The purpose of an economy is to facilitate the feeling of well-being for its participants. That’s different than the official version, of course, which is to grow GDP, a combination of government spending and consumer spending on produced goods and services.
GDP is reported as an agglomeration of all kinds of constructed numbers. We’ll-being is not measurable but its qualitative dimensions can be drawn by gauging the sentiment of citizens. The sentiment gauges are currently registering some weakness.
Well-being is produced by the private sector of the economy. There’s a well-established, time-tested proven system for doing so. It starts with the evidence of negative well-being. People exhibit an unease, a vague feeling that things could be better than they are. This vague feeling is the genius of the consumer. The human drive for betterment, to trade current circumstances for a new set that might feel more pleasant or more satisfying, is the energy of innovation, technological progress, economic growth, and civilizational advance. It’s an amazing feat of imagination, being able to see, in the mind, a future that doesn’t already exist. A counterfactual, as the scientists sometimes put it. The consumer’s imagined counterfactuals create new possibilities.
On the production side of the private sector, there exists the function of entrepreneurship. Entrepreneurship is an act of individuals, either solely or in groups and teams, often in the form of firms and business corporations. Firms sniff out consumer unease. It’s what they do. It’s their purpose. Informed by this discovery of unease, entrepreneurs get to work to relieve it. They do so via innovation, designing a new proposition they can share with the consumer: will this work for you? will this make you feel better? have you considered this? If they get any feedback (“Yes, I’ll buy it.” “No, that’s not good enough.”) it informs a continuous change and improvement process until the offering is right for the consumer.
In economics, the experience the consumer feels is called value. We can call it well-being. The feeling that things are getting better, that there are new options and new choices, that someone is listening and responding. This feeling is produced by the entrepreneurship of the private sector.
The other part of the economy is government and what government subsidizes. Government does not produce anything. That’s not its purpose. It extracts from the production of the private economy, via taxation, via debt creation, via regulation (limiting choices for both entrepreneurial producers and their consumers), via the diversion of resources (employing people as bureaucrats who could be much more usefully productive in the private sector), and using technology and capital that could also be deployed usefully for private purposes. Government spending as a percentage of GDP is a proxy for the ratio of government extraction to total production, and that number in 2020 was 44%.
Making things worse, the government monetizes its debt via the Federal Reserve, thereby increasing the money supply in the economy. This money is depreciating at a constant and rapid rate. Saifedean Ammous in The Fiat Standard smooths out his estimate of monetary inflation at 7% per annum, which is enough to halve the value of anyone’s dollar holdings in 10 years. So the value of savings in the private sector that could be re-invested in innovation and creating new capital – which is what produces more well-being for people – is halved every 10 years.
We can safely say, as an approximation, that the activities of government mean that production in the US economy is at half the level of its potential. Consequently, entrepreneurship is at half the level of its potential. This implies that the well-being achievable by people as a result of entrepreneurial production is at half the level it could be. We could see twice the level of well-being from twice the level of production were it not for government crowding out entrepreneurship.
And since entrepreneurship is love in action, the level of love in society is halved. Entrepreneurs work on empathy – they’re like angels, understanding what people want, and what dissatisfactions are burdening them, and then working hard to help people shed those burdens. They love their customers, and seek to earn customers’ love in return. It might be called customer service, or customer loyalty, or customer satisfaction, but in reality, it’s love. The greater the level of entrepreneurship, the greater the love.
So there is potential for twice the well-being, twice the production, and twice the love compared to what we experience today. If we can attract more people to entrepreneurship, and point more consumers to the enjoyment of entrepreneurial output, we’ll go a long way towards achieving the kind of society we’d all love.
https://hunterhastings.com/wp-content/uploads/2022/01/shutterstock_2105900399-scaled.jpg8112560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2022-01-17 11:01:522022-01-17 11:01:54Twice The Well-Being, Twice the Production, Twice The Love.
How do businesses get started? Or innovation projects, or marketing campaigns, or any other type of commercial value generation?
The conventional belief is that the starting point is an idea. The idea of the iPhone or the Tesla or Lily’s stevia-sweetened chocolate bar. Ultimately, the idea will turn into a new product or service that “reveals to the market what the market did not realize was available” as economist Israel Kirzner phrased it.
