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Monday, September 16, 2002
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Meritocracy - meritorious or meretricious?
So we see an evolution of the personality types running the show, with today's
rulers seeming to be more like James
Spader than Arnold
Schwarzenegger. Most of us are dancing to someone else's tune, whether
we're resentful, accepting or in denial. Even those who seem to be masters
of their destiny are usually also caught in the trap of reacting to larger
forces.
The interesting question is not who runs the show, but what is the purpose
of the show? What force is driving the engine of greed, fear, manipulation
and capitulation that circumscribes most people's quietly desperate lives?
The Tyranny of Net Present Value
All capitalism is based on a single strategic algorithm: calculating the
Net Present Value (NPV) of a series of anticipated cash flows by discounting
each future cash flow (cf) by a desired annual return % (discountRate) over
the period of the expected cash flows:
NPV=cf1*(1-1*discountRate)+cf2*(1-2*discountRate)+...cfn*(1-n*discountRate)
Why would this dry formula be so important to a design study for a new microeconomy?
The NPV calculation lies at the center of all modern resource allocation
decisions.
You may resent it, but all your economic possibilities are defined and constrained
by this simple calculation buried in the computers of people you will never
meet. It is what they are talking about when people say "Follow the money."
Philosophers surely regret the idea that the greatest civilization in the
history of civilization has been reduced to a single simplistic formula,
but that is the case. If in the beginning was the Word, then in the end there's
only the Net Present Value formula. With it, managers and financiers and
governments and pension plans compare any set of cash flows to any other
set. Then they sell the lower one and purchase the higher one. Even though
it ignores the sweep and drama of the rise of civilization, it's a democratic
yardstick. It's also the basis of meritocracy.
That is the process of "capitalizing" every cash flow, whether it's an inflow
(customer payments and collections, bond yields, corporate earnings) or an
outflow (employee salaries and benefits, supplier payables, social security
payments). Corporate managements have an uneven track record in growing their
revenues but they are masters at reducing their expenses and making optimistic
forward-looking statements. A company's stock market valuation is some multiple
of forecast earnings. To increase the value of the shareholders' (i.e., management's)
stock holdings and options, the best strategy is to reduce expenses, which
appears to instantly increase earnings. As available capital exploded in
the 20th century, every discernible cash flow opportunity in the economy
shows up on someone's radar screen and is targeted for assimilation or annihilation,
whether it's mom & pop retail sales in rural Arkansas (a Wal-Mart opportunity)
or a 48 year-old engineer at Chevrolet (a GM expense).
The logic of meritocracy says that an electrical engineer may be a star at
27 but a liability at 48. This is the basis of the pervasive, subconscious
grievance against meritocracy, even when it's not framed in those terms.
The conventional wisdom of the age is that everyone needs to re-train themselves
on a moment's notice to become a software programmer or help line staffer
or home health care specialist.
The question is, what is the obligation of an economy to consider and support
the preferences of the majority of its participants? Naturally, the "moving
hand" school of thought is that the market economy is driving all these choices,
and complaining about it is unreasonable, as G.B. Shaw pointed out. Even
if individuals can adapt as quickly as proposed and remain employable, they
are repeatedly separated from their last company's web of support and their
only opportunity for a web of wealth - often, it appears, by intention. Even
when they earn stock worth more than a million or so dollars, they may feel
as far from their dream as did some Silicon Valley millionaires before the
Big Bust:
"Before there was a Silicon Valley, there was a Santa Clara
Valley. This was a place like most places in America. People lived at many
economic levels, but most could live comfortably, with some confidence that
tomorrow would work out.
"But today, anxiety is everywhere.
"So it is rather interesting that, no matter what their financial
status, the people of Silicon Valley all seem to want the same thing. They
want a good life. They want their families to be safe from harm, with quality
food on the table, a sound roof over their heads and a good education. And
they want a secure future.
"Surely, if we can be so clever as to create all this miraculous
technology and all this massive wealth, we can create a society that enables
a stable and sustainable quality of life for everyone.
- Here's the Pot of Gold, Now Where's
the Rainbow?
(San Jose Mercury News, 8/24/99)
The deeper problem with meritocracy in the corporate age may be that it is
judged in a court of appearances no more reliable than the royal palace where
the nobles fawned over the king. What appears as merit in the boardroom may
not look that way to the customers, flawed as they are with their self-serving
yearnings for software that's yielding and hardware that's durable and support
that's uplifting. What if tasks were performed in the harsh light of the
global market and were rated by the customer before her tears of gratitude
or rage are dry?
