Future Wealth

Citation

Cassell, K.A. and Mercado, M.I. (2000), "Future Wealth", The Bottom Line, Vol. 13 No. 3. https://doi.org/10.1108/bl.2000.17013cae.003

Future Wealth

Davis, S. and Meyer, C.Harvard Business School PressBoston2000

Keywords Wealth, Human capital, Communications industry, Stocks, Current assets

This book is based on the authors' vision that the basis of our economic foundation is changing so dramatically that all the rules about wealth, i.e. how we make it, how we build it, control it and spread it are altering our perception of wealth. That is to say, the deeper structural shifts in financial markets and in economic value are altering the traditional nature of wealth. By wealth, they mean not just the investment portfolios of the rich, but the stock values that individuals, companies and societies generate in a successful economy.

What forces are propelling this change? Davis and Meyer argue that because we are building "the connected economy in which businesses succeed by pursuing speed, connectivity, and intangible value," the exigencies required by these changing rules of business are already profoundly affecting the market for goods and services. These, in turn, affect the acquisition of wealth. Communications is so pervasive that anyone anywhere can trade anything from coffee futures to attic junk and obtain present or future wealth. In turn, this realization of connectivity fueled by human beings has changed perceptions concerning the utility of the most important form of capital, human capital. People are beginning to see themselves as assets, which have migrated from spectators to players in the acquisition of wealth. It is this perception of the rise of human and intellectual capital as the most highly valued resource of the late information age of the 1990s that has wrought profound changes in the economy.

As we create the connected economy, the economic action, i.e. the accumulation of wealth, is shifting from the real economy, i.e. producing and consuming goods, to the financial economy for two main reasons. In the short term, investors see the connected economy as an extraordinary opportunity to create real future value and are buying into it, bidding up the stock market and creating current financial wealth. In the long run, the information economy's form of capital - information, knowledge and talent - can be leveraged indefinitely at much lower costs than the financial capital needed to build steel mills in the industrial age. The amount of financial capital required is much smaller, which in turn lowers the amount of capital needed and thus its costs. Unlike a factory, information's capacity is unlimited. A phenomenon often called "increasing returns" is here examined, where the connected economy is built on increasing-returns businesses, software most of all, and therefore takes less physical capital to produce a given quantity of economic value. A consequence of this reality is that the ease of raising capital or of self-funding new ventures in turn is changing the distribution of wealth in the society and how we view the ideas and visions produced by human capital. As more individuals realize the value of their ideas they are prepared to barter them for current and future wealth. These factors in turn will force companies to reassess how they conduct business, i.e. what they do. This reassessment will run the whole gamut from how they acquire talent, manage risk, and how they measure their own performance.

Davis and Meyer argue that in the near future we will trade everything of value including human capital, talent and other intangibles in efficient markets. Companies and institutions will begin to invest literally in their employees, not indirectly through training and development. Business units will be treated as units of financial risk whose worth equals the quality of intellectual capital. They opine that individuals will think less about jobs and more about investing in their own human capital. As the average citizens learn more about investments, they will begin to accept higher risk for the potential of higher rewards, turning the concept of risk to opportunity. Yet, within all this movement, stronger social safety nets will have to be designed to balance new individual freedoms containing risks with order and democracy in society.

In summary, Davis and Meyer have a vision in which within 20 years human capital will be traded on a NASDAQ-like stock exchange. In this world, freelance workers and professionals will name their terms and companies will bid for their services via online auctions. Companies and institutions will invest in their employees and literally buy stock in their brains and talent. This connected world will be one in which the levers of economic fortune will be controlled by the individuals they now employ and not by the corporations and institutions which employ them now.

Davis and Meyer come to us with impressive credentials: Davis, a leading business thinker at the Ernst & Young Center for Business Innovation in Cambridge, MA, and the latter, the director of the Center for Business Information and a Partner at Ernst & Young. Read this book! It raises profound questions about the information revolution. Needless to say, this book stretches the imagination, encourages the reader to dream dreams and see visions of the future. It would be unwise to dismiss this book as the work of unrealistic visionaries. The dot.com global economy of which they write is already here and in operation. For anyone who wishes to understand the new economy and its profound implications for each one of us, this book is required reading. We highly recommend that you read it at least twice and discuss its provocative ideas every chance you get.

Kay Ann CassellAssociate Director, Programs and Services for the New York Public Library's Branch Libraries

Marina I. MercadoAdjunct Faculty Member at Mercy College, New York, and consultant in international business