There will be a global economic downturn next year – but don’t write us off yet
There is too much noise. It makes it hard to distinguish the signals from the background clamour. Anyone who hoped that a couple of weeks on from the Brexit vote things would start to settle down will now be disappointed. Those of us who thought that the UK tail would not swing the global markets dog have been proved wrong.
The markets are now signalling that there will be some sort of global downturn next year. That is the only rational explanation of the continuing plunge in bond yields, and the desperate hunt for “safe havens”, in a world of zero interest rates that will stretch far into the future. The markets are also signally deep distress in the European banking system, with the vicious plunge in the price of bank shares.
This may be just a short-term response to a shock – but the scale of the reaction really makes sense only in the context of wider fears about the next twist of the global economic cycle.
And yet. Technology continues to advance, and that has always been the driver of economic growth. It was technical advance that was embodied in the Industrial Revolution more than 200 years ago, has continued ever since, and now has spread just about everywhere. The speed of that spread is faster than ever before.
Take the mobile phone. There are more phones in the world than there are people, and many more who have a mobile phone than have access to a toilet.
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Which countries are best prepared to take advantage of the new technologies? As an antidote to the macro-economic gloom, I have been looking at a new report on network readiness from the World Economic Forum, The Global Information Technology Report 2016. It gives a ranking of the countries by network readiness, the top 10 being: Singapore, Finland, Sweden, Norway, the US, the Netherlands, Switzerland, the UK, Luxembourg and Japan. So seven of the top 10 are in Europe, which is surely encouraging, even if three of them are out, or soon to be out, of the EU. Europe, particularly northern Europe, should not be written off at all.
Aside from the rankings, the report has four main messages. First, the digital revolution is changing the nature of innovation. It makes traditional research and development more effective but it also allows new business models to develop at low cost and with little R&D. Uber is a good example of this.
Second, firms are under huge pressure to keep innovating. Investing heavily in information technology is one way in which leading companies (and countries) distinguish themselves from the pack.
Third, many businesses and most governments are missing out by not adopting the best ICT. Governments in particular are lagging behind, and would achieve more of their social objectives if they were more innovative.
And finally, the new digital economy needs new forms of governance, and behaviour, in both private and public sectors.
This is surely rather hopeful. There are a cluster of frontier economies pushing forward, using the potential of the new technologies to improve the lives of their people. These economies are all democracies, though with rather different systems, and that is encouraging too. They are all countries where education is a high priority, though again the emphasis and outcomes vary.
It is positive for the countries that seem to be lagging behind, too, because there are neighbours who are doing better and from which they can learn.
This is not a zero-sum game – quite the reverse. For Europe, the Scandinavian countries are a beacon of excellence. For South-east Asia, Singapore shows what can be achieved. For the rest of the world there is the US, astoundingly still generating new technologies, and finding new ways of applying newish ones.
For me the key point here is that the IT revolution makes innovation easier, not harder. If something is being done better somewhere else in the world there is nothing stopping others from grapping the idea. You don’t need a huge research department to lift you game.
And how does all this fit into a world economy that is slowing, and may slow nastily next year? Simply that even if there is a recession there will be a recovery. In good times the new technologies give us a tailwind; in bad they will help us to dig ourselves out of the mess.