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The Intersection of the Knowledge Economy and Globalisation

In 1982 when Richard Buckminster Fuller created the “Knowledge Doubling Curve”, he noticed that until 1900, human knowledge only doubled approximately every 100 years. By the end of World War II, knowledge was doubling every 25 years. Today, different types of knowledge are doubling at different rates. Nanotechnology knowledge is doubling every two years and clinical knowledge every 18 months. But, on average, human knowledge is now doubling every 13 months and according to IBM, the build out of the Internet of Things (IOT) will lead to the doubling of knowledge every 12 hours.

Why is knowledge growing so fast? According to Professor Allen Morrison, chief executive officer and director general of Thunderbird School of Global Management, it is primarily because of technology. In his address entitled “Globalisation in Uncertain Times” at the Indonesia Stock Exchange, he laid out both the opportunities and challenges that face nations in the digital age.

Because knowledge is doubling at such a rapid pace, individuals, companies, industries and even nations must work hard to keep up. In today’s world, sensors are dramatically altering human behavior and upending industries. In 2001, it cost US$100 million to sequence one person’s genome. In 2015, that figure had fallen to just US$1,000.

Data is today’s oil. With hundreds of millions of sensors gathering data on every imaginable activity from tides to traffic flow, selling access to data has become a lucrative industry. The global sensor market is forecasted to grow from US$80 billion to US$116 billion by 2019 as the industry consolidates.

“In the past, we studied at universities to gain knowledge and understand the rules of the game,” noted Professor Morrison. “Because knowledge is now essentially free, accumulating knowledge has a different value and is no longer a significant competitive advantage.”

As a result, many of the rules in the game are now under threat, and career paths, power structures and reward systems are being upended. Professor Morrison laid out 4 key intersections between technology and globalisation.

  • Globalisation is leading to rising costs of technology, R&D and equipment
  • Causing declining costs of shipping and transportation
  • Technology is leading to free and immediate communications
  • Technology allows companies to benefit from huge economies of scale

“Technology makes it easier to globalise. Globalisation has brought billions of people out of poverty. According to the OECD, a 10 percent increase in trade results in a 4 percent increase in GNP (Gross National product),” said Professor Morrison.

The message therefore is clear. For developing countries, the benefits of globalisation are enormous. For consumers, it lowers process, drives innovation, increases quality and selection; for companies, it increases competition, drives innovation, promotes good governance and improves the overall practice of management.

Catching Up

Given the intense competition created by globalisation, the adoption of technology is shuffling the world order. China has benefited most from adopting technology and harnessing the power of globalisation. The number of Chinese companies in the Fortune 500 list has grown from 16 in 2005 to 106 in 2017.

“In 2017, Indonesia had only one company amongst the world’s largest 500 companies. None of the world’s top brands are Indonesian,” said Professor Morrison. Sampoerna, which is the top Indonesian brand is valued at US$2.8 billion while Allianz, which is ranked 100 in the world is valued at US$6.8 billion.

Why is this so?

Professor Morrison noted that Indonesia spends a smaller percentage of its GNP than most countries in the world. South Korea, which has emerged as a leading technology and innovation country, spends 4.29 percent of GNP on R&D; Israel 4.11 percent and Japan 3.58 percent.

“Indonesia only spends 0.085 percent of GNP on R&D. Indonesia ranks outside the top 50 countries on innovation, behind even Tunisia, Serbia and Romania,” he said. Furthermore, Indonesia has the lowest shares of 25 – 64-year-olds who have attained tertiary education across OECD (Organisation for Economic Development and Co-operation) countries.

In addition, the quality of education in Indonesia is also much lower than other OECD countries. For every US$1 spent on supporting university education in Indonesia, other countries spend an average of US$9.
“These are real challenges if we look at globalisation and being part of the knowledge economy,” he added.

The Power of Capital Markets

In order for Indonesia to flourish, access to finance and credit has to be increased and improved. Indonesian companies must be able to raise capital more efficiently and at scale, so they can grow at a faster rate.

A 2017 study by McKinsey & Company identified three conditions for effective capital markets:

  • Issuers are able to raise affordable capital at scale
  • Capital markets provide attractive and diverse avenues to deploy short-term and long-term domestic savings
  • Capital markets offer high quality and timely pricing information

In the study, McKinsey & Company ranked Indonesia nine out of 12 countries surveyed, ahead of only Pakistan and Vietnam. Professor Morrison, however, was optimistic and noted that some green shoots are appearing for Indonesia. The number of IPOs (Initial Public Offering) have doubled over the past two years; the country’s economic growth is stable at over five percent; and the recent sovereign credit rating upgrade to investment grade will attract foreign funds.

“The government is open to foreign investments, but we have yet to see a significant increase in FDI,” he said. “There is a lag between policy formulation and implementation because of confidence and trust in the government.”

But while green shoots are appearing, the question for Indonesia remains; Is it catching up fast enough? In order to move faster, Indonesia needs to form partnerships, so it can create better and smarter policies.

“Our ability to adapt is slower than the rate the world is changing, and we are feeling overwhelmed,” professor Morrison noted. “That is why nationalism and protectionist policies are on the rise around the world.”
Indonesia must have a strong vision of where it can be by 2045 and beyond, and look at the examples of China, Korea, Ireland who have taken journeys that lasted more than a generation. All these countries faced challenges and political change but managed to grow through investing heavily in education, R&D and innovation.

Waiting on the sidelines is not an option.

This article was produced by the Indonesia Economic Forum, a multi-platform content creator focused on promoting Indonesia.

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