127. Matt McCaffrey: Austrian Business Strategy (Part 1): Emergent, Not Planned

Strategy is not the formulation of a plan. It is emergent from a process of exploration and discovery. Austrian economics is the best guide for entrepreneurial firms to put in place the methods and organization that unleash the power of emergence. Matt McCaffrey joins Economics For Business for a detailed exposition of the Austrian approach to Business Strategy.

Key Takeaways and Actionable Insights

A firm is a vehicle for entrepreneurial action to generate value.

All businesses and all firms are entrepreneurial. They start from — and continue with — an aspiration to generate value for both customers and the firm, and they act on this intention by assembling assets (resources, people, cash, machines, software, etc.) that are required to realize and deliver value. The goal is to bring a good or service to market that is valued by others. Value is the ultimate goal.

There are clear conditions for this action to take place.

There must be a decision-making authority for the firm, because someone (or some collaborative group) must decide how to select and assemble just the right combination of resources and make a specific product or service from the assembly. We call that decision-making authority the entrepreneur.

A second condition is that someone or some group must bear the uncertainty of the action. It may not turn out the way that was expected. It may not be profitable. Less value may be generated, or none at all. This bearing of uncertainty is also the role of the entrepreneur.

It’s hard to get the operations of the firm just right, because of complexity and change.

Why is all this so hard, and the outcome so uncertain? Two reasons: change and complexity. The subjective valuations of customers, who decide what is more valuable and what is less valuable, are changing and reshuffling continuously, depending on situation, mood, the choices of others, and a myriad of other influences. These changes can become trends, fads, segments, and competitive advantages and disadvantages.

Continuous change contributes to the complexity of the resource assembly puzzle: there are innumerable ways in which resources can be combined and recombined in a firm, and getting the assembly just right is a difficult challenge that is never perfectly resolved.

Therefore, the Austrian view of capital as a flow is a fundamental contribution to rethinking firm strategy.

The resources assembled in an entrepreneurial firm are not valuable in themselves, but because they produce a good or service that the customer values and is willing to pay for. This value — translated into revenue through the customer’s willingness to pay — flows back to the firm as income. The flow of income is affected by each element in the firm’s capital combination and by the degree to which the combination is well-integrated for the value generation task. Customers drive the capital formation task. The entrepreneur is engaged in a never-ending process of combining different capital goods to find the combination that is the most serviceable in generating value. Treating capital as a value-generating flow helps entrepreneurs in practice to manage the persistent process of applying resource combinations in the market to ascertain what value they generate. It’s dynamic process with no pauses.

There are four implications for firm strategy — and they all contrast starkly with the traditional business school view of strategy.

The business school view of strategy takes the form of sophisticated data-fueled top-down planning models. Only a few special minds can take on this intellectually and computationally difficult challenge. Historically, the list of models has included Michael Porter’s Five Forces Model (a model of industry structure and how to create barriers to entry and competition); SWOT analysis (a model of strengths, weaknesses, opportunities and threats from the firm’s point of view, with strategic implications for the management of each element); PESTEL analysis of the business environment (political, economic, social, technological, environmental, legal factors) and how they affect firm performance. The common thread for these models is that they are implemented top-down: the strategists apply the tools, draw conclusions, and instruct the rest of the organization how to act.

Matt McCaffrey’s contrasted this top-down strategy approach to the Austrian strategy approach across four dimensions.

Learning versus Rational Design

The top-down models attempt rationalization: they view strategy as a rational design problem, to shape a distinctive internal competence to seize an external opportunity and evade external threats.

This approach overlooks the crucial problem of learning. In circumstances of uncertainty, unpredictability, complexity and change, learning is the essential method of making progress. Changing conditions can never be known fully enough or fast enough by people at the center (in the strategic planning department) compared to front line employees. Firms must find a way to make use of this front line knowledge, through learning.

Dispersion versus Centralization

To enable the freedom to learn and to apply learning, decision-making must be dispersed through the organization. A single mind or single planning unit can not centralize all the knowledge and can’t centralize decision-making. A strategic plan is not feasible. Organizational design and decision-making processes must be decentralized and dispersed.

Implementation versus Formulation.

