The presentation is thought provoking with Galloway predicting many of the social media platforms are doomed to either low returns or failure.
Galloway is particularly scathing of Pinterest: “They were the leader in the visual web, but they’ve been blown away by Instagram”. Instagram’s success, Galloway believes is driven by the shift to visual communications on the net.
The biggest takeaway though is Galloway’s prediction that the middle class is in decline. That has great ramifications for all businesses built upon the Twentieth Century consumer model.
Last week the Finnish Prime Minister, Alexander Stubb, raised eyebrows with his suggestion that Apple killed the country’s economy with the iPhone putting Nokia out of business and the iPad reducing global demand for paper.
The real reason for Finland’s immediate problems is a lack of diversity; any country dependent upon one or two businesses or industries is going to be vulnerable should markets move against them.
In the longer term though the problems facing Finland are similar to those across the western world; an aging population, shrinking workforce and tepid export markets.
Finland’s real problems are our problems. How the Nordic nation deals with them will provide some valuable lessons to us all.
The problem facing commentators on the Chinese economy is a lack of clear narrative and the rest of the world needs to understand the story believes economist Patrick Chovanec.
“There’s a kind of schizophrenia about the Chinese economy,” says Chovanec who describes how the news swings from extremes of all good news to dire warnings. This, he believes, is because of a lack of understanding of the processes underpinning the country’s changing position.
Comparisons with Japan
China’s growth has been underpinned by export lead growth model which is a very good way for a poor country to become rich quickly but reaches limits when the exporters’ markets become saturated and the buyer countries can no longer buy.
This was the dilemma Japan hit in the 1990s and Chovanec sees similarities which happened at an earlier stage of China’s economic development because of its far greater size.
In another respect is the cost of labour which sees the country in the same position as Japan in the 1960s where where manufacturing started moving to Taiwan, South Korea and Hong Kong due to high Japanese wages.
Cai points out manufacturing is already shifting out of China with Vietnam being a favourite destination.
This has already had an impact on companies’ decisions to manufacture items in China. In 2000, China made 40 per cent of all Nike shoes, while Vietnam made 13 per cent. Fast-forward to 2013, and China’s production share was 30 per cent, Vietnam’s increased to 42 per cent.
Vietnam however has its own problems and Cai sees China having advantages in having superior infrastructure, integrated supply chains, and a better educated workforce that will slow relocations.
Building productivity
Chovanec is more optimistic about the Chinese economy seeing bringing sectors like agriculture and medicine up to Western standards of productivity as potential growth areas for China.
“Having worked in China for many years, I see a lot of productivity gains across the Chinese economy.”
Many of the earlier productivity gains were low hanging fruit – labour was cheap making it easy to improve productivity. As workers become higher paid, that low hanging fruit is gone with reforms harder to implement along with many more affluent interests who would be losers in a rebalanced economy.
Among the losers in the transition from today’s economy would be property developers and export focused manufacturers while winners would be retailers and service industries.
The switch to consumption
In his view, China is capable of making the transition: “The most precious global commodity is domestic demand,” Chovanec says. “China has that cushion to invest in the face of fall in consumption, that doesn’t have to mean a fall in Chinese living standards.”
For the rest of the world the question Chovanec believes has to be asked is what will that consumption led Chinese economy look like and what does it mean for those with a stake in China?
“Other countries are going to be winners and losers from China’s rebalancing. You have to think about what you want to be.”
Australia has a particularly difficult problem in the face of a rebalanced China, Chovanec believes.
“The problem for Australia is that the country has been the supplier to China’s investment boom. If China’s investment boom comes to an end then Australia no longer has no market.”
Optimistism and the future
Despite the challenges Chovanec is optimistic about China. “My experience in going to China in 1986 is that the Chinese government and Communist Party deserve a lot of credit for getting out of the way.”
The success of China’s economy over the last thirty years has been driven from the grass roots; “this was a bottom up process, not a top down model.” Chovanec says.
Unlike many of the populist writers on China, not to mention more hysterical politicians and commentators, Chovanec provides a nuanced view on the underlying dynamics and the evolution of the Chineses economy.
That we need to consider a world where the Chinese economy is very different is an important message and one that policy makers and business people need to think very carefully about.
Today Australian electronics retailer JB Hi Fi released its annual results. They confirm what’s been becoming apparent over the last year that tablet computer sales seem to have peaked.
A plateauing of tablet sales is bad news for retailers like JB whose stock price fell by 8% on the news.
It’s not surprising that tablet computer sales have peaked as the growth had been spectacular and, unlike PCs of a decade ago, there isn’t an obvious five year replacement cycle.
