Friday, November 7, 2008

Celebrating Capitalism's Death? Not so Fast...

(Originally published on The Huffington Post on 19 September 2008 as a follow up to an essay entitled "Capitalism Is Dead. Now What Do We Do?" which was published on The Huffington Post on 17 September 2008)

Welcome to our brave new post-Capitalistic world.

Today our leaders in Washington announced (all the details to come later) that the Federal Government is going to rescue the financial system from total collapse.

You can read the story as reported by The New York Times here and, of course, more details of this plan will come out in the hours and days ahead. But I want to address the very first part of The New York Times' report: the reaction of the markets around the world...

Stocks shot wildly upward Friday morning after the federal government moved to try to restore confidence in the financial markets.

The Dow Jones industrial average rose more than 400 points only moments after the opening, and later settled up more than 300 points. The broader Standard & Poor's 500 was up nearly 3.5 percent. Markets in Europe and Asia also traded significantly higher, with stocks in London and Paris up more than 8 percent.

There is a celebration going on. This doesn't surprise me. But I'd like to raise the following point from the world of Systems Thinking:

Just because you stop something old that is bad, doesn't mean you will automatically start something new that's good.

Our government has stopped something it considers to be bad. It saw the collapse of the economic system coming. The action it has taken has -- and this is me talking, not our government, of course -- ended Capitalism here in America.

Actually, its not just me talking. Here's a report from The New York Times on what financial leaders in the rest of the world think about what we are doing here. They know America is no longer a Capitalistic society either. From this September 18th report...

"I fear the government has passed the point of no return," said Ron Chernow, a leading American financial historian. "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

The bailout package for A.I.G., on top of earlier government support for Bear Stearns, Fannie Mae and Freddie Mac, has stunned even European policy makers accustomed to government intervention -- even as they acknowledge the shock of the collapse of Lehman Brothers.

"For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example," said Mario Monti, the former antitrust chief at the European Commission. "They will say that even the standard-bearer of the market economy, the United States, negates its fundamental principles in its behavior."

Mr. Monti said that past financial crises in Asia, Russia and Mexico brought government to the fore, "but this is the first time it's in the heart of capitalism, which is enormously more damaging in terms of the credibility of the market economy."

We no longer have a "market economy" here in America. Capitalism is dead.

But what are the people on Wall Street and other financial centers celebrating? The end of something bad. But -- I assert -- not the start of something new that is good.

Our government literally sees that the Titanic is sinking. And it is using its extraordinary power to raise the Titanic out of the ocean, shake all the water out of it (literally bailing it out), and place it back in the ocean hoping it will then sail on.

But the Titanic cannot sail on.

That's because the Titanic that is our global economic system is fundamentally flawed. It is based on a belief that we are still sailing in a zero-sum world, a world of scarcity, a world where there will always be too many people chasing too few resources. The sustainability scientists... and those schooled in advance social and managerial sciences as well... know this is no longer true. They know an abundance-based world is what we live in now, from an objective reality point of view. They know that the only thing in the way of that becoming the reality we all live in is the design of our political-economic system.. because it is still a scarcity-based design.

The American government's effort is very impressive in scope... but not in sophistication. It is an 800 pound gorilla approach, involving a huge willingness to throw money at the problem. But, intellectually speaking, it is "the blind leading the blind". It is "experts in the past" attempting to solve a problem whose root cause they cannot see. None of them has ever even heard of - as best I can tell - that scarcity is an objectively obsolete way to view the world. None of them has ever seen what is at the foundation of the work of people such as William McDonough, Amory Lovins, or the late Buckminster Fuller.

It is a tragedy in the making, because they are missing a huge opportunity to truly do the right thing... to take a sophisticated -- rather than 800 pound gorilla -- approach to this crisis.

A sophisticated approach.... one led by people who know how to work with the fact that the present is different from the past -- i.e. designers -- would address the fundamental fact that our economy is based on a zero-sum mental model in a global reality that is actually an abundance-based world waiting to be born.

