A new economic hypothesis

Society is made of individuals. Each person plays different roles. Some roles are critical to economic theory: The individual investor, the employee, the creative engineer, the manager, the business owner, the consumer and the regulator.

Each role has different priorities.

The individual investor wants to maximize returns with minimal investment, lowest risk and with total liquidity. The employee wants to be paid the most for minimum work. The creative engineer wants to create the most perfect product he can conceive, and would laugh at consumers who don't realize that that is what they need. The consumer wants the best product for the least price. The business owner wants to maximize shareholder value by having highest revenue and margins with minimal cost. The manager has to deal with resolving all these conflicting needs, while growing his salary and stock value. The regulator wants to ensure that the economy remains balanced - i.e., most people have ways to make enough money to have a prosperous life.

Adam Smith basically suggested letting everyone of these roles to sort it out without the regulator's intervention. He believed that the invisible hand of the free market would ensure prosperity without the need for heavy regulation. He also gave the highest power to the businessman as opposed to the employee.

Marx removed the businessman from the system and empowered the regulator and the worker.

Veblen and Galbraith argued for the rights of the consumer, and believed that the creative engineer should be empowered to produce the best product for the consumer.

Keynes gave power to the regulator to fix any imbalances, by inducing spending all around.

Given this background, let us articulate the problem we are set to solve. We want to find the best approach that satisfies all of these roles. We also want this approach to be stable, i.e., these roles must, as a whole, be satisfied for a long time under this approach.

We can analyze this problem by empowering each of these roles to go after its goals, and see if that achieves our two criteria: satisfying all roles concerned, and sustaining that satisfaction for a long period of time.

First, let us empower the individual investor to do whatever he can to achieve his goals - to maximize returns with low risk, minimal investment and highest liquidity. Now, there are several measures he can take to achieve this goal, and he may come up with this magic investment scheme where he makes a lot of money. However, this only benefits the companies who's stock he buys. He also does some Keynesian good, where he may pump more money into the economy due to his new found affluence, which leads to more allround prosperity. In this case, investor gains, the invested organization/industry's employees gain, though their actual revenue may remain unaffected. However, the business investor does not gain directly in any sustainable way, as the mere investment in his business does not guarantee any revenue or margins to his company. The creative engineer also doesn't gain anything from this. There is no specific reason for the regulator or the consumer of the firm's product or service to benefit from this.

Second, let us empower the employee - let us pay him for doing no work or minimal work. The employee may be happy, but everyone else would suffer. The creative engineer and the manager would slack, as they wouldnt need to work to get paid. The business would suffer, and so would the customer, and eventually, the reguators as well.

Next, let us empower the business owner. He gets lots of revenue, at minimal cost, driving share value up, investors are happy. However, the consumer is unhappy, since he didnt get anything in return for the money invested. The creative engineer is also unhappy - he is not funded to do what he believes will yield the best value for the consumer, since customers are willing to pay even without that cost. The regulators are happy, as long as consumers and creatives dont take to the streets in protest.

Now, let us empower the regulator. The regulator can, through some interest rate magic, possibly satisfy the businesses, employees, etc. However, he can never directly satisfy the creative engineer or the consumer.

Next, what if we empowered the consumer? Each consumer is given whatever he asks for. Businesses would never scale. Imagine a mass used product like some software - if each consumer, who may not know what it takes to provide a feature, begins to demand what he needs, then businesses will be drowned under the costs of providing individual personalized implementations for each consumer.

Finally, let us look at empowering the creative engineer. By engineer, we do not mean an engineering degree, all we mean is that this is a person who is passionate about building the best of technologies
for a given problem. The engineer creates the best product for a problem. The business is pleased, as it solves a genuine problem, and they can hence charge customers a good price for their effort of bringing the right solution for customers as a whole. This automatically builds the brand of the company with the best solution, and that gives the company the durability it needs. As long as companies continue to focus on creating value for the customer, customers will continue to trust them and be willing to pay for their effort. Most customers are happy as the solution focused on solving their problems. Finally, the regulators are happy as the economy is thriving which frees them and their resources up to work on other critical things.

Granted that these arguments are somewhat oversimplified, and you can argue almost any point here for years. But the obviousness of this thesis is unmistakeable. The summary? By every role focusing on empowering the creative thinkers to define the right solution for the segment of targeted customers, we have a positively reinforcing cycle of events that leads to overall prosperity for the economy.

