periodical 16

July 2017 The N

extGen Race

periodical16J U L Y 2 0 1 7

IN THIS ISSUEMarwan Abedin

Founder & CEO, Flatrace Investments

Daniel S. AegerterChairman & Founder, Armada Investment

Eric CantorVice Chairman & Managing Director, Moelis & Company

Dirk HokeChief Executive Officer, Airbus Defence and Space

Torsten HvidtPartner, QVARTZ

Alexander LandiaChairman of the Board, EuroChem Group

Frank H. LutzFormer Chief Financial Officer, Covestro

Simone MenneChief Financial Officer, Boehringer Ingelheim

Dr. André T. NematMD Chief Surgeon and Director of the Institute for Digital

Transformation in Healthcare, University of Witten-Herdecke

Claudia NematMember of the Board of Management,

Deutsche Telekom, Technology and Innovation

Markus PertlManaging Partner, Stern Stewart & Co.

Hauke StarsMember of the Executive Board, Deutsche Börse

Pascale WitzFounder & CEO, PWH Advisors

Ute WolfChief Financial Officer, Evonik

Rail systems in Germany, universities in China, hospi-tals in England – a shiver ran down corporate and institutional spines in May. WannaCry was a well- coordinated ransomware attack and a wake-up call. Not that we haven’t already been alienated by Russia’s meddling in the US presidential election…manipu-lation may come from many miles away? I am sure we all feel what the US military named VUCA already decades ago: Volatility, Uncertainty, Complexity, Ambiguity. The same is true of business. We have to act decisive-ly in our world. Digitalization and the VUCA world demand fresh ideas on how to run a company. But how to do it? We have to look at everything. We want higher speed in decision-making, of course. Less bureaucracy and the elimination of functional silos. New career models and a complete overhaul of tradi-tional hierarchies. In short, we need a dramatic re-thinking of our entire organization. It is not enough to create a few satellites and leave the mothership unchanged. Radical change demands radical action. I believe we need a NextGenCorp!Our NextGenCorp will revolutionize how we govern, manage, and act. Our NextGenCorp has to combine an extremely flexible, entrepreneurial, autonomous organization with best practices, standards, and economies of scale. It means squaring the circle. To do that, I believe, we first will have to – unscrupulously – split our entire organization into a platform and a project swarm!

The platform has to take the end-to-end process to a new level. Undoubtedly, we will digitize the platform over time and take part in the artificial intelligence ride.The project swarm will take on a new dimension and will differentiate our company from the rest. But besides autonomy and freedom, we will create a framework with clear roles and mandates. And we will have to deal with what it means for our people.But most importantly, we will set up a new plexus, a nerve system. A plexus that gives purpose and mean-ing to our organization. A nerve system that holds together the perfect platform and our crazy swarm!I believe it’s our job to act decisively in VUCA. Think about it!In this issue of the periodical, our authors are far from crying. They show us how to deal with digitaliza-tion and other VUCA tails.

I wish you an inspiring read through this 16th edition of our periodical.

Yours,

Markus PertlChairman of The Stern Stewart Institute

WANNA CRY?

Markus Pertl Editorial Comment

Markus PertlChairman of The Stern Stewart Institute

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Content

3Wanna Cry?

Editorial CommentMarkus Pertl, Chairman of The Stern Stewart Institute

6Digital and the Influence

on Health CareSimone Menne, Chief Financial Officer,

Boehringer Ingelheim

10Digital Transformation –

Be There or Be SquareClaudia Nemat, Member of the Board of Management, Deutsche Telekom,

Technology and Innovation

14Healthcare –

Blockchain as a Game ChangerDr. André T. Nemat, MD Chief Surgeon and

Director of the Institute for Digital Transformation in Healthcare, University of Witten-Herdecke

18Harnessing the Power

of Digital HealthPascale Witz, Founder & CEO, PWH Advisors

22Driving Value Creation

in the Chemical Industry in a Low Growth EnvironmentUte Wolf, Chief Financial Officer, Evonik

26Transforming the Aerospace

Platform – Smarter, More Services, More Digital

Dirk Hoke, Chief Executive Officer, Airbus Defence and Space

Content

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Content

30100% Wind and Solar?

A Seductive MythDaniel S. Aegerter, Chairman & Founder,

Armada Investment

36Start-up Ecosystems on the Rise

Hauke Stars, Member of the Executive Board, Deutsche Börse

40“10 under 10” –

Together We Can Save up to $1 Trillion Annually

Alexander Landia, Chairman of the Board, EuroChem Group

46From Pyongyang to Cupertino:

The “NextGen” RaceTorsten Hvidt, Partner, QVARTZ and

Markus Pertl, Managing Partner, Stern Stewart & Co.

52What’s Next for

Dubai’s Property Market?Marwan Abedin, Founder & CEO,

Flatrace Investments

56Striving for Sustainable

Business Success in a Start-up with 16,000 People

Frank H. Lutz, Former Chief Financial Officer, Covestro

60Focusing on the Right Problem –

How a tax reform could foster growth in the U.S.

Eric Cantor, Vice Chairman & Managing Director, Moelis & Company

66Imprint

Content

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Digital and the Influence on Health Care

The first question: How do we actually define “digitalization”? The necessity of clarification and focus

The first question that needs to be clarified is the question of what a company un-derstands by the term digitaliza-

tion. Key words are seldom clearly defined, yet their importance and, by extension, their areas of application that concern them are very different. So, are we talking about big data and data analytics? This involves research, test-ing methods, and also treatment supervision. Or is it about artificial intelligence, where it is possi-ble to derive research procedures, treatment, and medication recommendations? And, lastly, there is also the Internet of Things, e.g. with wearable data collectors like fitness bands or even clothes (or even devices placed in the

body) which transmit data and communicate with other devices. These allow forecasts or even recommendations for dosage adaptations for dia betic patients. Also mobile electrocardio-grams can be done with devices smaller than cell phones to show early signs of atrial fibrillation and stroke risks. Often enough there are depen-dencies between these application areas, making it all the more important to be clear about the goals of one’s own company.

In the discussion about the role of a chief dig-ital officer, which was introduced a few years ago, the range of possible applications has be-

come clear which included connections to IT, marketing, and even to strategy.

These days, everyone in every industry is talking about digitalization and its disruptive influence on business models,

and the pharmaceutical and life cycle industries are no exception. And, like in all other industries, the same or similar questions arise.

Simone MenneChief Financial OfficerBoehringer Ingelheim

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Simone Menne Digital and the Influence on Health Care

The third question: What should we expect? Developments that emerge from new technologies

The pharmaceutical industry is a very attractive industri-al sector. The demand for pharmaceutical products is growing due to the demographic development and the expansion into developing markets. Compared to other industries, the pharmaceutical one is generating high margins. However, product development goes hand in hand with high risks and long periods of development. Moreover, the industry is heavily regulated. For this reason, a few developments in the phar-maceutical industry have not yet progressed as in other industries.

At the same time, there is a tremendous de-mand to apply new technologies in order to develop new forms of treatment and to reduce the high costs of health care.

This is where the market entries of new companies can have a considerable impact. Google’s Verily develops wearables like contact lenses or fitness bands together with apps, which make it possible to collect and evaluate pa-tient information. IBM Watson analyzes data to improve the diagnosis and derive appropriate treatment recom-mendations supported by artificial intelligence.

At the same time, health care funds and regulatory au-thorities are on the lookout for other ways of billing. There is a move away from compensating the amount of

prescribed medications in favor of compensat-ing the added value or even avoided costs.

Today, doctors are already working on the Internet and treating patients from a distance. That which is viewed rather

skeptically in developed countries where good health care is in place, is deemed to be

a great step forward in developing coun-tries with underdeveloped infrastruc-ture. And, finally, it is likely that in fu-ture even the patients will demand more of a say in treatment and drug

decisions. Access to information makes it easier to assess a doctor’s treatment rec-

ommendation, and patients networks offer advice. This is another point pharmaceutical com-

panies – which have had little direct contact with patients – will have to consider in future and use as an opportuni-ty to inform. In doing so, the considerable transparency requirements when dealing with doctors and patients have to be considered accordingly.

The second question: Do we act or react? The company’s own role and the evaluation of the competitive environment

Another important evaluation involves the compa-ny’s role in the area of digitalization. How does the company want to tackle the field of digitalization? Usually, activities concen-trate on the possibilities of one’s own ac-tions in the various areas mentioned above without an holistic view.

Digital technologies are already being used, particu-larly when it comes to research. But opportunities also emerge to perform test procedures much more effi-ciently and even with larger populations. And with expanded data collection during the use of medications, the observational study can significantly improve not only the dosage but also their further development with respect to side effect management, etc.

However, in addition to this application of new technologies to enhance the business

model, the corporate strategy also has to develop strategies either to fend off negative developments or, even better, to further advance one’s own business model. Established organizations with

successful business models naturally find this harder than companies or industries

stuck in the midst of a crisis. And this is not a necessity that has just emerged in the age of digitalization. Even in 1997 Christensen pointed out the

“ Innovator’s Dilemma”.

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Simone Menne Digital and the Influence on Health Care

The fourth question: What does all this mean for us? Conclusions for the pharmaceutical industry

Digitalization presents huge opportunities for the health of people and for the pharmaceutical industry while at the same time harboring disruptive potential. Due to eth-ical questions which need to be clarified and the corre-sponding necessity for regulation, development will potentially be slower than in other industries. Given the significance for society there will, however, be considerable demand to take advantage of the opportunity.

Pharmaceutical companies have to pre-pare for this new environment. The de-velopment will promote networks and partnerships.

While such partnerships al-ready exist in the areas of research and commercialization between in-dividual companies within the industry, new partnerships with companies will emerge to deal with the management and analysis of big data. At this stage, there is little point in an industry-wide solution because networking with other datastreams can certainly create added value. Today, for instance, there is

an app for migraine sufferers which compiles weather data, patient movement date, and medication intake in order to draw appropriate conclusions.

The “Network London Health” connects pa-tients, doctors, and pharmacists to develop fore-casts based on environmental data for people who suffer from asthma and then arranges cor-responding treatment times and the logistics for the delivery of medications to pharmacies.

Health care funds together with pharmaceu-tical companies are more likely to develop and compensate preventative methods and those

which avoid medical expenses. And the focus will no longer be on the amount of medications sold, but, rather, on the

avoidance of illness or on healing. Similar to the communication, trans-

portation, and energy sectors, models could emerge which promote a network-

ing and sharing of information thus necessitating new models to safeguard the high costs of research and the risks borne by pharmaceutical companies.

Conclusion

As in many other industries, the pharmaceutical industry is also facing developments brought about by technological possibilities, which could certainly have a disruptive char-acter. These developments require the company to have a clear strategy for its own role in this development in order to determine the focus for important future steps. Doing this requires a culture of agility and innovation as well as the courage to embark on new entrepreneurial paths. But the fact remains that despite all the support technology of-fers, people who are able to formulate relevant questions, derive ideas, and draw conclusions from data analyses are the major success factor.

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Digital Transformation –

Be There or Be Square

For science fiction fans and tech enthusiasts, 2016 was an interest-ing year in fields such as physics where an Earth-like planet in the life zone of our neighboring sun Proxima Centauri was dis-

covered; telecommunications where three billion people are now con-nected globally compared to 1.8 billion in 2010; and such as energy which, for the first time, saw renewable energy sources in 30 countries cost less than fossil fuels. And of course, the Star Wars saga goes on!

On the one hand, the future seems bright. Technological develop-ments in different disciplines can help us address major problems like climate change, cancer, and famine. On the other hand, we are expe-riencing increasing threats due to military conflicts and nationalism,

migration challenges, and dissatisfaction with uneven distribution of globalization gains. Moreover, the digital transformation will funda-mentally change the way we live and work in just one generation. 80 percent of today’s jobs will no longer exist in the next generation, and 65 percent of the children entering school today will work in jobs that do not yet exist. In other words, while the future might be bright, the transition is challenging.

Obviously, nobody can foresee the future. Yet, it is essential for business leaders, political leaders, and even for each citizen to under-stand the factors which are likely to shape the future digital transfor-mation.

Claudia NematMember of the Board

of ManagementDeutsche Telekom,

Technology and Innovation

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Claudia Nemat Digital Transformation – Be There or Be Square

4. Platforms and data security: With the exponentially growing number of connections, the security thrusts grow expo-nentially, too. Traditional firewall concepts might no longer be enough. At Deutsche Telekom, we have bundled all security activi-ties in one area and recently started working together with South Korea Telecom to ex-plore quantum cryptography2.

