Nine months ago I wrote about Design Orientation as an alternative to Finance Orientation — the model which has governed business thinking for the past 50+ years.

Today, I read an amazing article in the Financial Times by John Kay, a member of the advisory board of the Institute for New Economic Thinking and simply had to share it because it represents the first truly honest step in coming to terms with the failed economic thinking, theories and policies that have driven the world to the edge of utter financial and socioeconomic collapse. I am happy to quote the article below and also link to the author’s original source page:

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

A remarkably distinguished group of economists gathered last weekend for the inaugural conference of the Institute for New Economic Thinking, an initiative of George Soros. They were soul searching over the failures of economics in the recent crisis. Such failures are most evident in two areas: the inadequacies of the efficient market hypothesis, the bedrock of modern financial economics, and the irrelevance of recent macroeconomic theory.

The central idea of the efficient market hypothesis is that prices represent the best estimate of the underlying value of assets. This thesis has recently taken a battering. The boom and bust in the money markets was precipitated by a US housing bubble. That bubble followed the New Economy fiasco and was preceded by the near-failure of Long Term Capital Management, a hedge fund designed to showcase sophisticated financial economics.

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.

Both the efficient market hypothesis and DSGE are associated with the idea of rational expectations – which might be described as the idea that households and companies make economic decisions as if they had available to them all the information about the world that might be available. If you wonder why such an implausible notion has won wide acceptance, part of the explanation lies in its conservative implications. Under rational expectations, not only do firms and households know already as much as policymakers, but they also anticipate what the government itself will do, so the best thing government can do is to remain predictable. Most economic policy is futile.

So is most interference in free markets. There is no room for the notion that people bought subprime mortgages or securitised products based on them because they knew less than the people who sold them. When the men and women of Goldman Sachs perform “God’s work”, the profits they make come not from information advantages, but from the value of their services. The economic role of government is to keep markets working.

These theories have appeal beyond the ranks of the rich and conservative for a deeper reason. If there were a simple, single, universal theory of economic behaviour, then the suite of arguments comprising rational expectations, efficient markets and DSEG would be that theory. Any other way of describing the world would have to recognise that what people do depends on their fallible beliefs and perceptions, would have to acknowledge uncertainty, and would accommodate the dependence of actions on changing social and cultural norms. Models could not then be universal: they would have to be specific to contexts.

The standard approach has the appearance of science in its ability to generate clear predictions from a small number of axioms. But only the appearance, since these predictions are mostly false. The environment actually faced by investors and economic policymakers is one in which actions do depend on beliefs and perceptions, must deal with uncertainty and are the product of a social context. There is no universal economic theory, and new economic thinking must necessarily be eclectic. That insight is Keynes’s greatest legacy.

Smashed guitar, YouTube song — United is listening now.

A Twitter update pointed me to this story at the LA Times Travel section.

A summary of the situation from the video’s YouTube page follows:

Full Story: http://www.davecarrollmusic.com/story… - In the spring of 2008, Sons of Maxwell were traveling to Nebraska for a one-week tour and my Taylor guitar was witnessed being thrown by United Airlines baggage handlers in Chicago. I discovered later that the $3500 guitar was severely damaged. They didnt deny the experience occurred but for nine months the various people I communicated with put the responsibility for dealing with the damage on everyone other than themselves and finally said they would do nothing to compensate me for my loss. So I promised the last person to finally say no to compensation (Ms. Irlweg) that I would write and produce three songs about my experience with United Airlines and make videos for each to be viewed online by anyone in the world. United: Song 1 is the first of those songs. United: Song 2 has been written and video production is underway. United: Song 3 is coming. I promise.

Very important lessons from this story:

1. At the core of any brand is its reputation based on its behavior.


2. A holistic customer experience design strategy would ensure that policies were in place to deal with these types of situations immediately and professionally.


3. Social media is a powerful tool that can effectively be used to bring the largest brands to their knees (not to mention tarnish their brand reputation) — provided the cause is communicated in a way that connects with audiences, as this example video surely has.


4. Brands must elevate customer value above shareholder value to survive and thrive in the emerging customer oriented world order.

The State of Working America.

I’m a designer — not an economist. However, it’s a beautiful thing when that which we as designers know to be true intuitively is proven as such thanks to data compiled by hardworking researchers.

The fact of the matter — as indicated by the data presented by the Economic Policy Institute in The State of Working America 2008/2009 is that — despite dramatic increases in productivity (Figure 3) — per capita income (specifically for the lower 95% who have to work for a living) has been facing a slow decline since the 1950s (Figure 1) while income for the top 5% has dramatically increased to the point at which the share of income held by the top 1% is dangerously at near 1920s [Great Depression] levels (Figure 4).

