Tag: finance

The Next Economic Paradigm; Part 2, Currency

On April 5, 2009

Welcome to part 2 of the New Economic Paradigm series.

In part 1 we determined that money represents human productivity and the only way to sustainably create wealth was to innovate.

Then we identified the flaw that money lives in a complex and integrated system while Innovation does not, rather, innovation is isolated, random, non-integrated and subservient to the financial system.

This module discusses the currency of the innovation economy.

A Currency is anything that serves as a medium of exchange, a stored value, and a standard of value.

We all know that Dollar denominated money is a medium of exchange – but it does not represent gold or silver or even oil, it represents human productivity. Money, and therefore all financial instruments store value related to human productivity.

When we look into society throughout history, everywhere people are trading information and ideas with each other at some velocity. The Internet and social media (machine enabled society) has sped this process up to incredible rates. All of this information adds up to something because obviously things get built and stuff rolls off assembly lines. Furthermore, people act on information obtained from each other to produce things.

The currency of trade for the next economic paradigm must represent this “stock exchange”

Intuitively we know that information, knowledge and innovation are profoundly related to each other. In fact, if you don’t have one, you can’t have the other two. Our currency of trade must represent all three; information, knowledge, and innovation. Therefore, we need to redefine these terms in a manner that relates them.

First we must define ‘information’. That’s easy, information is facts and data.

Next we need to define ‘knowledge’ in terms of information: Any good teacher can tell you that information must be introduced in a certain sequence and at a certain speed in order for the student to learn. Knowledge is therefore proportional to the rate of change of information.

For the purposes of this analysis, we will use the following definition: Innovation is defined by the rate of change of knowledge where knowledge is defined by the rate of change of information. For example; everyone has had an ‘Ah-Ha!’ moment during a brain storming session, or after making a mistake, or after witnessing a profound event. The AH-HA moment represents a very high rate of change in our knowledge that occurs in a very short period of time.

According to this definition, every idea, conversation, dream, design, sketch, or discovery experienced and shared between two or more people is an innovation.

Math students can see that this definition sets up a differential equation that we can use to model the innovation system computationally – something that cannot be done with the current definitions.

Now let’s look at the “economic outcome” part

The factors of production for the industrial economy are land labor and capital. Entrepreneurs allocate these three factors in different combination in the formation and growth of corporations. If any of these factors of production are missing, dysfunctional, or corrupted – the corporation stops producing.

We have learned 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 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. Everything they see and do becomes part of their relevant knowledge set: 24/7/365. The idea of an 8 hour day and pay-by-the-hour are no longer relevant.

Capital is money needed to build future structures, buy machines and to pay wages. Today, money provides access to information. The current economic meltdown demonstrates that where the information is corrupted, the money is corrupted – and so becomes everything connected to the money.

We now see that many old economic principles do not work quite as well in the new economies. Yet, the Land, Labor, and Capital theory is still the foundation of much of today’s corporate, academic, government, financial, and social thinking.

Using our definition for innovation, we can see that the innovation economy will emerge from the rate of change of the knowledge economy. Today we are witnessing an astonishing growth in social media and a breakdown of traditional media for the dissemination of information.

The factors of production for the new currency are Intellectual Capital, Social Capital, and Creative Capital.

Intellectual Capital is also called Human Capital – and 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, Social Networking, and notably, recent political changes events.

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.

A Currency is anything that serves as a medium of exchange, a stored value, and a standard of value.

In the current financial economy, the currency is a dollar. The rate of change of the currency is called appreciation, depreciation, or “interest”. The rate of change of interest is the growth rate or compounding. These are very familiar conditions in finance and the basis for a company’s stock price.

In the innovation economy, information is the currency. Knowledge is the rate of change of information, and innovation is the rate of change of knowledge.

This will become a very familiar and useful relationship in the innovation economy.

