| Home | My photos | Forex | My trading | Contacts |
|
|
You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
|
We briefly discuss ten issues here that we think are of global significance and all of which may have implications for our investment futuresFuture focus II: ten key global issues Stewart Myers, finance professor at the Sloan School at MIT, likes to say that there are always ten problems in finance that are intractable. If one is solved, another comes in, perhaps because our ten fingers are a handy counting device. We can apply this unit-of-ten circumstance to other walks of life too. In almost any field, it seems there are always ten burning questions, issues for which there are no clear answers. Different observers will assign different weights to the factors and come up with different opinions. Some will be solved, some will just wither away, and others will stay. We briefly discuss ten issues here that we think are of global significance and all of which may have implications for our investment futures. What are your ten? Twin Peaks The world is undergoing a sharp polarization across economies, clustering into the very rich and the very poor, while the middle-income class of countries is vanishing. What is more, the emergence of these twin peaks, as London School of Economics professor Danny Quah describes the phenomenon, applies not just to economies but equally to people within individual societies. Note, for example, that the worlds 225 richest individualsof whom 60 are American have a combined wealth of over $1 trillion. This is equal to the total annual income of the poorest half of the worlds population. Nowhere in the developed world does income disparity seem more pronounced than in the United States. Chief executive officer (CEO) pay rose in the year 2000 by 18 percent to a level 531 times that of the average factory workers. And if we looked at the differences in termination packages for nonperforming CEOs versus those for factory workers dismissed without cause, we might find a greater gap. The mission of reducing the gap between the haves and have-nots is vital. Aggregate growth is not continuing because the have-nots have said enough. According to the 1998 United Nations report on world income disparity, global capitalism based on the model of the past fifty years is being rejected by the majority of the worlds population. We might say that a two-generation period is not enough, but the world is deciding that it is. Government is taking control in Asia, often at the provocation of the International Monetary Fund (IMF); Russia has repudiated, at least in official statements, the consequences of bandit capitalism; and China, never a model democracy, has confirmed that its path of capitalism with a socialist face is the right way in launching a trillion dollar public works program. There are major structural problems that unbridled capitalism, best personified in Russia but evident elsewhere, including political campaign financing in the United States, will not solve. Information Divide Boundaries, chasms, barriers are forming in American society that may produce very severe clashes in the future. Widening income inequality is one and it has been gaining momentum over the past quarter century. But there is also the financial gap between those with access to the financial system and the serfs without. People who have access to financial instrumentssavings accounts, mutual funds, and the likeare doing much better than those who do not. This gap is also widening further although a market decline may have an impact there. There is also an information gap. Access to computer skills, the ability to self-learn and have access to the worlds knowledge through the Internet helps a certain group of people educate themselves, adapt themselves to new skills and new climates. But those without fall behind. Computers enable the haves to have more and, without them, the have-nots are left out. In combination with the poverty divide and the financial divide, the information divide may produce circumstances in the future that could provoke very sharp cleavages in the American economy and elsewhere. Comparative Disadvantage We have all been raised to understand comparative advantage in economics, whereby through globalization and free flow of capital, each of us learns to pursue our own best specialty. And by combining all of these separate agents, we produce the best results because everybody does what they can do best based on their circumstances, skills, and intelligence. What we do not understand is comparative disadvantage, where those people who are not only below the poverty line, but below the financial linethe financial world does not reach themand below the information linethe free flow of information does not reach them become an increasing social drag that must be taken care of. So now we may be entering a world of comparative disadvantage where, for social purposes, we must support those skills that are not the best, perhaps through negative tariffs or subsidies. They may be the most local or the most political. But such actions could be a vital response to the rising tide of nationalism around the world that is replacing the global movement of the last generation, and the unrest on the part of populations, who are concerned that the apparent prosperity has only benefited the few, not the many. Society as a whole must carry the burden. Free Trade Who really is in favor of free trade? It is a nice phrase but the answer is any country representing those industries that are the most productive, the most prosperous, and would benefit most. The United States is in favor of free trade for financial services, for example, but it is not in favor of free trade for agricultural goods. And while the United States has been, in principle, a global supporter of multilateral trade negotiations, especially through the World Trade Organization, it usually resorts to bilateral, specific negotiations with trading partners with whom it has an adverse trade balance, especially those in Asia. It is prepared to undermine the overall notion of free trade and say that, specifically, when we get into periods of instability, we have to solve problems on a case-by-case basis. This is not going to help global trade. The United States also engages in vigorous antidumping, for example, against Russian steel companies and African agricultural products. Yet it is happy to dump education, selling it around the world at below the cost of producing it In the United States by offering scholarships and fellowships to bring in the best students. So, free trade comes wrapped in prosperity and it is a very industryspecific prosperity at that, rather than a general proposition. Connectivity One of the essential features of this era is the extraordinary amount of connectivity that we haveon a personal level, corporate level, governmental level. We are able to intertwine almost everything that we do in ways we have never been able to do before. We have benefited from comparative advantage in that each of us has become a specialist at something and we can produce that something for other people better than they can for