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.


 
Friday, June 25, 2010

Ethical Capitalism and Metaproductivity


Chad Syverson asks a very interesting question: what are the fundamental determinants of productivity? He reviews many of the orthodox answers, nicely and concisely.

My answer, as I've discussed at length, is a little different. Though all the factors Chad reviews are certainly important - high quality inputs, managerial practices, competition, input market flexibility, and the like - I'd like to ask a question. What if there's a missing variable entirely from the production function as we know it?

I suspect there might be - and I call it ethical capital.

Think about it this way. Ethical capital can be thought of as the rules, tools, and practices for defining and refining values that an economy possesses. So without ethical capital, an economy will never be able to fully develop productive preferences in the first place. So though it may have machines, talent, energy, resources of all kinds - only ethical capital can ensure that all those resources have, attached to them, discount rates that reflect their true long-run worth, depreciation rates that reflect their true long-run sustainability, and interest rates that reflect their true long-run opportunity costs.

You can think about that more simply this way: ethical capital is the set of rules ensures that the rate of return we seek isn't merely stolen from the next guy, the environment, or the future. If we don't have it, today's productivity gains are likely to be an illusion - unsustainable at best, a prelude to decline at worst.

Conversely, only ethical capital can ensure that externalities become the exception, not the rule - again, exploding productive capacity, by making sure that, for example, Deepwater Horizons are less likely to happen, and destroy, to some degree, the productive capacity of an entire region for decades.

And perhaps most deeply - only ethical capital can ensure that economies actually are built on (measures and concepts) that matters to humans - not just beancounters. That means updating what we conceive of as the economy - redefining GDP, etc, which I've also recently discussed in detail.

So the argument brings us to an interesting - and perhaps unexpected - place.

Perhaps the real problem is the industrial age definition of productivity. Which I'll take a stab at updating for a roiling, seething 21st century in my forthcoming book.

-- umair // 11:32 AM // 1 comments


Comments:

This dovetails completely with Wisdom of Management Sage-Peter Drcuker as he mentioned simialr thoughts in an interview:

IdeaConnection: Interviews with Innovation Authors: Total Life List - http://goo.gl/poYG

"""""In the April 11, 2005 interview I conducted with him in Claremont, California, Drucker said if your main goal in life was to make money, that wouldn't be as satisfying as working towards continual achievement, and leaving something behind, such as "a hospital that's working, a company that's working…"

I don't think he was against accumulating wealth, or even making it one of our goals, especially if you put your money to good use to help others. But it shouldn't be our primary goal."""""""
// Blogger Anish9 // 6:26 PM
 
 

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