Tomorrow's Challenges
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You can’t pay bills with likes on Facebook

Sooner or later the real economy bites the virtual economy back.

Stéphane Garelli

By Emeritus Professor Stéphane GarelliStéphane Garelli

If the post-truth era triumphs, if alternative facts supersede evidence, if polls are so wrong, it is perhaps because the relationship people have with the real world has changed. Throughout time, individuals have tried to escape the reality of life, through religion, drugs or alcohol. Today, modern technologies allow a genuine democratization of the unreal. Everyone can live in a parallel world consisting of video games, augmented reality, avatars or sitcoms. Each can lead an alternative life by proxy. 

According to the Nielsen Institute, Americans spend 10 hours and 39 minutes per day in front of a screen. The greater part is devoted to checking a smartphone, followed by TV, computer and finally a tablet. The proportion is roughly the same in Europe even though the total duration drops to around six hours per day. Considering a sleeping period of 7 hours and 30 minutes, only 6 hours remains to confront the reality of life, often with reluctance.

An economy dominated by the unreal is extremely difficult to quantify. The traditional means of analysis as the GDP, which dates from the 1930’s, or productivity focus on the “real economy” and measure a transaction which has a price. But how to measure the gain in productivity of a software update or, on the contrary, the cost of a computer virus? In addition, this virtual economy is atomized. A myriad of actors, often small, can have a global influence. The “tipping points” are numerous: financial scandals, pollution, fictitious jobs or pirated emails. Everything can alter the outcome. Edward Lorenz and his famous butterfly effect would have enjoyed it.

The virtual economy is difficult to anticipate. Economic forecasts are increasingly failing. Who trusts perspectives for the next two to three years? According to BCA Research, 40,000 research papers are emailed each week by banks. 2 to 5% are read. And how many are taken into consideration? As highlighted by John Kenneth Galbraith “The only function of economic forecasts is to make astrology respectable”.

When the real economy ruled, it was different. In the 1980’s, Chase Econometrics, a subsidiary of Chase Manhattan Bank, produced econometric forecasts for each country, by quarter, by sectors, and with a ten-year horizon. Those were the good old days. Students in economics learned how to elaborate a long-term plan. In Japan, Konosuke Matsushita, the founder of Panasonic, had a 25-year plan for his company. One day, a journalist asked him what his long-term forecast for the company was. He answered: “for the next 500 or 1000 years?” He was hardly joking.

Today, many companies rely on rolling annual plans, revised every six months. In the virtual economy, a product life cycle could last only a few months. The problem is that sooner or later the real economy bites back. We do not eat video games, and we do not pay our bills with “likes” posted on Facebook. However, the world of the unreal is the subject of much lust and excess, be they political or economic. In his notebooks of 1886, Friedrich Nietzsche already wrote: “There are no facts, only interpretations”.  Donald Trump would welcome this – others less.


Stéphane Garelli is a world authority on competitiveness and has pioneered research in this field. He is Professor Emeritus at IMD where he founded the World Competitiveness Center.

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