But this conventional view is actually a misunderstanding of how business works. Business is an activity with a goal: to create and retain customers. The first step in the process is to imagine a future benefit – an experience that’s better than today’s for which a customer will happily pay. An experience is in the mind; the design of the experience is for someone. It’s for a customer. Hence the customer is the starting point.
Empathic Design.
To be successful requires the exercise of empathy. The customer’s experience is not the same as that of the individual or team that’s working on the innovation project or the marketing campaign. It’s subjective and individual, as is the concern with a current experience not being quite satisfactory enough. An innovator must “get inside the customer’s mind” in order to develop some understanding of what dissatisfaction feels like and what form future expectations of something better might take. Empathy enables the innovator to construct a mental model of how the customer’s mind works, how they think, how their preferences are arranged, how they feel about different choices – how they “tick”. To build such a mental model requires a focus on one customer – perhaps an ideal customer, but certainly a real person – in order to perfect it and make it accurate. Then it can be stretched and expanded to apply to a group or a market segment, recognizing that, in the process of expansion, the model becomes less and less accurate for any one single customer. That’s why businesses start with just one customer.
With a mental model in hand, the innovator advances through a design process – designing a future experience that will deliver a future benefit. It’s not all engineering, and it’s not entirely science; there’s a lot of art in it. Art is that part of design in which the designer proceeds on their own initiative without input from a buyer. Van Gogh didn’t seek instructions on what to paint and how to paint it. But there is a limit to how much art can go into your innovation. The customer has the final say, exercised through the action of buying or not buying.
Empathic Engineering.
This integration of art and engineering is why business analysts are beginning to explore design science. The design process is a series of steps aimed at producing something that can succeed in the market. The first design might be a sketch on the back of a napkin, the second one a memo, then a meeting to discuss the sketch and the memo, and then a team collaboration to develop specs and a prototype, with a design development path that accumulates more and more knowledge inputs until it produces a saleable product or service. The customer is involved at all times. They’re the point of departure – who are we designing for, what experience do they want – and involved at every step, until the ultimate one of a decision to purchase. Design is creative, and creative people can often come up with unprecedented designs – new knowledge that didn’t exist before. It becomes a science when each of the design steps can be tested.
Testing can be engineering or empathy. The engineering test is functional: does the design work, does it perform the task it’s supposed to, will it last or will it break, will it integrate well with the physical environment in which it’s going to be embedded? The empathy test is emotional: does it appeal to the customer, do they feel it can address their felt dissatisfaction with what’s available now, do they anticipate an experience they’ll enjoy and value? In the market, the emotional test is more important than the functional test. In design, it’s people first, things second.
The design process – from the sketch on the napkin to the first shipped product or first service – takes time. The value is realized at the end when the customer buys, but that is not the only point at which the customer is involved. It’s valid to think of the successive design stages as a journey – one on which a business invites the customer along, sharing every step, making joint choices and joint selections of features and design components, discussing and dialoguing, with a lot of “what do you think” and “what if we tried this approach”.
The Idea At The End.
The customer doesn’t know all the right answers. They don’t know the final destination in advance. They’re along for the ride so long as they are given input and so long as it is clearly their interest that is being pursued. Sometimes they need to be told what they can want, because they don’t know what’s possible; they don’t know what they can have in the future. The role of the business innovator is to reveal to them – all in good time – what they didn’t know was possible. The idea is at the end, not the beginning. The journey to get there is a shared mystery.
And there may be competing journey options. Other businesses may be offering a similar destination, a similar value, and a similar experience. It won’t be exactly the same so the customer must make a decision which journey they’ll ultimately complete. They’ll make comparisons, they’ll try to weigh the alternatives. Emotion will be the ultimate decider – the customer will feel like (rather than make a calculation) that one choice will lead to a better place than another.
Choosing the customer at the beginnig of the journey is the most critical decision a business team can make. They’re going to commit to traveling closely with that customer for an extended period of time. They’re going to listen calmly to every suggestion, every complaint, every expression of “that doesn’t quite do it for me” or “it’s not quite what I expected”. They’re going to led the customer lead them on twists and turns that might not ultimately lead to the right end-point.
You’d better love that customer. Choose wisely.
https://hunterhastings.com/wp-content/uploads/2022/01/shutterstock_483561334-scaled-e1641681220387.jpg13442540Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2022-01-10 16:02:212022-01-10 16:02:23The Starting Point For Business Is Choosing the Customers With Whom You Will Share The Value Generation Journey.
