The Ingenesist Project

The Next Economic Paradigm

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Socialism, Capitalism, or Social Capitalism

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On January 13, 2009

In General Information

Throughout history, technological change has also brought changes in the organization of society around the new ways to allocate resources.  The industrial revolution spawned the two prevailing economic theories of our time; Capitalism and Socialism.

The current wave of technological change will likely spawn new economic theories and social organization systems as well – it makes no sense to look to the past for reference to the future of anything.

Capitalism arose from feudalism and is roughly characterized by a merchant class that owns the factors of production (land, labor, and capital) and a working class whose physical toil adds value to natural resources.  The capitalist acting in their own best interest is ultimately acting in the best interest of society by creating jobs that employ people.

Then Karl Marx came along and noted the inherent conflict where the workers would seek to maximize their wages and the merchants would seek to minimize wages.  He argued that class struggle would ultimately result in a communist system replacing the capitalist system. The communist acting in the best interest of society is ultimately acting in their own best interest.  Socialism is widely regarded as the transitional stage between capitalism and communism.

But the struggle is really over the control of the means of production, or factors of production. “Are land, labor, and capital” private property or public property? Are these notions even relevant in the age of the Internet?

Today, computer enabled society engaged in an innovation economy presents an entirely new set of conditions.  What happens when the factors of production are social capital, creative capital, and intellectual capital?  How are these “means of production” going to be controlled and by whom?

This is a serious philosophical quandary that will be brought down upon us in the next generation of social media because neither socialism or capitalism are applicable in a traditional sense. Like Heisenberg’s theory of indeterminacy – the more control you have over one factor, the less control you have over the other.  This is not a condition related to the ability to control someone or something, rather, it is a condition related to the nature of the system itself.  That’s a big deal.

For the traditional Socialist: in order to control social capital, one must equalize society – as such, the system retains little innovation production value.  In order to control creative capital, one must standardize creativity – likewise, the system retains little innovation production value.  In order to control intellectual capital, one must control the intellectual development of another – again, the system retains little innovation production value.

Likewise for the traditional Capitalist: In your world is no ROI to curb global warming, there is no ROI to educate the poor, there is no ROI for human rights, and there is no ROI on the national debt, etc. As such, the system is constrained by the social burden to innovate – you can no longer scale.

There is, however, a business plan to liberate social capital, creative capital, and intellectual capital as tangible financial instruments in their own right, by definition, reflecting social priorities in an innovation economy.  This is where the next generation of social media is leading to – and it scales magnificently.  Have you noticed?

That is Social Capitalism.

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The Trojan Horse; A Classic Social Fraud

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On January 12, 2009

In General Information

Periods of change in any market open the doors for abuse as control systems often lag behind the waves.  This is especially true for social capitalism where the social contract is changing rapidly and the enforcement mechanisms are largely non-existent.

All markets must have effective vetting mechanisms in order for the market to be viable.  If the game is not fair – real investors and real entrepreneurs don’t walk, they run…away.  While much fraud is obvious and predictable, the most damaging is the type that nobody sees coming but can destroy the standard of trust for everyone, forever, like the Trojan horse.

Hypothetical Case Study:

A self-proclaimed innovation consultant runs a blog out of anywhere USA.  They have a catchy domain name and their ranking is unusually high for a 5 month old blog with splashy but infrequent articles.

In the spirit of the X-prize, the blogger promotes an Innovation Contest offering $60,000 dollars worth of his company’s “Marketing Consultation” services as a prize to the next innovation that will change the world! … as judged by a “panel of experts”.  The blogger encourages all entrants to send their social network to vote up their innovation as this will weigh heavily into the judging.  Many people submit their work and diligently mine their Facebook and Linkedin networks for the vote.

The contest ends and the winning idea earned zero external votes but it is in an industry that is very popular in mainstream media and slated for government stimulus.  However, it is clearly not up to par with many of the other entrants.  Upon inquiry, the blog author does not specify the criteria for judging, he does not itemize the prize, he does not publish his “panel of experts” and he does not post any dissenting opinions or inquiries submitted to the moderated comments.

A few days later, a press release appears on Google news; “$60,000 dollar innovation contest prize awarded for breakthrough in targeted industry”.  Leading tech media pick up the story and the “consultant” is hailed for defending the struggle of the unsung heroes of the innovation economy.  It appears to the contestants that the consultant is promoting himself at their expense.

So, what’s wrong with that?

First; for all of the innovators who submit themselves to judgment and expend their social capital on votes, the integrity of the contest must be bullet-proof.  The definition of the objective, the judges, and judging criteria must be specified absolutely. Otherwise, good ideas will not be shared.

Second; if potential sponsors of a legitimate X-prize-type contest are challenged in their sincerity to promote world-changing innovation, and instead are accused of self-promotion and media bias, a tremendously valuable resource of the innovation economy will be squandered.

Finally; if a person’s social networks are mobilized to vote in any type of contest – they must know that the time they invest will be respected and valued or they will no longer participate in other contests.

To this day, the clever ruse of the Trojans remains the fraud of choice for new market technologies. It has also marked the standard of trust that we hold forth in our relationships and invitation to our inner circle. Sharing of one’s friends is a deeply intimate act of faith and trust many times greater than sharing one’s ideas. The caregivers, those who hold forth the willingness to nurture that trust, must be qualified as stewards of the public endowment of social capital, creative capital, and intellectual capital.

Social Capitalism depends heavily on the function and performance of communities. A “paranoid bias” could be vastly damaging – possibly constraining the next great paradigm of economic development from achieving critical mass.   Social Capitalism is not a game, it’s serious business.

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The Shift to Social Capitalism

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On January 8, 2009

In General Information

As computer enabled society marches toward social capitalism as a result of overburdened financial institutions, a new generation of social media applications will form to emulate those institutions.  Social capital, creative capital, and intellectual capital will increasingly behave like tangible assets.

Economic and Privacy

Our credit score is a statistical sampling system in which we compete with ourselves for the cost of money.  We lose some privacy with the credit score, but we accept these terms to the degree that we enjoy the benefit.  After all, we can literally print money today to build a businesses backed by future productivity (financial capitalism).  If this benefit disappears, so too will the paradigm and something else will take its place.

Social Media and Privacy

Similarly, we lose privacy with social media; we drop our resume on Monster, we post our profile to Facebook, we express opinion on a Blog, and search engines display this activity.  But we accept these terms to the degree that we enjoy some benefit from our social network.  Whatever that benefit is, we know that it is real, it is tangible, and it has value – otherwise, people would not do it.  This is the nascent domain of Social Capitalism.

Cover your Assets

Like financial capitalism, social capitalism will be the ability to borrow knowledge assets today to build a business backed by future productivity of those assets.  In order to anticipate how social capitalism may be structured, we continue with the analogy:

The FICO equation churns about 22 variables related to your financial behavior. These variables include debt load, asset value, income, payment history, etc. Input data comes from past lenders for the benefit of future lenders, as well as insurance companies, employers, public disclosure, etc. The credit score predicts the likelihood that your future productivity is worthy thereby allowing the lender to hedge risk accordingly.

Computer Enabled Society

If we reconstruct computer enabled society in the same form, we notice some interesting similarities as well as differences.  Instead of 22 financial variables, social variables appear as events demonstrating social, creative, and intellectual capital. Input data comes from Social networking applications such as profiles, blogs, referrals, etc.  Finally, search engine placement registers your social credit score.  Have you Googled your name lately?

As imperfect as this may sound, remember that computer enabled society has not fully developed on the ground. Social Capitalism is in the beginning stages and there is great opportunity in improving this system if we know how it should work because the value of the paradigm, by default, could be in the trillions of dollars.

Next Generation Business Methods

The next great business opportunities will be in the area localizing, mobilizing, organizing, vetting, classification, and normalization social capital, creative capital, and intellectual capital.  These elements will contribute to one’s social credit score which buys access to share information and knowledge. Geographic location will become an essential SEO component as diverse communities cluster around technologies and tangential innovations.  Many of the functions that drive a traditional corporation will exist in communities governed by social economic incentives.  As a consequence, not as a cause, social capitalism will reflect social priorities as the term currently implies.

Social Capitalism and The innovation Economy

Social Capitalism fueling an innovation economy may become the most powerful engine of economic growth in human history if structured correctly, and a dud if not.  We are much closer than anyone realizes and the path is becoming increasingly clear. There is great cause for optimism in the next few years of social media development and social capitalism.

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Pride, Prejudice, and the Relationship Economy

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On January 3, 2009

In General Information

Fifteen years ago, I found myself at a remarkable crossroad of social networking.  I had just delivered a paper on the NAFTA Mutual Recognition Document (MRD) for Engineering Professionals at an academic conference at a University in Mexicali, Baja California, Mexico.  Those were exciting times; the MRD was the first modern attempt to treat knowledge like a tangible financial instrument.

My paper was well received and after so much preparation, I decided to take a walk to unwind.  It was a warm evening and I hiked briskly down a side street drifting deep into contemplation about the possibility of a great new international social network.  Engineers from both developed and less-developed countries could build the infrastructure for real economic growth against the forces of oppression and cheap labor.

Soon, the pavement turned to dirt and I realized that I was very lost.  I looked up through the haze of smoke and dust casting awkward shadows from a lonely street lamp through the tangle of power lines. Nearby, a group of Cholos sipped their Caguamas from various crouch positions.  In the distance the sound of Mariachi music, dogs barking, a televised soccer match, and a crying baby droned on in a muted cacophony. The smell of Carne Asada combined oddly with musty earth, car exhaust, and a distant sewer vent. The world suddenly became surreal as my enthusiasm for social networking gave way to foreboding anxiety.

In the corner of my eye, I caught the shadow of a figure limping toward me from behind a brick wall long under construction.  Old, torn and stained ranchero style clothing hung from the frame of the dark figure that approached.  His boot heals were worn to the ground and his broad dark bandito mustache hung low contrasting with groomed hair.  His weathered face, expressionless, relayed his many years of life in the parched desert.

