<html><head /> <body> <META http-equiv="Content-Type" content="text/html; charset=UTF-16"><title>Welcome to the Weightless World</title><meta name="keywords" content="global,technology,20th,agglomeration,century,communications,consumers,danny,downsizing,economics,economy,electronic,financial,income,industrial,internet,knowledge,progress,quar,revolution,services,software,transportation,twenthieth,weightless,World,"><table style="font-family:Verdana; font-size:larger; " align="center" border="0" width="50%"><tbody><tr> <td style="background-color:silver; border-color:white; border-left-style:none; border-style:none; " width="730"><span style="font-family:Verdana; font-size:larger; ">Welcome to the Weightless World</span></td> </tr> <tr> </tr> </tbody></table><br><table style="font-family:Verdana; font-size:medium; " align="center" bgcolor="white" border="0" width="50%"><tbody><tr> <td height="131" width="669"><span style="font-family:Verdana; font-size:x-small;"><strong>Editors Introduction</strong></span><span style="font-family:Verdana; "></span><span style="font-family:Verdana; font-size:x-small; "><IMG SRC="auth_quah.jpg" WIDTH="90" HEIGHT="120" ALT="Quah" VSPACE="0" HSPACE="0" BORDER="0" ALIGN="right"> Time was, Britain was an "instigator and gang leader" of the globalising world. It is clear that its halcyon days are now over. What happened? Danny Quah (right), professor of economics at the London School of Economics and Political Science, believes that what happened was the weightless economy. Where high tech used to mean faster, better spinning jennies, it is now the associated knowledge and information that is sacred. Just as financial and software services eat less and produce more than industry, the transport and production costs of successful economies are negligible--weightless. For economic success, Quah argues that governments and nation-states now face much the same choices as firms.</span><br> <br><span style="font-family:Verdana; font-size:x-small; ">One of the striking features of the world at the end of the twentieth century was the extent to which ordinary people were seeing their lives transformed by high technology. No longer is the weightless economy the preserve of rocket scientists or academics in ivory towers: more and more people are now buying books from Amazon.com, ordering rail or air tickets online and discovering the benefits of electronic mail. There's no doubt that the early years of our new century are going to see an acceleration of the trends, right across the globe. That's inevitable. But is it also worrying for an economy like Britain's? Or should we embrace the new revolution enthusiastically?</span><br><br><span style="font-size:x-small;"><strong>Growth and development: just the facts</strong></span><br><span style="font-family:Verdana; font-size:x-small; ">Given fears about where Britain stands in the globalised, technology-driven world, it is easy to forget the central role each has played for the other in world history. At the beginning of the twentieth century, Britain stood alone among economies in being relatively industrialised. It was here, after all, that the industrial revolution began, here that abolition of the Corn Laws precipitated the world's move towards lower trade barriers and brought about the explosion of merchant trade across national boundaries. Towards the end of the nineteenth century, 100 years after the industrial revolution, most other countries still employed over 30 percent of their workforce in agriculture. In Britain, by contrast, cotton from abroad provided the raw inputs on which fed the textile machines and hydraulic power that we associate with leading-edge, frontier technologies then. Other countries were better at producing raw material inputs; the British better at processing them.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">This international division of labour--a then-new organisation of production on that panoramic a scale--made sense, and provided the foundations for high and growing economic prosperity in Britain. Some economic historians estimate that, taking into consideration spillover effects, cotton imports might have accounted for between 15 percent and 60 percent of overall British economic growth over the first half of the nineteenth century. No one then lamented the British economy would not survive locating cotton production offshore--or, at least if anyone did, I'm glad their arguments failed to carry the day.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">Capital flowed freely from the core of rich countries of Western Europe to the developing economies in the Americas, Asia, and Australia. The net outflow from Britain rose to as high as 9 percent of GNP. By contrast, even at their maximum in the 1980s, net capital outflows from Japan and Germany never exceeded 5 percent of national output.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">Looking over these facts we have to conclude that for one and a half centuries after 1750, Britain was more than a fully signed-up partner of the globalising world: indeed, it was instigator and gang-leader.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">And remember, the words "industrial revolution" and "Britain" are practically synonymous. Historical accounts draw no distinction between the industrial revolution of the late eighteenth century and the expansion of British industry under Richard Arkwright, Matthew Boulton, and James Watt. Moreover, the great technological advances in Britain did not just begin and end in 1800. For the century afterwards, British workers and machines extended the application of new work ideas to France, Belgium, the German states, Sweden, Switzerland, and ultimately to the eastern US. Over 100 million people--14 percent of the world's population--migrated across continents in the 50 years before World War I.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">This quick historical survey shows that neither globalisation nor technological change is new to Britain. It reveals nothing in the British character or in its culture averse to international openness, technological innovation, individual entrepreneurship, or productivity and enterprise. Indeed nineteenth-century Britain positively thrived in all these dimensions.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">More recently? For the 30 years after 1960, per capita income for the entire world grew by 2.26 percent per year. Corrected for purchasing power parity, UK per capita income only exactly kept pace. At both the beginning and end of this period, UK per capita income was three times that the world average: averaged over the 1970s, however, this ratio had fallen to as low as 2.73, climbing again only after 1981. But keeping level with an average is only relative. Averaged over the first five years of the 1960s, the UK ranked ninth in the world in per capita income across countries; towards the beginning of the 1990s, that same average showed the UK's rank had fallen to 15th. Over these same three decades, not only has aggregate performance been dismal, but UK income inequality also increased by over 13 percent</span><br><br><span style="font-family:Verdana; font-size:x-small; ">This increased inequality, to be clear, cannot be traced to low-wage competition from less-skilled workers in poorer economies: the relative prices that have declined most are those of goods that use skilled labour more intensively. Imports from the poorer developing countries have had no measurable direct impact on wages or employment in the UK.