Bigger is Better

It seems a requirement of modern politics that Democrats criticize big business and Republicans criticize big government.

There is one problem with these shibboleths, these tests of the faithful: they ignore how the interplay between big government and big business has made us prosperous. History suggests that any politician successful at impeding either government or business will effectively slow economic progress.

Some people know the amazing story of Elisha Gray arriving at the patent office just hours after Alexander Graham Bell with his patent application for the phone. Bell went on to fame and fortune and Gray to a life of anonymity. There’s more to it, though. Our founding fathers were intent on creating an accessible, affordable patent system. One might even say it was democratic. Fewer people know that the Italian Antonio Meucci had invented the telephone years – not just hours – before Bell but could not afford to patent it through Italy’s expensive patent system. Had Italy been more visionary about subsidizing the work of its inventors by making it cheaper to file for a patent, it may have hosted the myriad, great inventions that defined the decades around 1900 or had the equivalent of Bell Labs from which communication satellites and transistors emerged as catalyst for huge industries. Our government enabled invention.

In his book The Rise and Fall of American Growth, Robert Gordon shares this story of Bell, Gray and Meucci and gives a host of other examples of government and business interacting to create prosperity.

During the second world war, the federal government led initiatives to increase industrial capacity. The government invested capital equal to half the capital that existed at the start of the war, capital in the form of factories and machine tools (which doubled during the war). Even better was the problem-solving that resulted in better production methods. During the war, Kaiser initially took 8 months to complete a ship; they accelerated that to just a few weeks by the next year. A plane factory of Ford's increased its rate of 75 planes per month in February of 1943 to 432 per month by August of 1944. By D-Day, the Germans could launch only 319 aircraft; the US and its allies launched 12,837. American factories won the war.

After the war, the government turned all this over to private companies. Armed with these investments in capital and knowledge, these companies began making consumer products like cars and TVs. Before the second world war, the economy had lurched in and out of recession. After, it took off. Government regulations helped raise wages and government investment helped raise productivity. Workers both made and bought these new products.

Eisenhower had been a solider during the first world war and was part of a group transporting vehicles across the US. It took them 62 days to go from coast to coast. Head of the Allies’ conquering army, he experienced first-hand the German autobahn and was amazed at the contrast. The interstate highway legislation Eisenhower signed increased American productivity by tens of percent.  Like the railroads the government subsidized a century earlier, the highway system gave customers and producers easier, more affordable access to products and markets. Decades earlier, life expectancy had gone up as a result of similar, local efforts to build out the infrastructure that brought safe water into homes and piped sewage out, another initiative dependent on the cooperation of government and business.

Another outcome of the second world war was increased investment in research and education. In WWII we didn't just pump unprecedented amounts of money into research but FDR asked Vannevar Bush to institutionalize that, which he did with what become the NSF (National Science Foundation) and DARPA (the Defense Advanced Research Projects Agency). From DARPA we got the Internet which has enabled the creation of trillions in new wealth and millions of new jobs. The GI Bill was another product of the second world war and it led to a huge increase in college enrollment, creating a new generation of better educated, more productive workers.

Possibly the most important interplay between big government and big corporations comes in R&D. Research is hugely uncertain and most of it results in nothing. If it does result in something cool it may happen a decade or three later than expected. Also, not every cool thing becomes profitable. Because of this, corporations rarely finance basic research and it needs to be heavily funded by institutions like DARPA or the University of California. This research is crucial to corporations' later developments. "The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were advanced by the Defense Department," as Mariana Mazzucato points out in her book The Entrepreneurial State. Corporations try to find a way to translate research that has taken one to two decades into development that takes two to four years. It's a great system and at its best we tax successful corporations to fund the next round of research which could be transformed into new products by corporations. Symantec and Qualcomm were among the new companies funded by The Small Business Innovation Research program - a program started by Ronald Reagan. Google's basic algorithm was funded with a NSF grant.

Of late, our policies seem less reflective of this interdependence. As corporations pay less in taxes the government has less money for initiatives that could help the next generation of companies and workers to prosper. Our productivity, wages and GDP were growing faster during a time when corporate tax rates were maxed out at about 50% and personal income tax rates maxed out at about 70%. The trick is to tax what is successful now to fund what will become successful next.

Government has an important job as a referee, a role Elizabeth Warren articulates well. Government has an important job of moderating wealth and income inequality. (Trump looked at the world with the biggest gap between rich and poor in history and concluded that the rich were not rich enough and the poor were not poor enough, giving the first a tax break and cutting assistance to the second. Few people would reach such a conclusion.) Those jobs of referee and moderator are important but over the long term, they are not as important as the job of collaborating with business and labor to create the next generation of technologies, products, industries and companies. It is in that direction that lies the kind of progress we had from 1900 to 2000 that increased real incomes by 8X and let us buy myriad objects like airplane tickets, personal computers and antibiotics that did not even exist at the start of the century.

The world is full of communities who would love our problem of big government and big business. Big projects are not done by small organizations. It should be a cliché to say what is too rarely said: progress is not a product of markets or democracies but rather their interaction. Strong companies and strong government go together in vibrant economies. Even within the US, the states that keep taxes and investment lower and have few big companies have lower household income and create fewer jobs. Big businesses and government agencies are not a sign that we’re off the rails. They are, instead, the way we got both the rails and the trains.

The Libertarian Philosophy - A Truth (often ignored) and a Misconception (largely embraced)

Libertarians advocate one thing that seems to me obviously right (but is often resisted) and another obviously wrong (but nonetheless wins the approval of most Americans).

