Intriguing question — and as I think about it, a better way to reframe the question perhaps is
How do we balance the economic growth and jobs growth, and better yet, how do we balance the productivity(that primarily causes economic growth) and inequality (that primarily causes the jobless growth)?
The short answer is, we have a balancing problem…
What do I mean?
As we all know, the key components of economic growth are
Driven by the following 5 I”s
– institutional Impetus,
– inertia breaking from linear to circular economy resulting in 3 key shifts (five capitals creating a criss-cross flow, five capitals trying to converge on the same SPACE/TIME coordinate resulting in a whirlwind flow, five capitals trying to synchronize as a platform flow), thanks to the advances in 3-D (Digital, Data and Design) in the last 10 years.
– Inertia breaking inspirations from nature/scriptural first principles
2) Pop Growth
– Accelerated by younger population with high skills
– De-accelerated by aging population
With the fact population usually growth with a steady state progression contributing 1-2% of GDP growth, for now let us focus on the following 5 drivers.
Driver #1: Innovation -> Most companies are putting their time and energy on efficiency innovation partly due to how we measure success using ROIC: Implication here is jobless growth especially in the last 10 years since the financial crisis
Driver #2: Investment -> Most companies are assuming capital is financial capital and so, not paying enough attention to the other capitals (human, P&S, customer and purpose). Implication here is value leakage and so, growth leakage.
Driver #3: Institutional Impetus -> For now, let us assume it is driven by ideology of the government (left vs. right) and philosophy of the central bank (rules vs. discretion)
Driver #4: Inertia breaking inspirations from linear to circular economy -> Explained in the previous question, but will cover here as well
Driver #5: Inertia breaking inspirations from nature/scriptural principles -> will explore in this answer below
Let us start from the driver #5 first, an often overlooked driver in most economics circles.
What do I mean?
As part of this discovery process, we decided to to the origins of economics(to discover the root causes) and asked ourselves the following question
– Where does the idea and/or the discipline of economics come from?
This is where, we ended up going to the origin of the universe itself — and as we did so, it just dawned on us that root node was the creator node itself i.e. our universe was created by the “first cause, no course source” called creator of our Universe — and depending upon one’s worldview, one can call that source as God or “first cause, no cause source”.
In other words, our creator was the first scientist, first economist, first strategist and above all, leader as outlined in this article ((https://www.linkedin.com/pulse/sowho-our-creator-againa-best-better-yetsomeone-else-first-prabakar)
If we subscribe to this type of a worldview (from where much of the modern economics is derived from, as explained in the article above), our creator has instilled a set of motivators and beliefs within our hearts and minds, so that we will voluntarily multiply and manage resources for the collective good (as per the multiply command given to Adam and Eve ).
In other words, our creator co-runs this world in partnership with mankind using natures’s first principles driven motivators and beliefs, as I had explained in this article (https://www.linkedin.com/pulse/economys-invisible-handsame-our-creators-handwa-wo-charles-prabakar?trk=mp-reader-card)
Yet another way to comprehend it is using our nature’s first principles driven, worldview framework called MBA (Motivation Belief and Action) within our firm’s larger framework called Virtual Ocean.
Just to give an overview ,
1. Motivation in this context is the trigger that makes our heart (or spirit) to do certain action and those motivations are usually governed by nature’s first principles. If I have to paint a spectrum, it is a pain/pleasure spectrum (aka carrot and stick). In other words, we inherently act based on pain and/or pleasure (some examples like hunger, greed pleasure, urge to procreate, thirst for God etc. can be plotted within that spectrum).These motivational drivers can be classified into foundational(that one is born with), educational (that we are taught) and situational(case by case basis)
2. Belief in this context is the set of laws that are hidden in our mind(or soul).We as humans usually validate our motivations against our belief systems in our mind, before committing an action. When we are born we are instilled with nature’s consciousness and it is later refined by one’s own religious worldview.These belief drivers can be classified into foundational(that one is born with), educational (that we are taught) and situational(case by case basis)
3. Action in this context is the final manifestation and it occurs after we validate our motivation and belief system and act (it could be a good economic action and/or bad action).
The economic growth is directly proportional to the collective motivation and belief system strength of the people within a society/country/world — and so, it is important that we motivate/inspire people with this type of first principles mindset driven MBA worldview framework, before focusing on other four drivers.
Turns out, we had answered this question exactly so, by focusing on driver #4 and driver #5 in this article (https://www.linkedin.com/pulse/how-does-vos-solve-21st-centurys-1-economic-dilemma-three-prabakar) by answering the question below
– How do we balance the productivity(that primarily causes economic growth) and inequality (that primarily causes the jobless growth)
To give some more examples of the types of jobs, we need to create to balance this productivity/inequality dilemma effectively,I have created another one page exhibit with 5 different “job types” using skills in X axis and jobs in Y axis as follows in this article(https://www.linkedin.com/pulse/what-types-jobs-we-need-create-grow-economy-manner-charles-prabakar)
With most of the audience here are savvy business leaders, I am sure, you get the idea here and so, without preaching to the choir any longer, let me stop here for now .
