The Ingenesist Project

The Next Economic Paradigm

Tag: supply and demand

How Collaboration Distorts Markets

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On May 7, 2012

In General Information

Adam Smith From the un-encyclopedia

Long before the word “economics” and “capitalism” were even invented, a Scottish social philosopher and political economist named Adam Smith describes how wages are determined by competition between workers and competition between employers – not necessarily competition between workers and employers.

 An Inquiry into the Nature and Causes of the Wealth of Nations

Published on March 9th 1776, The Wealth of Nations, in part,  describes the fundamental dynamics of labor markets at the dawn of the industrial revolution.  In essence, when workers compete with each other for a limited number of jobs, wages fall.  When employers compete with each other for a limited number of workers, wages increase.

He also described what happens when workers decide not to compete with each other; and instead form unions.   Unions effectively distort the market toward increased wages.  Likewise, Adam Smith describes what happens when employers decide not to compete with other employers (tacitly or implicitly) for workers.  This activity also distorts the market, except, towards decreased wages.

Why are we fighting again?

Adam Smith does not mention specifically that these mutual distortions manifests in workers and employers competing with each other in lieu of competing with themselves.  Since the 1780’s, vast resources have been committed to preserving the fight without really questioning why the fight needs to exist in the first place.

A fish has no word for water

One of the ways that corporations form tacit collusion is with arcade job descriptions and skill codes.  When a company or an industry develops its own language, this makes it very difficult for outsiders to enter and insiders to leave.   Yet, this is precisely what needs to happen in order for the diffusion of innovation to flow across the entire economic spectrum.

For example;

A medical instrument manufacturer and an aerospace company and a sporting equipment company would have very different ways of describing the environment that they operate in.  However, an engineer designing a carbon fiber composite aircraft structure would be equally adept at designing a composite athletic prosthetics.  Yet today, engineers from multiple industries are rarely interchanged.  In fact, interchange has been largely suppressed.

Innovation Economics

If workers were able to cross industries they would benefit from increasing employment options and the ability to shift rapidly with economic cycles.  In Adam Smith’s analysis, this would drive wages up.  On the other hand, employers would also have a greater pool of qualified workers to hire, which in Mr. Smith’s analysis would drive wages down. Both would benefit from  increased exchange of  knowledge, access to innovation, transfer of wisdom, and diversification of risk.

If workers and employers could produce the exact same labor relations outcome by collaborating among themselves, there would be no need for the massive infrastructure of social division and political rhetoric that we have invested in preserving the fight.

Public Knowledge Asset Inventory

The Internet has made collaboration and interchange vastly more efficient than competing yet our economic system remains in the 1780’s.  We are watching a public knowledge asset inventory forming outside the construct of corporations.  We are watching corporations begin to index their skill codes to the public knowledge inventory rather than their internal ontologies.

We now need to recognize the importance in which we formulate this public asset.  If we do it right, astonishing value will be released.  If we do not, the invisible hand of capitalism will remain, well, invisible. As such, even a distorted image would be an improvement.

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Entrepreneurs or Social Media Riff Raff ?

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On October 7, 2009

In General Information

I am noticing a recent backlash at the social media experts that are not actually experts.  In one such rant, a real social media expert proposes a few simple questions that can help separate the good from the not-so-good.

A few simple things:

  • Proof of experience and demonstrated results.
  • Business leadership, not necessarily thought leadership.
  • Dig deep into a consultant’s background and social media presence. Is he or she simply good at promoting him- or herself?

Bad Apples?

The chief complaint is that the bad ones are destroying the reputations of the good ones.  It is no mystery that any fair and competitive market has a vetting mechanism and the hallmark of protectionism is in promoting the absence of such vetting… “except my own”.

Subjectivity or objectivity:

The Real Expert certainly means well, however, they are reflecting on the profession in their own image.  This is entirely valid and correct, in fact, the CEO of the hiring firm is likely doing the same thing, saying to themselves: “Obviously, a social media consultant who is very good at promoting themselves would also be very good at promoting my company”. As such, the consultant that self-promotes is ironically casting the less selfish image.

A few not so simple things:

  • There is a dire shortage of social media consultants relative to the “adoption” rates needed to solve real problems.
  • Prices increase as demand increases and supply stays low.
  • There is too much social media work for the existing “good ones” to possibly do in their lifetimes.

