Underwear, Peasants & Paradigms

Underwear saved the lives of peasants in the 1700's.

Innovations in the early day of the industrial revolution made underwear and changes of clothes affordable. Prior to that, clothing that lie next to the skin fostered bacteria and infection and early death. Some time later, fashion became, er, fashionable and people began to buy clothes simply to stay current rather than because their clothes were hopelessly soiled, worn or outgrown.

It is considerably harder to change minds than clothing. Thomas Kuhn's often cited and occasionally read book The Structure of Scientific Revolutions popularized the notion of paradigm. He argued that a particular worldview, or paradigm, does two things. One, it makes sense of the world by ordering data and experiences into comprehensible patterns. Two, it filters out what doesn't fit into the pattern, what doesn't support the paradigm. (At any given instance, our senses are exposed to millions of bits of data; our consciousness can process only about 40 bits per second.) Thus, the paradigm we need to make sense of reality also filters out reality. One of the first jobs of a paradigm is to defend itself from attack.

Kuhn points to various examples of paradigm filters throughout history. Scientists expecting planetary orbits to be perfectly circular threw out data that deviated from that, seeing it as an error or anomaly. Their failure to clearly see the data meant that they missed the elliptical nature of orbits which meant that they missed the opportunity to develop a theory of gravity. The way that they made sense of the world kept them from sensing the world.

Radically new theories generally get accepted only by later generations. The Copernican Revolution actually took a century to be accepted. The germ theory was discarded by Pasteur's contemporaries and only accepted by the next generation, provoking the quip, "Science proceeds by the death of scientists."

A great deal of the progress of the 20th century came from solving problems of information. From semiotics and algorithms to the transmission and storage of information, we've made amazing progress in information technology. Yet new information does not automatically create a new paradigm.

There is a difference between information that streams in to be sorted and filtered to support our existing paradigms and the acquisition of knowledge, understanding, or wisdom that might transform our paradigms. We've mastered the first and have, as near as I can tell, not even bothered to define the latter as a challenge worth pursuing.

I'm sure that the medieval masses didn't think any more about changing underwear than today's masses think about changing paradigms. Yet fluency with paradigms might do as much for our quality of life as information technology did for the last century or textile manufacturing did for the 18th century.

If history teaches us nothing else, it is that paradigms are like underwear; no matter how comfortable they first seem, they eventually need changing. Maybe it's time to make paradigm shifts fashionable.

Moving into the Entrepreneurial Economy

The defining figure in an agricultural economy is the farmer with a hoe. The defining figure in an industrial economy is the factory worker helping to manufacture back hoes. The defining figure in an information economy is the engineer who works on design plans for the back hoe.
The work of the factory work can substitute for quite a few farmers. (You can see in the above graph that farm workers were about 80-some% of the working population in 1800 and about ~3% of the working population in 1980.)

The knowledge worker, too, can replace a number of factory workers. (Think about how a newly designed robot - the product of a knowledge worker - can replace numerous factory workers.)

My own vision of a movement into an entrepreneurial economy is that the portion of the work force categorized as entrepreneur will grow as did the factory worker in the 1800s and the information (or knowledge) worker in the 1900s.

Manufacturing in the 1500s involved little alteration to raw materials: wheat was ground, wool was spun, and grapes crushed and aged. Yet by the 1800s the processing was more sophisticated. Manufacturing assumes a mature market for raw goods - and the manufacturer uses raw goods as inputs to a process that creates more value than the mere trade of raw goods.

The information economy arose out of the complexity of the industrial economy. As machinery, products, processes, markets, and distribution became more complex, it created a demand for more sophisticated workers. Education that shared knowledge about principles in design, engineering, advertising, and sales became important in the creation of a skilled work force - the best jobs increasingly required university education. The information economy assumes a mature market for capital - and the knowledge workers use capital goods as the material to be manipulated into greater value just as the capitalists uses raw materials to be manipulated into greater value.

We now have a very mature information economy. This forms a great foundation for an entrepreneurial economy that could build on information technology. If entrepreneurship is about bringing together raw materials, capital, and labor (or, more specifically, knowledge workers), then it assumes information networks that make dynamic markets cost-effective. The information economy will be the foundation for the coming entrepreneurial economy.

