Why I’m optimistic about 2017

Plenty of challenges lie ahead. But now we’re ready to do something about them

2016 has been full of surprises, and we can learn a lot by looking back at the last twelve months.

Consider the striking contrast between how the year started and how it is ending:

2016 had barely started that stock markets crashed, and a wave of doom-and-gloom headlines spread across the media. One might have been tempted to go back to 2015, or at least erase the first two weeks of 2016, rewind and start all over again. In my first blog of the year, I argued things were not as bad as they looked; and in the following months I kept thinking the pessimism was overdone, not justified by fundamentals.

Fast forward to the last few weeks, and U.S. stock markets have climbed to record highs, with business and consumer confidence similarly bullish.

Yet not much has changed in the economic fundamentals. The U.S. economy has confirmed its resilience — for the seventh year in a row, not for the first time… Europe enjoys a cyclical upswing — but if anything at a somewhat slower pace than last year… China keeps growth on target — but only through a renewed investment push that delays the necessary rebalancing… All three areas still face important structural problems.

So what has changed?

I think many people have gotten tired of the unremitting pessimism, tired of being told that we are condemned to “secular stagnation” and that there is nothing we can do about it.

The Brexit referendum and the U.S. Presidential election were, at least in part, a desire to break out of the rut. Don’t get me wrong: I am worried by the populist and protectionist components, the desire to find easy solutions, to fence ourselves off from the rest of the world. But I am encouraged to see greater optimism and confidence.

Disruption can be harnessed as a force for good. Globalization has created enormous global prosperity, lifting one billion people out of poverty over the past twenty years. But globalization has advanced so fast that we have not done a great job at managing the fallout, at helping the workers whose jobs have been put at risk or exposed to tougher competition.

As GE CEO Jeff Immelt wrote recently on Time magazine, “global engagement is an economic opportunity for the U.S. and the world”. The recent surge in protectionism puts this opportunity at risk. But it is also a chance to rethink and redesign the rules of engagement, to manage globalization better than we have done so far. We all need to do a better job at being both local and global.

Innovation can help channel disruption into stronger economic growth, creating better opportunities for all. You know I am a techno-optimist, and I am particularly excited by the new labor-augmenting technologies that the industrial internet is bringing to industry — technologies that can increase the ability and skills of workers, making them better, faster and safer at their jobs.

Innovation is the only road to greater prosperity. Earlier this year, my colleague Gordon Lewin and I took a closer look at the U.S. growth outlook and crunched a few numbers. In a nutshell: given the weaker demographics, the U.S. needs to reboot productivity growth in order to get back to 3 ½ % + GDP growth. Productivity means higher wages and better living standards.

The good news is that the pace of technological innovation is accelerating, and the digital revolution of industry is now creating a range of efficiency-enhancing solutions. To turn these into a nation-wide productivity acceleration, we need more investment to allow these innovations to scale; and to fuel more investment, we need more confidence and a better business environment. Confidence is growing; and there are encouraging signals that the U.S. might soon see a wave of long-overdue improvements in its business environment, starting with a simpler and more competitive tax system and a lighter regulatory burden.

There are plenty of challenges ahead. Uncertainty remains high, and volatility…well…get used to it, if you haven’t already. As GE Vice-Chair Beth Comstock has eloquently articulated, we have entered an emergent era of faster change and greater complexity, and era that requires a fundamental change in how we look at the world and organize for decision making and problem solving.

But looking to 2017, I feel optimistic — and in a healthier way than twelve months ago. Back then, I just thought things were not as bleak as the consensus wanted to believe. Now I feel we are ready to move on. The disruptions of 2016 seem to have shaken us out of our sense of passive powerlessness; a genuine desire to do better can help us address the structural challenges ahead.

We have more disruption ahead — economic, social and technological.

The # 1 resolution for 2017 should be to harness disruption into a source of faster growth and rising living standards.