The right thing

Most people go about their lives doing their jobs, making money, somehow convincing themselves that they are doing the right thing. But look at a random sample of things being done by companies, individuals, etc. and within minutes you will see how meaningless their goals are. Whenever it comes time to evaluate oneself critically, people take solace in comparing themselves with someone more depraved than themselves, at least in the general public's eyes. I am much better than that evil suicide bomber that killed fifty people, they say to themselves, and feel strangely comforted by that thought. After all, if not for the existence of someone much 'worse' than themselves, wouldnt they be the ones at the receiving end of the criticism for their unjustified zombied walk through life? Maybe the question of the right thing to do has no answer. But then someone should prove that to be the case and document it for posterity, so we can all feel a little better doing what we do.

Let us consider the field of investment - the main purpose of this domain's existence is to answer the question: what is the ideal investment strategy for an investor or group of investors of a given investment mindset. Ideally, the industry should be converging towards solving that problem. There have been great contributors to the domain. Economics thinkers and writers like Adam Smith, John Stuart Mill, Marshall, Veblen, Galbraith, Milton Friedman and Todd Buccholz, Investment thinkers and writers such as Ben Graham, Warren Buffett, Charlie Munger, Philip Fisher, John Burr Williams, Burton Malkiel, Aswath Damodaran, Zvi Bodie, cross domain thinkers like Mauboussin, have all contributed greatly to approaching the problem. Even if we consider 1776, when Adam Smith wrote his famous 'wealth of nations', as the beginning of such thought, we have less than one person on average every 15 years, not a great number considering the amount that has been said about the subject. The larger danger lurks in the increase in flimsy opinion available in today's world. Today, with TV, the internet and other such space and time gap shortening technologies, almost anyone can publish anything. And success in the publishing industry is a measure of several things other than just plain quality of the content. So, a person with excellent articulation and writing skills and the wrong content can be very successful at spreading the wrong message. A person with the right message but poor communication skills will very likely go unheard. However, we cannot blame the perpetrator of wrong investment methodologies, as he may be successful at his goal of making money off of online advertisement or collecting money upfront for a get rich overnight scheme. In order to find an answer to the problem of investment, I would argue that more time is needed to sift out bad content than to find the good ones. In fact, the list of resources needed by a person with a rational and analytical mind is quite obvious. And yet people are all busy coming up with ways to make a quick buck, as opposed to solving the fundamental problem of investment.

Let us consider the question of technology - what problems must the software industry solve today to be most beneficial to each breed of customer? If you look at many of the software companies today, it does not seem like they accept this as the primary question - instead, like a group of ants collected from their ant hill and dropped off in the middle of a distant desert, they are scared, and do the only thing they know to do - scamper. Each ant scampers in his own direction, and then does what he has to do to continue scampering - justifies why that direction is better than the other, moves more firmly in that direction. We are in the umpteenth release of operating systems and web browsers, and we still havent solved fundamental problems of interoperability. When I plug my music player into my computer, every hour or so, I get the blue screen with a cryptic error, and after having judiciously bought each new release of operating systems, computers and software for the last decade and a half.

Similar questions can be asked about business - what is the right approach to a business model in a given domain? or employment - what is the right kind of work to do as a function of a person's characteristics? or buying - what product should I buy? or environment - what is the best approach to address global warming?

It is critical to answer these questions honestly before jumping ahead to do something based on the more common reasons - because others are doing it, because I said I'd do it this way, or because the media thinks its cool.

The Good Work

If I don't have the money to afford the food, shelter, clothing that I need, then any work is good work. Once I have enough to survive, though, be it through savings, investments, a lottery, or by any other means, good work takes on an entirely new meaning. Earning money becomes more important than just getting it. The purpose of what I do takes on more relevance. In this state of mind, what work used to be satisfying, pleasurable even, seems stifling. I begin to question the value of what I am doing to the customer, and whether I deserve the money I am getting in my job.

If I get the sense that I am building products that are sold largely by marketing, branding, or any such means other than the intrinsic value of the offering, I feel less motivated to produce the best. After all, whether or not someone buys my product is almost independent of what I create, and in many cases, the success of my company bears no correlation to the effort I put in, so why should I break my back on it? In software in particular, people buy stuff with either the zombied faith in pre-sales messages of what it'll do for them, or with the resigned acceptance that the product will be well short of what they need, that bugs will pop up at anytime, and they have to deal with it anyway. It may even give many IT department experts and consultants/system integrators a sense of job security that they have so much more work to patch the issues in new technology.

