Has Our Financial Paradigm Already Shifted?
We’re living in the age of technology, where we have seen life as we know it turned upside down in a matter of decades. We have even experienced complete paradigm shifts occur across all markets, including the financial market. So, has our financial paradigm already shifted or is it shifting now? Let’s try to understand by first learning what we mean by a paradigm shift, and then exploring a few examples.
What is a paradigm shift?
A paradigm is basically a pattern, a model or an example of something. A paradigm can also be a standard or a perspective. Essentially, a paradigm is a way of seeing something. The term “paradigm” is often used in science, academics, philosophy, and business. For example, people know that the Earth is round, this is a paradigm.
A paradigm shift is a radical change in theory which changes the way we look at the world. Following a paradigm shift, we perceive the world differently. Thomas Kuhn, an American philosopher, and physicist was the first man to identify this concept and name it. He believed that a paradigm shift is a fundamental change in the experimental practices and basic concepts of a scientific discipline. A paradigm shift is not a term to use flippantly, as it refers only to a deep significance and meaning in the way people see a certain topic.
Paradigm shifts are sporadic and occur when the current way of behaving or thinking is harmful or has flaws. Ultimately, a paradigm shift happens when people need to replace a scientific idea or concept with something better. In the contemporary world, we are used to creative destruction, which means we follow a non-stop process of innovation in business, education and in the scientific world. Conversely, paradigm shifts are defined as a very significant change which happens when the accepted way of doing things is replaced with a different, new way.
In the economic world, one can observe sporadic paradigm shifts, one example is the shift from a profit-centric outlook to a societal outlook. The truth is business organizations need to assume social responsibilities because a business can improve only when society improves. People appreciate organizations with social and ethical values more, so they have become very important aspects that businesses must take into consideration.
Examples of paradigm shifts
A paradigm shift can also be called an innovation as it contributes to a better society and a better business environment. In the business market, paradigm shifts occur as managers work to overcome obstacles and protect assets. A paradigm shift in business is often considered a risk, as change is not always well received from the outset.
One example of a paradigm shift in the economic world can be seen by contrasting the industrial revolution with the digital age we live in today. In the industrial age, you needed to have control over your means to produce to make a profit. A businessman in the industrial age needed to have the necessary equipment and financing to always have inventories and keep on producing. Those without these means faced huge barriers to joining thriving industries. In the industrial age, bigger meant better and richer. The paradigm shift people experienced entering the digital age brought many changes in economy and finance in the sense that businessmen act differently to make the same money and there are other focus points in the economy now. The digital age that we live in today has reduced transaction costs so much that anybody who has a great idea can produce a prototype and sell it. With the innovations we have today, it is much easier to grow a business from nothing and become successful. Big players are not the only players anymore. What does that mean in business? Managers today have a tough task: to increase efficiency by weighting investments and seeing which threats could reduce agility. Basically, the world has seen a shift from a scale economy to an access economy.
Another example is the power of platforms. The industrial age had a problem: bureaucracy. The increasing scale of mass production of the 20th century required a better form of organization, which led to a standardization of the system, which translates as authority, responsibility, and hierarchy. The shift started to happen with the new technological advances we have seen in the last century. The power of bureaucracy has faded in the face of the new needs of a population living surrounded by technology. Now the platforms and networks we have in cyberspace facilitate the way businesses work. Plus, there was an additional shift from corporations to platforms. Big players were obligated to adapt to an ever-changing technological environment and it was only smart for them to shift from big corporations to platforms. These new platforms are the way we now access ecosystems of technology, information, and talent which has changed the way companies compete. In the industrial age, we used to command and control, whereas now we build and manage networks that help us connect.
Has the financial paradigm shifted already or is it still shifting?
There will always be paradigm shifts when necessary, but regarding the examples above, the question is whether the shift has already happened, or if it’s shifting currently?
In the case of the shift from the industrial age to the digital age, the change continues to happen, as the world needs more time to adapt. While more developed countries have adapted to shifting from an industry where there was only room for the big players to an industry that is more open and flexible to anyone with great ideas, there are developing countries that have only just started to shift to the new perspective. The shift doesn’t happen overnight and it takes time to become a permanent way of thinking and acting.
The same goes for the second example, shifting from a hierarchy system to a network system, where platforms have more power. This is also an ongoing shift in the world because it’s difficult to erase a system that has been used for many years. Countries are still adapting to these new platforms, but it has become the norm for new digital players that emerge on the market.