Strategic Foresight Report
An Exploration of Indiana’s Future Fiscal Landscape In 2027
October, 2017
About the Author:
Sam Miller is founder of Provoyant Foresight and also serves on the faculty of the Mendoza College of Business at the University of Notre Dame leading courses in strategic foresight, innovation, and entrepreneurship. Sam holds an MS in Engineering (Product Design & Development) from Northwestern University, an MBA (Strategy) from the University of Michigan, and a BA (Economics) from the University of Illinois. He is a member of the Association of Professional Futurists and the World Future Society.
Provoyant Foresight helps organizations in their pursuit of strategic insights. Provoyant’s workshops and exploratory research position their clients to better understand emerging opportunities and create resilient strategies to act amid uncertainty. http://provoyantforesight.com/
About the Indiana Fiscal Policy Institute:
The Indiana Fiscal Policy Institute (IFPI), formed in 1987, is a private, not-for-profit government research organization. The IFPI’s mission is to enhance the effectiveness and accountability of state and local government through the education of public sector business and labor leaders on significant fiscal policy questions, and the consequences of state and local decisions. The IFPI makes a significant contribution to the important, on-going debate over the appropriate role of government. The IFPI does not lobby and does not support or oppose candidates for public office. Instead it relies on objective research evidence as the basis for assessing sound state fiscal policy. http://indianafiscal.org/
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Acknowledgements
Provoyant Foresight would like to thank the following Indiana fiscal policy professionals for their contributions to the research in support of this foresight project.
Indiana Fiscal Policy Institute John Ketzenberger John Grew Pete Rimsans David Bottorff
State of Indiana Fiscal Policy Experts Jason Dudich State Budget Director, Gov. Eric Holcomb Justin McAdam OMB General Counsel, Gov. Eric Holcomb Adam Horst Former Budget Director, Gov. Mitch Daniels Kathy Davis Former Budget Director, Gov. Evan Bayh and Lieutenant Governor of Indiana Ken Kobe Former Budget Director, Gov. Robert Orr David Reynolds Fiscal Analyst, Indiana State Senate Susan Preble Fiscal Analyst, Indiana State Senate Erik Gonzales Fiscal Analyst, Indiana State House of Representatives Ben Tooley Fiscal Analyst, Indiana State House of Representatives
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Executive Summary
As it celebrates the 30th anniversary of its launch in 1987, the Indiana Fiscal Policy Institute seeks to conduct an exploratory glimpse into future scenarios for the Indiana fiscal landscape in the year 2027.
Taking a systems view of emergent change, this assessment categorizes evolving trends and potential disruptions into six “Change Domains”:
Health & Wellness Infrastructure Jobs & Economic Growth Education Public Safety Demography & Society
An examination of historical and emerging change across these six change domains reveals the existence of two residual uncertainties that may define the context of future scenarios. These two uncertainties are:
Whether adoption of automation technologies will destroy or create jobs Whether the system will become more concentrated or more distributed
Assessment of the interaction of these two uncertainties reveals four alternative scenarios each of which present exploratory questions for consideration for both revenue and appropriations:
“Oligopoly” in which the system becomes more concentrated and jobs are destroyed by technology. Corporate profitability and worker displacement skyrocket. Ultimately, tax policy common ground is established (enabled by abundant taxable profits) and Universal Basic Income (UBI) is established as a safety net for the structurally unemployed. “Precariat” in which large companies thrive and new technology adoption creates abundant new knowledge worker jobs to replace those made obsolete. Employers shift their HR policies toward independent contract work making employment abundant, but precarious. Continuous retraining and lifetime learning become the norm to prepare workers for “gigs.” “Start-Up” in which fast moving entrepreneurs and mid-sized companies outcompete the slower large companies, creating broad economic growth from the grass-roots level. Large companies divest and downsize into regional enterprises to become more nimble and the entire system – education, energy, healthcare, government, etc. behave more entrepreneurially. “Self-Reliance” in which jobs are destroyed by technology and a distributed system structure shifts the emphasis toward self-reliant models such as urban agriculture and barter. Trust in the system suffers and citizens seek greater control over their own well- being. 3
Introduction
"Time is asymmetrical for us. We can see the past but not influence it. We can influence the future but not see it.” Stewart Brand, founder, Global Business Network
Planning for uncertain change involves a high degree of ambiguity. The challenge is not so much in answering questions about the future, but rather in framing the proper questions to ask. This exploratory assessment of future change is intended to help Indiana fiscal policy decision makers and other stakeholders frame insightful questions about potential future scenarios and the role future fiscal policy can play in improving economic prosperity and quality of life for Indiana residents over a 10-year time horizon – to the year 2027.
The emphasis of this exploration is the convergence of technological and economic change. In order to best understand these two categories, we will view change from a systems perspective. Disruptions are often created by forces that lie outside of our main area of focus, accordingly this exploration will engage peripheral vision – to include factors that may indirectly influence the fiscal landscape of the state of Indiana. The system is categorized into six “Domains of Change” as follows: Health & Wellness Education Infrastructure Public Safety Jobs & Economic Growth Demography & Society
“The farther back you look, the farther forward you are likely to see,” Winston Churchill.
This exploration will look back to 1987, the year of the founding of the Indiana Fiscal Policy Institute, and explore how change has unfolded across the six domains of change. This will serve as a springboard for exploring the evolution of these forces into the future.
This foresight report is exploratory and is not intended to be predictive. It seeks to help stakeholders imagine a range of plausible future scenarios to create a deep understanding of future system dynamics. Four alternative scenarios will be presented to create “memories of the future” that can serve as a backdrop for “wind tunnel testing” fiscal policy concepts.
As Bob Johansen of the Institute for the Future says, ““Even a forecast that never happens is worthwhile if it provokes insight for you.” The insights of this report are intended as conversation starters, to spark ideas and debate around possible policy innovations to enable forward-thinking decision making.
Finally, this report will neither recommend nor advocate for any particular policy. The outcomes of this report are intended to serve as ideation prompts to help decision makers craft anticipatory and resilient fiscal strategies for an uncertain future.
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Six Domains of Change
The essential factors in the future of the State of Indiana
Understanding the status and trajectory of emergent change across six critical categories will be crucial for fiscal policy planners to understand and guide the State toward preferable outcomes for our citizens, our businesses, and our leaders.