2 Quantum cryptography exploits quantum mechanical properties to perform cryptographic tasks to massively enhance security

Four exponential technological develop-ments occurring simultaneously are driving the digital transformation, especially in the ICT and industrial sectors:

1. Artificial learning (AI) and machine learning: Only ten years ago, pattern recognition soft-ware could not distinguish between a small child standing on a street corner and a street hydrant, which made autonomous driving impossible. Since then, pattern recognition has improved massively, e.g., there is a lip- reading algorithm which was developed in Oxford last year that can read human lips far better than any human can.

At Deutsche Telekom, we are working to-gether with partners. Today’s applications are predictive maintenance algorithms for our network, which help to determine the condi-tion of our network and, therefore, to predict needed maintenance. And the application of machine learning enhances chatbots for our digital customer service (e-care) at T-Mobile Austria.

2. 5G as a new dimension of connectivity: From a physical infrastructure perspective, 5G networks are small cell networks requir-ing dense fiber-to-the-street backbone net-works and new spectrum frequencies. From a logical perspective, the 5G standard facili-tates via so-called “network slicing” software the realization of different logical networks with very different capabilities on one logical network – networks with ultra-low “latency” (reaction time), with the ability to securely connect many more machines and sensors than human beings or networks with ultra- high speed can. For example, today’s net-works have latency times of 50 milliseconds compared to a professional athlete with five milliseconds. Last year, Deutsche Telekom was the world’s first operator that built a functioning, end-to-end 5G system with its

global technology partner with a latency of one millisecond, and this year, the guaran-teed latency is eight milliseconds. What for? Assuming you want to control an industry robot remotely, you will need guaranteed low latency, for example, to clean up a contami-nated area or for rescue activities in burning buildings. If you want to reduce heat, cost, and weight for consumer devices, you would need to put computing power into the edges of the networks with low latency connection to the devices, e.g., for virtual or advanced reality glasses.

Another aspect is the management of con-nected things. Last year, three billion people were connected globally. In 2020, there will be an estimated 30 billion devices. For that, the Narrowband Internet of Things (NBIoT) technology can securely connect sensors with a very long battery life cycle that uses little energy, with little cost, and from any remote place (e.g., also in the sewer systems). This year, Deutsche Telekom is rolling out NBIoT in eight countries. The first commercial ap-plications based on NBIoT focus on smart parking, smart lighting, smart metering, and predictive maintenance.

3. Sensor miniaturization and digital production technologies: like 3D printing or the creation of “digital twins” for products or production factories in order to reduce production time and production costs in the manufacturing sectors.

Sensors are also appearing everywhere, not only in machines and products, but also in our bodies. For example, in 2015, the world’s first digital pill received the market go-ahead1.

1 The patient swallows an indigestible mini sensor which measures the concentration of a certain sub-stance in the stomach and transmits the data to a small sensor on the wrist. The data is transmitted via an app to a central data base that provides real-time information to the patient about what patient-specific dosage of medicine needs to be taken)

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Claudia Nemat Digital Transformation – Be There or Be Square

The combination of all four developments creates the es-sence of this new world. Let’s take a simple example of a robot that can clean up a mess of Lego blocks in a child’s room. To do so, it needs algorithmic intelligence, com-puting power, and data updates which are likely to be stored in a network cloud – like an outsourced brain, sen-sors, and low-latency connectivity to the cloud in order to avoid making an even bigger Lego mess. For Lego blocks, security might be less of an issue, but for autonomous driving it is essential.

Obviously, in the telco sector, we need to understand the use cases in different industries and define the busi-ness models in order to justify billions of investments in 5G networks. Needless to say, the digital transformation requires much more of a cultural change than a tech in-novation. Enterprises need to be externally-oriented and network-orientated. We need to understand the customer of today and tomorrow and industry pain points. And we need to understand rapidly evolving technologies, how to combine them, and what we create ourselves instead of creating it in networks with start-ups or with established companies. Cross-functional collaboration within the en-terprise will become more important than ever before. And, we need ambidextrous leadership which means finding the right balance between the extremely agile, trial- and-error type of working and the traditional risk- mitigating, waterfall-type approaches.

Finally, as leaders we need to live the cultural change we want to see. This might also mean giving up exactly those control mechanisms that made us successful in the past.

As Marie Curie said “Nothing is to be feared, only to be understood”. With that, we can shape a bright future and a peaceful transformation.

CROSS-FUNCTIONAL COLLABORATION WITHIN

THE ENTERPRISE WILL BECOME MORE IMPORTANT

THAN EVER BEFORE.

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ACCESS ALL

AREAS?

Healthcare – Blockchain as a Game Changer

In 2015, the total amount paid into the system, or the revenues it generates, de-pending on how you look at it, achieved a

record of €344 billion in Germany for exam-ple, which is enough to earn top rankings on the Fortune 500. But if it were a corporation, it would have the status of a “permanently failing organization” (see Meyer & Zucker 1989). The lack of ability to successfully adopt and implement innovations would be self-limiting, leaving behind unsatisfied stakeholders who, in this case, are the pa-tients and taxpayers.

What are the reasons?

Why is healthcare not catching up with other industries when it comes to implementing technology to improve efficiency? Isn’t there enough disruptive technology at hand? No moonshot innovations in the healthcare busi-ness?

Almost all of the so-called exponential technologies are expected to have implica-tions on healthcare. Use case scenarios often refer to applications that change the way people take care of themselves. Disruptive

It’s no secret that the healthcare system is not amongst the most performing industries.

Nevertheless, if the healthcare system were a corporation, it would be among the biggest in

each western country.

Dr. André T. NematMD Chief Surgeon

Director of the Institute for Digital Transformation in Healthcare

University of Witten-Herdecke

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Dr. André T. Nemat Healthcare – Blockchain as a Game Changer

developments forecast ways in which we are diagnosed and treated within healthcare in-stitutions. In the 1990s, science fiction shows like Star Trek predicted a universe beyond the millennium where small devices could easily detect diseases, and treatments could be delivered at the push of a button in the most comfortable way.

Are we there yet?

The Tricoder, a device Dr.  McCoy used in Star Trek on his missions is likely to be re-in-vented by a US and Taiwanese Team, which recently were both announced winners of an Qualcomm sponsored competition to develop a pocket-size health sensor. Is this really what we experience every time we are sitting in outpatient waiting rooms? Certainly not. But when we take a look at innovations specific to healthcare, technological progress like smart devices, wearables, exoskeletons, operation robots, and artificial intelligence are all over the place.

So, we are not suffering from a lack of innovation in healthcare. But health-care is suffering from a lack of effective adoption to horizontal innovations.

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Dr. André T. Nemat Healthcare – Blockchain as a Game Changer

Among other things, this is due to unsolved data secu-rity and privacy issues. Is blockchain going to be the next big horizontal innovation especially for healthcare?

Blockchain is a distributed ledger, meaning there is no central administrator or centralized data storage. Instead, data can be stored in different systems. All data is repli-cated on every node across a network of nodes. In addi-tion, the blocks are linked in chronological order via cryptographic signature. As a result, data cannot be ma-nipulated without destroying the integrity of the whole system. The blockchain controls the access and permis-sion layer, meaning it controls who should have access to which content at what time. With blockchain you are in control of your complete, full, and accurate history of your data.

There are interesting potential applications in block-chain healthcare, leveraging its security and privacy fea-tures: 1. Blockchain could be a basis for a universal electronic

medical record system (EMR). Medical records are al-ready digitalized. However, they are stored in different data silos, which are not interoperable. With block-chain-based EMRs there could be one worldwide stan-dard always accessible.

2. New forms of insurance services can be delivered on demand, which may constantly adapt to changing in-dividual situation. Data from quantified self-tracking wearables could be logged into a blockchain IoT (In-ternet of Things) surrounding and be fed into a digital health wallet with remunerative incentive programs.

3. When it comes to healthcare, related research (phar-maceutical industry), data ownership, and the secure exchange of personal data becomes crucial. Be it con-tributing a small number of personal data points into a large study or a large amount of individual data like gene analysis, with blockchain you can maintain con-trol of your own data, while easily managing consent records or share benefits.

The Internet has proven to be one of the horizontal innovations from the past decades. You wouldn’t want to think of a world without the Internet anymore. But the Internet (TCP/IP) was meant to be an information exchange protocol. There is no security built in. And there is no sense of trust in the World Wide Web. Blockchain, on the other hand, enables us to scale information sharing and, at the same time, to protect privacy. Blockchain is a value exchange protocol dis-tributing trust and consensus.

Finance was the first vertical market in which blockchain took hold with Bitcoin. Because of its much broader capability base around information and value exchange, other verticals are now starting to adapt to this technology.

Healthcare remains one of the bigger challenges, as it continues to demand a larger share of GDP in most societies, specifically those with ageing populations. Healthcare affects everyone and remains a hot political topic. Meanwhile, basic healthcare is not accessible to all and, where available, outcomes vary widely. It’s clear that the current healthcare models that were shaped in the middle of the last century are no longer effectively addressing the chronic care needs of today. The use of technology-driven innovations is mandatory. Healthcare has to adapt to horizontal innovations like blockchain technology to step into an era of a patient-centered environment.

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Harnessing the Power of Digital Health

From Acute Medicine to Managing Multiple Chronic Diseases for Decades

Thinking about the tremendous progress made in medicine over the past century, we have every reason to be proud. People used to die more frequently of infectious diseases, cardiovascular events, or cancer. Now people live longer, but many live with chronic

diseases for decades – Diabetes, Cardiovascular disease or AutoImmune disease such as Multiple Sclerosis, or Rhumatoid Arthritis.

While we need to continue searching for new drugs to treat currently untreatable diseases, we are facing a new challenge: with an aging population, the cost of Healthcare has become a pressure point for all countries in the world.

The US currently spends 16% of GDP on healthcare. Germany is better, spending just 10.5%, and France and the UK spend 11% and 8.7% respectively. This pressure on national budgets is here to stay, and we need to find ways to cut this cost, while improving the care provided.

Our health systems were designed to respond to acute diseases, to prevent deaths by pro-viding short-term treatment, hospitalization, and recovery at home. But these systems now need to evolve to support people living with multiple chronic conditions for years or decades, where treatment efficacy will of course depend on the drugs available, but also on patients’ adherence to their treatment regime, their lifestyle and diet, and other environmental and behavioral factors. Today, the medical community generally accepts that, for patients suffering from chronic diseases, their long-term engagement in the management of their condition is a strong driver of better outcomes. Meanwhile, pharma companies are investing huge amounts of money in the development of new and better drugs, but if patients don’t stay on treatment, the benefits are lost, and payers are now demanding proven results in a real-world context.

Pascale WitzFounder & CEOPWH Advisors

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Pascale Witz Harnessing the Power of Digital Health

Democratizing healthcare

Patients feel the rising cost of healthcare. At the same time, we all have higher expectations of medicine than our grandparents had. With the quantity of information freely available to anyone today, more single-minded and better-educated patients consult their doctor when they already have an opinion on what treatment should be provided and are adamant that their treatment should be personalized.

The explosion of “quantified self ” technology is clearly involving people more in managing their health. This technology gives patients a real opportunity to better un-derstand their chronic diseases, as well as the impact of their lifestyle, activity, and diet. In other words, it gives them more effective tools to manage their health. Ad-vances in technology have really paved the way to easy, reliable patient self-care. And improved experiences by their users boost patient engagement.

A revolution is happening…

But a revolution is changing the face of the entire health-care industry: a digital revolution that embraces person-alized medicine. The term may be over-used, but it her-alds an exciting future. Put simply, it will mean medicines that actually work for everyone. For example, for diabetic patients it means replacing cumbersome BGM measuring kits and nervous guesswork with a simple patch applied to the arm or stomach that will automatically record their personal glucose levels onto their smartphone. Not only is this easier to manage, but the data can then be transmit-ted to their doctor, analyzed, and examined for trends.

Benefits of the revolution: the 4 P’s

❱ Patients love it. It helps them better understand how their environment affects their health. When diabetic patients are able to calculate their insulin dose more accurately based on the glucose levels recorded on their smartphone, they become more engaged in their own care and pay closer attention to their diet. This, in turn, helps to reduce the chances of any debilitating complications.

❱ Physicians love it. Instead of keeping partially (and sometimes inaccurately) handwritten logbooks, or re-lying on anecdotal evidence from patients, they have real- time data that sharpens their focus on patterns, rather than discrete outlier points. This better-quality information helps them to work more cohesively with their patients.

