Bearded men in mountain cabins

The imperative that government be sensitive to the needs of business will be greater than ever in the era of the new economy. 

Only bearded men in mountain cabins want government to disappear. The rest of the population understands that yielding a certain amount of personal “sovereignty” is a fair trade for a few curbs on the effects of human frailty.

Fortunately, the rest of the population has also come to the conclusion that a market-based economy is superior to the other alternatives that have been tried over the years. Commerce is close to a natural human instinct; the market has given us the basis for a common expression or language. Frankly, we have barely begun to experience the benefits of this remarkably binding concept.

Globalisation is the catchword for the spreading of this recognition of commonality. Like any other human endeavour, it has its sharp edges. I am perplexed to see more and more statements and action from governments and even business organisations along the theme of “globalisation with a human face”. The political source for this defensive posture is obvious, but I believe that it represents a significant error in logic, as people grapple with the global market’s emergence. The truth is globalisation already has a human face, since no one but humans is involved.

Blaming the inequalities of the world on the market economy is nonsense. The facts are that the experimenting with non-market systems has left great masses of people poor and disaffected. This common understanding of the market is relatively new: that the market is clearly the answer, not the problem.

At the centre of this global phenomenon is the entrepreneur, individually and collectively in a business enterprise, the risk-taker who creates the rewards of wealth. The entrepreneur or firm is surrounded by institutions intent upon curbing those human frailties.

So be it, but there is a healthy and growing recognition that honing all the edges in this way has disastrous consequences. When institutional prescriptions crowd out innovation, the chances of total failure occurring may be diminished, but the price in resistance to change is incalculable. For it is change, the recognition that one course of action or product is less than optimal, that another is better, which feeds the creative mind. For the market to work, there must be a right to be wrong.

However, the firm is, by its nature, born of positive expectations and driven by its response to market demands. Increasingly, the management of the firm is finding commonality across sectors in the elements of this new economy paradigm, as some are wont to call it.

An array of themes is apparent in the strategies and operations of a private enterprise that is gearing itself for future success. From McDonald’s fast foods to Nokia phones, from Volkswagen automobiles to Sony consumer electronics and Tata software, firms will be focused on the introduction, marketing and management of their brands. After all, despite all their differences, human beings have converging tastes in many products and services. The important point is that each one of those themes has implications for the makers of public policy, at every level of government, everywhere on the globe.

In every sector – agriculture, retail, banking, steel or semiconductors – there will be a premium on innovation. The application of technology to the business model will be pervasive, and will frequently be the difference between success and failure. The potential scope of enterprise, large or small, will be international, if not global. And though the range of consumer choices will be stunning, the competition will be intense.

As a result, profit margins will continue to shrink, making growth essential. Even the most product-oriented firm will leverage its talent in services. As a result, organisations will be less hierarchical and employment will be more fluid. Trade and investment will blend in every international company strategy.

More than any other fact of life for a globally competitive firm, I wish to draw your attention to the most important and least understood of them all: velocity. This is new in private enterprise: the speed at which investment moves through the business cycle. The source of this exponential change is invention which, thanks to technology, feeds on itself, permitting the management of the private enterprise model to alter the model’s composition with remarkable speed. Moreover, that invention is opening new possibilities for the customers of those new goods and services, sometimes causing demand to shift so quickly that even the most sophisticated forecasters cannot keep up. In the technology business, model builders have taken to thinking in “web years”, that is, periods of three months.

It is the surge in application of new technology that is the essence of sustained growth in the broader economy. The application of technology enables the same “modeling” and new market possibilities to spread throughout business and industry.

Every government produces a range of policies that shape the micro-economic models of the private sector, resulting in a public sector burden that private players then have to carry with them into the market place. The tax load is the most obvious example of this, and policy choices give rise to a myriad of similar micro-economic costs.

Other examples include excessive labour protection rules, under-performing education systems, regulatory demands, market restrictions and tariffs. To a considerable degree, the debate about disparate rates of growth in developed economies hinges on the extent to which the state makes demands of the firm.

Nimble government 

Clearly, there is a need for business and government to understand each other’s perspective, if not to work together. One reason is that few private enterprises will escape either the global algorithm of competitiveness or the demand for nimble adjustment. As the public burden is so great in comparison to the operating margins of the private enterprise, a responsive, efficient government can have a disproportionate impact on strengthening the comparative and competitive advantage of its private sector.

Indeed, the speed with which an enterprise can react to change is directly tied to governmental policies and regulations; this is most crucial when it comes to having to shift resources out of marginally productive activities and into those with significant growth possibilities. This is Dr Schumpeter’s creative destruction. The trouble is, with narrower margins and speedier product cycles, it is all the more urgent for governments to attune their policies to improving competitiveness and to allow that adjustment to take place unfettered. Otherwise the creative part of the Schumpeter equation will be impeded, with devastating consequences.

