November 19, 2012
Nassim Nicholas Taleb’s Five Policy Rules for Establishing “Anti-fragility”

Learning to Love Volatility is a great piece in the Wall Street Journal in which Black Swan sponsor Nassim Nicholas Taleb outlines his ideas for building a global economy that not only does not completely implode in times of volatility, it actually thrives on it. It is, he describes, an issue of “anti-fragility.” Get used to the term; I have a feeling we’ll be hearing it a lot in future. Here are Taleb’s five general rules for establishing anti-fragility, but do yourself a favor and read his full text and explanations:

Rule 1: Think of the economy as being more like a cat than a washing machine.
—”[The] denial of the antifragility of living or complex systems is the costliest mistake that we have made in modern times. Stifling natural fluctuations masks real problems, causing the explosions to be both delayed and more intense when they do take place.” 

Rule 2: Favor businesses that benefit from their own mistakes, not those whose mistakes percolate into the system.
Citing the airline and restaurant industries, Taleb describes: “These industries are antifragile: The collective enterprise benefits from the fragility of the individual components, so nothing fails in vain. These businesses have properties similar to evolution in the natural world, with a well-functioning mechanism to benefit from evolutionary pressures, one error at a time.”

Rule 3: Small is beautiful, but it is also efficient.
—“Experts in business and government are always talking about economies of scale. They say that increasing the size of projects and institutions brings costs savings. But the “efficient,” when too large, isn’t so efficient.” 

Rule 4: Trial and error beats academic knowledge.
—“To promote antifragility, we must recognize that there is an inverse relationship between the amount of formal education that a culture supports and its volume of trial-and-error by tinkering. Innovation doesn’t require theoretical instruction, what I like to compare to “lecturing birds on how to fly.” ”

Rule 5: Decision makers must have skin in the game.
—“In the business world, the solution is simple: Bonuses that go to managers whose firms subsequently fail should be clawed back, and there should be additional financial penalties for those who hide risks under the rug. This has an excellent precedent in the practices of the ancients. The Romans forced engineers to sleep under a bridge once it was completed.”

I particularly love this last story, but go on and read the whole article. Much to chew on here, not just for bankers and finance types, but for all those interested in innovating a future we can all believe in.

July 17, 2012
"During World War II, the Red Cross had comfort stations for soldiers overseas, with free coffee and free doughnuts. Then, in 1942, the Red Cross started charging for the doughnuts. Soldiers have held a grudge ever since."

Sweet NPR story on how changing the rules half way through the game can have unintended consequences, or, in this case, really grumpy veterans holding a grudge. As the story concludes, there’s a lesson here for modern businesses: “For all the Internet companies out there looking to charge for your service — take heed. Changing categories is really difficult.”

[Story via Beth DiLeone]

July 13, 2012
"Company executives are paid to maximize profits, not to behave ethically."

This sentence turns up halfway through Eduardo Porter’s interesting NYT piece, The Spreading Scourge of Corporate Corruption, which breaks down the recent LIBOR scandal to make the case that none of us are very scandalized by any of this stuff any more. As he writes, "it’s not just banks that are frowned upon. Trust in big business overall is declining. Sixty-two percent of Americans believe corruption is widespread across corporate America.”

The fact that this sentence turns up, baldly, unadorned, matter-of-fact and entirely accurate blows my small mind. What system have we built in which this could possibly be a reasonable or useful focus? What hell have we wrought? We are reaping what we sowed, alright, and the fact that our careful system rewards profits, not fair, reasonable, longterm decisions leads to a twisted society in which everyone vies to not break the letter of the law only according to the letter of the law. Again, this happens in industries far from banking. This philosophy is rife throughout western culture and business. As Porter continues, Evidence suggests that [executives] behave as corruptly as they can, within whatever constraints are imposed by law and reputation.” And we all nod our heads and agree, "of course that’s what they must do!" and congratulate ourselves on our clear-headed lack of naivete.

As Porter concludes, it’s difficult to predict the impact of the growing lack of trust in “the institutions that underpin the nation’s liberal market democracy.” My guess: this is unsustainable and more and more will change for systemic change that will be very difficult for many. We may tsk and roll our eyes for now, but don’t you agree that revolution lies ahead?

July 10, 2012
Interesting piece in The Christian Science Monitor looking at how the ideals of the collaborative economy are being embraced by those in Spain looking to find a way away from their economic woes. Spaniards turn to barter, alternative banks to alleviate economic pain includes lots of practical examples of the types of measures people are taking, including some that will feel familiar to those in the U.S. The most interesting part of the piece for me, though, is that regular people are waking up to the ramifications of the shenanigans taken by nameless, faceless bankers and financial types, and are taking action. As Jaime Pastor of the Universidad Nacional de Educación a Distancia comments in the piece: “Spanish and European institutions and the market in general fueled the idea that everyone could buy anything with cheap credit. It created the illusion of popular capitalism and a real estate bubble, and the crisis showed us it wasn’t real.” This in itself is a big deal, but the idea that a result of this awakening will be the rise of the cooperative economy is even more tantalizing.
[Photograph of Gaudi’s Sagrada Familia by Lukasz Dzierzanowski. Mainly because right now and despite the woes of the nation, I’d really like to be in Barcelona.]

