Lessons From Asia:

Putting Australia On The New Silk Road

 

SEARCC '98

Darwin, 8 July 1998

 

Dr Terry Cutler

Managing Director Cutler & Company

Deputy Chairman, Advisory Board to the National Office for the Information Economy

 

In the emerging global information economy, there is an opportunity for real networking and new connections through which countries can learn together and trade together. Australia can learn a lot from Asia about how to be successful in this new digital economy. In this paper, Dr Cutler looks at how South East Asia can help Australia tackle some of the key challenges of the Information Economy.


Last year Australia's Department of Foreign Affairs and Trade released a report on the world of electronic commerce which was entitled Putting Australia on the New Silk Road . Unfortunately, the text of this report said almost nothing about Asia or trade policy - although it did say a lot of important things about the realities and imperatives of electronic commerce - and only the back blurb elaborated on the allusion to the old silk road as that "vital corridor for trade and opportunity. Commerce flourished; news, ideas, goods and technologies were exchanged; East and West were linked... The Internet is the new Silk Road."

This theme of the Internet as the new Silk Road for electronic commerce seemed too good not to plagiarise as my topic for today at the beginning of this important conference. Seeing our Foreign Affairs people didn't tell us very much about economic history or trade policy, I had to go back to other sources. I had trouble finding much, although Norma Martyn's marvellous travel documentary about retracing the old trade caravans of the Silk Road highlighted some themes that seem relevant to our discussions here: the interdependencies and collaboration - the networking - between traders and trading posts and caravan posts covering many different cultures and traditions was essential to the economics of the business system. Re-reading the travel stories and stories about the fabulous Mogul and Mongolian dynasties reminded me that Columbus' voyage of discovery that accidentally ran into the Americas was prompted by the desire to find a westward passage to Marco Polo's Cathay.

The America that Columbus stumbled into is today the heartland and engine of the emerging global information economy. But the new silk road, the global information highway, will not be complete until Asia's full participation in the new economy is realised. All of our country economies in this region share a common interest in being active participants in this new world order. None of us want yet another discussion in Silicon Valley where the online statistics are simply broken down into the US and "the rest of the world".

Australia, as an advanced OECD economy on the fringes of the Asian epicentre of the 21st century, has a difficult challenge in establishing its credentials as a trading post on this new silk road. So too do most of the South East Asian economies represented here today. What we can learn from each other, and how we can truly understand our need to work together, is one of the opportunities of this gathering.

This meeting is being held in Darwin. Darwin more than any other centre in Australia reminds us how closely our destiny is tied to Asia. The economy of the Northern territory is more tied to South East Asia than it is to the rest of Australia. Darwin is our most Asian city. And the rest of Australia has a lot to learn from Darwin and from Asia.

Confronting the new information economy involves challenging all our assumptions about the way we do things. Many of our traditional assumptions about industry, business, commerce and trade - appropriate for their times and circumstances - will now constrain and distort our ability to capture the possibilities and benefits of a new era.

At a gathering like this, of industry specialists, I do not need to remind you of the amazingly rapid growth of the new Information Economy, and the speed with which it is beginning to impact on the "real world" out there - the world of people who still go cold and sweaty at the thought that they may need to become technology whiz kids. The simple truth is that we have the technology tools, although there is still a lot to do to make that technology better. One of the key challenges is to stop the technology itself being a barrier to widespread usage: the technology of the information economy needs to become much more transparent, much more an intelligent agent for people, for people trying to work, learn, inform or entertain themselves: we need technology as the agent not the master.

The real challenge of the information revolution today is how we work through its economic and community implications, and consciously shape the way it will influence out lives. The stakes are high, but then again so are the opportunities. Steve Case, the chief of America Online, was recently reported as saying that the information economy is now "big enough to matter, but still small enough to shape". This is not a bad slogan for our task of reinventing what commerce and trade is all about in this new era.

The biggest challenge is that of change management, and of cultural change. All of us, whether in government, business, the industry itself, or in community services need that mindset change that will enable us to recognise that nothing is going to be the same again. Ira Magaziner, one of President Clinton's chief policy advisers and US Internet czar, has said that when he was given the job of looking after what was happening with the Internet he began by reading everything he could find about the Industrial Revolution. It's not a bad approach to see what we can learn from the great changes of the past. Looking for similar experiences or looking at comparable challenges can teach us a lot about some of the things that are going to be important for taking control of our destiny today.

What are some of the lessons Australia can learn from Asia?

The Asian experience has some important lessons to teach Australians about change management and innovation, matter which go the heart of our approaches to the Information Economy.

