Conference Synopsis

Our opening speaker set the context for Nucleus 2022 by describing what he sees as the ‘regime change’ currently transforming the global economy. A world-leading economist and banker whose roles have put him the heart of the global financial system over three decades, he spoke with a freedom denied him in his former roles or in more open fora. In conversation with Master of Ceremonies Sarah Montague, he described how the fundamental assumptions and trends of the last thirty years – his entire career – have begun to reverse, identifying the bookends of the former era as the fall of the Berlin Wall in 1989 and Russia’s invasion of Ukraine on February 24. In its place we are now seeing a ‘rewiring of globalisation’, he told his fellow Nucleus delegates, with thirty years of convergence and integration beginning to unwind.

Most aspects of that former system are moving in the other direction and the trend is accelerating, he believes, though guests may have found some comfort in his view that it was unlikely to unwind completely. But every aspect of economic integration being ‘weaponised’, he said: from the use of trade sanctions against Russia to the urgent reshoring or friend-shoring of supply chains to insulate them from the disruption of war and a litany of other present risks.

This geostrategic reorientation of the global value chain is only just beginning, our speaker said. There will continue to be integration, but only among friends. For those previous three decades economic resilience has been undervalued, he felt, but it is now being built back in. Rebuilding that resilience brings cost – and thus new price pressures – as we pull value chains closer to home and into more expensive locations. He gave costed examples of businesses choosing to establish new facilities in more expensive locations at or nearer home with higher wages and lower incentives for reasons of economic security. He posited that these new costs coming into the system over the medium to long term, together with relatively high investment levels generally meant that it would be hard to keep inflation stable.

There will be a global recession, he believes, though perhaps not deep, and it will hit the US next year. With interest rates going up considerably and greater volatility around inflation, we are seeing the biggest hit to real incomes in decades. There is a very real impact on those with least, requiring targeted relief. The greatest mistake that central banks made over the pandemic wasn’t the scale or nature of quantitative easing, he said, but the desire to restore economies to their pre-COVID state, when so much has been permanently changed: not least by the acceleration of the digitisation of work.

There were equally portentous contributions from the floor. An influential government figure urged everyone to ‘be nice’ to centrist democratic politicians. They walk a narrow path with deep ravines either side, he said, having to maintain social cohesion with data wars, the redefinition of truth and major price increases all bringing a genuine risk of social disorder. These problems are not abstract, he cautioned, and we need to protect the forces of democracy.

The CEO of a major global carmaking group warned that self-sufficiency within blocs also brings dangers. There can’t be war in Taiwan while all sides remain so reliant on it, he said, but that may not remain the case. Our main speaker agreed, saying that it was not the universal view that President Xi would wait. Legacy is a powerful motivation, he said. Rationally, war over Taiwan shouldn’t happen but sometimes leaders don’t wait if they won’t be around to see the endgame.

Our moderator Sarah Montague described this as ‘chilling talk’, and her interviewee concluded by saying that we now live in a fundamentally different world to that which existed when Nucleus first convened in 2015.

The first panel discussion at Nucleus dealt with the metaverse, and the nascent nature of the concept was reflected in the nature of the debate. There was no agreement on definitions or applications even among the three expert panellists, and the conversation constantly bled over into other the other themes of this year’s event, such as blockchain, Web 3.0, regulation, and the responsibilities of complex and largely unregulated new tech to its individual users.

Invited to give their definitions of the metaverse, the first of our panellists, the CEO of global gaming company said that the virtual or augmented reality-based notion of a metaverse will remain a niche, high-end experience, analogous to an IMAX cinema. The uptake of the hardware required will be slow, he said. It won’t sell in volumes at high prices, and instead the metaverse needs to use what we already have, with his company’s metaverse-type games being browser-based. For him, the concept is grounded more in Web 3.0 and blockchain than in hardware creating a specific visual experience. Games have long had the functions of economies he said, with users creating value by building and selling digital assets to others, but until now we have lacked good ownership structures for their goods. It wasn’t in the original design of the web but now blockchain provides that, establishing property rights and ownership, leading to broader interoperability between applications and an exit from the ‘walled gardens’ of most games. You can now, as he put it, ‘take your digital stuff from place to place’, and his view of the metaverse is akin to a functioning virtual economy in which previously siloed applications become interoperable, we can share goods and value across applications, and create new industries on top of existing platforms.

The second panellist took the opposite view. A world-leading software engineer who has held roles at the highest levels of the biggest tech companies and co-created household-name technologies, he argued for a narrower, more hardware-driven notion of the metaverse based on shared experiences in virtual or augmented reality. Of relevance to many of his fellow Nucleus guests, he said that this concept of a metaverse is often better experienced displayed on the glasshouse of a car than on any other kind of screen.

The third panellist, a technology writer, podcaster and investor took a third, less deterministic view of the metaverse. The technology isn’t ready, he said, the market remains uncertain and it might still go nowhere as a concept, but a lot of good tech will come out of it, such as payment and economic systems. A virtual economy is necessary as more of our activity moves into the digital space and more of our time and labour goes into digital assets. But while that first notion of a metaverse sounds good, this panellist sees its implementation as having been almost universally terrible, despite around $120bn being invested over the past few years. The benefit, as always with exciting and fast-moving developments running ahead of a clear use-case was likely to be ‘the unexpected consequence’, as yet unseen by those in the room.

