Interpreting Economic Change: The Global Pulse

Dr. Dave Kohl

Interpreting Economic Change: The Global Pulse

Dr. David M. Kohl

I have taught at the Graduate School of Banking at Louisiana State University for over 30 years, and one course I teach is called “Interpreting Economic Change.” This year’s senior-level course was composed of bankers, Farm Credit lenders and regulators from 22 states and Mexico. I co-facilitate the course with Dr. Tom Payne, Dean of the College of Business at Tennessee Tech University. Each year we attempt to integrate emerging trends in the U.S. and abroad into these soon-to-be graduates’ strategic thinking. Let's examine some of the trends that will shape the pulse of the globe over the next decade with an orientation toward agriculture and rural areas.

Global agriculture production
Agriculture producers often ask, “When are commodity prices going to return to the robust years experienced during the super cycle?” One only has to examine the increase in corn and soybean yields in major production countries over the past decade, as well as changes that are occurring in other crops and livestock production, to develop an answer.

According to the University of Missouri, corn production has increased 21% in the U.S and 48% in China since 2008. However, Brazil and Argentina have increased corn production by 85% and 174%, respectively. Our Canadian neighbors to the north have increased corn production by 36%. However, the consumer perception of GMOs in Europe has contributed to a 9% reduction in corn production.

Shifting to soybeans, the U.S. production is up 55% in the past decade. Soybean production is up 108% in Brazil, 73% in Argentina and 125% in Canada. The layering of new technology with new land resources coming into production in South America, Africa and other areas of the world will challenge commodity-based profit models globally in the next few years. Further, the effects of climate and weather changes will allow triple cropping to become the norm in South America and double cropping in the Upper Midwest and Canada. Crop production centers could not only shift around the world, but also provide global grain abundance and further suppress commodity prices.

Government and social policy
Government and social policy with the law of unintended consequences will be a global force impacting economics both here in the U.S. and abroad. The challenges center on global political uncertainty, new leadership and various agendas with the new leaders. The evolvement of the swing from capitalism to socialism and populism with free trade, tax and regulatory issues, often fueled by social media and information, will create extremes in volatility.

The Wall Street Journal published an article entitled “The Rise and Stall of Globalization,” which provides a brief history lesson on the subject. Economic cycles have been a part of life for centuries. However, since the end of World War II, the GATT agreements, the jet age and the use of air conditioning shifted economic powers and demographics not only in the United States, but around the world. The rise of the industrialized Asian rim in the 1970s, China's market-based reforms in the late 1980s, and the fall of the Berlin Wall each accelerated globalization. Add on NAFTA and the European Union, and the acceleration of many of these economies around the world with free trade was the outcome. Now, the shift toward socialism and populism in rich nations is being demonstrated in the U.S., Brexit referendums and overall threats of tariffs and trade sanctions. This shift in thinking could be a dangerous procedure, similar to the populist movement of the late 1920s. During that era, world trade declined from $5.3 billion to $1.8 billion in a matter of five years, which was one of the major factors behind the Great Depression.

The 2020 presidential elections in the U.S., economic shifts toward populism in both Mexico and Canada, and the elections in Germany and France need attention to determine if the economic shifts will be sustainable.

Rise of Asia
Since 1990, the rise of the Asian rim as an economic power has caused a significant shift in global forces. Measured in world output, Western Europe’s share has declined from 31% to 22% in this decade. China's growth has been stellar over the period with a rise from 2% of the world output to 14%. Some of these gains came from the United States, which has observed a 2% decline in output. Trade agreements, such as the Trans-Pacific Partnership (TPP), are vital for trade access to the Asian region, where three out of every seven residents have increased buying power.

Chinese infrastructure building fueled increased growth, but growth has since moderated. The Belt and Road Initiative could impact world competition over the next decade. Since 2013, China has invested $248 billion in 68 countries building infrastructure and they have earmarked up to $1 trillion from now until 2025. This initiative is designed to fuel trade into the Asian region and will create direct competition to North America as alternative trade partners for the Asian rim will be in Central and South America, Eastern Europe and Africa.

Food and fiber trends
The food and fiber industry will be turned upside down over the next decade. An article in The Economist magazine entitled “Breakfast in 2030” caught my attention and challenged my paradigm.

“Imagine this: Your morning croissant comes from a 3D printer, your sugar-free ginger cake is soft and sweet, the roast beef on your sandwich is plant-based and your entire diet is perfectly tailored to your lifestyle. Can you picture it?”

Before you have a bout of indigestion, realize that the $89 billion beef industry now sells $1 billion in plant-based meat alternatives. Changes in the food and fiber marketplace are accelerating at warp speed both in the U.S. and abroad. The IPO for Beyond Meat was one of the hottest on Wall Street. A front-page article in a Sunday edition of the Atlanta Journal-Constitution featured people waiting in line for up to three hours to buy a vegan burger. The dairy industry has been challenged by substitute products such as almond, soy and oat-based alternatives. Fifty percent of the food establishments in Warsaw are now vegan, and it is one of the fastest-growing trends in Europe and in some locales here in the U.S.

Consumers in rich nations will seek a food experience in niche markets with four drivers: transparency, customization, personalization and an experience that links the traits to the plate. Areas of the world with a rising middle class may also seek these attributes. However, nations with less economic power, but large populations, will be more commodity based as they attempt to lift themselves out of poverty.

Hybrid skills
According to futurist studies, jobs that combine once-unrelated skills, such as engineering and sales, are at a low risk of being automated. The opportunities for automation will center upon machine operators, truck and train operators, and other jobs with low to moderate hybridization. Jobs with a high degree of hybridization, such as data engineering and cybersecurity analysis, have less opportunity for automation. Robotics will continue to be more commonplace and will impact the structure and the amount of inflation not only in the United States, but abroad. The kiosks at McDonalds and ride-sharing services are classic examples of how automation is impacting the workforce globally, which is only in its infancy.

Work culture
Work cultures will be challenged at an accelerated rate at many small businesses, private firms and public institutions. Career paths will be outdated and replaced by meaningful work projects. Education that included degrees, courses and “talking head” lectures will be replaced by bite-sized, digestible “flipped” learning with certificates in specific areas. A culture of collaboration will move toward a balance of group and private time engagement. While the old culture was task-focused with job descriptions, the new culture will create the job descriptions and be experiential-based.

2020 to 2030 Decade
The next decade is going to be one with plenty of challenges and increased opportunities, given the aforementioned factors. Entrepreneurialism will challenge institutional mindsets and will be the catalyst for change in the upcoming decade that could experience a major global recession. The abilities of these groups of entrepreneurs, regardless of age and ethnicity, will quickly align resources and talents to anticipate the needs of the marketplace. These major market disruptors will unravel the mystery of big data, blockchain technology and robotics to develop systems that are agile and resilient. The convergence of bioengineering and information technology will enrich individuals with an entrepreneurial spirit both inside and outside the organization.

Three skill bases will be needed for success in the future: First, the ability to analyze data; second, to think critically about the data; and third, the differentiator will be the ability to communicate locally, regionally, nationally and globally using verbal and nonverbal formats.

In summary, these are just a few of the appetizers discussed with the future leaders of the lending industry. Some of the points may confirm your thoughts, while other viewpoints may challenge your thinking and paradigm concerning the global pulse of economic changes. There will be bountiful opportunities if one accepts the challenges.