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Mr. C. Smadja
Mr. C. Smadja,
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ADDRESS OF MR. C. SMADJA,
MANAGING DIRECTOR,
WORLD ECONOMIC FORUM
I would like to tell you that I feel privileged to be among you this morning. I feel privileged as the Managing Director of the World Economic Forum, a foundation which regroups one thousand of the foremost corporations around the world, because as Mr. Hammar said before, what we see here is quite a convergence of preoccupations and priorities. Let me submit to you something at the beginning. What we are going through today is a revolution which has no comparison in modern history. What we are going through today is, in terms of its implications, in terms of its magnitude, much wider, much more far-reaching than the industrial revolution that occurred at the end of the 19th Century. The name of this revolution is globalization. What are the three driving forces of globalization?
One is the digital revolution, the revolution in information technologies, the revolution in communication which means that the notion of time and distance has become irrelevant and obsolete, which means that every day, year in year out, hundreds of billions of dollars can change hands just bya few punches on a computer keyboard.
The second component of this globalization revolution is the collapse of the communist system, the failure of the socialist ideology and then the sweeping wave of liberalization which has happened around the world. And in some respects it is an irony that the countries which were most closed to foreign investment, the countries which were most reluctant to foreign business interference in their national economies, are today among the countries most actively looking for investment. We think, of course, of China, India, Vietnam and so on, and this means one very simple thing which is in itself an earthquake change. In the last fifteen years 2.5 billion people have entered the world market and to put it very simply these 2.5 billion people want quite legitimately their share of the pie. They want to be part of a club which means that the club of the world economy has completely changed in terms of its shape, in terms of its rules, in terms of its nature.
The third vector of this globalization revolution is this: it is a fact that for the first time in human history we have a situation where you have three key centres of economic power - Europe, East Asia, North America - and these three key centres have achieved what you might have called during the Cold War, a situation of strategic economic parity, which has a very simple implication: no country in the world can pretend to dictate the rules of the game. No country can claim pre-eminence, no country can give itself the right to decide what is right and wrong, the right to give good and bad marks to competitors or partners. So what does this globalization mean? It means a new world of international mega competition. This mega competition has one implication - the tremendous and ever-increasing pressure on the cost structure of the corporations. Because the process of delocalization has meant for the corporation the unending search for cheaper and cheaper production bases, the unending search for leaner and leaner management structures. Because this is the only way they can sustain a competition where you face pressure not only from the countries and corporations which are in the same league that you are in, but you face competition for the new entrance in this world market and you are always in a situation where somehow in one domain or the other you trying to catch up with your competitor.
But this new world of mega competition also has a key implication for the life and strategies of corporations. It means a cut-throat search for achieving a situation of predominance on what will be more and more the commanding heights of the world economy, the domain where you achieve the highest possible margin of added value. And if you are not in these commanding heights of the world economy, in the medium or long term you are dead in the water. And what are today these commanding heights of the world economy? Where are the domains, the sectors, where you create the highest possible added value? Telecommunications, information technology, media, communication, these are the domains which are today creating jobs whereas in all other domains you have a situation which was described by my predecessor at this rostrum. Which means that in the new world of mega competition it is increasingly a war where the winner wins very big and the looser loses everything. It is a new situation of winner take all. If I want to go to the extreme, and I am a little bit caricaturing, but this is what we live today - the new world of mega competition is a war without prisoners and this is what companies, governments, societies have to prepare for and, for instance, it is because Europe was so badly prepared for the process of globalization that today it is stagnating, with record levels of unemployment that no government-spending programme can hope to cure in the coming years.
In this new world of globalization, of mega competition, what do we see? We see a situation where high productivity, high quality, high technology are no longer linked to the notion of high wages. We see a new world where instead of creating new jobs, high productivity is destroying jobs. This is, of course, a transition period, but nobody knows how long this transition period will last and we see a situation where there is a complete delinkage between the fate of a corporation and the fate of its employees. If I want to put it in extreme form, you might say that the better the corporation is today, the shakier the fate of the employee has become. So in this new world what are the recipes not only for survival, but for success? How will corporations and countries sustain this tremendous and ever increasing pressure of global competition? I would submit to you that there are four golden rules which need to be followed.
The first rule is that you need to drive on flexibility, versatility and speed. In the old economy it was the big fish which were eating the small fish. This is irrelevant today. Today it is the fast fish which eats the slow fish and it is no longer a question of size. It is a question of flexibility and speed - the ability to identify the new opportunities and to go to them very fast, adjusting your strategies and your structures.