My anxiety turned to terror as my worst fear appeared before my eyes. This dark stranger raised his hand to reveal the shiny barrel of a very large handgun.  I was too scared to move.  My mind raced as my heart screamed out “DEAR GOD, PLEASE DON’T LET IT END LIKE THIS”.  Then, in a smooth reverent motion, the dark stranger held the pistol flat with both hands as if presenting a gift.

He calmly spoke in simple Spanish, “Would you like to buy my pistol?” After an long pause, I found myself stuttering back in my broken Spanish “You have a very nice gun sir, but I am not in the market for one today, thank you”.  He returned the weapon to his pocket and offered a sincere salutation of good health to me and my family before walking back into the darkness.  At that moment, he reminded me more of my late grandfather who I missed dearly rather than evil presence I so feared a mere 20 seconds earlier.

My heart raced as I retraced my steps back to Campus.  Suddenly it occurred to me:  If this old man thought that I had enough money to buy his gun, why didn’t he use the gun to take my money?  I asked a local colleague about my experience to which his response was, “The old man saw that you looked respectable.  He knew that you could be trusted with the responsibility of owning the weapon and not present a threat to his family, children or community (i.e., HIS social network)”

I realized that this poor dark stranger of the night paid me the highest professional compliment I have ever received.  I can only hope to find in myself the humility to live up to his prejudice and to live down to my own.

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Out of Cache; Will Work For Bandwidth

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On December 31, 2008

In General Information

We can measure the time in minutes, we can measure distance in miles, and we can measure mass in grams – so how do we measure Innovation?  Am I missing something or is this possibly the most stunning omission in the history of civilization?  Who is keeping score? Where’s the referee? This is serious business, folks – the fact, factors, and factories of innovation should be in laser sharp focus to everyone right now, here is why:

The total US liability is estimated at 53 trillion dollars. Every US citizen must become more productive by $175,000 each to cover the invisible mortgage.   Government and corporations are not going to fix this problem – they will leave it to the kids to figure out how to make, mix, and measure innovation.

Natural Resources of Bandwidth

It is official; the United States has run out of bandwidth and we need to create more. The only way to accomplish this is an extraordinary expansion in the breadth, depth, and scale of innovation. This is a situation that cannot be rationalized by any conventional school of thought – starting with our definition for innovation.

The accepted definition for innovation is “something novel and useful”. I hope that I am not insulting any B-school professors or innovation guru’s but “something novel and useful” is already bankrupt as a definition for the only thing that can pull us out of this flaming tailspin of debt economics.

So let’s try something that the kids can do well (because they get to pick up the tab):

Innovation = Bandwidth Created / Bandwidth Expended

So there it is: a simple, clean, and effective:  If the number is greater than 1 we have a creation of wealth. If the number is equal to 1 we have a transfer of wealth, if the number is less than 1 we have the creation of more debt.

It should not matter how one defines bandwidth as long as the top number and the bottom number are measured the same way. If the kids can increase the top number, or lower the bottom number for anything anywhere by using their social, creative, or intellectual ability, alone or in groups, then they can become successful innovators.

Business case

There is a clear and rational business case for bandwidth – people will pay for it at a price relative to their own available bandwidth. Let’s give the kids a game they can win.  Let’s give them a score that they can keep. Let’s show them how entrepreneurs work, think, and play.

For the same amount of bandwidth expended, they can create more bandwidth for 10 rich people or more bandwidth for 1000 poor people. Let the kids decide. If they give some people more bandwidth at the expense of the bandwidth of others, they lose.  If they find synergies that act as a bandwidth multiplier, they win. Let the kids figure it out.

All we need to do is help develop standards to measure bandwidth.

It’s the least that our old people can do and a much simpler problem for our feeble minds to solve.  The Ingenesist Project specifies 3 web applications which if deployed to social media will allow social capital, creative capital, and intellectual capital to become tangible outside the construct of the traditional corporation – we believe that this may do the trick.  There may be others working on the problem too, we don’t care – at the end of the day, we all work for bandwidth.

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Advertising in the Age of Social Capitalism

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On December 31, 2008

In General Information

The recipe for selling great products to great customers in the age of Social Media resides first in helping people find their highest talent and passion.

The great innovations of our time were created by people doing what they enjoyed most by using their talents to the highest potential.  Disney, Boeing, Apple, Mattel, and nearly every other ground breaking venture had the secret sauce of people doing what they were best at and most passionate about.

Advertising in the Age of Social Capitalism

Computer Enabled Society is in the midst of a struggle to reorganize itself outside of the construct of the traditional corporation. People seek to develop methods and systems that allow for the reallocation of social capital, creative capital, and intellectual capital to match a person’s natural talents and passions with those complementary to other people.

If marketers have the foresight and methods to “get ‘em while they’re young”, they certainly also have the foresight and methods to develop ‘em to their highest purchasing potential.  All they need to do is listen and support to the future trends in Social Capitalism.

Instead, mass marketing pays mass money for mass audience from which to draw mass revenues.  As a result, actual products are designed to be marketed and thrown away; not to be particularly useful, productive, or even healthy.  Such unnecessary innovation wastes human effort and natural resources while mass marketing of unnecessary innovation wastes the time and bandwidth of those for whom the product is irrelevant (yes, Spam).  Economies of scale will become liabilities of scale in an Social Capital driven Innovation Economy.

Few realize that advertising can become a highly useful component of the Innovation Economy.  In many professional societies, practitioners look forward to hearing from vendors, educators, and fellow practitioners for trends, news, and developments that can strengthen their community.  Bad products are rejected quickly and good ones are elevated quickly. This is how the great innovations are found. This is where the early adopters congregate. This is where brand loyalty is unyielding. This is where wealth is created.  This is efficiency that society wants and needs.

The Ingenesist Project starts the discussion by specifying the creation of a knowledge inventory in society.  This simple exercise enables communities of practice to form around a set of knowledge attributes.  Advertisers can quickly identify target markets and support the operating costs of these communities in exchange for the bandwidth of the members.   The community will look forward to learning about the advances in the field of their interest and ad copy will become far more useful and efficient to deliver in greater detail.

When communities of practice merge with other communities in the innovation process, the message of the advertiser can be carried far and clear as people share ideas and coordinate activity.  Feedback to the vender is highly qualified thereby creating a virtuous circle of innovation.  In the age of social media, highly targeted advertising is simply more efficient than “bending the herd” in a TV era mass market model.

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Social Media Frequent Flyer Miles

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On December 22, 2008

In General Information

The Internet is a lot like a commercial airplane – it is very useful in transporting us to distant lands but the real work must happen on the ground.  The organization of society at both ends of an Internet destination must be developed if real wealth is to be created. Social Media needs to develop this component at this critical juncture of human history when vast amounts of social capital, creative capital, and intellectual capital are being sent to the shores of despair upon Unemployment Air Line.

Computer enabled society:

The great opportunity of our generation in the fair, sustainable, and equitable creation of wealth through innovation in a computer-enabled, open-sourced, and democratic society that can organize its own knowledge in the form of a financial instrument.  The great danger, of course, is if we miss our flight and engender a computer simulated society where it is easier to interact with online community than our own neighbors.  It’s like getting on an airplane for the fine view, good food, and interesting conversation.  Social capital is by far the most powerful force of change and social media must now touch the ground in a meaningful, systemic, repeatable, and scalable manner.

The analogy continues:

The earliest days of aviation were a novelty at best.  Some commercial enterprise emerged in the form of barnstorming, carrying the mail, light cargo, aerial photography, and warfare. Likewise, the evolution of the internet brought us on-line gaming, e-mail, e-commerce, assorted photography, and hacking, etc.  It was not until the invention of municipal airports that the airplane became a true time machine by increasing human productivity and allowing us to see history that would otherwise be unavailable traveling by sea.  The true value of both commercial aviation and social media over “sail mail” is precisely through the increase in human productivity to transfer information to the ground.

Three Web Applications:

First, social media needs to develop a knowledge inventory system by geographic areas.  Second, Social Media needs a search engine at a local level that combines knowledge assets to form “strategic” social networks that can execute a specific business plan at reduced risk; cooking the “secret sauce”.  Third; an Innovation Bank must “pull” knowledge surplus and “pull” knowledge deficits together from diverse communities.  These three applications will provide everyone with the tools needed to create wealth in their communities.

Social Media has the potential to become the airport of the Internet Transportation System.  Nothing meaningful can happen until the rubber meets the tarmac.  So, let’s start building runways.

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Social Media; An Alternate Universe of Wealth Creation

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On December 21, 2008

In General Information

The Known Universe

Computer enabled society has been called an “alternate universe“.  If Social Media intends to make serious money, perhaps it should act like one as well.  In finance, Risk is also often called an alternate universe.

Beneath the surface of this little 4 letter word resides a complex network of financial instruments that do far more to channel and direct the flow of money than any commercial trend, marketing campaign, or hot new web app.

Risk is actually a very simple thing to understand.  All you need to do is answer all three of the following simple questions:

1. Can I identify the peril?
2. What is the probability that the peril will get me?
3. If it does get me, what are the consequences?

The Insurance industry is absolutely gigantic – too important to fail – yet it produces nothing that can be held in the palm of one’s hand.  Insurance lives and breathes in an alternate universe of information.  Any place where these three questions cannot be fully and completely managed, you will find an insurance product.  Where there is no insurance product, there is no capitalism.

Here is how it works:  suppose there are 10 identical cabins in the woods.  Each cabin is worth exactly 1000 dollars.  There is a 100 percent probability that 1 of cabins will burn down every year, but nobody knows which.   Therefore, each cabin owner needs to have 1000 dollars sitting in a savings account in case their cabin burns that year.  Together, 10,000 dollars sits in a bank not being invested in productive enterprise.  Along comes an insurance company to reorganize the assets by offering to replace any cabin if all 10 cabins agree to pay 100 dollar per year premium (plus an admin fee). Now each of the cabin owners can pay 100 dollars per year and release 9000 dollars to the economy as productive capital.