In closing, as they say OLD IS GOLD and I would augment it and say ROOTS (principles) are GOLD as well.
While I agree that the article is written in a compelling way, some sections are lot more compelling than others. In other words, some dimensions are in solid footing compared to other sections that are less compelling.
To get my point across, how about I identify my findings on the following two dimensions.
1) Root Causes dimension
2) Solutions dimension
1) Root causes dimension
While I agree with the root cause for the Capitalists Dilemma (the way companies measure success using capital efficiency), it might be helpful to dive deeper and point out out the assumptions behind it as well.
1. Capital in this case is primarily financial capital only
2. Financial capital is most scarce and costly resource of economic activity(which is not true any more based on Bain research)
With that as prelude, the article in my opinion stands on a SOLID FOOTING when building the compelling case for the following root cause:
With the fact financial capital is no longer the scarce and costly resource (based on Bain research) the implication is that the efficiency of financial capital is not the right way to measure economic success.
That said, the article in my opinion, is LESS COMPELLING, when it makes the following generic assumption
– Capital is primarily financial capital when it comes to the economic value creation process.
Which then begs the following question
What is the economic value?
This is where, some of the work done by our firm might be helpful and so, if it is OK with you all, let me build a case using our firm’s Virtual Ocean Strategy (VOS) framework (https://www.linkedin.com/pulse/how-does-vos-solve-21st-centurys-1-economic-dilemma-three-prabakar).
First things first –
Economic value in our mind is a composite capital that starts as the human capital (which is an intangible/infinite/virtual resource) transforms itself into P&S capital (after mixing with physical resources) with the primary job of meeting the needs and wants of customers (which is customer or jobs-to-be-done capital) before being transacted as financial capital, with purpose capital in the middle orchestrating this cycle ” — and then the cycle continues, when financial capital is reinvested.
However, the challenge here is that human capital that starts with the infinite potential, in most cases, gets lost and do not transform itself into financial capital, during this cyclical value creation process.
Some of the root causes for this value leakage include, but not limited to are
1.1. Capitalistic systems today are designed with bulk of its weight to financial capital driven value, as opposed to giving the situational weight for all of its five capitals (purpose, human, P&S, customer and financial capitals).
1.2. There is no standardized mechanism to measure human capital (or productivity in macro economic terms), similar to how we measure financial capital (capital efficiency ratio ROIC or in a larger sense the Zen of Corporate fiance formula) with a causal linkage between them. For example, human capital today is mostly measured in companies based on opinions of few people from calibration sessions(which is highly subjective).
1.3. Unlike financial capital(that is measured based on future projected cash flow within DCF(which is nothing but financial capital potential), human capital predominately is measured by performance alone (which again is based on a opinion and not based on human capital potential)
1.4. There is no well established causal linkage between financial capital and human capital.
1.5. Talent management (source for human capital potential) system and Performance management systems (source for human capital performance) in most companies are not well integrated. In other words, potential and performance, the two sides of the same coin called human capital, is not integrated.
1.6. The subtle nuances within what we call upper case TALENT which is a combination of skills, talents and gifts are not well understood by the line leaders in most companies. For example, we as a firm classify skills as learned (e.g driving a car)whereas and lower case talent is something that comes naturally to someone(e.g. composing music effortlessly, public speaking etc.). On the other hand, gift is usually rare and it is given from higher power above(Intuition, leadership reach, wisdom etc.).
1.7. Under the current economic value creation model, the assumption that physical resources are available in plenty may not be true in all countries(e.g. Sand as pointed by this article). However, sand is a scarce resource in some countries. Similarly, if we take Cement, the amount of cement consumed by China in the last 10 years is equivalent to that of US in 100 years. An Implication is, let’s say, if all of the developing world, start consuming resources like the developed world, say in 25-50+ years, there will not be enough physical resources in our planet to maintain the same life style.
1.8. Yet another challenge is within P&S capital (including intermediate P&S capital) which is primarily measured using inventory turnover ratios, which does not make sense (like ROIC) due to three shifts (linear economic model to circular, sequential value flow among five capitals to criss-cross value flow among these capitals, static portfolio to dynamic portfolio driving production closer to consumption).
1.9. While Customer capital is governed by jobs to be done theory, which is primarily needs focused, there is another part to the customer capital called experience to be enjoyed(which is wants based and it is not well measured). The wants or experience part of the customer capital is putting tremendous strain on this economic value cycle, especially in the last 10 years thanks to advances in digital/data/design driven experiences.
1.10. Last but not the least, there is no well established causal link providing framework that ensures there is a causal linkage among these five capitals, starting from purpose capital (vision + mission + values + codes+ BHAG) that sources the economic activity of a firm, as attempted by ourn Virtual Ocean Framework (VOS)
2) Solution dimension
We suggest adding three more solutions to the already well thought out 4 solutions
2.1. Augment the three types of innovations outlined in this article as a 10 types of innovation so that leaders can apply the right type of innovation to the right situation depending upon where the value is stationed and/or flowing within the value cycle.
