Economist Paul Ormerod argues that politicians and businesses need to understand the power of networks to anticipate and solve problems.
During a recent visit to the Legatum Institute, we spoke with economist Paul Ormerod about his new book ‘Positive Linking: How Networks Can Revolutionise the World.’ In the book, Ormerod explores the limits of conventional economics and why it needs to embrace the power of the networks.
We spoke with Paul about what the study of networks can teach us about the causes of the financial crisis - and about the potential for recovery. We also asked him for his take on the UK government's handling of the crisis, and whether they got 'positive linking' right.
The video of the interview is embedded below. Here a few highlights:
“When we’re thinking about making policy, whether it’s in the public sector or in companies, we need to realize that people today are much more driven by what happens in their networks. Imitation and copying the behaviours of others is the central key to people’s motivation and behaviour.”
“The financial crisis was essentially a network phenomenon. The problem was that the whole structure of policy – governments, central banks, and regulators - had a completely different view of the world and were treating banks as if they were operating in isolation. Now we see that it was the connectedness of banks that created a real threat of a global cascade of bank failures.”
“The potential for economic recovery is very much a question of networks and confidence in the corporate sector. Companies have rebuilt their balance sheets, but they do not have the collective confidence to spend the cash. When they do, the economy will recover very strongly. The crisis and the recovery are both essentially networked phenomena.”
“The Chancellor is basically on the right track, and this is a network phenomenon. People believed the narrative that he created, about the willingness and the ability of the British government to control debt and to repay it. People don’t believe the narrative of the Spanish, Italian, and Greek governments, and that’s why they’re in very serious trouble.”