A comprehensive plan is impossible. Firms must seek a more adaptive framework. Processes and methods and forms of organization must be capable of adaptation to unforeseen events and new information. Continuous deliberate adjustments must be made in the light of new circumstances, which may arise every day. Therefore, Austrians see strategy as emergent not formulated via a planning process. Adaptive firms implement entrepreneurial actions, and then adapt to the learning, new knowledge and new circumstances that present themselves as a consequence.

Structure versus Strategy

The business school approach is that strategy must be fully formulated, and only then can it be used to shape the structure and processes of an organization. Austrians take the opposite approach: the structure of the firm (its organization, processes, and interfaces with the external environment) shapes strategy. Hayek used the term “structure of production”. This structure can be changed, but not instantly or seamlessly. Structure and strategy influence each other to some extent, but business schools tend to make strategy prior: that a firm is organized in response to the CEO’s vision. Austrians understand that this is not realistic because it’s not possible to restructure an existing organization every time a new vision comes along. There’s a high cost to structural change, and strategy must adjust.

Emergent strategy is based on business rules.

What, then, replaces top-down strategic planning? Austrians use the term “rules”. Rules are an internal device to help managers and employees make decisions on the spot in response to learning and new knowledge. Matt McCaffrey gave an example: whenever there is a break in the supply chain, repurpose old capital goods and bring them into the production process as a low-cost way to fill the gap. It’s a broad and simple rule, and it enables decision-making to go forward at the point of the supply chain break. People close to the action can use their local knowledge to solve the problem within the guideline of the rule.

Another example was given by Bob Luddy, CEO of CaptiveAire, who set the rule for his firm to always have the best price in the marketplace. It’s a simple rule that requires tremendous local knowledge about prices of systems and components, of competitive offerings, and about turnaround time (a cost element of price) among many others. Sales and marketing people as well as engineers can make decisions following this rule.

Rules sustain firm uniqueness.

Business school strategists often focus on competitive advantage as the goal of strategy. But the concept of competitive advantage comes from neoclassical economics and the depiction of markets as bounded cage-fights for market share between similarly-resourced rivals.

Austrian strategy focuses more on firm uniqueness. A firm’s distinctive rules can result in a unique mode of delivering value, and a unique perception in the eyes of customers. A brand is a set of rules that generates such a unique perception.

The ultimate distinction: strategy is exploration.

Strategy is emergent, not planned. Strategy is entrepreneurial. It’s a continuous process of learning through action and discovery. Sometimes, firms discover things they really wish they hadn’t. That’s part of the process through which, eventually, strategy evolves. It’s emergent. Over time, a firm can adopt some simple rules that seem to bring some order, but adaptation to new circumstances is always required. Profit is the signal that adaptation is successful.

We use the term explore and expand to capture the Austrian approach to strategy. Firms are always exploring, seeking ways to improve performance. When some experiments yield promising results, they can be expanded. Explore and expand is a trade-off: how much of the available resources should be allocated to each type of activity. Entrepreneurs manage the trade-off in order to succeed. There’s no strategic plan from on high to make the trade-off for them.

Additional Resources

“Emergent Strategy Process Map” (PDF): Download PDF

Austrian Perspectives on Entrepreneurship, Strategy, and Organization by Nicolai J. Foss, Peter G. Klein, and Matthew McCaffrey: But It On Amazon

“Entrepreneurship and Firm Strategy: Integrating Resources, Capabilities, and Judgment through an Austrian Framework” by Matthew McCaffrey and Ulrich Möller (PDF): Download PDF

“‘When Harry Met Fritz’: Rules as Organizational Frameworks for Emergent Strategy Process” by Nicolai J. Foss, Matthew C. McCaffrey, and Carmen Elena Dorobăț (PDF): Download PDF

Firms Thrive When They Ditch Strategic Planning And Adopt Exploration And Discovery.

Strategic planning enjoys a prestigious image in the business world. It’s taught at the top business schools, and then practiced in an elite corporate department headed by a C-Suite officer. It uses high technology to collect and analyze data, and sophisticated models to determine its recommendations, which ultimately guide the most important business decisions about allocation of capital and resources, which markets to enter and compete in, whom to hire and how to organize, and all the most critical choices a company faces. It is to strategy that winning CEO’s attribute their success, and to which business books and magazines devote their thousands and millions of words.

