An ageing population – threat or opportunity


This monograph discusses the threats and opportunities posed by the ageing population in Europe. It identifies the actions that need to be taken to make these demographic changes an opportunity for economic growth and for increased quality of life for the citizens.


The ongoing demographic shift towards an older population in medium and higher income countries poses both challenges and opportunities for governments, organisa- tions and individuals. The European Union is ageing rapidly and according to Eurostat the proportion of people aged 80 or over is expected to grow from 5.4 % in 2016 to 11.4% of the population in 2050. The median age of the EU population is increasing continuously and stood at 43.9 years in 2020. A visualisation of the ageing of the European population can be made by calculating the number of elderly people (aged 65 years or more) divided by the number of working-age people (defined as those aged 20-64 years). In 2020 this ratio was 0.348 and by 2050 it is estimated to be 0.567. This means that in 2050 there will be fewer than two working-age adults for each person over 65.2 These dependency ratios for European regions during 2020 are shown in Figure 1.


The ageing population as illustrated in the increasing dependency ratio leads to the following challenges:

A reduction in the available labour force

According to Marois et al3 the available labour force in the EU will reduce from around 246 million in 2020 to 230 million in 2050. Over the same period the European GDP will increase from $20.9 trillion4 to a forecasted $31.3 trillion.a, 5 These numbers indicate (everything else being equal) an average annual increase in labour productivity of 1.6% compared to historical numbers of an average less than 1%.6

Some mitigating actions to address the labour force decline and the productivity gap are:

  1. Putting in place policies (from government) and practices (from employers) that enable individuals to stay in the workforce beyond the present retirement age. To stabilise the labour force the average European working life needs to increase by about 7 years7.
  2. Adopting productivity improving technologies to both substitute for labour and complement labour. This will necessitate competence and capability building as well as process and work practice changes (and sometimes changes in the relevant business model).
  3. Increasing the share of women in the workforce to a level comparable to men of the same age and the same education
  4. Increased absorption/integration of immigrants into the workforce achieving a participation level similar to those in the domestic workforce with the same age and educational Workforce immigration is an important strategy but accepting immigration with zero or very low educational level becomes very expensive and also puts the labour productivity objective at risk and hence the GDP growth.
  5. Labour force participation is strongly correlated with educational attainment8 Implementing policies that reduce and preferably remove the disadvantage  in  educational achievement for children of low-educated mothers and those with an immigrant background becomes


Figure 1: Old-age dependency ratio, 1 January 2020 (%, people aged  65 years / people aged 20-64 years, by NUTS 3 regions). (Eurostat. (2021). Eurostat regional yearbook. 2021 edition. European Union., Map 1.3., page 27).


The first two mitigation points relates directly to the ageing part of society whereas the remaining three points relate only indirectly to the ageing part of society (and will hence not be discussed).

The benefit of a multigenerational workforce is clear. A firm that has a 10% higher than average share of workers aged 50 and over is 1.1% more productive and has 4% lower employee turnover.9 CEO’s and other managers are between 2 and 2.5 years older in the 20% most productive firms as compared to the 20% least productive.10, 11 These benefits accrue from older workers being more productive on average than other workers as well as productivity-enhancing complementarities between employees of different age e.g. through teams where younger and older employees work together leading to spillover of knowledge and experience.12 Building a multigenerational workforce also yields a stronger pipeline of talent, increases resilience and improves workforce continuity, stability and the retention of know-how.13 The benefits can be summarised under the headings:14 Increased productivity; Stronger talent pipeline; Greater diversity of skills & outlook; Better retention of experience & know-how; Increased resilience; and Better access to multi-skilled teams. To access these benefits employers must have a life-cycle oriented approach to workforce strategy; unbiased recruitment; managerial training; internal mobility; identification and fulfilment of training needs; mid-life career reviews; job-rotation and shadowing; action learning; health promotion and promotion of healthy work; career support; job design and job adaptation; multi-stranded flexible working policy.

It is also worth noting that productivity changes with age and although it declines slightly after age 55 it is still remains substantially higher than the productivity of those aged under 40 as shown in Figure 2.


Figure 2: Productivity by age15

Increasing costs for Health and Care services

Evidence from the Medical Expenditure Survey (MEPS) in the United States shows that 42% of those that incur high medical costs are older than 65,16 and the most common conditions are hypertension, osteoarthritis alongside a number of other chronic conditions. Although ageing is not a negligible driver of health care costs, there are good reasons to argue that the effect of ageing on health expenditure is overestimated since a significant share of expenditures take place around the time of death – at whatever age death does occur.17 When time to death is accounted for, the effect of ageing on health costs disappears.18 Felder et al.19 have shown that the effect of time to death decreases with age and Seshamani & Gray20 have shown that hospital expenditure increases well over 15 years before death, and declines once an individual turns 80. Costa-Font & Vilaplana-Prieto21 in an excellent empirical study with high validity and European relevan- ce finds that:

  • Proximity to death increases hospitalisations, length of hospital stays, long-term care use (home and nursing home care), and outpatient care
  • The effect size of proximity to death exceeds that of an extra year of However, their estimates are heterogenous across different types of health care. Morespecifically, they find that ageing does not increase the utilisation of outpatient care. Furthermore, the effect of ageing is attenuated when comorbidityb controls are included in explaining both the extensive and intensive margin of hospitalisa- tions and medicine consumptionc.
  • They estimate that an additional year of life decreases the length of stay in nur- sing homes by 13%. The largest impact of age corresponds to the frequency ofhome-based assistance for personal care because each additional year increases the probability of receiving one additional hour of assistance by 13.6%.

The study concludes with the statement that: These results taken together indicate that estimates of the effect of ageing on hospital care utilisation are attenuated, or become insignificant, when alternative explanations of an ageing effect  such  as  endogenous time to death and the influence of comorbidities, as well as omitted variable bias, are accounted for.

The conclusions are that ageing is in itself not a key contributor to the increased health care costs in Europe which fits with the findings of Gill & Taylor22  that the proportion of the increase in annual spending in the British National Health Service that is due to population ageing is only 1.5%.

From all the studies reviewed it seem that the key drivers of increased health care costs in most European countries are due to increasing costs of technology, increasing costs of pharmaceuticals and increasing labour costs. Two further potential contributors are low productivity improvementd and increasing administrative costse.

Increasing pension costs

With increasing age come pressures on national pension systems. In response to this pressure several countries have raised the lower age limit for early pension or for the default state pension age as well as limiting the economic conditions for early pension and/or improved the conditions for late exit.23 The raising of the lower age limit and the encouragement to stay in work will, if successful, increase the numbers of older workers. The success of this policy is also dependent on the attitudes and practices of employers, and it is questionable how well employers are prepared for this ageing of the labour force.24 In an interesting study of Norwegian workers above the age of 67, Salomon & Solem25 found that they were characterised by valuing the intrinsic aspects of work highly, having a history of working many hours, having a strong engagement in work, having an inner drive for work, and not wanting to disassociate themselves from work. There was also a very high share of self-employed among those aged over 67 that worked.

The restrictive effect of mandatory retirement is to some extent supported by the finding of Solem et al.26 that some managers re-engage mandatorily retired employees as self-employed to do the same tasks as they did before.

Pension systems differ in how much they confirm, exacerbate, or reduce social inequalities, since modern public old-age pension is a combination of general basic security and individual income-related pensions. 27 Therefore, simply extending working life also represents a risk of increasing inequalities between pensioners.28

It is clear that the old-age pension costs will increase substantially given the ageing trends unless policy changes are made and unless employers change their attitudes towards older workers. Dang et al.29 made the following forecast (Table 1).


Zwijnenburg & Goebel, 201731 found that an ageing population will lead to increases in pension and health care costs, which will outweigh decreases in costs related to child and family benefits and education. They also found that the impact on pension schemes will depend on the institutional setup of the schemes. Depending on the scheme, these changes may affect the sustainability of pension funds and government finances, and household retirement resources. This explains the legislative drive towards changing the pension systems in most countries.


The societal contributions of older adults are frequently not mentioned in the public narrative. Using the UK as an example, it is estimated that over 65s make a net contribution to the UK economy of £40 billion, after deduction of the costs of pensions, welfare and healthcare costs, through tax payments, spending power, donations to charities, volunteering, as well as financial and other types of support for relatives.32

A survey in Britain in 2011 revealed that people over 65 are a substantial proportion of volunteers in voluntary organisations, which are important providers of various forms of welfare in Britain, working closely with state welfare agencies. About 30% of over 60s volunteer regularly.33 In addition, many older people provide informal voluntary services by assisting relatives, friends and neighbours (many of whom are also retired) as well as older women caring for frail husbands and for disabled adult children, saving the state welfare services a considerable sum.34 The value of formal volunteering by older people in the UK is estimated at £10 billion annually saved to the budget of public social services and the value of informal social care at £34 billion. 35 Moreover, the value of childcare service provided by older people is estimated at £3.9 billion annually.36

A further contribution is made by “the bank of mum and dad” which also includes grandparents. For example, 31% of British grandparents save to help grandchildren buy a home.f 16% in their 60s and one-third in their 70s give financial support to grandchildren, including paying school and university fees, and, increasingly to their children.37 It is only when grandparents reach age 75 or older that they are more likely to receive more than they give in financial and practical help to younger people.38


SAPEA39 states that at the individual level, the ageing process is extremely heterogeneous, as huge social and cultural variations have a significant impact on the quality of ageing. However, ageing is usually preferred over early death, as it gives people a second, third and even fourth chance at life and provides multiple opportunities for personal fulfilment. This should not be overlooked but rather celebrated, as ageing represents a continuing chance to redefine oneself during life.

On the societal level rapid changing societal structures, such as smaller and more frag- mented family units, the co-development of age discrimination and health inequities, and the emergence of new geriatric syndromes and longer periods of disability, greatly impact labour force, pensions, and social and health care costs – as discussed above. However,as SAPEA states, ageing overall allows for increased productivity, greater work expertise and intergenerational exchanges of material and non-material goods (e.g. education and experience), thus forming bonds between young and old generations. In addition, the increasing population of older people provides a growing market in its own right.

A growing market

The increasing share of older peopleg in the economy alongside an ageing population means that there is a growing market for products and services for older people – the estimated size of this market in the US during 2020 is $8.25 trillion and $14 trillion globally with an annual average growth rate of 4.1%. This market is driven by the combined spending of public and private sector on the specific needs of older adults where the private sector spending will be underpinned by the relatively high net wealth and spending power of the older consumer. The importance of this market is illustrated by the fact that it is expected to account for over 50% of US and Japanese GDP by 2030.

The justification of this number comes from the increased dependency ratio (discussed above) and the fact that those aged 55 and over account for 55% of all household expenditures and 75% of all wealth in the EU.

It is important to insert here the obvious caveat that the ageing market is as diverse as it is possible to get and hence from a service or product provider’s perspective it is essential to define the target market precisely.

The key opportunity in this market emerges when technologies meet market needs. The needs and the technologies are illustrated in Figure 3.


Aspects of what is shown in Figure 2 are closely related to the framework for ageing in place in the neighbourhood environment as developed by Bigonnesse & Chaud- hury41 and shown in Figure 4. Given the emphasis from both policymakers and indi- viduals on increasing the ageing in placeh opportunities, this further increase these market opportunities.

Integrating the elderly into the design process

The spending on health-related R&D in many countries is very high (and in the US, it is second only to the spending on defence R&D). The success rate of this spending is generally low due to a large gap between the R&D objectives and contexts and the real-world implementation context. These failures are due to many factors including:

  • An overly simplistic view that pilots and prototypes will naturally scale-up to mainstream 42
  • Researchers who work (their whole life) within academic institutions frequently lack the insight and skills needed to create viable commercial products or services, whilst the ‘publish or perish’ culture in academia frequently counteracts any desire to commercialise the research output.

These reasons for failure are likely to be the same for products and services focussed on the elderly and specifically so for technology-based products and services (known as gerontechnology products).

  • Start-ups are important in the gerontechnology domains but the products or servi- ces as well as the companies frequently fail. The latter due to weak management in combination with poor access to capital and the former due to experience distance between those that develop the offering and those that use it which is why real-life verification is more important in the gerontechnology domain than in many other domains. Without the consideration of users, entrepreneurs who are often significantly younger run a risk of misunderstanding or misinterpreting needs and create mismat- ches between gerontechnology solutions and consumer demands. Fritsch et al.43 also identified that much attention is put on care situations where the image of the elderly is that of sick or disabled persons not mastering contemporary information technology in spite of that group being only a fraction of the group called the elderly.
  • Any solution or service created should thus be co-designed with users and their behaviour Therefore, Living Labs are critical in both the co-design phase and the verification phase.

A Living Lab can be defined as: “an embodied research methodology for sensing, prototyping, validating and refining complex solutions in multiple and evolving real life contexts. In essence it applies a design methodological approach within a semi-open innovation frameworki to enhance the fast-prototyping co-creation thinking when it comes to products, services and solutions that are either systemic in nature or part of a greater systemic/holistic setting”. 44

Empirical studies have shown the need for assistance with verification of appropriate- ness of new products and services developed for the gerontechnology market45 where Lepik & Krigul46 identifies that over 50% of companies developing these types of products and services are looking for assistance with validation.

Given the user-provider information asymmetry and the developer-user experience distance in the gerontechnology sector, access to and functioning of a gerontechnology focused Living Lab is critical for the development of successful gerontechnology offerings.

  • The macro or organisational level, where the Living Lab is a set of actors and stake- holders organised to enable and foster innovation, typically in a certain domain or area, often also with a territorial link or focus. These organisations tend to be Pu- blic-Private-People partnerships.48
  • The meso or project level, where Living Lab activities take place following a mostly organisation-specific methodology to foster
  • The micro or user activity level, where the various assets and capabilities of the Living Lab organisation manifest themselves as separate activities where users and/or stakeholders are involved.

What distinguishes the Living Lab approach from other, more traditional supplier-customer partnerships, or previously seen cross-disciplinary approaches is the ability to interact with users.

The Living Lab methodology, with the common elements and identified innovation pro- cess, can be situated at the meso level, where the projects are structured based on it. The following principles are core to Living Lab methodologies: active user involvement, real-life experimentation, multi-stakeholder and multi-method approaches. Besides these main principles, another common aspect within Living Lab methodologies relates to the different stages that are followed in an innovation process. From the perspective of the ‘innovator’, it is possible to distinguish between the ‘current state’ and the ‘future state’,49 where the existing, ‘current state of being’, the ‘as-is’ or ‘status quo’ is opposing ‘possible future states’.50 This resonates with design thinking, which proposes an iterative approach, based on:

  • A large part of this phase is the collection of data to be analysed and this is frequently done through observation, which explains the role of LivingLabs in the design-based innovation process. The core issue of analysis is to assemble, from a virtual infinity of information, whatever is relevant. This information is then detailed and structured, so the implications become sharp and clear. Probably the prime failure of most complex design projects is a tendency to make analysis too casual.
  • In genesis, the messages of analysis are deliberately improved. The essential activity in this phase is generating new information through the application of intelligence (i.e., the search for insight through simultaneous new discoveries at many levels).
  • The visualisation of the outcomes of genesis in the real context (i.e., prototyping). Synthesis doesn’t materially improve a product as genesis does but if skilfully done, it can contribute enormously to the product’s value.

