Socialism favors big business; capitalism is entrepreneurial.

The Road To Socialism And Back is a fascinating real-life case study from the Fraser Institute about the differential impact of market capitalism and socialism on both production and consumption. It focuses on Poland, which had been a free market economy until the Second World War, then transitioned to a Soviet-style centrally planned socialist economy under USSR hegemony, and then transitioned back again after 1989 to a market economy.

There are lots of eye-opening statistics to highlight the impact of a socialist economy on the lives of consumers. For example, there were only seven telephone lines per 100 inhabitants in Poland in 1986 compared to 33 per hundred inhabitants in nearby Greece, and approximately 50 per household in the USA. The wait for housing was up to 30 years, twice as long even as the Soviet Union. The number of cars per 1000 people in 1980 in Poland was 64, compared to 350 per 1000 people in Switzerland at that time. GDP per capita in 1986 was roughly $2000, compared to $19,282 in the USA.

One of the observations in the Fraser Institute report is the socialist Polish economy was dominated by big businesses, which were heavily subsidized, and small and medium-sized businesses were discriminated against. 

The investments in a specific year were determined by the long-term plan and current projections of growth. These investments were generally directed at the capital goods industry and heavy industries, especially steel, chemistry, and coal, at the expense of the consumers’ desires (Piatkowski, 2013). The few, predominantly agricultural, private firms that did exist were deprived of financial resources available to state firms, thereby constraining private firms’ abilities to compete with state companies.

The favored large state companies were given increased subsidies and favored access to more resources whenever they missed their production quotas. The logic was that the production target was everything in the central plan, so more resources must be granted to the large firms theoretically capable of delivering it, especially when they fall short.

This adversely affected both the quantity and quality of output. The problem got worse over time as the least profitable industries in Poland received the most financial support and attracted the most workers, siphoning resources away from more profitable enterprises. And if the experience of Hungary is any guide, firms with the most political clout (as measured by the size of fixed assets and employee involvement in the party) received the most aid. Large firms dominated socialist economies. While construction firms with 500 or more employees were only about 16 percent  of the industry in capitalist economies, they represented over 70 percent of the industry in Poland and other socialist countries. 

When Poland transitioned back to a market economy, most notably after political changes in 1989, many of these large firms with negative value-added production went bankrupt when they faced competition in the absence of state-supplied loans and subsidies. That is, the value of the inputs that these firms used was higher than the value of their outputs, indicating inefficient production. 

Economist Ludwig von Mises had a simple insight which the socialist central planners ignored or misunderstood: close their eyes to the economic problem: the capitalist system is not a managerial system; it is an entrepreneurial system. Capital can only be efficiently allocated when consumers and customers are free to signal what goods and services they deem most valuable, and when producers are free to allocate and reallocate capital to those most valued uses and thereby, through market-sensitive capital allocation, compete for the customer’s dollars. 

Socialist central planning cannot respond to these signals, and in fact, represses them. But the favoring of the biggest corporations, and their failure to respond to market signals, is not entirely limited to socialism. Western capitalism has been favored by the rise of entrepreneurially-owned and led firms who brought new capital combinations to market, harnessing new technology to bring new benefits for which customers clamored. From John D. Rockefeller’s Standard Oil, which brought affordable illumination to homes across America, extending their days and their family time and expanding their productivity; to Henry Crowell’s Quaker Oats company who brought those families safe, wholesome and nutritious food; all the ways to today’s Elon Musk, saving the planet with electric cars and solar power – entrepreneurially-led companies have shown the way to prosperity by starting small and growing because they served customers and thereby attracted capital.

But there is a danger that when corporations get to be large, they start to face the same inefficiencies that dogged the Polish socialists. Big companies start to develop their own central planning units (it’s called strategic planning or budgeting, but it’s the same in principle), they grow large bureaucracies that are not producing but constraining production, they resist innovation to protect their existing businesses (it’s called defending market share), they lobby government for subsidies and regulatory or legislative protection, and they misassign capital to activities such as dividends or share buybacks instead of investing in future innovation.

