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Keynes’ invisible hand is a fallacy – new direction in the philosophy of economics

Keynes’ invisible hand is a fallacy – new direction in the philosophy of economics

CAMBRIDGE – The 2020s will be the decade when the idea that economic problems can be “left to the market” to solve is finally put to rest – after some 40 years during which that belief has caused untold damage to society and the environment.

We can foretell this with such confidence because of the nature of the digital economy. The long-standing economic theory, according to which firms or people deliver the best outcomes for society by acting individually to maximize profits or “utility,” has never been valid. If it were, businesses would see no advantage in becoming much larger, and advertisers would never use social pressure to manipulate consumers. But in the digital world, it is simply impossible to ignore our interdependence.

Consider today’s pervasive digital platforms. One reason why there are just a few globally dominant players is the existence of network effects: whether a platform matches diners with restaurants or enables users to connect with each other, the more users it has, the better it is for all users. As a platform becomes larger, the benefits for everyone increase, often at an accelerating pace.

Or consider the evident importance of data, the rapidly increasing volume of which is fuelling artificial intelligence and other innovative services (as well as, less positively, the digital advertising market). Data has the technical economic characteristics of a classic public good (like air) in the sense that they are “non-rival” – more than one person can use data at the same time without depleting the overall stock. And basic economics shows that markets can not be expected to generate and allocate such goods efficiently.

Moreover, raw data is processed into knowledge containing valuable information, which, even when provided by an individual, generally relates to other people or other data. In other words, the value of data-driven knowledge comes from its social context.

Digitalization has created extended global supply chains, linking together the fates of millions of businesses. Social media are making societal influences on consumer demand more important than ever. And economic progress is more than ever driven by ideas, which come attached to people and multiply with exchange.

The observation of fundamental flaws with the methodological individualism that underpins conventional economic prescriptions is far from new. In a 1952 book based on his PhD dissertation, the late American economist William J. Baumol noted that people influence one another’s preferences, and that companies affect one another’s costs of production, depending on the scale of their operations. The assumption that interdependence could be ignored made economic analysis simpler, of course. But, Baumol wrote, “Such an assumption is not neutral; it leads inexorably to the acceptance of laissez-faire.”

Furthermore, if the assumption is false, then the conclusion is wrong – as we have seen with certain damaging economic policies since the 1980s. The deregulation of financial markets resulted in the 2008 global financial crisis, while the “market for corporate control” led to merger booms and the increased concentration of many sectors of the economy. In addition, Milton Friedman’s view that a company’s sole social responsibility is to increase its profits encouraged overpaid executives to ignore the environmental and social damage caused by their businesses. The “free” market of laissez-faire is a chimera, and if individuals do not recognize the consequences of their actions for others, the result will be markets shaped by greed and power.

This is not to argue that alternative policy approaches are easy. As I have explained in detail elsewhere, both government and market failures tend to occur in the same contexts and for the same reasons – including information asymmetries, uncertainty, incomplete contracts, and principal-agent problems. Standard government action is no more likely than laissez-faire to succeed. The nature of the digital economy makes these classic challenges even more acute, and we are just in the early stages of thinking about how best to regulate it. When hundreds of millions of people live in densely populated areas, interact in myriad ways, and depend on the actions of others who are thousands of miles away, there is no reason to expect easy solutions.

As the recent global surge of reports on competition policy and digital regulation suggests, the search for possible answers is underway. Unfortunately, academic economics is behind the curve. As Thomas Philippon remarks in his excellent recent book The Great Reversal, in studying the growing dysfunction of the American economy, “I was surprised by the gap between economic research and policy.”

Policymakers know they need sharper analytical tools to direct the economy so that it once again starts to deliver broad-based progress. To help them, economic researchers must ditch their unscientific attachment to the assumption of isolated individuals transacting in free markets, and instead focus on the economy of the 2020s.


Diane Coyle is Professor of Public Policy at the University of Cambridge.


Copyright: Project Syndicate, 2020.
www.project-syndicate.org


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Following reverse listing, public can now acquire shareholding in Paratus Namibia

Promotion

20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.