The Entreprenurial State

It has become common to believe that the government should keep its hands off business and job creators.  This idea is amplified by the right wing.  It is very true that individuals have intelligently, persistently, luckily and perhaps above all courageously brought civilization forward in an economic sense.  Real innovation is often against the status quo.  It also is true that when people band together they can accomplish more things.

There will always be a delicate balance between individuals and the collectivity.  It is true that we are all pressurized by our peers not to step too far out of line.  Status quo is comforting for many people.

I first saw Mariana Mazzucato on TVO's The Agenda with Steve Paikin.  Her comments stood in stark contrast to what I consider blow-hard opinions.  The blow-hards are basically self righteous individuals who have achieved success or visualized it, as separate from government.  They overlook their good fortune and the support they received from many quarters including government.

She links herself to John Maynard Keynes and Joseph Schumpeter.  Keynes is the one known for advocating increased government spending when the economy is depressed and Schumpeter is the one known for advocating innovation as the key to growth.  When times are tough private businesses curtail their spending including research leaving the government, if willing, to pick up the slack.  In good times Mariana finds that private business is really only interested in the short term.

Risk is a term used a lot, particularly to justify higher returns.  Another term Mariana likes to draw attention to is "uncertain."  There are many factors (including risks) that can be gauged as probabilities, but there are many other factors (unknown unknowns) that are not at all predictable.  These other factors can have a positive or negative impact on success, but in the field of basic research they can lead in new directions.

World War II provided an opportunity.  During the war scientists were gathered together to work on many military tasks perhaps culminating with the the Manhattan Project.  Working together and across disciplines they pointed the way to maintain military superiority.  After the war, groups developed to maintain competitive strength.  Defense Advanced Research Projects Agency known as  DARPA was one result.  Sputnik spurred even more research funds as the whole country felt threatened.  The Japanese were a few steps ahead regarding semi-conductor research and this was also a concern.

Their research provided the basic building blocks for iPhone, iPad, GPS, many pharmaceuticals, etc. etc.  After the expensive and risky steps had been taken some sharp people like Steve Jobs and many others were able to put products together that were commercially viable.  In fact most businesses and even venture funds shied away from expensive risky research, especially where they could not see a quick commercial application.

Today many see climate change as the number one priority.  Usually successful new technologies are disruptive to old technologies, i.e. creative destruction. The fossil fuel industry (oil, natural gas and coal) have had a long development (entrenchment) with large very significant sunk costs.  They have all the power to resist and the comfort of consumers on their side.

Bottom line:  do innovators give back to the community that supported them when it was needed?  Apple is used as an example--much of the basic research and development was done through government resources. But jobs go where they can be done cheapest and the company has developed strategies for minimizing taxes.  They are not unique.

A few conclusions.  The government can have a critical role in innovation and is in a position to take necessary risks on behalf of its citizens.  The government needs to recover some of its costs from developing innovations in part to continue its role in innovation.  Taxation is one way and even equity positions might be another.  The government above all needs to be recognized for its role.  Marianna makes many too often overlooked points and some useful suggestions.

I would add one more detail that the government provides towards innovation and that is education.  Some will point out innovators who dropped out of school and to be sure there are plenty to be found.   There are just as many innovators who were inspired by a teacher (in the formal system or outside).   To communicate their discoveries someone needs to read, write and understand, skills most often acquired in formal education.

The lion and the pussy cat on the cover were inspired by some words of John Maynard Keynes who was talking about animal spirits with regard to business.  The question is which animal represents business and which the state.

START WITH WHY

Simon Sinek had been trying to discover the source of what inspires.  He states that most sales are done through manipulation with such tools as pricing, fear and aspirations.  Manipulation works, but it doesn't inspire.  What he has learned is that people do not buy WHAT you do, they buy WHY you do it.  This is the secret to inspiration.

His models include Steve Jobs, Bill Gates, Martin Luther King Jr and Herb Kelleher.  They inspired people not because of their manipulations, but because people felt inspired about why they were doing what they chose to do.

Simon improved his understanding when it was explained to him about how the brain works.  The limbic system is innermost and makes decisions without words, in other words based on emotions and feelings.  The Neocortex helps to rationalize decisions and can influence decisions.

Colin Powell makes an important observation in this information overloaded era, "I can make a decision with 30% of the information.  Anything more than 80% is too much information."  Personally I would just be concerned that you pick the right 30%.

