I’ve long argued that what NZ lacked wasn’t fast broadband to the home, farm or small town. If those communities want it, let them pay for it themselves (perhaps through a locally subsidised utility since it isn’t economic outside the CBDs and central suburbs of NZ’s significant cities). What we do need as a nation is superfast, attractively-priced telecommunications pipes between our major centres and the rest of the world.
It’s that need Pacific Fibre plans to address. At this stage, all they really have is an idea and an intention, so activity is focused on planning, partnering and funding:
The group is looking to secure funding and build a 5.12 Terabits/sec capacity fibre cable to be ready in 2013 connecting Australia, New Zealand and the USA – the initial proposal is a cable which will deliver five times the capacity of the existing Southern Cross system.
I’m told by chums in the broadband business that Southern Cross has plenty of capacity available now and in future, through relatively straightforward upgrades, but maximises its profits through high pricing, which discourages heavy broadband users such as film or online services being based in NZ. Pacific Fibre may simply be a PR pressure play against a de facto monopoly, but so far it looks real enough. I do hope that a viable alternative can get traction. Competition is always better than an unregulated monopoly - not just for price but also for quality, service and, when things go badly wrong, for back-up.
So, Rod & Co., I’m keen. Call me.
Disclosure: My family trust has been a long-time shareholder in Telecom, part-owner of Southern Cross. However, the trust’s investment manager has sold out now.
Update: Lance Wiggs has posted some technical details on the PF website.
Another of my good summertime reads was Paul Krugman’s updated work “The Return of Depression Economics“, subtitled “and the Crisis of 2008″. Sombre stuff, you might think, but 2008 Nobel Laureate Krugman, a Professor at Princeton, successfully explains global financial problems in an easy-to-comprehend style.
After the Great Depression of the 1930s, the world’s economists and central bankers thought they had the financial system under control. Yes, there would still be dramas, but they wouldn’t break the system because the system’s managers knew what interventions to make. Yet, time and time again, well-meaning interventions often had unintended consequences. For example, Krugman explains how currency boards (currently advocated in some quarters here in NZ) seem to solve one problem but create the seeds of other, far more damaging problems. He also shows how regulatory and intervention mechanisms failed to keep up with the rapidly evolving nature of sophisticated financial mechanisms, the increased linkages within the system, and the hazardous distancing between risk and reward. The term “moral hazard” is explained by example, and occurs frequently. And Krugman argues that, contrary to popular opinion, the system is not as predictable and manageable as many people believe. Perhaps the biggest factor is the mood of the market (that’s you and me), which frequently defies logic and common sense, both on the way up and the way down.
Krugman finishes off with some broad-brush suggestions for financial system reform; in summary, anything “too big to fail” or likely to cause the system to fail should be regulated. Beyond keeping main-street banking separate from investment banking, I’m sceptical. If markets had been allowed to operate properly in the 1990s and 2000s, the system would probably have had some shocks but not as bad as those consequent to well-meaning interventions. Also, more regulation implies a degree of foresight and political/regulatory strong-mindedness noticeably absent in recent years. Krugman also doesn’t address any alternatives, eg. whether anything too big to fail should be broken up. However, I do agree that risk and reward (eg. borrower and ultimate lender) need to be closely coupled. The iterative repackaging of housing loans that enabled the sub-prime crisis broke that coupling.
My only other serious criticism of this very interesting book is that the updated version was written a year (or two) too early. Originally published in 1999 in the aftermath of the Asian and Latin American financial crises, the new edition brings in the most recent cataclysm affecting the world financial system, and explains how multiple linked failures brought the world’s financial system close to collapse, but the $700 billion US TARP package was only just being implemented at the time of writing. Krugman really needs to bring into account the events and interventions of 2009 (such as the auto industry bailout), and the way the world system coped. No doubt a further edition will address this problem.
Despite that, it’s well worth the time to read it. The Economist described Krugman’s book as “essential reading”. I agree.
