Hit Refresh

by Satya Nadella

  David McKenzie of the World Bank puts it another way. He finds “the need for more intensive training programs that have larger effects on business practices.” Small firms with fewer than ten employees outnumber large enterprises in developing countries, and their likelihood of surviving and growing is greatly enhanced when they know how to perform better stock-keeping, recordkeeping, and planning, which may result in less spoilage and less downtime that comes from not having the right parts or goods. That, too, is intensity of use.

  During my journey to the Middle East, I’d also visited the Nasr City district of Cairo, Egypt. There I encountered a room full of bright, optimistic young women who had graduated from some of the nation’s far-flung colleges and universities. They had come to meet me at a training center our company supports along with partners like the United Nations and the Women’s Business Development Center. Nestled among international company offices in a district close to the airport, the center is part of our YouthSpark initiative, which has helped more than 300 million young people intensively access computer science and entrepreneurial training.

  The young women explained to me some of the projects they’d been working on. One team had decided to help some of the 115,000 refugees from war-torn Syria who had poured into Egypt since 2013. They’d built an app to help them find assistance upon their arrival in Egypt. But it was another group’s project that really fascinated me. One group built an experience that digitally transforms the relationship between pharmacies and patients by making it easier, faster, and more affordable to find the pharmacy nearest you with the medications or supplies you need. Earlier in the day, I’d met an Egyptian entrepreneur who had built a similar app for locating the right doctor. In combination, they reminded me very much of Zocdoc, a New York City–based company that provides similar health-care services. Zocdoc became one of the celebrated American unicorns—nonpublic tech startup companies worth $1 billion or more. What I was witnessing firsthand was how quickly technology is diffused. Egyptian entrepreneurs were creating their own unicorns, even if they did not enjoy the lofty valuations of U.S. startups. The core reason they were able to do so was because the cloud technology that enabled these innovations was now available to them without the need to invest a lot of capital.

  Unfortunately, in many underserved parts of the world, public and private attention is focused on attracting Silicon Valley companies rather than on growing local tech entrepreneurs. Successful entrepreneurs in developing nations often tell me they can’t even get meetings with their president or prime minister. Yet those same heads of state routinely meet with Western CEOs like me, looking for very near-term, foreign direct investment.

  That’s a shortsighted policy, and very frustrating for the business leaders who are trying to nurture the long-term prospects of their local and national economies. And yet I see this mindset everywhere—in the Middle East, Asia, Africa, Latin America, and even in struggling communities in G20 nations like the United States. The resulting failure of governments to encourage rapid and intensive use of new technologies means that the trend toward growing economic inequality between the haves and the have-nots of the world has continued unabated.

  To get a measure of how equitable or inequitable our world is, economists turn to the work of an Italian economist named Corrado Gini who in 1912 published his formula for calculating what has become known as the Gini coefficient, which measures the difference between a society’s division of income and a perfectly equal division of income. It’s really quite elegant. If 100 percent of a given population were to earn $1 per day, that would be absolute equality. If 100 percent earned $1 million per year, that too would be absolute equality. But when only 1 percent earn $1 million while everyone else earns nothing, we’re approaching absolute inequality. Gini’s work provides a way of measuring the degree to which the income distribution in a given society approaches or diverges from perfect equality.

  The Gini coefficient for a particular population is generally expressed as a fraction. Perfect equality would be represented by a value of zero, while maximum inequality would be represented by a value of one. In the real world, the Gini coefficient for any given country or region is expressed by a fraction somewhere in between those two extremes. The Gini coefficient for an advanced European country like Germany has hovered around .3 for decades, while the figure for the United States has risen for years, now matching that of China and Mexico at over .4.

  Of course, most economists agree that perfect income equality is neither possible nor desirable. Capitalist economies reward qualities like innovation, risk-taking, and hard work—qualities that generate value, produce wealth, and usually lead to benefits for many people throughout the society. When rewards flow to the people who exhibit those qualities, unequal income distribution is the inevitable result.

  Edward Conard, a founding partner of Bain Capital, carries the argument even further in The Upside of Inequality. Conard concludes that inequality ultimately leads to faster growth and greater prosperity for everyone. Investors wait for good ideas that create their own demand for properly trained talent needed to commercialize ideas successfully. He sees two constraints on growth: an economy’s capacity and willingness to take risk and to find properly trained and motivated talent.

  But excessive inequality has the perverse effect of reducing incentives for many people. What happens when people work more and yet make less money? It is discouraging, leading many people to slacken their efforts, abandon dreams of launching or expanding businesses, and perhaps to leave the workforce altogether. It also weakens overall economic activity. For businesses like mine, it means our global customers have less to spend on emerging technologies that could make them more productive. That is what’s happening today. There is a sagging line below Gini’s perfect 45-degree angle that represents growing inequality. I want to avoid the pitfalls of what Marx described as late-stage capitalism—a theoretical time when economic growth and profits collapse—and get back to the returns enjoyed in early stage capitalism. But how? That’s the question most heads of state around the world are also grappling with.

