A Century of Plenty: The $700 Billion AI Supercycle

0:04The world is a magic petri dish in two ways. First of all, it's really big. Our petri dish is just much bigger than we think. More than half of the world's economic activity happens on way less than 1 % of its surface. And the second one is our petri dish is magic because it grows over time.

0:30That was Chris Bradley, co-author of the new book, A Century of Plenty, a story of progress for generations to come. I'm Motley Fool producer Mac Greer. Motley Fool contributor Rachel Warren recently talked with Bradley about the next 75 years. The math of global abundance, the shift to a physical economy, the AI super cycle, and why the world needs an energy renaissance. Enjoy. Hello, everyone, and welcome back to Motley Fool Conversations. I'm Motley Fool analyst Rachel Warren, and today I'm excited to welcome Chris Bradley to the show. Chris is a senior partner in McKinsey & Company. He serves as a director of the McKinsey Global Institute, where he leads research on the economic and business issues most critical to the world's companies and policy leaders.

1:17Chris brings insights from a wide repertoire of industries and over 25 years of McKinsey experience. His recent client work spans software, media, banking, retail, consumer packaged goods, and telecommunications. With the McKinsey Global Institute, Chris leads research on productivity and growth, industries of the future, demographics, and the energy transition. Chris is also a co-author of the just-released book, A Century of Plenty, A Story of Progress for Generations to Come. This book is a major research effort from the McKinsey Global Institute. It explores the advances of the past century, what drove them.

1:51It investigates the possibility of a world of plenty by the year 2100, in which every person lives at or above the levels of prosperity only enjoyed by the top few percent today. So many things to talk about with you, Chris. Welcome to the show. Great to be here, Rachel. The book presents a very ambitious goal, this idea that every person on Earth could be living at Switzerland's current standards by 2100. So maybe first walk me through some of the core themes of the book. And then if you can explain, was there a stress test or catalyst that convinced you that this goal is physically possible?

2:24Fantastic. Thanks, Rachel. Yeah, you're right. It does appear ambitious on the surface. You're absolutely right. And it goes against the grain a little bit, doesn't it, about how people are feeling about the world today. But we started by looking back. And we started kind of at the same time McKinsey was born, around 1925, and looked at what happened to the world since then. and we saw a world that kind of exploded with growth in a way that had never done before and the global economy now is actually 24 times bigger than it was in 1925. So if we were in 1925 trying to plan our world today, we just would have been thinking way too small and we would have got it wrong.

3:00And of course we looked into, well, how did that machine work? But it led to the natural question of if our grandchildren do the same thing and look back on our generation, will they see a plateau of humanity? Will they see depopulation? Will they see the peak of productivity? Will they see no more big inventions? Will they see the collapse of kind of the state? Or will they see kind of what we did? And we chose to kind of prove out the case. Now, not to prove that it would happen, but prove possibility. So it's an existence proof that we could have universal abundance in the world. And the benchmark we chose was that every country in the world lives at the standard of Switzerland, which is a pretty amazing place.

3:44It's got GDP per capita above 80 ,000, amazing model democracy. It's beautiful. They've got urban, they've got natural, the trains run on time. Some people accuse me, hey, Switzerland's a bit boring. Sorry if there's any Swiss listeners. It's a great place. but the point is at today's world that's nine million people so that's one in every 1 ,000 people have that and so we asked ourselves what about the one in 1 ,000 at the complete other end of the scale which is a place called Burundi the poorest place in the world and what would have to happen to get them up to a Swiss level and for Switzerland of course we don't want stagnation at the top that would be terrible to keep growing at kind of one and a half percent it turns out to do that you need a global economy by 2100 that's eight and a half times bigger it sounds really huge it sounds crazy but if you look back all it means is that global economic growth has to be 2.6 percent per year that's the power of compounding and so it has to be maybe 30 basis points faster than it was in the last 50 years maybe 30 so in a way the miracle of the future is about the machine of progress that we have now just keeping on trucking and that steady progress that few percent a year that we bank I think Einstein said you know the most powerful force in all the physics is compound interest or something like that you know that power of a few percent per year is what can continue to catapult and of course then we go Wow a world eight and a half times bigger are you kidding like everyone's saying like we don't have enough materials what about energy what about food what about climate and so we just went through and systematically proved that it's entirely possible.

