INSIGHT 30 September 2016

Fundamentals of a strong economy

Mikhail Fridman, ABHH Board member, recently participated in the 13th Yalta European Strategy Annual Meeting in Kyiv, Ukraine. Prominent business people, top officials and contemporary thinkers were invited to discuss strategies for Ukraine and wider Europe. Fridman, a Ukraine-born billionaire, put forward his view on what’s required for a strong economy.

The world has entered a new era where the source of a nation’s wealth is no longer natural resources. Intellectual capacity has now replaced land, raw materials and trade routes as the biggest source of wealth. This shift has resulted in deep changes in how the world operates and has brought about a new era – the Indigo era.

Over the last five years, traditional companies have been replaced by new businesses (Indigo companies). This trend is indicative of what’s going on in the world economy and has had an enormous impact on every aspect of life, including political, social and business. The world is changing: old, well-conceived principles and beliefs are less attractive to people these days and disappointment and physical and mental insecurities are prevalent. The pace at which technology is developing is triggering tectonic shifts in modern society; for example, Uber’s development of driverless cars will result in many drivers losing their jobs in the US. Technology is also impacting the oil industry: I believe that the phenomenon of expensive oil is over, as we are entering a period when the speed of innovation and changes in technology will be so high that they will cover any shortage of natural resources. The revolutionary developments of technology signal that there will be huge global change over the next five to ten years.

From my perspective, there are several essential requirements for a strong economy in this new era. They include: competition and IP rights, a well-managed and sophisticated political system, property rights, a system that allows personal talent to flourish, and a robust and independent legal framework.

Some countries have recently been successful at developing these systems. Over the last few decades, the Indian political class have built a more balanced and free society, more so than any other emerging market country. It’s very natural that the majority of growth is no longer in manufacturing but in the intellectual activity of bright young people in India. I believe this is a very good sign for the future of the country.

I’m currently less optimistic about China’s future. Their growth does not seem sustainable given the centralized power that exists there today. They lack some components of a modern society like an independent media or balanced branches of power. This new era of the Indigo economy requires systems which enable the talents of hundreds of millions of individuals to thrive. To achieve this, you don’t need heavy capital investment, unlike physical infrastructure, which China did very successfully in the past. Instead, you need to minimize the interference of the state and develop a new mind-set, which is difficult. This new mentality could potentially contradict the culture, history and principles that have existed in this society for thousands of years.  

Similarly, Russia and Ukraine will need a stronger rule of law and democracy. It will be difficult to build a strong economy without these fundamentals.

In this period of uncertainty and insecurity, people feel lost and it’s very natural for them to be drawn to authoritarian style leaders. This is a trend we are seeing everywhere. We are now in the process of finding a new set of principles and truths. Human beings will find the appropriate answer for all these changes, but it will take time.

View the full panel discussion below: