Thursday, July 18, 2013

A New Model of the Economy

Within the prevailing wisdom on prosperity and the economy, there really is no visual metaphor for what the economy is, or what prosperity looks like.  It is all very amorphous and unstructured. Chaotic and confusing, really.

This is perhaps because the received wisdom on economics was developed within the shared experience of space as a boundless frontier, into which we can expand endlessly. With our focus on expansion, the visual image that drives us is the trend line. We see prosperity as more of everything. In the lexicon of Corporate/Industrial Capitalism, prosperity is Growth. That is how we sustain our prosperity of "bigger, better, faster, cheaper".

In this metaphor, place is where we start, but we never circle back to the beginning. Instead, each place is its own new beginning.

What happens when we reach the limits of the Earth, and find that it does, in fact, close back in upon itself? We leave the Earth, and venture into Space. Space becomes our Final Frontier, a truly unlimited, omnidirectional horizon into which we really can expand endlessly. Except not.

We ventured out into Space. When we got there, all we found was rocks.

We have the Earth, and it is well and truly ours, but it is all we have.

Instead of the horizon, we now have the biosphere.

What does this mean for our visual metaphors of prosperity and the economy?

I think when we shift our focus of attention from the horizon on the periphery to ourselves at the center,  interesting things happen. We can see that the economy really is all about us. It is about the work we do to fill the needs we have, and that we must fill if we are to live, and live well. Our needs don't change. Our work is constantly evolving changes in the way we live, changes to which we are, in turn, constantly evolving adaptations.  This gives us a structure that we can represent in a visual metaphor of concentric circles.

At the core is Land. We are ontologically terrestrial creatures. We must have somewhere to stand, or we cannot be. So land is central to us, to our experiences and to our economy and prosperity. Next in order of time-sensitive to our biological continuity is Air. We have to breather. Then Water, Food, Shelter. After that, the ordering becomes less physiological, and more open to debate.  To get that debate started, I will venture the following sequence: Healing, Heat, Light, Tools, Power, Recreation, Information, Communication, Transportation and Organization.  See visual metaphor, below.

These domains don't change. They are the needs we all have, and must fill. The work we do to fill those needs changes more or less constantly.

This brings Time into the picture. We live in space. We also live in time. Our work is always about our needs, in place and time. Economically, we experience time in terms of the impacts our activities will have on the spaces in which we live. In an earlier post, we proposed a series of 7 different Impact Horizons that divide our experiences and our expectations into seven slices of a pie chart. If we layer those seven different impact horizons over our concentric circles, you get the visual metaphor, below.

Tuesday, July 16, 2013

Pyramid. Or Pie Chart?

If you move through the Impact Investing world, you will find much reference to BoP.  This stands for "bottom of the pyramid".

Much political discourse in the US today is about our shrinking middle class and the hollowing out of the pyramid.

Why is there a pyramid?

I have been participating in an interesting thread on the Network for Sustainable Financial Markets listserv in which a participant has been sharing some research about what he calls complex systems thinking in a work setting. This research identified 7 levels of time horizon for forward thinking about the future impacts of our present choices. The research listed them from top to bottom, with the longest impact horizon representing the most complex systems thinking, as follows

Level 7   Beyond 20 Years
Level 6   10 to 20 Years
Level 5   5 to 10 Years
Level 4   2 to 5 Years
Level 3   1 to 2 Years
Level 2   3 months to 1 Year
Level 1   Up to 3 months

When I looked at this, I saw the levels more as Zones of Caring than the ranking implied in a vertical list, and spread them out horizontally, so that they came to look like a business organizational chart, with the different zones of caring being the specialized domains of specialized contributors to the success of the whole, and the job of leadership to balance and integrate contributions from the different domains.

Another listserv participant shared this story. He looked at the charts, top down, as originally presented. When his wife looked at them, she pivoted them to horizontal, as I had done. When his kids looked at them, they spun them around in a circle!