5:21And in fact, the only gap we probably have is more about human beings and our politics than it is about physics or science. So this idea that the global economy would just have to grow eight and a half times its current size. So from a resource standpoint, where do you see the most significant physical constraints today? And in which ways are these surmountable in order to achieve that goal by 2100? Yeah, the hard stuff is actually not the hard stuff, if that makes sense. The stuff that we make or drop on our toes, we systematically went through every commodity. You do need a lot of stuff. For example, take steel is something we're all used to.

5:59It's been around since the dawn of mankind. But at the moment, you and I have 11 tons of steel in our lives, all around us, in our buildings, in our roads, in our cars, et cetera. But someone listening in India would have one ton of steel. So just for the world to get to that level, we need a lot more steel. And in our abundant world, you and I will probably have a little bit more steel. There'll be autonomous cars driving around and there'll be a little bit more steel. But to do that, we just need to make twice as much steel as we made in the last 100 years. So we need to add to our steel stocks twice again.

6:32It sounds like a lot, but there's actually, we went and systematically checked the resources. But one really important thing is to get this book right and to get the thinking right is if you have a fixed mindset or if you have a zero-sum mindset around the world, you'll be wrong as an investor. You'll be wrong as a person every time. Let me bring that to life for you with copper. It's something we all talk about now. We know it's so critical of electrification. We're going to need a lot more copper, probably eight times more copper. The reality is since 1950, we took out 800 million tons of copper.

7:05So we used a lot of copper. We went to the copper cookie jar. We took a lot of cookies out. But here's the thing. We added 900 million tons into reserves. So we were at the copper cookie jar. We kept going back, but it's fuller than it was when we started. And that's the thing that to get your head around how the world's going to work, you have to get your head around the idea that the thing that makes the world work is improvement. And in fact, copper reserves are actually doubling about every 30 years or so. We're pretty good at finding ways to think about the biggest copper mine in the world, Escondida, which is in Chile, has just lasted much longer and had many, much more copper than anyone thought.

7:45Why? Well, we got better at digging it up and better at processing it. So stuff we thought used to be on the waste pile is now in our homes and in our cars. So that's a pretty incredible thing. And the thing that brought it home to me was early on in this book, just before release, I did a practice presentation to this group of people that didn't know me, had some really smart people. And when I was doing this talk, one person raised their hand. He was a very eminent biologist, a scientist. He said, Chris, you don't understand how science works. When you have a Petri dish, you put a culture in the Petri dish and the culture grows really fast and you go, wow, look at all the growth.

8:21But eventually it gets to the edge of the Petri dish and it stops growing. And that's what's going to happen to us. And I didn't think of the comeback live at the time but I've got the comeback now which is yes it's a petri dish but the world is a magic petri dish in two ways first of all it's really big our petri dish it's just much bigger than we think more than half of the world's economic activity happens on way less than one percent of its surface and the second one is our petri dish is magic because it grows over time it grows about one to two percent per year and compounded out that means that petri dish is not not only huge, but the edge keeps expanding.

8:53And now I can't say that's going to go forever. Of course, nothing can go forever. But what we can pretty confidently say is it will go long enough to allow all of our citizens on planet Earth to get to high levels of prosperity. And that's something we should take as an agreed goal in my view. Have you been sleeping on your mattress a little too long like I have? My back's getting sore more than it used to. And I feel like Homer Simpson with my body shape and printing on the mattress. But like you, I'm busy with a job and kids and who wants to go to the mattress store with the family only to deal with a pushy salesperson.

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10:04That's L-E-E-S-A.com promo code FOOL for 20 % off plus another$50 off. Support our show and let them know that we sent you after checkout, Lisa.com promo code FOOL. So, you know, if someone's listening to this right now, you know, they're an investor with a decades-long horizon, what does a world of plenty look like? You know, what are some of the friction points and tailwinds to get us there that we as investors, obviously, as well as humans and consumers should be looking for? By the way, investors, funnily enough, in our book, the most unlikely superhero emerges, because you'll never see Megacorp being the hero in the Hollywood movie.

10:45But if there's a hero in our book, funnily enough, it is actually the large modern firm. It's where all the R &D happened. It's where the investment happened. It's where the wages are the highest. It's where the human capital happens. It facilitates most of the world's trade. Happens through very large companies. So when you invest in our system and you join in the hundreds of years of people who've learnt that if we pool our resources, humanity can do absolutely incredible things. You're kind of participating in that journey. And in fact, capital, one analogy for how the machine of progress worked is that you do need a foundation of like good rules and laws and all those things.

