Flat world could make dotcom bubble look tame

31 Aug Flat world could make dotcom bubble look tame

A few weeks ago I was invited to present to the CEO and 60 execs of one of America’s leading banks. The topic, of course, was innovation. I was concerned; it was not the best time to be talking about innovation in banking. The markets were reeling from the impact of the sub-prime crisis and central banks around the world were starting to funnel money, lots of money (close to $500 billion), into their member banks to avoid a credit meltdown.
It reminded me of the week my publisher decided to do a prime time radio talk show tour for a book I had just released. It was the same week the Monica Lewinsky story broke. Oddly enough, most radio shows were not covering innovation that week – at least not the kind of innovation I wanted to talk about!
Despite the market distraction, my keynote last week went over amazingly well. Banking, as it turns out, is an industry were innovation provides enormous competitive leverage. And it’s in times of crisis that most of the reformation and innovation occurs. It got me to wondering why innovation is such a popular topic in these tumultuous times.
Striking crisis
What struck me most in my discussions with these senior banking execs was the global nature of the current crisis. It used to be that if one country’s or geography’s financial system cycled down, another would cycle up. Big money has been playing the global market arbitrage game for years. It’s not that global markets were completely isolated from each other, but they were separated by just enough reasonable distance, geographically and economically, to allow for inefficiencies to arise.
In free markets inefficiencies create opportunities for inequity, which, bluntly put, means someone prospers at someone else’s expense.
But that was then, this is now.
In a flat world the curvature, peaks and valleys of inefficiency start to level. An event anywhere on the globe is visible anywhere else.
For the most part that’s a good thing, right? A flat world is a better world. Sure it is, until things turn ugly.
The fear that many economists have is that we are living in a global bubble. It’s not something that should take us by surprise, at least no more than the dotcom bubble did. The Economist covered the phenomenon with a feature article in June of ’05! I can attest from my own experiences, traveling around the world, that we have been leading up to this for some time now. Anyone want to plop down $500K for a vacation condo in Cambodia?
If this bubble bursts, and it’s not entirely clear yet if it will, we are in for an awakening. A realization that a flat world comes with a steep price, namely a new level of intereliance and economic dependence between nations.
Volatile flatness
In the end, that is a good thing, but we are not at the end. While it’s encouraging to see the markets bounce back, we still have much to learn about the nature and impact of global uncertainty and volatility on this flat world.
For another perspective, check out Vinny Catalano’s post on The Dark Side of Globalization.
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