❱ Pharma companies love it, because now they can run continuous clinical trials to monitor glucose levels in Type 2 diabetes patients, whereas previously this was impractical. Likewise, they can monitor a wide range of other parameters, such as blood pressure, heart rate, physical activity, and temperature, without patients having to come in for “check-ups”. The result-ing improved information about the effects and effica-cy of drugs is taking our understanding of the condi-tion to a whole new level.These fresh insights then spawn new biological hy-potheses, paving the way for the development of new drugs. Trials are also accelerated, saving money, and the measurement of outcomes is optimized.

❱ Payers love it, because better outcomes save billions on the cost of treating complications. Also, since out-comes are measurable, they can conclude risk-based contracts that pay for drugs in proportion to the re-sults obtained.

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Pascale Witz Harnessing the Power of Digital Health

The future of the healthcare sector

The progress made by technology in recent years has been mind-blowing. Computing power has increased ex-ponentially, and this combined with progress of sequenc-ing technologies has had a multiplier effect on genomics. Back in 2002, sequencing one human genome cost $100 million. Today, a whole genome can be sequenced for just $1,000. This has heralded a new era of genomics, which will improve our understanding of human biology and of some rare diseases.

Some diseases were already found to be caused by a single mutation making one enzyme dysfunctional. Here, enzyme replacement therapies have already saved the lives of many – especially children. New cancer therapies, too, have been devised, focusing specifically on a sub-type of cancer in patients carrying specific mutations.

Other technological advances have enabled miniatur-ization, data generation, and data sharing, driving an ex-plosion in the development of quantified self tools. Pe-dometers and Fitbits started life as “toys” or “wellness gadgets”, tracking activity levels and sleep, but as the qual-ity of the software and the reliability of the information improves, medical-grade sensors are proliferating. Among others, Verily (ex-Google Life Sciences) and Ap-ple are already developing watches capable of recording and monitoring biological parameters such as heart rate and movement. The Verily StudyWatch, developed main-ly to monitor patients for better and faster clinical trials, includes a week-long battery life to encourage its use. It collects electrocardiograms (ECG’s) and electrodermal activity from sensors, encrypts, and stores up to several weeks of data internally. By contrast, data collection on this scale used to require heavy, expensive equipment only available in a clinic.

Business start-ups are using artificial intelligence (AI) to help identify new drug targets and understand the roadblocks that would have once hindered their develop-ment. Connected care or digital health promise to enable the delivery of care for chronic disease in the future. Proteus, a digital healthcare company, is developing a bio-logical sensor inserted into a pill to track drug intake, which could be a potential godsend for carers of Alz-heimer patients.

Yes, it will personalize medicine (that word again!), giving doctors a better understanding of whom they are treating, involving patients more closely in their own care, and ultimately cutting costs.

Harnessing the power

But the real healthcare revolution will come from the convergence of technology and science. Imagine a world where your biological parameters are recorded and ana-lyzed with a decision-support algorithm to flag up when they start heading in the wrong direction. As knowledge is extracted from the trillions of data generated by a vari-ety of (often as yet non-interoperable) systems, we need to become skilled at analyzing, sharing, and above all, harnessing it. That is the challenge that lies ahead.

IMAGINE A WORLD WHERE YOUR BIOLOGICAL PARAMETERS ARE RECORDED AND ANA LYZED WITH A

DECISION-SUPPORT ALGORITHM TO FLAG UP WHEN THEY START HEADING IN THE WRONG DIRECTION…

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Driving Value Creation in the Chemical Industry in a

Low Growth Environment

Hopes for fast growth dynamics abated…

After having mastered the severe business downturn triggered by the financial crisis, many players in the chemical industry focused on growth prospects in

the emerging markets which seemed to look bright. Now, seven years later, the picture looks much more nuanced.

Some emerging markets have clearly disappointed, and others have reverted to a more normalized growth rate, and the mature markets have demonstrated reliable growth although on modest levels. Asia-Pacific remains a growth engine of the world economy contributing more than 50 per-cent to global growth.

But there was also a significant increase in capacities es-pecially in the emerging regions leading to overcapacities predominantly in the commodity-like chemicals.

The earnings development and the growth prospects for many chemical players brought along some disappointment for the capital markets and, as a consequence, portfolio man-agement and industry consolidation gain momentum. So, the question is whether this will be the major driver for value creation in the next years.

…but there are secular trends offering attractive growth potential

New technologies require new materials, for instance, for 3D printing or biomaterials for injectables and medical devices. The necessity to produce more sustainably and find energy- efficient solutions creates a wide range of issues to be solved. Here are some concrete examples in relation to Evonik. Silica and silanes as rubber ingredients for green tires lead to sig-nificantly lower rolling resistance. Polyamides are built into gas filtration membranes for the purification of biogas and industrial gases. Lightweight materials are necessary for many applications in automotive, aircrafts, wind turbine blades, and many, many others.

New and advanced technologies are needed to produce highly specialized ingredients and additives. In addition, biotechnology increasingly offers attractive alternative pro-duction routes.

Ute WolfChief Financial Officer

Evonik

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Ute Wolf Driving Value Creation in the Chemical Industry in a Low Growth Environment

Crosslinkers

Crosslinkers are components that link resin polymer chains leading to curing of coatings and adhesive sealants. Prominent application areas are lightweight materials for the pro-duction of wind turbine blades and robust industrial floorings. We are the only integrat-ed producer with production sites in the three major regions. The most recent invest-ment was completed in 2013 with a new pro-duction site in Shanghai. This early move to Asia put us in a favorable position to partici-pate in market growth especially for renew-able energy in China. With the acquisition of the Performance Materials Division from Air Products we now have a broader product portfolio, better technology integration, and more room for new product innovation.

Three drivers to secure growth for Evonik

How does Evonik translate these opportunities into its own business and respond to the challenges mentioned?

1. InnovationEvonik’s innovation strategy is very clearly aligned to strong secular trends. Innovation secures our leading market positions and lays the foundation for long-term growth. The focus lies on dedicated growth areas like sustainable nutrition, advanced food ingredients, healthcare solutions, cosmetic solutions, membranes, and smart materials.

We spend very consistently around 3.5 percent of our sales for in-novation. The major portion of this is application-oriented and, in many cases, the projects are carried out together with our customers. Focusing clearly on the areas to explore is just as important as imple-menting certain key performance indicators and setting specific tar-gets to monitor the impact and the contribution of R&D to the value creation of the company. At Evonik, we measure the share of new products in our sales. The targeted contribution of individual projects to sales and earnings in the next five years is another important para-meter. Moreover, net present value acts a part as well.

Part of an efficient approach to R&D is the use of venture capital or smaller acquisitions of companies with leading technologies.

2. Driving organic growthTopline volume and sales growth are supported by tools developed in our marketing and sales excellence team – a think tank that develops new pricing tools and forecasting algorithms. In addition, the team implements initiatives for individual product groups.

Another important driver is investment in new capacities – espe-cially in product lines and regions with high growth. In our capex spending we dedicate about half of our annual budget to organic growth capex. This level is needed to foster the growth we are target-ing. In comparison to our peer group this still positions us at the upper end of the range. The top-down allocation of the growth capex to our businesses follows consistent criteria according to the growth prospects of the business. For our most promising products we follow long-term master plans to ensure the right capacity development in the major regions of the world.

3. Selective acquisitionsCalibrating our product portfolio and our global reach by selective acquisitions is another contributor to value creation. It is of utmost importance to select the targets very carefully based on clear strategic and financial criteria. Here we follow the same logic of obtaining lead-ing market positions in market segments that are driven by strong secular growth trends. In addition, we apply the same financial crite-ria as for our capex spending in organic growth. Here are two examples:

Traditional salmon diet (2007)35%40% 25%

Future salmon diet (medium term)

5%

5%

84%

>1%

>5%

Current salmon diet (2014)15% 10%

<1%

74% fi shmeal fi sh oil amino acids omega-3 oil from algae other ingredients

NEW TECHNOLOGIES

REQUIRE NEW

MATERIALS.

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Ute Wolf Driving Value Creation in the Chemical Industry in a Low Growth Environment

Veramaris™ – a breakthrough for sustainable fish farming

Early this year, we announced to form a joint venture with DSM called Veramaris™ and the building of a world scale production plant in the US to produce algal omega-3 oil by a fermentation process. This will replace fish oil in the feedstuff for salmonids in fish farming. Today, 2.6 kilograms of wild captured fish are needed for fish oil and fish-meal production to produce one kilogram of farmed salmon. In the light of overfishing of the oceans, this omega-3 algal oil will contrib-ute a lot to a more sustainable approach in aquaculture. Besides the application for fish farming, there is also high demand for its use in high quality pet food.

This is a perfect example of how the strategic business orientation towards the need for sustainable animal nutrition, consistent R&D in technology, and efficiency of production forms an ideal platform for an attractive business development. With DSM we have a like-minded partner to make this a success.

Traditional salmon diet (2007)35%40% 25%

Future salmon diet (medium term)

5%

5%

84%

>1%

>5%

Current salmon diet (2014)15% 10%

<1%

74% fi shmeal fi sh oil amino acids omega-3 oil from algae other ingredients

Last but not least efficiency enhancements

For more than a decade, we have been con-tinuously increasing efficiency in our opera-tions, energy consumption, procurement, and administrative functions. This is vital to compensate for factor cost increases and thus safeguard our margin. Today and in future, higher efficiency will be needed, for instance, in supply chain and working capital manage-ment as well as in relation to capex spending.

With this strategy we are ready and set for profitable growth in a world which shows only modest economic growth.

Figure 1: Development of fishmeal content in salmon feed Source: FAO and Evonik statistics

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Almost all of the top managers at Aero-space and Defence surveyed by Ro-land Berger in June 20161 believe that

digitalization will have a profound effect on our industry within the next five years. There’s also widespread consensus about the effect of digitalization on bottom-line effi-ciency with 82 percent agreeing that digitali-zation will improve time, cost, and quality performance.

Indeed, inside each of our companies and throughout the supply chain, digitalization has scope to further its potential to make us more efficient. Many aerospace firms are the result of consolidation and have a long way to go towards a harmonized IT landscape, let alone end-to-end product lifecycle manage-ment. Airbus Defence and Space is by no

1 Roland Berger “A&D Management Issues Radar 2016 – Aerospace industry: turning point ahead?” June 2016 https://www.rolandberger.com/publications/ publication_pdf/roland_berger_aerospace_ insdustry_turning_point_ahead_160603.pdf 200 Top-Managers from 90 companies in 20 countries.

means an exception. After integrating three distinct parts of Airbus, each of which was the result of some form of integration, our first priority was simply to enable effective collaboration and reduce complexity, for ex-ample, by bringing all employees into the same domain.

Parallel to this, redesigning our processes along the value chain is a key element of our digital transformation. We have no shortage of ideas on how to employ digital capabilities such as augmented and virtual reality, 3D printing, artificial intelligence, and collective computing. More than 600 digitalization ini-tiatives have already been launched across Airbus. Here’s one example: Our facility mak-ing solar panels for satellites is piloting real- time production planning, which optimizes the use of material, machines, and the highly specialized skills of our shop-floor employ-ees. The challenge is to create synergies, scale up and deploy the successes, and streamline it all into one new, overarching, digital oper-ating system.

Transforming the Aerospace Platform – Smarter,

More Services, More Digital

It’s almost too obvious to waste any ink on it:

Digitalization is the future of the aeronautics, space, and defence industries. It’s the

same for almost every other industry sector and, indeed, society in general.

But to pioneer the future of our industry, we have to look beyond the obvious

efficiency gains of Industry 4.0 and start

understanding “digital” as a new way of doing business.

Dirk HokeChief Executive Officer

Airbus Defence and Space

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Dirk Hoke Transforming the Aerospace Platform – Smarter, More Services, More Digital

Being more efficient is not enough

However, bottom-line efficiency is not the end of the digital transfor-mation story. When looking into other industries, new competitors may have disrupted legacy players because they offered the same product or service cheaper or faster. More often than not, they offered it differently. Business model transformation is the pivotal factor in digital disruption.

The thought of being disrupted doesn’t come naturally to the aero-space industry. Entry barriers usually are quite high. Development costs for a new aircraft or space program are measured in billions of dollars and production in the hundreds of millions; the safety and reliability standards to certify our products require years of experi-ence; and the market is heavily dependent on governments both for funding and for regulation. Only about every second manager inter-viewed in the aforementioned study expected digitalization to impact new business models, new products, or new services.

At Airbus, we’re not so quick to cast that idea aside. In fact, the strategy of Airbus Defence and Space hinges on making digital our new growth engine. Our market research suggests that digital busi-ness models will grow to be far above average. The example of drones is telling. The price of the hardware (high-end commercial drones) plummeted from $100,000 in 2007 to $700 six years later and contin-ues to drop. The commercial drone services business, on the other hand, is expected to grow exponentially. A PwC study estimates the total addressable value of drone-powered solutions at over $127 bil-lion.2 Which part of the business would you want to be in?

