This morning as I walked briskly from the parking lot to my first meeting I saw my reflection in a store window and thought to myself,
“I may be 51 but I have the gait of a 40 year old. Bam!”
When I see a guy wearing a “slim fit” shirt I know it is because he is genuinely slim. (I also know that I probably won’t like him and definitely don’t trust him.)
But when a guy wearing a “slim fit” shirt looks at a guy wearing a “classic fit” shirt, I wonder if he knows that “classic fit” is really just a euphemism for “out-of-shape and portly?” And if so, is feeling sorry for us and knowing we are not a threat part of the reason slim-fit guys seem inclined to like and trust us?
I have just finished going off a medication and suffering withdrawals that no woman should ever have to endure. And that many men shouldn’t ever have to endure either. And I am in that group of men.
Do you remember being stuck at the kids’ table for Thanksgiving dinner growing up? I do. There were always too many of us to all sit around one dinner table, so we had a secondary table off to the side, sometimes even in a separate room, to which the younger generation was relegated. I remember asking every year if I would be able to sit with the grownups. The conversation at their table ranged from sports to politics to family gossip, and whatever the topic it was always more animated and intense. I know why now: it’s because adults love to talk about the state of their world and how it should get better. But what an irony: those of us with the biggest stake in the future-the kids-were not even hearing the conversation. Back then, all I understood was that the main table was where the action seemed to be, and I wanted in.
These days, I do get to sit at some main tables, but I try to stay mindful of whose voices aren’t being heard there-particularly when they are young and presumed not to have anything to add. I feel this most acutely in the debates around education reform. We keep kids off to the side while the adults talk and talk and talk about how to improve student experience and outcomes. And there’s another similarity to Thanksgiving meals: a lot of loud conversation and not much action! The talk at the grownup table never stops, yet year after year the education system in the US continues to atrophy and our students fall further behind the global curve. Every 29 seconds in America another student gives up on school, adding up to nearly a million high school dropouts a year.
What if we put students at the center of the education innovation conversation? Could we get past our suspicion that they would make ignorant or irresponsible suggestions, and tap into what they know better than any of us: what works for them as learners? If we engaged kids in the problems facing schools, and gave them access to design tools, they might imagine a learning experience they would be more likely to engage in and commit to. What if we didn’t stick our youth at the kid’s table?
The notion of bringing kids into the conversation about what serves them best is beginning to take hold in various quarters. Ellen Galinsky did it in the midst of a cultural debate on whether children were better or worse off when their mothers entered the workforce. The audacious approach of her study became the title of her book Ask The Children. Architects who design the places where kids spend their time are doing more asking, too. Check out, for instance, these photos of the Erika-Mann Grundschule II in Amsterdam. “The school’s recently revamped environment is amazing,” wrote one commentator, “perhaps not surprisingly as it was designed by the kids themselves ….”
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Saul Kaplan: The Kids’ Table
Companies fail at business model innovation because they’re so busy pedalling the bicycle of current business models they leave no time or resource to design new ones.
Most companies focus innovation efforts on new products and on driving efficiencies into current models. These are important activities, but not sufficient in the 21st century when business models don’t last as long and face disruption. This means business model innovation is the new strategic imperative. In this post I outline the top 10 reasons why businesses fail to innovate.
CEOs don’t really want a new business model
The most obvious reason companies fail at business model innovation is because CEOs don’t want to explore new business models. They are content with the current one and want everyone in the organisation focused on how to improve its performance. The clearest indication is when any discussion about emerging business models is viewed and treated solely as a competitive threat.
Business model innovation will be the next CEO’s problem
Let the next guy or gal handle it. There may be a disruptive business model on the horizon but we can beat it back, pass laws to slow it down and treat it as a niche player. Sound familiar? Today’s leaders have never had to transform their business model. Tomorrow’s leaders will. Disruptive technology is everywhere and trying to outlast it is a risky strategy. Leaving the challenge to the next CEO is not a good idea.
Product is king. Nothing else matters
The lines are blurring between product and service business models. Take the iPod. Apple didn’t bring the first MP3 player to the market. Yet, the company changed the way we experienced music by delivering on a value proposition that bundled product (iPod) and service (iTunes). Industrial era thinking forces a false choice between product or service focus. A proud product heritage can get in the way.
