Fellow geeks: enough already with the baubles

Fellow innovators and geeks, our lives are in danger of being wasted filling the world with useless stuff. Even worse we are running the risk of impoverishing the lives of everyone else around us – sometimes directly and sometimes due to side-effects. By all means let’s innovate – we badly need innovation! But in the name of all that is good and holy, we must ask ourselves: what innovations, and what ventures, are worthwhile?

It is horrifying to witness the talent wasted in absurdly over-leveraged internet platforms that are using relatively minor and inevitable innovations to make land grabs in big markets. Why is the talent wasted? Because the two most significant outcomes in the world of these practices is to accelarate the concentration of wealth and to steal value from nature and people.

Just to avoid any misunderstanding, some of the technical innovations involved have potential utility. I am myself an innovation enthusiast and I find many of the technologies and business concepts ingenious and fascinating. But that does not mean that they are all worthwhile pursuing. It certainly does not mean that the way they are being created and exploited is of genuine benefit to us all.

So how do we know what’s worthwhile? There’s no way to avoid the complexity of answering this question. We have to be prepared to engage in discussion of ethics, genuine value, the aspects that impact social cohesion, etc. But a good starting point is, as always, to ask the right questions: Firstly, does your innovation remove an inequity? Does it move value to the disenfranchised? Secondly, does the entire process that delivers your product create real value overall – that means to nature, to people now and to future generations? Or is it just shifting value to allow extraction of wealth?

In my experience, most of us startup folks avoid even thinking about the problem at all. We’ll say, ah but we are just solving a particular problem, making a business process more efficient or delivering a specific type of benefit to users. Or we’ll assume, as many implicitly do, that merely because we innovate means we are “on the right side of history”. Therefore, we’ll argue, we don’t need to consider these types of questions.

Well, we do need to look at the ethics of what we undertake. We have already reached the impasse. As we introduce more baubles and more innovations we are at the same time driving three huge engines of destruction: increasing inequality, stealing benefit from nature and people, and decreasing social cohesion.

If our innovations are not actively solving the big problems we face, then we can quite rightly be considered, at best, as passive participants playing with our toys while the world burns, or at worst, as parasites.

We have the best tools that have ever existed and the best networks of people and expertise. We need to set our expectations higher!

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Democracy in business is much more than “the vote”

We are interested in nurturing businesses that, among other things, harness broader democratic involvement. But given the complexity of democratic forms, we need to be more precise about what exactly we mean by democracy in the context of business ventures.

First off, let’s clear up one common misconception. It is unhelpful to focus on “the vote” as the locus of democratic action. Exercising a vote is arguably the thinest mode of participation. As we shall see several forms of action and interaction that are important for democracy have little or nothing to do with voting.

Umair Haque in The New Capitalist Manifesto argues that authentic democracy is participative, deliberative, associative and consensual:

Participation means that those most affected by management decisions have the right to take part in them. Deliberation means that participants can reason, not just vote, to reveal different perspectives and values. Association means public spaces for that deliberation to place unencumbered. And dissent is the only path to a truly meaningful, authentic consensus.

Let’s take a particular example to reveal how authentic democracy can be exercised in a business context. If your company uses a supply chain that can potentially harm the environment, then you could act like companies have done in the past and externalise these aspects and take no responsibility for the associated costs now or in the future. Or you could involve an independent organisation to regularly define the parameters of how your company uses the resources. The independent organisation must have the trust and/or a mandate from the public to act on behalf of the environment and future generations in this regard. It clearly cannot be funded or controlled by your company.

Why would your company do this? Why would you agree to give an independent instance effective ability to veto decisions about your immediate supply chain? Because it makes business sense – that’s why! The potential cost in years to come to your business of, say, public outrage, lawsuits or government interference, are far greater than the immediate cost of adjusting your purchasing and sales approach. It’s simple: making decisions about small dilemmas early and often is better than having a huge dilemma in the future. The beauty of this approach is that it is also the right thing to do – right by the environment and right by society.

In this example, if your company gets it right, the external organisation can participate, deliberate with you and others to agree the supply chain parameters. In addition, you’ll have to establish some public enough associative spaces to accomodate dialogue and demands for public scrutiny and you’ll need to grant some genuine right to dissent.

This is strong and meaningful democratic practice that does not necessarily involve a formal voting mechanism. This does not mean that voting rights are not important – indeed the reluctance to grant such rights beyond shareholders goes to show how ill-disposed many businesses are to meaningful democracy (see for example the difficulties agreeing employee participation for EU corporation forms).  But it is too simplistic to imagine that merely granting some voting rights beyond shareholders is the way to change companies for the better. It is vital that we create the means for real democracy and not concentrate just on “the vote”. The vote is certainly not sufficient nor always necessary for enabling democratic involvement.

In what ways, does your business create democratic forms of interaction? Can all constituencies impacted by your management decisions participate? Do you foster spaces for them to associate and deliberate? And can they really dissent?

If you are not enabling any of the above, it could be that you are not creating genuine value at all. Worth thinking about, right?

PS. I am indebted to Umair Haque’s The New Capitalist Manifesto for revealing to me the true meaning and potential of democracy in creating economic value.

Disruption is at the core of a better tomorrow

Typically we think of disruption in business as the introduction of an innovation that changes something significant in a value chain: a technology or a new idea that changes how we do things.