A general trust in markets seems to me the most important thing they get right. Market solutions don't require consensus or bringing along committees and citizen action groups or the popular vote. An entrepreneur can just try something and assuming they can convince the right mix of investors and employees to go along, they have a chance to change how we live. That's pretty cool and the libertarians' trust in individuals seems to me repeatedly justified by the on-going success of entrepreneurs whose success may never have been predicted by any majority opinion.

The problem with market-driven progress is that it blows in on gales of creative destruction. Solar power can close down coal mines; digital photography can close down picture development kiosks. The status quo has a lot of wealth and power and part of what libertarians get right is that because of this power, government tends towards crony capitalism that protects existing industries in order to protect those investors and employees rather than forcing them to respond to the market. Government can become an obstacle to progress. Look at the coal miners in West Virginia, an industry that began in 1740. If we protect the 44 year old miner today, how much longer do we need to save his job? For two more generations? Two more years? What is society's obligation to protect him? Some politicians will say that for as many generations as he'll vote for you to go to DC to protect him and as long as the coal mining investors will fund your political campaign. Industries that would have a rough time getting thousands from a venture capitalist are sometimes successful at getting billions from governments.

Libertarians' belief that we should let markets disrupt and create new wealth and jobs even while eradicating old jobs and wealth is something I think is right. Still, it seems easy to find programs that protect industries (think of our enormous subsidies to farming and oil). This feel likes a truth often ignored.

So what do I think they get obviously wrong? This notion that government should then be small. I believe that successful markets depend on robust government programs in at least two ways. People always want protection and security. If you are not going to protect their jobs and industries, you need to offer them some personal protection. This, to me, means healthy unemployment insurance, jobs retraining and really hefty subsidies to kindergarten through grad school education, among other things. I also believe that we can hardly spend too much on research at places like the Center for Disease Control or National Health Institute or the National Science Foundation.

I have worked with hundreds of product development firms within companies, from startups funding only one project to Fortune 50 firms with thousands of projects. They develop new products. They need a product that can launch soon. The pharmaceutical companies have the longest development window - about a decade - but most target product launches within about 2 to 4 years. You've heard of R&D, research and development? This is D, the development. It's important. It's crucial. As cliche as it sounds, it can change the lives of investors and consumers. The iPhone is an example of development. The rightful focus of private companies is the D in R&D.

Research is hugely uncertain, though. It will probably result in nothing. If it does result in something cool it may happen a decade or three later than you expected. Not every cool thing becomes profitable. Because of this, corporations rarely finance research and it needs to be heavily funded by government, by groups like DARPA (the Defense Advanced Research Projects Agency) or the University of California. This research - the R - is crucial to corporations' later development - the D. "The parts of the smart phone that make it smart—GPS, touch screens, the Internet—were advanced by the Defense Department," as Mariana Mazzucato points out in her book The Entrepreneurial State: Debunking Public vs. Private Sector Myths. Corporations try to find a way to translate R that has taken one to two decades into D that takes two to four years. It's a pretty cool system.

The libertarian fantasy that communities work well with lean governments is wrong on two counts: a community that learns to sail the gales of creative destruction makes its people feel secure with change rather than resistant to it (which requires a strong welfare state) and getting the research to the point that companies can make it profitable takes considerable public sector leadership.

James Watt, employee at University
of  Glasgow, the same university that
employed professor Adam Smith

The contest between the public and private sector is not zero sum. A strong public sector can make the private sector healthier, and vice versa. (And obviously by strong I don't mean power over, the power of corporate lobbyists to choke government or for governments agencies to choke corporations. Instead, I mean power to, the way that advances in one lead to advances in the other, each enabling the other.)

When a libertarian talks about how markets are more innovative than government programs and how individuals should be given freedom to pursue what they think will make them happy, nod knowingly and agree with him. (Libertarians are twice as likely to be men, so this is probably a "him" you're talking to.)  Say something like, "Yeah. The pursuit of happiness. It's literally in our founding documents."  

When he tells you that this means governments should be much smaller, laugh at his naivete. (Libertarian men love when you do that because then they chuckle with you and say, "Well, you can't blame me for wanting lower taxes.") 

The formula that has seemed to work for progress is to let entrepreneurs and companies rapidly change our world while funding the cost of their creativity with research and education and then funding the cost of their disruption with welfare, unemployment insurance, universal healthcare and - yep - more education and jobs training. Who pays for those government programs? Everyone, but the ones who pay the most are the ones who succeed the most: those successful entrepreneurs and companies who so benefit from being part of a system that knows how to create and then harness the gales of creative destruction.

America - Where One CEO can Afford to Buy an Entire Senate

This week, alpha males squared off against each other: Oil company CEOs and US Senators. Given that nothing confers respect like money, it was no contest.

So far this year, the five oil companies represented (Shell, Chevron, Exxon, Conoco, and BP) have made profits of $36 billion. More interestingly, each American CEO made more than the entire American senate before which they appeared.

Combined, the 100 Senators made $17.4 million last year (each makes $174,000).

Chevron's CEO made $16.3 million, Conoco's CEO made $17.9 million and Exxon's made $29 million.

America is nothing if not predictable. It doesn't matter that the oil companies are so profitable when the the deficit is so large. Their $2 billion in tax breaks will continue.

Senator Schumer asked, did any one of these CEOs want to go on the record as saying that perhaps their tax cuts were less important than any other, single program or issue? This after reminding them that cuts to education, health care, and social security were likely.

Not a single CEO could see how any of those programs were more important than their tax breaks.

