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Forces Reshaping the World Economy
JEAN-FRANCOIS RISCHARD
Vice President, Finance and Private Sector Development,
World Bank
The world has entered a period of massive shifts in its economy. Among the
many changes likely to occur, China will be the world's largest economy by
2020; digital television and telephone systems will completely change the way
people and businesses communicate; and such traditional activities as deposit
banking may become shadows of their former selves. Behind these changes and
the reshaping of the world economy are two major forces: a technology revolu-
tion and an economic revolution.
TECHNOLOGY REVOLUTION
A cluster of innovations centered around telecommunications and informatics
has produced a revolution in information technology. Although this revolution is
still young, with the full blooming of digitalization and of full bandwidth exploi-
tation still some years away, it is a very powerful one. Three reasons are behind
this potency.
First, information technologies are helping to unleash the potential of other
technologies, creating subrevolutions in other areas. In transportation, for ex-
ample, the container revolution, associated with hub airports, low-cost cargoes,
and fast shipment methods, owes its existence to advances in information tech-
nology. Likewise, startling changes in high-performance materials, biotechnol-
ogy, and robotics, and in programming and software applications of every pos-
sible kind, have been made possible by the information technology revolution.
Second, these information technologies are about information flowing faster,
more generously, and less expensively throughout the planet. As a result, knowl
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edge is becoming an important factor in the economy, more important than raw
materials, capital, labor, or exchange rates.
And third, whereas earlier technology revolutions dealt with the transforma-
tion of matter or energy, the information technology revolution is all about time
and distance. It is no great surprise, then, that the technology revolution is pro-
ducing a companion revolution in business practices worldwide which can be
illustrated by five examples.
First, evident almost everywhere today are accelerated, flexible business
processes. Toyota, for example, has saved billions by adopting just-in-time in-
ventory methods. Clothing retailer Benetton has a complete reorder cycle of two
to three weeks the time that elapses between purchase of a pullover in New
York and the shipment of a replacement pullover manufactured in Sri Lanka.
This was unheard of several years ago.
A second aspect of new business practices is hypercompetitive purchasing
worldwide. Big U.S. department stores now solicit bids for cotton goods from 10
countries at a time. This was never the case before. Ford Motor Company is
reorganizing itself around the concept of the global car, for which parts purchas-
ing will be effected worldwide on a best-price basis. And electronic shopping
networks are popping up, using electronic interactive catalog systems.
Third, smaller units with smaller sizes, lower overheads, shorter feedback
loops are gaining the advantage over larger units. This trend will probably lead
to the reemergence of family firms and, in general, the emergence of healthy,
export-oriented, mid-sized firms. Big companies such as General Electric are
breaking themselves up into a collection of smaller enterprises in order to main-
tain that small enterprise spirit. And flatter organizations--that is, with fewer
hierarchical levels are in vogue. For example, ABB, a large company that pro-
duces electrical turbines, just recently reduced the number of layers between its
top management and the ranks.
A fourth aspect of this business practice revolution is the impending explo-
sion of remote services that once were considered untradable. SwissAir has its
revenue accounting done in Delhi. The Indian software industry already has
captured a $500 million piece of the total turnover of the industry. In Washing-
ton, some doctors dictate into a telephone memos, which are then typed in
Bangalore, India, in real time onto the doctors' computers in Washington. Even
Romania, long backward economically, already has scores of teleporting firms
in place.
Finally, there is the incredible flow of private capital $175 billion last
year into developing countries, pouring in very quickly without regard for
boundaries. (In the late 1800s, private capital flowed worldwide in this way.) As
a result, the scrutiny of the World Bank or the International Monetary Fund
(IMF) is being complemented by the scrutiny of private investors, who also are
strong disciplinarians when it comes to demanding good management, open
books, and disclosure.
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Marshaling Technology for Development
ECONOMIC REVOLUTION
In addition to the technology revolution, with all the changes it has meant for
business practices, there is the economic revolution, which has seen the massive
entry of large new players into the world economy. When the IMP and the World
Bank recalculated in 1993 the gross domestic products (GDPs) of all countries
using the purchasing power parity method (it is better than current exchange
rates), they were surprised to find that the non-member countries of the Organiza-
tion for Economic Cooperation and Development (OECD) accounted not for a
quarter of world GDP but approximately 46-47 percent, rising probably to about
50 percent if the black market economies are included. Moreover, in years past
similar growth rates were calculated for both OECD and non-OECD countries.
Now, however, the non-rich countries have growth rates that are two to three
percentage points higher than those of the OECD countries because they have
discovered capitalism and market-oriented policies. They also start from a lower
base and have younger populations than the fiscally challenged, aging OECD
countries.