themselves. But no longer are we generalists, no longer can we survive by ourselves. As such, we are enjoying the benefits, but exposed to the risks also, of increasing returns, which has become the new economics. We have a global financial interconnectivity that we have never had before. We have a common banking system, the capacity for money to flow electronically around the globe, instantly, in unrestrained amounts, and with no transparency. We have a common educational system for business people, based largely on the American model. We have the notion that Adam Smiths unrestrained capitalism for the individual produces the best common good. And we even have a common desktop, the English language. But when one of our global members gets into trouble, whether Korea, Indonesia, Russia, or Brazil, the others feel, perhaps quite rightly, that a major rescue package at any cost must be contained. It is rather like a patient with a potentially contagious disease. But it seems the only way to stop it is to put the diseased patient back into the population. The way you would normally take care of a diseased patient is by quarantine. Nuclear Race At the end of the Cold War, we thought that nuclear bomb technology was finished. But despite the propaganda campaign to say that nuclear weapons are no longer useful, we have demonstrated that they are the most useful things of all. India and Pakistan received a slight slap by joining the nuclear club, but then it turned into a pat. Both used blitz timing, in a public relations sense: If you want to do something bad, do it quickly, get it over with, and then appear contrite. Another example of the value of nuclear weapons is Russia, which has received economic aid of billions of dollars every year since the Soviet breakup. Ukraine, in similar circumstances, received almost nothing, but it gave up its nuclear weapons to Russia at the behest of the United States, voluntarily. Other countries with nuclear capabilities that are at the fringesKorea, Egypt, Israel, Iran, and Iraqwill all want to cross the line. Even in Latin America, Brazil and Argentina might too. So the nuclear race is on. The club is important to be a member ofnot for political expansion, but for economic purposes. It is a high-return business. Terrorism Terrorthe empowerment of individuals to destroy, with a purpose or notis a force that we have no idea how to stop. We know that individuals can be empowered to use simply terrible weapons, and there is no particular form of protection that we have for that. And not necessarily just external terrorism, but internal, the most insidious of all. We have seen that cropping up around the world where leaders have been assassinated by their own people. We may see more with more tremendously devastating suitcase-sized weapons. But should we try to combat terrorism through a war of explosions or a war of intelligence? Perhaps disclosure might work. Terrorists work in the dark. They engage in activities where they are always in a clandestine environment. What they cannot stand is to be exposed. And yet, that is exactly what we should do: Disclose who they are, what their connections are, who deals with them, and who helps them. Typically, their supporters radiate out, including bankers, industrialists, shippersall helping terrorists, either intentionally or otherwise. Weightlessness Economic valuewhatever it is we are willing to pay money forused to be concentrated in big physical things like steel girders, huge cars, and heavy wooden furniture. All this has changed. We are now living in what economics journalist Diane Coyle calls the weightless world, a place where value lies predominantly in products with no physical presence: things like software code, genetic codes, the creative content of a film or piece of music, the design of a new pair of sunglasses, the vigilance of a security guard, or the helpfulness of a shop assistant. The size of the advanced industrial economies has grown more than threefold in the past fifty years, but the literal weight of economic output has barely climbed at all. As a result of a phenomenal series of advances in computer and telecommunications technology, our economies are growing bigger but not heavier, increasingly miniaturized, dematerialized, or weightless. The best example is the microchip in a musical greeting card, which contains more computer power than was on the entire planet in 1945. This is not to say we have lost out appetite for physical goodsclearly, this it not true. Rather, as a result of both new technologies and increasing prosperity, the share of the value of goods created by materials is minimal compared with the research, design and marketing that have gone into them. The fundamental natural resource of the weightless world is human creativity and intelligence. Language The Internet has changed language in ways that are permanent. The old ways will never come back. Capital letters are going out of use as most computer programs are case-insensitive. We now put links in our writings, hot links to other sites and other programs, somewhat like footnotes, but as an active part of our writing. Our writing is more conversational. It is quick, not necessarily following the old grammatical rules. And it incorporates multimedia devices and graphics. We have returned to working with words and graphics together. And we have wonderful new tools. Not only do we have spell-check and grammar-check programs in Word, we also have a secret weapon tucked in there called auto summary, which can condense writing down to any size that we wish. We can also get translations through such programs as Babelfish and LanguageForce, which tries to cope with some of the more exotic languages. These programs are somewhat primitive, but clearly they will get it right eventually and make sense of the whole thing. The art of readable writing will never be the same. Games and Simulations We used to look at children playing computer games and thought they were wasting their time. But we were wrong. In fact, they learn an enormous amount because they are right inside the game, working on strategies. These games were the forerunners of business-type simulations and the spreadsheet revolution that started with VisiCalc, went on to Lotus 1-2-3, and is now coming to complicated three-dimensional sight maps. Simulations and these types of spreadsheets are coming together to portray business graphically and in a way that is just as realistic as the flight simulator is to a pilot. Games are devices for learning, devices for testing, and devices for recording alternatives that might have occurred in history but actually did not. Games need to have reward systems and penalty systems and they need to have meaningful scenarios. But they can be forward testing, rather than merely looking at history; and they can be a way of practicing for a variety of alternatives that may occur in the future but have not occurred in the past. Read On In Print Diane Coyle, The Weightless World: Thriving in the Digital Age (Cap stone Publishing/MIT Press, 1997). |
|
|||||||||||||||
Previous Issues
|
| ©2007 Olesia | Home • My photos • Forex • News • My trading • Contacts |