Strategy is bunkum. At least as it is taught in business schools.

Strategy tries to be objective in a subjective world.

Strategy utilizes data-fueled top-down planning models. Some of the models are mathematical predictions – aiming to forecast how many units will be sold in Pittsburgh or Portsmouth in 2023. Others are frameworks that purport to increase the potential for success. Corporate planning departments pump information into SWOT models, Five Forces Frameworks, PESTEL worksheets and many more data structures with the promise that the analytical outputs will contribute to enhanced business performance by fixing weaknesses, enhancing strengths, cultivating best practices and focusing best efforts. We can classify this thinking as object-based: the business environment is capable of summation in data and simulation in mathematical models and can be shaped and changed by corporate action.

The opposite is the truth. The role of the firm is to generate value for customers, and customers’ evaluations of corporate offerings is subjective. Value is an emotion, an experience of using or consuming a produced good or service and feeling satisfaction. A value-generation process is equally subjective, based on the feeling or intuition or judgement that a business is able to facilitate that experience for the customer. Whilst this value flow is turned into money via the consumer’s willingness to pay for the experience, the revenue flow (which is objective) results from the interaction of business intent to generate value and a customer’s subjective evaluation of whether the business’s value promise was kept.

Learning versus smart design.

How does a business get this interaction with customers right? The B-school peddlers of strategic planning would say, “By design”. They mean data gathering on the external environment, internal assessment of performance and trends and proven capabilities – essentially, looking backwards in order to project forwards.

The Austrian view is that all progress is a function of learning. Specifically, learning about what works and what doesn’t work, without any attempt to forecast the outcome in advance. Which initiatives produce desirable outcomes and which fail to do so. In order to learn, therefore, it is necessary to act, to do something. Do businesses act without knowing what is going to happen as a result? Of course. Are they guided by corporate strategy? Only if the “strategy” is: Let’s learn. Let’s not pre-judge what we think will be the result. Let’s not make false promises to ourselves. And, of course, those sentiments are anathema to the strategists.

Implementation versus Formulation

The consequence of the “Let’s learn” approach to company performance and progress is that strategy can not be formulated from on high, at the top of the organization, and then handed down. The process operates in reverse. The front line of the company, interfacing and interacting with customers, identifies customer needs, makes changes, tries new things, calls for new ideas, experiments and adapts to changing circumstances. There is continuous implementation, doing, responding and observing.

Some of the new ideas and changes become programs or initiatives, and draw resources from elsewhere in the corporation or from partners in a value creation network. Some of these programs hint at success, others don’t. Some become formalized. Some find customers willing to pay, and become revenue streams. They become reinforced with additional resources and the revenue stream accelerates and expands.

This is implementation. There was no strategy formulation preceding the implementation. There probably were some guidelines, some internal signals to channel the external activities – sometimes called corporate culture. There’s a shared sense of generally how the company generates value in response to customer needs and market development. The shared sense is translated into specific implementations by individuals or local offices or customer teams and the learning – the code of “what works and what doesn’t” – is fed back to the corporation for even wider sharing.

Dispersion versus Centralization.

Centralization is a structural attribute of strategic planning. Data is collected and consolidated centrally, and processed centrally. A group of strategists in the administrative center of the organization works with the data to develop plans and allocate resources to those plans.

In the learning-by-implementation method, centralization is damaging. To enable the freedom to learn and to apply learning, decision making must be dispersed through the organization. A single mind or single planning unit can not centralize all the knowledge and can’t centralize decision making. A strategic plan is not feasible. Organizational design and decision-making processes must be decentralized and dispersed.

Structure versus Strategy

In the strategic planning model, a company is structured or organized to take advantage of the strategy that’s been designed for it by the central planners. It’s divided into what are often called strategic business units (i.e. units structured based on the dictates of the designed strategy), and additionally into sub-units, geographies, functions and other pieces. Structure follows strategy. Strategy must be fully formulated before the business can be organized.

Austrian thinking runs in the opposite direction. Austrians take the opposite approach: the structure of the firm (its organization, processes and interfaces with the external environment) shapes strategy. This is particularly important for existing businesses. Too often, strategists (especially if they are external consultants) recommend “transformations”, which require significant structural change. Austrians understand that this is not realistic because it’s not possible to restructure an existing organization every time a new strategic vision comes along. There’s a high cost to structural change, and strategy must adjust.

