Space for Choice

Barriers are how people stop other people from providing certain skills. We all need to eat. Our livelihoods, dreams, responsibilities, and view of ourselves are often wrapped in the “lifestyle to which we are accustomed”. The respect. The security. If you are lucky, the love of what you actually do every day. 

Creative Destruction is when someone comes up with a better way to solve the problem. The “Porter 5 Forces” talks about the intensity of competitive rivalry, the threat of new entrants, the threat of substitutes (alternative ways of solving the problem), the bargaining power of suppliers (the costs of solving the problem for clients), and the bargaining power of buyers (how empowered and willing are they). If who we are is tied to how we get paid, we are going to be very anxious. 

In Life Insurance and Pensions, the theory marries Assets (that make money) to Liabilities (the money that needs paying)… effectively institutionalizing hand-to-mouth living. The idea being that the smaller the assets needed (capital requirement) the higher the return. The problem is the work the capital can do gets defined by the nature of the liabilities. The same is true for individuals. If you don’t build a buffer or capital, then what you can do gets defined by what you must do. That sounds like an unhappy marriage to me. 

Choice comes from space. Choice comes with the ability to adapt as creation genuinely solves problems. Choice comes from us not relying on the problems to remain unsolved in order to feed ourselves.

Space for Choice, Space for Creativity

Cut the Fat

Price is not value. Daniel Kahneman points out that while we might be intuitive grammarians, with our ears bristling when someone butchers our mother tongue, even those with years of training in statistics are not “intuitive statisticians”. Some truths require slow deliberate thinking rather than rules of thumb. Truths like there are no gods of investing. Investors who will agree “price is not value” will fall foul of this too when talking about “their value”. Everyone likes to believe they are the one that adds the value. That can’t be replaced. That other people can be cut out of the value chain, because other people are the fat. A high price is not an indication of value. It is more likely (1) scarcity, or (2) barriers to entry. An obstacle to creative destruction is that we all need to eat. We all need to get paid. We all need a source of wealth. The only way anyone will be prepared to be made redundant is if we believe we are included in the future that exists on the other side. Money is made by solving problems for decision makers. One of our problems, is that (without capital) we need problems. 

Are you the fat?

 

Fear of Success

Money is made by solving problems in containers for people with money. The key is being able to communicate with the decision-maker-with-money, in language they understand. Know who is paying. Know what they want. Know what success looks like to them.

Neville Scott has spent a career helping business leaders design solutions to problems that can be implemented. He starts his process by understanding “the School Playground”. Problems have deep histories with complex origins. Solutions to single problems have unintended consequences and layers. One problem we are all trying to solve is that we need to eat. We have to get paid. If we permanently solve the problem we get paid to solve, that can be a problem. Creative destruction is a powerful fear-inducing force, without sustainably looking after the problem solvers. 

Protagion - Active Career Management is holding a virtual conference where I will be part of a free panel discussion exploring how building buffers (for resilience) and engines (for endurance) of Capital can help ignite your creativity. Free from the fear of success. 

The Robots

Price isn’t Value. Without insurmountable barriers, price is supposed to act as a traffic light. A competitive advantage isn’t what you are good at. It is the reason other people can’t do what you do. The obstacle. The privilege. The difficulty. The law of supply is that for a fixed cost of doing something, a higher price will attract a larger supply of people willing to solve that problem. You don’t get paid more for doing something more valuable. Price is a signal of scarcity. Not value. You have to determine how you value things, and then look at the traffic lights (given your values and intended destination) of the things that will help you get where you are going.

Shelter First

It takes time to build most things of significance. Especially if the thing you are building is intended to last. Creative Destruction is most unforgiving of those who are trying without deep roots. If your primary tool of merit is “trying” combined with “skills and knowledge”, the brutal forces of randomness and ambiguity will laugh you off. Context matters. Protection from the elements matters. Building anything of significance requires investment in the period over which you are judged. The harsh truth is that noise (luck and misfortune) probably means our lives are too short a time over which to judge. Wealth is built across generations. 10-15 years is the shortest investment period over which compounding can just be starting to take effect. Most businesses will fail in the first 10 years. If you can generate 5% real (after inflation) return for 15 years for a relatively stable stream of contributions, and can keep that average return up, you can build an Engine that can sustainably carry on paying an equivalent stream. 50% (invest half) for 15 years (time) at 5% (genuine creativity) touches on sustainability. Capital supports sustainability. That is a big ask when you are fighting the wind, rain, and sickness. First, find shelter.