These iterative phases facilitate experimental learning, and alternate between divergent thinking and convergent thinking.51 The objectives of design are to achieve behavioural change in the user which is desirable from the users’ point of view (i.e., they are better off in their own opinion after the change), to benefit the suppliers of the product or service, and to positively impact other stakeholders.52 Action research is then used as a method to build these methodologies out of concrete cases and projects, carried out within the Living Lab.53

To anchor the individual user involvement activities (micro level) with a methodological framework that follows this design reasoning, Schuurman et al.54 proposed that Living Lab projects resemble a quasi-experimental approach. This includes a pre-measurement, an intervention and a post-measurement, where the intervention is equalled to the real-life experiment. Following the above reasoning, we can distinguish three main building blocks within Living Lab projects after the innovation development phases:55

  • Exploration: getting to know the ‘current state’ and designing possible ‘future states’. The main goal of this stage is to understand the ‘current state’.
  • Experimentation: real-life testing of one or more proposed ‘future states’.
  • Evaluation: assessing the impact of the experiment with regards to the ‘current state’ in order to iterate the ‘future state’.

Living Labs provide an opportunity not only to enhance the usability of a product or service developed for the ageing market (a market characterised by high levels of in- formation asymmetry and hence an inefficient market) but also to identify the specific target segment. The methodology for this is outlined in Figure 5.


There are Living Labs that focus totally or in part on the ageing market. Some examples are:


The Macro Perspective

The growth of this market has generated both public and private actions. The European Commission has launched multiple smart ageingj platforms focusing on technology, regulatory issues, and potential future markets. Some of these are: The Ambient Assisted Living Joint Programme, the More Years Better Lives Joint Programme, and the European Innovation Partnership for Active and Healthy Ageing. The EC Policy Framework “Smart Ageing” has so far generated:56

The EU funded SHAPE (Smart Healthy Age-Friendly Environments) project has in its D4 Report57 mapped the national policies, strategies and funding with relevance to Smart Healthy Age-Friendly Environments.

On the global level there is the Aging 2.0’s Grand Challenges initiative to drive collaboration around the biggest challenges and opportunities in ageing. These are stated as being:58 Engagement & Purpose; Financial Wellness; Mobility & Movement; Daily Living & Lifestyle; Caregiving; Care Coordination; Brain Health; End of Life. In addition, some countries have established clusters and other state promoted activities. Examples are:

  • The UK Ageing society grand challenge with the mission to:59 ensure that people can enjoy at least 5 extra healthy, independent years of life by 2035, while narrowingthe gap between the experience of the richest and poorest. Success in this mission will help people remain independent for longer, continue to participate through work and within their communities, and stay connected to others to counter the epidemic of loneliness.
  • Ireland identified that there is potential to build Ireland as a preferred location for international companies seeking to research, develop and trial new approaches to addressing the challenges and opportunities for an ageing population, and optimise the commercial exploitation of scientific breakthroughs emanating from research centres and businesses in Ireland. 60 This potential built on the existing capabilities in Medical Devices; ICT mobile communications; ICT sensor technologies; Internet technologies; ICT/data analytics/Software; Business services; Healthcare services; and Functional foods. Ireland also has ISAX (Ireland Smart Ageing Exchange) which is a network of businesses, academic institutions and government agencies interested in solutions for the global ageing economy. They provide support including training, workspace and an accelerator for entrepreneurs over the age of 50 as well as any entrepreneurs developing products for older people.
  • Silver Valley outside Paris (in Ivry-Sur Seine) has attracted more than 300 members, 46% of which are start-ups and 54% of which are large international In 2018 Silver Valley created the Open Lab, a unique sociological mechanism in France integrating about 10,000 people aged 55 to 92, who share their ageing experiences throughout the year and thereby enable the joint exploration of the associated innovation pockets.61 The offering in the French Silver economy domain is made up of services only (31%), integrated products and services (21%), manufactured products only (18%), digital goods onlyk (10%), integrated manufactured products and digital goods (8%), integrated services and digital goods (6%), and investments (6%).62
  • Scotland’s Healthy Ageing Innovation Cluster, which is facilitated by the Digital Health & Care Innovation Centre, on behalf of key partners including the Scottish Government’s Technology Enabled Care Team, The Digital Office for Local Government, Scottish Enterprise, Highlands & Islands Enterprise, Enterprise Europe Network and the European Connected Health Alliance.

The business interest in the segment can be illustrated by mapping companies in the different emerging product-service offering segment resulting from the matching of opportunities and technologies illustrated in Figure 3, as done by and shown in Figure 6.

A good discussion of the attributes of the silver economy can be found in Iparraguirre.64


As people live healthier and longer lives, they may (choose or be able to) work later in life, thereby increasing economic activity at older ages. To maximise the opportunities of the ageing population a number of actions must be taken by governments, employers, individuals and other stakeholders. These include (partly extracted from SAPEA)65:

  • Aim to decrease the prevalence of ageisml in society. Ageism impacts all aspects of our lives and is manifested at the cultural and institutional level, at the family andrelational level, and at the individual level.66 At the cultural and institutional level, ageism determines what policies and legislation are developed, for example defining premature death as occurring prior to the age of 70,67 and imposing a mandatory retirement age,68 which forces older people to become dependent on their life savings and old age pension. Ageism in the health and care system takes many forms but those most important to address relate to the tendency to offer medical inteventions for social conditions,69 shortage of health and social care workers willingto work with older adults,70 the high prevalence of negative attitudes towards older adults reported by health care professionals,71 or a tendency of paternalistic treat- ment which disregards older people’s autonomy.72
  • Aim to remove implicit ageism in the built environment.73 An interesting approach can be found in Aliramaei (2021).74
  • Aim to remove ageism in the workforce manifested through the mandatory retirement age which is enacted in many European countries despite laws that prohibitworkforce discrimination based on age. Also educate employers of the positive effects of having a multigenerational workforce (increased productivity etc. as discussed above) and how to structure the organisation and the work processes to maximise these benefits.
  • Aim to reduce the extent to which individuals internalise negative perceptions towards their own These negative attitudes risk leading to prematuredeath,75 physical impairments,76 fall,77 deteriorating cognitive functions,78 recovering more slowly from disability,79 and higher levels of loneliness.80

The reality of how employers address this  issue  varies  substantially  between  coun- tries in Europe as well as between employers within countries. Cebulla & Wilkinson81 found in their study a marked between-country difference, with UK case studies highli- ghting a strong emphasis on age-neutral practices shaped by legislation; age-confident practices in Germany resulting from collaborative arrangement between employers and trades unions (with legislation permissive towards age discrimination); business

in Spain remaining relatively inactive, despite evidence of people expecting to work longer in life. A detailed summary of country policies for 34 countries relating to extending the working life can be found in Ní Léime et al.82


It is clear from the above that the ageing population in Europe can be an opportunity for both economic growth and increased quality of life but that this will not happen unless several actions are taken by governments (regional, national, and supra national), employers and individuals. The key actions are:

  1. A recognition that the older individuals in society are as diverse as the rest of the individuals in society.
  2. The removal of ageism in society at all levels and in all The key initial action should be to remove the compulsory retirement age and make it easy and tax beneficial to mix part-time work with drawing down part of the pension allowance and thereby incentivising individuals to stay in the workforce beyond retirement age. It however needs to be noted, that some individuals have had work in which they have been physically or mentally worn out and therefore need to retire earlier than the normal retirement age and these individuals also need to be catered for if they are unable to do a different job in old age.
  3. Employers need to develop skills in how to manage a multi-generational workforce and how to combine individuals in such a workforce with appropriate productivity improving technology embodied This will improve intergenerational skill trans- fer, reduce employee turnover, and increase firm productivity.
  4. Ensure that regulations are not implemented that reduces incentives for the older population to contribute to society in the many forms discussed above but rather that these forms of contribution should be
  5. Increase awareness of the opportunity of a growing market that the ageing population This awareness should focus on both opportunities to serve existing needs in new ways and in serving new needs using new technologies as both needs and technologies emerge and mature.
  6. Increase awareness of how to reduce market risks for new offering to the ageing market, by involving users in the product or service development process to com- pensate for the information asymmetry that otherwise may exist between developers and users. One of the best tools for reducing the market risk and maximising the market opportunity is the use of specialised Living Labs during the development and verification phases (see Figure 5).
  7. On the regional and national level investigate if it is possible to create an environment for developing clusters serving one or more of the market domains if the capabilities needed already exist in other businesses or clusters in the geographical area.

If these actions are taken, then the ageing population in Europe is a great opportunity which is synergistic with the opportunities offered by digitalisation and reduction of society’s environmental footprint.

Written by Göran Roos

Member of the board of Medfield Diagnostics AB, the Global Centre for Modern Ageing, and the advisory Board of Staccato Technologies AB. He is part-time full professor (Professor II) at Kristiania University College; Visiting Professor in Business Performance and Intangible Asset Management, Centre for Business Performance, Cranfield School of Management, Cranfield University. Göran is a CSIRO Affiliate as well as a fellow of the Australian Academy of Technological Sciences and Engineering (ATSE) and of the Royal Swedish Academy of Engineering Sciences (IVA).

(a) The European GDP has fluctuated up and down since 2008 and before that it was in continuous growth
(b) Comorbidity describes the effect of all other conditions an individual patient might have other than the primary condition of interest and can be physiological or psychological.
(c) They find that each additional year of life has a positive effect on the length of hospital stay (+2.3%) and on the number of medications consumed (+3.9%). This effect is six and ten times lower respectively, than the effect of an additional comorbidity.
(d) Although measuring productivity in health care is challenging and different methods provide somewhat diffe- rent answers. A good discussion can be found in Sheiner, L., & Malinovskaya, A. (2016). Measuring productivity in healthcare: an analysis of the literature. Hutchins center on fiscal and monetary policy at Brookings.
(e) As an example, the administrative costs in Swedish health care increased by 21.8% during the period 2014-2017. This was the third highest increase after Information, education and advice relating to preventive health care (24.1%) and Curing and rehabilitating home care (22.8%). Data sourced from Tabell 1. Hälso- och sjukvårdsut- gifter 2014–2017 on page 45 in Socialstyrelsen. (2020). Tillståndet och utvecklingen inom hälso- och sjukvård samt tandvård. Lägesrapport 2020. Socialstyrelsen.
(f) According to the Financial Times (24th March 2021) in 2020, gifts from parents, grandparents, friends and relatives were behind more than half of house purchases among the under-35s (referencing a study by Legal & General) and this pattern of lending is expected to continue. The amount lent average GBP 20,000 and total, depending on the year between GBP 3.5bn and GBP 6.3 bn in the UK (The Guardian, 1st September 2020).
(g) In most of the economic forecast these are defined as people over 55 years of age.
(h) Ageing in place is defined as the ability to live in one’s own home and community safely, independently, and comfortably, regardless of age, income, or ability level
(i) Semi-open innovation framework means that it builds on the principle of crowd sourcing but the crowed is defined and delimited by the originator of the problem.
(j) Mainly composed of websites, social media, or digital tools dedicated to follow-up the health care pathway of elderly people.
(k) Defined by the World Health Organisation as stereotypes, prejudice, and discrimination towards people because of their age.

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Creating sustainable change in the basque country and europe

Change is on the agenda like never before. In the short term, organisations must deal with the continuing uncertainties related to economic recession and inflation, security issues, the energy crisis, the constantly looming pandemic, and the rise of China. And for the long term, even more challenges are piling up.Two of the key long-term challenges are:

  1. The sustainability wave is transforming our It is no longer just a nice-to-have feature but a critical element that must be thought into all aspects of our lives, from how we treat the planet to how we manage our businesses and how we behave towards other people. The Basque Country is well-positioned to become a sustainability leader in Europe, already experienced in transforming its competitive model and now having to do it again. Technology, innovation, and entrepreneurs- hip will play significant roles along the way, along with the willingness to become front-runners.
  2. Talent attraction and inclusive growth. Attracting talents across all sectors of society are necessary, as is the goal of creating growth and inclusive work-life To ensure this, the rethinking of education and the adaptation of working culture to future generations’ needs will be essential. Sustainability will play an important part both in attracting purpose-driven talents and creating new jobs that support the sustainable transformation of society.


In 2021, the Copenhagen Institute for Futures Studies and BMASI led a scenario process initiated and sponsored by BBK. Part of this process was to identify the key battles the region must win to unleash its considerable potential, solve current societal challenges, and grasp some of the unique opportunities that come with being a region founded in high social cohesion, a strong welfare system, next-level innovation, and proud history of resilience and growth.

Over the last couple of decades, Bilbao has gone from having heavy industry crowding the riverbank, to become a culture and service-based modern metropolis. The city’s purpose has simply changed. But what will be defining and driving Bilbao, Bizkaia, and the Basque Country in the future? The scenarios, that was built with BBK, BMASI Strate- gy, and other stakeholders, were for the next five-ten years for the Basque Country and the core uncertainties identified were the political and macroeconomic climate coming out of the Covid-19 crisis and whether changes in the local society would be driven by bottom-up or be top-down initiatives.

One thing is certain: Incremental innovation is not enough moving forward – trans- formative, radical innovation is needed. Both in terms of reaching the United Nations 2030 Sustainable Development Goals (SDGs), but also for moving the Basque Country further in the right direction. Talent –the attraction, retention, and education of such– is the unifying force that is going to push the Basque Country forward. A key success factor will be to strengthen the educational system to improve the foundation that the society will continue to be built on through striving for excellence and international refe- rence and to advance desired values, promote entrepreneurship, and lifelong learning.


However, the Basque Country is facing some challenges when it comes to these fields. While the country’s unemployment rate of about 8,3%1 in Q3-2022 is relatively good compared to Spain’s 12.67% (highest in the EU)2, it falls short on an EU scale, where the average is 6,0%3
. There are positive signs to track with regards to Basque youth unemployment (aged 16 to 29) decreasing from 23,9% in 2020 to 14,8% in 2022-Q24
. Definitely a move in the right direction, but it is something to keep a track to avoid a whole generation facing challenges in breaking into the job market and ultimately, generate value for the Basque economy. Since the transformation from an industrial to a service economy, job security has become more volatile, the impact exacerbated by Covid-19 and the increase in the number of people living in uncertain conditions is a cause for concern. There is a need for more inclusive education and talent attraction, not just from Spain, but from all the EU and the rest of the world, combined with new ways of teaching.

Some of the problems that needs to be addressed are: The current low job security and declining competitiveness of Basque universities, a Basque brain drain of talent fleeing the region, as well as apathy-induced lower professional ambition among parts of the younger generations. Ambition is the fuel of entrepreneurship, and a generation of purpose-driven, skilled talents might be lost in the futile attempt to maintain a pre-pandemic status quo. Going all-in on sustainability could both  be  beneficial  for the economy and for attracting Gen Z who is driven by purpose.

Putting markets and indeed all of society on a more sustainable path might be the key to unlocking the potential of young people. Not only to create new jobs but also to be seen as frontrunners internationally with regards to sustainability. Thus, the question is: Will we in the coming ten years see the Basque Country be part of the group of frontrunners, or will sustainability rather be seen as a hygiene factor (one amongst many others)?


Sustainable entrepreneurship starts with passionate people seeing opportunities, where others see problems. The market changes in a world aiming for a zero CO2-emission future should be seen as an enormous opportunity that will help spur innovation. The entrepreneurial spirit needs to be reenergized within society and this takes a strong ecosystem for financing, incubating, and growing new ventures. At the same time, the theoretical know-how that the educational system teaches will need to be complemented with more practical experience and an effort to adapt to the real new   needs of companies in a “sustainable future”. One way to achieve this is to create an education system with a more forward-looking curriculum that looks at skills that will be key in the future, such as tech literacy and soft skills. Lifelong learning will also be fundamental. You should not stop learning when you graduate, but rather be provided continuous upskilling and reskilling. Such a transformation will not just create a foundation for innovation and a green transition but will also make the region attractive both for local and international students.

