21 March 2007

Finding High Ground in a Flat World – 21st Century Economic Competition

I've written a great deal about making firms more entrepreneurial. What I have not mentioned is the competitive pressure that we in the developed countries will feel to do this.

Through the early 1900's, the developed countries held a competitive advantage because of industrial capacity. Today, we have an advantage because of the pairing of knowledge workers and information technology (IT) through our corporations in what we've come to call an information economy. Yet the relative productivity advantage we have is rapidly disappearing.

The industrial economy had huge barriers to entry. By contrast, the information economy does not. A few guys in a basement can launch a business that is soon worth millions - even billions. This has consequences for national policy, particularly when those guys in the basement are in the Ukraine.

Professionals in the US, Canada, the UK, Australia, France, Germany and the rest of the EU will increasingly be competing with professionals in China, India, Malaysia, and other rapidly developing countries like the Ukraine and Taiwan. Professionals making $80,000 in developed countries will have trouble competing with similarly educated and equipped professionals making $8,000.

Individual effort has never been as big a determinant of productivity as the system in which these individuals are working. A hard working trapper in the Great Lakes makes less than a hard working dry land wheat farmer in Saskatchewan. The industrious assembly line worker makes less than the industrious programmer. Changing from an agricultural to industrial or industrial to information economy always makes a bigger difference than individual effort within an old economy.

The developed nations have an opportunity to transform again - to become an entrepreneurial economy instead of an information economy. To pretend that we can continue to demand big salaries in a world of 6 billion increasingly armed with laptops and university educations borders on denial.

What will it mean to become an entrepreneurial instead of information economy? For one thing, it means that we'll rely on an increasing percentage of our work force to act like entrepreneurs instead of knowledge workers, to move from positions within bureaucracies to positions within dynamic markets. Such markets suggest a reliance on the information economy - a smooth and continual operation of markets that are communicated across networks that blend and distort the difference between Facebook and NASDAQ, between eBay and Monster.com.

For me, the prospect of the popularization of entrepreneurship is exciting for so many reasons. But beyond what it opens up as possibility for the individual, it is a practical and increasingly necessary solution to emerging economies that will easily underbid us should we continue to rely on an information economy that has outlived its advantage.


Life Hiker said...

This is a very scary post. Your statement "it means that we'll rely on an increasing percentage of our work force to act like entrepreneurs instead of knowledge workers, to move from positions within bureaucracies to positions within dynamic markets" asks quite a lot.

Entreprenuership requires vision, specialized skills, dedication, and a willingness to take risk. More entrepreneurs fail than succeed. Increasing the number of risk-takers is not easy.

Moreover, in an increasingly small world, entrepreneurs in the U.S. will be more often competing with others in countries where the cost of key inputs is lower. This is a competitive disadvantage of considerable consequence.

As I look forward, I see a balancing act where wages and prices in the developing countries rise, offset by declining wages and prices in the first world countries. A painful scenario for those on the downside...

I'm hopeful that U.S. companies will develop some patentable technologies to deal with worldwide issues such as global warming. Perhaps some very efficient transportation methods, for example,or a new power source, or an inexpensive reflective coating for existing heat-sinks like dark roofs. We need to create large numbers of jobs based on new products.

Your suggestion that large companies with well-developed R&D capabilities and support services serve as entrepreneur incubators may be the key to continued prosperity in the U.S.

Ron Davison said...

That's it - from my perspective. Entrepreneurship is hard and I do think that savvy corporations can and will change that. Franchises is one of the more fascinating inventions to have become popular in the late 20th century - an invention that made it simpler to become an entrepreneur. And this, it seems, is the central question that communities from within corporations, governments, and schools should be asking - how do we make entrepreneurship more common and simpler to achieve?
Thanks again for more intelligent push back and clarification.

Tisha! said...

Most thought-provoking Ron! Sheesh you always stimulate me!!

I most certainly see the need for a shift from information to entrepreneurial economy, developing countries (I hate that term "developing" but hey) are killing us with their brain power and lower salaries.

We often wonder though if the quality is up to par and while in some cases it isn't generally speaking we will find ourselves in a bind if we do not approach this changing economy issue seriously.

Ron Davison said...

Glad to be a source of stimulation.

I agree about the quality. One of my clients who has gone to Bangalore for lots of work is beginning to bring back some of the work for quality reaons. But I suspect that the gradual trend will be towards lower-wage professionals, not away from them.

Thanks for stopping by.