Friday, November 19, 2010

Standing a crowd

What would a world look like if proprietary did not exist?

During a recent conversation in the office, I had the privilege of telling another entrepreneur that his patented idea was not unique. This has been a refrain that is getting so monotonous that I find myself consciously avoiding interactions with people who promote themselves as creative. It’s not that I’m not fascinated by the eccentricity of those who live in their circumscribed primordial isolation from which ignorance of the activities of others can be transubstantiated into the illusion of creativity. And it’s not that I don’t have my own ego reinforced by appearing to have infinite knowledge at my fingertips when, with a click of a button, I can watch a crest-fallen titan in his or her own illusion find hundreds or thousands of identical impulses flash on the screen of our global innovation archival displays. No, my reason for avoiding “creatives” is my growing discomfort with the social value embedded in the notion of creativity itself.

It’s hard not to carry baggage around the verb “create” and its derivatives. From art to science, from religion to pop culture, the production of artifacts of admiration seems inextricably part of the fabric of our social value system. From a blank canvas, a masterpiece emerges. From a darkened lab filled with bubbling flasks, new compounds are synthesized. And to the admiring throngs, each Merlin’s manifestation of magic – defined as “something I couldn’t do or can’t understand” – becomes the must-have for a moment. We wait breathlessly for the next iWidget to be unveiled and line up to purchase an artifact that we don’t know we need. All the while, we turn a blind eye and a deaf ear to a global humanity dealing with iMalaria, iUndrinkableWater, and iAmHungry. In most of our consumer society, “creativity” has more to do with getting someone to buy your thing or be associated with your social network than tackling challenges that have persisted for millennia.

At a more fundamental level, creation is an archetypal projection of belief. The notion that any animating force can manifest something from nothing – reinforced by religious and cultural narratives – somehow seduces humans into the notion that their piece of the god-complex action is creation at human scale. Sure, planets, the sun, black holes may be above our pay-grade (although the latter seems to be an aspiration of a few Merlins) but we can at least put gigabytes of music on a fleck of silicon. And while a few pursue substantive innovation to take on Quixotic challenges, most labeled as “creative” or “inventive” are merely thus labeled by those who have ignorance of the pursuits of others.

But my indigestion around creativity is probably still more fundamental. While illusions are annoyances made worse when they’re supported by language, culture or general ignorance, it’s what we do with those labeled “creative” or “inventive” that’s more problematic. These labels, once applied, simultaneously lead to intrinsic perceptions of entitlement and, when fed with sociopathic reinforcements, lead to impulses to isolate and defend. In the industrial economic model at present, each word, expression, or artifact manifest in any mode or reproducible form is de facto the copyright of its originator. Where once the sciences and useful arts were intimately linked to the dissemination of knowledge, now patent-before-you-publish is dogma in most universities and laboratories around the world. And tragically, not only is the impulse flawed at a basic social value level, but in its careless execution, no link to commercial or social consequence is considered in the impulse to protect and defend meaning that most such defenses are prima facie useless.

Once ensconced in the cloister of ignorance fueled isolation, the next impulse is to animate the monster with the most usurious form of capital on earth – private equity. In an orgy of greed, those who seek exorbitant monetary gain prey on the illusion keeper and divide future interests on that which doesn’t exist. Seldom is any consideration given to whether the artifact is commercially associated with the control of marginal market value (in other words – in its use, can enough revenue be generated over a sufficient duration to offset the cost of capital and development?) and obsolescence. The theory is that, once animated, the money will be made on an “exit”. That exit is either follow-on deepening of the equity model, enterprise sale, or in the heady days of yore – going public. Ironically, when development agencies around the world promote this model of enterprise creation, none of them disclose that this model doesn’t work without a healthy M&A market, a healthy, regulated public market, and a well-established public investment source like national pension schemes. So think of it. A “creative” or “inventive” person is pastured by an interest who explicitly states an intent to abandon – if it sounds like fattening for slaughter, it’s not by accident. And around this abattoir of aspiration, the carrion of failures outnumber success in developed markets by an industry extolled ratio of 10 to 1 or worse!