Insurance opens the floodgates of wealth creation; bankers lend, investors invest, and entrepreneurs innovate where risks are reduced to zero; all bets are hedged.  But there is a trick; the peril must be identified (fire), the probability must be known (10%), and the consequences must be quantified ($1000).  This only works if the assets are pooled in identical lots that have the same probability of loss and suffer the same fate.  This is valuable information and it’s worth a whole lot of money.

Social Media is poised to open the floodgates of wealth creation in a similar way – by connecting local communities, neighborhoods, peers, and colleagues with computer enabled society.  Today, it is often easier, cheaper, and safer to make friends online than in person, but nothing tangible can really happen until the rubber meets the road;  people need to congregate.   The Ingenesist Project suggests that the 3 dimensions of human capital, creative capital, and intellectual capital can be identified, normalized, quantified and pooled into risk sharing cooperatives through social media as a means of eliminating innovation risk.

The trick is for society to organize itself in a slightly different way – this is where Social Media needs to position itself with the next generation of applications.  If so, the business model for social media will become hugely important to an innovation economy – too important to fail.

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Options, Options, What Are My Options?

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On December 20, 2008

In General Information

In finance, an option is the right, without the obligation, of taking a financial position some time in the future.  As with any financial term, options are associated with “code speak” such as: volatility, exercise, strike, call, put, etc., glazing over many an eye.  At the same time, people want, buy, and trade options all day long in everyday life without even knowing it.  Options have value; otherwise people would not want them.

The ROI model of valuation fails when applied to social media.  The number of hits per ad dollar just does not translate to brand loyalty or scale into rivers of cash flow.  There is little surprise that corporations have great difficulty socializing because they simply don’t exist, except as a folder labeled “ROI” in the filing cabinet of an attorney in Bermuda.  In fact, losing control of the message makes for an expensive funeral in that same filing cabinet.  The Social Media industry is trying to live in the ROI structure and struggling to create revenue.

The cardinal rule of business is to collect assets and shed liabilities.  A “right” is an asset while an “obligation” is a liability.  An option is an asset without the liability, to make a decision some time in the future.  As such, options favor long term planning and strategic nurturing rather than short term profit taking of the ROI model. Asian countries and corporations set a good example of buying options in the future through product quality, education, and economic patience.  American corporations should do the same if they hope to benefit from social media.

People do not want ROI, they want options.  They want the option to separate peers from mentors from friends from family.  They want the option to experience before buying.  People want the option to meet their physical, mental, emotional, and spiritual needs.  They want the option to be anonymous or public in their interaction.  They want the option to collaborate and support others.  They want the option to overcome physical barriers.

People want to meet new people, get new ideas, and hold the option to act on those new ideas or collect on past ideas shared with others.  If they exercise an option and discover another along the way, they want the option to pursue many options to meet a changing market. If they create something in one market, they want the option to apply it to adapt it and access other markets.  If they help someone else up the ladder, they want an option to access what that person, in turn, has created from their help. If they make a friend, they want the option of meeting their new friend’s friends.

Likewise, when people are in trouble, they will turn to their collection of options and start exercising them as society has for millenia.  The great financial transformation will occur when on-line society gets threaded into the fabric of off-line society through the trade of options.  This is the area that needs to develop so that all the pieces can fall into place.  This may in fact become the lasting legacy of the financial meltdown.

Options can be the traded like money throughout and across on-line and off-line social networks if there were a way to keep track of them.  While The Ingenesist Project specifies promising strategies for trading options in a social network with varying levels of practicality, we can say with great confidence that it this next paradigm of economic development will never happen with an ROI mentality.

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Web 3.0; An Elephant Never Forgets

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On December 18, 2008

In General Information

The opportunity for America reminds me of the elephant that is convinced since birth that the slender rope tying him to the fence post is stronger than he.  When the elephant grows up, he still believes the rope is stronger even though the elephant now has gained the strength to pull the whole building down.  Americans are the 8000 pound elephant in the middle of the room.  The question on everyone’s mind is: what will the elephant do next?

Throughout history, economists have determined the structure of business, enterprise, and commerce and wisely the government complies.  With remarkable success over the last 150 years,  corporations had been the source of most innovation sufficient to support the value of a currency.  Fortunately, the corporation had become the center of economic policy while the knowledge inventory within them have been fenced inside the accounting term: “intangible assets”.  Unfortunately, our corporations can no longer innovate efficiently enough to support the debt. Witnessing GM facing up to this very question, while the government manufactures money like taffy, seems a lot like feeding sugar calories to an elephant that is too big to fit out the door, dead or alive.

What the economists and many of the great visionaries of out time do not anticipate is the emergence of computer enabled society and the tangibility of knowledge outside the corporate structure through developments of social media.  Web 3.0 is supposed to bring us a semantic web – a computer program will be able to read the elephant story above and determine whether it is about education, zoology, macramé, Interior decorating, taxidermy, building demolition, or cliché old business metaphors.   Perhaps this is our little rope tied to the post as we wait for Mother Corpora to provide solutions.  Get a grip, the only computer that can read, classify, and extract a thousand words for any photograph is between our collective big floppy ears.  Web 3.0 will be semantic alright, except by the integration and capitalization of human knowledge through social media.

We spend billions on a human genome project to inventory our DNA, but nothing to inventory the knowledge as it exists naturally in society.  We will build statistical models to forecast weather, elections, click-throughs, insurance, demographics, and mortgage risk; but nothing to predict the value of various combination of social capital, creative capital, and intellectual capital in society.  We have search engines that match most worthy blog to most worthy keyword, but little to match most worthy mentor to most worthy apprentice.  The top reasons why start-ups, businesses, innovations, and markets fail are due to the wrong knowledge in the wrong place at the wrong time. It seems that if we solve the knowledge inventory problem, then we can solve the innovation risk problem.  That, in turn, will solve the money problem which solves the elephant problem.  We need to release the great “intangible asset” into the wild world of tangibility and trust that it knows where to go.

Sometimes it just takes someone to give us permission to do things differently.  So here I go: human knowledge is the most perfect, predictable, flexible, and valuable capital asset in our world.  Knowledge can become far more tangible than anyone could have ever imagined. Information, knowledge, and innovation are profoundly related – separated they are useless, integrated they are wisdom.  Everyone on earth innovates every day, period. The vast majority of people will do the right thing given the right incentives.  With the next development of the Internet, we will have the tools to organize ourselves in a far more efficient manner than the command and control structure of a traditional corporation.  Management can be outsourced too. Corporations respond to corporate priorities, social networks respond to social priorities.  Which one sounds like a business case to curb global warming?

The Ingenesist Project specifies three web applications which if developed and deployed to social media will allow social capital, creative capital, and intellectual capital to become tangible outside the construct of the traditional corporation and inside social networks.  Just because people have never organized themselves in an open sourced innovation economy before, does not mean that they never will.  But once they do, well, let’s just say that an elephant never forgets.

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That Pesky Little Problem With Market Capitalism

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On December 11, 2008

In General Information

Technological change must always precede economic growth.  We are going about the process of market capitalism as if economic growth can precede technological change.  Somewhere along the line we have gotten the cart in front of the mule.

It seems that this situation can be fairly easily corrected – after all, it’s the same cart and the same mule.  All we need to do is get the same driver to point the same carrot on the same stick in the opposite direction; and the system should turn itself around.  Impossible we ask? Well, maybe not….yet.

The same species…

Economic growth and technological change are the same species; each is represented by human productivity.  If I take a loan to buy a house, the debt is “counted” as economic growth backed by my future productivity.  If I go to work and invent a method that provides a better way for people to accomplish something, that same productivity increases with my innovation.  They should hedge each other much like insurance.  The problem arises when we forget to count the mule.

If A = C and B = C, then A = B

If any two currencies are backed by the same standard, they should be readily convertible.  If Euro’s and Dollars are both backed by Gold, they would be convertible between each other and the market can simply choose to trade one or the other.  Arbitrage opportunities would keep the system balance.

This is the same case with debt and innovation; two currencies represented by the same standard, i.e., productivity.

What if a new currency was introduced and pegged to human productivity?  That currency would also be proportional to the dollar. Arbitrage opportunities between debt and innovation currencies would seek a balance. The two scorecards would hedge each other as they should.

It is going to happen eventually, why wait?

While this may seem odd to talk about one State, two currencies, it is not so odd to talk about what happens if the dollar fails.  People will start trading a different currency.   The Plumber will trade ideas with the lawyer who will trade with the doctor, carpenter, teacher, grocer, laborer, etc.  A computer enabled society will build a knowledge inventory of who knows what.  Reputations will arise thus organizing knowledge in the form of a financial instrument.  This social medium will be the tool that organizes trading schemes and establishing supply and demand.  An Innovation Bank will keep track of who owes what to whom and distribute wealth in the form of tangential innovation.  Venture “capital” will be the cheapest money in town – it’s like money in the bank for an innovation economy. This is in fact, the nature of society and largely the function it has served for thousands of years.

Little carrot on a big stick

The difference between now and any other time in history is that society is computer enabled.  Human knowledge has been held hostage behind the construct of “intangible assets” on a corporate balance sheet for too long.  There is a great deal of energy building up and it can now find a productive outlet through social media.  The best government policy is to accommodate what people will do naturally.  It would be extremely inexpensive to empower society to form an innovation economy to hedge market capitalism. People need a currency that is first and foremost natural for them to trade.   Later, Wall Street can convert and gamble at their peril. But first, point the stick in a different direction and the system will correct itself.

[The Ingenesist Project (https://ingenesist.com) has specified three web application which if deployed to social media would allow social capital, creative capital, and intellectual capital to become tangible inside social networks.]

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The Great Convergence

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On December 8, 2008

In General Information

Hey Kids, It’s 3D:

The objective of this article is to discuss the Great Convergence of computer enabled society. Social media must not be allowed to converge to a single apex – rather, it must converge to 3 distinct and tangible dimensions.