11:25And without those foundations, we see the world can really fall apart. Like you can see places like Venezuela or North Korea. On those foundations, the thing that holds up our prosperity has two legs and it's capital and it's energy and so what people don't understand is just how much capital it takes to make the world go around and how much energy so per worker versus 1925 a person average person on the planet now has nine times more tools and equipment and capital behind them and the planet overall uses 10 times more energy so that what the world is going to look like is a world with a lot of capital a lot of energy right so that's the basic fact but of course today as an investor it kind of feels like choppy waters we see this volatility on one hand you see the global balance sheet is really stretched like I think what was it what last time I looked US equities were like 3.3 times GDP which is a historically very very high amount but even on the debt side you know we've never seen a more indebted corporate sector than we've got in China.

12:27We've never seen more indebted government sectors than we do in Italy and Japan, soon to be maybe even the US. And also in my country, one of the most indebted household sectors in history. So the balance sheets really are loaded up. The whole thing really only makes sense is if we can continue productivity. And so what we had to do was kind of, this book's a funny book because we look back a long time and it all looks easy. You go, oh, well, the lines just all went up. and you look forward and you go, yeah, well, if we compound for a while, we've got the technologies, we've got the materials, et cetera, but we're here now and it's a time of great confusion and noise.

13:03So we had to locate the book here and there's two types of noise. The first one is the world has changed. At McKinsey Global Institute, we say we are in a new era and by that we really mean it. Like the world we all grew up in, you and I, Rachel, have had our whole working lives in a world that was kind of, to us, really normal but actually abnormal. it was globalized it had Moore's law it was all about digitization it had great demographics we had loads of energy in the us you had this big shale boom and we had abundant capital cheap money and low inflation so there are things that that's our world and suddenly someone changed the channel and our tvs have gone static and noisy and we're going oh there's so much uncertainty but actually we just got to locate the new channel because the world is now multipolar.

13:52It's not about digitization anymore. It's about humanization. It's not about a demographic gift anymore. It's about a demographic burden. It's not about fossil fuels anymore. It's going to be increasingly about electrification and it's not going to be about cheap, easy money from a big shock macroeconomically. It's going to be going back to the God's honest work of, of driving productivity growth. So we had to locate the book in this. And now if you're an investor, it's all very well to say it's going to be great in 100 years. But one analogy I use for this, if you were 100 years ago, it actually wasn't 100 % clear whether Argentina was a better bet than the US, right?

14:27And so we look back and go, well, look, the S &P 500 did so well, but you had to know that the US was going to win. So it's easy to say in the long term it's going to be, but we've got to navigate this period for it. But our view is, by the way, in the end, the optimists will win, but there's a lot of noise on the way through. I want to talk a little bit more about the productivity aspect, but the physical infrastructure that's required to reach a Switzerland standard globally. I mean, there's an astronomical amount of physical building that would have to take place. So I think that kind of begs the question, would we be entering a multi-decade CapEx super cycle where, say, the industrial and material sectors are for a long time at least outperforming light software?

15:09Is that sort of where those trends could take us? It's a really interesting point, isn't it? And we're starting to see people talk about the physical economy again. In fact, in the McKinsey Global Institute, we love looking at kind of industries and the intersection of macroeconomics. And what we found is that we have these things called industry arenas or arenas of competition. Because at any point in time, what we found in this, at least in this modern world, about 10 % of the revenues of the world drive all of the value creation. So in the past, that was like software and things like that. going forward we've identified what we think the 18 spaces are that will drive that value creation and to your point about huge investment the driver for us is the industries that have races for high investment in capability and so these 18 arenas include a little bit of the continuation digitization of course the really hot stuff at the moment is the AI platform which is AI software and semiconductors and all of that infrastructure but what's shot up the list for us is things like in the physical economy like robots, modular construction, drones, and things in the electrified economy like nuclear energy, obviously electric vehicles and batteries, and things that also hit the physical world around the biological space, like we're already seeing this explosion in kind of new health tech.

