The Ingenesist Project

The Next Economic Paradigm

Tag: money

The 1.6 Trillion Dollar Waste of Time

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On July 15, 2009

In General Information

Countless blog articles and news reports complain about information overload in our society.  People are so occupied filtering information that they no longer have time to act on what is deemed important.  Every thought, idea, message, and picture that enters the human mind is stored somewhere by the magnificent human brain.  But the onslaught continues in spam, junk mail, billboards, pop-ups, aesthetic pollution, and road signs.

Endless War:

It’s a war that we cannot win so we just resign ourselves to the noise. Adult attention deficit syndrome is on the rise and I personally forget ideas quickly as they are replaced by new data appearing in my field of view.  I am increasingly aware of the huge time expenditure and the tremendous loss of productivity that is induced.

Money is time:

The underlying premise of Innovation Economics is that money represents human productivity and the only way to sustainably increase the quantity of money is to increase human productivity.  The only way to do this is to innovate.  This and other articles from the Ingenesist Project predict the value of innovation economics by the amount of productivity saved through the application of IE principles.

The Ad Spend and who really pays?

In the United States 2% of the Gross Domestic Product is spent on advertisements, not including the production cost of the ad. This is equal to 280 billion dollars per year.

Although direct response professionals usually project a response rate of less than 0.1% which means that 99.9% of the views are irrelevant noise. Time, energy, bandwidth and human productivity are consumed in seeing the ad, determining it is irrelevant and moving on (or sitting through the ad if you are captive such as TV commercials).

Pass Complete Ratio:

On super bowl Sunday, 90 million people will sit through a 30 second commercial that cost the advertiser 3 million dollars to air.  For an irrelevance rate of 99.9% , 375 man-years of productivity are lost.  For an average salary of 50,000 dollars per year; 18.8 Million dollars of productivity is burned by a single commercial.  For an 18.8M dollar productivity loss on a 3 M dollar ad spend, the ratio is about 6:1.

This means that for every ad dollar spent, 6 are lost in unrealized human productivity.  For a 272 Billion dollars spend at 6:1 irrelevance, then 1.6 Trillion dollars worth of human productivity are lost every year.

The most willing viewer is the most worthy viewer

The Ingenesist Project specifies a knowledge inventory system where a person’s knowledge inventory is represented by a packet of computer code.  Since the dissemination of this code is in the power of the owner, money spent on advertising can now be spent on compensating people for their time viewing and responding to an advertisement that they are actually interested in.

Economies of scale for advertisers can be produced by supporting groups that bring communities of people together in social media activity.

Spread the word:

So if media advertising disappears, what will the rest of us do with all of our spare time?  We’ll spend it with our families, friends, communities, and groups talking about what we know best – and the great products that empower us.

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Is the Corporate Structure Obsolete?

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On June 24, 2009

In General Information

The Social Media Production System

Social Media has demonstrated in many ways capable of meeting or exceeding the deliverable output of many traditional industries such as advertising, marketing, journalism, human resources, design, community organizing, education, and social vetting.

We have also seen social media form communities that increase productivity in manufacturing processes, software development, and project management.  We have seen people self manage in social media to segregate and elevate good information away from bad information.  We have seen communities act with logic, tact, and precision previously thought to be the province of top management guidance.

In short, we have seen social media replace or duplicate almost every structural element of the traditional corporation outside of the construct of corporations.  Can social media provide a corporate structure in and among itself?

General Accounting Practices:

Corporations have an internal accounting system, internal processes, internal procedures, and often their own lexicon and unique job descriptions relative to their product.  This is how a corporation stores knowledge and trades value internally and defends itself from external influence.  The common thread is that each department is accounted, assessed, and compared in terms of money.  Standard balance sheets are compared by banks and investors.

Social media uses the exchange of information, knowledge and new ideas to store value.  Processes, procedures, job descriptions, and accounting are done in a public lexicon that everyone develops collectively.  People share, trade, and exchange information, knowledge, and new ideas like tangible property; and they trade options on futures in the same.  Increasingly, access to the community knowledge inventory is becoming a means be which people can convert productivity to money.

