Dumb Networks and Smart Capital

Wriston, Walter B.

2007

Conclusion

 

The infrastructure of the market has no bias one way or the other--the network is dumb, only the owners of capital are smart. Governments are not always happy about what markets tell them, indeed, as George Shultz [12]  wrote, there is "almost universal skepticism in political and governmental circles about market solutions to major problems." People look for neat, perfect solutions, but as the English commentator Frank Johnson remarked, "In politics Utopia is always an important country, always one of the great powers." In the real world Utopia does not exist, so some mechanism must be able to absorb the unexpected shocks that will certainly occur, and so far the market has had the best track record in handling these events, ranging from the oil shock to the Gulf War. Markets will sometimes undershoot or overshoot, and it may take time to restore equilibrium, but unlike governments, which are reluctant to admit mistakes, markets adjust for their mistakes quickly.

Global markets have morphed the world into a network economy that is changing the world at a pace undreamed of just a few years ago. All change is unsettling, but the speed of this change is compressing Joseph Schumpeter's dictum of "creative destruction" in time and expanding its space. The process is irreversible. The networks only speed this process, and nations and companies can only ignore this sea of change in the way the world works at their peril.

 
 
Footnotes:

[12] Shultz, G.P., and Dam, K.W. (1977) Economic Policy Beyond the Headlines. New York: W.W. Norton: 193.