“Markets and Economies are no longer synonymous”

I ran across this quote late last year while watching CNBC… a cable financial news network. It was from noted bond analyst and commentator Rick Santelli. The quote grabbed my attention at the time not for what it meant to me, but for what it did not mean to me. So I wrote it down to ponder later.

His context was the sovereign debt challenge in Europe: Greece not having enough assets to ever pay off its debt, Italy facing debt repayment problems, and the like. I had to back up to basic definitions for my mind to get traction.

Market: A regular gathering of people for the purchase and sale of provisions,
livestock, and other commodities.

Economy: The wealth and resources of a country or region, esp. in terms of the
production and consumption of goods and services.

Many of us in business know, “business is global.” We work it, live it, and have to cater to it daily. However, getting back to basics on the terms used here snapped this into sharper focus for me.

Sanetelli’s observation doesn’t speak just to geography, segmentation, or even sovereignty. It speaks to motivation.

We talk often of ‘selling into markets’, or ‘the China market’, or ‘the US market.’ More and more this is only marking a point-of-sale for the transaction. To the well-known interplay of manufacturing and labor we have now added an interplay of funding and financial derivatives. It often seems that one is simply paying another portion of oneself when making a sale.

In early prehistory, a typical transaction might involve a farmer who wants to barter his food. The farmer uses the labor of his own hands, growing seed from his own stock, plowed with simple gear he maintains and livestock he houses. His motivation in conducting a trade with a tool maker would be pretty clear: the farmer wants to realize profit from his own surpluses. Ignoring taxes, the motive for conducting a food sale and setting a price is almost entirely the motive of the farmer and his personal little economy.

Today, the farmers are much more intertwined with the surrounding economy (having to buy fertilizer, genetically modified seed, etc). The surrounding geographic and multi-national economies are even further intertwined with each other.

Today, products are so complex that the economy of the buyer may have nearly as much stake in seeing a good sold as the economy of the marketer who is selling it. That now internalizes Santelli’s message for me. The market of purchasers and sellers cannot even see the connection between which transaction has what result on which economy or group of stakeholders.

Take ‘Television X’. It may have capacitors built in Korea, screens built in China and chips built in Japan. It is probably passing royalties on various components back to firms in all those countries plus the United States. Then consider that the financing, financial vehicles or subsidies used to build the factories in all those locations may well be coming from investors in the United States, Europe, and Japan.

In that scenario… what economy has the bigger motivation to SELL a US-branded Television X to a Chinese purchaser? What economy has a bigger stake in seeing a Chinese purchaser buy Television X? If the profit or margin goes sideways, who in that mix has the bigger motivation to see the project either improved or killed?

I’m starting to guess that in this world of macro economics, what matters regarding execution is probably less about profit versus cost-of-goods-sold. It is probably more about velocity. What moves goods and services? What keeps them moving, and therefore keeps the money in motion so it is once again put in play?

That flow of money allows the herd of elephants to tussle over which portion of the stream they can drink from. After all, it is awfully tough to drink from a dry stream. Few of us have the wherewithal and resource to survive the cold at the top of the mountain where the glacier otherwise keeps the water locked within the ice.

To quote Frank Herbert in Dune… “The spice must flow.”