We predicted 2024 would be a year of geopolitical risk, and it has been. Next is 2025 without so many elections. Will the world settle down?
Don’t count on it. What won’t disappear in 2025 are the deep convictions that separate people. Example: Many say climate is a looming catastrophe; others do not. If you’re on the alarmist end, then logically and morally you hold views of government and economics that are far removed from the skeptic. This divide is not easily patched.
Sex, gender, age, race and identity, nationalism and militarism, wealth distribution and justice, free speech…vast differences of opinion lie across each of these categories. Turns out the internet hasn’t opened minds. It has hardened them.
Here is another divide, and pay attention because it shapes how nations invest in their future. (Spoiler alert: Southeast Asia comes out well in this analysis.) That divide is between bits and atoms. Think of it as software and the physical world.
This stark divide is illustrated when you list publicly traded companies by market cap. Software companies post earnings multiples far higher than physical companies. Apple, Nvidia and Microsoft top the list, as well as Amazon, Alphabet (Google) and Meta. Amazon’s retail operation is physical, but AMZN’s $1.8 trillion value is helped by its software and cloud computing (Amazon Web Services). Even the highest-ranking hardware-dominant company, Taiwan Semiconductor Manufacturing Co., exists by enabling software to work.
In venture capital, bits crush atoms. Venture investing goes overwhelmingly to software companies, including AI. Far less goes to reinventing the physical world, even where reinvention is badly needed: Carbon capture, modular nuclear energy, solar film coating, feeding and housing the world’s 8 billion people, and so on. The reason is simple. Software companies can be funded and scaled at relatively small costs. Big and complex physical processes cannot.
Imagine you’re a venture capitalist, betting the money of limited partners. You can make 50 investments in software startups to prove if they work or not, and scale or not, all within months or a few years. Or you can make five investments in cutting-edge materials, new energy sources, 3D construction for skyscrapers, a new electrical grid and supersonic travel. It will take five years to know if they work, and decades of scaling to profitability.
China has decided to bet on atoms. In his 2025 plan, President Xi Jinping embraces technology investment. President Xi wants China’s top minds working on hard tech: military uses chief among them. Whether Xi can actually order his brilliant tech minds to innovate remains to be seen.
The bet here: Robust future economies will be allocating capital to both bits and atoms. Germany, Japan and South Korea, for all their manufacturing prowess, tilt to atoms over bits. Their future depends on both. America has erred on the side of bits and is trying to correct. India, with its vast troves of bits talent, is rebalancing with roads and rails. An ASEAN strength is its balanced ecosystem. Singapore is exemplary in both bits and atoms. Countries that thrive tomorrow will have mastered excelling in both bits and atoms. No country can count on frictionless global trade allowing the luxury of strength in just one.
