“It will have to change in order to stay the same.”
- Daniel Greenstein
In the century between 1690 and 1790, political innovations triggered the financial innovations that gave birth to capitalism. More democratic governments gave birth to modern financial markets.
In this century, financial innovations can trigger business innovations that will give birth to a new entrepreneurial economy. Financial innovations can help to fund a period of entrepreneurship that will transform corporations.
I am going to state this as simply as I can:
The reason for the financial crisis has far less to do with financial markets than with the capacity of corporations and communities for entrepreneurship. Financial markets did their job – they created money, credit and a host of financial products. The problem is that this money went to bidding up the price of what already exists (e.g., stocks and real estate) rather than financing the creation of something new (e.g., new business ventures and the infrastructure for new transportation and energy technologies).
A series of bubbles have burst. First in stocks in 2000. Then in real estate in 2005. Again in stocks this year. Too much money was chasing too few possibilities. There are actually more mutual funds than stocks. Huge sums of money was seeking higher returns, bidding up the price of financial products and trying to enhance returns through leverage.
Too little of it – as a percentage – went into the creation of something new, went into infrastructure like public works or the creation of alternative fuels, or new businesses or new products.
The corporate world did not adapt to these innovations in financial markets – remaining a relatively staid place where little innovation is expected to occur (at least within corporations), particularly innovations that would demand the sums of money generated by the recent spate of innovations in financial markets.
This has a parallel from about 1690. First the Dutch and then the English made innovations in politics that triggered innovations in finance. The Dutch and British were the first to adopt constitutional monarchies and first to invent modern stock and bond markets. It is no coincidence that these two went together.
Constitutional monarchies – the political innovation of the Dutch and English - made kings and queens subordinate to laws and a constitution. Monarchs could no longer just tell their subjects to give them money – to simply tax them. Under this new form of government, Parliament had power to resist. When the king said, “Pay me a million in taxes,” Parliament could say, “Why don’t we loan you the money instead and you can pay us back. We’ll buy bonds that pay interest.”
Figuring out how to finance this prompted the emergence of modern bankers and bond markets. Innovations in politics – the constitutional monarchy and Parliament – triggered innovations in finance – the birth of bond markets and the gradual popularization of investing. This was huge because it laid the foundation for the birth of capitalism.
What is the parallel for today?
Innovations in financial markets have created our predicament today. We’ve leveraged our way onto a precipice and governments are now trying to talk credit markets down off the ledge before they jump.
As easy as it is to dismiss this “excess” in financial markets as proof of greed and madness, these financial innovations have created a huge capacity for credit and expansion. The problem is not that we’ve created more money, more capacity for financing. The problem is that we’ve used that money to bid up the price of existing things – stocks and homes – rather than to create something new. More specifically, we failed to apply this new credit and expansion to the creation of new ventures.
The innovations in finance can turn out to be as wonderful as the innovations in politics were hundreds of years ago. To properly work, though, we’ll need to see innovations in business, a transformation of the corporation.
Right now, corporations are set up to – for the most part – be founded by entrepreneurs and then run by employees. In order to properly use the money financial markets are capable of producing, the corporation will have to become much more entrepreneurial – a place where a growing percentage of employees behave more like entrepreneurs.
Transforming the corporation into an entrepreneurial place is going to turn corporations into net users of cash rather than net producers. Properly done, turning corporate employees within the corporation into entrepreneurs will require lots and lots of cash: perhaps as much as the recent spate of financial innovations has generated.
We are facing a great moment in history. Going back to the Great Depression, however, will suggest only some needed regulations. It will not suggest the innovations that are most likely to take us into an economy as different from this information age as capitalism was from the agricultural economy.
The ability to create money and credit ought not to be considered a bad thing. And if we can again use innovations in one major institution (finance this time instead of politics) to trigger innovations in another (business instead of finance), we can move towards a new economy.
The idea is not to perfect the old world with these innovations. Rather, the idea is to create a new one. This has always been the theme of progress. There is no reason to believe that the way of change has changed for our own time.