That the old PC industry business model doesn’t apply to tablets is why Apple is focusing on other revenue sources like the App Store and internet of things plays such as HomeKit and HealthKit.
Once again, the industry leaders are finding they have to pivot to stay up with a rapidly evolving market.
The other notable point from JB’s management was that Australian consumer confidence is tanking, which might indicate the economy is entering its first recession in twenty years.
If it is true that the Aussie economy is entering a recession, then it might be time for the adults to take charge in a very immature government. Some of the Liberal Party’s pampered princelings may have to start earning their salaries soon.
Last Friday the Global Innovation Index was released rating nations on their ability to adapt and compete in today’s global economy, the authors though believe the measure is more than just economics.
The Global Innovation Index is a joint venture between Cornell University, INSEAD, and the World Intellectual Property Organization which measures 81 economic factors that across 143 countries.
Its release in Sydney last week was part of the B20 conference – the business offshoot of the G20 Heads of Government meeting taking place in Cairns later this year.
European countries top the list with Switzerland, the United Kingdom, Finland and the Netherlands making up the leading five. The US and Singapore break the European monopoly at the sixth and seventh positions.
As the results indicate, rich countries have a natural advantage in the index with index scores tracking national GDP – the highest ranked middle income country is China at 29th and the leading low income nation is Kenya at 85.
Innovation index versus GDP
Kenya, and Sub Sahara Africa in general, is one of the highlights of this year’s report with with countries in the regions being nominated as ‘innovation learners’ with them performing above their expected level of GDP.
“What we find in Africa is growth rates are stabilising,” says Francis Gurry, the Director General of WIPO in discussing the report. “That creates the space for better policy and investments.”
Smaller is better
A key finding in the report is that smaller countries tend to perform better; “there’s a slight bias in the index,” says Gurry “as there’s more evenness across the economy.”
This works against larger countries like the United States while favouring countries such as Switzerland and Singapore.
Being affected by the 2008 financial crisis doesn’t help economies either; “the countries you see on top like Switzerland and the Nordic countries have been less affected than countries like Spain and Greece” says Bruno Lanvin, the Executive Director of the ISEAD Global Index.
Europe’s growing divergence
“Yet Europe remains a land of innovation,” continues Lanvin. “Europe has no choice, it is an aging economy and it has to innovate its way out.”
“A divide has been recreated within Europe, the whole European edifice has been a terrific machine for convergence. This has disappeared with the crisis where we see a new divergence.”
“We see countries like Spain and Italy, not to mention Greece, where the proportion of research and development has been decreasing which has not been compensated by private investment.”
This lack of private investment is a concern that constantly came up in the B20 discussions; despite the world being awash with capital, little is finding its way into infrastructure funding and business lending.
Falling R&D spending
Another area causing concern for the index compliers is the falling rates of research and development spending, noting that support for R&D efforts seems to have lost momentum in some countries with most growth in this area over the near future expected to take place mostly in China, the Republic of Korea, and India.
Innovation by Region
Rank in Region
GII 2013 Overall Rank
Country Name
Central and Southern Asia
1
76
India
2
79
Kazakhstan
3
86
Bhutan
Sub-Saharan Africa
1
40
Mauritius
2
51
Seychelles
3
53
South Africa
Southeast Asia and Oceania
1
7
Singapore
2
10
Hong Kong (China)
3
16
Korea, Rep.
Latin America and the Caribbean
1
41
Barbados
2
46
Chile
3
52
Panama
Northern Africa and Western Asia
1
15
Israel
2
30
Cyprus
3
36
United Arab Emirates
Europe
1
1
Switzerland
2
2
United Kingdom
3
3
Sweden
Northern America
1
6
United States of America
2
12
Canada
While the index was notable for its stability among the top ranking countries, there were stand out performers with the United Kingdom charging from tenth in 2011 to third in 2013 and second this year.
Along with ethnic diversity, the advantages of having deep, varied economies and societies is emphasised by the report.
“When you’re measuring all of these, you’re measuring the ability of a country to compete;” says Gurry. “The intensity of competition will only increase between countries in respect to both regulatory regimes but also between enterprises.”
For all the talk about the importance of innovation Lanvin sees limits to what governments can do; “innovation is not a matter that can be decreed or implemented by governments alone, government can give the right signals and create an environment.”
Creating a mindset
“In the end it is the dynamics between business, government, academia and civil society that create the right mindset for a country to become an innovator,” continues Lanvin.
Lanvin also observes that innovation is about more than technology, “clearly technological innovation will remain a critical component, but you should expect to see social innovation and political innovation.”
“When we need to address the major challenges of this planet like the environment you need more than technological innovation; you need creativity, new mindset and new attitudes.”
