Is the Economy an Operating System?

So, You'd like a level playing field, eh? You'd like to live in a world where an honest effort leads to reliable income and training is available to teach you how to be more valuable and more secure, and where successful people teach others how to succeed because there's plenty to go around because you live in a user-friendly economy, designed to respond positively to most of its users' needs.

You'd even like a chance to get rich without wrapping your life around the axle of your ego.

What's the matter with you? This is the real world and those who know how it works make do with what they've got to deal with.

"George Bernard Shaw once observed that all progress depends on the unreasonable man. His argument was that the reasonable man adapts himself to the world, while the unreasonable persists in trying to adapt the world to himself; therefore for any change of consequence we must look to the unreasonable man, or, as I must add, to the unreasonable woman."

- Charles Handy, The Age of Unreason, Harvard Business School Press, 1989

The following is the background behind the design of Xpertweb. It doesn't pretend to be scholarly, exhaustively researched, politically correct or easy to read. This is simply an inquiry into why things don't work out financially for most people, even though the world has never been more rich nor more entrepreneurial.

The Problem
The Hope
The Hype
Support and wealth in an economy
How wealth is created in an economy
The Tyranny of NPV
Super-Meritocracy
The value of excellent service
People skills and excellence

The Problem

Now that many of us are accustomed to using a computer, we have a sense of how a computer operating system (the "OS") can get between us and the application programs which are the real reason we use the machine. The OS is promoted as the bright landscape of promise and possibility, but we know that it's the OS which often lets us down, encumbered as it is with the baggage of thousands of functions and millions of lines of programming. It's all conceived and executed by bright kids who love computers, unlike the rest of us who may share neither of those traits.

So it is with our economy. The world seems to be filled with honest, hard-working people who want to be paid fairly for doing work for others - people just like them who really want the work done. But so much seems to get in the way. The current situation in U.S. medical care is one example of this frustration: most of us respect our doctors and their staffs, yet find ourselves estranged from them by the companies we or our employers have selected to protect us from ailments only the doctors can help with.

As Tom Robbins wrote in 1990:

"During periods of so-called economic depression, societies suffer for want of all manner of essential goods, yet investigation almost invariably discloses that there are plenty of goods available. Plenty of coal in the ground, corn in the fields, wool on the sheep. What is missing is not materials but an abstract unit of measurement called 'money.' It is akin to a starving woman with a sweet tooth lamenting that she can't bake a cake because she doesn't have any ounces. She has butter, flour, eggs, milk, and sugar, she just doesn't have any ounces, any pinches, any pints."*

What we have here is nothing more than a failure to communicate. Since the fields have corn and children need carbohydrates, why can't something simple be worked out? In a small village, it often is.

The Hope

Could the Internet support the promised global village? Could it deliver satisfyingly direct means of buying and selling? Could it bypass the intermediaries who offer complex reasons why a software program developed by a handful of bright individuals and favored by tens of thousands of users will no longer be produced or supported by the publisher due to a shift in the corporate objectives of the newly merged companies and their emphasis on the emerging....yada, yada. It all sounds sounds a little like DOS.

Xpertweb approaches the problem by offering a set of rules represented by a few standard forms which treat everyone as an equal. The Xpertweb forms directly connect providers with customers of services and products. Xpertweb customers are treated as the precious people they are, whose opinion of their treatment drives the whole Xpertweb system: Goods and services are delivered before payment is made, and payment is based only on the customer's perception of value. It's a lot like shareware, but with safeguards for the producer of value as well, who's just as precious as the customer.

Any economy should be an open standard, equally accessible to anybody with the will to participate and enough talent or money to be in the game, even at a novice level. That's why Xpertweb is available to anyone. Money is easy to define, but not talent, so Xpertweb has a unique grading system for all activities.

The Hype

Like any Operating System, the economy we're used to advertises most of the features people want: a free market for talent and a place to invest its rewards; a chance to get wealthy if you've got the right stuff; experts to introduce the newcomer around; and a world of sellers just dying to know what you really want them to do for you.

Like any OS, the reality doesn't quite match the big print. The market for your unique talent is limited to your current bosses' ideas of what you should be doing this week; it's said there's a clear path to wealth, but few working people have met anyone who pulled it off just by working; mentors are everywhere in the business books but rare in the business world; and even though the people who want to do things for us really are just like us, something's missing when it's time to get just what you want unless it's a commodity. In sum, Why is it so complicated to buy the things we really want?

Those are the issues. Xpertweb has built-in mechanisms for quality, satisfaction, training, evangelism, marketing, growth and wealth. Thanks to the special gifts of XML, the eXtensible Markup Language, Xpertweb is free of rigid structures and it offers something no economy has ever had - total visibility of all the moving parts and players which comprise it, right down to the task level. This makes it possible to deliver transactional assurance - the core reason we tend to deal with large enterprises.