Information technology is only about keeping the trains moving and lowering costs
“I’m from IT and I am here to help you … ” Many companies fail because IT resources are disproportionately allocated to support legacy systems. Deploying new capabilities takes a back seat. The prevalence of enterprise systems is a barrier to business model innovation.
A change anywhere within the organisation affects every function, making it difficult to develop new capabilities, let alone an entirely new business model. Enterprise systems increase the efficiency of the current business model but can be a straightjacket-constraining business model innovation.
Cannibalisation is off the table
It’s hard enough being at war with competition, so why compete internally? When executives look at new business models they see them through the lens of the current business model and view them as competition. Organisations fail at business model innovation because they blindly take cannibalisation off the table, even if a new business model may have significant upside potential.
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Saul Kaplan: 10 Reasons Companies Fail at Business Model Innovation
How many times have you heard the expression, you’re preaching to the choir? As if engaging with people who share your values and relate to your point of view is a limiting or bad thing. The adage implies that we should find other people, not yet indoctrinated, to engage with. It took me a while to figure it out, but the age-old adage is wrong. You should preach to the choir because that’s the only way to mobilize transformational change. If you want to transform anything find people who want to change, connect them with each other in a purposeful choir, and enable them to create an entirely new song. Proselytizing doesn’t work. You can’t make people join the choir if they don’t want to. Focus on people who want to be in the choir and make it easier for them to sing.
I used to believe that proselytizing worked to catalyze transformational change by convincing people who didn’t know they had to change that they needed and wanted to change. Over a thirty-year career spanning industry, consulting, and government I believed in and implemented a proselytizing model to enable change. For years I believed that if I just yakked long and loud enough, if I just put together and presented one more smart consulting deck, and if I adopted what I call my ‘Jewish Aunt” approach to management by nudging I would ultimately wear you down and you would change. It didn’t work. If people don’t want to change they don’t. Sure, there was the occasional convert and a solid track record of enabling incremental change to the way things work today. However, my goal has always been and remains transformational change. No matter how hard I tried, no matter how smart and eloquent I deluded myself into thinking I was, people who didn’t want to change, didn’t change. The 21st century screams for transformation not tweaks. We need a new theory of change worthy of the 21st century.
I have completely changed my approach and theory of change. Ten years ago I founded the Business Innovation Factory (BIF) to put this new theory to work in the real world enabling leaders to design and test new transformational business models in education, health care, and government. Now, instead of proselytizing I believe in a catalyst model of change. Don’t waste time trying to convert those that don’t want to change, find people who want to change and preach to the choir. You will make more progress that way. Allow your choir to grow organically. Trust the choir to create the playlist. Inspire everyone in the choir to be a songwriter. Celebrate and welcome diversity in your choir. The more diversity the better because the gold and best value-creating ideas are in the grey areas between our silos, sectors, and disciplines. The most effective choirs for change welcome voices from every range, weight, and timbre.
Leadership and mobilizing transformational change in the 21st century is about being a catalyst. It’s about getting a reaction started and then getting out of the way.
I remember back in high school and college chemistry learning about catalysts, the reagents used to get chemical reactions started. We need more human catalysts to help us get the transformation we all know we need started. Catalysts know the reaction isn’t about them. They know they’re starting something bigger than themselves. The social system transformation we need is bigger than any one of us. Catalysts have an important role to play but know social change will only happen by getting the choir started and getting out of the way to let the choir’s siren songs work their magic. I also remember from science class that the catalyst doesn’t get used up in the reaction surviving to catalyze another day!
A catalyst model of change is about creating the conditions so people who want to change can connect with others like them to create purposeful choirs. Leadership is no longer about command and control or about moving human capital around the organizational chessboard. Leadership is about inspiring random collisions and connections in purposeful ways to solve real world problems. It’s about creating the conditions to catalyze engaged choirs both within and outside of the organization. A catalyst model of change isn’t about pushing ideas down trying to convert the uninterested masses it’s about pulling ideas up to find their choir. We need to catalyze self-organized choirs around the world enabled to explore and test transformational ideas and approaches at a scale equal to the scope of the social challenges we face. Go ahead and preach to the choir.