The right talent is needed to drive this new transformation and talents can come from everywhere. What attracts people to the Basque Country is the possibility to live a good, healthy life with a wonderful culture and cuisine, beautiful nature, leading STEM expertise, and world-class welfare. But what is the future good life in the Basque Country? And what could make locals stay and attract outside talents? The workplace and working culture are good places to start. No one knows the best recipe for a good work-life and workspace in the future yet, but everything suggests that distance and hybrid work is here to stay (with ‘hybrid’ meaning a mix of working from home and at the office) along with the need for increased flexibility. Young people today would like to work for companies that are purpose-driven and  emphasize  sustainable  practices from supply chain to working culture5. The Basque society is in a good position to compete for talent, and it should therefore further invest in improving these conditions.


Partnerships across sectors will be key to unlocking future prosperity. But it will be necessary for everyone from the public sector and NGOs to academia and businesses to give something, without expecting “anything in return”. In this regard, trust is the key ingredient in making successful partnerships.

The Copenhagen Institute for Futures Studies together with BMASI has visited BBK Kuna, the new SDG-centre. As a social innovation space, it is working to connect different stakeholder groups around a common purpose and creating shared value for society at large, which is a step in the right direction. For the Basque Country, just as for Denmark, the ambition must be to move from merely talking about challenges to taking concrete actions to solve these challenges, seize opportunities and build better societies. While the task looks insurmountable in the middle of an upheaval, uncertain- ty, and complexity, the Basque Country has proven its resilience over centuries and transformed itself before. So why not do it again?

Written by:
Carsten Beck, Director of research at CIFS*
Mathias Behn Bjørnhof, Advisor & Futurist at CIFS*
Monika Volgyi, Junior Associate at CIFS*

(*) CIFS – Copenhagen Institute for Futures Studies

(1) Unemployment in the Basque country. mous-communities/basque-country.
(2) Unemployment in Spain. 1248-q2-2022-10-27/
(3) EU unemployment rate. statistics
(4) Youth unemployment in the Basque Country. tory-the-youth-unemployment-rate-between-16-and-29-years-of-age-stabilizes-below-15/r57-portcont/en/

Some issues around moving towards a more sustainable economy

The challenges around moving towards a more sustainable economy can be summarised as geopolitical, scarcity of critical materials, limitations around present technologies for recycling of products, lacking an integrated material and energy flow lens for life-cycle assessment and lacking an emergent complex systems view on the economy or any sub-system thereof. All these challenges provide opportunities for individuals, firms, sectors and nations. In effect the simultaneous move towards a digital and sustainable future provides the entrepreneurial opportunity of a lifetime. Over the coming decades we will see a reshaping of the landscape on all scales in terms of value creating ability. Some changes will be gradual and peaceful and some will be less so.

The desirable move towards a more sustainable future has recently taken on a stronger momentum as illustrated by the willingness, of primarily millennials and GenZ, to pay a premium for products and services that are more sustainable. Some businesses are changing their products and production processes, including changing and minimising inputs (material and energy) as well as reducing waste. This frequently requires redesigning the product and the production processes to enable both reuse and simpler recycling, e.g. by bolting together rather than welding together.

The changes frequently also extend to packaging and incoming and outgoing logistics as well as requiring similar changes from suppliers. In such changes business is presently moving faster than policy makers in many countries although it is likely that some countries (e.g. Germany and Norway) will use the introduction and subsidisation of mandatory recycling, with the associated development of new product and service offerings, as a tool in the economic recovery post COVID-19 pandemic.

Minimising life cycle environmental impact frequently goes hand in hand with both cost minimisation and revenue maximisation. Hence, a grounded and considered move towards a more sustainable future leads to increased profitability for firms and consequently higher prosperity for nations.

The challenges to this outcome arise out of:

• Policy makers trailing the actions taken by business in adopting appropriate regulations
• Policy makers are trailing in directional decisions and the associated public strategic investments that avoid undesirable temporary outcomes in complex systems (e.g. a lack of charging infrastructure delaying the adoption of electric vehicles, lack of investments in electric generation and transmission infrastructure to avoid local electricity deficit2, regulating to ensure grid stability when the electricity generation mix changes, lack of policies around the management of stranded assets like coal fired power stations leading to perverse market behaviour, emotionally rather than fact driven political decisions with undesirable outcomes3, etc.)
• The lack of regulation requiring disclosure of climate impact (e.g. there is no requirement for the packaging used for Norwegian pollock or shrimp to declare that they are transported respectively to China for filleting and Africa for peeling before being returned, packaged and sold to Norwegian consumers in domestic retail outlets)
• “Green” stakeholders frequently arguing models and solutions that either lack completeness (e.g. looking at material flows in isolation rather than also including the associated energy flows) or that overlook critical laws of nature (frequently the second law of thermodynamics which in practice states that the available usable energy in a closed system decrease over time) and hence may lead to discussions and decisions that end up having undesirable outcomes.
Some common omissions and challenges will be discussed below.

Disclosure of Climate Impact

There is an increasing recognition by capital providers of the inherent risks and opportunities associated with climate change. To take decisions in this environment these providers require useful information. The challenge in today’s environment is that information is inconsistent, frequently provided out of context and is normally not possible to use for comparison purposes.

Climate change risks and opportunities can be divided into two categories:

Firstly, those generated directly by a changing climate e.g. changes in sea levels; changes in sea chemistry; changes in extreme weather patterns; changes in temperature; etc. These risks and opportunities include e.g. stranded agricultural assets due to drought as a result of changing weather patterns or increased forestry harvesting risk due to lack of ground frost as a result of increasing temperatures and reduced harvesting yields due to longer insect attack seasons due to fewer sub-zero temperature days, increased frequency and severity of asset damage due to extreme weather, changing discretionary spending patterns decreasing demand for some things and increasing it for other.

Secondly, risks and opportunities that follow from the actions taken, primarily decarbonisation, to mitigate climate change. These primarily relate to the shift away from fossil fuels. This shift has implications for commodity volumes and prices as well as the logistics surrounding the flow of commodities. The shift also has implications for alternative energy generation technologies, electric and hydrogen mobility, mining and critical raw material production, carbon capture technologies, recycling technologies, legal aspects and social licence to operate.

Disclosure aimed at investors and capital providers needs to operate on two scales. The first is the scale of the firm where the purpose is to show that the firm is managing the risks and opportunities appropriately. This includes illustrating that the firm’s risk and opportunity management on the topic is effective in covering: governance, strategy, risk, opportunity, management, metrics and targets. The second is the scale of the market where the purpose is to enable the pricing of climate risk and opportunity in an appropriate way. This may include carbon footprint analysis, assessment of cost risks, assessment of revenue risks, assessment of stranded asset risks, assessment of opportunities and assessment of adaptability.

The Taskforce on Climate-related Financial Disclosures (TCFD)has rolled out an initiative that so far seems to address the firm scale disclosures in a functioning way. The challenge is the market scale disclosures that presently do not seem to have an adequately functioning approach5.

Challenges around the Desirable Climate Change Trajectory

Moving away from a dependency on petroleum and coal (decarbonising the economy) means increasing our dependency on critical metals. This because e.g. wind, wave and similar energy generation systems require permanent magnets as do electric motors. Similarly, batteries require specific metals as do the necessary electronics used to supervise energy and material efficient production systems and sometimes also being part of or supervising the use of the resulting product (built in electronics, sensors and communications equipment). This shift in dependency has geopolitical consequences as illustrated in Tabl

If this shift in dependency takes place faster than the impacted countries’ ability to restructure their economies, they will experience a rapid decline in prosperity. As an example: in 2017, hydrocarbons provided 25% of GDP and 39% of Russia’s federal budget revenues, 65% of foreign earnings from exports, and almost a quarter of overall investments in the national economy6. Will Russia passively accept to lose this given that it was the world’s largest exporter of energy resources in 2017 (2nd for oil exports, 1st for gas exports, and 3rd for coal exports as identified by both BP and IEA7)? The answer seems to be no given Russia’s recent conflict with OPEC around reducing production volumes (although other geopolitical issues may also have played a role). Russia is presently ranked fourth in the world in both primary energy consumption and CO2 emissions and has so far shown no change in its sceptical attitude towards climate change. In addition, incentives to set ambitious national decarbonisation targets are very low, especially given that achieving these would require significant investments, which are not possible in an environment of economic stagnation and financial sanctions, and given that higher prices for energy would presently be socially unacceptable8.

Modelling showing that climate-related actions outside of Russia could cause Russia’s GDP growth rate to decline by about half of a percentage point which if realised would exacerbate these issues9. The lack of restructuring in the Russian economy is illustrated by the content of the national energy development policy document which focuses on innovative and digital development of the fuel and energy complex in addition to a focus on developing and deploying new technologies in hydrocarbon production and processing – there is no mention of any technologies to contribute to decarbonisation10 . It could be argued that it would be in the interest of the EU to put in place a new Marshall Plan to assist in the restructuring of the Russian economy.

The geopolitical consequences of the increase in demand for metals required to produce batteries (primarily lithium, cobalt and nickel for the present technology generation) are also emerging. In recent years China has been taking control of the world lithium market with an eye to controlling the strategic resources necessary for the ongoing energy transition. It is estimated that China now controls nearly half of global lithium production and 60 percent of electric battery production capacity11. China is also exhibiting similar behaviour as relates to cobalt and to a lesser extent nickel. This has driven a politically as well as market motivated increase in the search and exploitation of new lithium reserves around the world. An example of this is the agreement (within the framework of the National Technology and Industrial Base12) signed in November 2019 between GeoScience Australia and the United States Geological Survey (USGS) to jointly develop a better understanding of both countries’ critical minerals reserves with a focus on 14 of the U.S. Department of Interior’s list of 35 metals and minerals deemed critical to U.S. national security and the economy13. There is a risk that China may be able, and chose, to act in the same capacity when it comes to critical metals as OPEC has done in the domain of petroleum. The shift in dependency towards metals will drive both exploration activities in the mining sphere as well as innovations to find substitutes for the metals at risk.

The innovation activities aimed at substitutes and increased efficiency in use as well as improved recycling capabilities are also driven by the scarcity of some of these metals. Substitution is a challenge since it is presently uneconomic or impossible in many applications with today’s technology. An illustration of this problem is permanent magnets, a critical component in both energy generation and electric motors. The commercially most relevant high performing permanent magnets are neodymium-iron-boron (Neo) permanent magnets14 which use Dysprosium and Neodymium to improve the magnets’ resistance to demagnetization, and by extension, its high temperature performance. Dysprosium and Terbium are also used to produce magnetostrictive devices15, but the volume produced of these is much smaller than that of permanent magnets.

The demand for Dysprosium has for some time been larger than the supply. As a consequence, the production and installation of electric traction drives for vehicles and wind turbines16 is already facing high and increasing prices for Dysprosium. In addition, there is indication of a slowdown in production due to this shortage. This has led to a slowdown of wind generator installations as well as cost increases for industrial motors and products that include them.

Although efforts are made to reduce the use of Dysprosium or to find ways of avoiding Dysprosium use altogether these have not had any major impact so far. Estimating a need of 100g of Dysprosium for each electric car produced would mean that the annual production (1800 tons with 90% coming from China) would be enough for 18 million cars (if used for electric vehicle production only) compared to the sale of 2.1 million electric vehicles and 86 million vehicles overall in 2018. This shows that it is impossible to replace the present car sales volume with electric vehicles.

This rapidly increasing demand for dysprosium used in electric vehicles will have major implications for its availability to use in other applications e.g. green energy17. This example illustrates the challenges around transitioning to more green energy and green mobility. It also explains the high focus on mineral exploration to identify new mineral deposits. The challenge is that new deposits are likely to be more expensive to exploit, and the yields lower, requiring more energy for the mining and extraction of the metal. Table 2 illustrates the challenges facing some critical materials in tomorrow’s world.

Broadening the discussion, research shows that in spite of efforts to increase the supply of the most critical materials it is estimated that by 2050 cumulative demand could exceed reserves18 for cobalt, lithium and nickel, and reach 50% of reserves for indium, silver and tellurium, based solely on the metal demand for renewable energy and storage technologies, and not considering other demands for these metals. These other demands are also likely to increase over time19. In Table 3 it can be seen that there will be a deficit of the materials above the thick dividing line irrespective of the emergence and effectiveness of any new recycling technologies. The situation for the materials under the dividing line is at first glance more positive but the actual situation will depend not only on the successful development of new recycling technologies but also on the demand growth in other material application domains, so there may in effect be a deficit situation for some of these too.

The emergence of these problems can already be seen. In 2015 46% of Cobalt and 32% of Lithium went into Li-ion battery production. For the foreseeable future Lithium is not a problem but as Table 3 shows, Cobalt is likely to be a problem. Permanent magnets for wind turbines and electric vehicles consume approximately 32% of neodymium and dysprosium whilst solar photovoltaic solutions consume 40% of presently available Tellurium, 17% of presently available Gallium, 8% of presently available Indium and 9% of presently available Silver.

Figure 1 illustrates the estimated material use per GWh to produce electric vehicles with the associated cost per tonne of material. On the right-hand side of Figure 1 is the share of the material used in the production of electric vehicles that is presently being recycled and the frequent occurrence of the number zero (meaning a negligible amount) leads us to the next challenge – that of recycling.

The Second Law of Thermodynamics and the Circular Economy

Any discussion of recycling and the circular economy concept must start with a brief review of the second law of thermodynamics20 which states that the total entropy21 of an isolated system can never decrease over time and is constant if and only if all processes are reversible. In all processes, including spontaneous processes, the total entropy of the system and its surroundings increases, and the process is irreversible in the thermodynamic sense. This means that in spontaneous processes, concentrations tend to disperse, structure tends to disappear, and order becomes disorder. The increase in entropy accounts for the irreversibility of natural processes, and the asymmetry between future and past22. Hence recycling is always limited to less than 100%, first because it costs energy to carry out the recycling of materials; and second because energy itself is not subject to recycling (entropy means that it always takes more energy to do the recycling than the amount of energy recycled)23. Hence, recycling is a transformation process that requires useful energy.

Terms such as “zero waste” and “the circular economy” are misleading and potentially dangerous if taken too literally24. This literal interpretation of a circular economy is grounded on an erroneous perception and understanding of how the natural world operates. Our present understanding is that Earth operates more like an open system than a closed system, that the biosphere is best understood using an emergent25, complex systems26 lens and that function rather than form is central to any understanding of biosphere resilience and recovery, and further that dynamic equilibrium or non-equilibrium models are preferred to static equilibrium models.

Nature is extremely wasteful, converting low entropy resources27 into high entropy waste28, which requires vast amounts of energy to recycle, and, in turn, produces further high entropy waste29. Nature has high energy intensity and it does not generally work towards greater durability, but rather fast recycling. The biosphere is a system, made up of many subsystems, each working sub-optimally for the overall functioning of the system and both inefficiency and sub-optimality are central to the functioning of any ecosystem. The numerous and continuously changing interactions within the biosphere that take place in accordance with the laws of thermodynamics (the first30 and second laws are primarily relevant) mean that it is not possible to restore any form of equilibrium state – this is also a characteristic of an emergent complex system. From this follows that the terminology associated with the circular economy is misrepresenting reality, re-enforcing the idea that nature can somehow form a template for a sustainable economy. It is implied that nature is a closed, zero waste, circular system – which it is not.

