Competition creates incentives for success
The EBRD has taken a fresh look at its definition of transition and defined a set of six “qualities” which make for a sustainable, successful, modern economy.
Panellists agreed that the first decades of this century have witnessed a dramatic acceleration in the speed of innovation. Herman Gref, CEO of Sberbank and former EBRD Governor for the Russian Federation, said that the breathless tempo of change has, in turn, precipitated huge social change – and a change in the very nature of competitiveness.
“There has been a revolution in data mobility,” he said, “bringing a massive transfer of knowledge and the globalisation of data.”
These factors alone have shed a different light on competitiveness and markets – and have had a knock-on effect on the nature of jobs, and on the economy and society.
“Embracing technology and innovation brings more prosperity,” he concluded.
And what of regulation? How should governments treat and regulate companies that are everywhere and nowhere? There is no clear consensus here according to Maria Demertzis, Deputy Director of Bruegel, for the boundaries of markets are constantly being re-defined.
She noted that “take-overs” of start-ups by large, established firms are a good way of establishing innovation. She also underscored the incredible speed of the digital revolution and the importance of ‘sharing platforms’ and the ‘sharing economy’
She said: “these exploit assets that would have otherwise been underutilised, resulting in a more efficient allocation of resources.”
The murkier question of the extent to which the sharing economy and new, flexible means of working are additional to, or crowd out traditional sectors remains. Whatever the answer, collaborative platforms continue to expand to multiple countries with a measurable social impact.
What of the EBRD countries of operations in Eastern Europe and the former Soviet Union where economic growth has been less than expected?
According to Simeon Djankov, Professor at the London School of Economics and former Bulgarian Deputy Prime Minister, the reason for this slow growth is two-fold.
“In a variety of sectors,” he said, “there are one or two high production companies with a long tail of unproductive companies. The vast majority of the latter are not run well.”
As for the social sector (healthcare, education, and the like), “this is 30-50 per cent as productive as its equivalents in the west, though it represents a large proportion of GDP.”
The source of the problem here is continued state control of these sectors and limited private investment.
No doubt the digital revolution will continue unabated, as will ever-accelerating innovation.
These irreversible elements have altered the very nature of competition, forcing regulators, investors and companies to re-think the definitions of market boundaries.