  In computer science and engineering, we search for something called the global maxima. It’s a mathematical phrase describing the optimal state—the highest point of a function. Where technology is concerned, I would argue that the global maxima for every region of the world—a country, county, or community—should be to import the latest world-class technologies in order to fuel innovation and growth among that nation or region’s entrepreneurs—to drive both exports and local consumption of these innovations with intensity across sectors and segments of society. In other words, focus on adding value as well as broad use to help generate surplus and opportunity for more and more citizens. This means every region—in both developed and developing countries—must grow industries in which they have comparative economic advantage with use of new technology inputs. Business leaders and policymakers need to ask: What do we have that others do not have? And how can we turn that unique advantage into a source of growth and wealth for all our people?

  China has clearly done this with proactive industrial policy that supports their entrepreneurs and economy across manufacturing and consumer Internet services. China strategically used the global supply chain and their own domestic market to amplify their comparative advantage and bootstrap their economic growth. The combination of industrial policy, public sector investment, and entrepreneurial energy is what many other countries will also look to replicate from China’s success. I see the beginnings of this in India with the creation of the new digital ecosystem known as IndiaStack. India is leapfrogging from once being an infrastructure-poor country to now leading in digital technology. IndiaStack ushers in a presence-less, cashless, paperless economy for all its citizens.

  On a trip to Bengaluru I engaged in a conversation with Nandan Nilekani about IndiaStack and its future road map. Nandan is the legendary founder of Infosys, who went on to create a new startup working with
the Indian Government—Aadhaar—the identity system that is at the center of IndiaStack. Aadhaar now has scaled to over 1 billion people, rivaling the growth of other platform innovations such as Windows, Android, or Facebook.

  Enlightiks, a startup that was acquired by Practo, is a leading e-health company in India. I met the founder of Enlightiks on the same trip to Bengaluru. They are using the latest cloud technology and AI from Microsoft to create a state-of-the-art healthcare diagnostics service that can, for example, detect an atrial fibrillation event before it happens because of the rich data going from the personal device of the patient directly to the cloud. In turn, this cloud service can be made available to hospitals in smaller towns or rural areas in India. Enlightiks also has plans to take advantage of IndiaStack to authenticate the user, accept payment, create portal medical records, and much more. This Indian innovation is now looking to expand in the United States, Africa, and everywhere else.

  This dynamic is not unique to China or India. I saw this across Chile, Indonesia, and Poland, and also in France, Germany, and Japan. Reflecting on my earlier visit to Egypt, it’s clear they are investing in human capital. Egypt has an ancient heritage of science, math, and technology, and its universities have produced physicians who work throughout the Arab world. So health care turns out to be one of Egypt’s areas of comparative advantage. The young entrepreneurs I met who have built apps for finding doctors and pharmacies are exploiting valuable synergies to create a powerful ecosystem, which is part of the magic of modern technology. Now they need affordable, powerful cloud services, which can come from Microsoft or another large-scale cloud provider. The right policy framework can help give their ideas flight.

  Unfortunately, many governments have been resistant to embrace new technologies like the cloud even after they begin to reach scale in other parts of the world. In some cases, they try to pursue technology strategies that are self-defeating. For example, government leaders sometimes cite security, privacy, complexity, control, and latency (delayed processing) as reasons for building their own proprietary cloud rather than adopting an existing technology that has been made affordable by multinational demand.

  Newly attuned to these issues and to the severe economic consequences they can produce, I returned from my Middle East trip with a renewed sense of energy and duty. I got off the airplane, marched into my office, and rallied our team to think through a set of recommendations and a policy framework to help governments, both developed and developing, reduce barriers to technology adoption and use.

  So, back to the questions I posed earlier in this chapter. Are we growing, are we growing evenly, and what is the role of technology? There is, of course, no silver bullet, but as I consider all of the evidence and reflect on my own experiences, I keep returning to this simplified equation:

  ∑ (Education + Innovation) x Intensity of Tech Use = Economic Growth

  Education plus innovation, applied broadly across the economy and especially in sectors where the country or region has a comparative advantage, multiplied by the intense use of technology, over time, produces economic growth and productivity.

  In a digital age, software acts as the universal input that can be produced in abundance and applied across both public and private sectors and every industry from agriculture to health care and manufacturing. Regardless of location—Detroit, Egypt, or Indonesia—this new input needs to turn into local economic surplus. Breakthrough technologies, plus a workforce trained to use them productively, multiplied by the intensity of their use spreads economic growth and opportunity. To make that happen, leaders need to prioritize entrepreneurship in several major ways.

  The first is providing broad access to Internet connectivity and cloud computing services to all citizens. Today, such access is extremely variable. Internet penetration is close to 100 percent in Korea, Qatar, and Saudi Arabia, but below 2 percent in a number of sub-Saharan African nations. Unless we take specific steps to make access universal, by 2020 just 16 percent of people in the world’s poorest countries and only 53 percent of the total global population will be connected to the Internet. At this rate, universal Internet access in low-income nations won’t be achieved until 2042. And with no Internet access, there is no cloud access.

