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Where Do We go from Here
by Cathy Castillo
What will leadership look like in the twenty-first century? How will China's domestic growth affect the world's energy supply and ecology? How will an aging population affect the United States' economy? Why should we stop using the description "information superhighway"?
Representing 47 countries, some 700 business leaders from 16 types of industry, government officials, and academics gathered at the Business School in September to debate these and other issues at a three-day industry summit. The forum was sponsored by the World Economic Forum of Switzerland and hosted by the Business School and Stanford University in conjunction with the California Institute of Technology and the University of California at Berkeley.
Whether they came from the automotive, financial services, or textile industries, most participants shared the belief that their industry was undergoing important and, in most cases, extremely rapid change. "We are here as a society of technological and knowledge-driven enterprises. This is an antidinosaur summit," Klaus Schwab, founder and president of the World Economic Forum, told the opening plenary session.
The following sections summarize some of the discussions held during the conference.
Exit the Information Superhighway
At almost any level of measurement, access to information and ability to communicate has changed drastically in a few short years. Twenty years ago there were 82 television stations in Europe; today there are 900. Last year more personal computers than automobiles were manufactured in the United States, and more than half the computers - 52 percent - were sold for use in the home. Estimates are that 25 to 50 million people are currently using the informal worldwide computer network known as the Internet, part of what is commonly described as "the Information Superhighway."
"Don't call it the Information Superhighway," chorused speaker after speaker. "That phrase describes it as a finite task with a beginning and an end where they hold a ribbon cutting," said Andrew Grove, president and chief executive officer of Intel and a Business School lecturer. "This will be ongoing. There are tens of thousands of engineers around the world working on creating change."
"A highway is government funded and its use is regulated. The public networking market is more like the grocery or food business, it grows from the bottom up," said Katharine Branscomb, MBA '80, senior vice president for business development at Lotus, USA.
Competitive strength, speakers agreed, will come not from volume - the ability to reach 40 million people with 500 cable channels - but from the ability to tailor a product or service to meet a specific need. "The 500-channel universe is exciting, but it's almost obsolete," said Narendra Nath, MBA '92, of Microsoft Corp. "You want to watch just one channel that has just the things you want. You want to be in control of what you watch, who you talk to, and what you participate in."
Customers want control, the speakers agreed. They demand lots of images and features for electronic tools they use passively, but are willing to settle for some of the unglamorous features of the Internet as long as it allows them to interact in real time with other users they choose.
Producers may move away from traditional network television, said Guillermo Canedo White of Mexico's Grupo Televisa. Their audience size may shrink, but producers will have more opportunities to reach specific audiences willing to pay for their programming. Speakers agreed the key will lie in identifying not only the technology but the feature or service people are willing to pay for.
"The graveyard is littered with the bones of companies that introduced products too early," said Paul Turner of the Price Waterhouse World Firm Technology Center. "Bell Labs came out with the picture phone at the 1939 World's Fair. It's been around that long and has almost universally been a failure."
One reason for Silicon Valley's success is the way in
which it deals with failure. The region has developed a unique social structure that
speakers agreed gives its companies added strength. James Gibbons, dean of Stanford's engineering school, summed up
the social structure as affirming that "it's okay to change companies, it's okay to
fail, and it's okay to talk to the competition."
The formula has produced some impressive results. In 1960, there were 17,000 high-tech jobs in Silicon Valley and 61,000 similar jobs on Boston's Route 128, Gibbons said. By 1990 the two areas had traded places, with 286,000 jobs in Silicon Valley and 150,000 on Route 128.
"The comparative advantage of this region is in technology, in new products and new enterprises, not in creating global companies," said Business School Dean A. Michael Spence . "Most of the growth in the U.S. economy is from small companies and startups."
In addition to its unique culture, said Spence, Silicon Valley owes its evolution in part to the role of venture capitalists. "Venture capitalists in the United States were once primarily wealthy families," said Spence. "But eventually the area's needs outstripped those resources; other money was brought in." Venture capitalists today are agents who act for groups of investors (providing pooled funds), but they continue to act like principals.
Increasingly, diversity and the ability to meet the needs of a very targeted audience are becoming the keys to success in high-technology firms and in dozens of other industries, said Regis McKenna, who as a marketing consultant has helped shape Silicon Valley. "Today we can design a product for a more specialized market segment much more cheaply than in the past. Large brands are dying. Choice has attained a much higher value."
