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Umair Haque // Bubblegeneration

Umair Haque // Bubblegeneration

Updated: 2016-10-20T16:27:41.903+01:00


Bubblegeneration 2003-2010


You've made this beyond awesome, both a pleasure and a privilege. But it's time to retire this blog (for now). The archives, comments, responses, and ideas are all here for your reading pleasure (like this).

My real blog is now at Harvard Business Review. My mini-blog/notepad is here. I'm on Twitter here.

Update your bookmarks--I'll see you there.

Disney Baby: How to Create Thin Value


Marketing to preschoolers is so passe. Disney is setting its sights younger. Much younger. Disney Baby, the company's controversial new venture, aims to cultivate brand loyalty in the delivery room, and even sooner. The New York Times describes the new program thusly:"A Disney representative visits a new mother [sometimes within just hours of giving birth] and offers a free Disney Cuddly Bodysuit, a variation of the classic Onesie.In bedside demonstrations, the bilingual representatives extol the product’s bells and whistles — extra soft! durable! better sizing! — and ask mothers to sign up for e-mail alerts from"The Consumerist adds:"On one hand, the goal is to get new moms using Disney Baby products. On the other, it's also a chance for Disney, which says that many children don't become familiar with its brand until pre-school age, to introduce the company to children from the get-go.”Disney gains bedside access to new parents through a company called Our365, a company that sells in-hospital newborn photos and also has financial ties to Fisher-Price and Proctor & Gamble.We've already ventured into seriously disturbing territory here, but Disney Baby doesn't stop at the maternity ward. Andy Mooney, chairman of Disney Consumer Products, describes a long-term push designed to draw new moms and even moms-to-be deep into the folds of the Disney brand, backed, of course, by the full might of Disney's marketing machine. Mooney calls the possibility of hooking a new mom before her baby is even born “a home run." Apparently, the cult of Disney begins in the womb.It's bad enough that Disney wants to commoditize giving birth, but the fact that they think it's innovative marketing, that indeed, they're "extremely excited" to turn hospitals into customer hunting grounds, demonstrates a spectacular breakdown between institutional profits and the good of humanity.This is thin value at its worst, a marketing approach that profts by taking advantage of people at a very vulnerable, emotional (and deeply private!) time, while also instilling brand awareness in the impressionable minds of children from day one.What's so striking to me is that nowhere, in all of this, does Disney even entertain the idea that what they might be doing is anything less than wonderful. Who doesn't want free Disney stuff, after all, and the sooner the better? But this isn't really about free stuff. It's one thing to give something away to new parents. It's quite another to bring a sales pitch to the delivery room, no matter how profitable it might be.There's nothing thick or enduring about that.Contrast Disney Baby's thin value with a sector that's creating thick, real value for new parents - believe it or not, the mobile apps industry. Creative engineers are developing apps that help you with everything from tracking your nursing schedule to figuring out how much to pay the babysitter. Here's a fun list of some of the best iPhone apps for new parents.An app that helps you research food additives or keep track of your baby's naptimes might sound like a small thing, but based on their popularity and the rave reviews from parents everywhere, these mobile apps are creating genuine value for moms and dads.The key word here is help. Unlike Disney Baby, which is all about profits, mobile apps are designed to actually help parents. In their own small way, they ease the demands of new parenthood by helping to organize, clarify and save time. Most importantly, they do something a free Onesie never could - help new parents maintain their sanity. Priceless.Robin Cangie writes about 21st-century prosperity, institutional transformation and whatever is on her mind at Follow her on Twitter at @robinoula.[...]

What Does a 21st-Century Business Look Like?


(image) Last week on Bubblegeneration, I wrote about the potential of the social web to empower, uplift and inspire, especially for companies and individuals who know how to harness the power of group behavior.

It sounds grand in theory, of course, but this week, I want to come down from the realm of ideas and take a closer look at the ways that Bolder, Kickstarter, Kiva, Edot (stands for "every day one thing") and many other companies are enacting real social change on the social web (not just blogging about it).

The missions and business models of these companies vary widely, but there are three main things that they all have in common:
  1. They depend on the social web. There’s nothing brick-and-mortar about these companies – they thrive on digital interactions. Without the ability to reach millions of people regardless of geography and time zone, the model just wouldn’t work.

  2. They challenge traditional relationships between institutions and individuals. Rather than stick to the traditional advertise/buy/sell model of most institutions, Bolder asks individuals and organizations to make a difference together. Kickstarter and Kiva both democratize the process of getting funding for artists and entrepreneurs. And Edot is founded on the simple, elegant premise that if everyone does just one thing to make the world better every day, then the world will actually get better.

  3. They ask users to take some kind of action for a higher purpose. This is a big one. Unlike most institutions, they don’t, indeed can’t exist purely to perpetuate themselves and their profits. They depend on their users to engage and help shape a vision of the greater good, and it’s the strength of that vision – much more than the strength of the balance sheet – that determines whether the business sinks or swims.
In short, this is what a 21st-century business, one that’s based on mattering, not revenue, looks like. This is a big topic, and there’s lots more to discuss. Do you agree? Disagree? Have something to add? Please share your ideas in the comments.

Robin Cangie writes about 21st-century prosperity, institutional transformation and whatever is on her mind at Follow her on Twitter at @robinoula.

Social Change on the Social Web


In October 2010, Malcolm Gladwell famously argued that social media would not bring about a revolution in social activism. And as he no doubt intended, the Twitterati, blogosphere and other social media elites immediately responded with all the reasons why he was “wrong, wrong, wrong.”

Actually, both sides are right; they’re looking at the same issue from two different angles. The social web is powerful in that it connects us instantaneously across time and physical space, but without authentically engaged human beings to make those connections meaningful, it becomes a bunch of real-time, self-absorbed drivel (see 10 Things You Need to Stop Tweeting About). When you look at it this way, the social web is a way to extend and amplify our fickle, flawed humanity.

And that’s a beautiful thing, because it means that every time we choose to be significant rather than mediocre, meaningful rather than merely profitable, and open to life rather than fearful of it, we can harness the power of our highly connected world to amplify our actions 1,000-fold. It’s wonderful when individuals do this on their own, but when we act boldly together, just imagine what’s possible!

This is why I love companies like Bolder. Bolder encourages businesses and consumers to act together for a better world. The model is pretty simple - complete a bold action (such as biking to work or a random act of kindness) and get a reward, often in the form of discounts from a sustainabily-minded company. This may sound pretty small in the face of the world's big problems, and it is... at the individual level. The great thing about individuals is that when you bring them together for a common purpose, you have a group that's capable of powerful, concerted action.

Bolder is harnessing the power of group behavior across the social web. For the first time in history, the physical barriers to collective, powerful action have been torn down, and Bolder gives you – yes, you, reading this blog, right now – the opportunity to enact real change by focusing that power into a single, common goal for a brighter future. It's social enterprise on the social web, and it's awesome!

One small action will make one small difference. That matters. And when you take all those small actions and put them together, not only will you make an even bigger difference; you just might impact real, lasting change.

That’s the promise of Bolder, and of the social web more broadly – to empower, uplift and inspire. Or, you know, you could just Tweet about what you had for lunch.

Robin Cangie writes about 21st-century prosperity, institutional transformation and whatever is on her mind at Follow her on Twitter at @robinoula.

