The Big World View
Published by Clear Glass Press, San Francisco 1995
Copyright 1995 Michael Phillips
Introduction To The Big World View................................................................................
The Big Three....................................................................................................................
Language of Commerce.............................................................................................
Business World View of the
Sorting: Institutions In a
Industry Run Amok: SNAFU
Trade and Industry Collide...................................................................................
About the Author............................................................................................................
There is no single big theory of business. There is, however, a big picture that can be helpful in making business decisions.
Most business owners and corporate CEOs do not possess business school degrees. They do, however, have a sense of a logic and intellectual foundation that allows them to understand the nature of business. Of thousands of business people with whom I've worked, there is a nearly universal sense that only other people know the underlying ideas of business. What They Don't Teach at Harvard Business School seems to have succeeded by tapping into this disquieting sensibility.
People who have gone to business school do not have this same view. What most of them learned from several years of reading business literature and associating with professors and fellow business students is that there are no rigorous, let alone useful, intellectual ideas about business. Schooling provides skills rather than theory; skills are for analyzing financial statements and dealing with the legal realm of business practice. In addition, business students learned useful anecdotes, simulated complex business situations and assimilated the technical language of business operations. Together, these experiences afford some degree of confidence in daily business life.
Business is pragmatic, not theoretical. It is my contention that business arises out of complex social institutions driven by the unexpressed world views of millions of business people. These views have a cumulative effect over time, and as a consequence, business practices are changing.
By a business world view , I mean a view as simple as “Show me the numbers.” Prove it.
The social forces acting on business internationally and over long historical periods have not been the subject of much intellectual or academic examination. This is slowly being remedied by the work of Alfred Chandler Jr. , Thomas Hughes , Mancur Olson , Joe Corn , Mary Douglas , James Beniger and others in academia. I owe them all a debt of gratitude and am fortunate to have developed my views while standing on the shoulders of a few wonderful men and women.
For the past century, most thinking about business has been in the thrall of the nineteenth-century German who lived in the libraries of London. Karl Marx may not seem to be the major business intellectual, but his ideas of bourgeois values , imperialism , capitalism , monopoly and profit motivation have been the driving ideas of economics and business. Remove Marx's European concerns about class struggle and you have the intellectual framework on which (and against which) most business thinking has been erected. It is to Marx that the term and the concept of capitalism owe their linguistic power and political influence.
This book examines the notions of business that were prevalent in Marx's life, which he called bourgeois and which we now understand as trade. It looks at the edifice of industrialism and recognizes that many of Marx's notions were accurate; we add examples of new concepts that Marx could not have experienced. Lastly we look at the idea of which developed out of new forms of business long after Marx died. Clientricism incorporates practices that are very different from the industrial practices of the last century.
Nature and Commerce
This book title owes a debt in part to Paul Hawken , who named his book Ecology of Commerce and generated title envy for me. It also owes a part to India , where I met business people and mingled with the exciting gods Kali and Ganesh (the elephant); it also owes intellectual lineage to Max Weber , author of the famous Protestant Ethic and the Rise of Capitalism, and to his less famous studies of Hinduism, Buddhism, Islam, Tao and Confucianism.
I wanted the title Ecology of Commerce because I see commerce as a pervasive medium, much like nature. There is that metaphoric overtone of ecology of nature to which Hawken’s and my titles both allude. Like nature, commerce is the medium in which we are immersed, which we have unwittingly created (yes, we pretty much created nature too) and which is deterministic about much of our lives. The ecological notation comes from a simple urban walk in San Francisco, seeing the variety of niches: the pristine streets of rich Pacific Heights, where commerce is invisible; residential blocks where many windows display United Parcel Service pick-up signs, and autos, all sorts of product and business logos; apartment houses over shops on Chinatown business streets; the Castro and the Haight-Ashbury districts with their mix of gentrified businesses, cafes, apartments, and townhouses rescued from dilapidation by a new, young generation of home and business owners. Each neighborhood is different, reflecting the people who nest, shop and eat there.
In India I found the same wide ethnic variation of business propensity that I have seen in all my travels. Some regions were lush with open-air markets, shops, factories and small entrepreneurs scurrying everywhere. Others were devoid of nearly all business except farming and begging. In West Africa , some tribes were aggressive traders like the Senegalese Fulani . Tribes in Mali were purely agrarian. In Denmark and the SmarlandSee Sweden region of Sweden , where Danes settled a millennium ago, small business thrives in every nook and cranny, while in some suburbs of Stockholm, building complexes house 5,000 people and not one shop in sight. In downtown Moscow , I could walk for an hour without any sign of commerce; arriving the next day in a rural village of a few hundred settled farmers in Japan , I found more than one business for every two adults, including cigarette and candy shops in the corner windows of residents on the village road. What are the sources of this variety?
Max Weber was an active creator of sociology , both intellectually and as an institutional organizer. He found that ideas and institutions are intimately and intricately related. In order to connect the statistical correlation he found in Germany at the turn of the twentieth century between the success of Protestants in business in Germany and their theology, Weber resorted to a complex, perhaps convoluted, interpretation of Calvinist doctrine . He found a way to take the predestination of fate and turn it into a motivation for Puritans to be austere and to openly acknowledge the value of success in business.
I feel no such academic drive as Weber did. I look at a few categories of business and technology and see widely differing ethnic propensities to succeed. I am a Jew, so I see my fellow Jews create businesses out of air, desert sand and stone soup. I do not doubt the cultural propensity to business; it is a given. I also know the great individual variations in these vague ethnic categorizations. My father was a failure at every one of five or six businesses he tried; but my mother and all my brothers have done well in business. My question is the connection between business perspectives, the world view of the business person, and cultural milieu.
In this book, I go from the cultural milieu in which different types of business thrive, which I call the gods, to the types of businesses that currently exist. Finally, I look at the world view of the people involved in those forms of business.
The Four Gods of Commerce
The ideas discussed in this book are organized under the four gods of commerce: Urbanus , Ganesh , Horos and Honestas . Lest the reader search dutifully through an Oxford Concordance for historical references to these gods, I hasten to explain that, with the exception of Ganesh, a reputed Indian elephant god well-documented in both the literature and history of Hinduism, these “gods” are the product of an organizing principle. You will not meet their like, by any pure definition, in any one culture’s mythological history. They exist for their symbolic and organizing powers in the presentation of my business world views, and for their ability to shed archetypal light on a long tradition of worldwide business practices.
Gods of Commerce sets out to understand the differences in commercial skill that are apparent among individuals and cultures. The four major sections examine the three different types of commerce and the ten world views of successful business people. These gods are the central values of successful business cultures.
This book is not a theory of business. Rather, it is a big picture to help put business matters in a meaningful perspective. The four “god” sections include a discussion of the big picture that is associated with each god and further discussion of the implications of the big picture in terms of small business and the national economy.
Three Types of Commerce
The most impressive traders I have seen are the Fulani in West Africa . They have weekly open-air markets with tens of thousands of buyers and sellers with color, music and excitement that makes a trip on LSD seem mild. These markets were there four centuries ago when the first Europeans encountered and wrote about them.
The most impressive clientrists I have seen are the Japanese . They have more small businesses per capita than any other people, about twice the number of their closest competitors: the overseas Chinese , the French and the Danes .
The great industrialists who emerged in the late 1800s were most often of Nordic origin, descendants of Northern Germany, Scandinavia, Holland and Viking-settled Britain. Nearly all their great oil , steel and chemical companies are still the dominant international industries of these countries.
To what can we attribute these differences? Charles Hampden-Turner (and his co-author, Alfons Trompenaars ) in The Seven Cultures of Capitalism have done reliable research using survey data that supports my personal observations about significantly different business attitudes in different cultures . Hampden-Turner's work gets into very specific details of attitude toward work, friends and ethics. These attitudes are part of a structure of thought and perception that we call culture . Clearly some cultures are more adept at some functions than others, and some are less. Within those cultures individual competencies vary as well.
I have identified four gods of commerce that relate to the three categories of commerce: trade , industry and clientricism . What I mean by a “god” is a significant element in understanding and using this material. A god is a tent pole that holds up a large structure of values, attitudes, perceptions and the behaviors that follow from them. There can be multiple tent poles.
There is not much rigor in this notion of gods but it has an organizing quality. Like the notion of home, one can communicate an organizing idea, a widely recognized one, but no single definition is rigorous or comprehensive. One can look at the world view of an individual involved in commerce and identify the ten elements discussed in this chapter and the coming chapters. You can see that a good tradesperson uses Occam's Sledge. One cannot examine an individual and find the organizing elements of their perception. This can be done with groups of people, such as an ethnic group, and can be found in answers to survey questions. A sample of respondents won't say they believe in the god Urbanus or any of the other gods I've identified, but they will answer questions about money, selling, time and trade that will indicate a cluster of common values that I have associated with those gods.
Gods of Commerce Glossary
A glossary follows. Terms such as “clientricism” and “business world view,” while bantered about in graduate business classes, require a definition.
Urbanus: The first god of commerce, Urbanus is an ancient symbol of trade.
Ganesh: The second god of commerce, Ganesh is the god of improvement.
Horos: The third god of trade, Horos is the god of time and efficiency.
Honestas: The fourth god of commerce, Honestas is the goddess of relationships.
Business World View : A business person’s well-established perception of the rules and practices that determine the forces governing one’s daily life. An understanding of how the world works.
Money: The form of communication throughout the domain of commerce. The application of numbers and specialized language to business transactions.
Trade: The worldwide practice of buying and selling goods and services for money. The object of the trader is to price each sale to equal or to exceed a standard mark-up that covers all costs.
Recourse: The avenues available to a buyer to remedy dissatisfaction with a purchase. Example: One hundred percent refund and sincere apology from the seller to the buyer.
Industrial: The outgrowth of trading that focuses on reducing costs by using economies of scale. This is accomplished through gaining a large market share, locating in stable societies, and seeking efficiencies in technology, distribution and customer relations.
Clientricism: The practice of business where the object is a lifetime relationship with known clients.
Competition: Two or more parties seeking the same objective. The seeking can range from friendly to belligerent. The objective can be trivial or significant.
Commerce: The human domain of selling goods and services to others and the concern for the success of that practice. It is different from military, art, politics, governance, education and state.
Social Sorting: The mechanism in our society for individuals to become part of institutions: finding jobs, joining clubs, selecting stores and choosing a place to live.
Transaction: The focal point and boundaries of all forces involved in a voluntary sale or purchase. The complete transaction can include information about the sale and provisions for future maintenance and buyer satisfaction.
