Enormous changes are now taking place in the economy and across the community landscape within which the university needs to function. Today we often hear discussion about digital divides. One of my favourite lines at the moment is that the real digital divide we are living through is the divide between the past and the future. In my view where we are at the moment is a real break point, a real point of discontinuity in a lot of the structures and frameworks which shape the economy and the community. It is a period of discontinuity.
The recently evicted Chairman of the Federal Communications Commission in the US, with the change of power there, said earlier last year, "What is happening on the back of communications and information technology represents something like a 12 on the Richter scale of disruptive change". I thoroughly agree with him.
To set some of this context, I thought it might be useful today to give you my view of the world wide web, as I call it, of 21st century forces that, in my view, will shape the landscape in which we will operate. Perhaps I should say "reshape" the landscape. I like this phrase "world wide web of forces" . Endless numbers of people stand up and give their opinions of the ten key trends or megatrends shaping the next decade. It is not so much the individual trends in themselves that matter now; it is the interconnection, the linkages, the interdependencies that make the difference. The important thing for us to try to grasp is the nature of those interdependencies and the impact in changing the frameworks within which we operate - in other words, to understand the context.
Some of the points I will make will probably appear to a lot of you to be pretty basic, but I think that in this environment of rapid change, it is pretty useful to re-state the obvious. In fact, a lot of dot com companies would have avoided a lot of mistakes if they had kept going back to the fundamentals as we move through a period of change.
The first in the world wide web of forces is the obvious one of the globalisation of production and markets. What we are dealing with here is not new: we have had many waves of globalisation through history. So what is different with this latest one? I think what is totally different is the scope and intensity - and I stress the word "intensity" - of what is happening. What we are seeing are new levels of global interdependency being embedded through new trades, particularly in skills and knowledge, as we have already heard reference to, trade in services, and now the emergence of global electronic commerce.
This is associated and underpinned - particularly the globalisation of markets - with the internationalisation of the Internet, which is a very recent phenomenon. For most of the 1990s the Internet was very much a US-centric force. The US dominated traffic and production and consumption of the Internet, and it is really only now we are seeing the true internationalisation of it. That changes the dynamics of the online world hugely - a point I will come back to.
As the impact of globalisation becomes more intense, the risk of pushback becomes greater. That pushback is happening earlier than we have seen previously, as we are seeing in the Davos protests and in the progressive - and occasionally it almost seems irreversible - erosion of trust in institutions.
Within this environment of globalisation, here we sit in Australia with an increasing image from elsewhere as an old economy, a branch office economy. That is the reality, not something that politicians might now move to try to avoid. Australia is not very well placed in this new globalised environment. That is a consequence of what we see as perhaps historically dramatically imbalanced patterns of consumption and production globally. When you look at where Australia sits on that production/consumption equation, you see that we are fabulous consumers of new technology; we are appalling producers of technology and related product. With anything categorised as high technology in the way of industry, Australia has almost double the OECD average of import penetration. At the other end of the spectrum, we do very well with the traditional commodity products of quarrying and running sheep.
The second key global trend, which I think we sometimes do not pay nearly enough attention to, is the progressive impact of the collapse of the Second World. The pivotal development in recent times has been the emergence of China into the World Trade Organisation framework, which symbolises a massive shift towards the true integration and internationalisation of the global economy to an extent that we have never seen before in history.
The collapse of the Second World is part of the intensification of globalisation, to which I referred before. And that in a way has been a pre-condition for the other key trend to which I refer, which is the increasing internationalisation of regulation of government and institutional frameworks, and the emergence of global business regulation in a way that increasingly is sidelining or severely limiting the degrees of freedom that can be exercised by national governments.
At the same time that internationalisation of markets is polarising business and economic activity between multinational corporations on the one hand, and localised micro-businesses on the other. The profile landscape of the Australian economy is a classic demonstration of that phenomenon of polarisation of enterprise activity.
The final point I want to make here is that whilst the collapse of the Second World is the triumph of free markets and we have had euphoric statements about the new borderless world reinforced by the notions of electronic commerce being global, that of course is nonsense. We might be changing market boundaries from political and geographic borders, but all markets have boundaries and the key to thinking about the shape of new markets is what are the new boundary markers in an online world in the truly globalised economy? In my view those markers are going to be things like cultural boundaries, language boundaries and boundaries around truly generic virtual communities.
The third key force shaping the 21st century is, of course, the radical discontinuities introduced by digital technology and the emergence of the digital economy. The thing about anything digital is implicit in its nature; it is not evolutionary. Being digital means being binary; it is about binary change. That notion of disruptive technology that causes discontinuity is fundamental to thinking about the nature and impact of the whole information and communications technology revolution. This is really important to get our heads around because those discontinuities are what are driving so much of the current industry restructuring that is happening all around us.
I hate management textbooks, particularly those that come out of business schools. However, one of my "must reads" for everyone who wants to be serious about the changes happening around us is a fabulous book from Harvard by Clayton Christensen called The Innovators' Dilemma: Where new technologies cause great firms to fail. I recommend it to everyone of you as the best treatment of the impact of technology on organisations, firms and enterprise in the 21st century.