Super-Meritocracy
It's possible that some successor to corporate capitalism could allocate
people's time better and reward them more generously, which has happened
with every previous shift in economic operating systems. If there were such
an improvement, it would have to rise alongside the current system, starting
as a minor solution to some pervasive need in the larger system. It might
be called the Peer Economy, where you transact directly with your peer and
not their company, although you've never met nor will, each with absolute
confidence in their security and total satisfaction.
The Peer Economy will appear if it has a means to weave webs of support and
wealth which cut across corporate borders and are aggregated in the very
fabric of the Internet, not locked inside the balance sheets of contending
companies with inconstant loyalties to their people and variable reliability
in the marketplace. It must depend upon a data structure free of control
by any entity, open to all and shared among the participants to any transaction.
Until the introduction of XML in 1998, that was technically unfeasible. Today,
it is technically trivial.
Xpertweb is a set of mechanics to serve the Peer Economy's open data requirement.
10:24:26 PM 
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Wealth creation options
Every society has an economic model which is woven into its cultural structures
and biases. Early European societies chose their leaders like wolves do -
the toughest, snarliest male ruled everyone who was less nasty, and so forth
down the chain of outrage - "the divine right of thugs" (John Perry Barlow).
After a while, political savvy and stability counted for as much as toughness,
so confidence (and power) became vested in a single family's line of orderly
succession which was always being tested and occasionally altered, but there
was a single king at any one time. After that, history has been a gradual
spreading of the wealth to more and more participants.
Today there are forms of prosperity which do not depend on one's place on
the Forbes 400 list of jillionaires: most North Americans and Europeans enjoy
a standard of living beyond any medieval king's.
Feudalism's rule of force
Perhaps the most hierarchical model: In this system, everything and everyone
in the kingdom belongs to the king, who shares his rights with nobles on
a conditional basis, dividing up the economic production (i.e., game and
agriculture) based on what frontiers they protect. As long as they remain
loyal, Lord John gets most of the production from one county, called a "shire,"
and Lord Alfred from another shire. (The old word for cop was "reeve," so
the lord's henchman was his "shire-reeve" or sheriff.)
The king and his nobles are woven into a web of wealth but there's almost
no chance for upward mobility for others and very little portable wealth.
The system works because each productive person - the serf - is woven into
a web of support and is reasonably safe from foreign soldiers. The serf's
only wealth opportunity is as simple as the possibility that his son might
join the crusades and be fed and clothed better than dad and end up with
a little bit of ill-got plunder.
Aristocracy - the rule of position
Of course, the nobles have children, so the goodies get divided up into smaller
and smaller parts, but everything still belongs to the nobility - the only
ones woven into a web of wealth. Like the feudal system, technology moves
imperceptibly in an aristocratic economy, so there isn't much of a chance
for someone to break into the higher brackets by inventing a steam engine
or motorcar. Upward mobility is limited to sucking up to someone higher up
the pecking order, so most of the aristocrats hang around the king's court
acting as fashionable as possible. In the case of Europe, the wealth stayed
pretty much where it was, although subdividing a little each generation.
The common people still had their web of support and could look to warfare
for a faint wealth opportunity.
Mercantilism & Colonialism - the rise of mobility
Nobles need fine garments and exotic foods, spices and trinkets to impress
each other, so a merchant class rises which becomes the engine for change
and possibility for the lower classes. Adventurous souls who colonize and
administer foreign lands can win a ticket into the aristocracy by opening
new possibilities for power and ostentation for the aristocrats, who retained
their exclusive web of wealth. This kind of thing is too rough for the gentlefolk,
so there's a lot of upward mobility compared to feudalism and aristocracy
- for those few who are mobile and audacious enough to conquer the seas.
Most of this population led the harsh and hopeless life of their ancestors,
but for the first time there was a chance at a slightly less military prosperity
by gaining a foothold in the colonies and cultivating new lands - an unintentional
shifting of emphasis from conquest to productivity. Naturally, this all depended
on the unconscionable, systematic eradication of the rich cultures encountered
by the relatively uncultured soldiers and serfs. But, from the viewpoint
of those emigrating from the European underclass, colonialism/mercantilism
was an unprecedented opportunity.