For example, innovation is difficult to measure directly. However, we can measure the rate of change of knowledge as a proxy for innovation. It is difficult to measure knowledge. However, we can measure the rate of change of information as a proxy for knowledge.

In finance and calculus, these are called derivatives.

In the next module we will discuss the inventory and accounting system for an innovation economy.

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Necessity Is The The Mother of All Stimuli

By Admin

On February 10, 2009

In General Information

So who exactly is paying for this? The next economic stimulus package will not come from the halls of Washington or the boardrooms of Wall Street, but from the streets of America. The objective of The Ingenesist Project is to induce a crowd sourced innovation economy by integrating Social Media with three web applications. It’s all about to become extremely exciting.

Social Media Grows Legs

There only remains three tiny applications yet to be developed and deployed to social media that will allow human knowledge to become tangible outside the construct of a corporation, and therefore, independent of Wall Street. Social media technology is very close to duplicating nearly every function of the corporation outside of the traditional corporate structure. America’s most valuable asset is not money, it is social capital, creative capital, and intellectual capital, and it’s about to stand up, brush itself off, and walk away from the mess left by the excesses of greed and power.

The Evolution of a Species:

1. Social Media will be used to develop a knowledge inventory in a computer code based on, say, the Dewey Decimal System. Suddenly, human knowledge will become organized like a library and searchable by computer in very high resolution.

2. Boolean logic will be applied to the knowledge inventory and the resume will be replaced by a high resolution computer readable descriptive code.

3. Communities of practice will normalize (bell curve) their knowledge domain. At this point, knowledge will appear in the same form as a financial instrument and can then be treated as a tangible asset.

4. A percentile search engine will calculate the probability that a various collections of knowledge assets can execute collections of innovation business plan scenarios.

5. An Innovation Bank will match most worthy knowledge deficit to most worthy knowledge surplus and keep a record of the “secret sauce” of success feeding back to the search engine.

Wall Street Calculus:

Using the same equations as Wall Street, the Innovation Bank will predict the probability that a venture will be successful given a set of knowledge assets. The Innovation Bank can then predict the future cash flows associated with the venture. Now, thousands of ventures and their predicted cash flows can be combined, diversified, and diced up into innovation bonds having superior returns over any other investment. Investors will flood the Innovation System with cash. This cash will be used to fund more innovation investment and the cycle will continue. Everyone takes an equity position and innovation reflects social priorities rather than Wall Street priorities. This changes everything.

This can happen today with existing infrastructure. The only thing needed is a social movement; that’s what Americans are best at. Where does this leave Wall Street, failing businesses, and all their debt? The funny thing about knowledge assets is that they can walk if necessary.

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The First Mile in Social Media

By Admin

On February 6, 2009

In General Information

The Last Mile….

Back in the early days of Broadband, the cost of sending a signal across the Pacific Ocean was negligible compared to the cost of delivering that signal to everyone in town – the problem was called the called “The Last Mile”.

Predictably, companies battled it out in the Dot-Com Wars with a flurry of IPOs and hostile takeovers clambering to fill “The Last Mile” void. Then the issue largely disappeared. I guess the cable TV folks figured it out because that is who I send my money to for the speedy bits. Last week I was chatting with the FiOS folks burying fiber optic cable near my mailbox. They said it’s going to get faster.

…of Social Media….

Social media currently suffers from “The Last Mile” syndrome. Social Media applications have enabled me to make friends in India, Israel, Colombia, Mexico, Japan, and everywhere in between. I can shout out to 3 million people with the click of a mouse, but not the wonderful family living a few houses down the street. I met them while chatting with the FiOS folks who were burying fiber optic cable near our mailboxes.

…is where the rubber meets the road

I really enjoy my online friends and the sharing of information makes me smarter and introduces me to new ideas. But these ideas are not very productive until I apply them to something that actually touches the ground, like the FiOS cables. The secret to finding a business case for social media can be found in “The Last Mile”. It would seem that innovators and entrepreneurs would be strafing each other to fill this vastly under served market and lucrative market segment. This is where the money is. Hello, is this thing on?