2 PwC “Clarity from above – PwC global report on the commercial applications of drone technology” May 2016 http://www.pwc.pl/clarityfromabove

Our golden eggs? Data

The crucial asset for developing new digital business models is data. At Airbus, we’re in the fortunate position that our hardware platforms generate a wealth of data only a few companies in the world are able to produce. For example, when you search for the house you would like to buy on Google Maps, there’s a 50 percent chance that the image is from one of our satellites. We are one of only two companies world-wide providing global Earth observation images. However, the image may be several years old and if it was taken in summer, the magnifi-cent old oak in the front yard covers a critical part of the roof design that you wanted to check out. Wouldn’t it be great if you could ask us for a recent winter image, possibly at an even higher resolution? Or how about images every other day to see the progress of refurbishing work?

Of course, entering into a B2C business model requires some adap-tations on the part of an aerospace giant like Airbus Defence and Space. Whether you are a private customer buying real estate, or an insurer verifying claims after a storm, or a farmer determining the state of irrigation of your fields, you can’t be bothered with the tech-nical details. Should I take this or that type of satellite? How about throwing drone imagery into the mix? Or operating sensors at Airbus or at a third party? All you want is actionable information – reliable, fit for purpose, and at a fair price.

The underlying concept is a software platform that takes our wealth of data and delivers customer value. It is, of course, more com-plicated than that. Our data comes in a tremendous number of for-mats. Potential customers need to be identified and made aware. Each output will need to be tailored to be valuable for a client in their spe-cific situation. Engaging external partners to provide solutions via our platform will make it more attractive. All the while, our information and that of our customers and partners must be fully secure. All these considerations are challenging, yet possible to address. In the case of imagery, we have just embarked on this journey and launched a new entity last month called Airbus Aerial. Just like any other start-up, we’re looking to scale up fast!

THE THOUGHT OF BEING DISRUPTED DOESN’T COME NATURALLY TO THE

AERO SPACE INDUSTRY.

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Dirk Hoke Transforming the Aerospace Platform – Smarter, More Services, More Digital

Digitalization doesn’t replace our current products, it enhances them

In addition to completely new, digitally-enabled service offerings, our existing portfolio of air-craft and spacecraft will be boosted through dig-italization and become more valuable for our customers. Using big data analysis and artificial intelligence for sensor data from military air-craft, we can evolve maintenance programs and align schedules more closely with the actual ser-vice life of parts, thereby decreasing costs. In the next step, predictive maintenance will further increase efficiency for the operator as well as sig-nificantly increase availability.

Connectivity and data fusion will make each of our aircraft more versatile, i.e. delivering more value. For example, a tanker aircraft will also be an intelligence hub for fighter aircraft and swarm drones operating in the same theater. In the battlefield of the future, all assets will con-tribute to a much faster and more comprehen-sive situational awareness, delivering actionable information to each layer from planning and mission control to the individual soldier. Deci-sions can be made faster and lift the so-called “fog of war”.

And, of course, the new digital services are also linked to our products, using assets we al-ready have in the air and in space. Through the business model transformation, we will make these assets accessible to new groups of custom-ers and sustain our current portfolio.

In a nutshell, Airbus Defence and Space will continue to be the proud producer of cutting- edge aircraft, launcher systems, and satellites but digitalization will improve our processes, make us faster and more cost effective. In addition, we look to new digital initiatives to develop our business towards a more data-driven approach, which we regard as being quite advantageous.

As an industry, we should not let the com-fortable, protected situation of the past lead us to be complacent. Instead, let’s embrace the oppor-tunities of digitalization, particularly in business transformation! At Airbus, we are moving ahead.

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100% Wind and Solar? A Seductive Myth

The seductive vision that 100 percent renewable energy can be-come reality is gaining a large following, and countless publica-tions are favorably reporting that a system based on the massive

expansion of wind and solar capacity is the only way to reduce CO2 emissions.

To tackle climate change, many experts believe the best strategy comes in two steps. First, clean up electricity generation and then ex-pand clean power generation to electrify heat and transport. There is also a third, additional step, which is to make all devices using elec-tricity as efficient as possible.

In the race to clean up electricity generation, the 100 percent re-newables vision is dominant. Countries like Germany have so far in-vested and earmarked more than €500 billion to this vision. The result

1 http://leonardodicaprio.org/100-renewable-energy-generation-2050/

being that wind and solar make up 21 percent of the required electric-ity annually (2016). Can we go from 21 percent to 100 percent? Will the remaining 79 percent be less expensive or more expensive than the first 21 percent? Is there a real risk that this vision is just a seduc-tive myth? Will it ultimately prove impossible to achieve 100 percent renewables? Instead, will countries that try, like Germany, remain de-pendent on coal and gas plants after the last nuclear reactors have been taken off grid?

When people say 100  percent renewables, they actually mean 100 percent solar and wind (plus some hydro wherever topographi-cally possible). This has profound consequences on the potential suc-cess of this vision. It is therefore important to take a closer look at it and at the associated challenges.

“Perhaps the most iconic examples of a sustainable,

low-carbon future are solar panels and wind turbines,”

writes Leonardo di Caprio in the opening of his blog article on 100 percent renewables1.

Daniel S. AegerterChairman & FounderArmada Investment

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Carbon intensity (gCO2eq/kWh)

Poland: 745 Germany: 389 (46% fossil fuels) Italy: 368 Austria: 295 France: 45 Switzerland: 30

0 100 200 300 400 500 600 700 800

Daniel S. Aegerter 100% Wind and Solar? A Seductive Myth

Germany – the poster child of the “energy transition”?

It turns out, however, that this massive increase of wind and solar capacity didn’t really reduce carbon emissions because the conventional power plant system also remained connected to the grid to safeguard the electricity supply 24/7.

A wonderful, real-time visualization of the CO2 emissions of the electricity production system by country is available at www.electricitymap.org. Many view-ers are surprised to see that the differences in grams of CO2 per kWh are stark and range from less than 10g in Norway to about 1,300g in Estonia. But what is truly astonishing is that despite installing record amounts of “low-carbon” capacity, Germany is the biggest polluter on a per kWh basis of the major European pow-ers.

Why is that? Solar PV produces only 9 to 12 percent of the time and wind be-tween 20 to 25 percent. Security of supply has to be ensured for the rest of the time. Germany had a system based on more than 50 percent fossil fuels 15 years ago and still has today. Solar PV and wind have, unfortunately, not replaced any fossil capacity.

Figure 1: European carbon emissions in the electricity sector Source: www.electricitymap.org Screenshot on May 23, 2017

WHEN PEOPLE SAY 100 PERCENT RENEWABLES,

THEY ACTUALLY MEAN 100 PERCENT

SOLAR AND WIND.

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Carbon intensity (gCO2eq/kWh)

Poland: 745 Germany: 389 (46% fossil fuels) Italy: 368 Austria: 295 France: 45 Switzerland: 30

0 100 200 300 400 500 600 700 800

Daniel S. Aegerter 100% Wind and Solar? A Seductive Myth

Renewables and security of supply

While countries can rely almost entirely on hydropower if there are enough mountains (for example in Norway), they cannot rely on solar PV and wind. The reason is that hydropower is not used directly (“power from the rain”), but after the rain has run into rivers or been stored in lakes with man-made dams. Unfortunately, hydropower is not available in most countries because there are not enough moun-tains to store the water or gradients to make use of the flowing water, and Germany is a prime example.

Electricity needs to be consumed when it’s produced. Given the intermittent nature of wind and sunlight, this creates a fragile juggling act that relies on a conventional, fossil-based system as a backbone. Decarbonization by this means is limited until we can store electricity generated by wind and solar energy on a large scale. We have chosen to scale the capacity ahead of our ability to store this energy and make it available when needed rather than when produced. Unless we build storage capacities in line with generation capacity, we will always ei-ther have too little or too much. Imagine you have two suppliers for the same product. One delivers when you need, and the other delivers when they can. Obviously, the reliable supplier deserves the higher price. But reliable and clean hydro power is made uneconomical in many countries by misguided incentives and market-distorting laws. Suppliers who deliver only when they can (solar and wind) are heavi-ly subsidized with the argument that the CO2 price is not properly reflected in the other fossil-based energy production sources.

Batteries

What are the scalable options to solve the storage challenge so that intermittent renewables production can achieve its full impact? The expansion potential of pumped storage hydro is limited by topogra-phy, and power-to-gas-to-power has inherently very poor efficiency. Increasingly, however, there is considerable optimism about electro-chemical batteries. Proponents anticipate development similar to the technological development in microchips following a curve as pre-dicted by Moore’s law. Can we compare what happened in the digital space to energy storage?

Bloomberg New Energy Finance recently published an article about rapidly falling battery prices. For electric vehicles, an astonish-ing 55 percent cost reduction was shown in only the last four years from 2013 to 2016. It is tempting to extrapolate this trend into the future, but, unfortunately, it is unlikely to be that simple.

Material usage, cobalt, and prices

Raw materials are a significant share of the manufactur-ing costs of batteries. In a typical electrochemical battery, materials such as aluminum, copper, and steel are used, but also nickel, lithium, cobalt, and graphite. The produc-tion volume of batteries has increased and will need to grow exponentially. This increase in demand will require a corresponding expansion in raw material supplies. Not only is there no reduction in price, but for some materials like lithium, graphite, and, especially, cobalt, the supply chain is already constrained.

Figure 2: Reduction in battery prices Source: Bloomberg New Energy Finance https://www.bloomberg.com/news/articles/2017-01-30/tesla-s-battery-revolution-just-reached-critical-mass

2013 2014 2015 2016

cells

pack

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Figure 3: Development of global cell supply compared with projected output of Tesla Gigafactory in GWh/year production; Battery pack cost/kWh reduced > 30% by GEN III volume ramp in 2017 Source: https://www.tesla.com/sites/default/files/ blog_attachments/gigafactory.pdf

2010 2011 2012 2013 2014 … 2020

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Global cell supply growing, but almost entirely in Asia

500,000Vehicles

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Gigafactory Others Lishen BYD BAK ATL Maxwell Sony Panasonic LGC SDI

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Daniel S. Aegerter 100% Wind and Solar? A Seductive Myth

Since the middle of 2016, the price of cobalt has al-ready more than doubled from around $25,000/ton to $55,000/ton. What will happen if not only e-mobility adds to the demand, but also batteries for the storage of fluctuating electricity?

Global battery production adds up to about 40 – 50GWh annually, and with announced projects it should grow to about 100GWh annually by 2020. This rapid growth means a huge increase in raw material vol-ume. For reference, 1kWh of battery storage weighs about 4.5kg so, 100GWh would weigh about 450,000 tons. The global production capacity of cobalt is about 80,000 tons per year, and already today over half is used in battery production. Tripling the volume would be impossible without mining significant additional supplies which is not easy to scale. But in situations like this, there is often a quick price jump to bring supply and demand back into equilibrium. So, rather than lower costs due to larger vol-ume, there are higher costs because increases in the cost of raw materials are a distinct possibility.

Storage capacity required

What adds to the challenge is that the storage capacity volume needed for the energy sector alone (without e-mobility) is gigantic. Germany produced 37.5TWh of electricity with solar PV over the course of 2016 (seven percent of total gener-ation). A total of 77 percent of this electricity was produced in the months of April to September, and 23 percent in the winter months. Wind produced 77.8TWh (14 percent of the total), with 62 percent of that generation being in the winter and 38 percent being in the summer. Solar and wind are complementary over the year to a certain extent, however, there are still huge differences on a week-to-week basis (see figure below), making fossil plants necessary to balance supply. One of the goals of future storage would be to “flatten out” the generation from day to night, from summer to winter, and from week to week.

In order to have a noticeable and positive impact, an electricity storage capac-ity in the range of at least 1TWh would be necessary to store some of the genera-tion of a windy/sunny week and transfer it to a less windy/sunny week.

How much is 1 TWh of electrochemical batteries? Tesla’s Gigafactory will be by far the largest factory and is projected to have an annual output of 35 GWh battery cell capacity after its completion in 2020. This is more than the worldwide annual battery cell production capacity in the world in 2013 and will be enough for 500,000  Tesla cars per year.

So, in order to flatten out part of Germany’s renewable electricity generation of wind and solar today (1TWh of battery storage capacity as we assumed above), 28  times the Tesla Gigafactory’s annual output in lithium-ion battery capacity would be necessary. This means the Gigafactory in Nevada would have to produce exclusively for German energy storage demand for 28 years to produce the volume of batteries needed today.

