The End of Economics

Economics is the study of scarcity. By 2050, in many parts of the world, scarcity may well be transcended. At that point, economics will be history.

In an agricultural economy, there is a very real question of starvation. Subsistence living was reality for the vast majority of the world's population only 1,000 years ago. In Europe, it was not unusual for groups driven mad by starvation in the months leading into harvest to form suicide pacts.

In an industrial economy, food production is less precarious and scarcity typically shifts from food that might feed one to the products that do things like clothe, house, entertain, transport, or inform one. In agricultural economies, the rich are fat and the poor are thin; in developed nations, the poor are fat and the rich are thin. Food scarcity is a product of will power rather than crop failure.

In an information economy, even a scarcity of goods becomes history as landfills, garages, and closets become increasingly packed and cluttered. What is scarce is the economic freedom that allows one to pursue avenues of engagement, contribution, and meaning that seem pushed to the periphery of life for many focused on making mortgage payments, college loan payments, 401(k) contributions and insurance payments.

Already, G-8 countries are building something new atop the information economy, just as they did with the industrial economy around 1900. An entrepreneurial economy is emerging, an economy in which the roles that are typically ascribed to entrepreneurs are made more popular, more common. The wealth that will be generated in this economy, wealth driven by and driving further advances in resource availability and use (problems of the agricultural economy), manufacturing and distribution (problems of the industrial economy), and problem-solving and design (problems of the information economy), will create abundance inconceivable by most of the current generation.

Humanity will still face problems. The problem of being human, the problems of finding happiness, meaning, engagement, and healthy relationships will all still be with us. But these dramas will be played out free from the fear, or overhang of scarcity. Measures like GDP growth will become as nonessential to the measure of progress as caloric intake has become to the developed nations. We will have moved beyond that.

Before about 1000 - 1300 AD, tradition rather than economics defined society and its changes. Since that time, the West has been transformed by economic forces. By the middle of this century, those of you who are still alive will get to witness the end of economics. Historians will look back to the period before 2050 as a time when humanity was so consumed by fear, scarcity, and competition for goods that our humanity was largely subsumed to Freudian impulses. Once economics has ended, we'll live in a true renaissance, a time when a majority of humanity can properly focus on what it means to be human.

The end of economics. It's just decades away.

Soft Technology Invention

Most attempts by business to understand the future rather seem to miss the point. They come across as technology plays, predictions about which breakthroughs are likely to come to fruition and how they'll parlay these into products. This is fine if you are head of a research lab, but has less obvious application if you are tasked with other management positions. If your job is to head up a business or function, you're likely looking - if indeed you are looking at all - at the wrong kind of technology.

Some should focus on the evolution and change in hard technology - changes in cars, computers, drugs, and telephones. Most managers should be focused instead on soft technology - changes in culture, behavior, roles, beliefs, and organization. It's true that in practice these two, the hard and soft technologies, play together. It's also true that any one individual is likely to focus on one dimension. Thanks to roughly a century in the evolution of the formal role of scientists and engineers, we have clearly defined the tasks associated with the development of hard technology. By contrast, roles for developing soft technology are less clearly defined. Indeed, what plays catalyst for the shift in public opinion or new practice often seems unpredictable and random. Of course, so is the development of hard technology, but that doesn't stop societies from investing hundreds of billions into its development.

Most management types should be looking at the future of organizations, work, and society. It is not that they should remain willfully ignorant of the hard technology, but often there is little that a CEO or VP of, say, Human Relations can do about furthering the next generation of web development software. They can help to develop the organization.

There is so much that can be written about this, but I will for now limit myself to this. There are a variety of questions that anyone in management - from small business owner to CEO - can ask, questions that intelligent and imaginative people scattered throughout the organization can answer more creatively than me. Managers should be regularly asking these questions.

1. How do we more fully engage our people in work? What work place designs, chunking of tasks, and communication protocols should we use to encourage focus?

2. How do we clarify consequences? What can we do to more clearly link the work of the individual to the value created by the organization?

3. How do we more clearly tie together individual effort, longer term consequences, and organizational performance? Are there lessons we can draw from market economies?

4. Are we prepared for the devolution of power and decision making as accords with self-adapting complexity and market dynamics that might follow from designing a system that allows individual initiative in place of central controls? What are the consequences of creating such a system? How would we make this operational? What are the practical obstacles to moving in this direction today?

5. Are our people motivated by a vision of their future? Do they see this organization as a place of possibility or are they even interested in realizing their own potential? Why or why not? What would we have to change about our organization to allow a critical mass of our employees to realize their potential?

6. Who in the organization is tasked with coaching our people towards the realization of their potential? What is the lost revenue resulting from our lack of interest in this?

I would argue that seriously pursuing questions such as this could be the catalyst for developing new organizations, for creating the next generation soft technology. If your business is hard technology, you are likely focusing an enormous amount of energy on creating the next generation of your products. If you expect to remain competitive as a senior executive, you should be just as focused on creating the next generation of soft technology.

The DNA of Social Evolution

DNA is coded by the sequence of four bases. I'd argue for a parallel in social development. At a high level, any society is defined by social order, its dominant institution, economy, and worldview. I'd argue further that a change in one of these has the potential to trigger changes in all, just as the purchase of a new software application might trigger the purchase of a new operating system which might trigger the purchase of a new computer system.