The Unrecovery (And What You Can Do About It)


Welcome to the curious case of the incredible non-recovering recovery. Call it, if you like, the unrecovery. By that, I mean a "recovery" which economists, pundits, and talking heads will continue to glowingly back-slap one another about, because industrial age measures tick marginally upwards--but one that won't be a lived, felt, breathed "recovery" in any meaningful economic or financial (not to mention social or political) sense for 99% of people, because those industrial age concepts and conceits are, in a hyperconnected 21st century, bereft of any kind of meaning. Result? an empty "recovery": one empty, null, and void of real prosperity, whether denominated in either incomes or outcomes.To lend credence to my little point, consider the following (courtesy of Emily Kaiser at Reuters)."The unemployment rate dropped to 9.4 percent in December, even though employers reported hiring a disappointingly skimpy 103,000 new workers. But the reason for the big drop from 9.8 percent in November is somewhat disconcerting. While the Labor Department's volatile survey of households showed employment surging by 297,000, the labor force shrank by some 260,000.Even though the U.S. economy added jobs in every month in 2010, hundreds of thousands of people gave up looking for work. The number of discouraged workers climbed to 1.32 million in December, from 1.28 million the month before."Emily's right. The shrinkage in the labor force in relative terms outweighs any job creation effect. That's not just worrying--it's alarming--that after literally trillions spent trying to revive and resuscitate the economy, it's not like a patient sputtering back to life. Rather, it seems to be suffering through something akin to a malady, perhaps terminal, that no therapy seems capable of stopping.Sounds hyperbolic, right? Then try this, from the Labor Department, on for size--because Emily's point is just the tip of the iceberg."Total nonfarm payroll employment increased by 103,000 in December. Employment rose in leisure and hospitality and in health care but changed little in other major industries. Since December 2009, total payroll employment has increased by 1.1 million, or an average of 94,000 per month. (See table B-1.) " So far, so not good (because, as you know, merely to keep pace with population growth, growth in employment is about half of what it must be). But here's what's really, really bad. The fastest growing category within even this moribund, deeply disappointing employment picture?"Employment in leisure and hospitality increased by 47,000 in December. Within the industry, job gains continued in food services and drinking places (+25,000). Since a recent low in December 2009, the food services industry has added 188,000 jobs." Want fries with that Ponziconomy? The economy's not just failing to create jobs: the meagre jobs it is creating are literally mostly McJobs. Nearly half of all the new jobs created were low-wage, zero-growth, no-future burger-flippers, waiters, valets, dishwashers, and the like. When you factor in the fact that the second fastest growing category was Temporary Help, you might begin to feel just a tiny bit alarmed--because together, the majority of jobs created, devoid of earning power, spending power, saving power, skills gains, or, crucially, future real marginal productivity gains, are more reminiscent of an economy in terminal decline than one in anything even mildly resembling the word "recovery". Here's what I'd suggest just might be worth beginning to consider, given the fatal dynamics above. There's no recovery because it's not a recession. As I discuss in the Manifesto, It's a great reconfiguration--a great reboot of global economic institutions. This time, reigniting real, enduring global growth (instead of the zombified zero-sum game China, America, and Europe are playing now) is going to demand deeply rooted institutional innovation. "GDP", jobs, corporations, "profit", "Current Accounts"--[...]

A Tale of Two IPOs


So by now, you've heard endlessly about the Facebook/Goldman quasi-IPO. What is its larger significance? Consider, for a moment, a historical contrast. When Google IPO'd, it explicitly refused to play by Wall St's rules--instead, issuing equity in a relatively open Dutch auction:"...Among other things, Google issued a firm warning to speculators hoping to make a buck by quickly flipping their shares, a hallmark of many hot technology IPOs in the past. Instead, Google hopes to place its shares in a way that avoids the typical investment banking strategy of intentional underpricing--and the volatility that frequently follows."Our goal is to have an efficient market price--a rational price set by informed buyers and sellers--for our shares at the IPO and afterward," the filing states. "Our goal is to achieve a relatively stable price in the days following the IPO and that buyers and sellers receive a fair price at the IPO."To make that sharper:"...According to its filing, Google seems willing, eager even, to start off life as a publicly traded company on the right foot, hoping to steer clear of some of the sweetheart dealmaking that characterized the last wave of go-go IPOs. Instead, Google plans an auction of its shares to raise up to $2.7 billion; a process open to all bidders."Today, we have Facebook--not challenging Wall St's rules, but, instead, endorsing and subscribing to them. Facebook's quasi-IPO is a deal with Goldman to build an SPV through which high-net-worth investors can essentially buy blocks of Facebook equity.The contrast couldn't be more striking. A closed SPV for a tiny number of clients, which skirts the SEC's rules on venture finance, is the antithesis of Google's open Dutch auction.All of which is very revealing, and tells us a great deal about Facebook's culture--and hence, maybe just a little bit about its future prospects. Google had a Dutch auction for its IPO because it had what I call in the Manifesto a philosophy. That is, a set of principles for creating enduring value. One of Google's bedrock principles is a belief in democracy--hence, a Dutch auction. Companies that have philosophies are resilient--they're able to weather the fiercest of storms, because they focus on enduring value, not transient gains. What Facebook's Goldman deal might tell the astute observe of strategy is this. Facebook has no philosophy, no set of guiding principles that focus it on enduring value. Instead, it is focused--as it has been focused--on building an extractive ecosystem rife with subprime economics and tail risk, not creating value that matters, lasts, and grows. Needless to say, where ecosystems like the latter flourish, on the foundation of mutual incentives that spark acceleration effects in wealth creation, ecosystems like the former are prone not merely to long, slow decline--but to rapid, sharp collapse.The difference between the two? In a word: resilience. 21st century advantage. Facebook's great challenge isn't cashing out; rather it's cashing out that vividly demonstrates the great challenge that Facebook, like 90% of industrial age firms, faces: learning to create thick, shared value. [...]

Our Institutions of Education are Anti-Education


A very good friend of mine who is also a philosophy professor pointed me to this article about rampant plagiarism in the academic world, written by an "academic mercenary" whose clients pay him to write everything from business school proposals to doctoral dissertations.It's a chilling read, because it articulates so clearly the massive failure of our institutions of education, as a whole, to actually educate. Not only do they fail to educate; the educational institutions to whom we entrust so much are, in many ways, anti-education.A few days ago, I posted a note about this problem on my personal blog and received a comment from the ever-insightful Carol Sanford that really hits the nail on the head:"Education, from the Latin root ed-u-caré,means to draw out; and the current model of education is missing the point of its own etymology... Modern schools do not 'draw out', but rather 'push in' facts and knowledge." The current model of education is missing the point of its own etymology. I love this phrase. It's so deliciously ironic, and it would be funny if it weren't so piercingly true. In the United States, we treat schools as fact-pushing factories, filled with the bland curriculum of standardized tests, devoid of creativity and critical thinking. And like a factory, the best students aren't the most creative or even the smartest; they're the ones who can best tailor their work to fit within a certain set of specs. Those who question the system are ignored or ostracized, while those who struggle are utterly left behind.Case in point: my professor friend, who teaches at a small liberal arts college, has a transfer student from a large, prestigious public university. This student is struggling in class and was afraid to approach my friend for help. The reason, he later learned, is because at the large, highly-respected university the student came from, undergraduate students were discouraged from engaging with their professors!Our institutions of education are not only failing to adequately educate the vast majority of their students. If education is the Socratic process of drawing knowledge out through creative inquiry and critical thinking, these institutions are actively undermining their students' ability to be educated at all.The Lumiar Institute in Brazil has a more humane view of education. For their students, education is about inquiry and interaction, engaging with the world rather than retreating from it to memorize facts in a book. They treat education as a lifelong process that occurs both formally and informally. The Lumiar Institute is still an educational institution, but here's a key difference: this institution is expressly designed to encourage human flourishing, to facilite creative education, rather than undermine it.Pratham is another organization that's doing great things for education. Pratham is more about communities than instutitions. Their programs utilize community spaces - homes, temples, parks - to provide a place for underprivileged children to come together and learn. They find and train instructors from those same communities, supply materials and generally try to enable success. Pratham recognizes the interdependence of communities and educational institutions and seeks to build vibrant communities that allow students to thrive within these institutions.I encourage you to visit the websites of these organizations, read about their educational philosophies, their students, their values. They're examples of humane education, so very different from the commoditized, factory schools we have in the United States, where education seems to be more about producing workers than enlightening minds.We desperately need that humanity here. Organizations like Pratham, the Lumiar Institute, and also the Harlem Children's Zone tell me it's possible. With few resources and seemingly terrible circumstances, they're making a difference. Yet h[...]

