The job of capital marketsis to process information so that savings flow to the best projects and firms.That makes high finance sound simple; in reality it is dynamic andintoxicating. It reflects a changing world. Today’s markets, for instance, are grapplingwith a trade war and low interest rates. But it also reflects changes withinfinance, which constantly reinvents itself in a perpetual struggle to gain acompetitive edge. As our Briefing reports, the latest revolution is in fullswing. Machines are taking control of investing—not just the humdrum buying andselling of securities, but also the commanding heights of monitoring theeconomy and allocating capital.
Funds run by computersthat follow rules set by humans account for 35% of America’s stockmarket, 60%of institutional equity assets and 60% of trading activity. Newartificial-intelligence programs are also writing their own investing rules, inways their human masters only partly understand. Industries from pizza-deliveryto Hollywood are being changed by technology, but finance is unique because itcan exert voting power over firms, redistribute wealth and cause mayhem in theeconomy.
The obvious fix will be unpalatable to many. The UN’s climate talks treat 193 countries as equals, providing a forum in which all are heard. But three-quarters of emissions come from just 12 economies. In some of those, including the United States, it is possible to imagine younger voters in liberal democracies demanding a political realignment on climate issues—and a new interest in getting others to join in. For a club composed of a dozen great and middling-but-mucky powers to thrash out a “minilateral” deal would leave billions excluded from questions that could shape their destiny; the participants would need new systems of trade preference and other threats and bribes to keep each other in line. But they might break the impasse, pushing enough of the world onto a steeper mitigation trajectory to benefit all—and be widely emulated.