Managing the ‘great transition’ as the digital economy takes hold

Right now the global economy is beset with low expectations; trade is at its lowest point in 20 years, many of the world’s economies are teetering on the edge of depression and investment is barely keeping ahead of depreciation.

For businesses, this means we have to plan for much leaner margins and invest in technology. It also means the economic assumptions that have underpinned our industries are probably going to be challenged.

The Great Transition is a report by Colonial First State Global Asset Management that looks at the reasons and some of the effects of this change.

Senior economic and market research analyst James White suggests in the report that the current state of affairs is a permanent shift as global productivity rises due to Chinese production and the widespread digitisation of most industries.

Compounding the problem, in White’s view, is the traditional measures of economic growth understate the size of the service economy, as between 10-20% of transactions go through the ‘black economy’ in most countries.

In looking at their own field, the Colonial First State researchers suggest that investment strategies are going to change as ‘capital light’ industries begin to dominate advanced economies.

While White and his co-author Stephen Halmarick are optimistic about what the changes mean, and suggest a focus on people and attracting global capital as the key to competing during the Great Transition, the challenge is for policymakers to increase human capital in their economies.

The question though is what can individual countries do to be competitive in this context? While nations like Switzerland and Singapore can quickly develop pro-investment policies, it’s harder for larger and more diverse societies.

Perhaps the services-driven economic model is really only one for high wealth, small nations with well trained and skilled workforces? If that’s the case, then the Great Transition might be a tough time for many of the world’s developed economies.

For businesses, we need to understand where our companies sit in a low growth world. The assumptions that have driven our industries and marketplaces for the last 50 years no longer hold true as technology changes the world.