RE-CREATING THE ECONOMIC ECOSYSTEM THAT MADE THE US THE NO. 1 ECONOMIC POWERHOUSE OF THE WORLD:

THE ECOSYSTEM FOR SUCCESS IN THE

KNOWLEDGE ECONOMY: A PRIMER

Most people would agree that the world's economy is at a gripping tipping point. The ship is badly leaking and the navigators have by and large, lost their compass. Why? In short: because the economic ecosystems of most countries have gone awry, loosing sight of their 1st principles, and because of the fact that - for better or for worse - the world economy is indeed not only globalized, but it has become globalized in real time: a fact policy makers and business people ignore at their peril.

Economies are all about economic conditions; put another way, they are all about how systems construct the business climate - favorable or unfavorable for growth. This post will discuss how to re-create ecosystems that optimize success in the global knowledge economy (some have even called it the "intelligence" economy). 

I use the word "re-create" on purpose, because there once was a time when certain ecosystems led to great success; among them, they caused the United States to become the world's No. 1 economic power, and spawned the various economic "miracles:" the asian tigers, the celt, the spanish, and the tequila miracles, to mention some. The mix of private conducts and public policies interacted and came together to create the best environment for business - and standards of living - to grow. 

So what went wrong? Many factors have been at work for some time now gnawing at the foundations upon which those ecosystems were built - but that is the subject of another post. This post is about what can be done looking forward to right the ships and get back on course.

The Current Exasperating Situation

Even though technically the financial crisis of 2008 is over, nevertheless, economies the world over are not growing - indeed, in some cases are even contracting - and jobs continue to be very difficult to find. Alongside, many societies are undergoing wrenching cultural transformations which impact economic conditions. Various solutions have been attempted by different countries, from austerity to Keynesian stimuli, but with very little success, if any - if job growth is the measuring stick. 

The Problem: Jobs Aren't Created by Magic

The problem is indeed mis-diagnosing the problem as the dearth of jobs vs. the dearth of economic growth and how it is achieved. Jobs aren't created by waving a magic wand. While undoubtedly governments can - and do - create jobs of great importance and helpful to society, the value-added jobs which create wealth and lift standards of living, are created by the private sector - by start-ups and business which are growing. Indeed, a study has shown that the best job-creators are new businesses. 

Thus, to focus exclusively on jobs is putting the cart before the horse. If you want more jobs, you need more start-ups, more new businesses, and more businesses hiring. If you want them to hire, you need to create the conditions - the ecosystem - that allow them to flourish. And if you need economic growth, it all begins with being competitive at all levels: individually, enterprise-wise, institutionally, educationally, society-wise, country-wise.

Viewed from that perspective, I would argue that what we are witnessing today is a worldwide crisis in competitiveness, where even developed countries have forgotten what made them developed to begin with. In today's knowledge economy, to be successful, you simply have to be competitive - in the best sense of the word. Period. End of story. But, what exactly does that mean? Different people define being competitive different ways, depending upon the context in which they operate. However, stripped down to basics, at its core, in economic terms, it means being able to provide value-added products and/or services at the best price people will buy. Sounds like an easy platitude, but it's not.

As with jobs, competitiveness also doesn't happen by magic: it is the result of a confluence of many inter-relating factors, coming together in a pro-active, synchronized, manner. The best way to envisage it may be through the use of the following mind map: 

Competitiveness = function of creativity + innovation

                                                        free competition  

As can be appreciated from the mind map, there are essentially 5 pillars that if mishandled either in toto or separately, can wreck competitiveness, but which with the right formula, *together* can practically assure it - indeed just focusing on fixing one pillar won't do it" they ALL have to work TOGETHER to ensure success. The pillars are:

1. Individuals

2. Society

3. Education - understood in its broadest sense, including family, media, sports, religion, schooling

4. Private Sector

5. The State

It All Starts with the *Individual*

To become truly competitive, pretty much all countries and societies today require a profound transformation in and of all 5 pillars, along the lines described below. Having said that, no company, no society, no country will ever become competitive if it doesn't focus first on making its individual citizens competitive. If they are competitive, it not only means that all the other pillars are synchronized and working together to achieve that result, but that each rung in turn - companies, institutions, societies and countries are more competitive than not - and everything works.  Competitive products/services practically sell themselves, giving rise to a dynamic domestic economy, where wealth is created, which in turns pays more taxes. Conversely, when a society does not have competitive individuals, then it's a *HUGE* red flag that something is terribly wrong with the *entire* system - and no magic wand and no attempt to just fix one of the pillars while leaving the status quo as to the rest, will make it work, no matter how hard governments try.