  To expand Internet access, countries might adopt policies to facilitate the sharing of underutilized spectrum such as TV white space, an approach that is currently being successfully used in some developing countries. In addition, governments should lower restrictions on foreign direct investments in telecommunications, mobile, and broadband infrastructure, as well as reform other investment policies that erect barriers in the way of entrepreneurs willing to enter the market. Policies that encourage public-private partnerships and recognize the structuring needs of funding institutions are needed to facilitate access to capital for expanding Internet infrastructure.

  Leaders at every level—from national to community-level—should foster not just fast but intense adoption of new technologies that can drive productivity. As Professor Comin told me, you don’t have to invent the wheel, but you should adopt it quickly, because “societies that utilize new tools quickly are likely to be more productive.”

  Another high-priority area is fostering human capital and next-generation skills development. Building knowledge allows workers to keep up with the increasing pace of technology. As the digital transformation automates many tasks formerly handled by people, workers need the skills that will enable them to become managers of the new automated tools. Just as workers wielding shovels gave way to workers capable of driving bulldozers, societies now need people with the skills to manage fleets of automated bulldozers, self-driving cars, and drones.

  To this end, government must demonstrate empathy for all of its constituents, and work to create a more knowledge-based economy. The pathway to new technologies requires a parallel investment in skills development—making sure people have the requisite skills to participate in an increasingly digital society, one that depends on smart devices and online services. In schools, this requires promoting digital literacy and making sure that teachers and students have access to technology and learning tools at low cost. In the workplace, we need to invest in lifelong learning with a focus on programs and investments that promote upskilling for the cloud and a more digital-ready workforce. Companies like Microsoft are already expanding their educational capacity and building initiatives to accelerate such skills development, especially at small- and medium-sized enterprises.

  Knowledge is necessary to find new uses for new technologies and that knowledge is accumulated through training and experience. Every country is different, but Germany provides an excellent example of the productive use of new technologies. Germany and the United States both invest heavily in R&D, but Germany has enjoyed greater rates of productivity growth. Why? One explanation is the German system of vocational training through apprenticeship, which makes cutting-edge technologies available to the workforce quickly through vocational schools that have close relationships with industry. I am convinced the only way to tackle economic displacement is to make sure that we provide skills training not only to people coming out of college and other postsecondary programs, but also to workers who are losing their jobs to automation. Countries that invest in building technology skills as a percent of GDP will see the rewards.

  Policy reforms must also create a regulatory environment that promotes innovative and confident adoption and use of technology. While data privacy and security are always key concerns, they also need to be balanced against the demands for data to flow more freely across borders and between the various services that make up a modern global digital economy. Governments have been strong advocates for promoting digital security to protect the community from harm. However, our experience is that public policy and regulation in this area needs reform to ensure the right balance is struck. This is by no means easy, but Microsoft and other leaders in our industry have extensive experience helping governments modernize thei
r regulatory frameworks to achieve this balance and help promote public safety and national security without compromising the benefits of these digital services for the public and private sectors and millions of citizens.

  Additionally, every government has an opportunity to lead by example in embracing technology for the provision of services to citizens, improving productivity in the public sector, and leveraging its comparative advantage. Public sector leadership should be complemented by efforts to showcase local entrepreneurship and leading-edge technologies, including providing financial incentives where appropriate.

  As leaders ask themselves, “Where can we be the best in the world?” the answers might be surprising—desert farming in Australia or local banking in Dubai. Some other country or community might strive to become the world’s leader for innovations in IoT; ambient intelligence; mobile payment systems; virtual reality; silicon photonics; 3D printing; wearables; lightweight, low altitude satellites; drones; native advertising; driverless cars; robotics and industrial automation; adaptive, gamified education; nano-machines; genomics; or economical solar, wind, and tidal power. Each represents an opportunity for leadership that no single community or region has yet seized. Seattle, for example, has become the center of excellence for cloud computing as the home of both Amazon and Microsoft.

  An inspiring idea in this context is the notion of a charter or startup city, an idea put forth by economist Paul Romer. Romer posits that rules and laws, which are hard to change and require concessions to be approved, are not optimized for spurring innovation and creating economic growth. Charter cities, on the other hand, are experimental reform zones engineered entirely to create jobs and growth. Citizens could opt in or not. Some will be ready and some won’t. His illustration is Hong Kong and Shenzhen. Hong Kong, located in China but ruled for generations by Great Britain, was free of antimarket Communist rule and became an economic engine, attracting and training workers. Deng Xiaoping, grasping that China needed to become more open in order to grow, created a de facto charter city in nearby Shenzhen, which could take advantage of its neighbor’s talent pool and infrastructure. Unlike the rest of China, Shenzhen’s rules would be attractive to foreign investment and international trade. He knew that Communist China would be slow to embrace these reform zones, but many entrepreneurs and workers would leap at the opportunity. Shenzhen grew from a town of thirty thousand people to a global financial center of nearly 11 million residents after it was designated as a special economic zone in 1980.