There is but one god of trade. Trade is an ancient human activity and the proclivity for it is millennia old. I find differences of real significance in the details of trade ‑‑ the negotiations of a Lebanese Arab in Washington, D.C., versus the negotiations of a Chinese street vendor in Kowloon ‑‑ but the common world view of the trader seems to have some cross-national similarities. I call that similarity the worship of the god Urbanus, ruler of cities.
Cities are the by-product, nexus and soul of trade. They are nearly always at the intersection of trade routes (unless they were deliberately anti-trade, like Brasilia and Sacramento , California). They have often been the driving force in trade, as with Venice , Byzantium , London , Amsterdam , Hong Kong and Singapore . Cities were usually built on markets. They grew because they offered long-term security for trader storage and security for traders and the craftspeople who made many of the trade goods.
The opposite of urban are rural and nomadic life, which do not support trade except at modest barter levels.
The god Urbanus is a god of diversity , tolerance and conviviality . That is what urban areas are. That is what the words urbane and urbanity mean. Cities are not tied to the crop seasons and harvest or the summer pasturing needs of animals. Cities run year-round with their own cadence of trade. Trade attracts a variety of people from other cities who bring novel ideas and behaviors. The need for co-existence among these different people creates institutions of tolerance . Diversity in ethnicity, language, ideas and behavior is required for the extension of trade as well as the social institutions of tolerance that make diversity possible. These institutions of tolerance are congruent with some of the business world views such as practicality and bourgeois . These two business world views , as discussed below, are uncomfortable with ideology and absolute truth.
Trade has a core and peripheral structure. At the core, trade goods are manufactured and services perfected. At the periphery, they are sold.
Conviviality is part of trade. The interaction of people at the core is vital. Conviviality is nothing more than comfortable interaction. That is what great urban centers provide. A trader from Damascus can meet a trader from Timbuktu, and they can be comfortable enough to share information, exchange supplies and possibly form partnerships.
Trade at the periphery can occur under strain, anxiety, and distress. It can occur in joyous, exuberant conditions. What happens at the periphery is sale of the inventory , if it survives pirates, brigands and barroom fights.
The general state of conviviality is the most stable long-term state that promotes and supports trade at its core. Where conviviality flourishes, trade flourishes. It is no accident that great West African markets have circuses and that the magnificent commercial city of Copenhagen has the Tivoli Gardens circus in its downtown center.
Diversity, tolerance and conviviality are urban, un-military, un-academic, and usually non-religious conditions. That is why they are part of commerce, and why Urbanus is the first god of commerce.
The second and third gods of commerce are gods of industry . Industry requires two gods because its growth and success were an historic accident that is still an anomaly. From the point of view of population, industrialism is a minority endeavor. It is my guess that people directly and indirectly involved in the industrial world as producers (or support agents), not just as consumers, still comprise less than one-third of the total world population. The industrial world's hundred-and-fifty-year history is quite recent and brief in relationship to the five-thousand-year history of cities.
Trade was flourishing a thousand years before the Old Testament was written. In Ebla , a Syrian trade town, archeologists have found ten thousand clay tablets containing bookkeeping information. The city is more than four thousand years old, and carried out trade with Gaza , Jaffa , Damascus , Sodom and Gomorra. The biblical neighbors of the Hebrews were the Canaanites , who carried on trade throughout the Mediterranean, from (modern-day) Spain to Morocco to Greece and Lebanon .
What is Trade?
I've been in parts of central Africa where I could buy cassette tapes, and where there were no government or business institutions, only traditional villages in a political no-man's land. While tape-recording machines were available, there was no electricity and no possible equipment repair . The machines were battery-operated, using tape cassettes and batteries from Japan , 15,000 miles away.
These tape players, batteries and cassettes are trade goods. In the most barren, desolate areas of Arctic tundra, trade goes on. Even without money, in prisons, trade happens.
Trade has several interesting elements. They are: mark-ups , profit , credit and price competition .
I followed those tape players from central Africa along the trade route to the Congo . Mark-ups were the rule. Each trader marked them up enough so that they could stay in business.
The marked-up price included new supplies , time involved, additional related expenses and a margin of profit to cover the uncertainty of staying in the business.
Credit was extended in proportion to the stability of the situation. Credit was simply added on to the price, as you probably know. There are numerous traditional rain forest societies with extensive credit systems.
Price competition is what the whole pipeline of trade goods is all about. The lowest-price final seller wins if he can cover his mark-up . If no one else is there to sell or be sold to and none is expected, the lowest-price seller won't have a very low price. The goal of the trader is to make a sale. Each sale is final.
The business person has ten pillars of perception. Five are part of trade, and worship in the house of Urbanus. These are not expressed as ideas but are apparent in behavior, forming a world view which is created by experience in a family, a culture and a business.
Pertinent questions for any business person in trade: What's really going on (what’s the deal on the table)? What is the evidence (show me the product or service)? What are the numbers? What are the rewards? What changes will this transaction cause?
The pre-industrial mode of thinking, the thinking of traders, was identified as bourgeois by Karl Marx. The trader knows the retail prices of many products and finds a source for those products at a low enough price to mark them up and sell them with sufficient margin to cover costs and make a profit.
Today, the mode of the trader is deeply ingrained in American popular culture. Television shows reward individuals who know the retail price of thousands of items. These programs have names like “The Price is Right” and “Name That Price.” Such popular culture, in which ordinary citizens know the prices of thousands of items, has not previously existed in most of China or Russia.
The trader has a world view quite different from the soldier, priest, bureaucrat or employee. What is it?
The title of this paragraph is intended to be humorous. It alludes to “Occam's razor,” the thirteenth-century principle of analytical economy. “Occam’s razor” holds that a simple explanation is better than an elaborate one. Business persons of all stripes (traders, industrialists and clientrists) have this cornerstone in their world view. A group of business people listening to a lecture has several universal commonalities, one of which is that they are listening for a simpler structure than the one confronting them. Their mental questions are threefold: What is she really saying? What are the experiences on which the evidence is based? How do money and prices move in the world she is describing?
Simple is not a self-evident word. The brass-tacks nature of business people suggests that their notion of simple must be rudimentary.
In philosophy there are several notions of simple. One is the Platonic world of the shadows where we see only representations of the real world, the real world being the simpler but richer version. Another is atomism, where the real world is a construct of a simple pre-world. Neither of these fit the business person's notion.
To approach the business notion, it is helpful to consider several non-business perception: those of the academic, the bureaucrat, and the artist. Each of these has a world view that is in some strange way negotiable. The academic's is influenced by dialog, truth, fact and knowledge. The bureaucrat's is negotiable under law or in the face of power and reason. The artist's is negotiable in response to vision, emotion and talent. The business world view is a non-negotiable domain. Everything in that world is built on some non-negotiable structure.
Having described the trader’s world view as being built on a very solid basis, a basis of powerful simplicity that is quite non-negotiable in most circumstances, I am immediately aware that the reader may have a different conception of the trader in mind.
The reader may have an image of interminable negotiations between two traders in a tent over Turkish coffee. This is a reasonable image, but an understanding of the trading activity is not obvious.
This is not a contradiction of the trader as a person with a core non-negotiable view of the world.
What is probably happening with the two coffee-drinking traders is that each is skillfully playing a game with the other. Each bases his strategy on the knowledge of a non-negotiable underpinning, an unstated minimum sale price or maximum purchase price. The coffee and trade talk are the fluff, puffery, deception and bargaining skill which can only arise from the confidence of the non-negotiable underpinning.
The well-traveled reader may have another seemingly contradictory image of the trader.
It might be of a Japanese businessman offering a gift to the god of fortune, or an African trader offering a sacrifice to a local deity. In both instances, what looks like negotiation with a deity is, I would suggest, the offer of a commission or a bribe, not a negotiation. Both traders believe that the deity is willing to accept commissions and bribery. They appear to be saying, "Please help me in my business, I am worthy and pious"; as traders, what they are really saying is, "If you help me, I will be a loyal follower and a generous donor to your shrines and priests."
The non-negotiable world of a business person is very similar to the civil engineer's world view: accumulated books of information, measurements, and formulas that are sufficient to build a durable bridge.
Unlike the engineer, the business world view’s non-negotiability includes ambiguity about the future. The engineer may be certain he can build an enduring bridge, but the businessman knows with similar certainty that local politics can stop the bridge from being built halfway through, close it once it’s completed, and deny it maintenance funds in the future.
To visualize “Occam's sledge,” this proto-simplifying component of the business world view, imagine a business person offered a free month’s rent for signing a lease quickly without a final re-reading of the contract. Very few would do so, not out of a fear of manipulation or paranoia, but because the details of a lease agreement are often the bedrock of business stability. The stability of a contract is a non-negotiable; it is not to be trifled with even by accident or carelessness.
The non-negotiable domain of the business world view is a flat surface with a thick coating of gingerbread, puffery, fantasy, vagueness, deception, magic and witchcraft. The surface and the topping do not mix. Most other world views are not like this. They are romantic, pietistic, and spiritualistic. Where the surface and the material on top commingle is the definition of the non-business world.
"Just show me what you mean." The business world view of practicality may sound like Jeremy Bentham's utilitarianism, or pragmatism, and it is indeed close. But, again, it is stronger, more vital, simpler and a more resilient vision than utilitarianism because it has led people over history to ignore their church, build elaborate retail stores, and sell fancy dresses to Puritan ladies in spite of threats of damnation and shunning by clergy.
It is much closer to the empiricism of a technologist. Earlier I compared the business world view to that of an engineer with the addition of a few flourishes. Now I compare it to that of the inventor of the light bulb (Edison was also a businessman).
The inventor, in the American technical tradition, is anti-theory. He tried every kind of filament in order to find a suitable one. He showed his historical respect by carefully keeping measurements of the durability and conductivity of each filament tested. Anti-theory with historical respect is almost the definition of technical development. Yet the inventor's world view is not precisely the business world view. The business world view includes more. Because it applies to the world of humans, it includes the reactions of other people who are themselves complex and unknowable domains.
To visualize this proto-practical component of the business world view, again imagine a business person offered a free month on a lease if a neighboring tenant with a loud musical instrument (sounding most unpleasant to the business person) is permitted to continue occupying the adjacent rental space. In most cases, the business person would contact the musical tenant and attempt to negotiate a separate noise reduction agreement that would make the free month worthwhile. Practical business people twist and turn to find ways to make their world work even in less than perfect conditions.
The business world view is the plane that includes humans as a rubbery surface. In some places, the nature of the surface is unknown but safe to walk on. Sometimes it is sticky, sometimes uneven and sometimes thin, but still a workable and stable walking surface.
Edison was both an inventor and a businessman. He developed his light for a consumer market in which he knew that humans wanted only thin wires on utility poles, and electric lighting cheaper than gas.
