Global Inflection Points

At the MIT Enterprise Forum’s Innovation and Technology Forecast in Chicago Tuesday, there was significant discussion about China’s growth and what that would mean for innovation in Illinois. Many speakers also made references to the importance of catering to knowledge workers. Chunka Mui, Dan Ratner, Geoffrey Kasselman and Jerry Mitchell were panelists, and Jerry spends significant time in China. His admiration for what is happening in China was contagious and triggered the train of thought here.

As a student of (largely) European and U.S. history, I have been impressed with the rise of the U.S. on the global stage. To use a simple metaphor, the U.S. was a European root planted in a wild soil. However, the development and rise of the U.S. coincided almost perfectly with the Industrial Revolution, and this produced a global inflection point. The U.S. had relatively few constraints to its development with respect to established interests, and it had no established neighbors that posed persistent security threats in the same way that European countries did. Vast tracts of land were available for exploitation to support life and industry. People arrived who were highly motivated and driven to succeed. The industrial economy depended on natural resource inputs of which there was an almost inexhaustible supply. The drive and focus of the people, combined with the lack of constraints and natural resources enabled the U.S. to become a superpower within two hundred years, a relatively short period of time, historically speaking.

The industrial revolution *is* the United States.

During the 20th century, Europe’s economies were decimated by two world wars, and the U.S. moved into the power vacuum, producing about one third of the world GNP at some point in the 1950s. Being one of the most prominent unified markets of the world gave it more influence because suppliers naturally cater to their customers. Customer desires are translated into products and services, which influence the producers of those products and services in terms of values and ways of thinking.

Cut to the 21st century, which is obviously going to the stage of the global knowledge economy. As I wrote in The 3.x Economies, the agrarian, industrial and knowledge economies will coexist, as the agrarian and industrial economies did. When the agrarian economy began shifting to the industrial economy in Europe around 1760, the latter became the vortex of creativity, influence and power. Agriculture eventually came to be practiced in an industrial fashion as the industrial experience became embedded into our collective thought processes, mentalities and dreams. The zeitgeist captures the imagination and looms larger than life. Similarly, as we shift to a knowledge economy, industry and agriculture will come to be practiced in a “knowledge fashion.”

Jerry’s comments made me think that China and India will undoubtedly have their inflection points in the knowledge economy for several reasons:

• The knowledge economy’s inputs are information/knowledge to which people add value and output more information and knowledge. Jerry’s descriptions and photos of China were of highly motivated, serious people who were supported by coordinated government initiatives for growing a knowledge economy. Having large populations of highly motivated, educated “knowledge workers” will increase China’s and India’s influence on the global stage.
• Creativity and innovation will take center stage because the industrial reflex of producing breakaway value through efficiency and economies of scale has largely reached its limit of “general application.” Creativity and innovation will be focused on inventing new products and services for rapidly changing customer tastes. Having insights into cultures and tastes will be of paramount importance, to say the least.
• The customer has been empowered by ubiquitous information, for producers no longer control most of the information about a product/service. Therefore, look to large markets to have unparalleled influence in the knowledge economy.
• The same way that the world has accommodated the U.S. as a large unified market, it will accommodate China and India. This will challenge many assumptions that we didn’t know we had.

One of the profound assumptions of the industrial and agrarian economies that is no longer true in the knowledge economy (at least as much) is the zero-sum mentality. Because the two preceding economies (including the “.x economy even earlier) were built on scarce natural resources, we humans have an ingrained sense of the scarcity of valuable things. If I use that tree to build my house, you can’t use it. Similarly, if I burn that litre of petrol, you can’t burn it. Therefore, please don’t construe my belief that China’s and India’s rise will necessarily mean the inevitable fall of the U.S. Because the knowledge economy’s chief input is knowledge, and our knowledge is increasingly digital, it is infinite. There is no inherent constraint of the resource.

That said, when a country—or a person, for that matter—has a formative experience within a context, and the context subsequently changes around that country, it has the challenge of figuring out what about its perception of the truth (formed in the old context) remains true in the new context. The U.S., formed within the context of the industrial economy, has the risk of being complacent and of not being as hungry, determined and motivated during the inflection point of the knowledge economy as some others. As such, it risks not being shut out due to losing natural resource inputs, but falling behind due to not developing relevant competencies as quickly as others. When any country is a huge market, it makes it more difficult to see outside itself.

I could mention many more assumptions made in the industrial economy that have questionable validity in the knowledge economy, but I’ll close with this one: even the concept of a nation, along with its people’s collective destiny, is in question. In the world today, what nation one is born into is very important, but it could be much less so within a short period of time. If many of us (also read John Hagel, Alex Lowy, David Ticoll, Don Tapscott) are right about the evolution of the enterprise from centralized, controlled castle to permeable node on the global network, why not countries? The same falling transaction costs that are undermining the validity of the tightly coupled enterprise are also pulling at countries. Therefore, it will be up to individuals to look and act on what they see.. and to make happen what they can. Plus ça change, n’est-ce pas?..