As a producer of technology, I wonder what difference my software has made in the lives of my customer. And anything that comes to mind is debatable. The main things I have gained from computer technology after spending thousands of dollars every year for the last decade or two, are ability to talk better(email), find better(web search) and broadcast better(web publishing). And I see very little work today that is even trying to make any of these experiences better, though many may claim to do so, which is the selling part. The value of process automation in my life is debatable, since in many cases, automation cuts down the flexibility that was available through human interaction (how many times have you found the options presented on an online commerce site or automated support responses on phone inadequate?). You may disagree on this one, but I am sure everyone has had the question "Why the !@#$%^ don't they __________?" while trying to do something on a website or on a phone system.

And even these experiences are still in their infancy when it comes to the user's experience.

For instance, all popular email clients provide a default view that has 20-50 messages listed on the screen when you log in. No one can really act on all of these messages in any meaningful way, except maybe to delete them. Then why are all these emails in my face?

And we all know about search. How many redundant sites, ads, search query variations do we have to go through to find anything new, even in the best of search tools?

In terms of publishing myself, how much do I need to spend in time, money and effort, to get people to see my site today? How many bells and whistles do I need to add over my main message (which is often as simple as "I sell great ice cream. Everyone come and buy from me!") to keep people on my site long enough?

And above all this, how useful has technology been to improve the productivity of users? My ideal experience in being productive would be to have a simple tool that I feed in everything relevant - my tasks, my email, links from the web, my appointments, my rules/preferences, etc. and the tool in turn, at any time tells me what I need to do next. In spite of a gazillion tools I have invested in, I don't still have that ideal experience. Is anyone doing anything about that?
I am not claiming that these are easy problems to solve. However, these things are what I would consider valuable to me. Most of my tech spending, usually in hindsight, is a huge waste and a victim of very creative marketing, branding and selling.

So, what then, is good work? The farmer, who lovingly ploughs his land, sows, nourishes and harvests his grain, with pride on the fruit of his effort and the assurance that the crop will feed someone is good work. An artist who creates his work passionately is doing good work.

What would be the equivalent of the proud farmer's work in the software industry? It would be to attempt to solve real customer problems, and to enhance the value of technology to the customers, as verified by the customer after using the product, and not the media or the salesmen of the product company.

So good work, in summary, is creating something that customers value after using it, and creative work, which gives pleasure irrespective of how well it is received.

Even if I do good work and put it up, it is possible that people don't accept it enough to try it. This is due to the sad skepticism with which we view everything today. The solution lies in the buying experience and the revenue model, coming up next.

A semi-fictitious history of value

In the beginning there were a lot less people. People migrated to fertile regions of abundant resources, usually besides a plentiful river, and usually there were enough resources to satisfy the needs of the people. When it got crowded, people moved to other fertile regions and this went on for a while. Meanwhile, more needs arose, and people invented bartering. The cowherd would trade milk for grains from the farmer. And this led to a richer quality of life. A shepherd could focus on rearing sheep and still get milk, grain and wood in exchange for his wool.

Leap forward many years, and man invented an abstract form of currency. Maybe it began due to seasonal demands - if grain was harvested and available only in a part of the year, then the farmer needed to have some means to sell it, and then get wool later in the winter. This was made possible in the form of coins, and later joined by notes to form money. So far, so good. Each person had an honest commitment to create the best quality of good to provide to get the most money, so they could afford the best for themselves and their families round the year.

Then came other abstractions of value, further removed from money, to make money. As different technologies became available to improve the productivity in each field of work, people began investing in others' skills. Thus was invented an early predecessor of the corporation. A wealthy investor would invest in farming equipment and land and have skilled farmers do the farming so as to produce more than a farmer would be able to afford at a smaller scale on his smaller piece of land. At this point, the investor still had an interest in ensuring the best quality of output from his land and workers, as that would earn him more money, and things were still reasonable.