The business world view holds numbers to be sacred and financial statements to be divine. No good business person, and only a few mediocre ones, will do business without a full appreciation of and exposure to the world of measurement, balance sheets, income-expense statements and cost data, which in business are presented in dollars and units (products, clients, etc.).
A great deal more needs to be said about this, because business decisions are not based solely on measurement. It is sine qua non that numbers are the first thing to look at. Yes, there can be too many numbers, so the first rule of “Occam's Sledgehammer” applies. However, too many numbers is like too much food in the business world view: a nuisance, not a serious problem. Too few numbers is like too little food: possible starvation and great discomfort.
This third item may appear to be a subset of the first two, because an engineer and an inventor will rely intensely on numbers. It is not a subset because numbers have a tangibility in the business world view that can be missing in engineering and inventing. The business person can drive a business with financial data the way an automobile is driven with the steering wheel, the throttle, the dashboard instruments and brake.
To visualize the importance of numerical data to the business world view, again imagine a business person offered a free month on a lease with an offset of a four-percent increase in the monthly rental. On the face, this might look okay. Most business people would re-do their calculations in detail before accepting the offer. Rather than accept an overall numeric advantage, most business people would make sure that other incidental costs would not be diminished because of the free month on the lease; the real net cost calculation might not be as favorable as the obvious date indicates.
Numbers have an instrumentality for business people similar to the power of a telescope or microscope to a scientist.
The business world view has a slight element of theology. Business is found in all parts of the world where there is established religion. Where it isn’t found is in much of the communist world where rewardism is opposed by the prevailing ideology. This is also why commerce didn't flourish in periods of total Catholic Church domination, when the church had its own theology of rewards.
Rewardism is merely the view that rewards work. Not that rewards should work, not that rewards are just, and not even the converse, that punishment works. Only that rewards work. What business knew in the time of Shakamuni, more than 2,500 years ago, is what B.F. Skinner finally put in writing. Human beings can set up a system of rewards that can and will, if well designed, direct human behavior. As an example, the monetary system: it exists as an autonomous reward system because it allows for accumulation of rewards (part of any good reward system) and for multiple outcomes. You can buy many things with money. Multiple benefits are a part of better reward systems.
To visualize the importance of rewardism to the business world view, again imagine a business person offered a free month on a lease with some conditions attached. Most business people would respond positively to such an offer because they recognize the businesslike atmosphere of using rewards. However, they would also examine the offer carefully because most would project onto the lessor a motive in offering a reward.
One of the most accursed and confusing facets of the business world view is embodied by the French shopkeeper, the person who washes the steps in front of the store every morning. Accursed, because when these people form groups, they are opposed to any change whatsoever unless it reduces their taxes. The local Chamber of Commerce is generally reactionary. They hate change, only because it is change in and of itself. This hatred is often perceived as selfishness and greed. It occasionally is, but that is not part of the business world view. The business world view hates change out of the desire for a stable planning horizon.
The stable planning horizon is what permits business to thrive. To the business person, money is like sunlight to the desert farmer: ubiquitous. But, as fresh water is scarce for the farmer, so asset security is to the business person. Fresh water will produce plants in nearly every dry soil, turning a desert into a luxuriant oasis. Asset stability creates a vibrant, thriving financial community.
An irrigation system is more than a metaphor. In this case, it is synecdoche. A maintained irrigation system is a social system that reflects social stability.
Traders can operate everywhere. Their price mark-ups rise as social instability increases, but trade is more likely to flourish in a stable environment.
Business operates without theories, often without good ideas. It is inherently conservative because it only knows what works, what customers are buying now. Any change is more likely to lead to a loss of customers and revenue than to an increase. So conservatism is mandatory. Changes in the operation and marketing of a business need to be glacially slow for empirical reasons, and they need careful measurement to determine the impact on customer behavior.
The confusing thing about the bourgeois business world view is that business people are frequently the cause of much of the change they abhor. The local Chamber of Commerce is up in arms because a large supermarket is moving into town, and morals are declining as more women take full-time jobs. Yet their own members are the business people opening the larger supermarkets and hiring women into the labor force.
It is not hard to visualize the confusion created by bourgeoisness in the business world view when it operates openly in the business world. Picture a national Chamber of Commerce lobbying against the expansion of national health care because it will drive up taxes for its members. At the same time, a small group of the Chamber's members come to see their national leaders and oppose the organizational lobbying because this small group has been profiting greatly from their rapid introduction of new technologies. The very technologies that are pushing medical costs higher create the political pressure for a national health program.
Money is language, with all the same common attributes. Commerce is the domain of money.
In the same way I speak English, Urbanus speaks money. Commerce came before money, but with just barter, the world would still be made up of small farmers and nomads.
Money allowed commerce to flourish. In our lifetime, money has become the dominant force in most human lives. But what is money? Nothing but the language of commerce. As indicated in the previous chapter, under the business world view of Sacred Numbers, money is a central part of the trader perspective.
There is an American adage that “money talks.” This phrase can be described as the opposite of an oxymoron, which is a phrase that is stupidly contradictory. “Money talks” might well be called an oxysavant, a statement that is brilliantly contradictory.
An example of an oxysavant would be high school philosopher. At cocktail parties, professional philosophers dread the response they get when describing their occupation. The Ann or Arnie Landerses of high school graduating classes in perpetuity will say, “Oh, professor, when I was in high school, so many of my friends told me I should be a philosopher.”
In this case, the party guest is showing respect for the social importance of philosophy, the savant part of high school philosopher. Recognition in money talks that money is language is also savant; confusing the dispensing of personal advice with philosophy is oxy. So is the implication that a direct connection exists between money and power.
What money doesn’t always say is power, although that is a common interpretation of the “speaking money” cliché. Many rich people are pathetically powerless and some very powerful people have little money.
Money Equals Language
Some writers have observed that money has qualities like language; it is pervasive among humans, has many forms and seems integral to life. Wherever there is commerce, there is money. The one exception, silent trade, proves the rule. Silent trade occurs in rare instances where two neighboring tribes are mutually hostile. In a trade, they display their offerings on opposite sides of a riverbank. When the two sides are considered matched, the exchange occurs.
This chapter makes one simple point: Money is not like language, it is language. Money is the language of commerce.
It is important to make this distinction. Money cannot be compared to language as a metaphor. Money can be examined, discussed and talked about as a language. A specific money language would be American money, just as we have a specific oral/written language in English.
Real and Metaphoric Digression
This point needs clarification. Let us substitute two games for money in this discourse. People often talk about games as metaphors for daily life. This comes from an inaccurate reading of games. It results from seeing the parallels between games and daily life, not realizing that it’s the context of daily life that selects particular games.
Chess dominates the intellectual game arena in the West. In Japan, Go is the classic thinker's game. Neither game should be read only as a metaphor for the larger society. They are actually metanymical, a small fragment that represents the whole.
This is best illustrated by asking one question: what were the longest wars in Japanese and Western history?
In Japan, it was Hideoshi's two-day battle at Osaka. In the West, it was the Hundred Years’ War between France and the Flemish countries.
Throughout Japanese history, armies were amassed, confronted each other, and then their leaders negotiated. If the power or might of either army was in doubt, a single fierce battle was fought to evaluate the army’s relative strength before resuming negotiation.
In Europe, armies for millennia would amass every spring, fight during the long summer days and return home in the fall, year after year, until physical and economic attrition determined the outcome.
These military procedures are the same as the rules of action for Go and chess. In Go, the opposing sides keep putting pieces on the board. When all pieces are in position on the board, the cells they surround are counted to determine the victor. In chess, pieces are removed until attrition leaves the board nearly empty.
Neither game is a metaphor. They are both ways in which our relative societies carry out military operations.
Language is not a metaphor for money. Money is actually language.
The Encyclopedia Britannica is very vague in its definition of language: arbitrary vocal symbols by means of which social groups cooperate.
The Britannica section on language is long and hopelessly anthropocentric. Anyone who has worked with cetaceans or bird species realizes that whales and birds can pick up variations on their songs by associating with other whales and birds.
Language is most readily comprehended by listing and evaluating what it is compared to what it isn't.
What It Is
It is what bees do when one dances to direct others to honey. Clearly a symbolic representation of the world is presented by the one for the many. When bees are taken to new environments, they adapt their dance accordingly. They are using symbols which have substantially broad contextual meanings.
It is sign language that is used by the deaf. Interestingly, sign language is different for each linguistic culture. Because sign language uses different senses, two hands and sight, it is very different syntactically from spoken language. Sign language among experienced users is not as linear as spoken language.
We would also include as language facial expressions and mathematics.
What It Isn't
What I would not include as language are power, thought, smell, work, silent prayer, glossolalia, media and swimming.
Power is not language because it isn't explicit. Three people can say a particular symbol is a sign of power and three others would disagree. Look at these four conflicting statements:
“Getting elected is a sign of power!”
“No, the power is behind the throne.”
“No, it's in the hands of the biggest campaign contributors.”
“No, it is in the hands of the power brokers in Washington who represent the contributors.”
Enough said. Power and its symbolic elements are not explicit enough to be widely agreed upon. Power is, however, certainly real enough to affect human behavior.
Thought and silent prayer have another distinction. In neither case do they involve interaction with recognizable beings. Language must involve detectable interaction and some behavioral consequences of that interaction.
Smell signals, such as perfume, are too weak in symbolic variation to be language. Swimming is also in this category. Both might be treated as proto-languages. Smell lacks a range of distinctions, in spite of a broad range of intensities. Not enough people can distinguish peach from pear. Swimming has too few strokes to be a useful language.
Music, dance and clothing, while generally not language, are occasionally language.
Music is customarily not language because of its ambiguity and the extensive range of sensibility possible. However, when music is used in films to announce evil, terror, joy and sorrow, it is undeniably a simple language. The same is true of dance. It is generally much greater in its span of communication than spoken language. Even in its most reductionist format, mime, dance can be a language that tells a very explicit story.
Symbols and Context
Money is purely symbolic. It is definitely not good as food or fertilizer. It rarely functions as a sun shade, a tool, or a weapon, and is not good for starting fires. It is a symbol.
Symbols have distinct meaning only in context.
Context is determinate when it comes to symbols. A piece of colored cloth can be a national flag or a diaper, depending on the context. In the context of an emergency, it can be both.
Generally, money is a form of commercial encouragement, an inducement toward a desired behavior. You buy a cup of coffee from me several times, and I'll get in the habit of having it available for you.
This encouragement occurs on a large and small scale: buying crude oil from the Saudis or gasoline from a neighborhood station are both commercial encouragement.
Symbolic commercial encouragement can come in innumerable and different forms. Call it a wage, a purchase price, or even a tip.
Money is also used to discourage. Diminish someone’s pay as their workload increases. Send your frisky sixteen-year-old daughter to Paris for a year to get her away from the boyfriend you don’t like.