Standard Balance Sheet for Social Media

Most elements of a corporation can be duplicated in social media.  For those parts that cannot, the entrepreneur will soon figure out how they can.   The entrepreneur does not worry about money, they worry about productivity and the money always follows.  The next paradigm of economic development will reside almost entirely on a statistical game of managing risk and return, matching surplus to deficit, and increasing human productivity in the operating system of Social Media.  Every Newspaper that falls to Social Media is simply transferring its value to the new paradigm.  That value is still in play.  This trend will continue until a new currency representing that value is introduced.

Business Plans of the Future:

As you witness the progression of Social Media unfold, look for innovations that contain incentives for people to reorganize themselves.  Look for similarities between new social media developments and traditional corporate departments.  Look for businesses and institutions that support social vetting mechanisms, knowledge exchanges, and groups bringing together strategic combination of diverse knowledge assets, not just similar knowledge assets.  Most importantly; look for the “Last Mile of Social Media”; diverse groups of 5-10 people living within a few miles of each other forming new enterprise.

Threats:

Finally, look for the threats that can corrupt an innovation economy.  Social Media is currently responsible for trillions of dollars of productivity gains – all this money is still on the table for social entrepreneurs to monetize once the integration reaches a tipping point.  Be watchful for attempts at censorship, attempts to monopolize information nodes, and the corporatizations of social networks.   Wall Street was corrupted when the value of the currency became divorced from human productivity.  Don’t let the same happen to Social Media.

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Change You Can Bank on

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On June 5, 2009

In General Information

The Earth changes – it always has and it always will.  The most interesting thing about Earth is not rock, it is rate of change of rock. Yet it is this rate of change in rock that created oceans, continents and geographical features.  The rate of change in the landscape is what created and affects all humanity; global warming not withstanding.

In fact, the rate at which things change is the root of all financial deals, social interactions, creative discovery, intellectual pursuit, even criminal activity.  All value is created and destroyed in response to the rate at which something changes.  Since change is relative to time, the rate of change is something, like death, and taxes, that you can bank on.

Money, Knowledge, and Power

As a corollary; the ability to measure rates of change in things is the ability to measure value.  The ability to cause rates of change is the ability to create or destroy value.  It is therefore in our interest to try and express our world in terms of rates of change.  For example:

1    Money, interest, and stock price are deeply related.  Therefore, the rate of change of money is related to interest.  The rate of change of interest is related to growth rate.  The change in growth is monetized through a public market for its stock.  Stock price affects money and the cycle continues.

2    Information, knowledge and innovation are deeply related.  Therefore, the rate of change of information is related to knowledge.  The rate of change of knowledge is related to innovation.  Innovation creates new information.  And, the cycle continues

3    Attention, attraction, affinity, audience, and action are deeply related to each other.  Therefore the rate of change of attention is related to attraction.  The rate of change of attraction is related to affinity, etc., until finally, the rate of change in action gets everyone’s attention.  And the cycle continues.

Achilles’ Octopus

There are a few problems however.  If you remove, corrupt, or disengage any of the components, the cycle fails.  To complicate matters further, our three examples are also related: money, knowledge, and audience; stock price, information, and action; etc.

Points of failure can occur at any part of the cycle and it is often difficult to identify which failure caused what effect.   Does a stock price fail because the public lost affinity or because information was corrupted?  Does an economy fail because there is no money to invest in innovation or because our society outsources its knowledge economy?  Does a school system fail to deliver the right knowledge to society because the stock market failed or because there is no public action?

Social Media and the next paradigm of economic development

Social media allows us to express the dynamics of our world in real time and at great speed.  Feedback loops are shorter and cause and effect can be more easily differentiated.  The data that will be generated through the integration of social media will allow entrepreneurs to identify rates of change of the rates of change! Armed with computer enabled search and analysis algorithms, they can mange these complex new relationships to create value for themselves and their community in a new era of social capitalism.  Social media is a higher order calculus.

It will take everyone to accomplish this together but we can create a new landscape for our Earth, ourselves, and our children’s future.   This is change we must bank on.

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The Currency of Transformation

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On May 19, 2009

In General Information

The words “conversation” and “convertibility” are really quite similar.

Information, knowledge and innovation are distinct phases of human intellect which are profoundly related.  The vehicle for transformation across these phases is the “conversation”.  As the medium of exchange, the conversation acts as a currency.   The speed at which these exchanges take place defines the value of a market – a good party is where everyone is engaged.  A good time is of the essence.

