Support Structure

The original Marshmallow experiment looked at whether you could predict future success based on the ability to wait for a sugary treat. The skill of delayed gratification. More recently, a study controlled for socio-economic factors like parent’s education and early childhood development support. Once that was taken into account, waiting for the marshmallow had almost no predictive power about future success in school or life. Waiting is a core part of wealth creation. I do believe it is something you can learn. Something you can build into your habits. Spending has rhythm. Daily, weekly, monthly, yearly. You can pay attention to the things you consume regularly. You can pay attention to unsurprising surprises you can plan for, so they don’t regularly force you to start from scratch. Then, if you have fundamental faith in the future, and your place in it... you can allow the space and time for reinvestment. Where wealth isn’t what you consume or display. Wealth is the systemic structure that supports creativity.

Gothic Quadripartite Cross-Ribbed Vaults

 

Hereditary Entitlement

Meritocracy came in as a response to hereditary wealth. Hereditary entitlement. You had a position or role in your caste or class, and that came from your parents or the money you inherited. Meritocracy was the wild idea that you should hire the best person for the job. Which is the most skillful or the most knowledgeable. You should push resources to where they will have the biggest impact. That provides a path for social mobility, and it allows people to move “up”. If you use that directionality. The problem with meritocracy is that the idea is handicapped by the impact of privilege. Part of our incentives is money, but part of it is we naturally want to invest in the skills and knowledge of our children. We quite reasonably want to give them a competitive advantage. One of the barriers to entry is education. If you give someone education, you implicitly strengthen their barriers and that compounds. So there is a lot of thinking to do about conspicuous meritocracy and the barriers that people have to overcome. If we really want to get resources to where the true merit is. 

Focussed on Up

Ongoing Source

Building wealth takes time. 15 years is an aggressively short period to build an Engine (Capital that can earn enough to cover your expenses). Unlike saving with a picture of what you are going to spend your money on, building an Engine aims to build an ongoing source. You can’t build wealth without a source. You can’t build wealth if you consume everything that comes from the source. You DEFINITELY can’t build wealth if you consume more than what comes from the source (and live off increasing debt). Most people live hand-to-mouth. A few manage to build capital to finance their retirement. This will never change if we consume everything we produce. Time and space is needed. Establishing sources of wealth. Then creating space between our hands and mouths. Then giving proper time to let capital work. Till we can live off the fruit rather than shrinking the number of trees.

An Ongoing Source of Energy

An Ongoing Source of Energy

Wealth Creation is not Betting

“The markets can stay irrational longer than you can stay solvent” was a warning given by John Maynard Keynes. The reason the “Martingale Strategy” does not work in betting is eventually reality kicks in. The idea (popular in 18^th century France) is that in a Head/Tales style win/lose game, you double the bet every time you lose. So, the first win will cover all the previous losses. The false idea being that the gambler with infinite wealth will eventually win. Reality is not infinite, so the gambler will one day experience catastrophe if they continue playing in this way. Truth catching out a strategy with no value. Unable to place another bet. With the house’s edge, the gambler remains a mathematical loser every time they bet. I believe this is the reason those who see investment simply as a game of betting against others are existentially doomed. It is not merely a case of buying things for less than they are worth from the irrational. Waiting for normal to return. What the thing you buy does, matters. What you do, matters. Fundamentally. You need to build enough capital to survive whether the market is rational or not. Then carry on doing things that matter. Win/lose is wealth extraction. Win/win is wealth creation.

Investing is not Gambling

Outsourcing Discipline

Some of the best investors I know don’t believe you need financial advisors or asset managers. Unfortunately, “you don’t need me” isn’t a good business idea even if it is true. There are no Gods of investing and there are no real secrets left. If you want to build wealth, there is more than enough information out there to self-educate. Teaching is an underpaid profession partly because it genuinely solves the problem. It empowers people to be self-sufficient. Good business ideas require the person to be an ongoing part of the problem solving. To create a Pantheon of chosen ones for mortals to put their faith in. Content creation also struggles (thanks social media) because there are plenty of people willing to share Zeitgeist ideas and knowledge for free. Even if you are just sipping on the collective tasters. Money is made in containers. That is what Asset Managers charge for. The Illusion. The protection. The due diligence of the machine that backs the process. The Custodians, Lawyers, Auditors, Compliance Officers, Administrators that turn a simple process into the shining land of Oz. That, you can’t do yourself. Obviously, there is a difference between being able to do something, and actually doing it. Consistently. That is what you are paying for. Paying to outsource your saving discipline.