The possibility of going to a new land was a wealth opportunity which may
have been statistically insignificant but was tangible enough to maintain
hope, at least for kids or grandkids.
Industrialism - the rise of productivity
For the first time, the extractive kinds of wealth (farming and mining) became
less compelling than the transformative kinds of wealth (milling and manufacturing).
The wildcard role of technology really started to shine once a novel machine
or process could leverage the impact that a given set of resources (capital)
could produce.
This is a fundamental shift from those who hold power through their position
to those who hold power through their know-how: the statists vs. the producers.
Naturally, those who want to rule because of some assumed right to rule did
not give up their power gracefully. One could argue that the world wars were
the conflicts of the statists vs. the company men. The companies won. Actual
wealth started to count as much as position.
Johnny marched home to more jobs, hope and the promise of more upward mobility
than ever before. But real wealth? That was hardly a consideration for any
but the old aristocrats and the corporate chieftains who owned a piece of
their own companies. They were the only ones woven into a new web of wealth
- based on the accounting systems of the companies in which they owned stock
- rights to a little bit of many others' productivity. The stock market itself
had not yet become a universal wealth machine nor had corporate salaries
and stock options skyrocketed. The worker's wealth opportunity was defined
as a slowly increasing paycheck and increasingly accessible homes, cars and
vacations. Given the historic options, that looked pretty good.
Corporate Capitalism - the rule of meritocracy
Free-market capitalism is neither aristocracy nor democracy. Its special
"ocracy" is meritocracy - those who are most able rise to the top
of the pecking orders of multi-national corporations and their management
teams, not determined by any static biases of family, ethnicity, national
origin, birthright or even gender. But the lack of those perceptible biases
doesn't mean there's a lack of bias. The bias is for a special blend of intelligence
and energy called merit. Most of the significant wealth is managed by corporations
which need a steady supply of hungry young tigers with big brains and bigger
egoes to attack markets and destroy competition and launch killer products
to conquer market segments.
It sounds as brutal as feudalism. The expendable foot soldiers of these campaigns
are people from the same social classes as those who rise to the top. The
difference may be in their genes - their hearts don't seem to be in the unending
fight - and at some level they know they're expendable as soon as a wave
of re-engineering or acquisition dictates. There's been a steady increase
in the level of commitment, intelligence, energy, ambition and ruthlessness
required to rise to the top of any organization, so the few who make it are
reaping greater rewards compared to the people who fight in the trenches.
And that's why they're in the game.
Money, not nobility, is the only way to differentiate oneself from the run-of-the-mill.
The stock market wealth engine has reduced the process to a formula: Own
stock or options in a company; build the company (perhaps from scratch);
buy another company or be bought out; own stock and be perceived as instrumental
in building the new organization; buy another company or be bought out...
That process builds the winner's web of wealth. Stock is never given out
of generosity, so folks who don't negotiate hard have a more constrained
web of wealth. If they are downsized, they are separated from their web of
wealth, perhaps before they have any significant bit of other people's productivity.
Meritocracy is a profound, perhaps counter-genetic shift. Historically, those
who were woven into a web of wealth maintained a web of support for the many
whose productivity they laid claim to. For the first time, technology means
that more productivity does not mean more workers. The genetically based
contract - that the powerful protect the weak in exchange for their productivity
- has broken down. It would never occur to a king or noble (or silver-backed
gorilla) to estrange a loyal and hard working serf simply because there were
other, harder-working serfs. This all changed with the pervasive application
of the Net Present Value calculation.
With no alternative in sight and general agreement that capitalism won the
battle of the isms, no one seems to see any alternative but to keep carrying
a heavier load each year, like the farmer carrying a calf around each day
until he falls under an unsupportable load of bull.
Perhaps this is not the final system. Perhaps there's life after meritocracy,
especially when one observes that the products and services produced by the
meritocrats are not always satisfactory. Just because these hard-charging
companies are defeating each other in the market doesn't mean they're winning
customers' hearts and minds. There's something about large organizations
which squanders most of the participants' time and energy in producing motion
rather than progress. Too often, they seem as competitive with customers
as they are with competitors, designing byzantine structures to lock a customer
into a complex dependency when all the customer wanted to do was surf the
net or call home.
12:57:20 AM
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© Copyright 2006 Britt Blaser.
Last update: 4/17/06; 11:26:24 PM.
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