Wednesday, January 27, 2016

The economic geography in proximity versus proxy

There are a few simple guidelines that I use to understand the world.  Like, I will believe corporations are people the moment that Texas executes a corporation, or, MOOC (Massive Open Online Courses) will be the future if and when a majority of Harvard's students graduate after taking a whole bunch of MOOC classes.

Texas will not execute a corporation because, well, no corporation is a human who can be sent to the chair.  Students do not go to Harvard in order to take online classes.

Sure, those are big issues.  How about a "smaller" truthiness that we can think about?

Take business travel.  We are long past the days of the phone alone--we have email, video calling and conferencing, and whatever else is out there.  Yet, the suits travel, even if only for brief meetings.  The day this travel dies out, I will change my mind and agree that proxy beats proximity.  Until then, I refuse to budge from the idea that proximity rules.

Am I talking in the abstract?  You need data and trends to make your own call on this?
a country with a per capita income that is 100% higher than another receives 130% more business travelers and sends 170% more people abroad. This means that business travel tends to grow more than proportionally with the level of development.
Get that?  Despite all the communication technologies at their disposal, richer countries generate and receive way more business travel than the less-affluent countries.  Why so? "why do we need to move the brain, not just the bytes?"  Why do the business people need that proximity when there are all those proxies?
First, the brain has a capacity to absorb information, identify patterns, and solve problems without us being aware of how it does it. That is why we can, for example, infer other people’s goals and intentions from facial expressions, body language, intonation, and other subtle indicators that we gather unconsciously.
Second, the brain is designed to work in parallel with other brains. Many problem-solving tasks require parallel computing with brains that possess different software and information but that can coordinate their thoughts. That is why we have design teams, advisory boards, inter-agency taskforces, and other forms of group interaction.
 So, what do all these mean?
The fact that firms incur the cost of business travel suggests that, for some key tasks, it is easier to move brains than it is to move the relevant information to the brains. Moreover, the fact that business travel is growing faster than the global economy suggests that output is becoming more intensive in know-how and that know-how is diffusing through brain mobility.
Rather than celebrate their thrift, countries that are out of the business travel loop should be worried. They may be missing out on more than frequent flyer miles.  
We are humans.  Without the human-level interaction, it is not easy to get ideas across.  Newer ideas are how we have gotten to where we are from the vast African Savannah.  Businesses are built on ideas, which means that travel becomes a necessary expense.

That human-interaction in order to learn new ideas is also why I enjoy the real-world classes way more than the online ones.  When we humans are together at the same time and in the same room, the diffusion of ideas happens way more and way better than when I merely exchange bytes with students.  But, then I don't get to set the rules.  Hence, I, too, teach online classes, and corporations are the most powerful "people" ever on this planet!


Anne in Salem said...

This would seem to be common sense. Anyone who has been in a long-distance romantic relationship could tell you that in-person is better than electronic.

So how do the developing countries get the brains to visit? Investment opportunities abound, but the obstacles, from language to corruption abound. Not easily overcome.

Sriram Khé said...

Yes, another way to look at the challenge of economic development ...
BTW, maybe Oculus Rift's successors will make proxy as good as proximity?

Ramesh said...

One of those posts with which I agree totally. Yes indeed, there is no substitute for human interaction - in business or in any walk of life.

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