Changes in the value of the market defines the potential for value creation through conversation – a great party pulls more people into engagement and becomes a social movement; i.e., a marketing success.

Currency (money) and Current (time) and Current (force) are similar too!

Conversations exist as a state of shared information tied to a common and progressing theme.  The internet enables the propagation of conversations from two persons to millions of people.  The propagation of conversations is dependent on interest rates of the audience.  The rate of propagation accelerates with the transformation of information into knowledge by others in it’s path.  People are driven to entrepreneurial action when the alignment of information matches the environment that they observe.

Conversation is Currency

Currencies come in many different forms and the best ones are convertible – or can be transformed – into other currencies.  Our objective is to convert social currency, creative currency, and intellectual currency into a universal currency such as, but not necessarily, money.

Anything of value such as an option to exercise an action at a later date, or an equity position in the actions of others, or a mentorship opportunity with a great teacher are all convertible currencies.  Of course, this is nothing new; we pay money to buy a book, take a class, invest in start-ups, and teach our children.

An End to a Means:

What is new is that social media allows us to convert the other currencies before, after, and in between the conversion to money.  The option to convert to money is simply an option like any other option, not necessarily a means to an end.

Obviously we could pay money to buy a book, use that book to teach our children and hope our children can start up a new company, etc.  However, suppose we could pay money to buy a book, improve the book by adding information shared by others, teach hundreds of other people how to apply the ideas to their start-up, take an “knowledge equity” position in those hundreds of start ups, have access to the data that they produce, and write a book that improves the likelihood of successful start-ups.

The Interesting Thing About Interest Rates

The next economic paradigm will introduce thousands of convertible currencies in the form of infinite conversations.  Those currencies will be converted in infinite combinations for infinite applications each adding value to the conversation.  Relational data aggregation will match most worthy currencies and social vetting will manage the production process. The corporate silo will no longer form; therefore the exploitation of the creativity class will end.  Interest is not measured in terms of risk, but rather in terms of productivity where deficit spending is impossible. This is the currency of transformation.

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The New Economic Paradigm; Part 5: The Entrepreneurs

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On April 9, 2009

In General Information

There is no shortage of entrepreneurs in this world.

6 Billion of them wander the Earth looking for assets that exists at a low state of productivity waiting to be elevated to a higher state of productivity.

The entrepreneur must first be able to identify an asset as an asset.  Next they need to identify the lower level of productivity and they need to be able to imagine the higher potential level of productivity.  The entrepreneur must identify and manage some risk, perform leadership tasks; and as a result, elevate the asset to the higher state of productivity.  Profit is the difference between the lower and the higher state – minus expenses.

Unfortunately, today this process starts at the forest and ends at the junkyard.

This is how our economic system is organized.  The next economic paradigm flips that idea over.  Instead of accounting for natural resources as the tangible element and human knowledge as the intangibles element; the next economic paradigm must account for the natural resource as the intangible element and the human knowledge as the tangible element.

The current problem is not that knowledge is intangible; rather, knowledge is simply invisible.

The Ingenesist Project will make knowledge assets visible by provisioning all of the information that an entrepreneur now needs to identify the knowledge asset and the associated states of productivity.  Entrepreneurs can then increase human productivity using knowledge assets applied to natural resources, instead of natural resources applied to consumption.  The implications are vast.

Returning to the financial analogy:

With a financial bank, the entrepreneur assumes that they have the knowledge required to execute a business plan and the go to the Financial Institution to borrow the money.

With an “Innovation Bank” the entrepreneur assumes that they have the money to execute the business plan, and they go to the innovation institution to borrow the knowledge.

While this may sound trivial, the implications are vast:

1. A virtuous circle now exists between society and the financial system
2. Profit is derived from increasing human productivity not natural resource exploitation.

Economics is the science of incentives:

A financial Bank seeks to match a surplus of money with a deficit of money.  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 have the best likelihood of paying the money back in time.  The process assumes that the borrower has the knowledge required to execute a business plan when they seek to borrow money.  However, that FICO score does not measure knowledge explicitly, so little incentive exists to make it tangible.  All of the top ten reasons why businesses fail are due to failures of knowledge.  The financial system is collapsing under the weight of failed knowledge.