This examination looks not just at the patterns of change in each domain, but also at the interrelationships and patterns amongst them. These cross-impacts can be re-enforcing, serving to amplify the forces of change, or they can be contradictory serving to constrain change and prolong the status quo.
This exploration will begin with a historical timeline across the six change domains, providing a glimpse of the journey from 1987.
A deeper dive into the current forces at work in each domain is then presented, followed by alternative scenario narratives exploring four distinctive futures and exploratory questions for the fiscal landscape of the State of Indiana.
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Timeline
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Health & Wellness Forces of Change
AFFORDABLE ACCESS Fewer Uninsured The number of uninsured Americans fell from 44 million in 2013 / 16.6 percent (the year before the rollout) to 28 million (10.4 percent) in 2016. Gallup finds the uninsured population in 2016 at the lowest level since it began measuring. Much of this growth came from self-funded plans (driven by the Affordable Care Act’s individual mandate) and through expanded participation in Medicare.
Fewer Options, Rising Premiums Insurers are pulling out of exchanges. According to a Kaiser Family Foundation analysis, 31 percent of counties will have just one insurer this year, up from just 7 percent last year. Policy uncertainty regarding enforcement of the individual mandate and regarding cost-sharing subsidies is driving insurer decision making - building in an “Uncertainty Tax.” ACA premiums are set to rise 15 percent in 2018 according to Congressional Budget Office. Many participants, however, will receive subsidies to offset this increase.
Patient Empowerment New customer-facing technologies and business models are empowering patients to shop for services and compare prices. One driver of this phenomenon is that many face higher deductibles and, as a result, are paying closer attention to out-of-pocket exposure. For example, the MyHealthcare tool developed by UnitedHealthcare allows patients to comparison shop for more than 850 different medical services. This may drive efficiencies and lower costs. Also, personalized inquiry platforms such as for 23andMe (Food and Drug Administration approved in 2017) enable direct-to-consumer tests for Parkinson’s, Alzheimer’s and other conditions.
Major uncertainty surrounds the future of the ACA and healthcare policy in the U.S.
SUBSTANCE ABUSE EPIDEMIC Prescription Drug Misuse has emerged as a challenge over the past decade, specifically with regard to prescription opioid analgesics. In 2015, 12.5 million people abused prescription opioids, 2.1 million of them for the first time. The trend has been upward, however, it may be showing signs of flattening. The highest use rates are in rural and mixed urban/rural areas.
Heroin and Methamphetamine use are the fastest growing areas of substance abuse in Indiana. Use continues to shift from primarily urban areas toward suburban and rural regions. There is a rise of blending heroin with the synthetic opioid Fentanyl, which has increased drug potency and risk of overdose. 7
Health & Wellness Forces of Change
HEALTH-TECH ADVANCEMENTS
Scientific breakthroughs continue to offer options that improve patient outcomes. Genetic fingerprinting and abnormal protein screening, for example, are paving the way to earlier disease detection and more personalized treatment. Immunotherapy is emerging as a viable technology - as a fourth weapon in cancer treatment that may be more effective and less damaging than surgery, radiation and chemotherapy.
Artificial Intelligence, enabled by deep-learning algorithms, is making great progress on multiple fronts. AI is proving to be more effective than humans in terms of detection and diagnosis—it is currently tracking better than humans in detection of diabetes, tuberculosis and cancer. AI is also showing promise in terms of predictive assessment for conditions such as heart disease.
Efficiency Innovations Electronic health records are helping to improve patient experiences, avoid mistakes and streamline for efficiency. Telehealth services (sharing health information via mobile health applications and engaging in video chats with their physicians) are increasing across many segments, especially seniors. Some employers are offering incentives for employees to participate in telehealth initiatives.
INTENSIFYING DISEASE CHALLENGES
Infectious Disease Overuse of antibiotics in humans and animals is accelerating. Antibiotic resistance is on the rise and the research and development pipeline for new antibiotics is slowing. Growing international trade and travel are speeding the rate at which infectious disease spreads – elevating the risk of epidemics and pandemics. Chronic Disease Lifestyle, smoking and diet are contributing to increasing rates of chronic disease including diabetes, heart disease and obesity. According to the Centers for Disease Control and Prevention (CDC) Behavioral Risk Factor Surveillance Survey, Indiana ranks seventh-worst in state obesity.
SKILLED HEALTHCARE WORKFORCE
Aging population will create fast growing demand for clinical healthcare and assisted living workers. Accenture suggests this may create a skilled worker shortage of 20 percent by 2026. Artificial intelligence and robotic technology can help fill this gap.
The Association of American Medical Colleges suggests that by 2030 there will be a shortage of medical doctors totaling between 40,800 and 104,900.
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Infra- Infrastructure Forces of Change structure
TRANSPORTATION
Aging transportation infrastructure continues to loom as a major consideration. Overdue maintenance and underinvestment have created a rehabilitation backlog of $90 billion. According to data compiled by McKinsey & Co., Indiana ranks 18th among the states in terms of road quality and 29th in bridge quality.
Next Gen Vehicles Autonomous Vehicle innovation continues, with the Google Car (now Waymo) passing 3 million road miles traveled in 2017. The Boston Consulting Group estimates that by 2035, 12 million fully autonomous and 18 million partially autonomous vehicles will be sold globally each year. Regulatory and liability uncertainty are constraints. Electric Vehicles continue to gain momentum. US EV sales rose 37 percent in 2016 with early 2017 experiencing even stronger growth. More than half of US EV sales are in California due to zero-emissions mandates. Economics and range anxiety are big constraints on market adoption. Incentives at the federal and state levels help to improve the economics and boost demand. Leading producers are Tesla, Chevrolet, Nissan and Ford. Transitions to both autonomous and electrified fleets require massive infrastructure modernization investment.
ENERGY GRID
Smart Grid technologies offer significant opportunity for grid modernization that can enable better communication, two-way power flow, real-time pricing and demand response. Adoption is slowed by regulatory barriers, lack of standards, and costs (both real and perceived). Internet of Things (IoT) and Advanced Metering Infrastructure (AMI) capabilities are gaining traction with adoption of smart grid.