</span><br><br><span style="font-size:x-small;"><strong>Technology: changes large and small</strong></span><br><span style="font-family:Verdana; font-size:x-small; ">What has changed in these last 200 years? More important, how will the situation evolve from here on out? What is the modern-day counterpart to the steam engine and cotton imports, to the abolition of the Corn Laws, and to the industrial revolution that all together so magnificently drove British and world economic growth?</span><br><br><span style="font-family:Verdana; font-size:x-small; ">The old saw, that knowledge drives technological progress and through that economic prosperity, is as legitimate now as it was then.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">For these forward-looking questions we can only use conjecture, hypothesis, and reasoning. As economists, we analyse models, based on informed, maintained hypotheses, that attempt to draw out the implications of our guesses. So here's my stab at answering the list of questions, extrapolating from observations about changes in the world now.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">The newest and most profound global and technological changes have two key characteristics: first, they imply ever-increasing disrespect of distance (and thus space), time, and other putative natural boundaries; second, they progressively tear down the barriers between producers of new technology and consumers. These effects work as powerfully across countries as they do between neighborhoods in a city or villages in the countryside.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">Falling transportation and communications costs is a convenient shorthand to describe the first of these: Technical progress on Internet and telecommunications infrastructures is a case in point. For this description to work, however, it must be that the economic value we're interested in moving displays no hard physical limits in its transportation and communication.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">However much transportation costs fall, however low tariff barriers become, if it's an oil supertanker we're slinging back and forth, that's going to eat up real resources. By contrast, where such physical limits do not apply, it is useful to think about the economic value as being weightless. Examples include modern finance and financial services, software and other elements of information and communications technology, electronic libraries and databases, media content, and intellectual property broadly construed. It is these parts of the economy to which falling transportation costs apply; it is then their rising importance in a modern economy that allows falling transportation and communication costs to matter at all.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">The same circle of ideas helps shed light on the ever closer proximity of technology-producers and consumers. Most of what we buy and enjoy now has large chunks of technology embodied in ever less physical material. Time was, high-tech meant a faster, more whizz-bang spinning jenny pushing out better textiles that in turn got reworked into higher-quality clothes. Now, high-tech means the clothes, the software, the video content, the Internet delivery themselves directly encode the improved knowledge and information. It is that knowledge and information that we now value; their carriers are inessential and immaterial.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">This identification sheds light on a number of important developments in the modern globalised economy. One, the knowledge-driven economy is real and is here. This knowledge in economic life, however, is not always identical to the knowledge in science and technology. Lara Croft Tomb Raider is a weightless knowledge-product that we enjoy. Its economic and physical properties make it a prototypical product in the new high-tech knowledge-intensive economy. It is, however, a different animal altogether than a mathematical theorem or a scientific or engineering breakthrough. It is not knowledge that comes out of an R&amp;D laboratory, at least not in the traditional sense.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">Two, this move towards a weightless economy implies for business firms outsourcing and downsizing in the small but, simultaneously, agglomeration in the large. Because the distance between production and consumption is ever smaller, individuals with enterprise, a good idea, and not much else can have a go: reaching a market for their ideas no longer needs to be mediated through expensive large-scale bricks-and-mortar operation. The comparison is with, on the one hand, hawking one's good ideas to, oh, the two or three businesses large and interested enough to want to implement them, or, on to the other hand, to the 200 or 300 million consumers waiting on the other side of the Internet. Getting a penny off each of even a fraction of such a customer base, from one's special customised niche idea, will already do nicely. Thus, every week we hear of yet another rags-to-riches Internet business.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">At the same time, however, the network externalities and scale economies in servicing global markets for these new high-tech products make large conglomerates with truly international reach the operation of choice. Software and cable companies, telecommunications firms, banks, even staid old-fashioned ivory-tower academic universities, all in the weightless economy business, seek to operate or cooperate at ever larger scales. Evidently, there is room for successful enterprise at different magnitudes of operation, large and small, but leaving out the soggy middle.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">Where does national policymaking situate in this canvas? Governments and nation-states, in my view, face much the same choices as do firms. Either cooperate internationally, and exploit the network externalities and scale economies from coordinating global reach; or operate in a niche, customising, identifying, and serving specific interests.</span><br><br><span style="font-size:x-small;"><strong>Final thoughts</strong></span><br><span style="font-family:Verdana; font-size:x-small; ">The world now, however, has changed. The key features of the new technological revolution are an increased disregard for distance, time, and other putative boundaries; and an increased proximity between technology and the consumer.</span><br><br><span style="font-family:Verdana; font-size:x-small; ">History has no record of anyone ever successfully holding back the tide of commercially profitable technical progress or ever successfully closing off their society and economy to external influences. The opposite, instead, is how almost all economies have succeeded. Identifying and then leveraging one's comparative advantage, rather than fearing these changes, should be the way forward. Nothing, not even the continuing technological and economic dominance of the US, should be taken for granted. In the early 1990s, Finland's national income fell by a magnitude comparable to that experienced by many countries during the Great Depression of the 1930s. Today, observers acknowledge that, compared to Finland, Silicon Valley is, to use the vernacular, a Third World country in its use of advanced technology. If all that Britain had to choose between was Finland or Silicon Valley, then I'd say we're in pretty good shape.</span><br><br> <span style="font-family:Verdana; font-size:x-small; font-style:italic; ">This article was taken from CentrePiece magazine, published by the Centre for Economic Performance at the London School of Economics and Political Science. </span></td> </tr> </tbody></table> </body></html>