Nobel Prize winning economist Michael SpenceMATTHEW THAYER
Tony Hsieh and Sanjay Madan wrote the program to create LinkExchange over a weekend. Before the following weekend, they had more than a dozen websites participating in their ad-sharing network. Over the next several weeks they worked frantically on the project, even though they say they had no idea how it would turn out. They refined their business in real time, learning - quickly! - from their mistakes. Less than a year later, the Harvard grads were offered $1-million (U.S.) for the company. Less than a year after that, they sold it for $265-million.
That was 1996. Since then, this story of development on the run has become commonplace. Hacker culture is now part of the broader culture: "beta test" is in the dictionary, and we accept innovative, albeit imperfect, beta releases even from multibillion-dollar global behemoths such as Google. We're prepared to accept flaws because the technology revolution is progressing so quickly that it is usually better to be fast, and possibly wrong, than to try to be perfect and end up being slow. By the time your flawless product is released, it will probably be obsolete.
Technologists aren't the only people operating in a rapidly changing, uncertain environment. Thanks both to the tech revolution and to globalization, that is true of all of us, including our governments. But, as Nobel-Prize winning economist Michael Spence argued at a private equity conference in Quebec City this week, emerging-market governments seem to be better at dealing with an unpredictable, volatile world than Western ones. They are like Silicon Valley entrepreneurs - willing to act swiftly, even if it means making mistakes. Leaders in developed countries are more like Detroit, reluctant to make bold moves until it is too late.
Part of the problem is the way we judge various types of mistakes. Mr. Spence argues that we make two types of mistakes - implementing a bad idea, and failing to act on a good one. If you are religiously minded, you could think of these as sins of commission and sins of omission. In stable times, sins of commission are probably worse. If your industry isn't changing very much or if your country's economy and the world economy are on an even keel, launching an expensive new product or government program that fails is probably more damaging than missing out on a great opportunity.
But in times of radical change, making a mistake is less risky than doing nothing at all. Mr. Spence thinks that emerging-market leaders understand this better than Western ones do, and he cited the examples of China's fast and big stimulus program after the financial crisis and the Indian government's willingness to act to burst asset bubbles. Brazil's swift moves to slow the inflow of "hot" Western capital is another.
The effectiveness of China's government - especially in contrast with the paralysis of some Western nations - is often understood as evidence of the greater agility and decisiveness of authoritarian states. Mr. Spence's analysis suggests another phenomenon could be at work. Emerging-market leaders - both the democrats and the dictators - are more accustomed than their Western counterparts to fast and disruptive change: They've experienced revolution, hyperinflation and devaluation. That may give them an edge in today's volatile global economy.
Speaking at the same conference, Glenn Hutchins, co-founder and co-CEO of private equity firm Silverlake in New York, said that in the corporate world the heat is shifting from Western companies to ones in the emerging markets. In the past, he said, developed Western economies were "the best crucible" for coming up with the most appealing inventions and the most effective business practices that were then exported, largely unaltered, to the rest of the world. But Mr. Hutchins, whose company specializes in the technology sector, said that is changing. Increasingly, he argued, the emerging markets, with their rapid growth and their demanding, low-income consumers, were turning out to be a tougher - and therefore better - hothouse for pace-setting companies than the West.
"It used to be that to be a global company you had to forge your business model in the crucible of competition in North America … where you define your business model, define your product set, define your customers, and then once you were successful there, took it outside to the world," Mr. Hutchins said. "Today what you are seeing is companies that are growing up … whose business models are being forged in the crucible of competition in the emerging markets."
American financiers haven't been getting a lot of praise lately for their skill at capital allocation. But the speed with which the smartest investors, such as Mr. Hutchins, have grasped the shift of ideas to the emerging markets is impressive. Western politicians could do worse than to follow their example.
Chrystia Freeland is global editor at large for Reuters.