One of my best reads this summertime had the somewhat dry title “The British Industrial Revolution in Global Perspective.“ Don’t be put off. Written by Robert Allen, Professor of Economic History at Oxford University, it’s a very readable* and convincing account of why the Industrial Revolution happened in 18th-century Britain, rather than anywhere else. Allen discounts any notions that Britons were superior entrepreneurs or innovators; indeed, other countries enjoyed similar advances in science, education, institutions and commerce. Instead, after setting the scene with societal and economic developments in the 16th and 17th centuries, Allen points to some primary factors which came together only in Britain and nowhere else:
The highest wages in the world (thanks to the Black Death and its effects on British society).
An abundance of cheap energy from coal (albeit not very useful initially, but developed to supply growing city populations).
Ample supplies of iron ore close to that coal.
Those factor conditions did not come together anywhere else, and so there were not the incentives and rewards for creating the wave of technological and business innovation that transformed Britain (and later the world). Allen also shows that the state played very little distinctive role in the British transformation. It was the cumulative efforts of individual entrepreneurs, engineers and other innovators addressing real business problems and opportunities which, because they were common in Britain, also generated classic cluster effects.
While interesting in its own right, Allen’s book reinforced for me much of what is wrong with current economic development thinking. All we seem to hear is more education, more science, more infrastructure, less regulation, less tax, and so on. All well and good (at least up to a point) but these are me-too strategies. Everyone else is following them, more or less. Me-too economies can’t make the step-change that Britain achieved in the 18th century (and sustained for 200 years).
The questions I think business innovators should examine are not only “What do we do to sustain and grow the industries we already have?” but also “What unique un-addressed problems and opportunities do we have which, if resolved, will enable us to build new unique and sustainable global competitive advantage?” And for policy-makers, “Will you adjust your economic development mechanisms to support those new initiatives?”
I can think of at least a couple of significant problem/opportunity combinations where New Zealand could build global leadership. Know anyone with some serious spare investment dollars?
*For those wanting data and/or academic references, Allen provides plenty, but they don’t get in the way.
Having enjoyed a fabulous warm, sunny Christmas and New Year at the beach, I’m back in Wellington with a severe gale warning on the radio. 2010 will be like that - swinging between awful and fantastic.
On the awful side, I expect to still be involved in helping companies cope with the continuing economic downturn. Globally, things are definitely looking up, but the usual post-Christmas cashflow stress will have to be survived in 2010 without a 2009 cash cushion. While good companies have done well to survive 2009, some will struggle to make it through to the upturn, and I expect more company failures.
On the other hand, I’ve already seen several promising new businesses - too many to be involved in personally, but still great to see. And some existing businesses have survived in very good shape, ready to take full advantage of the upturn when it arrives.
What’s the difference between the failures, the strugglers and the fliers? Putting aside differences in market sector, scale, and life cycle stage, not a lot. The businesses I worked with in 2009 all typically have smart market offers, with good systems, people and leadership. But some will still fall by the wayside in 2010. While I usually say you make your own luck, sometimes you’re just in the wrong place at the wrong time. This recession is one such wrong time.
Tough times are an opportunity for buyers to get a good deal - I certainly expect to get some bargains this year. But you ultimately lose if you squeeze your key suppliers out of business, whether it be through overly-aggressive bargaining, slow payments, delayed decision-making or unthinking internal sloppiness. As a customer, you may want to be kinder to vendors this year. You’ll want good suppliers to survive this recession, to be ready to support you in the upturn.
So why not make 2010 the year that you look after your key suppliers? I don’t mean go soft, I mean get smart.
The NZ Herald has assembled a montage of recent quotes from Treasury Secretary John Whitehead. He’s a public servant, not a politician, and it’s been many years since I can recall one in this country making such bold utterances, rather than discreet ministerial advice.