When these two facts are put together, it means that two-thirds of the in-
creases in world GDP will come from the non-OECD countries the non-rich
developing and transition countries-indicating an enormous shift in business
opportunities toward the South and the East. Within this equation, China will
regain its number one position in 2020, 200 years after it lost the title; India is
poised for growth; Latin America will fare well despite the Mexican setback;
Poland had the highest growth rate in Europe last year; and even some isolated
countries in Africa and the Middle East are doing quite well. It has even been
calculated that in 2010 the middle class in Asia people earning $1 1,000-$12,000
a year will comprise 750 million people. The twenty-first century, then, will see
a replay for the developing world of what the 1950s and the 1960s were for
Europe and Japan. That is what the economic revolution is all about.
A GOLDEN AGE?
Together, the technology revolution and the economic revolution are pro-
ducing a completely new world economy that is high-speed, knowledge-driven,
global, and disciplinarian. For 4 billion of the world's people it could be the birth
of a Golden Age of sorts; for the first time they will have a serious opportunity to
catch up with the rest of the world. They may even be able to leapfrog ahead in
some areas. The planet, therefore, will become more balanced than it is today-
a time when 15 percent of the people are consuming 85 percent of the goods and
services. Another reason to believe in some kind of Golden Age is that the
information technology revolution is likely to be followed in a generation or so
by revolutions in biotechnology and solar energy.
It will, however, be a very stressful Golden Age because of tremendous
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demographic stresses as the world's population doubles over the next two genera-
tions. Environmental stresses in the form of deforestation, soil erosion, water and
air pollution, loss of fisheries, and toxic wastes will be a serious concern every-
where. Much of the pollution will stem from the use of fossil fuels to generate
energy. In the future, for example, India and China will account for two-thirds of
the increase in world energy consumption. To meet the demand of its people,
China will have to build one 1,000-megawatt power plant a month for the next 30
years, and most of them will be coal-based.
But to demographic and environmental stresses must be added a third kind of
stress: the race for competitiveness and the finish line keeps moving farther and
farther away. To compete in this race, rich and poor countries alike need three
things: agility, networking, and learning.
Agility is the leitmotif of this age, for firms as well as for enterprises. At the
firm level, some U.S. shirt companies have reportedly returned 20 percent of their
shirt production to the United States from the Far East because the turnaround
time of U.S. shirt manufacture is so much shorter. These companies found that
factor more important than the labor differentials with the Far East. An example
of government agility: Singapore's customs system has reduced the time required
to clear a ship through customs to 10 minutes by using electronic data inter-
change and other methods. Thus Singapore has now set the benchmark for agility
in this area, which must be matched by everyone else in the world.
Networking, or getting plugged into global webs of relationships, is some-
thing all countries will have to work on, and there are many tell-tale signs that this
is already happening. For example, strategic alliances in all their forms have
tripled since 1990. Another sign of the age is the emergence of networkers in the
form of big, cosmopolitan tribes such as the Sindhis in India and the overseas
Chinese. ~
Finally, countries will have to turn into learning nations because in the new
global economy static comparative advantages are not enough; it is important to
continually upgrade, learn, and stay with the flow. No one knows this better than
the Colombian flower industry. After managing, over 10 years, to build a suc-
cessful indeed, miraculous-export business that was selling half a billion dol-
lars a year in cut flowers to the United States, the Colombians are now struggling
to defend their market share and their profitability against Dutch and other ex-
porters, who have done a better job of upgrading their flower species, conserva-
tion methods, and transportation methods.
THE CHALLENGES FACING DEVELOPING COUNTRIES
AND THE DEVELOPMENT COMMUNITY
The developing countries face massive new challenges. Not only will they
have to deal with worsening population, environmental, and social problems, but
they also will have to meet the ever-rising competitiveness threshold, expressed
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in terms of agility, networking, and learning, if they want to grasp the unprec-
edented opportunities offered by the new world economy. All this adds up to a
future in which the distinction will be not just between rich and poor countries,
but between fast and slow countries, plugged-in and isolated countries, learning
and static countries. Thus the development job is not at all over; it is just becom-
ing more complicated. The new development paradigm calls for vigorous action
on three fronts: on the people and poverty front, on the environmental front, and
on the growth and competitiveness front through private sector development, but
also more generally through a kind of economy-wide pursuit of these higher
agility, networking, and learning standards.
Now 50 years old, the World Bank Group, which includes the International
Bank for Reconstruction and Development (IBRD), the International Development
Association (IDA), the International Finance Corporation (IFC), and the Multi-
lateral Investment Guarantee Agency (MIGA), is increasingly organizing itself
and its agenda along the three dimensions people and poverty, environment, and
growth and competitiveness to face the challenges of the new world economy.
