Future wealth

In the connected economy, the value of human capital is set to rise, transforming how individuals generate wealth. People will increasingly rely on their unique skills and knowledge to create wealth within an interconnected market, moving away from traditional employment. This trend is exemplified by David Bowie's $55 million bond issuance against future intellectual property earnings, highlighting the growing trend of asset securitization. As familiarity with such financial instruments grows, so will investor interest and demand, potentially leading to investors acquiring equity in individuals with promising talents.

The evolution of the connected economy will also see the formation of organized markets for human capital trading, expected to develop over two decades through four phases, beginning with the monetization of contracts for celebrities and athletes and evolving into a comprehensive intellectual property market. Generation X and Generation Y will likely be the most active in this evolution, with baby boomers focusing on wealth preservation and pre-baby boomers retiring. This vision requires advancements in information and financial technology, new regulations, and cultural shifts.

The interconnected economy is reshaping the landscape of business operations, emphasizing the importance of strategic risk management, the valuation of future cash flows, and the maximization of human capital's market value. In this evolving economic environment, companies are increasingly integrating strategic risk departments alongside their business units. These departments, led by Chief Risk Officers (CROs), are tasked with identifying, defining, and managing risks, thereby enabling firms to leverage their core strengths and generate value through the production of goods and services. The ability to manage risks effectively allows companies to explore new wealth opportunities, such as engaging in significant acquisitions with a variety of strategic options beyond the traditional binary decision-making process. This approach includes selling rights, forming joint ventures, and collateralizing risks, which in turn influences the company's future wealth prospects.

Moreover, the interconnected economy has given rise to secondary risk trading opportunities, even for companies dealing in tangible products and services. For instance, a company selling snowmobiles might offer a sales rebate if snowfall is below average in its target market, thereby transferring some of the risk to itself and potentially increasing sales. This highlights the importance of risk management in the interconnected economy, where future wealth is as dependent on managing risks as it is on customer focus. Companies that fail to incorporate risk into their financial projections may struggle to attract new investors, as their promised returns may be inferior to those of firms that effectively utilize risk. The interconnected economy also brings about a shift in how companies are evaluated, with a greater emphasis on future cash flows rather than historical financial performance.

The evolution of the economy from an industrial base to an interconnected one has profound implications for the distribution of wealth, particularly for the middle class. In the past, wealth was concentrated in the hands of a few—banks and large business owners who controlled the capital. However, as the economy shifts to value intellectual prowess, wealth is becoming more widely distributed. This change is already visible; by the end of 1999, American households owned 59% of all stocks, a clear sign that middle-class wealth is no longer an oxymoron. The power dynamic is shifting, with wealth spreading more evenly than at any previous point in history. Mutual funds have overtaken traditional institutional investors, indicating a democratization of capital markets, which have always been adept at fair wealth distribution. In an economy driven by intellectual property, even small, single-person companies can find their true market value, further democratizing wealth.

For economies to flourish in this new landscape, they must encourage sensible risk-taking. This could involve restructuring social security into personal retirement accounts, allowing individuals to contribute a portion of their earnings and manage their savings or purchase a fixed annuity upon retirement. Healthcare systems could be reformed to enable pre-tax dollar allocations for future medical expenses. Legal and regulatory frameworks should be adjusted to encourage entrepreneurship while providing a safety net for those who fail. Taxation could shift focus from income to wealth, eliminating double taxation on corporate income, introducing consumption taxes, and abolishing capital gains taxes. Economies that strike the right balance between promoting risk and preventing recklessness will see the most growth. Such radical changes will undoubtedly spark intense political and ideological debates.

In the rapidly evolving landscape of the connected economy, it's imperative for individuals, companies, and society at large to adapt and thrive. The internet has fundamentally transformed the economic terrain, especially within the financial sector, making it essential to immerse oneself fully in this digital shift. Traditional views on wealth have shifted; it's no longer just about the income you earn but rather your net worth that truly indicates your potential for future wealth. This perspective encourages seeing your salary as merely 'pocket money', with the real wealth being the investments you make and the money that works for you.

Embracing financial risk is a critical strategy in this context. Instead of fearing risk, the goal should be to harness its potential benefits. This involves focusing on maximizing future gains through calculated risks, rather than being overly cautious about potential losses. The creation of human capital markets represents a significant opportunity within the connected economy. These markets, which are becoming increasingly efficient in packaging and trading human capital, offer substantial rewards. Even those not directly involved in creating these markets can benefit by using the internet for recruitment or job searching.