It’s easy to despair about the state and direction of our society. It feels overwhelmed by division, consumed by nastiness in politics, under attack from cyber technology and manipulative algorithms, and threatened by nation-state violence, governmental restrictions, crony capitalism, and the all-powerful pharma-industrial complex. To name just a few of the current – and worsening – threats.
It’s also easy – if you try – to conjure up an entirely different vision, one that is optimistic and positive. I call mine the entrepreneurial society, and I am working with many collaborators to realize it.
Entrepreneurship is a function in society. And it’s also a role that many can play – there are no barriers to entry and no structural barriers to success. The function is to identify unmet needs – what people want and don’t currently have, what they wish for, circumstances with which they feel dissatisfied and would like to change. Entrepreneurs aim to meet these needs and bring the betterment that people want, in return for a profit. The profit is not just monetary; it includes psychic profit, such as pride in achievement, and a sense of meaning and purpose. There’s an ethic of service in entrepreneurship.
Think about a future in which entrepreneurship is the norm for society, where everyone devotes their commercial energies to serving others, whether as business owners and founders, or as collaborative teams, or as employees of entrepreneurial firms. An entrepreneurial society.
Here are some of the ways the entrepreneurial society will be an improvement.
The service ethic prevails: people’s energy channeled into making life better for each other.
Successful entrepreneurship requires, as a first principle, the exercise of empathy. Entrepreneurial business requires deep understanding of another’s wants, preferences, desires, biases, and motivations. To develop skill at empathy is to think about others’ points of view, their experiences, their mental models, how they see the world. There’s no judgment, simply a genuine effort at subjective understanding. “ How can I please this person? How can I make their life a little bit better?” is the operative motivation.
It’s the service ethic. When it prevails in society, we’ll be in a better place.
True Justice and Fairness.
Everyone possesses unique tacit knowledge. Everyone is endowed with imagination and creativity. Everyone is capable of thinking about new value for others. There are an infinite number of services that can be conceived of and generated in a service economy.
True justice is when all the people are free to use their knowledge and creativity to serve others and profit from doing so. As they proceed along this pathway, they’ll get better and better at the front end – the empathy and imagining the better future – and at the back end – the results, the exchanges they make, the profit they realize.
True fairness is when these entrepreneurs get to keep the fruits and profits of their endeavors, building up their private property, reinvesting in it in more productive capital, enhancing their ability to serve and to profit, experiencing business growth, and experiencing personal and private fulfillment. Life, liberty, and property are our natural rights, according to John Locke. Although the words were edited in the Declaration of Independence, to “life, liberty and the pursuit of happiness”, the principle remains. By owning, utilizing, strengthening, and growing our private property, we realize fulfillment in life. Entrepreneurship provides us the pathway.
Self-reliance, adaptability, and learning.
The entrepreneurial society will reverse one of the major tendencies in the current society, that of dependency. Entrepreneurship draws on self-reliance for drive and energy. Individuals and small teams are typically at the forefront of experimentation and innovation that results in new value for customers and economic growth for communities and the nation. They gather evidence, formulate hypotheses and explore alternatives via their own volition, not as a result of the direction of others. They make adjustments based on feedback loops, and they eagerly learn how to change and do better.
This kind of initiative is frowned upon in today’s society. It’s seen as risky, and people should not have to take risks. They should be protected against risk with bailouts and other forms of redistribution. They should be compensated for error via welfare. But without risk and error, there is no discovery, no advance, no improvement.
Dissipating power structures.
Entrepreneurship thrives on open competition. Entrepreneurs are rivals for customers, so they strive for continuous improvement in customer service and customer satisfaction. The consequence is rapid change and dynamism, and social structures that are adaptive and flexible in embracing change. Stodgy bureaucratically regimented hierarchies can not respond to these dynamics. Such bureaucracies are found especially in government, which will not be able to regulate entrepreneurs out of business, because they won’t be able to move fast enough. A similar fate will befall bureaucratic crony capitalist corporations, whose mania for defense of what they’ve got will be overwhelmed. The result will be a sweeping away of entrenched elite power structures, and greater economic freedom for all.
A non-political society.
The greatest benefit of the entrepreneurial society, and the biggest positive change versus what we experience today, will be depoliticization. Politics is divisive. Its goal is to get us to hate each other. Entrepreneurship is unifying. Its aim is mutual satisfaction, a happy seller and a happy buyer.
