Dumb Networks and Smart Capital

Wriston, Walter B.


Eroding the Power of the State


The global market is just one reflection, albeit a powerful one, of a sea change in the world economy. The huge and swift movement of funds across national borders creates novel problems for sovereigns. Reduced to its simplest terms, the actions of governments are becoming more and more transparent. While many things still go on behind closed doors, economic policy initiatives are almost instantly detected and appear on thousands of screens around the world. Since there is some finite amount of money capital in the world, and an unlimited number of places and ways to employ it, it moves toward the perceived optimum blend of risk and return. Even in the new network economy, which clearly operates with some new rules, that old rule has not changed. Put another way, capital goes where it is wanted, and stays where it is well treated. It will flee onerous regulation and unstable politics, and in today's world technology assures that that movement will be at near the speed of light. Despite thick tomes of theory on capital movement, that is "all she wrote." No amount of rhetoric or spin control will fool capital for long. The global market in information is so pervasive, so fast, and so efficient that it will quickly reflect where capital is wanted and well treated and where it is not.

It is useless to protest the workings of the market's Information Standard because, unlike previous systems, no nation can opt out of the system by holding a press conference. No matter what the officials say, the screens will continue to light up, traders will make judgments. The technology that constitutes the network will not go away. Indeed it will only get better in accordance with Moore's law. The network itself will also get bigger and faster. Mathematicians have shown, at least to their own satisfaction, that the sum of a network increases by the square of the number of members. Today there are some 200 million computers in the world and Andy Grove of Intel believes in another five years there may be 500 million. Whether these estimates prove to be right or wrong, certainly the trend is clear.

There are yet other kinds of networks gnawing away at the power of the state: one created by business alliances and another by private interest groups ranging from the International Red Cross to Save the Whales. The network economy has spawned tens of thousands of these transnational business alliances that have no common pattern. In today's parlance, an alliance can mean anything from full mergers to just a handshake to cooperate, and everything in between. Their growing importance is illustrated by the fact "that one third of world trade represents exchanges between parent companies and their foreign affiliates and another third between companies involved in cross-border strategic alliances" ([11]  The electronic networks permit distributed manufacture, and today few if any products contain components made in only one nation. While sovereigns posture on trade policy, these business networks are beginning to operate almost independently of trade policy. As far as I know, there is no central database to tell us where and how many such alliances are operating, so their power to move production from one area to another cannot be quantified, but it is huge and growing.

The nervous system of the global market is supplied by the public and private networks, the long-distance companies, the miles of fiber and copper, and the rings of satellites that girdle the globe. The information that moves through that nervous system comes from sources too numerous to count and constitutes everything from the latest joke to pronouncements of political leaders. Largely based on that information, money and capital moves at near the speed of light toward opportunity and away from turmoil. Because this global market is a complex adaptive system, predictions about how it will develop and act and react to events in the future is difficult, if not impossible, to predict. What is possible to predict is that the technology upon which the market is based will not only not go away, but it will get better and faster and easier to use.


[11] The World Paper (1997) Sept./Oct.: 1.