Let me make an obvious but important point. These CEOs are not paid to show an interest in the American economy or the American people. They made it clear that if the marginal cost of producing oil in Texas were higher than producing it in Indonesia, they would shift production overseas. Their loyalty is to company profits.

A tax break of $1 will benefit Exxon. That dollar may be used to create a job in Saudi Arabia or Houston. Or be paid in dividends to an investor in Japan or San Francisco. There is no guarantee that the money will benefit the American economy. In fact, there is a guarantee that the money will be dispersed globally.

That, it seems to me, is worth remembering.

"I think I'm okay where I am"

So it was hard to feel sorry for the executives when Rep. Peter Roskam (R-Ill.), late in the hearing, reminded them again that "the symbolism of the private jet is difficult," and mischievously asked the witnesses whether, in another symbolic gesture, they would be willing to work for $1 a year, as Nardelli has offered to do.

"I don't have a position on that today," demurred Wagoner (2007 total compensation: $15.7 million).

"I understand the intent, but I think where we are is okay," said [Ford's CEO] Mulally ($21.7 million).

"I'm asking about you," Roskam pressed.

"I think I'm okay where I am," Mulally said.

[full story here]

Today's CEOs are the last of the monarchs. Not only are they paid outrageous sums but they are the last of the major leaders to rule without challenge.

Bill Clinton was continually berated and criticized by Americans, as was George Bush. And so will Barack Obama. And the beauty of this system is that we can accuse our presidents of any kind of heinous crime and make our case in public and still not worry about losing citizenship or being deported.

If an employee at Ford were to make public statements about Mulally like those that many Americans have made about Clinton or Bush, this employee would be gone - fired. CEOs do not entertain critics.

One simple plan that I would propose for publicly traded firms is this: corporations allow a free press and even a two-party system within.

As I've mentioned earlier, corporations comprise between one third to two thirds of the 100 largest economies in the world. (The 100 largest economies list includes Japan and General Electric, France and Exxon.) We've learned in the West that no country can prosper with centrally-controlled economy or an society with government control of the press and the flow of information. Essential to success of a large system is the distribution of information and power. What if that applied to all economies - even those within a corporation?

Imagine that the stockholders and employees had free flow of information about projects and teams and management policies. And that - as with a parliamentary system - an election could be called and stockholders and employees were given a chance to vote on direction and even things like CEO salary. What if the CEOs had to please the stockholders and employees instead of dictate to them?

Progress in the West has followed from a diffusion of power. Religion got so much better when popes lost their monopoly control over it. Government, too, became less oppressive and more able when monarchs lost their grip on it. When legislation and the popularization of finance handcuffed the robber barons, financial markets prospered. Now it's time to do to CEOs what we've done to popes, kings, and robber barons - disperse their power.

Mulally thinks that he's okay where he is. Most of us don't. No dictator ever pointed out that the rest of us would be better off if he gave up some power. We can't wait for the CEOs to come to this realization.

The Modern Appeal of Ancient Religions

It's no wonder that religion continues to have appeal to so many of us. Religion is more evolved than business or education.

On the long flight from San Diego to Chicago yesterday, I must have charged some serious karmic credit points. There was only one empty seat on the entire plane and it fell between me and a delightful woman who made the 4 hour flight seem to fly by. Among other things, we talked religion, her own progression through a variety of churches to her choice, about four years ago, to convert to Judaism. As we talked, I realized something curious about these ancient religions in the modern world: they are, in a very real sense, more modern than institutions like schools or corporations. This deserves explanation.

If you work at GM or IBM or 3M or anyM, you are subject to clear expectations. You'll be expected to attend meetings, work 40+ hours a week, only take vacation for, say, 3 weeks a year, etc. Yes, there are exceptions to all this, but the institution clearly defines your role and what they will give you in exchange. In this sense, the corporation is controlling. Schools have similar prescribed roles for students.

Now contrast that with churches. In the modern world, churches have no real power over members. Of course, some churches can excommunicate members, but generally members can attend services as often or as rarely as they'd like. They can observe or not observe particular injunctions (e.g., this woman will not be kosher in her diet). Members enjoy or suffer consequences of practices as they chose. Certain practices give them a better spirit or worse spirit, make them feel more complete or more empty, more loving or more resentful. What they choose to do has its own consequences and they are free to do more or less or not at all.

In this sense, religions are really more advanced, more evolved, than are more modern institutions like corporations and schools. Religion is a place where one can freely choose how and when to use the institution, a stark contrast to the corporation that prescribes exactly how and when the institution will use the individual. It is hard, if not impossible, for the modern student or employee to define and customize how he'll learn or work. Oddly, it is within these traditionally oppressive institutions that the modern person is most free to define how he'll worship.

I wonder how long it will be before the modern institutions become as advanced and evolved as this ancient one.

A Convenient Lie About Leadership

“What if leadership is not a phenomenon determined by the ability of an individual? What if the leader does not actually cause outcomes? What if the central role of the leaders is designed to perpetuate a myth of control and to provide false hope for salvation?”
- Rick Barker

McCain has made a name for himself in part by advocating for campaign finance reform, and yet his campaign has been plagued by the scent of little scandals; his campaign manager and chief adviser have taken heat for their prior lobbying work. Conflict is inevitable when people pretend to have control over forces larger than they are.

Obama, although cleaner on the issue of contributions from corporations, is nonetheless in his own kind of denial about market forces and the power of corporations.

McCain and Obama have joined the parade of well intentioned politicians who simply haven’t admitted the central fact of our time: the corporation is today’s dominant institution. The corporation defines the norms and goals of our modern world as surely as the church did medieval times or the state did the 18th and 19th centuries. The state has about as much influence over the corporation as the early guilds had over the medieval church.

