Professor Hans Rosling is an interesting fellow. In his documentary Don’t Panic: How to End Poverty in 15 Years, which details the United Nations’ plan to end poverty in 15 years, he describes two paths to economic prosperity while improving the human condition. These paths have great importance to the supply chains of the future.
The first path he describes is one that, historically, has been taken by the USA, Great Britain and many countries guided by the World Bank. It is an invest in the economy approach where GDP growth is the priority. The second approach, taken in modern times by other countries such as China and South Korea, is an invest in people approach. The first approach sees an improvement in the economy followed by improvements in the human condition whereas the second shows an improvement in the human condition followed by improvements in the economy. Both approaches appear to the end at the same point.
What is interesting from a supply chain perspective is not that they appear similar at the endpoint; the question is are they similar as a starting point for the future?
Dr. Rosling uses GDP as the measure of economic growth and infant mortality rates as a measure of the human condition. He argues that infant mortality is a proxy of education, health care and other people investments. Don’t get distracted with ideological thoughts of capitalism and socialism as these are outdated concepts carrying too much baggage which prevents clear thinking. In fact Drucker, in his book Post-Capitalist Society, claims China is one of the few remaining Capitalist countries and that the USA has achieved what Karl Marx envisioned through pension funds.
The investments in education by the human condition countries appears to provide a significant advantage. Education at a Glance 2014, a publication by the Organisation for Economic Co-operation and Development (OECD), shows significant contrasts resulting from the two approaches. Countries like South Korea show a substantial increase over the past decade in the percentage of younger to older tertiary-educated adults and major improvements in literacy rates whereas the USA has had no change in the percentage of younger to older tertiary-educated adults and suffers from the lowest literacy score for those with below upper secondary education of the countries reported. This is a considerably different profile than 25 years ago.
What the educational data suggests is that the world is catching up to and, in many cases, surpassing countries that were traditionally on an economy first path. Since innovation is enabled by education and innovation leads to new company formation and economic growth, the centers for economic growth will migrate or, better, disperse away from those countries in dominance today.
Since World War II, the USA has played a dominant role in the world’s economy and its Silicon Valley has been an astonishing center of innovation and creativity. Areas like product development, financing and manufacturing have evolved rapidly under this leadership. Their supply chain contribution has been significant with models of horizontal specialization, outsourcing, systems integration, inventory management and more. Going forward, others will build on these achievements with the locus becoming increasingly international. Good paying jobs will go to the best educated countries and new corporate headquarters will emerge amongst their centers of innovation.
In trying to understand the implications for supply chains of the future it is worthwhile postulating a third axis to Dr. Rosling’s work. Given that he was looking at ending absolute poverty in 15 years, the axis I have added looks at relative poverty where I show frustration as one extreme and hope as the other. With this axis (see video), our two dimensional graph gains depth to suggest that the starting points for the future are not the same. I have replaced child mortality rates with a human condition axis where down indicates improvement. I postulate that the human condition path positions a country more toward hope than frustration. In the 3-D video, I project this difference increasing in the future with human investment countries also achieving higher GDP levels more quickly.
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There is evidence to support this reasoning. Using the USA as the economic investment example, one only has to look at the widening gap between the rich and poor, a shrinking middle class, incarceration rates, education debt burdens and medical costs (amongst other factors) to draw this conclusion. How the two paths continue is a matter of speculation but it appears that investment in the human condition is, in fact, the best investment for the economy.
If this is true, then not only will there be a supply chain value migration toward countries on a human condition investment path but also a shift in market as the consumer’s ability to purchase will also align with the economic trend. Job, innovation and new company growth migration will create hope or despair depending on which investment path is pursued. We know that the economy is primarily driven by new technologies and new companies; nothing ties these to a particular nation or geography. Low paying jobs such as those in health care, retail or fast food are tied at the region or nation. Higher paying jobs and new company growth are not. They are becoming increasingly global and more mobile making a country’s path choice critical for its citizens.
One of the most significant impacts on the electronics supply chain in the past 15 years was the European Union’s introduction of RoHS. This Restriction of Hazardous Substances directive forced all companies wanting to sell into the European market to remove hazardous substances like lead and hexavalent chrome from their products. This was a brilliant and disruptive move which accomplished several things:
· It was a positive step to improve the environment, a move consistent with improving the human condition,
· It gave time advantage to European Union companies by getting them ready sooner to serve the market. Foreign firms would take time to learn of the initiative and its consequences,
· It completely changed the manufacturing processes of component and product manufacturers,
· It had global impact, and
· It showed new conditions driving the economy.
Consistent with RoHS as a human condition supply chain driver, ethical sourcing and sustainability will become foundational elements of supply base design and advantage those companies and countries taking the lead.
I have argued that there is an imminent shift coming, both in the global consumer market and in the focus of wealth creation, favouring countries on a human condition investment path. Countries who are not on this path need to think hard and reinvent themselves in the same way that surviving companies in industry do – IBM is an excellent example. Along with value migration will come changes in supply chain practices and technology.
This is my opinion, what do you think?
Ken Bradley is the founder of Lytica Inc., a provider of supply chain analytics tools and Silecta Inc., a SCM Operations consultancy.
