Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, March 20, 2006

Innovation and social capital

Aging Japan builds robot to look after elderly - Yahoo! News

Destruction of social capital is not necessarily orthogonal to innovation and entrepreneurship. Of course, it can be hardly desirable to live in a society where social capital has eroded to the extent of replacing humans with machines. This set off a chain of thoughts in my mind.

A pertinent issue is to what extent does focus on financial/material capital accumulation *causes* the destruction of social capital? I think there is overwhelming evidence to see a significant causal linkage here. For example, the Big-Boxification of rural US robs it whatever little socio-economic diversity and character it has. In fact, this is increasingly evident even in cities : traveling around in the US, I am just amazed at how uniform the entire landscape has become. It is all so uniform, and...boring!! Except for a few pockets of interesting and diverse places such as downtowns in a few large cities, the rest of the country is rapidly becoming one Big Box hell. If you were blindfolded and left at a Wal-Mart ot Costco in the middle of nowhere, would you even be able to tell what town or even which state you were in? Paradoxically, the US also has very high degree of ethnic diversity in its cities, but once the immigrants get assimilated they all pretty well live the same life centered around going to work and paying their bills. Charlie Chaplin presaged this at the dawn of industrial times, and I don't think he was too far off the mark from describing the misrebale lives of two-hour commutes from exurbs, organized shopping at Hallmark holidays fueled by huge consumer debts and lifelong payment of mortgage followed by reverse mortgage.

Another point I wanted to make was that sometimes, this is framed as an issue of choice, but that misses the whole point. The argument goes that by choosing to shop at Wal-Mart rather than at mom-and-pop shop, the consumer is choosing to vote with her wallet and therefore, society must let Wal-Mart win. However, free markets are the right solution only if buyers and sellers are reasonably well-informed, capable of judging a price based on the value of utility, and operating in a non-monopolistic environment. None of this is applicable in this case : economics has not yet developed the capability of figuring out the value of social capital and large scale retail is almost always a game of creating localized monopolistic power to destroy competition. Human minds as of today are incapable of valuing the opportunity cost of trading off social vs. financial capital. Our entire socio-economic discoures is driven primarily by a debate on various financial issues, but we don't have a clue about how the trade-off with socio-cultural capital is likely to affect us in the long run. Put it simply, if the consumer does not even know what the potential worth of losing the social (non-financial) value of interacting with Ma and Pa at the local grocery shop is, how can we reasonably say that she is exercising free choice in shopping at Wal-Mart?

This has real implications about framing the debate on our socio-economic issues. Since social capital has no tangible value attributed to it, its economics becomes subject to Prisoner's Dilemma. Everyone is individually better off shopping at Wal-Mart because there's a direct financial benefit to doing so. However, if everyone actually does it, then the society as a whole loses not only the socio-cultural capital but also financially because of the burden on the tax-payer to support an underclass of workers who can hardly afford to pay even for basic needs like healthcare and education. Their entire lives are centered around living from paycheck to paycheck and working in multiple jobs just to keep up. One of the most pathetic things I have seen in the US is restaurants with large enough parking lots that allow people to buy food at their drive-in windows and then eat it in their cars in the parking lot on their way to or from work!! Even the minimal social interaction associated with the act of eating is disapperaing : Isn't this sad and miserable? If you can't see anything wrong with this picture, or that of a Wal-Mart employee who needs to supplement her income with state food stamps, then good luck to you and have a nice life in the comfort of your cars and parking lots. If not, then perhaps it may be a good idea to seriously think about understanding the value of the social aspects of your well-being.

I also believe that this lack of understanding about valuing socio-cultural capital is a huge part of the disconnect between North Americans and Europeans when it comes to economic dialogues : we just don't have a common valuation framework. Americans seem to have hugely undervalued socio-cultural capital while Europeans have hugely undervalued financial capital. Asia is an interesting case where traditionally, socio-cultural capital has, in effect, been enmeshed with financial capital : you could not even be in business unless you had a certain social capital.

Where do we go from here? I think the first thing is to realize what our goals are and question our focus on exclusively maximizing financial utility. I see a few vague contours of such questioning happen in the US : there is a reason why films such as this are getting a huge response, for example. In the post-industrial society that we are living in, our needs are outgrowing satisfaction by financial utility. It's obvious that societies collectively progress up the ladder on an equivalent of Maslow's hierarchy of needs, just as individuals do. Then does it make sense to have our entire universe of socio-economic debates revolve around financial utility? Clearly, no.