Storage technologies continue to improve at exponential rates, and grid adoption is accelerating - doubling in 2016. Implementation is currently occurring mostly at the utility scale, however there is high potential for distributed storage to gain traction. Innovation is accelerating in technologies that include batteries, pumped hydropower, flywheels, compressed air and others. Adoption of electric vehicles may also work to boost storage capacity as EVs serve as storage devices when not in use.
Stranded Assets As the economics of renewables and storage continue to improve, an economic tipping point may arrive at which fossil fuel generation capacity becomes economically obsolete. These legacy assets have expected lives of many decades and are financed over their useful life. The stranded asset problem is likely to create inertia, slowing the adoption of smarter, greener, and more efficient technologies.
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Infra- Infrastructure Forces of Change structure
RENEWABLE ENERGY Solar and Wind Power Renewables continue to gain traction driven by improving economics, implementation by large companies, and financial incentives such as tax measures, grants, and loan guarantees. Utility-scale projects are constrained by grid access, meaning grid investment will be required to provide capacity to remote areas rich in solar and wind resources. Regulatory policy such as the Clean Power Plan will be a factor in renewable adoption. Unconventional natural gas (fracking) is driving down the cost of power generation, creating pressure on both renewables and coal.
Biofuels continue to have an important economic presence in Indiana. Indiana has refinery capacity for more than 1 billion gallons of corn ethanol (more than 430 million bushels) and 100 million gallons of soy biodiesel (more than 60 million bushels) per year. Second- and third-generation biofuels derived from waste biomass, alternative feedstock crops (e.g. switchgrass) and genetically modified crops may shift biofuel feasibility. Government regulation and incentives favorably affect biofuel growth.
WATER Urban water quality remains a risk, highlighted by the recent events in the Flint, MI water system. Water infrastructure in general is aging, and is most problematic in economically depressed areas - of which Indiana has several. Operating expense deficits and lack of funding for capital investment place significant pressure on the management of these systems. The risks to public safety and trust in elected officials is high.
Water resources are increasingly under pressure, even in the water abundant Great Lakes Region. Ground water aquifers are being utilized at rates that far exceed natural recharge rates. According to the United States Geological Survey, aquifers in Northwest Indiana and those to our West and South are currently under moderate or severe stress from depletion. Nutrient runoff from agriculture and livestock is contributing to toxic algae blooms and dead zones in downstream regions in the Gulf of Mexico and Great Lakes. Indiana is considered a nutrient “hot spot,” a significant contributor to these nutrient flows.
PRIVATIZATION The rise in Public-Private Partnerships (P3s) is providing investment capital for public works projects. P3s have been put in place for projects such as highways, water systems, and parking meters. The concept is gaining traction worldwide and research firm Prequin has identified at least 84 project funds that have raised in excess of $1 billion each. Investment firm Blackstone has plans to invest $100 billion in U.S. infrastructure projects, backed by a $20 billion investment from the government of Saudi Arabia. 10
Jobs & Economic Growth Forces of Change
RISE OF THE MACHINES Automation, Machine Learning (AI) and Robotics (including autonomous vehicles and drones) are reshaping the way we get things done. These forces continue to drive efficiency, productivity and innovation across every sector of the economy – driven by technology adoption in cloud computing, Internet of Things (IoT), and big data. As company productivity increases and employment stagnates, debates over structural unemployment, minimum wage and universal basic income (UBI) are intensifying.
3D Printing (Additive Manufacturing) is headed toward mainstream. Functionality is rapidly increasing and costs are plummeting. Design tools are being optimized for 3D Printing. Early adopters include industries such as aerospace, automotive and medical. 3D Bioprinting for organ (e.g. kidney) replacement is gaining traction in the medical field. Hype remains a factor and adoption may likely be more measured than some forecasts indicate.
Blockchain is poised to disrupt the structure of payment, contract enforcement, transaction fee collection and even government control of money supply. Cryptocurrencies such as Bitcoin and Ethereum are on the leading edge and command a market cap of more than $50 billion between them. Lack of trust and transparency in the current financial system and government are behind this phenomenon. This trend will likely put a big squeeze on middlemen such as banks, and may democratize investing while complicating tax collection.
STRUCTURE OF WORK The shift to the Knowledge Economy is well underway. As the natural path of succession following the shift from manufacturing to a service-based economy, the rise of advanced automation is expediting this shift. In Indiana, the U.S. and internationally, traditional value layers are collapsing and the challenge is for companies to identify and mobilize to create value in the new “everything-as-a-service” paradigm. Access to a qualified “knowledge” workforce will increasingly be a constraint (or opportunity).
Outsourcing and globalization continue to impact American employment opportunities in both the manufacturing and service sectors – affecting the quality of life of the middle class and fueling protectionist sentiments. Automation may provide cost-effective options to repatriate production, but may not revive job creation.
The "Slack" Economy (Gig and Sharing Economies) has become a mainstream phenomenon. According to Intuit, by 2017 the gig economy had encompassed 34 percent of the U.S. workforce - though many of these are second jobs. Although many gig workers report being happier, many also accept gig work because they can’t find jobs elsewhere. Brookings values the sharing economy in 2014 at $14B and estimates growth to $335 billion by 2025.
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Jobs & Economic Growth Forces of Change
ENTREPRENEURSHIP
Entrepreneurial ecosystems are becoming a defining force for regional success in entrepreneurship. The convergence of talent, seasoned mentorship, incubation space, and funding has the potential to create entrepreneurial hot spots - in both the obvious places such as Silicon Valley, Boston and Austin, but also in smaller areas such as Nashville, Des Moines and Park City, Utah. Cost of living and quality of life are cited as factors for these emerging regions - although basic ecosystem capacities are table stakes. Indiana’s Regional Cities may be well-positioned to capitalize on this trend.
Crowdfunding continues its expansion and is serving to democratize innovation, entrepreneurship and philanthropy. As a source of startup funding, crowdfunding has surpassed angel investing and is closing the gap with venture capital. World Bank estimates the crowd funding market to hit $93 billion globally by 2025.
Social entrepreneurship remains a growing force. Purpose-driven founders that create innovative business models to seek a triple-bottom line return are drawing the attention of and funding from a growing sector of Impact Investors. The emergence of the millennial generation is adding momentum to this trend.