Competition emerged as societies grew and multiple people provided the same service, and it became crucial to differentiate one's produce from the other's. This could be done by providing better quality than others or by providing the same good for a lesser price. There was only so much that one could do in increasing the quality, especially in mature industries. Only a small percentage of attempts at innovation succeeded, and cost of researching new innovations was exorbitant. Also, price cuts also had a limit before effecting huge losses.

Then, a brainwave came to the rescue, probably encouraged by newer and wider reaching faster means of communication (printing, radio, telegraph, tv, and more recently the internet). People were excited by the power of the new media, and were easily influenced by what they heard, read and saw. Advertising and other forms of marketing were born. Every available medium of the time was used to bombard the user with marketing messages. At some point, investors and executives at the companies realized that this was way more effective than either innovation or cost cutting. Investments shifted dramatically towards marketing and less and less was spent on innovation. The users were kept mesmerized by well concealed rhetoric and flashy glamorous advertisement. Brands took over the product. It became hard for the consumer to know what value really lay in a product, and they were systematically hypnotized into choosing brands instead of what they needed. Money was spent based on what they knew about the brand, and what they had heard about the product, and (granted, in an oversimplified view,) the ones with the most advertising budget won the customer. So this was the beginning of the downfall of value, but it had only just begun. The handful of customers who were able to lift their head above the din of the blasting marketing messages could see that things werent quite as good as they used to be. There were many more choices, many more new things, but none of them had the rigorous dedication to quality and providing value that had existed in the past. From the company's angle, now all that mattered was how frequently they could bombard the world with messages of innovation and messages of value, and deliver something that the world would relate to the messages. So, there was a rush to produce things in shorter and shorter times. While some pride our current times and the rapidity of churning out goods compared to the past, few seem to notice the enormous compromise in quality that it brings along.

Now there were hundreds of companies creating similar things, and everyone got wise to the marketing and rapid delivery formula. They needed other ways to get ahead of their competition and make money. Another ingenious idea hit the world, protection of assets - in the form of patents, copyrights, trademarks. The ingenious inventor of this idea probably thought: if I can get the law to support me, and prevent competitors from building anything I build, then I can reap the benefits of my idea without my competitors eating a free lunch off of it. Probably a reasonable thought, even when stated as above. However, it didnt quite stop there. This whole notion of protection of intellectual assets went overboard - people began to patent everything from words and phrases to wild herbs to the blue sky (not sure of the last one... yet) and that wiped out the ability of anyone to do pretty much anything new without violating some patent or copyright. Innovation and creation of value was almost dead.

Now, quality dropped so low that people were taking notice. They whined to the corporations, and the corporations who were now wizards in the craft of converting anything into money, found a way to make money off of that as well. The amazing solution was a support contract. Pay me oodles of money in addition to what you pay for what you buy, and I will fix your good even after you bought it. And then, for added good measure, the companies spent a lot of money marketing the support contracts as well. People were too dazed at this point to realize that the same company that did not want to spend upfront in providing high quality in the product would not be particularly interested in investing in excellent after sales support. They went out with a pleasant smile and paid , oh, I don't know, 20-40% more, for the same good. And what did they get when the good went bust? They got to call a toll free (yes absolutely toll free!) number. First off they are met by an automated system that proffers several advertisements, other ways to get help, and upto nine options, none of which match the problem at hand. If they were lucky, they would have a way out of the automated system, and if they had an IQ of over 6000, they would find it, and then, after a sunny afternoon spent listening to classical music interspersed with more ads, they would finally get connected to someone in a rural extremity of a yet unnamed country somewhere out there, where only the supervisor's supervisor would speak some dialect of english that they could understand. After a long delay answering questions involving personal identification including birthmarks in private areas, and (finally!) describing their problem, they would, in many cases, be politely directed to the fine print in the contract that excludes this particular issue. If they called hardware support, they would be told to contact the software company, and vice versa. They would then likely bang the phone down in frustration, and then have to call the phone company support to fix the phone, and the experience would repeat. Now, initially this was met with a lot of indignation and hullaballoo, but eventually people begin to accept at least at some subconscious level that they are decidedly inferior to the corporation as an entity in society.

