Economic development redefined and where the opportunity lies
What you need to know:
- Inasmuch as America is a free society, there are no squabbles around the new thinking as we often have here in Kenya.
- With connectivity, a child in the slums of Mukuru has similar chances of succeeding to any child living in the suburbs of Karen.
- In any revolution, majority of the people aren’t aware of it until the historians report that there was a revolution. In this emerging revolution, let us not wait for the historians.
The United States is crafting a new economic thought that will hopefully explain how they can grow sustainably and compete in the new global economic framework for the next 25 years.
This new thinking defines economic development as creating an environment that is conducive for creativity, innovation and connectivity, focusing on commercial enterprises that make valuable products and services.
This is a departure from the traditional definitions of economic development that we are used to. Different thinkers have different ideas on economic development, but they seem to converge on multiple areas including development of critical infrastructure, human capital, regional competitiveness, environmental sustainability, social inclusion, health, safety, literacy, and many other initiatives.
Like in the past, the 2007-2009 financial crisis may have precipitated the creation of a new economic framework that will make the US more competitive.
As Anatole Kaletsky wrote in Capitalism 4.0, the period of social and economic upheavals that started with the political revolution in America and France and the Industrial Revolution in England created the first era of modern capitalism, running roughly from the British victory over Napoleon in 1815 until the First World War.
These unprecedented political and economic traumas, Kaletsky says, destroyed the classical laissez-faire capitalism of the 19the century and created a different version of the capitalist system, embracing Franklin Roosevelt’s New Deal, Lyndon Johnson’s Great Society, and the British and European welfare states.
CAPITALISM MUTATES
Another enormous economic crisis, global inflation of the late 1960s and 1970s — inspired the free market revolution of Margaret Thatcher and Ronald Reagan, creating a third version of capitalism, clearly distinct from the previous two.
Forty years later, the global economy was hit once again with the financial meltdown which now seems certain to create another version of capitalism that is distinct from the last three.
Capitalism indeed, as Kaletsky says, is an adaptive social system that mutates and evolves in response to a changing environment. When such changes happen, the entire economy calibrates and aligns itself with the new thinking. The changes affect the public as well as the private sector, including philanthropic organizations.
As I write this blog post the entire American society is aligning itself along the new thinking, and inasmuch as America is a free society, there are no squabbles around the new thinking as we often have here in Kenya.
With this brief background on economic transitions, let me now explain how the three focus areas that is, creativity, connectivity and innovation will impact economic development in the days to come.
Whilst creativity is the process of generating unique and useful ideas, innovation is about taking the creative (unique new idea) and turning it into something of value, and of course a person to exploit value often referred to as an entrepreneur.
Perhaps to demonstrate the meaning of these simple words, I need to tell a story of the invention of the Web by Sir Tim Berners-Lee, a man I have been lucky enough to meet on a number of occasions.
'VAGUE BUT EXCITING'
In the late 1980’s, Berners-Lee was a young computer scientist working at CERN - the European Organisation for Nuclear Research. What struck Berners-Lee was that there was no easy way for these scientists to share information across teams.
They might be working on similar projects and they could even use this new technology — the Internet — to email files to each other, but when the files arrived, you would have to get a new programme (probably on a floppy disc), install it, and try to figure out how this information might be relevant to your work. Then if you found something useful you wanted to share with another team, you had to do the whole long process in reverse!
This was incredibly frustrating for everybody, and so Berners-Lee decided to do something about it by combining two emerging technologies — the internet and hypertext. In March 1989, he filed the original proposal for the Web. His supervisor did not think it was interesting, and simply wrote on the proposal “Vague but exciting”, but this did not deter Berners-Lee.
He persevered though, coding up the Web on one of Steve Jobs’ early computers and getting support for the project within CERN. In just a couple of years, the World Wide Web was gaining traction, and in 1993, Berners-Lee succeeded in ensuring that the source code for the Web was made available for free, forever. The rest is history.
The economic impact of the World Wide Web can never be quantified, but it runs into billions of dollars if not trillions. You need five Berners-Lee in any economy to positively change the livelihood for all. That is why the third variable, connectivity is equally important.
Connectivity is the greatest equalizer of all. With connectivity, the world is borderless, we can collaborate and enhance creative thinking. With connectivity, a child in the slums of Mukuru has similar chances of succeeding to any child living in the suburbs of Karen. This is a realization that not just those who have money are creative. It is liberalizing opportunity and casting the net wide to capture every creative mind.
UNWRITTEN SOCIAL CONTRACTS
Hwang & Mabogunje’s writing in the Stanford Social Innovation Review of October 2013 says that the emerging model of economic thinking is characterised by the following five features of human interaction. They comprise important elements missing from present-day economic doctrine. They include:
1). Social networks, arguing that in addition to the known factors of production; land, labour, capital, technology, there is psychological evidence that human-to-human connectivity profoundly shapes how people create together.
2) Teams, noting that there is strong evidence that economic value is affected by how teams form, and by their internal dynamics, diversity, and mix of personalities.
3) Identity, or how an individual’s identity shapes his or her economic behaviour.
4) Trust, research having shown that the cultural rules of daily interaction between people — like unwritten social contracts — affect value creation.
5). Environmental conditions, noting that the physical sciences can be useful in explaining the social sciences.
This far-reaching economic policy shift is likely to impact many emerging economies like Kenya which are grappling to understand the dynamics of the current economic framework. Abstaining from embracing this new thinking is not an option because we are in it by default.
Russia is leveraging connectivity to steal in excess of 1.2 billion passwords and more than $100 million in cash and other unquantified forgeries, like selling fake drugs online. China, not to be left behind, is heavily investing in creativity, innovation and connectivity. China’s Alibaba is talking of expansion into other markets.
EMERGING REVOLUTION
In Kenya we thank the Kibaki Administration for its foresight on connectivity. We are the most connected country in Africa. Most IT innovations in Africa have come out of Kenya.
We have the advantage of abundant youth. Several multinational organizations such IBM and Philips have noted this advantage and located their research labs here.
We can either choose to leapfrog now, or wait and see how it pans out. But one thing is certain; some transitioning is going on. We have the real chance to take off from the runway.
In any revolution, majority of the people aren’t aware of it until the historians report that there was a revolution. In this emerging revolution, let us not wait for the historians. We must prepare to meet the challenges ahead and be part of the emerging opportunities.
Europe, for example, will need close to one million information technology experts in the next five years. In the event Europeans want to fill up those positions with foreigners, we don’t need to move there. Connectivity will do it, that is, if we lay more fibre optics to homes and resolve the "last mile" issue.
Thomas A. Edison said, “Opportunity is missed by most people because it is dressed in overalls and looks like work.”
Dr Ndemo is a senior lecturer at the University of Nairobi's Business School, Lower Kabete campus. He is a former permanent secretary in the Ministry of Information and Communication. Twitter:@bantigito