Symbols gain their meaning in context. The same symbol does not always retain the same meaning. The act of offering one dollar in payment for a cup of coffee can be an insult, a charm act, a joke or a paternal rebuke.
It’s an insult when you pay your host in his own house after he serves you breakfast. It’s an act of charm when you are a six-year-old and the dollar is gift-wrapped for a grandfather. It’s a joke when the boss brings coffee to the secretary and she hands him the dollar. It’s a paternal rebuke when a son rudely pays for his father’s dinner, and Dad hands the waiter a buck for his own after-dinner coffee. Symbol is context is language. The commercial context is the transaction.
Money is generally seen in the narrowest conceptual frame, the one given to us by economics. Economics, as early as Adam Smith, focused on the exchange of money for goods and services. You hand me ten dollars, I hand you the book. That is the exchange. But the smallest unit of commerce is actually the transaction. The transaction includes the service, information, credit, repair, maintenance, recourse and many more aspects that are always associated with the exchange.
The transaction is the actual unit of commercial intercourse. With this in mind, it is easier to see the flexibility, vitality and extraordinary effectiveness of money. Just as the spoken languages of Roosevelt, Churchill and Hitler were able to bring about inordinate social consequences, so can the acts of a few skilled money experts. Witness J. D. Rockefeller, A. P. Giannini and Armand Hammer.
Unacceptable. Forms of money can become unacceptable, just like words (nigger, spick) are held in disfavor in spoken language. This has happened to American bills in denominations over one hundred dollars. Because banks were required by law to register the numbers of each hundred-dollar bill, the use of large bills has fallen out of favor.
Rules. Money language has rules, as does all language. Over the 3,000 years of money’s existence, multiple rules have arisen.
Cash in Advance. Prostitutes, numbers runners, and dope dealers want cash in advance. So do McDonald’s and the Bremerton Ferry.
No Delivery Interruptus. Try to pay cash to delivery room doctors and nurses when a baby is born and you'll create pandemonium.
Taboo. There is a wide range of times when the mention, let alone the payment, of money is taboo. Consider funerals and private sex. Consider a courtroom defendant making pecuniary offers to judge and jury. Taboo.
Commercial language is not directly analogous to spoken language. Attempting to draw a direct analogy between specific forms of currency and words as used in spoken language is not useful.
The problem with the direct analogy is that the popular perception of words is misleading. If words were always understood as contextual, then the analogy would work.
Most people think words have inherent and invariant meaning. How many times have you been told, “Just look it up in the dictionary.” Words probably have no meaning outside of context, even though the existence of dictionaries suggests otherwise. The words up or five can't be uttered by themselves at a cocktail party and have meaning. Say those same words while walking into an elevator, and they might.
To give another example of how the direct use of the commercially-spoken language analogy lacks precision, let us try one that might appear logical: “A large bank account is like a large vocabulary.” The analogy doesn't hold up at either end of the comparison. A bank account is a minor component of commerce with many representations, from its appearance on a financial statement to notations in a savings pass book. A person with a big bank account is not necessarily proficient in commerce. But a big vocabulary generally indicates good spoken and written language proficiencies.
Of course, a big vocabulary is not inherently more significant than a small one. A migratory farm worker may possess a big vocabulary, while a union president may be monosyllabic.
Rules of Commercial Grammar
Money, like grammar, has rules. As grammar can peg a person’s education and, in some instances, socio-economic background, much about social status is communicated by one’s use and understanding of the rules of money. The person who doesn't pay personal debts on time may evoke the same social response as one who says “Don't you all be pickin’ on me.” A person who frequently bounces checks is often seen in the same light as a person with chaotic syntax.
Money has some unique attributes not found in spoken language. Negative money, for instance, is an interesting example. A parking ticket is negative money. It is possible to lose both money and net worth, comparable only to Alzheimer’s disease in spoken language.
Like spoken languages, the absence of money communicates. If you are dissatisfied with the work of an interior designer, taking six months to pay the bill is comparable to not returning phone calls for the same period of time.
Money has a wide variety of forms, all very much in the way of a spoken language. Bus tokens, credit cards, equity securities, invoices, letters of credit, and dozens of debenture forms are all forms of money. Near-cash forms range from bankers’ acceptances and repossessions to certificates of deposit. As old forms fall out of favor, new ones are generated. Uses also change, as where the functional role of stocks and bonds has reversed itself in the past sixty years. New forms are borrowed from other cultures; witness the fairly recent “bankable corporate payable” from Japan.
Most importantly, because money is language, there are different money languages in different commercial cultures. In Japan, wedding guests are given money in an envelope. Japanese children do not receive allowances. In a Syrian street market, the member of one family might pay five hundred dollars for a horse that elicits a payment of eight hundred dollars from another family. In the United States, wealthy people can expect less wealthy social climbers to pick up the tab for a meal. In Mexico or Ghana, this would never happen. In Japan and Sweden, a taxi driver will return a tip. In New York, you may be physically assaulted for not giving the driver a sufficiently large tip. Only in the United States can you pay for merchandise and service with a bank check, and then stop payment on the check. This practice is rare and even illegal in other parts of the world.
Money is commercial language. The American monetary system of dollars and cents in all its countless forms is our commercial language.
Ganesh and Horos are the patron gods of Industry, the condition that results from flourishing trade.
When the core locations that generate trade become sufficiently large and stable, and other historical events, such as the invention of banking, partnerships, corporations, insurance and international contract law, come into play, then we find the beginnings of industry. Industry focuses on reduction of cost and adds four additional elements to its world view.
Ganesh, the God of New Ventures
The first god of industry is Ganesh, usually portrayed astride a mouse. The half-human, half-elephant deity with four arms and a broken tusk, often painted red, is the Indian god of new ventures. When an Indian starts a new venture, she invokes the good will of Ganesh. Ganesh is the willingness to try something new.
I visited a school in Lucknow, India, where very unlikely people (retired military) were being instructed in entrepreneurship. The school dean explained that the most important lesson was to teach the possibility of improvement. Improvement, the idea that something better than exists at present is possible and desirable, is to me the contemporary notion of Ganesh.
The founder of modern India was Bal Gangadhar Tikal, a philosopher who began the movement for independence from Britain in the last century. Tikal chose Ganesh from a panoply of Indian gods to be the symbol of the future nation, and re-instituted local celebrations of Ganesh throughout India. His choice of a symbol was astute. India continues to make large strides in becoming an important industrial country; in the not-too-distant future, India’s industry will surprise us all.
The willingness to make changes and believe in improvement are not widely held qualities in the world. In fact, these characteristics seem to distinguish the many societies who resist the industrial world from those who have been swallowed by it. Resistance comes from a number of sources. There’s the popular view that ancestral accomplishments are superior to the present. There is also the view that family structure and tradition are sacred, and will suffer from any change.
To some extent the worshippers of Ganesh symbolize their faith by wearing a necktie. The necktie is vaguely associated with the commercial notion of improvement, and is still de rigueur in Japan, much of Europe and in the financial world. The necktie was very widely worn in the United States in the last century, and to this day, many scientists, engineers, academicians and shop clerks still sport them.
Neckties are not commonly worn by those outside of commerce and industrialism: women, farmers, cowboys, priests and servants, except when in service to an industrialist.
What Is Industry?
Two significant differences distinguish trade from industry. Trade is pervasive, while industry is limited to a small number of nations. Trade focuses on the single final sale at the highest price the seller can extract. Industry aims at economies of scale and market share, with the goal of multiple, simultaneous sales.
Industry is constructed on the shoulders of the trader, requiring the ability to plan ahead. Industry is an outgrowth of dense trade and is based on expanding markets and reducing costs. Exemplified by the break-ups of Lebanon and the Soviet Union, the nature of industry is evident: the industrial world is dependent on large-scale institutions, government in particular.
The real genius of John D. Rockefeller was that he found a way to produce kerosene at a quarter of the cost of all the other wildcatters in the kerosene industry. He succeeded, and therein lay the problem of industry. He then had to create a very large market to take advantage of his much greater profit margin.
Like other giants of the industrial world, the technology of cost reduction associated with economies of scale forced industrialists to find large and growing markets. The steam revolution and the railroad revolution allowed industrialists to cut costs significantly, which became an advantage only when large markets were developed for buying.
A large market is the byproduct of political and social stability. That's why the United States was such a great market, and became such an important industrial society. The colonial English, French and Dutch systems also provided a stable economic and political system that allowed for mass distribution, which in turn took advantage of the technologies that create economies of scale.
The transition from trade goods, which are still everywhere, to industry, was through mass distribution of goods that permitted economies of scale.
The objective of economies of scale is to keep reducing the cost of production, so that the low final prices continue to create monopolistic conditions that deter other entrants to the industry. Having found a way to reduce costs, it’s important to keep doing so at higher and higher levels of production to keep competitors out of an industry by effectively undercutting their prices. All of this is traditional economic analysis of industrial society.
Thanks to the Japanese, economists have learned the recent lesson that the object of industry is to gain market share. Profit is the byproduct of achieving larger market share and allowing the producer to move farther down the line of economies of scale, which ultimately increases profit.
To get a larger market share, it is often necessary to utilize government. Government can provide market stability. It creates homogeneity and suppresses rebellion and anarchy, both conditions unsuitable to industry. It is to government we owe standard time zones that make it efficient to run railroads; eminent domain and free land to railroads, resulting in long lines; dams and water systems; sewer systems; electric lighting; roads and highways; canals; courts to enforce contracts to make bond and equity markets possible. The list is long. In Russia and China, governments did not provide these services to benefit business, and the same systems are far inferior to those in the United States.
Government can provide political and social stability, fostering larger markets. Democratic governments happen to be especially useful in creating political and social stability. They also are fairly easy for industry to buy. I'm not joking on this point, though it sounds leftist. Industry needs government and it needs government that is responsive to its concerns. That is precisely what was absent in the Soviet Union for seventy years, China for forty years and India for thirty years.
It is desirable that industry be able to influence government. You want property protected. You want stability. You want incomes to be as stable as possible. You want workers to be educated. You want a middle class. You want a whole range of services and systems.
This term is meant in the sense of physical resource rationalization. Build the steel plant near the coal and iron ore sources, then build a railroad to the closest distribution center. Locate your mail order business at the airport.
This is easily recognizable as the economic world view which is indeed a domain of the business world view. This value is what leads industry into some very popular activities such as steadily reducing commodity prices over one hundred years, improving quality and increasing convenience. The same value leads to unpopular actions such as disrupting social systems by hiring women away from their families, crowding people too closely together in airplanes, encouraging governments to start wars, and bribing legislators.
