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Stéphane Garelli, a pioneer in research and theory on competitiveness, former Managing Director of the World Economic Forum in Davos, and Emeritus Professor of World Competitiveness at the University of Lausanne, shared with us a summary of the keynote speech he gave for Simonelli Group, in which he analyzed business-related topics on the global economy and artificial intelligence.
Innovation as a guiding spirit
by Stéphane Garelli
BELFORTE DEL CHIENTI, Italy – Garelli: “For the first time, I addressed the audience of the Simonelli Group – not with my own voice, but through that of an interpreter, a symbol of an increasingly interconnected world where language is no longer a barrier but an opportunity. A heartfelt thanks goes to the President and CEO of the group for the invitation, which I enthusiastically accepted. Why? Because I firmly believe in competitiveness – not only among great nations, but also – and above all – in the small and medium-sized enterprises that form their beating heart.”
Poker, perceptions, and opinions: the economy of emotions
Garelli adds: “We live in an age dominated by emotions, where – as Schopenhauer reminded us – “few people think, but everyone wants to have an opinion.” Poker becomes the perfect metaphor: it’s the only game where you can win by convincing others you’re losing. And that’s what happens today: markets grow despite negative economic news, expectations devour reality.”
A world of three empires: USA, Europe, China
“Today’s economic world is dominated by three major players: the United States, Europe, and China. Together they represent 58% of global GDP, but they’re not just economies – they are financial, military, technological, and political empires. As Kissinger once said, an empire doesn’t want to take part in an international system: it wants to be the international system. But who’s bluffing? Who’s holding the best card?”
Europe, China, United States: numbers and contradictions
“The numbers reveal a more nuanced reality. The U.S. reported a 0.2% GDP contraction in the first quarter and holds a public debt exceeding $1.8 trillion, with insufficient tax revenues. In Europe, Germany still struggles to recover post-COVID, while other global regions are slowly starting to rebound.
Looming over this is growing military pressure. The U.S. and China now account for 49% of global military spending. The U.S. alone spends $916 billion. If every country raised its defense spending to 3% of GDP – as some suggest – Europe alone would need to mobilize over $200 billion in defense expenditures. Scaled globally, this would double military spending.
But these are just numbers. Ideas matter more. As John Carpwright wryly noted, “the only function of economic forecasting is to make astrology respectable.” So yes, I’ll try to be respectable.
When discussing the economy and globalization, it’s crucial to understand how deeply value chains are now intertwined. A prime example: the iPhone. It contains over 2,700 components, supplied by 187 companies – only 30 of which are based in China. If just 5% of those components didn’t come from the U.S., and we imagined the phone was entirely produced there, its retail price would rise to around $3,500. An unthinkable price for the average consumer: no one would buy an iPhone at that cost. Globalization, with all its flaws, still allows for mass accessibility.”
Public debt: the hidden threat
“Zooming out to the macroeconomic picture, one key issue emerges: public debt. Contributions to U.S. debt growth show staggering figures. In just one term, Donald Trump added $7 trillion to national debt. Major creditors include Japan and China. Whereas China once held most of the debt, Beijing is now reducing its exposure and diversifying.
Another paradox appears with major private capital. Five tech giants alone are worth $12.9 trillion – 40% more than all the world’s banks combined, and about 15% of the market capitalization of the top 10,000 global companies. Just five companies hold such a disproportionate share of global wealth.
And yet, in a world celebrating the return of manufacturing, another contradiction emerges. When Americans are asked if manufacturing is important to the country, 80% say yes. But when asked, “Would you like to work in it?” 73% say no. Nobody wants to enter a sector perceived as hard, dirty, and unattractive. This is a structural problem.”
Inflation and the cost of living: between numbers and perception
“Inflation figures are nearing more reassuring levels, approaching that coveted 2%. Italy is relatively well-positioned, especially compared to countries like Turkey and Argentina, where inflation hit 5%.
But the real issue isn’t inflation per se – it’s the real cost of living. Compared to previous years:
- Food prices are up 50%
- Electricity is up 20–30%
- Overall cost of living has increased about 30%
Numbers that directly impact families and businesses, regardless of official reassurances.
“Don’t worry,” says my agent, “the economy will recover.” Then again, remember: I am your agent.
To understand the spirit of the times, just recall Donald Trump, who once said that the most beautiful word in the dictionary was “Tariff” – more than “love” or “respect.” A message about protectionism, economic identity, and rule-making power.
Trump, even 40 years ago, signaled the way forward: lower taxes, less defense spending for others, more domestic investment. Yet today, the U.S. trade deficit remains high ($773 billion), and “American” production is often just nominal. Case in point: the iPhone. Only 30 of the 187 suppliers are based in China, but final assembly skews geopolitical perception.”