One difference that will characterize the entrepreneurial economy is the role of the worker. Traditionally, a knowledge worker sold his / her skills to the corporation that transformed those efforts into value on the market in the form of goods or services. Entrepreneurs or managers were responsible for correctly orchestrating such efforts into projects and tasks that created market value; if they did well, these entrepreneurs and managers were handsomely rewarded. The entrepreneurial economy will change that arrangement. An increasing percentage of knowledge workers (a percentage that I suspect will not exceed 30 or 40% by 2050) will work as entrepreneurs themselves. By that I partly mean that they will offer their services through a dynamic market rather than a traditional salaried position. Their pay will be linked to profits from particular projects or activities. We'll have the corporate equivalent of self-organizing complexity rather than central, command and control economies.

This will drive further advances in information technology, just as the industrial revolution transformed agricultural and the information economy has transformed industry. And this change will simply be the start of a more complex change that will transform the modern corporation into something that looks more like an incubator than a bureaucracy.

This will change so many things about how we conceive of corporations today. This and related, required changes will disperse power outwards from paternalistic managers towards individual workers. It will create opportunities that don't exist today. And it will link to the driving force of progress throughout the history of Western Civilization - increased autonomy for the individual.

Finding High Ground in a Flat World - 21st Century Economic Competition

I've written a great deal about making firms more entrepreneurial. What I have not mentioned is the competitive pressure that we in the developed countries will feel to do this.

Through the early 1900's, the developed countries held a competitive advantage because of industrial capacity. Today, we have an advantage because of the pairing of knowledge workers and information technology (IT) through our corporations in what we've come to call an information economy. Yet the relative productivity advantage we have is rapidly disappearing.

The industrial economy had huge barriers to entry. By contrast, the information economy does not. A few guys in a basement can launch a business that is soon worth millions - even billions. This has consequences for national policy.

Professionals in the US, Canada, the UK, Australia, France, Germany and the rest of the EU will increasingly be competing with professionals in China, India, Malaysia, and other rapidly developing countries like the Ukraine and Taiwan. Professionals making $80,000 in developed countries will have trouble competing with similarly educated and equipped professionals making $8,000.

Individual effort has never been as big a determinant of productivity as the system in which these individuals are working. A hard working trapper in the Great Lakes makes less than a hard working dry land wheat farmer in Saskatchewan. The industrious assembly line worker makes less than the industrious programmer. Changing from an agricultural to industrial or industrial to information economy always makes a bigger difference than individual effort within an old economy.

The developed nations have an opportunity to transform again - to become an entrepreneurial economy instead of an information economy. To pretend that we can continue to demand big salaries in a world of 6 billion increasingly armed with laptops and university educations borders on denial.

What will it mean to become an entrepreneurial instead of information economy? For one thing, it means that we'll rely on an increasing percentage of our work force to act like entrepreneurs instead of knowledge workers, to move from positions within bureaucracies to positions within dynamic markets. Such markets suggest a reliance on the information economy - a smooth and continual operation of markets that are communicated across networks that blend and distort the difference between Facebook and NASDAQ, between eBay and Monster.com.

For me, the prospect of the popularization of entrepreneurship is exciting for so many reasons. But beyond what it opens up as possibility for the individual, it is a practical and increasingly necessary solution to emerging economies that will easily underbid us should we continue to rely on an information economy that has outlived its advantage.

The Swinging Pendulum of Social Evolution

The Rothschild brothers didn’t seem like elites when they began their career. Mayer Rothschild began his life living in a Frankfurt ghetto, forced to leave the sidewalk when even a young child ordered him to “Step aside, Jew!” He had the vision to send four of his five sons to the most important cities in Europe.

Mayer's son Nathan Rothschild was in London when the English began their war against Napoleon. This war was incredibly expensive. Coordinating efforts with his brothers, Nathan was able to raise huge sums of money for the British by selling war bonds throughout Europe – primarily through his brothers in Frankfurt, Paris, Vienna, and Naples. Nathan not only raised money for the British – he made the Rothschild brothers rich and famous. By the time of his death in 1836, he might have had more liquid wealth than anyone in the world. Because they helped to invent modern financial markets, the Rothschild brothers rose from the German ghetto to become elites with power enough to dictate terms to kings.

