Local Investing Can Build Global Markets
I’ve been the strongest possible advocate for global free trade ever since my Soviet Economic Institutions professor diverged from the syllabus to draw Ricardo’s theory on the board and prove unequivocally and concisely that it makes everyone better off. I still am. Dennis Santiago, however, makes strong arguments for local investing for California and Los Angeles — and good news: they don’t contradict the case for global free trade.
Besides unequivocal benefit from free trade, market models typically assume that buyers and sellers have good or even “perfect” information. The faster, better, and more cheaply that market participants can get information, the faster markets get to equilibrium, moving the total economy continually closer to the production possibility frontier. Dennis is in the business of moving high-value information about banks to customers and investors around the world. This obviously has tremendous economic value. One might even say there’s a “multiplier effect” when it comes to this sort of information, since banks are in the business of leveraging capital to increase investment.
Geographical proximity, however, even in the age of the Internet, remains an important factor that affects the timeliness, quality, cost, and availability of information available to market participants. The data Dennis moves tells me a lot, but it doesn’t tell me about the latest local government scheme that might stomp on innovation or the general attitude of the people who work in the local economy or demographics or any of an infinite number of factors that might be useful to consider in the allocation of capital. The success of Dennis’ firm itself probably stems in part from leadership on both coasts. When I worked in DC, I learned more per minute about policy while traveling outside the bubble than while ensconced within it. Proximity matters.
More widespread adoption of open global information standards subject to validation and low-cost, continuous quality improvement (didn’t think I could write a post without mentioning XBRL, did you?) may slowly change the value of local information relative to global information, but who, what, when, and how aren’t likely to crowd out where in our lifetimes.