On the individual level, it is possible to visualize the importance of efficiency to the business world view. Again, imagine a business person offered a free month on a lease if the employees will use a long back staircase that means less maintenance for the lessor. Business people will readily calculate human stair-climbing time and effort as a cost to be measured and incorporated into business calculations. Efficiency is measurable at this scale and can be compared to the value of a free month’s rent.
The definition of an organization is as vague as that of happiness. Yet they are both concepts that are within our realm of understanding and we use them both in dialog in spite of their vagueness.
The business world view includes a propensity to grasp the details of the world in terms of organizations. The term is used broadly by anthropologists to include tribal groupings, kinships and totem ceremonies. The post-trader business person is capable of using the word in this sense, but is more likely to view the world of organizations in the sense of agency, association, corporation or another agglomeration of people acting from voluntary and financial common interests. Such organizations play a large role in business life and are the focus of the business world view.
This focus arises because of an interest in acting in the world with dispatch and alacrity. To do so requires a viewpoint that includes the instrumental connections among people. When there is a business interest in larger market share or strong customer affiliation, there is a need to view customers in terms of their clustering behavior.
Customer educational and economic denominations are relevant to automobile producers. Sports affinities are relevant to beer producers. Professional identities are relevant to convention businesses. Enduring relationships with one’s alumni association, political party, and occupation lead to organizational consequences of relevance to one business or another.
What may not be obvious about the importance of this particular business world view is that most non-business people, probably four out of five, rarely or never think in organizational terms. When they want to buy a car, they ask friends, check ads and shop around. The business person is more likely to ask organizations he belongs to if they have automobile affiliations, what organization might make a group car purchase for the membership, or whether a friend might know of some special institutional situation where cars are being handled differently from the way they are in standard retail outlets.
There is a basic pattern to all commercial and voluntary human institutions that resists change. The attraction of new members, their screening and the long-term rejection of misfits leave all institutions with an invisible homogeneity that creates excessive stability.
The growth of industrial society occurred in Europe at a time when the traditional society was breaking apart. Industry contributed to this societal breakdown, weakening the three great powers of church, king and military. To replace these three entities, commercial society created new institutions: corporations, secret societies (Freemasons, guilds) and later, political parties, party affiliates, unions and civil volunteer societies. Personal life choices in the industrial society moved from rigid tradition under the hierarchical dictates of the earlier powers, to self-made choices appropriate to the new voluntary and commercial institutions.
The new industrial world of the 1800s introduced widespread social migration and personal independence. With personal independence, individuals began to organize their lives according to personal needs, desire and goals. The structure of society was slowly being organized by a social sorting process.
Voluntary and commercial institutions are created by a series of hundreds of thousands of personal choices that sort individuals into and out of institutions. How do these sorting selections effect institutions?
What is the Nature of Commercial and Voluntary Institutions?
Many consultants and business advisors who have worked with a wide variety of businesses have been discouraged by the slow rate of change they encounter. They mistakenly assume that large numbers of people are inherently resistant to change.
If they haven't had experience with small-to-medium-size companies, they assume size is the problem. If they’re already familiar with company size issues, consultants tend to blame resistance to change to a CEO’s lack of vision.
The real problem is much more fundamental, and applies to many institutions other than businesses.
Is Commerce a Source of Institutional Change?
Because I have a positive view of commerce, I am occasionally asked whether commerce is inherently destabilizing to a society. The answer is ambiguous: yes and no.
Commerce is destabilizing because it responds, ultimately, to the needs, desires and whims of consumers. This response, combined with the cumulative nature of technology, creates constantly shifting patterns of consumer demand.
Commerce is stabilizing because consumers are also producers, employees and participants in society. These participants ensure the stability of institutions that are inherently stabilizing, and are the consequence of social sorting.
Why is it so hard to change the direction of a business? The behavior of a government agency? Why has Berkeley, California always been so radical? Why are television evangelists important these days?
These seemingly diverse phenomena are closely related. There may be one explanation for all of them. We'll start with the question of why it is so hard to change a business.
Changing a business in nearly any way, as most consultants and managers will gladly attest, is nearly impossible.
The reason is that a “business” is a group of people who have come together after a very thorough sorting process. Each group of people we call a business is made up of similar individuals. Any company is like the fine sand left over after a pile of dirt has been sifted through several screens. There are usually seven screens in the sorting process:
1. Individual who lacks employment looks for a job;
2. Individual is interested in the particular business he or she ultimately joins because of something positive they knew or heard;
3. Individual applies for the job;
4. Individual contacts the personnel department for preliminary screening, with a second screening by the applicable department head and specific supervisor. Some employees reverse the process and go to Personnel last;
5. Individual is hired on a probationary basis for day-to-day observation;
6. Individual’s credentials from previous jobs and schools are checked by hiring company;
7. Individual feels comfortable enough in the new business to remain for several years and decline other job offers.
Social Equivalent of Sand
Most screens consist of uniform structures with uniform openings small enough to catch refuse and large enough to permit particles of a desired size to pass through. As when fine sand is sifted through many screens, the final collection of particles reveals a grouping remarkably similar in size and shape. The same is true for the sorting process of employees.
In screening sand, only two dimensions are selected - mass and volume. The employee selection process involves screening on multiple dimensions over several years. The end result is a group of people who are more like each other than grains of sand could ever be. Sand does not transform itself of its own volition. For people in a business to transform themselves of their own volition is just as unlikely.
This process of forming a group of people called “a business” is social sorting. Sorting among humans is the equivalent of erosion in geology.
Erosion occurs on the earth's surface at many different rates. Major components of erosion include water (rain, waves and rivers), biological agents (such as plants and worms), wind, and temperature changes (which crack rocks). Geology is largely understood to be the science that explains sedimentary layers in the earth, the visual structure of the surface we see, and the ways in which these phenomena have occurred. Evidence of erosive components acting on a surface over long periods of time was the first phenomenon observed by geologists.
Volcanic action and the role it plays in mountain and island building was the next phenomenon understood in geology. Erosion and volcanic action explain more than ninety percent of observable earth features. Three centuries later, plate tectonics was developed to explain most of the rest of surface geological structure.
If social sorting is comparable to erosion in geology, it is quite a powerful observational tool for businesses.
What are the Main Components of Social Sorting?
Business social sorting consists of three components: The flag, the screen and the wash-out.
1. Flag - The flag is the information “lure” that draws prospective employees to the business.
2. Screen - The screen is the variety of tests applied to the applicant throughout the hiring phase (including interviews, job requirements (i.e., degrees)), and the trial work period.
3. Wash-Out - The wash-out is the process of surviving the first few years as an employee of a business. Attrition occurs because people discover they don’t fit the standards - or the standards don’t fit them.
Where Does Social Sorting Apply?
What other human phenomena involve social sorting?
If it is as fundamental as erosion is to geology, what human phenomena are the exceptions and bypass sorting?
Social sorting helps to explain the tendency for political districts to vote the same way over decades and centuries, the concentration of high-tech businesses in few geographic areas, the certainty that events repeated over time become boring, and the current power of Christian fundamentalism.
Where Doesn't Social Sorting Apply?
Sorting is distinctly different from several other social processes. It differs from social engineering and ethnic cleansing, two processes carried out in totalitarian regions. Sorting is not a problem-solving process such as one would find in a forced military move of a group of natives to a different territory. Nor is it a goal-oriented process such as selecting a temporary team of experts to investigate a damaged nuclear reactor.
The range of phenomena considered examples of social sorting are vast. First, we should note that businesses are not significantly different from government agencies or voluntary institutions such as clubs and political parties. The particular differences among these three groups concern the relative significance and distinct mechanisms of their sorting elements.
In a government agency, the wash-out function is dramatically weaker than in a profit-making business. Government agency employees are protected by civil service laws. The flag that attracts the prospective government agency employee has a perceptibly different message (“Join us for a boring but secure life”) versus the “Come help us make money” enjoinder one might receive from a profitable business.
Screening is very negligible in a club such as the PTA or a political party. It’s the wash-out factor that determines membership. Those who stay as activists are the ones who find the other activists comfortable and rewarding to be with.
How are political districts related? Here, the flag and washing out are very gradual, occurring over long periods of time. The reader who doesn't know about the long-term stability of political regions is referred to books on presidential politics. Upstate and downstate New York have voted in opposite ways from the very first election to the Continental Congress; the state has always been characterized by “the Madison people” versus “the Hamilton people.” Californians have split their tickets (different parties for adjacent public offices) since it was given statehood. Berkeley, California is the same politically radical city it was half a century ago, when it elected its first (radical) mayor.
Mobility in our society causes the geographic sorting process. The effect of sorting can be more significant in smaller locales, such as urban areas with greater resources for mobility. Large geographic areas can have very significant mobility, to little effect. Americans move many times in their lives; fifty percent have moved in the past three years and seventy-five percent in the past five years. These numbers affect the social characteristics of any geographic location over time.
Even though people appear to be born and raised and live in one area, it is only appearance. We tend to forget the wash-out factor that has removed people who didn't want to stay. Of the remainder, ten, twenty, even fifty percent have homogeneous characteristics. New residents are attracted by the characteristics of the people who have remained.
Friends who have paid attention to their primary and secondary school alumni gatherings report that even in rural areas, less than one third of their fellow students remained in the same region. The rest sorted themselves out to places that were a better fit.
Ever wonder why people who work best in a high-tech company were already living in Sunnyvale, California when high-tech developers were starting their companies there? The original entrepreneurs could have recruited lower-cost employees in any community within ten miles of Sunnyvale. They also might have found prospective employees who were better educated in the liberal arts within fifteen miles, at Stanford University. But Silicon Valley’s Sunnyvale community had exactly the right mix for the entrepreneurial conditions. The community was presorted on several key dimensions to become the future center of micro-electronics.
Less Visible Social Sorting
Why do public events - the annual parade, county fair or a series of board meetings - become boring as they are repeated over time?
The answer is not obvious. Imaginative people could keep modifying these kinds of gatherings to help them remain interesting.
This phenomenon became evident to me after I had founded numerous voluntary social groups, political organizations, and business institutions (fairs, boards of directors, clubs, etc.). As these events became “established,” rigor mortis set in.
Source of Organizational Boredom
Nothing I did at the inception of such events had much effect. Then I started hosting annual beach bonfires with abandoned Christmas trees in early January.
To my surprise, I found that attendees were always interesting and exciting. Why? The date of the event was never pre-set. When the weather was safe for a bonfire, potential guests were telephoned with only a few hours’ notice.
The continued novelty with respect to participants was the result of sorting by screening.
Those people whose lives were regulated by plans and calendared events could rarely attend. Those whose lives were relatively unplanned, who lived with a high degree of spontaneity, were available on short notice. The short-noticers made the event perpetually interesting and fun. Participants were screened on the dimension of spontaneity.