What do I mean?
As we look at these 10 root causes, one thing for sure is these root causes are multi disciplinary in nature and this is the reason we as a firm decided to take an integrated approach, while developing our framework, by integrating the top 3 discipline pairs(leadership/culture pair, strategy/finance pair and innovation/marketing pair) with a following hypothesis.
– Strategy/Finance pair is a value creator, Innovation/Marketing is a value accelerator, while leadership/culture pair is an value enabler/orchestrator — and so, it is important that organizations take this integrated view, while creating/accelerating value.
Within the context of this hypothesis, accelerating value (or performance) is all about innovation — and so, it is important that we understand the differences between the 10 different types of innovations depending upon the location of value within its cyclical flow (whether it is temporarily stationed on a value station or in transit between value stations)
For example ,
– When the value is temporarily stationed on human capital the dilemma leaders face is bottom line driving operation innovation or top line driving growth innovation.
– When the value is temporarily stationed on customer capital the dilemma leaders face is customer centric innovation or vision innovation. General guideline here is, when it comes to needs based P&S, customer centric is a way to go and when it comes to wants, vision centric is a way to go.
-When the value is temporarily stationed on P&S capital the dilemma leaders face is market driven innovation or resource driven innovation.
-When the value is temporarily stationed on financial capital the dilemma leaders face is Profit innovation or purpose growth innovation.
– When the value is anchored on Purpose capital the dilemma leaders face is vision/mission driven or values/code driven innovation.
Similarly, when the value is in transit, it goes through five innovations (elegant, efficiency, effective, boundary less purpose and resource innovation) as summarized in this article (https://www.linkedin.com/pulse/how-virtual-ocean-strategys-capitalismvizplanet-solve-prabakar)
2.2 Within this larger VOS Umbrella, we are currently in the process of developing another sub framework within (VOS) to measure human capital, to measure human capital accurately
As alluded earlier, according to our worldview framework called MBA, we view human capital as energy (like quantum energy) and it manifests as motivational heartbeat(sourced by gifts/talent) and belief driven mindset(sourced by skills ) — and they merge/balance before manifesting as Actions, as explained in the sidebar of this article(https://www.linkedin.com/pulse/economys-invisible-handsame-our-creators-handwa-wo-charles-prabakar)
We assign a maximum of 10 units to mindset energy in TIME dimension as follows. However, in real world there are so many time wasting distractions and so,
Actual Productive mindset energy of an individual = 10 – organizational TIME or leadership drag and could vary from 1 to 10. On an average it could be 2.
Similarly, we assign a maximum of 10 units to heartbeat energy in SPACE dimension. However, in real world there are so many political/environmental distractions and so,
Actual Productive heartbeat energy of an individual = 10 – organizational SPACE drag or culture drag. It varies from 1 to 10 as well. So, on an average it could be 2
Productivity of an individual within a team and organization = (Actual Heart beat Energy + Actual Mindset Energy) x Individual Leadership/Culture x Team leadership/Culture x Team’s balanced competition/collaboration drive x Organizational leadership/culture x Organization’s balanced competition/collaborative drive — where we assign maximum of 10 units for each
Now applying this formula to say an individual from a standard team
Productivity of an average individual from an average team and average organization = (8+8) x 8 x 8 x 8 x 8 x 8 = 524,288 HC units
Now applying this formula to say an elite individual from a world class team from a world class organization
Productivity of an elite individual from a world class team and organization = (10+10) x 10 x 10 x 10 x 10 x 10 = 2,000,000 HC units
An implication here is, maximizing individual leadership/culture, team leadership/culture and organization leadership/culture, along with a healthy balance of collaborative/competitive spirit can improve the productivity of an individual by a factor of approximately 5x.
Similarly, we can also create country/global productivity of individuals at the macro economy level, by adding individual productivity of individuals, and then create a causal/correlation linkage to GDP, which by the way is a key theme behind our VOS driven VizPlanet platform, where we have developed a novel approach to democratize the elite human capital as explained in this VOS article article(https://www.linkedin.com/pulse/how-does-vos-solve-21st-centurys-1-economic-dilemma-three-prabakar).
2.3 . Trade human capitals like financial capital with a mantra that every person is a P&L producing entity as explained in this article (http://www.managementexchange.com/hack/reforming-performance-management-systems-%E2%80%93-virtual-purpose-equity-vizpity%C2%A9-exchange-way).
While we have not ironed out all the details yet, as a first step, we are exploring ways to trade companies on two capitals out of the five (current market price along with an equivalent cumulative human capital value that caused that financial value), so that investors can have full visibility of the causal linkage between them at any point in time, I am currently in the process of tweaking it, however, you can get the larger idea by reading this earlier version of the article.