Using Scenarios to Conceptualize a Sustainable Future

The American philosopher, John Rawls wrote in his masterwork, The Theory of Justice, that a just society is one we would choose to live in if, blinded by a veil of ignorance, we did not know what position we would occupy in that society. We would not know whether we would be a wealthy, white, male member of the elite, living in an elegant community, or we would be an indigenous pregnant woman with little hope, living in a marginalized community in southeastern Mexico. Rawls’ colleague, the Pakistani Noble Prize-winning economist, Amartaya Sen added in Development as Freedom, that liberty consists of having choices to define one`s own destiny and to contribute to societal decisions.

In a series of recent scenario-based studies summarized in Mexico Facing the Future we found that for too many of its citizens Mexico is neither a just nor a free society by these definitions. Without action, we found that the conditions that make this so are likely to exacerbate in the coming decades under any of the future scenarios we studied. It means, also, that Mexico is wasting its most valuable asset needed to prosper in a future knowledge economy: the talent and creativity of its people. We suggest, moreover, that what is happening in Mexico is symptomatic of the challenges facing other developing and developed countries in the coming decades.

The challenge of the 4th Industrial Revolution for Mexico

Technological change can upend Mexico’s traditional business models built on returns to scale, efficiency and product improvement in global value chains. New technology-based business models are transforming the nature of commerce and of work. Products that Mexico produces are being supplanted by shared products and services. Routine manual and cognitive jobs, today the entry point to the middle class, are likely to be displaced by automation, artificial intelligence and “gig economy” jobs. With technology, a society that is already one of the world’s most unequal risks becoming even more unequal as technology differentiates sharply among winners and losers. Artificial intelligence, blockchain, robotics and gene editing, moreover, will pose environmental, economic and ethical challenges that today are only poorly understood.

Paradoxically, however, increasingly centralized global technology platforms facilitate local and regional innovation and create opportunities for new market creation by linking the local to the global. Technology can enhance human potential and can create opportunities for small-scale local businesses, free humans from degrading, unsafe and backbreaking work and address important environmental concerns such as climate change, water scarcity and habitat loss.

As with tectonic plates that underlie it geologically, the socio-economic plates that underlie Mexico socially and economically will shift, clash and overlap. Facing this near certainty, we asked, “what if?” in scenarios of plausible futures for Mexico in separate projects for the Ministries of Environment and Education and for the Business Coordinating Council (Consejo Coordinador Empresarial). Three key vulnerabilities emerged:

1. Mexico is poorly prepared to compete in a future knowledge-based economy.

Knowledge and ideas will become more important to economic competitiveness than assets and resources. Mexican companies are set up to compete on the basis of assets, efficiency, scale and resources. Their R&D annual investment has been minimal (0.2% of GDP annually). They have not created new businesses because their business model did not require new business creation. Five of the top ten Mexican companies in the 2019 Expansión list of the largest companies in Mexico were also in the 1975 list; all but one existed in 1975. By contrast, seven of the ten most valuable companies in the world in 2019 did not exist in 1974.

Mexico’s innovation ecosystems are weak. As noted in previous Woodrow Wilson Center studies, Mexico’s great universities have seldom spawned regional innovation ecosystems--there are few entrepreneurial support systems; legal, cultural and bureaucratic obstacles prevent government-funded university research from being commercialized. The current administration has discontinued the national institute for the support of entrepreneurs (INADEM).

The educational system fails to develop talent. Three of every thousand Mexican students who took the 2015 global PISA test in mathematics scored at the “high achievement” level; 182 Korean students and 65 United States students per thousand did so. The 0.03% high performing Mexican students, moreover, most often come from the wealthiest sectors of society: the strongest predictor of academic achievement among Mexican students is the socio-economic status of their parents.

2. Mexico is highly vulnerable to the social and environmental consequence of the future.

Technology will exacerbate Mexico’s already-extreme inequality. As cities and nations worldwide have found, technology creates an elite of highly compensated winners but leaves behind those who do not participate in the new economy.

Poverty will increase. In our analysis of high technology scenarios there was a hollowing out of the middle class as workers in routine manual and cognitive jobs become technologically unemployed or migrate to a low paid “gig economy” without a social safety net. In lower technology scenarios, extreme poverty increased.

Mexico is vulnerable to extreme environmental impacts. Large parts of the north of the country are vulnerable to drought and its southern states are vulnerable to flooding with rising sea levels. Biodiversity, an underappreciated asset, is declining rapidly. Technology will bring new categories of environmental and social impacts some of which we can anticipate. Others, “unknown unknowns,” associated with yet-to-be discovered or nascent technologies, will pose complex, unanticipated ethical and environmental challenges.

3. Mexican public and private institutions are unequal to the challenges of the future.

Public and private institutions are not “future-ready.” Public sector planning takes place at best on the basis of a six-year presidential term. National Development Plans are developed on a six-year time frame and anticipate the future as a continuation of the present. Private sector institutions are little better. While some firms have sophisticated planning processes in place, “planning” all-too-often consists of projecting current forces into the future, ignoring the possibility of discontinuous geopolitical, technological, business, social and environmental change in the future.