Wealth is built in Containers

Team of Owners

You can’t “think like an owner”. You either are an owner, or you have different incentives. The Agency Problem is the conflict of interest that exists when one party is expected to act on the behalf of others. Interest alignment only goes so far. The Managers of an Equity Fund may claim, for example, that they co-invest and fees are performance based. But interests are holistic. You can easily hedge your exposure on the side, only invest a small part of your assets, or just be so wealthy that losses matter less (maybe less easy without family wealth). Owner Managed firms get around this because getting a firm off the ground typically requires most of your capital. Participation in profits is not the same as ownership. Participation tails off when the individual stops working. Ownership is foundational and cross-generational. Real long-term wealth is created over a longer time frame than any one working life. Real long-term wealth creation is a team sport that requires a team of owners.

Agency Problem

Self-Made

“Self-Made” implies unplugging from the Matrix. Choosing the red pill. I believe Free Will is possible, it is just incredibly hard. Even then, the self of independent decisions exists within the system. Yogis call the Matrix “Maya” (the illusion of the reality of sensory experience and of the experienced qualities and attributes of oneself). Even if you see the Matrix, you have to start through acceptance. Changing things from where they are. Wealth Compounds. Real wealth comes when the story is bigger than you. When you become a smaller and smaller part of the picture. Through supply chains. Customers. Stakeholders. Through institution building. Articulating and voicing asks and offers. Solving other people’s problems. Through empowering others to make decisions you aren’t even aware of, or don’t have the capacity to understand. Taking the red pill is realising that it is not all about you. That wealth creation is about coordination and releasing potential. Self-Made is an illusion.

Build through Empowerment

Wealth Compounds. It builds on what came before. On what has soaked deep. It builds on what we pay attention to, and what we see as relevant. It builds on the meaning we create. Not in a straight line, and within complex systems. It builds through cycles of sleep, death, unlearning, feedback, reflection and hibernation. It builds through memory and perception. It builds through context and comparison. Looking at things that are the same, but not. Looking at what we can understand, and what we can’t. It builds by understanding constraints, and the constraints on our understanding. It builds through bridges and communication. Through buffers and firebreaks. Through places to connect. Places to withdraw. To breathe. In stillness. In gaps. Wealth builds to accommodate the ambiguous and the random. To adjust. To accommodate. To create. Everything is connected. Wealth builds as we see and release the power of those connections. Wealth builds through empowerment.

Zoom in

Foundational Space

The marriage between income and expenses is an unhappy one. Incentives matter. I can see the crude rationale behind a superficial meritocracy where spending more is a signal of success. A lack of breathing space is a fundamental flaw in this idea. If you spend everything that comes in, there is no capacity to pause. There is no space for seasonality. Periods of unlearning. Periods of re-engaging with the core of what is important to us. Periods of creation. Periods of appreciation. If we define ourselves by our labour, it becomes all about us. Us and a pay-check that almost lasts. Normally. Unless there are unexpected bumps. We have no vested interest in the complex relationship of stakeholders and institutions that empower wealth creation. We are not owners. We are work takers. There is a better way. If we all build Capital. Capital is connection to a world that works. If we all create interconnected breathing space. Inhaling and exhaling trial and error as we iterate towards a world with more endurance, resilience, and creativity. Together.

Creating Space for a Solid Foundation

Post Work World

There are two big problems with the idea of a “Post Work” world I have discovered since I stopped being an employee five years ago. We build everything around work. The first question people often ask you is “what work do you do?”, and we ask children, “what do you want to be when you grow up?”. In a way that embeds the idea that you are defined by the label of work. A regular question artist or writer friends of mine get asked is, “do you make enough money out of that?”. The two problems are Conspicuous Leisure and Conspicuous Wealth. If you can’t visibly demonstrate what progress you are making, you look lazy or lost. If you aren’t working for money, you look greedy. Money is the most conspicuous demonstration of progress. You don’t have to understand what someone is doing if someone else is willing to pay them. The easiest way to free yourself from financial pressures is to control your expenses. But if you have an Engine, you have to explain why firing bits of it is so painful. You “have” money, but not really. It is working. I have discovered that it is very hard to create a “Post Work” life in a Work focused World.

But what are you doing? 

