Platt Perspective on Business and Technology

Technology as the tide that raises all boats 6 – but often unevenly 3

Posted in outsourcing and globalization, strategy and planning by Timothy Platt on January 20, 2017

This is my sixth installment to a discussion that I initially began as a single stand-alone posting in April, 2012, but that needs reconsidering. I focused in that posting, on a key issue that enters into a determination of how and when change rises to a level of significance so as to qualify as true innovation (see Outsourcing and Globalization, postings 25 and loosely following for Parts 1-5, and Part 1 of that in particular as the foundational urtext for this narrative.)

I began exploring a three point to-address list of economics issues that are relevant to this series in Part 5, addressing the first of them with a real world example as taken from recent news: China and their iron and steel production and sales, policy and practice. That list of points, repeated here for smoother continuity of narrative, was:

1. The level versus uneven playing field considerations of restricted trade, open trade and free trade,
2. And of regulatory oversight as it arises and plays out nationally and internationally.
3. And to reconsider the closing notes to my April 2012 Part 1 posting on this, I also plan on addressing all of these issues at least in part in terms of economy of scale differences, where capacity for economy of scale efficiencies, in and of themselves are innovation driven and certainly in how competing businesses function and are run.

My goal for this posting is to at least briefly continue my Part 5 discussion of Point 1 and conclude it at least for immediate purposes here in this series. And more than that, my goal for here is to at least begin addressing the next two points of that list.

I begin where I left off in my discussion of China’s practice of dumping their iron and steel production output on international markets, below cost to them of production, as a means of propping up their society and limiting the possibility of unrest from massive layoffs and downsizings – and factory closures. As noted in Part 5, that and similar practices directly and systematically violate all of the basic assumptions that enter into what I refer to as the tightly correlated economic model, where businesses are all and essentially always presumed to at least actively seek to be profitable and to be competitive in their markets while doing so and on the basis of their own activities. And this led me to pose an alternative approach: the loosely correlated economic model, where as is the case of China and their government leadership, outside interests and considerations can dominate what would otherwise be more fiscally prudent considerations as carried out within involved businesses.

I posed Point 1, above, in what are essentially regulatory terms, and I reframe my above-continued China example in those terms too. And I begin that with the fundamentals:

• Completely open, free trade can only sustainably work, and as a long-term collectively equitable system, if all of the businesses participating in those systems pursue an actively tightly correlated economic model in their own operations and strategy,
• And without outside governmental or other pressures, exerted on those businesses in denial of that model.

The tightly correlated economic model is grounded in enlightened self-interest on the part of businesses involved here, where their shareholders and their managers and employees provide them greater and more sustainable value if they stably succeed on their own terms. And this in turn, and according to this model, benefits consumers and marketplaces too. Reaching back into the early history of economics, the tightly correlated economic model as depicted here is in its purest form, a representation of the dynamics of Adam Smith’s invisible hand.

China offers a perhaps extreme case example of how larger outside political and sociopolitical factors and forces can skew all of that. And that is where regulatory oversight enters this narrative.

• Ideally, at least, a best (minimalist) trade and economic regulatory framework would offset any perceived extra benefits that a cheater would gain from pursuing a more loosely correlated approach, governed by outside decision making processes, as an attempt to game the markets.

A problem arises in regulatory oversight when its restrictions, and its behavior-influencing and shaping interpretations and implementations, overshoot that goal, not simply forcing the leveling of the playing field, but skewing it in new ways instead.

And with this, I have also at least started addressing Point 2, as well as continuing my discussion of Point 1. I am going to continue addressing Point 2 in a next series installment, where I will reframe its issues in terms of innovation and pressures to maintain an innovative lead. And in anticipation of that discussion, I will also discuss the latency periods that can and do arise between the emergence of change pressures as faced by a business and the emergence of innovative change within businesses. This calls for discussion of businesses themselves and of their marketplaces and other context considerations. And this also calls for at least relevant discussion of matching evolutionary change in whatever regulatory controls are in place – challenging both those businesses as they seek to innovate and the regulatory systems in place as they seek to effectively function.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And I also include this in Outsourcing and Globalization – and see that for related material too.

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