Monthly Archive for October, 2014

Rethinking capitalism

The economy. Government. How business operates. Whatever your views, I think we all agree something is broken. I’m going to propose a set of ideas that could at their fundamental level change how we perceive the world. (Warning: it’s going to help you read the linked posts to follow the thinking.)

Background
Let’s start with in 2009, how I picked my beef with capitalism:

Money, you see is just a way to sustain something. It shouldn’t be the end-goal of business, and it’s that point that fundamentally irritates me about capitalism. That being the whole focus on it being about returns on capital – not returns on humanity.

In 2011, I said how we are measuring the wrong thing in society as progress. Why is it always about measuring more consumption (GDP), and not generating more ‘actual’ happiness like better health outcomes? Certainly the guy that invented GDP didn’t think of it how we see it now.

In 2012, a thought I had ended up resonating with a lot of people.

…which I then expanded in a post and several months later I explained as a way to measure success.

Last year in March 2013, I asked a question around why do we need money — which linked it to my recurring theme round time and value. Specifically, “money purchases value, but money doesn’t create value (in the ultimate sense)”. Which furthered my thinking that making more and more money isn’t the goal, a pretty big realisation for me.

The five year test
What do I have to say now — after being an auditor for financial markets, a recognised intrapreneur at a big company, a manager in a startup, an investor at a venture capital firm, a foreign entrepreneur with no safety net in the world’s biggest (and most ruthless) economy that made money with no help  and then lost it requiring help by outside investors to get back to where I started.  Where I’ve run a business not only with traditional employee considerations, but an organisation where 40%+ of the 1000+ customers have come back to work as volunteers and run it, like short-term employees but with more passion. And might I add, has radically transformed my views about what motivates people

In short, I now feel like i’ve seen enough where I can apply business academia to real world experience. And so do I read back on all my posts in the last five years and think differently on the fundamental concepts that underpin our society?

Surprisingly, I seem to agree with my thoughts even more.

Today I met up with an old friend Dr Donnie Maclurcan who mentioned how he recalls my first post (the first link) and around that time had begun his own journey that will lead to a book called living in a Post-growth society released next year, which you can read in summary in this recent Guardian piece. Donnie has a very strong view that we need to rethink corporate structures as being the fundamental thing that needs to be changed and his view being they are non-profit. I challenged his ideas with my actual experiences, such as the incentive of an entrepreneur or needing capital when it’s not available by banks, which brought out two interesting points.

The first is actually linked to my freedom dimension of success, where I say you need to define how much money you want to make in life and draw a line. Otherwise, you sacrifice the other dimensions in life. It’s a personal decision, but let’s say for arguments sake you could make you current annual salary (or double) on a recurring base. If you were to make that every year — you could maintain your current lifestyle. And if you could maintain your current lifestyle, but have more time — you could have a better life, right? Why would you need more money? To buy something shiny and feed your ego?

But the second one that I found intriguing, was how do you motivate private investors to want to ‘invest’ in a non-profit. And his idea was that once the non-profit makes, say $1m a year it needs to pay back the loan with a 300% interest rate. Thinking this through, this is what owning equity does as a best case scenario. I know I think every day about how I pay back my investors with a return on their capital, beyond paper valuations and actual cash dividends (that is, when I’m not worried about meeting payroll and operating expenses).

A vision for the future
Assuming you’ve been able to follow the thoughts above, here I’ll attempt to finally patch them together on a new type of capitalism. A type that keeps the current system but fixes it at the fundamental level with better incentives.

  • Make all companies non-profits with entrepreneurs who create them guaranteed a permanent salary for their work as the reward. (Like owning equity, except it’s not equity.) This fixes the incentive issue for the people who initiate the value creation.
  • Private investment can still occur in enterprises, but instead of owning equity, they are simply considered debt with a high interest rate. This fixes the issue of the incentive issue for capital to fund ventures.
    • It’s no coincidence that in silicon valley, one of the most forward thinking places right now when it comes to the global economy  (meaning, new jobs and new industries are being created more so than anywhere else) that the predominant instrument used in startup financing is called “convertible debt” — which means, it’s debt and if it doesn’t convert, it turns into equity (which in practice, is what happens).

Why this is such a big thought, is because it removes the need of “owning equity” which to Donnie’s point is the fundamental problem in our society. I’m not entirely convinced on this, but consider this:

  • As all companies are non-profits, the destruction of value that can occur in the public markets is no longer and companies can instead focus on re-investing profits into things like R&D, customer value, and employee satisfaction. Like Bosche, one of the word’s biggest “big business” non-profits does.
  • Because there isn’t this focus on the mythical “shareholder value”, we can see companies doing what USAA does (one of the biggest banks in America with the best scores across all companies for customer and employee satisfaction) which is talk about “member value” or their customers.
    • If you think about it, the entire point of a business should be to serve its customers. Not its employees or its shareholders (though they have a duty to them), but the people who purchase the value created by the business. And so by changing this tone from the top, we will see a complete re-think by companies on how they operate. We’ll see better run companies.

