Things will not be the same post-crisis as they have been before. Innovation and technology will dominate the successful markets of the future
When the financial and economic crisis of 2007-08 struck, people were reminded of the Great Depression which began in 1929-30 with catastrophic consequences for vast swathes of populations in the directly affected countries.
The gloom which visited upon the world for many years in its wake was finally dealt with. It involved the application of many innovations and development of new markets. A surge in demand was associated with new creations such as the development of chemical-based materials like Teflon, Nylon and synthetic rubber, development of the television, and the expansion of the public road network. All of these paved the way for advances in distribution and transportation, which gave a new lurch to economic growth after the Second World war.
During the more recent crisis, at first the world’s biggest financial institutions were paralysed. Business sentiment evaporated soon enough especially in the West. Even the few who had seen the catastrophe coming had not realised the scale of its impact, especially so on the millions who were to lose their jobs, houses, pensions and even social moorings in the fallout from the catastrophe. Most people didn’t even have an idea of how deeply mired in irrecoverable assets were global banks and other financial institutions entangled in the crisis (it is still the case).
More than five years after the crisis of 2007-08, the question is being asked as to when and how the bad tide will reverse. Hopes were placed on emerging markets (China, India, Russia, Brazil, Turkey, Indonesia, South Africa, etc.) as the locomotives which would pull the world economy out of the doldrums. This did not materialize since the emerging markets started plunging into lower growth rates after 2009 and are still there.
There were signs last year that the US, the world’s largest economy accounting for about 20% of global GDP, was picking up by growing at about 2% accompanied by successively falling rates of unemployment (from 8.5% to 7.1% latest). Towards the latter half of last year, there were indications that the UK was also pulling out, better than the Euro zone, which was collectively performing at less than 1% growth. Hopes are coming back therefore that the world economy with a forecast rate of growth of 3.5% in 2014 and maybe 4% in 2015, might be showing the early signs of a pickup from the crisis.
The Case for Mauritius
This kind of turnaround of key economies is what we in Mauritius have been betting upon. We have been hoping that we will recuperate our traditional export markets once they embark on a solid phase of their own growth. A country like Mauritius with a relatively small internal market would be right to count on favourable turnarounds of external markets to put itself firmly back in the saddle.
But there are market dynamics which operate and which force countries to adapt to changed circumstances in trading. Without adapting ourselves to how our counterparties in other countries will change past the economic recovery, we would not be able to make it again to them as if we assumed that nothing had changed in the meantime. This is where Mauritius would need to do its homework to fit in with the transformation our trade partners would be undergoing from pre-crisis to the post-crisis phase.
It may be said that in the case of the UK, its recent positive rates of growth actually reflect a pickup of demand (driven by consumers). It is not supply-driven (by investors, industries and firms). Demand can usually pick up seasonally and grow the economy for some time on the back of prevailing extremely easy monetary conditions. For growth to become truly sustained, it is the supply side which should be the trigger especially after a prolonged crisis like the present one. In both the UK and the US, supply-side growth driven by business investment has not been the major factor contributing to growth so far. Monetary easing has been supportive of the recorded growth in both the US and the UK.
A day will come when monetary easing will have to be phased out as the risk of inflation will re-emerge in those countries. This is where new and innovative businesses will come up on the stage to unleash a new phase of sustained growth as it happened when the bad effects of the Great Recession of 1929-30 phased out finally. By that time, businesses would have stopped acting as they are doing now: concentrating on cutting costs. They would be investing again to drive out more production and share the productivity gains with labour in an attempt to rebalance the equation between demand and supply which has gone out of kilter for now.
Something extraordinary is going on in advanced economies of the world at the moment on the way to this rebalancing of supply and demand. Technology is coming on with much greater force than ever before towards redefining future products and services. It has been happening for some time already but it is yet to gather an unprecedented scale across the board. Books, sundry articles of daily use, online booking of hotels and residences and so on have been happening on an increasing scale for quite some time now. Something even more overturning is on the way on global production platforms.
The Tech Revolution
The tech revolution which is now on the way will get imbibed in almost all production and will flow out to all countries thanks to the current digital revolution based the mother of all production platforms, the internet, which is now fast, universal and wireless. Every piece of equipment, every service (not least tourism), even the most mundane of activities will incorporate the finest available technology for it to be saleable on global markets. Computing power and digital storage on an unprecedented scale are invading all lines of production, saving on costs, redefining products, bringing new and sophisticated markets from anywhere around the world within reach for those countries which take the pains to reform and go on higher platforms for their lines of production.
Realizing the transformational impact of technology, a place like Singapore which has not spared any opportunity to join this bandwagon so far, is busy pushing for new entrepreneurial start-ups in this domain. It is offering grants of up to S$50,000 per incubator for each start-up entrepreneur. For every S$1 accredited investors put in an incubator, its Research Foundation is topping up by adding S$5. Medical and non-IT firms will get even more money. The result: Singapore has 160 internet firms per million inhabitants and is ahead of countries like the Netherlands and Spain in this respect. One may ask: why a country like Singapore which has relied so much on multinational companies for its needs, is embracing the tech revolution with so much dedication? The answer is simple: production talent will move on and flow out in the new world to all successful places from London to Nairobi, Addis Ababa and Amman in Jordan. They are all busy building up the edge for the shape of things to come.
Mauritius would do well to join the club. We must realize that things will not be the same post-crisis as they have been before. Innovation and technology will dominate the successful markets of the future just as manufacturing with urbanisation turned around the world of the past to escape the gravitational pull of practices which became increasingly obsolete such as the handloom. We cannot negotiate our future successfully without contemplating seriously and putting into our production processes the key ingredients that will be fundamental to future patterns of growth and development across the world.
Although we came late to textile manufacturing and to IT and financial services, we’ve been able to catch up and we’ve done relatively well. If we want to create an edge for ourselves in future production patterns we’ll need to move along with the technology revolution now on its way. This is where our entire schooling system will need to be redesigned (the sooner the better) and adapted to the brave new world of tomorrow. As the Chinese saying goes: “A long journey begins with the first step”. We could embark on this journey as we may not have many other options. For this, what matters is creating the proper environment to attract the critical mass to our shores even if it involves having to make a quantum jump from where we stand today.
* Published in print edition on 30 January 2014