For countries like Switzerland, which has very few sites suitable for wind gen-eration, the amount of seasonal storage needed is even much higher. If Switzerland produced 15 percent of its electricity generation with solar PV (about 10TWh per year), the seasonal storage necessary is estimated to be more than 3TWh from summer to winter. It would take the Gigafactory 85 years to produce those battery capacities for Switzerland alone.

Figure 4: Price development of cobalt in US dollars/ton Source: https://www.nzz.ch/finanzen/batterie-euphorie-am-kobalt-markt-ob-die-riskante-spekulantenwette- aufgeht-ld.1289460

60,000

50,000

40,000

30,000

20,000

10,000

2010 2011 2012 2013 2014 2015 2016 2017

Figure 5: The Tesla Gigafactory battery cell output capacity should be 35GWh per year as of 2020 Source: https://www.tesla.com/gigafactory

34 periodical 16

Daniel S. Aegerter 100% Wind and Solar? A Seductive Myth

Conclusion

Further migrating from carbon-intensive fossil fu-els to solar and wind will actually be more expen-sive, even if solar panels were free, due to expensive storage requirements. It is highly unlikely that elec-trochemical batteries can become sufficiently af-fordable and scalable to enable the 100 percent so-lar PV & wind vision. Prices for some of the raw materials are already increasing today, and there is no significant miniaturization anticipated in tech-nologies that could come to market within 10 years. Leonardo di Caprio and the 100 percent renewables advocates are selling the public a vision to scale ca-pacity first and solve storage later (trust us, it will get solved), but the CO2 intensity isn’t improving because Germany is turning off its most reliable source of CO2-free electricity – nuclear.

Renewables are important and should be sup-ported with policy measures. But increasing the share of renewables – or nuclear – is not the goal. Renewable and nuclear energy are a means to an end, not an end in itself. Society also cares about other things, like cost, reliability, and other envi-ronmental impacts. Nuclear energy has green cre-dentials like being emissions-free and a  million

times denser than coal. It has a tiny ecological foot-print throughout its whole life cycle. The climate and energy discourse is dominated now by a focus on 100 percent renewables and efficiency, which is a seductive vision, but which will, on its own, not solve climate issues. Do we care about decarboniza-tion or about boosting renewables?

If we are serious about reducing CO2, we need to be willing to consider all sources of reliable and clean electricity as part of the solution. We need a new and open debate on how to significantly re-duce our carbon emissions and get rid of coal-fired power plants. It might be inconvenient for many, but nuclear power will have to play a role. Other-wise, decarbonization will remain unachievable.

We need to create a technology-neutral ap-proach that is focused on the larger goals such as reducing carbon intensity, tackling air pollution, and providing low-cost and clean power to millions of people. Only then will it be possible to establish the fastest, most feasible and cost-effective route to achieving meaningful outcomes, for the environ-ment and for society.

Solar Transnet BW Solar Tennet Solar Amprion Solar 50Hertz

Wind Transnet BW Wind onshore Tennet Wind Amprion Wind onshore 50Hertz Wind off shore Tennet Wind off shore 50Hertz

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

4,000

3,500

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2,000

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1,000

500

Figure 6: Weekly electricity generation from solar and wind in Germany in 2016 in TWh Source: https://energy-charts.de/energy_de.htm

35 periodical 16

$

How an attractive framework and the acceptance of “failing fast” can foster innovation

Silicon Valley are the magic words in the ears of in-vestors, start-ups, and incumbents. No other region in the world is better known for entrepreneurship

and its very own spirit of innovation and scientific devel-opment. The San Francisco Bay Area has been the breed-ing ground for major tech companies such as Apple, Intel, and Google. Today, Silicon Valley is home to a large number of so-called unicorns – start-up companies with a value that has exceeded $1 billion. Managers and em-ployees of in cumbents flock to California, hoping to share in the entrepreneurial spirit to trigger change within their companies.

New valleys around the globe

The vibrant flair created by a large number of fast-grow-ing high-tech companies and innovative start-ups in one place is certainly inspiring. However, Silicon Valley also stands for economic growth and competitiveness. California’s rise has a long history that is due to different factors. Its proximity to the elite university Stanford plays a vital role as does a conducive economic, tax, and regu-latory environment. The combination of these and other factors has contributed to the development of the world’s leading start-up ecosystem that attracts founders and in-vestors alike. Therefore, it comes as no surprise that other locations are eager to create a similar environment to fos-ter an entrepreneurial culture. Those international hubs are on their way to building healthy and growing start-up ecosystems, some of which are already quite advanced.

Start-up Ecosystems on the Rise

Hauke StarsMember of the Executive Board

Deutsche Börse

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Hauke Stars Start-up Ecosystems on the Rise

Comparing the ecosystems in Germany, Israel, the UK, and California

Within the European start-up scene, Germany is now playing an essential role and is attracting international attention. Its capital, Berlin, is always ranked among the top of the world’s fastest-growing start-up ecosystems. If this pace continues, Berlin could soon easily become Europe’s number one hub. The German start-up ecosystem is built on a stable infrastructure, comparatively affordable rent, governmental support, and a solid base of highly qualified workers. With some unicorns and a growing number of successful start-ups, Germany can com-pete with other international start-up locations such as Israel, the United Kingdom, and California.

However, a recent comparison of the economic, tax, and reg-ulatory framework for founders and investors in those four loca-tions, jointly undertaken by Deutsche Börse and EY, revealed that other ecosystems offer a more attractive environment for founders and investors. As an example, while 366 early-stage in-vestments with a total volume of $967 million U.S. dollars were made in Germany in 2016, during the same time 2,074 deals with a volume of $13.2 billion U.S. dollars were executed in California as were 669 deals with a volume of $2 billion U.S. dollars in the United Kingdom.

How can Germany’s start-up ecosystem become even stron-ger? Together with EY, we have identified four recommenda-tions for action that can help further develop Germany’s start-up and investment culture:

1. More financing opportunitiesSpecialized funds, such as the Angel CoFund and the VC Catalyst Fund, are initiatives that have already been successfully implemented in the United Kingdom and encourage invest-ments by business angels or venture capitalists in start-ups. This is also a way to strengthen the financing options in Germany. California has a strong investment landscape with a focus on Silicon Valley, which is supported, among other things, by the leading tech companies. In order to achieve a comparable at-tractiveness in Germany, a significant strengthening of the in-centives for large tech companies is necessary to support invest-ments in start-ups.

2. Attractive tax framework for start-ups and their investorsThe comparatively high effective taxation rate in Germany as well as limited possibilities to deduct losses from failed invest-ments are a considerable obstacle when potential investors de-cide on a location (especially in the case of capital gains taxation at the level of the investors). In contrast, the United Kingdom is regarded as a favorable tax location for founders and potential donors.

This is due, among other things, to the low income tax in the country and (especially at the level of the start-up itself) to the special tax arrangements for possible R&D costs. Israel also offers attractive tax conditions, such as the almost unlimited use of tax loss carryforward and tax relief for business angels. In addition, US-based investors are regularly able to collect capital gains tax efficiently after a successful investment.

Germany has to examine which of the tax measures in place in other countries it can implement in a similar form without violating (European) law. In recent years, Germany has made progress when it comes to a tax law that is conducive to the start-up climate by applying individual measures, measures which have to be maintained and expanded. The goal here is to make Germany more attractive from a fiscal perspective to company founders and potential investors.

3. Adjustment of capital requirements and reduction of bureaucracy The high capital requirements for company foundings in Ger-many have a negative impact on the start-up ecosystem. In ad-dition, the general start-up costs in Germany are the highest compared to the locations considered. A “one-stop shop” solu-tion for company foundings is still missing in Germany. Com-plicated regulatory requirements and pre-costs for licensing in certain industries (such as the financial sector) often pose a serious obstacle to start-ups.

4. Stronger founding spiritThe start-up spirit in Germany is less pronounced than in California or Israel. The Californian founding spirit is based on the founder DNA of the population, which is closely linked to the roots of the IT evolution. Thomas Edison, who has been described as America’s greatest inventor, is said to have once stated that he has not failed but has just found 10,000 ways that will not work. Compared to German culture, failure as well as the subsequent learning curve is an accepted part of the found-ing culture. “Fail fast” thereby becomes a winning formula.

In order to establish such a culture and promote the founding spirit in Germany, the focus in the education system has to be set properly. Above all, programs on innovation management and entrepreneurship at universities can have a very positive impact on the founder spirit. The seed for a distinctive start-up spirit is already laid at a young age. Preparing future generations of entre-preneurs through innovative education programs is one success-ful factor, which has already proved itself in some countries.

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Hauke Stars Start-up Ecosystems on the Rise

Cooperation is key

Of course, there is no recipe for replicating Silicon Valley – and this should not be the aim. However, the points mentioned above can help to foster innovation within Germany and can be applicable to some extent in other countries and regions. A functioning start-up ecosys-tem creates jobs and generates wealth at an impressive pace, to say nothing of the rapid technological change. It is time for other places that have been lagging behind to catch up, as they will otherwise miss these tremendous opportunities. The reason why they are lagging behind is not because they lack the ideas or smart people to implement them. Rather, it is more the framework that is riddled with obstacles that block their path to success (or learning from failure). It is our call – companies, politicians, regulators, stock exchanges and the education system alike – to work closely together to prepare the foundation for an ecosystem for growth in Germany.

ENVIRONMENT DIMENSION GERMANY ISRAEL UNITED KINGDOM

CALIFORNIA

Commercial conditions

Funding and incentives + + ++ ++Infrastructure + + +Workforce + + ++Entrepreneurship + + ++

Tax environment

Treatment of losses + ++ +Tax rates and special regimes + ++Investor taxation + + +

Regulatory landscape

Business incorporation + ++ +Working environment + + ++Data protection + +

++ highly supportive + supportive less supportive

Source: Deutsche Börse Group / EY: The economic, tax and regulatory attractiveness of start-up ecosystems. An analysis for Germany, Israel, the United Kingdom and California (USA). June 2017

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10 t

“10 under 10” – Together We Can Save

up to $1 Trillion Annually

The Paris Agreement came

into force on 4th November 2016.

A total of 195 countries signed up to national targets

to reduce greenhouse gas

(GHG) emissions. The forthcoming investments into

emission abatement are massive.

Over the past decade, we have mainly seen the pursuit of higher abatement cost op-tions to achieve emissions reductions.

Emphasis has been mainly on power generation (primarily electricity and heat) and on other measures with high annual abatement costs, without focusing simultaneously on lower-cost abatement measures in areas such as transport, agriculture, forestry, and land use. Moreover, capital expenditure for those measures is lower, and many measures require zero capex from the society, as it is paid by companies.

If this kind of tendency continues, climate policy implementation runs the risk of not de-livering benefits at a reasonable cost, and being tagged as “just another example” of high-cost spending without delivering broad economic returns.

It is fully understandable that such low-er-cost measures are often hard to implement and their “real” costs are hard to estimate. How-ever, the focus should not be on the complica-

tions involved in measuring the “real” cost of implementing low-cost or no-cost options, but, rather, on the costs of not implementing them which would arise from the increased need to implement marginal measures with annual costs of $110/t per tonne of CO2 equivalent or more.

A good step would be to set a goal of identi-fying in all industries worldwide a combined 10  gigatonnes of CO2 equivalent at an annual abatement cost of less than $10 per tonne – the “10 under 10”. From multiple discussions with prominent policy makers, members of the cli-mate community, and consultants, this looks like an achievable goal.

In an extreme scenario, when none of the 10 < 10 measures is implemented, the total in-cremental cost to society would amount to $1 trillion p.a. – 1 percent of global GDP, and one-third of $3 trillion p.a. which the Interna-tional Energy Agency (IEA) estimates is needed to achieve the 2 °C goal.