McCain, like Obama, has tapped into the fact that most 70% of Americans tend not to trust big companies. (In the EU, about 60% of Americans tend not to trust big companies.) By contrast, only 44% of Americans tend not to trust the UN.

Fortune 50 (not 500) employ nearly 8% of the American workforce even though they make up, by raw number, only 3/10,000th of a percent of the companies in the US.

Americans tend not to trust big companies for a variety of reasons but still find themselves reliant on them for jobs, products, financing, and services.

Big companies define more than the workforce. They define the work norms, the products we use, salaries, the media products we consume, and the focus of anyone intent on success. If they chose to relocate overseas, communities lose jobs and tax revenues; states and countries compete for corporations and are increasingly unlikely to dictate terms to corporations.

The dominance of the corporation is big deal that doesn’t get mentioned. If politicians did mention it, they’d be unable to sustain the myth of control over the events that control people’s lives. People continue to prefer the story that evil doers (be they terrorists or greedy CEOs) are making our lives bad to the more probable story that every period of history is defined by forces and trends larger than any individuals. As any surfer will tell you, sometimes it makes more sense to ride waves than fight them.

Will the Baby Boomer Retirement Wave Trigger Corporate Transformation?

Already, businesses in Canada are closing – not because they cannot get customers but because they cannot get employees. Meanwhile, the employees inside of corporate America are characteristically bright, articulate, and capable. The US has yet to experience a drought of able employees or figure out how to create – rather than simply employ – productive employees. The projected shortage of employees as baby boomers retire may help to trigger a necessary transformation of the corporation.

A couple of months ago, a friend from Canada told me about the employment problem where he lives – a community about 200 km east of Vancouver, BC. He said that three businesses had recently closed there. Not because of a shortage of customers but because of a shortage of employees. He claimed that throughout all of Canada it is becoming a huge problem to find good employees – or any employees. They appear to be ahead of us on the baby boomer retirement pipeline that is scheduled to reduce the US workforce by millions.

I often get to work inside of large multinationals. What I find most remarkable about the companies is the quality of the people there: organized, smart, personal, and articulate seems to define the norm within these organizations and the longer I work with them, the less surprised I am that organizations able to hire and retain such people are able to generate billions in sales and profits. These are the people who did their homework and took the time to properly format footnotes. It seems to me that these multinationals rely more on the quality of their people than the quality of their systems. But what happens when the supply of quality people begins to drop off?

It may be that companies will succeed by begin to focus on creating great jobs for people who, in turn, can create goods and services. Issues like the design of work to engage people (like the design of video games to draw in players) will become a focus of the companies that succeed in an economy where the supply of employees is shrinking faster than the supply of customers.

To date, the corporation has largely built its success on pleasing customers and putting demands on employees. To turn the corporation into a vehicle for pleasing employees will require massive changes. This will be one element of the transformation of the corporation.

It still baffles me that organizational innovation – the particulars of how to create this new corporation – does not get more attention. This is – like product creation – a design issue, but one that is generally addressed only by exception, and rarely. The transformation of the corporation seems to me necessary: sadly, necessary does not mean inevitable.

Urgent! Urgent!

Perhaps no one thing better characterizes the corporate environment than a conflation of importance and urgency. Given that importance inside of big corporations is so often hard to establish, and deadlines so easy to set, people tend to gravitate towards the urgent, treating it as if it is important. Nothing seems more certain to create rework than urgency. Worse, it creates stress, trumps thought and creativity, and works to continually subordinate long term vision to short term bursts of adrenaline. Things that are important will change status quo. By contrast, urgent just seems to sustain the status quo.

But urgent makes even people doing unimportant work feel important – if only for a bit. An aggressive deadline can make otherwise tedious tasks seem more important, of seeming consequence.

I watch the scurry – even get drug along with it at times, working with these teams – and am reminded of Deming’s brilliant quip: “Best efforts. We are being ruined by best efforts. Everyone doing their best. We’d be a lot better off if some people just came in late and read the newspaper.”

The Measure of Organizational Efficacy

"So much of what we call management consists in making it difficult for people to work."
- Peter Drucker

This morning at breakfast, my buddies Bill and Eric were bemoaning the fact that Detroit has wasted decades in responding to Japan and Germany's lead in cars. They were incredulous that we could still be regularly falling behind and did not understand why these companies had not yet been transformed.

I wonder if the measure of an organization's efficacy isn't a function of the difference between what it takes to be successful within the organization and what it takes to be successful within the community. If the gap is big, the organization is flawed, perhaps pathological. If the gap is small, the organization is healthy and vibrant.

For instance, what it takes to succeed within a gang is criminal behavior. This is the opposite of what it takes to be successful within the community - in fact, "successful" gang members will often end up as failures. Gangs are bad organizations.

Companies often divert a great deal of attention to pleasing management - people who sign paychecks and vote on pay raises but don't actually finance employees with their own money. To the extent that success in the company is dependent on how well employees please management rather than customers, the company is poorly designed, is flawed. Same with teachers who are busy pleasing administrators.

It seems a simple and obvious thing, but once organizations get to a certain size, it is an easy thing for the people within them to become fixated on pleasing others within the organization rather than the people outside the organization who ultimately make it successful or let it fail. Co-workers and managers asking for progress reports are often so much easier to see then the customers who buy the final product.

The 4th Economy

Evolution is simply development without precedence. We expect a baby will learn to walk, will rise up from all fours. When the first baby did it, it was an evolutionary step. When the 6 billionth baby does it, it is a normal stage of development. In evolution, the new script comes from a deviation from the normal genetic code. In development, the script comes from a conformance to the normal genetic code. Evolution is creative – a departure from the norm. Development, by contrast, conforms to established norms.