But the scalability is lost.

I have found a few applications like Meet-up, Biznik, Ning, Neighborex, Start-up Weekend, etc., but they are just not catching fire like the calculus suggests that they should. The problem is that the scaling is lost. The advertising revenue model carried over from radio and TV requires millions of impressions to be viable. The demographic of “The Last Mile” are groups of 2-8 people living within a few miles of each other – a corporate business model just does not exist to serve “The Last Mile”.

The First Mile…

Meanwhile, the old one-way advertising model is dying off quickly and the two-way advertising paradigm is sending all the major corporations and media outlets to the drawing board looking for the social media strategy. Corporation are now expected to provide real value to a community, but they can’t figure out how to scale that value. The Irony is that most of those same corporations were started by 2-8 people living within a few miles of each other. Maybe we should call it “The First Mile” and then re investigate the role of Social Media.

…holds the the secret sauce…

In the future of innovation economics, patents will not be the most valuable object, rather, the secret sauce that comes up with the innovations that will be the most valuable. Corporation can employ social media to provide a practical and repeatable program that empowers a community. Corporations can strategically assemble local entrepreneurs into spin-off entities. Corporations could license their IP, open-source their technologies, share internal strategy, and provide executive coaching that helps community teams to form new corporations discovering tangential and future markets. Corporations should teach people what they do best – making money.

…where the scalability is found.

So where is the scalability? Hey, let me hop on my new FiOS line with my 8 friends from down the street and we’ll just shout out to our 24 million global neighbors – and we’ll get back to you.

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The Shift to Social Capitalism

By Admin

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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Social Media; the Integrator of the Innovation Economy

By Admin

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

By Admin

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?

By Admin

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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INGENESIST PROJECT: Submission to the 10^100

By Admin

On October 8, 2008

In General Information

INGENESIST PROJECT: Submission to the 10^100 Innovation Contest; www.project10tothe100.com

Single sentence:
The Ingenesist Project is an open source economic development program to induce the Innovation Economy utilizing Social Networks.

Tell us more (300 words)
The current financial system has reached the limits of its effectiveness. Interest on debt has exceeded the system’s ability to pay it off. But debt is simply a promissory note on future productivity – any caveman can tell us that the only way to increase productivity today is to innovate yesterday, not tomorrow.

In modern times, this means that the only way to sustainably create more money tomorrow is to innovate today. This is the flaw on Wall Street that Innovation Economics will correct.

Ingenesist has specified three simple web applications when applied to Social Networks, will allow Knowledge to become tangible outside of the organizational construct of a corporation, government, or academia. To develop these applications would unleash substantial innovation and wealth in society.

*The Knowledge Inventory
*The Percentile Search engine
*The Innovation Bank

Knowledge is an excellent tangible asset upon which to peg a currency – better than Gold, Silver, or Debt.

The factors of production for an Innovation Economy are Social Capital, Creative Capital, and Intellectual Capital. The knowledge Inventory classifies knowledge assets in social networks. The Percentile Search Engine assembles unique knowledge asset combinations and returns their probability of executing a given business objective. The Innovation Bank matches most worthy knowledge surplus to most worthy knowledge deficit. Finally, entrepreneurs elevate knowledge assets from lower states to higher states of productivity thereby creating wealth in communities.

By analogy; in the early 1800’s Eli Whitney performed a demonstration for members of Congress by disassembling 10 working muskets, scrambling the pieces and reassembled 10 working muskets. It may seem trivial to us today, but that simple feat astonished the world; it led to the industrial revolution, and unlocked a vast amount of innovation and wealth creation. Innovation Economics is the modern day equivalent.
What Problem does it solve (150 words)?

Technological change must always precede economy growth. We are going about the process of globalization as if economic growth can precede technological change. This simple reversal is the cause for much of what is unsustainable in the world today. Innovation Economics corrects this flaw.

