The media is awash with ‘Sustainability’ as the official buzzword for 2019. Airports are advertising it. Davos was drinking champagne over it. Crazy that it’s a word that is defined so many ways, universally considered positive but no one measures or can determine if it’s achievable.
At Christmas this year, I found myself with family and friends and a 15 person series of dinners – Christmas Eve, Christmas Day, Christmas Day Eve – with delightful people who hold completely different views of the world that I do. I always particularly like this, and it was one of the reasons why I chose to go to INSEAD for my MBA in 1997. It’s no fun hanging out with only people who think the same way as you do; you might miss something if you don’t stay open- minded.
So there I was as a lifelong libertarian (one of my favorite articles is ‘Can government play Moneyball?’ in The Atlantic June 2013 which details how only $1 of every $100 of US federal spending has any positive outcome: the money to stop teenage pregnancy increases it, etc.’), I found myself at dinner with very intelligent people who think Bernie Saunders is too far right.
But I thought I might learn something or at least refine what I believe, so I kept asking questions.
A core principle of Ecosystem Economics® is the Figure 8 model for creating successful projects. Critical is that one goes into the investment cycle together, aligning all constituencies, and then comes out in the return on investment cycle together, where everyone shares in the upside. This is the model for creating Ecosystem Economics® firms or outcomes which are inherently ‘sustainable’.
So I thought this happy model could serve as a way to bring all of my Christmas guests together into one big – ‘yes we all agree’ moment.
I asked whether everyone agreed that Independence came before Interdependence or said another way, that Independence is a pre-requisite for Interdependence in systems.
All the hard core lefties argued that it wasn’t and didn’t. They saw Independence as only a bad thing. Independence was one goal, and Interdependence was another, but they didn’t overlap, and they weren’t adjacent. They led to different directions.
I thought, ‘ok – I’m on to something here’.
All of the entrepreneurs at the table were united in thinking it was like so obvious that Independence was a social good, a desired outcome, and a necessary step to Interdependence. Independence equals Accountability, and how can anything get done if people are not first accountable, first independent.
Every entrepreneur when hanging out with other entrepreneurs has stories of lazy people who didn’t pull their weight. Being a Net Contributor (your contribution is greater than what you take out of the system) in entrepreneurial circles is how you get ahead. Start-ups spew out Net Takers as the Goal is the Only Thing that Matters when you are taking a Start-up to Market. That doesn’t mean the end justifies the means, but it does mean that if you can’t be a team-player and pull your weight, you won’t last.
Whether you are marketing, product, finance, sales, or whatever your role is, you have to be accountable in a start-up. You have to be independent before you ask for help. If you don’t know your domain, or have the skills, or the work ethic, or the grit, your teammates will cut you loose, because you will pull the fragile system which is a start-up down. Yes, start-up world can be harsh; amazing that so many people gravitate towards it without realizing how harsh it can be.
The world is full of projects which must get done. The UN has Sustainable Development Goals which it cannot fund through public funds. Companies need to innovate. Poverty needs to be relieved. Neighborhoods need to become more safe. On and on it goes. Everything in the world could be seen to be a project where a group of people come together in order to achieve a goal and a desired social outcome. Clearly the best outcome is a win / win / win. Win / lose leads to strife, and we see that in technicolor detail right now everywhere.
I believe fundamentally that people only do what they believe is in their interest. It’s part of why I am a libertarian. I believe that people are basically selfish, and you have to appeal to their self-interest in order to harness their focus, energy, capital and intelligence. Self-interest aligned with other people’s self-interest is achievable.
If you want to increase the overall tax revenues, make it in everyone’s interest to be compliant. Drop the overall percentage, and you will see tax revenues as an absolute amount increase and tax fraud will decrease.
If you want to stop wars from happening, you need to think differently about the outcomes. One of the all time smartest comments I’ve ever heard was from a friend who when we were chatting about: ‘why ever did America bomb Libya to bits anyway?’, he said, ‘the US military should have taken the projections for the military exercise in terms of total expenditure, and divide the amount up over the total number of adult women in Libya, and put the amount on American Express cards, give one to each woman with her ‘share’, and send a text message to each one of them, saying, ‘Ladies, sort it out.’ Women clearly don’t have power in Libya, and then they have the power, if you know what I mean. That’s ‘Figure 8 Thinking’™ - ALL the constituencies have to go into the Figure Eight to come out of the Figure Eight.
Back to the Sustainable Development Goals.
Gillian Tett of the FT, who is probably one of the most cogent writers and thinkers of our era captured the Davos discussion around this point in the Weekend FT.
"The public coffers can’t pony up the funds, so alas, we have to find new pots of money to fund these SDG’s."
This is a project. We need to think differently about it. How do we align all constituencies making them believe that it is in their interest to solve this problem.
