Globalist Perspective

Moving Toward a Smarter World

Will the explosion of data be to the 21st-century economy what electricity was to the 19th?

Credit: Hasloo Group/Shutterstock.com

Takeaways


  • Just as all emerging markets are being hit at once by the middle-income trap, so the developed world finds itself having to address all of its huge structural overhangs.
  • The world's mature economies have been piling up massive deficits — not just financial, but also deficits of competitiveness. Now, the bill has come due.
  • Every field of science, business and society is being transformed before our eyes. Government has to be at the forefront of those changes.
  • What the discovery of electricity was to the 19th century, the explosion of data will be to the 21st. Its economic and societal value is almost incalculable.

As has often been noted, the world’s economy has been shaped since the early 1980s by three major shifts:

  An embrace of open trade,
  The digital network revolution, and
  A striking increase in political stability.

Together, these forces leveled the playing field for markets, industries and nations, opening up a door through which vast swaths of the planet have entered the global economy.

We all recognize that our planet now runs on global supply chains — not just for products, but for services. It is increasingly difficult to characterize what is an import and an export, since so much of what is imagined, produced and delivered is done in many places around the world. There is no more “offshoring”… when there is no longer a shore.

For emerging markets, walking through that door was relatively straightforward. If you ended your civil war, or dropped your protectionist tariffs, or embraced digital IT, you grew. If you did some combination of all three, you grew fast.

This created enormous — I would say irresistible — incentives for investment, manufacturing and jobs to move all over the world. That has re-ordered industries and rebalanced economies. It has also lifted half a billion people into the middle class.

So, does that mean that a stable regime of global integration has been put in place and that the path to growth and progress is now clear? Hardly. In fact, this is where things start to get really interesting.

The fact is that the developing world has reached the end of the easy path to rising GDP and per capita income. Some call this the “middle-income trap” — the idea that it is a lot easier to go from being a low-income to a middle-income economy than it is to jump from a middle-income to a high-income economy.

Simply put, these growth markets have plucked the low-hanging fruit of “Global Integration Act I.” Now, they face a radically more competitive arena, requiring higher degrees of regulation and higher standards, where there are higher expectations for everything — from product and service quality, to working conditions, to protection of intellectual property and the rule of law.

Notice — “higher,” not “lower.” In other words, to succeed in this new global economy, you need to take your game to a new level. The playing field may be flat, but it isn’t at sea level. The game is moving to a higher plateau.

Conversely, this moment presents exciting new opportunities for the developed world. It may seem perverse to use the word “exciting” about Europe, North America and Japan these days, but many of the capabilities and skills for an innovation-based global economy are deeply engrained in the world’s mature markets.

However, there is a catch. These economies — and in particular their government leaders — must also tackle some very big challenges if they are to compete successfully in the years ahead.

Competitiveness deficits

The world’s mature economies have been piling up massive deficits — not just financial, but also deficits of competitiveness. Their populations are aging. Their infrastructure is rusting. Their education systems are increasingly out of date. Their laws and governments are not keeping up with the pace of change.

Now, the bill has come due — for all those deficits, at once. Just as all emerging markets are being hit at once by the middle-income trap, so the developed world finds itself having to address all of its huge structural overhangs, and with urgency, thanks to the ongoing financial crisis.

It may be appealing to think that we can postpone that reckoning, but that isn’t a serious option. The new “great game” of global competition will not wait to start league play while we get our house in order.

As daunting as this seems (and it can seem nearly impossible, if one looks through the lens of the media), I believe there is an opportunity to make a major breakthrough. I believe we can both put our societies on sustainable, long-term foundation and improve our ability to compete.

There are three broad ways in which the governments and economies of the developed world can — I believe must — change the way they operate.

First, a society must both invest in the future and improve its competitive muscle tone. Debates rage today about austerity — and without question, we need to deal in serious, grown-up ways with our financial deficits, both public and private. But we cannot cost-cut our way to competitiveness.

Second, every economy must have a compelling value proposition — and it must be differentiating. How do you compete in a world where there is no “outsourcing” — because there is no longer an “out”? The answer is simple: You have to be better at something. That’s how free trade and comparative advantage work.

Cities and countries alike now have to address a basic question (one that businesses, by the way, must answer daily): What is our unique value proposition?

Third, government itself must become smarter. People argue about bigger vs. smaller government. I believe that’s the wrong debate. Government, like business, must become smarter — and by that, I don’t just mean digitizing government services or putting up departmental or ministerial websites. I’m talking about the need for deep subject-matter expertise infused into how government does everything it does.

Think about it. All of the services and functions that government is entrusted to provide to the public are now changing. This is true for public safety, water and food safety, energy and health care — all the systems that make up the system-of-systems that is a modern city and a modern economy.

Every field of science, business and society is changing, is being transformed before our eyes. Government has to be at the forefront of those changes. We have to figure out ways for government to attract the world’s deepest experts on these new kinds of economic and societal systems.

The issues we face today are challenging — but they are solvable. The new capabilities at our disposal allow us, for the first time in history, to tackle entire economies and societies at a systemic level. The conditions now exist for a single, prosperous, progressive global economy that includes all the geographies, sectors and people of our planet.

I am optimistic — not because I expect human nature to change, but because we now have at our disposal an enormous new natural resource: the gusher of data that enables us to literally see and understand our world as never before.

What the discovery of the Western hemisphere was to the 15th century, and the discovery of steam power was to the 18th century, and the discovery of electricity was to the 19th century, the explosion of data will be to the 21st. Its economic and societal value is almost incalculable.

If we seize upon this new resource, I believe future historians will look back on this moment not as the start of a so-called “new normal” of lowered expectations, nor as a bifurcation of the world into old and new, nor as an era of growing gaps between haves and have-nots.

They will see it as the dawn of a new golden age — of innovation, of widely shared economic growth and of global citizenship.

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About Samuel Palmisano

Sam Palmisano is chairman of the board of IBM and chair of IBM’s Executive Committee.

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