To make knowledge assets tangible is the Holy Grail of financial accounting. The Ingenesist Project asserts that knowledge assets are not intangible, they are simply invisible – this is a much easier problem to solve. Innovation economics solves this problem.

True valuation of knowledge assets allows for direct capitalization of people and their social, creative, and intellectual capital. Networks of knowledge assets form a new type of corporation that is fault tolerant, self regulating, risk diversified, and responsive to social priorities. Wall Street becomes the steward instead of the master. The whole game changes.

If it becomes a reality, what happens (150 words)?
If Innovation Economics becomes a reality, Social Networks will become the driving force of economic growth because human knowledge (as social capital, creative capital, and intellectual capital) can be capitalized directly. Creative knowledge workers would benefit most initially.

Eventually, publically traded Innovation Bonds backed by productivity gains will replace venture capital at vastly reduced risk and cost thereby unleashing an extraordinary amount of primary and tangential innovation creating a virtuous circle.

Areas of low productivity, such as poor communities and under-privileged populations will become targets for highest returns on innovation applications. Millions of new-to-the-world businesses will emerge and nearly all existing businesses will become more efficient where human knowledge is tangible and free to assemble itself in infinite, diverse, and strategic combinations.

If done correctly, eventually most people on Earth would benefit by freedom from the shackles of debt economics.

What are the initial steps to make it happen (150 words)?

Phase 1: The initial steps are: publish our research to a wider audience, prosecute our patent application (USPTO: 20070226361), release it to public property, and begin receiving public input.

Phase 2: Publish several animated videos which describe step-by-step the role that Social Networks must play to induce the Innovation Economy. Collect more input.

Phase 3: Create an open source development platform where ideas can be collected from the global community on how to develop the three web applications specified herein.

Phase 4: Develop and release common architecture web applications for The Knowledge Inventory, The Percentile Search Engine, and The Innovation Bank.

Phase 5: Exist indefinitely as an NGO to keep the game fair and build out emerging opportunities as needed.

What is the optimal Outcome and how is it measured (150 words)?
The intended outcome is for the innovation economy to arise from the knowledge economy as the next level of economic development. The optimal result would be an improved wider distribution of wealth and the transfer of corporate prioritization to communities regarding what gets innovated and what does not. Or likewise, which existing markets dynamics are disrupted and which are not. The optimal outcome would be the emergence of sustainable enterprise over forest-to-dump consumerism.

Metrics are inherent to the algorithm of the Percentile Search Engine as follows: innovation is proportional to the rate of change of knowledge with respect to time and knowledge is proportional to the rate of change of information with respect to time. Differential Calculus is the mathematical tool used to monitor all performance indicators of this system. In fact, all of the analytical methods of finance similarly apply to knowledge assets, by design.

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A Few Predictions for the Innovation Economy

By Admin

On September 18, 2008

In General Information

Here are a A Few Predictions for the Innovation Economy

Social Network will become the corporate structure of the future. They will spit out start-ups at an astonishing rate.

The “resume system” will be banished forever possibly earning the title of the cruelest human invention since the lobotomy.

The University System will be challenged – the relevance of the college degree will be questioned in an economy that favors unique combination of knowledge assets rather than everyone having the same “degree”.

Everyone will have visibility of supply and demand for knowledge assets meaning that employers and employees will have equal information about cost, availability, and demand.

Creative knowledge workers will earn micro-royalties for their participation in thousands of brainstorming sessions and product development discussions. Earnings will be shared openly and the percentile Search Engine.

The new Patent will be the “Secret Sauces” – the algorithm that entrepreneurs will develop to select their knowledge assets when producing specific innovation.

Teachers will forego salary in favor of an equity position in their students. The best teachers will make the most money. Universities will forego tuition in favor of an equity position in students; the best students attract the best mentors and universities. Apprenticeship will become commonplace.

