Wednesday, January 13, 2010

As We Forgive Our Debtors, Lead Us Not Into Temptation

Growing up with a mother who dearly loved classic linguistics – particularly as it related to translating the Bible from Greek into English – I was taught that written, classic Greek did not use punctuation the way we do in English. I also learned that, as a result, dogma could easily be construed (or misconstrued) simply by how one chose to place punctuation in translation. As I read a number of readers’ responses to my last posting in 2009, I was struck by the irony of the phrase I had used from the Christian traditional Lord’s Prayer “Forgive us our debts.” Obviously, the choice of that title was to have us consider our careless assumption that there is a mystical something or someone “out there” that will take care of our recklessness when we abandon responsibility and accountability. Several of you wrote e-mails suggesting that I should write another blog post focusing on the other half of the classic line from the prayer, “As we also forgive our debtors.” There was the irony. I puzzled over that phrase when it struck me. What if you change the phrasing of the classic prayer and put the following sequence together, “As we forgive our debtors, lead us not into temptation?”

So, entering 2010, allow me to challenge 2000 years of doctrinal construction and our modern economic conundrum…and then have dinner.

By now, the numbers are in and we know that the U.S. government will default on both external (Treasury debt) and internal (fiscal recklessness) debt. Whether it is the U.S. debt ceiling paralysis in late February, a further weakening of buying criteria for unsecured credit purchases of Treasuries (now the primary buyer at auctions), or an external shock from China or the Gulf, we are blindly entering a maelstrom of a debt-financed economic stimulus without which we’d be on the edge of a technical Depression. We don’t have a plan for entitlements and we’re about to add to our illiquid safety net promise with a “bail-out” for the pharmaceutical and insurance companies (promoted under the moniker “health care reform”).

And we’re ignoring the looming consequence of China’s one child policy. This year – 2010 is the year that the one child policy’s unintended consequence begins to emerge as the disproportionately large number of Chinese males enters adulthood. Over the next decade, between 50-100 million men will face the practical reality that the gender preference growing out of the 1979 population and poverty reduction policy means that they will never marry or procreate. The world has no modern analog for what’s about to unfold as 100 million people spend 100% of their earning potential AND their heritable wealth in a single generation. This consumption anomaly will not only require drastic economic policy shifts in China but will also invert the global supply chain for at least 20 years. In short, precisely at the time we need to have China be robust in its extension of debt capacity to the U.S., it’s own domestic priorities will dictate a massive internal focus where nationalism and consumption will be the most readily accessed means to placate a very unsatisfied male Chinese consumer.

Lead us not into temptation…

First, we must realize that our track record on forgiving debt has been abysmal. Oh, sure, we have addressed foreign debt crises in the past. However, our method for “forgiving debt” in the U.S. has been to destabilize governments, impose draconian measures on currencies, and extort gross imbalanced trade concessions from our “debtors”. How will these measures feel when the shoe is on our foot? And remember, unlike the Latin American debt crises in the period between 1975 and 1982 during which countries used excessive debt to finance industrial output capacity and infrastructure, the U.S. debt has financed a war on terror and government subsidies – neither one of which can be repurposed to build GDP.

Second, we should remember that our central problem has been, and remains the fact that our present understanding of our own economy is built on myth. I was recently in Brazil speaking to a group of private and governmental interests regarding the creation of a capital market system in Brazil. Consultants from the North had advocated the adoption of Venture Capital and Investment Banking models from the U.S. as way to build Brazil’s future. However, none of them had pointed out that these systems had failed the U.S. Consider the following:
- From it’s birth in the 1950’s until the Reagan administration, venture capital (not called that at the time) relied exclusively on capital flowing into markets that were principally selling technology at premium prices to government buyers. Investor exits were in the form of merger and acquisition into defense, energy, electronics, telecommunications and specialty materials incumbent corporations – not public markets. It was government subsidies, not entrepreneurial risk, which created the venture miracle. And, it wasn’t until the late 1980 and early 90s that venture capital flowed into a majority of consumer-oriented enterprises.
- The Small Business Administration wasn’t started as an economic development engine for the American economy – it was started as the Small War Plants program during the second world war to respond to the lethargy of the large military manufacturers’ inability to respond to German engineering and Japanese encryption.
- Our two most productive decades of academic innovation in the U.S. were fueled in large part by foreign graduate students who came to the U.S. pre-9-11 and whose minds and bodies have returned to Korea, Taiwan, China, and India and are now continuing innovation that we took credit for while they were here.
In short, we have a strong temptation to believe our own mythology and this does us no favors. Advocating a Green Innovation Venture Capital future to save us is foolish not just because it reinforces consumptive greed and restrictive, monopolistic excess. It fails its basic assumption of utility as it never worked in the first place. The VC funding efficiency for “green” technology underperformed conventional VC with enterprise failure rates exceeding 90% and technology adoption failure rates in excess of 95%. Solar photovoltaic global market dominance held by Sharp came not from the best innovation. Rather it came from Sharp’s capacity to benefit from Japanese credit subsidies that allowed technology infrastructure to be adopted with nominal cost. And China is taking its cues from Japan’s playbook and will do the same with LEDs, Organic Solar, and Hybrid Vehicles. Our temptation to rely on myth for our salvation is both empirically and morally bankrupt.