Alexander LandiaChairman of the Board

EuroChem Group

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Alexander Landia “10 under 10” – Together We Can Save up to $1 Trillion Annually

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Residential electronicsResidential appliances

Retrofi t residential HVACTillage and residue mgmt

Insulation retrofi t (residential)Cars full hybrid

Waste recycling Building effi ciency new build2nd generation biofuels

Degraded land restorationPastureland aff orestation

NuclearDegraded forest reforestation

Cars plug-in hybridLow penetration wind

Coal CCS new buildIron and steel CCS new build

Coal CCS retrofi tGas plant CCS retrofi t

Power plant biomass co-fi ring

High penetration windSolar PV

Solar CSP

Reduced intensive agriculture conversion

Lighting – switch incandescent to LED (residential)Insulation retrofi t (commercial)

Motor systems effi ciencyCropland nutrient management

Clinker substitution by fl y ashElectricity from landfi ll gas

Effi ciency improvements other industryRice management

1st generation biofuels

Reduced slash and burn agriculture conversion Reduced pastureland conversion

Grassland managementGeothermal

Organic soil restoration

Small hydro

Figure 1: Global GHG abatement cost curve beyond business-as-usual – 2030 Note: The curve presents an esti-mate of the maximum potential of all technical GHG abatement measures below €60 per tCO2e if each lever were pursued aggres-sively. It is not a forecast of what role different abatement measures and technologies will play. Source: Global GHG Abatement Cost Curve v2.0

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Alexander Landia “10 under 10” – Together We Can Save up to $1 Trillion Annually

Estimated investments to run into trillions of dollars

The climate-related regulatory framework will be the largest new set of regulations since the establishment of the World Trade Organization (WTO) in 1995, and esti-mates are that the international community will invest trillions of dollars to reach GHG reduction targets and keep “the increase in the global average temperature to well below 2 °C above pre-industrial levels.”1 The IEA estimates that the world needs $75 trillion of investments through to 2040 to meet its 2 °C scenario.2 The latter equates to approximately $3 trillion p.a., or 3 percent of global GDP.3

Past focus on power generation and right-hand side of abatement curves

Given that capital is not an unlimited or cost-free re-source and that there are competing demands for this re-source, this raises the question of how to effectively and efficiently allocate capital to achieve desired GHG reduc-tion targets. The marginal abatement cost curve (MACC) approach was a good first step. Typically, the marginal abatement curves would have cutoff at a certain cost – in this example at €60/tonne (Figure 1)4. However, the mar-ginal costs of abatement go up very rapidly beyond that cutoff limit, quickly reaching $110/tonne.

Although some progress has been made on cost-nega-tive or cost-neutral abatement measures, government ef-forts have largely been focused on the “right-hand side” of the abatement curve – options focused mainly on power generation fuel mix. This is understandable given the contribution of power generation to GHG emissions (re-sponsible for ca. 40  percent according to World Bank data), the focus on new sources of power generation, and related new power grid infrastructure. Although policy makers and regulators face an incredibly complex back-drop to policy decisions, including trade-offs between energy security, prices, and emissions, the fact that power generation projects tend to be one-off decisions – with a bulk implementation effect and an emotional appeal to the electorate – gives governments an additional incen-tive to take action on them. Furthermore, as global de-mand for energy to support sustainable development

1 Paris Agreement

2 IEA World Energy Investment Outlook 2016

3 GDP data sourced from the International Monetary Fund World Economic Outlook 2016

4 Pathways to a low carbon economy, McKinsey & Co. 2009

keeps rising, there is a real need to continue developing and investing in clean technologies and infrastructure while cleaning up, retiring, or dismantling inadequate in-frastructure.

Low-cost abatement opportunities need to be pursued

In the meantime, there is an opportunity to more actively pursue the lowest cost options – possibly negative cost options – from the “left-hand side” of the marginal abate-ment cost curve. This is not a simple task because these measures tend to be more fragmented, more difficult to measure and monitor, and harder to implement, plus transaction costs can be high and/or social acceptance low, depending on how successfully the measures are im-plemented. Government frameworks have relied on vol-untary approaches to reduce emissions in these sectors with varying levels of success. As the UK Committee on Climate Change noted in its website summary of the July 2016 progress report5, “The Progress Report shows that UK emissions have fallen rapidly in the power sector, but that progress has stalled in other sectors, such as heating in buildings, transport, industry and agriculture.”

Our key argument is that the focus should not be on the inability to measure the “real” cost of implementing low-cost options, but, rather, on the cost of not imple-menting them – which would arise from the increased need to implement marginal measures with annual costs of $110/t per tonne of CO2 equivalent or more.

The focus on high-cost options risks clashing with the electorate’s current level of frustration with “business as usual” governments. Climate policy implementation risks being tagged as “just another example” of high-cost spending without delivering broad economic returns. The idea, then, is to bring the goals of the climate move-ment into maximum alignment with economic priorities, and doggedly pursue low-cost but difficult-to-implement measures. “No-regret moves” – if one can pull them off – are a great place to start. They would provide a common basis of agreement, while letting societies sort out the costlier choices, like Germany’s Energiewende (energy transition) or the UK’s nuclear program. A focus on lower- cost moves is also likelier to be perceived as eco-nomically sensible, and hence worth pursuing by warier administrations in high-emitter countries like the USA, China, India, and Russia.

5 Meeting Carbon Budgets – 2016 Progress Report to Parliament

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Alexander Landia “10 under 10” – Together We Can Save up to $1 Trillion Annually

Sectors beyond power generation have significant abatement opportunities

There are a number of abatement options on the left-hand side of the MACCs – in energy efficiency (both in buildings and in infrastructure, such as power grids and gas and oil pipelines), in transportation, in agriculture, forest management, and waste management – all of which could be more actively pursued by government policy.

One example is slow-release fertilizers. These reduce N2O emissions and nitrate run-off, while representing very low or even negative abatement costs, especially in high-labor cost countries such as Germany or France, be-cause they only need to be spread twice a year as opposed to four times a year for traditional fertilizers. Farmers have some interest from a cost perspective, but there is no government policy encouraging take-up, which would be at no cost to the society.

Another example is the regulation of battery-powered electric vehicles – which could play a transformational role for the deployment of intermittent energy sources like solar energy and wind energy. Current regulations do not allow for bi-directional charging, meaning that bat-teries of electric vehicles cannot discharge energy into the grid, and small decentralized units are not allowed to of-fer balancing services to the grid operators. However, if such operations were to be allowed, the owner of a Nissan Leaf could earn up to €1,000 p.a. – which, seen over the service life of the car, would be much higher than the electric car purchase bonus offered by Germany and other European countries. This would save taxpayer money, including the €600 million budgeted by Germany until 2019 for electric car purchase bonuses.

These are also sectors that are most in need of an up-grade to their methodologies. By basing them on consis-tent assumptions in emissions measurement and model-ling, one can reduce variation in outcomes, both in vol-ume and cost calculations and make these methodologies easier to apply to define abatement incentives – and easier to trust. An example of this is in the temperate and boreal

forest sector. Among US, Canadian, and Russian forests (37 percent of the global forested area6), there is a large difference in claimed CO2 absorption rates, ranging from 2.1 t/ha for managed forests in the USA to 1.0 t/ha for managed forests in Russia, and even lower in Canada at 0.4 t/ha.7 One of the main reasons for the discrepancy is the definition of forest area. Whereas the USA counts all areas over 0.4 ha as forest, Canada and Russia have a high-er threshold of 1 ha, which most likely decreases the total area of accounted forests in Russia and Canada. Another reason is the methodology of measuring carbon in the soil. In Russia, CO2 absorption in the soil is measured at a depth of 30 cm whereas a depth of 100 cm is applied in the USA and in Canada. Transparency of definitional and methodological differences is important because the rate of carbon absorption is a key determinant of the cost of abatement per tonne of CO2 from forestry measures which, in turn, sends a price signal as to whether to pur-sue this option. If measured the right way, the abatement/absorption of 1 tonne of CO2 equivalent in Russia would cost approx. $7/tonne p.a. – a clear candidate for 10 < 10.

These are just some examples of no-cost or low-cost abatement options. A much more systematic and rigorous approach is needed to identify those options, verify the assumed costs and benefits, and deploy them as a priority.

To date, policy makers have not pursued low-cost or no-cost options in a systematic and rigorous way. The business community has to step up, otherwise the total incremental societal cost of climate policies may amount to $1 trillion p.a. – 1 percent of global GDP p.a. This cost will impact economic growth and increase the overall cost of doing business.

6 World Bank World Development Indicators, last updated 14/10/2016

7 National Inventory Submissions to UNFCCC, sectoral report for land-use, land-use change and forestry, 2014

THE FOCUS SHOULD NOT BE ON THE INABILITY TO MEASURE THE “REAL” COST OF IMPLEMENTING

LOW-COST OPTIONS, BUT ON THE COST OF NOT IMPLEMENTING THEM.

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Alexander Landia “10 under 10” – Together We Can Save up to $1 Trillion Annually

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Gallup’s most recent workplace survey shows that only 13% of employees around the world feel en-gaged in their work, while 63% feel disengaged and

24% feel “actively disengaged” – a staggering 87% of the global workforce are not passionate about their work! There is no doubt that these figures are directly related to the widespread use of conventional managerial practices, such as static hierarchy and convoluted bureaucracy. These practices were invented in the early days of the last century and were perfectly fitted for an era where human beings had to act as living robots, in the name of efficient mass-production. But today, real robots and other tech-nologies are taking over from human robots. Traits such as predictability, obedience and uniformity might be hailed in Pyongyang, but in other places, companies look for qualities such as passion, creativity and initiative.

New types of companies are emerging, exploiting technology, creating new business models, unleashing passion and creativity, and outmanoeuvring incumbents. Many are asking how the old and static can compete with the new and nimble. Let’s take a look at one – rather im-pressive – answer to this.

It takes a swarm?

The former commander of the US Joint Special Opera-tions Command (JSOC), General Stanley McChrystal, recently recounted an episode from Iraq in 2005, where soldiers woke him in the middle of the night, seeking per-mission to launch a risky attack. McChrystal gave his OK, but was left with some troubling thoughts: “I began to

From Pyongyang to Cupertino: The “NextGen” Race

A decade ago, there were four traditional companies on Bloomberg’s list of the five most valuable companies in the world, and only one

technology company. Today, five out of five are from technology. Technology is the new sheriff in town, and it has created a networked

world with new business models that in many cases are far superior to the ones used by conventional companies. And no wonder.

Torsten HvidtPartnerQVARTZ

Markus PertlManaging Partner

Stern Stewart & Co.

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Torsten Hvidt / Markus Pertl From Pyongyang to Cupertino: The “NextGen” Race

question my value […] my inclusion in the decision […] slowed the process, and sometimes caused us to miss fleeting opportunities”, McChrystal explained in an interview with Forbes.

This doubt was an important part of a long and frustrating process, during which McChrystal slowly came to understand the nature of the emerging, intangible and diverse networks of insurgents and ter-rorists in Iraq, and more importantly: what it would take to defeat this new kind of enemy. Initially, McChrystal and his team tried to dia-gram the enemy organisation in a traditional military structure, with tiers and rows. But the closer they looked, the more the model didn’t hold. They realised that the enemy was organised not by rank, but based on relationships and reputation. This allowed for great flexibil-ity and an impressive ability to grow and sustain losses. Furthermore, the enemy was self-organising and did not wait for decisions from superiors, but made them themselves. They had the advantage of liv-ing amid a local population closely tied to them by history and cul-ture, while at the same time being as closely linked, through modern technology, to individuals and groups across the region. Money, pro-paganda and information flowed at alarming rates, allowing for close coordination. It was a deadly choreography achieved through a con-stantly changing, often unrecognisable structure, a swarm.

It became clear to McChrystal and his officers that in order to de-feat a networked enemy, they had to become a swarm themselves. They had to figure out a way to retain JSOC’s traditional capabilities, while achieving levels of knowledge, speed, precision and unity of ef-fort that only a network could provide. But the fashioning of a self-contained traditional hierarchical structure to a more nimble one is easier said than done. So McChrystal and his men studied, experi-mented and adjusted. And they connected deeply with entities such as the CIA, NSA, satellite analysts and regional experts as well as regular US, Coalition and Iraqi forces. And they learnt that an effective swarm starts with robust connectivity. Consequently, JSOC’s discre-tionary funds were not used on more or better weapons, but on band-width, so that all the nodes of the networking swarm could speak to each other real-time, even during missions. JSOC effectively became an experiment in intel crowdsourcing, and it soon got a much bigger, deeper picture of the enemy it was fighting – and essentially emulating.

Besides connectivity, McChrystal emphasised a strong sense of shared moral purpose, as well as simple decision-making criteria to increase autonomy and speed. Most important of all, however, was the unlearning of command and control – letting go of authority and de-veloping a largely self-governing, cross-organisational swarm that functioned rapidly, flexibly and with deadly entrepreneurialism.

In 2004, JSOC carried out 18 raids a month; two years later, the same force carried out 300 raids a month. This acceleration forced the enemy to increase movement, communication and intake of inexpe-rienced fighters, which all led to increased vulnerability. Ultimately, JSOC was directly responsible for the elimination of the enemy leader, al-Zarqawi, and was to a large extent credited for the defeat of Al-Qaeda in Iraq.