The knowledge inventory and Percentile Search Engine system rewards people for doing what they are most passionate about. The dominant strategy for all players in an Innovation Economy (that which produces the most revenue) is for participants to pursue what they are naturally good at and passionate for – as long as there is a market for it.

Innovation bonds will return 80% interest or more with near-zero risk. Institutional investors, insurance reserves, and foreign investors will flood the market with venture capital.

Knowledge workers will outsource management.

The Fed will peg the dollar to productivity, not gold or silver – interest on deposits will track productivity increases due to innovation.

Social priorities will impact what gets invented or what stays on the shelf; Global Warming, Alternative Energy, Sustainable environments will have net positive business cases.

The flaw in market economics will be reversed. Technological change will precede economic growth eliminating the economics of debt (ref video). The financial system will be restored to a sustainable condition.

We know that innovation is the engine of all wealth creation and it will live in an integrated system. Knowledge will be reformatted to emulate a financial instrument.

A good article from business week

A great Blog: Jay Deragon and the relationship economy

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The Capitalization of Knowledge – Innovation Bonds

By Admin

On September 18, 2008

In General Information

With a computer readable knowledge inventory, local communities of practice, a percentile search engine algorithm, and the virtuous circle of finance, then future innovation cash flows can be predicted much more accurately and with far lower risk than with, say, the venture capitalists acting alone.

Were risk is predictable, cash flows are predictable and the portfolio of innovations can be diversified so if one business fails there is an equal chance that another will succeed and the risks cancel each other out. The cash flow of all the innovation enterprises can be combined into a single large steady cash flow. Just like companies do to raise money for expansion, the innovation bank can issue innovation bonds on the open market. The revenue from selling Innovation Bonds can return to the community to finance innovation and fund wealth creation at very low interest rates compared with venture capital today.

With a lower cost of venture capital and a system that supports open source innovation an astonishing amount of innovation will be unleashed in society.

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The Capitalization of Knowledge – The Virtuous Circle

By Admin

On September 18, 2008

In General Information

We have set up a new game for entrepreneurs to play called Innovation Economics. We have defined a currency and an inventory where knowledge is visible outside the construct of the corporation – and resident in social networks. We have also described a way for entrepreneurs to visualize the knowledge asset and the supply and the demand for knowledge assets. We have given them a tool for matching assets for profit. We have described how social networks will keep the game fair. We have outlined the structure of new business plans; the brain storming session, product development cycle, the neural network, and the multiplier effect. Future businesses will be built upon combination of these four structures and whatever else entrepreneurs can dream up.

We have described all of the pieces needed to form a new economy. Now we need to connect with the financial markets so that knowledge is readily convertible to other currencies.

For review;

With the financial bank, the entrepreneur assumes that they have the knowledge to execute a business plan and then they look for the money. The risk is that the entrepreneur does not in fact have enough knowledge.

With the Innovation Bank, we assume that we have the money, and we go to the bank to search for the knowledge. The risk is not having enough money to purchase sufficient expertise.

With both banks acting together – the risks cancel each other out and the innovation economy tends toward a ‘risk free’ cycle; the more knowledge you can assemble, the more money you can borrow. The more money you can assemble, the more knowledge you can assemble.

Now we have a virtuous circle. The more knowledge you have, the more money you can borrow; and the more money you have, the more knowledge you can borrow.

There is no shortage of money circling the globe – only a shortage of risk free places to put the money. The innovation economy is an environment of very high return for a very low risk and will attract a great deal of money to fund innovation enterprise.

Earlier we demonstrated that money represents human productivity. It follows that the places that have the greatest potential for increasing human productivity can create the greatest amount of wealth. Therefore, poor areas and marginalized economies with under utilized knowledge inventories or the injection of specific knowledge inventories, become the highest ROI centers in a risk-free system; a condition the explicitly favors the wealth equalization rather than wealth disparity.

