Let’s stop calling creative and innovative businesses “small”.

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The government and business media and sideline observers want to call your business small. That categorization applies to more than 99% of business firms in the USA. So someone’s missing something about the nature of the business economy. Small business makes the biggest contribution.

The error lies in misunderstanding systems thinking. The reason why people start and nurture small businesses is that they have an imagined idea for a new and better future – a better product, a better service, a better membership club, a better environment for office workers, whatever it may be – and they work with other people to try to bring it about. The other people they work with may be customers, partners, supply chain elements or employees; the business owner figures out the best network. The network and the connections and the information flows are never small. Today, thanks to the internet and collaboration software and communications, the network is the whole world. Any so-called small business can link to and orchestrate the world’s resources, the world’s designers, and the world’s imagination to bring value to its customers. What’s small about that?

Cynthia Kaye is one small business owner and consultant who fully recognizes the implications of thinking about the scale of the network rather than the scale of one node. First, it requires big thinking. What is the best way to harness the global resources to which business has access? What is the best service for customers? What’s the best way to provide service to customers?

For example, in her own business of video production, she has defined many ways in which her company can be the best. For example, being the best at getting the most out of the client’s budget. That’s a compelling value proposition and a genuinely unique claim. To deliver requires knowledge, experience, imagination, creativity, relationships, control, and meticulous attention to detail – all of which can be combined in an unsurpassed combination recognized by clients as superior. 

Economic growth and value creation come from using imagination and experience to create new knowledge: a surprise, a revelation, an exceeding of expectations. Imagination is not a product of scale but of creativity. 

Cynthia translates this big thinking into big opportunity. Often, this comes from growing with a client. That growth can begin parallel with a small customer – growing together through co-creation and collaboration. It can also come from small business supplier serving big business so well that more and more revenue is directed their way. The resultant shared growth benefits both parties. Is that big or small? It’s actually unrestrained, unlimited, unbounded. 

From this collaborative networked co-creation process comes big success. We know from Hermann Simon’s database of Hidden Champions that so-called small business can outperform big business in many ways, including higher revenue per employee, higher profit margins, greater employee retention, longer and stronger customer relationships, and more innovation and investment in R&D and new projects and capital equipment. Hidden Champions is a better descriptive term than small business. 

Small business shouldn’t be hidden or ignored – it should be celebrated, lauded, cheered on and loved. Small business is the economic system that generates the prosperity we all enjoy. 

The hybrid workplace is an excellent example of emergence in a complex evolving system.

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Management thinking about business and how work gets done to generate value for customers requires radical revision. Happily, the understanding of complex evolving systems is improving, at least to the point that we can recognize and embrace the consequences of emergence – that property of evolving systems that results in new phenomena and new traits and new patterns that could never have been predicted based on our prior knowledge. We can’t predict future developments of our own systems. We can only observe emergent developments as they occur.

One example of an emergent pattern that no-one predicted is the hybrid workplace. This is the new condition of the office or factory in which the elements of where we do work and how we do work and how we synchronize work with each other have changed beyond recognition. Some people might be in physical proximity in a meeting or gathering, while others are remotely connected through technology from another physical location, and the tools and devices and machines and data we use are in yet another physical place and another digital dimension. Everything is in motion and the relationships between them are fluid.

How can the hybrid workplace be managed for value generation and productivity? Yesterday’s management techniques of hierarchical control no longer fit very well. Two of the best experts to address the challenges of the hybrid workplace are Julie Kantor and Felice Ekelman, authors of the book Thrive With A Hybrid Workplace. Here’s what they say.

First, focus on culture. Culture is a value proposition for employees. Some bosses have claimed that corporate culture can not survive the hybrid workplace without an office or factory where people spend extended periods of time together on a regular basis. But culture stems from intentionality – what kind of a culture do you intend to nurture? Culture is a function of the things that matter to employees, which can include learning and progressing, empowerment, shared vision, connection, collaboration and trust. These are all subjectively evaluated, and it is entirely possible to shape the appropriate value proposition when the right intent is employed and declared. Whether work is hybrid or 100% in-person and on-premise does not have to be the governing variable. Empathy – understanding the things that matter to individual employees – is the binding force.

