The Phoenix Principle applies not only to companies, but industries and even whole economies. There is no doubt countries Lock-in on a market approach, and then Defend & Extend it. And these Locked-in countries become victims of market shifts and new competitors who are not afraid to Disrupt and use White Space to change.
Just think historically for a moment. There was a time when the Dutch controlled more land than any other country. As leading explorers, their territories were the most vast. But they were unable to evolve a system of government which would allow them to Defend & Extend their territories, and they fell from the top perch. The Spanish became the next big economic engine, developing extensive colonies for their King, Queen and church. But, a Lock-in to how they would govern became rife with corruption and eventually they lost their leadership as their floating armada was destroyed. The British led the industrial revolution, and took over global economic leadership, but unable to evolve quickly enough from a monarchy to a more participative government they lost leadership to competitive countries who built systems of self-rule (such as the Americans.) This is not intended to be a chronology, but rather examples of economic Lock-in and inability to Disrupt and use White Space to maintain economic leadership.
We are now looking at what appears to be another major transition. In 2009 or 2010 China will become the #1 manufacturing country in the world, pushing America to #2. As the world has witnessed this week, watching the Olympics, the Chinese are making great strides in pushing forward – changing the face of business competition as they grow in almost all parts of the global economy. Today, the price of gasoline globally is being increased largely by exploding Chinese demand for fossil fuels to promote their economy – and current prices are something they are able to pay while still achieving their country goals for growth in jobs and economic prosperity. Meanwhile other economies, like the USA, are plunging into recession partly aided by high energy costs.
We can see that the Chinese have been good implementers of The Phoenix Principle. Let us not forget that within our lifetimes this country was a deep economic backwater under the no-growth leadership of Chairman Mao and his Gang of Four. Despite one of the world’s oldest cultures just 50 years ago China was not an important economic force. But:
- The Chinese demonstrated an ability to visualize a very different future. After Chairman Mao died the leaders developed scenarios for China that were built upon ideas for how they could lead. Remember that China had no foreign exchange, nor available assets (such as oil or timber) to sell. Yet, the leaders were able to create scenarios of China as a world power. Thus, when the Soviet Union failed the Chinese were primed and ready to stop spending money for tanks on their western front and invest in manufacturing and infrastructure for growth.
- The Chinese focused on competitors to learn how to succeed. And they looked not just at the Japanese and Americans – who were the leaders – but at all countries for how to build a strong, high growth economy. By looking at emerging nations they learned what worked, and where the problems layed, and they designed an approach that would allow them to unseat the Americans, Japanese and Europeans. They did not try to compete like Americans, but rather built their own competitive engine which was unique – and we now see almost beyond competition with U.S. manufacturers.
- The Chinese were quick to Disrupt. Old practices, some enforced with death sentences, were overturned to allow people to do new things. When necessary, entire cities were flooded to create better waterways and fresh water for industry. Homes were destroyed, and some historical landmarks, to make way for highways. The Chinese were willing to challenge their internal Lock-ins, and use Disruptions to create opportunites for doing new things.
- And they have been very willing to create and use White Space for developing a new Success Formula. It wasn’t long ago China retook possession of Hong Kong from the British. Thousands of Hong Kong Chinese fled to American, Canada, Australia and elsewhere fearing a loss of freedoms. But the Chinese turned Hong Kong into the White Space from which they could learn how to operate a capitalistic system that would work for China. As they learned, they utilized those learnings to open new industries and new cities which allow intense capitalisitic style competition in a country that still values central planning. White Space has allowed the Chinese to hone a new Success Formula which is now growing much, much faster than anything in the "developed" world.
The Chinese have emerged as fierce competitors. The market has shifted. Fiddling with exchange rates may help U.S. manufacturers, but it is just so much short-term financial machination. While America sits in a debt crisis threatening to shatter real estate values and strangle economic growth, the Chinese are rapidly becoming the world’s economic leader through manufacturing. For Americans to think they will ever recapture the manufacturing lead is nothing but fairy tale thinking. That game is over, and they won. Americans can hope for a return to the past, but hope won’t grow the economy.
America, and Europe, must realize the market has shifted. Rather than use tactics trying to Defend & Extend old Lock-ins, leaders must Disrupt. White Space must be used to define a new Success Formula. Here America has strength. One benefit of the American structure is how much White Space is created through entrepreneurship.
Now, more than ever, it is time to funnel resources to those White Space initiatives to develop a new American economy. America went from the #1 agricultural economy to the #1 industrial economy via its ability to look forward rather than backward, to Disrupt and to follow those on the front edge of the economy into new businesses. And that is what must happen today. The focus must be on building upon leadership in advanced electronics and telecommunications, nanotechnology and bio-engineering (3 examples – not exhaustive) to find the next economy – and build a Success Formula capable of regaining economic leadership. Or, it can slip further into the Swamp of slow-to-no-growth like those countries which are the heritage of most American leaders – Britain, France, Germany, Italy and Spain. All wonderful countries with a spectacular past.