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Intellectual Property in the Innovation Economy

By Admin

On September 18, 2008

In General Information

Today there is a big scare that bad people will run off with your intellectual property and make a ton of money with it. Another problem is that the Patent system is so slow and so expensive that the vast majority of innovators simply do not have access to patent protection – many people just keep their ideas secret. This happens in corporations where your ideas are used to advance the careers other people. Often the dominant strategy is to not innovate or keep your ideas secret.

The trend toward open sourcing and crowd sourcing is a real option in the Innovation Economy where Social Network are self regulating. In fact, these articles reference Wikipedia – a community source of definitions.

In practice, If I do dirty deals of Craig’s List, for example; people know where I live….or I get flagged. EBay, for example, produces relatively little to earn their 30B market cap except protect their social accountability system – the EBay feedback mechanism rewards high integrity and punished low integrity. The hallmark of the Web 2.0 is the user generated content as well as the user generated vetting of the content.

This is significant. The efficiency of any market is directly related to the efficiency of the vetting mechanism by rewarding high integrity and punishing low integrity; the FAA vets the airline industry, checks and balances vets democratic government, and the FICO score vets the consumer credit markets. Likewise, things go horribly wrong when the vetting mechanism fails; the accounting profession after Enron, and the sub prime mortgage crisis after loose lending practices, etc. The battlefields of business are littered with similar examples.

In an Innovation Economy, the secret sauce for the production of innovation is far more valuable than any single innovation itself. The secret sauce provides a monopoly on dynamic repeatability rather than some static device. As such, patents can be open-sourced and innovation crowd sourced across a much wider domain of 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 – and fear for one’s IP being stolen. Bad people cannot steal your intellectual capital, your social capital, or your creative capital – it is yours, you own it and you have the social network to prove it.

Ownership is the key ingredient of entrepreneurship – everyone owns the innovation economy.

In fact, the objective of innovation economics is for people to take your ideas and make money with them – then give you some of it. Your income arises from collecting royalty payments on your ideas and participation of many ventures. If someone does not play fair, their access to intellectual property and the Percentile Search Engine can be curtailed just like access to credit can be curtailed in modern finance. Therefore, it is in everyone’s best interest to play fair; you may cheat, but only once.

Social Networks are largely self-regulating; no government, Industry, or management is needed. This is efficiency, scaleability, and multiplicity all in one!

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The Innovation Bank

By Admin

On September 18, 2008

In General Information

So now, what are the entrepreneurs going to do with this percentile search engine?

Entrepreneurs wander the earth looking for valuable things that are being used at a low level of productivity and they move those assets to a higher level of productivity and then pocket the difference, called profit.

Think pet rock, condo conversions, sand, corn, etc.,…it goes on forever.

The entrepreneur needs to have a clear view of what the asset is, the lower level of productivity, and the higher level of productivity of the asset. These three elements are the focus of all business plans. Then they set things in motion and give life to the market system.

When we look at financial banks we see the classic entrepreneurial activity. In the simplest form, banks do little more than find people who have a surplus of money and they match them with people who have a deficit of money. Bankers have a clear view of the asset, the lower level of productivity and the higher level of productivity for the asset.

They pay a lower interest to the depositor than they do to the borrower and pocket the difference. In addition, they enjoy a multiplier effect that allows them to lend the same money many times effectively creating money from a promise to pay, or debt.

It is in the best interest of the bank to find rich people who will not need their money for a while, and poor people that have the best likelihood of paying the money back in time. This is to minimize the risk that the depositor will pull out their deposits and the risk that the borrower will not pay back the loan. The problem is that some assumptions need to be made, some of which may no longer be valid:

The bank assumes that the borrower has the knowledge required to execute the business plan that they are financing. Unfortunately, the credit score does not predict knowledge on future ventures. For this reason, new ventures are not easy to finance.

The financial bank makes the assumption that the entrepreneur has the knowledge to execute a business plan that they seek money to fund.