What every expert should know:

  • Social Media is about engagement and sharing, inclusiveness, and empowerment.
  • Social media success is a function of critical mass – the more people doing it; the more social media consultants will be needed.
  • There are as many different levels of expertise as there are levels of need for such expertise.  The ability to match the correct knowledge surplus to the correct knowledge deficit is the hallmark of an expert.
  • A social media expert for a construction company is a lot different than a social media expert for an advertising agency – and it is unlikely that either would think of the other to be an expert.
  • The world needs lots and lots of social media experts covering a wide range of disciplines real fast – no holes.

Will the Real Social Media Expert please stand up?

Where are the social media experts who are devising the curriculum, certification, structure and ascension plan for all the emerging consultants?  After all, social media expertise is in itself the art and science of bringing mass quantities of people around a common goal, concern, message, or product, – quickly and efficiently using modern tools of mass influence – etc.  What expert(s) is bringing together ALL social media “experts” under a vetting mechanism that serves market efficiencies not subjective efficiencies?

A kettle and a stove walk into a bar…

In other words, if they are so good, why haven’t they organized themselves?.  The CEO says, “If they cannot organize their own “Social Network” industry, how can they organize mine?” Until then, the Riff Raff are entrepreneurs too and an essential ingredient in the development of innovations that will become standards that act in the best interest of the market, not necessarily in the best interest of the “real” Social Media expert.

Besides, who else would the Underdog go after?

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The New Economic Paradigm; Part 6: The Business Plan

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On April 10, 2009

In General Information

The objective of this series is to contain what we know about social networks within the construct of the financial system.  The intention is for knowledge to behave, and thereby trade like a financial instrument.  In prior articles, we discovered the currency, the inventory, the institutions, and the entrepreneurs of the next economic paradigm.  This module will construct the business plan:

A business plan is the blue print for the construction of enterprise.

Like the construction of any tangible asset, an inventory of parts is assembled in strategic proportions.  The ability to accomplish this gives the enterprise a strategic and competitive advantage in a market.

Business failures are knowledge failures

Most enterprises will emphasize design, or service, or performance or price in their proprietary secret sauce of market success.  The question becomes, what quantities and qualities of strategic components allow the new enterprise to create a positive economic outcome.

Most business failure are due to knowledge deficits such as the inexperienced management team, a poor assessment of market conditions, under estimating the amount of money needed, under estimating a competitor, loss of a key employee, or the poor understanding of the technology, etc.  These are knowledge problems not financial problems.

Prediction is the quality of knowledge:

To solve the knowledge problems is to decrease the risk of innovating and increase the predictability of innovations. To decrease the risk will decrease the cost, and increase the availability, of venture capital.  To increase the predictability would increase entrepreneurial activity.

The Unit Business Plan:

The business plan of the innovation economy is very simple; it starts with the single transaction between two people.  The lender provides information and the borrower combines the information with their existing knowledge to create more knowledge.  This single transaction has a value of 1 unit of currency and we call it a unit business transaction:

The Parallel Circuit:

Now we will assemble these single transactions in many combinations.  When we combine two unit transactions in a parallel circuit.  This represents a brain storming session between two people.

The Percentile Search Engine matches the person with the most worthy knowledge supply to a person with the most worthy knowledge demand. The transaction is a simple conversation and the outcome is a prototype process, system, method, or iteration.

The Series Circuit:

The next transaction type is modeled as two unit business transactions occurring in a series circuit.  This represents a product development cycle.

Each cycle of these transactions is an improvement to the business objective. Each time the transaction occurs there is a net increase of new knowledge and therefore an increase in value.  New options are created.  The conversation stops when the product is ready for the market, cancellation, or next physical iteration.

The transaction is recorded as an event between two known persons of known knowledge inventories.  The transaction is stored in the intellect of the participants and becomes their property in the form of a knowledge asset represented by the things they create with their knowledge.

The Social Network:

Now if we combine the parallel transaction with the series transaction we have what now looks like a network.  In practice, we know that strong networks of people freely exchanging ideas make organizations better, smarter, and more efficient.  Networks are where knowledge and community wisdom is stored. A network is fault tolerant, if one person leaves, the network survives. For a relatively small input into a network, we can produce a large output of new knowledge – we have a learning organization.

However, in society, these interactions are largely accidental; people meet at Church, Starbucks, and Social Events or by word of mouth. Other times, these interactions are concentrated inside a single community of very similar people such as a technical conference, group meeting, or lunch buddies and are often not well diversified.  More recently, interaction is self selecting through social media devices such as Twitter, Linkedin, Craigslist, Biznik, and Meetup, etc.

What if the social interactions could be made less random and more intentional?

