Conversely, the power -- or perhaps we should say the freedom from government supervision -- of global businesses is growing with companies' ability to move to the most advantageous locations and to play countries off against one another in bidding for attractive investment projects.
As national governments shrink and global corporations expand, a second major problem emerges. Almost everywhere we look we see rising economic inequalities among countries, among firms, among individuals. Returns to capital are up; returns to labor are down. Returns to skills are up; returns to unskilled labor are down. Firms will be global players or they will be niche players. The mid-sized national firm is a species in danger of extinction. Traditionally, national governments have acted to keep such inequalities under control. But having lost their ability to manage the system, they have also lost their ability to restrain economic inequalities. For at least a while we are simply going to live in a world with greater inequalities on a broad scale.
THE third industrial revolution is making obsolete old institutions and old modes of operation, requiring the individual, the firm, and the nation to change.
For individuals here are three words of advice: skills, skills, skills. The economic prospects of those without skills are bleak. What we now see -- falling real wages for those without skills -- is going to continue. In education the needs of the bottom two thirds of the labor force are particularly acute. In an age when brawn earns little and brains much, this part of the labor force simply has to be much better educated. Something is fundamentally wrong when the bottom quarter of South Korean eighth-grade students score, on average, higher than their American counterparts.
Entrepreneurial opportunities were few in the 1950s and 1960s. Today they are many. But for every success we read about in the paper, every new billionaire made, dozens of entrepreneurs will go broke unnoticed and unmourned. The downside risks are real.
Cannibalization is the challenge for old business firms. Can they aggressively seize the opportunities opened up by the third industrial revolution, even when that means deliberately destroying existing profitable activities? History is clear: few can, and those that don't are likely to die. For new firms the economic opportunities have never been better. The world is full of openings for businesses to grow in environments without established competitors.
Nations that are heavy investors in education, infrastructure, and R&D are going to tend to win. We need a national capital investment budget to remind ourselves of how we are spending our resources. The negative savings rates that we now have are not the route to success.
For those with skills and a fondness for risks, however, who are willing to cannibalize their old activities and are living in high-investment societies, the times have never been more favorable.
Illustrations by Alison Seiffer.