Theories of life are a dime a dozen. For what it’s worth, here’s mine:
Hourglass Theory Of Life: Start with broad learning, narrow focus for impact, return to generalized exploration before the sand runs out!
Every life takes a different path but as sand moves inexorably through our personalized hourglasses there are patterns worth considering.
The top of the hourglass represents unlimited potential. While full with life’s sand anything and everything seems possible. The future is brightest when we start with the broadest learning. No limits. No boundaries. Zen Buddhism teaches us the important concept of beginner’s mind, approaching everything with an attitude of openness, eagerness, and lack of preconceptions.
“In the beginner’s mind there are many possibilities, in the expert’s mind there are few.” Shunryu Suzuki
I’m blessed to see beginner’s mind in action every time I see our three year-old twin granddaughters. It’s exhausting to watch them explore the world around them with reckless abandon, soaking up diverse inputs, experimenting with every sense, and squealing with delight with every surprising new discovery. All kids are born great. Our youth is characterized by broad general learning, the broader the better. The top of the hourglass is about foundation building. It’s about being a voracious generalist. It’s about keeping all opportunities open. The goal at the top of the hourglass is to explore the widest possible frontier of ideas and tools and to establish confidence in a sandbox full of capabilities that can be combined and recombined in unpredictable ways as the future unfolds.
As the sands of time move through our youth it’s important not to jump too fast into the narrow part of the hourglass. I worry about societal pressure to specialize too soon. There seems to be a steady drumbeat advocating for a narrow college education in order to maximize job prospects. Resist it if you can. Have you ever asked a group of people if they are doing what they thought they were going to do when they were in college? I have, and they almost never raise their hands. You can’t predict what you are going to be doing in the future. Why not treat college as foundation building and part of the top of the hourglass, an opportunity to explore a broad rage of interests and capabilities.
I think a liberal arts education is one of the world’s greatest experiences and the best possible preparation for an unknowable future. I didn’t get one in a rush to specialize and regret it. I nudged all three of our children successfully! It bothers me that as a society we aren’t making liberal arts education more accessible, affordable, and preferable.
The middle part of the hourglass represents focus and leverage. As the hourglass narrows so does our focus to accelerate and maximize progress and impact. It’s a wonderful time in our lives to mine our generalist foundation for personal growth. As the sand moves through the narrow part of the hourglass we specialize. We specialize as our interests and capabilities become more focused and clear. We specialize to advance professionally and economically. We specialize to better position ourselves in a competitive world. We self identify with how we choose to specialize. We seek professional credentials, titles, promotions, raises, and market validation based on how we specialize. The narrow part of life’s hourglass represents heady times. It can be a fantastic time of life with the right generalist foundation and strategies for specialization. It was for me, but something was missing. I didn’t fully understand it then but it was time for me to stop leaning against the flow of sand back into the wide part of the hourglass.
I’ve come to believe that the potential to transition from a competent specialist to being a voracious generalist again is one of the most important inflection points in life. There’s no right or wrong age to transition and of course many people choose or try not to. For me, it felt like a natural part of life’s journey. I don’t know exactly when it happened (I think for me, like for many, 9/11/01 had something to do with it) but at some point the specialization thing got old. It felt too limiting. At the margin each promotion, raise, professional accolade felt less important and relevant. It may happen in different ways and at different times in each of our lives but if we are fortunate we become free to unleash our beginner’s mind again. We become free to leverage both our generalist foundations and deep specialist capabilities to work on an entirely new set of important social challenges. We free ourselves to randomly collide with unusual suspects outside of our specialized silos and to explore the grey areas between us. The world seems new again and we are armed with the superpowers that come from a lifetime of experiences.
This innovation junkie feels blessed to be experiencing the wide part of life’s hourglass again and I intend to enjoy it and try to make a difference before the sand runs out.
…..before you realize it can change the world.
As an innovation junkie and geek wannabe I’ve been paying attention to 3D printing and the exploding maker movement. When I say paying attention, I mean reading about it, watching hackers and hobbyists make stuff, and wondering if there is more to the technology than the brightly colored plastic tchotchkes cluttering my desk. 3D printing really hasn’t affected me yet. That is until I recently chipped a tooth and with the bothersome pea-sized chip in hand had no choice but to visit our family friend and dentist, Dr. Robert Serinsky. Sometimes disruption has to hit you right in the mouth before you pay attention.
