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Germs of the new paradigm

(Part 2 of ‘What it would take to survive and thrive’)

In Part 1, Krishnan Unni Madathil spoke on how the next dollar is definitely coming from those avenues that flow harmoniously with the overriding global themes of decentralisation, de-homogenisation and individualisation, in the wake of the thematic changes brought about by an event such as COVID-19. Here, he speaks on the importance of IP in the coming world

| | Jul 29, 2020 | 1:13 pm
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I have been trying to identify the key factors that will determine the victors of the coming world, in the aftermath of the thematic changes brought about by the Novel Coronavirus pandemic. Beyond doubt, 2020 has been a pivotal year for the reason that it has seen the confluence of so many pivotal trends that had the world pondering for a great while in the years leading up to it. Six months in, 2020 is turning out to be a vortex into which all these trends are being sucked in headlong. The factors and forces flowing into the vortex will also determine what comes out of it.

The pandemic has admittedly overshadowed so much of our information cycle that we have become somewhat oblivious to the lead factors that had been dominating our prospects for so much of the time heading into the present. Those factors have not gone away or been supplanted one bit; indeed, those processes have accelerated.

I would like to set the scene as follows…

Leading into 2020, the world collectively was on an inexorable march towards material prosperity and fulfillment. Extreme global poverty was on course to being eliminated, visibly encapsulated by the highly ironic statistic that there were nearly twice as many obese and heavily overweight people as there were malnourished ones. Even if there were episodic flashes of doom that were drilled into our conscience, thanks to the continuous news cycle, the general consensus was that things would continue to get better.

And indeed, they would have, judging by the track record.

The preceding three decades had seen, arguably, the greatest spurt of material progress in the history of humanity. That had been helped to a great degree by the fact that the world had avoided the outbreak of a general conflict between leading powers since the conclusion of the Second World War. While the 45 years after the conclusion of the Second World War had been dominated by the tussle between capitalism and communism and was defined by the contest for global domination between the United States and the erstwhile USSR, the avoidance of too many hot wars meant that the several nations, whose economies were brought down to zero after the conclusion of the war, were able to get back on their feet – nations, which today form the bulk of the so-called developed entities as well
as many nations, which underwent rapid modernisation and development, thanks to their alliance and economic partnerships with the resurgent economic powers.

FREEDOM OF THE SEAS

Matters were kicked into high gear with the fall of the Soviet Union, in 1991, with the unleashing of market freedom on several large economies, which were hitherto just lay-abouts on the global economic stage. The 30 years since the fall of the latter, and especially the period since 2001, had been dominated by the World Trade Organization.

Indeed, this period of world history could be called the WTO era.

It would not be entirely correct to attribute the success of the victors of this period to the efficacy of their internal systems, for that would put me in danger of having to take political sides. Politics, luckily during these years, had been rumbling along in the background while trade and economics took centre stage. Just think of the wars we have witnessed during this period: Gulf War 1, Gulf War 2, the Congo War, the Somalian War, the Chechen Wars, the Kosovo War, the Second Intifada, the Afghan War and so much more; not one of them could so much as leave a dent on the galloping world economy.

The WTO era was defined by freedom of trade, and the victors of this era were clearly those nations, which, in retrospect, took early and full notice of the opportunity and jumped into it headfirst.

The WTO era required, at its base, freedom of the seas, which was underwritten by the most formidable naval overseers in the history of the world. The fact that the Americans have been involved, directly or indirectly, in so many of the world’s trouble spots in the interim, is only an indication of the importance of America in its role as the guarantor of world order – a role for which it did not sign up.

Thanks in great part to the burden that the Americans ended up taking on themselves, after finding themselves suddenly as the world’s most well-equipped and well-funded defence force, the guns-versus-butter debate suddenly vanished for an extended period of time for so many of the world’s other nations, which enabled those other nations to divert their attention towards improving the material well-being of their citizens.

Those national authorities that were clever would have recognised this opportunity for its very rarity – very much a Cinderella situation. And like any Cinderella, she had to go home at the end of the night, and that time was limited. And leading up to 2020, it was clear to those who cared to see that sunset was nigh.

Free trade and someone else taking care of international security and, sometimes, your own – whenever would you get conditions like these?