Second, embrace change. Evolutionary biology suggests that humans prefer predictability and stability to change. But in the emergent upheaval that brought us the hybrid workplace, change came to the forefront. Changes in work habits and practices, changes in relationships and collaboration possibilities, changes in the very nature of work. Part of the new value proposition for employees is that we all are swimming in the river of change together, and we should all be open to the excitement and energy of the experience.

Third, redefine connection. In complex evolving systems, it is the connection and interaction between individuals that opens up new pathways to productivity and value generation. Julie Kantor calls this connection interpersonal glue. If there’s no glue, teams find it harder to work through challenges and conflicts. Julie urges us to find new ways of networking, new forms of “dropping by”, and new forms of mentoring, and new ways of connecting in general.

Communicating and collaboration  take new forms as well, when the medium of connection changes. We should be newly sensitive to the subjective interpretation of our communications when they come in new formats (e.g. e-mail and text compared to in-person). “How can I help” becomes the new expression of connection – making communication inbound and not just outbound, and declaring the intent to collaborate. 

Be a coach rather than a manager. Coaching is a commitment to help individuals evolve as the ecosystem changes. Coaching involves observation and active listening rather than giving instructions. Coaching provides resources, but doesn’t specify how to use the resources. Coaching facilitates but does not prescribe. Every individual should receive coaching.

With new mindsets, the hybrid workplace can be even more productive than its more restrictive predecessor workplace. Responsiveness to the real things that matter to employees can be tuned to any kind of workplace, including one that changes all the time.

Individualism Is Good Business.

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There are many areas of economic activity where we seem to have lost sight of the purpose of improving individual lives because we’re immersed in the math of averages and total populations and their data. The human being – the customer – is sometimes out of sight to these statistical analyses.

One such field is health care. It’s a forest of collectivism where we can’t see the trees. We have corporate healthcare programs designed as coverage for all employees, and Medicare and other government programs for populations not covered by employer plans. We have hospital systems and insurance systems and HMOs and PPOs and networks from which we’re instructed not to stray. Pharmaceutical companies are focused on drugs that can be dispensed to millions of patients, and they assess effectiveness via percentages rather than individual cases. 

There’s an economic distortion of major proportions and significant impact: the price signals that moderate markets to align supply with demand are obliterated because individual buyers are not making purchases on the basis of their willingness to pay. They are not choosing between suppliers for each individual purchase and making dynamic comparisons of relative value. They are not free to apply their evaluations of their experience by switching to alternatives in an unhampered market when they are not fully satisfied. The market isn’t allowed to work.

Another way in which individuals get lost is in cases of one-size-fits-all all treatments. You know the standard: if you’re diabetic, take insulin. High cholesterol? Take a statin. There are endless rivers of data to support these patterned treatments, but distressingly little customization or personalization to individual histories, circumstances, and dispositions. It’s not that personalization doesn’t exist in doctor-patient relationships, but that the overall system is geared towards averages and optima rather than to singular analytics and singular treatments for singular cases.

There’s a company that’s dedicated to reversing the trend towards medical collectivism and reinvigorating personalized medicine in a way that can operate within the current framework of corporate healthcare plans and regulated availability of treatment regimens. Curally brings an economic solution to individuals’ needs – the essence of entrepreneurship. It’s a service to corporate clients to improve the productivity and health of an employee population, by identifying and focusing on the individuals within the corporate context who need the most care. Curally identifies high-risk individuals who are suffering from chronic conditions or major cases, where extra attention and support can make the biggest difference. Applying the economic principles of individual exchange and value at the margin, Curally brings individualism to bear to help the whole population by helping those most in need, thereby raising team performance and team outcomes.