John Whitehead himself:
Fiscal sustainability:
“As an erstwhile motorcyclist, I know that when your skull has been saved by your crash helmet, the first thing you should do is replace your helmet.” - speech to Russell McVeagh, Dec 08
Capital gains tax:
“At the risk of being chased down by an angry crowd with pitchforks and flaming torches, yes this should include consideration of moving the boundaries to tax more capital gains - for example on investment property - and shifting more of the tax base towards consumption.” - speech to Institute of Directors, June 09
Being frank:
“We have a Government which by and large welcomes free, frank and imaginative advice: let’s take advantage of that.” - speech to policy leaders, June 09
Seizing the day:
“It is very important … we don’t lose sight of our medium and longer-term goals. As Hillary Clinton has famously said, ‘Don’t waste a good crisis’.” - speech to policy leaders, June 09
Being unpopular:
“We face tough decisions and can’t afford to be sidetracked or avoid decisions, even though some of them will be unpopular and painful.” - NZ Herald column, Aug 09
Being bold:
“The tough spending decisions have not yet been made… and the longer we leave it, the harder it will get. Your support in helping frame the debate and argue the case for bold change will be essential.” - speech to Institute of Directors, Oct 09
And from his department’s papers:
Tax reform:
“We see reform of the variable rates of tax on different incomes/investments, and the reduction of the top personal income tax rate, all to 30 per cent, as having greatest impact.” - Medium Term Tax Policy Challenges, Feb 09Capital gains tax:
“The extension of the income tax base to include capital gains would be a second priority.” - Medium Term Tax Policy Challenges, Feb 09
Government debt:
“No other country in modern times has (yet) seen its NIIP [net international investment position] stabilise with such a high level of reliance on foreign capital.” - Closing the Income Gaps, Aug 09
Government spending:
“The case for earlier and more substantial fiscal consolidation is much stronger than it was earlier this year… Having dealt with that initial situation, some more significant adjustment is now warranted.” - Closing the Income Gaps, Aug 09
Closing the gaps:
“There is nothing in the current projections or set of policies that suggests material progress is likely in reversing the large per capita income gap that exists between Australia and New Zealand and the average of its OECD peers.” - Closing the Income Gaps, Aug 09
Now vs 1987: “The New Zealand shake-out following 1987 was also a painful multi-year period of deleveraging - and the imbalances then were, in most respects, less severe than those New Zealand now faces.”
- Closing the Income Gaps, Aug 09
Balancing the books: “The Budget projections were finalised in April… As things stand today, the prospects for any sort of successful rebalancing seem much less favourable.” - Closing the Income Gaps, Aug 09
The 2025 Commission has released its long-awaited report. I’m presenting a paper at a conference on competitive advantage next week, so I’ll hold my fire until then. However, for other comment:
I’m still waiting for commentary from the leading economist bloggers (although they may have said it all before). Meanwhile here’s one seriously scary statistic:
Economics writer Tim Harford (aka. The Undercover Economist) gets asked many unusual questions, and now seems to have morphed into The Financial Times‘ agony agony columnist:
Dear Economist: Should I stay single in Italy – or come home?
I’m a 32-year-old American woman; I moved to Italy about five years ago and later applied for a master’s programme at an Italian university. Average earnings for my BA in political science are low, so I wasn’t missing out on much.
My problems are two-fold: first, dating. Italy has the second-oldest population in the world. Seeing a single thirtysomething is like finding a unicorn. Eliminate men who live with their mothers, are chain-smokers, or are shorter than me, and I’m in a convent. Second, my Italian university has decided to reverse its previous decision to accept my American degree. I am being forced to re-earn an Italian BA, which could take a further year.
I’d hate to turn down another degree, but can I handle another year’s worth of pasta and enforced singledom? My current plan includes going to San Francisco upon my return, though I do have the choice of a semi-permanent job with Nike in the middle of nowhere. Or I could stay in Italy; but if I spend another year single, according to my mother, I will die alone.
Crying in my cappuccino
Dear Crying,
You appear to be committed to staying in a country whose food, bureaucracy and dating scene do not suit you. Your judgment has been clouded by the sunk-cost fallacy: you hoped to get a master’s degree, great food and an Italian paramour. Things didn’t work out and you have wasted five years. You’re only human if you want to waste another year or two, but you’re making a mistake. Go home.