The dominating focus on material flows without taking into account energy flows and exergy31 dynamics is fundamentally flawed since resource sufficiency is intimately bound up with energy flows and the associated changes in exergy. This is because natural recycling depends on energy-expensive reduction and oxidation processes. The second law of thermodynamics shows that Earth as a system, including its biological, technical and geological processes, is continuously producing disorder or waste (see Figure 2) for which it is using free energy with the associated reduction in exergy. Only through energy continuously added from the sun is this meta-system able to continue to operate (and the sun in turn is slowly “burning up” to achieve this production of free energy and its associated increase in exergy on Earth). The biosphere uses this free energy to increase its complexity (or order) which in turn requires more energy to maintain, and in turn generates an increase in waste produced – all in accordance with the second law of thermodynamics.

From this it follows that the only way by which waste production can be reduced is by reducing complexity and a zero-wate economy would require zero complexity – a trajectory that would entail the end of all biological, chemical, technical and geological processes32.

One aspect overlooked in many interpretations of the circular economy approach is that material is degraded during the recycling process and energy is required to restore these materials to a usable state. Given technical limitations and irreversibility of some processes this is not always possible (an example of a production process that is irreversible is cement production). Recycling itself creates more waste (see the illustrative losses in Figure 3) and wear and tear is a part of the cycle for all physical goods-in-use in accordance with the second law of thermodynamics. If wear and tear is to be minimised less recyclable material is required which in turn requires higher energy input for the recycling33. For any physical product continuous maintenance is needed just to maintain status quo. In an economic system that grows this means that not only must energy be degraded (used) to achieve the growth, but energy must also be degraded (used) to maintain the accumulated results of previous growth.

This means that as growth progresses the cumulative effect of this growth (which is increased complexity) requires more energy to be maintained in addition to the increasing energy requirements for every additional increase in complexity achieved through further growth34. This means that in a theoretical zero-growth world, energy is still required to maintain the level of complexity achieved.

From the above it follows that with increased recycling there will be an increased need for energy. This additional energy requires both energy input and material input throughout the complete value chain of its generation. This means that some material can be recycled but at a cost of both an increase in energy use and an increase in material use. As material goes through this recycling it becomes ever more dispersed thereby making the energy and material cost of its further recycling prohibitive after several cycles. Even very valuable material like e.g. gold, silver and copper are only one-third recycled meaning that to maintain one kg of gold in electronics production after the average recycling activity requires adding 2⁄3 kg of new gold.

Up until 2011 less than 1% of rare earth metals were recycled mainly due to inefficient collection, technological problems and a lack of incentives35. Illustration of losses in a recycling system, excluding the dispersion (entropy) effects, are shown in Figure 3.

Taking into account the deficit in necessary materials, the increase required in new mining and ore processing activities, and the energy intensity and complexity with associated waste issues of recycling, some products containing scarce materials (e.g. energy generation and mobility products) may in actual fact not be reducing the CO2 emissions at all nor be practical from a material availability point of view.


The challenges around moving towards a more sustainable economy can be summarised as geopolitical; scarcity of critical materials; limitations around present technologies for recycling of products; lacking an integrated material and energy flow lens for life-cycle assessment; lacking an emergent complex systems view on the economy or any sub-system thereof; an erroneous view of how the biosphere operates36; a poor understanding of the implications of the second law of thermodynamics.

All these challenges provide opportunities for individuals, firms, sectors and nations. In effect the simultaneous move towards a digital and sustainable future provides the entrepreneurial opportunity of a lifetime37.

Over the coming decades we will see a reshaping of the landscape on all scales in terms of value creating ability. Some of these changes will be gradual and peaceful and some will be less so. It is worth remembering the words of Louis Pasteur: “…chance favours only the prepared mind38”.

Written by Göran Roos1


1 Chairman, NeuroTech Institute; Visiting Professor at Flinders University, Adelaide; Visiting Professor at Tongji University, Shanghai; and Adjunct Professor at the Institute of Economics and Management of the Immanuel Kant Baltic Federal University, Kaliningrad. CSIRO Fellow and Fellow of the Australian Academy of Technological Sciences and Engineering (ATSE) and of the Royal Swedish Academy of Engineering Sciences (IVA).
2 Installing fast chargers for electric vehicles will put a lot of local strain into the electricity distribution system and avoiding potential problems will require substantial investments.
3 A good example is the German closure of nuclear power. The consequences have been analysed and presented in the paper: Jarvis, S., Deschenes, O., & Jha, A. (2019). The Private and External Costs of Germany’s Nuclear Phase-Out (No. w26598). National Bureau of Economic Research. The findings are that nuclear power was mostly replaced with power from coal plants, which led to the release of an additional 36 million tons of carbon dioxide per year, or about a 5 percent increase in emissions. This in turn led to local increases in particle pollution and sulphur dioxide that likely killed an additional 1,100 people per year from respiratory or cardiovascular illnesses. The researchers calculated that the increased carbon emissions and deaths caused by local air pollution amounted to a social cost of about $12 billion per year which exceeds the cost of keeping nuclear power plants online by billions of dollars, even when the risks of a meltdown and the cost of nuclear waste storage are taken into account. This further strengthens the statement by the IEA that nuclear power will have to be a part of the energy mix to keep global temperatures from rising more than 2 degrees Celsius.
5 See pages 30-32 in Whitton, Z., McKinnon, E., Rink, R. Smith, V., Davila, I. & James, N. (2020). Building a TCFD with teeth: What the Markets Need to Price Climate Risk. Citi GPS: Global Perspectives & Solutions.
6 Trading Economics: Russia GDP growth rate (2018).
7 BP statistical review of world energy. 67th edition. (2018). International Energy Agency. Coal 2018: analysis and forecasts to 2023. OECD/IEA (2018).
8 Mitrova, T., & Melnikov, Y. (2019). Energy transition in Russia. Energy Transitions, 3(1-2), 73-80.
9 Makarov, I.A.: Russia’s participation in international environmental cooperation. J. Strateg. Anal. 40(6), 536–546 (2016).
10 Bashmakov I. Driving industrial energy efficiency in Russia. Moscow, March 2013.
11 Reuters, 2019
12 For a discussion see: Greenwalt, W. (2019). Leveraging the National Technology Industrial Base to Address Great-Power Competition: The Imperative to Integrate Industrial Capabilities of Close Allies. Scowcroft Center for Strategy and Security, Atlantic Council. Washington, DC.
13 These 35 include Aluminium (bauxite), antimony, arsenic, barite, beryllium, bismuth, caesium, chromium, cobalt, fluorspar, gallium, germanium, graphite (natural), hafnium, helium, indium, lithium, magnesium, manganese, niobium, platinum group metals, potash, the rare earth elements group, rhenium, rubidium, scandium, strontium, tantalum, tellurium, tin, titanium, tungsten, uranium, vanadium, and zirconium.
14 The market for these magnets is estimated by Marketwatch to be worth USD 2.558t in 2020 rising to USD 3.589t by 2026 representing a compound annual growth rate of 4.9%.
15 Devices that change their shape or dimensions in response to a magnetic field thereby allowing for the conversion of electromagnetic energy into mechanical energy.
16 A wind turbine uses in the order of 500 kg of neodymium-iron-boron permanent magnets per MW of rated output with around 4% Dysprosium content.
17 According to Alonso, E., Sherman, A. M., Wallington, T. J., Everson, M. P., Field, F. R., Roth, R., & Kirchain, R. E. (2012). Evaluating rare earth element availability: A case with revolutionary demand from clean technologies. Environmental science and technology, 46, 3406-3414. Projections show that the increases in use of green technology required to stabilise atmospheric carbon dioxide at 450 ppm would increase demand of dysprosium by 2600% over the next 25 years (assuming current
demands for wind and electric motor applications are representative of future needs). However, current estimates show that production of dysprosium is predicted to increase by at most 6% per year. In order to meet the expected rise in demand, production would have to increase by more than twice as much, at a rate of 14% per year. This means that by 2040 new green energy production using traditional generator techniques may not be possible due to extreme costs of component metals.
18 Reserves are defined as the estimated amount of a mineral that can be economically mined under current conditions. Reserves are a subset of resources, which are the total known amount of a mineral for which extraction may potentially be feasible.
19 Dominish, E., Florin, N., & Teske, S. (2019). Responsible minerals sourcing for renewable energy. In Report Prepared for Earthworks by the Institute for Sustainable Futures. University of Technology Sydney
20 Based on empirical observations first formulated in 1824 by Nicolas Léonard Sadi Carnot in his book “Réflexions sur la puissance motrice du feu, et sur les machines propres à développer cette puissance”
21 Entropy being a measure of the amount of energy no longer capable of being converted into work after a transformation process has taken place.
22 Zohuri, B. (2017). Dimensional analysis beyond the Pi theorem. Berlin: Springer.
23 Energy is conserved (first law of thermodynamics) but the useful component (exergy) is not conserved. It is used up (destroyed) in every activity or process.
24 Both the economic (and environmental movement’s) mainstream’s profound ignorance of physical reality is unforgivable over a century after the ideas of thermodynamics were clarified by physicists. This ignorance leads to erroneous public debate and bad advice to decision makers.
25 Phenomena that emerge from interactions at a lower level or scale and are observed as patterns on a higher level of scale.
26 These systems are multi-state variable dynamical systems characterised by a moderate degree of structured interactions and interconnections. State variables in these systems are often characterised by heterogeneous parameter sets and updating rules. Spatial and network relationships are often non-uniform and violate mean field theory assumptions. System behaviour is characterised by path dependence, nonlinearities, bifurcations, and threshold behaviour. The behaviour exhibited by and in these systems arises from the interplay, in densely interconnected systems, between multiplicative causation and positive and negative feedbacks. A signature of such systems is radically disproportional causation or nonlinearity. Nonlinear systems can undergo sudden flips between stable states or equilibria. A second attribute is the emergence of structured macroscopic patterns that are the outcome of the independent microscopic interactions of the entities in the system. These macroscopic patterns often have enormous causal power.
27 Meaning resource where the energy exists in usable form
28 Meaning a resource where the energy exists in a non-usable form
29 This statement is illustrated by Georgescu-Roegen, N. (1979). Energy and matter in mankind’s technological circuit. Journal of Business Administration, 10, 107-127: Consider an hourglass. It is a closed system in that no sand enters the glass and none leaves. The amount of sand in the glass is constant—no sand is created or destroyed within the hourglass. This is the analogue of the first law of thermodynamics: there is no creation or destruction of matter-energy. Although the quantity of sand in the hourglass is constant, its qualitative distribution is constantly changing: the bottom chamber is filling up and the top chamber becoming empty. This is the analogue of the second law, that entropy (bottom-chamber sand) always increases. Sand in the top chamber (low entropy) can be used for work by falling, like water at the top of a waterfall. Sand in the bottom chamber (high entropy) has spent its capacity to do work. In a thermodynamically closed system, the hourglass cannot be turned upside down. If it was possible to turn it upside down to get more sand that can do work, it would still require more energy than that generated by the sand falling.
30 Energy cannot be created or destroyed
31 Exergy is the energy that is available to be used
32 Skene, K. R. (2018). Circles, spirals, pyramids and cubes: why the circular economy cannot work. Sustainability Science, 13(2), 479-492.
33 As an example: Recycling non-rusting stainless steel into its constituent raw materials requires more energy than recycling rusting iron.
34 This since the further away a system is from its thermodynamic equilibrium (i.e. the more complex it is) the larger the throughput of exergy from outside the system to maintain this thermodynamic state (or complexity) of the system.
35 Binnemans, K., Jones, P. T., Blanpain, B., Van Gerven, T., Yang, Y., Walton, A., & Buchert, M. (2013). Recycling of rare earths: a critical review. Journal of cleaner production, 51, 1-22.
36 It operates inefficiently with large material and energy losses, sub-optimally on any subsystem level, far from equilibrium, emergent, with high energy intensity, and with fast recycling.
37 Like in all changes there will be winners and losers. On the national level the winners will be those high economic complexity countries where the long-term national direction is set out in collaboration between the public and private sector and underpinned with clear policy instruments and were this direction is kept reasonable stable for a decade or so. On the sectoral level the winners will be those sectors that can respond early to the changing sentiments and boundary conditions and that are able, through e.g. R&D and standards, to create and appropriate profit pools in new or modified value chains. On the firm level winners will be firms that combine high absorptive capacity, high managerial capacity and high levels of agility with an entrepreneurial outlook and hence can identify opportunities early, identify and deploy the necessary technologies, competence and capital to realise these opportunities, and develop the appropriate business models for the appropriation of the value created. On the individual level it will be those individuals that embody flexibility, adaptability, deep competence in key domains, interpersonal skills, systems thinking ability and creative problem-solving ability.
38 Dans les champs de l’observation le hasard ne favorise que les esprits préparés. Lecture, University of Lille (7 December 1854).

The future ain´t what it used to be

Once upon a time, we moved forward year by year, engrossed in linear time. The dictates of our lives were a natural progression to what came before. Block by block, we built our modern realities. We formed relationships, created families, voted in governments, lived within established social structures, exchanged money for perishables goods and services, gave value to education and academic titles in job-seeking and built what we hoped would be, robust business models. The guarantee of some form of secure stability, was a given. Not so anymore. There is nothing linear or stable on the horizon. Increasingly our experience is becoming a perpetual Fibonacci sequence.

Lawrence Peter YOGI Berra, of the New York Yankees, will go down in American baseball history as an icon of the game, but perhaps more so, for his “Yogi-isms”, or what we would call “malapropisms”. The opening title, is a quote adjudicated to him, and probably, unbeknownst to the great majority, there are many more which in popular Anglo-Saxon jargon have become mainstream, such as “It ain´t Over until it’s Over”. Is our game over, I ask? And, another one which is apt for this particular train of thought is: “When you come to the Fork in the Road, take it”.

We are, as a collective human species, not only at a “fork”, but already crossing the bridge into the second decade of this 21st Century. We may not quite know where this is leading to, or how we are going to get there, but we will come out on the other side, some intact, others, not. And looking back, we will all agree that this would have been, what I am venturing to baptise, as the “DECADE OF DISRUPTION”. Once upon a time, we moved forward year by year, engrossed in linear time. The dictates of our lives were a natural progression to what came before. Block by block, we built our modern realities. We formed relationships, created families, voted in governments, lived within established social structures, exchanged money for perishables goods and services, gave value to education and academic titles in job-seeking and built what we hoped would be, robust business models.

The guarantee of some form of secure stability, was “a given”. Not so anymore. There is nothing linear or stable on the horizon. Increasingly our experience is becoming a perpetual Fibonacci sequence.
Is there nothing, no one and no place that can placate this dizzy spinning top, which is reminiscent of a dervish dance?

Homo Evolutis

At the turn of the last decade, Juan Enriquez and co-author Steve Gullans, coined a name for the new human as they see it, in the book of the same name. Two eminent scientists, authors and entrepreneurs, they bring forward a piece of data which is useful as a reminder, lest we forget. As a human species we have had 25 genetic upgrades, or as they call it we have gone through 25 “prototype” human experiences, and we are now already entering what could be the “be all and end all” of our collective story, not only of all species, but of our planet. “These rapid changes will not alter just our bodies but our core religious, government, and social structures as mankind transitions into a new species, a Homo Evolutis, which directly and deliberately controls its own evolution and that of many other species” .
In a similar vein we find, leading futurist Ray Kurzweil, predicting the nearing of The Singularity, where humans and machines will fuse. Transhumanism is served. And, in another of his provocative predictions, he exposes in the book, “How to Create a Mind”, a precursor to a period where we will be uploading our thoughts and memories to a virtual cloud, and will be able to bequeath them to our offspring as a legacy. (That could definitely be a new use for pen drives!)