Curally’s particular solution is highly innovative: nurse-led coaching. Nurse-led care coaching is a relationship-driven approach to health led by experienced nurses and medical professionals. Curally partners with companies to provide employees with the support they need to achieve transformational health results, from chronic conditions and major health problems. Curally’s nurses work one-on-one with individuals to create personalized health plans, coordinate care with doctors, and offer advice and motivation every step of the way. 

This is individualism with collaboration, empathy, and compassion. Everyone can do more when there’s someone helping alongside us. Individualism is not the hard, cold anti-social approach it’s depicted to be. It’s the caring recognition that each individual is different, that all value is subjective, and that customized and personalized attention is the better route to value than the mathematically optimized efficient large-scale system. Individualism is good business.

A new worldview for economics and business.

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It’s exciting to live through a time of changing worldviews – when what we used to believe is shown to be wrong, and is replaced by new beliefs that are often still emerging and therefore somewhat open-ended. New doors open, new possibilities present themselves, there’s new energy.

The science of physics experienced this change of worldview in the later parts of the twentieth century and is still exploring new worlds in the twenty-first. The old worldview was Newton’s: that the universe was a machine, its motion and planetary interactions governed by unbreakable mathematical laws. This mechanistic view extended to all of natural and human life – whatever we examine, we look at it as a machine and try to figure out how it “works”, how the parts into which we can reduce the machine function together, and how it can be tuned for better performance. This mechanistic view extended to people and organizations, where we called it “management”.

Fritjof Capra, in The Tao Of Physics, writes about “the fundamental change of worldview that is now occurring in science and society…..the unfolding of a new vision of reality”. The change stems from the discoveries of quantum physics, where the traditional idea of a material substance is replaced, and concepts of space, time and cause-and-effect are radically transformed. The machine-like image of how the world works is replaced by an image of dynamic flow; the world is forever in motion, time and change are essential features, and all phenomena are interrelated rather than separate, so that a change in one component affects all others, and hence affects the whole, which in turn re-affects the components through never-ending recursion of feedback loops. Quantum theory and relativity theory forced the world to change its worldview. There are no “basic building blocks” of matter that we can isolate, just a complicated web of waves and patterns of energy. The new world is not precise or predictable or measurable. it’s a world where opposites we don’t understand and can’t conceive of co-existing nevertheless apply. It’s a world of probabilities where there are multiple possible futures at any point, and therefore the possibility of many presents. It’s a bit spooky, as Einstein put it.

The world of economics and business is on the threshold of such a change in worldview. The same Newtonian mechanistic and mathematical approach that was applied in physics has been adopted in economics. The economy was viewed as a machine, churning out a numerical output identified as GDP. The efficiency of this machine could be calculated using algebra and equations. A certain amount of capital combined with a certain amount of labor and a factor that represents technological progress became the “model” for how the economy works. Within this larger machine were smaller component machines called firms, which combined capital and labor and technology in smaller and distinctive ways to contribute to total output. These machines were “managed” for high performance – organized as hierarchical command-and-control structures where the managers at the top who had all the equations and plans and visions instructed and directed the lower orders on how they should act. The worldview was quantitative and positivist, a word which we can translate as “there’s an equation that explains everything”.

The quantum equivalent in economics and business is the growing recognition that numbers and equations and top-down command and control management have no place in a system composed of human factors not machine parts. The economy is just such a system and firms are such systems. The appropriate worldview is the opposite of quantitative and positivist: it’s qualitative and subjectivist. Physicist Richard Feynman captured the difference in a well-turned phrase: “Imagine how much harder physics would be if electrons had feelings.” There could be no laws of physics, no continuity of data streams, no capturing of behavior in equations and algebraic symbols. 