Let’s teach everyone the entrepreneurial method. Let everyone start companies, grow companies, invest in companies, all with no thought of prediction. A middle class of business will emerge, defined not by income but by venturing. This middle class will produce more jobs and more enduring, more stable companies, embedded in strong communities, with greater well-being and less churn. The fruits of creativity take root in endurance and durability, and contribute to stability and the taking on of bigger challenges. Decade after decade, the middle class of business will generate value and produce wealth, employing lots of people and educating successive generations to take the entrepreneurial method with them into a better future.
https://hunterhastings.com/wp-content/uploads/2021/12/shutterstock_2071587794-scaled.jpg13402560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-12-28 15:52:232021-12-28 15:52:25The Entrepreneurial Society Is A Vision Of The Future.
On the Economics For Business podcast over the recent weeks, we’ve explored entrepreneurial solutions to wicked problems in comparison to the corporatist and/or statist solutions that customers and consumers often have to deal with. For example, Murray Sabrin and Christopher Habig both talked about entrepreneurial solutions to the current medical care crisis, and Joe Matarese specifically compared his private sector solutions in the same field to the bureaucratic reflexes of CMS (the Centers For Medicare and Medicare Services, i.e. the statist solution). We’ve covered entrepreneurial solutions in money (bitcoin and cryptocurrency), privacy (blockchain), and corporate organization (Valve and the boss-less approach to organization).
Why are entrepreneurial solutions always superior? Here are 4 reasons.
Entrepreneurial solutions are the most human.
Entrepreneurs design experiences that people seek and enjoy. They put the individual human experience first. Amazon, to its credit, calls this “working backwards”: in designing solutions, start from the desired customer experience. This is the essence of the entrepreneurial solution, which is the design and delivery of desired customer experiences. To get there, entrepreneurs understand the current customer experience, and what they find missing or dissatisfying or not quite right. Customers probably can’t design the new solution for you, but they provide all the experiential assessment data to inform the design of something better. And, to continue with the Amazon approach, the design process of working backwards is fueled by customer obsession – the undiluted commitment to put the customer first, understand their needs and wants, and make their lives better by delivering the experience they seek, and to do so with higher quality, greater speed, superior convenience, and, when applicable and available, lower prices.
Amazon demonstrates that entrepreneurial solutions can emerge from large companies if their internal teams and resources are appropriately arranged and motivated.
Contrast this with a statist or corporatist solution, where the customer is not placed first. Take home energy consumption as an example. A customer may wish for the experience of being able to switch providers whenever they feel like it, just as they can with online e-commerce providers. They may wish to switch between electricity and gas, or, within electricity sources, between solar and wind and natural gas and coal, based on price and availability, and preference. They may want a price and monthly cost optimization tool they can use to manage home energy consumption and expenditures, perhaps to allocate more dollars this week to entertainment and fewer to home heating (or cooling) and lighting. Could a regulated utility design or provide this experience? No. Could an entrepreneur design it and, in a free market, deliver it. Probably. Think Elon Musk.
In a wonderful book called Marketing Rebellion, Mark Schaefer tells us that the most human solution wins. The entrepreneurial solution is the most human.
Entrepreneurs are best at understanding and generating value.
The goal of the customer-first solution design process is for the customer to experience value. What is that? The answer isn’t all that straightforward, and entrepreneurs think about it deeply in striving to get it right. There are two elements of value that entrepreneurs understand that many big businesses don’t, and certainly that bureaucrats can’t.
First, value is a feeling. It’s in the customer’s mind. An experience is valuable if they feel it’s valuable after (or sometimes during) consumption of the good or service that produces it. In Austrian economics, this is referred to as subjective value. It emerges for customers from interactions within complex social systems – far more complex than one company or brand serving one customer in one exchange. Customers experience value uncertainty – will they experience the value they desire and expect – and perceptive empathic entrepreneurs continuously monitor, assess, and try to relieve the feelings of uncertainty.
Second, customers experience value within a system. Think of the household for example. It’s a system with the purpose of nurturing and protecting the family, and it includes everything from health and cleanliness, to nutrition, to clothing and fashion, and decor and comfort, and education and entertainment, and much more. The homemaker operates and manages this system and keeps it in balance. The entrepreneur knows that, to contribute to the system, the right stance is to humbly fit in. To be part of a value network that meshes with the home-as-a-system, and helps it to run better. Humble fitting in is a role that the entrepreneur typically plays far better than the global mega-corporation.