As for your career, forget cash: the happiness literature suggests that a happy relationship and secure job are far more important. San Francisco is not famed for its excess of single straight men, but the demographics of the middle of nowhere are excellent, with many eligible bachelors. Your new life awaits.
I normally give this kind of advice only after the 2nd bottle of red!
I claim no credit for this, having shamelessly lifted it from interest.co.nz, who got it from, etc., etc….
It is the month of August, on the shores of the Black Sea.
It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.
Suddenly, a rich tourist comes to town. He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one.
The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower. The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel. The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.
The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there. The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.
At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.
No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism…. .
And that, ladies and gentlemen, is how the United States is doing business today.
Further to my last post on the limitations on what governments can do to promote economic development, for those that want to read some arguments from “the other side”, there’s a major debate going on at the Harvard Business Review Voices blog, following an HBR article “Restoring American Competitiveness,” by Gary P. Pisano and Willy C. Shih, who argue that outsourcing has undermined that country’s high tech sector. Here’s a list of posts to date:
Economies change. The pattern and places of jobs shift. Voters demand politicians do something about it. Regional development programmes are often part of the political response, and many start to offer tax breaks, employment subsidies, building subsidies and so on. It sounds good, it looks like action, and (I’m being unfairly cynical here) no politician hangs around long enough to be accountable for the almost inevitable lack of success.
It gets worse when you have regions in the same economy competing with similar programmes. It just escalates into an arms-race of who offers the biggest subsidies. Britain has a particularly bad case of regional subsidies. In a country full of property investors and businesses, it’s amazing that its seven regional economic development agencies build business parks, often in areas away from where business is or wants to be. Bangor, a small university town in remote north-west Wales, has got one. It’s been empty for years. To throw good taxpayer money after bad, they’ve built another one 20 miles down the road at Holyhead!
Here’s a simple test. If it was your money, would you invest in a speculative large-scale commercial property investment in a remote small town. Of course you wouldn’t. So why should the taxpayer? Here’s another simple test. Would this business operate in this town/region/country without this subsidy? Why will it stay long term? No-one in their right mind would have built a major computer factory in Ireland (2 sea journeys away from mainland Europe) if it hadn’t been for the then-cheap labour, EU subsidies and Irish tax breaks. So it should have been no surprise when Dell announced it will close its subsidised Irish factories and move to Poland. The Poles simply offered Dell a better proposition than the Irish.
Is there any developed country with regional economy development subsidies which has achieved sustained economic well-being that wouldn’t have happened anyway? Ah, I hear, what about Singapore? Singapore is the exception that proves the rule, and that’s the point; it is an exception, a small city-state sitting at the hub of a key trade route, with no hinterland to worry about, and a collective will which allows it to act more like an industrial conglomerate than a country. For the rest of us, all the evidence shows that the market will determine what long-term industries you have, and where they will locate. All governments can usefully do is facilitate underlying factor conditions such as infrastructure, education, regulation and taxation frameworks, etc.. After that, like it or lump it, it’s all up to individual businesses.
None of which will stop voters demanding that “the gumment must do something” and politicians saying “we will“.
Disclosure: I was a non-executive board member of 2 regional economic development agencies in NZ. We didn’t do subsidies; we did try (not always successfully) to address factor conditions.
Des Dearlove and Stuart Crainer, visiting professors at IE Business School in Madrid and associates at London Business School’s Management Innovation Lab, have published “The Thinkers 50 - 2009“, their biennial ranking of the world’s top business thinkers. Sponsored by The Times and other organisations, their criteria included:
Are the ideas and examples used by the thinker original?
Have the ideas promoted by the thinker been implemented in organizations? And, has the implementation been successful?
How proficient is the thinker at presenting his/her ideas orally?
How proficient is the thinker at presenting his/her ideas in writing?
How committed are the thinker’s disciples to spreading the message and putting it to work?