Happily, Mises’s insight always applies. There will always be innovative entrepreneurial firms to ensure that the capitalist system is driven by market preferences and not central planning. There will always be a Tesla to beat General Motors, and a Walmart to beat KMart, a Netflix to beat Blockbuster and a Microsoft to beat IBM. And in time, as those entrepreneurial firms mature, they’ll start to show symptoms of misallocation of capital (Apple, for example, is notorious for its excessive use of share buybacks to allocate capital to share traders rather than innovation) and new entrepreneurial insurgents will take their place.

It’s not only socialist economies that suffer from the inefficiencies of big firms. But in the capitalist economies – so far – there’s always entrepreneurship to provide competitive balance and refreshment of the capital stock.

The Value Creators Podcast Episode #3. Jason LaBaw: Culture And Technology Amidst High-Speed Change

You need two types of knowledge to succeed in the business world: specialized technical knowledge and deep customer knowledge. This will allow you to create uniquely valued experiences tailored to your customers and thus build a thriving business.

Jason LaBaw, as the founder and CEO of Bonsai Media Group and a pioneer in web development, AdWords, Google Analytics, and Umbraco development, has accumulated over 18 years of industry experience, client service, and strategic leadership in the digital world and has become an expert in combining technical and customer knowledge to scale.

In this episode, Jason touches on how he believes the future will look and what principles he is certain will be invaluable to thrive in a futuristic economy, such as empathy, planning, and budgeting.

Show Notes:

0:00 | Intro to Entrepreneurial Management

1:56 | Introducing Jason Labaw

3:10 | Businesses Coping with Technology

7:11 | Ways to Engineer Technology

8:32 | How to Work & Run a Business These Days

10:31 | End-user Experience

11:52 | User testing

12:35 | Secrets of Empathy

14:49 | Getting into Depth with Bonsai Media Group

21:01 | Trends: Augmented Reality 

24:40 | Storytelling as a marketing

25:20 | Story about the Future

27:39 | Gamifying Work

29:30 | Risks of Technology to Entrepreneurs

31:52 | Learn More About Bonsai Media Group

Knowledge Capsule:

Combining customer knowledge and tech knowledge.

One of the Value Creator’s mantras is to combine deep customer knowledge with specialized technology knowledge to create uniquely valued experiences for customers and thereby build successful businesses.

Jason LaBaw has done this successfully at the company he formed, Bonsai Media Group. He illustrates how it’s perfectly viable to start simply and advance quickly.

  • An early example of a project is one where the company, in customer service mode, transformed a trivia app request from a client into a social contest that engaged users and immersed them in the brand’s story.
  • This evolved into various combinations of the digital and physical worlds through scavenger hunts – which became an exploration of the potential of AR and VR.
  • AR and VR can be further combined with 3D product imaging. It turns out that 3D experiences are hugely beneficial for conversion rates. 
  • Combining his experiences in both the digital and physical realms, he began envisioning ways to create immersive experiences that merge AR and the real world: to make exploring the world as fun as playing a video game, using technology to encourage people to get out and explore the real world around them.

Simple steps towards a complex future.

With these relatively simple business steps, Jason has now advanced to become a futurist of AR, VR, and AI. While some believe these technologies have been overhyped, Jason believes they have tremendous potential to transform human experiences. He emphasizes the importance of human connection and expresses his hope that future generations won’t be locked in virtual worlds. He sees augmented reality, AI, and voice-enabled technologies as key drivers for positive change. For instance, he envisions a scenario where augmented reality glasses enhance meetings by providing contextual information and augmenting reality with relevant data.

The discussion also touched on the concept of gamification. Jason explains how gamifying networking events can facilitate connections and conversations by using augmented reality cues to identify shared interests. He believes gamification can also be applied to work, where incentives and rewards can be used to motivate employees and create a more engaging and efficient work environment.

There are basic economic principles underlying this futuristic scenario.