E-COMMERCE
The uncertain future of bricks and mortar remains unclear, with the distinction between these two channels likely to fade away. Major brick-and-mortar leaders such as Wal- Mart are pushing hard into e-commerce with their purchases of Jet.com, Bonobos, Shoebuy and Moosejaw. Additionally, e-commerce leaders are in acquisition mode buying up brick and mortar sites as Amazon did with its 2017 purchase of Whole Foods Markets. These may be clear signals of the emergence of “omni-channel” retailing.
Digital assistants are reshaping e-commerce. Services such as Alexa, Cortana, Siri, Bixby and others are providing voice activated e-commerce shopping. Other services use machine learning and predictive analytics to make purchase recommendations before users realize they have a need. The convenience of the use model and the rise of supporting technologies such as augmented reality and Internet of Things (IoT) are likely to add momentum to adoption rates.
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Education Forces of Change Education
STUDENT READINESS
Pre-K programming continues to increase, both nationally and in Indiana. Pressure on educational outcomes is intense, and in spite of uncertainty over the effectiveness of Pre-K programs, funding and access continues to increase.
Food insecurity is rising with an estimated 13 million kids going to school hungry every day. As a consequence, demand for hot lunch and hot breakfast programming continues to increase. Nationally 22 million kids rely on free or reduced-cost lunches, and half that many on free or reduced-cost breakfast through a federal program. The number of participants is rising and federal funding covers much of the cost.
Internet access in the classroom and at home remain a hurdle for many disadvantaged students. Progress is steady with 99 percent of schools claiming internet access. However the functionality is inconsistent, with less than 50 percent reaching connectivity goals. Federal funding through the E-Rate program helps meet the need.
WORKFORCE READINESS
Rising Skills Gap In Indiana and across the U.S., a rising number of available jobs are left unfilled because of a lack of qualified workers. According to a 2012 Georgetown University study, only 42 percent of central Indiana workers had the skills needed to earn jobs in growing sectors. There are signs of the re-emergence of vocational schools, community colleges, and apprenticeship programs to better prepare these future workers. Expect this dynamic to increase as jobs shift to higher-skill requirements.
Lifetime Learning Major turbulence is on the employment horizon as machines and computers encroach on traditional job sectors. New jobs being created will require new and higher-level skills – making worker re-training a necessity. According to Pew Research, 87 percent of U.S. workers expect to need ongoing education and training to keep pace. Lifetime learning will become a more mainstream expectation in the future.
SCHOOL CHOICE
Charter schools and voucher options are on the rise in Indiana and the U.S., with more than 40,000 Indiana students (3.9 percent) participating in 2015. This number has risen each year since Indiana created the voucher program in 2011. Nationally, 2.9 million students (more than 6 percent) enrolled in charter schools, up more than 60 percent in five years. Failing school performance is at the root of the rise in voucher and charter school popularity. Union opposition remains a constraint to widespread availability. 13
Education Forces of Change Education
EDUCATION TECHNOLOGY
Online learning platforms and Massive Open Online Courses (MOOCs) are reshaping access to learning. Offerings such as Udacity and edX offer free collegiate programming from leading universities such as MIT, Harvard, Stanford and Berkeley. Programs such as WGU and SNHU offered degree programs with more flexibility and affordability than traditional college. Kahn Academy offers free tutoring modules for students of all ages. Credentialing (degrees, certificates, badges, etc.) remains a constraint. The trends are for more access and lower costs in the future.
Immersive technology such as virtual reality, augmented reality and telepresence are poised to reshape learning at all levels. Google Glass for example has found a productive niche in technical worker training and orientation, in spite of its shortcomings in the mainstream consumer market. Video and smart-screen technologies are blurring the boundary between the classroom and outside world. Nearpod VR offers low-cost virtual field trip lessons to the Pyramids, planet Mars, and the Great Barrier Reef. Telepresence platforms offered by Cisco and others are enabling innovative approaches for remote and distance learning.
HIGHER EDUCATION
Underemployment of graduates continues to be a factor. A 2014 study by the New York Federal Reserve Bank found that about 44 percent of recent graduates were employed in jobs that did not require a college degree. These numbers are improving as the economy recovers and, according to Pew Research, college graduates still out-earn non-graduates while 91 percent believe college was a good investment.
Costs and student debt continue to put pressure on the higher education system. Borrowing is increasing at both the per-student level (tripling since 1990) and also at the aggregate level as more students enroll in higher education. Tuition increases continue to outpace inflation. New business models driven by technology and shifting demand (by students and recruiters) will likely emerge – improving readiness and lowering costs.
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Public Safety Forces of Change
TRUST IN LAW ENFORCEMENT
High profile events involving excessive force or violation of civil rights continues to fuel mistrust of police. A 2015 Gallup Poll shows trust of law enforcement at its lowest level in two decades, with 52 percent of Americans expressing confidence in police. Social media accelerates the public response, contributing to unrest and volatility. Cell phone video and social media accelerate the visibility and public reaction to these events.
Rise in Violent Crime Gang participation and violent crime activity is increasing especially in major urban areas. U.S. cities experienced 6,407 homicides in 2016, an 11 percent increase from the prior year. Much of this is fueled by rising demand for drugs and is closely linked to the breakdown of trust in the judicial system.
Transparency technology, especially police body cameras, is becoming a higher priority as law enforcement leadership strives to eliminate overuse of force and rebuild trust with their communities. Citizen footage from camera phones also plays a role. Investment in body cameras is on the rise, with the U.S. Department of Justice providing $20 million to police departments in 34 states in fall of 2016.
CYBER SECURITY
Data Breaches Credit card and personal data security continues to be a growing risk factor. Massive data breaches such as Target (70 million in 2013) and Equifax (143 million in 2017) are examples. There are indications that some of these attacks may be state-sponsored.
Government Data Security will be of increasing concern. Recent breaches by Edward Snowden, Chelsea Manning and Reality Winner show the risk of sensitive government data exposure. Recent events regarding possible foreign hacks of our electoral system may be signals of risks to trust in our electoral process. The Office of Personnel Management (OPM) breach affected 21.5 million Americans in 2015 and a breach of the U.S. Voter Database impacted 191 million, also in 2015.
