The full enjoyment economy

This post should actually be a book, but I don't have the time right now. I will work on it. The message is a timely one, however, and needs attention.

The current national political battle is largely based on the stated challenge of creating jobs. Each political party is pointing fingers at the other, drawing attention to perceived shortcomings in their job creating programs. This is for good reason. In the last several years, the employment record in the U.S. and in the other industrialized nations has not been good. There are some subordinate themes, outsourcing and globalization being two of the more predominant perceived threats to full employment.

Unfortunately, the condition seems to be somewhat permanent. This is a problem with potentially catastrophic implications for many, individuals and institutions, further stratifying society and transferring financial burdens to governments, the payers of last resort.

The condition as we understand it is nested in our history, in the longstanding challenges of supporting life on the planet for individuals, family groups, and other associations. For thousands of years, our ancestors have lived in need and in want. They had a production problem. Survival was achieved on the most atomistic of levels. If they didn't work, they didn't eat.

Safety and security were outgrowths of the scarcity problem. There has always been a tendency for some to extort others, to take away their goods, including their food, their productive capacity, and the fruits of their labor. For this, military, political, and social steps were taken for protection beginning husbands, wives, and their families. This is a primary reason for male dominance as it has existed through time. Fathers and grown sons could be counted on to give families the best chances at survival. It was groups of men that fought to protect or to destroy.

We do not now have a production problem. Well, actually, we do, but the problem is not one of production limits; it is something of the opposite. In virtually all sectors, we can produce far more than is consumed. The commercial challenge now is to not produce more that you can sell. If productive enterprises do not assiduously manage their inventories, they are going to incrementally impoverish themselves and lose their competitive edge.

An example of our lack of a production problem is in the food stamp situation in the United States. Since the 2007 economic correction, food stamp distribution has increased from something like twenty million subscribers to almost fifty million system users. Under such a system, food is available without cost, paid for my government. The fact is, no one expresses concern that such food cannot be made available by commercial producers. Fulfillment is made through existing food markets that consistently produce to meet current levels of demand. Without the food stamp program, they would have produced less. This would surely have resulted in industry hardship, not to mention personal and familial need. If the food stamp program had resulted in seventy-five million subscribers, with some challenges in terms of adjusting to the need for increased capacity, there is little question that such demand could be met. Obviously there are limits as to the productivity of the earth. Population control proponents tend to lose sleep over them. On the other hand, there are many untried innovations and untilled acres that could be brought into production to meet the need if production demands were higher.

This is true of many if not all industries. They function in a state of suspended control. We could have more of everything if there is someone available to pay. Two industries I believe are special cases, both of them counter to the best interests of society. First is the medical system, particularly that in the industrialized world. In many studies, this sector is considered to be the only dependable job source. If this is the case, it is indeed a pathetic example of economic failure. Is our economy is dependent on people becoming ill? Wouldn't we be better off by eradicating all diseases, particularly the chronic, ugly, life-sapping ones? I do not believe that we are really trying. The second particularly problematic industry are those that encourage dependence on petrochemicals for common energy use. There has been precious little effort to improve such sectors for at least half a century. Both of these sectors are galling examples of necronomy and levy unnecessary economic burdens to us all. In this sense, we suffer from such economic parasites that have been positioned as employers and economic drivers. We are a clever race. We should be able to derive better solutions.

What if the full employment problem is intractable due to a newly-achieved reality? What all of us do not need to work in order to meet the requirements of life? What if lower employment levels as defined by government statistics and supported by our educational, economic, and social institutions are permanent  conditions? What if the reason employment levels do not increase is that productive organizations do not and will not again need to achieve traditional employment levels?

Related to such possible queries, there is another potentially shocking consideration. If we were to not need to employ ourselves in extended employment activities in the form of time-intensive "jobs", what would we do with our time?

I have spent decades now in either the private or the public sector. In my experience, most organizations suffer from significant levels of over-employment. In fact, many organizations are peopled with workers, managers, executives, etc., who "gum up the works" with bad attitudes, poor habits, caustic behaviors, and a constant flow of misrepresentations. They are miserable and they want to make sure that everyone else is miserable. They come to work for one thing and for one thing only: Money. Well, there is a related factor: Power. Typically they are related. In most cases, you can see that those who are least happy at work are fixated on money and power to the detriment of the organization as a whole. As they say, the happy professor and the good one teaches; the unhappy one goes into administration.

Given the need to present themselves for "work" as a social prerequisite regardless of a real need or an adequate match with their interests and natural talents, people obsess over money and power, their abundance or scarcity. If they have to present themselves, if they have to do what they are told, if they have to work in their job to get the money they need, they are surely going to insist on extracting every last cent. Everything else (and everyone else) be damned!