Economics and business concern humans. They are artifacts of human action and cultures of human feelings and emotions. The basic unit of analysis is the individual, both as worker and producer and as end-user, consumer and evaluator. Individuals are guided by their feelings, which change over time, and as context changes, and as they interact with others whose feelings are in play. The purpose of the economy is not to produce GDP, but to produce well-being, that feeling among individuals that they are better off compared to previous time periods and compared to alternatives. The economy gives individuals choices rather than giving them output. Firms are collections of individuals doing the same for customers – presenting them with choices and the proposition that making the choice will enhance their well-being – and for each other. The firm is a collaboration of people with aligned mindsets and shared assumptions and values engaged in offering well-being to others. There are no equations to help, and no hard-number metrics. There is subjective calculation – that well-being can be assessed, and can be monitored for its direction (getting better or worse) and its intensity (deeply felt as satisfaction or softly felt as contentment). There’s also the opposite assessment of unease or disquiet, which is the signal to the entrepreneurial firm that there’s the opportunity to generate new well-being that’s currently missing. There’s a market reward for getting this right, when satisfaction turns into willingness to pay and cash flows to the firm that makes well-being more possible and accessible for its customers.

These market rewards are flows, not to be measured by looking back over time at the end of the quarter or the year, but by looking forward to the future satisfactions that will keep the cash flowing, or sensing some fade in satisfaction which calls for innovation and an improved value proposition. Management is caring – caring about the customer experiencing value and feeling satisfaction and being confident in their choices. This is the new worldview. The old one brought with it the perception of capitalism as extractive and exploitative because there was no caring there, just numbers and equations. We are happy to move on.

Why Do People Say Bad Things About The Capitalist System That Delivers Superabundance?

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Consider this chart. It appears in a book entitled A Farewell To Arms: A Brief Economic History Of The World and illustrates the worldwide change in personal income over 3000 years.

We can think of increased personal income per person as pleasurable progress for all. Increased income is a proxy for many life improvements: better food and beverages, better shelter from heat and cold, better health and better healthcare, better education, better jobs, better transportation, better entertainment, expanded knowledge, greater freedom, and many more in a long list that covers all of life.

As the chart shows, the progress is recent. There was no progress in income per person for the first 2800 years or so depicted in this chart, and then a high energy surge of almost exponential growth in the most recent 200 years. The pivot point is the invention and introduction of capitalism. 

The pivot is often labeled “the Industrial Revolution” (as it is in our chart), referring to new forms of physical capital such as steam engines and factories that proved capable of producing more and better goods at lower and lower prices and creating the jobs that paid the wages that increased income per person and gave individuals the opportunity to become consumers. It was a technological revolution, a knowledge revolution, and, most importantly, an economic system revolution, the switch to capitalism.

Over the 200 years since the switch, capitalism has delivered more than personal income growth; it has delivered superabundance. That’s the term employed by researchers Marian Tupy and Gaye Pooley in their book of that title. Superabundance is defined by the phenomenon of us each needing to spend less and less time working to purchase more and more goods and services. It’s a new economics, not of scarcity but of abundance.

A similar story is told by Hans Rosling and Anna Rosling Rönnlund in their 2018 book, Factfulness. They provide us with long lists of “good things that are getting better, and bad things that are decreasing”. The former list includes child cancer survival, access to education, women’s rights, clean water, literacy and democracy. The latter list includes child labor, hunger, smallpox, oil spills, and many more.

These and many similar books and papers provide extensive data compilations regarding the improved lives we all enjoy as a result of capitalism. So why do so many people – students, intellectuals, democratic politicians, writers, celebrities, and cultural influencers in general – speak so badly of capitalism?

The authors of the books we’ve quoted put it down to human psychology, that we are wired to be apprehensive, skeptical, and negative even in the face of incontrovertible evidence to the contrary. Our negative affect comes from our time roaming around prehistoric forests in constant fear of being attacked by some predator. The Roslings point to psychology research that indicates that humans have a gap instinct. We are prone to divide the world in two (e.g. developed economies versus underdeveloped economies, or rich versus poor) and focus on the gap between the two extremes of perception we have just created. We don’t see a continuum and we don’t see continued progress for everyone.