I would submit to you that the second rule is that today you don't base economic power on raw materials or the reserved currencies that you have in your central bank. You base economic power on three elements - knowledge, communication, network. Knowledge - the ability to create knowledge, the ability to transform information into knowledge and to channel this knowledge into the creation of added value and the ability to recycle this knowledge on a permanent basis. Communication - the ability to convey your goals not only to your staff or your countrymen, but to convey your goals on a much wider basis and to integrate people into these goals and into this objective, to make them be part of them - otherwise you run into tremendous difficulties.
The third ability is the networking ability. If you are not part of a web of networks, not only one network but a web of networks, if you are isolated, whatever your strength you are dead in the water in the medium term. And when we say the networking ability, we are talking about the capability to manage and to master to your own advantage a more and more complex set of relationships. Because today your partner is at the same time your competitor. Because today your supplier is at the same time your customer, and we have seen that companies which for instance have broken corporate loyalty have found themselves suffering because they discovered that by breaking corporate loyalty they have started to endanger customer loyalty to their services or products. And this is why you see also the emergence of this new word - and it is no chance it was created in the United States - "co-opetition", the ability to manage a complex mix of corporation and competition.
And then, the third golden rule is that those who thrive in this new global economy are those who can achieve the situation where they secure for their people a process of permanent education and training, and it means something very important with respect to the role of corporations and governments in ensuring that you have a process of training which I would say would go from cradle to grave. And once again it means quite a partnership between corporations and public collectivities in that, if you don't have this kind of setting allowing for permanent education and recycling of knowledge, you cannot generate the knowledge, you cannot generate the much needed higher and higher added value.
And then the fourth element: today a redefinition of the role of government is required. Bill Clinton said a few months ago that the era of big government is over. I would say that things are going very fast and this point is already obsolete. The question today is not whether it is a big or small government, the question today is how do you make government function? You can have very small governments which are as inefficient as big governments and although they might spend less money if they don't fulfil their responsibilities in creating the most conducive environment for the creation of a higher value, they are not fulfilling their role.
How do you redefine the role of government in order to be able to create this higher productivity? On the one hand, the government has to cushion the impact of globalization on the most vulnerable part of society, but at the same time it has to make sure that by doing so it is not diverting whatever resources it has to unproductive ends. But there is also the need for a redefinition of the social responsibility of the corporations. Corporations which think that the era of globalization might mean the return to 19th Century capitalism are making the greatest and most dangerous strategic mistake for their future.
I think today we see a situation where the notion of the social responsibility of a corporation is heightened, highlighted, emphasized by the new global economy, instead of being reduced and diminished. We spoke about the responsibility of the corporation in the permanent cycle of training and relocation, but it means also that no corporation can expect to continue dumping redundant work force in the hope that the collectivity will just take care of that and it will be on the one hand the accumulation of profits and increase of profits, and on the other hand the social cost being dumped on the collectivity.
And then there is the need for a repositioning and a redefinition of the role of the unions. The unions have failed in this first part of this decade because, confronted with the shock of globalization, they have been stuck into defending undefendable status quo positions - undefendable because they could not sustain economic rationality. So the question today is what is the role of the unions? Not only in defending the status of those who have a job, but in helping create new job opportunities for those who are desperately seeking for them, and today the role of the union has been more on the status quo side than on the proactive side and this has to change if the unions want to find again relevance and efficiency in this new world of global competition.
The globalization revolution and the digital revolution have no preordained course. It is not meant that they will necessarily lead to a better world. By themselves they are just mechanical forces acquiring an ever greater momentum. In view of the magnitude of the changes that this revolution is bringing, there is a need, an absolute need, to regain control of these forces which have been unleashed. There is a need to make sure that these forces we have at the end of the day result in making the gap between the knows and the know nots, between the have and the have nots, narrower and not wider. And if we want that at the end of the day this globalization revolution, this digital revolution fulfil the goal of making life better for the widest majority of mankind, it means something very important - something which doesn't exist today but which is urgently required. It needs a new partnership between business leaders, government leaders, union leaders, the intelligentsia. Of course each of these segments has its own specific goals, each of these segments has a constituency which it must in some respect obey. But beyond this specific interests I do believe and we do believe at the World Economic Forum, that you can create a new partnership based on a convergence of the broad orientations which need to be taken today. I think it is for us to show that we are up to the challenge that the globalization of a world economy is creating - I think it is a historical challenge, I believe that it is a challenge of unprecedented magnitude in the recent history of mankind. And I do believe that if we want we can prove that we are up to this challenge.