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What Makes the World a Better Place?

By | economics, reinvention | No Comments

I think this question is important for anyone to answer if they want to perform at their best. I am sure that many people who I would call evil believed that they were making the world a better place. That’s not my point. My point is, if you are going to call upon your utmost efforts, you can’t just be angry. You must believe that you are doing right. The Russians have a saying that captures this, “A true warrior does not hate the enemy. He loves what is behind him more than he fears what is in front of him.”

Small Answer: Making a Payroll

My first answer was ‘Making a Payroll.’ And I still think that’s right. It’ just not big enough. Jobs make everything better. Anywhere things are a mess, young people don’t have a job. And where youth unemployment is rising, trouble is sure to follow. Sure, you can think that religion is the problem. (And in many ways it might be) But for sure people with a job and something to look forward aren’t easy to radicalize.

August Sander was a German photographer who photographed everything. And particularly, he went around taking portraits of everyday Germans at the end of the Weimar Republic. Here’s one of my favorites

M20071-1 001

But in the Getty Museum in LA (I couldn’t find it online) there is a picture that perfectly explains to me how Hitler happened. It’s picture of a young man, maybe 22 in a heavy overcoat smoking a cigarette. You can see the fire in his eyes, the cockiness in the tilt of his head. He’s full of energy. And the title of the photo is “Unemployed 1932”. You come along and offer that kid a uniform, a gun, a car (all German infantry units were mechanized) and some money — shit, that kid will shoot anybody you want.

On a more positive note, most paychecks support a family. Families, even when they are bad, are better than no families. And as true as that is, I think it is contained within a bigger truth.

### Capital Formation

For me, capital is what really makes the world a better place. By capital, I don’t mean money. There are many ways that money, especially the kind of money and financial system we have now, can be destructive of capital. But I’m getting ahead of myself.

The three broad categories of economic resources are Land, Labor and Capital. Land being not just the stuff you put a fence around, but all natural resources that were here before we started scratching and squabbling over them. Labor, in this context is not the thing that forms a union, but the productive work of people. And capital is productive resources that we create using Labor and Land.

So, to make that really simple. When Robinson Crusoe spends all day fishing in the surf with his hands and is able to catch one fish. Labor + Land = Supper. When he doesn’t he goes hungry. One day, he gets lucky and catches two fish. Now, he could take the next day off from fishing, but that would leave him in the same predicament that he was in. Instead, he defers his gratification for the next two days and makes a net. Now, he only has to fish for an hour to catch a fish. Capital has made his labor more productive.

There’s all kinds of capital — Physical capital (shovels, buildings, trucks, roads, power plants), Intellectual capital (language, math, laws, the germ theory of disease, programming languages) but any kind of resource that makes our efforts more productive now and in the future. In a real sense, this is what Newton meant when he said, “he stood on the shoulders of giants.” A lot of other people did a lot of work that enabled him (and Leibniz) to make the leaps they did.

The Real Haitian Tragedy

As my then girlfriend, now wife, and I watched scenes of the terrible earthquake in Haiti I had a realization. I asked this question: “What’s the real tragedy here?” My point was, that the earthquake wasn’t the tragedy. The earthquake revealed the tragedy. And in my mind, the real tragedy was that the country was so poor that they didn’t have bulldozers and backhoes and jaws of life. They didn’t have the infrastructure that say, California does. They didn’t have the capital to build more robust buildings or more hospitals

The reason for this is not merely that Haiti is and was poor. The reason that Haiti never formed much capital because a series of corrupt governments stole it all. You can see the same script in Africa. That’s why, after decades of financial aid, 1/4th of the countries in sub-saharan africa are actually poorer then they were in 1960.

Poverty is instead created by economic institutions that systematically block the incentives and opportunities of poor people to make things better for themselves, their neighbors and their country.

http://www.spectator.co.uk/2014/01/why-aid-fails/

There are so many different mechanisms by which this happens that it’s easy to get caught up in individual outrage. Apartheid, for example. But central bank jackassery, confiscatory laws and ill-defined property rights all very, very bad from a standpoint of capital formation.

Where only a few in power are allowed to form or have capital then the result is crushing, hopeless poverty. Where people can reap the rewards of saving and of starting businesses — basically do these things without having their property stolen from them — wealth and rising wage rates follow.

Yes, there are a lot of other things that I believe deeply in make the world a better place. Kindness, music, stories. But without fresh water, plumbing, antibiotics and declining infant mortality rate, those things aren’t worth much.

Okay, Nice Worldly Philosophy Ya Got There. How Does This Translate into Action?

It makes me more entrepreneurial in my thinking. In many ways, I’ve resisted that for much of my life. Sure, you can say that being an independent author is a entrepreneurial activity, but to a limited degree. And, even with this hard-nosed world-view, entertainment is a great thing. Life is hard. To give someone an enjoyment that gives them a respite from whatever troubles them — and that that respite might help them understand themselves or the world a little better — that’s noble work. So, I’m certainly not going to stop writing. But clarity on this point makes me more business-like in my business-thinking.

It also explains why I don’t enjoy working with really, really big companies. In my current stance (and as far as I can see into the future) there’s really not a way for me to make a dent. They usually have insulated themselves from the pain of change through regulatory protection. So any change in these organizations is driven by a brave band of rebels within a larger system. Also, these unwieldy brutes just don’t have the growth potential. GE isn’t going to have a good year and suddenly double in size. Growth in an economy doesn’t come from behemoths becoming behemother. It comes from the creative destruction of small companies finding a better way and doing a better job for clients and consumers than staid, old companies.

So it clarifies the clients that are good for me. Let’s say Charter/Time Warner cable wanted my analysis of their business. I’d be happy to work with them, but I view my primary jobs as a consultant to see clear and speak truth to power. I’d have to tell them that their primary product is the misery of their customers. And that they only way they have gotten away with raising prices (for an increasingly substandard service) faster than the rate of inflation is that they use laws to keep out competition.

Of course, they know all this. And, as distasteful as I find it, I can’t blame them. They are just doing what everybody does. Exploiting the situation they find themselves in as best they can.

There’s certainly things I could suggest or develop that, on the margin, would make parts of the business work better, but man, that whole gig is rotten. The pressure of responding to the consumer’s wants and desires has been removed. The promise of gain and the fear of bankruptcy no longer motivates. So, the gravity of the situation is that a monopolistic company will tend to become worse and worse and worse, even as a number of well-meaning, hard-working and entrepreneurial employees try to make it better.

So, yeah. While I can have understanding for everybody in that scenario (employees, shareholders, highly-compensated lobbyists and customers) I can’t not see the situation for what it is. Probably not a great client for me.