Showing posts with label corporation. Show all posts
Showing posts with label corporation. Show all posts
Friday, October 17, 2008
Thursday, January 17, 2008
Corporate Revolution & the 4th Economy
So, here's the question: can a guy in a t-shirt, sitting in his home office, trigger a revolution? In my on-going life as an experiment, this is me trying a new medium for (what is for me) an old message.
I mis-spoke twice.
One, I said that 90% of the American population was employed. Not so. About 90% of the work force works as employees (as opposed to working as independents or business owners).
Two, I said that the CEO's role will look more like that of venture capitalist and the role of a growing minority of employees will be ... that of venture capitalist. Again, I mis-spoke. That should be, the role of employees will look more like that of an entrepreneur.
Next time, maybe I'll try using notes instead of just talking extemporaneously.
I mis-spoke twice.
One, I said that 90% of the American population was employed. Not so. About 90% of the work force works as employees (as opposed to working as independents or business owners).
Two, I said that the CEO's role will look more like that of venture capitalist and the role of a growing minority of employees will be ... that of venture capitalist. Again, I mis-spoke. That should be, the role of employees will look more like that of an entrepreneur.
Next time, maybe I'll try using notes instead of just talking extemporaneously.
Sunday, March 25, 2007
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.
Sunday, March 18, 2007
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.
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.
Thursday, March 8, 2007
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.
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.
Wednesday, February 7, 2007
You and the Future of the Corporation
Now
You go to work inside of a corporation. The corporation's policies are formulated by senior managers. Goals are set for your department for the year. Your department head translates those goals into your goals. It may well be that you and your peers can see a number of problems with the overall plan as it applies to you, but your attempts to point that out are largely ineffectual. You have little control over the direction of the company. You can leave the company if you are unhappy with its direction, but you would have to find a company run differently or start your own, both uncertain prospects.
Meanwhile, you contribute money each year to a pension fund. By this point in your career, your retirement account is worth about $200,000. Collectively, with accounts ranging from about $1,000 to millions, you and your fellow American workers "control" $6 trillion in funds. Although you and your peers own the companies in which you invest, you aren't particularly happy with their policies. The companies' policies seem to most obviously benefit senior managers. You can take your money out of the company, but you would have to find a company run differently. The way tax laws are set up, you cannot shift your investment funds into a company you would start up.
You are pleased that your employer has created jobs in your community. This generally helps. But you also know that these jobs and your potential are not the aim of your company. If and when these jobs can be done for less in places like the Ukraine or Mumbai, they will be. It is not just your community you are concerned for: you are worried about your planet and don't really know what, if anything, your employer is doing about climate change.
What is the quip of Ackoff's? It's like a fly riding an elephant who thinks he is steering the elephant. The elephant doesn't mind and it makes the ride more interesting for the fly. The individual has choices but those choices seem to have little influence over the corporation.
Later
By the year 2020, our concept of corporation will be transformed. It will become a tool for individuals, a real departure from today when the individual is the tool for the corporation.
You go to work inside a corporation. Just as there are inside of a national economy, there are regulations, opportunities, and natural consequences. No one defines your goals. What you do is a product of some intersection of where you see opportunity for making money, what you enjoy doing and what you think would best realize your potential. Opportunities inside of the corporation arise organically. Employees - maybe 1% or maybe 50% - within the corporation act like entrepreneurs, putting forth business plans that capitalize on connections, technology, markets, or capital and know-how within the corporation (and without - the walls of the corporation are porous). Fellow employees vote in two ways - by signing on to an entrepreneurial venture that they see as promising. This takes advantage of two things - widespread expertise and natural markets. (If employees are uninterested in a particular venture, it suggests serious flaws with it - flaws that might never come to light until after the fact in the world of corporate dictatorship.)
The second way in which employees vote is through their pension funds. Employees have the opportunity to invest in ventures at the ground-floor level, helping to fund their own projects or the projects of fellow employees. Employee money could be invested in company stock or in the startups underway within the company. This, too, would be a market signal about where experts familiar with the market, technology, and people involved thought it best to direct resources.
