The Hindu Business Line : No model to describe the global economy

Global economy is not the `new economy', once touted as the `brave new order based on the fantastic technological advances unleashed through the Internet'. A sudden plunge in tech stocks in April 2000 saw the wheels falling off `this conceptual wagon', writes Kenichi Ohmae in The Next Global Stage. A book you can sacrifice the weekend concert or drama for, to ensure your place on the global stage, says D. Murali.

GLOBALISATION is a done deal, what comes next? That is the question Kenichi Ohmae asks in "The Next Global Stage," from Wharton School Publishing through Pearson Power (www.whartonsp.com). Aren't there answers in `yesterday's economic theories'? No, he'd say, because that `tired script' won't help when plotlines are shifting fast. "A radically new world is taking shape from the ashes of yesterday's nation-based economic world," announces Ohmae, before delving into `the dynamics of the new region state'.

But, first, what is the `global economy'? To find an answer, chapter 1 goes on a world tour to Dalian, Dublin and Helsinki and describes what global economy is not, because "every term is a linguistic sieve." Global economy isn't the `New Economy', once touted as the `brave new economy order based on the fantastic technological advances unleashed through the Internet'. Sudden plunge in tech stocks in April 2000 saw the wheels falling off `this conceptual wagon'.

Global economy is not theory, but reality, points out the author. "There is no use complaining about it or wishing it to go away. People will have to learn to live with it," he advises those who still clinging to their old mind maps and paradigms. Success and survival depend on "acquiring novel outlooks and relationships with the rest of the world," he emphasises. Global economy is borderless, invisible, cyber-connected, and measured in multiples, describes Ohmae.

Four Cs — communication, capital, corporations, and consumers — obliterate the borders, he notes. Invisibly, computers complete the transactions; and "there is no way for the government to know how much cash you have withdrawn abroad or how much you have spent with a credit card to purchase goods and services across national borders."

What are multiples? They are signs given to the management by the shareholders to shoot at the business opportunities on the horizon, explains the author. Multiples are fictitious, he adds. However, "if the management does nothing other than business as usual, the multiple will come down, reflecting the disappointment of the ammunition givers."

World AG

It is not BC or AD that meets you in a chapter titled `Opening Night'. Ohmae ushers you into `the World AG' that started from 1985. G for globalisation, you may think, but Ohmae teases with Gates, because of `Windows' launch. There were developments apart from that technical one, two decades ago, sowing the seeds of what brought forth revolutions in ideological, economical and fiscal spheres too. Turning points that Ohmae cites are: Gorbachev in Russia, the Plaza Accord of G5 finance ministers to let the dollar fall in value, and the Gramm-Rudman Act signed into the US law in 1985 to mandate a balanced budget.

China, 14 AG, or 1998 merits special mention because of reforms that Zhu Rongji introduced to attack the `three cancers' — endemic corruption, a crippling bureaucracy, and the deadweight of government firms. What's the result? "China today contains the most brutal, inhumane, and unsentimental capitalism imaginable," writes Ohmae about what he considers to be "the purest, most unadulterated form of capitalism on the planet today... taken from the pages of Charles Dickens or Theodore Dreiser." In the `primitive form of industrialisation' that prevails there, the capitalist can sack workers "who are too expensive, who work less, or who may tire more easily."

Move on then to `The End of Economics', where the author rues that today's economist, `including most of the recent Nobel Prize laureates', are only busy with `a variation of their old masters' themes'. Ohmae is unhappy with economists who, instead of looking straight at the economy itself, are instead trying to interpret it with tinkered-up antique equations, and models that explain only a part of the global economy.

There is no model to describe the global economy, he declares; "because we are dealing with so many parameters and variables, and so many `units of economy'." Myriad forces are at work, and we are already losing count of variables that aren't easy to discern or document owing to lack of `credible statistics', states Ohmae. Also, `cybereconomy' facilitates cross-border exchange of products and services "in areas unbeknownst to the economists, let alone to the government."

To accentuate the woes of the traditional economist, `funny money', or bonds and treasury bills along with derivatives, has grown funnier, assuming huge proportions. "In today's interlinked global economy, the money sitting in one side of the globe can be deployed, with huge multiples, halfway around the world either to accelerate the prosperity of a region or to destroy a nation's economy," cautions Ohmae.