Keeping tabs on the Future, means investigating trends, authors and thought leaders, some of which would be: Peter Diamandis, founder of The Singularity University , author of “Abundance” , “Bold” and “ The Future is Faster than you Think” ; Micho Kaku with his interest in “The Physics of The Future” or “ The Future of the Mind: The Scientific Quest to Understand, Enhance, and Empower the Mind” historian Yuval Noah Harari with his incursion from the past into the future with his “Homo Deus” and “21 Lessons for the 21st Century”; Reon Brand, Design Director for Philips with “Co-emerging Futures”; and American journalist Joel Garau “Radical Evolution: The Promise and Peril of Enhancing Our Minds, Our Bodies—and What It Means to Be Human”.
In terms of new economic models, we should mention, Jeremy Rifkin and his “Zero Economy”, and Gunther Pauli with his “Blue Economy” to which we can credit much of the recent Circular Economy trend.
G.R.I.N (Genetics – Robotics – Information technology – Nanotechnology)

If we take this acronym as a very simple compendium of the quid pro of this new reality, we can clearly see four pillars that emerge, which will affect us all to a greater or lesser degree:
In this upcoming era of A.I; where also, thanks to genetic engineering we can modify anything from plants, to animals and humans; where IoT, Big Data, 5G will mean increasing control as well as management of our daily lives; and where microchips may become the obligatory nano bots installed at birth – how are organisations, society, education, business approaching this great clash of the titans, conscientiously?
When asked what are the BIG YES/BIG NO contributions of my public with regards to what is coming, the reflections are noteworthy. Issues like health, longevity, efficiency, speed, increased innovative opportunities are some of the BIG YES answers, whereas most of the BIG NO´s zero down to a “Big Brother” dystopian view that is all controlling, eradicating privacy and rendering the human mind secondary to the superiority of A.I. Some pit their hopes on interspatial exploration, where depending on the course of action on planet earth, may prefer to opt for new territories way beyond this mothership as we all know it. For all intents and purposes, of course, the emigration to other planets is now no longer science fiction.

Before his death, four years ago, Stephen Hawkins had asserted that “the only chance of human survival would be in fact to colonise other planets”. Whereas Elon Musk, has created SpaceX to this purpose and his goal would be to start migrations by 2024.

Mars One, founded by Bas Lansdorp, intends to make colonisation a reality by 2031. And NASA is looking at putting humans in low-Mars orbit in the 2030’s, and landing people on Mars sometime after that.


Given the body of evidence regarding the disruptive changes ahead, and as we fast advance into the 4th Industrial Revolution, which is essentially digitally driven, there is one element that stands out, the absolute urgency for the rise of an incremented human intelligence. As we catapult into this new decade, into this next century, we need to address the limitations of our present cognitive structures, so as to cultivate the limitless potential of the human being. We are an evolutionary blue print of our human development, with a built-in triparty brain. This includes an 85% of our functionality being based on our reptilian and limbic brain. Our neocortex is still just the new kid on the block! It is my absolute conviction that H.I. or Human Intelligence needs to be on par with A.I. This means UPGRADING the operating hardware of every man, woman and child with a new mental software based on conscious, cognitive, and creative dexterity.


The internal GPS system that has a simple 4-point structure, just like the 4 directions N.S.E.W, is a lighthouse which serves as an indicator and barometer to be able to navigate confidently in the face of uncertainty. It serves both the individual as well as the group. It works both at home and at work. It can be used by the young and old. It has no cultural or linguistic barriers. It promotes mental and emotional “operacy”, incrementing synaptic plasticity. It allows personal and collective consciousness to experience similarities to virtual reality. It is respectful, objective, explorative and prolific.
The system includes the following directions, and integrated skills:

CREATIVE Thinking – these are systematic and rigourous frameworks that supersede brain storming. The advantage of creative stimulus is a scientific fact, the increased synaptic activity makes for genius thinking, using both parts of the brain, lateral thinking becomes mainstream.

If the brain is stimulated it grows protuberances on cell tentacles – new synaptic connections increase, our brain actually grows in activity.
VALUE Recognition Radar Thinking – the more we are able to identify value and values in people, circumstances, products, etc. the faster we can create algorithms of what is worthy and what is not. Irrevocably all conflicts, are based on a disparity of values. The more and the better we understand them, the less time we waste going round in circles trying to trudge through the mire.
LEADERSHIFT Thinking – insofar as this means learning how to take on accountability as part of a continuous self-development journey to maximize one´s own potential and that of others by having a cascade effect. It is the capacity to learn how to be self-observant, understand our own brain and emotional functions to better micro and macro manage. It is a holocratic approach, and is not at all based on traditional hierarchy.
FUTURE Trends Thinking – based on the premise that every organisation, every school, University, Government, needs a “Future Trends Observatory” to be able to a) understand and prepare for what is coming, by recognising new opportunities or threats, as well as b) being the ones that CREATE future trends because of an intrinsic cultural commitment to EXCELLENCE, and perpetual improvement.
In conclusion, the next big thing as we cross the bridge to the future, is a cultural shift, a universal language, which I believe to be this one. One where, the mindset, the skills and the commitment to a i) CO-Creative, ii) CO- llaborative and a CO-ntributive world order will make the quid pro difference to future generations.

Written by Donna Pace, Founder and CEO/CIO of DP & Associates.

The wilcard that came to be: The Empty Planet – and perhps Empty cities

Demographic trends are – as we speak – reshaping our planet, our societies and markets. Changes in lifestyles, female empowerment, migration, etc. are having immense influence on the future and should not be dealt with in a lighthearted manner. Looking to the future, two of the most interesting and worrying consequences of the demographic development are “The Empty Planet” syndrome and The Death of Cities.

When organizations – public as well as private – work with strategic scenario processes together with the Copenhagen Institute for Futures Studies, the process often starts with an outside in perspective based on megatrends that are shaping the future of markets and societies. We very often start the process with the demographic trends that are affecting the organization. And it is a funny thing – demographics. We think we know the main trends: Aging, urbanization, migration, new family structures, low fertility rates and increased longevity. To a certain extend we do – and we can even put numbers on the main trends (as an example: UNs biannual Revision of World Population Prospects). But the in-depth analysis of the consequences is often too superficial and sometimes organizations simply “forget” to look at the consequences because they are considered banal and not as exciting or important as the digital megatrends shaping the future.

Nothing could be more wrong. Demographic trends are – as we speak – reshaping our planet, our societies and markets. Changes in lifestyles, female empowerment, migration, etc. are having immense influence on the future and should not be dealt with in a lighthearted manner. Beyond the above-mentioned trends weak signals and signs are emerging that might result in even more extreme consequences.

Looking to the future, two of the most interesting and worrying consequences of the demographic development are:

1. The Empty Planet syndrome
2. The Death of Cities

As you will see below, we are of course not imagining a planet without people or a world without cities. But we are starting to investigate scenarios where countries increasingly are lacking people in the workforce and in parts of the world lacking people at large. For the cities: cities will certainly not disappear, but the value created by the physical city spaces in the world needs to be developed much further in order to create life in our cities.

Empty planet

When discussing global population trends most of the analysis done from Malthus times and until today has been about an overcrowded world with too many people, to few resources and dystopian environmental and economic perspectives. Historically the Malthus like predictions have been proved wrong time and time again by technological and societal developments. Looking towards 2030 we will see a continued increase in the global population and we will most likely face a long term future with somewhere between 9 and 11 billion people on this planet. This will strain the resources, climate, land area use in many parts of the world, and we will need to prepare for an even more efficient way of using and circulating resources.

But just as important – and for some countries even more so – is the depopulation trend facing a large number of countries in East Asia, Europe and increasingly the rest of the world. As fertility levels are dropping all over the world, populations are starting to shrink in countryside’s, in cities and in countries. In Japan the population will shrink by a third in 2065 — leading to a workforce shortage and possible economic crisis.
Some of the implications of this Empty Planet syndrome is a renewed focus on nativist policies where politicians have tried – in vain – to implement policies to increase fertility levels. So far most of these attempts have failed. Politicians have tried to use economic incentive structures, others like the South Korean government tried to encourage people to have more children, by having offices turn off the lights quicker, at 7.30 pm, on every third Wednesday of the month so that employees could go home early.

Or in Japan where a group of university students developed a baby robot (cries, sneezes, giggles, calms down with a rattle) which was supposed to introduce the idea of parenthood to men and women. The thinking was that if the potential parents are put in a situation which makes them think of themselves as parents, they are more likely to try having a real baby.

Some of the main consequences of the Empty Planet syndrome will be:

  1. Increased efforts to attract talents. Either by getting people to return to their home countries or by attracting foreign talents. New initiatives emerge like Tuk Tam, a not-for-profit organization in Bulgaria, which coordinates job fairs for returnees, provides scholarships and tries to disseminate positive news about the country’s development.
  2. Increased focus on nativist policies with the purpose of raising fertility levels. This requires more in-depth focus on everything that enables and supports families and new strategies for getting rid of whatever kind of obstacle there might be for potential parents.
  3. Increased focus on automation and efficiency levels in the economy. With rapidly shrinking workforces in many parts of the world increased investments in all kinds of automation processes will be more important. How can fewer people in the workforce support more people in retirement?
  4. Strategies for “dying” regions and cities. As population decreases strategies for the affected areas needs to be in place. How can we make sure that life for the remaining part of the population is good? As an extreme case go to Japan’s Nagoro Village where they have started to repopulate the village with life size dolls. This kind of gimmicky solution is a good way of provoking interest in a concept that will be more important: How to organize communities that are in steep decline?

The death of cities

Just as a growing global population is one of the critical megatrends shaping the coming decades, so is the continued growth of global cities changing societies and markets. The influx of people not only to city centers – as is the general perception of urbanization – but increasingly the global growth of the suburbs.

However – just like “Empty Planet” is a trend emerging at the same time as the world population is growing – urbanisation in mature economies is emerging at the same time as more and more activities disappear from our city centres.
The major change driver is obviously the continued expansion of e-commerce and other digital solutions and services. Cities are the hub of human activity and transactions used to be based in shops in city centers, shopping malls or centers in the suburbs. All of this is changing fast and the transactional aspect of stores is disappearing.

This poses the question. Why do citizens in the future want to use city spaces? And what kind of value are city spaces creating for its citizens when transactions disappear? We are not talking about the disappearance of cities, but we are questioning the value of cities.

What is interesting here in 2020 is that most cities focus on the same kind of solutions. More entertainment, more fun, greater experiences and network opportunities. Shops are transformed into retail theaters with cafés, entertainment, etc. However – there are limits. Limits to how much entertainment consumers demand, limits to how much time we have available in everyday life, etc.

This calls for a new and much more collaborative approach to cities. Combinations of service, entertainment, networking, studies, etc. needs to take place in physical surroundings that offer genuine value to citizens. Hence, we will see a big divide in the future city landscape. We will have the cities that are transformed from living city spaces into empty spaces where people might live and work, but where all the interaction will be digitalized and the city as a stage or a platform will disappear. And then we will see cities that have reinvented themselves in order to create new ways of offering value in the physical space. Value that lies beyond another café or event or restaurant.


Written by Carsten Beck, Director of research at The Copenhagen Institute for Future Studies.

Choosing between Humans an AI in structuring the organisation for the emerging digital value creating paradigm

For some tasks humans are better placed, for some tasks machines/software is the better option and more and more a quality partnership between the two offers a superior outcome. Choosing the quality path, driven by a deeper understanding of the potential of both humans and AI will not only create a truly adaptive workplace, but will also better inform investors, designers, policy makers and users that make up its ecosystem.

As most organisations are moving towards becoming digitally enabled and towards a new business logic within the digital value creating paradigm they will have to reflect on the division of tasks between humans and machines/software. This reflection should be driven not by the promises of technology companies or our tendency to technologize1 , but by accurate information regarding the advantages brought by both to each situation. Both humans and AI2 offer unique advantages, the deployment or combination of which need to be better understood. For some tasks humans are better placed, for some tasks machines/software is the better option and more and more a quality partnership between the two offers a superior outcome.

Regarding the use of technology, as it develops there will be a larger share of tasks for which machines/software will be most suitable. However, when implementing new technologies there are several variables that need to be considered, and as is historically the case, adoption is ahead of the curve of our knowledge regarding ramifications of such decisions. One of the areas that needs to be better understood and considered is the complexity of human-technological interaction. The lack of rigour and knowledge concerning this impact leads to such problems as a lack of clear identification of the benefits which humans and technology bring to a situation (thus not maximising the use of either) and a lack of consideration of the emergent and unpredictable behaviour that results from human/technology interaction (a good example here was Microsoft’s Tay3 ).

Another area that needs to be explored is the lag time between technologization of a task or service and the identification of issues generated by the changes, or the emergence of new tasks driven by problems generated from the execution of old tasks by machines/software and/or humans (an example of such a task is the forensic AI process of understanding what machine learning has learnt – specifically when something goes wrong).

A predominant issue here is to ensure accuracy in the measures that are applied to detecting, analysing and categorising both success and failure of outcomes as we adopt new technology solutions to understand and improve our use of AI. Instead the validity and neutrality of current measures can be lacking, driven instead by short term economic gain, market share or a lack of knowledge, and the outcome risks being a minimisation of quality outcomes and partnerships between humans and AI in the organisation.

Models and big data

When deploying new technologies like those being developed and launched under the overall heading of Artificial Intelligence (AI) it is important to understand their strength and weaknesses. One frequent statement, in one form or other, is that the models created are made to be applied not to be understood. One challenge in understanding these models are that they are specified by millions of different coefficients and hence it is very difficult, bordering on impossible, to understand why a given model behaves the way it does4. A strength in these types of tools is in their ability to extract increased effectiveness from raw data, and the larger the data set the more detail can be extracted from it5.

However, a weakness is that this is done via algorithms and formula designed by people who then build in their own biases, and the need to create rules that shape, trim and quantify data to get it into a digital (and frequently linear) coding format. Thus, a level of inaccuracy and bias will be introduced into the collection and use of data extraction, patterning and extrapolation, quite apart from the wider issues of lack of contextual data and algorithm design6.

Perpetual loops – vicious cycles

There is still other technical issues regarding how these models interpret data feed and patterns, with examples of weaknesses and error sources discussed in technical papers and sources7. However we must not forget that the advances in AI are actually created by the humans programming them (currently anyway) and thus we combine the weaknesses of both human cognitive bias and linear, non-contextual predictive algorithms to magnify and perpetuate existing problems rather than solving them8.

Strengths and weaknesses

The first insight is that AI systems, like all tools, have both strengths and weaknesses and that these need to be understood before they are put to use. A second insight is that humans also have both strengths and weaknesses, and there are times when a human is more effective and efficient than AI.

These two insights become highly relevant when we consider that almost all work tasks are being, or will be, executed by a tool-person pair (whether or not one of the parties is visible at the time). There are several things to consider here. As above, the combination of the two can result in a positive synchrony if the advantages of both are maximised in a quality partnership which augments the contextual, abstractive thought of a human with the huge reach, speed and aggregative power of AI. Conversely, a quantity relationship fragments such synergy, instead aiming for the lowest common denominator by breaking down tasks, digitising where possible and using humans in purely transactional ways to fill in the blanks AI currently cannot do, no matter how mindless. These new crowd-work platforms have growing issues of pay8, communication (with both the employer and other humans) and agency in regard to tasks and conditions.