The community would benefit as well. Policies organically emerge from the actions of dozens, hundreds, or thousands of employees. They are no longer top-down directed. People making policy rarely choose to put the smoke stacks upwind from their houses and the more that policies arise from the actions of more individuals, the less likely corporations are to pursue policies that degrade the environment of people "over there." The dispersion of power within the corporation will make "over there" effectively disappear. Such employees are unlikely to adopt policies that shift their jobs overseas. They will be at least as interested in opportunities that allow them to realize their own potential as they are in opportunities that maximize .... what is it, exactly, that current corporate policies maximize?
Dispersing power within the organization is not just idealistic. It acknowledges current reality. And the current reality is that expertise, information, and control of capital is already dispersed. Changing how corporations are managed to align with this new reality only makes sense.
Finally, the dispersion of power within the corporation will help us to overcome the new limit to development. No longer does land, capital, or even knowledge work limit progress. We are, today, limited by entrepreneurship. Just as the last century popularized knowledge work, so will entrepreneurship be popuarlized in this century. That is the topic for another posting.
You go to work inside of a corporation. The corporation's policies are formulated by senior managers. Goals are set for your department for the year. Your department head translates those goals into your goals. It may well be that you and your peers can see a number of problems with the overall plan as it applies to you, but your attempts to point that out are largely ineffectual. You have little control over the direction of the company. You can leave the company if you are unhappy with its direction, but you would have to find a company run differently or start your own, both uncertain prospects.
Meanwhile, you contribute money each year to a pension fund. By this point in your career, your retirement account is worth about $200,000. Collectively, with accounts ranging from about $1,000 to millions, you and your fellow American workers "control" $6 trillion in funds. Although you and your peers own the companies in which you invest, you aren't particularly happy with their policies. The companies' policies seem to most obviously benefit senior managers. You can take your money out of the company, but you would have to find a company run differently. The way tax laws are set up, you cannot shift your investment funds into a company you would start up.
You are pleased that your employer has created jobs in your community. This generally helps. But you also know that these jobs and your potential are not the aim of your company. If and when these jobs can be done for less in places like the Ukraine or Mumbai, they will be. It is not just your community you are concerned for: you are worried about your planet and don't really know what, if anything, your employer is doing about climate change.
What is the quip of Ackoff's? It's like a fly riding an elephant who thinks he is steering the elephant. The elephant doesn't mind and it makes the ride more interesting for the fly. The individual has choices but those choices seem to have little influence over the corporation.
Later
By the year 2020, our concept of corporation will be transformed. It will become a tool for individuals, a real departure from today when the individual is the tool for the corporation.
You go to work inside a corporation. Just as there are inside of a national economy, there are regulations, opportunities, and natural consequences. No one defines your goals. What you do is a product of some intersection of where you see opportunity for making money, what you enjoy doing and what you think would best realize your potential. Opportunities inside of the corporation arise organically. Employees - maybe 1% or maybe 50% - within the corporation act like entrepreneurs, putting forth business plans that capitalize on connections, technology, markets, or capital and know-how within the corporation (and without - the walls of the corporation are porous). Fellow employees vote in two ways - by signing on to an entrepreneurial venture that they see as promising. This takes advantage of two things - widespread expertise and natural markets. (If employees are uninterested in a particular venture, it suggests serious flaws with it - flaws that might never come to light until after the fact in the world of corporate dictatorship.)
The second way in which employees vote is through their pension funds. Employees have the opportunity to invest in ventures at the ground-floor level, helping to fund their own projects or the projects of fellow employees. Employee money could be invested in company stock or in the startups underway within the company. This, too, would be a market signal about where experts familiar with the market, technology, and people involved thought it best to direct resources.
The community would benefit as well. Policies organically emerge from the actions of dozens, hundreds, or thousands of employees. They are no longer top-down directed. People making policy rarely choose to put the smoke stacks upwind from their houses and the more that policies arise from the actions of more individuals, the less likely corporations are to pursue policies that degrade the environment of people "over there." The dispersion of power within the corporation will make "over there" effectively disappear. Such employees are unlikely to adopt policies that shift their jobs overseas. They will be at least as interested in opportunities that allow them to realize their own potential as they are in opportunities that maximize .... what is it, exactly, that current corporate policies maximize?