Now, I was no stranger to restorative dentistry. About seven years ago I had chipped another tooth that required a crown and don’t remember the process fondly. It required multiple, drawn out, not to mention expensive, visits to Dr. Serinsky. He first had to make a physical mold of my damaged tooth. The mold was then sent out to a local dental lab to cast a permanent crown while I was sent home with the inconvenience of a temporary crown made of a cured composite secured with temporary cement. Not pleasant! Weeks later, when my newly manufactured crown was back from the lab, I was summoned to the office for yet another lengthy dentist visit to secure it in place.
So you understand why I wasn’t a happy camper, facing the same fate again seven years later, while heading toward my dentist’s office with a similar sized chunk of tooth in hand. However, times have changed. This time instead of a physical mold that had to be shipped out to a lab for casting Dr. Serinsky inserted a digital camera in my mouth and the next thing I knew a digital image of my damaged tooth immediately appeared on a computer screen positioned right next to my dental chair. Dr. Serinsky knows I’m an innovation junkie so he went out of his way to demonstrate his new high tech capability. I watched my damaged tooth rotating in all of its 3D glory while he ran the design software to quickly and magically fit a digital crown on top of my chipped digital tooth. Voila! He even made a few manual tweaks to the digital crown using the computer aided design software, a little bit off the side here and a little smoothing there. I think the software had designed the perfect crown and he was just showing off in front of me!
It’s what happened next that blew me away and convinced me that 3D printing is a capability that will truly change the world, democratizing design and manufacuring. Dr. Serinsky pushed send on the computer keyboard and said come with me. He took me into another room in his dental office where he proudly pointed to a piece of equipment the size of a large microwave. The digital design of my new crown had been transmitted to a CNC (computer numerical control) milling machine. I have come to learn the difference between a 3D printer which deposits layers of material building up to form an object and a CNC milling machine which takes a block of material and carves out the desired object. I watched in awe as my crown was sculpted from a block of dental composite right before my eyes.
In about ten minutes, with my new crown in hand, it was back to the dental chair where it was expertly put in place permanently. Well, I hope permanently! I asked Dr. Serinsky if this new capability put the dental lab that he had routinely used to make crowns out of business. He told me he had just reviewed his budget and that his spending at the lab had actually increased. It turns out the lab is busier than ever focusing on non-routine higher value restorative work, it’s hard to get an appointment with Dr. Serinsky who is delivering better value to his patients, and I got a new crown in a single visit and a life lesson in disruptive innovation. Talk about a win-win-win! Disruption doesn’t have to have winners and losers if we get better faster at reinventing ourselves, and our business models.
I saw first hand the disruptive power of 3D printing. It enabled my dentist to be both a designer and a manufacturer. It has the potential to turn all of us into designers and manufacturers. It will change the world and create enormous economic value when we realize that design and manufacturing aren’t industry sectors, they are capabilities. Capabilities that when combined and recombined to create exciting new business models will unleash unlimited adjacent possibilities and enable us to co-create a better future. Sometimes disruption has to hit you right in the mouth before you pay attention.
A Samaritan named John shopped long and hard one day at a large all-purpose consumer goods store. When he finished paying for his items he placed his several bags in a shopping cart because he remembered he had parked in the far back of the parking lot and was too lazy to personally carry the shopping bags that far all by himself.
The shopping cart made everything mucb easier and after John had placed the shopping bags in his car he looked at the empty shopping cart and felt tired. John then looked at how far away the entrance to the store (where he picked up the shopping cart) now appeared to be. John then decided to look around the parking lot to see if anyone was watching him and if he could get away with leaving the empty shopping cart in the back of the parking lot and nobody notice.
John decided he could and started to get into his car with a quickened pace. But something stopped him. A pang of guilt tugged at his heart which softened as he thought about some stranger having to push his shopping cart all the way back to the store entrance even though they didn’t even use it to shop.
John knew that was wrong and felt called upon by the Lord to act righteously and not self-servingly. At that moment, John the Samaritan locked his car doors with his remote car locking device and grabbed the cart with a convicted grip and pushed his shopping cart all the way to the store entrance where he stopped to see if anyone had noticed his charitable deed.