Most Asian countries have gone through huge changes over the past century, changes that would have severely tested most Western communities. One of the most dramatic change processes, common to most countries in this region, was the change from colonial status to independence. It seems to me that there are a lot of parallels between post-colonialism and post-industrialism. (Of course, post-colonialism is something that Australia hasn't handled all that well as almost a hundred years after Federation and self-government we are still agonising over the final step of declaring ourselves a republic!) Like independence movements, the information economy forces us to rethink all our assumptions about the underlying frameworks of our societies.

At the other end of the spectrum, I think we can learn a lot by looking at the trade history of the region. Like Australia, many countries in the region started their international trade roles as a source of commodities for remote trading powers. That was part of the common colonial legacy we share. But the Asia-Pacific region, as a trade centre in its own right, provides some interesting contrasts.

There is a powerful analogy between the policies required to develop electronic trading hubs and the policies which were successful in developing South-East Asian trade ports by trading nations during the colonial era . Dutch and Portuguese ports which provided exclusive rights to their own ships were relatively unsuccessful. The free-trading British, and the Singaporeans after them, achieved far more in terms of both trade development and sales of port services. They offered port services to all comers irrespective of nation or cargo. By doing so, they achieved a number of things:

The parallels between the history of Hong Kong as a mercantile port and Malaysia's Multimedia Supercorridor initiative to create an online trading post are compelling and instructive. Another parallel is between Singapore's past success and its present initiatives such as Singapore One.

One major lesson Australia can take from the Asian experience is the courage to be innovative. It is worth remembering that Prime Minister Mahathir's landmark speech Global Bridges to the Information Age in Los Angeles during January 1997 spelled out a radical Bill of Guarantees for Malaysia's Multimedia Supercorridor well in advance of Clinton's July 1997 e-commerce statement. This Malaysian initiative remains one of the most ambitious and forward-looking set of commitments to industry development we have yet seen. Just to remind us of the radical nature of these guarantees as innovative "stakes in the ground" I have attached a copy to the handout version of my notes. The same innovative leadership comes from our colleagues in Singapore, aspiring to be a Venice of the Twenty First Century and brave enough to tackle adaptation to the new Information Economy as "an experiment in human society" .

The point is frequently made that the developing countries of Asia have had a major infrastructure advantage in being able to leapfrog into the deployment of advanced digital networks whilst most OECD countries struggle with the challenge of replacing obsolete plant and equipment. This is true, although we all face the common challenge of rolling out the new infrastructure, whether network facilities or PCs, countrywide so as to ensure all citizens have access to information and communications. A point made less often is that many of the real cases studies for the innovative deployment of access technology, whether satellite systems or wireless local loops, have been in Asia, Africa and South America. Many of our country Australians look North with envy, as they lament the lack of innovation in the deployment of low cost, low density services in rural Australia. Hopefully the sheer scale of Asian rural markets will mean that we can reap the benefit of economies here in Australia.

Asia is also becoming a role model for policy and institutional innovation. Numerous Asian governments are directly addressing the issue of convergence policy and legislative and institutional change - generally with the intent and effect of removing barriers to industry development - with a comprehensiveness and focus that is not yet matched by OECD nations. I see many ASEAN countries tackling the implementation of "next generation" regulatory models whilst it has only recently become a discussion topic for the OECD. Malaysia, for example, is in the process of enacting important new and enabling convergence legislation.

Finally, Australia can benefit greatly from the vision and leadership provided by Asian leaders. As a young teenager, I still remember the spine tingling excitement we felt when US President JF Kennedy spelled out his vision for tackling what was then wrongly described as the last great frontier of space. Today it is ASEAN leaders who are providing that vision for the last great frontier of cyberspace. For too many Australians the vision thing is about celebrating the inspirations of the past, not the future. I am reminded of the teaching of the Master from the Analects of Confucius, in our Australian Simon Leys' splendid recent translation: "A man with no concern for the future is bound to worry about the present" .

What are some of the common challenges? What is the agenda for working together?

In terms of trade issues, the key to developing electronic commerce in Asia will be to provide relevant local content and services. This challenge is already emerging in Australia, where a relatively immature market is already characterised by pronounced trade imbalances resulting from the spending patterns of local online consumers. Visa International, for example, estimates that 75 percent of Australian online expenditure has been with Internet retailers from the United States, with a further 10 percent spent in other foreign jurisdictions.

As the online purchasing volumes continues to grow - in Australia's case, more than trebling in size over the past year - narrow and defensive national online strategies will be insufficient to ensure sustainable economic development in the emerging global information economy.