Any lack of competitiveness, private or parastatal, sends ripples of inefficiency throughout the economy, distorting resource allocation and affecting the cost structure of customers. It is in the interests of governments and business to ensure this does not happen.

To the extent that governments ignore these realities, their policy shortcomings will most likely appear in the prices of goods and services. This is a micro-economic effect. In turn, those higher prices will impact the productivity of their workforce and the standard of living of their people. These are the macro-economic consequences. In short, the impacts of poor policy choices will not go away or be shifted to oblivion. Payment will be due.

In this context, the OECD’s Forum 2000 has a chance to differ significantly from the majority of other intergovernmental “talks”. Its analytical base, intellectual rigour and inclusiveness of business and other players is key, particularly in the face of mounting opposition to globalisation that is currently being expressed in the streets. By including antagonistic voices in the “formal” debate, the Forum obliges stakeholders to express themselves and face critical review. Everyone will have to hold their ground not on the basis of noise or numbers, but of argument and scrutiny. This is nothing new at OECD, which has always sought the opinion of business and labour representatives at the policy table of international government. What it does demand is that those invited come to the discussion to listen and make their case clearly. They will have influence in so far as their arguments make sense. That is what partnerships are all about. We could hardly ask for more.

©OECD Observer No 221/222, Summer 2000 




Economic data

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Africa's cities at the forefront of progress: Africa is urbanising at a historically rapid pace coupled with an unprecedented demographic boom. By 2050, about 56% of Africans are expected to live in cities. This poses major policy challenges, but make no mistake: Africa’s cities and towns are engines of progress that, if harnessed correctly, can fuel the entire continent’s sustainable development.
  • “Nizip” refugee camp visit
    July 2016: OECD Secretary-General Angel Gurría visits the “Nizip” refugee camp, situated between Gaziantep and the Turkish-Syrian border, accompanied by Turkey’s Deputy Prime Minister Mehmet Şimşek. The camp accommodates a small number of the 2.75 million Syrians currently registered in Turkey, mostly outside the camps. In his tour of the camp, Mr Gurría visits a school, speaks with refugees and gives a short interview.
  • OECD Observer i-Sheet Series: OECD Observer i-Sheets are smart contents pages on major issues and events. Use them to find current or recent articles, video, books and working papers. To browse on paper and read on line, or simply download.
  • Queen Maxima of the Netherlands gives a speech next to Mexico's President Enrique Pena Nieto (not pictured) during the International Forum of Financial Inclusion at the National Palace in Mexico City, Mexico June 21, 2016.
  • How sustainable is the ocean as a source of economic development? The Ocean Economy in 2030 examines the risks and uncertainties surrounding the future development of ocean industries, the innovations required in science and technology to support their progress, their potential contribution to green growth and some of the implications for ocean management.
  • OECD Environment Director Simon Upton presented a talk at Imperial College London on 21 April 2016. With the world awash in surplus oil and prices languishing around US$40 per barrel, how can governments step up efforts to transform the world’s energy systems in line with the Paris Agreement?
  • Happy 10th birthday to Twitter. This 2008 OECD Observer interview with Henry Copeland said you’d do well.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Once migrants reach Europe, countries face integration challenge: OECD's Thomas Liebig speaks to NPR's Audie Cornish.

  • Message from the International Space Station to COP21

  • The carbon clock is ticking: OECD’s Gurría on CNBC

  • If we want to reach zero net emissions by the end of the century, we must align our policies for a low-carbon economy, put a price on carbon everywhere, spend less subsidising fossil fuels and invest more in clean energy. OECD at #COP21 – OECD statement for #COP21
  • They are green and local --It’s a new generation of entrepreneurs in Kenya with big dreams of sustainable energy and the drive to see their innovative technologies throughout Africa. blogs.worldbank.org
  • Pole to Paris Project
  • In order to face global warming, Asia needs at least $40 billion per year, derived from both the public and private sector. Read how to bridge the climate financing gap on the Asian Bank of Development's website.
  • How can cities fight climate change?
    Discover projects in Denmark, Canada, Australia, Japan and Mexico.
  • Climate: What's changed, what hasn't, what we can do about it.
    Lecture by OECD Secretary-General Angel Gurría, hosted by the London School of Economics and Aviva Investors in association with ClimateWise, London, UK, 3 July 2015.
  • Is technological progress slowing down? Is it speeding up? At the OECD, we believe the research from our Future of ‪Productivity‬ project helps to resolve this paradox.
  • Is inequality bad for growth? That redistribution boosts economies is not established by the evidence says FT economics editor Chris Giles. Read more on www.ft.com.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .

Most Popular Articles

Poll

What issue are you most concerned about in 2016?

Unemployment
Euro crisis
International conflict
Global warming
Other

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2016