Dispersing power within the organization is not just idealistic. It acknowledges current reality. And the current reality is that expertise, information, and control of capital is already dispersed. Changing how corporations are managed to align with this new reality only makes sense.
Finally, the dispersion of power within the corporation will help us to overcome the new limit to development. No longer does land, capital, or even knowledge work limit progress. We are, today, limited by entrepreneurship. Just as the last century popularized knowledge work, so will entrepreneurship be popuarlized in this century. That is the topic for another posting.
Thursday, February 1, 2007
4 Revolutions and the Rise of the Individual Over the Institution
A pattern of revolutions has brought us out of the Dark Ages and into the modern world. This pattern has been repeated three times. During your lifetime, it will repeat for a fourth time. This will be the next great revolution.
If I were to ask you to name some technological inventions that helped us to become modern, you could probably name quite a few – things like the printing press, the steam engine, the automobile and the computer. But if I were to ask you what social inventions helped us to become modern, you might pause. We are less inclined to think of things like schools and universities, banks and corporations as inventions and yet they are. Our social institutions and customs are at least as different from what they had in medieval times as is our technology.
When a technology inventor comes up with a radically new product, they call it an innovation. When a social inventor like Martin Luther or Thomas Jefferson comes up with a radically new institution, they call it revolution. Such revolutions have created our modern world. A fourth is about to transform it once again.
The First Revolution - the Church
In 1300, you could be burned at the stake for a number of offenses. If your neighbor's donkey had died or crop had failed, he might bring an accusation against you for being a witch. If you spoke out against the church, questioning its doctrine. Or if you simply owned a copy of the Bible in your own language. All of these, and more, were capital offenses.
In the early 1500s, Martin Luther became the most visible agitator for a change to the church. He didn’t like the idea of church authorities substituting for his conscience or interpretation of the Bible. He may have articulated the first revolution when he said, “We are all priests.”
It took quite some time, and a tragic amount of bloodshed, but the individual in the West finally gained the freedom to choose how – or even whether – to worship. The power that once was held by the church – by the elites within the church – was now held by the individual. This church revolution was the first great transformation of the West. To appreciate how different this made us, consider the fact that in many Muslim countries today it is a capital offense to renounce one’s Muslim faith. Think about how different life is here in the West for this reason alone.
The Second Revolution - the State
The second great transformation involved the revolution of the state. We learn about this great and amazing story in our American history classes. Jefferson penned the words, “All men are created equal.” Again, the revolution was not immediate. After we won our independence from the British, for example, only white, landowning men could vote. But the idea of power to define policy – to define the laws and budgets that so influence our quality of life – the idea that this should be power ultimately held by the people is an idea that has spread. In just the last century, the number of democracies has increased from about 13 to 67.
It is not, ultimately, the aristocrats who decide on the politicians and policy that defines our society. Rather, it is the polity. As with the Protestant Revolution, Democratic Revolution dispersed power outwards from elites to the common person.
The Third Revolution - the Bank
The third great transformation involved a revolution of the bank – a transformation of capitalism.
Before this, the third transformation, it was common for a 9 year-old child to work 12 hour days in factories and for young women to not only work 12 hour days but to be, effectively, prisoners on a factory compound, able to leave only on Sunday’s. The power over lives that had earlier been held by popes and kings was now wielded by robber barons. Money and credit was scarce – to get a loan you would be subject to great scrutiny and bankers would decide whether or not the purchase you wanted was appropriate.
By 2000, capitalism had transformed in so many ways. As with the church and state before it, the power of the bank had been dispersed outwards to common people. The great management guru Peter Drucker was one of the few to note that by the end of the 20th century it was labor - people like us – who through their 401(k) plans and pension plans now owned the majority of the country’s equity.
The battle between capital and labor that played out through the actions of robber barons, unions, and in more dramatic relief through the policies of communists and fascists, was over. The battle had not been won. It had been dissolved. Labor had become the capitalist. Not only did workers have rights, but the average person with a credit card could now decide for himself whether or not to take a loan. Bankers did not decide whether you should buy the new refrigerator. You made that decision. Freedom of religion and the right to vote were followed by access to credit upon our choosing – not the banks. What would the banker of 1900 think about our literally tearing up requests for us to TAKE OUT loans? What would he think about us throwing away advertisements that guaranteed us credit?