Do they practice what they preach in their own business?
How international are they in outlook and thinking?
How well researched are their books and presentations?
Have their ideas had an impact on the way people manage or think about management?
The clincher: are they, for better or worse, guru material by your definition and expectation?
Professor CK Prahalad is #1 for the second time in a row, followed by a mix of academics, economists, business writers and business leaders. I must admit that I’ve never heard of some of them before (and I think I’m reasonably well-read) so I’ll leave it for you to decide if everyone’s inclusion (or omission) and ranking are justified.
Exporters are lauded locally in most countries; but when they start establishing offshore operations in manufacturing or product development, they are quickly castigated for doing so. The critics have a very naive and short-sighted view. For over a decade, I’ve been arguing that exports are not enough:
The world’s most successful companies do not just export globally - they operate globally. That means having sales, service, logistics, production and development operating around the world. Look at the world’s greatest companies. How many do things only at home to ship out to the rest of the world? I can only think of one - Boeing. The others made the leap from exporting to international operations…. To minimise the cost of distance - freight, duties, foreign exchange risk and in-transit inventory; to reduce production costs, through greater volumes, lower material costs and lower manufacturing wages (an unpleasant reality); to get closer to customers for more efficient service and faster reaction to changing needs; to build critical mass for future investment; and to build credibility with large global customers.
I’m glad to hear, via The Independent’s Nikki Mandow, that others are pushing the same message. At the Export New Zealand-organised Go Global conference in Auckland today, Jonathan Ling (the head of corporate heavyweight Fletcher Building) surprised many of those present by arguing that lifting the country’s outbound foreign direct investment is essential for future economic prosperity. Despite some problems, overall Fletcher attributes enormous benefits to its offshore activities. On a smaller scale, others report similar nett gains. Even the government is getting the message, with more equitable tax arrangements for offshore direct investment.
Here’s why I think it’s a good idea for countries to encourage outbound foreign direct investment:
Global companies like Nokia, Vodafone, and Nestlé operate in many countries. The interesting thing is that large numbers of their high-value jobs are still at home- in development, marketing, and corporate administration. They are surrounded at home by a plethora of supporting organisations- in banking, IT, law, accounting, advertising, travel, short-run early-stage manufacturing, research, education, etc. Together, they bring home huge revenue and profit streams.
If New Zealand wants a high-value economy, it needs more than just exporters. It needs global businesses that operate offshore in all facets of their business. New Zealand should encourage its businesses to invest offshore, not deride them for it. Without global operations, we won’t get a Kiwi Nokia or Vodafone. With global operations, we look like getting a Kiwi Nestlé. We could sure do with some more.
The alternative is to repeatedly build small niche businesses and sell them off for a few million dollars; great for the founders, but not a sustainable and substantial national economic strategy.
Sitting in the lobby of my hotel (with free wifi, NZ hoteliers please note) in Plan de Campagne, Provence, appropriately the first thing that comes up on my newsfeed is a BBC report from France. President Sarkozy will impose a carbon tax (at 17 Euros per tonne) across all industries and households, except industries already designated to be part of the European cap & trade system (heavy industry, power generation, etc).
This is a novel approach, and it will be interesting to see how it works out. At first glance, it looks promising. I’ve long been an advocate of simple carbon tax, but the momentum behind cap & trade has proved unstoppable so far. Maybe this mixed-mode approach could combine the best of both systems. I’llawait more expert analysis with interest.
Right, time for un café espresso et un pain au chocolat.
When I lived and worked full-time in Britain in the 70s, “Victorian” was an epithet for hidebound, prudish and old-fashioned thinking. That’s all changed in the last year or two; the Victorians are sexy!
Britons have eagerly accepted recent academic reappraisals of the Victorian era. Self-reliance and enterprise were very strong features of Victorian Britain. Engineering, science, law, commerce, education, health care; you name it, the Victorians radically transformed it.