A major factor then in choosing how to combine humans and AI is the driver of the process or outcome. In the emerging market we often see a midway compromise of building a quality or quantity partnership due to several factors, and these vary not only across organisations but countries. Something that only some organisations and countries are considering is that these impacts are cumulative, often setting an organisation, or an economy, on a path dependent trajectory that will see them reap the best or worst outcomes of technologization over time (for example a quantity partnership choice will maximise profit initially, but may lock the company or economy into a transactional, reductionist path of AI use over time).

A compounding factor here is that in this new digital value creating paradigm the relative control over this pair is moving from the person to the tool. This can be seen in modern car service where the diagnostic computer system informs the mechanic exactly what is to be done, sometimes how it is to be done and verifies that it is correctly done. This is to be compared with the previous way in which this was done where the mechanic was in charge making all these decisions and choosing the appropriate tools for the job – a largely self-correcting process driven by experiential knowledge and small, constant corrections – a process difficult to program due to its nuanced and extrapolative nature.

So how should the tasks be divided between man and machine?

This question should be asked continuously as the workplace becomes more technologized to maintain maximum value from, and for, humans in the use of AI. Several things should be taken into consideration. AI has obvious advantages in tasks that use linear or complicated logic, for deployment in unsafe, high precision or repetitive conditions, etc. These capabilities, when paired with the human capacity for complex thought and extrapolation, offer huge advantages in a number of fields (already evident in medicine, engineering, defence, tech design). Yet we must be cognisant of what AI is not good at, at least not on its own.

In a technical sense, Simon9 described decision making on a continuous scale of programmability, predicting that computers would replace humans in decision making with high programmability leaving humans to deal with decisions on the low programmability end of the scale especially those involving judgement and interpersonal communication. Studies such as Levy & Murnane examine which tasks computers perform better than humans, and which tasks humans perform better than computers. They broadly conclude that computers have inherent advantages in tasks that depend on rule-based decision making and simple pattern recognition whereas humans have, given the right skill, inherent advantages in tasks involving complex communication, problem solving, and expert thinking. Brynjolfsson & McAfee argue that computers are on the verge and in some instances have already surpassed humans as relates to some of the tasks identified by Levy & Murnane as tasks where humans would outperform computers10.

One of the problems with much of this assessment is that how the performance quality of either human or AI is judged is open to inaccuracy for several reasons, a primary one being the goal or driver of the measurement. We already see short term profit maximisation downplaying the need for quality judgement and communication, with the resultant poor outcomes taken as an inevitability – thus even such technical categorisation as ‘high programmability’ can be skewed depending on goal drivers. Breaking down tasks in order to digitise them (to make them cheaper) oversimplifies any nuanced connections between parts of the task, and no longer takes into consideration what man and machine offer to the outcome. It is possible to track the emerging work division between humans and AI in terms of those tasks where the value for money of humans exceed that of computers by looking at what tasks are put up for execution at Amazon Mechanical Turk which de facto is an online market place for this category of tasks.

The human advantage

In the rush to technologize, the lack of AI’s ability to contextualise, extrapolate, empathise and create is a limitation not yet even touched by the promise of such things as quantum computing and neuromorphic programming – even creative AI is still linear, and its parallel processes are created by humans. That is not to ignore the huge advances in machine learning and the introduction of such things as algorithms for unpredictability, but the current most complex artificial neural network still comes nowhere near the human brain’s 100 billion neurons and 5 quadrillion parallel connections. And this does not even begin to touch on the topic of the neurophysiological impact of human interaction, with humans and with and through technology. This area of work is uncovering profound impacts of direct human interaction on everything from collaborative, creative outcomes and building of trust and empathy, to the more obscure changes in things like complex problem solving, logic paths, immune system efficiency and growing new brain – all important aspects to consider when deciding on resource use for a particular problem or task11.

Another problem when trying to technologize a process or methodology to minimise cost or maximise scale-up capability is that of moving to take the human out of the loop without a clear understanding of their value within it, especially as that value is not always obvious and hardly ever measured using holistic parameters.

A considered path

Given that organisations are aimed at achieving high levels of both efficiency and effectiveness it is critical that the structuring of the teams of individual-tool is done well. Given that the workplace is also one that is to provide a human centric environment where people desire to spend time, we must further understand the intricacies of technology to help shape this human centric future. This means that there must be much greater understanding and agreement around what such a human-centric future looks like, and a much more nuanced approach about what both humans and technology offer in any given situation. Humans have benefitted immensely from the invention and use of tools, and like any other tool AI can enable huge advantages, whether used in isolation or partnered with humans depending on the situation. Choosing the quality path, driven by a deeper understanding of the potential of both humans and AI will not only create a truly adaptive workplace, but will also better inform investors, designers, policy makers and users that make up its ecosystem.

1 Technologization is the drive to ‘make technological’; to modernise or modify with technology. It is driven by a technological optimism which assumes technologization will always be an improvement.

2 Artificial Intelligence (AI) was founded as an academic discipline in 1956, and as most new fields have gone through sequential hype curves of optimism followed by disappointment as the field and its subfields have passed key thresholds of insights. AI as made up of several loosely connected subfields grounded in specific technical domains or with a focus to address key problem domains or for some domains even grounded in key philosophical approaches to problems. Some of the key domains with major potential applications in firms are: Machine learning (computer algorithms that improve automatically through experience), Machine perception including speech recognition, facial recognition, object recognition (including facial recognition) and computer vision. This is fundamentally that ability to capture input from different sensors and from these deduce the answer to a specific question like who is this? The last domain with present impact is motion and manipulation as applied in robotics.                                                                                                                                                             

3 Tay was an artificial intelligence chatter bot that was originally released by Microsoft Corporation via Twitter on March 23, 2016; it caused subsequent controversy when the bot began to post inflammatory and offensive tweets through its Twitter account, forcing Microsoft to shut down the service only 16 hours after its launch.

4 Some tools show promises here e.g. Krause, J., Perer, A., & Bertini, E. (2016). Using visual analytics to interpret predictive machine learning models.

5Halevy, A., Norvig, P., & Pereira, F. (2009). The unreasonable effectiveness of data. IEEE Intelligent Systems, 24(2), 8-12.

6 This begins at the point of collection in that the data sets may be taken from non-representative or insufficiently diverse populations, introducing the first bias (whether this is limited by the collectors not casting a sufficiently wide net, or the data sets being self-bounded such as expecting to find diversity in a social media feed). Another issue here is that the data is by nature skewed towards the method of collection, coding and storage – much data collection is highly quantitative as it requires reduction to codeability, thus removing much of the qualitative data which provides context, nuance and depth (some say quality). A third issue is the algorithms that drive extraction and extrapolation of data patterns and aggregation. These are written by humans, complete with their own biases and heuristics that shape the process – hence we see search engines that discriminate on the basis of age, gender, skin colour or socio-economic status depending on where the algorithm originates (with much current discussion around this being a very particular group in Silicon Valley who design over 95% (check) of search algorithms) (ref). All of these factors can skew the extrapolation and conclusions drawn, and results in the bubbles, fake news, deep fake, and tunnel vision we see ever more frequently.;; Moosavi-Dezfooli, S. M., Fawzi, A., Fawzi, O., & Frossard, P. (2017). Universal adversarial perturbations.
7 Mullainathan, S., & Obermeyer, Z. (2017). Does machine learning automate moral hazard and error? American Economic Review, 107(5), 476-80.

8 Amazon’s Mechanical Turk pays as little as a few cents per job, with 91% of workers earning under $8 an hour (Pew Research, 2017).

9 Simon, H. (1965). The shape of automation for men and management. New York, NY: Harper and Row; Simon, H. A. (1967). Programs as factors of production. California Management Review, 10(2), 15-22.
Levy, F., & Murnane, R. J. (2005). The new division of labor: How computers are creating the next job market. Princeton University Press.

10 Brynjolfsson, E., & McAfee, A. (2012). Winning the race with ever-smarter machines. MIT Sloan Management Review, 53(2), 53.

11 Kerr, F. (2014). Creating and leading adaptive organisations: the nature and practice of emergent logic (Doctoral dissertation). Adelaide, SA, Australia: University of Adelaide. 

Written by Göran Roos and Fiona Kerr, Neuro Tech Institute

From Passion to Love – Embracing Complexity Theory for Innovation and Renewal

The need for love is growing in the digital age. Organizations, like people, need warmth and love to flourish. Organizations as “living laboratories” where it is legitimate to ask what do you wish to do, what do you dream of doing in the future or what is your dream about this organization. 

Without passion – like that of entrepreneurs outside the organization – to succeed in the subject of their choice – the quality of work at best would be only mediocre.

Strategy is emerging

I have already written in the past about the need to move from strategic planning to the development of a new organizational capacity – the organization as a “living laboratory”, which allows constant renewal and emerging strategy. In this article I will elaborate on this.

Let us begin with the basic assumption – it is worthwhile to learn from the theory of complexity, which has been inspired by the natural sciences, to benefit behavioral sciences in general and organizational behavior in particular. The reason is simple: Every organization is a system created by people – looking for a good way to organize people so that they achieve good results over time. If the working assumption draws inspiration from the world of engineering and precise planning and optimization of resources – we make the basic mistake. Just as it is impossible to design the development of a child in engineering tools, this is not possible for organizations. “Organizations like people need warmth and love to grow” – a sentence I long ago invented as part of the message in the New Year card, we sent to our friends. Unfortunately, in most organizations, people do not get enough warmth and love to grow, and therefore the organization itself does not grow as a healthy and sustainable system.

Hi-Tech – Hi-Touch

The need for love is growing in the digital age. When sitting in front of electronic screens for many hours, hunger is created for physical contact – as John Nesbit recognized in his Megatrends study many years ago. He identified the mega trend of Hi-Touch – Hi-Tech. This is the source of the new norms of behavior, for example, of a multitude of hugs – which did not exist in the previous era, which was a restrained era, in which we did not show feelings. Today there is legitimacy for embracing and kissing friends in the workplace as well, but that is not enough for great teamwork.


Studies have shown that people can be happy in their work only if they find an occupation that meets their passion, a subject they crave to learn, and a problem they wish to solve. Organizing work by way of placing tasks top down is ineffective, with most of the work being the work of knowledge workers, who are required to initiate, invent, innovate. Without passion – like those of entrepreneurs outside the organization – to succeed on the subject of their choice – the quality of work at best would be only mediocre. There is very little discussion on this subject in the workplace. Everyone wants innovation and renewal, but few realize that only cultivating a culture of intra-organizational entrepreneurship (intrapreneurship) which encourages employees to express their desires to deal with issues they have themselves chosen, can make it possible. We often get even ridiculed in organizations when we talk about passion. Hugging yes – talking about a desire to deal with a particular subject or solve a particular problem – is still considered illegitimate.

From passion to love

When we create in organizations an open discussion platform in which it is legitimate to ask what you wish to do, what you dream of doing in the future, what is your dream about this organization, in which you work, for the future – the eyes sparkle, and the hidden desire is legitimized and the conversation creates magic in the air, and people emerge from it willing to volunteer to work on a certain task beyond their usual job definitions. It builds trust between the participants, a willingness to help one another realize dreams – fertile ground for the flourishing of companies, teamwork, joy of life and creativity for the individual to love and be loved. In short, organizational love stories are created that make organizations attractive to the best of people, creating a warm and loving community that people want to be part of over time. So simple, yet unfortunately so rare.

Overcoming the barriers

The main obstacle to such exciting processes is an outdated management culture that encourages command and control, which does not allow the processes described here to flourish. There is a desired built-in uncertainty in these emerging processes on an open platform that encourages trial and error, the formation of teams from the bottom up based on issues of interest and desire and the legitimacy of working with the people you love.

The big challenge is to develop such organizational capabilities within hierarchical and bureaucratic systems that are afraid of risks and want to know what exactly will come out in advance – and therefore, as management consultants, we are looking for brave, adventure-loving and people-loving clients, who really want to grow the next generations of employees with a lot of warmth and love. Leaders who are willing to talk about their passions, and allow others to talk about their own, those who know how to ask for help and how to give help beyond the formal job definitions, those who are willing to get excited with us in exciting processes and trust each other, those who know how to love and be loved – this is the essence of this theory: “organizations, like people, need warmth and love to flourish.”

Ps. the processes described in this article are successfully implemented in organizations. Recently, a joint venture was created by the writer with a former client, Col. (res.) Dr. Dan Torten, a physician, pilot and commander, who together they led such a process at his Air Force base, and today they are partners in leading such processes in other organizations.

Escrito por Edna Pasher, Founder and CEO at Edna Pasher PhD & Associates.

National Prosperity, Structural Holes and Sectoral Development

In a dynamic environment there should be a shift in focus from the already successful sectors to the sectors adjacent to the successful sectors. This policy shift will both strengthen the already successful sectors as well as lay the foundation for developing new successful sectors. Besides, the disruptive high-risk approach to industry policy (must also be pursued) is to focus on the links between already successful sectors in the economy. Firms that can innovate through the combination of knowledge domains not previously combined tend to increase the economic value of their portfolio of offerings. 

National prosperity has a high dependency on the ability to produce and export products and services that are highly competitive on the international market and to the extent the economy (or country) export more than its fair share of these products and services. The success of these products and services can come either by having highly competitive prices compared to similar offerings from elsewhere or, more desirably, through being able to offer something that nobody else can offer and thereby achieving non-price based competition, the sustaining of which requires inimitability.

It stands to reason that the deeper and broader the competence base of an economy the greater the portfolio of products and services the economy can produce. Hence, it is possible to observe the products and services that a given economy exports and if these have a smaller or larger global market share than is justified by the size of the economy (this is the underpinning of economic complexity) and from this deduce the competence portfolio of the economy.

The sectoral evolution of an economy can be viewed as a process of knowledge development and knowledge recombination. This means that the development of a sector is a function of both how much it invests in knowledge development (and how successful this investment is) and the availability and access to knowledge outside the sector that if combined with the knowledge inside the sector could provide new productive knowledge. Knowledge spillovers are more probable between sectors that are directly or indirectly linked. Directly linked sectors can be identified through supply-chain and value-chain type analysis on the firm level and input-output type analysis on the sector level. Indirectly linked sectors can be identified through competence communalities extracted from economic complexity analysis (these competence communalities are considered to exist if the likelihood of 2 products being exported together is larger than 50%).

Structural Holes

The ability to develop new productive knowledge (the ability to innovate) depends on access to existing competencies both within and outside the firm. The more complex the product or service, the higher the dependency on external competence and hence on the competence networks that the company have access to. A single company cannot innovate a complex product like a space re-entry vehicle or a complex service like real-time adaptive predictive maintenance service for a complex multi-technology product, and would have to depend on a network of competence partners.

These networks, if effective, would have an optimal size, enabling any network participant to reach any other network participant fast, would be made up of participants whose knowledge complement each other rather than substitute each other, and have participants with a willingness to share their knowledge with the other participants. In addition, the network needs to simultaneously minimise the route from any given network participant to any other network participants, and maximise the interaction between the different knowledge domains that exist within the network. This latter requirement lays the foundation for maximising the amount of productive knowledge that can be created within the network and hence that can benefit the firm. To stay competitive in a changing environment firms and sectors need to continuously adapt. This requires both absorptive capacity and access to knowledge not available within the firm or the sector itself.