Empathy remains the essential skill for businesses, no matter how futuristic or high-tech. Jason emphasizes the importance of having conversations and conducting in-person interviews with various stakeholders, including frontline workers, managers, and customers. This qualitative data gathering allows businesses to uncover valuable insights and understand how customers perceive their brand and experiences. Jason recognizes the value of quantitative data, such as analytics and user testing, in making informed decisions and improving products, but it’s best when it is in addition to qualitative data,

This way businesses can focus on their customers’ needs, goals, and preferences to create competitive advantages. He suggests that companies can provide value by enabling customers to perform tasks online, like paying bills. 

Planning and budgeting

Planning, allocating budget, and continuously iterating based on customer feedback and analytics are crucial for adapting to change

Jason suggests a general formula for coping with technological change, starting with a budget-focused approach. By analyzing different options and making design and technical decisions based on budget and return on investment (ROI), businesses can adapt to changing technologies. He emphasizes the need for clarity and defining a project’s ROI from the start. By allocating budget or accruing it, businesses can invest in technology iteratively over time, improving functionality, and user interfaces, and switching components when necessary.

Additionally, Jason highlights the significance of having a contingency plan to deal with unexpected events or disruptions. He shares an example of a company that had to pivot quickly when a technology vendor was acquired. Being prepared with alternative vendors or technologies enables businesses to adapt swiftly.

The Value Creators Podcast Episode #2. John M. Jennings: Mental Models Are The Uncertainty Solution

In a complex world full of uncertainty, all businesspeople and entrepreneurs can draw guidance from shared mental models that help us make better choices. John M. Jennings took this advice to heart and developed a latticework of mental models for financial investing and any other business discipline, which he explained and expanded on in his book The Uncertainty Solution: How To Invest With Confidence In The Face Of The Unknown.

John is a premier thought leader in the wealth management industry and President and Chief Strategist of St. Louis Trust and Family Office, a $15 billion national investment firm. He is also an adjunct professor at Washington University’s Olin School of Business in its Wealth and Asset Management Graduate Program.

In this episode, he not only teaches why we always look for certainty and how we can be aware of certain pitfalls we fall into while dealing with uncertainty but also how to navigate uncertainty to not only come out unscratched but profit from it.

Show Notes:

0:00 | Intro

00:28 | Mental Models with John M. Jennings

1:39 | The Uncertainty Solution

02:25 | Defining Uncertainty

03:34 | Predicting the Future

04:35 | Defining Mental Model

6:08 | Unliking Uncertainty & How to Deal With It

8:48 | When Cause and Effect Don’t Work

12:37 | Extrapolating Trends

17:49 | Business Cycles

20:36 | The Result of Our Luck 

24:36 | Exponential Growth

28:42 | The Latticework of Mental Models

33:57 | Loss Aversion

36:38 | Overconfidence is the Mother of all Biases

41:20 | Wrap Up: Philosophical Advice from John M. Jennings


(Book) The Uncertainty Solution – John M. Jennings

(Book) Managerial Decision-Making – Max Bazerman

(Book) Scale – Jeffrey West

Knowledge Capsule

In his book, The Uncertainty Solution, John M. Jennings urges each of us to use a latticework of mental models to simplify the complexity we inevitably face. Here’s a summary.

A. Knowledge: Think of information in four categories: data, information, knowledge, and wisdom, and focus on knowledge or wisdom over data and information. 

B. The Quest for Certainty:

  1. Uncertainty: We dislike uncertainty as it causes stress and triggers our fight-or-flight response.
  2. Seek resolution: Resolving uncertainty brings pleasure, but we should recognize and sit with the discomfort instead of seeking closure.
  3. Avoid information overload: Resist becoming an information junkie or relying too much on expert predictions.
  4. Embrace discomfort: Sit in your discomfort and focus on what you can control. 