So what is a competitive individual? Producing value-added products/services at the best price that people will buy, requires creativity and innovation - which bloom best in the presence of a free and healthy competition, framed by a rule of law which applies to all equally, and based upon the freedom of each individual to make economic decisions on their own. Thus the importance of forming creative, innovating individuals, free to make their own decisions, and bestowed with the following characteristics:

1. independent, highly determined, perseverant, of high self-esteem who exude belief in themselves 

2. self-sufficient nonconformists of high integrity, pro-active, bold, who can't wait to act on their own initiative; flexible, optimistic, with open minds, able to quickly respond to unforeseen events, unafraid to take measured risks, who learn from, and take responsibility for, their mistakes - and most importantly, who  know how to pick themselves up and keep going

3. responsible and dependable, who don't shrink from hard work, who know how to work in a team, yet who also know how to focus like a laser-beam on a project; who understand that efforting is not what matters, but results

4. who can think on their feet - and can do so analytically and critically - and can articulate their postures in writing and orally; who, on the other hand, are keenly observant and can think creatively and innovatively

5. who are possessed of a great intellectual curiosity, love to continually learn new things, and always seek to better themselves

6. with a positive outlook on life, who project enthusiasm and passion, yet can handle ambiguity, uncertainty and criticism

7. who enjoy competing within the rules, and enjoy playing sports ethically and honestly

8. who have a good sense of humor and don't take themselves too seriously but yes their work

9. who through their life experiences, can form judgments that distinguish between the wheat and the chaff 

10. and, perhaps, most importantly, who have great people skills derived from a deep understanding of human psychology, who like people, who are moved to help others and are able to perceive how they can do so, and who handle all their human relations with a great generosity of spirit.

These are the kinds of individuals societies should strive to form as a matter of course. But, if you recall, we spoke of the current need to transform. Thus, societies need to have agents of change. Given the complexities of the transformations required by today's globalized economy, those agents - almost by definition - have to be a very special kind of leader. And they need to be found in all walks of life and all types of institutions across the board. Some may actively seek to be agents of change; others may have it thrust upon them. Some just can't help themselves.

Studies have apparently shown that our brains are wired such that if faced with a comfortable situation we know and a new one we don't know, our "fight-or-flight" reflex ALWAYS defaults to the status quo. So, you can imagine how hard it can be for creative, innovative people to try to change things! Thus, agents of change can almost always count on facing head winds - sometimes *severe* head winds - and institutional antibodies. And the greater the change, the greater the resistance. Plus, should those agents of change succeed against all odds, they might receive praise, but just as often, precisely because they succeeded, they can also be the objects of attacks - some quite vicious. 

Consequently, being an agent of big changes definitely requires a very thick skin and is not for the faint hearted. Clearly they need to have a deep sense of self and great confidence both in themselves and in their vision. If it's generally a good thing to be determined, an agent of change has to be *doubly* determined, optimistic, enthusiastic, and *incredibly* perseverant - especially when his or her transformative efforts are sabotaged, laughed at, attacked. Judgment becomes key, knowing which battles are worth fighting and which are not, so as to ultimately win the war - without it becoming a phyrric victory.

Sooo, How Do You Form These Individuals?

No Surprise: Education is Key

Education, as many have corrected stated, is *the* key 1st rung of a competitive ecosystem. Indeed, some have posited that in today's knowledge economy the widening gap between the have's and the have-not's actually boils down to a matter of education - having the requisite knowledge and skills to compete successfully. Indeed, while there may be other factors at work, such as a growing crony capitalism, etc., etc., knowledge - whether acquired institutionally or auto-didactically - by definition is key in a knowledge economy. If you don't have it, moving up the socio-economic ladder is going to be extremely difficult.

In this regard, we are speaking about "education" understood in its broadest sense, where all societal actors converge and participate - starting at home. High esteem and all the other qualities noted above, get their first impetus from parents. (Hence the problem with deteriorating family structures.) However, it must be taken into account that their efforts are heavily seconded by the messages individuals receive from the media - news, entertainment, sports - their peers, religion, sports, and now days from the internet and all social media. Therefore the importance that all of these influencers project positive messages that reinforce the values and characteristics described above. Indeed, once upon a time, in the U.S., they did so - and the U.S. became the economic powerhouse the world has wanted to emulate. Regrettably they have now been substituted with messages of violence, coarse language, gratuitous sex, and cutting corners as a way of getting ahead. Need to go back to first principles.

Speaking of first principles, after parents, the next most important influencer has to be institutional education - schools - where kids spend the first stage of their lives and where they become "socialized." Judging from the discourse on the matter, pretty much all agree that it needs to be profoundly transformed to meet the needs of the globalized economy of the 21st century. According to Peter Levine, partner at Andreesen Horowitz, and member of the Board of Udacity, "Education hasn't changed for 1,000 years," as cited by Max Chafkin in his article "Udacity's SEBASTIAN THRUN, GODFATHER OF FREE ONLINE EDUCATION, CHANGES COURSE,"
 FastCompany of Nov, 14, 2013, 8.30am.

Indeed, in an economy that requires creativity, the current one-size-fits-all factory model hardly encourages it. On the contrary, it kills it. Children learn differently, and the emphasis needs to shift from teaching to individual learning. In some countries and institutions, children need to stop just being the necessary excuse for the advancement of careers of officials, and being treated like they are in a penitentiary instead of a school. In emerging countries, higher education needs to undertake a much greater multi-disciplinary approach, among many other things. In developed countries, the same applies at the graduate level.