The factors of production for the industrial economy are land, labor, and capital.  If you lose one, you can’t use the other two to build an SUV, for example.  The factors of production for an innovation economy are social capital, creative capital, and intellectual capital. All production in the new economic paradigm will result from the allocation of a “secret sauce” of social capital, creative capital, and intellectual capital.  Again, if you lose one, you can’t use the other two to build anything meaningful.

The congregation of congregations:

In order to find The Great Convergence, we simply need to examine Social Media to discover where social capital, creative capital, and intellectual capital tend to congregate.

One of the more obvious illustrations appears to be playing out between LinkedIn, Facebook, and Myspace.  Many people use Linkedin for professional contacts (intellectual Capital), other people use Facebook for friends, family and more diverse associations (Social Capital), while many others use MySpace to post videos of their rock band, Artwork, or to discover the latest Mash up (Creative Capital).  Of course there are many more social networks, lots of cross talk, different demographics, rants and raves, etc.  I intentionally leave this analysis sparse as these conditions simply reflect the nature of The Great Convergence.

The Next Economic Paradigm:

We need to watch The Great Convergence with laser focus and deep personal interest because it will be extremely important for the development of what comes after the knowledge economy.   Whatever form this next economic paradigm takes, globally and locally, will depend upon The Great Convergence.  The Innovation Economy is the only wrench left in the toolbox for resolving the vast global problems that we face today.

The Innovation Economy must end global warming, restore financial accountability, enact sustainable enterprise, and institute renewable energy – or not.  This is a huge burden to ask of the next “greatest generation”.  It is clearly in everyone’s best interest to identify, encourage, and support The Great Convergence to form in 3D, before the old single-apex game “resets” and starts all over again, perhaps for the last time.

[The Ingenesist Project discusses this concept at length and identified various predictions, methods, and scenarios, including specifications for an Innovation Economy.]

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Finally, A Definition for Innovation

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On December 5, 2008

In General Information

Innovation: The rate of change in knowledge with respect to time 

[In earlier post we identified the 5 essential elements of a market economy. What would be the currency of an innovation economy? Currency is anything that serves as a medium of exchange, a stored value, and a standard of value. Basically we are asking; What are those things that people are out in the World trading among each other today?]

Today, innovation is repeatedly cited as the only thing that can get us out of the financial/environmental/sustainability conditions that find our ourselves in, yet the most common definitions for this term are deeply and tragically flawed.

Most definitions for innovation boil down to: “a new idea introduced that has an economic outcome” or “something new that is useful”. While these definitions match some observations, they are reflective and “You know it when you see it”. As such, there is little to define innovation before it happens or to make more of it from this definition.  It is like defining “Art” as the thing that people stare at.  Unfortunately, this is just the beginning of our troubles.

“Innovation is a new idea introduced that has an economic outcome” is impossible.

This definition defines one unknown quantity (innovation) with four other unknown quantities: what is new; what is an idea; what constitutes “introduced”; and what is an economic outcome?  From High School Algebra we know that you cannot solve one equation with two unknowns – let alone four.  There is little that you, I or anyone else can do to satisfy this definition.  Therefore, it is not useful.

Granted, this definition sells plenty of ad copy as the guru of the week wax-poetic over those four pesky unknown thingies.  I found one consultant who claims that innovation has 51 variables and only he can solve that matrix – for a price.

What is the truth about the phenomenon of Innovation?

A useful definition must clarify the subject in a manner that is repeatable and measurable.

If we look at history we know that economic “benefit” and innovation are mutually dependent – you can’t have one without the other.  Wealth has been created by increasing human productivity through innovation in agriculture, manufacturing, computers, etc.

Next, we observe that information, knowledge and innovation are also mutually dependent – you cannot have one without the other two.  Wealth is created by integrating information, knowledge and innovation.

Next; look at our society; everywhere we turn, people are collecting information from each other, building their knowledge, and innovating together, i.e., coming up with better ways to do things. All of these little exchanges obviously add up to something because things like IPods and Airplanes get built and lots of stuff rolls off assembly lines.

Innovation is anything that increases human productivity

Next we can say that information, knowledge and innovation can be related as follows:

  • Information is defined as facts and data

This should not surprise anyone.

  • Knowledge is proportional to the rate of change of information (facts and data) over time.

This is a little trickier to grasp. But any good teacher knows that information must be introduced in a certain order and at a certain speed before the information can become knowledge – this is called learning. Learning is a mental process for turning information from a book, a lecture, or personal experience into knowledge that can be used later.  Therefore, knowledge is proportional to the rate of change of information and can only exist inside a person’s head.

  • Innovation is proportional to the rate of change of knowledge over time

trickier still, but for example; everyone has had an ‘Ah-Ha!’ moment during a brainstorming session, some incredible event that we witness, or even after some real bad mistake that we made. The Ah-Ha moment is a spike in our knowledge that happens in a very short period of time. Innovation is related to this high rate of change of knowledge.  Then we blurt it out, or write it down, or make a sketch, give a lecture, in the form of information, etc.

Definition of Innovation:

a. Innovation is anything that increasing human productivity.
b. Innovation is proportional to the rate of change of knowledge and information.

Admittedly, not as sexy in the sound bite but this definition does include all conversations, sketches, dreams, and ideas of all people on Earth and allows them to combine with the sketches, dreams, ideas, of all people on Earth to become designs, methods, and processes which further combine to become products, systems, and institutions, etc.

Let entrepreneurs worry about the economic outcome

Since innovation can be difficult to observe directly. Our new definition allows us to use a proxy that is easier for entrepreneurs to see. For example; if you want to identify innovation as it is happening, simply look for high rates of change of knowledge in a community. If you want to create innovation, do things that create high rates of change of knowledge. Likewise, if you want to identify knowledge, look for high rates of change of information.  If you want to create knowledge, do things that create high rates of change of information.

We need to give the entrepreneur a game they can win. The key is that everyone must be included in the game. This is a definition that can be used by anyone and everyone, in fact, it already is.

notes:

[Anyone familiar with differential Calculus can see an equation forming where Innovation is the derivative of knowledge and knowledge is the derivative of information. Calculus is the study of change like geometry is the study of space. Since the mathematics is beyond the scope of this article, I’ll finish with the following analogy for defining information, knowledge, and innovation more intuitively: “Information is to knowledge is to innovation what distance is to velocity is to acceleration”]

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Business Plans of the Innovation Economy

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On December 3, 2008

In General Information

There is no shortage of money in the world but there is plenty of risk. Most business failures are due to knowledge deficits such as the inexperienced management team, a poor assessment of market conditions, underestimating the amount of money needed, underestimating a competitor, loss of a key employee, poor understanding of the technology, etc. These are knowledge problems not financial problems, yet they can sink the most promising companies.

To solve the knowledge problems is to decrease the risk of innovating. To decrease the risk of innovating will decrease the cost of venture capital. Decreased cost of money to innovate will induce innovation economics.

With a computer enabled knowledge inventory in the correct format and a Percentile Search Engine that returns probabilities on strategic combination of assets, the business plan of the innovation economy becomes very simple; The Innovation Bank does one thing very well over and over again – it matches correct knowledge surplus with the correct knowledge deficit at any point in time for any strategic reason. This process is then repeated over and over in infinite different combination.

The first business structure is made up from two single knowledge transactions arranged in parallel – like a parallel circuit. This arrangement represents a brainstorming session between two or more people.

The Percentile Search Engine matches the person with the knowledge supply to a person with the knowledge demand. The transaction can be as simple as a conversation, sketch on a napkin, or white board flow chart. Each time the cycle goes around the new ideas of one person ignites a new ideas in the other person. Each time the transaction occurs, there is a net increase of new knowledge. The conclusion is usually some tangible action, system, or method. The conversation stops when no new knowledge can be created in either person – or when people just get tired (rate of change approaches zero).

The entrepreneur is very interested in the outcome of these conversations and uses the Percentile Search Engine to select, regulate, modify, adjust, analyze, and record the transactions. The Percentile Search Engine is used again to select diverse participants for the parallel business structure with the intention of producing a specific outcome.

The second business structure is made up from two single knowledge transactions arranged in series – like a series circuit. This arrangement represents the product development cycle.

Again, the Percentile Search Engine matches the person with the knowledge supply to a person with the knowledge demand. The transaction is a simple conversation and the outcome is a prototype process, system, or method. Each step in the series is an improvement to the method. Each time the transaction occurs, there is a net increase of new knowledge. The conclusion is the development of the system, business plan, or method. The conversation stops when the product is ready for another iteration or the market. The Percentile Search Engine is used again to select diverse participants to continue the series business structure with the intention of producing a specific outcome.

The entrepreneur is very interested in the outcome of these iterations and uses the Percentile Search Engine to select, regulate, modify, adjust, analyze, and record the transactions.

Now if we mix the parallel and series circuits, we form what looks like a neural network of parallel and series networks. Now, we are squarely in the regime of “designer” Social Networks. Participants are paid in micro-royalties instead of wages. By definition, a relatively small input produces a very large output – if it can be captured.  This will be the source of wealth creation from the new corporations of the Innovation Economy.

We determined in an earlier chapter that information, knowledge and innovation are related as mathematical derivatives.  The accounting system will identify innovation by measuring the rate of change of knowledge transfer within a social network.  Any number of current methods, systems, or innovation consultants can deal with this.  Similarly, in order to identify high rates of change of knowledge in a social network, the accounting system will measure high rates of change of information.  This too is quite simple using common systems, methods, consultants and tools.  No new infrastructure is required with the exception of the knowledge inventory, percentile search engine, and innovation bank.

The entrepreneur can now do what they do best; identify assets operating at low productivity and reallocate them to areas of high productivity by running them through an innovation system.  Remember, most businesses fail due to knowledge deficits.  To reduce or eliminate these risks will make the fact or innovation predictable and therefore negotiable.