Pic Credit: Matt Hussey

Hand to Mouth

If you spend what you earn, you need to earn what you spend. Living hand to mouth makes you completely dependent on the hand. It keeps the hand busy. In an agricultural world, this made sense because food couldn't be stored without going off. This made a 'work ethic' vital because you only got to eat if someone else was doing the work. You were a free loader. There was still some storage for the Winter. Ant Stark may have kept telling Grasshopper that Winter was coming, and Winter would have come like clock work to reinforce the need for a work ethic.

Winter keeps coming

As the world has broken its chains from an agricultural life style, this has changed. Much of our capital continues doing its thing without our efforts. If you have any wealth, are you a free loader? Wealth comes in different forms. Social Capital means that your labour has a bigger impact. It's easier to get a job, and if you get a job, it is likely to pay more. Laws, business practices and the country you live in give an opportunity to work not available to others. An opportunity to plan. An opportunity to own stuff. If you have financial wealth, it also carries on making money, even if you don't.

The idea of being 'self made' only made sense in an untouched, agricultural world. No one starts from scratch once roads have been built, languages have been formed, money has been minted, and laws have been fought over.

If you invested the same amount as what you spent every year, and that investment earned 5% real return (i.e. 5% more than inflation), then after 15 years your capital would be making as much as you. 50% at 5% for 15 years = Freedom.

If you were then a good custodian of that wealth, and spent less than it made, it would survive. An engine can be passed on to the next generation. 

Beyond the hand to mouth phase, is the growth and reinvestment phase. We are entering the custodial phase. Our contribution will gradually be a smaller and smaller component of the what we receive. Where we are all 'freeloaders' on the wealth created by those who came before, with a shared responsibility to those who will come next.

Sustainable Wealth

Most people's biggest asset is their ability to work. That is why Disability Insurance is a bigger deal than Life Insurance. If you aren't alive, you don't need money. If you can't earn, we as a society haven't quite figured out how to no make that a big problem. The first thing we do every day, is survive. Everything else is a bonus. The magic of 'Capital' is you can transform your labour into something that can exist beyond you. Active Income comes from what you do. Passive Income comes from what you own. In an ideal world, we would have Community Wealth Fund generated Universal Basic Incomes. Basic, so incentives to do more remain. But more isn't necessarily monetary. Sufficient that we aren't living hand to mouth. Hand to mouth has no buffer, and hand to mouth is a Ponzi Scheme when the hand disappears. Sustainable wealth is an empowered community defined by more than our ability to survive.

Power Dynamics

I don't like the politics of 'Rich v Poor'. 'The poor' are disempowered, but often those fighting for them do so in a divisive ("Punch Up"), and condescending way. The poor don't need representation by others as much as they need unfair obstacles to be taken out of their way. A lot of what we have, our 'endowment' of talents and social capital, is pure luck. Where we are born. Who our parents are. The random experiences we have, and people we meet. Pitching it as a "Civilising Mission" leads to people offering (their) solutions to situations they themselves have never been in. Rather, from behind a veil of ignorance (i.e. not knowing what the luck of birth will give us), we should want to maximise the minimum resources available to everyone. Then people, and communities, can represent themselves. Power matters, yes. But it isn't a fight, it is a case of seeing the power that already exists, and releasing it.

Delhi

Delhi Map

The National Capital Territory of Delhi (NCT) is both a city, and a union territory of India. Almost 17 million people live there, and the urban area which extends beyond the NCT is home to over 26 million people. Delhi is home to an estimated 23,000 US$ millionaires, but half of the population live in slum areas with inadequate provision of basic services. Reading that reminds me of the challenges facing Cape Town. I love the idea of 'sister cities'. At city level - politics becomes less abstract given the obvious contrasts, and real world implementation challenges. Delhi is sister city to New York, London, Moscow, Ulaanbataar, Chicago, Kuala Lumpur, Tokyo, Seoul and Fukuoka. The bigger things get, the more abstract they get. When it comes down to conversation, and listening, we can start to taste the common ingredients.

Conspicious Hoarding

I am far more concerned about consumption inequality, and absolute poverty, than I am about wealth or income inequality. Defining goals in relative terms may be how we think, and feel, but it is a moving target. Even consumption inequality only bothers me because it is deeply problematic when people don't have the basics, and others have plenty to waste. Conspicuous consumption is a stupidity tax. A lot of things are expensive because they are rare, not because they are valuable. There is a difference. The harder problem is conspicuous hoarding. Having assets in abundance that are needed that could be shared, that are just kept in case. I don't have a problem with investment in productive assets. Mostly the 'owners' have given control over to managers who will be punished by clients if they don't do a good job. Until everyone has enough to participate, then I think we should feel uncomfortable. We should do something.