My observation is that society, and especially the educational system, have failed many if not most people in this regard. Because of the need to have a "job" and the poor showing of the educational system in helping people find and leverage their natural talents in a timely manner, people come to believe that they must "grind it out" for life. If you have seen the movie "Joe vs. the Volcano", you know what I mean. In fact, you needn't have seen the show to know what I mean. Except for the fortunate few, the working world is a hellish place.

What if there were an option to follow your dream, to follow your inner talents and ambitions? First off, there would need to be a far better way of systematically evaluating what these are. Dell Allen, my mentor in many ways, pointed me in this direction about three years ago by showing me a long-forgotten literature in the definition and evaluation of native talents. There, you can see available instruments to identify about two hundred human abilities. These could well form the basis for a new, more meaningful and successful educational system. We should have "Talent Olympics" in the schools and in society at several stages, identifying, encouraging, and educating children as well as adults based on these natural talents. They should be matched up with others with similar talents for learning and encouragement.

The fact that we are not doing this in a systematic way constitutes a vast waste. This is not just a science and technology issue, every unidentified and unsupported natural talent is a personal and a national catastrophe to some degree. As a result, we are largely wasting our lives. Related to this is untold economic loss. Possibly more importantly, we are thus overwhelmingly and unnecessarily unhappy as country and as a race. I believe that these losses result from policies and traditions that force people into work arrangements that they do not enjoy, and that they are not very good at. In many cases, these jobs are not needed for legitimate productive purposes.

As to the needs of the productive sector, Deming probably said it best. We are suffering from a "best efforts" crisis in our productive systems. People are doing their best although they don't really know what to do. As a result, things come out poorly. Such unproductive people, education aside, should not work in the productive sector, in the manufacture of goods and services that meet peoples' basic needs, such as food, energy, construction, and transportation. They should be doing what they do best as identified in the "Talent Olympics" using effective instruments and the support of people in those sectors.

Yes, I have read Kurt Vonnegut's "The Piano Player". It was required reading in my MBA thirty years ago and I reread it last year. In a way, it makes the case for what I am talking about here.

Several years ago, I had a good relationship with the department head in my doctoral program. He was well into his seventies and he wielded a good deal of power, particularly the power of the budget. He had put together a sizable personal net worth in the process. We worked together quite closely for a few years. At one point he confided in me with regard his career. He hadn't really enjoyed it. The fact is, what he had always wanted to do was to be a groundskeeper for the Los Angeles Dodgers. That, he said, would have been a wonderful life, better than fighting in the trenches at a university.

Of course, this could have simply been an idle comment. With age, we can all think of such turns in the road. At the time, I said to him, "Do it now. I'll bet they would take you on, especially since you don't need their money." He said that he should and that he would think about it, but he didn't take that step although he had a winter home near the training camp. Sadly, he died within the year.

In a way, this isn't really what I am getting at, but it kind of is. There is an apocryphal country music song that goes, "I would rather be miserable with you than happy with somebody else". The full employment mantra that underscores the current economic structure is probably based on a false assumption, that we need the productive efforts of too many people to meet our basic needs. Rather than requiring that such rewards be funneled through made up jobs created for just this purpose, we should be working to assure that our people are actively fulfilling their talents and are thus more happy. We will likely find that the greed index, for one, will come way down. As to the talents that are not being identified and encouraged, I think that we will enjoy them very, very much. This will in turn help us to overcome that greatest fear of all: A populace with time on its hands.

The Solution to our dying economy

Much of what we have learned of business cycles, one reality behind our current dilemma, is not necessary. Why are we surprised when organizations become old, decay, and die? Isn't this inevitable? Don't we see this in all aspects of the world we live in? Truly, we can't expect what we build to last forever.

Let me be clear. Though there are many complexities inherent to our modern society and the development and maintenance of a strong economy, this point is unassailable: Nothing lasts forever. We need to accommodate change.

Let me be clear again. Why is it difficult to understand that decay is inevitable? Because we are conditioned to pass over the obvious. We say that we believe in economic competition -- survival of the fittest and all of that -- but we look the other way when the deck gets stacked against new entrepreneurs and their ideas.

The natural thing is to plan to overcome the effects of decay by being industrious and working through the cycle of growth, maturity and decline. The birds do it. The bees do it. My favorite, the beavers even do it. Can you imagine them sitting back one they have built a cozy home and coaxing every last day out of it until it collapses, likely with them in it?

We are not entirely bereft of intelligence. We sort out medical issues and treatments according to the age and state of development of individuals. We just don't do it with organizations. We need to segment the economy not unlike the way we organize hospitals, schools, etc. Enterprises need different kinds of treatments based on their needs and the general benefits we all receive from them. We especially need a strong growth sector; we need to, at last, support entrepreneurs and those that support them and work for them as a class.