Three revolutions have brought us into the modern world. But the church, state, and bank are no longer the dominant institution. In today's world, it is the corporation that has that role. My prediction is that the elites within corporations are going to find their power dispersed out, just as happened to the elites in the church, state, and bank before them. The CEO now making hundreds of times what the average worker makes is following in the footsteps of the Renaissance popes, the Enlightenment-era monarchs, and the powerful capitalist whose world was depicted in Dickens’s novels.
You live in a remarkable time. For one thing, all three past revolutions played out over a century or more. This next revolution will take place within decades. I will go into more detail in later posts, but the fourth revolution has already begun. For now, I will simply say that the Internet has dispersed information outwards to average employees. Increasingly, power, decision-making, and autonomy will be dispersed with it.
We know that a country is poorly developed if its head ruler makes more money than anyone else within the country. When the top salary goes to the top political leader, we rightly suspect a dictatorship or political abuse. it is different in developed nations. Within the U.S., for instance, President Bush’s’ $400,000 annual salary might put him among the top 1 million for income. People in the United States are free to make as much as they can, and many make more than our political leader. By contrast, it is the rare company where any employee makes more than the CEO. Imagine how incensed CEOs would be if the government was to define their annual goals and their maximum salaries – and yet that is just what these CEOs typically do to their employees.
This will change. Power will be dispersed outwards to employees from the corporate elites. Senior management will increasingly play a role that looks more like that of a venture capitalist, and employees will take on a role more like that of entrepreneurs, effectively using the corporation as an incubator for starting new ventures that translate into shared equity. As with the past revolutions, this transformation of the dominant institution will involve sweeping changes and myriad smaller social inventions. And like the past revolutions, it will be defined by the rise of the individual over the institution - an increase in individual autonomy that has repeatedly defined the West.
Martin Luther said, “We are all priests.” Perhaps the cry of this century will be, “We are all entrepreneurs.”
If I were to ask you to name some technological inventions that helped us to become modern, you could probably name quite a few – things like the printing press, the steam engine, the automobile and the computer. But if I were to ask you what social inventions helped us to become modern, you might pause. We are less inclined to think of things like schools and universities, banks and corporations as inventions and yet they are. Our social institutions and customs are at least as different from what they had in medieval times as is our technology.
When a technology inventor comes up with a radically new product, they call it an innovation. When a social inventor like Martin Luther or Thomas Jefferson comes up with a radically new institution, they call it revolution. Such revolutions have created our modern world. A fourth is about to transform it once again.
The First Revolution - the Church
In 1300, you could be burned at the stake for a number of offenses. If your neighbor's donkey had died or crop had failed, he might bring an accusation against you for being a witch. If you spoke out against the church, questioning its doctrine. Or if you simply owned a copy of the Bible in your own language. All of these, and more, were capital offenses.
In the early 1500s, Martin Luther became the most visible agitator for a change to the church. He didn’t like the idea of church authorities substituting for his conscience or interpretation of the Bible. He may have articulated the first revolution when he said, “We are all priests.”
It took quite some time, and a tragic amount of bloodshed, but the individual in the West finally gained the freedom to choose how – or even whether – to worship. The power that once was held by the church – by the elites within the church – was now held by the individual. This church revolution was the first great transformation of the West. To appreciate how different this made us, consider the fact that in many Muslim countries today it is a capital offense to renounce one’s Muslim faith. Think about how different life is here in the West for this reason alone.
The Second Revolution - the State
The second great transformation involved the revolution of the state. We learn about this great and amazing story in our American history classes. Jefferson penned the words, “All men are created equal.” Again, the revolution was not immediate. After we won our independence from the British, for example, only white, landowning men could vote. But the idea of power to define policy – to define the laws and budgets that so influence our quality of life – the idea that this should be power ultimately held by the people is an idea that has spread. In just the last century, the number of democracies has increased from about 13 to 67.