Strategy is emergent, based on value exploration and new value discoveries.

What, then, replaces top-down strategic planning?

Strategy is emergent, not planned. Strategy is entrepreneurial. It’s a continuous process of learning through action and discovery. Sometimes, firms discover things they really wish they hadn’t. That’s part of the process through which, eventually, strategy evolves. Over time, a firm can adopt some simple guidelines for its frontline members to utilize in their explorations, and these can seem to bring some order. But adaptation to new circumstances is always required. Profit is the signal that adaptation is successful.

We use the term explore and expand to capture the Austrian approach to strategy. Firms are always exploring, seeking ways to improve performance. When some experiments yield promising results, they can be expanded. Explore and expand is a trade-off: how much of the available resources should be allocated to each type of activity. Entrepreneurs manage the trade-off in order to succeed. There’s no strategic plan from on high to make the trade-off for them.

126. Joe Matarese Defines a Whole New Level of Customer Value to Build a High Growth Service Firm

Firms that can unlock the deep secrets of subjective value can unleash powerful, long-lasting value streams. When these flow in a confluence with well-identified market drivers, revenue and profit growth can be greatly accelerated.

Joe Matarese tells Economics For Business how he conjoined these two forces for his medical staffing service firm, creating a dynamic market leader from a three-person startup.

Key Takeaways and Actionable Insights

Market Drivers are strong, lasting forces capable of projection.

Austrians are skeptical about prediction, but it is reasonable to project some forces into the future. Demographics is one — the progression of age cohorts through the demography of a country can be mapped quite accurately. Increasing longevity is another, based on ongoing increased investment in health care and advances in the associated technologies. When Joe Matarese identified a shortage of doctors, he was able to confidently assume the shortage would continue.

When customer problems result from these forces, a market segment opens for solutions.

One customer problem fed by these forces is staffing for critical roles in hospitals — doctors, anesthesiologists, nurses, etc. Staffing complements need to be assembled, absences caused by holidays, maternity leave, etc. need to be covered, and the natural churn of individuals taking new jobs, retiring, or moving requires flexible response. Not only staffing but scheduling is required — the right medical team for the specific operation at the appointed time.

The problem-to-solve is functional. The deep value is subjective and intense.

Joe’s core insight was about the intense emotional need, not just the functional need. He observed his client — an operations executive in a busy hospital system — stressing out about the problem. Operating room staffing is life-and-death. Unfilled team roles would often arise at the last minute, threatening the healthcare mission of the hospital.

Temporary staffing service providers would sometimes fail to deliver the scheduled stand-in. Stress for the executive intensified.

The solution for a deep-seated and intensely felt emotional need is to transfer the burden to the service provider.

Think of the intense burden the administrative executive bears when she’s not confident that her staffing plans are secure, and her routines and methods are not foolproof. What if there is a failure at the time of a scheduled operation and it can’t go forward? Or patients can’t get nursing care because of under-staffing? How much value is there in a service that can relieve the stress?

Joe Matarese conceived of the emotional solution: take the responsibility off the shoulders of the executive and take it on as a service of his firm. How is that achieved? Bulletproof processes and routines. Comprehensive databases of people and their skills and attributes, and of client facilities and their needs. The latest technology for profile matching and precision scheduling. Impeccable implementation. And, most importantly, intense listening to continuously monitor customer feelings, combined with the responsiveness to act on those feelings.

Growth follows when these market drivers, functional drivers and emotional drivers are aligned.

Medicus Healthcare Solutions quickly gained market share in its initial geography. Growth comes from adding new customers, expanding territory and the underlying forces of an aging population consuming more healthcare.

But growth is a management challenge. One area of great challenge is managing people. Those who signed on for the early stages of growth and development may not have the skills — or the interest — for the later stage tasks of management like strengthening processes and systems. Making sure the team is perfectly tuned to the demands of the current stage is difficult but critical.

Further acceleration of growth is driven by innovation.

Medicus Healthcare Solutions has always grown faster than the market. How? Through an intense search for new knowledge and its application in the form of unrelenting innovation — never resting in the search for better ways to provide client service. For example, in addition to continuous improvement in precision tailored scheduling, Medicus added a consulting service. Scheduling solves the client’s immediate short term problem, and does so again and again. Consulting can examine the client’s systems and solve the problem in the long term by designing and installing internal systems as good as Medicus’.