A Cause for Genuine Delight


It's the mass consumption, er, holiday season again, which means that everywhere I turn, I'm bombarded with advertisements trying to sell me delight - men delighted by power tools, women delighted by diamonds, children's faces filled with the unbridled joy that can only be caused by [insert marketed product here].A few weeks ago, I wrote about how society is manufacturing contempt via the commoditization of our stuff, our news and our communities. In this same vein, we're manufacturing and commoditizing delight, too. I'd argue that the manufacture of delight is really just the other side of the contempt coin. When we package delight into a commodity to be bought, marketed and sold, we degrade the dignity and authenticity of this really wonderful human emotion. This is a form of contempt, especially when we attach it to cheap, mass-produced products that are made with little regard for the health of humanity or the planet. And at no other time of year is the manufacture and commoditization of delight more apparent than it is right now.Despite what marketers tell us, manufactured delight is a ruse, at best a poor substitute for genuine delight (the kind we don't need marketers to help us feel), and at worst another engine for manufacturing contempt. This kind of delight is:Shallow. Manufactured delight doesn't tap into anything bigger than itself, (unless you want to count company profits). It creates nothing of meaningful value, has no positive long-term impact, and feeds into our culture of consumerism and commoditization.Commoditized. Manufactured delight is the kind of delight you feel when you acquire something new. It revolves around buying and/or giving things, not building relationships. Like a fast food hamburger, this kind of delight is easy to give and easy to acquire, but it fades quickly and makes no contribution to your long-term health and happiness. If anything, it leaves you hungry for another fix. Unsustainable. Remember how you felt as a kid after you'd opened all your Christmas presents? Probably not as delighted as you did while you were unwrapping them. Manufactured delight fades almost immediately, leaving you with a gnawing sense of emptiness that can only be filled by acquiring more stuff. That in itself is unsustainable, but when that stuff is manufactured without regard for humans or the environment, you have a recipe for great harm.This sad excuse for delight is what most companies are manufacturing. It's boring, fleeting and feeds into the contempt/commodity cycle that treats everything, right down to our precious human emotions, as a product to be bought and sold. But business doesn't have to work that way. Market dogma aside, our business models are not set in stone, nor do they operate according to an invisible set of immutable laws.A company called Socks for Happy People has found a way to thrive that does not involve commoditizing and exploiting our emotions. They make sustainably sourced, genuinely delightful socks that are designed to "amaze, uplift and inspire". Quite wonderful on its own, but to see what really sets them apart, you have to read their mission statement:"Socks for Happy People exists to inspire a deeper understanding of genuine happiness throughout the world, and be a shining example of how a business with the well-being of humanity and nature at its core can be inherently sustainable and abundantly profitable."This is a company that makes socks for a living, and socks aren't even mentioned in their mission statement.It's hard to imagine something more commoditized and ordinary than socks. There are hundreds, if not thousands, of sock manufacturers out there. Here's the difference between all of them and Socks for Happy People - making socks isn't their mission. Making socks is what enables them to accomplish their mission.Socks for Happy People has transformed their socks into a pl[...]

The Art of Significance


"Mr. Li, the overseer of the Chinese renewable energy industry, publicly exhorted the leaders of the nation’s biggest wind turbine makers at the China Wind Power conference, a three-day event that drew hundreds of executives from around the world.“You cannot be called a winner if you are the leader for three or five years,” Mr. Li told the Chinese executives. “You can only stand on the top line if you are the leader for 100 or 200 years.”The Chinese presidents sat quietly and respectfully, chins down. Senior executives from the foreign manufacturers — including Vestas, G.E. and Gamesa — sat alongside them, staring straight ahead in stony silence."Link. Ask yourself: can you imagine similar words being said in any corporate boardroom, policy wonk powwow, Senate committee meeting, or trading floor in America? It's difficult--if not downright impossible--to. Because far from seeking superiority for, well, the next century, American institutions are myopic, opportunistic, rigid, sclerotic. They barely seek superiority for the next nanosecond--in those rare, ragged instances that they have the courage, wisdom, or perseverance to seek meaningful superiority at all. They're geared to create thin value--not thick value.What Li's demanding from Chinese C-suites is, above all, significance. He's redefining success, kicking the bar not just into the stratosphere--but into the next galaxy. America's still pursuing yesterday's tired old notion of near-term competitive advantage. But competitive superiority in the 21st century is a function of mattering radically more--focusing with a lethal intensity on achievements so significant, for example, that they endure a century or more. That's the art of significance--and my guess is that most boardrooms, obsessively, delusionally, pathologically fixated on the near-term bottom line, just don't (and won't) get it. Until, that is, all of a sudden--next to an institution working furiously on stuff so significant it matters, endures, and perseveres for a century or two--they just don't matter anymore.[...]

The Great Stagnation and the Ventureconomy


(image) To follow on from recent post about a failing global economic report card--a nice demonstration of yet another broken capital market.

Click the chart to biggie size it--and note the peak's in '96, well before the peak of the dot com bubble in terms of equity market indices. What does that suggest?

Perhaps that the real bubble was in venture finance--and that it's been bursting for quite a while. And, more deeply, that capital markets today are more systemically, chronically broken than is often suspected: they're shuffling the same old assets around, extracting the last meagre bits of value from yesterday--instead of investing in tomorrow.

Source--Kauffman Foundation.

A (Failing) Global Economic Report Card


What do you see when you look at the global economy? In fact, if I asked you to make a report card for the global economy, how do you think it would score?You might suppose, as most do, that we're in the final stages of a big, scary--but ultimately transient--financial crisis. Here's what I'd suggest. We're not. We're smack in the middle of a bigger, broader, more enduring global economic failure--and, ultimately, in the incipient stages of a great reconfiguration and reinvention. I'd like to suggest that we're witnessing a global economy that's failing both functionally and structurally. More precisely, it's failing functionally because it is structurally weak; it is structurally brittle and shaky because 21st century institutions aren't fit for 21st century prosperity.Here's how I propose to make the case to you. Next time, I'll examine how the global economy's doing structurally. But first, let's examine how it's doing functionally--by informally grading the global economy's most vital markets, and creating the report card I discussed above.Capital markets. Let's start with the easiest one first. Needless to say, capital markets are, without a shadow of a doubt, deeply dysfunctional. Not only have they failed completely over the last decade to allocate resources to uses of enduring productivity, they're on life support to the tune of hundreds of billions in direct and indirect subsidies by central banks. Without that life support, the explicit argument is that the capital markets would stutter and fail. That's the developed world. Now consider the rest of the world, for a moment. In the world's most signifiant emerging economy, China, the bulk of decisions about allocation and utilization aren't made by capital markets to begin with--they're made by technocrats, with a deep distrust of markets. To be precise, about 70% of investment in China is directed by the state. Grade? F.Labour markets. In America, an unemployment crisis of historic proportions is tearing jaggedly through the economy. Not only is the unemployment rate at an alarming high--the labor market's failing almost completely, with people being unemployed for years on end, median unemployment duration spiking, the young being disproportionately unemployed, and those being unemployed longest in the least demand, because little training or support is available to them. Conversely, it's not just the quantity of jobs that's the problem--America's been facing a systemic underemployment crisis for at least a decade, because the labour market excels primarily at creating McJobs.Obversely, in China, consider a very interesting article about the flipside of the coin: highly-educated grads facing massive underemployment--because, like America, China can't create enough high-quality jobs to employ people productively. Conclusion? Globally, labour markets are failing: given the current structure of the global economy, they've hit a wall (hence, underemployment). What they can't seem to do is to fully employ people, to induce them to work on stuff that makes the most of their capacities--let alone betters them. Grade? F.Product and service markets. Product and service markets are an abstraction--in the real world, they're the aggregation of the interaction between consumers and producers. The simplest--and most simplistic--way to think about working product markets is in terms of sheer quantity. Here, certainly, the American consumer has benefited: hit the big-box store, and buy the mega-pack. But it's been at the cost of individual and collective investments, employment, trust, and competitiveness--not to mention what Gabaix and Laibson have termed "shrouded attributes" (think: the hidden costs you've come to know and really, really, dislike). In other words, I'd suggest that product markets are fue[...]