He debunks the linear approach of Keynesian economics, and faults those who consider Marshall's K to be constant. "The world is awash with money presently, but if it were absorbed, it would cause inflation. Traditional economic theory cannot explain this," writes Ohmae, and wonders if physics can help gain a grip on the slippery money behaviour. "Quantum mechanics has seen the arrival of a plethora of subatomic particles - gluons, gravitons, and so on - that help to explain its workings," he writes. "The global economy also throws up new business particles," he adds, citing as examples the multiple and the derivative.

The new economic paradigm, according to Ohmae has three characteristics. One, "for possibly the first time in human history, prosperity and riches are not dependent on existing wealth," so "you don't have to be rich to get rich or richer." Two, "the world has an excess of capital;" remember, however, "money is not necessary for prosperity, but investment is". And three, "size no longer matters," as Finland proves.

Shake off `the nation-state fetish'

Part II of the book provides `stage directions' to help find `your bearings on the global stage'. Ohmae exhorts you to shake off `the nation-state fetish' because it can retard economic development. "One of the outward symbols of its existence is the national border, staffed by uniformed officials checking papers and manning barricades. But what use are such border controls in the world of the Internet," asks the author. "Does a stream of data passing along a fibre-optic cable stop at each national border it crosses so that it can be inspected for contraband?"

The notion of nation-state breaks up world's population into "supposedly self-sufficient entities". But such compartmentalisation of skills and markets is artificial, even as "the world has moved on", points out the book. The antidote is the region-state, which is an economic unit, and not a political one. Not a new concept, says Ohmae, reminding one of Italy's centres that acted as cradles of the Renaissance — the Hanseatic League, "a collective of trading cities on the shores of the Baltic and the North Sea."

A region-state should be a good place to do business and also "an attractive place to work and to raise kids," describes the author. Eye candies such as beaches, parks and manicured golf courses are not enough, he writes.

"A powerful definition of a region-state is that it is a unit for creating a positive virtual cycle." Which means, more people come in with more varied backgrounds and skills, in manufacturing, services and so on, to make the region "a totality with a deeper, wider economic and business base", over time.

In a chapter titled `Platforms for Progress', Ohmae explains the heart of a platform as having two features - `they are open and communal'. Openness doesn't mean free, but accessibility to a wide range of users; and communality allows the use of platform by those who have the same needs. Platforms are technology applied to solve `real-life, real-time problems'.

Language as platform has long been tied so intimately to the nation-state, laments the author. "In certain epochs of history, the political dominance of one state was accompanied by attempts to enforce linguistic conformity." It has been a problem that raises its head off and on, without realising that "English is the lingua franca of the global economy and the de facto standard in cyberspace for the storage of information and two-way communication."

BPO, x-BPO

The book devotes a chapter to BPO (business process outsourcing) and x-BPO (where x means cross border). X-BPO is not solely an Indian phenomenon, but it has put India on the global economic stage, opines Ohmae. "What is being done today in India through English will spread to other centres attracting x-BPO tomorrow."

Do you know that Indian call centres make up only about an eighth of x-BPO value? More challenging are the inroads into professional services, says the author. An example he gives is of a UK company that was seeking software audit; while a British company had quoted £100,000, `an Indian firm staffed by qualified computer professionals carried out the task for £30,000."

It may sound harsh to hear from Ohmae that India as a nation has not yet woken up to the global economy. "India's central government does not understand the global economy," he charges. "It cannot figure out why certain areas are succeeding so phenomenally and why they are able to attract investment from the rest of the world. This does not stop them from engaging in some self-aggrandising self-congratulation." Wonder how our leaders take such criticism.

Well, the chapter that follows is about `Breaking the Chains' where you can catch up with `cyberites' or `netians', a tribe that has spread outside the JEU (Japan, Europe, and the US). Ohmae propounds `three theorems' about this tribe. One, "cyberites who have used the Internet for five years or more tend to think, act, and behave similarly." Two, "(Age-10)÷10 is the number of years it takes for anybody to become a true cyberite." And three, "Cyberites are proactive consumers."

The final part of the book hands `The Script', where the actors need to think and act differently. Because, "On today's global stage, we can no longer define competitors, the company, and customers in a straightforward way," as Ohmae writes. Bear in mind that we are dealing with "the invisible continent in the borderless cyberjungle". What you need is kosoryoku, which in Japanese means vision, concept and imagination, all rolled into one. "It is the ability to come up with a vision that is necessary and, at the same time, implement it until it succeeds."

A book you can sacrifice the weekend concert or drama for, to ensure your place on the global stage!

Economics@TheHindu.co.in

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