Suppose interactions be designed with a specific purpose by the entrepreneur as a means toward producing a unique outcome. The Innovation Bank will combine people of complementary knowledge assets in a calculated manner in order to arrive at specific business approaches and applications.

What if Innovation could be made less random and more intentional?

The Multiplier Effect:

A special case business plan is called the Multiplier Effect. In effect, building a network of applications from a network of knowledge assets.

Suppose that a company owns composite material technology for use on aircraft.  Since the company specializes in airplanes, they have no intention of pursuing other applications such as recreational equipment, energy production, or health care products.

The Innovation Bank:

Suppose that the company could deposit this asset in a bank and collect interest.  The Search Engine can scan the business landscape to find persons or organizations with a worthy knowledge deficit in the area of your technology. The originator holds the option to see what those other companies invent and hold the right to use their new ideas in an aircraft application. 

Contracts manage those options.  Those contracts are social contracts and they can be traded.  They are a form of currency – or stored value.

In the event of a cyclic downturn, instead of “laying off” knowledge assets, people can work in tangential industries where they will continue developing – literally putting “Knowledge in the Bank” – to be called back to their original company when market conditions improve.  A mobile knowledge asset increases in value and continually becomes smarter and more productive over time. This is not socialism, this is not capitalism, this is Ingenesism – from the root word: Ingenuity.

Market Efficiencies:

With an innovation Bank, a company can reduce their Research and Development costs and create additional revenue in a tangential innovation market.  Millions of people are being layed off work from corporations – billions upon billions of dollars of innovation potential is being squandered.  With reduced cost and risk of innovation, The new American corporations will specialize in inventing, networking, and applying new ideas as their primary revenue source.

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Putting the System Back into Social

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On March 12, 2009

In General Information

Social Media is a demanding master with the uncanny ability to determine the absence or presence of checks and balances.  As a self correcting market, what you do not say can have a greater impact than what you do say.

Of Profit and Peril:

There are great perils in getting social media wrong and great profit from getting it right.  Kids posting negative images can be haunted forever.  Corporations hawking wares can erode their brand. Egocentrics touting their own magnificence can find themselves isolated.  Yet every day, people are controversial, people are selling stuff, and there are is no shortage of egomaniacs in social media space – what are they doing right?

Family Values:

Corporations and individuals are finding out that the social media space requires a much larger degree of disclosure than traditional media simply because markets are most efficient in an environment of perfect information – that is, when the buyer and the seller have the exact same information as the other when negotiating a transaction.  Only then can the magic of supply and demand arrive at one correct “valuation”.

By contrast, an inefficient market of imperfect information cannot arrive at a true price, rather, somewhere in a range of prices.  This is defined as volatility.  When the price is unknown, transactions fail to occur, and markets devalue.  Volatility is the enemy.

Perfect Strangers:

As entrepreneurs have increasingly perfect access to information, it is no longer a successful dominant strategy for corporations to withhold information.  The corporation no longer competes with their nearest competitor; they compete with perfect information in the reputation market.  So what may seem like the wisdom dance of an enlightened industrial complex is really a shrewd and long overdue acknowledgment that perfect information is in the best interest of everyone.

Neighborhood watch organization:

The next step for Social Media will be the most powerful manifestation of perfect information ever to be crowd sourced; systems of checks and balances.  Where checks and balances are in place, information improves.  If not, information decays.

An easy way to determine the presence or absence of checks and balances is to remove one element form the relationship and see if the other two become disassociated.  Inversely, one way to creating checks and balances is to associate two elements by means of a third:

Triangulation:

1. Information, knowledge, and innovation;  Without one, the other two have little value.
2. Social Capital, Creative Capital, and Intellectual Capital; Without one, the other two have little value.
3. Openness, communication, and accountability; Without one, the other two have little value.
4. Trust, self expression, and connections; Without one, the other two have little value.

Etc.

Putting the System back into Social

The difference between success and failure depend your ability to systemize the social media presence.  Sound confusing?  It shouldn’t be. When you think about it, there rules are not much different between managing social media relationships and off-line personal and business relationships.

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A Few Predictions for the Innovation Economy

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On September 18, 2008

In General Information

Here are a A Few Predictions for the Innovation Economy

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

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

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

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

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

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

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

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

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

Knowledge workers will outsource management.

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

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

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

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

A good article from business week

A great Blog: Jay Deragon and the relationship economy

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The Capitalization of Knowledge – Innovation Bonds

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On September 18, 2008

In General Information

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

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

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

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