The Power of Value Cycles


Let's get serious about radical innovation. Not just any tired old flavour thereof--adding yet another clanging bell or shrieking whistle, adding a trinket to a gewgaw to a gizmo, slightly changing the color palette of your latest, greatest snoozer of a mass-made "product--but higher-order innovation. In my new book, The New Capitalist Manifesto, I discuss why institutional innovation is today's great challenge (and opportunity). And I make the case that one of the new institutions that underpins 21st century advantage is a value cycle. So here's a great example of a nascent value cycle being born--and just what the power of value cycles might be--from Sweden."...KRISTIANSTAD, Sweden — When this city vowed a decade ago to wean itself from fossil fuels, it was a lofty aspiration, like zero deaths from traffic accidents or the elimination of childhood obesity. But Kristianstad has already crossed a crucial threshold: the city and surrounding county, with a population of 80,000, essentially use no oil, natural gas or coal to heat homes and businesses, even during the long frigid winters. It is a complete reversal from 20 years ago, when all of their heat came from fossil fuels.But this area in southern Sweden, best known as the home of Absolut vodka, has not generally substituted solar panels or wind turbines for the traditional fuels it has forsaken. Instead, as befits a region that is an epicenter of farming and food processing, it generates energy from a motley assortment of ingredients like potato peels, manure, used cooking oil, stale cookies and pig intestines.A hulking 10-year-old plant on the outskirts of Kristianstad uses a biological process to transform the detritus into biogas, a form of methane. That gas is burned to create heat and electricity, or is refined as a fuel for cars.Once the city fathers got into the habit of harnessing power locally, they saw fuel everywhere: Kristianstad also burns gas emanating from an old landfill and sewage ponds, as well as wood waste from flooring factories and tree prunings.Kristianstad has gone further, harnessing biogas for an across-the-board regional energy makeover that has halved its fossil fuel use and reduced the city’s carbon dioxide emissions by one-quarter in the last decade.“It’s a much more secure energy supply — we didn’t want to buy oil anymore from the Middle East or Norway,” said Lennart Erfors, the engineer who is overseeing the transition in this colorful city of 18th-century row houses. “And it has created jobs in the energy sector.”The economics should be clear: more (economically) sustainable, less volatile energy--cheaper (once fixed costs are offset). The story's not about the pure technology of a biogas plant--the story is, more deeply, about institutionalizing a cycle, buying, collecting, reusing waste; creating a new market where there wasn't one before. Hence, the article notes:"So far in the United States, such projects have been limited by high initial costs, scant government financing and the lack of a business model. There is no supply network for moving manure to a centralized plant and no outlet to sell the biogas generated." It's institutions that are the foundations of 21st century advantage. Sweden's just one of a growing number of pioneers--companies, economies, entire countries--building value cycles, and learning to shift to next-generation economics. Lesson? If you want to be disruptive, get constructive. The question is: are you?[...]

Radical Creativity: Where Big Business Meets the Greater Good


The interests of big business are not necessarily at odds with those of the greater good. We tend to think they are. Advocates on both sides often act as though they are. But if we are to make any progress against the many great social injustices plaguing this world, we need to think about things differently. We need to understand that big business is not the enemy but rather one of the most important keys to a more humane and sustainable 21st century. This argument isn't new, but it's often quickly dismissed for the (seeming, I'll argue) impracticality and sheer magnitude of the execution. Seriously, say the doubters, how can we get big business to focus on anything but profits? How can we penetrate through layers and layers of corporate and governmental corruption to actually do some good? And how can we possible align interests and resources across nations, corporations, non-profits, charities and everyone else under the sun?You know what? Maybe we can't. And I don't think that matters as much as we think it does. The trouble with these questions is that they distract us from actually doing anything. They're so big and so daunting that they overwhelm us into inaction and automatically shut down our creativity, making it very easy for us to shrug our shoulders and feel helpless. They also treat these problems as purely institutional, which also breeds a sense of individual helplessness. So here's what I propose: What if we stopped focusing so much on seemingly insurmountable problems and started looking for opportunities instead? What if we just got radically creative with what's in front of us. Here's where big business comes in, and I do mean big business specifically, because of one thing: infrastructure. Large, multi-national corporations have built well-developed distribution channels to transport their products all over the world. Think about the ubiquity of Coca Cola. From sub-Saharan Africa to southeast Asia, northern Canada to southern Chile, you can buy a Coke almost anywhere. Imagine a group of nations or charities trying to accomplish a network of that size and efficiency! And now imagine how many big businesses already have. Can you see the potential here? The infrastructure is there. It's not perfect, but it's there. If we can get Coca Cola to the poorest, most desperate places on earth, why can't we leverage those same (already built!) distribution channels for medicine, textbooks, clean water filters, you name it? We could conceivably construct a world where access to Coke means access to a better life.Enter a scrappy nonprofit called ColaLife. Years ago, while traveling through an isolated area of Zambia where 1 in 5 children dies before the age of 5, ColaLife founder Simon Berry was struck by the wide availability of Coca Cola and saw an opportunity. The AidPod, a wedge-shaped container that fits between bottles in a crate and can carry medicine, condoms, oral rehydration tablets and other live-saving treatments, is now being prototyped. Berry is working with Coca Cola and stakeholders in Zambia on a pilot plan to being distributing the first AidPods, mother's kits to help prevent child dehydration. They are using Coca Cola's distribution network, but this is all happening at no cost to Coca Cola itself. You can read more about the pilot plan here. It's inspiring how Berry has managed to collaborate with one of the world's largest companies, local distributors, government officials and other stakeholders in Zambia and a huge network of volunteers to impact real change. And he did it, not by trying to change broken institutions but by leveraging systems that were already in place in a radically new way. That is radical creativity - taking honest stock of the situation and looking [...]