This means that an ideal socio-economic system needs to manage both the financial as well as socio-cultural well-being of a society. How do we do that? I don't know, but it will become increasingly important to all of our futures because the consequences of not doing that are likely to be terrible : a crass oversimplification of this scenario will be that if we don't figure this out, it will cause Americans to end up chasing the mirage of happiness through material consumption while Europeans will be left wondering how their pension funds went bankrupt in a couple of decades. Life as a television zombie fueled by consumption is unlikely to be better than surviving on a meagre social welfare and crumbling government services. So, Americans : please be nice to the hippy, enjoy the conversation with him, and recognize that there are a lot of people and societies living much happier lives than yours inspite of being poorer than you so perhaps you could learn something from them. Europeans : please be nice to the immigrant and the entrepreneur : unless he makes money, your pension funds will run out of stocks to buy and give you capital appreciation to take care of you. Asians : please go on and be different, learn from the mistakes of Europeans and Americans to make better societies for yourselves.

-- Mahashunyam // 1:19 AM // 13 comments


My wife and I were just eating out at a Restaurant in the US and she commented how she misses the dinning experiences she had in her two years she spent as a missionary in a town just outside of Rome Italy. She missed the outdoor restaurants, seeing the people, the passiegata (a walk one takes after a meal). I experience it as well having visited her. I made an almost serious comment that we should consider moving there. Maybe the opportunity cost of the loss of social capital is starting to sink in for us.
// Anonymous Dean Fragnito // 4:20 AM

I agree with your assessment of the U.S., but I don't think it is uniquely American anymore. I see this spreading all across Europe as well as parts of Asia (s.korea/japan). I think your depiction of Europe is accurate--20 years ago. I just spent a decent amount of time in London, and now that I'm back in New York, the London I once knew is no more. Today, Europe (uk,france,germany) is becoming as American as America. From fastfood, to movies, to Internet culture, the European aesthetic is fast succumbing to the U.S. aesthetic.

I would also disagree with your advice to Asia about being different. I think they are doing just fine. I think: Americans (me included) know exactly how uneducated, unrefined and aggressive we can be, but many of us revel in this as part of what it took to put America on top. On the other hand, I think it is the Europeans who are experiencing a distinct identity crisis.

I read your blog all the time, I think it's obvious you are intelligent and thoughtful. But regarding this last post, I think you are falling into stereotype and romanticism.

The next time you see a Brit bopping down Cromwell St. with his 300quid iPod, sporting Levis, and a New York Yankees cap, run up to him and tell him to straighten up and act more European. You'll have a big job ahead of you, there will be several million more to convert...
// Anonymous Frasier Crane // 5:54 AM

I like the direction you are taking your blog over the last couple of weeks. I do not necessarily agree with everything you say, but why not pursue these ideas further?

To speak marketing jargon: "Go on, be a Ph.D."
// Anonymous dolf // 10:38 AM


Overall, I really enjoy reading your blog. I think you're pushing forward great ideas and insights, and developing them the right way.

Anyhow and interestingly, we sometimes happen to think about similar issues. For instance, your post on the marketing VS valley divide... While I was attending to the mashup camp, one of my boldest insights was that valley don't seem to like marketing, and that their mindset is quite far from building insight driven / consumer centric products... Products that deliver the experiences sought by consumers... We actually talked about this with a couple of similar minded attendees in between the sessions. Then I saw your post on valley, myspace etc. Right to the point... Although I really do appreciate what these lovely "geeks" are doing, and believe that they really are making a positive impact on the world (not only in the technology sense, but also from a social and cultural); they have to learn that there is a better way to develop successful products.

Then I was thinking about US vs. Europe the other week, perhaps more or less the same times that you've started blogging these "series"... I'm originally from Europe (I spent some considerable time in most major european cities), though I moved to Chicago about 2 years ago for having graduate studies...

Now the point is, after 2 years of living, I feel there's something wrong in here... First, it somewhat seems that everything is different here and there, SF / NY / CHI / MIAMI etc. how US is full of diversity etc... Then, after visiting / living / spending some considerable time in most these cities and more (i.e. Oklahoma city, which might be your most "untraditional" visitor spot), I now feel as if "all are the same, all are one". Just like you how express in here: If you were blindfolded and left at a Wal-Mart ot Costco in the middle of nowhere, would you even be able to tell what town or even which state you were in Now, its even not supposed to be that way... So you're downtown SF vs. downtown Chicago... So, they're all different aren't they? Wrong. They're all the same. Because they feel the same to me.... Leaving the experience of cities aside... Even many different products feel the same. They lack the meaning... The uniqueness... Ok... Let's eat asian, let's eat mexican, now let's eat italian... OK, but what's the difference? Aren't they all the same? I'm bored from all that... So, you can have your eggs cooked in unlimited styles... Scrambled, sunny side up, basted, poached... Whatever... But what if I see no point in all that!?