It is not, ultimately, the aristocrats who decide on the politicians and policy that defines our society. Rather, it is the polity. As with the Protestant Revolution, Democratic Revolution dispersed power outwards from elites to the common person.
The Third Revolution - the Bank
The third great transformation involved a revolution of the bank – a transformation of capitalism.
Before this, the third transformation, it was common for a 9 year-old child to work 12 hour days in factories and for young women to not only work 12 hour days but to be, effectively, prisoners on a factory compound, able to leave only on Sunday’s. The power over lives that had earlier been held by popes and kings was now wielded by robber barons. Money and credit was scarce – to get a loan you would be subject to great scrutiny and bankers would decide whether or not the purchase you wanted was appropriate.
By 2000, capitalism had transformed in so many ways. As with the church and state before it, the power of the bank had been dispersed outwards to common people. The great management guru Peter Drucker was one of the few to note that by the end of the 20th century it was labor - people like us – who through their 401(k) plans and pension plans now owned the majority of the country’s equity.
The battle between capital and labor that played out through the actions of robber barons, unions, and in more dramatic relief through the policies of communists and fascists, was over. The battle had not been won. It had been dissolved. Labor had become the capitalist. Not only did workers have rights, but the average person with a credit card could now decide for himself whether or not to take a loan. Bankers did not decide whether you should buy the new refrigerator. You made that decision. Freedom of religion and the right to vote were followed by access to credit upon our choosing – not the banks. What would the banker of 1900 think about our literally tearing up requests for us to TAKE OUT loans? What would he think about us throwing away advertisements that guaranteed us credit?
Three revolutions have brought us into the modern world. But the church, state, and bank are no longer the dominant institution. In today's world, it is the corporation that has that role. My prediction is that the elites within corporations are going to find their power dispersed out, just as happened to the elites in the church, state, and bank before them. The CEO now making hundreds of times what the average worker makes is following in the footsteps of the Renaissance popes, the Enlightenment-era monarchs, and the powerful capitalist whose world was depicted in Dickens’s novels.
You live in a remarkable time. For one thing, all three past revolutions played out over a century or more. This next revolution will take place within decades. I will go into more detail in later posts, but the fourth revolution has already begun. For now, I will simply say that the Internet has dispersed information outwards to average employees. Increasingly, power, decision-making, and autonomy will be dispersed with it.
We know that a country is poorly developed if its head ruler makes more money than anyone else within the country. When the top salary goes to the top political leader, we rightly suspect a dictatorship or political abuse. it is different in developed nations. Within the U.S., for instance, President Bush’s’ $400,000 annual salary might put him among the top 1 million for income. People in the United States are free to make as much as they can, and many make more than our political leader. By contrast, it is the rare company where any employee makes more than the CEO. Imagine how incensed CEOs would be if the government was to define their annual goals and their maximum salaries – and yet that is just what these CEOs typically do to their employees.
This will change. Power will be dispersed outwards to employees from the corporate elites. Senior management will increasingly play a role that looks more like that of a venture capitalist, and employees will take on a role more like that of entrepreneurs, effectively using the corporation as an incubator for starting new ventures that translate into shared equity. As with the past revolutions, this transformation of the dominant institution will involve sweeping changes and myriad smaller social inventions. And like the past revolutions, it will be defined by the rise of the individual over the institution - an increase in individual autonomy that has repeatedly defined the West.
Martin Luther said, “We are all priests.” Perhaps the cry of this century will be, “We are all entrepreneurs.”
Tuesday, January 30, 2007
The Corporation is Today's Dominant Institution
Fortunately, you can't see air. If you could, it is unlikely that you could see anything else. In a similar way, when a particular institution dominates a community, it is nearly invisible.
In medieval times, that institution was the church; today, the dominant institution is the corporation. Its influence is so pervasive that we can’t even see it.