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Factors of Production for an Innovation Economy

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On December 2, 2008

In General Information

Many years ago, economists in the midst of the industrial revolution identified three variables (productive inputs) for building industries; Land, Labor, and Capital.  The rate of output was related to how these inputs were allocated. If any of these factors of production were missing, the other two had little use.  The concept of Land, Labor, and Capital is still the foundation of much of today’s economic thought.

We know that in the knowledge economy, the location of knowledge work is highly mobile – so “Land” does not have the same significance for making things as it did 100-200 years ago.

What about “Labor“? Knowledge workers analyze situations, manage many variables, and create unique solutions. They do not really produce identical knowledge pieces like a machine operator or a production worker –so Labor also means something different than a century ago.

The term “Capital” refers to money that would be needed now to build future structures, buy machines and to pay wages. Today money buys access to information, education, and knowledge workers. So we see that many old economic principle may not be as applicable in the new economies.

The factors of production for the Innovation Economy are Intellectual Capital (also call Human Capital), Social Capital, and Creative Capital + entrepreneurs. (Reference: Jane Jacobs, Robert Putnam, Richard Florida)

Intellectual Capital Model suggests that concentrations of educated and motivated people attract investors to employ them and invest in the communities where they reside. This investment attracts other intelligent people who in turn attract more investment thereby creating a cycle of economic growth

The Social Capital Model suggests that people acting in communities can create better solutions, greater accountability, and more economic growth than management, governments, or bureaucracy can induce on their own. Examples of Social Capital include Civil Rights Movement, community watch organizations, Democratic Government, and recently, Social Networking.

The Creative Capital Model, suggests that engineers and scientists think more like artists and musicians than like production workers – their ideas come 24/7/365 – and that an environment of tolerance, diversity, and openness promotes creative output.

Silicon Mouse trap

Many people argue that Silicon Valley, in fact, was created and sustained by a perfect storm of Social Capital, Creative Capital, an Intellectual Capital + Entrepreneurs.  Other countries have tried to duplicate Silicon Valley but most have fallen short – if any of these factors of production are missing, the other two have limited utility for production of innovation. To demonstrate how these productive inputs might appear in an innovation economy, consider the following example:

Suppose that we take 5 mechanical engineers and lock them in a room with instructions to build a better mouse trap, they’ll emerge with a better shingle, a better spring, a better whacker, and a better trigger – but not necessarily a better mousetrap.  Suppose that we now put a dog catcher, an engineer, a plastics manufacturer, an artist, and the mother of 4 rowdy children together with the same task. We can be quite certain that innovation will occur. They may actually come up with an excellent mouse trap.

The Innovation Economy

Innovation Economics will bring the factors of production together in diverse combination rather than similar combination.  In an Innovation Economy, the “secret sauce” for the production of innovation becomes far more valuable than any single innovation itself.  The secret sauce provides a monopoly on dynamic repeatability rather than a static device.

As such, technologies can be open sourced and innovation crowd sourced across a much wider domain of possible user applications.  Such conditions will change the type of innovations that are favored to reflect the broad and sweeping social priorities rather than innovations that are easy to patent, protect, and monopolize.

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A System of Innovation

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On December 2, 2008

In General Information

We have established that Innovation and wealth creation are profoundly related and that one cannot be sustained without the other.  A huge problem is becoming apparent because Money lives in a complex, global and highly integrated system where billions of dollars can circle the globe daily at the speed of light. Meanwhile, innovation does not live in an equally diverse, integrated and global system.

Instead, innovation lives in the patent system which is extremely slow, prohibitively expensive and full of secret language and legal strategy – certainly not accessible to most people who actually do the innovating.  In the immediate financial crisis where we are printing money at an astonishing rate, we must increase the speed, quantity, and quality of innovation at a comparable rate in order to preserve the balance.  We need an Innovation System to balance the Financial system.

Everyone knows that innovation happens in places like Silicon Valley, Corporations, a bunch of research labs, someplace in Japan, and of course the proverbial “Steve’s Garage”; but these places do not behave like a system, they are not integrated and they often compete rather than cooperate. Everyone knows what money is – but innovation is treated like some sort of mystery potion related to supreme knowledge among the gifted few.

Nothing could be further from the truth. Remember in the last chapter, the billions upon billions of tiny ideas are basically crowd sourced.  These ideas are combined into larger advances and that process continues until, say, an IPod rolls off the assembly line.   We readily call the IPod the innovation, but not the billions of tiny ideas.

A System of Innovation

Our accounting system is used to keep track of money, it is not designed to keep track of billions of tiny ideas.  So it calls human knowledge “intangible” while the IPod is “tangible”.  Somewhere along the line our culture reinforces this idea.  The truth is that knowledge is not intangible – knowledge is simply invisible.  This is a much easier problem to solve.

Intellectual Capital, social capital, and creative capital are locked up inside corporations sitting behind processes, job descriptions, and insulated from tangibility by multiple levels of management.  The command and control system arose from the industrial revolution, and with the help of Wall Street, is responsible for great innovation advances leading humanity to a global gross domestic product of 65 trillion dollars. However, the volume of innovation under this system is no longer sufficient to sustain the debt that it has also created.

Today, the phenomenon of Social Networks is showing us that human knowledge is desperately trying to become visible, and predictably, innovation in this area is increases at a remarkable rate!  The challenge now is to marry the phenomenon of social media to the financial system just like corporations are married to the financial system through Wall Street.

In market economics there are five components that are essential for a market to work properly; first, there is a currency of trade; like Dollars, or Euros, or Yen. Second, there is always an inventory so we can find pieces, count them, and build stuff. Third, there are financial and government institutions that are supposed to protect property rights to keep the game fair so that the people that own things don’t get ripped off. Fourth, we have entrepreneurs to do the fuzzy math, they interact with the system, they fill in the grey areas, and they manage risk. Finally, there is a business plan so that the entrepreneur can do what they do best – buy low, add value, sell high and pocket the difference. That’s how a market works. It’s quite simple.

Now listen carefully, these five elements are tightly connected and must be present in some way at every transaction. If any one of these elements is missing, disconnected, or corrupted, the system will fail. This is the underlying cause of the financial crisis, the system became disconnected.

We need to make “knowledge” look like money, walk like money, and talk like money and some real interesting things should happen.

The next several modules will go step by step through the five elements of market economics and we’ll uncover as best as we can those same five elements as they exist today in our knowledge economy.  Then we’ll connect the dots, fill in the blanks – and out pops the innovation economy!!!

After that, we’ll discover the new business methods of the innovation economy. And finally, we will talk about the thousands of new “corporations” that will arise. Literally, every business that we know of can be made more efficient in an environment where knowledge is tangible and a great deal of new wealth creation will occur.

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The Next Great American “Hail Mary” Pass

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On December 2, 2008

In General Information

The Game

The knowledge economy will be outsourced to low cost countries. There is little rational analysis that suggests otherwise.  Information, knowledge and innovation are profoundly connected – lose one and you lose the other two … and so goes our innovation potential. The very technology invented and developed by American knowledge workers is the exact same technology that now constrains them.  This is not the fault of corporation or of the financial system – they are behaving exactly as expected; a dog will hunt. This is the limitation of the knowledge economy itself – let me explain.

It is very easy and inexpensive for the rest of the world to just watch what the United States does, copy what works and reject what does not work, and then effectively compete.   The rest of the World now speaks English so they can now jump on the Internet and learn everything they need to know about us while we are largely unable to reciprocate.  In addition, money is global and does not need a visa to work in another country.  All of these things stack up against both the US knowledge and foreign knowledge workers.  If left alone, these conditions will not go away any time soon.

As a nation, America is either at the edge of something really good or something really bad.  We need to do something so radical, so audacious, and so creative, that the rest of the world will shake their heads in disbelief at how America always comes up with an unbelievable play just when the game looks like it is over.  It’s called The Great American Hail Mary Pass.

The Competition

First we must realize that America does not have anyone else to copy or compete with in order to climb to that next rung on the economic development ladder except ourselves.  Many Americans are in denial that we too must also develop just like we claim other countries must do.  In the past, we have relied on shocks to the global system in order to move forward; usually in the form of wars, but obviously, as a modern innovation strategy, warfare has severe limitations.  Maybe we just don’t know how to develop on our own.  Perhaps the current financial crisis may be the disruption that we need to see those next few critical steps that we need to take.

The Field

Here are some other historical facts to consider.  Like all previous development phases, the next economic paradigm will be derived from the earlier economy by integrating the tools of that earlier economy – in this case, the knowledge economy.  We have painfully learned that intellectual capital can be found and duplicated almost anywhere on Earth.  However, social capital and creative capital cannot be easily sourced elsewhere.  Both China and India have political or cultural constraints on social capital and creative capital – so they cannot compete with us here.   This is where the next Great American Hail Mary pass needs to go.

The Team

America has a distinct comparative advantage over most of the World in our cultural diversity, global language, and freedoms of assembly, expression, and association.  In addition, and likely as a result, America is inventing one of the most profound technological advancements in human history.  One which has the potential to secure American economic prosperity for many generations into the future.

The Play

Social Media has the potential – if we are clever – to allow human knowledge and interaction to become tangible outside the construct of a corporation.  The new economic paradigm will have factors of production of social capital, creative capital, and intellectual capital, instead of the classical land, labor, and monetary capital model.  That means that a team, community, or a social network can be capitalized directly much like a corporation, or any financial instrument in itself, as a means toward increasing human productivity.  Admittedly, and as space allows, this is a very vague definition of an innovation economy, but the implications are sweeping and vast.  A more detailed structure and description is specified at https://ingenesist.com.

The Ball

It is imperative that knowledge workers recognize this opportunity.  We must have a national conversation about the next great leap and not just dwell on the current quagmire or roll over while the dark ages set in.  It is essential that we recognize our responsibility to ourselves, our communities, and the planet to build a sustainable economy that reflects long term social priorities rather than short term profit taking – this is ultimately in the best interest of even the short term profit takers!  Finally, it is our responsibilities to continue developing this great Internet technology that the generation before us created for peaceful, open, and productive means; and obviously never intended to enable a race to the bottom.

