Robert Neuwirth spent four years among the chaotic stalls of street markets, talking to pushcart hawkers and gray marketers, to study the remarkable “System D,” the world’s unlicensed economic network. Responsible for some 1.8 billion jobs, it’s an economy of underappreciated power and scope. I have seen the same kind of economic forces at work in the street markets of El Salvador.
This is an economic force that is underappreciated by many … but there are companies that do recognize the power of this economic force, and Neuwirth gives a couple of surprising examples in his 12:30 minute presentation.
So his presentation shows that economies can exist without stock or bond markets. An economy is made up of people buying and selling goods that consumers want. Businesses start as individuals working for themselves and then grow, often with the individual coordinating efforts of others, yet still organized as a sole proprietor.
Then, an idea becomes big and demand requires an infusion of money to scale the business to keep up with demand. Where does that money come from? Private equity, venture capital, bank loans, etc. Eventually a company grows large enough with enough interest that established stock or bond markets take notice. Investors wish to invest. Often their investments in the company stock buy out the original owners and entrepreneurs. Bonds keep ownership with the original owners, yet provide the money they need to expand.
Economies get their energy from productivity and/or demographic growth. Companies get their energy from profits. Profits aren’t evil … that’s the money the people in Neuwirth’s presentation use to buy their food and pay for other living expenses. Profits are the reason those markets to exchange goods and services exist. Profits and the viability of the company are what determine the growth or decline of a company stock value. For bonds, the companies ability to repay is the key factor determining bond prices (and thus their interest rate, a.k.a. yield).
Neuwirth’s presentation shows how powerful this unmeasured economy is in the world … and how such a large economy might exist without a stock or bond market.