On the other hand, the Innovation Bank makes the assumption that the entrepreneur has the money available to execute the business and is searching for the knowledge to do so. This service will be required in the innovation economy since no single person can live long enough to possess as much knowledge as is required to manage the complexity of problems that face the World. We will need to mind meld.

The Innovation Bank simply matches most worthy knowledge surplus with most worthy knowledge deficit and a market is born.

The challenge for the innovation Bank is to match the most correct knowledge surplus to the most correct knowledge deficit. This is accomplished with the computer enabled knowledge inventory. A search can be conducted of the supply and demand for knowledge assets. The Percentile Search Engine will calculate the probability that the specific business objective will be successful.

The business plan for the entrepreneur is very simple but the implications are vast.

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The Percentile Search Engine

By Admin

On September 17, 2008

In General Information

The Percentile Search Engine is a way of using a computer to make predictions about all types of combinations of knowledge Assets.

Conceptually, the percentile search engine is where all of the equations that we use to analyze financial assets are now applied to knowledge assets. The main characteristic is that the Percentile Search Engine returns probabilities – that is, what’s the probability of success for any number of scenarios.

For example; an entrepreneur may want to know if her team has enough knowledge to execute a business plan. Maybe the team has too much knowledge and they should try something more valuable. Maybe the team does not have enough knowledge and they should find someone else, take training, or try something simpler. The Percentile Search Engine can look into the community and identify the supply and demand of a knowledge asset. If it is unavailable or too expensive, the Percentile Search Engine will even tell them what training they need to increase their probability of success.

The entrepreneur may also want to determine what competitors have a dangerously high probability of competing with her new business. The Search Engine will allow competitors to scan each other’s knowledge inventory to determine how long it would take for their secret sauce copied. They can take then choose to take evasive action, compete, or cooperate. If a key person retires, the entrepreneur would simulate the knowledge that is lost and reassign people strategically. All of these scenarios can be examines prior to spending money. They can be made during the project cycle, or after the project is completed. Lessons learned can be used to adjust the algorithm perfecting it over time.

While companies such as Disney and Boeing both use Engineers, each would have proprietary combinations of knowledge that represents their “secret sauce” of success. These recipes can be adjusted and improved to reflect the wisdom of an organization.

Over time, these algorithms will far more valuable then the Patents and Trade Secrets created by them – this will allow technologies to be open sourced much more profitably and shared across more industries.

Literally thousands of new business plans will emerge from this important new paradigm. Knowledge will become tangible outside of the organizational construct of the corporation. Knowledge combinations will become the new corporate structure. The rate of change of knowledge with respect to time is the key metric and fundamental building block of the innovation economy.

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The Knowledge Inventory; Part 3

By Admin

On September 17, 2008

In General Information

In American society there is a persistent ideology of winners and losers; there can only be one winner and the rest are losers. We rank things in a very linear way; 1st, 2nd, 3rd, etc. Sports analogies dominate many business expressions; low ball, hail mary pass, ball’s in your court, etc. Our culture is to protect one’s position at all cost, shield away all attackers and decimate our competition. This way of thinking was effective in the industrial economy but today with the emergence of social networks it keeps us from understanding how knowledge actually exists in a community – it lives on a bell curve.

The Bell Curve

If I examine a group of people on the streets of Seattle in the area of mathematics – I would get a bell curve. If I examined engineering school students in mathematics, I would still get a bell curve. If I examined engineering professors, I would still get a bell curve.

In the Innovation Economy, there are no winners or losers, only different markets. There is a perfectly legitimate market for a Ferrari and there is a perfectly legitimate market for a KIA – in fact the market for KIAs is bigger than the market for Ferrari, so the idea that we compete with each other may no longer be appropriate. In fact, according to game theory priciples, it may not actually be the best strategy to be number one in a single talent – rather, being slightly above average in many diverse talents, on average, pays more for the majority of people engaged in innovation economics.

