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Disruption of nations by globalization

In Friedman's book "The World Is Flat" you find the expression "creative destruction on steroid". Recently I've been hearing this term more frequently, probably not all have read the book, but the expression does seems appeal to many. In a recent debate on service science we got from the economic crisis to that expression. You could understand this as "flattening is a disruptive innovation". It seems to be a disruption of nations, by globalization and the rise of a new order. Let me outline what I mean with that.

First of all, let us look at the idea of flattening. By our innovation on both technology tools (like broadband) and non-technological tools (like WTO) we find ourselves in a world where every one can compete with each other. So globalization has leveled the competitive playing ground. Now disruptive innovation talks about a whole new way of doing business, the flattening is clearly realizing this. We see similar patterns with other disruptive innovation: the concept creates a whole new market or ways of doing business in that market. Market, companies and supply chains get disrupted in the process. Disruption is a good think for the customer, not for the incumbent organization. If the organization is not capable of adapting to the new game, it gets bankrupt. With the flattening, that organization is a nation ..... we do see nations at the edge of bankruptcy by the bank-crisis.

The question is how the bank-crisis relates to the flattening. For this, we need to go deeper into Christensen's concept of disruption and understand "the death spiral from inadequate growth". When a company is put under stress, it will reorganize and cut costs. That may kill the new growth the company was creating. So it solved the direct cash-liquid problem but created an even bigger gap to the future growth of the company, leading inevitably to its dead/bankruptcy. Now, replace company by nation, and we come closer to the bank problem. Just before the crisis the real-estate market was spinning out of control. Mostly because many people thought the growth would be lying there and banks created there business models around it. However, new growth is not something you can invent, I'll get to explain that right away. The thing is that the fake growth is similar to the fake solution to the cash-liquid problem. It was a fake solution.

So why can't we invent growth and what makes a solution fake? To understand that, we need to understand schumpeter's "creative destruction" better. One very good book is Mokyr's "the level of rise" and add to it De Soto's book of "The Mystery of Capital", you get an interesting cocktail. The first book will give you a technological history of schumpeterian growth and show how growth is related to creative destruction. The second book will explain how you can not fake the essence of capital, but you have to understand the social contract that can make it visible. De Soto perceive the issues from a pure legal and trading point, to make it more inline with the concept of technological innovation we should include Latour's concept of socio-technological relation of innovation. Think of it this way, the social-contract is related to the technology you can use. For example, today's intellectual property on music and video is under pressure as digital media made them so easily exchangeable. The social-contract to pay the artists was entwined with buying a record-plate, but that social-contract got disrupted by the technology.

The conclusion is that growth has to be discovered, not invented. We invent regulators to deal with what we discover, with what we unlock. Only such regulators are real solutions, all the rest is fake and doomed to fail sooner or later. Even the regulators may soon get disrupted by new unlocking discoveries. Let's get back to the disruption of nations by globalization. To understand how a new stability can arise, we need to understand the forces of opening-up (the destructive part of creativity). From a systems perspective opening-up will most likely be the result of a new meta-system that regulates now. It explains why a fit situation becomes suddenly unstable. Only by the fitness on the meta-level do we understand the destruction on the sub-level. Like our bodies making and breaking cells. The creation of organizations and technology allowed to create a global playground, it is now defining the rules and the nations are scrambled, disrupted and need to adapt to the new rules. We see many nations adapting at this moment, putting all there effort in a new race between nations for the best education, healthcare and other sustainable services so to capture the flock of people that can produce growth for the nations. It is explained in Fiedman's book "the world is flat", but also in Florida's books "the rise of the creative class" and "the flight of the creative class". Not to mention that it is thé topic of the new VS president Obama and top priority for many other countries. In Florida's book you actually see more clearly how to serve that creative class of micro-entrepreneurs. It seems a more accurate answer than the idea of knowledge workers, but more about that in another blog.

Many optimistic people say that our current crisis may well be the best opportunity we had to boost ourselves into a new golden age. I would say, let us hope that we can understand discontinuous innovation better so to avoid a crisis in the future. We didn't need this crisis, a crisis is the pattern of the incumbent that refused to see the new rules, a wise man would have adapt to the new rules before it becomes inevitable or comes by great cost.