As a designer myself, I saw this situation when there was a smaller -- but still very visible -- challenge to the stability of the global economic system. This was in October of 1998. At that time, BusinessWeek published an editorial called "The Age of Uncertainty". In that October 26, 1998 editorial, BusinessWeek said:

In the blink of a summer's eye, the psychology in America has changed totally. People suddenly don't know what to think about the economy, their investments, or their future. Before July, the U.S. had economic nirvana. Now confusion reigns. Volatility dominates markets. Hedge funds blow up. Deflation looms. The Asian contagion spreads. Russia defaults. The dollar plummets. CEOs worry. And Washington fiddles with impeachment. Yet the economy still feels pretty strong. So what is really going on out there?

In response to that editorial, I wrote a letter which BusinessWeek published on November 16, 1998. Here's what I wrote back then:


"So, what is really going on out there?'' you ask, in ''The Age of Uncertainty'' (Editorials, Oct. 26). For a more complete answer, look to the principles of systems thinking. A ''confluence of events'' is not the only thing masking the true fundamentals of the global economy, creating this ''fog'' you refer to. The ''fog'' is being created by the tendency to see globalization from a perspective grounded in our history of living in a world of separate, independent nations. The world's economy has become one interdependent system, yet we continue to view it through independent eyes.

What's really going on, from a systems perspective, is that a new, single, global system is struggling to be seen for what it is -- a system that can prosper only if all of its parts prosper. It is a single system, one that innately knows that either all of it will make it or none of it will. That's the way healthy systems work. The business world will prosper beyond its wildest imagination once it cuts through this fog and stops viewing the future through ''past-focused eyes.''

I still believe everything I wrote almost ten years ago.

The business world will prosper beyond its wildest imagination once it sees the future for what it can be. Some businesses will have to change more than others to take advantage of this new opportunity, but that's what the best businesses do, right? (Weapons manufacturers will have to change the most, as war is finally seen as the obsolete "international development tool" that it is. But that's okay. The skills of those corporations can easily be used to study, analyze, and produce constructive solutions -- especially highly scientific ones -- to our sustainable development challenges.)

This business world mindset is why the business strategy book Blue Ocean Strategy has been a global best seller since its release in 2005... because business leaders are always looking for the "blue ocean" of "no competition"... the economic landscape where they can operate first.. offering new products and services that do and offer things that no other business is selling.

Well, there is a huge blue ocean available to all the world's businesses now. It is the post-scarcity, post-zero sum Capitalism world that is waiting out there.... just waiting for us to reach out for it.

I hope at least some of our business and political leaders are in enough of a shock that they will look for new ideas and new answers such as those I am talking about here.

We don't have to settle for 800 pound gorilla thinking. We can innovate our way out of this crisis, with our eyes completely open to the true nature of the challenge we face... open to understanding the root cause of the challenge we face. And by understanding the root cause of the crisis we are in - that we literally see fighting as the "first principle" of living when cooperation and collaboration should be the first principle -- we can design our way to a better future... to an economic system that will provide all businesses -- and all the people on Earth - with more prosperity than they ever believed possible.

We must not just stop something old that is bad. We must start something good that is new.

Addendum: Saturday the 20th, 8:45am

To give people hope that society can continue to evolve (mature), I invite you to watch the opening of this landmark TV series "The Day the Universe Changed", hosted by James Burke, which first ran in the late 1980's on PBS. Mr. Burke went on to host the similar series about this history of human progress, "Connections", "Connections2" and "Connections3". Mr. Burke's current work can be found here.

Capitalism Is Dead. Now What Do We Do?

(Originally published on The Huffington Post on 17 September 2008)

Capitalism is dead.

And I'm not surprised.

I'll explain why in a minute, but first here's Capitalism's obituary. It's the New York Times' lead story on the bailout of A.I.G....

WASHINGTON -- Fearing a financial crisis worldwide, the Federal Reserve reversed course on Tuesday and agreed to an $85 billion bailout that would give the government control of the troubled insurance giant American International Group.

The decision, only two weeks after the Treasury took over the federally chartered mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank's history.

With time running out after A.I.G. failed to get a bank loan to avoid bankruptcy, Treasury Secretary Henry M. Paulson Jr. and the Fed chairman, Ben S. Bernanke, convened a meeting with House and Senate leaders on Capitol Hill about 6:30 p.m. Tuesday to explain the rescue plan. They emerged just after 7:30 p.m. with Mr. Paulson and Mr. Bernanke looking grim, but with top lawmakers initially expressing support for the plan. But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with.