Cyber Attacks Ransomware and Distributed Denial of Service (DDOS) attacks are a growing risk for business. In 2016, there were more than 600 million ransomware attacks, up from 3.8 million in 2015. Recent DDOS attacks targeted retailers such as Starbucks, Etsy and Overstock.com in 2016.
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Public Safety Forces of Change
TERRORISM
The rise of Lone Wolf Attacks both in the U.S. and globally is reshaping the face of terror. Recent attacks have evolved to use motor vehicles, acid and handheld weapons as instruments of terror in nightclubs, shopping areas and tourist attractions. Although lone wolves are emerging from all corners of extremism, ISIS presents the most immediate threat.
Surveillance Driven by increasing risks of terrorism, government and law enforcement are stretching the constitutional limits of search and seizure prohibitions. Visual surveillance empowered by facial recognition algorithms, combined with email and social media surveillance and other forms of eavesdropping, offer to help with prevention of terror attacks as well as apprehension after the fact. The privacy vs. security debate is not yet close to resolution.
WMD The U.S. State Department declared in June 2017 that Weapons of Mass Destruction terrorism remains on the list of “gravest threats” to the security of the U.S. Nuclear technology proliferation and access to chemical and biological weapons by enemies of the U.S. are making this threat more immediate. The possibility of a major cyber-attack on the U.S. energy grid, water supply or financial system adds further exposure.
NATURAL DISASTERS
Severe weather prediction and readiness continue to improve due to technology and communications. Hurricane Harvey in Houston caused the death of 74 people in 2017, a major improvement over the 2,000 citizens killed by hurricane Katrina in 2005. Forecasters, public safety professionals and citizens are better informed earlier in advance of storm events, enabling better preparedness and improved safety.
Resilient Design is gaining momentum as a means of rapidly restoring vital services to areas hit by disaster events. Utilities are making progress on hardening infrastructure against disaster events. Architects and civil engineers continue to innovate to create structures that are failure tolerant and offer redundancy to provide better safety and rapid recovery from disruptions. Collaboration and communication between first responders, utilities and citizen groups is improving the ability to recover from these events. Green Infrastructure is contributing to resilience in urban areas.
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Demographic & Societal Forces of Change
URBANIZATION
Urban Renewal Urban densification continues to increase in Indiana, across the US, and globally. Many urban centers, Indianapolis included, are experiencing a revitalization of struggling neighborhoods and the urban core, with investment boosting real estate values. Gentrification can occur as rising affluence and property values price lower income residents and businesses out of the market. Increasing traffic congestion is driving demand for roadway and parking infrastructure expansion. Regionalization is boosting economic development and quality of life in small/medium sized towns as they adopt a regional approach.
Rural Decline Outmigration continues to put a strain on small, rural towns in Indiana and across the Midwest. As younger citizens migrate toward larger urban areas and family sizes decrease, depopulation is creating major economic pressures on these communities. Access to healthcare, education, retail, and other services suffers and often accelerates the decline, creating a downward spiral. Innovations such as the Indiana Stellar Communities Program are working to support these towns with programs that foster owner-occupied housing improvements and downtown revitalization initiatives, among others.
AGING POPULATION
Active Workforce and Voter Participation Driven both by lifestyle preferences and economic necessity, employment of persons 65 and older doubled from 1997 to 2007 and continues to increase. The number of seniors working full-time recently surpassed those working part-time. Seniors are also an active voting block with valuable benefits to protect. Ninety percent of people over age 60 are registered to vote, compared to 75 percent of those aged 18-30. Also, seniors regularly have the highest voter turnout of any age group.
The caregiver challenge for children of aging seniors continues to increase. According to AARP, in 2015 more than 40 million Americans served as caregivers to a senior citizen, spending on average more than 20 hours per week. Caregiving creates significant stress in the form of physical/emotional distress, financial hardship and time constraints. One counter-trend is that in some cases seniors serve as caregivers for their grandchildren, easing the childcare burden on some families.
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Demographic & Societal Forces of Change
IMMIGRATION
Legal immigration to the U.S. is rising. The U.S. remains the top destination for immigration. In 2013, the U.S. immigrant population totaled 43.1 million, an all-time high. Twenty percent of the world’s immigrant flow is toward the U.S. even though the U.S. is just 5 percent of global population.
Illegal Immigration There were an estimated 11.3 million undocumented aliens in the U.S. in 2016, down slightly from 2009. About half are from Mexico, although this share is shrinking. About 8 million undocumented workers participate in the total U.S. workforce, mostly forced to live in the shadows. Immigration policy reform is long overdue and in principle has bipartisan support. Some cities offer “sanctuary” as a means of compassion, which fuels the policy debate. The numbers continue to grow as does the challenge of creating a manageable approach.
SOCIAL NETWORKS
News Velocity and Reliability According to Pew Research, in August 2017, 43 percent of Americans got their news primarily from social media. This phenomenon can help shine a light on breaking events (Las Vegas) and civil rights violations (Ferguson, Mo.), however it often leads to distortion of the truth. Objectivity and trustworthiness are becoming increasingly problematic. In spite of efforts to screen for inaccurate content, Facebook, Twitter and Google continue to struggle to stay in front of this challenge.
Hashtag activism is empowering high-velocity social response. Recent examples include #BlackLivesMatter, #deleteUBER, and #boycottUnited. This power shift to the customer is a consequence of social media's reach and influence. Organizations must pay close attention to crisis response as disgruntled stakeholders can gain high visibility very quickly. Reputational risk is increasing in the personal, corporate and public sectors.
LIFESTYLE
Experience over ownership Spending on live experiences and events has outpaced total U.S. consumer spending by 7 percent since 1987. Seventy-eight percent of Millennials choose to spend money on an experience or event to buying something desirable. Services that meet these needs will gain momentum beyond the millennials.
Marijuana Legalization is gaining momentum and will likely continue to expand. Public opinion continues to shift toward decriminalization, beginning in progressive leaning states and moving toward more moderate states. As of September 2017, eight states have legalized recreational marijuana use.
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Wildcards WILDCARDS
Wildcards are high-uncertainty, high-impact possibilities that loom on the horizon. Rather than explore scenarios in which these events occur, we recognize that they may be considerations for decision-making across all scenarios. Three such wildcards are defined below with the recognition that any or all of these risks may rise to the forefront in any or all of the scenarios.
