Monday, February 27, 2017 will be a day I remember for a long time. The truth is I remember most days but Monday was special. In partnership with my team at M·CAM and growing number of the leadership at CNBC, my Innovation Alpha-based CNBC IQ100 powered by M·CAM U.S. equities index was celebrated with two articles and three on-air segments. And with good reason. The CNBC IQ100 powered by M·CAM has done something that hasn’t been seen since 1954. It grew over 40% in a 12-month period. Far exceeding the “Trump-rally” of the S&P, NASDAQ, and Dow Jones Industrials, our Innovation Alpha method continues to demonstrate the unique insight that M·CAM provides the market and shows that by measuring the quality of corporate innovation, far greater investment returns are accessible in the equity markets. That’s good news, right?
Well, not so fast. It was 1999 – nearly 20 years ago – when I first demonstrated the algorithm that powers our current market methodology. By 2000, Inc., Forbes, and the Wall Street Journal had published articles about our methodology. The U.S. Senate Banking, Finance, Government Oversight and House Judiciary and Commerce Committees had all heard that there was a way to reliably measure innovation in American industry. By April of 2001, our methodology had been demonstrated around the world in the EC21 Conference in Europe to the State Council of China. The Financial Accounting Standards Board (FASB) spent weeks in our offices in Charlottesville and in meetings in Connecticut to embrace the rationale of our methodology in accounting standards now promulgated around the world. But on February 27, 2017 my index out-performance is a result of one thing: willful ignorance.
I’m puzzled over the monotony of my last several decades of experience. As evidenced by the CNBC IQ100 and its celebration on Monday, making qualitative measurements of corporate innovation and its use affords reliable market visibility on value. Where researchers like Dr. Hall, Dr. Shapiro, Dr. Lemley and countless other economists tried to understand innovation through quantitative lenses, M·CAM always held that the intent – not the artefact – of the innovation impulse was relevant in understanding innovation. And intent can be proactive and constructive or can be reactive and destructive with respect to value. Rather than adopting a predatory instinct to exploit this insight exclusively for our commercial advantage, M·CAM maintained over 1/3 of its corporate activities in Innovation Literacy – the explicit sharing of our capabilities with others. Periodically it’s been welcome – primarily in countries seeking to build their economic capabilities. Frequently it’s been rejected or ignored by G-20 countries bent on profligate spending on defense, infrastructure, energy, health-care, and telecommunications. That’s right, when the public’s money is being spent – reliable, qualitative assessment of innovation is unwelcome. That feels wrong, doesn’t it? Shouldn’t public procurement concern itself with the quality of the technology it procures?
Not so fast. The problem governments have with reliable, qualitative assessments of innovation is that it makes occult patronage far less viable. If best quality or best service was the mandate, precision matters. But when officials in government directly benefit from influence afforded by incumbent multi-national companies while in office and land in cushy Government Relations roles in those same corporations upon their departure from Public “Service”, pointing out material misrepresentations is unwelcome. And this is as prevalent in Australia and the U.S. as it is in Papua New Guinea and Somalia. Over the next 10 years, Australia’s government choices will cost its citizens an avoidable loss of over $50 billion. In Papua New Guinea, reckless financing of oil and mineral projects will lead the country into functional insolvency despite its vast wealth of resources. In the U.S., President Trump’s commitment to defense and infrastructure will lead to an annual loss of over $750 billion in inefficient spending. The EU will pour billions of euros into “innovation” funding programs which have already been demonstrated to merely re-distribute money – not create industries or wealth. These governments all know it… and continue the status quo.
How did we get here? The answer is quite simple: surrogacy. When ordinary citizens acclimate to the notion that “someone else” needs to take care of them, the ceding of individual accountability and discernment supplies the power leakage that accumulates in bureaucracies. This power overwhelms the public service intentions of officials who realize that they are the gate-keepers of the public treasury. And patronage (in the best of cases) and graft and corruption (in the most common cases) are born. But remember, corruption is a derivative not of bad individual actors. Rather it is the consequence of mass abdication of personal accountability and responsibility. When We The People acknowledge that WE are responsible for our own actions and our destinies, than our interest in remaining engaged and informed goes up. When we surrogate our well-being to anonymous public sector agencies, we fuel the abuse that besets us.
Over the coming weeks, Inverted Alchemy is going to take on a new form. You, the readers of this blog, are going to help select the themes you would like to learn more about. I’m going to listen and respond. Since 2008, I’ve tried to point out what I think matters. Now it’s your turn. And together, maybe we can begin reclaiming a bit of our accountability and in so doing Create a More Perfect Union.