Of course, these are the same people who dominate all new events and projects. As events become established, spontaneous individuals wash-out.
Television and the Baptists
What explains the recent political power of television evangelists? Wash-out is best demonstrated in the rigidity of most employment institutions. Exemplifying the flag element are the television Christian Fundamentalists.
There are twenty million Baptists in the United States, including all contemporary fundamentalists and evangelicals. In turn, fundamentalists and evangelicals comprise more than half of the total number of Baptists. This segment of society has remained the same relative size for over a century, but has exerted very little political influence because they are not institutionally organized. This is the case even in the South, where the concentration of Baptists is the greatest.
The largest Baptist church organization is the local church level, which is the outgrowth of a charismatic pastor. Regional and national Baptist organizational structures are very rare and invariably insignificant.
The Baptist church organization is different from nearly all other Protestant groups. The Presbyterian and Lutheran synods are strong and well organized. So is the Methodist “conference,” which designates ministers' church assignments. Because of their institutional organizations, the Presbyterian, Lutheran and Methodist religious groups have historically played much more powerful roles in national politics than the locally organized Baptist church.
Television creates giant single-minister churches.
In recent years, television has allowed some Baptist churches, sorting their prospective members out from the rest with the flag of a particular religious ideology, to grow to very large sizes. One church with an ongoing television program can have over a million members. The television program is very effective when it comes to raising money and sending letters to Congress. The large numbers of participants involved in these church lobbying efforts were not possible when the flag was limited to one person in one church building.
Billy Graham did create a large Baptist church out of this same denominational grouping. Staging tent shows in city after city, Graham gained large numbers of followers by being ambiguous with his ideology. His theology did prove too ecumenical to form a powerful personal political machine.
A test of this hypothesis is whether the flags are personally attached to the charismatic pastor, as they have always been in Baptist churches. Can Jerry Falwell appear on Pat Robertson? Can Pat Robertson appear on Jimmy Bakker's television program without losing the bulk of the audience? No, of course not! The situation is the same, only the scale differs.
(This last paragraph was written in 1986, more than a year before Reverend Falwell took over Reverend Bakker's ministry. History confirmed the hypothesis.)
Rats Leaving the Ship
One last example before we move on. How does a Reverend Jim Jones's People’s Temple mass suicide happen? People’s Temple was a wash-out phenomenon of a particular nature. Jones acted very slowly. He had a large, devoted organization along traditional church lines. Over time, he became progressively more paranoid, possibly because of drugs and medicine. As his managerial demands became increasingly unreasonable, his assistants objected and confronted him. Jones’s behavior was allowed to continue because his People’s Temple was created in the Baptist model. Confrontations don’t work with a charismatic. Opponents found that they could not form easy coalitions of other managerial supporters, partly because Jones personally rewarded his supporters.
Wise opponents quit as Jones’s demands became more and more objectionable. Sycophantic managers remaining behind were the least qualified to halt Jones’s madness. The organization proceeded to go berserk.
Will similar cult events happen in the future? As long as there are organizations mirroring Baptist structure, headed by a single charismatic, the same wash-out will occur again and again.
How to Use Social Sorting
If we are willing to accept social sorting as an important analytic tool, what are some of its obvious positive implications?
Initially, we can improve many governmental processes. Appointed boards, panels, and commissions frequently are of inconsistent quality. By determining the desired attributes for the board, panel or commission, and finding existing sorting processes that identify people with these attributes, group composition can be changed dramatically over time.
A parole board may be determined to need specific attributes of experience in handling difficult convicts. Some mature compassion is also desirable. The board might be designated by law to have a fixed membership consisting of a naval chief petty officer with five years’ service in grade, a minister with fifteen years’ active service in local churches, and a high school gym instructor with ten years’ experience. The net result will be a consistent quality of behavior in line with the designated goals of the parole board.
Micro-Distinctions in Neighborhoods
Retail and small home businesses will be increasingly affected by geographic mobility. The most immediate change is greater social diversity in towns and neighborhoods. Different parts of the country, different suburbs, and neighborhoods within cities will become more socially diverse and distinct from each other. Political processes are not presently equipped for this small-scale geographic variety, nor are major media and small business.
Corporate mergers and corporate intrapreneurship may require careful review. Mergers of small and medium-sized companies may make disastrous combinations. Very large companies necessarily have an employee base that is not significantly different from the population as a whole, and will usually survive. Because social sorting predicts very limited ranges of institutional adaptation, the prevailing merger concept of “synergy” may often be a perverse fantasy. Merging Princeton University and the Arizona College of Mines would not improve either institution, but such corporate mergers occur all the time.
Some companies are creating new ventures by selecting and supporting internal entrepreneurs (intrepreneurship). Intrepreneurship can be problematic. Unless the new baby company is given great personnel discretion and managerial autonomy, the spin-off will only add grains of sand to the mother sand pile.
Forget the idea of reforming the FBI, DEA or CIA.
Say the goal is to curtail the increasingly erratic (and illegal) activity of such a group. The solution is to merge the agency into a larger organization. Aggressive managers will rise from the old organization into the larger, newer one, where they will have to cope with new sets of bureau goals. The older departments will lose vitality, and accommodate to overall agency standards.
Social institutions that have a significant effect on commerce need to be examined in the light of social sorting. Marriage, a dominant social and commercial institution, has undergone a radical change in the past two decades. The slow wash-out institution has been replaced by the high wash-out as divorce has become socially acceptable. The results may be that laws and conceptions of what marriage is have not kept pace.
This institution has changed significantly but invisibly based on social sorting theory. The stable marriages of today may involve radically different people than the stable marriage partners of the 1950s.
Industry is based on more than accepting institutions for improvement. It requires new skills, traditions and deep personal changes among workers and consumers.
The second god of industry is Horos, the clock god. The belief in the beneficence of change combined with the worship of the clock together comprise the gods of efficiency, a combination of Ganesh and Horos.
Conservation and allocation of time as a scarce resource is the central tenet of efficiency. It should not be surprising that supplicants in the church of industriality wear miniature clocks on their wrists.
Clocks are intimately associated with the development of industry. A superb reference is Revolution in Time by David S. Landes, Howard University Press, 1983. Wooden town clocks began to appear in seventeenth-century Europe as an outgrowth of monastic life and the needs of trade. In the eighteenth century, town clocks were metal and upright; house clocks became the prized possession of the merchant class.
Merchants were beginning to conserve time. Time precision came to be counted in minutes, so merchants could schedule their mutual business meetings efficiently. By the early nineteenth century and the rise of factories, the city public clocks and the punch-in time clock became key elements in the development of wage labor. Later in the century, chronometers made ocean exploration more exact and watches made trains more reliable.
Watches have become almost ubiquitous on the planet, but this should not mislead the reader about their sacred industrial role. Most watches I've seen in rural areas of Third World countries are strictly ornamental; meetings scheduled for two p.m. occur within two hours of two p.m. at best. The god Horos (from which the word hour is derived) is not being worshipped. Agricultural people do have gods of seasons, but not of time in the industrial sense.
The elevation of time to a central human focus has been very slow to develop. According to Hampden-Turner (see earlier reference), the worship of Horos has at least two major religious divisions: linear and synchronous.
In both forms of worship the sacred deadline is selected and the participants calculate backwards to measure the increments of time the various elements need to arrive at scheduled completion. In NATO parts of the world, planning is linear and parallel. Segments are completed as a sub-assembly to be brought together into a sequential and larger assembly.
In many parts of industrial Asia, simultaneous parts will interact as the assembly proceeds, and congruence, rather than parallelism, is apparent.
An analogy of two types of time consciousness is illustrated in the difference between a Shakespearean story line and a Japanese drama. In Shakespeare, subplots converge, diverge and build on each other until the central character is moved by the multiple forces. In a film by the Japanese director Akira Kurasawa, characters interacting at a funeral hear a variety of stories and different perspectives that converge to move the central action.
Horos’s Business World View
We all know what efficiency is on a personal scale. The subway is faster and cheaper to ride than the bus, therefore the subway is efficient. Modern Americans have so readily internalized this value that we hardly recognize it as a world view. Even arguments against a specific efficiency are always for a more general one. The bus system is preferable to the subway because it is a more flexible mode for urban society, an appeal to efficiency at a higher order of calculation.
When efficiency is a world view, it has a surprising consequence. It is anti-traditional and anti-status quo. Because the business world view of the post-trader includes efficiency, it is distinctly different from the bourgeois view.
How can an overall business world view contain contradictory domains? How can the business that has achieved a market monopoly and will pay handsomely to protect that monopoly be willing to encourage major social disruption in another domain in the name of efficiency? How can the small, Pasadena, California-based lumber retailer who complains about new competition be so aggressive in opening a super discount center in Simi Valley?
Don’t look for a tidy answer. Intellectual consistency is not part of the business world view. Efficiency itself does not inherently include any other values, it is a prime value. Efficiency is a contextual value, meaning that it can be more efficient for you, the individual, to take the subway. It may, however, be more efficient for a city to prefer buses. With contextual values, consistency does not fit. Philosophers call this relativism, where meaning is subject to the context.
There are three major elements of the business world view that are derived from efficiency. Each is significant enough to be its own domain.
Social Resource Optimization
This is a euphemism for treating people like Tinker Toys. In the business world view, it means that people and social systems can be subjected to the criterion of efficiency. The technical term is management.
The best books on management are by Henry Mintzberg and Milton Moskowitz. In Mintzberg on Management, he shows that management structure is determined almost entirely by industry needs and norms, mostly technical. Moskowitz’s The 100 Best Companies to Work for in America shows that a great variety of management styles exist, from non-hierarchical gentleness to tyrannical exploitation and that each can be equally efficient and successful.
The business world view is that people can be treated much the same way as physical resources. Human attributes can be optimized, albeit with different forms of calculus than are used for physical resources.
This business world view has ambivalent popular consequences.
Many Americans think Mexicans are lazy. This appears to be news to the business world, where Mexican work forces are frequently more productive than their United States counterparts.
The industrial North desegregated most business establishments decades before the agrarian South, even though similar prejudices existed in the North.
Americans perceive Asians as cunning. Asian-Americans do get bank loans more readily than all other American ethnic groups.
Dangerous, deceptive and defective products and services are sold all the time, with very little concern for public health and safety even for children.
These examples help visualize the importance of social resource optimization to the business world view. The business person’s behavior is affected less by personal prejudice than by a willingness to choose efficiency in dealing with humans as labor and as customers.
The efficiency values of an industrial society, with their emphasis on competition and consumer welfare, have allowed systems-level errors in an industrial society to grow to a point where national productivity is seriously harmed.
