Tuesday, November 10, 2009

Global Innovation Chain

Instead of the breakdown of the global supply chain, what if we are witnessing the death of manufacturing? The supposed rise of localization might be missing the big picture. Enter the global innovation chain:

Research and development is increasingly going global, according to a new report by Duke's Offshoring Research Network [ORN]. More than half of U.S. companies now have corporatewide initiatives to outsource innovation activities, up from 22% in 2005, according to the ORN, which has been tracking the growth of outsourcing since 2004. And of those companies already offshoring development, 60% intend to do so more aggressively.

This helps me to see globalization in a different light and brings me back to thinking about distance-trust technologies. Sharing knowledge across international borders is difficult and various forces encourage the clustering of talent in dense city centers, where face-to-face interaction and serendipity can thrive. But there is a lot of money invested in the development of virtual global networks that can generate great value via knowledge production.

It could be the brave new world for journalism and new media. Conventional forms (e.g. newspapers) essentially serve a manufacturing economy, which is dying. The emerging knowledge economy would seem to be a good match for diaspora communities. The recent Global Irish Economic Forum strikes me as a good map of this shift in thinking.

It's a Flat World, after all.


Mark Arsenal said...

The question is, as brought front-and-centre by mayor fratboy recently, how do you tax a knowledge economy? Polities which shoot for wholesale annihilation of their existing taxbase need a backup plan.

I often wonder if the rise of the service sector (which is far less heavily taxed in industrial nations) isn't the real reason that 'developed' economies are so addicted to foreign debt? I'm sure big business noticed this long ago, and I'm sure it's a primary reason these economies exported their manufacturing infrastructure.

Of course, even if we find a way for governments to get a slice of that pie, there's still the matter of why we should be discouraging donut shops and car repairmen just because they don't meet our particular economic fetishes... But I've gone there before and it just gets me screeched at :P

Jim Russell said...

Manufacturing infrastructure wasn't exported just as agricultural infrastructure wasn't exported during the economic implosion of the 30s. Production increased while the demand for labor decreased.

The Fratboy Mayor is struggling with the legacy costs of a long gone industrial era. Pittsburgh's problem is paying yesterday's bill. Not today's.

Mark Arsenal said...

I'm actually thinking of the manufacturing exporting that happened in the past 15-20 years, which coincides with when 'developed' economies shifted to having the majority of their debt in the hands of 'developing' economies, who were incidentally the recipients of this exported manufacturing capacity.

I guess I just demonstrate typical conspiracy theorist mindset - I can take any data and translate it into "financial and energy crisis = doom".

I guess your thesis boils down to market economics - most people don't care where their plastic pumpkins or donuts come from, and most people (with any influence) want an exciting knowledge economy job. I'm just another economic fetishist who dreams of living in the early 60s forever. Oh well.

As for legacy costs - they will always exist in any economy that has any sort of dynamism. What do you propose we do with them if not find a way for current economic activity to finance them? Usually they only get written off if there is a severe upheaval (aka, Roman Empire, Zimbabwe, Cultural Revolution), and the 'kick the can' approach popular with just about ALL politicians is even more terrifying to me than life without donut shops...

Jim Russell said...

Actually, I've been arguing that localization (i.e. people caring about where the stuff is made) will drive this next round of globalization. In this post, I link to a structural analysis that says the global manufacturing supply chain isn't falling apart so much as it is disappearing.

It is a different take on where the global economy is heading and I was attempting to make some sense of it.

Just thinking out loud.

Mark Arsenal said...

I think I just latched onto this sentence: "The supposed rise of localization might be missing the big picture."

I assumed that by 'supposed' you meant that you did not agree that localisation was occurring.

As for global supply chains, I've been following a lot of the same new-energy articles you've been linking to recently, and (even though they are all terrifyingly carbon-based) they all seem to point to at least a few more years of cheap(ish) transpacific shipping.

So one can speculate that the global supply chain might just be suffering from the collapse in trade which has characterized this economic downturn, and may arise again when people start to feel rich again. At least for a while.

Jim Russell said...

I've speculated about the rise of localization, but resulting from a different agent than spiking energy costs. I disagree that globalization is dependent upon cheap energy.

Mark Arsenal said...

"I disagree that globalization is dependent upon cheap energy."

Yeah, I get that :P