“It’s not that creativity and madness are necessarily linked, but rather that creativity and deviance (sometimes heroic, sometimes reckless) go hand in hand.”
- Denise Shekerjian

Social evolution is the story of firsts – firsts that became formalized into the cultural DNA through changes in institutions. Social evolution is the story of the emergence of banks and nation-states, handshakes and pants.

Development matters to any community that’s poor, that suffers from short life spans as a result of poor medical care or political turmoil. The question for such communities is how to develop, how to build institutions like those in the developed nations.

Social evolution matters because even the most developed communities haven’t yet solved some of the most important problems, like happiness and the compatibility of economic and environmental activity.

*-*-*-*-*-*

From about 1300 until today, social evolution in the West has proceeded in three separate waves of revolution – each wave culminating in a new economy, a new kind of society, a new type of individual. What we can now look back on as social evolution was experienced as social revolution.

First Economy – Agricultural
The first wave replaced the traditional economy with an agricultural economy. Land that was held in common was turned into private property, a move that stimulated investment like irrigation, fertilizer, and new tools like seed drills and iron plows. To enhance the value of the goods from land, trade opened up. Spices were traded from Asia and gold from the Americas. The emergence of the first economy drove unprecedented levels of conquest and exploration. Entire continents were discovered. The world was circumnavigated for the first time. Food previously unknown and grown in foreign lands became the stuff of daily diets: the Irish began to eat potatoes, the Italians tomatoes. The agricultural revolution didn’t just change diets – it changed how people thought and lived.

Second Economy – Industrial
After markets are opened up around the globe, the next stage of development involves processing natural resources – changing timber into lumber, wool into clothes, and ore into steel. This involves capital – money, factories, and machines. The emergence of the industrial economy involved another wave of transformation. Investing and working in factories changed the scale and nature of cities. Bond markets and banks emerged as new vehicles for financing new vehicles like railroads.

Third Economy – Information
If you are going to manufacture a thousand watches to ship to Topeka, you want to be sure that there is demand for a thousand watches in Topeka. To determine this, you need information. When your factories can make more than people might buy, the limit to progress shifts to information. Even in the 20th century, the emergence of a new economy was disruptive. The battle between capitalism and communism was won by the corporation, which emerged as the best way to manage knowledge workers. Computers and the Internet are just the latest version of information technology that began with the telegraph, telephone, and typewriter in the 19th century.

Evolution suggests a change in DNA – not just the individual animal. Social evolution suggests a change to social DNA. It is perhaps simplest to think of social DNA as institutional norms – the way most people think or make sense of the world, the dominance of a church or state, the institutions that are common and commonly used. Physical DNA has genes; social DNA has memes.




When the first economy emerged, the nation-state displaced the church as the community’s dominant institution. When the second economy emerged, capitalism – the bank and financial markets - displaced the nation-state as the dominant institution. When the third economy emerged, it was the corporation that took its turn as the most powerful institution. The most visible changes to social DNA can be seen through a community’s architecture. The cathedral that dominates the skyline in one period is replaced by the Parliament building is replaced by the bank is replaced by the corporate skyscraper. As revolutionary change becomes institutionalized, society evolves.

For simplicity, we can say that the agricultural economy emerged in the West between about 1300 and 1700. The Protestant Revolution transformed the church and the nation-state replaced it as the dominant institution in the West. The Renaissance became the dominant way of thinking.

The industrial economy emerged between about 1700 and 1900. Democratic revolutions transformed the nation-state and the bank, or capitalism, replaced it as the dominant institution. Enlightenment thinkers re-defined society and science.

The information economy emerged between about 1900 and 2000. Banking disintermediation and the welfare state transformed capitalism, as the masses became beneficiaries of investments, insurance, and credit. The corporation emerged as the dominant institution; by the end of the 20th century, roughly half of the largest economies in the world were corporations, not nation-states. Knowledge workers – pragmatists rather than Enlightenment thinkers – arose to become the new specialists who defined business, political, and financial policy.

The Fourth Economy – Entrepreneurial
Today, we’re living on the cusp of a new economy. This entrepreneurial economy will transform the corporation as fundamentally as the agricultural economy transformed the church, or the industrial economy transformed the nation-state.

For the developed nations, the goal is not development, not movement along defined paths. Rather, the point is evolution – movement into uncharted waters. There are no existing memes to script this progress. There is, however, a pattern from which we can draw.

The pattern of progress has been the same each time. An elite develop and control an institution. Popes and cardinals control the church. Then a revolution disperses the power of the institution. Martin Luther stands up and says, “We are all priests!” The individual has access to the church and control over it. Kings and queens gave way to representative assemblies. Dour bankers who said no to requests for credit became eager marketers who send out solicitations for credit cards each week. In each case, the individual gained control from the elites who first created the institution.

The Popularization of Entrepreneurship
Today’s dominant institution is the corporation. Quite simply, the pattern of revolution will be the same as what it was before: the everyday worker and investor will wrestle control of the corporation from the CEOs and senior executives.

The reason for this? It is to create institutions – not just corporations but schools, banks, governments, and churches – that more closely conform to the reality of the individual and of nature. To date, the point has been to conform nature and the individual to the linear thinking and predictable paths of institutions made for the masses. In the future, the point will be to more closely conform institutions to the unpredictable paths of ecosystems and personal psychology. And to create wealth – wealth as much greater than that of our own time as our wealth is to that of the first or second economy. Wealth as measured by autonomy, greater freedom for the individual. And indeed, this has been the path of progress since the dawn of the first economy – the increase in autonomy of the individual.

