ICT in a globalised economy

For my first essay in this space, I thought I would try something ambitious: to propose the way forward for the ICT industry. The proposal is generalisable to any developed economy and, with minor adjustments, to developing economies. Let us start by understanding the territory.

Governments should do much less...detailed short-term intervention...and [spend more time] thinking about the overall framework.

This is a quote from Keith Ormerod (Butterfly Economics: A New General Theory of Social and Economic Behaviour) - highly recommended reading for anyone who is critical of the dismal science, economics, but wants to salvage the promise of economic theory as a possible guide to designing a better future.

The context

Recent studies have explored the relationship between ICT investment and productivity gains. The evidence is quite strong in the US, but relatively weaker in other countries, such as Australia.

The working hypothesis is that innovation will be the main driver of development over the next few decades and that the ICT industry is both a generator of and a catalyst for innovation across the whole economy.

With general purpose technologies such as ICTs - and their potential to raise productivity throughout the economy - the early international winners will be those who can harness the technology through competition in a good investment climate to finance the most competitive, productivity-enhancing uses of the new technologies.

If a country can sustain a supportive macroeconomic environment and vibrantly competitive markets while creating more flexible labour markets, it will be well placed for a second wave of sustained high productivity growth and consequently broader social opportunities (see here for more).

There is a desire, it seems, for the ICT industry to escape its present limitations, to make it one of the engines of economic growth. There is also an apparent desire for governments and particularly for the national government to take steps to bring this about. Is this a role for government and, if so, what could or indeed should a national government do?

In a globalised economy there is no universal recipe for business success, as effective in manufacturing as it is in advertising, as relevant in London as it is in Bombay, that will work today and tomorrow and the day after that, ad infinitum.

Crafting success in the 21st century

In the latter part of the 20th century, the fluid nature of commerce, the rising expectations of consumers, the unchecked mobility of capital, and the vagaries of the markets – financial and otherwise – made it difficult to think inductively, to identify a tried and true recipe for success.

This remains true at the beginning of the 21st century, although writers such as Porter, de Geus and Drucker, among others, have made valiant attempts in this direction. The Living Company, by De Geus et al, is the best source of analysis on this subject.

The literature suggests that the organisation that is most likely to achieve long term survival will be that which is capable of reconciling the conflicting forces for change and stability and of maintaining a dynamic fit with its environment. However, the situation for the ICT industry as a whole is not sanguine and its future is by no means assured, other than in niche areas, where particular enterprises have carved out a unique position for themselves.

The process by which a new industry is created or by which an existing industry moves to a new, higher plateau of success is not linear and, consequently, cannot be analysed by traditional methods. It is not identifiable ante-hoc (by means of deduction) and cannot be prescribed post-hoc (by means of inductive reasoning). New industries develop and existing industries are transformed by processes that are emergent.

By emergence I mean what linguists describe as the process by which a structure, change, and so on are created by the separate behaviour of many individuals, with no apparent overall plan, guidance or ante-hoc objective. There is nothing new about this, really.

Adam Smitn, in An Inquiry into the Nature and Causes of the Wealth of Nations , argued that the economic system was intrinsically harmonious and required little or no government interference. According to Smith, although each individual is motivated by self-interest, each acts for the good of the whole, guided by a hidden hand “to promote an end which was no part of his intention”. This is made possible by the free play of competition, which is the essential ingredient of the efficient economy. Smith saw the economy as having emergent properties and no one could pick a winner until the race was won.

The metaphor of racing (or of sport generally) is perhaps not helpful. Contemporary thinking sees business organisations from an ecological perspective, rather than a purely competitive (or military) perspective. Instead of envisaging horses engaged in a struggle for the line or warring armies struggling for control of the heights of the economy, picture the world of business as an ecosystem – or a collection of ecosystems.

Next week we will delve deeper into the ecology of business as a mental model for framing a desired future.