Ideally the firm should sit as the sole point of connection between separate rich networks, each of which is complete in its own domain – this point is known as a structural hole. This would provide the firm with a competitive advantage as relates to creating new knowledge as the foundation for innovation by being the sole firm able to connect the knowledge from two or more separate knowledge domains. Hence for an economy, the most beneficial outcome is if sectors are in themselves covering the relevant competence domain well (i.e. are rich in knowledge) and are connected to many different sectors in its own as well as many other economies that are not in themselves interconnected. This would provide the original sector in the economy with an advantage in terms of connecting knowledge from several sectors outside the economy to enable innovations that can form a basis for successful (competitive) export and hence benefit the economy, something more difficult for the externally less well-connected sectors to do (see figure 1 for an illustration).

As a basis for a high potential for national value creation this requires:

  • A national economy with very many sectors i.e. a complex economy
  • That a high proportion of these domestic sectors contain the presently relevant competence for pursuing their activities as illustrated by them being successful in exporting their offerings by having a disproportionally international market share i.e. a revealed comparative advantage
  • That each of these domestic sectors has a high absorptive capacity for new knowledge. This means that these sectors have the capacity to make effective (productive) use of knowledge, ideas and technologies that become available through spillovers between firms, sectors and countries.
  • That each of these domestic sectors are connected to other sectors inside or outside the domestic economy that have a high level of competence in their specific domains
  • That each of the domestic or international sectors that the domestic sector is connected to is not in themselves connected to the other domestic or international sectors that the domestic sector is connected to.

Sectoral development as a basis for national prosperity

National prosperity can be increased by having existing successful sectors (firms) innovating by pushing the frontiers of existing knowledge domains; by developing sectors (and firms) adjacent (in the competence or supply-chain/value-chain sense) to existing successful sectors (firms); by forcing disruptive innovation resulting in new sectors (firms) or new activity domains through instigating collaboration and interaction between firms in sectors that, due to unrelated specialisation, would not normally collaborate or interact; and by redeploying existing competences linked to high complexity sectors that are in decline within the economy.

Success in all the above requires understanding the existing deep and spatially-specific knowledge domains. Thereby also enabling the identification of possible cross-overs between existing specialisations and the identification of adjacent knowledge domains (using the economic complexity approach).

  1. The role of policy makers in facilitating the redeployment of existing competencies linked to sectors in regional or economy wide decline is again substantial and imperative for both avoiding social problems with associated costs and regional and economy-wide prosperity. Examples of when this is critical is in e.g.
  2. The role of policy makers in forcing disruptive innovation resulting in new sectors through instigating collaboration and interaction between sectors that, due to unrelated specialisation, would not normally collaborate or interact is substantial and imperative for regional and economy-wide prosperity. There are several different scenarios for how this creation of new sectors may take place e.g.:
    • The unrelated knowledge domain of one sector is introduced to another sector leading to the receiving sector developing new offerings that are related to the existing offerings. An example could be the introduction of telematics and machine learning to the automotive industry leading to the development of autonomous vehicles.
    • The interaction of the unrelated knowledge domains of sectors result in offerings that are very weakly related to existing offerings from any of the sectors. An example of this is the combination of ICT, laser or electron beam technology, material science, powder metallurgy, mechatronics, etc. resulting in the emergence of the additive metallic manufacturing equipment sector (3D printer production). These interactions of unrelated knowledge domains can be driven by the emergence of new scientific or technological knowledge or by the emergence of new societal demands or challenges.
    • Policy makers will be required to draw on a combination of supply side, demand side and information provision tools to facilitate these types of outcomes.
  3. The role of policy makers in developing sectors linked (competency or supply-chain/value-chain wise) to existing successful sectors includes a mapping of what those sectors are. The easiest approach is to map the economic complexity of the spatial domain (region or country) to identifying sectors (competence domains) that are adjacent to existing sectors in which the spatial domain (region or country) already has a revealed comparative advantage. Once these sectors (having no unsurmountable barriers for development) are identified, they can be ranked based on their proximity (common knowledge/capabilities) to existing successful sectors and their contribution to raising the spatial domain’s (region’s or country’s) economic complexity. The highest ranked sectors can now be developed using a combination of traditional industry policy tools with a focus on the demand side (procurement, regulation and facilitated creation of agglomeration economic benefits) supported by some supply side tools (inward investment attraction, preferential loans and collaborative industry-research provider projects). It may be worth noting that for some regions the journey to high economic complexity may require progressing through many iterations of this process and hence may take a long time (10-30 years) – but unfortunately there are no shortcuts.
  4. The role of policy makers in contributing to already successful sectors pushing the frontiers of their underpinning knowledge domains and thereby achieving innovations that provide first-mover advantage on the market is limited. It may include encouraging and/or facilitating greater collaboration between firms and their customers, firms and their suppliers, and firms and relevant research providers. This argument holds both for successful sectors that have emerged through path dependency and through the other routes described – true by the mere fact that these sectors are already successful and hence have both the resources and competencies to pursue their own success. The primary role would be for policy makers to assist in introducing an impetus for change in these sectors when they are exposed to a market driven or technology driven challenge to their existence since these sectors, due to their path dependency and deep expertise tend to reject early signs of these threats (competence domain myopia) until it becomes too late to change.
  • Temporary valley of death periods for key sectors. This is observable in long lead-time, highly complex product domains with infrequent purchase e.g. defence value chains. Here the competence wants to be both developed and maintained and a common tool for this is paid study projects, paid for by the end customer (e.g. government) with performance requirements exceeding existing know performance boundaries.
  • Local decline of a sector that remains competitive in other economies e.g. the decline of the automotive industry in Australia. Here it is critical to identify the competences that is desirable to retain and those that are not – this depends on the specific competence and sectoral landscape of the economy. Once these competences are identified they can be introduced to new domains, which performance will increase as a consequence of accessing this competence. An example is the redeployment of LEAN competence from the declining automotive industry to the health care industry. The identified competences that are desirable to retain could also form the basis for new sectors in the economy that serve existing sectors with revealed comparative advantage e.g. the development of new sub-sectors in the Mining Equipment, Technology and Services industry applying LEAN production technologies to facilitate the migration of the mining industry (i.e. the client sectors) towards a higher level of automated production. Thereby both strengthening the existing revealed comparative advantage of the mining sector and facilitating its migration to a new value creating paradigm thereby reducing the risk for decline in this successful, and for the economy’s value creation, important sector.

Combining the discussion on structural holes with the discussion above leads to the conclusion that the highest strategic gains for regional prosperity stand to be had by enabling the interaction of unrelated knowledge domains from sectors (and firms) occupying structural holes. This logic applies on the micro-level of the individual firms, the meso-micro-level of firm clusters, the meso-level of sectors, and the macro-meso-level of sector clusters. These structural holes are frequently both created and filled by emerging sectors grounded in what is called General Purpose Technologies or Key Enabling Technologies like e.g. the emerging machine learning service and product providing sector.

Example of analysis and outcomes underpinning the sectoral policy focus that in turn underpin a Smart Specialisation Strategy

Smart Specialisation is an innovation policy concept that aims to boost regional innovation, contributing to growth and prosperity by helping and enabling regions to focus on their strengths and diversify from there. Smart Specialisation is based on partnerships between businesses, knowledge institutions, public and third sector entities and knowledge institutions.

“Smart specialisation strategy” means the national or regional innovation strategies which set priorities in order to build competitive advantage by developing and matching research and innovation strengths to business needs in order to address emerging opportunities and market developments in a coherent manner, while avoiding duplication and fragmentation of efforts; a smart specialisation strategy may take the form of, or be included in, a national or regional research and innovation (R&I) strategic policy framework or may form the basis of an industry policy Hence, the key objective of a smart specialisation strategy is to build on the knowledge base that currently exists. To this end, the policy targets certain activities with the potential to generate agglomeration economic benefits for firms and thus have a transformational effect, rather than simply promoting “scattered” innovation. Sector prioritisation then becomes a core element of smart specialisation policy. It is to be noted that a smart specialisation is more about de-selecting losers than picking winners.

Economic complexity analysis identifies knowledge capabilities of economies as demonstrated by the complexity of the products they export with comparative advantage. Additionally, existing knowledge capabilities are closely linked to future economic growth and consequently can be used as a measure of economic development. Economic complexity analysis can identify areas for development that are likely to succeed by assessing current capabilities, and can therefore be used as a highly effective tool for industry development policy and hence for a smart specialisation strategy. Below are three graphs extracted from the economic complexity analysis of South Australia to underpin the three policy foci:

In Figures 1-3 the above figures the y-axis shows the product-sector complexity ranking and the x-axis shows the share of adjacent competences present in the state. The higher the product-sector complexity ranking the more opportunities are present when new technologies (e.g. digital technologies) are introduced into the economy and the more opportunities arise from the presence of a sector in the economy the higher the complexity of that sector. In Figure 4 the x-axis is the same but the y-axis shows the improvement in overall complexity ranking that follows from developing the structural hole sector.

The share of adjacent competencies in the state have two implications: Firstly, the higher the share the easier to develop and grow the sector. Secondly, the higher the share the more collaborative firms in the product-sector tend to become. The low share illustrated in Figures 1-3 provides one indicator of why Australian firms tend to have a very low level of collaboration compared to other OECD economies.

Conclusion for policy makers 

Successful organisations tend to have a comprehensive understanding of the knowledge relevant to their domain of activity and can pursue a low risk strategy of capitalising on this knowledge by identifying and filling in gaps on the knowledge frontier, thereby achieving the foundation for first-mover advantage in their industry. This approach tends to generate a high level of novelty but does not seem to dramatically increase the economic value of the firm’s portfolio of offerings. This is a low-risk strategy as long as there is no disruption of the knowledge base nor any convergence between knowledge domains – some of which are unknown to the firm. Industry policy in this stable environment would be very limited and would focus on supporting already successful sectors. These sectors can be identified through an economic complexity analysis and illustrative results are shown in Figure 1.

In a dynamic environment there should be a shift in focus from the already successful sectors to the sectors adjacent to the successful sectors. This policy shift will both strengthen the already successful sectors as well as lay the foundation for developing new successful sectors. This can be articulated as the incremental low-risk approach to industry policy. These adjacent sectors can be identified through an economic complexity analysis and illustrative results are shown in Figure 2 and 3 respectively where the focus should be in strengthening the sectors shown in Figure 2 and developing a select few of those shown in Figure 3.

The disruptive high-risk approach to industry policy (which must also be pursued) is to focus on the links between already successful sectors in the economy. Firms that can innovate through the combination of knowledge domains not previously combined tend to increase the economic value of their portfolio of offerings. This requires policymakers to deploy policy tools that will facilitate collaboration and interaction between firms in sectors that, due to unrelated specialisation, would not normally collaborate or interact. This is doable since knowledge (technological) relatedness is a dynamic state that can be influenced. The more dynamic the competence and market demand environment the more important this approach to industry policy becomes (see results in Figure 4.)

As the dynamics of the competence and market demand environment increase the likelihood of some existing sectors experiencing terminal decline increase. It is normally not desirable to try to prolong the life of these sectors through expensive interventionist policies (it may instead be desirable to accelerate the demise of sectors in terminal decline through something that can be called an industrial euthanasia policy – not discussed here). In these situations, there are normally key competencies that exists in the declining sectors that are desirable to be maintained and redeployed within the economy. This redeployment of desirable competencies is normally more successful if the market forces are given a helping hand by policy makers – this due to issues around information asymmetry, search costs, absorptive capacity and managerial competencies in sectors primarily made up of SME’s (e.g. the METS sector in Australia) or in sectors with a myopic view on its competence need or hindered by a risk avoidance or not-invented-here culture (e.g. the health care sector).


Escrito por Prof. Göran Roos, South Australian Economic Development Board.


How will new technologies impact our government and economy?

What to expect in terms of the next phase of technological change in government and the economy? The transition into a so-called 4IR can only take place in a co-evolutionary manner between technology and institutions. Governments will have to strike a balance between data-driven innovation and intelligence and citizens-centric innovation and intelligence. And a new economic geography is emerging with different comparative advantages, ways of thinking and business models, rendering some traditional paradigms obsolete.

There is a lot of enthusiasm about the prospect and potential of innovation stemming from big data and blockchain to artificial intelligence, the internet of things and cryptocurrencies. These technologies are seen by many as the pillars of a Fourth Industrial Revolution (4IR) that is set to transform our governments, businesses and lives. It is difficult to foresee with any degree of accuracy how fast will various societies be in developing socioeconomic systems around these new technologies.

The transition into a so-called 4IR can only take place in a co-evolutionary manner between technology and institutions. As businesses adapt technology to accommodate users’ tastes and needs, governments will accompany the process with the introduction of policy and regulation to steer technological developments in a socially optimal direction. It would be impossible today for example to imagine road, air, or maritime transports technologies without government regulation. For example, even small drones today cannot be flown without special licences. The same can be said about almost any technology from telecommunications to food and medicine.

The most transforming technologies are therefore those that require and superimpose new systems on business-as-usual routines and even more so those that necessitate new thinking about long term held beliefs about the economy and society. In this respect, I would like to make a series of observations here on what to expect in terms of the next phase of technological change in government and the economy. I will first begin with government.

Impacts on government

Increased digitalisation of government will have the positive effect of shielding and mitigating political interference as well as bad governance in the delivery of public services to the citizens. More precisely, with the “technologisation” of service-delivery, public services become less prone to disruptions from the political side of government or from senior level of administration. Technology, especially automation, will make it easier to bring accountability, transparency and predictability to public administration, making it more immune to politics.

However, we can expect this benefit to be limited to public service areas characterised by low conflict and high level of consensus. Politically sensitive public domains with ambiguous technical solutions (aka. wicked problems) will remain difficult to automate or relegate to an AI device.

For example, these can be policy and service issues within education, childcare, healthcare, security, etc. that would vary from country to another in terms of level of political consensus and public sensitivities towards proscribed technological solutions.

Thus, a full technology-driven transformation of government will be ultimately driven by political windows of opportunity. It is only through the emergence of political windows of opportunities to tackle certain wicked policy areas that certain technological solutions can be promoted and graduated into acceptable solutions. Buying-in from key stakeholders and community groups will be essential for the eventual emergence of new socio-economic systems that embrace new technological systems.

Citizens value stability, transparency, and efficacy of government operations and services and it is therefore imperative that innovating government departments undertake the necessary proof-of-concept activities, pilots and experimentation and eventually create new institutions to design, develop and deliver new technological systems. As they move into a 4IR mode, governments will have to strike a balance between data-driven innovation and intelligence and citizens-centric innovation and intelligence. This important to continue be able to introduce solutions that address users’ needs and to subsequently secure the public and political support necessary for embracing innovation.

The beauty of such developments is that they make successful government experiences increasingly transferable and interoperable. A city introducing a full electronic service system for its visitors or citizens can transfer – even sell- its model to a different city within the same country or beyond. Such projects are almost always undertaken in partnership with private sector commercial partners who themselves will act as the conduits of technology transfer.

It is not far-fetched though to imagine one or more successful cities (say Dubai, San Francisco, or Singapore) would set up a commercial arm to market, sell and transfer their operating systems. Some cities may become the gold standards for certain public services, certifying the quality of operations of other cities. In this regard, we expect technology to transform government services into public-private sector ventures joined in new business models.

