By Tim Courtney, Chief Investment Officer
Last month political and business leaders convened at the annual World Economic Forum (WEF) in Davos, Switzerland. This non-governmental organization holds a weeklong meeting each year to influence policy and decision makers in public and private institutions. The overarching theme of this year’s meeting was “Rebuilding Trust.” It is probably not coincidental that this was the theme after recent surveys showed the public’s confidence in institutions is at historic lows.1
Institutions have a role in promoting stable foundations and solving problems as they carry out their missions. As globalization is in the early stages of reversing, problems are seemingly proliferating across the world, and we need solutions. While it is not an institution, there is a tool that has done a fairly good job of providing solutions over the last century, and it’s a tool that we as citizens and investors can and do utilize: markets.
In the essay "I, Pencil," Leonard Read illustrated how markets work by using the example of an ordinary pencil. The family tree of a pencil is surprisingly complex with miners, metal, saws, loggers, rope, transportation, communications — and all of the people necessary for these pieces to produce just one component of a pencil.2 The whole process requires so much information and knowledge that no one person can, or even knows how to, make a pencil.
Still, countless people that will never meet each other cooperate freely to bring about a solution that was likely no part of their intention. Economist Friedrich Hayek saw this as well and wrote about markets, “…if the people guided by the price changes (markets) understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.”
No one invented the market, and while it has no leader guiding participants, it has addressed huge challenges that impact billions of lives. For example, markets enabled efficient production and distribution of food to feed a rapidly growing global population. Despite predictions in the 1970s and 1980s of mass starvation if the global population surpassed 5 billion, market forces spurred agricultural innovation and trade, allowing the population to reach 8 billion with most adequately fed.3 Markets have also helped meet expanding energy needs through efficiency gains and innovation.
Markets cannot solve every problem and are certainly not perfect. They sometimes misallocate capital and talent — and to a degree that may be happening today with the unprecedented attention towards AI endeavors. But the market’s bottom-up approach of leveraging the collective knowledge and experience of billions of free people to drive solutions has many big successes.
The news headlines are typically focused on top-down approaches like the WEF. There was a good amount of knowledge and experience in Davos a few weeks ago. There is even more problem-solving knowledge and experience within markets, and that is what we are investing in.
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