By contrast, the Innovation Bank seeks to find people who have a surplus of knowledge and people who have a deficit of knowledge about what they intend to produce. The innovation bank then uses a series of statistical calculus (the same calculus as the credit/insurance/risk management professions) to match most worthy surplus of knowledge assets to most worthy deficit of knowledge assets.  Here, the opposite assumption is made; everyone assumes that the borrower has the money required to execute the business plan and they go to the innovation bank to borrow the knowledge.  People have an incentive to accumulate knowledge.

Simplicity that defies comprehension:

The business plan for the new entrepreneur is deceptively simple to do and nearly impossible to monopolize; anyone can do it not just the wealthy and their chosen few.  The next 3 modules will outline how new enterprises will be constructed from the virtuous circle created between the financial bank and the innovation bank.  This changes everything …. and did I mention that the implications are vast?

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The Next Economic Paradigm; Part 4: Institutions

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On April 7, 2009

In General Information

In part 1, we introduced a new paradigm of economic growth; the innovation economy. In part 2, we identified information as the currency of trade for an innovation economy and we defined that currency’s relationship to knowledge and innovation.  In part 3 we demonstrated a structure for a knowledge Inventory that would enable an Innovation Economy.  In this module, we will discuss the institutions in social media that could keep an Innovation Economy, free, fair, and equitable.

In civil society, there are laws and regulations that protect our constitutional rights; these are essential institutions.

The legal system of the United States is extremely expensive, however, the expenditure is necessary to keep the society upright, productive and prevent it from falling into chaos.  Where a country’s legal system fails, so does its economy.  Entrepreneurs do not invest in places without a good legal system and where property rights are not protected. It is that important.  Investment abhors risk.

Arguably, the most important element of the Innovation Economy will be the vetting mechanism.

Fortunately, social media has the potential to serve this function; in fact in many cases it already does.  A feedback system supports Ebay ($35B Cap), community flagging supports Craigslist (40M ads/mo), peer review supports Linkedin (150M users).  These are not small numbers.  All markets must have a vetting mechanism in order to operate efficiently and if done correctly, social vetting has vast economic implications for an Innovation Economy.

First, let’s return to our financial analogy.

In the old days, the banker was the person to know if you wanted to be successful in town.  But with the emergence of the credit score, the “banker” became digitized; now a Saudi Billionaire can lend money to a young couple in Boise to buy their first home – and neither is aware of the other.  The credit score is responsible for the creation of great wealth because many more entrepreneurs could borrow money to invest in enterprise.

The credit score is statistical in nature; it isolates about 30 or so indicators of your financial activity and puts them on a bell curve relative to everyone else.  These include how much debt you have, how much your assets are worth, your income, etc.  These ratings are run through the FICO Equation and out pops your credit score.  Anyone can now predict the likelihood that you will default on your obligation.

All of the data that feed FICO are collected from public records, your employer, and the people who you borrow money from because these same organizations have a vested interest in a system of correct credit scores.

We are competing with ourselves.

It is interesting that you and I do not compete for our credit score because it is not a ranking system. On the other hand, with no credit, we are invisible and the system shuts us out.  With bad credit, the system shuts us out. We lose some freedom and privacy, but we accept these terms well because they provides us with tremendous benefit to finance a business, automobile, or a home without needing to save cash.

Now we will draw the comparable analogy from the social media.

In the old days, the hiring manager was the person to know if you wanted to get a job.  They would read your resume and compare it with “bell curve” in their experience about what has worked or not worked in their past.  This worked great in the industrial economy, but it falls far short in the innovation economy.  Innovation favors strategic combination of diverse knowledge where the Industrial economy favored identical packets of similar knowledge.

Not unlike the FICO score, the knowledge inventory is a collection of statistical variables and the social network is the reporting agencies who have a vested interest in a system of correct values.  Unlike FICO however, the variables are infinite and it responds to positive event input.
Social networks are by far among the most exciting and important new technology for an Innovation Economy.

Social networks must now evolve to become the vetting institutions for knowledge assets.

All the pieces are almost in place; now we need to develop a new type of search engine.

The Percentile Search Engine is generic term for the ability to make statistical predictions about all types and combinations of knowledge Assets in a network. 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 search engine returns probabilities for the entrepreneur to test scenarios.

For example; an entrepreneur may want to know if her team has enough knowledge to execute a business plan.  Perhaps the team has too much knowledge and they should try something more valuable.  Maybe the team does not have enough knowledge and they should attempt another opportunity or accumulate training.