Participants in a session on new patterns in personal
saving and investment agreed that in the case of pension and retirement plans, variety
could be too much of a good thing. In the past few years, the United States has seen a
major shift in the way employee retirement is funded. Earlier generations of U.S. workers
were covered under defined-benefit retirement plans, where the employee had no financial
risk and was guaranteed a predetermined benefit at the time he or she retired.
For workers under age 40, such plans rarely exist today. Younger workers, if they have retirement plans at all, are covered under defined-contribution plans, where the amount employees will receive in benefits is not guaranteed, but is dependent on investment performance. In these plans, workers assume some of the risk, and any payout at the time of retirement is based on the performance of investments made by the workers themselves. "Under defined-benefit plans, the obligation of the company was to make good, to accumulate benefits," said Business School economist William F. Sharpe . "That was predicated on the long-term survival of well-funded firms. Today, all bets are off. It's inconsistent with today's reality."
While this change to less predictable plans has serious consequences for workers, it also affects the larger economy. Retirees may have less income, and pension funds may no longer represent an important source of capital for economic growth.
"In 1994, there was $4.8 trillion accumulated in private-sector U.S. retirement plans," said Elaine Church of Price Waterhouse. This represented 20 percent of the nation's financial capital. As older workers covered by defined-benefit plans retire and begin drawing from the pool, the $4.8 trillion will be drawn down and will not be replaced. One cause of rising interest rates is inflation, speakers agreed. The increasing demand for the shrinking pool of capital could put upward pressure on interest rates.
The impact of the aging population on the industrialized world is "not widely appreciated," Stanford economist Michael Boskin told another session. The tax burden will increase substantially in the G-7 countries as the ratio of retired people to workers grows. "The fraction of the population that receives net income from the government is going to grow, and those people happen to be people with high voting trends. When you get a majority of them, you have a very unstable democracy," Boskin warned.
Change is occurring not only in technology and the
structure of markets, but also in the types of leaders needed for society and individual
firms to succeed. Political leaders are elected geographically to represent a certain
area. But as new technologies continue to change the way we gather information and
communicate, "people within a given geographic area are becoming more aligned with
others in different parts of the world," said Business School professor William F. Miller.
"California may be more connected to Asia than to New England. The real leaders will
be the ones who can renegotiate these relationships."
But, cautioned several speakers, the task cannot be left to political leaders alone. Underlying legal systems must be in place, said Stanford University's president, Gerhard Casper, "but don't leave it to the lawyers and certainly not to the politicians. You must get involved; otherwise you will not succeed," he told the opening plenary session.
Effective leaders are those who master the art of helping individuals identify their opportunities and who find "the link between individual behavior and that larger system of cause and effect," said Maurice Strong, chairman and chief executive officer of Canada's Ontario Hydro and secretary-general of the United Nations' 1992 Earth Summit.
The growing gap between material aspirations and opportunity in industrialized countries such as Canada and the United States worries Strong. Capitalist democracies, he said, need to learn how to become as efficient at distributing their economic growth as they are at generating it. Noting that many unskilled and semiskilled Canadians have failed to find employment since the end of the last recession, Strong warned that western democracies may now face a tradeoff between economic efficiency and social stability.
In China, the question of distributing
wealth is not as pressing to the government as is the issue of creating wealth. "At
the moment, 40 percent of China's state-owned enterprises are losing money. It's a big
drain on the state budget" and must eventually be resolved with new forms of
ownership and perhaps foreign joint ventures, said Stanford economist Yingyi Qian. China's
domestic economy is growing at about 10 percent, but this has unleashed inflation of 20
percent and fueled fears of the same type of instability that led to the Tiananmen Square
uprising.
China also is at a crucial stage in creating energy and environmental policies, said Stanford economist Lawrence Lau, who is working on an energy consumption study of China for the World Bank. "There is talk now of building 20 auto plants,"a move that could make China a culture dependent on automobiles rather than on public transport.
China's rate of energy consumption per unit of output is relatively low now, but that could change quickly if autos wind up consuming as much as 25 percent of the nation's energy by 2010. "Once a residential pattern is set, you can't change it," he warned.
Masahisa Naitoh, adviser to Japan's Ministry of International Trade and Industry, said he is concerned about energy demands being made by the entire region. "East Asia's energy demand is growing by 6 to 7 percent annually. How and where to procure the shortfall is a major issue," said Naitoh, particularly since 60 percent of the current supply of energy comes from coal, which produces air pollution.
Lau also urged that China join the General Agreement on Tariffs and Trade before its leaders face pressure to protect the country's growing domestic market from imports. Like Mexico, he said, China needs trade because it puts pressure on domestic industry to become more productive.
Kathleen O'Toole contributed to this report.
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