Uncertainty: A Special Meaning for Enterprises and How to Deal with It

I would like to talk about the special meaning of uncertainty from the perspective of enterprises. Enterprises need to organize people, finances, and resources, plan for the future, and respond to market competition. If the future is uncertain, how can an enterprise operate and organize its resources? Therefore, it is necessary to discuss the concept of uncertainty.

In economics, uncertainty refers to the events that may or may not happen in the future. These events can be divided into three categories. The first category refers to the events that are certain to happen, such as the arrival of spring after winter, the cracking of the ice on a river at a certain latitude, and the return of swallows in the summer. The second category refers to the events that may or may not happen, but their probability can be estimated based on past events. For example, when buying health insurance, the probability of having a stroke or a heart attack can be estimated based on the individual's health condition. The third category refers to the events that cannot be predicted based on past events, such as the development of new technologies.

Uncertainty is a common topic nowadays, but the question is whether humans can deal with it. Traditional societies have relied on experience and elders to deal with certain events. For probabilistic events, insurance mechanisms can be applied to mitigate risks. However, for events that cannot be predicted based on experience, human beings have accumulated experience over a long time to deal with them. The most important tool for dealing with market uncertainty is the organization of enterprises.

An enterprise needs to have capital as its first requirement. Capital is necessary for buying equipment, hiring people, and purchasing raw materials. However, why does the capital need to be in the form of equity? Why can't it be in the form of debt? In the past, the government used to provide subsidies to enterprises, but it was not efficient. Therefore, loans were introduced. However, after a period of time, it was found that an enterprise cannot rely solely on loans. Any enterprise, whether state-owned or private, needs to have its own capital to deal with uncertainty. This capital cannot be withdrawn and may not have a return. It is called equity, and it is invented to deal with market uncertainty.

It is important to note that uncertainty does not necessarily mean bad things. It is neutral and may lead to unexpected opportunities. New technologies have brought about business growth that was unimaginable in the past. Therefore, uncertainty has two sides, and equity also has two sides. It can appreciate or depreciate, and it is used as a measure of an enterprise's ability to bear risks when borrowing money. Therefore, humans have found ways to deal with risks and uncertainty in the world.