No one appeared to be looking at Samaritan John’s good deed at that moment so John decided to wait for someone to eventually turn up who would notice and publicly affirm his righteousness. A kind faced elderly woman passed by John pushing her shopping cart back to the store entrance and locking it into the shopping cart que. Samaritan John smiled benevolently at the woman as if to say, “Look at me. I am doing that too. I am one of the few good people at this large all-purpose consumer goods store, just like you. We are pretty great, huh?”
Samaritan John didn’t say this out loud because that would be committing the sin of pride. He just thought it and quitely returned to his car full of shopping bags, unlocked his car door with his remote device, and drove home whereupon Samaritan John transcribed the parable of his good deed today and posted it on Facebook. Not to boast, of course. But so that others might learn from his good deed and do good too.
I would like to know who the asshole is who bought his true love all the things listed below one Christmas and then put in a song to brag about.
He makes all the rest of us look bad.
And the fact this song gets sung over and over this time each year only rubs it in.
I mean, come on! Even if we guys got all this for our true loves, where would you put it all? And don’t you think by January you would be bored and tired of almost all of them, except maybe the golden rings?
Besides, I am guessing by the 13th day of Christmas, this guy declared bankrupcy, was charged with kidnapping 12 drummers, 11 pipers, 10 lords, 9 ladies and 8 maids, and was institutionalized or sent to prison.
I know having all this stuff sounds good. But do you really want to be with a guy like that?
Just think it through.
12 Drummers Drumming
11 Pipers Piping
10 Lords a Leaping
9 Ladies Dancing
8 Maids a Milking
7 Swans a Swimming
6 Geese a Laying
5 Golden Rings
4 Calling Birds
3 French Hens
2 Turtle Doves
1 Partridge in a Pear Tree
Welcome to the era of business model proliferation.
Our obsession with scalability is getting in the way of unleashing the potential of the 21stcentury. We are so fixated with scalability we have taken our eye off of delivering value at every scale including the most important scale of one. The Industrial Era did that to us. Reaching the mass market takes precedence over delivering value to each customer. New customer acquisition trumps delivering value to existing customers. It’s not only business that is obsessed with scale. Our obsession with scaling a national education, health care, and government system has also taken our eye off of delivering value to each student, patient, and citizen. We have been talking about the idea of mass customization for years while we continue to hang on to business models that were designed for scale more than for delivering customer value.
The Industrial Era brought us the reign of the predominant business model. Every industry quickly became dominated by one business model that defined the rules, roles, and practices for all competitors and stakeholders. We became a nation of share takers clamoring to replicate industry best practices to gain or protect every precious market share point. Companies moved up or down industry leadership rankings based on their ability to compete for market share. Business schools minted CEOs who became share-taking clones of one another. It was all about scale. Bigger was always better. So what if the predominant business model doesn’t serve everyone’s needs? So what if it doesn’t even serve existing customers well? Scalability and share taking became about protecting the predominant business model by preventing the emergence of new business models. Incumbents do everything in their power to erect regulatory and legal moats to keep new business models out of the market.
You know the scalability frenzy is out of control when iconic entrepreneur, Facebook founder Mark Zuckerberg, proclaims;
“For us, products don’t get interesting to turn into businesses until they have about one billion users.”
No wonder entrepreneurs are obsessed with scalability. Everyone wants to be the next Mark Zuckerberg. Entrepreneurs always fall into the scalability trap of trying to imagine what it will take for a model to reach large numbers of customers before they have demonstrated that they can create, deliver, and capture value for only a few. Over many years of mentoring entrepreneurs I have observed them, particularly tech entrepreneurs, spend too much sweat equity and startup capital focused on developing code and a beta version of a web platform before they have a clear value proposition and a testable business model concept that can withstand initial customer contact.
Serial entrepreneur and Y Combinator co-founder Paul Graham says it well:
“As long as you can find just one user who really needs something and can act on that need, you’ve got a toehold in making something people want, and that’s as much as any startup needs initially.”
