On the cusp of a new era?

Chris Bradley, Jeongmin Seong, Sven Smit, and Jonathan Woetzel

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The past two and a half years have been extraordinary. What we are seeing is surely more than the progression of just another business cycle. The unnerving combination of a global pandemic compounded by energy scarcity, rapid inflation, and geopolitical tensions boiling over has people wondering what certainties are left. Today’s events might even feel like a cluster of earthquakes that is reshaping our world.

We have been here before. Similar “earthquakes” have struck the past: in the immediate aftermath of World War II (1944–46), during the period around the oil crisis (1971–73), and at the time of the breakup of the Soviet Union (1989–92). Like a real earthquake, each of them changed the global landscape with the sudden release of powerful underlying forces that had been building up around a fault line over time—but in these cases, unfolding over a few years rather than in a big bang. Each of them ushered in a new era: the Postwar Boom (1944–71), the Era of Contention (1971–89), and the Era of Markets (1989–2019). Are we now on the cusp of a new era presaged by today’s earthquakes?

A new paper from the McKinsey Global Institute suggests a framework to imagine the new era, drawn from a historical perspective of the structural tectonics that underpinned the world we have today and how they might play out in the next era. Working out how to respond to the current moment and the path ahead is complex and requires boldness. We invite you to join us in a conversation about the future.

We are reminded most of the aftermath of the oil shocks in the early 1970s, which shared features resonant with today: an energy crisis, a negative supply shock, the return of inflation, a new monetary era, rising multipolar geopolitical assertion, resource competition, and slowing productivity in the West. The aftershocks came in many waves and took almost 20 years to resolve. The return of stability required investment in energy independence bynon-OPEC countries and painful monetary stabilization, including double-digit interest rates and recessions associated with the US Federal Reserve under Paul Volcker. In addition, there was strong political will, personified by Ronald Reagan, Margaret Thatcher, and Deng Xiaoping.

But there are differences between now and the earthquake of the early 1970s that arguably magnify the reasons for concern. Today’s world is much more globally entwined, financially leveraged, and carbon constrained. This time, can we do better and write a new narrative of progress more quickly?

Of course, we could be overblowing the momentousness of current events. However, this is different from other tremors like the Asian financial crisis in 1997, the dot-com bust in 2000, and the global financial crisis in 2008. Most of these events were on the demand side and were largely contained in a region or a sector. Today, however, we face a supply-side crisis, inherently physical rather than psychological, against a backdrop of a shifting geopolitical landscape upon which the crisis needs to be resolved.

Moreover, today’s earthquakes have largely come as surprises, shaking the world after a 30-year era of relative calm. In truth, for all of us authors, and we suspect most of our readers, our professional lives have played out on one clear and consistent global landscape—one where perhaps we have embedded many implicit assumptions and beliefs about how the world works, which are now under direct challenge.

We start the next era—if indeed one is about to unfold—from a fundamentally different point from which we started the prior one. The world at the turn of the 1990s had a much more obvious gap between the developed and the developing worlds: huge populations poor in energy and resources, more people living in rural areas outside of the orbit of global markets and capital, more people uneducated, and disconnected from each other and from the world’s information. In the previous era, the world converged much more into a globalized economy, with rapid catch-up growth for billions of people where we managed peacefully to keep the gains. Without question today’s world is better, but with this growth there is also much more disruption to established constituencies, more pangs of imbalance, and more powerful new players asserting their place at the global table.

What could that new era look like? The die is not yet cast. While there is a current direction of travel, there are also complex unresolved questions, which will determine how the situation plays out. To try to build a map for the new era, we looked at five domains (exhibit).