Fly the Jolly Roger

The analogy should not be dragged too far, but there seem to be sim-ilarities between what conventional incumbent companies, across industries and geographies, are facing and what JSOC faced in Iraq. Many incumbents now face an overwhelmingly complex global sys-tem, where everyone and everything is connected and where static hierarchical structures will have to become more fluid to keep pace with new competitors, who naturally exploit networks, interconnect with customers and create constantly shifting relationships, product preferences and strategies. It seems, however, that many leaders still treat their markets, environments and organisations as traditional lin-ear systems, and hope for simple command-and-control or cause-and-effect relationships when launching new strategies, reorganisa-tions, behavioural rules or marketing campaigns. We are faced with a DNA-level challenge. But the principles set forth by Taylor, Weber and Fayol are quite simply yesterday’s solutions for yesterday’s chal-lenges. Stanley McChrystal will testify to that. And, so would Steve Jobs, who famously said: “It’s better to be a pirate than to join the navy” – alluding to the fact that pirates despise hierarchy and bureau-cracy; they support one another but also have the ability to act inde-pendently; they stay creative and on task in difficult or hostile environments and they take risks within the scope of the greater purpose. Jobs wanted Apple to become what McChrystal wanted JSOC to become. And last year, while celebrat-ing their 40th anniversary, Apple flew the Jolly Roger over their HQ in Cupertino.

So, we have pirates like McChrystal and Jobs, but who replaces Taylor, Weber and Fayol and comes up with practical managerial principles fit for our age?

We propose a Next Generation Corporation model that will revo-lutionize how we govern, manage and act.

The NextGenCorp has to combine best practices, standards and economies of scale with extreme flexibility, entrepreneurism and auto nomy. To do it we will have to unscrupulously split our entire organization into a process platform and a project swarm. The plat-form has to bring end-to-end processes to a new level. Undoubtedly, we will digitize the platform over time and take part in the artificial intelligence ride. The project swarm will dissolve classic matrix or-ganisations and their hierarchies. But we still need a new framework for roles and mandates. Our NextGenCorp needs a new plexus, a nerve system. A plexus that gives purpose and meaning to our people. A nerve system that holds together the perfect platform and the crazy swarm!

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Torsten Hvidt / Markus Pertl From Pyongyang to Cupertino: The “NextGen” Race

Safe is risky, risk is safety

Professor Ilya Prigogine received the Nobel Prize for Chemistry in 1977. Among other things, Prigogine was inter-

ested in the concept of entropy, which (put simply) is a measure of the disorder in a system – the less ordered it is, the greater its entropy. The second law of thermodynamics states that the total entropy of an isolated system always increases over time, which ba-sically means that order inevitably deteriorates into decay. But Prigogine discovered how structures could avoid the standard route to entropic death. He showed that when a physical or chemical system is pushed away from equilibrium, it survives and thrives, whereas if it is left alone and remains in equilib-rium, it dies.

The reason for this is that when systems are far from equi-librium, they are forced to explore. And this exploration helps them create new patterns of relationships and different structures. The greater the amount of variety and diversity within the system, the stronger that system can become, as the key to evolution is the ability to explore new possibili-ties. “We grow in direct proportion to the amount of chaos we can sustain”, Prigogine concluded. This illustration re-minds us that we must push our companies and people out of their structures and roles when they have settled in an equilib-rium and become too comfortable, ensuring diversity and the exploration of new ideas. Radical times require radical decisions. For our companies it is not enough to create a few satellites to explore disorder, while leaving the mother ship unchanged.

ALL THESE PEOPLE ARE HIRED TO KEEP TRACK OF

THE PAPER CLIPS. THIS IS THE BEGINNING OF THE END.

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Torsten Hvidt / Markus Pertl From Pyongyang to Cupertino: The “NextGen” Race

STATIC HIERARCHICAL STRUCTURES WILL HAVE TO BECOME

MORE FLUID TO KEEP PACE WITH NEW COMPETITORS.

Productivity hand-in-hand with growth

Professor Geoffrey West has many scientific break-throughs to his name, among them his studies of cities. West proved that whenever a city doubles in size, every measure of economic activity increases by approxi-mately 15% per capita. “This remarkable equation is why people move to the big city”, West explained in an interview with The New York Times. “Because you can take the same people, and move them to a city that’s twice as big, then all of a sudden they’ll do 15% more of everything that we can measure”. Cities simply magnify humanity’s strengths – they spur innovation and entrepreneurship by facilitating diverse human interac-tion, and they attract talent and sharpen it through com-petition.

After looking at cities, West and his team turned to what they expected to be a similar subject: corporations. But it turned out that cities and companies differ in a very fundamental aspect: cities almost never die, while companies in comparison are short-lived and increas-ingly so. West analysed data from more than 25,000 publicly traded companies to find out why, and he dis-covered that corporate productivity is entirely unlike urban productivity. As the number of employees grow, the amount of profit per employee shrinks, which, ac-

cording to West, reflects that efficiencies of scale are al-most always outweighed by the burdens of bureaucracy:

“When a company starts out, it’s all about the new idea,” West says in the New York Times article. “And then, if the com-

pany gets lucky, the idea takes off. Everybody is happy and rich. But then management starts worrying about the bottom line, and so all these people are hired to keep track of the paper clips. This is the beginning of the end”.

It seems obvious that companies have something to learn from cities. Danish superstar architect, Bjarke Ingels, says that all cities have a starting point, while none of them have a finish line. And this embrace of emergence, imperfection, constant renewal, self-organisa-tion and purpose might be what we should aim for.

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Torsten Hvidt / Markus Pertl From Pyongyang to Cupertino: The “NextGen” Race

Change fluidly in a swarm

The company where I work builds on these thoughts. Our consoli-dated experience shows that, even in a swarm, increased agility, pas-sion, pur pose, innovation and diversity come with a price. Because for all the freedom of swarms, how do you obtain efficiency and account-ability? The answer is not a simple one. It is not just “network” or “hierarchy”. Rather, it is the “ability to alternate” fluidly and rapidly between relevant structures. There are a number of situations where a hierarchical structure is quite useful, so it should not just be dismissed altogether. It is more a case of making hierarchies disappear the minute they no longer make sense. The team should get back in swarm formation, ready to engage in a new structure, so to speak. We must learn to alternate naturally.

In the same way, individuals must learn to alternate naturally be-tween roles. Most significantly between leadership and followership. In one context, it might be vital that you step forward and take lead, but shortly afterwards, as the situation alters, it might be just as vital that you step back and let yourself be led. We must no longer see our-selves as being confined permanently to a fixed position in a tradi-tional organisational chart, but rather as nodes in a dynamic network, where influence will come from abilities, relevance and contribution. As Gary Hamel once pointed out, “When you post a video to YouTube, no one asks you if you went to film school”. If it’s a great video, it’s a great video. In the networked society, you earn your rights based on what you do, not what papers you might have.

In a future where we in the course of an ordinary working day will experience both hierarchical and network structures, and alternating roles, we will obviously need a strong “why” to guide our choices and direction. On the battlefield, General McChrystal realised that the seemingly unconnected enemy swarms were held closely together not by a structure, but by a strong and pervasive moral purpose. Conse-quently, when reorganising conventional companies in a networked world, we will see a stronger emphasis on timeless values worth fight-ing for – instigating a future where it is as meaningless only to make money, as it is not to make money.

The snakeskin jacket

A question to ask is whether we can step in and out of structures and roles, quickly and frequently, like a reptile that sheds its skin while still retaining its soul. If not, structure and individual roles and titles might have become more important than the original purpose, and the paper clip people might be driving the company… towards certain entropic death. To keep the paper clip people out of the driver’s seat, we suggest we let people choose their own leaders. Voluntary follow-ership and co-creation are great mechanisms against lack of purpose, poor managers and standardised, sterile and uninspiring monocul-tures. And such mechanisms are more important now than ever, be-cause mindless loyalty in exchange for a pay check will soon be a thing of the past, together with silly titles, trophy offices, discretionary bonuses and other relics from the hierarchical era.

Besides the loss of such relics, the shift to a fluid organisation might also imply short-term inefficiency, uncomfortable loss of con-trol and the need for more purpose-driven leadership. However, we must all consider whether the radical changes in the Bloomberg rank-ing of the most valuable companies on earth is an illustration of the impact that fluidity delivers. Who wouldn’t want the speed and entre-preneurialism of JSOC, the resilience of Prigogine’s unbalanced sys-tems, the almost “magical” productivity of West’s cities, the ability to renew and grow as described by Ingels, or the passion, creativity and initiative from the 13% of the workforce who actually feel engaged in their work? It is no coincidence that the most valuable company on Earth flies the Jolly Roger over its HQ. So let’s get started… on the journey from Pyongyang to Cupertino.

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What’s Next for Dubai’s Property Market?

Property executives in Dubai are often asked two questions from investors

seeking insight into one of the world’s most alluring real estate markets:

“How fast will property prices rise?” and “Will there be another correction?”

However, if you subscribe to the wisdom of one of the world’s best investors, Warren Buffett, both questions reveal a short-term outlook that’s out of

step with sensible realestate investing. In his 2014 share-holder letter, the Berkshire Hathaway chairman wrote about two real-estate deals – his purchase of a 400-acre Midwestern farm in Nebraska’s plains and of a retail property amid Manhattan’s skyscrapers – that reveal his recipe for successful property investing.

Buffett’s blueprint is that instead of targeting price ap-preciation, investors should buy properties where they can improve income, which will boost prices in the long-term. He says smart investors should improve the proper-ty’s management to maximize recurring revenue, and he urges investors to work with expert partners. Buffett’s ad-vice makes just as much sense in Dubai and the United Arab Emirates as it does in New York or Nebraska.

From boom…

Not so long ago, Dubai’s property market could have used Buffett’s sage approach. Starting in 2002, Dubai enjoyed a property boom, driven by capital returning after the 9/11 attacks and further fueled by a lack of red tape and culture that encouraged creativity. When foreigners were first al-lowed to buy freehold-ownership property, Dubai be-came a global leisure destination and a regional business hub, making property hot and attracting countless specu-lators. It was an intoxicating mix of money and imagina-tion. Only here could the huge amount of sand produced by expanding the port lead to the development of the iconic Palm Jumeirah, the world’s most famous man-made island with its multimillion dollar villas.

Marwan AbedinFounder & CEO

Flatrace Investments

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Marwan Abedin What’s Next for Dubai’s Property Market?

…to doom

The seven-year long property boom ended in 2009, just as the majes-tically designed Burj Khalifa became the world’s tallest building. Like the views from the skyscraper’s 148th floor viewing deck, the crash was significant: Several projects were delayed or cancelled, principally reflecting liquidity shortages for developers, decreasing head line real estate prices and rental rates and increasing market uncertainty and negative sentiment amidst the global financial crisis and these factors adversely affected the real GDP growth rates in the sector in 2009 and 2010.

When the crash hit, the U.S. & European capital that helped fuel Dubai’s real estate boom quickly evaporated but the government staunched the crisis with the establishment of Dubai Financial Support Fund (DFSF), a $20 billion emergency fund that was charged with supporting the strategic entities which required financial assis-tance with a majority being in the real estate sector.

Now that prices have recovered, investors want to know what will happen next – another boom, or another bust? I expect we will expe-rience a Goldilocks scenario, where the property market remains neither too hot or too cold.

The government as ringmaster

My outlook is buttressed by new government policies that are encour-aging long-term investment and dampening speculation. The govern-ment doubled the land registration fees, charging 2 percent from both the buyer and seller to discourage flipping properties. Landlords now have the right to choose their own property management firms. And, crucially, developers selling properties based on plans must now hold a 50 percent depos-it in a government-controlled escrow ac-count that is used to pay contractors, blunt-ing the impact of any potential bankruptcy.

At DFSF, during the crisis I received offers from distress debt hedge funds to pur-chase developments in Dubai for at signifi-cantly lower valuations than costs. Now, thanks to the government’s strong reform policies and ability to act as the lender of last resort, those dark days are behind us, stability has returned and prices have recovered. Net profits of such developers as Emaar Properties, up 28  percent for fiscal 2016, can be viewed as a proxy for the health of the market. Foreign investment is returning too, helped by the addition of the

INVESTORS SHOULD LEARN ABOUT THE REGION FIRST-HAND BY COMING HERE TO DEMYSTIFY

THE INVESTMENT CULTURE.

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Marwan Abedin What’s Next for Dubai’s Property Market?

United Arab Emirates to the Morgan Stanley Capital International Emerging Market Index. With that MSCI endorsement, commercial real estate investors are look-ing to invest here.

Today, foreign investors can invest in freehold proper-ties where they may own 100% of the property, or buy shares in non-freehold properties (where profits are higher) with domestic partners that control a majority of the development.