16:28So even when we look at it, we're seeing this kind of shift towards physicalisation. It's pretty natural to me that the semiconductor layer becomes so powerful it eventually kind of jumps out of its skin and invades the world. and we see it happen like when people say to me oh ai is just a thing i go have you did you know that in in san francisco like waymo is now the number two way of people getting transport and there's no driver and obviously we're going to come on to ai because this is a profound shift that in our views extraordinarily positive and actually necessary a world without ai would actually be quite grim because we might also talk about the challenges of demographics but But certainly building stuff is really going to matter.

17:10And if we track why did the US and Europe slow down their productivity so much coming out of the GFC, our analysis is really, really simple. They lost two points of net investment to GDP. People just stopped investing. Why is it now that the US is posting productivity results that feel abnormal to us? They might have felt normal to someone growing up in the 90s but feel abnormal to us now. is because there's a huge wave, huge surge of investment. And we've all seen the numbers. If you combine the CapEx and R &D of the big seven spenders in AI, it's like$700 billion a year. And I think next year it might approach a trillion.

17:44Like that's national level. That's like two or three Australian CapExes added up together. It's two or three Apollo programs every year. This enormous amount of investment happening. And in a way, just those companies would explain why America is investing more than Europe because the corporate investment gap in Europe versus America that explains why Europe's growing more slowly is about$400 billion a year. So these are kind of continent moving kind of numbers. And we're seeing it first going in the AI infrastructure, but as automation technologies kind of invade the rest of the economy, we'll see that ricocheting through.

18:21And our view is that we should be hopefully heading into a cycle of, I won't say higher investment, I say going back to the way the world is where we build stuff. In a way, the last kind of maybe 15 years or so has been an aberration in the sense that we kind of, while China kept investing like crazy, like China invests more in dollars than the US does, quite a lot more, about 25 % more, just in dollars. Don't worry about PPP, anything, US dollars. So China didn't stop investing and we can see that, but we've got to go back to a normal mode, at least in our OECD economies, of being builders. And that's going to require restoration of our belief in growth and productivity.

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19:41All investments involve risk, including the potential loss of principle. Past performance is not indicative of future results. This is a paid advertisement. I wanted to spend some time I'm talking about domains of feasibility and kind of the market implications here. And I want to talk about the energy domain, which I know you touched upon a little bit earlier, and maybe where some of the primary investment opportunities are. You know, is it the generation of power? Is it some of the massive redesign of the grid and storage systems that would be needed for a world of plenty? What does that look like?

20:12It's a great question, Rachel, because energy, if you take one of the conclusions you'll take from our book, is that energy really does make the world go around. And, you know, if we ask, well, for the other 99.9 % of humanity, people just as smart go to Florence and look at a painting, look at the statue of David that Michelangelo made and you go, these were pretty smart people. Like they did stuff I can't do. But why do we now perform the superhuman and they didn't? And the answer is we've got capital and energy. So we've got to understand that the world needs more energy. So let me answer it as super macro and then bring it down.

20:46Remember the stat that we discussed at the start was this world of abundance is 8.5 times bigger as an economy for the world. So straight away, scratch your head and go, oh, Chris just said the energy makes the world go around. So does that mean I need 8.5 times more energy? No, because remember, I also said we've got our magic pet tradition, the world improves. And one thing we improve at a lot is efficiency. Like if you think of Google data center, what that does with a kilowatt hour of energy versus an aluminium smelter, it makes many, many times more economic value. So we get better and better at turning energy into economic value.

21:19So when you plug all that through, you need about three times more energy. So by the way, straight away, that means any talk of energy transition becomes kind of a weird idea because we don't need an energy transition. We need to continually grow and add new energy. So we need an energy renaissance is what we need, not an energy to transition. So you need three times more energy. But what thing many people will realize intuitively because they're putting fuel in their tank, but maybe mathematically they don't know, is only one in five parts of energy come in the form of electricity at the moment.

21:52In China, it's actually closer to one in three because they've got a lot of coal, so they've got this strong urge to electrify their economy. So we're in a world that's going to be clean and going to make all these constraints happen. And by the way, where are we going to get the new energy from because it's very unlikely we're going to scale up our oil system 3x is going to be an electron so we've got to electrify the world so three times more energy but we need actually 12 times more electricity right and then hang on we don't want all that electricity is to be kind of coal even though at the moment coal is an incredibly important part of providing prosperity to a lot of people but we want the more the modern and cleaner forms of electricity.

