Forecasting the Digital Age

Dear Esther,

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I like your metaphors--the Net as a mirror rather than a cleaning solution--but I fear that the Net and other information technologies may be more like magnifying glasses that amplify human impulses. Unfortunately, in the case of global markets what gets amplified seems to be greed and impetuousness. Look at what happened in Mexico in '94; Thailand, Indonesia, Malaysia, and South Korea in '97; and Russia, Brazil, and poor Mexico again during the past few months. You are right when you say that what we are seeing is the truth catching up with economic mismanagement, corruption, and ill-advised government policies of various sorts. That's all cleansing and healthy. But, I'll say it again, what I find telling is that the truth seems to catch up with investors all at once.
The "Asian tigers" did not become Asian turkeys as part of some gradual process as investors absorbed and reacted to deteriorating fundamentals in "little shocks," as you put it. Rather the transformation happened virtually overnight in July 1997, just as it happened to Mexico two and a half years earlier. The investors in emerging markets are not widows and orphans but sophisticated players with extraordinary access to information. They simply refused to believe, or did not heed, the evidence that Mexico was going to have trouble paying its rapidly accumulating dollar denominated debts, that the "Asian tigers" were bubble economies about to pop, that Russia was in the grip of vampire kleptocrats, and so on. Then, in each case, everybody seems to have seen the light and created the financial equivalent of a soccer riot by heading for the exits at once.
This herd instinct will not be fixed by more transparency or information, but it has been amplified by the scale of the global market, the speed of information technologies and, I must stress, the removal of barriers to the free flow of capital. Money now sloshes around the world in huge tides precisely because barriers to the movements of capital have been reduced. The evidence of the recent panics is that perception has more impact on markets than information, and that promises more instability for the future.
Here's a question for you: What effect might instability have on the digital future? Here's my take: If increased instability does not derail a networked world altogether it will at least slow it down. We've just had a pointed reminder of how that can happen in the alarming shriveling of liquidity in the bond market after the market turmoil of the past weeks (an event that once again underscores the importance of perception and mood).
I look around the landscape and see a lot of big, hard to fix forces pointing toward a more unstable future--environmental degradation, changing climate, ever increasing pressures for human migration in the developing world, trends in infectious disease, the rise of religious radicalism in Islam and elsewhere, increasing volatility in the world food system. In unstable times, people turn inward, innovate less, and investment declines. Right?
I'm sure you are going to tell me why this won't happen.

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