Customers aren't always right.  Southwest Airlines  founder Herb Kelleher once said "It is a company's responsibility to look after the employees first.  Happy employees ensure happy customers and happy customers ensure happy shareholders in that order."  By treating employees fairly, trust is developed and loyalty that is transferred to customers and shareholders.

Another example given is with the Education for Employment Foundation, set up by Ron Bruder who is using this organization to develop optimism for opportunities in the Middle East.  Ron felt part of the problem in the Middle East is that too many young people are discouraged from innovating and he has set out to move in the right direction.  Innovation can be a key to jobs.

Getting back to the premise, Simon elaborates with the idea that value is a perception and not a calculation.  People buy brands that give confidence as they understand the compelling why behind them.

With innovative inspirational entrepreneurs an important lesson is that in trying to crack the mass market you need to identify early adopters first.  They are the ones who will understand the why and their enthusiasm and loyalty will carry towards the rest of the market.

An obstacle to continued growth is success.   As long as the leader is still around there is inspiration, but sooner or later they leave and the Why often gets lost to the How and the What.  One example is Walmart whose founder, Sam Walton might be best known for low prices, but in reality his secret was in how he treated his employees.  Other companies have been more successfully in passing on the original drive and some examples have been at Apple and Southwest Airlines.

Simon worked with ad agencies and wondered why some campaigns worked and others didn't although the ingredients seemed essentially the same.  As he came to understand the brain he concluded that too often the What and the How were understood, but not the Why.  Leaders need followers and the best are those who share enthusiasm for the Why.  In conclusion Simon says two things are required for innovative success.  The first is a vision of he world that does not exist.  Equally important is the ability to communicate it.  The vision comes from Why.

You can read more about Simon and his ideas at https://www.startwithwhy.com

Why is an important question, not asked enough, particularly by adults.  Earlier I had hit a similar theme from Amanda Lang http://www.johnfdavidson.com/2013/04/the-power-of-why.html  She felt that curiosity had been knocked out of a lot of people as they were socialized, but that following up Why was the way to innovate.

Think like a freak and be more innovative

Have you read "Freakonomics" or "Superfreakonomics?" They are full of interesting facts that often have practical implications, but weren't "common sense" thinking.  This third book by the two author team is intended to encourage thinking that uncovers solutions to problems that have been overlooked.  Innovations come from thinking and maybe freak thinking opens up more possibilities.

In their original book I was struck how they analyzed a fall in crime.  A lot of propositions have been suggested including better police practices, greater incarcerations.  They determined that the suggestions did not cover the total decline in crime.  They took note of the date when crime trends started to decline and dug deeper.  The critical factor to close the gap was when  in the next twenty years after the abortion laws were liberalized with Roe v. Wade there were fewer unwanted babies many of whom would have been brought up in trying circumstances.  This is not a conclusion that would be welcomed by everyone, but still the implications are profound.  Wanted babies are very desirable.

In thinking like a freak there are a few guidelines.  A key one is revealed by a phrase not often used, "I don"t know."  Too many of us are ashamed to admit our ignorance or we just don't care.  Starting from the admission of ignorance we can discover more possibilities than many "educated" people normally consider.

A California experiment to encourage better water habits demonstrated the power of herd behaviour.  Rather than being motivated by saving money or saving the environment the most effective results came from pointing out that their neighbours were adopting some new practices.

Don't be afraid of the obvious.  Sometimes we overlook an explanation that just seems too simple.

When presenting your ideas avoid name calling.  Everyone will not understand or accept your thoughts, but keep the door open.   What has more effect?  We are inundated with mega data and that is likely to increase.   What we really respond to are stories that make a point.

A key decision we all have to make is when to quit.  Winston Churchill is famous for advocating never give up.  When a venture is well on its way and not going to plan we have a tendency to factor in how much we have already invested (time, money).  The authors suggest we should evaluate the opportunity costs, ie. what we could be doing instead of continuing on our problematic route.

Stephen and Steven are always finding new ways to look at things.  Keep up to date, http://freakonomics.com

"The Power of Why" the basis of our future

Amanda Lang was spotted occasionally on tv. and she always seemed to make sense, but I was most impressed after watching her being interviewed by Peter Mansbridge regarding her new book.  A lot of her thinking was very personal and she was not ashamed to discuss how she advanced after making some poor decisions.  She sometimes seems like a punching bag for Kevin O'Leary, but I think she holds her own.