When large systems and efficiency exist without moderation, we get SNAFU. The fallout is inconvenient, exasperating, and on the rise.
SNAFU is a word first reported in 1940 in the United States Army. It is an acronym for Situation Normal, All Fucked Up. Dictionaries associate it with confusion, being stalled, or both.
Its meaning is better understood by native users of English in the United States than by dictionary writers. Obviously!
SNAFU is an extraordinary word that deserves some attention. It does not refer to errors or mistakes, such as dropping a cake while carrying it to the table, or running out of gas on the way to a picnic. Confusion is only a small part of its meaning. As native English speakers know, it refers to errors in our social SYSTEM. SYSTEMIC ERRORS.
It is a snafu when you apply for a tax refund because the government made an initial mistake, and the refund check is made out for the wrong amount. It is a snafu when five people show up for a party to find no one home.
A snafu is a systems-level mistake that we all recognize in a very gut sense. We all live in a complex social system. Snafu is the only word we have for what happens to us. Lucky for us that the word has an inherent sense of humor... a patient understanding that to be human is to be well-acquainted with “Situation Normal, All Fucked Up.”
The military continues to be snafu-ridden. General Haig has publicly criticized three major military operations from '77 to '87 as snafus on a large scale. In Iran, American planes and helicopters collided. In Grenada, massive numbers of United States troops landed without military opposition, yet lives were lost. Bombing Libya, targets were missed and a crew lost under the simplest of “practice” bomb procedures.
I don’t want to criticize the military. I suggest that the systems virus first recognized forty years ago in the United States Army continues to debilitate our armed forces. This virus has spread to our consumer population and our industrial society as well.
We all encounter snafus on a daily basis. A credit card bill arrives, containing the same error you’ve spent three months telephoning and writing to correct. An ineffective auto repair creates a new oil leak, requiring visits to four supply houses for the right parts. A dry cleaner fixes one spot, but leaves a more noticeable one elsewhere on the garment. After the installation of a fire alarm, precluding the need for a separate tenant policy, a homeowner insurance policy premium goes up. Per the insurance agent, “Don't try to understand it.” The re-registration for a lost municipal bond costs more than the interest earned on the original, lost bond because of a 1930s state law.
And just think what’s waiting on the desk today. An unsolicited gold calendar from American Express (try sending it back and getting it taken off your bill...hah!). Notification that a box of books has been mailed home, and no one’s home to receive it. A request to mail a large box, requiring the right supplies and waiting in several lines at the post office. Arranging to get a new telephone line installed. Evident in all of these situations is error compounded with more error because of the systems involved. “Situation Normal...” would be better replaced by “Systems Normal....”!
Increase in Snafus?
Is our current milieu actually getting worse? Have snafus increased in the last several decades? Is the increase in snafus effecting our commercial output?
I asked my friends about the first question. One, who regularly takes month-long trips for the State Department, notes that upon her return, the time required to fix mistakes that occurred in her absence has been increasing. She figures nearly two weeks of time is required to repair the damage created during a one-month trip.
Other friends point out an obvious measure: the amount of highway traffic and resulting traffic jams. Jam-ups have increased significantly in the past several decades, and there is very little discussion toward attempting to solve this problem. Is there no solution to this problem? Do we take jam-ups for granted? Both answers are probably correct.
The best measure of the traffic problem is evident in my study of small business operations for my business consulting practice. When I study company records, I find that my clients make fewer sales visits and fewer product deliveries per day than a decade ago. Decreased productivity in spite of improved routing and cargo handling? I also find that the amount of administrative time away from work required by employees to handle personal problems has gone up significantly.
The main record of measurements in this country, the 1994 United States Statistical Abstract, is disappointing. Out of more than 1,500 tables in the book, less than a dozen contain any relevant information. We are not measuring snafus in the system as a whole. “Situation Normal” in our language seems to preclude the need to measure.
Five tables in the Statistical Abstract clearly relate to snafus:
The number of people stopped and questioned while crossing the Mexican and Canadian borders: 6.8 million cars stopped in 1970. 10.8 million in 1980. 17.8 million in 1985. 24.2 million in 1990. A big increase in a minor nightmare.
The number of motor vehicle accidents: 22.1 million in 1970. 24.1 million in 1980. 32.5 million in 1990. With sixty million families in the United States, that means about one accident per family every two years. Look at the wasted time and cost for the countless people involved. Traffic deaths declined in the late 1970s because of the reduced speed limit. Why aren’t more of us aware that accidents have increased steadily during the 1980s?
The number of business bankruptcy filings: 190,000 in 1970. 280,000 in 1980. 725,500 in 1990. Imagine the wasted time spent straightening out all these messes.
“Restricted activity per capita” or workday disability: The number of workdays missed due to illness or disability has risen from 14.6 days per working person per year in 1970 to 16.1 in 1991. The number of days of work missed for illness has remained steady at five, so the rest of the missed time is occurring on weekends and vacations.
The number of lawyers: The figure doubled from 1970 to 1984, then increased by 22 percent to 800,000 in 1990. Unfair jokes about lawyers proliferate, but that level of increase certainly reflects a corresponding increase in the number of snafus in our society.
I'm not against lawyers. I don't take their increase in numbers as a cause of more conflict. The increase could well be evidence of an increase in social problems that require workers (lawyers) to process and mitigate.
Small claims court actions would probably indicate an even greater problem with snafus, particularly among people who don't use lawyers. Unfortunately, these important figures are not available.
Three Major Known Generators of Snafus
Three major changes in our society have made life noticeably more difficult in the past several decades. Crime, working mothers and single motherhood.
In 1965, we didn't have to lock outside doors or install home burglar alarms. We could enter downtown buildings without registering for a security identification card. There was no necessary sunset exodus from public parks.
Crime is now Situation Normal. Crime figures have increased drastically from the mid-60s. On a yearly basis, there are now 2.7 million violent crimes, and 30.3 million other crimes such as theft and burglary.
Women with children have gone from eighteen percent of the female labor force to over sixty-four percent. Surveys indicate that adult males in these households have not significantly increased their share of the housework load.
Single motherhood has doubled as a proportion of the population from 1970 to 1985. Single motherhood is not only a problem for single mothers; it is also a burden for family and friends recruited to help with child care. Snafus seem to increase exponentially for single mothers and their stand-ins.
Different Effects for Different Incomes
The economic bottom strata suffer most from snafus. Society tends not to work for people in this position in the first place. They can't get credit, jobs, buy houses or avoid the daily threat of crime. Of course, most single mothers are part of the economic bottom strata.
The upper income strata? They have more snafus than desired. After all, first-class travelers wait just as long on the runway as those who fly tourist class. The difference is that the upper income strata have private jets, chartered planes, secretaries, maids, attentive bankers, lawyers and au pairs who handle snafus for them. The upper strata control the media and many political processes. You don’t hear very much about everyday problems at this level, because snafus don’t occupy much of a wealthy person’s time.
What’s more, that is what wealth is all about. The upper income strata know they are somewhat isolated from snafus, and they pride themselves on this isolation. Take the maiden voyage of the refurbished Queen Elizabeth II. Cabin class customers were treated so poorly, they called a press conference to complain about the food, ventilation, service and unfinished recreation facilities. When the press interviewed first-class passengers, the typical response was, “Experienced travelers expect minor inconveniences.”
It is the great middle income strata that seem to be the most recently and noticeably afflicted by the virus of snafus. The increasing incidence of snafus moves the middle income strata closer to the bottom strata.
Snafu data simply doesn’t exist - no one is interested in collecting it. My educated guesses are made on the basis of the insurance industry's estimated cost of accidents and their careful calculations of related snafu costs. Direct accident costs have nearly quadrupled, rising from $23.4 billion in 1970 to $93.1 billion in 1990.
Calculations for the final snafu figure, using the insurance industry data as the base, are very conservative. Take the insurance companies’ figure for economic loss connected with auto accidents. Insurance companies spend plenty of money on surveys to obtain accurate measurements. Their findings? The amount of insurance money paid out in an accident is one-third of the real economic cost.
Then there’s the direct cost of the other snafus of daily life from the United States Statistical Abstract: legal expenses, crime costs, non-auto repair costs, toxic waste spills, and lost days of work. The total of these figures is underestimated; excluded are snafus involving credit, postal service, banking, all levels of government and the health care system. Each of these areas is a nightmare in its own right, and each is - you guessed it - currently unmeasureable.
Combine these figures and multiply by three, the standard insurance industry figure that corresponds to reported costs purportedly being one-third of actual snafu costs. Adding auto accidents to the non-auto snafu total gives us twenty percent of our total national civilian effort. Twenty percent of our civilian output, or one-fifth of our work effort, is used to correct or deal with snafus.
If this figure is indeed true, what other supporting evidence exists?
Source of Snafus
What generates snafus in the first place?
They are caused by one general commercial error and three specific factors.
The general error is our pervasive pre-industrial belief that competition is fundamental to business. We really believe that the invisible hand of competition wisely manages the market- place.
This belief is inappropriate. What is needed are specific institutions to remedy systems-level errors.
Three Specific Generating Factors
It starts with a careless work force supervised by poorly-trained managers. Remember when American automobiles fell apart barely off the lot? Americans bought Japanese cars in droves. American auto makers imported Japanese cars and management to solve the problem. Has the problem been solved? Not entirely, but the quality of American cars is better now.
Worker output in other industries, however, is almost as bad as the auto industry was two decades ago.
The remedy is for businesses to recognize a common need for workers who are as well trained as their Japanese, German and Scandinavian counterparts. In these successful nations, labor is active in management, has strong union representation and a higher level of status than in the United States.
Businesses also need to find new American remedies. A reasonable approach might be to retain the fluid labor market, but to create institutions that allow lateral transfers of workers. Health, retirement and seniority benefits would remain in effect, as well as generous access to education and training.
Competitive businesses and sloppy government agencies design their internal operating systems to protect themselves. As a consequence, problems end up with the consumer. Pre-industrially oriented businesses and government agencies make it almost impossible to get a refund, change a bookkeeping entry, or correct an error. Lack of response to consumer demands protects company money and assets, as well as bureaucratic prerogatives. Daily life is then harder on the consumer, the person at the end of the marketing chain.
A few businesses are changing their behavior. They recognize that they operate on different principles, and their clients are benefiting from the rapid recourse.
What is needed are institutions designed to remedy these problems. Such institutions range from truly effective better business bureaus to increasing use of policy analysis by legislative and administrative bodies.
Financially-based businesses systems are not connected and operate without regard for each other's effect on customers. The consequence is a deeply rooted Catch 22. It’s no surprise that the phrase “Catch 22” came from a World War II military story.