Fist to Mouth

Creative Destruction dismantles long standing ways of doing things in order to make way for innovation. It scales the idea of “making yourself redundant”. There is a punch you in the face obvious problem with making yourself redundant. It requires trust. Fool me once, shame on you style. When you realise that someone has the ability to cut you loose like a gangrenous limb, after solving their problem, one option is to make yourself irreplaceable. To stop trusting. To create artificial barriers to entry and negotiating power. Little secrets people don’t want known. Stuff they know you know they wouldn’t want in the newspaper. Dirt. The only way to truly want creative destruction is to be an owner. Then, and only then, do you have an incentive for the problem to be solved. Otherwise, the real incentive is to make sure you, personally, are a part of the problem solving. You want the problems to go on. To release the power of creative destruction, we have to detach our identities from problems. To build buffers of cash, and engines of capital, that support us beyond hand to mouth living. That make us celebrate a job no longer being necessary, because it means a problem has been sustainably solved.

Product Development

Product Development is a process that is never finished. It is a constant dance between users and the people tweaking the solution. The product/service offered can be a slight change or a completely new way of getting the desired result. It can even be a new result that hadn’t been thought of. Or simply rolling out best practice. Seeing how a problem is solved elsewhere and introducing it to a new community in a way they recognise. This requires a deep understanding of the community being served and an ability to observe and listen. It requires awareness of the alternative solutions being offered. What are the challenges a community is facing? Who are the decision makers in that community? How can you help them? What resources would you need to do that. Product Development also involves identifying the skills, knowledge, and resource gaps you might have. That isn’t the end. Once you know the gaps, you can fill them. Product Development isn’t about you, it is about the people being served.

Weaver - Van Gogh (1884)

Moron with Money

If you understand Compound Interest, then you understand Privilege. The same “merit” applied to more Capital will result in a bigger reward. Reinvested rather than spent, it can grow. That is why hereditary privilege is a part of generational wealth creation. Our lives are short. If we spend everything, the next generation is always starting again. Starting without a buffer for emergencies. Starting without space to breathe. Money making requires skills and knowledge, but is completely ambivalent to the back story. Unless we add barriers to entry. Institutions, networks, communities, inheritance, prejudice and regulation. Real merit doesn’t care how much effort you put into learning to solve the problem, or who Mom and Dad were. The key is being able to solve the problem. Whether it is because you watched a YouTube video, or studied for 20 years. But. If you are a moron with money, you still get a seat at the table. Again, the back story doesn’t matter. Money is the story. Real meritocracy would be smart money. Able to connect people with voices hidden by their lack of capital. Money that understood history.

Timbuktu Manuscripts

Knowledge and Capital are Intergenerational

Freedom of Movement

Freedom of movement is the way to dismantle privilege. Privilege is inherited barriers to entry. Bring down the walls. As a South African, I have always felt I will know Apartheid is truly over when the electric fences and burglar bars come down. Rich countries have the same issue, they just place the fences on the borders. GMB Fitness talks about the foundations for physical autonomy – strength, flexibility, and control. These are the keys to moving with ease. Financial autonomy is all about being able to move easily. That is why I believe so wholeheartedly in the Four Freedoms (Capital, Goods, Services, and Labour). To understand privilege, understand borders. Understand the monopoly of control in bubbles. If you want to dismantle privilege, start by letting people live where they want, work where they want, work for who they want to, and buy what they want to. Start by trusting people to make their own decisions. Empower the word yes. Empower the word no. Reduce the barriers to entry and let creative destruction do the rest. Trust people. From the bottom up.

Barriers to Entry

Marlboro Man

There is no point in being angry at God if you are an atheist. There is no one to direct the anger at. I am anationalist and an acorporatist. Not in the sense that I don’t believe in Nations and Corporations. Just that I don’t believe they are people. There are people that believe in them, and they have power to impact actions. But they are stories. Stories that influence the choices of others and create vested interests worth protecting. The tobacco industry loves high taxes and zero advertising. This stops new entrants and protects the lingering story of the old titans. Similarly the Asset Management industry wouldn’t be happy if the cost of investing fell to zero. To manage money for others requires Capital, a buffer for insecure income, and financing a stream of expenses. Needing money to make money protects those who already have money. They want the associated expenses as a barrier to entry. A way to prevent staff from getting ideas. Senior analysts don’t break away to do their own thing because they have fired enough junior analysts to know the lightning that started their careers has to hit twice. They know the emperor is wearing no clothes. They also know that winners tend to keep winning. Starting is hard. If we want real change, we need to empower starters.