Last year, the Australian Government moved to establish a new National Office for the Information Economy, with the charter to ensure a comprehensive action agenda for our Federal Government and to facilitate a co-ordinated "whole of government" approach to issues. I am pleased to be involved on the National Office's private sector Advisory Board. As a Board, we see our value-added in helping to set the agenda for action and to prioritise effort around the main game. This last April we held a national summit on electronic commerce at Parliament House in Canberra. The communique from that summit encapsulated many of the priorities identified by the Board. I believe that there is a short list of absolutely fundamental issues that Australia, and the region, must address if we are to capitalise upon emerging opportunities. Some of these issues involve dealing with threshold barriers to effective electronic trading. These priorities include:

  1. addressing the market failures of equity financing, and removing the capital gains tax impediments which inhibit Australian technology-based start-ups and new service industries. We must work on building a positive investment climate for financing the innovative and technology-based entrepreneurial activity that everywhere is fuelling the new growth industries of the information economy;
  2. ensuring an affordable computing and high bandwidth telecommunications infrastructure is widely available (and taking care that Australia's regional economies and rural areas are not bypassed). Access to high capacity bandwidth at world competitive prices is a starting ticket for being a producer as well as a consumer of electronic commerce;
  3. building consumer confidence in the use of online services and e-commerce through promoting robust mechanisms for privacy, the security and authentication of transactions and consumer guarantees;
  4. building producer confidence through ensuring appropriate Intellectual Property protection and working internationally to implement commercial codes for doing business electronically;
  5. developing Australia's educational curricula and training programmes to ensure the adequate supply of skilled knowledge workers for this new economy and these new markets.

    The flow of human capital is set to have a profound impact on the competitiveness of Asian economies in the information age. The two most important ethnic groups in Silicon Valley, for example, are overseas Chinese and Indians. For its part, India sends almost one third of its information technology graduates to the United States. Down in Los Angeles, the young British actors of the Hollywood Cricket Club - once a lonely oasis of Anglocentric civilisation - are now routinely trounced by visiting Indian teams from Santa Clara. All countries and companies in the region are reporting skills shortages and the spiralling cost of recruitment as one of the key constraints to the development of a robust electronic commerce sector. The availability of a stable, skilled and flexible labour market in the information and knowledge industries is now a key source of comparative advantage; and

  6. launching a concerted e-commerce awareness campaign to business no less energetic than the Millennium Bug blitz.

At the level of the individual firm, I believe that too many Australian businesses are continuing to live in a fool's paradise as if life will continue as normal. If you think I am being extreme, just reflect on how hard it has been to get people to get serious about the Millennium Bug, the challenge of the Year 2000 for business systems.

The Year 2000 challenge should remind us of the all pervasive role of information power and IT&T within our economy. The health of simple little computer chips and software code will determine whether, on a single day, planes fly, lifts work, telephones ring and money moves around. Fortunately task forces are multiplying, but we need to remember that this is not a one off event. The mobilisation to confront the Millennium bug should wake us up to the sheer magnitude of the challenge to firms and industries of shaping up for the information economy.

We now have a situation where the Australian Stock Exchange and insurers are demanding that firms conduct and sign off on a Year 2000 audit. What we should now do is to promote the idea of an "Information Economy" compliance audit for businesses. What might such an online readiness audit cover? Here are a few suggestions:

We need to work harder to ensure our firms and industries "buy into" the new economic order and, in so doing, change our national balance sheets. We are living in times of revolutionary change, and we in the industry need to become radical change agents.

As a region there is a lot of scope for us to become more active in shaping the key operating environment underpinning electronic commerce. Some of the key infrastructural issues involve:

I strongly believe that we should work to develop stronger bilateral and multilateral frameworks for joint action within the region, not only at Government level, but also between industry associations and industry operators. An active regional network of collaboration and strategic alliances could :

Active collaboration will help ensure our regional economies have timely and effective access to the tools for electronic commerce. A robust electronic trading environment within the region will promote global diversity and balance in the development of the Information Economy into the next millennium.

Let me end as I started, with openly confessed plagiarism. One of the most important books for 1998 is David Landes' The Wealth and Poverty of Nations. After a brilliant survey of trade development over centuries and the rise and fall of trading nations he ends by saying:

"In this world, the optimist have it, not because they are always right, but because they are positive. Even when they are wrong, they are positive, and that is the way of achievement, correction, improvement, and success. Educated, eyes-open optimism pays; pessimism can only offer the empty consolation of being right.

The one lesson that emerges is the need to keep trying. No miracles. No perfection. No millennium. No apocalypse. We must cultivate a sceptical faith, avoid dogma, listen and watch well, try and clarify and define ends, the better to choose means."

I cannot find a better way of summing up the best approach to the new Silk Road of electronic commerce and the global information economy.


Communique from the Canberra Summit on eCommerce

issued at 5pm Friday 17 April 1998

Australian business and consumer leaders, meeting with Federal and State governments in Canberra, note that:

Summit participants call for the establishment of an action agenda, which should focus on:

Too many Australian businesses still regard the prospect of e-commerce as important but not urgent. Too much is at stake to wait and see: we need to build Australia's economic future now.

 

CANBERRA April 17, 1998
[Parliament House]