22:29We need 30 times more of that. So at this point we start getting my, you know, our numbers. I said, don't worry, it's a few percent here and there. And I was very confident at the start. When we got this 30X is how much more clean electricity you're going to need. We were like, oh no, have we just literally unwritten our book? Have we broken the model? So what we did is we kind of set apart like building a scenario that's feasible that would make that happen. and we got to 20 % kind of other stuff, 40 % renewables with firmed by batteries and 40 % nuclear. And this energy mix actually works in the model.

23:03It's actually economically feasible, but it's massive. Like just take the nuclear side. You do need in our model 26 ,500 nuclear plants. Sounds like a lot. What it means is the whole world needs to build a little bit like France did in the 1970s. So I say when I'm doing this presentation, if the French can do it, surely, surely we could. But the French actually did an incredible, they had an incredible industrial renaissance in the 70s building nuclear. But if we can all build at that rate, it's totally, totally achievable. It sounds like a lot, but the world's big and 75 years is a long time.

23:39So rest assured, energy abundant future is totally possible. It's totally possible to do that with clean and through electrons it's going to take building a lot of stuff so that's the big mega picture and then we translate that into what are the investment themes today and what people scratch their head and one of the big mysteries is we've got this big solar boom but why isn't there a google of solar and the answer is because solar is a funny technology in the sense that if I spend more money investing in solar r &d I just get more solar plants I don't get a fundamental lift in in the capability so you end up having it becomes a very traditional kind of manufacturing business which doesn't create those kind of you know alphabet or amazon type valuations but the electrification of the economy is going to be a massive deal so let's come back to today ai we're all talking about it's incredibly important and it also means it's very important because it's a geostrategic issue whoever owns the ai kind of is the most powerful country in the world and if there's an arm wrestle it's a three-armed arm wrestle the arm one is algorithms China and the US are pretty even Stevens.

24:44Two is chips. I'd say the US has a definite advantage. China data centers about one quarter is productive because they just don't have as good chips. But on energy, you've got to say China's got it because they build 10x more electricity every year than the US does, 10 times more new electricity every year than the US does. And so suddenly electrification has gone from this kind of maybe something people talked about in climate change circles or in the energy industry to something that is a common mainstream issue for all of us is this race to electrify our economy. And it's pretty easy to imagine why that's important once you understand that one of the NVIDIA chips, a Blackwell, is the same as a house of energy.

25:26So when people say, oh, I'm building 100 ,000 data center, that means they're suddenly spinning up a town, a large town. But in the US, there's 16 gigawatt scale data centers being built in the next two years so that's the same as spinning up 16 big cities all of a sudden right because a gigawatt is a million so suddenly a million houses popping out of nowhere in electricity now the us has managed to do it so far because you're really good with gas and you've been able to kind of locate gas pipelines increasingly it will be boosted with solar but there's there's a real reason why all these players are looking towards integrating with nuclear power because guess what the output of a nuclear plant is a bit over a gigawatt kind of matches a large modern data center so we're going to see an amazing revolution in energy we're going to go from an economy that's all about combustion to one that's all about spark and it's actually a really different that's why many commentators are saying can we stop using climate change as a justification to electrification and use electrification as a justification to electrification because it's an amazing force.

26:29It's cleaner, it's more efficient, and it's really going to build a complete new kind of electro stack of technologies that are going to make all our lives much better. One final question. As investors, as consumers, looking ahead towards this idea of a century of plenty, what do you personally find to be the most compelling? It could be secular tailwinds, industries, sectors, looking over the next five to 10 years, which do you personally find most compelling? Oh, I think you just have to follow the money. And if you look where the investment's going and this wave of investment into compute, and as we've talked about the$700 billion that was spent last year, one thing many of your listeners won't realize is we haven't seen that$700 billion yet because the lag from building a data center to it turning up in a model and in turn on product, it's like looking at stars coming at us from space, but we're only seeing the light that's reached us so far.

27:23So we haven't seen anything yet. And the idea that that technology, you know, has a shelf like a five years, I think that's nuts. I mean, my whole career at McKinsey, more than 25 years, we've been digitizing the economy. I don't think it's going to be any different for the next 25 years. We're going to be AI-ing the economy. I think that you've given us a lot to think about. Investors, those who are listening or watching, check out the book, A Century of Plenty, A Story of Progress for Generations to Come. It's a fantastic read. I really enjoyed it. Chris, Thank you so much for joining me today.