Joe has a long experience with innovation and how to manage it, and promised to come back to the Economics For Business podcast in the future to share his knowledge.

Additional Resources

“Driving Growth With Core Customer Value Insights” (PDF): Download PDF

“Medical Staffing and the Revolutionary Innovations We Need,” presented by Joe Matarese at the Mises Institute’s Medical Freedom SummitWatch the Video

Medicus Healthcare Solutions: Visit the Website

125. Steven Phelan on Innovation In Contracting

Entrepreneurs seek to provide markets with new value through innovation wherever they can identify an opportunity. Their vision is broad enough to include free market institutions such as contracting, where they identify new and better ways to expand the mutuality of value and better relationship models than those in the traditional legal approach.

Download The Episode Resource “Contracting In The New Economy” (PDF) – Download

Key Takeaways and Actionable Insights

Traditional contracting starts from an adversarial mindset.

Traditional contracts are written in anticipation of conflict. They aim to anticipate everything that can go wrong. Then they try to put every contingency in black-and-white. Clauses are inserted to give one party the upper hand over the other. This approach fosters negative behaviors that undermine the relationship and the contract itself. Often, little room is left for flexibility when conditions change in unexpected ways, leading to costly problems like litigation, mediation/arbitration, renegotiation, churn, and shading (withdrawal of effort by one party due to lack of trust).

A new form of contract called a relational contract aims to address the problem.

A relational contract approaches negotiation not from a transactional perspective but from a relational perspective: what are the best provisions to ensure a lasting and mutually beneficial relationship between the two contracting parties? Instead of focusing on how the value pie is divided between two parties, the shared goal is to maximize the total amount of value that can emerge from the partnership. There is a genuine good faith effort to align the two parties’ interests and to develop a fair and flexible framework to handle unexpected changes and events in the future.

The relational contract is designed to try to solve what economists call the hold-up problem.

Contracts refer to future events, and specifics (such as delivery times) can never be determined with certainty beforehand. The contract is said to be incomplete — not every contingency can be specified. The hold-up problem occurs when one party uses this situation to extract concessions from the other party, knowing that it would be costly for that party to change the arrangement.

Defense contractors, for example, are notorious for under-bidding costs and then adding to their revenue and profits via change orders. A contract may call for “best efforts” but this can never be defined specifically or completely.

The new approach is said to produce healthier and more sustainable partnerships.

In the article A New Approach To Contracts, the authors call for a “what’s in it for we” partnership mentality in contracting, where both parties have a vested interest in the other party’s success. Included relationship-building elements such as shared vision, guiding principles, and “robust governance structures” to keep the parties’ expectations and interests aligned.

Our guest, Steve Phelan, has written extensively about expectations management in negotiations, and concurs that contracts can perform as instruments of expectations management. However, they can’t be perfect, and the authors’ integration of trust-building mechanisms into contracts (e.g., regular scheduled trust-building meetings) seemed to him to be a bit artificial.

A better approach is to focus on identifying good-faith actors — those who work hard to follow both the letter and the spirit of the agreement. As is always underlined by the “Think Austrian” approach, subjectivism (in this case good-faith actors) brings better business solutions than hard and fast rules and mechanisms regarding how to build contractual trust.

It’s important to get there by the best route, since trust lowers transaction costs.

The new approach to contracting extends to psychological contracts.

Psychological contracts are unwritten relationships in which an individual holds a belief in mutual obligations between themselves and another party. An often-cited example is an employment relationship. There may be a written employment contract but, beyond that, an employee may have tacit expectations about job security, personal development, recognition, promotion, growth, personal well-being and respect. If these are not met, they may withdraw effort. Employers are well-advised to empathize with the unwritten expectations of the psychological contract in order to optimize employee motivation.

A brand promise can be a similar psychological contract. Brand make overt promises regarding the benefits they claim to bring to users. In turn, users create their own expectations — as we always emphasize, value is subjective and customers engage in a value learning process when they interact with brands. Their subjectively-defined expectations undergo continuous change, especially as they make comparisons with alternative offers and alternative sources of satisfaction. It’s imperative for brand owners to monitor the evolution of customer-perceived mutual obligations. Customers hold a strong perception of how much consumption work they have to do to receive the benefits that the brand promised, and if the equation gets out of balance, they’ll withdraw their effort.