Debt, taxes, and defense: the real western vulnerabilities
“Public debt weight is becoming crucial: in France, interest payments represent 16% of GDP – more than education. In the U.S., 15% goes to interest – more than military spending. Debt sustainability – not just inflation – is the true systemic threat.”
Industry, employment, and generational paradoxes
“On one hand, industry is seen as key to recovery (80% of Americans see it as strategic); on the other, 73% of young people don’t want to work in it. They want to work – but without stress or responsibility. Gen Z seeks stability, not leadership. The new form of “promotion” is horizontal, not vertical.”
China: the enigma of the new power
“While the U.S. and Europe show signs of structural weakness or slowdown, China remains the big question mark on the global stage. Seemingly stable, systemic tensions stir beneath the surface.
The first red flag is the real estate sector, which alone makes up 29% of China’s GDP. Today, it’s collapsing, triggering a domino effect across the economy. Most striking is the impact on households: about 70% of private savings are invested in real estate – directly affected by the crisis.
In response, China is working to diversify its economy and develop new industrial sectors. But domestic consumption accounts for just 37% of GDP. To grow, China must export – which in turn fuels new global trade tensions.
A clear example is the electric car sector, now a jewel in China’s industrial crown. Sales have doubled in just three years, reaching 12 million vehicles. Compare the numbers: Tesla has 126,000 employees; BYD, China’s EV giant, has 920,000. Of these, a staggering 120,000 work in R&D alone. With that kind of innovation force, it’s only a matter of time before they make revolutionary breakthroughs – such as five-minute electric charging, matching gasoline refueling times.
This is the pace of the new global competition: no longer just about quantity or cost, but about system-wide, rapid innovation capacity.”
Innovation and legislation: Europe versus the world
“Europe tends to legislate before innovating – the opposite of what the U.S. and Asia do. While the world moves with aggressive industrial policies (e.g., the U.S. Inflation Reduction Act), Europe often remains bogged down in regulatory constraints. Even the definition of strategic sectors differs: for India, it’s steel; for Switzerland… chocolate.”
The Age of AI and Energy Surveillance
“Artificial intelligence is the new frontier – but it raises complex questions: Who owns the data? What’s the cost of querying a model compared to a simple search? The environmental impact of data centers is huge. And cybersecurity has become a full-fledged crime industry – no longer teens in garages, but organized networks.”
The paradox of hyperconnection
“We live hyperconnected, yet alone. Families once gathered around the TV; now each person watches their own screen, alone. The result? A loneliness epidemic. Corporate culture must find its center again: less novelty, more reliability. When we board a plane, we want a competent pilot – not an extreme innovator.”
E-Commerce and logistics: the future is hybrid
“E-commerce is now worth $7.4 trillion. 41% of smartphone purchases are influenced by influencers. But human interaction remains essential: contact, trust, relationship. “We can’t put our pizza into the metaverse,” as a pizzaiolo once said. A clear message: the product remains central.”
Conclusion: the challenge of mindset
“The real issue is mindset. We need new energy, genuine commitment, social and entrepreneurial legitimacy. Uncertainty is no excuse. Timing is everything: a good idea launched at the wrong time can fail.
Two key lessons:
- Never launch a product in August.
- It’s truly dangerous to be the first to be right.
A great inspiration comes from French explorer Jean-Baptiste Charcot, who sailed to the Poles on a ship named Pourquoi-pas (Why Not). That’s the heart of the matter: we need minds that don’t ask why things are the way they are – but ask why not.”
Stéphane Garelli
About Stéphane Garelli
Stéphane Garelli, a pioneer in research and theory on competitiveness, was for many years the Managing Director of the World Economic Forum in Davos. His personal experience as an academic and top manager in numerous companies has allowed him to analyze the global economic and business landscape.
He is an emeritus professor at the Institute of Management Development in Lausanne, where he founded the World Competitiveness Center, and an emeritus professor of World Competitiveness at the University of Lausanne.
He has served as Chairman of the Board and shareholder of Le Temps, the leading French-language Swiss daily newspaper. Furthermore, he was Chairman of the Board of the Sandoz financial and banking holding company, member of the Board of Directors of Banque Édouard Constant, and permanent senior advisor to European management at Hewlett-Packard.
He is a member of numerous institutes and a member of the International Olympic Committee’s commission on Sustainability and Legacy. From 1999 to 2002, he was a member of the constituent assembly of his local canton, Vaud, in Switzerland.
He is the author of numerous publications, including his bestseller Top Class Competitors: How Nations, Firms and Individuals Succeed in the New World of Competitiveness.