C. Looking for Causes in All the Wrong Places:

  1. Causation Is Tough to Determine: Assuming one thing caused another can be risky, as coincidence and multiple factors often play a role.
  2. Correlation Does Not Imply Causation: Strong correlation doesn’t mean one thing causes the other.
  3. Regression to the Mean: Extreme events tend to be followed by outcomes closer to the average.
  4. The Law of Large Numbers: Conclusions based on small sample sizes can be misleading; consider sample size whenever causation is asserted.
  5. The Highly Improbable Happens All the Time: Unlikely events occur frequently, so don’t be surprised and caught off guard. 

D. The Stock Market Is Not the Economy:

  1. Economic Growth vs. Stock Market: Economic and stock market performance are not always correlated.
  2. The Stock Market as a Complex Adaptive System: Predicting stock market movements is nearly impossible due to the interactions of intelligent agents.
  3. Economic Indicators Don’t Predict the Stock Market: Economic indicators and market signals often fail to predict market performance. 

E. Market Cycles and the Two Axioms of Investing:

  1. Markets Move in Cycles but Defy Prediction: Market cycles vary in duration and intensity, but no permanent plateaus exist.
  2. Economic Stability Creates Instability: Stability can lead to bubbles and crashes; opportunities arise when stability appears.
  3. Market Timing Doesn’t Work: Timing the market is challenging and requires being right twice—both at the top and bottom.
  4. It’s Okay to Invest in Advance of a Bear Market: Investing before a bear market can be fine if you follow a disciplined strategy.
  5. The Limits of Arbitrage: Being right doesn’t guarantee winning due to the market staying wrong for extended periods. 

F. Beware Experts Bearing Predictions:

  1. Economic and Stock Market Predictions Are Worthless: Investment predictions are often wrong, and investing without relying on knowing the future is better. 

G. Skill and Luck in Investing:

  1. The Skill-Luck Continuum: Luck plays a significant role in investing, and short-term results may not reflect skill.
  2. Most Investment Managers Underperform the Market: Most active managers underperform after fees, so consider the odds before investing with them.
  3. Most Stocks Underperform the Market: Picking individual stocks is challenging, and most fail to outperform the market.
  4. Monkey Portfolios Outperform: Following a different strategy than the market can yield better results, but it requires discipline. H. The Trend Is Not Your Friend:
  5. It Is Difficult to Spot a Trend Early: Identifying trends early is challenging, especially exponential growth.
  6. Trends Don’t Always Turn Out as Imagined: Established trends can change rapidly due to new competitors and technologies.
  7. It’s Difficult to Find a Successful Needle in a Haystack of Competitors: Picking winners among many competitors is challenging, and early pioneers may not be the long-term winners.

H. The Trivial Many Versus the Vital Few:

  1. The Danger of Using the Bell Curve in Investing: Relying on bell curve statistics may not capture the true nature of the stock market’s behavior, so be skeptical of advice based on such statistics. 2. The Stock Market Is Better Described by Power Law Distributions: Embrace the uncertainty provided by power law distributions instead of relying on projections based on the bell curve. 

I. Navigating Our Behavioral Biases:

  1. The Endowment Effect: We tend to overvalue things we own, including our investments.
  2. The Storytelling Bias: Stories strongly influence our decision-making, so be aware of how they can sway investment choices.
  3. Hindsight Bias: Looking back, we think we should have known the future but realize that infinite possibilities influence outcomes.
  4. Loss Aversion: Losses have a more significant impact on us than gains, leading to risk aversion and irrational behavior.
  5. Overconfidence: We often overestimate our knowledge and abilities, leading to poor decision-making. Recognize and mitigate overconfidence. 

J. Behavior—The Most Important Ingredient:

  1. Choose Inactivity Over Activity: Avoid excessive tinkering and market timing; maintain a long-term perspective.
  2. Prefer Simplicity Over Complexity: Start with a simple approach and add complexity only when necessary to avoid complications and fees.
  3. Establish Simple Investment Algorithms: Create an investment policy statement and follow simple asset allocation and rebalancing rules. These insights aim to provide a clearer understanding of investing and guide decision-making in the complex world of finance.

