As everyone knows, the world has been “flattening” for the past three decades. This has opened the door for dozens of nations and billions of people to enter the global economy. What many do not realize is that this era is coming to an end.
Not that global integration is over, or even slowing down. Far from it. But the developing world has reached the end of its rapid path to rising G.D.P. and per capita income. Some call this the “middle-income trap” — the idea that it is a lot easier to go from a low-income to a middle-income economy than it is to jump to the next level.
As if that weren’t challenging enough, this shift is happening at the same time all around the world. Every market is now in a competitive race with all the others, which have also been sprinting for the last 15 years to arrive at this same spot.
Simply put, these growth markets have plucked the low-hanging fruit of Global Integration, Act I. Now they face a radically more competitive arena, requiring higher degrees of regulation, higher standards and higher expectations for everything — from product and service quality to working conditions to protection of intellectual property and the rule of law.
Note: “higher,” not “lower.” The playing field is still flat, but now it isn’t at sea level. The game is moving to a higher plateau.
Despite the gloom and doom one hears, this moment actually presents exciting new opportunities for the developed world. Many of the capabilities and skills sought by an innovation-based global economy are deeply engrained in Europe, Japan and the United States. However, these economies — and in particular their government leaders — must also tackle some very big challenges if they are to compete successfully in the years ahead.
That’s because over the past three decades, something has been going on in addition to global integration. The world’s mature economies have been piling up massive deficits — not just financial, but deficits of competitiveness: aging populations, rusting infrastructures, out-of-date education systems and antiquated regulations.
Just as all emerging markets are facing the middle-income trap at once, so the developed world finds itself having to address all of its huge structural overhangs, and with great urgency, thanks to the ongoing financial crisis. The new “great game” of global competition will not wait to start play while we get our house in order. How to do that? Let me suggest three broad steps.
First, we must invest in the future. We need increased investments in areas like infrastructure, education and deep research, along with greater flexibility through smarter labor and trade regulations. We cannot simply cost-cut our way to competitiveness. To pull that off, we will need both balanced fiscal policies and far deeper collaboration among government, business and all of civil society.
Second, every player in this game needs to deliver unique value. This is something every business knows: If you want to be competitive, you have to be really good at something people value. The localities and economies that succeed will have clarity on the kind of economic and societal innovation they do uniquely well — what makes them stand out in the global competitive market for talent and investment. And they will invest in that.
Finally, government must become smarter, and I don’t just mean it should digitize its public services. Government is in desperate need of an infusion of modern subject-matter expertise.
Take public safety. We used to measure crime-fighting by the size of our police forces and the state of the art of their equipment. But more and more police departments are fighting crime with data. That’s why New York City is now one of the safest large cities in the world.
The same applies to traffic management, water systems, energy grids and more. The systems by which our world runs are being transformed before our eyes. Government has to be at the forefront of those changes.
The good news is that a new generation of leaders gets it, and they’re eager to get going. They embrace technology. They think in terms of large-scale, sustainable systems. And they’re highly pragmatic, rather than ideological. You find them especially in the emerging global cities of the world.
Here Europe holds a powerful trump card, with cities that are rich in intellectual life and knowledge resources.
Without question, the issues we face today are challenging, but they are solvable. I am optimistic — not because I expect human nature to change, but because we now have at our disposal an enormous new natural resource: a rising tide of data that enables us to see and understand our world as never before.
What the discovery of the Western hemisphere was to the 15th century, the discovery of steam power to the 18th century and the discovery of electricity to the 19th century, the explosion of data will be to the 21st. Its economic and societal value is almost incalculable.
If we seize upon this new resource, I believe future historians will look back on this moment not as a shift to lower expectations and growing gaps between haves and have-nots, but as the dawn of a new golden age of innovation, a time of widely shared economic growth and of global citizenship.
By Samuel J. Palmisano, the chairman of IBM.