Somewhere along the line, we seem to have forgotten a core principle in even the uninspired capitalist system – the notion of revenue and value derived from customers and assets. Whether you subscribe to my framework of Integral Accounting or some variation of classic capitalism, what is missing from our isolation roulette enterprise model is good old-fashion cash flow. I point out to stunned audiences around the world that venture capital never built an economy anywhere on Earth. No, in fact in every place where venture capital has become a market utility, a public procurement preference has been pre-existing at the national level where governments pay excessive contracts to domestic producers. In addition, in each jurisdiction where such models are even reported to have success, the acquiring food chain behemoths have preferential access to benefits (in the form of taxes, incentives and, in the case of GM and AIG massive bailouts) to keep the ecosystem sustaining the illusion. In other words, outside of 15 of the G-20, there’s no possible pathway to make our isolation-based system even appear to work.

Which leads me to propose that a new enterprise model is necessary for humanity. While there are many contours that are vital to such a model, a few core principles seem evident:
- endeavors should be optimized to take advantage of as much latent capacity in the system as possible – the more latent efficiency put to use, the greater the enterprise value;
- endeavors should be optimized to link innovation to engagement with those who have sought any similar manifestation in the past and honor each contributing component in what is attempted in a new undertaking;
- endeavors should be optimized to require as few phase- or state-changes* as necessary to achieve the desired outcome of an endeavor;
- endeavors should be formed with consideration for the duration to value exchange and a specific plan to modify or retire such activities when obsolete or irrelevant;
- endeavors should be capitalized on a Correlated Capital model in which returns are explicitly linked to the marginal productivity of an endeavor rather than a capital-imposed uncorrelated internal rate of return (IRR); and,
- endeavors should invite participation through productivity participation rather than equity (be that dividend returns or discount futures on production).
By reintegrating humans into their endeavors, by focusing on future productivity rather than perpetual financial engineering for the capital roulette racket, we could actually find that integration actually grows in the compost of the excesses of an isolation-based legacy of the past 30 years.

To be clear, we don’t have an option. As Fed Chairman Ben Bernanke reported yesterday, the Fed – Treasury Ponzi scheme (and yes, it meets the legal definition thereof) only works when the tax-payer subsidizes the racket through Congressionally-sponsored additional “stimulus” programs. In other words, it DOESN’T WORK. If we want to build economies at the local, national or international level, we must embrace new modes of engagement and rediscover the roots of economic productivity and employment. These models will focus on building revenue and assets – not on reanimating financial engineered paper shuffling schemes. Fewer lottery winners will come out of the model I’m proposing but, in the lottery of heritable genetic wealth or in the lottery derived from the periodic anomaly of capital excess, I’ve not yet met a cohort modeling behavior befitting generalized aspiration. We’re working on implementing this new path and are delighted that many of you are coming alongside to participate. Here’s to a more perfect Union Together!

Happy Thanksgiving.

* When I refer to efficient phase- or state-change, it may be helpful to consider a simple example. If I know that to achieve refrigeration, I need to compress a gas, the fewer steps required to achieve that outcome, the fewer phase- or state-changes. If I use electricity to effect refrigeration, I start with coal (state), burn it (phase), use the heat (state) to boil (phase) water (state) to convert it (phase) to steam (state) to drive a turbine (phase) to activate a coil (phase and state) to harness electricity (state) to deliver (phase) across a power grid to a home where it animates a coil (phase and state) to drive a compressor (phase) to compress gas (phase) to effectuate a thermal gradient (phase) to cool my beverage (state of madness). If, however I directly animate a compressor using a compression source (flowing water, wind or even combustion) I achieve Phase State Efficiency by removing energy and materials demands imposed by a more inefficient system.

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