One senior tech leader reminded us that behind the theory lies real people and their wellbeing, and asked what our responsibilities to them should be. Our second panellist expressed cynicism about blockchain and the cryptocurrencies that underpin a more economic notion of the metaverse, and said that regulation was being designed out of such technologies. The first said that he would welcome regulation, but that governments were reluctant to engage, and, perhaps worryingly, simply don’t have the expertise to know what the right answer is.

In perhaps one of the most telling moments at Nucleus, one of the three panellists in the blockchain discussion asked her fellow guests to raise their hands if, separately, they used blockchain technology, or held cryptocurrency or NFTs. Only a small proportion did. Addressing a degree of cynicism in the room towards blockchain and its applications the speaker, a partner at a Silicon Valley venture capital fund and an early advocate of and investor in cryptocurrency said that it was ‘okay not to believe’, but reminded delegates that the highest rate of adoption of such instruments was among the young and those in countries whose fiat currencies were less stable than dollars or euros. She described a typical user as quite different to the typical Nucleus delegate, like the Chinese teenagers who have digital wallets rather than bank accounts. Her implication was that to understand this stuff, you have to use it; and those with conventional economic and regulatory power perhaps don’t, yet.

She agreed with her two fellow panellists that the turmoil in the crypto markets was overdue and welcome. One has founded her own cryptocurrency and described recent events as a ‘necessary clearing out of the froth’ while the third, with a background in conventional banking at the highest level and now a leading blockchain advocate said that these are the ‘early innings’ for these concepts, and that a shakeout of unsustainable models is healthy.

The crypto founder predicted that there will be ‘a tonne more failure’, but based on the CVs crossing her desk she said that there was more talent and clever minds coming into the space, and that most kids coming out of engineering schools will have had at least a class in crypto, helping to shift the focus from speculation to tangible benefit. The former banker agreed: many projects would remain unsustainable, she said, but there is money pouring in, a lot of build happening, and the results would be of broad relevance.

All three were focussed on establishing blockchain and crypto as useful, stable tools, rather than the object of speculation. One summarised the benefits as reducing risk and cost in exchange and cutting out the intermediary: ‘an awesome thing to do’, in her words, and ‘something we’ve been trying to achieve for hundreds of years’.

Considerable scepticism remained though, with concerns expressed over the security of blockchain, the lack of protection for investors, and the motivation of those investing. Despite his youth, a tech pioneer working in automotive remained unconvinced, saying that the carmakers were concerned with real-world problems and made complex products with passion, whereas crypto still had no real use-case and was driven by greed, comparing it to the Dutch tulip mania.

One panellist agreed with the need to have regulatory clarity, but feared that the genie is already largely out of the bottle. Another countered the scepticism by saying that these nascent technologies can’t be compared to the long-established auto industry. A lot remains to be solved, she said, with a lot of ‘learning events’ to come, but it is the underlying technology and its eventual benefits that matter, and not the bubbles.

The final Nucleus session examined how companies can stay focussed on sustainability given the transformative and often troubling changes in the economy and technology addressed in previous sessions. There isn’t a choice, of course. The speaker who opened Nucleus was also a panellist in this session and described sustainability simply as longer-term resilience, and as necessary to act upon as the reshoring required by war, sanctions and the global supply chain issues addressed in previous sessions. He described the transition to targets such as net zero and water positivity as a shift on the scale of the industrial revolution, happening at the pace of digital transformation. But transition means transition: although he acknowledged that the deadlines are incredibly tough, the change is not about flipping a switch but rather about setting trends on a downward trajectory, albeit sharp.

The other two panellists both lead sustainability at major global businesses outside the automotive and tech spaces. One said she had been called an agitator or worse when forcing the ‘extremely crunchy conversations’ required within the business to take 50 per cent of carbon out of the supply chain. “It hurts,” she acknowledged. But her counterpart said that it was easier when she gave a business rationale for doing it. Brands grow 6 per cent faster when they talk about sustainability, she said. As one of the top graduate recruiters, sustainability is the main reason the best and brightest give for joining a business.

And at the other end of the scale, investors are focussed on sustainability, and question businesses about it. The economist agreed: “All your investors are looking at how you’re coping with this,” he cautioned. His fellow panellists also urged leaders to game out how climate change might pose a direct risk to their businesses too: if crops fail or storms destroy them, or if a particular product or raw material attracts the same public opprobrium as single-use plastics did after the BBC’s Blue Planet series.

One senior former car industry leader posited that the carmakers in particular were running to some tough deadlines, and that quick or forced decisions can make for poor unexpected consequences. But a panellist countered that only business can achieve this: it can do it, and it has to get there faster than any government could, and faster than consumers expect it to.

The global carmaking CEO from the introductory session agreed. It can be done, and relatively fast, and companies need the tough targets, he said. The industry can be at 50 per cent by 2030 and his group is perfectly happy with the ending of the sale of combustion engines by 2035, although the main constraint remains batteries. People were too pessimistic that it can’t be solved, he added, but the task is not as complex or as expensive as some think. It can be done, but it can’t be sped up.