This is important. All of the tools, methods, and equations in the world of banking, finance, and insurance use interpretations related to this type curve when they try to figure out the value of an asset in the particular market. This is very important for making knowledge look and behave like money. Again, there are no winners or losers, only different markets.

We will need to come up with a way to sample and normalize knowledge in a community. In some ways we already do: Ebay uses a rating system, we rate comments on blogs, best answers to questions, Google placement, number of contacts, college GPA, credit score, etc. So rating are everywhere – there is nothing new here.

Here is what we need to do to make knowledge tangible in a community: when a local community of practice meets, everyone needs define the knowledge that the community shares, then everyone needs to find their place on the right bell curve. Each specialty and proficiency level is a different market. For example, a photography community there may be some competition for who can operate a camera better – but there is competition anyway. The competition disappears when one photographer is also a musician and nature enthusiast while another is also a baseball player and likes political contests. They would each own a unique market; still life and action respectively – and they can now cooperate instead of compete.

In fact, rather than fighting for first place by beating up your competitors, the best strategy in a market may be to have an average level of expertise in as many subjects as possible rather than being the best at one or two obscure areas. It depends on the market – it always has and it always will.

An entrepreneur will not make a bet without odds. We are giving the entrepreneur the information that they need to create wealth. Again, There are no winners or losers, only different markets.

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Economics of Innovation

By Admin

On September 16, 2008

In General Information

Every time humans invent better ways of doing things, the economy gets a little bigger. This is a simple idea. The cave dwellers discovered that they did not have to travel as much hunting and gathering if they could sharpen a rock enough to chop a tree down for firewood or for spearing animals. That same tool helped them to dig holes to plant seeds. By growing food and domestication animals, they could stay in one place and conserve energy. By living in cities, the division of labor led to more efficiency as the farmer, metal smith and rancher bartered their services. Enough surpluses were created so that a leisure class was free to develop philosophical thought leading to early scientific principals.

After a while, the invention of the printing press greatly advanced the availability of formal education. In the Early 1800’s, Eli Whitney stunned the world first with the cotton gin and then with his concept of “interchangeable parts” where he disassembled ten working muskets, scramble the parts and reassembled ten working muskets. What seems trivial today lead to great advances in the industrial revolution, becoming further refined in the manufacturing economy. Computers then ushered in the Era of Information followed by the knowledge economy that we live in today.

At each stage, there was a quantum leap in human productivity and financial wealth. Obviously the two are related.

If we look at this history from the big picture, we notice that each level of human development was derived from the prior level by integrating the tools of that prior level. As such, the knowledge economy was derived from the information era by integrating the computer tools leading to the Internet. The agrarian economy was derived from the hunter-gatherer tribes by integrating the wheel, wedge, and lever into agriculture and livestock. The industrial revolution integrated scientific principles from the Renaissance. This is fairly consistent.

If we look at this history from a microscopic view, we see that no single idea drove human development, rather, billions upon billions of little ideas from many diverse sources combined in unique ways to form larger ideas which then combined to form even larger advances eventually leading to those big innovations that we see as the milestones above.

Also, we notice that the over time, rate of change at which these ideas have been combining is getting faster and faster. The hunter-gatherer phase lasted 2 million years, The agrarian age lasted about 40,000 years. The scientific revolution lasted 1500 years. The knowledge economy is barely a single generation in play.

These are important concepts because later, when we build a mathematical model for the next economic paradigm, we will use a few tricks of calculus called the “derivative” and the “integral” to describe how things change over time so that we can measure and analyze productivity and wealth creation in the new economy.

Finally, we ask, what comes after the knowledge economy? There are two things that we can be certain of. The next great leap in economic development will be derived from the knowledge economy by integrating the tools that we developed in this knowledge economy. I strongly suspect that computer enabled society – or social networking will have something to do with it.

Welcome to the Innovation economy.

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