Macro Perspective: Life and Debt in The Great Stagnation


There's much ado about debt: lots of hype (and spin) about debt crises. So let's do a quick examination of the actual numbers, dynamic, and trends.The first thing that's apparent from the chart is who's the best off, from the immediate perspective of long-run debt. Canada's been actively deleveraging for a decade--maintaining the often breathlessly discussed fiscal and financial discipline. Canadian households are leveraging up, but not to a degree that might cause alarm. Superficially, the picture of a relatively healthy economy. Next up is Germany, whose much vaunted fiscal and financial rectitude is on clear display. Debt flatlines across households, governments, and the private sector. Yes, you can argue that Germany's rectitude is the zero-sum benefit of export-led growth that effectively beggars it's neighbors, pushing them into deficit--at least to some extent.What's more interesting is the sharp spike in the blue lines. They're bailouts, effectively: the transfer of liabilities from the balance sheets of banks to the balance sheets of governments. Here's what I'd note: that for countries like the US, Ireland, and Japan, government debt begins to substitute for private sector and household debt. Deleveraging is beginning to take hold, in other words, as one kind of debt substitutes for another. The blue line spikes, but the red and green lines decline or flatline. Here, debt has hit a limit, reflecting either stagnation (the US), penury (Ireland), or deflation (Japan).But in countries like the UK, France, and Spain, government debt spikes, while private sector and household debt continue to grow: there's no substitution effect. From a macro perspective, deleveraging has yet to ignite. Here, bailouts are subsidizing the accumulation of further debt. This is a sharp warning signal that moral hazard is winning the day.So while there's a great deal of hullabaloo about debt and deficit, here's my suggestion. A quick glance at the dynamics reveals that the great crisis is far from over--and, more problematically, that today's immediate focus on the PIIGS' liquidity issues is to fundamentally overlook the deeper dynamics of debt accumulation and substitution. For many countries, the real crisis hasn't even begun. There's no recovery because it's not a recession. It's a great institutional transformation. The immediate debt crisis represents structural capital misallocation, decades of malinvestment, toxic consumer preferences, hyperbolic social discount rates, intergenerational wealth transfer, negative marginal real wealth creation, negative sum payoffs for the majority of citizens in developed economies, secular overconsumption and underinvestment, real asset insolvency, and, of course, locked-in political capture. The destination is a global capitalism that can do better than all the above. But the journey's only just begun.NB--Data's from the BIS.[...]

Groupon's Missed Opportunity


The tech industry has a total crush on Groupon, that darling of the start-up scene that emails you huge discounts on everything from Gap jeans to gym memberships. Now that Google wants to acquire the Chicago-based start-up for billions of dollars (update: Groupon has reportedly turned down Google's offer), it’s like the tech blogs are all competing to see who can gush the most about how great Groupon is and how smart Google is for wanting to acquire them. It’s really not that big of a deal – how many times have we seen this kind of story before? Though I don’t find the acquisition news all that interesting, I’m fascinated by the concept of Groupon, mainly for the incredible opportunity they missed. On the surface, Groupon seems to be about killer deals. They negotiate huge discounts with national and local businesses in exchange for the promise of thousands of new customers – pay $25 and get $50 worth of Thai food, for example, or pay $60 for a normally $250 dental exam. It’s a classic loss-leader tactic – gain new customers at a loss in hopes that they return and generate more business later. When you take a closer look at Groupon’s phenomenal success, though, there’s a lot more going on than just bargains. Groupon was one of the first companies to successfully harness the power of group behavior across the social web in the name of a common purpose. That’s incredibly powerful! Think of the potential – for the first time in history, the physical barriers to collective, powerful action have been torn down, and Groupon figured out how to focus that power into a single, common goal. That’s huge! Unfortunately, Groupon never sought a higher purpose for the power it unlocked. Instead, it predictably capitalized on this newfound way to part consumers with their money en masse. Even the much-lauded value it creates for small businesses is rather mixed. Small businesses don’t profit much from Groupon sales, and they can wind up losing money if they don’t play the math exactly right (here’s an interesting article on Groupon’s double-edged sword). Not necessarily bad or evil, but hardly an engine for meaningful, long-term value creation. I’m not trying to hate on Groupon. Like most companies, they’re just pushing commodities to make a profit, quite cleverly so. And that’s the missed opportunity. Groupon chose to be clever, when they could have done something truly remarkable with the power they unleashed. It’s not evil. It’s just boring and predictable, and utterly typical of the commoditized society in which we live. Compare Groupon with a company like Kickstarter. Kickstarter is an online funding platform that also enables collective, powerful action on the web, but they do it for a much more meaningful purpose. Anyone with an awesome idea and a dream can post it on Kickstarter and ask for funding from ordinary people who believe in making a difference. Anyone can pledge to any project. If the project reaches its goal, you get the money, minus Kickstarter’s 5% fee. If you miss your goal, you don’t lose anything. Even your donors get refunded. It’s simple, elegant and incredibly powerful. Kickstarter has made possible independent films, music albums, the social network Diaspora, a book on punk mathematics and the dreams of countless other artists and entrepreneurs. In short, Kickstarter has democratized start-up funding. They may not compete with multi-million-dollar investment firms (yet), but they – because they’ve harnessed the power of online group behavior for good as well as for profit – can give a promising idea just the start it needs to blossom. Kickstarter is the kind of company th[...]

The Culture of Contempt, or How to Reclaim Your Humanity


Contempt is becoming a cultural phenomenon. It’s seeping into every banal aspect of our lives. Not just anger, though there’s plenty of that, too. No, I mean pure, unabashed, undignified contempt for fellow humanity. This is so important, and so toxic. The more I think about it, the more I know that this is not an accident.We live in a society that is manufacturing contempt, both deliberately and as a by-product of the way we live today. It does this through the commoditization of practically everything, from the stuff we buy to the news we watch to the very communities in which we live.Our stuff is built to be discarded. Look at what you’re wearing right now. How much of it was purchased in the last year? The last 2 years? How about the last 10? How old is your computer? Your TV? Your furniture? Your toaster, for God’s sake? We buy something and expect it to rapidly break or become obsolete. We even want it to break, so we can buy a new one as soon as possible. The rush of buying something new is addictive, and the fact that our stuff wears out so quickly compounds the addiction.“Ending is better than mending.” Our things are literally built on this principal, meant to be purchased in a fit of buyer’s ecstasy, used briefly, then tossed away with contempt, just as an addict tosses away an empty needle when the heroin is gone. As a result of this buy and discard mentality, our design (with a few notable exceptions) is not focused on beauty or purpose but on building commodities that can be produced cheaply, break quickly, and are, unfortunately, worthy of the contempt with which we treat them.Our news encourages us to fear and distrust one another. I watched a few minutes of CNN at the gym one day and tried to count the number of times I saw the words “death”, “kill”, and “terrorist” appear in the ticker. I lost track after 20 seconds. So I tried to count the number of non-negative headlines I saw instead. In 2 minutes, I saw one headline that was not overtly negative. One. It was about oil reserves in Iraq. Stoking fear and public outrage are a lot more profitable than asking hard questions and investigating real problems.Our news, like our stuff, is designed not to inform but to be cheap, consumable and addictive – a commodity. Where it should criticize, our news only coddles. Where it should illuminate, our news only obscures. Where it should inspire dialogue, our news only ignites tempers. It flatters our ignorance, validates our prejudices, shuts down our curiosity and titillates our basest emotions. In so doing, it keeps us hooked on toxic (mis)information, fills us with fear, distrust, and yes, contempt. By shutting down our sense of inquiry and commoditizing information into easily consumable sound bites, our news is literally and deliberately manufacturing contempt.Our communities are self-centered and isolating. In the United States, we mistakenly equate freedom with privately owning things, and our communities reflect this in a very toxic way. We have too many big houses and cars, too few parks and walkable neighborhoods. We spend our money on things, not experiences. We allow, indeed welcome, big box stores and chain restaurants to invade our neighborhoods, destroying local businesses. We sing our national anthem at the opening of a Walmart, bemoan the fact that our town doesn’t have a Starbucks yet. We see homogeneity as a virtue, or at least a sign of progress.In short, we’ve commoditized not only our consumption and our news, but our very communities! A suburb in Kansas looks the same as one in New Jersey. Small towns in Oregon have the exact same stores and restaurants as [...]