Let’s now extend this to government just to complete the circle. Why the hell do we measure our progress in society with how much money we spend each year, and not what our average life expectancy is? Our length of life and our health quality I think is a more important measure for society than how much money we spend, which is why we have this materialistic culture that leads us to be on a treadmill of chasing the wrong things. If we no longer focus on profits, then we also need to match that with no longer focussing on consumpsion.

  • Make life expectancy our number one measure of success. GDP growth, unemployment rate — ok cool, I care about that because money matters. But why don’t we make average life expectancy the number one measure? Can you imagine how this could transform our society if politicians suddenly were accountable for our livelihoods?
  • If I sound like a hippy, let me throw this thought at you: one day, when the population growth stagnates and starts declining we are going to have a crisis in our society because we measure “growth” of the economy which is fundamentally dependent on population growth. What are elections going to be fought about then? Let’s drop population size growth and instead focus on population quality growth.

Go ahead. Tell me the thoughts in this post are crazy. And yes, maybe they are  — but just maybe there is something about this being the future. I love capitalism and like democracy, want to keep those systems — but we all agree they are flawed and we can fix them.

In the case of capitalism this is doing it fundamentally at what makes is so powerful: around incentives. If we can rethink some fundamental definitions of what progress is in life, society, business, and government — we may actually create a better life.

(On a related theme: this 2012 post will get you thinking on how we fix democracy at the fundamental level but that’s for another day.)

Be gluey: a leader in function, not name

I just read this great article on leadership quotes. Go on, read it. Which brings me to share one of the first lessons I learned of what leadership is.

In my high school, cadets was a major part of the school’s tradition which basically meant we dressed up in army clothes and got to roll around in the mud every so often. Our cadet unit did an expedition in the Australian outback which was a 40 kilometre trek and we had to travel with our backpacks (filled with camping gear, cooking utensils, etc). In the cadet unit, there was a platoon and each platoon had corporals all responsible for a half dozen cadets in ‘sections’ in addition to the two sergeants and a commanding officer.

This particular platoon had to make its way up the hills in the intense heat, along with an embedded ‘commando’ corporal from the commando platoon who considered himself a ‘leader’, which he was. As corporals, you would assume that they would lead the charge, which is what the commando corporal did. It was, after all, important to have someone navigate where we were going and something the ‘section’ corporal would have done normally,

As the front of pack role was taken up, not to be made redundant in his role as the ‘section’ corporal, he instead  kept an eye on his guys, so would shuffle through the line that was made. It would tun out that as the day progressed, one of the cadets was lagging. Slightly overweight, but also by no means because it was easy to carry 10-20 kilograms on your back in this heat and up a hill, he was practically at breaking point. Not allowing it to be a discussion but with great relief, this section corporal had him hand over his backpack who made it up the hill with both of their backpacks so the crew could make it up the hill quicker and by dusk.

Observing this taught me an important life lesson: leadership is about being the last guy in line. Leadership is not about walking in front of a group of people; it’s about helping the fat guy that’s behind everyone and holding back the group.

In my restaurant waiter days as a teenager, I learned the best kind of waiter is one that is invisible: filling your water without you noticing, clearing your plates without you asking, reading your mind before it has a chance to be processed by you as needing it done. That’s what the best kind of leader is my eyes: like what glue does or like what inspiration provides, it’s invisible but the essential reason why things are happening.

Put another way, be gluey. Be a leader in function, not name.

Bitcoin: the world’s receipt

Bitcoin has conflicted me. I see brilliance and world-changing potential. But its pricing instability leads me to believe it will never stabilise until it has some sort of secondary value to prevent confidence crisis and create predictability on the value as a currency. But maybe that’s the wrong question to be pondering?

In January 2014 (when I actually wrote this post but didn’t publish it) I realised that two of the innovations created by BitCoin is the blockchain and the proof of work, are useful beyond currency. For the uninitiated, every single transaction that used BitCoin is documented in a public ledger that everyone in the world can see. The proof of chain is a process that motivates ‘miners’ to validate the transaction in the blockchain. Together, you have a decentralised trust system that no central entity every needs to mediate in.

But the realisation I had was that Bitcoin is not a currency: it’s an asset. And that asset, is that it is the world’s first global decentralised system that can validate transactions.

Now imagine I sent a bitcoin transaction between two accounts that I owned, say that were valued as 25, 122,013 satoshi’s (about 1/4 the value of a Bitcoin) — numbers that can also be interpreted as Christmas day 2013.

Now go back to my assertion: Bitcoin is the world’s first global decentralised system that can validate transactions. And how many transactions occur, including non-financial records of receipt such as dates or domain name looks ups which are actually IP addresses.

Bitcoin might not be the world currency because it’s protocol isn’t fast enough for real time money spending (it takes 10 minutes to validate a transaction) and its unstable as a store of value. But when you think about it a global receipt book, I hope you now get how this is game changing.

If the entire computing revolution is based on binary code — 1’s and 0’s — so long as something can be boiled down into a number and there is value in validating it, then Bitcoin will have place in the world.