Blasé Capital POWER OF ONE

Several trends, states think tank McKinsey, define 2025. The first is the ‘Power of One,’ which highlights how a single firm can define a nation’s economy. In the words of the consultancy, “Single firms can move the productivity needle for entire economies.” Less than 100 of the more than 8,000 large firms in the study sample account for nearly two-thirds of the productivity growth in three nations. The former are the so-called ‘standouts’ that account for the bulk of the employment, as well as high percentages of positive contributions. What is relevant is that the productivity changes are not smooth and, of course, not uniform, but arrive in irregular, but powerful bursts. The latter may emerge as bold strategic moves, frenetic top line growth, and portfolio shifts, rather than efficiency gains due to, say, uniform tech adoption. “This is a more concentrated, dynamic, and sporadic pattern than existing literature tends to highlight, with progress on productivity being defined by a few firms moving a mile rather than many firms moving an inch,” the study concludes.

Households had their best year in terms of wealth. Between 2000 and 2024, they added more than $400 trillion in wealth, with the total nearing $550 trillion. On the flip side, “only about $100 trillion was cumulative net investment to build new wealth, while three-quarters of the gains were from assets’ appreciation on paper and general inflation, not fully backed by economic growth.” More than $150 trillion came because of inflation that led to price hikes across asset classes. Another $150 trillion was due to a general rise in valuations of the assets, or paper growth. More importantly, “much of its growth came from asset price increases, funded by a proliferation of debt, rather than new savings and investment.” This is especially true of the wealthy, who riches grew disproportionately, as inequalities widened. This explains the volatility in the wealth changes among the rich. In a single day, as Elon Musk realised, his wealth grew by almost $150 billion, and crashed substantially, on two occasions. Thus, wealth has, in some ways, become ephemeral.

In many ways, the pandemic has had major disruptions in existing patterns related to trade, foreign direct investment, and supply chains. Thanks to geopolitical tensions such as US-China trade tensions, Russia-Ukraine war, and the western sanctions on Russia and India, global trade in terms of geopolitical distance travelled has reduced between 2017 and 2024. The fall was sharp in 2020 for obvious reasons, but became sharper and lesser since 2021. “Economies at each end of the geopolitical spectrum have been trading less with one another: China, Germany, and the US have experienced sharp reductions in the geopolitical distance of trade.” Although McKinsey states that the geographic distance of trade, or actual distance, has climbed slowly but steadily, its graph indicates an inconsistency. Since 2022, this too has dipped, which may be linked to vast changes in the traditional global supply chains. In areas where the rearrangement, or realignment, ratio is less, supply chains have changed rapidly. It is easier to deal with business inputs rather than consumer products such as laptops, mobiles, and toys.

Since 2022, 75 per cent of cross-border deals were in new-age, future-shaping sectors such as AI infrastructure, semiconductors, electric vehicles, batteries, communications, and software, apart from mining and energy. “If successful, FDI projects announced since 2022 could more than quadruple current battery manufacturing capacity outside China, nearly double the global data centre capacity that powers AI, and draw the United States into the circle of top leading-edge semiconductor-producing nations. These patterns show how trade corridors are shifting, country competitiveness is evolving, and new business ecosystems are emerging worldwide,” states the report. The US received most of the announced intentions, with 90 per cent from South Korea and Taiwan (China), and Europe was the destination for just under 15 per cent of the deals. Annual inflows into China fell quite drastically in the recent past, which may be a strategic move to enhance outflows to capture upcoming supply chains via other nations. This is evident as Taiwan/China were the source of half the deals by value. As the US looks inwards, China moves outwards.

Future of work will emerge in complex, nuanced ways, rather than mere replacement by robots, tech, and AI. McKinsey calculates that almost 60 per cent of the present working man hours in the US will be substituted by robots, and AI-powered agents. This implies that the workforce, or human manhours will be reduced radically, and may create havoc. On the positive side, 70 per cent of the human skills applied today will remain relevant, “but how and where they are used will change.” Thus, workers may not do physical work which can be automated, like maintaining, managing, and monitoring inventories, and logistics. They will instead focus on human interactions with customers, and interpreting and analysing AI inputs. Indeed, the higher use of AI may require more humans to manage AI. This implies the complicated, and tough changeover from low skills to higher ones, and the scale of requisite re-skilling. Hence, policy-makers need to focus on the jobs of tomorrow, and not those of today in terms of re-skilling the national workforces.