Impacts on economy

This leads me to my second set of observations about the economic challenges and opportunities brought by new technological trends. In my book Black Swan Start-ups: Understanding the Rise of Successful Technology Businesses in Unlikely Places, I showed how 11 technology start-ups managed to grow and scale despite being in the wrong place at the wrong time. Re-visiting the 11 cases, I noticed that one critical common factor between 10 out of the 11 was the fact they were all based on digital platforms. True that, Sofizar, a search engine optimization company, had to deal with all the shortcomings of a place like Lahore in Pakistan (and to do so voluntarily as the founder relocated there from the US), the fact that the business could be run entirely over the Internet has meant that many of the problems associated with the location have disappeared. For Zafar Khan- the founder- Lahore had several comparative advantages over California, where the founder was previously based. It was a lot cheaper and offered him the time and space to build and sustain his business without the resource and time pressure of California. It also had high caliber IT workers. Sofizar needed the US market to grow and could access that market entirely via the Internet.

The morale of the story is that digital platforms have changed what gives a place a comparative advantage over another place business specific and varies from one business to another. Cities, regions and countries now afford to ignore the lack of certain resources and capabilities compared with the top performing places, and focus instead on the resources and capabilities which will give them advantage over other locations only with regards to certain types of businesses.

In this regard, digital platforms, such as Apple Store, Google Play, Google, Amazon, Instagram, Kiva, Facebook, Snapchat, Skype, Uber, Airbnb and others are rendering the traditional rural-urban, centre-periphery dualisms obsolete. What is emerging is a new economic geography that distinguishes between five different types of comparative advantage, which I coined: Cost, caliber, convenience, creativity, and community. Certain cities, regions, and countries provide a “surplus” for businesses in terms one of these five Cs or a combination of two or three. It is almost impossible for a place to maintain a comparative advantage in all five.

Another observation is the eventually changing relationship between demographic change and the economy. It has been long understood that a growing population yields a demographic dividend and that a shrinking population leads to a shrinking economy.

But today with automation, economies can grow with less or little increase in labour. In fact, this one of the main challenges of automation today. Businesses can make use of AI and robots in general to automate production. But the silver lining for this development is that economies can continue to grow while populations in the West decline and governments can still afford to increase its tax revenue and support the pension and healthcare cost of an aging population.

This is not the case in countries with a steady population growth where automation will indeed decrease their economic prospect until new forms of economic activities are figured out. Here, the traditional perspective on growth and employment will have to be revisited in light of the 4IR. New technological trends are deviating the rate of economic growth from that of employment growth. New thinking will be required about what constitutes economic activity and about new forms of work under the new emerging technological regime.

For instance, the so-called “gig economy”, the “sharing economy” and the “circular economy” among others are providing new forms of economic activity that are still short of being jobs per se but are in the process of being regulated to gain more formal status like traditional jobs.

New business models have emerged on the back of new technology platforms (e.g. two-sided markets, shared economy, block-chain etc.) to create new forms of economic activities and with them new forms of jobs. This requires adopting and adapting to new forms of economic activity organized outside the realm of nine-to-five industrial organization.

Together with the developments mentioned earlier, some countries -e.g. Finland- are experimenting with new citizen-social-state contracts where it is perfectly OK for citizens to receive a minimum wage without having to be engaged in an economic activity. A prosperous society where technology is constantly creating new value may indeed not require a majority of its citizens to take part in economic activity.

This could be the beginning of a new world where economic activity is the occupation of a small fraction of society at any given period of time where people go in and out of it at their moment of choice.


Escrito por Sami Mahroum, Academic & Executive Director at INSEAD.

Horizon Scanning as strategic tool

Horizon scanning is a process that seeks to identify the earliest indications of a potentially disruptive issue, but also tracks transformations of already established phenomena or trends. It is the art of systematically scanning the external environment for evidence of emerging issues and a practice that seeks to inform decision-making, by creating a patterned awareness of both potential opportunities and challenges.

Horizon Scanning is an evidence-based method, based in observations, for understanding indicators of change and possible futures. The observations collect, compare and evaluate a wide range of signals – including new and emerging trends, technologies, values, products, concepts, companies, services and ideas – in order to identify what’s happening now and what could be emerging tomorrow.

It is a process that seeks to identify the earliest indications of a potentially disruptive issue, but also tracks transformations of already established phenomena or trends. It is the art of systematically scanning the external environment for evidence of emerging issues and a practice that seeks to inform decision-making, by creating a patterned awareness of both potential opportunities and challenges.

Below is a selection of 16 Horizon Scans affecting governments, businesses and society.


Sustainable wind power at a low cost

Google X is looking to change the energy game entirely with its acquisition of “Makani”, a moonshot project that creates energy kites. The energy kites are launched from the ground station by rotors, tethered by conductive wires, and are guided by a smart system along the most efficient flight path. The kite can reach higher altitudes than traditional wind turbines, and thus generates up to 50% more energy. Wind power currently makes up just 3% of the world’s energy and there is limited suitable land for wind turbines, which are complex and expensive. “Makani”, however, generates more power at a lower cost, since the ground stations are so much smaller than traditional wind turbines, and can be placed in multiple locations, including off-shore, rural, or isolated communities. For countries like India and China, with exploding populations, increasing energy needs and bound by a commitment to lower their emissions, “Makani” may become the low-cost alternative to coal. The project also has the support of the US Department for Energy.


Reducing food waste and tackling social issues simultaneously

Denmark’s first social supermarket opened its doors to the public. “WeFood” is the brainchild of Folkekirken’s Noedhjaelp, an aid and development organisation and leader in second hand clothing and furniture stores. The supermarket, which will be run by volunteers, will stock goods that are no longer saleable in regular grocery stores – dented boxes, less-than-perfect fruit and vegetables, and items with crooked labels – at low prices. The concept has three main aims: to reduce food waste, to supply low-income earners with a budget-friendly grocery option and to help tackle world hunger by redirecting all profits to its aid programs in developing countries. Similar concepts exist in Vienna and London. Folkekirkens Noedhjaelp expect a mix of customers – some will shop there for budget reasons, others will be drawn to the ethics of cutting food waste, and some will like the idea of supporting aid programs through their grocery shopping. “WeFood” not only tackle social issues, but also feeds into a growing trend for “everyday activism”.


Using big data to predict social movements and urban renewal

Researchers from Cambridge University have found a new use for the mountains of data created by Foursquare and Twitter in London. They analyzed 500,000 tweets and Foursquare check-ins from 2010, along with “deprivation scores”, and compared these to the situation in 2015. This allowed them to draw up a picture of London, and identify the areas most likely to become gentrified in the near future. This new approach provides support for the notion that clever use of big data can facilitate an understanding of social and economic phenomena, including predicting future movements such as gentrification. Gentrification of an area has a big impact on house prices, and so the ability to better predict which areas will undergo the process next will be particularly important for developers, investors, and planners.


Cultivating food with vertical agriculture, aeroponics, and aquaponics

London-based company Rogers Stirk Harbour + Partners explores the idea of urban farming with its innovative concept of the vertical “Skyfarm”. Each level of the tower-like structure is dedicated to a specific planting method, from aquaponics and aeroponics, to the more common soil-based agriculture. In this way, “Skyfarms” enable the growth of crops and fish together in a self-contained, re-circulating ecosystem. The structure would be made with a bamboo frame, and optimized for solar exposure and efficient water distribution. Unlike conventional farming methods, it grows food vertically, not horizontally, thus requiring far less area. Moreover, it relies solely on the energy that it produces itself. The structure can also be altered for use in different climates. Though “Skyfarms” are best suited for dense urban regions, they can also be used in rural areas with scarce or low quality soil. The towers could be scaled up or down depending on the location, and geometry can also be adapted depending on sunlight availability.


Growing socio-economic stratification and the emergence of new classes

The unnecessariate is a growing segment of individuals who are considered to be left behind by society because they do not hold any knowledge, property, or ability, which the centres of power value. As society changes so change the knowledge, resources, and abilities it requires for economic growth. An agrarian society requires farm workers, industrial societies need factory workers, and future societies may not need workers at all. As societies’ need for low skill labor diminishes with technological displacement and a growing knowledge economy, the unnecessariat will likely expand. One consequence of the unnessicariate is the creation and proliferation of a socially undesirable and economically inept class – a group that represents a significant policy challenge for many municipalities globally. Recognising the potential socio-economic impacts of this phenomenon is an important step in establishing a discourse that works towards innovative solutions, particularly as the pace of change further accelerates.


Decentralised politics with real-time feedback

The Flux Party of Australia is a political group that is campaigning on a radical plan to influence the future of politics and “upgrade democracy”. It has no policies and no platform, and instead, relies on members of the public voting yes or no on each bill before parliament via the Flux app, which would instruct the party’s senator how to vote. The party was founded by Max Kaye and Nathan Spataro and uses blockchain technology to run their app – a decentralised a system for managing data where transactions are recorded on a public, digital ledger. It begins with a level of direct democracy, where every single voter is given a vote on any particular issue. Yet, they can skip votes, save up votes to have greater influence over issues they care about, or trade them with others. The approach grants voters more influence over their politicians in between elections, and allows them to support individual issues rather than broad political ideologies or platforms they had no input on. The party believes the future of politics will be defined by real-time feedback.


Independent contractors with shared security and the ability to issue labour market signals

City council in Seattle unanimously adopted legislation that allows Uber drivers in the city to form a collective bargaining unit that in many ways resembles a union. The result, called a “Driver Representative Organisation” addresses recent concerns of drivers, who found themselves without leverage in the negotiation of wages and standards. The micro-entrepreneur – individuals that choose their own hours and work multiple positions – has effectively lacked bargaining power. This decision changes the bargaining dynamic of the independent contractor in the labor market, by allowing them to redefine their collective status. A new form of union is reminiscent of the “Shared Security” concept. The worker relations and public image of gig-economy companies stand to benefit greatly from an increased capability of micro-entrepreneurs to issue labor market signals. If workers can collectively signal preference for one structure over the other, in a city specific setting, the companies can attenuate their offerings appropriately.


Industrial metabolism that sees manufactured products recycled for high quality materials

The world’s first assembly line, ascribed to the Ford Motor Company in 1913, had a big impact on global manufacturing methods. Apart from the production of automobiles, it was adopted by many other manufacturing industries. A follow-up idea called “lean production” was developed by the Japanese years later. But a whole new way of thinking about what the assembly line should be able to do is emerging. Considering the sustainability of production and the assembly line culture, the concept of a disassembly line has emerged. It has been developed to some extent in Europe. The idea is to design and manufacture products in such a way that if you take them apart, all the parts are recyclable. What is important is to recycle them in such a way that the metals and the plastics and the other materials are not degraded. You want the same high-quality materials, refined again out of these parts, so that you can endlessly recycle them. In the future, the need for disassembly might be just as important as assembly.


Millennials are beginning to change the stock market

Stock markets are starting to reflect millennials’ changing priorities and lifestyles. In the past, traditional retailers and assets such as properties had tended to dominate stock markets. Yet, Bloomberg reports that experiences trump these sorts of material possessions for the generation born between 1980 and 2000. As a result, things like travel and leisure shares are starting to outperform traditional retailers. In February 2016, the factor by which the leisure sector outperformed the retail sector in US and European indexes reached its highest point since 2011. The strong performance of pub operators, low-cost airlines, ski-operators and accommodation sharing platforms confirm this. The importance of an immaterial lifestyle that is based on experiences, authenticity and fun is pushing markets to uncover economic value in staging such experiences rather than providing products or services.


An economy moving towards self-actualisation

Post-scarcity refers to a tech-driven world where our basic human needs are fulfilled instantly and abundantly. This replaces the current economic paradigm that is based on the notion of resource scarcity and resource competition. Knowledge and information is already abundant by the virtue of mobile devices. Meanwhile, technological leaps such as 3D printing, modified and lab-produced livestock, AI, and robotics make innovation and digital transformation vital for organizational survival. This changes our basic needs and wants and underpins the move towards a post-scarcity scenario. Larger proportions of the global population will find themselves at the top of Maslow’s hierarchy of needs. Self-actualisation and personal potential will characterize our needs rather than physiological needs of air, food, sleep, and water. This inherently changes not only the global economy but will force companies to abandon traditional business models.


Creating a common reputation language in order to boost trust and transparency

Entire businesses, industries, and even economies are built on the notion of hyper-accountability in an era where reputation is more important than ever. Reputation has always been important when doing businesses, from local businesses serving communities, to global enterprises operating across international borders. Open and transparent ratings and profiles are essential components of an app-enabled and global 21st century economy. Accountability measures such as ratings offer a way to reduce complexity, eliminate anonymity, and operate within a “global village” with confidence. Ratings can be a beneficial tool to add security to transactions by enabling us to connect with others, share knowledge, products, and services. Ratings represent a simplified social language that makes it possible for different cultures to interact in a given context. More and more, businesses will be required to build mechanisms for transparency and accountability into their public relations or reputation management strategy.


Amazon expands its grocery business with new convenience stores

Would you buy milk, meat and vegetables from the internet? Amazon is pushing deeper into the offline grocery business: The world leading online retailer plans to build small convenience stores as well as to offer curbside pickup for online orders. “The new stores are designed to capture the large share of people who prefer to pick out their products, or bring home their groceries on the way from work”, as the Wall Street Journal stated. It is superfluous to say that the grocery market is huge: Groceries account for approx. a fifth of all the money spent by consumers. Although the online grocery market is still at the very beginning, Morgan Stanley Research estimates that “the online grocery market could more than double to over $42 billion this year”. The battle for the market’s leading position has caused a competitive race between various large retailers like Wal Mart and Kroger in recent years.


Swedish tax breaks for repairing old stuff

In Sweden, two parties have proposed a law introducing tax breaks for repairing recyclable goods and increasing taxes for unrepairable goods. Goods possibly affected by the new legislation range from shoes to bicycles to washing machines. On the one hand, regular taxes on repairs of certain goods are cut from 25% to 12% and Swedes can deduct half the labor cost of appliance repairs from their income tax. On the other hand, the politicians propose to implement a “chemical tax” on substances which are hard to recycle. This should increase the prices for new products. At the same time, with the implementation of the new law, a marketing campaign should support the effect of the new legislation. The debates about repairing, recycling, and closed loops are not new and this is closely related to the term of “peak stuff”, which describes the decreasing demand for new, products in Western societies. Interestingly, the Swedish company IKEA has already announced that they will increasingly build a circular loop of products to facilitate repairing and recycling.


Automated systems for urban cultivation

The innovators behind “Biopod” have created the first smart micro-habitat for consumers. It is a unit that is controlled over the internet and uses automated systems and mobile technology to sustain a specified environment inside. This provides an opportunity to create special types of customised conditions inside the unit that allows users to grow and cultivate a variety of different crops and animals, such as herbs, vegetables, rodents, and fish. The product is to be used for two purposes: private use and education. It aligns with the urbanization and small space living trends, and enables users to sustain a garden or other habitat in the home – for consumption or as a leisure activity. At the same time, the possibility to create several different environments is a significant tool that can be used to teach individuals about creating and sustaining ecosystems, or applied in wider educational settings.


Solar streetlights working to absorb urban pollution

The “Eco-mushroom” is a streetlamp design. The solar powered streetlamps are specifically designed for high-pollution areas. At the top of the lamp, surrounding air is sucked into an air purifier and CO2 is absorbed. Clean air is released at an effective height for human breathing further down the lamppost. Each lamp has a monitoring system, which sends indications and alerts about its operation to a monitoring station. The “Eco-mushroom” has been submitted as a concept and gained some recognition among platforms dedicated to design in urban planning. The transport sector – particularly road transport exhaust – is among the largest contributors to air pollution. Declines in health and climate change are some of the key consequences to air pollution, particularly as dense urban regions grow. The integration of air purification into streetlamps illustrates how such devices can be integrated into the urban environment without being an obstacle.

Written by Anne Dencker Bædkel, futurist at The Copenhagen Institute for Futures Studies.