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13/10/2015

GovernmentsSelfDisruptionChallengebyMohamedA.ElErianProjectSyndicate

BUSINESS&FINANCE
MOHAMEDA.ELERIAN
MohamedA.ElErian,ChiefEconomicAdviseratAllianzandamemberofits
InternationalExecutiveCommittee,isChairmanofUSPresidentBarackObamas
GlobalDevelopmentCouncil.HepreviouslyservedasCEOandcoChiefInvestment
OfficerofPIMCO.HewasnamedoneofForeignPolicy'sTop100GlobalThinkersin
2009,2010,2011,and2012.HisbookWhenMarketsCollidewastheFinancialTimes/GoldmanSachs
BookoftheYearandwasnamedabestbookof2008byTheEconomist.

OCT13,2015

GovernmentsSelfDisruption
Challenge
LAGUNABEACHOneofthemostdifficultchallengesfacingWesterngovernments
todayistoenableandchannelthetransformativeand,forindividualsand
companies,selfempoweringforcesoftechnologicalinnovation.Theywillnot
succeedunlesstheybecomemoreopentocreativedestruction,allowingnotonlytools
andprocedures,butalsomindsets,toberevampedandupgraded.Thelongerittakes
themtomeetthischallenge,thebiggerthelostopportunitiesforcurrentandfuture
generations.
Selfempoweringtechnologicalinnovationisallaroundus,affectingagrowingnumber
ofpeople,sectors,andactivitiesworldwide.Throughaneverincreasingnumberof
platforms,itisnoweasierthaneverforhouseholdsandcorporationstoaccessand
engageinanexpandingrangeofactivitiesfromurbantransportationto
accommodation,entertainment,andmedia.Eventheregulationreinforced,fortress
likewallsthathavetraditionallysurroundedfinanceandmedicinearebeingeroded.
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GovernmentsSelfDisruptionChallengebyMohamedA.ElErianProjectSyndicate

Thishistorictransformationwillcontinuetogainmomentumasitexpandsinboth
scaleandscope.Butitsbenefitswillnotbefullyrealizedunlessgovernmentstake
stepstoempowertheforcesofchange,ensurethatthemassivepositiveexternalities
areinternalized,andminimizethenegativeimpacts.Unfortunately,thisisproving
extremelydifficultformanyadvancedcountrygovernments,partlybecausethefailure
torecoverfullyfromtherecentcrisisandrecessionhasunderminedtheircredibility
andfunctioning.
Theemergenceofantiestablishmentandnontraditionalpoliticalpartiesand
candidatesonbothsidesoftheAtlanticiscomplicatingeventhemostbasicelements
ofeconomicgovernance,suchasenactmentofanactivebudgetintheUnitedStates.In
thiscontext,takingthestepsneededtoupgradeeconomicsystems,including
infrastructureintheUSandtheincompleteunioninEurope,ortomeethistorical
challengesliketherefugeecrisis,seemsallbutimpossible.
Infact,Westernpoliticalandeconomicstructuresare,insomeways,specifically
designedtoresistdeepandrapidchange,ifonlytopreventtemporaryandreversible
fluctuationsfromhavinganundueinfluenceonunderlyingsystems.Thisworkswell
whenpoliticsandeconomiesareoperatingincyclicalmode,astheyusuallyhavebeen
intheWest.Butwhenmajorstructuralandsecularchallengesarise,asisthecase
today,theadvancedcountriesinstitutionalarchitectureactsasamajorobstacleto
effectiveaction.
Thepoliticalinfluenceoffinancialdonorsandlobbygroupsaddtothechallenge.
Ratherthanpromotingactionsaimedatimprovingthelongtermwellbeingofthe
systemasawhole,theseactorstendtopushmicroobjectives,someofwhichhelpthe
traditional,oftenwealthyelementsoftheestablishmentmaintaintheirgriponthe
system.Indoingso,theyblockthesmallandemergingplayersthataresovitalto
upgradingandtransformation.
Allofthisservestocomplicateanimperativethatisrelevantnotjusttogovernments,
butalsotocompaniesandindividualsthatmustadapttochangingcircumstancesby
upgradingtheirstructures,procedures,skills,andmindsets.Fewareeagertoself
disrupt,aprocessthattakesusoutofourcomfortzone,forcingustoconfrontour
longstandingblindspotsandunconsciousbiasesandadoptanewmindset.Butthose
whowaituntilthedisruptionsareunavoidableeasytodowhengovernmentsdonot
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13/10/2015

GovernmentsSelfDisruptionChallengebyMohamedA.ElErianProjectSyndicate

mountatimelyresponsewillmissoutonthehugeadvantagesthattechnologyoffers.
Evenwhengovernmentsdecidetoimplementpoliciesthatenableeconomicupgrading
andadaptation,theycannotdosoinisolation.Withtechnologyenabling
unprecedentedmobilityandconnectivity,thejurisdictionalpowerofnationstatesis
beingeroded,meaningthatatrulyeffectiveresponseonethatunleashesthefull
benefitsofdisruptivetechnologiesisimpossiblewithoutmultilateralcooperation
andcoordination.
Butmultilateralismisundergoingatransformationofitsown,drivenbydoubtsabout
thelegitimacyofexistingstructures.WithreformsofthetraditionallyWestern
dominatedinstitutionshavingstalled,therehavebeenmovestocreatealternatives;
ChinasAsianInfrastructureInvestmentBank,forexample,competesdirectlywiththe
WorldBankandtheAsianDevelopmentBankinsomeareas.Allofthismakesglobal
levelresponsesmoredifficult.
Againstthisbackground,arapidandcomprehensivetransformationisclearlynot
feasible.(Infact,itmaynotevenbedesirable,giventhepossibilityofcollateraldamage
andunintendedconsequences.)ThebestoptionforWesterngovernmentsisthusto
pursuegradualchange,propelledbyavarietyofadaptiveinstruments,whichwould
reachacriticalmassovertime.
Suchtoolsincludewelldesignedpublicprivatepartnerships,especiallywhenitcomes
tomodernizinginfrastructure;disruptiveoutsideadvisersselectednotforwhatthey
think,butforhowtheythinkinthegovernmentdecisionmakingprocess;
mechanismstostrengtheninteragencycoordinationsothatitenhances,ratherthan
retards,policyresponsiveness;andbroadercrossborderprivatesectorlinkagesto
enhancemultilateralcoordination.
Howeconomiesfunctionischanging,asrelativepowershiftsfromestablished,
centralizedforcestowardthosethatrespondtotheunprecedentedempowermentof
individuals.Ifgovernmentsaretoovercomethechallengestheyfaceandmaximizethe
benefitsofthisshiftfortheirsocieties,theyneedtobealotmoreopentoself
disruption.Otherwise,thetransformativeforceswillleavethemandtheircitizens
behind.

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