Professor Ian Angell

Department of Management, LSE, London WC2A 2AE    |    +44 (0)20 7955 7655    |    i.angell@lse.ac.uk

Winners and Losers in the Information Age

The nation-state is about to become a casualty of the Information Revolution argues Ian Angell

(An article first published in the LSE Magazine)

Just open any newspaper, or switch on the radio or television, and you'll find journalists worldwide bemoaning a crisis of confidence in social, political and economic institutions. There is a deep feeling that it is all coming to an End. For they know we are on the verge of an Information Revolution that is taking us out of the Machine Age, into .... who knows what.

Many commentators are deeply pessimistic, they see only chaos ahead. In Britain both press and politicians keep asking themselves (and us interminably) "where is the `feel good' factor?" Even when the "numbers" look good, with the economy growing, low inflation, and unemployment falling .... the country is still miserable. A malaise has contaminated the national consciousness. The British people aren't stupid. They know that for the majority of our society, any society, they know it has gone forever - they know there is nothing that anyone can do about it. Everywhere the socio-economic certainties of the twentieth century are collapsing. The world as we know it is changing; it may even be moving in reverse.

"History is the natural selection of accidents" (Trotsky) and our world today is full of accidents just waiting to happen. The very natures of work, of institutions, of society, and even of capitalism itself, are mutating. These mutations are confronting each other in the political power vacuum left by the fall of communism, and the increasing impotence of liberal democracy, as the utopia promised by science and technology has turned into a nightmare for the "common man". Poverty, unemployment, pollution, overpopulation, mass migration, global plagues, etc., have left us with a world full of frightened people. For the masses will not win in the natural selection for dominance of an increasingly elitist world. Naturally the politicians don't like it. For the past two centuries "the values of the weak prevail[ed] because the strong have taken them over as devices of leadership" (Nietzsche). But no longer. The politicians may promise, but now the markets decide.

Globalization and localization

But why is it happening now? The answer is quite simple: a new order (which many will call disorder) is being forced upon an unsuspecting world by advances in telecommunications. The future is being born in the so-called information superhighways. Very soon these electronic telecommunication networks, covering the world via cable and satellite, will enable everyone in the world to "talk" to everyone else. We are entering a new elite cosmopolitan age. Global commerce will force through the construction of multi-media highways, and anyone bypassed by these highways faces ruin. Information technology, together with speedy international travel, is changing the whole nature of political governance and its relationship to commerce, and commerce itself.

One major consequence emerging out of the new freedoms bestowed by global telecommunications is the globalization of organizations, and not merely their internationalization. Individuals and companies are setting up large transnational networks that pay absolutely no heed to national boundaries and barriers. The commercial enterprise of the future will be truly global, it will relocate (physically or electronically) to where the profit is greatest and the regulation least. The umbilical cords have been cut; the global company no longer feels the need to support the national aspirations of the country of its birth. Recently this new business paradigm was expressed most forcibly by Akio Morita, causing uproar in Japan, when he announced that Sony was a global company and not Japanese!

But paradoxically, globalization is resulting in a trend towards localization or, as Morita calls it, "global localization". Global companies are setting themselves up within virtual enterprises, at the hub of loosely knit alliances of local companies, all linked together by global networks, both electronic and human. These companies assemble to take advantage of any temporary business opportunity; and then separate, searching for the next major deal. Apart from local products, local companies also deliver local expertise and access to home markets for other products created within the wider alliance. Companies and countries outside such networks have no future.

International trading now includes new forms of barter and exchange on these networks, particularly in superior scientific and technological expertise and knowledge. Money, which is merely a means of facilitating economic transactions, has itself become electronic information, and what constitutes money can no longer be monopolized by national governments. This inevitably lowers the transaction costs of money, and makes taxation of profits and regulation of the process almost impossible - a real competitive advantage for any virtual enterprise with a moveable centre of gravity; and for those individuals who are willing to trade their expertise in this electronic market.

Knowledge workers versus service workers

With the rise of teleworking/telecommuting/televillages Peter Drucker has a very interesting forecast. He says that humanity is polarizing into two employment categories: the intellectual, cultural and business elite (the mobile and independent knowledge workers), and the rest (the immobile and dependent service workers). In a similar vein, Robert Reich believes in the Information Age there will be three categories: symbolic-analytic services (the knowledge workers who are problem identifiers, solvers and brokers), in-person services, and routine production services. The latter two groups roughly correspond to Drucker's service workers.

Routine production services can either be replaced by robots or exported anywhere on the globe. Wages in this sector are already beginning to converge worldwide to Third World levels. British Polythene Industries is to close its factory at Telford with the loss of 150 jobs, and switch to China. BPI's payroll bill will be cut by 90%. Even the Home Office at one time were seriously considering subcontracting a large but straightforward data-entry job to the Philippines. Such "social dumping" is dragging down the wages of in-person service workers, a sector which is itself being increasingly automated. It is estimated that 150,000 UK bank jobs will eventually be lost because of automation. Millions of jobs will be lost if teleshopping takes off. Inevitably the slow redistribution of wealth that has occurred over the last centuries is being reversed, rapidly. Societies are stratifying; new elites are appearing. The future is inequality; at the very bottom of the heap, western societies are already witnessing the emergence of a rapidly expanding underclass.

