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Pursuit of the best

Pursuit of the best

The modern industrial economy offers its citizens an enormous range of options. Any one product tends to have many direct competitors. Any one category of expenditure - the monthly discretionary surplus of the individual, an afternoon of fun for the children - has a host of alternatives on offer. Retail outlets tend to have vastly expanded ranges of products on sale. Value chains experience intense internal competitive pressure. We may differ considerably amongst ourselves as to what we regard as desirable, but we are invariable in seeking the best when we have made up our mind what we want. We pursue the best, and we access vary large reserves of information which sets out to inform us (and influence us) as to what constitutes the best.

There are several different outcomes of this, all united by the clear fact that this trend is not going to cease and will, in fact, considerably intensify.

First, where there is a single and widely shared view of how to measure something, then everywhere that this consensus runs will be driven to optimise around this. If capital markets agree that investment in information technology is the central determinant of long term profitability (as was the case in the period 1997-9 in the US, where a dollar invested in IT generated $17 of market value for the company's stock) then all organisations influenced by this will pour money into IT. Expenditure in this sector reached 20% of all US commercial capital investment in the period, despite a dismal factual record of productivity gains achieved by firms that had done so. Indeed, the US sectors with the highest productivity growth (such as agriculture) had the lowest proportional investment in IT.

Second, one of the consequences of an objective form of ranking is that the winner of it takes all. We all differ in the way in which we rank things, and so there are often many ways of winning - and so many winners - in a given field. In others, however - usually those where expert, objective evidence is tabled for use by expert users - an interesting industrial dynamic emerges. Consider activities such as seed breeding for agriculture, or the marketing of pharmaceuticals. These products are subject to trials and expert scrutiny. Doctors, farmers, engineers and other expert users read these reports and buy what is found to be best. Firms which make the products which top the ranking tend, therefore, to get all of the market share, and those who are more than a few steps down the ranking get none of it. A given pharmaceutical company will note that their research and development people are no better or worse that those of their peers, and so their chances of getting to the top of the list depends directly on the absolute number of products that they bring forward. A firm that offers twenty lines will be twice as likely to seize the entire market than a firm that brings forward only ten. The commercial outcome of this is straightforward: such firms either strive to dominate a niche so that they can arithmetically important within it, or else they merge with other generalist companies or in other ways strive to be gigantic. Many minutely different products are poured into the marketplace.

Third, there is an unmistakable tendency for products that were once nationally differentiated to become increasingly similar. Many forces cause this to happen: the common software available to designers, for example, and the pursuit of economies of scale. However, one of the striking social forces is the "horizontal" homogenisation which is occurring between peer nations. That is, France, Germany or Britain were once deemed to have universal and different tastes and priorities. Actual measurement now finds that British, German or French people of a given socioeconomic, demographic and educational background are increasingly similar in their views and goals. They are, in fact, more like each other than they resemble other groups within their own nation. There is, to put this another way, more variation in attitudes within nations at a given level of per capita wealth than between them.

It follows that these groups have common systems of ranking, and agree amongst themselves on what constitutes the "best". Cars, clothes, appliances and entertainment are therefore sold transnationally to these groups, and pop music to the global teenager (who is everywhere short of cash and therefore global in a way that middle class consumers are not.) As there are only a limited number of these cadres, so there is only limited only only a limited need for differentiated products. Nations which individually once supported a dozen clothing manufacturers or car makers now support less than a dozen of these between them, each aiming to sell a similar product range to a common few sets of consumers. Advertising aims to segregate a product within these groups - that is, to announce for whom it is intended, and to promote their interests and welfare - and in doing this, it reinforces and simplifies the characteristics which each group uses to judge what is the best. The consequence of this is intensifying competition across sharply drawn lines.

Looking forward, we may expect to see some forces which oppose this. For example, as more information becomes available to both supplier and producer, so we can expect more bilateral focusing on 'the best' as perceived by this small scale relationship. Issues such as mass customisation, personalised brand and the like offer a powerful response to the consolidating, commoditising forces which we have just discussed. Pharmaceutical companies which can sell you "your pill", as opposed to the handful which many elderly patients have to consume in the course of the day, will have your long term attention. If they can tie this into remote diagnostics and general health management, then the will reap the benefits of economies of scale whilst avoiding some of the forces that have been described. Equally, the emergence of the "quolie", the person who is interested in the entire texture of their daily experience rather than the atomistic gratifications that come from consumption, represents a purchasing and legislative force that opposes homogenisation. However, these are relatively weak responses to a flood tide that is unlikely to be abated.

Fourth, the various techniques which are used to import best practice to an organisation bring about convergence between it and its peers. This lessens differentiation. It also enhances commoditisation, the process by which an initially-profitable industry sees prices driven down towards unit cost. As consumers, we must applaud: the upshot is that the same amount of wealth is produced from fewer assets, thus releasing these to do new things. Productivity is the essence of economic growth. However, as people with savings we must be equivocal, for it takes less capital to generate a unit of value added in aggregate, and so our returns to capital are lower than they were in the past.

As employees, we must expect faster and faster churning in labour markets, as productivity changes lead to shifts in the need for labour inputs. Arguably, those with average skills should also expect to see their remuneration fall, insofar as their aggregate contribution to value added behaves as does capital, above. In practice, it is the low skilled and the inflexible who have seen falling wages, although mean wages in the US have remained static in real terms since the mid-1970s. These buy a better car, because the average car has become more feature packed and reliable, through the workings of mass choice. Nevertheless, it is the scarce, high skills that play during the introductory stages of processes, and well before commoditisation sets in, which have reaped the rewards, more than doubling in real terms over the same period. Arguably, it is the same dynamic (of catching the rent before commoditisation flattens cost curves) that place so high a market premium on start up activities, rather than on their prospective market share in a new marketplace. History does not suggest that innovators are always or even often the market dominants at maturity, famous exceptions notwithstanding.

Pursuit of the best implies a recognition of the best, and thus the ability to recognise bad practice. Populations have lost the habit of deference, and those in power are subject to stronger, more pointed and more relentless critique than has probably ever been the case in times of tranquillity. Bad performance in the public sector is more easily recognised because information is published, because a host of professional scrutineers have grown up, because the media finds a public able and ready to follow these issues, because we put considerable effort into identifying good performance at home and abroad. Despite the rhetoric of cultural relativism, we are very ready and able to identify poor foreign governments, and we are increasingly willing to take active measures against their leaders. All of this is extremely healthy, and seems likely to create a flood tide of change as the existing log jams are picked apart. Intransigent issues - such as welfare management or the quality of public schooling - seem to yield to the tools which permit the pursuit of the best.

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