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TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005.

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Presentation on theme: "TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005."— Presentation transcript:

1 TELECOM AND THE GLOBAL ECONOMY: THE COMING DECADE Joseph E. Stiglitz Columbia University New York IBM GLOBAL TELECOM EXECUTIVE FORUM London, July 18, 2005

2 Telecom: The Driver Of Change  Major changes in global economy have been brought about by telecom -Boom in 1990s led to over investment and excess capacity -Leading to low costs of connectivity -So “distance” between India and china and advanced industrial countries (Europe, U.S.) greatly reduced

3 Other Drivers of the Global Economy  Demography  Domestic economic policies and problems in advanced industrialized countries, especially in E.U. and the U.S.  Drive for closing income, technology gap in Asia –High growth, young population, shift to consumerism likely to make Asia most exciting market  Global rules of the game, including the intellectual property rights (IPR) issues

4 Integration Of China And India Into Global Economy  The integration of China and India into global economy is one of the major economic events of history billion people - With markedly lower incomes - Markedly different factor ratios, contributing to markedly different factor prices

5 Challenge and Opportunity  Will affect both demand and supply sides of the equation  New markets  Telecom revolution will facilitate trade in services, not just in goods  New sources of competition  New sources of “inputs”

6 Requiring Responses At Every Level  Individual and firm - Affecting even firms that operate mostly within a country, in areas that were traditionally considered “non-tradables”  Market and industry level  National level  Regional (European)  Global –As new technology lowers communication (and transport) and transaction costs, what can be done to overcome other barriers to trade, especially man-made barriers?

7 Challenges for the U.S.  Modern economy is based on technology  But number of graduates in science and engineering now dwarfed by those in Asia –Of 2.8 million 1 st degrees (university level) in science and engineering 1.2 million in Asia 830,000 in Europe 400,000 in U.S. –In engineering alone, Asia produces 8 times u.S. –Since 1993, the number of American citizens in graduate science programs has fallen from 55,000 to under 42,000 while the global supply of Ph.D. in science has increased by 25%--mostly in Asia –Just under half of all doctorate degrees in engineering and computer science in the United States are earned by foreign students –Visa problems since 9/11 has seriously impeded flow of foreign students into the U.S.

8  Problems start earlier in elementary and secondary schools –Evidenced by performance in standardized tests in science and math –For example, at 8 th grade 44% of Singapore performed at highest level 38% of Taiwan 7% U.S. Challenges for the U.S.

9  Expenditures on research declining –As percent of GDP, 37% decline in federal funding since 1970 –Reflected, in part, in the number of new patents approved Since 1980, Japan’s share world wide increased from 12% to 21%, mostly at expense of U.S. (which has declined 8 percentage points) Challenges for the U.S.

10  Europe faces many of the same challenges in education, research  Success of China in manufacturing not just a matter of unskilled labor –Combining skilled and unskilled –Even in textiles and automobile assembly  Education, research issues may be of even more relevance for competition in IT, telecom, and related sectors Challenges for Entire Western World

11  Competition from China and India are likely to result in lowering wages of unskilled workers  And even of others  Enormous strains on society  But neither U.S. nor Europe is in good position to respond –In U.S. huge fiscal deficits –In Europe, Growth and Stability Pact, ECB focusing on inflation, problem of earlier decades  Fiscal problems in U.S. adversely affects Europe –Contributes to global financial instability –And strong Euro Challenges for the U.S.

12 Firm Level Response  Competition will drive restructuring and relocation of production (towards Asia) –To take advantage of new opportunities –Complicated by high levels of exchange rate instability  Competition will also drive focus on new market opportunities

13 Prospects For Global Economy  These economic problems are likely to lead to a long period of malaise: –Not recession –But not robust growth either –Other factors contributing to poor economic performance —oil, exchange rate instability, continuing fears of terrorism –No return to boom of 90s  Explains lack of euphoria in spite of strong growth in 2004 –2005 will be weaker –Strongest growth in China and India, not in advanced industrial countries (Europe, Japan, U.S.)

14 New Market Opportunities  Telecom sector at forefront of innovation  New economy will no longer be new –But new ideas have not yet been thoroughly disseminated, absorbed and utilized  New products will be taken up more by young and more “innovation” minded, technically sophisticated people –Leading to shift in market towards Asia –Evident in dissemination of picture phones –But in all markets, there will be an increase in sophistication

15 Global Rules Of The Game  Especially important in telecom  Legacy of regulations  Importance of intellectual property  And industry standards Global rules of the game have traditionally been set largely by the U.S., together with Europe, with others coerced and cajoled to go along

16  But the developing countries are beginning to resist –Development round of trade –Thrust for pro-development IPR discussions at WIPO  And there is increasing divisions within the developed world about what should be the rules of the game Global Rules Of The Game

17 Intellectual Property Rights  Mantra had been: “the stronger the better” –Major source of rents for the developed countries –Justified by importance of incentives –Some hypocrisy—wanted to use patents of others  Economic theory and history challenge this stance as the best way to promote innovation –High costs (inefficiencies associated with monopoly) –With questionable benefits –Innovation may even be slowed Patent thickets –Globally, access to life saving medicines, bio- piracy raise further questions

18  But now, even in the developed world, questions being raised - Monopoly power may impede innovation (Microsoft) –Success of ‘open source’ systems –Casts cost-benefit balance in question –New paradigm  Similar questions being raised about standards –Current arrangements may force China and others to establish their own standards, fragmenting global economy –Motivating Brazil, others to embrace open source technology Intellectual Property Rights

19 Key Determinants of Success  Success has always entailed trying to shape, understand, and take advantage of “regulatory” environment –Will continue to be case in future –But will be more complex, politically and economically –Huge risks and uncertainties about future directions of global economy require diversified approaches –But among approaches that one will have to deal with are those entailing more openness, less protection, more competition Even in areas where market forces themselves in the past have limited competition

20  More broadly, success has always entailed combining “local” and “global” knowledge –In spite of globalization, there remain large differences across markets, especially in terms of taste and preferences (both on demand and supply sides) Key Determinants of success

21 Concluding Comments  Telecom sector is a driver of change  Telecom sector is driven by change  There are likely to be huge changes in global landscape –Technology –Integration of Asia into the global economy  This talk has outlined some of the directions of those changes and their consequences  But even the best of crystal balls is cloudy  Adaptability, nimbleness and combining local and global knowledge will be required above all else


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