Entrepreneurship: The most important – and misunderstood – economic function for all businesses.

Entrepreneurship is often misunderstood as starting a new business from scratch, or sometimes as owning and operating a so-called small business. Entrepreneurship is not usually understood by most people as a function within big business. 

In fact, entrepreneurship is not only a function of all businesses of all sizes and all levels of maturity, from new to established, it is their most important function. Entrepreneurship gives businesses their most critical success factors.

Customer Value Creation

All the buzz in the business press and the financial sector is for shareholder value maximization. This doctrine holds that the purpose of business is to please and reward shareholders first. That’s mistaken on multiple fronts. Firstly, customers are the only reason a firm exists – without customers, there is no business. The only way to grow is to add more customers and increase the revenue that existing customers are willing to generate by buying the firm’s products and services. They do that when they experience value – the feeling that they’re better off having made the purchase and experienced the benefits than they would have been had they not done so. The experience must meet their prior expectations otherwise they won’t come back. Successful businesses pursue customer value maximization, not shareholder value maximization.

Customer Centricity

The process of Entrepreneurship is one of working from the customer backwards. It defines the purpose of any business firm of any size as pursuing new value for customers, and receiving the market’s rewards for doing so. At the core of entrepreneurship is choosing which customers to serve and developing an understanding of them and their preferences and wants so deep as to constitute a competitive advantage over all rivals. 

There are examples of brands and companies forgetting about their customers. The recent controversy over the Anheuser Busch brand Bud Light’s wading inappropriately into transgender politics seems to be a result of them insulting their own customers (whom they referred to as fratty). Those customers responded with a boycott.


Entrepreneurship is not magic and it’s not luck and it’s not purely the result of pouring venture capital into new tech ideas. It’s a function of knowledge-building. Specifically, it is the combination of two kinds of knowledge: customer knowledge and technical knowledge. Entrepreneurial firms are unceasing in their investment in acquiring customer knowledge to develop a unique and competitively advantaged understanding of customers’ needs, preferences, hopes and fears and dreams. They combine this knowledge with an equally deep and detailed mastery of a particular technical solution to deliver on these customer needs and preferences. It’s the combination of the two kinds of knowledge that results in commercial solutions that win in the marketplace. Entrepreneurship is accumulated and polished knowledge.


Entrepreneurship exhibits the property of never standing still. There is no end point. There is only endless improvement, demanded by customers who are continuously learning what’s possible for them, and competitors who are striving to earn that customer’s dollar. In business terms, this means that innovation is imperative – always making the customer’s world better, always investing in new capital, new technology, new designs and new presentations. 

Many large companies exercise this form of entrepreneurship – we can think of Apple and Amazon but also of Ford and Boeing and Procter and Gamble. But maybe we exclude companies like Mars who continue to present customers with their horribly unhealthy candy bars while innovators like Lily’s are exploring and experimenting with non-sugar sweeteners to deliver a new kind of experience for sweet-toothed, health-conscious consumers.  Big corporations can be entrepreneurial, but not all are committed to the pursuit of new value.

Decentralized organization

Entrepreneurship is built on individual creativity and imagination. It can be achieved in teams of people working together, and therefore in firms and corporations that prize individual contributions and empower them to collaborate in agile, self-organizing teams that cross-functional silos and don’t respect hierarchical control. This is very difficult for conventionally structured corporations, but the new innovative firms of the digital era start from concepts of flat, networked organizational structures that enable the unobstructed high-speed flow of information. Tesla/SpaceX is a leader in this type of management. Steve Denning, writing at, describes Tesla/SpaceX as 

  • A firm where all managers and staff are expected to work as entrepreneurs, 
  • With no budget limits or constraints on spending. · 
  • No job descriptions. · 
  • No approvals needed. · 
  • Performance reviews done by the staff, not by bosses. · 
  • Practically no managers.

This is how entrepreneurship replaces conventional forms of management.

Entrepreneurship is not only the most important economic function for business, it’s the pointer to the future of business and value creation for all companies.