McKinsey Quarterly 2023 Number 1

Increasing multipolarity may support a trend toward realignment into regionally and ideologically aligned groups Global integration through flows of trade, people, capital, and, increasingly, intangibles remains a force in the world. However, some underlying trends have been evolving. For example, trade intensity has stabilized. After growing rapidly from the mid-1990s to the global financial crisis in 2008, merchandise trade as a share of GDP has remained flat over the past decade. Technological realignment may be seen too. There has been a decline in global interoperability and a splintering of the technology stack as the availability of major plat forms and technologies increasingly depends on political lines that are drawn. - Again, these trends have led to some tremors in the past two years that signal regional realign ment. In trade, for example, as many regional trade agreements were made in 2021 as in the previous five years combined. The Regional Comprehensive Economic Partnership, a free trade agreement among Asia–Pacific nations, came into force in January 2022, creating the world’s largest trading bloc. In geopolitics, as a consequence of the Ukraine war, Finland and Sweden’s accession to the North Atlantic Treaty Organization (NATO) is being ratified, marking the largest addition to NATO’s material capability since 2004. - Years of relative moderation in internal and international politics may give way to more political polarization, both internally and among blocs Internationally, a persistent gap separates liberal democracies and some more autocratic regimes. Moreover, since Russia’s annexation of Crimea in 2014, the number of active economic sanctions–a marker of tension among nations–has hit an all-time high. This has occurred against a backdrop of increasing strain among people and institutions,

Q1 2023 Print On the cusp Exhibit 1 of 3

Exhibit 1 The world may be transitioning to the next era.

The recent global landscape and open questions for the next era

1940

1960

1980

2000

2020

Era of markets

The next era

Postwar boom

Era of contention

Multipolar world with global connectedness coexisting with increased polarization? Postdigital world where transversal technologies take off? Aging gracefully as health improves and social inequalities are reduced? Affordable and feasible transition to low-carbon energy amid growing resource competition? Outgrowing debt enables orderly stabilization of the large global balance sheet?

Globally interconnected world built on factor cost arbitrage and cooperative economic rules Digital emanation: connected and enabled Global convergence to small, urban family with better health and education Fossil fuel–abundant world with global access but climate damage Massive debt expansion with low inflation, supply–demand shock as billions enter global market economy

World order

Technology platforms Demographic forces Resource and energy systems Capitalization

Source: McKinsey Global Institute analysis

On the cusp of a new era?

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