Hmm... "...the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions it does business with."

Controversial? No. Not to me. Confirmational. That's what it is.

It confirms that our nation is not willing to let Capitalism be Capitalism, except for us little guys of course. But here's the thing. If Capitalism isn't Capitalism for the Big Guys, then it isn't Capitalism for the little guys either.

Just like there's no such thing as being a little bit pregnant, there's no such thing as having a little Capitalism over here and a little Socialism over there. You can't have two economic systems operating in one country at the same time, at least not if "all men are created equal" is written in that country's founding documents.

Sorry, my friends. You either have Capitalism or you don't.

And here in the USA, we no longer have it. It's dead.

Think about this. Our government has just decided -- without asking any of us, including our Congressional representatives -- that $85 billion more of our money should be used to cover the actions of (and pardon the unsophisticated language here) stupid, greedy, criminal people. Stupid, because they didn't have a clue that what they were doing would have such negative consequences. Greedy, because all they could see were short term dollar signs in front of their eyes. Criminal, because they just robbed you and me of $85 billion dollars by holding a "we're too big to fail" gun to the head of the US government.

They should have let A.I.G. fail, because -- if that had brought about the collapse of the global economic system -- that would have just sped up our journey to a point of systemic collapse we are destined to reach anyway. I say destined to reach not because it's God's will but because no system can continue to function when its fundamental design is flawed. You see, the current global economic system is based on a fundamental assumption that -- while it was true when the system was first set up -- is no longer true today.

Let me give you another way of thinking about this. If a car that is designed to handle any road condition at any speed suddenly finds itself traveling across the water, it will quickly sink below the surface even as its wheels keep spinning. And, if the driver remains oblivious to the fact that there's no longer a road under his or her car, that driver will die.

We are no longer on land, my friends. We are in a car when we should be in a boat (or maybe an airplane). The global reality has shifted, but our political leaders are largely blind to this reality. They think we're still on dry land.

More about all this in a minute. But first, back to the US economy...

The funny thing is, I've known that a significant portion of the US economy is Socialistic for years. "What are you talking about?", you ask? "The Military Industrial Complex," I answer.

You do know that all military weapons are purchased using "cost plus" contracts, in which businesses are guaranteed a profit, don't you? And that literally every weapons system comes in over its original budget... and that those cost overruns are absorbed by the government, not the arms manufacturer? There is no Capitalism in the Military Industrial Complex. It's all Socialism, justified by the concept that these weapons are so important to American security that the companies that manufacture them have to be guaranteed a profit, so they don't accidentally go out of business. (By the way, I worked in contracting years ago at the Army Corps of Engineers. So, I know something about how military contracts work.)

Now, getting back to the death of Capitalism in America as a whole, don't be so sad. You know the expression: "From every emergency, there's a chance for something new to emerge."? Well, that's where we are.

We are in one hell of an emergency. And - if you'll step back for a minute - you'll see it's the opportunity of a lifetime.... the opportunity to stop using what no longer works and figure out what does.

And now I'm going to surprise you by (partially) agreeing with John McCain. He says we need a Commission to study the problem. And I agree. But we don't need a Commission of the kind John McCain suggests we have. His Commission would consist of financial experts. And that won't do. Because financial experts are experts in the past.

We need to bring specific, outside of Washington expertise to the party. But they must be experts in the future, not the past.

And what kind of people are experts in the future?

Designers. That's what kind.

Designers know how to envision what's possible from the best of what we know how to do today. They know how to take a clean sheet of paper approach to figuring out how to fulfill a particular need.

Designers know how to take a system that no longer works... determine what assumptions (or design principles) used to build the system are still correct and which are incorrect... substitute new assumptions or principles where necessary... and develop and implement a new design appropriate to the reality of today.

We need people like that... people who know that a tipping point has been reached... that the ground on which our old economic system has stood has disappeared... and that, as a result, the old system is totally dysfunctional. But at the same time, these experts must know how functional - how elegantly functional - our new economic system can be!

We have a chance for something new... something beautiful... to emerge from this emergency! But to do this, we need people who understand how to take a culture through a Great Transition... a transition based on recognizing we're no longer on dry land, as I mentioned above.

So, if we are no longer on dry land, where are we?