The search engine can look into a network and identify the supply and demand of a knowledge asset. If it is unavailable or too expensive, the search engine can adjust for price, risk, or options that may emerge at a later date.

Talent will bid up to their productivity value, and brokers will bid down to their productivity value.

Competitors can scan each other’s knowledge inventory to compete, cooperate, acquire, or evade. 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.

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

When the innovation economy will catches fire….

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.

In the next module, we will talk about the entrepreneurs.

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The Next Economic Paradigm; Part 3: Knowledge Inventory

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On April 6, 2009

In General Information

Welcome back to the New Economic Paradigm Series.  The objective is to develop an innovation system that emulates the financial system.  In order to do this, we look for the social component that could best duplicate the function of the closest corresponding financial system component.

Part 2 discussed the currency of trade.  Part 3 will discuss the inventory of knowledge assets.

Most companies have an inventory of every nut, bolt, rivet, or panel that they need to build something tangible.  In innovation economy, we will need to have an inventory to assemble knowledge assets so that we can build something tangible and support the currency.

Your resume is like a book about you.  Conversely, every book that you have read has become part of your knowledge inventory.

Every experience you have had, every conversation you have participated in, every new idea that tried, successful of failed, is part of your knowledge inventory.  The things that you like to do, things that you do not like to do, and things that you do not know are part of this inventory and the way it is organized in your consciousness.

The Dewey Decimal System is a way to catalog information in books. Keep in mind that The Dewey System is archaic; however, it does provide us with some key insights:

From our earlier definition; to organize information is to organize a proxy for knowledge and innovation.

The decimal classification structure has a great advantage for the computer and mathematical analysis.  Additionally, tens of thousands of librarians are fluent and most people in the US have at least a minimal familiarity with it.

For a quick review, the body of written information is divided into 10 main categories.  Each main category is divided into 10 more categories and each of those are divided into 10 categories – and this can go on forever.

It is useful to note that the Dewey Decimal classification has a bias toward the three factors of production for the innovation economy; Social capital, creative capital, and intellectual capital:

Most resume reading programs just pick up key words, so why have any other words?

Your resume can be a series of Dewey numbers instead of words and computers can tag the numbers as they do key words today. For example:

302, 307, 330, 607, 17, 500, 519

If your mind were a library and you attempted to map it all out, one would see that everything is related in some way – intuitively, this is what defines you. If we looked into your world, we would discover a huge network of experiences, books read, lessons learned, and people encountered.

We would find a system of knowledge rather than random facts that you have organized.  Your likes and dislikes would be reflected in what you do and do not want to do. Everyone is different – nobody is the same.  Everyone innovates, everyone has knowledge, and everyone shares information.

If we add some mathematical symbols and Boolean logic, perhaps we could capture the system of knowledge a little better. Your resume may now look like this:

{20,12};[302 AND 307], (330):[607 AND 17] OR [500/519]

Now need to make this look like money.  Before our knowledge can behave like a financial instrument we need to add one additional factor – the quality of the knowledge.

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.  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 it keeps us from understanding how knowledge actually exists in a community.

We need to switch to a bell curve distribution for knowledge assets because it better reflects reality and eliminates unproductive competition; there are no winners or losers, just different markets.

There is a perfectly legitimate market for a Porsche as there is for a Toyota.

Statistical distributions are used extensively in finance to value financial instruments; we need to do the same now for our knowledge assets. To make financial sense out of our random world, we must classify knowledge assets on a bell curve.  Consider the following resume:

{20:95%,12:80%};[302 AND 330]70%:(607 AND 17)80% OR [500/519]90%

This person is a specialist in Social Interaction and economics at the 70th percentile related to educational research at the 80th percentile. She (or he) has a Background in applied mathematics and physics at the 90th percentile. She (or he) is a trained ethicist at the 75th percentile, philosopher, and artist specializing in musical theory and orchestration at the 50th percentile. Fluent English and Spanish

Now, we have a system of numbers and symbols represent the knowledge of the person in a tangible manner.

Keep in mind that this is only a demonstration, however, we see some key advantages:

1.    The Inventory is Infinite and expandable to any field of knowledge
2.    Paints a picture of knowledge and not simply a list of information about a person.
3.    Machine enabled, programmable, and readable.