This inspired us to experiment with organizing the level/zones of thinking/caring about future impacts as a pie chart. See below.

I think this way of looking provides some interesting insights.

  1. It shows that each domain of caring about future impacts, each "slice of the pie" is important. If any are missing, the pie is not complete. If the pie is our prosperity, and any of the slices our missing, our prosperity will be incomplete: unstable and unsustainable.
  2. It also shows that the size of each "slice" comes at the expense of all the other slices. Time, effort and expertise invested in one domain of caring about future impacts comes at the expense of not caring, or caring less, about one or more other domains of future impact. What is the right balance? Who decides? Or, rather, how do we decide?
  3. It shows that all the domains come together at a point in the center. Each domain touches every other domain, even if just at the tip.  The integrity of the "pie" depends on all the "slices" fitting together so that the pie comes together, and does not fall apart.
  4. It shows that some domains abut each other, so they come together, or not, along the entire length of a seam, and not just at one single point in the center.  Is it significant that the very longest horizon "slice" abuts the very shortest slice? Do our longest term cares have to be woven in with our most immediate choices and actions, and vice-versa, in order for the "pie" of our prosperity to come together, and stay together? Is this the key to real, sustainable, prosperity?
The pyramid is one visual metaphor for the socio-economic relationships between people. The pie chart, above, is another. 

Which is better?

Wednesday, July 10, 2013

Organized for Stewardship

As a participant in the Network for Sustainable Financial Markets, I have come to know (digitally) Mark van Clief.  Mark has developed a theory of systems thinking and complexity through which he has identified 7 Levels of Capacity for systems thinking within the general population.  I have transformed these levels into Zones of Caring within Domains of Choice and Action, to construct the attached idea map on Organized for Stewardship.

If you think about a pension fund within this construct and consider one that is built on MPT (Modern Portfolio Theory) as its portfolio design paradigm, I think you will find an organization that will struggle with the challenges of Staff Empowerment in a world that is dominated by Exchange-trading of financial assets. It will be an ontologically passive and reactive organization, and a reluctant non-participant in ESG, Climate Choice, Financial System Reform, etc. It will also, in all likelihood, continue to struggle with the underfunding of its pension liabilities because of erratic and inadequate portfolio returns, weighed down by excessive fees to outside managers that it really cannot control.

Now imagine that same pension fund, organized in this way, but building its portfolio on EPE  (Evergreen Private Equity) instead of MPT. There, you will find Staff Empowerment becoming a rich field for engagement in developing a new story of place as "the planet is our place", a new sense of purpose as ownership of both the intended and incidental impacts of our choices on the planet as our place, and a new experience of connectivity with the planet as our place, through digital media. This is Regenerative Capitalism. This is empowered and proactive stewardship. This is the path to real, meaningful reform of the financial system and the economy to support a truly sustainable prosperity of living well within planetary limits.

You will also see a pension fund that effectively and efficiently generates earnings through investment that properly match fiduciary returns to its fiduciary responsibilities in a perpetual present, while simultaneously sustaining its corpus of entrusted funds for successive generations of current and future retirees, in perpetuity.

Monday, July 8, 2013

Low Growth Does Not Mean Low Wealth

Many commentators are concerned by signs that we are heading into a low-growth phase within the global economy.  A consensus seems to be forming that global economic growth will be in a range of 3-5% for an indefinite time.

If you are a pension plan that needs to make 8% to support your fiduciary responsibilities to the plan sponsor and your plan participants, and you are investing only in growth, this can be a cause for concern.  But if you invest, instead, in wealth creation, you should be able to make your 8%, and then some.  There is no shortage of profits in the economy, even if there is a slowing in the rate at which profits are growing.

Low growth does not mean low wealth. It does not have to mean low returns, either. As long as we can avoid getting jerked around by booms-and-busts, if you invest in wealth, and not just growth, you should do just fine.