Well, the "dry land" of the past is the zero-sum, fixed pie, scarcity of resources based economic model that has existed since the beginning... since the time when two groups of cave dwellers fought over a watering hole that contained enough water for only one group to survive. Humanity has been on that "dry land" for a long, long time. But science and technology - including the power to capture limitless amounts of energy from the Sun - has progressed to the point where we can live in a society based on an economic systems based on abundance (not scarcity).

A world where it's possible for all survival needs to be met. That's where we live now. Call it water or air, it's definitely not the dry land of the past.

And that's why Capitalism has died. Because it is a system that is compelled to try and make more and more money based on Darwinian principles that are no longer true. They were true when Capitalism was created, but they are obsolete now. This death was inevitable, because the mismatch between the world Wall Street thinks exists and the world that really exists is so fundamental... the methods needed to continue making money in a world of the past had become so complicated... that self destruction was only a matter of time.

If the universe is a giant clock, you can only last for so long if you don't work the machinery the way it's designed to work. You will blow up the clock if you don't change what you're doing.

"Oh, but humanity can never learn to stop fighting with itself," some people might say. "That's a fundamental part of how things work too."

"Really? Is a baby born wanting to fight? Is it born wanting to kill others of its own kind? No, fighting is a learned response," I say in return.

A big job? Yes, making this change will be a big job. But with the death of Capitalism, we have been given a great opportunity to take the first steps.

And with the choice of Barack Obama -- a man who knows cross-cultural, systemic, and bi-partisan issues and who does not see the world through warrior eyes as John McCain does - we have the opportunity to take a huge step (politically) in the direction of making this change.

But it's going to take more than electing Barack Obama to support the rise of a New Economics from Capitalism's grave. Barack has said this election has never been about him. And he is right. We must all contribute to this process, by learning what a post-scarcity-based world can be like, including the interpersonal skills of "interdependent living" such as those in the classic book "The 7 Habits of Highly Effective People" by Stephen R. Covey.

Beyond the personal, I suggest you study the works of two masters of large-scale systemic change: Drs. W. Edwards Deming and Russell Ackoff. They developed much of the management theory needed to organize such a transformation. Dr. Deming's last book was called "The New Economics". And Dr. Ackoff's recent book "Idealized Design" is the other book I would start with as.

In the popular jargon of my friend Renee Mauborgne's book "Blue Ocean Strategy" (co-authored by W. Chan Kim), what I am suggesting is that the death of Capitalism gives us the opportunity to develop and implement a Blue Ocean Strategy for America's sociopolitical economic system.

This will be a sociological change as much as it is a financial system change.
Humanity has lived in a "you or me" world for many, many centuries. Changing to a "you and me" world (as Buckminster Fuller used to call it) will be the great adventure of the 21st Century.

Thanks to the death of Capitalism, that adventure is an idea whose time has come.
Let's look for leaders who understand the need to figure out how to live in this new world. Leaders like Barack Obama. And leaders (hopefully) like the person you see in the mirror every morning.
Addendum: 10:30am Eastern

As I think about AIG saying "We're too big to fail" to the Feds, I am reminded of America's long-standing policy not to negotiate with terrorists. Well, it sure feels as if the Feds have just agreed to the demands of certain financial terrorists: people who threatened to destroy our way of life if they weren't paid $85 billion. Disgraceful... and further proof that the America we think we live in... an America of ethical, Capitalistic principles no longer exists. If AIG needed $85 billion, they should have held a big charity event and asked the American people for the money... not taken it from us by using threats of the harm they would create if they didn't get it.

Addendum 2: 12:15pm Eastern

While I responded right after a specific comment, I'll state it here so it's clearly visible to everyone. I am not advocating Socialism replace Capitalism in America. I say Socialism already exists in portions of our society, but that does not mean I think it is the solution. The solution I am advocating is a New Economics designed by people who know how to take a "clean sheet of paper" approach to problem solving.. and who will develop an economic model appropriate to an abundance-based (rather than scarcity, zero-sum based) world view. This new economic model has no name because it has not been invented yet. The closest thing I've seen to what this might look like is the concept of Developmental Economics as described by systems thinking experts such as Dr. Russell Ackoff.

I hope this clarifies things for you all.