Sometimes, me and my friends (who live all over the world - Europe, US...) joke with each other saying US is one of the most "communist" countries in the world. Now, I'm not trying to insult anyone or anything here. It is only an exaggeration, which might sound rediculous from an economists' perspective. But you might get the idea of the joke if you look at if rather from a sociological perspective, and connecting the dots starting with the idea of "everything feeling the same"...

I also (perhaps) need to clarify that I think life in neither US nor in Europe is absolutely superior... Obviously, I wouldn't be here if everyhing in Europe was perfect. I also agree to the other post, that one can feel pretty much the same things in Europe as well, to some degree. From a macro level "Globalization" - is it? Or something else? I don't know.

That said, it is my humble opinion that, your ideas might "sound" better {in regards to these social and cultural - sensitive issues} if you gather a less stereotypical approach. Perhaps your valuable ideas would gain greater acceptance and indeed make a difference that way. For instance, these lines: Americans : please be nice to the hippy {...} Europeans : please be nice to the immigrant {..} Asians : please go on and be different {..} So a lot of people could be alienated from your blog once they read that, because they're very sensitive about these - "Ok... you're insulting to my country, my culture, my values, the very existence of my self... Then, you're all evil (and so on...) "

By the way, feel free to check this out: NeoMarketing. It is somewhat like my blog...


Onur Kabadayi
// Anonymous Anonymous // 1:28 PM

Interesting post, as usual. I've been thinking about these issues as well, but from a strictly cultural and artistic standpoint and how it is affected by our vast array of communications. It is true that America has become a rather boring, homogeneous, and ultimately conservative country. We're probably in the most conservative time this country has seen.

As you have noted in other posts, companies often do not promote innovation because they prefer a stable market from which they can profit (often in an oligopoly). The homogenization of cultures creates efficiencies from the standpoint of such companies. They no longer have to develop, for instance, marketing strategies that target different cultural traditions. Rather, they can develop one marketing approach, shoot a few commercials and print ads and then apply voice overs and translation. From this perspective of communications and corporations, smoothing out the "rough edges" of cultural identity creates cost savings. As you note, it does also create a loss of social capital if the corporation is say a Wal-Mart or a Costco.

To my mind, our ability to communicate, transmit our artistic and cultural references in a variety of mediums has greatly contributed to this (as has transportation). To be sure, it has also contributed to some good: we exchange ideas much more readily, we have the ability to more easily meet and learn about each other, we're exposed to new arts much more easily and the mash-up of these things can result in exciting new possibilities and developments.

At the same time, we have that push, that trend to "smooth the rough edges". We can see both of these things happening at once via our Internet communications. Young people set up web pages on MySpace and evoke new identities and promote new ideas there. From cross cultural connections that would not have been as immediate in the past, we see quick exchanges of ideas and trends. The medium is innovative and yet, as these ideas transmit with increasing speed, it homogenizes us as well.

People began setting up fan pages for a variety of cultural icons or moments. For instance, nostalgia for old music or television programs or movies. Before the Internet, media conglomerates would play a large hand in setting and promoting nostalgic trends. For instance, in mid 70s America, there was nostalgia for the 50s in music and in movies. In the 80s, we saw a nostalgia for rockabilly revived. Now, with the Internet, people set up their nostalgic websites and groups all by themselves. Media conglomerates and fashion corporations are scrambling to discover and define the trends, but the mash-ups are coming too fast and furiously. The result is that instead of nice periods of very defined nostalgic trends, we now have mash-ups. The radio these days is playing pop tunes that have their roots in 70s funk and disco, late 70s punk, 80s new wave, and late 80s techno. This is all well and good. The problem is that we're delving too much into the past and nothing new is coming from the mash-up. We're not seeing new, organic cultural trends and, if one were to appear, it would be pounced on immediately by an entertainment industry disparate to maintain it's cultural steering wheel. In that respect, while the Internet aids in the exchange of ideas, the results are a conservative, backward looking trends in the cultures it affects.
// Blogger B.D. // 3:13 PM

This is a great post because it cuts to the heart of the "divide" between America and Europe. Each is focusing on an incomplete picture (financial capital vs. social capital), which results in an imperfect society.

There is a fundamental conflict here, because Wal-Mart *is* more efficient than the corner shop, and because In-N-Out *is* better than the hole-in-the-wall (at least when it comes to delivering a consistently enjoyable experience at a low price).

I think that the resolution to this is to seek efficiency in the offline world, and seek distinctiveness in the online world.

In the online world, the costs of communication are so low that infinite diversity is not only possible, but darn near inevitable.