GREAT RECESSION 2.O
As we have emerged from the aftermath of the global economic slowdown, there is again pressure from many sides on the global economy. Debt levels continue to be problematic, unemployment still lurks and trade conflict weighs heavy on many sectors. Prosperity continues to be concentrated at the wealthy end of the spectrum, pressuring consumption and consumer spending. Risks are not easy to predict and include the possibility of cascading default on sovereign debt, panicked withdrawal of financial assets from markets, or the bursting of a bubble such as tech, financial or real estate. Fragility in the global economy is often masked until it suddenly becomes clearly and unavoidably present.
WAR
Global tensions are at historic highs with hotspots scattered around the world, including Iran, Syria, North Korea and Russia. Internal conflicts in Venezuela, Indonesia, and several African countries are straining the capacity of the world’s peacekeepers. Growing weapons arsenals combined with confrontational rhetoric from heads of state increase the risk of miscommunication and over-reaction.
The risk of escalation may be high whether through an outright declaration of war or a hostile act of war such as a terror or cyber-attack, perhaps covert.
CLIMATE SHOCK
The possibility of a climate tipping point exists and if it is reached, the change could be swift. Evidence on the climate question continues to be collected, which may lessen uncertainty in the debate and enhance our ability to predict. Should a climate shock occur, it may likely take the form of extreme and prolonged drought, recurring violent and destructive storms or sea-level rise. Such an occurrence will create turbulence and pressure in several sectors—agriculture, water, energy, healthcare, law enforcement and others. Essential services and food supply may be interrupted. Refugee flows from affected areas in the U.S. and globally may overwhelm the ability of less affected regions to assist.
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SCENARIOS
This assessment utilizes the double uncertainty scenario development framework pioneered by the Global Business Network. Four alternative scenarios will be explored based on combinations of the following two uncertainties faced:
Uncertainty No. 1: Technology as Job-Creator vs. Job Destroyer
Technological advancement looms on the horizon – this is not in question. What is uncertain is whether adoption of technological innovations will create more jobs than it destroys. Joseph Schumpeter’s concept of creative destruction has shown that disruptive innovation has historically led to more new opportunity. The question as we peer into the next era of technology is: “Will this time be different?”
Uncertainty No. 2: Concentration of Resources and Influence
Will energy infrastructure, education systems, healthcare services, governing authority and other aspects of resource management and decision-making be centralized in a command and control posture, or will it be decentralized with more local control in a more entrepreneurial posture?
Scenario narratives are presented below to frame four distinctive futures and prompt a series of “exploratory” revenue and appropriation policy questions for fiscal policy planners to consider.
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SCENARIO No. 1 – “Oligopoly” [Concentrated + Job Destroyer]
NARRATIVE: Corporate productivity skyrockets, empowered by advanced automation, robotics, and artificial intelligence innovations, driving a surge in corporate profitability. Industry consolidation ensues and so does worker displacement on a massive scale. The rise of the mega-corporation continues.
Public unrest grows, spawning major public protests as economic fear and suffering become widespread. Smart business leaders, recognizing the need to maintain economic and societal harmony, come to terms with the reality that they need to share a greater portion of their economic largesse. Because there is a foundation of massive profits from the rapid rise of automation, a new tax policy is worked out that provides for a Universal Basic Income (UBI). Company productivity and profits (even after tax) remain solid, and at the same time the economic needs of the masses are satisfied.
Healthcare, energy and education become re-invented using big data, advanced tech and AI. The efficiencies and improved outcomes offered by these advanced technologies require massive scale, so health systems, school districts, and utilities all move toward consolidation.
Major technology leaders extend their reach into new markets. Examples include; Amazon, recognizing the potential to link patients with makers of personalized medicines, launches its largest-ever initiative, DrAlexa, which becomes the largest U.S. health service. Google, recognizing the value of student data, launches the on-line Google Academy, a free service funded by advertising revenue, becoming the largest U.S. charter school.
The popularity of these and other innovative services enhances corporate reputations and the giants of tech grow larger, richer and more dominant. The pathway to a UBI economy is rocky at first, however because the underlying economics are so strong, the stakeholders are able to reach a common ground compromise that works for all.
Jobs & Economic Growth The economy experiences strong GDP growth and massive workforce displacement. Jobs are skewed to the high- and low-skill ends of the spectrum, hollowing out the middle class. Economic power gets concentrated with highly-profitable and highly-taxed mega-corporations. Health & Wellness Because of high structural unemployment, universal single payer healthcare takes hold. The roles of doctors and other professionals are diminished. Infrastructure Privatization of infrastructure creates extensive funding, but causes “infrastructure deserts.” Education Focused STEAM education is required to prepare selected students for high-skill careers. New educational options for students not headed for high-skill careers are needed. Public Safety Substance abuse increases, an inevitable effect of idle time caused by unemployment. Demography & Society UBI recipients, unable to afford asset ownership, tend to rent and prioritize experiences. Programs emerge to promote productive lifestyles in artisanship and community engagement.
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SCENARIO No. 1 – “Oligopoly” [Concentrated + Job Destroyer]
EXPLORATORY QUESTIONS…
REVENUE Major Question No. 1: How can a UBI be funded in ways that create sufficient revenue without creating tax avoidance? (This is the major uncertainty that is yet to be answered…)
How will the needs of future “Oligopoly” leaders be unique from today’s needs? What strategies can be used in corporate campus siting negotiations to create value for this generation of mega-companies? How can robotic and AI productivity be taxed in ways that are not perceived as burdensome? How can the gains of disruptive business models in education and healthcare be creatively and equitably shared between the State and the corporate partners?
APPROPRIATIONS & EXPENDITURES What sorts of smart/autonomous infrastructure will be needed to maintain Indiana’s posture as the “Crossroads of America” in the era of autonomous driving? How can educators motivate and inspire students that lack the promise of future employment? How can the State foster innovation in learning models and how might success be measured? How can urban planning and property development be reimagined to encourage development of quality living conditions and create safe and equitable quality of life for Indiana citizens in the UBI era? How might the public safety sector of the future engage with the UBI community to foster a peaceful and law-abiding future for the UBI class? How can the state incentivize UBI recipients to use their leisure time to the benefit of the State, the community and the individual? o Social Entrepreneurship o Civic beautification and natural resource conservation and upkeep? o Senior citizen well-being and visitation o Artisanship o What will be the funding requirements for these programs?
