Future Wealth is a book that exams three major themes created by a connected economy: risk as opportunity; growing efficiency of financial markets for human capital; and the need for new forms of social capital. The book is divided into five parts: foundations, individuals, companies, society and horizons.
Part l: Foundations
The connected economy is creating new forces, three of which are of major importance. The growing efficiency of financial and real markets, brought about by increased connectivity to the internet; The dominance of human capital created by software that automates traditional business roles; and the degeneration of our social capital due to technology’s impact on our privacy, security and property. All of these forces combine to create the three themes of this book.
Everything of importance has risk attached to it and people’s points of view are changing to risk as opportunity. As evidenced by more people today investing in stocks and money markets than conventional savings accounts and less risky bonds, the higher the risk, the higher the returns.
Societies that support risk taking will create the greatest innovation and growth. The connected economy will favor freedom over constraints. Before people take these risks, some form of security, a “safety net,” will need to be provided.
Part ll: Individuals
In the future, we will create wealth for ourselves by marketing what we know. We will create the labor market because we hold the desired resource. We must look at employment and monetary rewards as wealth rather than income. We must regard our human capital as carefully as we do our financial capital. We should take a job for what we will learn, not for what it will pay.
Future wealth of individuals will be created in four waves with no clear-cut distinction between each. The first wave has already begun with David Bowie and his Bowie bonds and will continue in the next few years as other famous entertainment and sports stars cash in on their future earnings. In five to ten years, the next wave will begin. This wave will include highly paid professionals and the best knowledge workers. The third wave, in ten to fifteen years, will be groups that work together, a type of human bundle. Twenty years from now the fourth wave will hit. This will involve individuals of all levels.
We must learn to manage our individual risk and view the opportunities as well as the threats. Three factors affect our decisions about risk. The first is math, what is the actual risk worth?, the second is the completeness of information, how much do we know?, and the third is our personal risk profile, how much risk are we willing to assume?. We must change our way of analyzing risk. Instead of insuring against loss, we should maximize by trading risk and the opportunities that come along with it.
E-trading has dramatically lowered the cost of trading stocks. Our future wealth depends more on what stocks we buy than on our incomes.
Part lll: Companies
Companies should create “strategic risk units” (SRUs) to identify, distinguish, put together and deal the assorted risks a company faces. SBUs and SRUs would complement each other because of the views they each take about risk. SBUs minimize real risk and see financial vistas as secondary, while SRUs look for financial risk for use as an advantage to trade by. Future wealth opportunities have more to do with risks than certain cash flows.
Companies must evolve at the speed of the connected economy to survive. Currently external change is occurring exponentially, while internal change takes place much more slowly. The Internet reduces the cost of locating, purchasing and receiving what you need from people outside of your organization and makes internal organization outdated. In the world of future wealth, everyone inside the organization should also be compete in the external markets so they will be able to gauge such factors as price, time and quality.
Employees will be better able to determine how much they are worth as more and more jobs are posted on the web. People are now posting their resumes in various jobsites on the net and if they have qualifications that someone else needs, companies are going to have to compete against each other as to who will get that employee.
Part lV: Society
According to the Federal Reserve, American household now control, either directly or through mutual funds, 59% of all stocks held in the United States. Capital was a scarcer resource than land or labor a century ago, now intellectual capital is the scarce resource. Society should change to create safety nets for those who accept risks.
One way is to change the way social security operates. With the baby boomers approaching retirement age, the money going out will soon be more than the money coming in. One way to avert this is to create a mixed system, combining the existing system with an investment plan. The government would deposit 2.3% of your salary into your personal retirement account (PRA). When you reach retirement age, you would use your PRA to buy an annuity. You would then receive your regular social security along with your annuity checks.
Another way is to change the current Medicare system. You would pay the doctors as long as you remain healthy and when you are sick, it would be free until you are healthy again. This would work because of the human psychology. Do you go all-out to make less so that you pay less in income taxes? The same would apply to the health system payments. It is similar to a health insurance premium except when you need to use it you pay nothing.
Part V: Horizons
“Connectivity leads to commerce, commerce to wealth, wealth to risk, risk to risk trading. This is true for individuals, enterprise and society. It’s what future wealth is about.” The authors of this book have come up with twenty guidelines to follow to create future wealth.
1) Connect an participate
2) Focus on net worth, not income
3) Make financial risk work for you
4) Build financial markets for human capital
5) Raise the wires and strengthen the nets
6) Treat your labor as a tradable security
7) Prepare for wealth
8) Trust the market to determine the rewards
9) Manage the asset already at risk
10) Create while you trade
11) Develop Strategic Risk Units to optimize the value of risks in business
12) Run the organization by marketplace rules
13) Manage human resources as an asset
14) Invest in employees-literally
15) Live in the connected economy
16) Advocate capital markets as the new emancipators
17) Wealth is no longer just for the wealthy
18) Vote for a new tax system
20) Beware of what you want-wealth is for better and worse
What are the implications for business of the information presented? Businesses are going to have to change all of their current mindsets to survive in the future markets.
What are the implications for your classmates of the information presented? We will be living in this future. We will have to adjust to the way we think of ourselves. We will have to learn to manage our own risks.
Should the book be retained on the list for future classes? Yes, the book provides insights that I had never considered before reading it.