Global trends in information and communications technology continue to develop and continue to become much more pervasive in their impact. Recently people have said, "We have had our information revolution; we have now moved on to biotech." I think that nothing is further from the truth. So far we have only seen the first wave of the information revolution. There is much, much more to come, which will have even more profound effects on the way we operate and organise activity. Some of those next waves will be associated with things like massive breakthroughs in pervasive speech recognition, natural language translation and so forth, which will fundamentally change user interfaces and people's ability to use technology as a tool. Developments in photonics and the platforms for massively increased bandwidth are at the other end of the spectrum and, of course, the whole biotech revolution is completely associated with further developments in information technology - in fact, the two are just two sides of the one coin, as anyone working on current biotech programs will tell you. So further change in a continuing digital revolution will continue to be a key driver.
The fourth factor in my world wide web of forces reshaping the 21st century is the industrial and firm restructuring that is associated with all of this. The underlying point here is that the nature of the firm right from the beginning as a way of organising market activity has always revolved around the nature and the quantum of transaction costs. Transaction costs are at the core of industrial organisation and the interplay between supply and demand in a market. That is a crucial observation.
Ronald Coase, a Nobel Prize winner in economics, drew attention to this, being one of the rare people who has really focused on micro-economics in recent times. We should note the changing role of transaction costs in the economy: they moved from being something like 15 per cent of GDP in most advanced economies at the turn of last century to well over 50 per cent by mid century and, I suspect, now they would be more like 75 per cent of total economic activity. That is just transaction costs - processing costs.
Transactions , of course, are fundamentally affected by communications networking and information processing power, which is at the heart of the information and communications technology revolution. When you start to look at all the points of transaction or interchange within markets that affect what happens within the firm versus what happens outside the firm, that is where you see the true impact of the digital revolution. You can look at any organisation or value chain and you will see that there are something like 16 key points of transactional interface within firms and within markets that are totally transformed or are capable of being transformed by information technology. That is where organisational form will continue to change dramatically over the next decades. Virtual organisation is a function of the rearrangement of transactions within markets.
The fifth major factor is what is happening with labour market restructuring. None of this is new to you here today, but a decade after Robert Reich's insightful work on the restructuring of labour markets in the early 1990s, and his focus on the rise of knowledge workers, symbolic analysts, the changing role of personal service workers, the decreasing and changing nature of labour associated with production and the growing divergence between location-specific employment and globally mobile and footloose employment, it amazes me how little of this we have thought through in terms of either labour market policies or practice.
The key implication of all of this is that change is happening in the nature of the firm and its organisation, and particularly the way we think about people assets and human capital. It should fundamentally change industrial relations policies, but it is one of the areas where there has been very little thinking about the changes in patterns of industrial relations. It certainly changes the way in which we think about employee packages and recruitment and the nature and focus of skill scarcities, all of which have huge implications for higher education labour markets and their organisation.
The sixth area of major change, and where a quiet revolution has been going on over the last decade, is in the area of corporate governance and the nature of the corporation. One of the great revolutions in Australia over the last decade has been the democratisation, as I like to call it, of the corporation. This is the shift, in less than a decade, from where shareholding was a minority sport, an elitist activity in the Australian community, to where Australia has one of the highest levels of shareholder participation in the OECD. Of course, a few major government privatisations have helped that hugely, but the cultural shifts associated with that, and the emergence of stock options and employee participation in the ownership of firms starts to fundamentally change our thinking about careers, employment and our participation in organised economic activity.
I think that those changes will continue to gain momentum so that over the next decade or so we will see the same reshaping of the enterprise that we saw early in the industrial revolution, with the invention of the joint stock company as a way of actually acquiring capital that was not achievable under older forms of industrial organisation. This is an area that has not received nearly enough attention. When that is linked to notions of virtual organisations and so forth, the very notion of the university as an organisation becomes interesting in this context.
Key trend number seven is the globalisation of business regulation. This relates to the profound internationalisation of key frameworks for the governance of economic activity - the role of the World Trade Organisation and the OECD, and a growing proliferation of international, inter-government or supra-government global organisations, defining key parameters to business functions. This is irreversible and it has happened without a lot of governments and a lot of people really being aware of the actual extent of the transfer and the alienation of effective control.
This leads to massively increasing complex power-sharing arrangements at the international level between government, business and non-government organisations. And it really raises the question as to what levers of influence national governments, in the interests of the public, can exercise. The degrees of freedom are restricting and, I think, increasingly national local governments are focusing more and more on the competitiveness of factor inputs and looking at issues of market failure within a global environment.
My second "must read" for today is a book by a Canberra academic and a colleague from the London School of Economics: Braithwaite and Drahnos' Global Business Regulation, is one of the best books on these global developments that I have come across.
My final area for attention today is "What are the new value drivers that are creating wealth in this new environment?" What are the drivers for firm organisational or institutional success? What creates value in the new economy? What follows is my personal checklist of six or so key drivers of how value is created and how you measure value in the 21st century. One of the problems in this area is that we struggle a lot to find the right ways of actually quantifying or calibrating these drivers as we move increasingly from tangible to intangible assets. Here is my list:
Understanding these new drivers helps us to be ready for the shock of the new and to recognise value, even in the most improbable encounters.
In summary, what we have now is a small number of key factors which, combining together, form a powerful world-wide web of forces shaping activity in the 21st century. This is a framework context for innovation in every area of the economy and the community, including education and the challenges of borderless markets for education.
The closing point I would like to make is the salutary reminder that one does not move forward in this new environment by looking over one's shoulder. In this fast-changing environment of discontinuity, best practice is what someone is going to do tomorrow, not what they did yesterday.