Guess What — I Met an Optimist at Davos!

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In a world economy gripped by fear and smothered in uncertainty, I managed to meet someone here able to shine a bright light through the gloom – Steve Ellis, worldwide managing director of consulting firm Bain & Co. Sure, we might be facing the possibility of a collapse of the euro, an emerging markets slowdown, persistent unemployment in the West, a U.S. housing crisis, growth-killing fiscal austerity, and so on and so on. But Ellis is looking a bit further out into the future, and he likes what he sees. Yes, he says, we’re facing a pretty rough two or three years. All sorts of difficult structural reforms have to be put into place. But looking beyond that, there are sound reasons to believe health will return to the global economy:

It’s very easy to get caught up in the headlines of the day, the doom and gloom. I don’t want to minimize the importance of the issues we face today. (But) once we get through the tough measures that need to be put in place over the next two or three years, I think the economy is going to find extraordinary footing in the back half of the decade.

In fact, Ellis believes that global GDP will increase by some 40% by 2020. “The back half of the decade should see very healthy global GDP growth rates, back to the 4% range, but in a more sustained and balanced way.”

What’s he looking at? Ellis believes there are a bunch of trends emerging in the global economy that will provide new sources of growth, including: the rise of new consumers, especially in the developing world; increased spending to replace archaic infrastructure in the developed world; larger military budgets in emerging nations; the need for bigger investment in resources like food, water, metals and energy; the need to develop human capital, which means greater investment in education; larger spending on the requirements of an aging population, like healthcare; and the emergence of new technologies and services. Taken together, these trends, Ellis insists, provide fresh opportunities for businesses to invest and create jobs.

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These all sound very nice, but the big question is: Are business leaders actually taking advantage of them? Ellis admits that U.S. companies continue to hold back on investment, rather than capitalizing on new sources of future growth, for several reasons:

Many of these trends are underway now, but they have to play out more. But there is also a second drag (on investment), frankly the malaise we are in now. People are really worried about things falling off a cliff. That kind of tail risk and uncertainty is what freezes decision making and could slow down the pace at which many of these trends evolve. The most important thing in the global economy is to minimize that tail risk. What will catalyze growth is confidence — is the private sector having confidence that they can unleash the massive amount of capital sitting on balance sheets. There is plenty of money out there, and there are plenty of opportunities to invest in, but we don’t have the certainty.

To get that certainty, Ellis says we need a firmer commitment among European leaders to stabilize the euro, and clarity in post-presidential election economic policy in the U.S.

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Yet I pointed out that I’m a bit tired of the world’s business leaders whining that the global economy is too uncertain for them to act. Don’t CEOs make those big bucks because they are supposed to be smart enough to see emerging business trends to ensure their firms’ future? Ellis doesn’t absolve them of playing a role in the continued downturn, either:

There aren’t enough CEOs who are thinking about these (long-term) issues. They haven’t pulled their heads up to think around the corner in a way that has given them the sense of optimism that could translate into conviction. There is reason to have conviction.

Personally, I fear that the problems of the world economy will dampen growth beyond Ellis’ two-to-three year timeframe. But his perspective – to think past the immediate, to see opportunity in a changing world – does provide at least a glimmer of hope. And that’s what we badly need right now.