Some people did whine and were hit with another brilliant rebuttal. Companies were now, routinely owned by people, and most of the large companies were owned by the public. So, if you did manage to bring this up to a company, this is what would happen: In an unstated, but pointedly implied moral argument, the company would shrug (assume for a moment that a company can, somehow, shrug, as well as argue), and argue that their first allegiance is to the shareholders, the common people, in other words, people like you. What would you say to that? Maybe you do own some shares in the company, and so you choose to shut up. So, the shareholder comes first, the company growing and expanding comes next, marketing and advertisement campaigns come third, patent and legal patent related expenses come fourth, and somewhere down towards the end of the priority chain, comes the customer, probably just above the money spent on support costs, which is the biggest overhead. But then that doesnt seem obvious, because at every higher priority point, the customer and the value provided is mentioned as the most important priority - be it to the shareholders, or in the advertisement campaigns, or while filing for a patent.

And then, as always, everyone caught on to all that, and yet another epiphany entered the mix - after making all the money people are willing to pay for exquisite fantasies (ads), mediocre products, and horrible support, the next mantra was, money for nothing! And this happened in various forms, and arms were twisted hard to make that the only choice. If you think I am talking about someone else, I am referring to anything where you pay a monthly subscription for a sparingly used service. A wireless plan with a two year agreement, a cable tv package, a monthly minimum phone bill, a gym membership where the cost of reenrolling if you take a break is exorbitant. In all these cases, a person from a hundred years ago would probably laugh at you if you offered one of these as an option. However, today, more and more offerings are moving towards this model. Companies realize (duh) that free money is the best money, and would love to get as much of it from you as they can. They have again, invested strategically, to find ways to make this the only reasonable option, by making other alternatives exorbitantly unaffordable. For instance, everytime I used to call my cell phone company, they would talk about this great offer of so much off, free candy, something, if I agreed to a) get a new line with a two year agreement , or, once they realize I'm not that stupid, b) renew my almost ended contract for another two years. And that adds even more incentive for the product development side of the house to avoid thinking about value. If all the customers in my market segment are tied in to a hundred year agreement, to the full extent of their salary inflation adjusted to account for future pay hikes, then I can pretty much stop investing in developing new products, or, if that seems too drastic, move the development to a smaller rural district in that unnamed country down the road from my support office. Can't I?

Setting the stage

In the indie hit movie 'What the bleep do we know?' there is a scene where local settlers in the New World did not see the European ships heading towards them even though they were looking right at them in the sea. 500 years later, I can empathize with the epiphany of that settler - I am beginning to see things that were right here, all along.

I can see now that I am more into imagination than into execution. I have known this all along, but have allowed foggy delusions of career and growth and local acceptance at the cost of deeper meaning to cover that up. That is one cloud that has definitely left the building. I cannot imagine anyone being into execution for the sake of execution - they may do well at it, motivated by other higher goals (money, recognition, power, fame) - but I cannot imagine someone enjoying execution for its own sake. More specifically, I cannot imagine enjoying execution without absolute reverence for the end result.

That leads to the second ship that is beginning to clear up - the end result of what I am working on has to fulfill a purpose other than just generating a lot of money. While the bottom line from a company's standpoint is completely justified in being related to the financial promise of a venture, and I would gladly invest my money in such a venture (once convinced of its financial potential), it does not by itself justify the investment of my mind and heart. Again, this seems quite obvious when I look at it. While investing my mind in return for money is a good approach, investing my mind in the hope for end to end satisfaction would require much more than financial gain. On the contrary, I believe that an end to end satisfying endeavor will automatically generate a lot of money.

I have also begun to see the outline of a third ship - not fully clear by any stretch, but I can see the masthead and the bright colors in the flag flailing in the chilly sea wind. Traditionally, corporations and venture capitalists have managed risk by diversifying between multiple investment ventures. I think it behooves me to do the same for my own investments. As an individual, I should also divide my time among the various pursuits that intrigue me and divide them sufficiently across diverse interests for two reasons: firstly, that prevents me from getting bored by the monotony of a single 'job' area. Secondly, it distributes the risk across multiple exclusive endeavors, so I can rebalance my investment of time, mind and heart across more 'profitable' avenues over time.

Towards this goal, I am embarking on a renewed model of work/life. I will work on multiple ventures - not more than 1-2 days a week each, and apply a major chunk of my time in creative pursuits. Initially, I will focus most of my time on exploring my creative talents/interests/potential and focus on one or two 1 day a week ventures. Eventually, I hope to achieve a balance between these ventures and my creative interests both in terms of creative equilibrium and financial revenue. More on this model as the fog clears further.