Now, all of the tools, methods, and equations in the world of banking, finance, and insurance can be used to combine, amalgamate, and diversify knowledge assets in an innovation market.

Your resume can now be combined with other resumes to represent the collective knowledge of a community.  This expression carries all of the information that an entrepreneur needs in order to estimate the probability that the community can execute a business plan.  We will discuss predictive characteristics extensively in future modules.

In the next section, we will talk about the institutions that exist in our communities through computer enabled society which will keep this game free, fair – and most importantly, equitable.

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The Next Economic Paradigm; Part 2, Currency

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On April 5, 2009

In General Information

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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Is The Banking System Corrupted?

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On March 9, 2009

In General Information

The following video series is one of the most important videos that you can watch right now. These were published in 2006 but it’s the best place to start understanding the current crisis. It will also give you an understanding of what Barak Obama is doing and why.

Finally, after viewing these videos, you will have a greater understanding of what money is, what the future holds, and why the Ingenesist Project is therefore so Important.

Part 1/5; Cartels Robbing the Public

Part 2/5; How Money is Created

Part 3/5; Money Is Debt

Part 4/5; Monetary Reform

Part 5/5; Warning About the New World Order.

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The Global Financial Crisis; The End Game

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On February 18, 2009

In General Information

The year is 2024, no burning cities, no mass hysteria, no bread lines; the economy is on an exponential growth curve.  It took a while, but the financial crisis of ended in an anticlimactic sort of way.  Sure, lots of hedge fund bankers became unemployed, some went to jail, and many companies once deemed titans of industry have disappeared, but nobody seemed to notice much anymore.

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 Network applications such as Facebook, Linkedin, G+, and many more, developed a clever way to make knowledge tangible outside the construct of Wall Street and the traditional corporations and people began trading knowledge like currency.

When inflation hit, the dollar started to fall in value, people began trading a different currency called the rallod (dollar spelled backwards).  The rallod was backed by future productivity resulting from innovation rather than future productivity supporting debt.  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 open sourced self-regulating communities; i.e., society in general.  The vicious cycle of debt economics was reversed just in time.  It’s still hard to believe what happened.

Today the engines of economic growth are tens of thousands of hot new start-ups that exist in the form of “Value Games” 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 asset today.

About 15 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.  An API standard was created to represent knowledge assets like packets of code that are processed by a community algorithm. The CV/resume is an old bar joke now. Thanks to a visionary government, 1st amendment protections were built into this inventory with anonymity laws and privatized TOU; creators own what they create.

An open source percentile search engine was created to enable entrepreneurs to build unique collections of knowledge assets and predict the probability that various combinations of these assets could successfully execute a business plan.  High diversification induced hyper-innovation around technologies and the resulting innovations are spun out 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 “integrated” circuits.  Wealth creation is intense.

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.

Instead of having jobs, many people in a geographic area are pinged by the 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 collect 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 over their lifetime. 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.  Unlike a decade ago, pyramid schemes in innovation economics are sustainable and generate astonishing profits.  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.

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 by cooperating among each other.  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!

Even the poorest areas of the planet are getting into the action because, by definition, the parts of an economy with the highest potential for technological change correspond to opportunities 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 trying to stop water; it flowed between the cracks and simply eroded the barriers.  The most incredible outcome is that innovation now reflects long term social priorities instead of short term Wall Street priorities.

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 15 years prior to 2009.  Did I mention, we’re finally sending a multinational expedition to Mars…

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The US Financial System – Tail Wagging Dog

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On February 10, 2009

In General Information

The financial system is not the problem.  The Innovation System is the problem – or did you notice that we do not have an “innovation system”?  Finance and Innovation in the US has engaged in the dangerous dance of tail wagging dog.  Innovation is as Wall Street does; not the other way around.  This is wrong, this is very wrong.

Doers, not shakers

[Our economic strength is derived from the doers, the makers of things, the innovators who create and expand enterprises, the workers who provide life to companies and, with their earnings, support families and invest in their future… This is what drives economic growth.] – Barack Obama

These are sobering words.  It make one wonder how everyone else makes a living; the brokers, the agents, the middlemen, the gatekeepers, the spinners, the flippers, the money managers, and everyone else in the game with their hands “in the flow of money” dragging the system into a tailspin.  Many of these people publicly criticize the working class, who have finally run out of steam, for gumming up their game.