Social Order
The simplest indication of how a society is defined might be seen in its tallest buildings. In medieval Europe, the tallest buildings were cathedrals and churches. Later, castles, parliamentary buildings, banks, and corporate headquarters followed.

Since about 1300, there has been a succession of dominant institutions: church, state, bank, and corporation. In various times and places, the dominant institution is not necessarily the one that has the most physical power but, rather, the one that most structures and shapes the attention and goals of the average person. In 1100 AD, most people conformed their daily lives to the church. Today, it is no longer church bells but, rather, corporate advertising and employment to which most conform their lives.

Dominant Institution
A society dominated by the church is very different from one dominated by the corporation. But how power is distributed within the church or corporation also makes a difference. Quite simply, there are two extremes in the distribution of power within any institution: power held by elites or power distributed to the masses. It is one thing to live in a society dominated by the state, by politics; it is quite another to live in a dictatorship or democracy.

Economy
Agricultural, industrial, information, or entrepreneurial economies are very different, but all are market economies. An entrepreneurial economy is just now beginning to emerge. This emergence will have a sweeping influence, just as did the emergence of the information economy in about 1900 and the industrial economy in about 1700.

Worldview
This is perhaps the most subtle yet most defining of the four elements. How we make sense of the world defines so much else. And a worldview, like glasses, is made to be seen through rather than seen.

Since about 1300, the worldviews that have defined the West are the Renaissance, Enlightenment, and Pragmatism. Systems thinking is the set of glasses being adopted by more and more people.

Revolution
We rightfully call the change from agricultural to industrial economies an economic revolution. Intellectual, social, and institutional revolutions characterize the change of each of these elements. Western Civilization has thus far been defined by a pattern of revolutions, described in the table above.

2038 AD

2038

“Tell me again, grandpa.”
“Oh, it’s such an embarrassing story. We were so slow to see the obvious.”
“Yeah, but I like the story.”
“What part do you want to hear?”
“I want to hear again about how negative you all felt even though you lived in a time with more people, affluence, and knowledge than had ever been had in history.”
“Yeah, that was weird.”
“Why, grandpa?”
“Why? Why did we all feel so poor and powerless?”
“Yeah.”
“Well, we had jobs, we voted, we were free to speak our minds. The problem was, the whole world was disconnected – everything was disconnected from everything else. It was like squeezing on a balloon. You work on something here and a problem pops up there. What you were told to do at work wasn’t necessarily something that created for customers or stockholder. Your vote didn’t seem connected with creating the world you wanted. And what you learned in school might be disconnected from what was going on in business or politics.”
“Didn’t you know that all these things were connected?”
“We did. Well no, I guess we didn’t. We believed that if only politicians were honest and if only we all worked hard, the world would turn out fine.”
“Hadn’t you heard Deming say, ‘We are being ruined by best efforts?’”
“Well, yeah. Some of us had heard that. It didn’t make any sense though. We didn’t have a perspective on the world that allowed us to connect it all together. We didn’t understand that we could do so well with the pieces and have the whole slowly erode. That just didn’t make sense from our perspective. So, we all worked hard, all tried to make a difference in our own little roles, and all our attempts to make beautiful music sounded like a cacophony. Everyone playing a different solo, all playing over top of each other.”
“You didn’t know you lived on one planet?”
“We knew that. But all our institutions and all of our roles – society and the place you had in it – they were all geared on the old, analytic models, the perspective that pieces added up to the whole.”
“That’s why Douglas Adams quipped, ‘If you try and take a cat apart to see how it works, the first thing you have on your hands is a non-working cat.’”
“I guess. But you have to remember that this was before the revolution. We still thought that finance and business, politics and education were problems that could be solved in isolation from one another.”
“Nobody was killed in the revolution, were they?”
“No. Nobody was killed. It was an intellectual revolution.”
“When did it finally start?”
“It turns out that when Copernicus discovered we were circling around the sun, the first time the term ‘revolution’ was used, we had actually been revolving around the sun the entire time. Same thing with the systems thinking revolution. Turns out that everything had been connected anyway, and people and been creating institutions – schools, businesses, government organizations and non-governmental organizations – for decades, for centuries. We had just never put business formation and social revolution together under the heading of entrepreneurship. We had always treated that process of entrepreneurship as something that stood outside of life rather than defined the process of life. All we did in the revolution was subordinate society to reality.”
“What reality?”
“The reality that history has a force you need to work with. The reality that you have to harmonize rather than clash with nature. And the reality that the individual experience needs an individual context, needs institutions that customize to that individual. We finally learned not to let our institutions force us to ignore reality but forced our institutions to continuously adapt to reality.”
“How did you do it?”
“We changed how we saw the world.”
“If it was that easy, why didn’t you do it earlier?”
“It’s hard to see your glasses, son.”
“So how did it start?”
“From lots of places. But it’s probably simplest to trace back the transformation of how we saw life to when we first saw the earth from space. Saw that it was one place, not lots of places. Saw that it was all connected. We could see what was real. This was one planet – we had just overlaid a bunch of countries and ideas on top of it.
“With that kind of a picture we had to adopt a different kind of worldview. From that point on, the rest was only a matter of time.”
“And it worked out great, didn’t it?”
“It did indeed have a happy ending.”
“Happy Earth Day, grandpa!”
“Happy Earth Day.”

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.