Commercial real estate investors in freehold proper-ties may expect 5 – 8  percent returns annually over a seven- year time horizon – a significant return in today’s low-yield environment. Nonfreehold pro perties – closer to beaches and upscale residential neighborhoods – can

yield 10 – 12 percent annually over a seven-year period including capital appreciation. Demand is particularly high for certain types of developments, including resi-dences targeted at mid-level foreign executives and their families and 3 – 4 star hotels that can satisfy growing con-ference demand.

Anyone thinking of investing in Dubai should find the right local partners. And, rather than wondering how quickly an investment might be doubled, investors should learn about the region first-hand by coming here to de-mystify the investment culture. Investing in Dubai will likely beat any index, but investors still need to do it the right way. After all, as Buffett says, “Risk comes from not knowing what you are doing.”

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Striving for Sustainable Business Success in a Start-up

with 16,000 People

Starting fresh. That’s what it felt like in 2015, when Covestro was launched as an independent corporation to look after the MaterialScience business of Bayer. A total of 16,000 employees

had to rethink their corporate identity. It felt like being inside a start-up – with €12 billion in sales and 80 years of history.

In 1937, a chemist at Bayer Group accidentally created the first polyurethane foam. There were no immediate ideas for its use. In 1953, another chemist synthesized polycarbonate which was an event that also went unnoticed for the most part. Some 60 years later, the same polyurethanes and polycarbonates are the core of a business which generates billions of dollars in sales. They form part of a global conglomerate, a huge tanker with entrenched processes and values. Starting fresh.

When a new company and a new brand enter the market two important questions are asked: What sets them apart?

What are the distinctive characteristics? When Covestro was launched, it already featured a long history of innovations. Our job is not only to build on this history, but to advance it.

Frank H. LutzFormer Chief Financial Officer

Covestro

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Frank H. Lutz Striving for Sustainable Business Success in a Start-up with 16,000 People

Continuing something new

In 2015, when the spin-off of Covestro came closer, new questions arose such as how will the new entity operate on its own? Finding the answer to this question could prove to be a tremendous challenge. But it could also offer a lifetime opportunity. What would you do if you could start all over?

The success of Covestro has always been based on in-novative solutions. Developing new materials to replace materials that are less sustainable, less durable, or simply more expensive. Materials that outperform past materi-als. That’s what has always been the core of Covestro and Bayer MaterialScience, and that’s what we want to contin-ue to do, namely, push the boundaries of what’s possible and make the world a brighter place.

So, we wanted to continue to be inventive and perhaps do even more.

Three, two, one, innovation

Innovation is often about adjusting. That is especially true about our rapidly changing world. So, being innovative often means being agile. If we are able to act with agility, we can quickly exploit upcoming trends. This is why we love speed. It allows us to develop materials to serve the demands resulting from these trends. We can’t allow bureaucracy or complex corporate structures to slow us down. Instead, we need to ensure quick processes and flat hierarchies. Achieving this as a rather large corporation can be challenging, but it is also a critical mission for us. Our organizational structure is therefore the best of two worlds and consists of established structures which go back some 80 years and of those structures estab-lished in 2015.

In order to respond quickly to trends, we need to identify them well in advance. Being close to our customers is key. If we stay close to them we might even have a solution before our customers are aware there is a problem.

Another trait is error tolerance. We need to be allowed to make mistakes in order to be innovative. The risk of dead ends or wrong decisions is ubiquitous when searching for new solutions. At every turn there could be a solution, but there could just as well be failure. Basically, that means that progress doesn’t come without the risk of errors. This is why we need to ensure that at Covestro risk- taking is acceptable.

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Frank H. Lutz Striving for Sustainable Business Success in a Start-up with 16,000 People

Being innovative means acting innovatively

Finally, when thinking about innovativeness, what comes to mind are products, materials, and technologies. How-ever, innovativeness is much more than that. It is about processes and structures. That’s why we need to encour-age our employees to question processes. They have to see themselves as entrepreneurs instead of mere clerks exe-cuting orders. The launch of Covestro offered a great chance to tap the entrepreneurial spirit because everyone was euphoric.

In general, all employees are emboldened to challenge the status quo at any given time and in any given situa-tion, be it in labs when searching for new formulas, when filling out internal forms, during meetings, or in the can-teen during lunch break. No process or structure should be taken for granted.

That way, we not only strive to push boundaries when it comes to innovative materials, but also in everything we do.

Value through values

To provide fertile soil for these characteristics in order to thrive in our culture, we put a lot of effort into designing our corporate values.

Corporate values are often considered decorative pendants. They are of little interest to people because they were written and forgotten, are hard to find on the website, and, in the worst case, are interchange-able. We wanted our values to be present and practiced. That’s why we designed our values to mirror innovation and our company. For this reason, the Covestro value framework is reflected in our company’s name. ❱ Curious: We are open to new ideas and crave progress. We con-

stantly search for improvements. Curiosity prompts us to listen closely and offer solutions that are creative, need-based, and unex-pected.

❱ Courageous: We have an eye on the future and recognize oppor-tunities where others see limitations. When others ask “why” we ask “why not”. Our knowledge and experience allow us to push existing boundaries.

❱ Colorful: In the often grey corporate world, we stand for colorful diversity, optimism, and creativity. We know that different points of view help to solve problems innovatively.To demonstrate the new Covestro spirit to everyone at Covestro,

from worker to CEO, we organized a big party to celebrate the launch of Covestro, a party the Covestro way, the new way. Everything was colorful, a rock band played, and people came in jeans instead of suits.

As simple as a festival might sound, that day was the first day we all felt like a new company. We all felt Covestro.

A record? No reason to rest

The year 2016 was Covestro’s first complete year as an independent and listed company. In a way, 2016 was the acid test for us and our new corporate culture. And considering the positive results we achieved, we are confident that we have passed that test.

Besides improvements in our KPIs, we also managed to reap the rewards in terms of innovations because Covestro managed to bring several new innovative materials to the market.

When it comes to innovation and progress, we have no final goal. We strive to maintain an attitude that continuously drives our future success. True, we provide an outlook for our KPIs and are measured by whether we reach them or not. However, when we reach them, there is no resting on our laurels. Posting a record year is no reason to stop. Quite the contrary as we want to continue pushing boundaries.

PROGRESS DOESN’T COME WITHOUT THE

RISK OF ERRORS.

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TAXREFORM

TAX

REFORM

Tune into a few hours of the televised debates of the U.S. Congress and you will come away believing that the most pressing challenge for the Republican majority is the federal government’s budget deficit. Tune into President

Trump and you will hear a lot more about a different deficit: the U.S. trade deficit.Since the tea party wave swept Republicans into the majority in the U.S. House

in 2010, a major focus has been on balancing the federal budget – this year alone over a dozen proposals have been introduced to amend the U.S. Constitution to require a balanced budget.

As a candidate and now President, Donald Trump has focused more on what he sees as the evils of the perennial U.S. trade deficit; directing that U.S. trade agreements be revised with a goal of reducing the trade shortfall.

Yet much more pressing than America’s nearly $600 billion budget deficit or $500 billion trade deficit, is its economic growth deficit.

Focusing on the Right Problem How a tax reform could foster

growth in the U.S.

Eric CantorVice Chairman & Managing Director

Moelis & Company

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Eric Cantor Focusing on the Right Problem

A decade of slow growth…

Between the end of World War II and 2005, the U.S. economy grew by an average of 3.1% a year,

including recessions. But for the past decade, growth has not only failed to

even reach 3%, it has averaged an abysmal 1.5% (Figure 1).

It is difficult to overstate the deleterious impact of sus-

tained low growth. America has long defined itself by the basic

promise that each generation will be markedly better off than the gen-eration before it. And at 3% economic growth it takes just under a generation (23 years) for per capita GDP to double. At 2% growth, it takes 50% longer to reach the same level of wealth (35 years).

The impact of a decade of slow economic growth in American politics is evident as both leading Republicans (e.g. Trump) and Democrats (e.g. Bernie Sanders) rally voters with a pitch to retreat from the world stage and focus inward, in the process severing the global political and economic ties forged over the past seventy years.

Even worse, economists predict that econom-ic growth over the next decade will average a mere 1.9%; barely better than the past decade.

Proving the economists wrong and reversing America’s growth deficit will require a commitment on the part of policymakers to an “all of the above” growth strategy. Policymakers must reduce unnecessary regulation, ease access to capital, modernize the nation’s in-frastructure, and improve America’s education system – to name just a few priorities. The one indispensable element of an “all of the above” growth strategy is unquestionably tax reform.

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Annual Real GDP Growth Average Growth Through 2005

Eric Cantor Focusing on the Right Problem

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10%

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U.S. ECONOMIC GROWTH

Figure 1: Source: Bureau of Economic Analysis

$$

Eric Cantor Focusing on the Right Problem

How a tax reform could help…

It has been over 30 years since the U.S. last updated its tax code. After the 1986 reforms, the U.S.’s top corporate tax rate was among the lowest of all industrialized nations. Since then, other nations have reformed their tax codes and lowered their top rates leaving the U.S. with the highest rate among OECD nations and the third highest in the world (Figure 2).

In the late 1980s, most OECD nations taxed business on their worldwide income. Today only a handful of countries, including the U.S., still do so. The result: a competitive disadvantage for U.S.-based multinational companies (Figure 3).

Complicating matters for the U.S., as most other nations have become more reliant on border adjustable consumption taxes, the U.S. continues an income tax structure that taxes what is earned from exports, but leaves imports relatively tax free.

Pro-growth tax reform that fixes the U.S.’s uncompeti-tive rates, reliance on worldwide taxation, and bias against exports, would permit companies to focus on business fundamentals rather than tax arbitrage schemes designed to mitigate the U.S.’s punitive tax system.

Reform must not stop there. It should also incentivize savings and investments in human and capital assets. Today, the basic structure of the U.S. system tends to en-courage consumption over savings and investment. Movement towards full expensing of capital investments, a comparable benefit for investments in skills training, and more robust incentives for saving would reward the type of productivity enhancing investments that are the seed corn for long-term growth.

Ironically, such reforms would probably also do more to address both the budget deficit and the trade deficit than anything else under consideration by Washington policymakers.

A growing economy generates greater tax revenue. Increasing annual GDP growth by 1% a year (e.g., from 1.9% to 2.9%) over a decade would by itself reduce the budget deficit by $3 trillion (Figure 4).

By definition, a trade deficit is always accompanied by an equal surplus of foreign investment. In the U.S., a lack of domestic savings is offset by foreign savings invested in

Figure 2: Source: Congressional Research Service Based of OECD Data

55%

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United States OECD Average Excluding U.S.

TOP STATUTORY CORPORATE TAX RATES

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$$

$ $Eric Cantor Focusing on the Right Problem

OECD’s Nations with a Territorial Tax System

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GROWTH IN TERRITORIAL TAX SYSTEM AMONGST 34 MEMBERS OF THE OECD

Increased Revenue

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

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0

INCREASED REVENUE RESULTING FROM SUSTAINED 1% INCREASE IN ANNUAL GDP GROWTH IN BILLIONS OF $

the U.S. Many economists believe that a prin-cipal driver of traditional trade deficits is in fact the domestic savings rate.

Tax reform that encourages more domes-tic savings – rather than consumption – holds the promise of actually lowering the trade deficit without resorting to economically harmful tariffs.

In public policy as in life, sometimes the greatest challenge is focusing on the right problem. The American people will be well served if, rather than obsessing over the budget and trade deficits, policymakers focus on the challenge of low economic growth and the promise of tax reform.

Figure 4: Source: Obama Administration FY 2017 Budget

Figure 3: Source: PWC

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Imprint

About this publicationThe periodical of the Stern Stewart Institute

16th Edition, July 2017Published half-yearly

Publisher and Chief EditorGerhard Nenning

Board of The Stern Stewart InstituteMarkus Pertl Gerhard Nenning

Managing EditorAnja Deucker

Design Production and ArtworkKW NEUN Grafikagentur

PrintingIndustrie-Druck Haas

The opinions, beliefs and viewpoints expressed by the various authors in this publication do not necessarily reflect the opinions, beliefs and viewpoints of the editorial staff or of The Stern Stewart Institute. The publisher accepts no responsibility for errors, omissions or the consequences thereof.

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Picture Creditsistockphoto / Andrey_Kuzmin (p. 1), baona (p. 2), FilippoBacci (p. 12/13), zhongguo (p. 45), xavierarnau (p. 54/55); shutterstock / Vectortone (p. 16/17), MAGNIFIER (p. 29), Rock1486 (p. 48 – 50); Can Stock Photo / dekay (p. 51).All other images are property of the authors or companies.Illustrations by Iris Schmitt for KW NEUN Grafikagentur.

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July 2017 The N

extGen Race