Main Street Macro: The power of Davos: Networks

The power of Davos: Networks

Davos, Switzerland, site of last week’s World Economic Forum gathering, is where movers and shakers meet. Leaders of companies, governments, and nonprofits around the world do here what they do best: Network.

Davos arguably might be the world’s biggest and most high-powered networking event. But while the World Economic Forum might be exclusive, networking certainly is not. From volunteering at a community event to chatting up contacts at business function, most everyone is practiced in some form of networking.

In fact, economists study all that meeting and greeting to learn how it leads to the formation of relationships and the creation of connected individuals known as networks. It’s an important line of research, because networks are crucial contributors to the Main Street economy.

Networks give people a competitive advantage

In economics, we think of networks as groups of connected individuals—or nodes, as those individuals are called in econ jargon.

Just as physical networks linking places and things (think railroads and telecommunications) social networks link people through trade associations, cartels, investment groups, and other organizations.

Establishing a network improves one’s position in the market by combining resources with other individuals in a way that benefits the group as a whole. Members of a network, once formed, work together to achieve a shared goal or purpose. 

Networks matter for AI

Networks aren’t just for people.

Networks—specifically, neural networks—are the underlying structure that makes advances in artificial intelligence possible. Artificial intelligence mimics the human networking process by linking nodes to identify patterns and make associations in real time. Building on trillions of data points, AI has the power to replicate predictable patterns within and across disciplines, from medicine to financial markets to education.

In the workplace, AI often is confused with automation in terms of its effect on workers. But these very different technological advances have distinct reasons for existing and, as AI advances, I expect they’ll have quite different outcomes for the future of work.

Automation is the intentional disintermediation and abstraction of human intervention in the production process.

AI, conversely, requires human interaction to validate learning acquired through data, and to innovate using that learning.

Because AI is trained on data that reflects human connection, AI technology gets better over time primarily by enhancing human interaction, by making it more efficient and better equipped to meet market demands.

Hence, AI’s best use won’t be as a substitute for workers, but rather as a tool to make those workers more productive.

Networks have a downside

There is a disadvantage to networks—both the human kind and the AI kind. Not everyone in a network has equal footing.

Some members might have more power to influence a network or amass more of the network’s benefits than others; think of a trade association whose members include a global superpower and a small business.

On a global scale, this power-and-control dynamic can be exacerbated through geopolitical tensions, economic fragmentation, and wealth inequality. In the context of AI pattern recognition, the risk is that the popular will dominate the factual.

In a business relationship, power dynamics can lead to mistrust and one-upmanship, threats that can harm the viability of the partnership. Healthy networks, in which all individuals benefit, are the ones that deliver long-term viability and economic impact.

My Take

When people network, they tend to seek out individuals with the most clout. At Davos, even brief introductions to Fortune 500 chief executives or heads of state are highly coveted and considered worth the price of admission.

But from an economic vantage point, the members of a network aren’t nearly as important as the links that tie them together. If those linkages are weak or faulty, the network’s value is compromised. Long after the party ends, it’s the work of building and fortifying linkages and relationships that has the greatest impact on the global economy and Main Street. These connections build a whole that is bigger the sum of its parts.