Sunday, August 8, 2010

Integral Accounting: Custom & Culture – Part 3 of 7

…practices and expressions of individual or community held values and traditions which create a context for social interaction

This Wednesday, August 11, 2010 as many as one sixth of the world’s population will engage in or contemplate the fast of Ramadan. For the next thirty days – from the crescent moon to the next crescent moon – many will neither eat nor drink during the hours of light. While many of us would think of a thirty day fast as unimaginable, it is interesting to note that the admonition to fast was not principally to reduce consumption (although it has that laudable effect). Rather, the teaching from Prophet Mohammed PBUH was to have a yearly reminder of distinguishing right from wrong – a very tangible reinforcement of the value of discernment.
… and eat and drink until the white thread becomes distinct to you from the black thread of the dawn. Then completely observe the fast until night. Qur'an 2:187

I took my first journey through this fast at the invitation of my dear friend, Moustapha Sarhank. My experience entering into Ramadan in 2006 was far from pious. I was quite fascinated by the concept of a month-long fast and I wanted to experience it. I viewed fasting for a month the way I view training for a sporting event – it is an interesting challenge and it certainly won’t hurt me. Thirty days later, I had been significantly impacted – experiencing the unconsidered centrality of food in our culture, confronting emotional and psychological personality traits I did not know I had, and deepening my appreciation for the wisdom of practices quite foreign to me. Little did I know that sharing this experience would forge one of my most cherished friendships, open up countless relationships throughout the world, and provide deep inspiration for much of our financial innovations ever since.

Custom and Culture, the second pillars of Integral Accounting are filled with explicit and implicit value. In dismissive contempt, many mainstream economists view these factors as “soft” or “subjective” and therefore unmeasurable or unreliable. When Thomas Aquinas made his statement, Veritas est adaequatio rei et intellectus, (Truth is the [correspondence or agreement] between things and the intellect), he was buttressing the bridge between things and perception that had been spanned by Pythagoras almost 1800 years earlier. In fact, our modern resistance to include custom and culture in economic metrics is based on our consensus dogma (which would make Pythagoras circumspect) that numbers are a superior reflection of truth than any other expression.

We encounter custom and culture implicitly every day. Whether it is the U.S. trade embargo on Cuba or the Islamic Republic of Iran (which directly penalize would be producers, consumers and collaborators over divergent belief systems); the consensus illusion that human efforts need to be organized in a “corporation” before ideas and services can flow between parties with accountability (a threat to the rising popularity of “crowd-sourcing” in which idea ownership becomes blurry); or, Delta Airlines’ unwillingness to sell M&Ms to me for cash because everyone uses credit and debit cards and they don’t accept cash (where’s the class action Interstate Commerce legal challenge to forcing airline customers into the arms of the credit card monopoly here?), at every turn, we alter open, free, and fair value exchange with custom and culture all the time and it really matters.

Now, I know, about this time, those of you familiar with my work are wondering, “What’s going on here? I thought that I was going to read about fire dances in the Pacific, a Kenyan choir belting out South Africa's national anthem, Nkosi Sikelel’i Afrika, and the monetary reallocation via philanthropy appealing to a moral need to eliminate poverty.” While all of these, and thousands of other values are all important, I wanted to make sure that we realize that custom and culture extracts enormous frictional costs in the most unevolved practices of our current economic system.

Custom and Culture play an inextricable role in the economy. Let me review a couple explicit examples.

Language – for time immemorial those who had the ability to communicate between cultures, regardless of the social state, obtained explicit places of social value. Ask any U.S. CEO the value of Mandarin or Portuguese and you’ll be met with an effusive tale of how important the Chinese and Brazilian markets are to business. Ask them the same question in Mandarin or Portuguese and most will look like they’re hopelessly lost. When, in contemporary business plans, did you see a line item for Rosetta Stone® as a critical success factor? Why not?

Religion – Plan a meeting to discuss financing at 1pm with Sunni Muslims and see how far your relationship goes from there. While you’re ready to talk about financing a desalination project, they’re praying. You’re both offended and the relationship suffers.

Recreation – Since the LA Olympic Games in 1984 and evidenced in the 2004 Greek Games, the 2008 Beijing Olympics, and the recent World Cup in South Africa, linking recreation with economics is assumed to be as commonplace as breathing. Mind you, drinking Coke® isn’t going to get you on the track or in the pool but billions of dollars (and lower centers of gravity in millions of consumers later), we are becoming candidates for the day when sumo becomes an Olympic sport.

Political Ideology – We go to war, we say, to promote democracy and freedom. However, if you ever took a look at the direct and indirect spending of the U.S. government on the war – both on the value of defense contracting to the total GDP and the reliance that companies like IBM, Oracle, L3, SAIC, KBR, Booz Allen Hamilton (in its new, renamed incarnations), CSC, Dell, HP, Accenture, SRA as ancillary defense support contractors have on their government contracts arising from “homeland security” – you would realize that the U.S. has no economic plan that is not heavily reliant on conflict. We actually go to war to control resources and maintain employment and we justify it with “freedom” and “democracy” – custom and culture.

Tourism – In many countries on Earth, the largest source of foreign exchange is tourism. As humans, we don’t merely desire an experience – we desire experiences in venues. I was at a beach resort in Cancun Mexico two weeks ago. On every day of the week I was there, I did something only I would do. I went to the beach and counted how many empty chairs were there and then went to the pool and did the same. The conclusion that I came to was that humans are ridiculous. Eighty-five percent of the beach chairs were empty; while less than five percent of the pool chairs had vacancy. And, mind you, there were over 20 times more pool chairs than beach chairs. So, we fly an average of 2,000 miles to a destination by a beautiful beach to sit… AT THE POOL! What? No, we’re actually gaining something that the local community pool doesn’t offer – culture. And so, madness and all, we still do it.

So, how do you go about adding custom and culture into Integral Accounting? Actually, this one’s pretty easy. Think about the concept of frictional cost. Identify those elements in an interaction which are essential to get the transaction done. Do you need a legal framework (contract)? Do you need to communicate (language)? Do you need a corporate license (government-sanctioned judiciary)? Do you need financing or performance guarantees (trust)? Once you identify all the elements required for the interaction, then consider what resources could be added to lower your execution risk and increase the fluidity with which value can be exchanged. The more you can align your activities with the context in which individuals and communities are organized in your field of operations, the greater your Integral Return.

So, on this eve of Ramadan, let’s all consider our ability to distinguish between right and wrong – the white and black thread. By integrating custom and culture into our understanding of value and its exchange, we will open ourselves to the possibility that we’ve depersonalized our view of things and, in so doing, lost our understanding of Aquinas’ notion of Truth. The more we consider this, the more we’ll realize that we simply don’t have all the information we need to engage in this type of consideration. This means we need better access to knowledge… the next leg of Integral Accounting and next week’s post. Until then, Ramadan Mubarak!


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