Wednesday, December 21, 2011

The New Frontier of New Ideas

Expansion is sustainable as long as there is a New Frontier
Evolution is sustainable as long as there are New Ideas

The Old Patterns (Growth)
The New Patterns (Sustainability)
Trend Lines
Cash Flow Waterfalls
Org Charts
Knowledge, Networks, Routines
Flow Charts
Contributors to Prosperity

Economics today are pretty much about looking back on innovations that were cutting-edge in the 1800s, and trying to make them fit our needs as we move into the 21st Century.
But our world today is very different place.
In the 19th Century, America invented the Exchange-Traded Corporation as a technology for organizing value creation, capital formation and wealth distribution to meet the unique requirements of American Industrial Expansion along our Western Frontier, driven by innovations in Economies of Scale.
This innovation of Exchange-Traded Corporations proved to be the right thing for those times.
Throughout the 20th Century and right up to our own time, much thought and effort has been invested in understanding, expressing and applying the basic patterns of Exchange-Traded Corporation finance.  There seems little we don’t now know about historical trend lines, management of organizations, and processes for scale and efficiency.
But our mastery of these patterns seems to be unable to deliver the one thing we seem increasingly to value most: sustainability.
Why?  An economy built on expansion can only deliver sustainable prosperity if there is a New Frontier into which that economy can expand.  Even then, the truth is, expansion economics have consistently delivered alternating cycles of booms that always, eventually, go bust, as investment creates jobs that commerce will not support.
This observation may not resonate with those of us who are personally and professionally invested in the ecology of growth, but those of us who have already come to grips the simple fact that we have reached the geographic limits of our world see that this continued obsession with Growth is really just giving us ever bigger booms that more frequently go bust, with increasingly devastating consequences to both personal prosperity and the public good.  We just cannot keep doing this.
Nor do we have to.
The economics of growth have done much to reveal to us that the real driver of our prosperity is not actually growth, but the innovations that made growth possible.
It is investment in innovation that really drives value creation.  The fact that innovation in 19th Century American focused on economies of scale is more an accident of history than an economic universal.  When European genius for mechanization took root on US soil, it had lots and lots of running room.  And run it did!
Now we in America are catching up with our European cousins (and pretty much the rest of the World) in having to live within the limits of geographical boundaries.  Some of these limits are physical; others, political.  But they are all, nonetheless, real.
Good news is, geopolitical expansion is not the cause of innovation.  The cause of innovation is disappointed expectations that lead people, as individuals, to think there has to be a better way, and the inspiration that leads us, as individuals, to seek until we find that better way.  So, even without a Frontier, we can continue to have Ideas.  And it is ideas that drive innovation.
The patterns of innovation are not the patterns of expansion, they are the patterns of inquiry and insight that lead to the invention of new knowledge that lets us do work in new ways, providing ourselves with a wealth of better options for how we choose to live our lives.
The old patterns of investment in expansion are not the right patterns for investment in innovation.  The patterns of expansion are circumstantial.  The patterns of evolution are more elemental.
They include:
1.     The cash flow waterfall, that captures the way Items of Value are delivered in commercial exchanges that generate the Revenues to pay the costs of delivery, including returns to Investor and profits to the Enterprise drivers;
2.     The Knowledge, Networks and Routines that allow the Enterprise to initialize and sustain its cash flow waterfalls (Routines are what get scaled according to the principles of Economies of Scale); and
3.     The Contributors to Prosperity, who each must do their part to keep the cash flow flowing.
These are the new patterns that we need to master as we build a new economy of sustainability in our times.

1 comment:

  1. Wow some interesting perspective here Tim. I would love to understand a bit more about the cash flow waterfall. I would presume that the average Joe would benefit from this unlike the tinkle down, er um, trickle down economics of the Reagan era.