It’s a little hard to accept this psychological perspective in the 21st Century, when there is so much data to refute it, but if we are looking to psychology for an explanation, we can certainly look at envy. According to Helmut Schoeck (in Envy: A Theory Of Social Behavior), envy is universal among humans.

Envy is a drive which lies at the core of man’s life as a social being, and which occurs as soon as two individuals become capable of mutual comparison.

From a perspective of envy, the absolute gains that capitalism brings are ignored and the perception that some gain more than others prevails. Envy itself is an individual emotion – a lonely one since it’s a rejection of relationships – but the great danger occurs when a culture of envy is cultivated. That’s exactly what happens in our educational institutions, both universities and high schools and even elementary and middle schools. A class of educators, resentful because they feel underpaid and underappreciated in the capitalist system that rewards innovative value-creating entrepreneurship more highly than institutional maintenance, teach our children that capitalism is unfair, extractive, and exploitative. 

The teachers are reinforced by the communicators in the media, the writers, influencers, and talking heads who find that anti-capitalist content is amenable to their customers who have passed through the channels of education and become permanently misguided by the perspective they absorbed there. The media continuously reinforce the disaffected envy of their audience, deepening it, extending it, and distorting reality even further. The negativity instinct in the media leads to selective reporting and downright distortion of facts.

And then the politicians and government bureaucrats pile on. Politicians have no interest in progress and improvement. Their stock in trade is to point out how the opposition is failing – undermining or destroying prosperity. They also feed on the idea of the gap – that their constituency suffers by comparison to whomever the politicians decide to compare them to: women to men, non-whites to whites, Southerners to Northerners, less-educated to more-educated, my constituents to your constituents. It’s always about the gap for politicians. And the notion of the gap leads them to anti-capitalist rhetoric: capitalism is responsible for these gaps, that wouldn’t otherwise occur. There’d be equality under alternative systems. 

Government bureaucrats can claim to fix the gap problem in a different system that they run. Call it socialism, call it public-private, call it interventionism or regulationism, call it the entrepreneurial state. Governments are anti-capitalist because capitalism gives no role to government. Government can divide the pie, but only after capitalism has created the recipe for the pie, assembled the pie ingredients, baked the pie, served the pie, accepted and incorporated the feedback of the consumers of the pie, and nurtured the broad and deep market for pies that generates the commercial revenues that governments can then tax and redistribute. Politicians and bureaucrats must condemn capitalism so that they can offer their so-called solutions to the problems they claim capitalism causes.

We have a deep and wide circle of groups willing to say bad things about capitalism: educators, intellectuals; the students and others whom they influence; the media who act as their cheerleaders; and politicians and bureaucrats whose professional incentives are to undermine the popularity of capitalism in order to justify their own anti-capitalist ends and means. Together, they represent a formidable array.

There isn’t a word for fans of capitalism. If we use the word “capitalist”, it’s perceived as derogatory. Whatever the name for fans of capitalism, we need them to be confident, vocal, well-armed with data, and positive and persuasive in its presentation. We need to strengthen the pro-capitalist mentality.

Why Study Economics?

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Economics is the science of human thriving. It is the study of human choices and the motivations behind them. If we can understand those simple things, we can understand every transaction between humans as consumers and humans as producers, and roll that micro understanding up into the more macro understanding of firms and economies, and how they function, succeed and grow.

Thriving is what we all want. We can define it as continuously increasing our feelings of well-being. And that’s the first indicator of the value of economics. The output of any economy, of every firm and of every exchange and every transaction is more well-being – the feeling of being better off. Yes, a feeling. Economics is not measured in numbers like GDP or firms’ revenues or profits. It’s assessed by the satisfaction of individuals as to whether things are getting better or not. A growing economy is one with improving feelings of well-being. The nearest thing to a metric for this feeling of well-being is the University of Michigan Consumer Sentiment Index.