Listening, learning, and adapting.
Entrepreneurs understand, and are sympathetic to and supportive of, the customer’s continuously changing preferences. For the entrepreneur, the business environment is in constant flux. Entrepreneurs embrace change, and the speed of change. They are comfortable in a world of C-UVA: complexity as the norm, characterized by uncertainty, volatility and ambiguity. As a result of embracing change, they can be more responsive to customers.
How do adaptive entrepreneurs operate? First, they listen, actively establishing listening posts wherever they can, whether it’s consumer comments and ratings, research, or just random walking about in the same places the customer goes, and asking questions and joining conversations. Rich qualitative data, the kind that comes from one conversation with one customer, is far more valuable than a survey of 1,000 mechanized responses.
Via listening and monitoring changes in customer behavior (e.g. when they buy less, or buy more, or switch to a competitor, or leave the category entirely), the entrepreneur is able to learn. Learning is changing the mental model, the lens through which the entrepreneur sees the relationship with the customer. Changing mental models, recognizing that the existing one is not the best or not right or no longer appropriate and fit for purpose, is emotionally difficult for some. It can feel like defeat or an admission of error. Not for entrepreneurs. Learning and adapting are their best tools for keeping up with and succeeding in a changing market. Entrepreneurs love learning and love to take their adapted and adjusted solution, which proudly exhibits the mark of listening and learning, back to market to regain approval.
Emergence
What’s the best solution for all these interacting customers with continuously changing preferences embedded in swirling systems of change and adaptation? No-one knows and no-one possibly can know. The future in a C-UVA system of constant flux is perfectly unknowable. What will customers want tomorrow or next week or next year? They certainly don’t know, and nor can entrepreneurs, even the most empathic and prescient of them. How do entrepreneurs cope? They let emergence happen. Emergence is that property of complex systems whereby new popular and effective solutions happen without a tight design process to guide them. In emergence, entrepreneurs don’t know what’s going to work or fail, but they launch experiments to see what happens and adaptively respond to the results data, whatever they may be.
There’s an example in the book Working Backwards by Colin Bryar and Bill Carr, two ex-Amazon executives who describe the inner workings of that firm. AWS (Amazon Web Services) became a huge and very profitable business, but not by design. The authors tell a story about launching a new feature at the very beginning of AWS’s business life. Instead of providing merchants with a templated display design for their online offerings, AWS offered the display information in XML code. The merchants would have to write some code of their own to use it. How would they react? They might hate the new feature, or not have the resources to utilize it. They might be resentful that Amazon took something away from them. Amazon didn’t know what the response would be, but they ran the experiment anyway. It was a huge success. Customers proudly displayed the new pages they had created with this new web service. The reaction encouraged AWS to roll out more features and a richer customer experience, and they benefited enormously from the creativity and feature suggestions from their enthusiastic customers. AWS emerged and went from success to success.
The salient point regarding emergence of entrepreneurial solutions is the role of the customer. They’ll choose which experimental features they prefer, they’ll find new uses for them, they’ll request better and faster versions, they’ll tell their friends and colleagues, they’ll form user co-operatives and share best practices. Emergence is co-created. Naturally, and automatically, the emergent entrepreneurial solution is loved and valued.
https://hunterhastings.com/wp-content/uploads/2021/12/shutterstock_1999883387-scaled.jpg14402560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-12-12 10:57:012021-12-12 10:57:03Why The Entrepreneurial Solution Is Always Better.
We are entering an entrepreneurial age. Colleges and universities are teaching entrepreneurship, professors are researching it, and children’s books are being written about it. Policy-makers are appreciating it as a better way out of poverty than welfare. Large companies are striving to be more entrepreneurial. More and more young people are creating new entrepreneurial business models, utilizing easily accessible infrastructure from Google and AWS. Entrepreneurship is the zeitgeist.
In a recent article at entrepreneur.com, Per Bylund, who teaches entrepreneurship at Oklahoma State University, suggested that every entrepreneur should become familiar with Austrian economics. What is that? It’s the method of economics that recognizes entrepreneurship as the driver of prosperity and provides the design blueprint for the system that best unleashes potential economic growth for everyone to enjoy.