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Social Media; The Opportunity of a Century

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On December 1, 2008

In General Information

The Perfect Storm:

We are at an historic time in human history; one that may never repeat itself again. The current financial crisis may provide just enough disruption for a completely new economic paradigm to emerge; the Innovation Economy.  We cannot squander this moment arguing over common logon for our Twitter and Facebook profiles; a far greater integration is required from Social Media.

Advertising is not the correct revenue model.

It is astonishing that Social Media, in general, has not figured out how to make money.  Social Media IS money.  All wealth on Earth was created from the social capital, creative capital, and intellectual capital of people – wealth creation is already crowd sourced.  Now, there is an opportunity for Social Media to harness this engine of economic growth and wealth creation – if they could only see it.

The problem is simple: Globalization is proceeding as if economic growth can occur before technological change. Some time in the past, we got these two things up mixed. It does not take money to make money; it takes innovation to make money.  Technological change MUST ALWAYS happen before real economic growth can occur.  Anything else is a transfer of wealth, not the creation of wealth. All that is unsustainable today – the economy, the environment, natural resources, energy – is due to this itsy bitsy anomaly of current market economics.   Today, we can easily correct this little flaw with almost a flip of a switch – but the window of opportunity will be short – and we need to be clever.

The idea that human knowledge is tangible and behaves individually and collectively like a financial instrument is still considered impossible.  The ability to place a market value on the social capital, creative capital, and intellectual capital of a team, community, or geographic population of people – let alone a social network – has never been accomplished.  This idea remains the Holy Grail of finance and one that Social Media is uniquely positioned to capture.  If the finance industry can invent “tangible derivatives” out of thin air paper, then we ought to be able to do the same with knowledge assets that live and breathe tangibly all around us.

If it looks like money, it will behave like money, guaranteed:

First, we need to build a knowledge inventory system that includes everyone; and which can be anonymously codified and amalgamated with logic in machine readable format (the Universal Decimal Classification System is a good candidate). Second, we need to sample our inventory in a community using the proverbial “Bell Curve”. Third, we need to develop a search engine that returns the probability that a strategic combination of knowledge assets can execute a given objective. Fourth, we need an innovation Bank that will “pull” knowledge surplus and “pull” knowledge deficits together from diverse communities.   (Please see the IEc101 at https://ingenesist.com)

This should not sound too weird; it is the same game that Wall Street plays.  The switch is flipped when we engage our innovation system with the financial system.

Go where the money is:

Social Media is perfectly positioned to develop these features in their products and in our communities. We first must understand that innovation is predictable.  We may not be able to say exactly where the innovation will lead, but we can be sure that if we place a group of strategically diversified persons in a room, innovation will happen.  If the fact of innovation is predictable, risks related to the invented can be pooled, morphed, or diversified.  If risk can be diversified, it can be hedged to zero.  If innovation has zero risk, Wall Street will salivate to issue “innovation bonds” to finance diverse communities of practice.  If innovation capital is inexpensive and accessible, a great amount of innovation will occur.  The anomaly of capital markets can be reversed, and the result will be sustainable economic growth.

Naturally, the compensation structure will be in the form of dividends, both financial and in social welfare.  New corporations will emerge and the old corporations will become more efficient. What is invented will tend to reflect social priorities rather than today’s short term Wall Street priorities.   America must innovate at an intense and sustained rate in order to compensate for the imbalance of debt economics that has been created in its absence.  Social Media can be, and must be, the infrastructure upon which an Innovation Economy is built.  Again, this opportunity is staring us straight in the eye.  This is the conversation that must be having today if we will meet the challenges of tomorrow.

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Social Media; the Integrator of the Innovation Economy

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On November 24, 2008

In General Information

Where are the gray suited diplomats holding each others forearms against a world map backdrop vowing to correct the world’s innovation system?  Where are the politicians joining across party lines about how to inject 700 billion dollars to fix the nation’s innovation system?  When will the Federal Reserve Chairman find the flaw in our national innovation system?  Hey, when will someone notice that we don’t have a national innovation system?

Schumpeterian Economics argues that corporations represent our nation’s innovation endowment. However, the primary function of a corporation is to make money, not explicitly to innovate.  Sure, they innovate if they must – most likely to beat down a more innovative competitor.  But, as soon as bad times hit, most will shift money from R&D to marketing.

If we look back only 400 hundred years, everyone on Earth lived on an average of about 500 dollars per year.  Then the innovations from the prior 2,000,000 years started to converge.  Counting backwards; the knowledge economy was “derived” from the information revolution, which was derived from the manufacturing revolution which was “derived” the Industrial revolution which was “derived” from the scientific revolution, which was “derived” from the agrarian economy.  Each revolution “Integrated” the tools of the prior revolution; The Knowledge economy integrated the tools of the information age and the information age integrated the tools of the manufacturing economy, etc.  By the way, the term “derived” is related to the term “derivative” – the primary hedging tool integrated in our current financial system.

Each economic revolution was marked by a tremendous increase in human productivity – we no longer need to milk our own cow. Victoria trades a dollar’s worth of her time as an airplane engineer for a dollar’s worth of the Robert’s time as an agricultural engineer.  Bill Gates is worth 50 billion dollars because he increased the productivity of a minimum of a billion people by a minimum of 50 dollars each.  I save 5 dollars in gas by not driving to the library when I can just search Google or Wikipedia.

The only way to “make” more money is to increase human productivity and the only sustainable way to increase human productivity is to find better ways of doing things.  Anything else is simply a transfer or redistribution of money.  Both are important – but often we confuse them under the same terminology: “making money”.  Or, we reverse the two by literally making (printing) money and then transferring it to corporations under the assumption that they will innovate enough to support everyone else plus the debt.  This system worked great for many years and in many political forms – it brought us from living in caves to a 65 trillion dollar global economy.  But like the economic revolutions before it, the current economic structure will soon give way to a new paradigm as we are forced to reach for higher productivity.

What the brilliant economist, Joseph Schumpeter did not have in his time was the technological breakthrough of Computer Enabled Society.  Taking a hint from the past; the new economic paradigm will be derived from the knowledge economy by integrating the tools developed during the knowledge economy. That is why we now have Linkedin, Facebook, YouTube – and all the rest.

Everyone agrees that information, knowledge, and innovation are profoundly related.  In fact, we can say that knowledge is derived from information and that innovation is derived from knowledge.  The new paradigm will be called the Innovation Economy and it will arise from the integration of the tools of the knowledge economy using social media. We see terms like open-sourcing, crowd sourcing, social networking, groundswells, innovation exchanges and a host of new Social Media Internet applications.  All of these have one thing in common; the tangibility of human knowledge.  This is the Holy Grail of modern finance and it is not a coincidence – it is now within our grasp.

In the past, human knowledge was only tangible inside the construct of a corporation – the corporate structure integrated knowledge assets to make things people want and need. However, with Social Media, knowledge assets will become tangible outside the corporate structure and integrated by knowledge communities, social networks, crowds, groundswells, etc. Knowledge communities will mix, combine, interact, and share knowledge; inevitably the end result is innovation – to make things that people want and need. These knowledge communities will become the next “corporation” acting directly as the integrator of human knowledge.  Ironically, Social Media “outsources” management.  Traditional corporations will not disappear as the agrarian economy never disappeared – they will just integrate.

Ideally, Wall Street is a simply a horse race where money is bet on corporations to fund innovation.  There is nothing wrong with that.  We don’t need a new financial system; we need a new and improved innovation system.  We have the technology; all we need now is the “integrator”.  The Ingenesist Project is the only viable comprehensive integrator now being proposed.  Perhaps it is not perfect, but the next economic paradigm will be certainly be derived from its improvement.

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Social Media; A Public Innovation System

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On November 21, 2008

In General Information

In order to restructure our financial system; we first need to restructure our innovation system.  ALL of the top ten reasons for business failure are due to a lack of knowledge, not a lack of money.

Top 10 reasons why businesses fail:

1.    Lack of an adequate, viable business plan
2.    Insufficient sales to sustain business
3.    Poor marketing plan: unappealing product, poor customer identification, incorrect pricing and lackluster promotion
4.    Inadequate capital, misuse of capital and poor cost control
5.    Poor management skills: lack of delegation, leadership and/or control
6.    Lack of experience and knowledge
7.    Lack of managerial focus/commitment
8.    Poor customer service
9.    Inadequate human resource management
10.    Failure to properly use professional advice: i.e. accounting, legal, financial, etc.

Lack of a viable business plan is an act of negligence where research, scenarios, and assumptions have not been tested.  Market ignorance is not an excuse nor is the failure to know one’s customer. Death by poor marketing plan is knowledge deficiency related to product appeal, customer identification, pricing structure, and lackluster promotion.  Obviously, one needs to know how to manage a company in order to be focused, let alone correctly estimate capital needs. Lack of customer service knowledge is deadly in the age of social media. Inadequate HR is an oxymoron – if it’s inadequate, it’s not a resource – human or otherwise.  Finally, failure to listen to knowledgeable people is ego driven irrationality.

The financial system is not the only problem; the innovation system is a crucial element. Information, knowledge and innovation, by any definition, are profoundly and inseparably connected.  A failure in one kills the other two.  So, just because an entrepreneur does not have the knowledge, does not mean it the ‘knowledge’ fails to exist – it simply means that entrepreneur failed to find it.

So where is the knowledge? Unfortunately, there is no public knowledge inventory – people do not know what each other knows.  There is no website where that people can go search for all 90th percentile social media experts living in zip code 06776, let alone build a dedicated local management team.  There is no way that anyone can assemble the knowledge needed to execute a business plan with a known probability of success given the information available.  As such, there is no way to finance public innovation.

Insurance companies can tell you the probability that you will die exactly on your 80th birthday, but we cannot estimate the probability that a business will be successful.  Nothing has more variables that human physiology, yet it is predictable and business success probability is not.  Why can’t this be fixed?

