls over the movement of people.
These measures and controls, including surveillance by the state, aremade easier and more pervasive by the technology of globalisation. One
possible reaction to the puncturing of US pre-eminence could be a morecritical evaluation by others of the version of modernity that the US
promulgates, and a search for alternatives to conventional liberalcapitalism. In a world of ‘multiple modernities’, different countries will
modernise successfully in different ways. In retrospect, the events of
September 2001 will be seen to have triggered off a huge impetus leading
to a more diverse pattern of governance around the world (which fits
what has historically been the norm). The twentieth-century’s obsession
with US success is replaced by a twenty-first century awareness that manydifferent forms of modernity are possible, and these can co-exist. The
sense of diversity brought about by an awareness of different ways of
being modern spreads to the global institutions, which no longer press
international economic integration for its own sake. The newunderstanding—a real mind-set change within the internationalorganisations—is that all countries should prosper within their own
governing structures and institutions. Over time, this understanding
gives rise to newly powerful regional institutions and agreements, eachexhibiting a distinctive set of governance arrangements.

Prism

Prism is a story of modernisation in which people look beyond efficiency
and global homogeneity to their roots, their values, and their families. As
the conventional view of globalisation, including the growth of a universal
cosmopolitan market, is shattered, old forces of religion, ethnicity, andterritoriality revive. As Prism makes clear, these forces can act tostrengthen modernisation by grounding it within a world of ‘multiple
modernities’, characterised by diverse cultural values and practices.

90

But there is equally a dark side, in which diversity feeds prejudice against‘the other’, giving rise to a nationalist backlash. In the terrorist attacks on
the US, we see this dark side in which an unbridgeable cultural cleavage
results in an emotional mix of cultural resentment, a sense of injustice,
and an uncompromising rejection of western modernity. The western
response might well mirror those sentiments should it take the form of
increased social controls and possibly also a nationalist backlash.
Nevertheless, it should be noted that while the US has chosen to depict
its struggle against terrorism as a defence of civilised values, if these are491book4a/w

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Some Questions to Consider

4• If you felt certain that Business Class was an accurate projection ofworld developments, what would you or your organisation do differently
in the coming year?
• If you felt certain that Prism was an accurate projection of world
developments, what would you or your organisation do differently in the
coming year?
• You recognise the inherent uncertainty about future developments.
Having answered the question of what your organisation would do in eachof the two scenarios, now determine what you actually will do differently.

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Notes

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Acknowledgements
Designed by Grundy & Northedge
Printed by Shell Visual Media Services

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