Entrepreneurship is the art of creating a sustainable institution. To date, that has been the work of elites. In the future, the work of entrepreneurship will be popularized. This will not happen rapidly by our normal reckoning. But it will happen. If only 1% of the population in 2000 acted like entrepreneurs, that number may be no higher than 3% by 2010, no higher than 8% by 2020. But entrepreneurship is the ultimate creative act, a social change that, when successful, creates enormous wealth. Rather than think of this as only 8% of the population, think of having 8 times as many entrepreneurs. Even today, this far past Democratic Revolutions, less than half of the population in the US actually votes.


The transformation of the corporation will change work as much as the Protestant Revolution changed worship, or as much as democratic revolutions changed what it meant to be a citizen. Corporations that have for so long measured their success by the creation of goods to have – products sold in stores – will begin to be more inclusive, adding to their metrics goods to do – satisfying work that is engaging and that stimulates creativity.

Past revolutions changed how we thought about the world – the pragmatism of William James and Oliver Wendell Holmes followed from the enlightenment thinking of Isaac Newton and John Locke, which followed from the Renaissance thought of Machiavelli and Copernicus. In the 4th economy, society will once again change its fundamental operating system. Systems thinking will emerge as the antidote to the specialization of pragmatists who measure progress in ways that exclude the erosion of their own habitat. Entrepreneurs create systems, bringing together supply and demand, labor, capital, and resources to create value.

Popularizing entrepreneurship, creating the expectation that society will accommodate the individual who has for centuries been expected to accommodate society, will be different. It will, in fact, be revolutionary.

The Philosophy of Business

Make dollars, not sense.
Corporate America - if you have to think, think big.

Post-Capitalist Capitalism, Crowdsourcing, & the Democratization of Media

From Wired

Gannett to Crowdsource News
Jeff Howe 11.03.06
12:00 PM

The publisher of "America's newspaper" is turning to America to get its news.

According to internal documents provided to Wired News and interviews with key executives, Gannett, the publisher of USA Today as well as 90 other American daily newspapers, will begin crowdsourcing many of its newsgathering functions. Starting Friday, Gannett newsrooms were rechristened "information centers," and instead of being organized into separate metro, state or sports departments, staff will now work within one of seven desks with names like "data," "digital" and "community conversation."

The initiative emphasizes four goals: Prioritize local news over national news; publish more user-generated content; become 24-7 news operations, in which the newspapers do less and the websites do much more; and finally, use crowdsourcing methods to put readers to work as watchdogs, whistle-blowers and researchers in large, investigative features.

"This is a huge restructuring for us," said Michael Maness, the VP for strategic planning of news and one of the chief architects of the project. According to an e-mail sent Thursday to Gannett news staff by CEO Craig Dubow, the restructuring has been tested in 11 locations throughout the United States, but will be in place throughout all of Gannett's newspapers by May. "Implementing the (Information) Center quickly is essential. Our industry is changing in ways that create great opportunity for
Gannett."

The article makes crowdsourcing sound promising - a way to reverse the drop of 30% in readers since 1985. And it is not the only model folks are tinkering with. (An example of how the Napster model could be adapted to newspapers, for instance, is mentioned here at co-render.) To me, it sounds like one of two things: either exploitative or incomplete. It could, in fact, be both.

Resorting to crowdsourcing - turning to readers for content - is actually a great example of the need for a corporate revolution. If the readers are going to become the writers, it suggests that ownership of the newspaper ought to be democratized as well. It is one thing for publishers to make exorbitant profits when they invest millions in complex and expensive publishing machinery and professional staff. It is quite another when the expense is Internet cheap and the staff is comprised of an odd hybrid of professionals and amateurs.

We've yet to fully embrace the implications of post-capitalist ownership. Distributing the ownership of the newspaper along with the work of creating it is just one of those implications.

Organizational Goals are Meaningless Goals

Organizational Goals are Meaningless Goals

I've become an officer for a local Toastmaster's club and we officers are supposed to articulate club goals next week. I have a problem with this, one that is not specific to Toastmaster's but applies to organizations in general.

Faithful readers of this blog - you two know who you are - have read previous posts in which I've talked about a corporate revolution that, in part, turns the corporation into a tool for the individual, reversing the current order in which the individual is a tool for the corporation. Such a shift suggests a change in emphasis, or sequence, for the articulation of goals.

To me, there are few things as meaningless as organizational goals. As near as I can tell, "organizations" are abstractions that have no real interest in whether these organizational goals are met or not. People, though, do have goals and can be seized by care or apathy. Stockholders have goals for returns by a certain date. Employees have goals for engaging work, development, and income. Customers have goals for convenience, affordability, and enjoyment. Management is an art of creating relationships between these parties, making trade offs when needed and but generally designing solutions that allow all of these parties to meet their goals in ways that they couldn't in isolation from one another.

The more management knows about individual goals, the more they can make organizational design and priority decisions that enable these goals. The miracle of an organization is that it enables the realization of individual goals. The opposite, that the miracle of the individual is that s/he enables the realization of organizational goals, is false.

So, let me go back to the Toastmaster's example. Throughout the year, we get probably 40-80 first-time visitors. Of that, we probably gain about 20 new members while losing about 20. Individuals come to the club with particular goals in mind. Some want to learn how to engage audiences as they deliver regular reports. Some want to overcome stage fright, hesitancy, or rapid-fire delivery. Others want to learn how to read an audience, vary the pace, persuade, or simplify complex ideas. The club, or organization, will thrive if its leadership can figure out how to meet those needs. But before it can meet such needs, it needs to determine those needs.