The Rothschild brothers and others like JP Morgan helped to pioneer modern financial markets and then, in the next century, philosophers like Keynes, policy-makers like FDR, and business visionaries like Charlie Merrill and Dee Hock “democratized” financial markets, creating access to credit and investment markets for the people. Alan Greenspan or Ben Bernanke is supposed to manage interest rates and reserve rates so as to do what is best for the general economy and the average person – not just a few powerful bankers. Access to financial markets is now considered a right.

Martin Luther, John Calvin, Huldrych Zwingli, and John Knox were among the revolutionaries who wrested control of the church away from the elites and helped to put it into the hands of the people.

Later, Louis XIV and Henry VIII help to pioneer the nation-state and then, centuries later, revolutionaries like Jefferson and Franklin wrested control away from the elites and into the hands of the people.

The swings between power held by the elites and the people seem to me inevitable. The elites pioneer and prosper. They are the social inventors who create the great institutions like church, state, and corporation. But once those inventions have become an integral part of the social fabric, along come revolutionaries who turn control of these inventions over from the elites to the people.

Next up for Western Civilization? Wresting control away from the CEOs, the last of the monarchs, and putting power into the hands of the investors, employees, and communities whose fate is so inexorably tied up in the actions of the corporation.

Am I a populist or an elitist? A Republican who wants the people’s interest represented by a trusted group of elites or a Democrat who wants the people to directly represent their own interests? At this point in history, I’m a populist, a Democrat ready to see the power of the powerful corporation dispersed.

Social Evolution - Yawn

Natural evolution has become a big deal. We have lots of data to support the theory. As a topic it still sells books and magazines. It is still debated. The insights from it have helped to spawn at least one industry (bio tech). It is used to explain everything from disease to psychology. But within your lifetime, humanity is unlikely to evolve. Natural evolution is a big deal, but it is unlikely to change your life in the next few decades.

By contrast, social evolution is obscure. We have lots of data to support the theory that societies evolve over time, memes doing for social life what genes do for biological life. As a topic, though, it is all but ignored. But within your lifetime, society has already evolved. Some in fairly innocuous ways, as disco gives way to hip-hop or stock analysts give way to algorithms; and some in fairly significantly ways, such as the exintinction of communism and capitalism. Social evolution is a big deal in terms of impact, but it gets little coverage.

A Clear Definition of Progress

Progress is a muddled concept. The current concept of progress suggests that if a community increases its GDP by 5% while eroding its habitat, it's making progress. The current concept suggests that if people feel compelled to stay indoors at night and spend more money on home security systems and Chinese take-out because of high crime rate, thereby driving an increase in GDP, it's progress.

I'd like to suggest a measure of progress that is conceptually more clear than growth in GDP, even if is harder to measure.

Progress means more autonomy for the individual. A person with shoes has more options about where to go than a person in bare feet. A person with a car has more options than a person with shoes. And a person with access to a great transportation system that costs hundreds per year has more options than a person stuck in traffic paying thousands per year for gas, payments, and insurance. A person with the option to enjoy a local forest on the weekend or even on a lunch hour (I used to love jogging the fire trails through the redwood trees between classes at UC Santa Cruz) has more autonomy than a person who lives in a concrete jungle miles and miles from any bit of wilderness. Progress = more options for the individual.

When the West wrested freedom of religion away from the medieval church, the individual had more autonomy - more choice about how and whether to worship. This was progress.

When the West wrested political control away from monarchs, the individual had more autonomy - more influence over the policies that defined the community.

When access to credit and investment markets was popularized, when the average person had access to retirement accounts through a combination of retail innovations and social security, the individual had more autonomy - more control over the financial irregularities that could be so devastating to an individual or household.

There are at least two dimensions to this progress: the initial surge of progress (monarchs lose power to merchants) and the gradual, continued dispersion of that progress (minorities gradually win the right to vote - minorities as varied as blacks, women, and conscripted 18 year-olds).