If we could identify, integrate, and predict public information, knowledge and innovation, we could diversify risk exposures away.  With risk exposures managed, we could insure start-ups risks.  With start-up risk eliminated, we can sell innovation bonds at, say, 6% to fund the extraordinary rate of public innovation that we need to support our debt and pressing social liabilities.   If the innovation bond returns a modest 20%, human productivity, by definition, has increased by 20%.  A 20% growth in human productivity is a 20% growth in an economy.  Again, financial system is not the only problem; the innovation system – or lack of an innovation system – is the problem.  Perhaps oversimplified, but this is an astonishing omission from the national dialog on the financial crisis.

The emergence of Social Media technology presents an extraordinary opportunity to organize a knowledge inventory outside the construct of a corporation and marry it to the financial system, much like a corporation.  Knowledge tangibility must be the most important “innovation” in the pipeline today if we expect to meet the crushing challenges that await us.  Just because we cannot predict innovation does not mean it cannot be done – it just means that we do not know how… yet. This is not about inventing a new currency, it is about the public taking control of the old one. We, the people, don’t deserve to lose this game; join The Ingenesist Project and help build a sustainable Innovation Economy.

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Social Media; The Central Bank for Knowledge Assets?

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On November 20, 2008

In General Information

It is very interesting to watch Social Media follow familiar trajectories as earlier paradigms in finance.  I see many social media platforms struggling to make human knowledge tangible in their respective markets.  The challenge is so simple, yet so complex.  Let the litmus test for knowledge tangibility be as follows; “Can you buy groceries with it?”

The Romans Empire had a similar problem; how to sack Europe and bring home the booty.  The only thing most people had at the time were sheep, fish, and wine.  So the emperor created a coin that represented a peasant’s productivity in raising sheep, catching fish, and making wine – and it was a lot easier to collect taxes.  The conquest of a continent has far more to do with the social acceptance of the currency than the actual pillaging – pillaging, after all, would be counter productive in a social network.

Today the dollar also represents human productivity – except a ‘necessary flaw’ was introduced to finance innovation leading to fantastic worldwide economic growth from which many people benefit greatly.  Now, this flaw threatens to topple the whole system.  Money still represents productivity, except it now represents future productivity allocated to paying debt.  As long as innovation increases fast enough to outpace debt, everything is OK.  Problems happen when debt exceeds our structural ability to innovate.

We do not need to restructure the financial system – we need to restructure the innovation system.  The human race is exceedingly fortunate that the end game for debt economics will happen at the exact moment in history that the technology required to start a new game of sustainable innovation economics has arrived.   If done correctly, Social Media (computer enabled society) can become the most important human invention since to the printing press.

Today, human knowledge, in the form of social capital, creative capital, and intellectual capital, is captured and hidden inside corporations.  Each corporation has its own business plan, lexicon, culture, organization, structure, and processes by which human knowledge is exchanged in the creation of a “product”.  Outside the corporation, however, true knowledge assets are either invisible, incomplete, or only appear as a proxy of the corporation.  This leads to stagnation, silos, mis-allocation, vulnerability to external shock, and greatly limits the diversity needed for sustainable innovation.

In the 1700’s Banks printed their own currency – these were called “bank notes” because they were little notes that declared who had a surplus and who had a deficit of money relative to the bank.  People would trade these notes in society to purchase things, buy feed or seed, and to keep track of things.  Everyone had a job to do and the general flow of these notes is what “incorporated” townships. Unfortunately, such banking also lead to industrial stagnation, silos of wealth, and lack of diversification leading to corruption, bank failures, and ‘bottle necks’ in the flow of capital.

Barely 150 years ago, the U.S. government established a central banking system with common currency, common practices, common accounting, and common regulation. The system became much more efficient, diversified, and accessible across the landscape.  The industrial revolution, manufacturing revolution, lots of wars, the era of information, and the Internet Industries were all financed through a central banking system.  Human productivity increased at a tremendous rate and the relative wealth that we enjoy today is a tangible result of innovation.

Now the Pied Piper has come to take the children to sea.  The banking system needs to invent new, exotic, and increasingly risky financial instruments for trading your productivity in order to keep the game alive.  Meanwhile, the tangibility of human knowledge is stuck in an 18th century banking system.  There is no common knowledge inventory, there is no common accounting practice for skills and abilities, there is no way to measure social capital and creative capital – the system is too biased toward “intellectual capital” measured by Ivy League degrees and access to wealth.  Knowledge assets are not tangible, organized, classified, or collected in a society in any structured way.  “Can you buy groceries with it yet”?

With the emergence of Social Media, we have an extraordinary opportunity to make knowledge tangible outside the construct of a corporation much like banks notes became tangible outside the construct of a single township.  There are vast and crushing problems in the world today.  The only way out of this mess is to massively increase the rate of innovation in society.  Like off-shore drilling – vast wealth in the form of social capital, creative capital, and intellectual capital lays hidden beneath thousands of layers of philosophical limestone.  Social Media and the first amendment = drill baby, drill.

The only thing separating us from a debt economy and an innovation economy is social agreement. The philosophical chasm holding us back is about to be broken by The Ingenesist Project: In the current paradigm, money is backed by future productivity allocated to pay off today’s debt.  In the social media paradigm; money will be backed by future productivity created by today’s innovation.  At the end of the day money still represents productivity.  The conquest of a continent has far more to do with the acceptance of the currency than the actual pillaging.  Hey, why not buy groceries with it?

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Tangible Knowledge; Options and Contingencies

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On November 19, 2008

In General Information

In order for knowledge to become a tangible asset, we need to come to grips with the fact that human knowledge is fluid and mobile, whereas a condo or a piece of machinery is static.  A machine can’t walk away if it does not like their management.

With knowledge assets, the typical “Return on Investment” (ROI) model breaks down.  When assets have a mind of their own, there is no reliable way to calculate ROI without somehow corralling the asset inside some form of closed contract, a corporation, political system, social class, or by introducing barriers to exit, etc.  In the modern financial system, human assets are held tangible by debt obligations – today many people go to work in servitude of debt, not in creation of new ideas.

An option* is the right, without the liability of obligation, to exercise a decision in the future.  Human interaction accommodates this valuation model quite readily; it’s called free-will.  Therefore the option valuation model is an adequate method to assess knowledge assets as a means of making them tangible.

The value of a financial option can be calculated if one knows the following 5 variables: The asset price, the strike price, the date of maturity, the risk free interest rate, and the volatility – or, the odds on the bet.  By contrast, the ROI model requires us to know basically the same things; the cost today, the strike price (future sale price), the date of maturity, the risk free interest rate, and the probability of success – or variance of the expectation.  The equation is just a little different.

Individually, human behavior often appears chaotic and irrational, but in aggregate, we know that human behavior is really quite predictable.  If you put similar people together, you get similar ideas.  If you put extremely different people together, you get extremely unpredictable ideas.  If you put strategic combinations of people together, you should be able to predict the variance of the ideas.  This is all the information we need to place a value on our bet.   If human behavior is predictable, it is tangible.

Suppose we enter into a ROI venture and it fails miserably; the market was wrong or the product was wrong, or the people were wrong, etc.  Even though the investment failed, the knowledge accumulated from the attempt can be exercised in many other projects in the future. While the Patent may turn out to be worthless, the knowledge gained by the team can be used over and over again.  Each person gains a statistical data point in their experience set with which to assess comparable situations in the future.  This is an option and this option has value.  If the team were disbanded without somehow capturing the inventory of new knowledge assets, a very valuable set of options becomes squandered.

Some companies such as Google, try not to kill an idea, they morph the idea into something else.  Free-range knowledge tangibility must achieve those same objectives.  Today we see people building networks on Linkedin – this activity resembles the collection of options on future opportunities.  People post on social media to see and be seen by other knowledge assets as a means of collecting more options for their careers or actions. People would not be doing it if there was no intrinsic value.  The next big leap will happen when knowledge tangibility is married to the financial system through the direct valuation and capitalization of options.  Did I mention there is an equation for that?

The Ingenesist Project specifies a method and system for knowledge inventory that would produce a variance for knowledge assets.  The Percentile Search Engine would pull knowledge assets in combination that diversify variance into a highly predictable surplus assets and deficit assets.   The Innovation Bank would match most worthy surplus to most worthy deficit.  As such, the Innovation Economy itself is now a most worthy option for supporting a feeble financial system.

The ROI model is the mother of all squandered knowledge assets – the very same assets that are really purchased on a project, successful or not, are often willfully abandoned.  All of the parameters of an option valuation model can now be met with social media and The Ingenesist Project integration methods. Free-range knowledge assets can then be directly financed toward business objectives.  The idea of an innovation economy based on knowledge tangibility is well within our grasp technologically, culturally, and systematically.

Social media has an astonishing opportunity to integrate social, creative, and intellectual knowledge assets to trade that single most important part of the puzzle, tangible knowledge assets.  I suspect that this outcome will depend on whether these new tools are treated to an ROI valuation model or on an options valuation model.

* Italic used for clarity

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2008 Financial Crisis – The End Game

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On November 11, 2008

In General Information

The year is 2020, no burning cities, no mass hysteria, no bread lines; the economy is on an exponential growth curve.  The financial crisis of 2008 ended in an anticlimactic sort of way.  Sure, lots of hedge fund bankers were unemployed for a while and many companies once deemed titans of industry have disappeared, but nobody seemed to notice much.

Government debt has been eliminated and Wall Street has become the steward of what has become an Innovation Economy rising from the ashes of debt economics.  The transition, in fact, was surprisingly smooth.  Social Networks figured out a way to make knowledge tangible outside the construct of Wall Street, the central banks, and the traditional corporations.

When the dollar started to fall, people began trading a different currency called the rallod.  The rallod was backed by future productivity resulting from innovation rather than future productivity supporting debt.  The vicious cycle of debt economics was reversed just in time.  When the dollar finally crashed, it pegged to the rallod and the economy began to grow again with an astonishing, yet peaceful, transfer of wealth and power to self-regulating communities, society is general.  It’s still hard to believe what happened.