The Worst Trade in the World


It's often said that America's an uncompetitive economy--unable to produce stuff that satisfies global demand. Hence, a yawning current account deficit.I'd say the reality's harsher. America's caught in a toxic, self-destructive relationship with the globe's second most significant economy. In short, it's making the worst trade in the world.The worst trade in the world is this: America doesn't export the stuff you might think a bellwether of the 21st century would--cutting edge assets, that power the global growth of emerging markets. Mostly, it exports industrial age raw materials and machines: literally plain old commodities. China finishes them up and "processes" them--and exports "consumer goods" right back to America. They're the trinkets and toys that are piled high on the bleak exurban shelves in super sizes--and America's pawned it's future for them.Consider America's top exports to China. Leaving aside aircraft and soybeans (neither a sustainable basis for national advantage), America's sole export of note is semiconductors. The rest? Plastics, steel, pulp, chemicals, copper, aluminum, engines, cotton--literally commodities. It's hypercommoditized raw materials, of the lowest of value--literally just stuff, far from higher value goods or services. It's not the picture of an economy humming with innovation, meaning, purpose--it's the picture of a junkyard.Consider, conversely, America's top imports from China. Here (apart from one trade of enduring worth--America exports semiconductors, and imports back computers, creating and capturing the lion's share of returns from a single high-value industry), the picture's even bleaker. "Other--household goods", toys, computer peripherals, apparel, footwear, TV's. America put itself in hock for disposable, rapidly commoditizing, self-destructive, depreciating stuff, discount-rack junk--literally the lowest of low-grade "consumer goods". Not assets that yield multiplying, long-run returns--the foundation of enduring, resilient, smart growth. It's not the picture of an economy that's investing in tomorrow: it's the picture of Black Friday in a big-box store.Together, here's what I suggest these two pictures show. It's the portrait of a doddering, faltering economy on it's last legs--one that's managing barely to eke out a living largely from the exorbitant privilege of yesterday's reserve currency (which lets it essentially leverage itself to the hilt). Instead of making awesome stuff the world beats down the door for--it literally lives on exporting hypercommoditized raw materials, and importing back the disposable, transient, depreciating junk mass-produced from them at the lowest cost incurred, and smallest value added. It's a portrait of an economy which adds little or no value to, well, much--and is, instead, surviving by emptying out the last dregs in yesterday's rusting industrial age cup.It is the worst trade in the world--and rebooting global prosperity depends on creating the institutions that underpin a better one.NB--All data's from the US Census Bureau (tables are mine).[...]

Macro Perspective: Record Profits? Try Global Ponziconomy


Here's a suggestion. Today's so-called record corporate profits aren't. They're financial fictions, meaningless to people, socially useless, mostly illusory, from the perspective of representing authentic economic gains. In other words: today's global economy is creating thinner and thinner value.Consider, for a second, a curious juxtaposition. The second chart represents (nonfinancial) corporate profits. The first, business sector debt outstanding. Though they might look similar, the scale of of the Y-axis in the first chart is an order of magnitude higher: trillions, vs billions. The scale of debt swamps the scale of "profitability".So: what's immediately clear is that while "profits" are rallying back, debt never really diminished: deleveraging never sparked into a conflagaration. So while corporate income statements might be flush with "earnings", corporate balance sheets are still hung over with the debt of last decade's binge. What does accounting 101 tell us? That those earnings are going to be diluted by more and more onerous interest payments--especially in an environment where the real cost of debt is likely to spike (hi, Ireland). (Sidenote: uh oh--that's also eerily like the story of corporate zombie Japan, where incentives for investment in innovation totally dried up, because forestalled deleveraging destroyed not just cashflow to invest in productivity enhancements, but, more deeply, investors' and managers' appetite to profit from it. Intuitively: if you owe the pawnshop your Dad's watch, you're probably not gonna take the risk of founding Google. Hence, (toxic) debt (never fully written off by banks or boardrooms) never ceased to come first.Let's put that economically. In terms of returns, today's corporate profits aren't. If we juxtaposed earnings against debt for a moment: $800 billion of profits against $11 trillion of debt. That's a pretty poor return, by any standard (and, as John Hagel has pointed out repeatedly, it's one that's been falling for decades).If we wanted to better it, how would we do it? Well, one way is to increase the numerator: to squeeze the last dribs and drabs out of our existing assets, and grow the $800 billion a little bit. The second is to attack the denominator, and bring down the $11 trillion of debt. Which do you think might be smarter, more productive, more sustainable, and yield a more explosive advantage? The iron law of diminishing returns might suggest in no uncertain terms: the second.Hence, "profits" rallying back against debt never having deleveraged simply say: all we're doing is improving yesterday's abysmal marginal returns marginally, by squeezing a little bit more blood from an already weathered, beaten stone.That's the macro picture. Let's examine the micro picture for a moment, to draw out the contours of thin value--what happens when it grows.Which industries are growing the most strongly? Well, apart from the Fed (think: bailouts), the industries with the sharpest growth this year have been Petroleum, Transportation & Warehousing, and Machinery (and, to a smaller extent, Autos, but that's driven by bailouts, and likely unsustainable). So here's a sharper picture. Not only are corporate profits illusory in an economic sense--but perhaps also in a strategic one, in terms of growth. The industries above aren't exactly bellwethers of a better tomorrow, aren't exactly textbook examples of the industries that will power the economy of the 21st century--they're the titans of the industrial age, propped up on their last legs. If, in fact, you were really cynical, you might even say: they're the industri[...]

A Bad Romance (Or, Understanding the Great Stagnation)


Markets: We so smart look wealth trades money cash money we rockin.State: Wow, you guys are totally hawt. You're the most awesome thing since this Dokken video. Here, let's deregulate so you can rock it even harder.Markets: (air guitar solos in front of ginormous bonus checks)State: (worshipfully, tearfully admiring from the front row)Markets: Augggh!! We blew it!! Our gigantic stack of hellacious amps--all blown to hell!! Bail us out!!State: NO WAY. No way. No. N..n... Markets: Pretty please?State: Ah, don't make the puppy dog face. You know we can't resist the--oh no, not the WATERWORKS!! Christ, ahh, what the hell--OK. Markets: Phew, thanks. (Sniffle).State: Don't mention it--it was nothing, really. We have plenty left to tax!! Cash money, you know?Market: Yeah, whatevs. Hey, ummm, so...we need to talk.State: (chin-wobbling voice) R-r-really??Market: You know how we used to find each other really attractive? Well, that sure is a big old paunch of debt you have. Not too becoming. In fact, we're totally into you anymore. State: Wow. That was harsh. Really harsh. We're not talking to you.Markets: Fine. Be that way, you fat, lame old ball and chain. We're gonna jack up rates on your debt.State: Oh noes!! Please Hammer, don't hurt us. We're gonna slash and burn so hard, the average Joe's not gonna know his future from a bomb site. And here's some more cash money!!Markets: (air guitar solos in front of ginormous bonus checks). State: Don't mention it--it was nothing, really. We have plenty left to cut!!Markets: Nice, now shut it. Say, umm, listen, there any chance we could get a bailout? We just blew a fuse in our hellacious stack of giant amps. It's an abusive relationship--that's the point of my little parable. One where one side is doing great, repeated, systematic violence--and then coming back begging for forgiveness and support. And the other side acquiesces mutely.Hence, those who numbly, dumbly obey "market forces" get eviscerated, destroyed, blown to smithereens just as surely as if they'd tripped over a roadside bomb--just ask Iceland, Ireland, or the USA. Conversely, it's those relatively insulated from "market forces"--or who choose to ignore them, almost entirely--like Google, Apple, India, and, to an extent, China--who have the freedom to make bigger, better, smarter choices, that underpin more authentic value, wealth, and growth.Here's my suggestion.Until this vicious cycle is broken, don't expect anything but a Great Stagnation spiralling into a depression. The globe's resources are being chronically, systematically, persistently, repeadedly misallocated and malinvested in lower and lower productivity uses, because of the bad romance above. Reform, institutional innovation, fundamental reinvention, bottom-up reconception, all seem like a distant memory--but until they becomes a fresh reality, there's no escape from the nightmare* (watch the Dokken Video--it tells the story way better than I can).*So how, then, can you get started, no matter what you're doing? Try here.[...]