One need not be an economist to conclude that greed is not so good, and that only through the design and careful monitoring of an equitable system whereby all who contribute are able to fairly benefit can any economic system sustain long-term viability — with equal opportunity for all.

Released in time for Labor Day 2008, the advanced edition of EPI’s authoritative volume The State of Working America 2008/2009 is now available. Described as the “most comprehensive independent analysis of the U.S. labor market” by the Financial Times, the 11th edition shows that the business cycle that started in 2001 will be one for the record books. In fact, for the first time on record, middle-class families are at the end of a recovery without ever having regained the ground they lost during the previous recession. Gross domestic product and historically high productivity growth should have raised paychecks up and down the income ladder, but instead the benefits of that growth have bypassed most of the people who made it possible. Prepared biennially since 1988, The State of Working America scrutinizes family incomes, jobs, wages, unemployment, wealth, poverty, and health care coverage, describing the economy’s effect on our nation’s standard of living. Order your copy of the full 11th edition, and be sure to check out our special online previews.

Via @mvellandi : Capitalism Has A Serious Branding Problem…

…According to John Mackey, CEO of Whole Foods, among others.

Capitalism. Creative Capitalism. Conscious Capitalism. No matter what word we choose to modify it, capitalism is in the midst of a makeover. In many ways, it’s one of the most interesting—if not essential—“redesigns” taking place.

Bill Gates—acting as more of a “David” than a steely captain of industry—launched a stone at the Goliath of capitalism in his speech at Davos last year when he introduced the concept of “creative capitalism.” Here Gates casts capitalism in a two-pronged role: a redesigned free-market system intent on making money and helping the poor. Not an either-or but an and-and where, as he says, “governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.” A replay of his speech and the conversation it has generated is captured in Michael Kinsley’s book “Creative Capitalism, A Conversation with Bill Gates, Warren Buffett and other Economic Leaders.”

But Gates’ creative capitalism has some competition. John Mackey, CEO of Whole Foods, is promoting conscious capitalism. At first blush, this word mash-up is a brow-furrowing oxymoron, like: jumbo shrimp or business ethics. Two words you wouldn’t necessarily put together. Those were some of the cheap guffaws going around the “Conceptualizing Conscious Capitalism” conference at Bentley College the other week—a conference for academics and business leaders to unpack the emerging ideas around conscious capitalism.

Unarguably, being conscious is good. And unarguably, competition is good. In fact, it’s an essential ingredient of capitalism. As Muhammad Yunus, the dean of a new capitalism or “social businesses” that are both financially sustainable and help the poor says, “Competition in the marketplace of ideas almost always has a powerful positive impact.”

Despite the name, conscious capitalism is an effort underway to recast the role of business in service of social good. Wait, you may be thinking: isn’t that the role of Corporate Social Responsibility? John Mackey sees a marked difference and, like Gates, is calling for an all-out transformation. A fundamental re-think of the purpose of businesses:

“The whole corporate social responsibility idea is trying to graft something onto the old profit maximization model. What we need is a transformation. The way we think about business, what it’s based on. People want businesses to do good in the world. It’s that simple….We need a deeper, fundamental reform in the essence of business.”

An invitation to join the Conscious Business Alliance—members include business leaders such as John Mackey, Shelly Lazarus from Ogilvy & Mather, Sally Jewell from REI—defines the three pillars of conscious capitalism:

• A higher purpose that reaches beyond the singular goal of profit maximization.
• A stakeholder model where the best interests of customers, employees, suppliers, investors, the community and the environment drive decisions.
• Leaders who serve the company’s deeper purpose.

Purpose was the word-of-the-day. Purpose being the definitive statement of the difference you’re trying to make in the world. Why you matter. Why people should care about you. Maverick Roy Spence from GSD&M, an Austin based ad agency, brought this to light by stressing that successful business have to be in the business of making a difference. A good daily question to ask: If you woke up and your business was gone, would anyone miss you? “I don’t miss Linen n’ Things. Do you?” Spence asked. But could you say the same if Whole Foods, Southwest Airlines, John Deere, Google vanished into thin air? What about General Motors? Enron? Philip Morris?

I really like the bullet points — here’s how I’d expand upon each:

1. A higher purpose that reaches beyond the singular goal of profit maximization. Abandon short-term, profit oriented thinking in favor of long-term, customer value oriented thinking.


2. A stakeholder model where the best interests of customers, employees, suppliers, investors, the community and the environment drive decisions. The corporation as an active member of — and active participant in — society as a whole, behaving as a responsible member of society whose actions are held to account in the same manner as any other individual’s.


3. Leaders who serve the company’s deeper purpose. Passion true to a higher purpose will lead to more symbiotic, long-term, sustainable business practice.