If the Xpertweb economic OS works better than others, it is because it is based on this new XML technology. The first generation of Xpertweb forms and the underlying agreements are simply an expression of what that technology now makes possible.

The role of support and wealth in an economy

People need confidence and they need hope.

Economic confidence comes from a web of support - a system that provides an invisible means of support which doesn't need to be guarded from erosion by obvious or unseen forces.

Economic hope is the galvanizing sense that, by applying oneself, the web of support might be augmented by a web of wealth - a way to have more than your folks did and a way to afford the goodies you see on TV. Not everyone can have a web of wealth but everyone has to believe it's possible to weave one, which is why casinos and lotteries prosper. They sell hopes, not winnings.

Governments and companies and organizations can't provide these things because if they try to manage the flow of support and wealth they fight the huge, invisible hand of the market which always reacts and punishes any feeble force that attempts to distort the market's rule.

If the ideal economic OS could be designed from scratch, it must naturally work within market forces to build a web of support, or no one would upgrade to the new OS. Should there also be a built-in mechanism - a web of wealth - which collects a little bit of money from all the participants and distributes large amounts to a few of the participants? Since the current economic OS includes wealth mechanisms, so does Xpertweb, in the hope of attracting upgrades. That means that the Xpertweb accounting mechanisms include a many-to-one extraction system to reward a few from the efforts of the many. Xpertweb's distinction from previous wealth systems is that the wealthy few have no control over the extraction formula, and the contributions of the many are reduced to a minor level. To gauge the reasonableness of the Xpertweb support and wealth mechanisms, they should be compared to previous and current webs of wealth.

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 - the 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 the population had 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) can produce.

This is a fundamental shift from those who hold power through their position in the state to those who hold power through 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 in terms of 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 steadily 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 or 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 corporation, 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 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.

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 expected cash flows by discounting each cash flow (cf) by a percentage (discountRate) over time:

Why would this dry formula be so important to an inquiry into the nature of wealth?

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 might regret the fact 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 their 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. Until the introduction of XML in 1998, that was technically unfeasible.

Xpertweb is a set of mechanics to serve the Peer Economy's open data requirement.

Excellence in the Peer Economy

Most customers and employees are attracted to excellent work. customers may be seduced by cheap bargains but will study the relative quality within any price range. Once the core bargain is found, the customer is likely to heap on the options with little regard to cost. That's why the options are where the profits are for many products and services - the customer wants a hand in specifying excellence.

Employees may be seduced by short hours and light responsibilities but will pride themselves on a job well done when someone is watching. Then you find people refining reports and spreadsheets at home at night or writing shareware to post on the Internet or starting their own companies and undergoing hardships to offer their special mousetrap to the world.

The challenge of the peer economy is to improve the visibility of excellence so it's obvious to the most casual observer. Then the benefit of peer transactions becomes obvious to the customer and provider. Unbiased and incorruptible customer ratings indicate so clearly that some offerings are excellent that it is unthinkable to ignore their superiority. When some offerings come with customers' ratings and others do not, it may become chancey to go with an unrated product or service.

For those reasons, the peer economy might be impossible without pervasive and reliable ratings from every customer of every product or service.

Footnote: People Skills and Excellence

It may be impossible to separate people skills from the perception of excellence in products or service. The better mousetrap is less likely to be purchased from a tactless mousetrap vendor. Unfortunately, people and communications skills seem less universal than hard work and serviceable products. This is the advantage of an organization - the customers can be courted by tactful salespeople, while the widget or software can be built by people with fewer social skills. How would the peer economy overcome the disconnect between these skills?

Only through training. In a peer economy, the software engineer is offering her own programs, as does the shadetree mechanic and the eye-shaded financial analyst. Each needs some help in crafting a compelling description of their wares and training in the care and feeding of the customer. When a provider realizes that people care as much about how they are treated as how the product works, they open up to the need to develop people skills. When a provider realizes that every grade he ever gets will be with him forever, he opens up to the expectation that he needs to learn the human side of enterprise.

Fortunately, a lot of business in the Peer Economy will be conducted over the web and through email. This gives conscientious providers a chance to plan their dialogues and to call on others to help design their communications skills. If the provider has a support team or mentor, there may be qualified help available. Only the market could motivate a mentor to do this hard work -- drawn to mentorship as the surest way to weave a web of wealth.

Eventually, those who combine great products with great people skills will get the best ratings. They are likely to be in higher demand as mentors, so a tradition of quality and thoughtfulness has a reason to develop. If the economic operating system of the peer economy can offer webs of support for effective providers and webs of wealth to effective mentors, each will be driven by ubiquitous market forces to produce excellence and to groom new producers of excellence.

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