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Thursday, June 22, 2006

Global Economy, Wealth Creation & The Rich

The global economy is making more millionaires. A recent study finds the ranks of world millionaires had swelled to 8.7 million last year - half a million more than the population of New York City. Millionaires also invested more aggressively, pouring cash into emerging markets and pulling it out of fixed income holdings, as their wealth reached $33.3 trillion, more than double U.S. economic output. Bloomberg magazine's latest issue talks about China's uneasy billionaires - China also has 300,000 millionaires, according to the World Wealth Report compiled by Merrill Lynch & Co. and Capgemi­ni SA. Three hundred million people have been lifted out of poverty since 1978, according to a September United Nations report, and mil­lions more are starting businesses in hopes of joining the country’s rap­idly expanding plutocracy. All this leads to the question - Over 6.4 billion people participate in a $36.5 trillion global economy, designed and overseen by no one. How did this marvel of self-organized complexity evolve? How is wealth created within this system? And how can wealth be increased for the benefit of individuals, businesses, and society? and of course for my self consumption - how do billionaires become waht they are and how come everywhere around the world -people only see growth, moderate growth and robust growth. In his new book The Origin of Wealth, McKinsey & Company Senior Advisor Eric D. Beinhocker argues that the traditional view of economics as a static, equilibrium-balanced system is going through a radical rethinking involving a multitude of disciplines and argues the case for "complexity economics," in which the economy is viewed as a highly dynamic and constantly evolving system that is all but impossible to predict. He advocates looking at strategy as a portfolio of experiments and that the key to doing better is to "bring evolution inside" and get the wheels of differentiation, selection, and amplification spinning within a company's four walls. Rather than thinking of strategy as a single plan built on predictions of the future, we should think of strategy as a portfolio of experiments, a population of competing Business Plans that evolves over time.There are some general lessons that can be learned from a portfolio-of-experiments approach to strategy:
- First, management needs to create a context for strategy. Constructing a portfolio of experiments requires a collective understanding of the current situation and shared aspirations among the management team.
- Second, management needs a process for differentiating Business Plans that results in a portfolio of diverse Plans.
- Third, the organization needs to create a selection environment that mirrors the environment in the market.
- Fourth and finally, processes need to be established that enable the amplification of successful Business Plans and the elimination of unsuccessful Plans.
In short his view : The economy is a "complex adaptive system" in which physical technologies, social technologies, and business designs continuously interact to create novel products, new ideas, and increasing wealth - wealth creation is the product of a simple but profoundly powerful evolutionary formula: differentiate, select, and amplify.

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"All views expressed are my personal views are not related in any way to my employer"