The years since 1991 ushered in what possibly could be seen to be the years of the world’s most intense exchange of ideas at any time in human history. Trade in goods and services boomed, yes. But, the situation was only a sideshow to what was really happening. Like I mentioned in my previous article, this was the time when more of the world started eating the same, drinking the same, wearing the same, talking the same, laughing the same, crying the same, loving the same, hating the same, thinking the same and feeling the same.

All this would not have happened with a mere exchange of goods and services; it had to be something more qualitative, something much more sublime yet more powerful. People have called it globalisation, but those are old descriptions. Globalisation itself – the international exchange of goods – has existed, for all we care, forever. What made this era of globalisation different was the intensity of the exchange of ideas.

THE POWER OF 98

It took 50 years for Gutenberg’s Bible to do the rounds across just Europe. I run my practice, complete with a presence across five time zones, in real time. Just imagine this, the most widespread colonial empire in the world – that of the British– sprang up initially as little more than an attempt to bind different parts of the supply chain of one East India Company into a robust whole from end to end. Back then, it took three months for news to travel from London to Kolkata. I run my East India Company today from a humble headquarters building in Bur Dubai, and it costs me peanuts by comparison!

The device in your hand with which you are reading this article may have been designed somewhere, then assembledon the other side of the world, with the information transferred between the
two centres in no time. The value of the device, really, is in the idea that went into conceiving it. This is not at all an original thought – it has been said that up to 98% of the value of a silicon chip that powers our computers is in the research that goes into designing it. Just imagine – 98% of the value. This figure has great ramifications for the future of wealth creation in the world to come, especially that which will emerge in the wake of the pandemic.

If 98% of value creation is going to come from the power of ideas, then will not the acquisition, protection and preservation of ideas – and those who generate the
best ones – be the defining contest of the future?

The battle for physical resources has, by now, become passé; and that is not really due to the anti-war movement. The resources that were being fought for have themselves become redundant. People like me have grown up in the era of anti-war propaganda, which projected all wars as essentially wars over what lay under the ground, be that anything from oil to copper or from gold to lapis lazuli. A better, less painful and less expensive method exists– why not get those, who live on that soil, to dig up what you want and have them take the trouble of bringing them to your market? Reward them for their efforts, according to the fair market price.

But, resources that lie underground are far easier to control than the most valuable resource of all – human ingenuity. This is limited; the multiplier effect is potentially infinite; and what’s more – it is extremely fickle. You cannot extract genius ideas from people at gunpoint – they need to be given the respect, comfort and security that they demand.

One part of this is the creation of legal frameworks, which will protect ideas and go the farthest in assuring the generators of ideas that they will get to maximise the reward for their efforts and their output and keep as much of that reward for themselves as possible. The other part is ensuring that the ideas are protected sufficiently, both within and across borders. This second one is the harder of the two, since, as we have seen, ideas travel and, therefore, can be robbed, at the speed of light. Donald Trump is on to something with his trade war with China; but he may be seeing the problem wrongly. Trump, like many among us, is sensing something wrong but is unable to specify exactly what.

At the moment, it is ideas generated in the United States that are executed in Chinese factories, leading to mass production and the attendant job creation – in China. It is the working class in the United States that has been bearing the brunt of global competition – for executing the ideas that their counterparts in the innovative classes generate; it has been escaping them, because they have been uncompetitive. Trump is trying to reverse that, blaming China for job losses in the United States. He may be missing one half of the problem. I do appreciate him for one thing, however – he is a businessman and knows that the red carpet needs to be laid for inward investment, whatever the weather.

OPERATION PAPERCLIP

Perhaps, if he placed the labour resources of the United States at the full disposal of the intellect of the rest of the world, would they stand a better chance of finding employment, in turn? Shouldn’t the labour force in the United States be preparing themselves to be of sufficient utility for the rest of the world, so that they may exploit opportunities when they appear? And this is a lesson for all the world’s autarkies – the global consumer market rewards those who are flexible and available to respond to their commands. The greatest power in the world today is the consumer.