The Path Forward

The future will be challenging for Mexico, as it will be for all societies. Solutions must emerge from a national conversation that engages all sectors of society and all regions. Mexico will need to focus on its particular vulnerabilities in education, competitiveness, innovation, economic inequality and environmental sustainability. Sustainable growth cannot be defined by GDP alone. It must also be measured by the human, social and environmental well-being of the current generation as well of future generations.

Mexico must meet the needs of a hard-working, diverse and creative population but also a population divided by extreme inequality in well-being and opportunities, parts of which have lost faith that the economic system serves its interests fairly. It has important assets in its people and its physical, biological, cultural and ethnic diversity. It occupies a privileged geographic position, next door to the world’s largest market, and its geology makes it one of the world’s most mega- diverse countries. But its proximity to the United States has stifled domestic innovation and created a dangerous dependence on a single market. Its geology breaks it up into isolated enclaves, and its natural capital is threatened by climate change, deforestation and biodiversity loss.

The choice is clear. Mexico can continue with business as usual—anemic growth, concentration of wealth in the richest sectors of society, deterioration of its natural capital and decreasing competitiveness in the global economy. Or, government, businesses, academic institutions and society can come together to embrace new technologies to spur inclusive economic models. The current administration has put forward the concept of a “Fourth Transformation” that addresses extreme inequality and the needs of the poor. If this transformation is to be achieve its goals, it must look not to the past but to the future, leveraging the Fourth Industrial Revolution to address the interests of all society.

The so-called “strategic sectors” of the future will not be the same as those of the past. Thirty-five years ago, the Web barely existed. Few imagined that new businesses would emerge in search engines, streaming of video content, social media, e-commerce, computing power as a service on the Web and “shared stuff, space and skill.” The future of the global economy may well be more disruptive than that of the past 35 years. The key business sectors of the future will most likely emerge at the interstices of the new capabilities that the 4th Industrial Revolution provides.

Today in Mexico employment in manufacturing and commerce in global value chains are a source of good jobs with the promise of stability, benefits and professional advancement. In the near-term it will be important to maintain and strengthen connections to global value chains. They are simply too important to ignore. Nevertheless, it will also be important to prepare for a transition in the coming decades to a future that will require a work force that is more agile, more creative and better prepared to work at the intersection of the human creativity and artificial intelligence.

The Economies of the Future

The businesses of the future must benefit not only today’s elites in Mexico’s global cities; they must also benefit the young indigenous woman in a marginalized community in the Southeast of the country. To this end, it is helpful to see the 4th Industrial Revolution not as a set of disarticulated technologies but as four sub-economies that will change the way we live, work and do business.

1. A knowledge economy where knowledge and ideas are more important to economic competitiveness than are physical assets. What you know will be more important than whom you know and what assets you control. Human intelligence will collaborate or be challenged by autonomous artificial general intelligence. Increasing returns to scale will prevail-- serving the billionth digital customer will cost less than serving the millionth customer.
2. A shared economy. The knowledge economy will enable Individual workers and customers to be connected through ubiquitous “apps” --sharing knowledge, skills, data, working and living spaces and possessions. They will build trust through ratings in sharing platforms and find new ways of working in what has become known as the “gig economy.” Most important, access to shared technological services in the cloud such as data analytics, artificial intelligence, virtual and augmented reality and blockchain will undermine the competitive advantage of assets and scale.
3. A distributed economy where new technologies enable decentralization of economic activity. The shared economy will decentralize economic activity. Renewable energy generation and storage, manufacturing (3-D printing and synthetic biology), transportation (drone vehicles and airplanes), and record keeping and storage (blockchain) will decentralize economic activity. Crowdsourcing will enable individuals to contribute to and benefit from the design of new products and services. Creativity and diversity will become more important than consistency and homogeneity.
4. A human, circular, and natural economy will become a strategic necessity. Once considered a “nice to have” matter for corporate social responsibility, public relations and philanthropy, social and environmental sustainability become business imperatives. The survival of nations, societies and, indeed humanity as we know it today, will depend on environmental sustainability. Circular business models will become the new normal.

This is not a world in which most Mexican companies are prepared to compete. To address this challenge, we must prepare leaders in business, government and civil society who are agile and prepared to take risks in new forms of endeavor that we can barely imagine today.

Strategies for a Sustainable Future

In our Wilson Center monograph, we outlined four strategies to address the future:

1. Monitor emerging trends. We do not expect pilots to fly without radars or seismologists to do their jobs without seismographs, but public and private institutions base key decisions on backward looking data. Both urgently require a capacity to think systematically about the future. The goal is not to predict the future but to anticipate what might happen and to reassess and renew institutions and their purposes.
2. Build resilient physical, social and institutional systems. As with seismic events, we know bad things will happen. Pandemics and climatic events will happen; large employers may go out of business or “insource” their operations back to their home countries; the gig economy will displace existing jobs. Mexico needs to prepare for systemic shocks by ensuring that institutions, social systems and safety nets, and physical systems have the flexibility to cushion and adapt to them.
3. Make robust long-term investments. Long term investments are critical in a socio-economic equality, education, innovation ecosystems and a competitive model that leverages Mexico’s significant human and natural assets and will serve it well independently of what future emerges.
4. Make bets for a better future. Mexico must look ahead to the opportunities that will create a better future for all Mexicans. These will be businesses and social initiatives based not on technologies that replace jobs but on technologies that enhance jobs and leverage Mexico’s unique capabilities. Bets involve risks and must be made with care. As with entrepreneurial ventures, there will be failures, but through success as well as failures Mexico and other countries will learn how to capitalize on the potential of the 4th Industrial Revolution.