Additional Resources

“Contracting In The New Economy” (PDF): Download PDF

“A New Approach To Contracts” (PDF): Download PDF

Big Tech: Capitalism With Chinese Characteristics.

It is perfectly possible in the post-truth era for an institution to claim one set of principles, and to be perceived as adhering to them, when practicing an opposite set of principles.

The Chinese Communist Party (CCP) captures and implements this anomaly in the officially issued propaganda phrase Socialism With Chinese Characteristics. This stance permits the CCP to violate the most fundamental propositions of socialism and communism while asserting that their sole commitment is to advancing those fundamental propositions. 

The most notable of these is private property ownership. While the first principle of socialism, and especially its communism variant, is the abolition of private ownership of the means of production, because this is deemed exploitative, Socialism With Chinese Characteristics not only permits it but embraces it with enthusiasm.

The CCP recognizes that their 100-year rule has not enabled prosperity for the Chinese population. They also consider private ownership to be non-socialist. But

according to party theorists the existence and growth of private ownership does not necessarily undermine socialism and promote capitalism in China. 

Wikipedia: https://en.wikipedia.org/wiki/Socialism_with_Chinese_characteristics

In fact, if you really want to twist yourself in knots, Robert Tsu wrote:

Individual ownership is considered consistent with socialism since Marx wrote that post-capitalist society would entail the rebuilding of “associated social individual ownership”.

Robert Hsu Economic Theories In China CUP 1991

Socialism with Chinese Characteristics might actually be capitalism. Economist Zhang Weiying has written that entrepreneurship – a purely capitalist concept – drove Chinese economic growth.

The reason for China’s miracle has no fundamental difference from that of economic developments in Western developed countries……Once market forces are introduced and right incentives are set up for people to pursue wealth, the miracle of growth will follow soon or late.

What is the market economy? A simple formula is equal to free price plus entrepreneurship….Profit-pursuit and survival pressure drive entrepreneurs to organize enterprises efficiently, and to innovate new products, new production technologies, new business models and new organizations. 

The Reallocation Of Entrepreneurial Talents and Economic Development In China, Weiying Zhang, Peking University

The Chinese Characteristics Of Big Tech

The most Chinese-like characteristic of Big Tech is, of course, social credit. Wikipedia defines China’s social credit system as a digital system for monitoring, evaluating and sanctioning citizens, and a standardized assessment of citizens’ and businesses’ economic and social reputation, or “Social Credit”, with tracking and and evaluating for trustworthiness. People face punishment for violating social protocols, including blacklisting from employment.

The term social credit scoring can just as easily be used as a descriptor of Big Tech’s methodology for deciding who and how people can use their services. And, as Wikipedia notes in making the comparison on their Social Credit System page, “Silicon Valley’s rules are getting stricter”.

Big Tech’s social credit system bears the same characteristics as China’s. A central organization collects behavioral data using new digital technologies with ever-expanding data collection and interconnection capabilities. The data is transformed into an individual “score” or profile – today these include number of followers on Twitter, 5-star ratings on Amazon.com, energy usage scores on internet-connected thermometers, the number of steps we take on our fitness apps, where we travel on GPS systems, how we sleep, all of our financial transactions, and many more.

Big Tech already decides who can and can’t be allowed to communicate on Twitter, and what we can communicate on Facebook, and what we can sell on amazon. They profess personalization – that they collect our individual data in order to provide us with individualized service. But if course, the data ownership is socialized. We don’t own our data, Google, Amazon and Facebook do. It’s no stretch to imagine their business models extending to social control. We already receive energy usage warnings on our smart thermostats; how long will it be before these devices are centrally controlled and individual violators are held up as global warming deniers?

Even Wired magazine, well-compensated cheerleaders for Silicon Valley, worries about Big Tech Merging With Big Brother.