The problem with how we currently try to innovate is that the vast majority of the new processes and products introduced are actually either harmful to society or the environment or both. The reason is that they tend to shift cost and borrow benefit. This is usually easy to see for companies using natural resources where the real costs to the planet are not included in their accounting. But it goes far beyond these obvious cases. For example, many business models in media industries steal benefits from society, e.g. the benefit of easily accessible knowledge, in order to extract value. This is just one example of the obsession with monetization regardless of the actual intrinsic value of the process.

Disruption and creative destruction are quite rightly seen as vital aspects of our economic and social activity. But we need far more destruction and far more creation than the majority of current business practice is giving us. Yes even including the majority of “revolutionary” products from the hip tech startups!

We need to be prepared to destroy and rid the world of processes that cause harm by merely increasing our real debt to nature and communities. Shifting of the cost to another group, the disenfranchised, the poor, those in another territory, etc. or to the planet is simply not tenable. If that is part of the model used by a company then we need to compete that approach out of existence.

We also need to be prepared to be far more creative. Looking at an isolated process and figuring out how to extract value by changing some variables will not be enough. We have to create authentic value. We need to look at a process and imagine how to completely remove the elements that harm the world and we need to remove the dynamics that cause the benefits to accrue to fewer and fewer people.

That’s our mission, and we choose to accept it!

Cooperation – a good place to start

This blog is part of a search. I am looking for a means to reorganise or redirect disruptive innovation in a way that tackles two big problems: increasing inequality and weak social cohesion. I want to deliberately avoid the “fetish of assertion” that characterises a lot of the public dialogue. That’s why I see it as a search. And I expect it to be a dialogue involving lots of people. While I have a suggestion for a beginning, I am not claiming to have the whole recipe. I am hoping to discover it.

What kind of recipe are we looking for? What we need are practical entrepreneurial means of creating organisations that intrinsically deal with both problems: inequality and weak social cohesion. These organisations need to be able to compete in the real world with others that don’t share the same aims.

Let’s look briefly at the two big problems to be tackled. It is not accurate to reduce inequality to just wealth distribution because other aspects, e.g. the concentration of power without legitimation, are also important. But since the increasing divide in the wealth of the middle classes and the rich is well documented and understood, it can serve to anchor the reality of the problem. There is clearly something badly wrong when the “income gaps between the very rich and everyone else more than tripled in the last three decades” (Report from the US Center of Budget and Policy Priorities).

The second problem, social cohesion, is more difficult to anchor in empirical evidence. It is nonetheless a big issue in virtually all developed countries. Since we are interested in organisations, I’ll use Richard Sennett‘s analysis of social cohesion in different working environments. He uses a three-sided triangle model to describe the basic elements of social cohesion in the workplace: earned authority, mutual respect and cooperation (particularlly in managing crises). Sennett argues how in recent times, this social triangle has come apart in several sectors of the economy. In banking for example, the financial crisis has revealed how each element is much weaker within financial institutions than it is in other industries or as it was in the past. This is not unique to banking and is not isolated to internal social cohesion in companies.

Inequality and weakened social cohesion are linked in complex ways: massive wage differentials reduce the ability to earn authority, focussing on materialism can reduce the ability to cooperate, viewing people as resources to use in accumulating concentrated wealth limits mutual respect.

Where does the disruptive innovation play a role in solving these problems? It appears to me that it is only in the presence of disruption, that significant and substantial change can occur in a reasonable time frame. Where a market is disrupted, space is created to transfer wealth and power from the existing vested interests. Currently disruptive innovation is unforunately part of the economic engine that is increasing inequality, i.e. entrepreneurs grow ventures rapidly using injections of investment capital and produce huge gains for investors and for a small number of founders. We tend to think of this as a good thing. And yes, the majority of the innovations actually add value to our economies and often enrich our lives. But the negative aspects cannot be ignored. Recent innovations in technology have accelerated the concentration of economic power to such an extent that the inequality gap is in the process of widening at an even faster rate.

The question I am asking is how can we harness disruption to both introduce the added value of innovation and to reduce inequality and increase social cohesion.

You might quite reasonably ask: Do I have good reason to believe that this is feasible at all? Yes, I think there is cause for hope. There are three key requirements for an organisation that could achieve this. First, it must wield economic power. It needs to be capable of growing rapidly enough to compete and its economic engine has to be powerful enough to make it the right choice for its customers. Secondly it needs democratic participation beyond just the capital investors. The only way we know of that allows simultaneously the ability to legitimate authority and control the wielding of power is through democracy.  Thirdly, the ownership of the assets needs to be spread more equitably among more of those participating in the organisation. Cooperatives have shown that they can achieve this, even on a large scale – see for example Mondragon Corporation.  More recently the cooperative 2.0 scene has started to show how the model can be applied to innovative business concepts. But of the three aspects, generating rapid growth in a competitive environment is probably the hardest to achieve – I expect that determining where (what markets) and how (what business strategy) to apply the disruptive innovation will be key to making this possible.

The first problem we need to tackle is how do we fund these organisations – their structure means that traditional investment capital is not going to be available. But we need not be too concerned, as Doug Richards, the entrepreneur and founder of the School for Startups, points out only a tiny fraction of businesses are funded with venture capital. The alternative funding approach is the first area of strategy that needs to be addressed for each undertaking.

In summary, what we are envisaging is us, the majority, the 99%, winning back and gaining economic power, one innovation, one venture at a time. Imagine a world in 20 years, where democratically-controlled cooperative companies wield economic power by being significant players in key markets. That would be a structural change that can enable real and lasting wealth redistribution and a basis for improving social cohesion.