Austrian economics is an unfortunate brand name. It reflects the origins of the tradition in the University of Vienna, but that’s a long way in the past. A better brand name would be entrepreneurial economics. However, we’re unlikely to be successful with that re-branding, so we won’t attempt it for now.
More important than the brand name are the knowledge, insights, and business tools that Austrian economics can deliver. Austrian economics is on-trend for business in the digital age.
Management Science Is Moving In The Direction Of Austrian Economics
in an essay titled The Logic Of Entrepreneurship, Mohammad Keyhani of the Haskayne School Of Business points out that traditional business school teaching of strategic management is based on the old economics, usually called neo-classical. This is an economics of mathematical models, with no sense of humanity. It studies non-existent states referred to as equilibrium, where theoretical competitive structures can be analyzed to identify whether any firms have an “advantage”.
The new management science is replacing mathematical modeling with human modeling: how do people act to create value for each other? This is not math, although it can be simulated in computers by giving virtual economic actors human values and projecting the outcomes. The new entrepreneurial business thinking draws from Austrian economics: human, creative, and focused on value creation. The entire business discipline is moving in this direction, replacing the concept of management with the concept of entrepreneurship.
In an earlier paper, the researchers Stephen Vargo and Robert Lusch were among the first to suggest that entrepreneurship should be elevated over management in business school. Management is a product of the now-past industrial age, tending to give us large bureaucratic firms driven by efficiency (avoiding waste) than effectiveness (creating new value), and emphasizing control in existing markets rather than the exploration of new ones. It’s time to abandon this whole way of thinking and organizing. Entrepreneurship gives us innovation, new value, and progress.
Austrian Economics Is Systems Thinking.
The newest advances of science in all fields are products of, or related to, systems thinking. This is true for economics, and Austrian economics has been called a type or branch of systems thinking. Brian Arthur of the Santa Fe Institute, the epicenter of the study of complex adaptive systems, developed the concept of Complexity Economics. The economy, industries, firms, and economic institutions are complex systems. They can’t be managed. there are too many elements, interactions, combinations, creative initiatives, and emergent outcomes for anyone to manage. He has documented the antecedents of this new economics, in which he includes the research work and theories of prominent Austrian economists F.A. Hayek and Ludwig von Mises, and the Austrian school in general.
Core Principles Of Austrian Economics Are Recognized In The Mainstream
The first principle of Austrian economics for entrepreneurs cited in Per Bylund’s article is consumer sovereignty. This term refers to the insight that the consumer or customer is the ultimate determinant of what is produced, what is profitable, what sells well and what doesn’t. The mechanism is buying or not buying. This simple insight explains why Google is the dominant search engine, why Amazon drives so relentlessly towards greater convenience, and why the conversion away from fossil fuels is not going as fast as the government wants.
Yet major corporations and their management teams have been utterly confused about this simple principle. They talk about shareholder value and stakeholder value and put them in conflict with customer value. Leading business writer Steve Denning is one of the leading edge commentators who is setting things straight and asserting that top management must change their fundamental assumptions and take the Austrian approach to the primacy of the customer.
Human Action And Human Values
Rather than the algebraic symbolism of the mathematical models that make up mainstream economics, Austrian economics deals with human action and human values. What do people do and why? How do they feel their lives can be made better, and how do they identify and choose the best means to attain that goal? Austrian insights into the human values that drive human behavior and collaboration can be applied in multiple areas. Business management is one of them. The old mental is summed up by Derek and Laura Cabrera in their management book Flock Not Clock as Plan, Command, Control, and Utilize. In this traditional view, management produces rigid plans, which they communicate through the hierarchical organization with the command to the lower levels to follow, aided by control mechanisms such as process flow charts, and look upon the workforce as a resource to be utilized. The Cabreras offer a more human alternative that revolves around the sharing of a beloved vision and understandable mission in everyone’s mind, building the capacity for everyone to help execute the shared mission, and the learning loops from the market to continually improve. This is human values in action.
Diana Jones has captured this principle in her term Leadership Levers. The levers for management to generate high performance from an organization are not plans and commands and control mechanisms, but relationships, emotion, and empathy. These are the same elements that Austrian economics studies to understand systems like the economy, industries, firms, and customer groups. Empathy, for example, is identified as the number one skill of the entrepreneur, a tool to understand what customers want. Value is understood as an emotion, a feeling about whether an experience was valuable or not. And the relationship between producer and customer is a collaboration, a way to co-create those valuable experiences. Jones’ levers are Austrian levers.