Currently, there is far more emphasis on having new members learn the Toastmaster's process than there is in having Toastmaster's learn the goals of new members. To talk about organizational goals like signing up 20 new members or getting 5 existing members through the competent communications manual seems to me meaningless. Better to translate the goals of real people into organizational events, actions, and forums that enable the goals of individuals. An organization that does this is going to thrive. It may be transformed - may even change regularly - but it will thrive.

Organizations don't have goals or needs. People do. An organization's only justification is as a means to realize the goals of real people. As soon as leaders forget that and begin talking in abstract terms, they risk drifting into irrelevance and eventual obsolescence.

The Policy That Matters Most

The policy that will most impact the average person is business policy, not political policy.

Federal policy matters. So does state and local policy. Education policy matters more than most people seem to appreciate, but even that does not seem to have as immediate and as real an impact as the policies of heads of business.

It's worth remembering that when Wal-Mart founder Sam Walton first came to national prominence, his story had some simple themes. One, he'd gotten rich by cuttings costs and prices. He not only offered his customers bargains, but he traveled from store to store in an old pickup. Two, he made his employees partners in the creation of wealth. Even people working jobs like cashier were making enough money to send children to college, to buy vacation homes, or to retire early.

Some leaders are inspired by a variable sum ideal. They believe that they can create wealth that didn't previously exist. Other leaders are inspired by a zero sum ideal. They believe that gains and losses add up to zero - whatever I get comes at your expense and what you get comes at my expense. At best, these leaders take from competitors; at worst, they take from their own employees, firing employees and / or reducing wages and benefits in order to drive up profits and their own pay.

Some corporate leaders have created wealth and brought along a group with them. People like Bill Gates of Microsoft or Robert Beyster of SAIC not only founded companies that made them wealthy: they made thousands of employees millionaires as well.

Others have merely shifted wealth. 'Chainsaw Al’ Dunlap, in less than two years as head of Scott Paper, fired 11,000 employees (one-third of the workforce), slashed the research budget, moved the world headquarters from Philadelphia (where it was founded in 1879) to Boca Raton, Florida (where he has a $1.8 million house), eliminated all corporate gifts to charities, and barred managers from being involved in community affairs. Then he sold what was left of the company to Kimberly-Clark, which promptly announced it would cut 8,000 of the combined companies’ workforce and close Scott’s new headquarters in Boca Raton. For his labors, Dunlap has just walked off with a cool $100 million. ” [Robert Reich, Locked in the Cabinet (New York: Alfred A. Knopf, 1997) 294.]

The policy proposals and consequences of government officials receive enormous scrutiny. By contrast, the policy, philosophy, and abilities of corporate executives seem to escape notice from most of the media. And yet, just as the choices of a government leader can determine whether a person lives in the midst of war or peace, the choices of a corporate leader can determine whether a person lives comfortably or in a state of constant financial stress. The difference between working for a company where, in her 40's, the stock price raises by 500% or where, in her 40's, an employee is forced to change careers is the difference between affluence and poverty.

More could be done to highlight the importance of corporate policy. The media could do more to shame and praise corporate leaders. Mutual funds could also do more to publicize the consequences of poor policy choices, and use their massive investment power to influence policies. Politicians, too, could bravely criticize and praise corporate leaders. Finally, savvy corporations will themselves begin to create conditions akin to a free press within their walls, working towards the adoption of policies that make everyone wealthier - customers, employees, suppliers, and yes, even the corporate leaders.

Corporate policy will determine things as varied as the quality of our goods and services, environment, and careers. It deserves much greater scrutiny and attention.

The Fuss (about Imus) & Hush (about corporate censorship)

I had a surreal moment in Osaka. Standing in a department store, I was watching a number of demure and modestly dressed Japanese women paw through sweaters and blouses. I was carefully watching them for some reaction, any expression indicating that they understood the lyrics playing in the store. "Where are my bitches? Where are my ho's?" asked the rapper on the store's sound system to an audience that seemed completely unconcerned about his loss. Apparently, someone had simply thought it hip to play this music, the latest fad to sweep over from the States. The result was, for me, like a moment in a hidden camera skit.

I don't pretend to understand the misogyny in rap. It's obvious that Imus didn't either -his attempt to be cool by borrowing from its vocabulary failing as spectacularly as if he'd tried break dancing. But I also don’t understand how his atonal attempt at humor became a cause to be fired. Pity the poor fool tied to the tracks when the American self-righteous train has worked up a good head of steam.

I quite dislike this notion of someone sanctimoniously deciding what audiences can hear. Whether the censorship comes from the government or heads of corporations, it is censorship. Comedy is dangerous. Duds and offensive comments are an inescapable part of comedy. Can you imagine if everyone weighed his or her words as carefully as a politician running for audience? We’d lose an entire generation to drugs, a desperate attempt to escape the monotony of monotone.

I don’t like the race to politically correct speech. Some topics can’t be discussed in measured tones. I have yet to find a polite way to express my outrage at our former boy cheerleader’s obvious and egregious policies, for instance. It is not for the big institutions or moral police to decide which topics deserve language that might offend most. Imus’ audience has a right to listen to the man, even if it offends people in power.

One day the church or government or corporation legitimately spares the congregation from something 98% of them agree is egregious. The congregation applauds. Then, the next day, it protects them from disconcerting messages that point out that the church, state, or corporation is abusing its power over the congregation. If the dominant institution is censoring the message, the dominant institution is never called on its excesses, it mission, its power. Whoever controls the message to the people controls the people.