Health Care, Communities and the Greater Good


In the United States, we tend to treat health care like a commodity, something to be bought and sold on the market. Doctors and drug companies offer their services, and we as consumers purchase them. We've been trained to believe this is natural and desirable, but it's an abysmal way to think about the health and well being of our communities.When you treat health care as a commodity, you get laws that regulate it as a commodity. This is why we allow good health to be marketed to us like coffee or wheat, and why it's so hard to get any health care legislation that actually has the greater good (as opposed to business and profits) at heart. Our point of view is all wrong. We need to bring community into our national dialogue about health care.Health care is not a commodity. Commodities are bought and sold according to the laws of supply and demand and as such, are dependent on the intricacies of markets for their existence.Health care, on the other hand, is a need, one that doesn't ebb and flow with the markets. Markets have no bearing on when someone gets sick. Wellness doesn't go in and out of demand. You can’t package up a healthy life and put it up for sale on the market, though big business certainly tries. Really, we should think of health care in terms of the greater good. Healthy communities are thriving communities. In toxic communities, everyone suffers, even those who aren't sick.The business of health “care” isn’t about health. Sadly, health “care” is big business in the United States. We allow insurance companies, pharmaceutical companies, even hospitals to market themselves to us in attempt to drum up demand for their products and services. We refer to patients as health care “consumers”. Doctors “sell” us their services. Drug companies “sell” us their products. We “buy” insurance plans (and hope they’ll cover us when we need them). The few laws we have to protect us are written in this same language of commerce, not that of the greater good.Communities are an essential part of health care. Real health care, the kind that actually increases well being instead of just selling you another overpriced drug, requires humanity. It requires real relationships with real people: doctors, pharmacists, midwives, nurses, surgeons, therapists, personal trainers, spouses, friends, family, all the people you rely on to make you happy and healthy. In other words, a community of human relationships.We cannot thrive in isolation. The breadth and depth of human relationships is one of the single best indicators of longevity that we have. Our model of health care should support and nourish these human relationships, this community that makes us who we are. The American health care system, on the contrary, undermines it.There’s a small, aging hospital in Tuba City, Arizona, that seems to understand this, in its own small way. In a nation of rapidly rising Caesarean rates, Tuby City Hospital manages to keep its own Caesarean rate at just 13.5 percent, well below the national average. There are a lot of reasons why.Nurse-midwives attend most births, not obstetricians. The midwives know their patients well. Staff here are salaried, removing any financial incentives for surgery. The hospital is federally insured, not privately, which frees it from the fear of arbitrary increases in insurance rates. The Navajo culture plays an important role, too. Entire extended families often gather in the delivery room to support the mother and celebrate the birth. What does all this have in common?By desig[...]



"By all rights, V, a bright 17-year-old, should already have finished the book, Kurt Vonnegut’s “Cat’s Cradle,” his summer reading assignment. But he has managed 43 pages in two months.He typically favors Facebook, YouTube and making digital videos. That is the case this August afternoon. Bypassing Vonnegut, he clicks over to YouTube, meaning that tomorrow he will enter his senior year of high school hoping to see an improvement in his grades, but without having completed his only summer homework.On YouTube, “you can get a whole story in six minutes,” he explains. “A book takes so long. I prefer the immediate gratification.”Link. From an economic perspective, it's similar to obesity: fatty calories available at the lowest cost, with the greatest abundance, and at the greatest immediacy. Result? Overfed--but malnourished.Hence, infobesity: gorging on low-quality info, an information diet of junkfood. Result? Overfed--but malnourished. Sure--the jury's out. But a little bit of introspection might suggest that just as a diet of McDonald's, KFC, and Cinnabon ain't exactly a recipe for physical health, so a diet of YouTube, Facebook, and Twitter might just not be a recipe for intellectual development (especially if they substitute for, say, reading Adam Smith, Aeschylus, or just plain a book or three). Yes, there are benefits--greater social cohesion, more attuned empathy, more liquid flows of info, more rapid awareness. But do they outweigh the likely costs? [...]

Why America's Having the Wrong Economic Debate


It's every talking head's favorite topic: to restate the obvious, America and Europe are having raging debates about deficits and budgets.But to state what should be obvious--these debates don't matter. They're smokescreens: second, third, or perhaps fourth order problems.The reason's simple. To satisfy the austerians, let's assume we balance budgets today--through the most vicious of austerity programs. To satisfy the Keynesians, let's assume we then stimulate fiscally, to recover some of the lost ground in terms of employment and aggregate demand. These stylistic changes will alter, for a very short while, GDP growth, and perhaps, to a small extent, employment, income, current and capital accounts, and, if we're really lucky, even net wealth creation.Yet, unless we go deeper, and reboot the institutional fabric of the economy, another full-blown financial crisis is simply likely to recur--soon. Think about it this way. Financial and economic institutions--banks, funds, corporations, credit rating agencies, to name just a few--are mostly the same as yesteryear, structurally and functionally. In fact, it's still largely the same people, chasing the same short-run incentives, trading mostly the same instruments, products, or services, for the same purposes, in the same markets, utilizing the same asset bases, with the same investors. In short, from a substantive point of view, little or nothing has changed (sans the largely toothless, superficial financial "reforms" so heavily, sharply, and ceaselessly critiqued by Paul Volcker, Simon Johnson, Bill Gross, and Raghuram Rajan, amongst others).Let me put that more simply. It's the bailouts, stupid. See the chart? It says, incontrovertibly, that the deficit spiralled into oblivion primarily because of yesteryear's bailouts--not for all the panoply of largely illusory reasons politicians and pundits are throwing about carelessly and thoughtlessly.Hence, I'd suggest that even should we "resolve" the deficit debate today, we're simply likely to find ourselves back in exactly the same position a few short years from now. Or perhaps even a significantly worse, more toxic, one, a deeper hole, if you take on board Andy Haldane's "doom loop" scenario. Because, as the chart implies, we remain unprotected from the deeper immediate cause of imbalanced budgets--crises, crashes, and blowups. Think: bubble, crash, collapse--wealth transfer. And another round in the vicious cycle of austerity, instead of steps towards prosperity.Imbalanced budgets in the simplest sense represent near-term misallocation and malinvestment. The right solution isn't merely passing the buck, by slashing expenditures. It is, more deeply, institutional reform--to ensure that malinvestment becomes productive, long-run, investment in tomorrow.It's an institutional crisis--a crisis that strikes at the heart of capitalism. We're treating it like a minor mishap, that a bit of political triage can quickly paper over. It can't--and the longer we persist in this fundamentally misguided direction, the deeper and harder this Great Stagnation's likely to get.[...]