As a business news journalist Amanda has become very conscious that a critical step in economic growth is innovation.  Innovation can be very dramatic, but more practically can be incremental. People are stumbling on better ways to do the old familiar things and occasionally discover a major breakthrough that changes the game.  Amanda notes that in society people tend to seek acceptance rather than questioning the way things are.  We strive to fit in.

This starts as we become socialized after birth.  We are criticized for questioning authority.  School is too much rote learning.   In business we become afraid of rocking the boat.

She quotes a study by Canadian Tire that goes very deep into why people do what they do.  One of the unexpected consequences which struck a nerve with me was the realization that Canadian women can be pretty hard on their men.  This was only a small part of the discoveries to find out how to bring more people  (men and women) into Canadian Tire.

Questions are at the root of solutions.   Problems are so common that many are taken for granted, but questioning in depth sometimes reveals opportunities.  Managers are often risk adverse, but instead Amanda recommends the encouragement of inquiry.  An engaged employee is one more apt to find solutions.

As a youngster Amanda loved riding horses and developed an interest in dressage.  Dressage is a discipline where you are judged how well you can get your horse to perform intricate movements with minimal signals.  Forces you to think like a horse.  Looking back she sees that successful people (in business and personal life) need to understand how the other person thinks.

The book is very simple to read and does include helpful examples.

23 things they don't tell you about capitalism

The author Ha-Joon Chang is not anti-capitalist as the title might imply, but feels that we have been misled by free market capitalism.  I was given this book and took it as a bit of a challenge as my son had brought it home after reading on his flight over from London, England. The challenge part was that I had to finish it before his flight back.

Ha-Joon makes many many points and in a short blog I cannot do justice to them (I probably couldn't do much better in a long post).

Although you have to twist your thinking in a number of ways it is not difficult to understand. I have always felt that the rules are made by those in power and that the masses (including myself) are easily or at least sufficiently won over to accepting their viewpoint of free market capitalists. Ha-Joon points out with many examples of how the thinking has been distorted. Born relatively rich (in the West) we tend to be very self-righteous that we deserve to be in power.

The free market people in power say the market is supreme and corrects itself. In the most extreme beliefs, regulations are always harmful, government should be minimized, poor people are poor because of their own inadequacies. Their views on collective organizing is that it is really a dirty word--"socialism". "Government", to quote Ronald Reagan "is not the solution, it is the problem". History is re-written to prove their viewpoint.

There is no such thing as a free market, or maybe I should say we don't actually have one. Originally a free market was conceived as one where a company was totally liable for their debts, meaning the owners had to pay all the bills even if that meant they would pay out more than they had invested. The invention of the limited liability (as you see with many companies adding Ltd. to their official company name)  unleashed capitalists from the fear of unlimited debt. Quite rightly investors were interested to minimize their risk and society as a whole benefited. The free market believers usually overlook this fact and resent that workers want to minimize their risks.

The truth is all countries reached their current level of success with practices that would not be approved by the free marketers, including their own countries. The United States, amongst many other nations strongly practiced protectionism to give their own industries a fighting chance to establish themselves.

It is assumed that poor nations need to learn the new free market rules if they are to succeed. Ha-Joon points that in fact poor nations are actually much more innovative than richer nations. They have to be to cope. He gives the example of some people selling space in a long line. One experience that I recall was on a trip to Cuba taking a tour bus to visit Havana we were confronted with a deaf mute whose mastery of English I am not sure of. Actually met him on two different trips and at first found him very annoying, but eventually understood he was filling a need that a lot of us had. We couldn't figure out where our bus was parked. He had recorded all the bus numbers and knew where they were parked. He depended on us appreciating his service which not everyone did.

One of the basic tenets of free market thinkers is that the market is rational, but actually that is not true. The more complex our society the more difficult it is to be rational. In truth most people at some stage trust what they are told. The system breaks down when trust breaks down.  No single person understands all the options.

Efficiency is easily abused. For instance money can be transferred in seconds from one project to another across continents. This has encouraged investors to seek short term payoffs and avoid those long term projects requiring patience. It has been assumed by most of us that shareholders have the strongest stake in a company, but actually they are not as committed as workers and suppliers who cannot switch their efforts so easily.

Financing is a dominant force in the world.   It can speed growth, but also create crisis. It tends to short term planning as opposed to long term planning. The author concludes (amongst other things) that we need to end our love affair with free market capitalism and to recognize that human rationality is severely limited in a very complex world.

Like to get a fuller view of Ha-Joon's thinking? Visit his website, http://www.hajoonchang.net/