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.

Saturday, September 11, 2010

Why We Don't Have an Economy (And Why You Should Make One)

So here's a proposition to chew on.

We can't discover prosperity because we don't have an economy. We have the opposite of one. Consider: under the rules of industrial age capitalism, we don't economize. We don't save, invest, accumulate, seed and nurture. Instead, mostly we do the opposite: we squander, deplete, misuse, and abuse, all the stuff that counts: nature, the future, passion, purpose, trust, dignity, meaning, and, ultimately, our customers - and ourselves.

Here's what I mean by that. Here's how Princeton's Wordnet begins to define an economy: "the system of production and distribution and consumption".

Then, it goes to outline three characteristics of one. Now, it's not a precise economists' definition. But perhaps for exactly that reason, it just might have more insight. Here are those three characteristics - and why our so-called economy doesn't meet them, so it isn't one.

1. "the efficient use of resources"

Efficient? Surely you jest. Instead of efficiently utilizing resources, we consistently misallocate them to unproductive uses that don't yield enduring gains. In case you've been on Mars for the last decade or so, on Planet Earth, we just had the biggest housing bubble of all time. We spent the world's hard-earned savings on...McMansions. That are now being torn down. Sound efficient to you? It's not - and it's just one example of the bubble-driven dumb growth we've come to rely on.

2. "frugality in the expenditure of money or resources"; "avoiding waste"

Avoiding waste? You must be kidding. Our so-called economy's the biggest waste machine in human existence. It generates tons of waste - instead of minimizing waste, it maximizes it.

So merely misallocating capital to unproductive uses that minimize enduring benefits for people and society (not to mention shareholders - equity markets instead of creating value during the noughties destroyed it mercilessly) is just the tip of the iceberg. Worse is misallocating tons of capital, or overpaying for those unproductive assets. It's one thing to build tons of unnecessary McMansions that then get razed. It's another to pay millions for the privilege of doing so. That's one kind of waste.

And waste is exactly the state of play in the economy today. And not only do we misallocate resources, we fail miserably at achieving frugality in expenditure; we consistently squander resource like there was no tomorrow. Instead of minimizing, for example, petroleum usage, we've maximized it; instead of minimized capital intensity, we've maximized it; instead of minimizing how hard we work, we've maximized it; instead of minimizing our impact on the natural world, we've maximized it. So not only do misallocate - we waste. Squandering instead of frugality is the name of game.

3. "an act of economizing; reduction in cost".

So why does all of the above happen, in the first place? Because we haven't reduced costs. We've just shifted them. Wall St didn't actually reduce the costs of a meltdown, with securitization squared, for example - it just shifted them (onto society). That dictum holds true generally. We haven't minimized carbon costs, we've just shifted them; we haven't minimized the costs of monopoly and deadweight loss, we've just shifted them; we haven't minimized the costs of lethally dull, dangerously insipid work, we've just shifted them into the zero-innovation future; we haven't minimized the costs of losses in trust and community, we've just shifted them into overleverage and macroeconomic risk.

So if you want to be a radical innovator, begin here. Ask yourself: how can I begin to take each of the three steps above? That doesn't just mean the false economies of layoffs and selloffs. It means real, enduring efficiency gains: learning to do radically more beneficial stuff with what you've got. It means real gains in frugality, eliminating the many kinds of waste - don't just think packaging, think pointless meetings, red tape, and passionless work. And reducing real costs. You know - the ones you ignore, but know that you're having on people, communities, and the future.

Want to topple the status quo, and reset the tired, creaking set of credulous assumptions known as industrial age capitalism? Stop squandering, dissipating, exhausting, misusing, depleting, diminishing. We don't have an economy. Make one.

-- umair // 11:00 PM // 3 comments


Here is my (grossly oversimplified) thinking:

1) Prices on the greater part of offerings stopped reflecting market value and started being made up (e.g. Edison, Gillette loss leaders).

2) Wages likewise stopped being directly related to revenue and thus to profit.

3) At the same time, the range of offerings increased exponentially, blurring the line between necessity and convenience.

4) Wages and their increases became just as arbitrary as the prices of the things people bought with them.

5) Consumer credit picked up the slack — wages have been stagnant since the 70s, around the same time as the mass adoption of the credit card.

This is what I see: the signals aren't getting where they need to go and this is happening across the board. Prices are made up, wages are made up, profits are made up, demand is made up, money is made up.

Find me somebody who isn't a securities trader who can genuinely tell me to the dollar what the value of his/her contribution is. Oh wait, they can't either because despite being securities being the few things whose prices are still established in an open market, their contents are the most made up of all.

So, yeah. It's like we're in a dream world and can't tell what anything is worth anymore. It's like we need a new unit of measurement. I'm thinking action — joules of energy times seconds of attention.
// Anonymous Dorian Taylor // 7:02 PM

For the sake of discussion, another way of looking at things :
- Necessity, convenience (even economy in your meaning) are past concepts. Only growth and profits (as the system's engine) have a value today
- I do not agree that we are in an industrial economy. We are in an economy based on what McKinsey dubbed "tough to trade" assets (pattents, brands, reputation, trust, talent, ...). But I agree that management still uses industrial-age concepts to manage and - what's much worse - to define a vision and lead
- We do have a new kind of economy. And we have amazing machines to master this economy (corporations). We just need to reform corporations, as an institution, and have them serve our common, human, interests. Because today, they are just accelerating, pursuing what they were made for : efficiency, profit and growth. To do this, they have absolutly mind-boggling means. Whatever happens to a higher meaning, to values, to humanity, is none of their business
// Blogger Luis Alberola // 9:47 AM

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