Now we can see that knowledge workers are the real generators of wealth. The income of these owners of intellectual and financial wealth will increase substantially, and they will be made welcome anywhere in the world. As from October 1994, foreign "entrepreneurial investors" with one million pounds at their disposal can bypass the usual entry rules into Britain. But Britain has been slow off the mark, with the added embarrassment that none of the migrant rich want to live here. In the United States, there is a fast-track immigration policy for businessmen and women who can offer $1 million and guarantee to employ 10 people. Six hundred millionaires emigrated to America in 1993. It is only a matter of time before intellectual capital, such as scientific and technological expertise, will be included on the balance sheet.

On the other side of the coin, there is a growing realization that each service worker is a net loss both to the state and to the company - they cost far more than they generate. Service workers will now be expected to add far more value to the company, unlike in the past where service work meant just turning up. Companies will be reducing the wages and staffing levels of service workers, and it is no accident that most Western companies are presently instigating major downsizing programmes.

This is all happening against a background of an exploding population in the Third World (95% of the world's population increase is in developing countries). To combat the inevitable mass migrations, state barriers will be thrown up everywhere to keep out alien service workers; each state has a surplus of its own to support. It is already happening. Canada is to impose a c$1000 tax on people seeking landed immigration status, thus sending out a message which is likely to reduce applications from poor service workers but increase applications from richer knowledge workers. In California, proposition 187 intends to bar the nearly two million illegal immigrants from schools, welfare services, and all but emergency health care. How long will it be before there are "differential rights" for "differentiated citizens", identified in a data base and policed by smart cards? How long before the notion of "Human Rights" is as outdated as the "Divine Right of Kings"?

Loyalty, but to what?

At a time when their skills are in increasing demand by global companies, knowledge workers feel more and more undervalued and betrayed by the nation-state. It was inevitable that predatory global networks would drive loyalty to the state into a steep decline among the swelling number of would-be "economic mercenaries". Those who wrap themselves in the flag can soon expect to be buried in it.

The situation is possibly even more complex, because of the increased reliance of companies on the symbolic-analysts, the owners of intellectual equity. We are witnessing an intensifying power struggle between the symbolic-analysts and the owners of financial equity in those companies, and this is likely to change fundamentally the very nature of capitalism itself. This battle is likely to be at least as significant as that between landowners and industrialists in the early part of the nineteenth century, that was formative of today's capitalism.

We are rapidly approaching a situation where, in order to attract the elite with their knowledge and money to enliven the economy, the elite group will be expected to pay less tax and not more! The great majority of governments are lowering top tax rates in line with declining global levels. "Top income tax rates fell an average of 16.5% between 1975 and 1989". "The main producers and repositories of wealth - multinational companies - have increasingly been able to adjust their accounts and the prices of their internal international transactions so that their profits are declared in low tax countries, while they continue to operate in high tax ones." Very soon companies will be negotiating preferential tax deals not only for themselves but also for chosen elite employees. A major growth market will be servicing the global information flows of the mobile rich: anywhere, anytime, anyhow. Karl Ziegler claims that 60% of the world's private banking is held in trust in offshore unsupervised tax havens.

All the while, the disposable income for most of society will be drastically reduced. The power in global economic forces means that the tax burden is irrevocably moving onto the shoulders of the immobile; and away from income and onto expenditure. When Leona Helmsley said "only the little people pay taxes" she was unwittingly making a prediction. This goes counter to every notion of social justice that has been prevalent over the past two hundred years. Inevitably in the transition we can expect massive civil unrest and disorder.

A role for the nation-state?

Everywhere citizens are losing their faith in the nation-state, seeing it as a peculiarly twentieth century phenomenon. For the state is failing to deliver its side of the Faustian pact, where the individual submits to the legitimate violence of the state in return for protection and security. Globalization has shown the James Bond myth, that the state is good and global corporations (Spectre) are bad, to be blatant propaganda on behalf of the nation-state. James Bond, the patron saint of the nation-state, is now just another dirty old man.

The nation-state is based on the premise that the state owns the individual and that the leaders of the state can dispose of his property as they see fit. But knowledge workers call it social injustice: for there is no justice in equality. All taxation is theft. It is the state obtaining money with menaces. They say with derision that the "Common Good" isn't good, it is merely common! The protection of the interests and independence of the knowledge workers is going to be big business in the information Age.

The very nature of the nation-state itself is mutating; increasingly it will have to behave as merely another form of commercial enterprise. According to western sentiment some states are becoming criminal enterprises, but these too will be part of global trade. That the roles of governments and organizations are converging was unconsciously highlighted in the Guardian of 10 December 1993. They asked the question: "what's the difference between Zambia and Goldman Sachs". The answer: "One is an African country that makes $2.2 billion a year and shares it among 25 million people. The other is an investment bank that makes $2.6 billion ... and shares it between 161 people. FAIR ENOUGH!" Of course the "bleeding heart" liberals of the Guardian haemorrhage at such gross unfairness and make snide comments about "Goldmine Sachs". Unfairness? They fail to see that the symbolic-analysts of Goldman Sachs earned that money. Yes, they earned it, and they earned it fairly.

To the knowledge workers, this call for fairness is the mere whinging of failures and parasites. They say it is time to rid ourselves of that backward looking idea, that work involves physical effort. Of course labour is needed - but there is a world full of labourers out there. It is that rare commodity, human intellect, which is the stuff of work in tomorrow's world. Politicians really must stop saying "nanny knows best" and playing to the sentimentality of the herd. Governments, like all other organizations will have to survive economically on the efforts of an elite few - and no nation-state has an automatic right to exist.