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SCENARIO No. 2 – “Precariat” [Concentrated + Job Creator]
NARRATIVE: Technology fuels innovation that creates new markets and job opportunities that would have been hard to imagine a decade earlier, quickly replacing those that automation has eliminated. Efficiencies created by these technologies tend to favor large companies over smaller rivals, so industry consolidation ensues. The economy grows at a fast clip and job opportunities are abundant.
However, these same technologies lead employers toward a more nimble and flexible human resources model based on contract employment and the economy shifts significantly toward a gig-worker structure. There are plenty of gigs to be had, but in general the average worker’s economic situation is always in a state of volatility (precarity). The middle class has been replaced by a new “precariat class” that lives in an ongoing condition of economic uncertainty and volatility.
The primary source of volatility is shifting skills requirements. Workers will need to continuously develop new skills in areas such as coding, data analytics and cyber security to keep pace with the ever- changing technology landscape. Lifetime learning becomes a baseline expectation in this knowledge economy and fresh training usually leads to new gigs.
Societal forces aimed at worker-rights try to slow the emergence of the new precariat era. Ultimately a new level of gig-worker collectives work to help smooth the volatile nature of the gig engagements – also providing training assistance to enable workers to prepare for shifting skills and roles. Collective support systems enable workers to better manage the volatility of the new economic paradigm.
Jobs & Economic Growth Employment opportunities are abundant but temporary. Most opportunities require some degree of new training for each new engagement. Digital assistants powered by apps such a SIRI help workers find and secure gigs. Health & Wellness Ongoing pressure exists to provide affordable access for self-employed gig workers. Precarious economic situations lead many to forego preventative healthcare, increasing the occurrence and magnitude of preventable healthcare expenses. Infrastructure Gig workers cluster in urban areas, increasing the need for basic infrastructure modernization. Breakthroughs in energy efficiency and renewables create economic momentum and jobs in smart grid and smart building renovation. Per-capita energy use and CO2 emissions improve. Education Lifetime learning goes mainstream and skills-based “badges” become the recognized credential. Opportunities in the trades provide momentum for vocational and apprenticeship programs. Public Safety Citizens that cannot keep pace get left behind and risk falling prey to extremist views, increasing terror risks. Pressure on public safety officials for added surveillance intensifies. Increased sharing of personal information in the cloud increases cyber-security risks. Demography & Society Drawn by the appeal of abundant jobs, immigration increases as do tensions around the topic. Senior citizens looking to stay active and engaged join the gig workforce in large numbers.
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SCENARIO No. 2 – “Precariat” [Concentrated + Job Creator]
EXPLORATORY QUESTIONS…
REVENUE
How should sharing economy and informal gig incomes be taxed? How can state and local governments identify these revenue flows to enable taxation? How can the State create tax policies to incentivize remote (tele-present) gig workers to reside in Indiana? As innovation in energy efficiency drives a reduction in CO2 emissions, how might public attitudes toward carbon caps/taxes shift? Will new cost-of-carbon options emerge that do not hinder economic prosperity?
APPROPRIATIONS & EXPENDITURES
How can lifetime learning programs be developed and delivered to provide on-demand, flexible “badge” credentials for gig workers in transition? How will the demands and preferences of the gig community differ from those of the traditional workforce in terms of how the precariat segment shops, works, learns, and plays? How might state, regional and local leaders use these shifts to guide development and public service initiatives? What sorts of public programs might the State explore to incentivize preventative health and wellness behaviors with the precariat segment? How might these program costs be shared with health providers to create win-win outcomes? How might sharing services threaten public safety and how should the State invest in engagement and enforcement resources to balance free-enterprise with public safety? How might the public safety sector stay out in front of extremism and terror threats in the Precariat Era?
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SCENARIO No. 3 – “Start-Up” [Distributed + Job Creator]
NARRATIVE: The era of the large mega-corporation has run its course. With new technologies, funding strategies and faster speed to market, small and medium enterprises (SMEs) begin to out-perform more established global enterprises. Entrepreneurial activity surges and small business growth becomes the driving force of the economy. Large mega-companies find themselves too slow and cumbersome to keep pace, leading to a rise in divestitures and downsizing that reverses the trend of industry consolidation.
Business models in education, healthcare, energy and retail are becoming more entrepreneurial. School choice has shaped education in a more entrepreneurial model that experiments and moves fast with what works, improving educational outcomes at the local level.
Initiatives at nationalized health care have proven expensive, impersonal and unpopular. Flexibility and local choice become the preferred model. Telehealth and genetic fingerprinting are empowering patients to comparison shop for care, improving outcomes, driving efficiencies and lowering costs.
Rooftop solar, cost-effective energy storage and other modes of distributed power generation have transformed the energy model. Energy Service Companies (ESCOs) provide micro-grid access in their communities, and energy-positive buildings feed power back onto the grid.
Virtual reality design tools, open-source collaboration and crowdfunding unleash the entrepreneurial capacities of the mass-customization and maker movements. 3D Printing and drone delivery capabilities increase the relevance of local presence fueling the resurgence of local economies.
Jobs & Economic Growth Customization technology is a key enabler. SMEs prefer full-time employees over independent contractors. Health & Wellness Demand for customized, personal and cost-competitive health services drives innovation. Technology and direct-to-patient options empower patients and drives provider accountability. Infrastructure Interconnectivity between micro-grids and the smart grid is essential. ESCOs reshape the economics of power. Storage capacity and the Internet of Things make real- time pricing of power feasible. Education Local choice and charter schools grow in popularity. Experimentation that improves outcomes gains traction. Voucher programs surge. Public school systems become entrepreneurial to attract students. Higher education innovates to meet demand for entrepreneurship programs. Tighter links between universities and business communities blur the line between classroom and real world. Public Safety A more entrepreneurial healthcare model leads to greater prescription access and abuse. Demography & Society With opioids on the rise, medical marijuana is seen as a better option for chronic pain. Recreational pot gains support and becomes an entrepreneurial growth niche (tax revenue). 25
SCENARIO No. 3 – “Start-Up” [Distributed + Job Creator]
EXPLORATORY QUESTIONS…
REVENUE
How might the transition to distributed power generation and real-time energy pricing reshape the economics of energy sector, and how might this impact Indiana’s position as a low-cost power state? Will this transition improve or hinder economic and population growth for Indiana relative to other states? How will the emergence of Energy Service Companies (ESCOs) reshape the energy business model and how might this impact tax revenues? How might legalized marijuana (medical or recreational) create revenue relief for state and local governments? How might citizens’ attitudes evolve toward marijuana as legal access expands in other states?