And with the rise of mass customization plays like Cafe Press (and someday, actual fabs that can create any sort of product using solid printing), we'll be able to have our cake and eat it too--efficiency and soul.

Just take a look at the success of Threadless ( and DeviantArt ( These are the farthest thing from homogenized, yet they are just as much a product of the American Way as Wal-Mart.
// Blogger Chris // 6:34 PM

hi mahashunyam,

This was a brilliant post

// Blogger Rajan // 2:03 AM

"Put it simply, if the consumer does not even know what the potential worth of losing the social (non-financial) value of interacting with Ma and Pa at the local grocery shop is, how can we reasonably say that she is exercising free choice in shopping at Wal-Mart?"

It's a long step from this to substituting the judgements of a bunch of enarques, which is all that Europe seems to have been able to come up with as an alternative.

I think you have to be very careful in constructing this kind of analysis not to adopt a Bay Area slant, which means assigning a close to zero valuation to affordability and choices available at the places ordinary people shop (i.e. not the Place Vendome or the Stanford Shopping Center). In economic terms this sort of close to zero valuation seems to me to be a rather restrictive assumption. Relax it and you'll see a whole new US economy.

I also think by the way that you have to look at the US and European economies and landscapes as machines adapted to different purposes. The US is a machine adapted largely to the needs of people raising families. Sniff at that if you wish, as Europeans affluent singles do all the time, but the difference certainly shows up clearly in the respective birth rates and (as you mention) the social security viability outlook.
// Blogger Meme chose // 4:09 PM

Very good post/rant Mahashunyam. I don't agree with it entirely, but you made some very valid points.

Most of the problem lies within the materialistic nature of modern humans, not with the suppliers of goods (I fall into the crowd that believes supply is driven by demand). Suppliers can have some influence, but not tons.

Regarding Wal-Mart, I buy some things from there, but most of their stuff isn't high quality. I can't count how many things I've purchased there only to have something fall apart a few weeks/months. I'll buy a similar item elsewhere for a little more, and it'll last years. Wal-Mart is in the business for that "come back here and replace it" annuity stream.

In reality though, you're part of a minority. Most American's don't care about things like this. A few select do, and they're very vocal about it. Hense they associate with certain groups/products like that Wal-Mart DVD, SuperSize Me, etc...

I see trends like this lasting a decade or longer, but eventually shifting differently after people get bored of Big Box Mart.
// Anonymous Anonymous // 10:12 PM

OK, I think a few quick clarifications are in order:

1.This isn't about the US, EU or even Wal-Mart. I am trying to understand what the best/worst part of different socio-economic models are, see if there are any discernible trends and then figure out if there are "best practices" that can be applied all across that may lead to an overall socio-economic improvement. This is sort of applying a strategy consulting model, but at the level of countries and societies. That's why I talked about country competitive advantage, for example.

2.I view nationalism with the same detached amusement as I view any other organized system of blind faith. "My country is better than yours/is special/has a mission to civilize" is, just as deserrving of disdain and contempt as "My God is better than yours/is special/the only one that will save your soul from going to hell". My objective here is to discern and analyze macro trends - good, bad, pretty or ugly - which is hardly compatible with walking on eggshells. So, "I hate you if you diss on my country" kinda comments will not get any response from me.

3.Every society has strengths and weaknesses. There are many things that I like and dislike about the societies I am familiar with, which are Canada, India, US, China and Europe in that order. But I try to be a dispassionate observer as much as I can. For example, IMHO, Canada is as good as it gets today as the socio-economic model of an ideal society. However, we still have a lot farther to go : I have not shied away from calling a spade a spade even when it comes to this favourite society of mine and talked about how terrible Canada is at providing fair opportunity to professional immigrants. Doesn't mean I am insulting Canada : I am just pointing out an existing problem and trend-projecting based on my limited knowledge of the world. I am just a messenger.

4.I can't emphasize enough : please, please do not frame this as US vs. Europe or India/China. I urge you to think about the macroecon of a universal socio-economic system, even if that sounds utopian. I recognize my own cognitive shortcomings and I keep trying to learn from different viewpoints. I really do want to hear logical counterarguments : there is a reason why the Socratic method works.

Let's put aside our fragile national/cultural sensbilities and open a genuine dialogue to reflect upon and debate what works and how it can be implemented everywhere else. Call this the grand post-nationalist, post-religious, post-industrial humanist vision, but that's what I am really fascinated by. This is because thinking about the econ and strategy of how we can take care of the material and non-material needs of the 6 billion of us is so much more fun than helping an evil corporatiion make its next billion :-) :-).
// Blogger Mahashunyam // 6:56 AM

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