All the great fortunes of the world have been made through P&L thinking before Balance Sheet thinking. The West India Trading Company traded. It made free cashflows. It had a monopoly. It took the profits back to the mothership.
The Rockefellers, Kennedys, etc. etc., built businesses which made money, and as a result, they grew NetWorth or the balance sheet of their families, their businesses, their countries etc.
Why do we allow ourselves to condescend to the so-called developing world? Why do they need gifts of money from people or balance sheet action instead of a freedom, safe space and level playing field in which they can trade?
Africa is no market failure. It is a market which is struggling to emerge from the treatment of it as a corrupt place which cannot do proper business. I have friends throughout Africa who will tell me after the third glass of wine how they are condescended to regularly in business circles. An implicit discount is applied to them, just as an implicit premium is applied to the West or the so-called Developed World.
In one fell swoop, if Europe and the US opened up their agricultural markets so that African agriculture could sell into the US and Europe on equal grounds, Africa would take a huge step up. If each African had the ability to test pilot new applications by being given a smart phone through which they could connect to a vast African network of consumers, they would demonstrate that they are on par with their Western equals. If African tech which is leap-frogging in many respects, could be show-cased to European larger enterprise, these new applications could bring new digital revenues and create wealth for the entrepreneurs behind them.
It only takes imagination and the belief that we are actually created equal. I implicitly value your contribution, and I expect you to make one. I don’t give you a free pass because I’ve been told this or that, I expect you to be strong, hard-working, a Net Contributor, and I will in return, treat you with respect, give you access, and think abundantly that your contribution is fundamentally necessary to making the world work sustainably.
Making public sector investments in the so-called Developing World smacks of transfer of wealth and charity, and while I personally might be for that, the tide is going against that wave. If instead barriers to trade were brought down (open up agriculture), tools to enable individuals to build their Personal Economies (smart phones), then everyone would rally to this, as the pie would be expanding. The treatment of people – even if they are at the bottom of Maslow’s pyramid as Economic Contributors instead of Aid Recipients means that they are part of the Network Asset Value™ that is growing in Africa or pick your so-called Developing Market.
The greatest gift you can give someone is to treat them as a participant in society, as an economic actor, capable of building his/her future. Enable that with a level playing field (takes no money to do that), tools / technology and onboard all participants in society (women in particular who are frequently left out), and you will see P&L growth which will lead to Balance Sheet growth or NetWorth growth.
Establishing Property Rights in the so-called Developing World is huge because – like a lawsuit – until you have been introduced into the landscape, you can’t earn/create wealth. So the establishment of the citizen in the developing world as owning their own data is a hugely significant step that again, takes no money but is 1) inevitable and 2) transformational.
As long as the developing world is run as a market failure, there won’t be any ROCE (Return on Capital Employed) in the system. If there isn’t any ROCE in the system, then countries don’t thrive as their GDP’s can’t grow. You need the underwriting capability of the corporate machine to drive ROCE so that countries can thrive and economies grow their GDP’s.
ROCE comes as a result of positive unit economics (PUE). Not a lot of people understand this yet but this is the crux of what Ecosystem Economics®. You change the big picture or you optimize for the system-level win, by optimizing for positive unit economics through an Investment to ROCE cycle if you hold the system with you (Figure Eight Thinking™ ).
Few people know what the PUE in Africa or any other developing economy is right now as they are put in a separate category of Market Failure.
The breathtakingly stunning opportunity for those interested in sustainability is to establish positive unit economics outside of the realm of the E-Lords (Amazon, Facebook, Apple, Google) for the social good of lifting billions of people who have yet to come onto the grid and into the connected world into it with them being the recipient of the upside of the PUE of their data through their transactional life online.
We could decide to introduce the African end user into the digital transaction in a legal way, enabling him/her to build value for him/herself as they transact.
Then we have to look at how we optimize. What do we want to optimize for? Well for PUE. If you want to help people to build their Personal Economies, then what you are saying is to help them optimize for the value back to them of what they do, as when we transact, we create value for someone. In the E-Lord system, we create value for Google, Facebook etc.
The optimization of value for the individual at the heart of every transaction must be the goal. Then as each individual becomes independent, an economic actor and Net Contributor, they can build Interdependent Systems and participate in the wealth created by the Network in which they participate.
In a world which is growing exponentially not linearly, we struggle with our linear minds to keep up. The only way for a destitute individual to have a chance of living a proper life is to enable them to contribute in a world which is driven by Metcalfe’s Law, and to reap the upside of their Unique Contribution. You can’t gift them anything fast enough to catch up with Network Effects which have already left them behind. You can give them an upside in the output of their Transactional Capability at the Individual Level.
Optimise for the System-Level Win – that’s my definition of Sustainability. It’s also what my life is about, and what I will continue to spend all of my waking hours trying to achieve.