Interesting piece in The Christian Science Monitor looking at how the ideals of the collaborative economy are being embraced by those in Spain looking to find a way away from their economic woes. Spaniards turn to barter, alternative banks to alleviate economic pain includes lots of practical examples of the types of measures people are taking, including some that will feel familiar to those in the U.S. The most interesting part of the piece for me, though, is that regular people are waking up to the ramifications of the shenanigans taken by nameless, faceless bankers and financial types, and are taking action. As Jaime Pastor of the Universidad Nacional de Educación a Distancia comments in the piece: “Spanish and European institutions and the market in general fueled the idea that everyone could buy anything with cheap credit. It created the illusion of popular capitalism and a real estate bubble, and the crisis showed us it wasn’t real.” This in itself is a big deal, but the idea that a result of this awakening will be the rise of the cooperative economy is even more tantalizing.

[Photograph of Gaudi’s Sagrada Familia by Lukasz Dzierzanowski. Mainly because right now and despite the woes of the nation, I’d really like to be in Barcelona.]

July 5, 2012
"We are looking at the economy like we look at dill pickles… We’re all focused on the economy of luxury."

— Writer Robert Neuwirth was at TEDGlobal to outline his thesis of “System D,” the informal economy that employs 1.8 billion people, is worth $10 trillion/year—and is the opposite of an economy which works painstakingly to try and remove imperfections (rogue dill pickles) from the system. He does acknowledge that there’s already a pretty extensive coterie of people and companies who are focused on tapping into other parts of the economy (“reverse innovation” springs to mind) developing economies, but this is an interesting and unusual look at a truly informal undocumented part of the system. He shares some great examples from large corporate players such as P&G, UAC Foods and Nigerian SIM card seller, MTM. Well worth a read: this is a topic that’s only going to grow in both importance and prominence.

June 6, 2012
"We now spend twice as much on beer as the government spends on research."

This rather depressing fact, from the work of academic Paula Stephan, is quoted in The Health of Science, a post by Dr Arturo Casadevall and Dr Ferric C Fang that calls for a reboot of the business of science. As they put it, "we call for nothing short of a major reformation of the scientific enterprise." The piece is actually less a call to arms and more an astute analysis of the current, rather imperiled state of science. But maybe that’ll be enough to inspire people to action. Who knows?

[Story via David Eagleman]

February 9, 2012
Independent Video Game Raises $643,698 (and counting…)

Gaming world veteran, Tim Schafer and his company, Double Fine Productions, launched a campaign on Kickstarter to raise money for a new “point and click” adventure. They reached the $400k minimum within, well, a day, and showed the genuine power of the crowdfunding mechanism done right. They also launched another warning shot across the bow of the current big gaming world players, which simply do not seem to know how to respond to this shift in the economy—and seem too often to have become far removed from the fans of the medium who put them in positions of power in the first place. Schafer breaks it down beautifully:

Big games cost big money.  Even something as “simple” as an Xbox LIVE Arcade title can cost upwards of two or three million dollars.  For disc-based games, it can be over ten times that amount.  To finance the production, promotion, and distribution of these massive undertakings, companies like Double Fine have to rely on external sources like publishers, investment firms, or loans.  And while they fulfill an important role in the process, their involvement also comes with significant strings attached that can pull the game in the wrong directions or even cancel its production altogether.  Thankfully, viable alternatives have emerged and gained momentum in recent years.

Crowd-sourced fundraising sites like Kickstarter have been an incredible boon to the independent development community.  They democratize the process by allowing consumers to support the games they want to see developed and give the developers the freedom to experiment, take risks, and design without anyone else compromising their vision.  It’s the kind of creative luxury that most major, established studios simply can’t afford.  At least, not until now.

December 7, 2011
"Indie capitalism is, above all, a maker system of economics based on creating new value, not trading old value."

My former BusinessWeek colleague, Bruce Nussbaum, writes a hopeful Fast Company piece on the rise and rise of indie capitalism. The quote above, with its reminder of the importance of actually creating new value rather than just shifting all that was old around the place, reminded me of a great episode of This American Life from earlier in the year. In How to Create a Job, Ira Glass and his team of intrepid reporters attempted to get behind politicians’ trumpeted jobs plans. And, as Adam Davidson memorably said on attending the International Economic Development Council conference in San Diego:

This is what drove me crazy about this conference, actually about the whole profession of economic development. They’re not creating jobs. They’re just moving jobs around. Arizona steals a company from California by offering some tax break and lighter regulation. Then Texas cuts taxes a bit more, does away with even more regulation, and gets the company to move there. That doesn’t help anything. We still have the same number of jobs. But now we have this race to the bottom. Who can cut back government services the most? Who can eliminate the most regulation?

Creating, not trading. Creating, not moving around. Creating, not indulging in a pellmell race to the bottom. Let’s do that.

November 21, 2011
"Socialism for the rich, capitalism for the poor: that is how our economies work."

In The Corporate Welfare State, George Monbiot discusses the state of government and policy in the United Kingdom, in particular the inequality that exists in the way that the rich (the 1%) are treated in contrast with the poor (the 99%.) His conclusion is nigh on devastating: 

Limited liability, offshore secrecy regimes, deregulation and government handouts ensure that they bear none of the costs their class has inflicted on the rest of us. They live at our expense, while disparaging the lesser mortals who support them.

[Link via Umair Haque.]

May 12, 2011

British economist Tim Harford has a new book out: Adapt: Why Success Always Starts with Failure. In this short, nicely designed promotional video, he talks about three things you need to know about learning from failure. Along with a look at Google (though honestly, all writers everywhere need to pinky swear they’ll stop talking about Google’s 20% time), he also analyzes the failure in the Iraq War and explains how Twyla Tharp was able to transform the potential disaster of the musical Movin’ Out into a Tony Award-winning success.