The United States is the indisputable magnet for the world’s top intellectual talent. She is an open, free canvas for the world’s most brilliant individuals, and they are willing to pay the necessary price – something for which she has cultivated a reputation ever since Operation Paperclip, when German scientists were given American citizenship, rich rewards and every positive earthly incentive, in return for continued research work, forgoing considerations of their sometimes questionable political ideas. The ideas and innovations generated during that period by those imported geniuses powered American development for the remainder of the century. It is the power of ideas generated and the willingness to lay the ground and make the necessary sacrifices that make United States the leading influence in the world today.

The Chinese, at present, with their factories, are merely the executioners of ideas that are birthed in the United States. The jobs of the future will be created using the ideas of the future, and the ideas of the future will be generated from a concentrated coterie of exceptional talent. The defining struggle in the coming decades will not be over territory or weapons – it will be over this concentrated coterie and their output. Indeed, if nations are still fighting over territory, they are still living very much in the previous century, for the battlegrounds have shifted. And this is a war that will be fought not in the traditional way, through ammunition, but through incentives, like space, comfort, freedom and good graces.

The cheerleaders of old-school warfare in politics, media and the literary fora are really showing themselves for the nincompoops they really are, as well as shedding a light on their sheer intellectual laziness and dearth of imagination in the current day, when they pay so much attention to territorial contests.

The new warfare is every bit as consequential and impactful as the old ones, except that they are won and lost many a time even before execution. These wars are fought at the speed of thought; and it is everyone’s war; it is a continuous, total war, requiring constant effort from everyone. And the way to win them is to make as many correct decisions oneself while giving your competitor every single incentive to make the wrong decisions. Good ideas lead to correct decisions, even when allowing for repeated failures. Bad ideas breed wrong decisions, always. And these forces reinforce themselves over time. The difference between correct decisions and the wrong ones is the difference between a Japan and an Afghanistan.

The power and value of ideas will become relevant for all entities in the world, be they nations, subnational units or private companies. Or, more pointedly, the fact is that the power of ideas has always driven value creation; only that now, with the redundancy of so much that feigns to be essential to the process of value creation – with only two per cent of the value of the product being derived from its actual manufacture – the true magnitude of the power of ideas will reveal itself. Whatever the scenario, whichever the institution, people are on the lookout for sources of value creation.

WHERE, WHAT, HOW OR WHO, CREATES VALUE?

This question may be asked of entire countries or companies.

It is possible today for nearly every item within the income statement and statement of financial position of the contractual fiction, called a company, to be outsourced to a third party, located Heaven knows where. Everything we took for granted as “forming a company’s operations” not even a decade ago can now be done with the help of specialists, whom we never care to see. But, the value generated from the economic unit, called a company, has managed to keep up nevertheless through improved quality or reduced prices. With “work from home”arrangements becoming more common and acceptable, even the physical office looks set to become far less important a place.

In Dubai, we already have entire government departments operating from the homes of its workers, yet delivering close to standard effectiveness of service. Dubai, and the UAE at large, is one of those jurisdictions where the government has taken a head-first leap towards electronic bureaucracy, in common with some of the highly advanced nations. The results are showing in the effectiveness of the state machinery, lightly manned, even in critical times, such as the pandemic we are living through.

Just imagine what this means for some nations; in many places, the “nation” itself is, at times, just a poetic expression for the bureaucracy that runs the place. The offices of the bureaucracy have even become monuments of a state seeking a new narrative for its identity and existence.

Just look at India, for instance. To the average citizen living there, “government” is to be found in the old, red, Raj-era buildings, with the functionaries hiding behind
piles and piles of bound paper; or new buildings built on the same dreary designs, hiding behind piles and piles of electronic equipment.

There is a reason for the stodgy design of the buildings. The stodginess has the surprising effect of giving the bureaucracy a sense of stubborn persistence and permanence; that is to say, those who work there could be relied on at all times, even if only to be predictably unreliable. They would be there regardless of what happened. What a relief! Before, say, 2010, it would have been normal for people,
even in India, to accept government office alibis for delays in work to be caused by an extraordinary situation. Can they really do that anymore and expect the people to meekly accept the delay, now that the paperwork can pretty much be done from one’s sofa at home?

How are government agencies and bureaus in India – or any other country, for that matter – really all that different from private companies, working at the pleasure of their customers? This has been brought to relief thanks to the power of modern communications technology. Already, entire legislature sessions in some states have been held online. The buildings, which used to symbolise the presence, authority and work of the state, have been reduced, through the power of technology now more than ever, to just their symbolic value. The value of this symbolism is huge, but it is symbolic.