Old Stories Have Power

Reverse Darwinism

Homo Economicus is the imaginary human with an infinite ability to make rational decisions. This character doesn’t exist, but is useful in models of how real people make choices. Behavioural Finance focuses on painting a better picture of the more complicated ways we really engage with the world. The idea that businesses focus only on profit is also imaginary. Partly because incentives are complicated. Partly because businesses are imaginary models too. Businesses are collections of real people with real behaviours. The future is unknown, and the consequences of our actions are unknown. “Reverse Darwinism” is the idea that people hire people slightly less intelligent/more controllable than them so that their place is secure. People get promoted till the hit their level of incompetence, or a political ceiling. If someone promising threatens to leave, let them. There is always another promising, less demanding, person to fill their place. This all sounds cynical. My point isn’t that people are bad. It is that merit and profit aren’t clear. People are complicated with inconsistent goals to match an uncertain world.

Survival Models

The first course I had to repeat because of failure was ironically called Survival Models. It was a step up from the course’s previous name. Mortality. If you have ever experienced the pain of finishing an essay or project, and the computer crashing, you will have some empathy for the penny that dropped for me. I hadn’t failed for lack of application. I had passed the course, but had been swallowed whole (along with most of my class) by the final exam. The exam was all that mattered for the professional qualification. Even when the evidence disappears, Skills & Knowledge built through blood, sweat and tears leave a mark. The second mouse gets the cheese. Second time round, a lot of concepts that didn’t make sense the first time sunk in. Normally we don’t have time for that. The production line moves on with progressively weaker foundations. I still look back at that course as a blessing (deep) in disguise. I learnt the value of learning through teaching people one step behind, even when you are grasping in the dark. I learnt the value of compounded learning. Of inconspicuous growth. It’s never starting from scratch if you carry hard won lessons with you.

Survival Training

Growth Rings

If you want to learn about learning, it depends which angle you are coming from. If you want the low hanging fruit, Tim Ferriss is your man. Author of “The 4-Hour Workweek”, he is all about hacking life to its bare essentials through self-experimentation. Finding entry points. Planting seeds. Variety and quantity unafraid of mistakes. Often the barriers to good enough to get 80% of the juice are quite superficial. If you want mastery, learning is about unlearning. Then Josh Waitzkin’s “The Art of Learning” is my bible. Stripping back. Finding out what is unnecessary. Simplifying. He calls it “making smaller circles”. Embodying knowledge requires autumns and winters. Periods of difficulty that show us what really matters. That allow the essential qualities to add another ring to mark another period survived. An essential part of endurance is the experience of having endured.

Destruction

Capital is a living organism, and Consumption is a form of killing. We need to consume to live, and so we need to ask how much of the Consumption is part of the cycle, shifting energy from one form to another, and how much is destructive. Sustainable Consumption reinvests. Meaning that not all that is produced is consumed. Reinvestment leads to Sustainable Growth. Consuming more than is produced gradually destroys what is there. Living hand-to-mouth with zero reinvestment is destructive. It is living in the present to the exclusion of all that will follow. Actuaries typically talk about a “Sustainable Rate of Return” of 3.5% for the average retiree aged 65 years old with a prudent base of Capital working for them. This means if you “see” a million dollars (ka-ching!), you should really “see” a sustainable stream of $35,000 a year if you are a custodian. See Capital as the trees, and sustainable income as the fruit. Ash doesn’t produce fruit.

Fake Work

“The Broken Window Fallacy” is used to show that you can’t create prosperity through destruction. Fake jobs like the private security industry aren’t creators of prosperity. A step forward with money over barter was that I don’t need what you are selling, if you want what I am selling. Money will suffice. The Broken Window idea is that by breaking something, I need to pay to get it fixed, and so it starts a chain of events that gets people working. Except. You can’t see what would have happened anyway. How the money would have been spent. There is however still a very real coordination problem. People who could be working who can’t find work. Needs we don’t know we have, and people with the skills and knowledge to meet them who we aren’t connected with. People with potential but no support. Finding clients. Finding the money for the things we need. An understanding problem. A communication problem. A funding problem. We don’t need to break things to see, but we do have to look and listen.

