Sunday, 24 January 2010

Development, Planning and Reality

We tend to think of development, in its wider sense, as being a straight line, a linear process. A group of decision-makers gets together and sets long-term strategic objectives. The present situation is assessed and compared to these objectives. A set of specific interventions or investments is defined to achieve these strategic objectives, together with budgets, timelines, performance indicators, etc.

The same process which applies to companies applies to a similar extent to governments. The notorious Soviet 10-year plans, or Mao’s “Great Leap Forward,” were examples of long-term plans. The UK’s Labour government has developed and published any number of 5-year Plans. The European Union’s Lisbon Agenda was an example of a 10-year plan.

Yet reality often presents major challenges to the realisation of such plans, particularly when we find ourselves in an era of disruptive political, economic, and technological change, as we find ourselves now. The bipolar system which characterised the Cold War and emerging end of the short-lived unipolar system, in which American provided an economic and security guarantee, are upon us.

Jacques Chirac’s multi-polar world, for which he was reviled by American neocons infuriated at France’s opposition to the invasion of Iraq, has arrived. This is an era in which military dominance will play a declining role (although conflict will continue), and one in which multi-spectrum economic competitiveness will prevail.

What is multi-spectrum competitiveness? This is the ability of government, economic and civil society actors to successfully and coherently implement a specific vision of development. The Chinese model of export-led technological development with political authoritarianism is one such example. The Russian model of state domination over energy and mineral resources is another.

If we take the American model of development, the election of Scott Brown in Massachusetts, the continuing failure of banking reform, or the recent Supreme Court ruling on campaign finance lead us to believe that its priority is a socio-political system where the benefits of development accrete to the wealthy, or to those who can afford to pay for them.

The disparate (though in some ways similar) examples of China, Russia and America provide us with several interesting examples of the failure of planning. When the GATT’s Multi-Fibre Agreement ended and Chinese exports received full access to WTO markets, the consequences of US and European textiles and garments manufacturers were disastrous. Chinese exports to Europe and the US sky-rocketed; US and European factories closed (or were subsidised to remain open, with disastrous longer-term effects); sectoral unemployment rose. It was clear both during and after the event that both companies and governments had failed to take this very simple and long-announced event into account.

So competition is clearly one element which affects long-term plans. If you are not able to predict and rapidly adjust to competition, yet you accept the rules of the competitive game, then clearly you risk failure. What are some others?

A second major disruptor is that of innovation and broader technological change. It’s clear that the traditional social relationships our parents’ society was based on are no longer very relevant to the world our children inhabit. With 24/7 high-speed internet connections, Facebook, multi-player role-playing games, Twitter and instant messaging have become the latest model of socio-cultural organisation for most of the population, at least in the developed world. Technology and its impacts on productivity and workforce organisation have been major factors addressed by corporate and political leaders as well.

A third major disruptor has been the demographic change, both in terms of incoming immigrant populations, as well as the ageing and eventual retirement of the baby-boomer generation. This disruption will affect everything, from the languages you hear in the workforce, to training curricula employed, to different sets of priorities and incentives, to compensation levels and social security contributions.

Here, we tend to recognise the symptoms of the problem, but we appear very unwilling to do anything about their root causes and longer-term consequences. Let’s take the simple definition of the nation-state, which in Europe is usually linked to a revolutionary moment, a nation-founding myth, and a subsequent accretion of decades of cultural and social assumptions of a single ethnic identity. How this issue will be “solved” (and I make no moral judgements or predictions here) is an issue which should concern us all.

There are myriad other sources of change, or disruption. These include environmental and energy change to changing consumer preferences. They include rapid, containerised transport and its impact on the supply chain. They include violent acts of religious or political protest one the one hand, or government failure on the other.

The point is that we live in an era where change is perhaps the one constant we should be planning our lives, companies and societies to accept and to integrate. But at the same time, in Greece at least we are making policies which are firmly rooted in the past, and which bear almost no real connection to the present or the future.

Policies—laws—are made dealing with symptoms of problems, not their root causes. The interpretation of laws usually favours a small well-connected elite, who are granted subsidies, lucrative public sector contracts, or tax incentives, at the expense of the government, and therefore the nation.

Policy-making is usually riven by fundamental conflict: the Minister of Finance is trying to reduce Greece’s deficit; the Minister of Economics is trying to give yet more subsidies, or to placate various special interests (such as striking dockworkers) by protecting their privileged status.

Greece’s foreign policy is a picture of failure, embedded in the past. It’s main political priorities are

a. The protection of its airspace and territory from Turkish incursion or immigrants crossing over from Turkey;

b. The reunification of Cyprus, a product of Greek and Turkish nationalism which has resulted in thousands of deaths on both sides;

c. The protection of its perceived history and heritage in face of a pathetic reinterpretation of history by a small Balkan state, the Former Yugoslav Republic of Macedonia (FYROM).

Regrettably, none of these priorities help Greece master the transition from its previous economic model, one driven by oligarchic, paternal private and state companies which monopolised their specific segments, and one in which the Greek economy is fundamentally open and unprepared for the onslaught of foreign-manufactured goods and services, and in which the Greek society, economy and workforce cannot compete.

I do not, of course blame Greece at all for insisting on its territorial integrity, on a peaceful solution for the reunification of Cyprus, or on historical truth. Far from it. What I object to is the fact that apart from these three topics, we are doing almost nothing else to prepare for the realities of today, of the next 10 years, or the next generation.

I see this failure repeated within the companies I advise on a regular basis. In most cases, the only necessity to develop a 5-year plan comes from a bank, which insists on a long-term forecast and risk analysis as a condition for releasing a loan. Most companies have barely adapted to the process of making next-year budget predictions, and these are usually a percentage increment up or down over the past year. Most companies appear unwilling or unable to envision major or minor disruptive change, and the impact this will have on their business. Some sectors which are mainstays of the Greek economy, such as travel agencies or hotels, are an unfortunate case in point.

So, it appears that we are confronted with a double paradox:

a. On the one hand, our government and companies are not able to develop coherent plans for the future, which model both a successful development track, but also the risks it might involve;

b. On the other hand, our government and companies are so locked into a single mindset, so that even when they receive a clear, unambiguous signal of a major competitive change or threat, they are unable to respond.

Over the past five years, we have received multiple such signals on the horizon: a rising and unsustainable debt; an incompetent and stagnant public sector; a deteriorating environment; a dangerous reliance on a few economic sectors; an unhealthy dependence on a subsidy culture; pervasive corruption; declining educational standards; declining public health, for instance child obesity and diabetes; and many others. And yet, it would appear we have done next to nothing about them.

If a government, a company, an economy or a society can no longer take sufficient active steps to prevent or mitigate current problems while preparing for the challenges of the future, then a fundamental question is raised: does this entity have the right to survive? Nature and human history is full of examples of organisms, populations, civilisations, or societies that have not adapted, and which have failed and disappeared. This need not be a catastrophe: the theory of natural selection is based on it.

Yet I can’t help wondering, as I watch the news every evening. Why do we expect that our pathologies will allow us to continue making the same mistakes indefinitely?

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