I always advise entrepreneurs to take a minimum viable business model to the market before thinking about scalability. Start by uncovering the job someone is trying to do, figure out how you can get the job done better, and demonstrate it. Entrepreneurs skip this step at their own peril. Develop a business model prototype and test it with a few people. If the business model prototype works, then and only then, start working on what it will take to scale it to reach more customers. It takes successful entrepreneurs three, four, sometimes five tries to get a business model right. Why worry about scalability until you land on one that works for the customer? Focusing on scale too early leads to too many elegant solutions too far removed from real customer contact resulting in too many dead ends.
Institutional leaders are even more obsessed with scalability than entrepreneurs. They fixate on protecting their current scale and assess all new customer value creating ideas through the lens of their current business model. If opportunities to create customer value in new ways are distracting to the organization or would cannibalize current business they’re routinely dismissed. The questions asked and metrics applied to evaluate new opportunities are more about scalability and fit, than about creating new customer value. The baseline for evaluation is the current business model. Market making opportunities are routinely screened out or ignored for more predictable share taking opportunities to increase scale. This is why CEO’s are so hungry for merger and acquisition opportunities. It’s all about scale, not changing the customer value equation. New business models force institutional leaders to rethink scalability.
We live in an era that screams for less share taking and more market making. Market makers don’t accept the idea that a predominant business model has to dictate the industry landscape. They create a new market with a different playbook. We have access to more enabling technology than we humans and the stubborn institutions we live and work in know how to absorb. Today, it’s possible to unleash an infinite number of exciting business models to create, deliver, and capture customer value. Today’s consumers refuse to accept that there is only one predominant business model in every industry and that they have to take or leave its offerings. Consumers now demand personalized experiences, products, and services.
Consumers are bringing the era of the predominant business model to an end. Business models don’t last as long as they used to. Predominant business models are crumbling all around us. The new strategic imperative for all institutional leaders is R&D for business models as a core competency. It was easier to be a CEO in a world constrained by a predominant business model. In a world defined by business model proliferation CEOs have the trickier task of both pedaling the bicycle of today’s business model while leading the exploration for a steady flow of new business models. If they don’t there is a market maker out there who will.
It’s time end our obsession with scalability. There are too many consumer, student, patient, and citizen needs left unmet by predominant business models in every industry. There are too many new business model concepts stuck on white boards and in consulting decks. We are still allowing predominant business models to slow down and block the emergence of new business models that can better meet our needs. It’s time to move from the era of the predominant business model to the era of business model proliferation. Let a thousand business models bloom.
As our nation emerges from the Great Recession, many economists and pundits yearn for Americans to start spending more. But in this yearning for a return to the economy of old, we may be neglecting an incredible opportunity to move away from a consumerism-driven economy.
In fact, a more deliberate policy discussion should focus on ways to accommodate new economic habits and trends that are undermining status quo economic assumptions and governing approaches to regulating and reporting on commerce.
From Farmer Markets to technology-driven efficiencies, a new generation of entrepreneurs is re-writing rules faster than societal regulatory and reporting systems can adapt. As such, Americans are being given an increasingly false picture of economic activity and health.
In the past, I’ve written for the RP about how social media—in the hands of democracy seeking activists—is the greatest emergent threat to oppressive regimes. A similar dynamic is emerging from grassroots and netroots entrepreneurs who are pursuing ways of exchange that baffle those who seek to tax, regulate, and measure economies.
I have experienced this firsthand through farmer markets, where my wife built her original client base and became emboldened to leave her corporate accounting job to open her own (now successful) pet store. Indeed, these markets are proving an enormous incubator of small businesses. I have witness firsthand several folks make the transition from vendors hawking their items on rickety tables and from the back of trucks to successful shops and restaurants.
What has further stood out to me about the farmer markets is the terms of exchange negotiated vendor to vendor – perhaps the one true place where a barter economy still exists. What has emerged in Greater Cincinnati is a conceptual cousin to the “network of cooperative colonies” envisioned in Upton Sinclair’s depression-era campaign for California Governor when he advocated for building a system of localized barter economies.
The critical distinction, of course, is that these networks have emerged organically rather than being central government driven. In this sub-economy, the bread vendor gives a few loaves to the pet vendor who in turn swaps food for the baker’s pet; the baker provides bread to the farmer who uses it for himself and to feed his animals, and exchanges, in return, meat for the baker who tonight will be grilling chicken for her kids. The values of goods are determined through person-to-person dialogue. Contrary to the economy experienced by most, those who barter are intimately familiar with the value of the goods they negotiate via personal transactions.