The magazine adds social credit scoring worries to the second Chinese characteristic of Big Tech’s version of capitalism: the integration of ostensibly private capital and government capital into a merged entity. The same Wired magazine article cites projects such as Amazon Web Services (AWS) Secret Region, wherein Amazon is the sole provider of cloud services to the CIA across “the full range of data classifications, including Unclassified, Sensitive, Secret and Top Secret”. The NSA has a similar classified cloud computing environment 

Microsoft has a secure version of its Azure Government cloud service tailored for the use of 17 US intelligence agencies. Google worked with the US intelligence and defense complex to integrate its AI capacities into drones and other weapons. The spy agencies guarantee the profits of Big Tech.

Wired Magazine’s conclusion:

It doesn’t take a particularly paranoid mind to imagine what future big-ticket collaborations between big-data companies and government surveillance agencies might look like, or to be frightened of where they might lead. “Our own information—from the everyday to the deeply personal—is being weaponized against us with military efficiency,” warned Apple chairman Tim Cook

https://www.wired.com/story/is-big-tech-merging-with-big-brother-kinda-looks-like-it/

Nike goes even further in the direction of Chinese characteristics; the CEO described Nike as a brand that is of China and for China.

Capitalism with American characteristics has raised the well-being of Americans and the citizens of the world to unprecedentedly high levels. We might not fare as well under capitalism with Chinese characteristics.

The Future Of Work? Individuals Mimicking Firms, With Appropriate Access To Capital, Technology And Favored Contractual Relationships.

There’s been a lot of discussion about “The Future Of Work” that worries about technology replacing workers and leaving them beached – unable to earn a wage or a salary because their job has been automated or replaced.

That’s very old-fashioned and out-of-date thinking. It’s so old, it’s what economists call neo-classical. It portrays the firm as a production function that assembles capital goods (technology) and labor and combines them to produce an output. In this equation, labor (jobs) can be substituted by technology.

But today, the neo-classical production function does not exist in many industries, where there are hybrids of digital and physical assets or fully digital industries that exist purely via the exchange and manipulation of data and information flows (think AirBnB and Uber).

Old fashioned economic thinking extends to what the neo-classicists call “the theory of the firm” – what is a firm and why does it exist. This thinking sees the firm as an actor in a market where it operates to maximize profits.

In reality, the firm itself is a market, a tangle of contracts with owners of labor, who might be employees or contractors or suppliers or even customers. The firm can also contract for technology – owning it, renting it, or consuming it in the form of services (utilizing the cloud technology of AWS, for example, or the services of a trucking company for delivery).

Why assume that the AI and bots and productive technologies of the future are a resource only for firms? Inside the firm or outside the firm, technology resources could be owned or controlled by individuals. In fact, it is often the case today that workers in firms own their own technologies in the form of smartphones and tablets. Why couldn’t they own a bot and bring it to work?

There is a tendency – left over from neo-classical times and neo-classical thinking – to privilege the firm as the owner of capital. But there is no need to maintain that privilege today. The boundary between firms as capital owners and workers as capital users is dissolving.

Professor Irene Ng points to the new pathway as workers mimicking firms. They might be set up as an owner-operated contractor, or an independent consulting firm or a start-up, often using digital platforms and benefitting from the lower co-ordination costs they bring.

Mimicking a firm gives a worker new privileges:

the ability to solicit capital, acquire technology and contract further labor or assistance – all resources that are set within a legal framework and an institutional structure that accord a multitude of benefits, but also encompass risks.

Mimicking Firms: Future Of Work And Theory Of The Firm In A Digital Age; Irene Ng; Journal Of Creating Value.

Workers can be entrepreneurs and contractors, with business contracts as well as contracts in wages, and should be able to choose the contract that best suits their preferences. They should be able to acquire capital, debt and technology as they improve and enhance their human capital and social capital. This “hybrid actor”, as Professor Ng terms it, can be both firm-like and labor-like, especially in acquiring the resources generated by technology. Corporations can contract with both the individuals and their technology.

Call it the gig economy, or call it new entrepreneurialism; in any case it is the opening for individuals to acquire the resources necessary to position themselves to benefit from technology, rather than be displaced by it in the pessimistic fear mongering of the neo-classical interpreters of the future of work.

The future focus is more on the ownership structure of the firm and the nested relationships of internal and external markets for labor and technology. The innovative thinking will emanate from individuals – the workers who transform themselves into technology owners and capitalists-for-hire – and not from economists.