It is also amazing that the engineers, educators, technologists, medical professionals, and public servants could produce so much for so long; enough to feed everyone else – except, as of recently, themselves.

[The financial system is central to this process, transforming the earnings and savings of American workers into the loans that finance a first home, a new car or a college education, the credit necessary to build a company around a new idea.] – Tim Geithner

Meet the Master:

The financial system is supposed to be the servant, not the master.  Innovation takes time, effort and resources before the payback can be realized.  For this reason only, the financial system bridges that time gap to allow for increased future productivity to generate new wealth for use by all.  That is the only reason why the financial system should exists.  But somehow we have gotten it backwards.

We got it backwards:

Technological change must precede economic growth.  We are going about the process of globalization as if economic growth can precede technological change.  The invention of the wheel, wedge and the pulley came before the invention of the Collateralized Debt Obligation (CDO) – there is no excuse for this oversight. This is clearly unsustainable and the process must be reversed.

An easy fix, almost:

The Ingenesist project specifies 3 web applications that will allow social capital, creative capital, and intellectual capital to become tangible outside of the bloated and failing financial system.  These applications will make innovation success predictable.  If success is predictable, then cash flows are predictable.  Using the same calculus as Wall Street, the cash flows can be combined, diversified, and split up into innovation bonds with superior returns that can be issued to fund new and sustainable innovation enterprise. Problem solved.

3 steps away from a quantum leap:

This can be done today playing by the rules and using existing technology – 3 simple applications.  That is how close we are to achieving the most important evolutionary step in human history.  The Government needs to empower the people to release themselves from the shackles of debt created by those who create little else.  For this reason, Obama is on the only correct path – buying time so that this important social media technology can mature.

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The First Mile in Social Media

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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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Oh, What a Semantic Web We Weave

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On February 5, 2009

In General Information

Innovation Economics:

is the conscious practice of investing in innovation as a method for driving economic prosperity.  Innovation is the science of change and economics is the science of incentives.

Money is fictitious:

Money does not represent gold or silver, it represents your productivity.  The value is held in the productivity, not coins or bank notes.  Debt represents future productivity and savings represents past productivity. It’s very simple.

So if the word “money” and the word “productivity” mean the same thing, they should be interchangeable. Right?

As a test, try the following:

Every time you hear someone use the word “money”, simply insert the word “productivity”.  Try it with the kids, your boss, the news broadcast, or your favorite politicians.  If their statement still makes sense, then it is likely a logical statement.  If the statement is confused, reversed, or makes no sense whatsoever, then this is where we need Innovation Economics.

The Reversal:

  • “Mom, can I have some [productivity] to buy an ice cream cone?”
  • “We don’t have enough [productivity] to invest in R&D”
  • “There isn’t enough [productivity] in the budget so we must cut education programs”.

The Confusion:

  • “It concerns me that Facebook has yet to find a [productivity] model that seems likely to secure its future.”
  • “Icelandic [productivity] collapse is heard around the world”
  • “Global Warming costs too much [productivity] to solve”

The Ridiculous:

  • “Wall Street Executives earned excessive [productivity] in 2008”
  • “State of Washington opens more liquor stores to raise much needed [productivity]
  • “Lawmakers from both political parties have criticized banks for failing to use the taxpayer [productivity] for lending to help stabilize the hard-hit U.S. economy”.

It’s really fun to play this game when you start getting bored with the endless dribble of spin.  You can even go backwards; hear “productivity” and insert “money”. Pour yourself a glass of wine, sit back to the nightly news and you may start noticing some interesting trends.

Discussions related to engineers, infrastructure, airplanes, teachers, doctors, police and firefighters, etc., tend to get The Reversal. Discussions related to innovation industries such as social media, environment, and social causes tend to get The Confusion.  Discussions related to gambling, marketing and advertising, money shuffling, law suits, Wall Street, and various forms of speculation, are simply The Ridiculous.

It will make you wonder why we would need a Web 3.0 Semantic Web.  We really need a Web 3.0 de-Semantic Web.

