Around the Corner

Did you see it coming? Some thought they did.

Switzerland is now the most competitive economy in the world. According to the World Economic Forum’s Global Competitiveness Report just released on September 8, 2009, the US is now the world’s second most competitive economy followed by Singapore. Sweden and Denmark complete the top five.

I could say there’s some consolation that we were edged out by only a tenth of a point, but the long predicted decrease in our nation’s competitiveness as reflected in its rank in the Global Competitiveness Index (CGI) should give us reason to take stock of both cause and effect. Have the predictions of the National Academies' Rising Above the Gathering Storm report finally come true? Does the Rand Foundation really wear rose colored glasses as reported by the Information Technology Innovation Technology Foundation? Or can we disregard these warnings and assume that when the global economic crisis subsides the US will once again be the most competitive economy in the world? How important is our competitive rank? Like an athlete, is competitive success about training harder, or as I do on my bike, is it about going back to basics?

The GCI is just one indicator, but the research is well done and a close look at its pillars reveals very useful information about current US competitiveness. The most striking changes are in Basic Requirements and Financial Markets. The US dropped six points in Basic Requirements to 28th out of 133 countries surveyed. Basic Requirements is a sub-index of the GCI associated with low-innovation, factor-driven economies. Its four pillars are Institutions, Infrastructure, Macroeconomic Stability and Health and Primary Education. The global financial crisis resulted in a loss of a full 33 points in Macroeconomic Stability which brings the US down to 93/133. Can you imagine that puts us right between Gambia (92) and the Dominican Republic (94)?

Indicators within each pillar reveal more of the details. Strength of Auditing and Reporting Standards fell by 19, Efficacy of Corporate Boards by 8 and Protection of Shareholders Interests by 14. Troubling losses also occurred outside Basic Requirements. Soundness of Banks fell by 68 points. That puts us at 108/133, just behind Tanzania! Rounding out financial markets, Regulation of Securities and Exchanges fell by 27 points. Two other noticeable changes were a 15 point drop in Business Impact of Rules on Foreign Direct Investment and a 9 point drop in Foreign Direct Investment and Technology Transfer. Whether or not one agrees with these specific measures, it is clear that weak financial markets have taken a toll on U.S. competitiveness.

Despite these losses, the US retains its competitive advantage in the Innovation and Sophistication Factors sub-index. So we can coast, right? No, it’s actually in this pillar that we get our best indicators of how to assess US competitiveness against the National Academies and the ITIF predictions. Overall we lost some ground, but we did gain in one key indicator. We’re now fifth, up one since last year, in Availability of Scientists and Engineers. We lost the top rank to Switzerland in Quality of Scientific Research Institutions. We lost two places in Company Spending on R&D and we’re down one to third place in Utility Patents.

So did we see it coming? Well, we didn’t expect the financial crisis and that’s where the numbers seems to have affected our rank the most. On what we did see, the work of the National Academies and ITIF provide solid indicators of what may become long term trends if not properly addressed through science and technology policy. The good news is that’s already taking place. We haven’t lost much ground yet on these important indicators, but when it comes to competition losing ground is a serious issue. Whether riding my bike, or in national competitiveness there’s usually one safe bet: go back to basics.

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A few weeks ago, in my review of Kevin Kelly’s Out of Control, I contrasted hierarchical command structures with biological systems that are networks of cooperation. In Small Pieces Loosely Joined: A Unified Theory of the Web, David Weinberger, co-author of the Cluetrain Manifesto, examines how the World Wide Web provides the ideal infrastructure for networks of cooperation in today’s global information society.

Those of you who are following the Management Innovators Bookshelf series may have noticed that I skipped ahead to #7 on Gary Hamel’s essential reading list. I think you’ll agree the complementarity between Out of Control and Small Pieces justifies my choice. I’ll return to Hamel’s #3, the Age of Heretics by Art Kleiner later in the series.

Like a reflection in a mirror, Web infrastructure is ideal because it takes the same shape as the networks of cooperation that use it. Both the Web infrastructure and these networks of cooperation self-organize. And if we drew a picture of self organizing systems, whether physical or biological, they would have surprisingly similar shapes. Although we might assume they're random, they are very efficiently organized in a shape called scale-free. And they both look like Figure 1.

Figure 1

Like Kelly, Weinberger is hopeful. As we read in the final chapter of the book, Weinberger writes “The Web will have its deepest effect as an idea. Ideas don’t explode, they subvert. They take their time. And because they change the way we think, they are less visible than a newly paved national highway or the advent of wall sized television screens.” But Weinberger is also worried. He acknowledges disappointments like the dot-com bust, and he also recognizes that the Web can generate unrealistic expectations about the pace of change: “[…] answers can come quickly. The Web is indeed speeding up the pace by enabling ideas to be heard and discussed faster than ever before, but it takes more than a meme, or an idea virus to work through the implications of a change in bedrock concepts. It can take generations to transform our understanding of ourselves and the world.”

Weinberger writes that identity, space, time, perfection, togetherness, knowledge and matter all shape our experience on the web. And that experience defines a networked culture of cooperation whose collective behavior, like Kelly’s bee hive, is adaptive, distributed and organic. The group seems to possess a knowledge that surpasses the individual intelligence of any one member. While at the same time we preserve and even celebrate our individuality on the Web.

The Web is what we make it and we are what it makes us. The Web is a MirrorWorld. And Weinberger’s unified theory of the Web is a reflection of our culture in the Web.

We are Small Pieces, Loosely Joined.

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