MAPping the Future

The goal of Industrial Policy (IP) in the Information Economy is to develop the country’s overall knowledge and technological productive capabilities, those that cut across all industries, and not specific to particular industries. However, this does not preclude the development of Industrial Policies in specific industries or sectors.

 

The technology-driven decision-making tools referred to above include powerful algorithms and computer software that can analyze large volumes of data to detect patterns of behavior, to generate text, and to find solutions to complex problems – in real time! Collectively called Artificial Intelligence (AI), these computer processes have far superior analytical capabilities than humans.

 

AI has one major shortcoming, however; it is emotionally neutral. AI tools are incapable of any human feelings and are unable to make ethical and aesthetic judgments.

 

While AI is proving to be a very useful set of decision-making tools in all spheres of human activity, successful outcomes still depend on uniquely human creativity, artistic judgment and community building.

 

Addressing today’s over-arching social and economic problems

 

In a world characterized by social, economic, and environmental crises, it is imperative that industrial policy must be both progressive and liberal.

 

Progressive and liberal strategies are within the ambit of economic and social policy, but Industrial Policy can play an important role.

 

In today’s world, Industrial Policy must find solutions to society’s major problems. The public and private sectors must find appropriate strategies for dealing with extreme poverty, economic inequality, and environmental degradation.

 

For their part, business firms should adopt Stakeholder Strategies, those that create value for all stakeholders, notably their workers. Paying workers more than their market wages and providing them with comfortable working conditions make them more productive, and the firm more profitable. Thus, not only does the firm achieve its profit objectives but it also helps reduce poverty among low-income earners and lessen economic inequality.

 

The state must take decisive steps to ensure that the interests of society are served. This can be done through progressive taxation to improve the distribution of national income between the rich and the poor, and making quality education more accessible to the under-privileged.

 

Industrial policy in the Information-driven economy

 

In contrast with Industrial Policy in traditional production technologies which are based primarily on physical and financial resources, Industrial Policy in the knowledge economy is based mainly on knowledge and information which are embedded in humans and which form part of the country’s stock Human Capital.

 

In the Information Economy, knowledge and information are the most important economic resources and the primary sources of economic value. Unlike physical and financial assets, knowledge and information have a number of unique properties that distinguish them from the traditional factors of production:

 

• They are non-rivalrous, meaning, their value is not diminished by sharing them with others.
• They are subject to increasing returns. The more they are produced, the more productive and valuable they become.
• They are subject to economies of complementation. This means that the combined value of complementary knowledge and information exceeds the sum of their separate values.
• These properties suggest that information is more valuable when shared with others than kept to ourselves.

 

In the digitally driven world, value is created in Extended Value Networks (EVN) which consist of highly interacting and collaborative players that include customers, providers of physical resources, owners of knowledge and information, producers of goods and services, government agencies, and so on.

 

Implications for Business Strategy

 

In today’s Knowledge Economy, collaboration, not competition, is the preferred strategy. However, both may co-exist at different levels:

 

Competition and collaboration in the knowledge economy have converged  in what is known as coopetition, the simultaneous pursuit of competition and cooperation among business forms, universities and government agencies (“Coopetition between giants: collaboration with competition for technological innovation”).

 

The following cases serve to illustrate the simultaneous implementation of competition and collaboration:

• Firms that comprise a supply chain team up to combine their complementary resources and to scale up their operations in order to increase their joint output.
• Firms that constitute a supply chain (or extended value network) compete with other EVNs for market share; for example, Apple and Microsoft, McDonalds and Jollibee.
• Firms with complementary resources merge (a form of collaboration) to avail of economies of complementation and to scale up joint operations. A good example is the recent merger of Paramount Pictures and Warner Bros. which was driven primarily by the need to achieve the necessary scale to compete effectively with industry giants, such as Universal Pictures and Disney, and other entertainment players, such as Netflix and Amazon.

 

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP. The author is a member of the MAP Shared Prosperity Committee and Retired Professor of Economics and Management at UP Diliman. Feedback at <map@map.org.ph> and <nspoblador@gmail.com>).