Post Copenhagen, the only area that held a modicum of consensus was some vestigial notion of providing “funding” for green technology from economic powers to the economically marginalized countries. Missing from this discussion was the naming of the true beneficiaries of these proposals. UN-sponsored “Green Investment” programs as proposed, would benefit a new class of managing partners who would extract fees. It would benefit purveyors of false proprietary claims to extract licensing fees for fraudulently promoted research and development and intellectual property. And unfortunately, under most proposed frameworks, the use of the ecologically appropriate innovation Commons – those property rights that were granted but never deployed – are not even mentioned.

In short, our temptation is to believe that we can enter the future promoting an enlightened agenda using the extractive, usurious, utilities of the past. This is neither possible nor appropriate.

Central to a new narrative for humanity is the reclamation of understanding that it is in linking enterprise and incentive to integrated productivity that we can find our way. What I mean by this is quite simple. Enterprise begins by linking defined needs to a global, open review of all solutions advanced in any related field. After all, most innovation addressed only one of the multitude of contexts in which it could operate. Deployment friction inefficiency and public awareness failures – not true lack of solutions – keeps most entities unaware that their perceived “need” has been solved by someone else in another context. Enterprise may involve a conventional cash flow in which solutions are provided for financial consideration however they are not restricted to this monotonous view of values. If “need” exists where cash is not present or a viable means of compensation, alternative exchanges are part of the innovative proposition. Second, the preferred mode of enterprise involves the highest collaborative efficiency for the least extractive proposition. Process and mode innovation becomes as important as the innovation artifact. Third, metrics of performance and success are linked to the most ubiquitous delivery of goods or services to the most impacted populations at the lowest extractive or highest replenishable means. Monopoly-based scarcity models are explicitly rejected while Commons-enabled network value activation is rewarded. Finally, profit from industry is measured not in artificial time horizons (like quarterly reporting) but from all-in life-cycle reporting where the total social and financial gain from obsolescing, repurposed or recontextualized innovation is measured in the full consequence of system impact. For example, our proposal for St. Louis in which every new building adopts water recycling technologies is assessed not only for the reduced cost of water supply to buildings; the reduced cost of municipal water treatment and waste processing; the reduced cost of maintaining hub-and-spoke central processing capacity; but, it also measures the total financial inefficiencies required for financing conventional, centralized models in the form of bond origination, trading, and administration. Further, we measure the social transformation effect of having individuals – once disembodied consumers of taps and drains – see themselves as the mediators of value creation. We look at the field effect of this transformation on other innovation, entrepreneurial or consumer behavior. When we see that health, social well-being, and civil engagement all improve based on a simple innovation integration, we begin to see the consequence of the Commons dictum that everyone, at all times, must be conscious of their role as simultaneous producer/consumer/steward.

“Too complicated”, you say? Absolutely not. When you consider the global cost of our thoughtless, anonymized-abuser ignorance-based system, you realize that we’ve simply followed the temptation of deferred morality. We won’t address our debt until it’s a crisis. We won’t address poverty until its shadow is on our doorstep. We won’t address wellness until we realize that our public health is at risk. We won’t seek accountability in our financial markets until we’ve allowed exclusive classes of bankers, insurers and politicians to steal the public treasury in a fashion that would make despots around the world envious. And, it is this world – the world of progressive abusers – that we are transforming. An alternative is ripe for deployment – now. Welcome.


1 comment:

  1. Amen (literally and non-facetiously).

    As the current situation declines (as I think it must), is there a window of opportunity to transition that we can miss? In other words, can we wait too long to transition to the alternative you describe?

    The upcoming shift in Chinese economic focus (their growing abundance of single males) could not happen at a worse time for the US with our asymptotic need for debt-financing. This would be almost funny if we did not have to actually live through it.

    Please post if/when you will be speaking in a future public forum.


Thank you for your comment. I look forward to considering this in the expanding dialogue. Dave