(Picture from Charlotte’s Web; a story about a dinner pig who makes friends with a spider who comes up with a plan to save the pig by writing words in her web.  All the town’s people thought that the pig was special and his life was spared. The farm animals knew that it was really the spider who was special – she was an innovation economist)
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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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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; A Public Innovation System

By

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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The Capitalization of Knowledge – The Virtuous Circle

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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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The Innovation Bank

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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

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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 Credit Score Analogy; Part 2

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On September 17, 2008

In General Information

Now we look for a similar situation for Knowledge Markets.

In the cuurent times, the hiring manager is the person to know if you want to get a job. The manager would read your resume and compare it with “bell curve” in their brain about what has worked or not worked in their past. This was a great system for the industrial economy, but it falls far short in the innovation economy.

The world is evolving so fast with new technology, new disciplines, and global cultures that what worked in the past may not work in the future. Innovation favors different combinations of knowledge where the Industrial economy favored similar knowledge. A hiring manager may not accumulate sufficient experience in a lifetime to make a proper assessment in the complexities of a diverse, global, and technical future market.

If we look in society, there are many vetting mechanism in place. Social networks are by far among the most exciting and important new technology that can serve this purpose. Social networks must now evolve to become a local vetting mechanism for knowledge assets.

Just like the reporting agencies in the credit system, Social Networks can serve an extremely valuable function in permitting human knowledge to emulate a financial instrument by acting as the “Recording Agencies” who have verified the asset in terms of quality and quantity. The knolwedge Inventory acts as the independent variables that are used to calculate the probability of market success. The difference is that the credit score measures mostly negative events while the new system will seek only positive events and can be designed to give the participants much greater influence on how they appear to the market.

One thing is missing. The credit score uses the FICO equation; Innovation Economics will use something called the Percentile Search Engine.

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The Credit Score Analogy; Part 1

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On September 17, 2008

In General Information

We have defined the currency, the factors of production, and the inventory of the Innovation Economy; we destroyed the old resume system and turned it into a computer language that makes knowledge appear like money in the eyes of the entrepreneur.

Now, we need a system that keeps the game free and fair. For example; EBay does little more than protect the feedback system, Craigslist uses community flagging, Linkedin keeps track of comments and contacts, etc. All markets must have a vetting mechanism in order to operate efficiently. Entrepreneurs do not invest in places without a good legal system and where property rights are not protected. When vetting fails, investors leave – It is that important.

In the Innovation Economy, the knowledge market is analogous to the credit market.

In the old days, the banker was the person to know if you wanted to be successful in town. If you needed to borrow money to start a business or buy a house, the banker would review your work history and financial records as well as your reputation in the community where you both live. If you were deemed an acceptable risk, the banker would lend you money from the deposits of local companies and individuals.

Then an engineer named Bill Fair and mathematician Earl Isaac created the first behavior scoring system to predict credit risk. They formed the Fair Isaac Corporation FICO and their invention came to be known as the FICO credit score. With the credit score, the local banker is almost irrelevant; now a Saudi Billionaire can lend money to a young couple in Boise to buy their first home – and neither of them are aware of the other. The credit score is responsible for the creation of a lot of wealth because it made many more entrepreneurs who invested borrowed money in business. The credit score even allows you to recover if you hit hard times – you just pay more a little interest until you prove yourself solvent again.

The credit score isolates about 22 or so measurements of financial activity and puts them on a bell curve relative to everyone else. These include how much debt you have, how much your assets are worth, your income, etc. These ratings are run through the FICO Equation and out pops your credit score. Anyone can now predict the likelihood that you will default on your obligation.

All of the data that feed FICO are collected from public records, your employer, and the people who you borrow money from – all of these organizations have a vested interest in a system of correct credit scores.

It is interesting that you and I do not compete for our credit score because it is not a ranking system. The old saying “No credit is worse than bad credit”, although inaccurate, is cited often because with bad credit, you are visible to the system and it can adjust to find a suitable interest rate. With no credit, you are simply invisible.

We lose some privacy with FICO, but we accept these terms well because they provides us with tremendous benefit to finance a business, automobile, or a home without needing to save cash. Likewise, we lose some privacy engaging each other on the Internet and in our community, however, the benefit of Social Networks far exceed many perceived privacy issues.

My personal complaint with credit scores is that they track largely negative events and seem to predict failure. What if we had a system that tracks success and used that data topredict varying degrees of success.

In the next section, we will identify the institutions that exist in society and how Social Networks can act to duplicate the benefits of the credit score without the downsides….watch

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Economics of Innovation

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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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