We need to recognize ugly decline for what it is and support the reallocation of resources. In biology, ugly decline and death is called necrosis. We don't need this. We need the other kind -- called apoptosis. And, of course, we need good old fashioned market growth, stimulated by legitimate entrepreneurs with "better ideas" and the willingness to "put them on the line" to make them come about.

We need to fix the financial system so that capital is once again a constraint to growth. As we can see, a financial system in which the players can create money on their own by plotting and scheming without adding to the "general weal" is not a good idea.

Comment on Economist debate – March 14, 2009

I have been thinking about this for a couple of days. When the opportunity came to comment on the Economist debate on Keynes.

Stimulus is not the problem. The question is in what is to be stimulated. Truly, there was a major policy error in the early 1980s by entering into a monetary policy regime that would generate low interest rates without giving commercial banks some other way to earn money on interest rate spreads. Banks exercised their prerogative to create new money based on junk -- junk credit card credit, junk subprime credit, and junk derivatives, spiraling down for thirty years into the murk. They could create money, so they did. Our problem is derived from a lack of attention to the principal factors of economic growth. We have a blunderbuss approach to stimulus -- so far rewarding the perpetrators of the problem. From a policy standpoint, here is what we need to do: (1) Establish a legitimate means of making money for commercial banks that does not compromise on monetary policy. Perhaps some should be allowed to drift back toward the Glass-Steagall (sp?) approach, where they can experience equity gains from their instruments while the others manage lower credit spreads and serve as agents of the Federal Reserve; (2) Focus on the needs of the entrepreneurial/growth community, those who can and will "innovate" our way out of this mess. In addition, perhaps works projects could be organized to support the efforts of seasoned managers and engineers from key industries whose innovations have been truncated. (Ford Motor, for example, recently announced that it is looking back seventy years to implement innovations that had been killed internally.) The results of such works projects could be "picked over" by entrepreneurs and venture capitalists; and (3) Investigate ways of segmenting economic sectors between growth, maturity, and decline and establish fiscal policies that would match the benefits and requirements of organizations in each sector and the people that support them. If you want growth, reward the innovators. If you want stability, establish policy to encourage such in the corporate sector. If you want social stability, establish criteria and benchmarks for dealing with organizations in decline. It happens all the time. Why should we be surprised? Of course, this crisis is of a greater magnitude because organizations in the financial sector that puffed themselves up had the ability to create money in the process, whereas availability of cash should be the final constraint on firms in a competitive environment. Finally, dust off anti-trust and anti-innovation legislation and policy to assure that established corporations do not exercise their powers to forestall market-based competition. We need to re-oil the machine and specifically target the results we need.

Necronomy

I began a book in the mid 1980s when I was a young partner in a venture capital fund. Though it was mostly done by the time I started international relations studies at UC San Diego in 1989, I didn't publish it until this Fall. Basically I was so put off by what was going on in the economy that I dusted it off, updated it, and published it in the most expeditious way I could at the time, through VDM Verlag, who had recently published three other books. The problem is that the book is not cheap -- about $100. I couldn't talk them down, but I thought it was better to just get it out. The name is: It's the Necronomy, Stupid: Introduction to Model Economics. It is actually a pretty upbeat book, but the point of necronomy is somewhat negative.

Nonetheless, having published the book, I sent op-ed introductions to a number of prominent papers as a means of getting the word out. I sent it to the Washington Post, the New York Times, the Wall Street Journal, the Financial Times, the Christian Science Monitor, (I think) the Chicago Tribune, and the Los Angeles Times. Given that you have to wait for several days (or weeks) in each case, the process took a couple of months. They all said "no" in so many terms.

I don't have any evidence but what I got an autoresponse in each case, telling me that they get so many submissions that they simply can't read mine. I understand. On the other hand, I haven't made a systematic effort to find viable solutions to our economic dilemma, but I do keep pretty current, and I haven't seen ANY. Not really even any attempts. Alan Greenspan said that banks need more capital in The Economist, but not really how or why other than that they will when the stock markets bounce back. Rising tide and all of that, I suppose. Not too inspiring.

There is an abstract at the beginning.

The article considers biological groundings for our economic system. It points out an omission in study and oversight of our political economy in that we do not explicitly consider issues related to growth, maturity, and decline of enterprises. This oversight is held to contribute to a weakened banking sector and questionable financial service markets. The article makes reference to a biological condition called necrosis, where death and decline is disorderly, not contributing to general well-being. The point is made that policy should anticipate these cycles of growth, maturity, and decline and consider the needs of organizations in these phases by class to directly stimulate growth, to support the needs of mature enterprises and stave off necronomy, and to develop principles for the support and repositioning of organizations found to be in a state of decline.