Such a measure of progress takes into consideration technology. Cars, computers, and even iPods give a person more autonomy. But this measure of progress also takes into consideration social inventions - credit cards, civil rights, and the joint-stock corporation.

By this metric, policies can be evaluated. Does the new legislation provide more autonomy? To whom? At what expense?

The Post-Capitalist Corporation

The corporation will soon undergo a transformation akin to the change of the nation-state during the age of Enlightenment.

Once the medieval church lost its grip on Europe, the modern nation-state grabbed power. For centuries, religious wars defined European politics. Huge swaths of the population were murdered by competing religions that used monarchs and rebels to compete for ascendancy. It was not until religion was made a personal matter and nation-states focused on issues of politics that warfare became less frequent. Governments could focus on quality of life instead of imposing religion through force.

Today, power has shifted from capitalism, from "the bank," to the corporation. JP Morgan sat on corporate boards and formed corporations like General Electric and International Harvester. The purpose of these newly formed corporations was financial gain. The aims of the bank, financial returns, still define the aims of the corporation just as the aims of the church to impose a homogeneity of religious belief first defined the modern nation-state.

Talking about the aims of the corporation today without talking about profit is about as odd as it would be to talk about the aims of the nation-state in 1650 without talking about which religion it ought to enforce on its subjects.

The idea of financial gain within the corporation being a matter left to individuals may seem foreign to us, but our grandchildren will accept it as easily as we accept transcontinental flights or leaving the matter of religion to individuals. It is yet another dimension of turning employees into entrepreneurs, of giving the individual more autonomy.

Transform Self or Transform Society?

"We have become the tools of our tools," Ralph Waldo Emerson wrote some 150 years ago.

Think about the various ways in which we subordinate our goals to the goals of our tools - the institutions like bank, corporations, and nations that, presumably, are mere tools for humanity. People go through hell because of odd religious beliefs, suffer financial stress after banks give them money, and miss out on profitable opportunities because of work commitments.

One of my beliefs is that we're on the verge of a new economy, a social revolution. The Industrial Revolution did at least two things: it transformed that era's dominant institution (the nation-state of absolute monarchs) and it helped society overcome the limit of capital. Banks, bond and stock markets, and factories were all social inventions designed to overcome the limit to progress - capital - and their explosion in popularity defined the Industrial Revolution.

In the last century, another economy emerged. This Information Age transformed society's dominant institution (the financial market of robber barons) and overcame the limit of knowledge workers. The modern university, information technology and the modern corporation were all social inventions designed to overcome the limit to progress - knowledge workers - and their explosion in popularity defined the Information Age. The new economy will not be designed to overcome the limit of land, capital, or knowledge work. Rather, it will be designed to overcome the limit of entrepreneurship. It will transform today's dominant institution - the corporation.

What is entrepreneurship? It is the act of social invention, of institutionalizing a source of value for the community. Steve Jobs and Henry Ford are entrepreneurs; less obviously, so was Thomas Jefferson and Martin Luther. They are to organizations what inventors are to products.

One element of entrepreneurship rarely commented upon is the relationship of the entrepreneur to the institution. Most of us conform our selves to the institutions in which we find ourselves; an entrepreneur founds an institution that they conform to the entrepreneur.

The economy of the last century was defined by the popularization of knowledge work. Think of the explosion in the levels of education from 1900 to 2000. In 1900, only a small fraction of the American population between the age of 13 and 17 was engaged in formal education; by 2000, only a small fraction was not engaged in formal education. Imagine a parallel with entrepreneurship during the next fifty years.

The economy of this century will be defined by the popularization of entrepreneurship. One consequence is the transformation of what it means to become better. Efforts to change the self - self-help, "becoming a better person," and realizing one's potential -- will themselves be fundamentally changed. Instead of working to conform the self to society, we'll be conforming society to our selves. I don't believe it is possible to overstate the implications of this shift.

Western Civilization has been defined by amazing institutions and the role of the individual has been to conform to those institutions. We are called up on to be good Christians by the Church, good citizens by the nation-state, fiscally responsible by the bank, and good employees by the corporation.

What if the average person were shaping institutions to realize his or her potential rather than conforming to institutions?