National interests

All nations are in competition but the governing force of nations is the interests of its society. Markets are a useful tool in achieving many of these aims but it should not be forgotten that the governing force of markets is self interest.

Where possible, a Hayekian approach of allowing markets to form with a light touch is desirable. But markets will exhibit modes of failure where self interest outstrips societal interests. In such cases, standardisation of a market, the use of regulation (see Adam Smith) or the deliberate forcing through investment (a Keynesian approach) become necessary. Markets often exhibit inertia to change, they are often short sighted and hence drastic changes have been required throughout history.

But intervention should not be the first step, a market should always be allowed to develop and where possible defacto standards allowed to grow as long they do not interfere with the societal interest nor impact the free functioning of the market.

Whilst the majority of ground breaking change comes from Government funding, the market has a very important role to play. The interests of individual players in the market should therefore not be allowed to interfere with the overall contribution to innovation by the market, no matter how paltry it might be.

This balancing act, the use of the market as a tool (rather than an ends) is a difficult but necessary art. Learning to game the market, to use it as a tool, to know when to invest, to know when to interfere, to know when to leave alone are not easy choices. Since our nations contain many lines of business then playing the game in different ways with different industries is almost always needed. In some you invest, in others you regulate.

But anticipating or exploiting markets effectively requires some understanding of the points of change along with a detailed understanding of the landscape. For example – the effects of big data, intelligent agents (e.g. self driving cars), 3D printing and nano-materials will vary between industries. In Transportation, big data may allow for more efficient competitors. But self-driving cars will introduce automated fleets and potentially disruptive competitors. 3D printing and nano-materials may also fundamentally alter the nature of what is transported and potentially be highly disruptive.

The same changes will have different effects in other industries, for example in Healthcare where all four points of change are likely to be adopted as sustaining changes rather than disruptive e.g. big data improving diagnosis, self-driving cars introducing more efficient ambulances, 3D printing allowing for organ creation and nano-materials impacting surgical devices and procedures.

In the case of Transportation, you might choose to take a Keynesian approach and invest in order to force companies to overcome their inertia and adapt to changes. In the case of Healthcare, you might choose a Hayekian approach (more hands off) for the time being. Effective management requires the use of multiple techniques specific to the market rather than blunt one size fits all approaches. You should never be Hayek or Keynes any more than a project should be Agile or Six Sigma. You need to be both. Despite the fervent belief of some that one is better, it's worth remembering the saying "Who cares if the cat is black or the cat is white, as long as the cat can catch the mouse. That's all that matters".

Understanding the landscape that industries operate in also allows a Government to anticipate the likely effects of points of change beyond simply noting that points of change are occurring. It allows for more effective gaming of the market assuming a Government can change it. Fortunately there are many means that Governments have at their disposal from investment, taxation, nationalisation, regulation and the all important 'do nothing'.

So why do I mention this? Because the loss of net neutrality has serious long term competition issues. The fragmentation of the internet into 'paid for services' can impact wider innovation. The choices Governments make whether to regulate, whether to nationalise, whether to use taxation and whether to allow market self interest to govern will all impact the future prosperity of those nations.

Hard choices need to be made including whether to do nothing. Personally, I'd keep a close eye on China as they seem to have built considerable experience in gaming markets to their favour and using the market as a tool for their own ends. Their ability to grow whilst balancing issues of social mobility is something to be highlighted.

The US on the other hand appears to view the market in almost reverence, as though the market itself is some force for good. It wouldn't surprise me if the US drives ever closer to a laissez faire system. The distinction between the two nations is most sharply contrasted in their gameplay towards virtual currencies such as bitcoin.

Though many excuses are made, China's rise and eventually overtaking of the US as the world's dominant economic force and centre for innovation will almost certainly be down to better gameplay by the Chinese Government.  As the old curse goes, 'May you live in interesting times' ... well, the next decade should certainly be that.