Think about the typical day of the average person. The alarm goes off at 6:30. The programming is courtesy of a corporation - the Corporation for Public Broadcasting. The very thoughts that first enter her head aren’t daily prayers sanctioned by her church but are, instead, news items and commentary approved by employees of a corporation. The radio that conveys this programming is made by the Sony Corporation and was bought from a retail outlet the Best Buy Corporation. This person lifts herself off the bed, a bed made by the Select Comfort Corporation. The alarm goes off at 6:30 because the time it takes to commute in her car (made and sold by the Nissan Corporation) plus the time it takes to get ready (using products like toothpaste, shaving gel, hair gel, and deodorant provided by the Proctor & Gamble Corporation) equals the time that the corporate employer expects her to begin working. She has scarcely gained consciousness and already her day is defined by corporate norms, products, and expectations.
Even the context for the use of the products listed in the above paragraph is a product of corporations. The very notion of “body odor” is a product of corporate advertisers trying to create demand for deodorant early in the 20th century. The idea of time zones was not an idea of governments but of railroads that needed uniform time zones in order to create schedules. It is one thing to notice that we’re bombarded by about 3,000 advertisements a day. It is another to notice that the very expectation of wearing deodorant or chewing mints is created by corporations, much less the expectation that we’ll all synchronize our watches and alarm clocks.
Our clothes and transportation are defined by corporations. Our working hours and the number of years that we need to work are also defined by corporations. More than 90% of Americans are employees and their role as employees is either defined by a corporation or an institution that patterns itself after the corporation. The level of pollution that we accept is defined by the needs of the corporation. Only when health needs of people and the planet are being too obviously ignored is that negotiated or changed. The extent to which children are allowed to be with their parents during the work day is defined by the corporation. Even our diet is defined by corporations and if the health consequences of this are harmful, then corporations are ready to offer prescription drugs that remedy the complications from the diet.
One of the real obstacles to transforming the medieval church was getting enough intellectual distance from it to see it, rather than simply see through the lens it provided. Our situation is little different today. Just take note of how pervasive is the corporation in defining your daily life. Once you do, you can begin to explore ways to define it rather than accept it defining you, taking to heart the warning that Emerson gave: "We have become the tools of our tools."
Why does this matter? It was impossible to change life, to make progress, coming out of medieval times without changing the church - and changing it fundamentally. Today, fundamental progress depends on changing the corporation, today's dominant institution.
In medieval times, that institution was the church; today, the dominant institution is the corporation. Its influence is so pervasive that we can’t even see it.
Think about the typical day of the average person. The alarm goes off at 6:30. The programming is courtesy of a corporation - the Corporation for Public Broadcasting. The very thoughts that first enter her head aren’t daily prayers sanctioned by her church but are, instead, news items and commentary approved by employees of a corporation. The radio that conveys this programming is made by the Sony Corporation and was bought from a retail outlet the Best Buy Corporation. This person lifts herself off the bed, a bed made by the Select Comfort Corporation. The alarm goes off at 6:30 because the time it takes to commute in her car (made and sold by the Nissan Corporation) plus the time it takes to get ready (using products like toothpaste, shaving gel, hair gel, and deodorant provided by the Proctor & Gamble Corporation) equals the time that the corporate employer expects her to begin working. She has scarcely gained consciousness and already her day is defined by corporate norms, products, and expectations.
Even the context for the use of the products listed in the above paragraph is a product of corporations. The very notion of “body odor” is a product of corporate advertisers trying to create demand for deodorant early in the 20th century. The idea of time zones was not an idea of governments but of railroads that needed uniform time zones in order to create schedules. It is one thing to notice that we’re bombarded by about 3,000 advertisements a day. It is another to notice that the very expectation of wearing deodorant or chewing mints is created by corporations, much less the expectation that we’ll all synchronize our watches and alarm clocks.
Our clothes and transportation are defined by corporations. Our working hours and the number of years that we need to work are also defined by corporations. More than 90% of Americans are employees and their role as employees is either defined by a corporation or an institution that patterns itself after the corporation. The level of pollution that we accept is defined by the needs of the corporation. Only when health needs of people and the planet are being too obviously ignored is that negotiated or changed. The extent to which children are allowed to be with their parents during the work day is defined by the corporation. Even our diet is defined by corporations and if the health consequences of this are harmful, then corporations are ready to offer prescription drugs that remedy the complications from the diet.
