[Viewpoint] Time to Prepare for a Major Paradigm Shift

The neologism "Paradigm," coined by American philosopher of science Thomas Kuhn in his 1962 book The Structure of Scientific Revolutions, has become a common noun today. Using the example of the conflict and transition between the geocentric and heliocentric models, Kuhn defined a paradigm shift as the process by which a new perspective challenging existing ways of thinking expands to become the dominant concept of the future. Currently, the term is used beyond science, encompassing politics, economy, society, and culture in all areas.

The "Peak Oil Theory" and the "Rise of China Theory" were representative paradigms in the economic sector in the early 21st century. The Peak Oil Theory, intertwined with renewable energy, resource diplomacy, and global warming, spread as a global discourse and policy but recently lost its basis as crude oil prices even turned negative. Likewise, the Rise of China Theory, which predicted China would become equal to the United States in the 2020s and the world's strongest power in the 2040s, has faded due to economic growth slowdown and suspicions of information concealment related to the Wuhan-originated novel coronavirus infection (COVID-19).

The history of the Peak Oil Theory began with the use of oil. In 1914, the U.S. Bureau of Mines predicted that U.S. oil reserves would be depleted within ten years, and in 1939, the U.S. Department of the Interior expressed concern that only enough oil remained for the next 13 years. In 1972, the Club of Rome, composed of Western European intellectuals, predicted oil depletion in the early 2000s in Limits to Growth. Since then, the Peak Oil Theory surged whenever international crude oil prices rose. However, despite consuming 30 billion barrels annually, reserves increased from 643.3 billion barrels in 1980 to 1.7067 trillion barrels in 2016. This was due to technological advances improving exploration and extraction efficiency and the securing of new supply sources such as shale oil. Oil prices, which experts once predicted would surpass $200 per barrel in 2012, fell sharply and even recorded negative prices in mid-April. Although this was partly due to a temporary demand decrease caused by COVID-19, apocalyptic Peak Oil Theory is unlikely to gain consensus except among some extreme environmentalists.

The Rise of China Theory gained particular prominence in South Korea due to geographical proximity and cultural similarities. Following China's accession to the World Trade Organization (WTO) in 2001, economic growth accelerated, sparking a China boom, and so-called China experts competed to offer optimistic forecasts. They raised their voices that the future should be sought in China, which would leap to the level of the United States in the 2020s and become the number one nation in terms of national status in the 2040s. However, as of 2020, China is facing not only economic collapse but also risks of systemic breakdown. Since the mid-2010s, warnings of growth slowdown, fiscal expansion, and financial instability have emerged, and the shock of COVID-19 originating in Wuhan last year has spread widely. Major countries such as the United States and Europe have increased accusations that the Chinese government concealed related information in the early stages of the epidemic, causing a global pandemic. The U.S. states of Missouri and Mississippi have filed lawsuits against the Chinese government at the state level, and similar lawsuits are following. Apart from direct damage from the epidemic, the rapid weakening of China's accumulated trust-based soft power is evident. A decline in national status and retreat in the global division of labor system are expected to be inevitable.

The collapse of existing paradigms regarding oil and China, which South Korean companies have taken for granted over the past decade, suggests that the current situation is not merely a local environmental change but an indication of a new order unfolding in the digital age of the 21st century. Oil has shifted from a strategic resource of the past to a commodity in the everyday market. This symbolizes a paradigm shift from an analog economy based on natural resources to a digital order based on technology. The falsity of the Rise of China Theory clearly shows the nature of an economic system based on command and control rather than an innovative ecosystem grounded in a market economy. It is time for South Korean companies to break away from existing ways of thinking and gain insight into the new paradigm of the world economic order that will unfold after COVID-19.

Kim Kyung-jun, Vice Chairman, Deloitte Consulting

This content was produced with the assistance of AI translation services.