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COPYRIGHT 2006 SourceMedia, Inc.
Billy, you seen the chart? Yeah I saw it, he says What do you think? Looks like it's going to be wicked (Junger, 1997).
When the captain of a fishing boat sets course he/she is likely well prepared for dangers foreseen and unforeseen as well, including a sudden storm. Extra gear has been stowed, charts prepared, communication equipment tested, and the boat outfitted. Any abrupt change in circumstances is immediately handled by a well-trained crew. At last resort, if position and storm forces dictate, the captain can almost always change course. However, on rare occasions, weather conditions coalesce and become so extreme that the goal of the captain and his/her crew becomes not to succeed, but simply to survive. Traditional strategy and planning are moot when conditions become "perfect."
Like meteorologists who are energized by a once-in-a-100-year storm, stoic economists have their own ideal of perfection. Instead of manifesting itself in extreme weather, an economist's perfection is measured solely by the degree to which markets are efficient. It has been argued that a perfect market, that is, one with absolute efficiency, cannot truly exist. Natural and governmental barriers, transaction costs and the dual frictions of distance and time are said to prevent most goods and services from being produced, sold, bought and distributed in a perfectly efficient manner. However, it can also be argued that markets are becoming increasingly perfect, and in some cases, if perfection has not already been achieved, it is certainly imminent.
In order for a market to be considered perfect, it must meet certain conditions. First, there must be many homogeneous buyers and sellers of a particular product or service. Second, the goods or services themselves must be extremely close in price, quality, features and functions. Third, transaction costs, including fees, distribution costs, taxes and time, must approach zero. The classic example of a perfect market is a stock exchange, where prices are set instantaneously, based not on the sellers' profit maximization objectives, but simply at the point where the market clears between many buyers and sellers. Markets for commodities, such as gold, oil and currencies have also been described as perfect (or near perfect).
Now, there is no doubt that powerful storms of change are emerging which are challenging companies, large and small, and in all industries. These well-known, and perhaps overanalyzed, tempests in the business climate include the increasing democratization of governments and economies, globalization, and the mass digitization of information products, services and commerce. Each of these forces is providing companies with unique opportunities and threats. But taken as a whole, they may have even greater impact. The confluence of these unrelenting market factors may, in fact, in the not-too-distant future, create the conditions that will meet, or at least closely approximate, the economist's definition of perfection. And as this occurs, we will be faced with conditions in which poor planning, rigid business models and bloated supply chains will not survive. Batten down the hatches. It is about to get wicked.
Three storms of change
The storm of democratization
On November 9, 1989, after a mistaken announcement by a government official seemingly lifted all travel restrictions, East Germans en masse overwhelmed border guards and were greeted by cheering West Berliners on the other side of the barrier that had separated them for almost 30 years. Although it was physically destroyed in the months following that historic day, November 9, 1989 is widely considered the date when the Berlin Wall fell.
Since the fall of the Berlin Wall, the widespread democratization of world governments has been rapid and dramatic. In 1988, according to Freedom House, which publishes an annual survey that comparatively assesses political freedom in the world's countries, there were only 69 electoral democracies in the world. By 2004, that number had risen to 119 (Freedom House, 2005). First evident in the countries of Central Europe and the former Soviet Socialist Republics, the storm of democracy has affected the structure and direction of countries in Latin America, Asia, parts of Africa, and, most recently, rumblings of democracy have been felt in the Middle East (see Figure 1).
Political freedom and economic freedom are inextricably linked, and with the fall of totalitarianism has come the liberalization of economies. Command and control economies that were popular "alternative" systems in the early part of the twentieth century were discredited and largely abandoned by the end of it (although not before producing devastating results for the peoples subjected to them). Even countries such as China, that have not fully embraced democracy, have begrudgingly accepted the free market. So, expectedly, the spread of democratization has brought with it an extraordinary rise in economic activity and opportunity throughout...
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