It might be nostalgia for a time when Britain was great. Or, if overheard conversations on the train are any guide, there’s a reawakening of entrepreneurial and creative spirit among the middle class, for many decades chained to the organisational employee treadmill. I’ve heard several people, and not just on the trains, say that they’re fed up with not having control of their work life, their savings and their opportunities. The chat about becoming self-employed or starting a business is higher than I’ve ever heard before. That’s strange in a recession, but maybe the disenchantment over recent events could have triggered a sea-change in British culture.
The day I arrived in Britain, The Times included two articles on the British economy. Great way to catch up on the current state of play, I thought. First the OECD, in its latest vew on the G7’s prospects, predicts that the UK’s economy will continue to shrink, by 4.7% in 2009, lagging the rest of the G7. Not good, I thought, until I read the response from The Times‘ business editor.
The OECD uses historical data. However, within hours of the OECD’s report came another one using forward expectations - the Purchasing Managers Index for the services sector, representing over 40% of the UK economy. This survey gathers the views of individual firms, and is a reliable forward indicator, just as in New Zealand the National Bank’s Business Outlook survey places great reliance on firm’s’ views of their own prospects as a strong leading indicator. The latest NBBO survey shows individual firms have reached a 5 year high in positive expectations.
The PMI services results have shown two months of improving expectations, implying that the UK is starting to recover, albeit weakly. The Times includes several notes of caution, but I sense, from much media study as I get over the jet-lag, that the mood of the country and the news media has lightened from the Stygian gloom of my last visit in December. The UK feels a bit like NZ 6 months ago. People have become fed up with recession, and decided that up is the only way to go. Cue D:ream.
Contrary to popular belief, a wind farm is (barring its manufacture and installation) at best carbon-neutral. So how come my local taxi firm can buy carbon credits from a wind farm to offset the taxis’ use of fossil fuels, and claim to be carbon-neutral? It’s a nonsense.
And don’t give me that claptrap about avoiding carbon-emitting electricity generation. I haven’t seen any power stations closing recently. Even if it were so, the logic is still specious.
If you want to minimise or penalise carbon emissions, tax the emitters or their fuel suppliers. That includes the suppliers of coal, gas and automotive fuels.
Anything else is, to use the French phrase, une usine à gaz or “gas factory”, an unnecessarily complex and bureaucratic mechanism of dubious benefit for the purpose intended. The term seems seems highly appropriate.
The Economist’s Big Mac Index is somewhat accepted as a rough and ready medium-term indicator of underlying currency value. Now I see that Swiss global banking giant UBS has adopted it too. In its annual review of wages and prices around the world, one of the quirkier charts plots the relative time a worker needs to earn enough money to buy a Big Mac hamburger. In the same report, UBS also publishes an iPod index. Given the commonality of iPod and Big Mac purchasers in the IT industry, this is highly relevant information for cross-border salary comparisons!
When I was a kid, “Made in Japan” was a synonym for cheap shoddy knock-offs of Western products; but over time “Made in Japan” came to mean “lifetime quality” and “extras included“. So the sneering changed: “Japanese only copy; they can’t innovate.“ Yet many of today’s smart design and manufacturing processes are modelled on techniques the Japanese developed. Ah, those ideas already existed before the Japanese adopted them, I hear you say. In nascent form, maybe; but every new idea is built on what has gone before. Anyway, the sustained dominance of Japanese firms in manufactured products from consumer electronics to industrial machinery demonstrates a highly innovative environment, not just in processes and product refinement. Much innovation in cars today comes from technologies pioneered in Japan.
I hear similar dismissive language applied to China now. There’s even less basis for such myopia. Both nations had strong education systems and huge desire for economic change. China has a much deeper tradition of engineering and manufacturing. It’s a theme Eric Drexler has touched on in a guest article for McKinsey on innovation:
To become a world-class center of technological innovation, a society must have three basic elements:
• drive—a culture that supports change and hungers for it
• human capital—the personal abilities that make world-class technology possible
• a capacity for mobilization—a society’s ability to pursue ambitious new goals
These basic elements are more fundamental than any current performance metric or economic trend, and they are durable.
