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.

iPhone, uPhone, We All Phone Each Other

Yesterday Steve Jobs introduced a beautiful little product, the iPhone. As with all great hardware, it immediately creates demand for appropriate software: social networking software able to find friends as cool as the phone you're now using.

Social Evolution and the Next Corporation

The evolution of technology interplays with the evolution of social structures. The cotton gin played a big role in the demise of slavery. Dee Hock, the original CEO of VISA and the man who probably did the most to change our everyday conception of money, tells how critical an information technology development project was to the success of the credit card. (As credit cards became more popular, it became impossible for banks to keep track of the gap between credit and purchases and to track payments from and to businesses and households. The old manual system literally cost the banks hundreds of millions, probably billions, in the 1970s, triggering an audacious IT project to meet demand.)

It has become cliché to mention it, but information technology continues to rapidly drive down the time and money it costs for communication, research, and discovery. Google now fields 100,000,000 queries a day (according to an article by George Gilder, cited at http://info-innovation.blogspot.com/2006/10/george-gilder-information-factories.html).

Ronald Coase won the Noble Prize in Economics for explaining the reason for the existence of corporations where an economist might expect to see markets instead. He explained that information costs were too high to support daily and monthly markets for work and that in its place people formed organizations that made for stable, predictable, easy to communicate roles. But what if information costs plummet? What does that suggest about the future of the corporation? Suddenly, as the cost of markets approaches zero, the value of the corporation potentially becomes less.

This suggests to me a variety of possibilities, two of which I'll mention here. One is that internal markets within corporations will increasingly substitute for employee contracts and formal roles. The other is that decision-making will disperse outwards from the center along with increased capability for information-processing and analysis. Both suggest to me that the corporation will go the way of the medieval church and Enlightenment-era monarchy: its power will be dispersed outwards from the center, as power and wealth will be dispersed from elites to the "commoners."

If your organization is not reconfiguring in order to exploit new information technology, it is likely subordinating possibility to inherited corporate structures. The management generation of the last few decades has increasingly emphasized innovation - but almost invariably in the domain of technology or process. The management generation of the next few decades will also emphasize innovation - but this will be directed at social constructs, at changing the concept and expectation of organizations.

The cotton gin was exciting, ending slavery more so. The revolution in information technology during the last couple of decades has been fascinating. Transforming the corporation and our very notion of institutions will be even more so.