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.