Knowledge is power
“Truth is singular. Its ‘versions’ are mistruths” (Somni 451, Cloud Atlas – David Mitchell)
Another week where incoming data and news flow on the global economy have defied the forecasted doom in the path ahead. US retail sales, the barometer for the single most important slice of demand for Global Plc, continued to speak of a US consumer in robust shape. We have written before on why the world economy needs to be treated as innocent until proven guilty, rather than the reverse. This week, we explore in more detail why that remains the case.
?Growth is the norm not the exception
Sustained economic growth is an invention of the last few centuries. Before then, there were regions of the world that managed brief spurts of progress. However, the trick of stringing them together was the left to the UK in the 18th and 19th centuries.
There are a variety of potential ingredients into this ultimately sustained economic take-off. Some speak of the power of the right institutions.[1] Sufficiently supple to allow for the chaos of repeated innovation, yet firm enough to prevent one generation of entrepreneurs from acquiring the political influence to block the next.
This latter trade-off is a fine balance of course. Without the hope of a degree of monopoly power and the profits associated, there is little incentive for firms to invest in all important research and development. However, too much entrenched monopoly power has time and time again led to a return to stagnation. For new worlds to repeatedly emerge, bits of the old world need to be destroyed to make way.[2] Competition authorities around the world have a role to play in this, as recent moves by the US Federal Trade Commission against Amazon would suggest.[3]
Others emphasise a multi-century build-up of useful knowledge about the world around us. The ground laid for the seismic introduction of the printing press by the rediscovery of Aristotle in the 11th and 12th centuries. Key here was the great Greek philosopher’s emphasis on a natural world that could be understood via rational enquiry into causal process.[4]
Gutenberg’s printing press can then be seen to facilitate the scientific method that flourished in Europe in the ensuing centuries. From here, superstition and other knowledge cul-de-sacs are increasingly banished to the margins.
Translating knowledge into power
There is (like almost everything in this world we live in) hot debate about how we turned this growing mountain of ‘propositional knowledge’[5] into something that could generate tangible progress in living standards. Why was it North-Western Europe, which to that point had looked unpromising to say the least, that managed this trick first?
One interesting proposal (alongside many others) surrounds the concept of Knowledge Access Institutions (KAI). These societies and other gatherings, the Royal Society being a good example, sprung up with increasing regularity in the UK through the course of the 17th and 18th centuries. Importantly they cut across industries and sectors. This allowed entrepreneurs from various disciplines to gather and share information, to debate the latest advances in scientific understanding from diverse perspectives.[6]
The ultimate result was that the growing knowledge mountain started paying out in the form of inventions (and innovation) like an overfilled fruit machine. Giant advances in living standards followed swiftly but unevenly.
And to today…
Today the knowledge mountain continues to grow rapidly - Artificial Intelligence is helping us grow it in some areas faster than we can even explain with theory. However, the problem today, as with the past, is turning all that available information into something that will tangibly change lives for the better.
Now, as in prior information revolutions, the value of all this knowledge is potentially obscured both by its sheer proliferating abundance,[7] and the confident nonsense and factoids blended seamlessly within. To that extent, many of the entrepreneurs of the moment are deterred from exploiting that expanding frontier of understanding - The costs of discerning fact from fiction are too high.
History speaks of overly centralised power as a hindrance. Political, religious, or other ideology can warp the process of knowledge exploitation. An oft used example is when soviet authorities’ support of (subsequently proved erroneous) theories surrounding inherited characteristics set the USSR’s biological science back for decades.[8]
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What does this all mean for investors?
The daily torrent of company earnings reports, economic data, news headlines and strident opinion is disorienting. As we’ve pointed out before, the urge to pattern spot, to extrapolate, in amongst this splattered chaos, is powerful. Once you accept that much of this information is simply noise, with no signal as to what comes next, your investing life may become a little easier.
The moment we occupy is messy from almost every conceivable angle, as the weekly performance of capital markets currently reflects. The sense remains that many of the certainties we clung onto in the pre-pandemic era, from the level of interest rates to where work is located, are gone. At such moments, it is more important than ever to try and take a step back and focus on what may be some of the longer-term trends.
We have, over very long periods of time, been getting less violent even as our capacity to inflict it has multiplied.[9] Levels of extreme poverty have resumed their long down trend despite the pandemic blip.[10] In amongst all this, it is hard to think that the continued growth of useful knowledge, in amongst and sometimes because of flourishing misinformation, will not pay out as it has many times before. The best way to exploit these longer-term trends as an investor is to get into and stick with a globally diversified batch of investments.
(And if you want more attempts at clarity amid the ever changing investments landscape, don’t forget to subscribe to our weekly ‘Word on the Street’ podcast.)
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[1] https://blogs.worldbank.org/governance/institutions-matter-growth-and-prosperity-today-more-ever
[4] Lipsey R.G, Carlaw KI, & Bekar CT (2005) – Economic Transformations – General Purpose Technologies and Long-Term Economic Growth – Oxford University Press - pp235
[8] Lipsey R.G, Carlaw KI, & Bekar CT (2005) – Economic Transformations – General Purpose Technologies and Long-Term Economic Growth – Oxford University Press - pp71
[10] https://blogs.worldbank.org/opendata/september-2023-global-poverty-update-world-bank-new-data-poverty-during-pandemic-asia
?*This article is for information purposes only. It is not intended as a product offer or investment advice