One of the real obstacles to transforming the medieval church was getting enough intellectual distance from it to see it, rather than simply see through the lens it provided. Our situation is little different today. Just take note of how pervasive is the corporation in defining your daily life. Once you do, you can begin to explore ways to define it rather than accept it defining you, taking to heart the warning that Emerson gave: "We have become the tools of our tools."
Why does this matter? It was impossible to change life, to make progress, coming out of medieval times without changing the church - and changing it fundamentally. Today, fundamental progress depends on changing the corporation, today's dominant institution.
Thursday, January 25, 2007
Welcome to the Next Transformation
In about 1300, the West began its first great transformation. When it was complete by 1700, the church had been eclipsed as the dominant institution by the nation-state – kings had more power than popes and it was the individual who chose his or her religion. Starting with this great transformation, the West has gone through three great transformations. You are living through the very beginning of the fourth.
In succession, the past transformations have given the individual freedom of religion, the right to vote, and access to credit. In the process, the church, state, and bank have been transformed. And the West has overcome the limits of land, capital, and knowledge workers as well through a succession of economic revolutions we’ve come to know as the Commercial Revolution, Capitalism, and the Information Age.
The next great transformation, the fourth in the series, will transform the modern corporation as the past repetitions have transformed the church, state, and bank. It will result in the individual having unprecedented levels of control over how he works and on what he works. In the process, the West will overcome what has replaced land, capital, and knowledge workers as the new limit to progress, it will overcome the limit of entrepreneurship by turning a growing number of employees into entrepreneurs, changing our notion of a corporation and its employees.
Key to all of this is this notion. We are well aware that progress depends on technological inventions like the wheel, the compass, the steam engine, the car, and computer. We seem less aware of the fact that progress depends, too, on social inventions like the bank, accounting, legal contracts, schools, universities, nation-states, and the modern corporation.
The next great transformation will disrupt everything. It is hard to image a world in which a group who might have been expected to take a role as factory workers in the 19th century or as knowledge workers in the 20th century will, instead, take on the role of entrepreneurs. Imagine having even 10% of the population busily creating and recreating the organizations through which we conduct business, education, and governance.
This blog will tell the story of next great transformation, will predict the next 50 years using a pattern that began 700 years ago. Pull up a chair around my kitchen table and settle in. This is going to be a fascinating series of events to narrate.
Welcome to the next transformation.
In succession, the past transformations have given the individual freedom of religion, the right to vote, and access to credit. In the process, the church, state, and bank have been transformed. And the West has overcome the limits of land, capital, and knowledge workers as well through a succession of economic revolutions we’ve come to know as the Commercial Revolution, Capitalism, and the Information Age.
The next great transformation, the fourth in the series, will transform the modern corporation as the past repetitions have transformed the church, state, and bank. It will result in the individual having unprecedented levels of control over how he works and on what he works. In the process, the West will overcome what has replaced land, capital, and knowledge workers as the new limit to progress, it will overcome the limit of entrepreneurship by turning a growing number of employees into entrepreneurs, changing our notion of a corporation and its employees.
Key to all of this is this notion. We are well aware that progress depends on technological inventions like the wheel, the compass, the steam engine, the car, and computer. We seem less aware of the fact that progress depends, too, on social inventions like the bank, accounting, legal contracts, schools, universities, nation-states, and the modern corporation.
The next great transformation will disrupt everything. It is hard to image a world in which a group who might have been expected to take a role as factory workers in the 19th century or as knowledge workers in the 20th century will, instead, take on the role of entrepreneurs. Imagine having even 10% of the population busily creating and recreating the organizations through which we conduct business, education, and governance.
This blog will tell the story of next great transformation, will predict the next 50 years using a pattern that began 700 years ago. Pull up a chair around my kitchen table and settle in. This is going to be a fascinating series of events to narrate.
Welcome to the next transformation.
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About Me
- Ron Davison
- Working in the basement on the Escher Expressway (every direction down hill for fuel savings) and Mobius Strip DNA (for immortality).