In a consumer society built on several degrees of disconnect from the people who grow or manufacture the products we eat and wear, and who provide the credit we often use for purchases that offer a false sense of wealth and inflate costs, the Farmer’s Market is the antidote: a personalized culture of relationships intimately connected to the goods we share and consume.
At a different level, we see these emergent ways of doing business challenging and even undermining the ways in which wealth is measured. Victor Hwang’s recent fascinating piece for Forbes discusses this dynamic as it plays out with businesses like Uber, which trades spare passenger seats in cars:
Here’s some news that might surprise you: Uber will lower America’s gross domestic product . In fact, it has already started. The more Uber grows, the worse our GDP will get. And it’s not just Uber. Many of its startup cousins—like Lyft, Airbnb, and others—are also guilty of shrinking our economic growth numbers. The trend is about to become an epidemic.
The emergence of Uber challenges how our nation measures Gross Domestic Product because it encourages sharing in areas once reserved for consumption—indeed, “a high-profile example of the sharing economy, which revolves around the idea of people sharing underutilized resources.”
GDP may in fact present a false picture. New economies should not have to cater to the dated calculus of stale institutions; the institutions should facilitate the ideas, instincts, and innovation of entrepreneurs. As Hwang asserts, “presidents, prime ministers, and others will have no choice but to rethink the way they measure economic vitality.”
This doesn’t just go for the business start ups or the technologically gifted. It also speaks to a national shadow economy that provides real services. We often hear of true unemployment versus the reported unemployment, as there are millions of people who aren’t counted because they’ve stopped looking. But many of those who stopped looking for jobs are in fact working. They afford work by hiding from their government.
So what is the appropriate policy response? Yes, “the State” could continue to seek new ways to capture national productivity and GDP, as well as devise ways to clamp down on personalized transaction paid through barter or cash.
Or perhaps a better path forward would be to look critically at tax policies that promote rather than harnesses broadened definitions of economic vitality? Bloomberg View’s Mark Buchanan examines this reassessment of “wealth” for its broader implications:
The work of creating better measures is decidedly unglamorous, and yet perhaps nothing is more important. It entails finding ways to count the value of intact ecosystems in the natural recycling of wastes and in maintaining soil integrity. It requires quantifying the depletion of capital through the extraction of exhaustible resources such as minerals or fossil fuels, or the destruction of renewable resources such as fisheries or forests. The economists and scientists doing this work might turn out to be the heroes of the future.
In America, this might include looking at ways to incentivize a more holistic notion of national wealth versus today’s consumer economy.
Does the income tax, for example, complement the American entrepreneurial spirit, or serve as its harness? Perhaps a national sales tax instead of income tax is more in line with the American experiment? Exempting the first $10,000 in worker earnings from payroll tax (FICA) could offset the regressive nature of a sales tax.
Policies that encourage savings, a real individual-level valuing of goods, and personalization versus distancing that comes from genuine control over what you earn and how you spend what you earn should be part of some new reckoning with an economy that is, and should be, ever changing.
Much human activity is economic activity: our jobs, our consumption. How do we facilitate not the economy but a system of economies where individuals are empowered to earn and to spend in ways that facilitate authenticity, personalization, and sharing?
More exciting still, such tax reform would have a strong cleansing effect on democratic institutions hijacked by powerful interests that currently manipulate the tax code to the advantage of elites that pay for their services—you know, the very institutions that were formed to give power to the people.
Other areas of consideration might include de-emphasizing “punishing” income in favor of rewarding conservation that preserves our nation’s natural assets. In fact, one recent proposal emerging from Congress to tax carbon could see daylight if, as the New York Times’ Greg Mankiw suggests, it uses “the new revenue to reduce personal and corporate income tax rates.”
For my next column, I will explore more fully how tax reforms can be part of the toolbox for simplifying our tax code, encouraging national re-investment, and renewed personalization and individual control over our current economy’s abstracting effects: making tangible costs for a debt and consumption-driven nation that should change its habits for the good of our individual, economic, and environmental well being.