An Ascendant Future
All these instances suggest a future in which more and more practitioners in more and more fields take inspiration from or draw ideas from Austrian economics and incorporate its principles into their thinking. As we say: Think Better, Think Austrian.
https://hunterhastings.com/wp-content/uploads/2021/12/shutterstock_1935540943-scaled-e1638470467521.jpg9852560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-12-03 08:41:272021-12-03 08:41:28The Accelerating Ascendancy Of Austrian Economics.
The existing socio-political framework is a backward-looking structure that evolved to protect the economic arrangements of a bygone age. It’s no longer useful, and gets in the way of progress.
We can take socio-political framework to mean the accepted way of doing things, the accepted social and political arrangements under which we all live and about which we don’t think too much. Big government, big corporations, employment, the welfare state for those who aren’t employed, government-run education, physical infrastructure, central banks, Wall street and its associated financial architecture. All of these grew up to support the industrial-age economy of manufacturing, economies of scale, trade in physical goods between countries, and the financial engineering required to actualize them.
In Carlotta Perez’s monumental book Technological Revolutions And Financial Capital the author points out that technological revolutions (such as the Victorian Industrial Age or the internet technology and communications revolution of the end of the 20th Century) precede social and political change. Entrepreneurs and innovators discover new ways to create value for customers and users, and people happily adopt these new ways. Only afterwards do politicians recognize the change and rush in to promise to “protect” their voters from exploitation by the new industries. Only afterwards do we get anti-trust laws and the SEC and labor relations laws and OSHA and new layers of the welfare state.
The new political rules are not only for the benefit of parasitical politicians. By the time the politicians have woken up to the availability of their new opportunity to regulate and tax, there are already incumbents who have emerged from the technological revolution. In the early part of the 20th century, it was the big steel, railroad and manufacturing companies. In the middle of the century, it was the big auto companies and durable and industrial goods manufacturers. In the last part of the century, it was the big banks and financial companies and energy companies. Today, it’s the big digital companies, and healthcare. They got big and, once established, they worked with politicians for the socio-political framework to protect their incumbency and discourage or exclude innovative startups and revolutionaries.
In this way, according to Professor Perez, a self-perpetuating ecosystem evolves, linking government, institutions, technology, corporate forms, financial engineering, and the legal system, in order to support and preserve the status quo. What started in innovation coalesces into preservation. She traces several cycles of this type in the last few hundred years of economic and social history.
Carlota Perez: Technological Revolutions And Financial Capital: The Dynamics Of Bubbles And Golden Ages
The other half of Professor Perez’s story is that, just as the new order is cementing itself in place, the next revolution is starting. On the fringes, and in the very early stages, experimentally-oriented entrepreneurs who are not associated with the incumbency are trying out new ideas and launching new initiatives. On the blockchain, on new technology platforms, and within new networks, some of them cyber-protected from external view, these ideas and initiatives will be tested, adapted, revised, renewed and, eventually, scaled. Some will succeed, some will fail, and there will be an accelerated learning that fuels the early phase of a new techno-economic S-curve cycle. What’s harder to predict, according to Prof Perez, is how the new socio-political framework will emerge, because it is a lagging phenomenon. We can’t predict, but we can surmise about what institutional replacements will be made in the next cycle phase.
The end of scale
Big government, big corporations, big finance, big data. The sclerosis of the current socio-political and techno-economic structures is exacerbated by the once-prized but now disdained properties of scale. The theory of economics of scale was a product of the industrial age. Entrepreneurs like Andrew Carnegie built giant manufacturing companies and economists, following dutifully behind, observed cost efficiencies and wrapped a theory around them. Today neither the centralized manufacturing process, the size of the company, nor the concentration of physical capital are required. The network has replaced the monopoly, and whatever efficiencies are to be found lie in connections, speed, and agility. “Big” is no longer relevant or necessary.
The end of financial engineering.
One of the many insights of Prof Perez’s book is the role of finance in the beginning and the end of the S-curve of technological revolutions. In the entrepreneurial beginnings at the bottom of the curve, the role for finance is experimental. Angel investors, seed-stage investors, and venture capitalists of the individualistic rather than institutionalized sort make capital available to the explorers and tinkerers. Some of these investments pay off and many don’t. Prof Perez calls this experimental function financial capital.