Today the engines of economic growth are millions of hot new start-ups that exist in the form of “Communities of Practice” related to specific technology areas rather than the old corporation model.  They automatically cluster around a technology and spin off other start-ups at an incredible rate in a strange nesting arrangement called the “tangential innovation” market.  Most innovation is open sourced because the “Patent” (and protectionism in general) is no longer the center of the innovation finance universe, rather, the “secret sauce” of social, creative, and intellectual capital is the most valuable player today.

About 10 years ago, something resembling the human genome project mapped all knowledge in the form of social, creative, and intellectual capital that exists in society to a very high granularity.  A programming language was invented to represent knowledge assets like packets of code that are processed by a community algorithm (The CV/resume is a bar joke now). Thanks to a visionary government, 1st amendment protections were built into this inventory with anonymity laws.

Part of Google was democratized in a public takeover and spun off to design an open source percentile search engine to help entrepreneurs build unique collections of knowledge assets and predict the probability that various combinations of these assets could successfully execute a business plan.  These unique combinations then induce hyper-innovation around a technology and the resulting innovations get spun off to be reabsorbed by different and diverse communities of practice in continuous iterations forming a virtuous vortex of new systems, methods, and solutions.  Sketched out, these arrangements looked like electrical circuits.  Wealth creation is intense.

Instead of having jobs, many people in a geographic area are pinged by a Percentile search engine which calculates the likelihood that their interaction together will increase the probability of successful execution of a business plan when combined with other knowledge assets.  Instead of earning wages, people are paid with micro-royalties specified by contracts on capital asset sub-sections. These micro-royalties add up to substantial residual income enjoying a multiplier effect as their work continues downstream. The government funds social security through it’s own innovation ventures. Service workers such as police, teachers, fire fighters, nurses, local merchants, etc., are key beneficiaries because of their impact on the community is directly associated with productivity.

Many of the senior knowledge workers have determined that they can earn more money by taking an equity position in their students, and the students of their student – such pyramids are in fact sustainable and generate astonishing returns.  Mentors have entered the landscape in vast numbers and apprenticeships have become abundant.  The income potential for the “creating creators” boggles the imagination.   Again, a virtuous circle has formed between the mentor and the student. In aggregate, wisdom is being retained, refined, and transferred efficiently throughout social networks.  Universities have begun doing the same forgoing tuition in exchange for an equity position in students.

University “degrees” have disappeared in favor of unique combinations of knowledge assets that are continually SEO’d for best Percentile Search Engine Placement.  People do not compete directly, rather, they compete with the Percentile Search Engine in the local market place – although virtual work is becoming popular again.  As owners of their knowledge assets, the entrepreneurial spirit is ubiquitous.  No individual has either a monopoly or an identical knowledge set as anyone else.  Everyone has perfect information about the knowledge assets in a market.  People are pinged for different reasons at different times for different rates depending on supply and demand.  Continuous education is a social event in itself often mistaken for recreation!

Since the knowledge inventory has mapped all knowledge and the Percentile Search Engine calculated probabilities and scenarios, the Innovation bank formed to make most worthy and optimal matches between knowledge surplus and knowledge deficit in a community.  Since the probability of innovation success has become predictable, innovation risk is now diversified away.  Innovation insurance products abound. With near-zero innovation risk the cost of venture capital has approached 5-7 % instead of 500-2000% of less than a decade ago.  Banks now issue innovation bonds on the public market to finance innovation in society.  For an investment of such high return and such little risk, participation is near universal.  This created another virtuous circle; the more innovation that occurs, the more money is created.  The more money that is created, the more innovation occurs.

Even the poorest areas of the planet are getting into the action because, by definition, parts of an economy with the highest potential for technological change are the same places that return the highest dividends in an innovation economy.  Arbitrage opportunities between master and oppressor have disappeared worldwide.

Like a neural network, the economic system of tangible knowledge is self-correcting, fault tolerant, and self-regulating.  Governments across the globe tried to stop the social network driven innovation economy – but they eventually gave up.  It was like water; it flowed between the cracks and simply eroded the barriers. China learned to show it’s sense of humor exporting some of the funniest jokes ever conceived.

Oil production has been replaced by superconducting wind turbines, global temperatures have stabilized, all cars are electric or “water leakers” (as the hydro’s are affectionately known), many diseases have been cured, and the list goes on.  It is hard to believe this happened in only 12 years.  Then again, the Internet had only been widely used 12 years prior to 2008.  Did I mention, we’re finally sending a multinational expedition to Mars…

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The Tangibility of Knowledge

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On November 9, 2008

In General Information

Knowledge Tangibility should be the most important conversation in Social Media circles given the current financial situation in America.

I lived through financial devaluation in another country and the effects were crushing: after the run on the banks, there will be a run on Walmart.  People will buy TVs, small appliances, shoes, and useful stuff that will hold more value tomorrow that they cost today.  These items may become a de facto currency of trade.  Americans will be astonished by how fast a devaluation event plays out; hours and days, not months or years.  When things settle down, the government will retire the old dollar and introduce a new currency at an exchange of, say, 1 megabuck equals 1000 old dollars.  Then the chips are cleared, assets are transferred, and the same game can start all over again.

The difference is that for the first time in history, there is a window of opportunity for social media technology to break this cycle. Please let me explain:

Suppose that a BMW costs $50,000 dollars and a KIA costs $10,000 dollars.  These prices reflect the quantity and quality of the car in terms of availability and popular amenities such as, handling, road noise, comfort, status, etc. Suppose the government introduces a new currency called the “megabuck”.  Suppose the government pegs the megabuck to cars saying that all cars will have a value of 30,000 megabucks. Since these cars are not equal, people will begin trading; the BMW will be bid up to 50,000 megabucks and the Kia will be bid down to 10,000 megabucks based on supply and demand – right back where they started.

Admittedly an oversimplification, but the point is does not matter what you call the currency – the most important thing is the quantity and quality of the asset.  This brings us back to the idea of knowledge tangibility.

Suppose that, on average, 1 hour of human labor is worth 20 megabucks.  As above, hard labor will be bid up while soft labor would be bid down.  The same is not really true with knowledge because knowledge is invisible and it can’t be counted with bricks or bushels.  There is no knowledge inventory in America’s communities.  Therefore, there is no way to establish supply and demand for knowledge assets.  People in a community do not know what other people in the community know. This is where social networks will make a huge difference.

Human knowledge, if formatted correctly, would make an excellent asset upon which to peg a currency. Today, accountants say that human knowledge is “intangible” but social media demonstrates otherwise; human knowledge is simply invisible – hidden inside corporations under the thumb of Wall Street. Social media demonstrates that knowledge assets are itching to be release to the public domain in a highly tangible manner.  Believe it or not, we are now 95% of the way toward real knowledge tangibility today.   We should be very excited about this because everything changes.

Like the example with the cars, we need to have a comprehensive inventory of the knowledge assets in our communities so that they can be strategically combined into productive organizations.  This inventory must be formatted in terms of quantity and quality and include all knowledge living including social, creative, and intellectual capital.  If done correctly, it will not matter what happens to the dollar or what currency is used as a scorecard, the value of human knowledge assets will remain intact.

Again, the value is in the asset, not the currency – it is in you, me, and our diverse communities who will favor community priorities rather than Wall Street priorities. This is how where we will find equity, sustainability, and fairness in a capitalist system.

The Ingenesist Project has specified exactly how to create knowledge tangibility in a capitalist model using 3 simple web applications for Social Networks; a Knowledge Inventory, a Percentile Search Engine, and an Innovation Bank. Please read the intro and the articles on page IEc101.  If you agree, please pass it on.  If you do not agree, please help us make it better.  If you don’t understand, email me. This needs to happen fast and unfortunately nobody will do it for us – we must do it ourselves.

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The Balance Sheet for Knowledge Assets

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On November 6, 2008

In General Information

Innovation economics has a way of forcing us to look at the mirror image of conventional wisdom.  This article will look at knowledge assets as they might appear on an accounting balance sheet.  You may be surprised at what happens at the bottom line.

Wall Street will often reward a company that has a large backlog of orders. This can appear in the eyes of most observers as an asset. After all, who would not want a backlog of orders?  However, in the world of social media, a huge backlog causes a serious problem – it represents commitments made that have not yet been delivered. An unfulfilled promise in a social network is a liability and not an asset.  By extension, a backlog in an innovation economy is a liability and not an asset (note: climate change).

Applying conventional wisdom to an innovation economy, we find that most companies have an excellent inventory of the “liability” but a poor inventory of the “asset” that will execute those promises. All of their plans, specifications, blueprints, job descriptions, policies and procedures, etc., are liabilities in an innovation economy because these define the promise that is unfulfilled, not the asset that will fulfill them.

Until recently, companies assumed that the right knowledge assets will always be available – an assumption that for a long time has limited the level of productivity that humans can achieve, specifically, the sustainability of natural resources. The absence of a knowledge inventory limits the complexity of problems that humans can solve much like industry was limited to custom machinery before Eli Whitney demonstrated the concept of interchangeable parts less than 200 years ago.

Further, if the product line is expected to have a life cycle of more than a few years, the knowledge inventory must extend beyond the doors of the company and into the surrounding community.  Therefore, the knowledge inventory must take on the taxonomy of the community, not the taxonomy of the corporation such as skill codes, levels, titles, etc. The requirement is now clearly in the domain of social networks.  Yet, I still hear grumblings in the blog sphere that social networks cannot be monetized – nothing should be further from the truth.

So, let’s talk about the bottom line.  For example, Boeing announced today that their greatest future challenge would be the availability of engineers. Boeing has a market capitalization of $34B and a $300B backlog.  Money has a 10:1 multiplier as it travels through and economy.  For a balanced accounting statement, what would be the real value of a social network that can capture the correct knowledge inventory to support Boeing; 34B, 300B, or 3T?

In general, valid estimates of the bottom line can vary by 2 orders of magnitude depending on the point of view of Wall Street, corporate management, or the social network community.  Who would be the better steward?

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