Education is a huge topic - indeed, some have argued that in the U.S. we are about to witness the burst of an educational bubble which will make the 2008 financial bubble look like child play - best left to another post. For purposes of this post, suffice it to say that as the kingpin of competitivity, societies desperately need to re-think education, pretty much going back to a tabula rasa. The good news is that worldwide there are strong winds of reform. They need to both continue and continue at an accelerated pace.

"Corporate Culture"

After schooling, individuals spend the majority of their time at work. Thus the importance of "culture" in the workplace. We have already stated that individuals are the kingpins to competitivity, but whether they are allowed to take the initiative to be creative, innovative and productive, depends a great deal on how the edicts, vision and mission of the workplace are communicated and enforced. 

It all starts at the top. A myriad of posters all extolling an entrepreneurial culture, etc., are useless if top management contradicts them with their daily actions. The truly successful companies are those which (1) look for, and retain the best Talent, [thoroughly agree with Jim Collins on the subject] and (2) understand that their employees are their first customers: howsoever their employees are treated, so will they treat the company's customers. The greater the space afforded Talent to realize themselves professionally, the more engaged and productive they will be. Conversely, if employees feel undervalued, that their ideas are not taken into consideration or are constantly shot down and/or plagiarized, that they are being micro-managed at every turn (which gives them the message that they are not to be trusted to make decisions on their own), and labor under excessive loads of work all under pressure and all "top" priority, the enterprise will have a very difficult time just competing, let alone being successful.

Truly competitive individuals will always find a way to remain so and cause their companies to become so or more so. But there's a limit. They are always free to move to another company that better values their contributions, or they can go start a company of their own. Thus, companies need to help themselves by transforming their environment to attract and retain more such competitive individuals. Egos need to be left at the door. Hiring the best Talent should not be threatening - as it currently is in many companies in emerging economies. Sometimes companies need to hire attitude more than know-how, but they can also help themselves there, by training those employees with positive reinforcement to become more competitive. At the end of the day, being competitive for any business is not a luxury: it's a matter of survival - and the key to sustainable success. 

The State

Business as a whole has its own cycle, and specific businesses with the right Talent in particular, can always find ways to be competitive notwithstanding what the state is or is not doing. Having said that, however, the State can - and does - play an important role in fostering or hindering economic growth. Beyond the basic role of the State as the provider of infrastructure and security, with regard to the economy, the key role of the State is to provide an even playing field which fosters an ecosystem of competitivity which leads to economic growth. Capitalism and entrepreneurship flourish best when they are framed by a rule of law which applies to all equally based upon merit: much like rugby games which appear to be free-for-alls, nevertheless, there are a set of basic rules which must be followed. Ditto for capitalism: there does have to be a basic set of rules that make for fair competition. Those rules have to include the checks provided by ethics and moral considerations.

In the absence of such rules and especially when governments play favorites - especially with their cronies - and themselves ignore the rule of law, using existing laws more as "suggestions," what remains can hardly be called capitalism (nor, for that matter, a true democracy). Along the same lines, excessive regulation, especially when based upon political instead of economic considerations, enforced in an abusive manner is the perfect antidote to economic growth. A bureaucracy which has lost its appreciation that it serves the public and not the other way around, and which has lost its tether to the pulse of the ordinary citizen, is another roadblock to the economic advancement of any nation. Corruption in particular is nefarious: no rule of law can truly exist if it is consistently undermined by corruption. Furthermore, it gnaws at the credibility of the State and its institutions, which can be a grave matter.

Conversely, freedom is the absolute kingpin of economic growth. Within a basic and equitable legal framework (which provides equality of opportunity), States must allow individuals the freedom to make their own economic decisions and follow their own choices. When you inhibit freedom of choice, you kill opportunity and you kill creativity. When you do away with creativity, entrepreneurship and innovation likewise go by the wayside. When you do away with creativity and innovation, a society stagnates. And when it stagnates it stops being competitive, and the standards of living of its people decline. A perfect death spiral and a process regrettably taking place in many countries today. A new dark ages in the making? Let's fervently hope not.

Conclusion: Everyone Needs to Pull Together

In the law, it is said that bad facts make for bad laws. In the economy, poor conditions make for bad prescriptions and the siren songs of protectionism, collectivism, and more onerous regulations sound appealing. However, all one need do is study history to observe that those remedies only kill the goose that laid the golden egg. And those who do not heed those lessons, are - as they say - doomed to repeat them. On the other hand, if all actors in the ecosystem get back on the same page to create competitive individuals, who in turn create competitive enterprises and institutions, which in turn create competitive countries, there is a more than better chance that the tide will lift all boats towards a better standard of living. The stakes couldn't be higher and history has proved that that is the winning formula. Why not pursue a new renaissance?