“As has often been noted, the world’s economy has been shapedsince the early 1980s by three major shifts: an embrace of opentrade; the digital network revolution, and a striking increase inpolitical stability”, Samuel Palmisano explained to a high levelBrussels audience.
“This created enormous – I would say irresistible – incentivesfor investment, manufacturing and jobs to move all over the world.That has re-ordered industries and rebalanced economies. It hasalso lifted half a billion people into the middle class.”
The broad rise of the middle class happened not just in thedeveloped countries, but in developing countries alike. The fact isthat the developing world has reached the end of the easy path torising GDP and per capita income. Palmisano calls this the end of’Global Integration Act I’. Now the curtain is lifted for ‘GlobalIntegration Act II’.
A higher plateau
Palmisano: “The arena is different, radically more competitive,requiring higher degrees of regulation and higher standards, wherethere are higher expectations for everything – from product andservice quality, to working conditions, to protection ofintellectual property and the rule of law. In other words, tosucceed in this new global economy, you need to take your game to anew level. The playing field may be flat… but it isn’t at sealevel. The game is moving to a higher plateau.”
“Furthermore the world’s mature economies have been piling upmassive deficits – not just financial, but also deficits ofcompetitiveness. Their populations were aging. Their infrastructurewas rusting. Their education systems were becoming increasingly outof date. Their laws and governments were not keeping up with thepace of change.”
“Now, the bill has come due – for all those deficits, at once.Just as all emerging markets are being hit at once by the middleincome trap… so the developed world finds itself having to addressall of its huge structural overhangs, and with urgency, thanks tothe ongoing financial crisis.”
Cost-cut to competitiveness
Given this huge mess up, how to proceed according to IBM chiefPalmisano? First, he expects investments to “improve societiescompetitive muscle tone. We cannot cost-cut our way tocompetitiveness.” Second, every economy must have a compelling -and differentiating – value proposition.
“How do you compete in a world where there is no “outsourcing” -because there is no longer an “out”? The answer is simple: You haveto be better at something. That’s how free trade and comparativeadvantage work. So, cities and countries now have to address abasic question – one that businesses must answer daily: What is ourunique value proposition?”
Third, Palmisano believes that government should become smarter.Not leaner or bigger, but smarter. One way of reaching this is bytaking the city as a focal point: “If you’re a mayor, or a policechief, or the head of an urban school system, you don’t have theluxury of ideology. The decisions you make are immediately visiblein people’s lives. If these city leaders do share an ideology, itis this: ‘We believe in a smarter way to get things done’.” Ournational leaders should learn from this.
The complete speech of IBM-chairman Samuel J. Palmisano canbe found