By Frank-Jürgen Richter
Formulating effective policy in our technologically advanced and globalised world has its challenges. It is within this context that the 2018 Horasis Global Meeting is taking place in Cascais, Portugal over 5-8th May. With over 600 world leaders and business leaders in attendance, this global meeting is about revitalisation and inspiration in a world of change, including new innovative solutions fit for the future, and coherent policies that take into consideration long-term trends rather than short-term gain.
One of the key areas the conference will attempt to address is business, and how to create systems and policies that genuinely work for in the interest of everyone rather than a select few. Indeed, in what would become a well-known thesis, David Ricardo postulated in 1817 that ‘comparative advantage’ was a universal concept that could lead to benefits for all. The concept suggests that ‘if the opportunity cost of making one unit of an item by a potential vendor (often overseas) is lower than the home country there is a logical potential for beneficial trade’. Two hundred years later we still struggle to understand this notion and we do not understand why.
With talk of international trade wars on the horizon, the following points outline the importance of comparative advantage and long-term planning in the modern context.
Traders instinctively use comparative advantage
Historically, buyers have practiced comparative advantage for millennia. The Celts, for instance, traded and bartered goods from the Atlantic to the Pacific before the Bronze Age; and earlier still obsidian was traded throughout the Levant and the Fertile Crescent.
Traders need standardisation
Second, the Industrial Revolution led engineers to understand ‘standardisation’ through which they could make bolts in one factory, nuts in another, and be confident in mating the two to join assemblies through holes drilled by a third party. This is little different to our current appreciation of Asia being the preferred assembly region for globally traded goods as they exert their comparative advantage, often in cheaper labour costs. Apple’s iPad/iPhone are good examples of intellectual property originating in the US (the basic electronic structure), components being sub-assembled in many nations with the final assembly undertaken in one of many factories in China for sale worldwide.
Where firms or a people can show they have excess resources and spare expertise someone will come to trade and, in a sense, take advantage of this fact for the benefit of all parties globally.
Protectionism nullifies globalisation
Thirdly, we accept it natural for leaders to protect their precious aspects, be these raw resources like water, or their perceived advantage in their productive capabilities as they try to maintain dominance and economic power. But over-protection was the disastrous consequence following the Great Depression. Fuzziness and a lack of inspiration by government created unease for business leaders who hesitated to invest in new machinery and processes to develop their enterprise, thus driving down economic growth. During the 1930s and then rapidly after World War 2, strong international trade and globalisation developed and the US achieved prominence as a global economic force. Not only that, its leaders recognised the need to initiate and support global fora like the UN, WTO and so on, to discuss and ameliorate international disputes and thus promote national and international stability.
Decades ago, while reviewing increasingly complex business processes, Eliot Jacques stated that shop-floor staff have little time free before the next task is upon them, while in contrast CEO’s are supposed to think long-term, to devise strategies to inspire their employees to work effectively for the future. The CEO’s vision will result in targeted capital expenditure that provides the best environment for all staff to provide quality goods on time for clients. Clearly the CEOs must be familiar with global products and practices that might be of benefit to their firm. And to understand that comparative advantage might demand hard decisions – like using off-shoring to make much of the product or services once done at home. Presently, in our tightly globalised world there are many unintended consequences of such actions, and all have their natural business cycles that require nurture not disruption.
Evolving technologies cause anxieties, evoking protectionism
Finally, we note that newer technologies are always a cause for anxiety, if not disruption. The academic studies of Artificial Intelligence led two Oxford dons, Carl Osborne and Michael Frey, to predict in 2013 that 45 percent of US jobs were at risk of being robotised. Their data will have included firms planning or already automating to remove their significant bottleneck – the staff. Staffs demand increasing salaries, training costs and local infrastructures to support them at work. Instead a robot, though costly to buy, will perform 24/7 with low infrastructure costs. Osborne and Frey stated “workers can be expected to resist new technologies, insofar that they make their skills obsolete and irreversibly reduce their expected earnings. The balance between job conservation and technological progress therefore, to a large extent, reflects the balance of power in society and how gains from technological progress are being distributed”.
Presently much discussion is focussed upon Intellectual Property Rights and the stealing of knowledge. Yet knowledge exchange is the premise upon which science is built – free exchange in academic papers, in conferences, or over a beer with colleagues: chance encounters can spark new searches, promoting new discoveries. That is at the forefront of science, but at the level of its application we need national and global stability to assure managers that the short-term disruption while new services are implemented will lead to future benefits. The current waves of financial uncertainty and trade-war rhetoric delays necessary capital expenditures.
Visionary reflection is vital
We must find a solution to short-termism. The Horasis Global Meeting hopes that the discussions by government leaders, CEOs of multi-national enterprises and civic leaders will create a ‘road-map’ to outline potential ways forward that will ‘Inspire our Future’. Many of these leaders have a long history of governing through turbulent times as they have honed their skills in high-level jobs in firms located across the globe. They understand inclinations towards protectionism, comparative advantage and systemic planning for the long-term while working in the here-and-now in a variety of cultures, each with their norms and geo-political expectations. These leaders are not passive entities, and I hope together they will create an Inspiring future Viewpoint.
Our desired outcome is not one of ‘least controversial’ or ‘lowest common denominator’ but one that absorbs and celebrates the cultural and geo-politic differences that abound. Many international players will be represented at the Global Meeting – they are capable to hearing and understanding the many arguments. Let us hope that a single predominantly national response is not the outcome posited to ‘Inspire our Future’ as we are the people of the world and a global response is needed.
Frank-Jürgen Richter is Founder and Chairman of Horasis, a global visions community. Horasis hosts the Horasis Global Meeting in Cascais, Portugal over 5-8 May.