Bets for a Sustainable Future

In the following paragraphs we illustrate possible future “bets”. These bets leverage the economies of the Fourth Industrial Revolution. In each case, they integrate diverse technologies and enhance the central role of human actors with a mix of soft and hard skills at the interface between technology and its beneficiaries.

• Hybrid Education. Hybrid education integrates on-line learning with classroom teaching. It is a promising avenue to develop “future-ready” students while maintaining the central role of the classroom. In “flipped classrooms,” online platforms such as MIT Blossoms and BYJU provide content while classroom teachers provide mentoring and coaching to develop “soft” skills: teamwork, empathy, collaboration, communications, critical thinking and problem solving. Personalized learning platforms provide personalized materials to students and alert mentor/teachers to student skills and knowledge gaps.
• Hybrid Medicine. New diagnostic techniques as well as advances in hyper-personalized medicine and genomic sciences are transforming medicine. The problem will be how to make these capabilities available to the indigenous woman in a marginalized community in southeastern Mexico. As in the case of hybrid education, human intermediaries will be required to conduct tests, implement diagnoses, highlight anomalies, interpret and explain results, and conduct routine interventions. This will create a new category of patient-facing jobs at the interface between online diagnoses and human patients.
• Local to global production of personalized products and services. Henry Ford said his customers could have a Model T in any color they wanted, so long as it was black. Future markets will demand personalized products and services. Production and agricultural technologies such as 3-D printing, sensor technology and artificial intelligence can enable personalized, small scale production. Small farmers can use sensors and the internet of things to monitor crop conditions, apply organic farming techniques, reduce the cost of inputs and produce unique local products for global markets. Artisans can use augmented reality to communicate and visualize designs and co-create products with distant clients.
• Local to global market access. The corollary to local production is global to local (L2G) access. Telecommunications and transport technologies will permit access to global markets for local producers. In the not-too-distant future, small scale drones or autonomous vehicles will be able to provide affordable, convenient pick-up and delivery of locally produced products. Blockchain will facilitate reliable certificates of origin for local products and will track compliance with stringent phytosanitary a hygienic and fair-trade requirements of global agricultural product markets. Blockchain and other forms of fintech will provide low-cost financial transactions.
• Sustainable pro-poor tourism. Small-scale sustainable experience-based tourism can provide employment in biodiverse regions and protect biodiversity. Successful customer experiences, security and compliance with hygienic requirements will be particularly important to potential customers. These can be verified through blockchain registers that certify and track customer experience and hygiene compliance ratings.
• Access to clean, low cost energy and water. Novel energy storage technologies, point of use water treatment systems monitored by the internet of things and sensor technology and blockchain (to maintain reliable registries) will permit wide scale application of local energy and water technologies that will create new categories of local jobs.

The need for public-private collaboration

When we first conducted a scenario project in Mexico nearly a decade ago, the 4th Industrial Revolution had not yet been labeled as such, and it was uncertain to what extent it would disrupt business practices. Today, the 4th Industrial Revolution is a fact. What is as yet undefined is how countries such as Mexico will respond to it. In an article in Reforma, Luis Rubio quoted the English/South African writer about the classical world, Mary Renault that, “The only thing worse than an unforeseen catastrophe is a catastrophe that we foresaw but refused to prepare for.” If countries, regions and firms anticipate the challenges of engaging in a knowledge economy, they can leverage its benefits to create a just and sustainable future. Without action, the same technological forces that can create a better future can destroy companies and jobs; cause a society to abandon its most marginalized citizens and unleash complex ethical and environmental problems for which we are ill prepared.

The challenge of the 4th Industrial Revolution will require collaboration between the public and the private sector as well as academia and civil society. Some public officials argue—in some cases with good reason-- that the private sector is an unreliable partner because it is too focused on profit. Some members of the private sector—also, in some cases with good reason—argue that the public sector is insufficiently conscious of important role and needs of the private sector if it is to contribute to a sustainable future. Both are correct, and both are wrong.

Neither the 4th Industrial Revolution nor the 4th Transformation are ends in themselves. They are means to a common goal, a just and sustainable future for all Mexicans. This future cannot be reached without the dynamism, innovation and capital of the private sector. It also requires the talent intellectual engagement of the academic sector and the advocacy of civil society. It is the responsibility of the public sector as the elected representatives of society set the direction and to create the conditions that enable the other sectors to play their part.