The institution itself is undergoing major changes. Since World War II, the
World Bank Group has financed some 5,000 projects in 140 countries for a total
of $300 billion, all based on less than $10 billion of shareholders' capital paid
into the IBRD, which is the Group's main vehicle. The shareholders now number
178 near universality. Lending, however, has stagnated over the last five years,
in part because it is being replaced by private flows. Meanwhile, the Group is
becoming more and more involved in nonfinancial services as objective advis-
ers to governments, as best practice collectors and disseminators, as brokers, and
even as fiduciary agents. Thus, just as growth and development are becoming
more and more knowledge-intensive and less resource-intensive, the World Bank
Group is moving beyond its money role and assuming, in addition, the role of
purveyor of ideas and knowledge as it goes ahead. And it must do this with an
even more diversified set of clients than before. The Eastern European countries,
for example, have problems that differ drastically from those in Africa.
HOW CAN TECHNOLOGY HELP?
Today, technology probably has a bigger role to play in developing countries
than at any time. Poverty can be tackled with the new technologies available in
the fields of health care, population planning, basic education, food and agricul-
ture, and infrastructure and basic services. For environmental problems, not only
are there new technologies, but even existing ones will make a big difference in,
for example, energy efficiency, exploration of new forms of energy, better forms
of transportation, and new methods of fertilization. As for growth and competi-
tiveness, the advanced telecommunications and informatics technologies will
permit leapfrogging, as will the new distance education methods, production
processes, and teleporting.
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But how does one bring these technologies to bear on development prob-
lems? First, the developing countries must raise their leaders' and their popula-
tions' awareness of the imperatives of the new world economy and of the unprec-
edented role of new technological opportunities. Second, they must create an
environment that is receptive to new technologies and to innovation. This will
require:
· Ensuring macroeconomic, legal, and political stability and predictability
· Adopting policies that are receptive to everything that is open-open
trade, foreign direct investment, foreign licensing, joint ventures
· Encouraging support institutions of the smart kind, particularly technical
schools, business schools, applied research labs that serve as lookout posts for
what is happening elsewhere, technology or productivity centers, and standards
and patent institutes
Building adequate power, information, transport, and financial infrastruc
.
lures
· Enacting private sector-friendly policies that help to bring about a vibrant
home base for enterprises, and, most important, for clusters of related enterprises.
Finally, to bring technology to bear on development problems a developing
country must bring in the know-how and successfully ensure its implementa-
tion that is, its incorporation into local production, marketing, and service pro-
cesses. But this will be a very complicated undertaking.
In contrast, it is no longer as important to create local capabilities in basic
research as it was two decades ago. Many of today's new technologies are more
easily available and more sociable-some might even say promiscuous than in
the past. For example, the knowledge and software tools for designing new cir-
cuits can be taught in a classroom with a CD-ROM or downloaded over a tele-
phone line.
OBJECTIVES OF THIS SYMPOSIUM
The purpose of the Symposium on Marshaling Technology for Development
is to find ways in which the National Academy of Sciences and the World Bank
Group can complement each other for the benefit of the developing countries. In
such a strategic alliance between these two institutions, the National Academy of
Sciences, through its operating arm, the National Research Council, could con-
tribute its knowledge of new technological developments, their potential impacts,
and what is needed to implement them. The Academy also has access to a net-
work of researchers and scientists around the world.
The World Bank Group could contribute to such an alliance its knowledge of
developing country conditions and institutions, as well as its access to a world-
wide network of government and nongovernment institutions, development agen-
cies, and business associations. Working together, these two institutions could
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Marshaling Technology for Development
offer a dynamic combination able to make a significant contribution to the devel-
oping countries as they face the unprecedented opportunities and challenges of
the new world economy.
The specific objectives of this symposium are very practical: to get a sense
of the trends and the impacts of new technologies in all the sectors that are
important; to create greater awareness of the opportunities, particularly for those
in the development community who have been lagging behind; to explore pos-
sible roles for the various actors governments, private sectors, development
agencies, and scientific institutions; and to determine what intelligent initiatives
could be mounted, either in a sector or across sectors. But one of the nicest
outcomes of this symposium would be an ongoing fruitful relationship between
the two sponsoring institutions, the World Bank Group and the National Acad-
emy of Sciences.
NOTE
1. For a fascinating description of this phenomenon, see Joel Klotkin, Tribes: How Race, Reli-
gion and Identity Determine Success in the New Global Economy (New York: Random House,
1992).
Representative terms from entire chapter:
technology revolution