She contrasts that to production capital, which is the institutionalized capital-at-scale that arrives at the later stage of the cycle to cement the winners in place and make a return from their incumbency and their exploitation of their position in established markets. Yes, there is still innovation, but much of it is incremental and is processing, marketing or organizational innovation based on already-proven technology, rather than new or radical technological innovation. It’s what we can call financial engineering – including M&A, stock buybacks, and other forms of returns-gathering from activities that are not necessarily aimed at producing new value for consumers and customers.
Today, the emerging, networked, agile experimental corporations don’t seek financial engineering for scale. There are many ways to network into capital as needed, there’s a whole new emerging industry of fintech, and the fee-burdened financial engineering of the oligopolistic Wall Street banks and funds is eschewed as unnecessary and unnecessarily expensive and exploitative.
The end of employment.
John Maynard Keynes’s civilizational-destroying book was called The General Theory Of Employment, Interest, and Money. Employment was central to economists’ thinking back then because the giant industrial corporations had a need for masses of workers capable of performing repetitive routinized jobs. When the giant machine of finance-fixed capital – manufacturing – jobs fell out of equilibrium, employment was the first to go. At that point, governments became burdened with the problem of a disgruntled “labor force” who concocted welfare demands as their response to the dislocation of their employment. At this point, the maintenance of employment had become the very point of the economic and social framework.
In the coming digital age, employment is not the point. It’s replaced by entrepreneurship. In the networked world, every individual has unique knowledge and skills that are traceable with others, and each one of them will identify their individual entrepreneurial advantage. It might take the form of buying and selling, or of contracting for services, or gig work, or art and entertainment, but it won’t be “employment”. Jobs are not a staple of the entrepreneurial age.
The End Of Big Education
Big education emerged in the old socio-political framework to populate the employment pyramid. Government schools turned out the compliant workers for the routinized jobs of the big corporations. Community colleges provided the skilled work ad middle management layers. And the 4-year universities populated the executive levels. It was a well-functioning system, but became corrupted at the top of the S-curve, as is normal. The government K-12 schools are the most decayed, and no longer provide any valuable contribution. The other layers are similarly compromised.
The new forms are already emerging: home schooling, private schools of various kinds, online education, digital badging and certification. An enterprising entrepreneur can assemble their own educational components to give themselves the learning, skill acquisition and continuous improvement that they need for their own custom path.
Private currency
The financial system that evolved to support the big government-big business framework included the gold standard (until 1971) and the complex of national currencies created out of thin air – “printed” – by central banks. Today it’s called fiat money (and its ascent and decline are entertainingly documented by Saifedean Ammous in his latest book, The Fiat Standard).
Crypto currency, a private alternative to government fiat currency, is just now at the very beginning of its emergence at the bottom of the S-curve. It’s significant because it replaces one of the most fundamental building blocks in the socio-political framework, and that’s money. More specifically, it shifts control of money from governments to private individuals and private institutions. It’s part of the entrepreneurial revolution.
Austrian economics
The institutional binding that ties the new elements together in the novel socio-political and technological-economic frameworks is Austrian economics. The mainstream economics of today – often called neo-classical economics by the folks in academia – was compiled in support of all the big government-big business structures listed here. Its theories support government-printed money, government intervention in economic matters to subsidize employment, the legal and financial systems to support big business, large scale financial engineering, and the welfare state.
Austrian economics is the term the academicians give to the opposite way of thinking, economically speaking. Austrian economic theory is centered on universal entrepreneurship and the human value it creates. It is an economics of networks and systems, not of scale, and of individual human contribution to value, rather than “jobs”. It’s comfortable with private, competing monies, and with a stripped down legal framework that is “laissez-faire” rather than prescriptive and controlling. It’s the economics of entrepreneurship, and of the internet and value networks. It’s the economics for the coming entrepreneurial age.
https://hunterhastings.com/wp-content/uploads/2021/11/shutterstock_1065679955-scaled-e1637691752979.jpg11452560Hunter Hastingshttps://hunterhastings.com/wp-content/uploads/2021/03/hh-logo-blk.svgHunter Hastings2021-11-25 10:04:222021-11-25 10:04:23The End Of Employment: The Emerging Economic Structure Of Networked Entrepreneurial Businesses.
