There's a lot of economic disruption in the world at the moment and technology shares the blame, whether it's automation and AI making some types of work redundant or digital connection relocating work elsewhere. Is it up to technology vendors to be part of the solution too? Business software vendor Zoho certainly thinks so. For the past few years, Sridhar Vembu, its CEO, has been developing a philosophy he calls transnational localism, which aims to heal some of the harms he believes have come from the financial dynamics of the mainstream tech industry. Instead of accumulating wealth for a narrow band of shareholders, he believes tech companies should be investing more of their surplus into the communities they serve, and is ensuring Zoho does just that.
Vembu argues that digitally-enabled automation is creaming off more and more of the economic surplus created by production. The likes of Apple, Microsoft and Google have become cash generation machines on a scale never before seen in history. The corollary is that individuals are left with too little spending power of their own, and so economic policymakers have encouraged debt to pile up — both government and consumer debt — in an effort to sustain demand. But this simply channels even more finance into the technology sector, and into unproductive asset inflation, particularly in property, effectively pricing young people out of parenthood. He believes this imbalance is unsustainable, but that public policy has been unable to find a way out. He says:
We have effectively created a situation where the production is driven by technology and automation. Consumption is now left to the political economy to figure it out. And the political economy is not doing that very well. That's the problem. That is the imbalance that I'm talking about.
His solution is an approach that Zoho calls transnational localism. He sees this as an antidote to the current pattern in which, for example, a low-paid worker buys an iPhone and all that hard-earned cash disappears out of the local economy into Apple’s coffers, or when prosperous cities suck young talent out of rural areas. He says:
The income from production does not reach the people who are the consumers. What happens if your production and consumption decouple entirely? Production will become about tech and automation. Consumption is about the political economy. Is the separation a good thing?
Zoho’s approach is to go out of its way to locate its offices around the world in less prosperous locations, bringing investment, spending and job creation into those areas. The company is still globally connected — not only digitally but also by a shared ethos and culture — but at the same time locally rooted.
But Vembu wants to go further than simply investing and spending the profits of digital automation — the economic surplus of his own company’s products — in these locations. He also wants to be an agent for bringing more physical production to the rural economy and to other locations outside the major metropolises. Therefore Zoho is putting some of its resources into a quest to reduce the capital cost of tooling and enable more small-scale, local production.
One early venture along these lines is in healthcare. Zoho is incubating a company on its headquarters campus in Chennai that makes low-cost diagnostic and treatment equipment. The aim is to enable local healthcare clinics to be able to do more in the community, rather than asking patients to make long arduous journeys to big-city hospitals. But this is just the start. He goes on:
What I'm doing, you have to create some kind of balance in the rural economy at the smaller scale, to generate organic income, from whatever it is...
In other words, we have to master the production technology that creates local jobs. We have an R&D team right now, a team of engineers who are creating new production technology, highly sophisticated technology, but politically affordable. So that it can make a rural work economy, and the production and consumption can more locally balance. I don't know if it will work, but we'll try, because nobody has any better ideas.
Economies at local scale
I pressed him on how this might work, but he admits it’s currently unproven, and wants to make more progress on the idea before spelling out the blueprint. Essentially, though, he believes today’s technology makes it economically efficient to produce at much smaller scales than has traditionally been seen. He explains:
I'll give you my thesis on this. I believe economies of scale can be obtained at smaller scales than people think of today. They don't need the level of scale to achieve economies of scale in any particular rural locality. The level of consolidation today is much higher than what is required by considerations of economic efficiency.
This is a thesis, I have to prove it. I have to run experiments to prove it. I don't talk about it yet. But that's crucial. If we have lower-cost capital goods that can enable local production, and achieve reasonable economies of scale and efficiencies, then this balance is achieved more locally. I have not proved it yet, so that's why I won't claim that I have all the answers.
What do customers think of Zoho's stance on such issues? Last year while visiting Zoho's Chennai campus I asked David Fauser, Director of Sales and Marketing at Canadian refrigeration company Cimco, for his views. He told me that while it wasn't a buying factor, what he knows about Zoho's culture helps to build trust in the company. He explains:
I feel really good about them for a lot of different reasons. One of the reasons is their social responsibility. I really believe that they are trying to make the lives of employees better... That makes me feel really good, to be part of that as well.
That wasn't why I chose Zoho to begin with. I didn't even know about that to begin with. I didn't know until I went to one of their events, and then I saw them speak about it. At that time, I said, this is bullshit, here we go again, type of thing. But you see over time, that it's pretty legit.
Even without Vembu's interest in exploring the wider application of transnational localism to rural industry, it's an ethos that is helping Zoho earn the trust of customers, build an incredibly loyal workforce and form valuable alliances with local government bodies.
But in arguing that capitalism needs a change of direction, he's also aligned with a rising chorus of voices, such as former banker John Fullerton, who in 2015 published a framework for a concept that he terms Regenerative Capitalism, which calls on businesses to see their activities as part of the planet's ecosystem and therefore their goals should be adapted to a holistic view that "produces lasting social and economic vitality for global civilization as a whole." His ideas have inspired initiatives by, among others, the RSA, and find echoes in Zoho's commitment to support education, farming and healthcare in the communities where it operates.
What's more, the historic cycle suggests that we are approaching the point where a major reinvention of capitalism is overdue. In her 2002 book Technological Revolutions and Financial Capital, economist Carlota Perez explores the historic link between technology innovations, such as the spread of steam power or the advent of electric- and oil-powered mass production, and the financial cycles of boom and bust that accompanied them. Her contention is that each technology wave creates massive imbalances in society that can only be resolved by the creation of new social and institutional understandings, whether that be regulation of joint stock companies and the banking system in Victorian England, the rise of social security systems in Europe around the turn of the twentieth century, or the expansion of international agreements on finance and trade in the mid-twentieth century. She writes:
[C]hanges occurring in the techno-economic sphere imply a huge social cost in loss of jobs and skills as well as in geographic displacement of activities. The previous [socio-institutional] framework is unlikely to be prepared to absorb or counterbalance those costs. Thus, as the mismatch increases, centrifugal tensions and decoupling processes rip apart the fabric of the economy, leading to problems of governance and to questioning the legitimacy of the established institutional framework ... [T]he political pressures calling for action finally propel the required changes.
In other words, the reform of the political economy that Vembu is calling for is inevitable, although getting there may yet require a lot more pain before it is achieved. There's no way of knowing what that end state will look like, but his thesis of a return to a more highly distributed, less centrally concentrated pattern of production would make a good fit with a move from industrial-era mass production to a digitally enabled alternative. Indeed, it was only the other day that I was wondering what had happened to all the talk of local production based on 3D-printing technology that we used to hear a few years ago. It makes sense that adding AI into the mix will only make it even easier to retain economies of scale at much smaller production volumes than was previously possible. But the institutional structures currently support large concentrations of industry based on complex, proprietary technologies rather than the kind of model that Vembu wants to explore.
Still, certain industries — I'm thinking of music, publishing, broadcasting, and software, for example — have already shifted to accommodate more distributed, lower-cost production models in which large players have less command and control of the market than in the old days of mass production. The institutional structures around physical production are more durable, but that's not to say they can't follow the same path, albeit more slowly. No one knows how the future will play out, but Zoho is giving a glimpse of one possible path for the next iteration of capitalism.