A User's Guide to Idiocracy


Is America becoming an idiocracy? It's often asked--but perhaps it's the wrong question. Here's a better one: is the anti-jackpot at the end of industrial age capitalism's rainbow an idiocracy? As China, India, and the rest of the world buy slowly but surely into it's institutions--will their destination be a society where basic facts, knowledge, are in doubt, where the apparatus of enlightened thinking is falling apart, where "debate" substitutes for discourse, where hyperpolarization points to cultural splitting, cracking, and forking, and where context is considered not to be deep, culturally ingrained, validated, historical knowledge--but merely the 3-5 words a search engine spits back at you? Probably.Consider, for a moment, the following finding:"In 2007, a 62%-majority of Republicans said there is solid evidence of global warming, while less than a third (31%) said there is no solid evidence. Currently, just 38% of Republicans say there is solid evidence the earth is warming, and only 16% say that warming is caused by human activity."This isn't about political stances--and I suspect that whatever yours is, you might rightly look at that, and shake your head. Though climate change might be a contentious topic, for the percentage of already polarized people moving in the opposite direction--towards their a priori beliefs, is surprising--and disturbing. And if you don't buy the climate change evidence--just consider for a moment the growing percentage of people who don't admit the possibility of evolution, the scientific method, nonreligious epistemology in general, or even lack basic knowledge about their own history and heritage (not to mention the world).Perhaps, then, industrial age institutions are idiocratizing. Those tired, toxic institutions treat people as "consumers", mostly--hence, what's built atop them is mostly "business models", which, in turn, rely mostly on clever (or incredibly facile) tricks to sabotage decision-making so it doesn't lead to authentically welfare-enhancing decisions--but to the transfer of value instead (think: Ponziconomy).The result? I'd suggest it's, at the very least, an accelerator, rife with positive feedback. The dumber industrial age business as usual makes people--the more it invests in dumbening, in assets that subtract from one or more of the many kinds of intelligence, if you like--the less it's possible (for anyone) to earn returns by investing in anything else. Think of it as a vicious circle of stupidity--the more we invest in stupid-making stuff, the dumber we get, and the more we invest in stupid-making stuff. Just as in the movie, pretty soon, you end up with an idiocracy.In other words, idiocracy might just be a dynamic equilibrium. And if that's the case, then you can't fight against it--you have to deepen it and push it past the point of no return in the opposite direction to break it. If you invest in smart-making stuff, you go broke, because of the "gravity" of the positive feedback above, idiocracy itself--but it might, just might be that with enough stupid-making, you can ignite a cascading preference shift, to a new regime where people demand smarter stuff. Hence, you might have to explore the outer reaches of idiocratization to reboot the whole broken system.Even if you don't buy that, whichever side of the debate you're on, you might still want to know: how does one recognize idiocratic strategy where one sees it? After all, you might want to become an idiocratist t[...]

Macro Perspective: Is Industrial Age Growth Fake Alpha?


@font-face { font-family: "Cambria"; }p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0in 0in 10pt; font-size: 12pt; font-family: "Times New Roman"; }div.Section1 { page: Section1; } Here’s a question: is industrial age growth is an exercise in fake alpha? If you’re not familiar with the concept—and even if you are—let’s revisit how Raghuram Rajan, who coined the term, defines it: “How, then can untalented investment managers justify their pay? Unfortunately, all too often it is by creating fake alpha: appearing to create excess returns but actually taking on hidden tail risk” Let’s unpack that. It's a concept that's about earning returns that are “fake”, because they’re diluted by unseen “tail risk”: the risk of low probability, high-impact events. Like meteorite strikes—or crises. So here’s my question, rephrased: how would we grade ourselves as investment managers of the shared future? I’d suggest that, when you think about it, fake alpha sounds like an elegant description of industrial age growth—and it’s shortcomings. Consider, for a moment, the varieties of deep, often hidden tail risk that growth as we know it is dependent on—and generates. Species risk. The most obvious kind of tail risk is also the biggest: risks to our species, and to other species. Industrial age growth is inextricably linked to the risk of catastrophic, sudden climate change. We can debate about how severe this risk—just how far up the tail it is. But what is clear is that growth, output, profit are all diluted by this tail risk: fake alpha. Macro risk. Growth is also linked to more, and more severe, financial and economic crisis—because in a globalized world of integrated capital markets, hot money can sear into and out of countries at lightning speed. Result? Bubbles, crashes, misallocation, malinvestment, and foregone future (like when post-crisis inflation or devaluation wipes out your life savings). Effect? Emerging markets stockpiling foreign currency reserves, to shield themselves from hot money outflows. And that results, of course, in the amplification of macro risk: a greater probability of crisis, as imbalances pile up: tail risk feeding back on itself. Political risk. Industrial age growth depends on monopolies—think patents, copyrights, and the like. But the flipside is that competition becomes a contest for lobbying to attain those special privileges. Today, the highest yielding investment many boardrooms can make isn’t in innovation—but in politicians. Result? Political systems that are gummed up, trapped in gridlock, lurching from crisis to crisis, because the costs of making welfare-enhancing decisions perpetually rise—as in Japan, and now in America. That’s political tail risk: fake alpha. Social risk. In industrializing economies, society usually takes a big hit. Trust, affiliation, and community slowly but surely disintegrate as societies atomize. It’s because industrial organizations demand the deconstruction of rich, local, historical, enduring, relatively flat ties—and their reconstruction into weaker, thinner, more transient hierarchical ones: call it the cog-in-a-machine effect, and think migrant workers leaving their hometowns for a shot at a better life. Though it’s individually rational, the net result is social tail risk: societies that splinter and disintegrate. Conversely, you might think of social risk as the losse[...]

Macro Perspective: Is This America's Great Decline?


It's the oft-unspoken thought on many lips: America's in decline. The glory days are over, the train's left the station. So: is this a great decline? Unfortunately--probably. And I'd suggest that when you take a hard, serious look into the economy--when you voyage past it's superficial, largely irrelevant position in terms of budgets, "gross product", or "unemployment"--that great decline is deeper and darker than pundits, beancounters, and politicians think, want to admit, or even suspect.The great crisis is a story of structural decline: a decline that's hardwired into the patterns amongst this great machine's many parts. They've settled, over the last three decades and more, into fundamentally bad, toxic equilibria--where speculation precedes investment, model precedes reality, management and financial jargon is a substitute for real insight, cheap talk substitutes for hard work, and indulgence has replaced inspiration.Here's its story.Trade structure. America's trade structure is, of course, bent entirely out of shape. But the deformity is structural: imports outweigh exports not just today, but over decades--because the economy's engine is consumption. That's hardwired, institutionalized, into the fabric of global trade agreements--that make it eminently possible, sometimes even desirable, to make, market, and sell hypercommoditizing junk artificially cheaply (think, for example, "low-cost labor pools" as "comparative advantage". Oh, wait--you mean sweatshops?). And, of course, without concern for the destabilizing imbalances that pile up--and sometimes pop up.Industry structure. The structure of most American industries is significantly distorted, from welfare's perspective. Largely artificial entry and exit barriers--like patent thickets, copyright litigation, or "off-balance sheet" gimmicks--concentrate market power, and flatten relative competitiveness. It's the resulting competitiveness gaps that are the real root of a global race to the bottom--think about it: instead of amplifying competitiveness, the parlous state of American industry means that no one's racing to the top.Market structure. The effect of poisonous industry structure is a poisoned market structure. In industries as different as autos, banking, pharma, food, retail, and media, relentless, vicious consolidation has been the name of the game. The result is a heavy dose of heavily concentrated industries--and while that's good for beancounters, it's terrible for innovation, basic quality standards, customer service, and, of course, investors. These are all basic, real-world manifestations of a lack of competitiveness.Economic structure. In turn, a lack of competitiveness means that tomorrow's industries don't get created yesterday. Consider a jaw-dropping statistic. In 2010, Chinese companies: 391 I.P.O.’s, worth $89.5 billion. American companies: 99 I.P.O.’s worth $15.69 billion. That's not just parlous--it's frankly pathetic (and remember, China's not innovating yet--it's mostly privatizing, selling off relatively small stakes in state-controlled, quasi-governmental entities) Translation: the structure of America's economy is broken. Value added, like profitability, is concentrated heavily in finance--to the exclusion of productive industry. Remember, of course, that finance isn't productive--it's allocative. (Think about it this way: a global economy of N-1 traders and a single producer probably w[...]