Don't confuse value and rarity

Norway

Norway has a population of 5.2 million. Before unification in 872, archaeologists estimate that there were about 20 petty kingdoms. The main sources of information are stories, most not written till sagas were penned from the 12th century. Stories were the internet of the past. Socrates thought the modern invention of writing would make us lazy. He speaks to us today through Plato's words. In 1990, Norway created a Sovereign Wealth Fund to manage the surplus wealth of Oil. Instead of spending the resources, the idea was to transform them into productive assets. If these are managed well, then all future generations benefit. That way the story lasts. Founded as Oil to start, as wealth and knowledge grew, the story can evolve unrestricted by its origins.

Labour intensive industries have been largely outsourced 

as Norway has become wealthier 

Careful How You Count

When anything is reduced to a number, something is lost. Numbers are incredibly powerful communication tools, but they oversimplify. Someone may live their lives hand to mouth, but have very big hands, a very big mouth and no savings. They will be rich, but have no capital wealth. A Yogi may live in an ashram off very little. Teaching and living simply. She will be rich, but have no material wealth. A friend tells of Lesotho where life is impoverished when measured in numbers,  but where they are rich in relational wealth. Global Economic Inequality is falling. Poorer countries, especially in South-East Asia, have been catching up rapidly. That doesn't matter much to local inequality. We care a lot more about our neighbours. Numbers are best thought of as questions, not answers.

Retain, Reinvest and Create

If you believe that earnings should be tied solely to labour, you are not a capitalist. Capitalism changes the form of labour that is not consumed. It reinvests it. Like taking the profits from Oil, Gold or Corn and investing them in infrastructure, factories and sportsfields. If all you do is spend what you earn without investing some, you have very little flexibility to absorb the shocks of life. A 'bad season' can wipe you out. 

Most of our 'capital' is the cumulative effort of thousands of years of learning. We earn because of our ability to speak to each other. We earn because of the constitutions of our countries. The trade between our countries and others. There are no self-made Billionaires. There are no self-made tradesmen. No man, or country, is an island.

A Universal Basic Income can be thought of as a dividend on our Social Capital. It can also be viewed as 'Retained Earnings' that are reinvested in people. If it frightens you as a 'Communist' idea because it lets people earn off the efforts of others, you are not a Capitalist.

Communism tied the means of production to labour. 'From each according to his ability, to each according to his needs'. The incentive to produce more or create a life was stripped away, because the decision of who needed what ever was produced was stripped from the individuals.

A Universal Basic Income instead empowers individuals, and communities, to look up from the stresses of trying to survive to figure out their needs. To respond to however they are motivated. To create meaning for themselves and their communities.

Gabon

Gabon

Roughly half of Gabon's government budget comes from Oil revenues, but production is decreasing rapidly with a need for an 'after-oil scenario'. Before Oil, logging was the engine and there are hopes around iron-ore coming to the rescue. Extractive industries eventually run out. The trick is to transform the assets into something that can act as a muse forever. Instead of being spent, common wealth can be change form into something that can support future creativity. That needs us to act as custodians rather than dividing the spoils by staking claim to land. Because of oil, Gabon is in roughly the top third in the world in terms of average income per person, but many still live in poverty.

Gabon Exports

Sierra Leone

Sierra Leone

Sierra Leone surrounds the third largest natural harbour in the world. It has suffered from the 'Resource Curse' or 'Dutch Disease'. The discovery of Natural Gas in the Netherlands contributed to a decline of manufacture as the success of one sector made other products more expensive to other countries. Sierra Leone is rich in Diamonds. This can be a good thing like in Botswana, a stable democracy, or a bad thing if it leads to Civil Wars as people struggle for control. Sierra Leone was established in 1787 to settle freed slaves after the American Revolutionary Wars and the 'Black Poor of London'. Slavery in the British Empire was only abolished in 1807 so the early founders faced the risk of re-enslavement. Although 'free', it was a still a colony (independence came in 1961), and tools like the Hut Tax were used to manipulate the labour force away from subsistence just like in South Africa. 

Hut Tax War Leaders

Bai Bureh in Sierra Leonne

Bambatha in South Africa