Fake Work doesn't create prosperity

Natural Life

"Science progresses one funeral at a time" Max Planck. Two of the reason I believe human intelligence is growing is that we don't know what others do, and we die. 

With most systems, there is the Legacy Tradeoff. They get progressively more complicated, and have an attached switching cost. The system works, with problems, and starting again is an absolute mission. There are known issues, but you live with them because nothing you can replace it with is any better.

Most historical figures look awful by our measures. Stalin and Churchill defeated Hitler! Yay! Stalin and Churchill were responsible for millions of deaths! Boo! Rhodes Scholarships! Yay! Cecil Rhodes the Racist Imperialist! Boo! Norway Sovereign Wealth Fund! Yay! Built off Oil! Boo! Nothing is as clear as we would like it to be. Evil people love their kittens and kids too.

Like when well-meaning older generations say cringe-worthy things, that used to be "completely acceptable". It is very hard to unlearn scripts and behaviours. We are also supposed to look up to the elders, but the world is changing so fast that there are no longer people who have experienced many of the challenges we are facing. Unlearning is a far more powerful tool than learning. We learn like sponges. Unlearning takes effort.

The advantage of the "we don't know what others do" means we can try lots of different approaches. A single person's life is pretty small. In the context of others, in the context of time, and the context of impact. Life cycles and generations help us get a balance between passing on the good bits in an ordered fashion, and letting the #Awkward moments fade.

Countries, Businesses, Religions, and various other institutions could likely also benefit from a degree of this "Natural Life". A balance between Conservation and Creative Destruction. Those of us with the bold new ideas, should also have the humility to realise our grandchildren are likely to cringe too.

Time moves on

Creative Destruction

When you have a secure base, Creative Destruction is far more attractive. We invest a lot in our careers, our relationships, our homes and our identities as we build a life. The more we know we will be okay, the happier we are to lean into destruction. The more we trust that destruction to be an act of creation, the happier we will be to pick up the sledgehammer ourselves. That is why I don't believe protecting workers is about stopping destruction. Provide the empowerment directly. Don't protect the job. Empower the person. A Universal Basic Income beats a Minimum Wage. Ensuring we all have the ability to walk away, is the best way to ensure we can walk towards.

Support Group

I live in Burford. I am part of a group of five who meet twice a month in London, to support each other. We spend three hours chatting about different specific topics, and catching up on what has happened in between. I have sufficient common ground with the others to understand them, but they all challenge me in very different ways. It is not a group of like minded people. The idea is to make each other uncomfortable, but in a positive way. One guy likes process. One to sit with the emotion of things. One to destroy things. One to get things done. I tend to get philosophical, and dive into the why. Sometimes excessively seriously. I would like to be in more of these groups, and I would love this type of support to go viral.

Manchester

For a relatively small island, the United Kingdom has a lot of flavour. People can tell from accents which city others come from even though these cities are neighbours. While language pulls us together, people clearly value signals of where they are local. Manchester is the second largest city in the UK. It's unplanned urbanisation was on the back of a textile boom which lead it to become the world's first industrialised city. Before industrialisation, most of us would have been 'different but rural'. The underlying sounds of our lives would have rhymed. Cities bumped up the extremes. Wealth and poverty. Boom and bust. The cities population peaked in 1931 at 766,311 (530,300 now, with 2.7 million in Greater Manchester). Manchester lost 150,000 jobs in manufacturing 1961 and 1983. Creative destruction, or just destruction, depending on whether you landed on your feet. In times of change, local is something you can cling to.

Manchester Montage

San Francisco (Neil)

San Francisco (and the Bay Area) is where the future is being created. Look at the apps on your phone – Uber, Facebook, Google, Yelp, Pandora, LinkedIn, Airbnb, Twitter, and many more – all are located in the Bay Area. People here believe that the world is open for technological disruption and that they have the power to do so. This attitude of innovation and impermanence radiates through to every aspect of life. People are constantly experimenting with their identities, relationships and careers - purposefully building better systems. I live in Sydney now, but I left my (opened) heart in San Francisco.

Finding your Place (A conversation with Neil)