Historically, people find themselves imprisoned after fierce battles. The next generation may awake in chains, lulled to sleep by the measured and boring tones of a media designed to assure its audience that everything is fine and there is no cause for outrage.

But the truth is, there are worse things than outrageous comments. There are, in fact, some events that can be described no other way. It doesn’t end outrage if we censor outrageous comments – it simply ends our ability to discuss it.

Coming Soon to a Cubicle Near You - Revolutionary Ideas About Your Corporation

It's quite delightful to point readers off to a kindred thinker. Jeff Jarvis, fresh from his meeting with the world's elites at Davos, has come to believe that

"Perhaps the most important ‘ding’ moment I had at Davos was that the powerful are, no surprise, one step behind in their understanding of the true significance of the internet: They think it is all about individual action when, in truth, it’s about collective action. And so they don’t yet see that the internet will shift power even more than they realize."
[read it all at http://www.buzzmachine.com/index.php/2007/02/01/davos07-my-big-conclusion/]

You can read my take on this same shift in a few posts at this blog, three of them here:
http://rwrld.blogspot.com/2006/12/social-evolution-and-next-corporation.html
and
http://rwrld.blogspot.com/2007/01/be-rupert-murdoch-for-only-5000.html
and
http://rwrld.blogspot.com/2007/01/employees-becoming-entrepreneurs.html

Vladimir Dzhuvinov has a blog through which he's working out a model that could effectively disperse power. You can find him at:
http://www.thetransactioncompany.com/

Russell Ackoff is perhaps one of the best known thinkers in management to espouse internal markets (just one of his many profound ideas), something that I'm beginning to believe will be an essential part of the dispersion of power from corporate elites to the common man. You can find information about his ideas at:
http://ackoffcenter.blogs.com/

Not all of the corporate transformation talk is actually about transforming the corporation. Pamela Slim has a blog directed towards helping people to escape the cubicle farm - no longer keen to waste her energy helping corporations to transform, she's directly helping the people stuck within them. Even these actions will help to hasten a transformation of the corporation, forcing business to reconsider the role it has defined for its employees. You can find Pam's brilliant "open letter" here:
http://www.escapefromcubiclenation.com/get_a_life_blog/2006/05/open_letter_to_.html


Such ideas are infectious memes. The ideological immune system of the current social system will first miss these ideas, then mock them, and then point out their flaws. But these ideas will eventually transform society. When you change the dominant institution, you invariably change all of society.

Just think about it. What if this chorus (of often harmonizing, sometimes discordant voices) is right? Maybe it's time to ask yourself what exciting things are possible if power were to disperse outwards from the elites within the corporation as they have previously done within the church, the state, and the bank. And what if this pattern of revolutions, the rise of the individual, has been the pattern of progress throughout the history of Western Civilization? And if you think about that, the meme is already in, already past your defenses. What was it Supreme Court Justice and co-inventor of Pragmatism Oliver Wendell Holmes said? “Man’s mind stretched to a new idea, never goes back to its original dimension.”

Guaranteed Super Bowl Prediction and the Design of Your Business

I've got a prediction for the Super Bowl. And it's guaranteed. Sadly, for, you, my prediction doesn’t name Saints or Patriots or Bears or Colts.

(Note that two of the teams take their names from totemic figures - drawing their strength from bears and colts as if they were ancient Celts or American Indians; the other two teams, by contrast, take their name from ideals of politics and religion. A battle between Saints and Patriots would somehow seem appropriate for the times.)

My prediction is that ONE team will win. This seems like the most obvious prediction I could make, but it is worth noting because this is by design. 32 teams started the season, a season designed to eliminate teams bit by bit until only one team is left standing.

So why mention this? Well, it is worth mentioning because this is a design issue with a predetermined outcome. Your business might have a similar design goal. It's worth noting that only in undeveloped, poorly designed countries the leader makes the most money. In nearly all Fortune 500 companies, the leader, or CEO, makes the most money. This is by design and everyone in the company knows that one person will win the "get rich working for the company" contest. This suggests a poor design. In developed, well designed countries plenty of people make more money than the leader, the president or prime minister.

What if, instead, winning within a business were more like winning in business. That is, what if your company were not designed to have the leader take home the most money? What if the top income in your company were not determined by position but by natural consequences that meant that any number of employees might make more than the leader, just as in more developed, or better designed, countries any number of citizens make more than the leader?

We don't question the fact that only one team will win the Super Bowl each year. We should question the fact that only CEOs (only one employee) will win the "make the most money" award. This is a design flaw.

Wages at an All-Time Low - and that could be a good thing

Wages and salaries constituted only 45% of the GDP last year - the lowest it has been since records were kept in 1929. I think that could be a good thing.

How could a populist applaud the erosion of the working man's wages? Well, one other large component of the GDP is corporate profit. And the fact that everyone keeps forgetting is that in just the last few decades, the ownership of corporations has been rapidly dispersed to a wider and wider group of people. As corporate profits account for a higher percentage of GDP, profit-sharing can be more widely dispersed. Lower wages doesn't necessarily translate into lower household incomes.

The return to knowledge work is wages and salaries. The return to entrepreneurship is profit. As we manage to popularize entrepreneurship (one component of which is the dispersion of corporate ownership), we should encourage the fact of households getting a higher percentage of income from profits.

The point is not to bemoan a decrease in incomes as a percentage of GDP. The point is to insist on an increase in profit sharing so that individuals' goals are aligned with their employers and so that the resultant increase in shared profits and wealth more than compensates for a relative decline in wages.