telecom and the global economy: the coming decade joseph e. stiglitz columbia university new york...
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TELECOM AND THE GLOBAL ECONOMY:
THE COMING DECADE
Joseph E. StiglitzColumbia University
New York
IBM GLOBAL TELECOM EXECUTIVE FORUMLondon, July 18, 2005
Telecom: The Driver Of Change
Major changes in global economy have been brought about by telecom
- Boom in 1990s led to over investment and excess capacity
- Leading to low costs of connectivity- So “distance” between India and china and
advanced industrial countries (Europe, U.S.) greatly reduced
Other Drivers of the Global Economy
Demography Domestic economic policies and problems
in advanced industrialized countries, especially in E.U. and the U.S.
Drive for closing income, technology gap in Asia– High growth, young population, shift to
consumerism likely to make Asia most exciting market
Global rules of the game, including the intellectual property rights (IPR) issues
Integration Of China And India Into Global Economy
The integration of China and India into global economy is one of the major economic events of history
- 2.5 billion people - With markedly lower incomes- Markedly different factor ratios,
contributing to markedly different factor prices
Challenge and Opportunity
Will affect both demand and supply sides of the equation
New markets Telecom revolution will facilitate
trade in services, not just in goods New sources of competition New sources of “inputs”
Requiring Responses At Every Level
Individual and firm- Affecting even firms that operate mostly within
a country, in areas that were traditionally considered “non-tradables”
Market and industry level National level Regional (European) Global
– As new technology lowers communication (and transport) and transaction costs, what can be done to overcome other barriers to trade, especially man-made barriers?
Challenges for the U.S. Modern economy is based on technology But number of graduates in science and engineering now
dwarfed by those in Asia– Of 2.8 million 1st degrees (university level) in science
and engineering• 1.2 million in Asia• 830,000 in Europe• 400,000 in U.S.
– In engineering alone, Asia produces 8 times u.S.– Since 1993, the number of American citizens in graduate
science programs has fallen from 55,000 to under 42,000 while the global supply of Ph.D. in science has increased by 25%--mostly in Asia
– Just under half of all doctorate degrees in engineering and computer science in the United States are earned by foreign students
– Visa problems since 9/11 has seriously impeded flow of foreign students into the U.S.
Problems start earlier in elementary and secondary schools– Evidenced by performance in
standardized tests in science and math– For example, at 8th grade
•44% of Singapore performed at highest level
•38% of Taiwan•7% U.S.
Challenges for the U.S.
Expenditures on research declining– As percent of GDP, 37% decline in
federal funding since 1970– Reflected, in part, in the number of new
patents approved• Since 1980, Japan’s share world wide
increased from 12% to 21%, mostly at expense of U.S. (which has declined 8 percentage points)
Challenges for the U.S.
Europe faces many of the same challenges in education, research
Success of China in manufacturing not just a matter of unskilled labor– Combining skilled and unskilled– Even in textiles and automobile assembly
Education, research issues may be of even more relevance for competition in IT, telecom, and related sectors
Challenges for Entire Western World
Competition from China and India are likely to result in lowering wages of unskilled workers
And even of others Enormous strains on society But neither U.S. nor Europe is in good position to
respond– In U.S. huge fiscal deficits– In Europe, Growth and Stability Pact, ECB focusing on
inflation, problem of earlier decades Fiscal problems in U.S. adversely affects Europe
– Contributes to global financial instability– And strong Euro
Challenges for the U.S.
Firm Level Response
Competition will drive restructuring and relocation of production (towards Asia)– To take advantage of new opportunities– Complicated by high levels of exchange
rate instability Competition will also drive focus on
new market opportunities
Prospects For Global Economy
These economic problems are likely to lead to a long period of malaise:– Not recession– But not robust growth either– Other factors contributing to poor economic
performance —oil, exchange rate instability, continuing fears of terrorism
– No return to boom of 90s Explains lack of euphoria in spite of strong growth
in 2004– 2005 will be weaker– Strongest growth in China and India, not in advanced
industrial countries (Europe, Japan, U.S.)
New Market Opportunities
Telecom sector at forefront of innovation New economy will no longer be new
– But new ideas have not yet been thoroughly disseminated, absorbed and utilized
New products will be taken up more by young and more “innovation” minded, technically sophisticated people– Leading to shift in market towards Asia– Evident in dissemination of picture phones– But in all markets, there will be an increase in
sophistication
Global Rules Of The Game
Especially important in telecom Legacy of regulations Importance of intellectual property And industry standards
Global rules of the game have traditionally been set largely by the U.S., together with Europe, with others coerced and cajoled to go along
But the developing countries are beginning to resist– Development round of trade– Thrust for pro-development IPR
discussions at WIPO And there is increasing divisions
within the developed world about what should be the rules of the game
Global Rules Of The Game
Intellectual Property Rights Mantra had been: “the stronger the better”
– Major source of rents for the developed countries
– Justified by importance of incentives– Some hypocrisy—wanted to use patents of
others Economic theory and history challenge this stance
as the best way to promote innovation– High costs (inefficiencies associated with
monopoly)– With questionable benefits– Innovation may even be slowed
• Patent thickets– Globally, access to life saving medicines, bio-
piracy raise further questions
But now, even in the developed world, questions being raised- Monopoly power may impede innovation (Microsoft)– Success of ‘open source’ systems – Casts cost-benefit balance in question– New paradigm
Similar questions being raised about standards– Current arrangements may force China and others
to establish their own standards, fragmenting global economy
– Motivating Brazil, others to embrace open source technology
Intellectual Property Rights
Key Determinants of Success Success has always entailed trying to shape,
understand, and take advantage of “regulatory” environment– Will continue to be case in future– But will be more complex, politically and
economically– Huge risks and uncertainties about future directions
of global economy require diversified approaches – But among approaches that one will have to deal
with are those entailing more openness, less protection , more competition• Even in areas where market forces themselves
in the past have limited competition
More broadly, success has always entailed combining “local” and “global” knowledge– In spite of globalization, there remain
large differences across markets, especially in terms of taste and preferences (both on demand and supply sides)
Key Determinants of success
Concluding Comments
Telecom sector is a driver of change Telecom sector is driven by change There are likely to be huge changes in global
landscape– Technology– Integration of Asia into the global economy
This talk has outlined some of the directions of those changes and their consequences
But even the best of crystal balls is cloudy Adaptability, nimbleness and combining local and
global knowledge will be required above all else