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It's The Necronomy, Stupid

We are biological creatures. Our various creations have biological origins, given that they come from our imaginations and experience. We acknowledge our connection to cycles in business and other affairs, but we do so incompletely. We like to build and we invest our efforts in new creations, but we seem surprised and dismayed when they eventually falter and decay. We love growth, but we tend to forget the requirements of development. We enjoy economic maturity, but we tend to forget that nothing lasts forever. We abhor decline. We attempt to delay its effects and stretch the capabilities of organizations well past their useful lives.

Our biological home, the complex system of which we are a part, is based on varying life processes of organisms that are dependent on similar cycles of growth, maturity, and decline down to cellular and molecular levels. To grow, organisms need protection, a reasonably generous flow of resources, and an appropriate incubation or generative period. Organisms in homeostasis, or biological balance, enjoy the greatest of benefits, armed as they are with the greatest of bounties and the greatest capacity to do. Interestingly, at the cellular level, when the life cycle of living matter reaches its limits, a series of events naturally nurse matter through its last stages of life, where its resources are brought to bear in other states that can make better use of the energy and resources. This natural winding down process is referred to in biology as apoptosis, a natural dying process.

There is another kind of death for living matter, one that does not benefit from the gentle processes of apoptosis. This is a process called necrosis, a destabilizing process of decomposition that has serious negative consequences to organisms and living tissues. Necrosis is disorderly and ugly. An example of necrosis is what happens when a recluse spider or a snake bites. An economy characterized by necrosis, as outlined by Vladimer Papava, has problematic dead spots that cannot be recovered in an environment of open markets and competition.

Challenges to our economic system brought on by the liquidity problem bring concerns with respect to growth, maturity, and decline on two levels. First, as arbiters and dispensers of cash and its variants, financial intermediaries provide a critical function in the growth, maturity, and decline of all organizations within the economy. The availability of cash should function as a hard constraint on enterprises. Maintaining such a constraint is a critical public function, one that depends on stability underlying the management of monetary assets. If this function is compromised, our ability to judge the performance of all institutions is questionable.

Second, banks are economic institutions in their own right, with products, customers, marketing objectives, staffing requirements, and shareholders. They share characteristics with all organizations that compete for resources and attention. The ability to monitor their own cycles of growth, maturity, and decline affects bankers' public functions, bringing the potential for conflicting objectives, conflicts of interest, and distortions of their primary missions. This process broke down in the last several decades, bringing our present situation.

Much of our current dilemma can be traced to the Banking Act of 1981. A provision of the bill overrode usury laws, allowing banks to charge whatever interest rates they wanted. Monetary policy, virtually institutionalized in that period, allowed central bankers to control the cost of credit and take steps to control the money supply by keeping rates low. Problematically, in the era of low interest rates and controlled growth, bankers since the 1981 Act found their margins from commercial credit virtually evaporating. While they now had the legal right to charge more for the money they lent, federal policy kept rates low, making it difficult for banks to profitably service creditworthy organizations.

You can most likely recall how the dilemma was resolved. Bankers expanded on loose consumer credit. Household credit was not tied to monetary policy and formal rate adjustments, making it a manageable, profitable vehicle. Loose consumer standards and high rates brought increased business for the banks, but on shaky ground. As one market was taken from the banks, nothing viable was put in its place. Banking became oddly bifurcated in the process, with high standards and low commercial rates alongside a casino environment with virtually no standards and onerous interest and penalties for consumers.

This set the stage for the sub-prime mortgage debacle and related necrosis. Low-standard arrangements for distributing cash never really were markets. Such conditions proved a seedbed for the derivatives concept, which allowed for the creation of money apart from the realities of of the economy of useful products and services.

Given that we do not have a policy structure that differentiates between stages of development of the enterprises that make up the economy, understanding of such kinds of problems and viable solutions to them tend to not come to light. Organizations are allowed -- or encouraged -- to live past their prime without encouragement of viable suitors as a class. This is the underlying problem that we must resolve in banking and elsewhere.

The automobile dilemma? Another example. Where are the entrepreneurs and the innovative ventures in that sector? The last successful one was probably Walter Chrysler -- about eighty years ago. I for one am cheering for Tessla, which is pretty innovative and apparently uncovering what has been a big white lie, the electric cars are of necessity "wimpy". Is it possible that necronomy has existed in that sector, where mature enterprises (and even government representatives) have kept innovation out of the equation in anti-competitive, non-market ways? Do you suppose that foreign auto makers would have been so successful in U.S. auto markets if competition had been effect domestically? It is not likely.

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