APPROPRIATIONS & EXPENDITURES
How might Indiana’s regional cities best position themselves as entrepreneurial centers of excellence during the transition to the Start-Up era? What sorts of pilot experiments might the state consider and what sorts of investments might speed this innovation? What role can higher education play in strengthening this positioning? How might the shift toward distributed energy shape the need for infrastructure investment and service innovations at state and local levels? How will the needs of smaller energy companies differ from large regulated monopolies? What types of incentives and programs might be needed to boost adoption of smart meters and “behind-the-meter” smart devices to drive energy efficiency? How might the shift toward mainstream school choice reshape the capital investment needs for the education sector?
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SCENARIO No. 4 – “Self-Reliance” [Distributed + Job Destroyer]
NARRATIVE: The rise of automation and the fall of the American workforce have come to pass. The predicted gains in productivity have been realized, but they have been offset by the impact of relentless competition squeezing profits in the corporate sector. Oversupply of available labor lowers the ceiling on wages, so even those with stable jobs feel the pinch.
As tax revenues get squeezed, the social safety net for displaced workers cannot meet the need. Social protests and political agitation are ineffective at changing policy and citizens summon the innovative capacity to become self-reliant.
Urban farming moves from the fringe into the mainstream. New technologies in genetic modification, hydroponics and vertical farming work exceptionally well, and enable cost-effective food production at the household and neighborhood levels.
Cryptocurrencies and barter economies experience an increase in popularity. These alternative forms of trade boost exchange and overall well-being, but also take much of the economy into the shadows, making tax collection, food safety and crime prevention more difficult.
Healthcare inevitably becomes more reactive, pressuring first responders and emergency room resources. Crime and substance abuse may rise as well.
This bleak scenario would likely not persist. Economics and human ingenuity would lead to one of two evolution pathways: (1) toward a corporate shakeout that would boost profits (taxes) and reinforce the UBI safety net (toward the “Oligopoly” scenario) or (2) toward a rise of entrepreneurial successes that would grow the economy from the grass roots level (toward the “Start-Up” scenario).
Jobs & Economic Growth Mistrust of the establishment may lead to the rise cryptocurrencies such as Bitcoin. Barter economies, both in person and on-line, may gain momentum. The sharing economy is likely to rise as idle assets are put to work. Health & Wellness General health and wellness suffer, although urban farming may provide healthy diets for some. The healthcare system gets stressed. Emergency room visits and emergency response rates rise. Infrastructure Urban agriculture will likely increase, potentially stressing urban water supply capabilities. Internet access may become more scarce, creating the need for common wi-fi hotspots. Education Education may become self-directed, utilizing ultra-low-cost models (on-line and otherwise). Student loan debt may face massive default and require some form of deferment or forgiveness. Public Safety Self-defense may become more visible as crime rises and public safety resources fall short. Preparedness for natural disasters may suffer, leading to more difficult after-the-fact recovery. Demography & Society Income inequality is likely to rise – risking the emergence of a two-tier society. Rural decline may plateau as urban migration loses its appeal. 27
SCENARIO No. 4 – “Self-Reliance” [Distributed + Job Destroyer]
EXPLORATORY QUESTIONS…
REVENUE
How can the state maintain visibility to barter and shadow economy transactions and exchange via cryptocurrency platforms? How will at-risk student loan debt impact the economic posture of unemployed or underemployed graduates? How can deferral or forgiveness be evaluated given the expected short duration of the “Self-Reliance” era? What is the appropriate budget surplus/deficit posture for the “Self-Reliance” era, given the expectation that it will likely serve as a transition to either the “Oligopoly” or “Start- Up” scenarios?
APPROPRIATIONS & EXPENDITURES
How can the state fund innovative programs that bring to life the observation of Isaac Asimov: “Self-education is, I firmly believe, the only kind of education there is.”? How can nutrition entitlement programs be reimagined to incentivize urban farming and healthy eating habits? How will urban farming impact urban water use? What upgrade investments might be required and how can the State incentivize water efficiency and conservation without constraining food production? What types of funding strategies can be employed to ensure public safety and disaster preparedness/resilience capabilities remain robust in this scenario? What policies and investments will best expedite the transition through the “Self- Reliance” scenario toward a more favorable scenario?
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CLOSING THOUGHTS: HOW TO USE THIS FORESIGHT REPORT
“The goal in futuring is not to predict the future but to improve it.” Ed Cornish, futurist
Foresight can be a powerful resource to supplement traditional fiscal planning and analysis. Organizations that find the greatest value tend to integrate the foresight process into their management and planning DNA. It serves as a frame through which ideation is viewed and a screen for evaluation of proposed initiatives. It can empower anticipation and resilience.
The following approaches can be considered best practices for achieving this integration:
Harness your peripheral vision. Most organizations focus tightly on their “core, which can drive performance via execution and optimization. However most interesting and impactful change comes from the periphery, which is where blind spots exist.
Find value in “collective intelligence.” Cast a wide net when scanning for weak signals, and create communication forums where these signals and their implications can be shared, explored and debated.
De-bias your perspective. Good foresight relentlessly challenges the underlying assumptions. Henry David Thoreau observed, “It’s not what you look at that matters, it’s what you see.” Strive to see what you are looking at through a child’s eyes, as though you are seeing it for the first time.
Wind-tunnel test your proposed fiscal strategies and initiatives through the lens of scenarios. Keep them active in the discussion, update them as needed and share them widely.
One final quote: “Long-range planning does not deal with future decisions, but with the future of present decisions.” —Peter Drucker
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