Economics as if People Mattered

  Sailing on the winds of trade

    I used to write more about social media based on my experience building a social network between 1999-2007, and serving as community manager. Through that work I observed and validated that commitment and driving cultural conversation were the foundations for a powerful value proposition.

    It was invaluable experience for brand building. New brands can go from unknown to respected by turning commitment into confidence. And that is exactly what happened  from zero the network grew to 500 members at a time when there were no Facebook, Twitter, SnapChat, Instagram to get the word out, and LinkedIn was getting started (May 2003).

    With this in mind, there are three fundamental questions that helped us get the word out and scale. They're good questions to ask when we want to build something of value for all involved:

  1. what conversation do we lead?
  2. how will we serve our customers' future to build ours?
  3. how will we self-rebuild to better our future?

    To address a broader question why would anyone sign up and remain engaged over time?

    The value exchange between energy invested in participating, interacting, and enriching a community is part of the engine of commerce. It's what creates the opportunity for building equity. In that sense, I ran the network as a generous business. Each party took what they needed to succeed.

    It was good experience with many business lessons and parallels to bring to my corporate marketing roles, starting with how we collaborated as a team, including customers.

    By being engaged business builds equity in its brand, a business asset; active members of the community also build equity in the form of trust and credibility; and the community value goes up because being the platform where the interaction happens, it becomes the trading floor.

    Hence the kind of conversation we choose to have matters, and when we have the right motivations in the right seats, we all thrive.

Equity split

    Performance is an outcome of several forces  market reputation and authority, which create new options; there are hidden, yet expensive, costs of not doing the right things; customers and market don't stand still, thus the importance of moving with them; simplicity gets results, and the simplest way to deliver is to make promises we can keep.

    Long-term health of a business depends on performance. But today we look almost exclusively at market performance. Many stockholders of public companies are often the least invested of all stakeholders in the long-term health and productivity of companies. Which is why brands die with a whimper and yet enormous consequences. 

    There's a counter intuitive conversation going on at market level that doesn't reflect the investment we make in the running of the business. Ha-Joon Chang is a reader in the Political Economy of Development at the University of Cambridge. He takes the long view on economics, grounding it in history, and making it accessible to everyone.

    In writing about some of his ideas and approaches to economic issues I said:

In the relationships between stock market and corporate governance non all stockholder value is being represented. When there are hundreds, thousands, even millions of dispersed shareholders, individual shareholders have no incentives but to wait for long term results. Despite them being the legal owners, they have no incentives and are the least committed to the long term future of the company.

Other stakeholders in the company, like employees and suppliers, the local community and consumers find it more difficult to leave. This has given enormous power to the floating shareholder—the people who own pieces of the company with no long term commitment—and we now run companies based on shareholder value maximization.

This means no investing for the long term. The easiest way to generate profit in not to invest in machinery or improvements on the business like research and development, or trade, but to hoard cash and distribute it through dividends. In 1970, this was only about 35-45%, now it's more than 60%.

    An evolution and better question for business becomes what does each stakeholder (including customers) need for the company to be successful?

Economics as if people mattered

    This is a very different conversation than the ones we're having in companies today.

    When we ask questions about success, we don't consider the question commercially. Because if we did, we would make a distinction between actual money and other kinds of value up for trade and how close are company assets to value. This is how we can tell if a business has longevity or if it's built to flip before it withers like a weed.

    Trained by the prevailing market conversation businesses often are penny wise and pound foolish. They throw away the opportunity for wealth only to warrant the price of a share for which the business gets very little value in return.

    In Small is Beautiful: Economics as if people Mattered, a collection of essays, British economist and statistician E. F. Schumacher includes some thoughts on what he calls “Buddhist Economics.” The concept applies spiritual principles and moral purpose to the question of wealth.

    He says:

There is universal agreement that a fundamental source of wealth is human labor. Now, the modern economist has been brought up to consider “labor” or work as little more than a necessary evil. From the point of view of the employer, it is in any case simply an item of cost, to be reduced to a minimum if it cannot be eliminated altogether, say, by automation. From the point of view of the workman, it is a “disutility”; to work is to make a sacrifice of one’s leisure and comfort, and wages are a kind of compensation for the sacrifice.

Hence the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment.

The consequences of these attitudes both in theory and in practice are, of course, extremely far-reaching. If the ideal with regard to work is to get rid of it, every method that “reduces the work load” is a good thing.

The most potent method, short of automation, is the so-called “division of labor.”

Here it is not a matter of ordinary specialization, which mankind has practiced from time immemorial, but of dividing up every complete process of production into minute parts, so that the final product can be produced at great speed without anyone having had to contribute more than a totally insignificant and, in most cases, unskilled movement of his limbs.

    Which is how we got to the idea of recruitment as the search for “spare parts.” We're solving the wrong problem.

    The essays publication was 1973 so it's not a new problem. But we keep trying to apply outdated rules to it instead of looking at the principles in terms of longevity. What if we were to apply the guiding principles that have endured over centuries?

    What happens when we apply the Buddhist perspective to the question of work, the source of wealth?

The Buddhist point of view takes the function of work to be at least threefold: to give a man a chance to utilize and develop his faculties; to enable him to overcome his ego-centeredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence. Again, the consequences that flow from this view are endless.

To organize work in such a manner that it becomes meaningless, boring, stultifying, or nerve-racking for the worker would be little short of criminal; it would indicate a greater concern with goods than with people, an evil lack of compassion and a soul-destroying degree of attachment to the most primitive side of this worldly existence.

Equally, to strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.

From the Buddhist point of view, there are therefore two types of mechanization which must be clearly distinguished: one that enhances a man’s skill and power and one that turns the work of man over to a mechanical slave, leaving man in a position of having to serve the slave.

    Through this lens we get back to the idea that character is important over personality, and we get ourselves realized in this sense through work. Says Schumaker, “work, properly conducted in conditions of human dignity and freedom, blesses those who do it and equally their products.”

    An important guiding principle of Buddhist practice is “The Middle Way” (madhyamapratipad) between the extremes of asceticism and hedonistic sense pleasures. Contrasting Western economics with the Buddhist idea of working to obtain maximum human satisfaction, we see how when money is the only value, then land, labor, and capital become a means to the end. 

    Instead of sailing on the winds of trade and valuing all kinds of assets, including humans, then companies push for maximum consumption by optimizing for productivity. And in the process they get caught in the ebb and flow of sentimental share prices, bobbing up and down in high seas.

    We build brands the same way today ― to exit rather than to exist ― and mostly not on purpose. There's power in making commitments, in finding the path to developing that considers the interests of both sides of commerce. We're giving that power away; the equity is split in such a way that it's not worth the most. Is it little wonder we have poor engagement?