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. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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Page 1: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

TELECOM AND THE GLOBAL ECONOMY:

THE COMING DECADE

Joseph E. StiglitzColumbia University

New York

IBM GLOBAL TELECOM EXECUTIVE FORUMLondon, July 18, 2005

Page 2: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, 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

Page 3: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 4: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 5: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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”

Page 6: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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?

Page 7: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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.

Page 8: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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.

Page 9: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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.

Page 10: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 11: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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.

Page 12: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 13: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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.)

Page 14: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 15: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 16: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 17: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 18: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 19: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 20: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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

Page 21: TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

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