Monday, March 17, 2008

Why China won't win

The events in Tibet have brought this front of mind: I'm starting to wonder if the Chinese economy really can continue to grow to become the world's biggest - eventually outstripping the US- as everyone seems to predict.

I know all that stuff about the cycles of empires (for example) and I'm not suggesting the US will remain No1 for ever. But I do believe that the 'empire' that dominates in the future will be:

1. Closer to an edge-in rather than centre-out command and control economy.
2. Less dominant (period)
3. Dominant for less time

Why am I sticking my ill-educated nose into geo politics?

I think the network disrupts where ever it touches - and economics and politics are no different.

So a society which emphasises control is less likely to win against one which allows its nodes to connect and reconnect in groups of its own choosing ( a la group forming network theory).

China has a living, breathing illustration of this within its borders, the Chinese motorcycle industry operates without the regulation of the Chinese government. Small groups of manufacturers choose to co-operate to create new models, together. Their nodes form and reform into the most effective groups to solve each problem they face.

The result is the world's largest motorcycle industry.

The same cannot be same of the Chinese car industry, which is controlled by central government. (reference: Wikinomics).

Tibet, Google, The Car Industry... China is only playing at allowing the network effect to permeate its economy. Doing fantastically well at the same time - but that's a scale thing.

Imagine if they really gave up control from the centre. Then the rest of us really would need to worry.

There are plenty of other nations/economic actors who have the technology and the mindset to enable the exponential growth of the power of the network. Look elsewhere for your winner.

On a global scale, the fact that the power of the network enables the long tail (more in this paper) the influence of the biggest player has to be much reduced (the 'hit' economy ends up responsible for roughly 15% of the value, the rest is in the long tail. The hit economy is still a good place to be, just not as good as it was in a less networked world.

I can imagine conglomerates of smaller players recombining time after time (in a self-forming group way) to become the next dominant grouping.

It's going to be an interesting century - one in which the old rules no longer apply.

Reality check: This isn't only about empires - it's about the way your business functions.

The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?