When the index is high, it’s associated with increasing stock market valuations, economic growth and prosperity. When it’s low, it’s associated with recessions. There’s no need to search for cause-and-effect, because it’s not there. The sentiment is emergent from the system.

A successful firm is one whose customers feel increasing well-being – more satisfaction, more confidence, more trust, more relatability. A strong balance sheet is one with assets that will facilitate such satisfactions and feelings of well-being many years into the future. A strong P&L is one that shows that customers are generating the cash flows that result from their willingness to pay for those satisfactions at the price the business chooses to set and results in profit.

How does economics teach us to increase well-being? Development economics as its called – the study and theory of how economic growth is generated – is a highly underdeveloped field. It has no answers because it’s looking for those cause-and-effect conclusions that just can’t be found. It’s better to look at system effects: what is the system most associated with increased well-being? It’s free market capitalism.

More entrepreneurship.

Entrepreneurship is the function that drives growth in the free market system of capitalism that brings prosperity. Entrepreneurship is misunderstood by most economists and all policymakers. Entrepreneurship is the economic function that creates new value, and value is what we all seek. Value is the feeling of being better off after experiencing a good or service that’s been prepared for us or sold to us. It’s the feeling of betterment – better off today, and better off tomorrow because of all the great offerings entrepreneurship brings to us. Entrepreneurship is what drives capitalism. It can take place in a startup or in a giant corporation, so long as the intent is to improve customers’ lives. It is highly restricted in an economy where government regulation strangles innovative opportunity, or where government directs investment funds to one industry rather than another – for the simple reason that entrepreneurship is experimentation to find out what customers prefer, and regulation often doesn’t permit experimentation. What drives growth? Those of us who are not entrepreneurs don’t know – we leave it to entrepreneurship to run the crazy experiments that will help the rest of us to find out.

Production before consumption.

The conventional wisdom of economic pundits and government planners is the opposite of the entrepreneurial view. They believe that consumption – what they sometimes call aggregate demand – is the driving force of the economy. If the economy, as they measure it, slows down or stalls, their answer is to put more spending power in the hands of consumers so that they buy more products and services. They believe that demand brings production into being. Without demand, there’d be no production. The opposite is the true case. Entrepreneurs reveal to consumers that there is more they can want – better goods and services, new technologically innovative products, faster deliveries and lower prices. By demonstrating the availability of more – by producing, that is – entrepreneurial businesses generate demand for their offerings. Demand does not bring businesses into existence; businesses bring demand into existence. Any and all restrictions on production should be lifted to bring productive growth to any economy anywhere in the world.

Less quantitative, more qualitative.

Economics is usually presented as a quantitative science. Economic “quants” focus us on numbers like GDP or economic growth rates or trade imbalances or debt levels. They want us to think of economics as a science on par with physics and mathematics. But it’s not. Economics is about well-being, and how humans increase well-being for themselves, their families, their firms and their communities. Well-being is subjective, a feeling on the part of individuals. It can’t be measured, enumerated, ranked or stacked or trended. Economics aims for a world in which we can consciously and deliberately raise and expand and extend well-being, without always trying to capture the improvement in numbers. Feeling better off is a qualitative phenomenon.

Less economic policy.

The word policy should never be conjoined with the word economics. Policy equates to politics, i.e. a biased, group-interest driven perspective on economic decision-making. Economics teaches us that markets can freely determine all allocation decisions, and all selections between what individuals and groups prefer, favoring new and better and jettisoning what’s out-of-date and inferior. Politicians may not always like market choices, and may therefore introduce policy that contradicts the markets, but this always leads to less total well-being. And since there is no possibility of isolating cause and effect in a complex economic system subject to an incalculable number of influences, interactions, constraints, and unanticipated feedback loops, policy never “works” – it can not lead to the outcomes it promises.

Students of economics will understand and appreciate these catalysts for well-being – that’s why economics is worth studying.