China has all these in abundance. I was particularly struck by Drexler’s comment on China’s mobilization capacity:
Drive and human capital are applied through organization, by both entrepreneurs and corporations, as well as national leaders and governments. India has been outstanding in its incapacity for reform and for interfering with entrepreneurship, though this is changing. China, however, has been outstanding in its capacity for learning from experience, radically transforming government policy, and unleashing a hyperentrepreneurial business culture.
As science and technology grow in importance, it becomes increasingly important for leaders to have a good understanding of these disciplines. Among US legislators, though, a background in science and engineering is exceedingly rare. In France, it is common. In Taiwan, many legislators have doctoral degrees in science or engineering. In China, of the nine members of the standing committee of the Politburo (the ruling body, which includes the president, the vice president, and the premier), one recently appointed member has an education in law. Previously, all nine had been trained as engineers.
… Perhaps the most robust indicator of change in the distribution of innovation potential is a change in the distribution of corporate research laboratories. Companies are opening new labs in China at an astounding rate. In software and electronics, NEC, Hitachi, Sony, IBM, and Microsoft all have established R&D centers in China; in pharmaceuticals, Roche, Pfizer, AstraZeneca, Novartis, and Eli Lilly have done so. This list is not exhaustive.
Despite this, many firms (and nations) are myopic about new competition from other countries. Do you think they’re more realistic about competitors in the same region or city as themselves? Sadly, no. Even with familiar competitors, firms kid themselves with smug self-affirming generalisations.
Don’t get freaked out by competitors, local or global; but don’t fool yourself with uninformed complacency. Otherwise, you’re just making your competitor’s job easier.
The falling birthrate in developed countries has long been a source of concern for economic thinkers. The reasons for that seem clear - better education of women, increased opportunities for female employment, better access and use of contraception, pensions and healthcare for the aged releasing women from that task, et cetera. In 1975, birthrates in the most developed countries were falling below replacement levels. Well, only up to a point, it seems. New research published in Nature (behind a subscription wall, but also reported by The Economist), confirms that, yes, the birthrate does fall below replacement rates as societies improve living standards. But in the most developed countries (as measured by the UN’s HDI human development index , combining life expectancy, education and income), as living standards improve still further, the birth rate kicks back up again, implying that the most developed societies will soon return to a self-sustaining birthrate.
The researchers speculate on why that might be, and suggest that the most developed societies have in the ensuing 30 years also adopted family support mechanisms such as widespread childcare, early childhood education and family-friendly workplaces. Correlation and causation debates will no doubt ensue. However, I suspect the speculation will be taken as reasonable and strengthen the argument for more family-friendly workplaces, something I favour for my own economic self-interest.
Who should pay for those family support mechanisms - user, taxpayer or employer - is a vexed political question. Every country seems to have a slightly different mix. The usual compromise seems to be that employers should provide family-supportive workplaces, taxpayers support education plus some parental benefits, and users are the primary childcare purchasers with the greatest stake in the quality of service, the greatest direct benefit economically (and the least waste through government agency costs).
Personally, I’d rather see the purchase power entirely in the hands of users, with lower taxes (and less bureaucratic cost), but I’m not likely to be elected on such a platform. People seem to forget that they pay one way or the other, unlike me. But then I think some tax-funded services are just Ponzi schemes.
Countries with a 2005 HDI above 0.9 include Australia (0.966), Norway (0.961), Iceland (0.956), Ireland (0.95), Luxembourg (0.949), Sweden (0.947), Canada (0.946), Finland (0.945), France (0.945), the Netherlands (0.945), the United States (0.944), Denmark (0.943), Japan (0.943), Switzerland (0.942), Belgium (0.94), New Zealand (0.938), Spain (0.938), the United Kingdom (0.936), Austria (0.934), Italy (0.934), Israel (0.922), Greece (0.918), Germany (0.916), Slovenia (0.913) and South Korea (0.911). Only Canada and Japan did not demonstrate the uptick effect.