What you really are seeing at work is that the natural authority of government is little more than that which the people – its customers – are willing to assign to it.

As a result, so much of what used to be considered essential for a company to be identified as such has become redundant.

Production – can be done by someone else. Distribution – can be done by someone else. Installation – can be done by someone else. Accounting – can be done elsewhere. Debt collection – can be done by someone else. Inventory management – can be done by someone else. Indeed, with advanced, just-in-time systems, you can do away with inventory itself! What’s more – even branding can be done by someone else; indeed, there are off-the-shelf brand names waiting to be acquired for a price from repositories. Even telephone management can be outsourced to specialists located on the other side
of the globe, where it can be done more professionally at cheaper rates.

What this means is that there is room for specialisation of the myriad processes that make up the company; while at the same time, questions arise for existing companies as to what remains once all that is essential is winnowed away.

In such a scenario, what is a company but the ideas of its proprietor or proprietors – its intellectual property? What is a company but the perception of its value, in the eyes of its consumer? What is a company other than the value of its intellectual output? What else differentiates a company – gives it personality – other than the ideas unique to it?

This is the real crisis in the world today – from hyper powers with the world’s most lethal armies to market-leading corporations, and to the average twenty-something on Facebook – what haunts them painfully in equal measure is a search for identity.

And identities are not physical, though they may play off of physical attributes. Identities are intellectual – they are creations of the mind. Identity is intellectual property. And identities exhibit the features of property – they can be owned, acquired, transferred, shared or stolen.

This is why, for instance, it is completely normal for whites and other non-blacks to join in equally vociferously with their black counterparts in the recent and ongoing Black Lives Matter protests, and why legal fictions, such as corporations, have adopted stances on the protest movement. Curiously, the Black identity is not a ‘black’ thing anymore; it has almost become a synecdoche for systemic marginalisation anywhere and of all types.

This has happened, as entities of varying sorts – including individuals, corporations, political parties, nation-states and governments – have found it in their interest to lend their support to, or identify with, a particular cause. That is the power of identity as property – it is owned, and it is tradable, for rewards, monetary or non-monetary. That is the power of intellectual property.

The Black Lives Matter protest movement’s aim is to start a conversation– it is in catalysing this conversation that it finds the reward for its efforts. Its core value is derived from the identity of an affected group and their gritty history of oppression and marginalisation; for the protest movement, this has become its intellectual property. It may not own it exclusively, but in the popular imagination, it has come to own it substantially.

And judging by the events of the past few weeks, is it not clear that they have been spectacularly successful at extracting value from their intellectual property? One of the “successes” of this movement has been in reopening the conversation around notions of beauty, one of the effects of which has been the recent decision by Unilever PLC to strongly consider rebranding their “Fair & Lovely” line of beauty products. A change in the identity of this high-selling product, a fixture in department stores worldwide has been brought about, thanks to the much stronger identity of the Black Lives Matter protest movement.

As companies and entire countries review the size and scale of their operations, in light of the dramatic changes brought about by the pandemic, they are in search of value for efforts expended.

They have to begin by asking questions such as: What core sense of identity are they working from? Are they rentiers or are they strivers? Are they innovators or are they laggards? Are they first movers or latecomers? How do you add value to the lives of your customers – or, in the case of government – citizens? What are you? Why are you? What is your purpose?

Answering these rather primordial questions to one’s satisfaction will give the company or even the country the ballast it needs to push through the current crisis undeterred and emerge on the other side. It will enable the entity to gird together the necessary levers and give it the necessary determination to persevere through the tough times. And in an age where anything can be done by anyone, getting to grips with one’s core identity – defining one’s intellectual property – and proceeding to preserve, nurture and nourish it, is vital to generating sustainable future value.

At a time when it does seem that much of the world is getting back to the drawing board, a basic sense of identity and purpose will help one navigate their way back
to normalcy and rekindle the hopes for prosperity.

 

Krishnan Unni Madathil is a Chartered Accountant, a member of the ICAEW and Audit Partner with Bin Khadim, Radha & Co. Chartered Accountants. He may be contacted at krishnan.madathil@binkhadimradha.com.


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