You need a credit card to open a checking account, but the credit card issuer requires a telephone number and six months on the job. The telephone company requires credit and a checking account. The job requires a telephone and a stable home address. Renting an apartment requires credit, a deposit and a checking account. Each separate system pushes its requirements back on the customer without regard to the systems conflicts. What is the magnitude of this problem? What are the solutions?
Measurement, Measurement, Measurement.
First, we have to start measuring the problem. Then we have to look at other high-tech nations to see who else has this problem. Superficially, it doesn't appear that the Japanese have the problem at all. The Swedes, Swiss and West Germans appear unconcerned. All four of these nations have national incomes that exceed ours. Their growth spurts usually dwarf ours.
Then there’s Britain. Their snafu economy is worse than ours, and they refer to it as an incurable disease.
A solution to the snafu problem will be more difficult to find than solutions to problems of a careless work force and overlapping conflicting systems. All three problems require measurement. We need a National Snafu Index. To measure crime, the Justice Department already surveys 100,000 people over the age of eighteen on a twice-yearly basis. Snafu questions could be added to this survey.
As the seriousness of the snafu problem comes to light, the situation will cease to be regarded as “Normal.” We will then move into the stage of developing policy remedies based on measurement.
When traditions of trade and industry, fostered and maintained by Urbanus, Ganesh and Horos, collide, we experience the dog-eat-dog (or god-eat-god) annihilation of modern competition.
What is Competition?
It’s not called killer for nothing. We operate in a mixed economy where trade, industry and the concept I have labeled clientricism share the marketplace. Commercial practice, influenced by clientricism, is increasingly based on openness and cooperation. However, old metaphors of “killer competition” from the days of traders and early industrialists still dominate modern dialog.
Business magazine advertisements echo the common business metaphor of competition: “Kill the Competition” (Sperry Products); “Winning is the Only Form of Competition” (Dataright); “Number One is the Only One” (General Motors).
Most dictionaries have a primary definition of competition: striving together. In modern media, it means to win at any cost, to beat the other person or team, to kill the bastards, to massacre. “Survival of the fittest,” “top dog,” and “winner takes all” are only a few of the common ways we describe competition.
We also sense the multiplicity of meanings. When Tyson knocked out Spinks in the first round of a 1988 fight that generated tens of millions of dollars in purse prizes, that massacre paralleled the advertising definition of competition. The press and public had something else to say. They were nearly unanimous in complaining that the fight wasn't any fun, that such a short boxing match seemed unfair to the fans, and may even have been fixed.
Why should that be the reaction?
There are two distinct meanings to the word competition. One of our concepts is based on near-equality of participants. This meaning is closest to the dictionary’s striving together. Gentle competition. In baseball, when a few great pitchers made their teams much too powerful and the wealthy teams that could hire great pitchers became certain World Series winners, the rules were changed to strengthen batters. Most sports introduced draft systems to achieve greater equality among teams for the same reason. Great differences aren't considered competitive. Regardless of killer-competition statements like “winning is all there is,” team owners know it isn't true for sport as a whole.
Part of our dissonance over the meaning of competition derives from the original Greek Olympic usage of the term compete: to strive together, which is in conflict with the biological and war metaphors that have crept into the language.
The word competent also stems from compete. Competent means to be generally skilled and to get along with others. It has the striving together sense even today, thousands of years after it migrated from Greece to our shores.
In replacing the ancient meaning of gentle competition with the newer killer competition, our misunderstanding of the striving together concept contributes to modern commercial and economic confusion.
The killer competition concept mistakenly derived from commercial sports is consciously applied in business and economics. Sports is a common subject of business discussions and work-a-day metaphors. Businesses are talked about as teams that are out to beat others in their industry. We talk of competitive business behavior as well as competitors in the marketplace. We even go a step further and consider competition desirable. We believe that it contributes to the common good by Darwinian selection: survival of the fittest. This selection, coupled with the proverbial invisible hand of the market, is supposed to result in effective motivation for workers to produce more, to lower costs and to foster innovation.
The sports metaphor is actually gentle competition. In spite of the brutality in boxing or American football, opponents are matched to achieve parity, not dominance.
Business and Competition
In business, we think we’re using the sports metaphor, but we’re not. Business invokes killer, or what I call K‑competition.
K-competition doesn't describe either business or the marketplace very well. In fact, the K-competition meaning is used as an opiate, in the sense of Karl Marx’s powerful phrase, “opiate of the masses.”
My personal experience with thousands of business cases suggests that American business owners refer to the K‑competitive model in three ways. The key words are monopoly, manipulation and secrecy. There’s the “king of the hill” monopoly position, where similar businesses do not compete because of exclusive sales agreements, patent protection or legal exclusion. K-competition also represents a method for under-pricing or out-advertising others in the same field. Above all, new businesses are secretive about their strategy and tactics.
Some eighty percent of new businesses with these guiding metaphors will fail in three years.
Businesses who reject the K-competitive model at the outset are at a great advantage. Ninety-five percent of businesses guided by cooperation and openness are still in business after five years. This success rate is not to be taken lightly by today’s entrepreneur.
Such businesses welcome other businesses in their field. They share information and resources. They are the gentle sportsmen at an event, where, following the match, competitors shake hands and convene off-field to drink beer and celebrate.
Why K-Competition Fails
Two possible explanations from my business experience explain the above to me. The bright people who started businesses in the 1970s and ‘80s were very competent in their respective fields. They also possessed strong values, which in many cases were just as important as the projected profit margin. Businesses were initiated based on the value of cooperation. The nature of post-industrial business is accurately expressed by the gentle values of the business people I worked with in the past two decades. Does this mean that a person with a “big picture” view of the empiric world tends to do better in business than one relying upon competency alone? Validate this point with your own experience. Is the nature of contemporary business really K-competitive?
My business experience suggests that striving together is in fact the way the clientric business world works.
Most people shop where the largest number of stores is clustered. Retail is usually in dense downtown locations or in malls. Wholesalers often gather in wholesale marts together. Locating today’s businesses close together benefits everyone, and not because of discounts. Who wouldn’t want to shop where the variety of selections is best?
Shouldn't we recognize this as cooperation? If any competitive qualities exist in this situation, it is gentle competition.
Personal recommendations from existing customers are responsible for eighty to ninety percent of all new customers. The exceptions are tourist businesses, products for soap opera watchers and children's toy products. Such inter-personal recommendations are based on a reputation for quality and service. Good reputations come from honesty, sincerity, openness and reliability. Customers are rarely referred from K-competitive tactics.
How did you choose your last medical practitioner, travel agent, auto repair shop, day care center, or private school? Did a K-instinct play a role in your decision? I hope not.
Evidence from Big Business
Look at the audio, video and computer businesses. In the 1950s, RCA developed the 45-rpm audio system and followed the killer model. Unfortunately, their early trader view of industrial commerce was no match for the clientric values entering the market at that time.
RCA tried to establish a monopoly position with exclusive records that could only be played on RCA-manufactured record players. They ended up with one hundred percent of the teenage pop music market. And only that market. Only one market at a time when RCA technology was superior to the rest of the market? Audio professionals regularly used the eight-inch 45‑rpm records and loved them, but they were not allowed to market them.
In the ‘60s, when the audio tape market was young, there were three alternative technologies: reel-to-reel, eight-track and cassette. Reel-to-reel was Ampex. They chose a K-strategy, as did the eight-track developers. Cassettes were developed by the Dutch corporation, Philips, a gentle European giant. Philips licensed its system to anyone who wanted it.
Ten years later, Philips was receiving royalties from producers and distributors in the audio cassette field. It grew to become the only popular form of audio tape. Philips ended up with royalties and one-third of the manufacturing market share of all tapes produced.
It was not a fluke. When video recorders came along, the same thing happened. In the 1970s, RCA resurrected the same killer strategy to produce their own proprietary equipment and performance material. Their video disc recorder system failed inside of five years in spite of massive advertising. Sony, producer of Betamax, chose a moderate killer strategy. Matsushita, producer of VHS, adopted the gentle Philips approach of licensing everyone who was interested. How many VHS tapes do you own?
Personal computers echo the story. Computer companies that were open about their designs, allowed other companies to make easy attachments, connect to their systems and copy their models, thrived. Examples are Apple II and IBM PC. The killers wilted. Texas Instruments, Motorola's Four Phase and Grid, Standard Oil's Amdex - the list goes on and on.
Where commercial values are established by clientric companies, the K-competitive model is inappropriate. This model will encourage business failure, discourage new customers by personal recommendation, and make it nearly impossible to introduce new high-tech products.
In the Marketplace
Does K-competition, which we have so blithely accepted in our traditional worship of the free market, actually benefit the common good in some other way?
The metaphor we use for the market as a whole comes from Darwinian biology. Darwin himself borrowed his metaphor from Adam Smith (see Steven J. Gould on that subject). We view K‑competition as a survival of the fittest, where poor products and companies are weeded out and superior products and companies survive.
Most corporate employees will recognize the laughable nature of this biological metaphor applied to the marketplace. It will not do to invoke the authority of millions of salaried and retired workers. A Gallup poll showed that eighty percent of corporate employees think their company is poorly run.
The free markets with mixed trade, industry and clientricism have little to do with the biological metaphor. The contemporary free market is more like a dish resting on a large table. We eat from the table but believe we eat from the dish.
The table is government infrastructure. The government brings to each business its public-school-educated workers and a transportation system entirely subsidized in the form of streets and highways. Each firm benefits from railroad, shipping and airline businesses that are heavily subsidized by the government.
What else does Government provide? Police and fire protection, recreational land for employee vacations, the primary retirement plan of Social Security. It also tempers anti-business pressure for revolution with a government-provided unemployment insurance system to take care of workers when business wants to cut costs or fire employees. (This point is made by the economist Robert Heilbronner.)
The free market of our economy is a pathetic illusion. Tariff barriers for most products, tax subsidies for many (such as oil), and government regulation of nearly all others in the form of patent protection, the FAA, the ICC, the SEC, farm regulation and billion-dollar-subsidies (including milk prices) all add up to a lot.
The free market is a dish on the table. Talk of K‑competition on the plate is generally irrelevant because the rest of the system is cooperation, collusion and reliance on the political process.
Even if we look only at the plate, K-competition does not benefit the common good in our contemporary mixed commercial system.
K-competition is what the big three American auto makers did in the forty years from 1930 to 1975. These years are notable for a lack of technical innovation, safety and pollution control in the car industry. Only the sneaky little Volkswagen and the slippery Japanese car models got away with innovation. In so doing, they found enough of a foothold in a few big cities to fend off the killer industrial giants.
Most health innovations in the past century came about because of an improved sanitation system (government), non-profit research labs, and university researchers. Most major technical innovations came from wartime military developments (government) and Bell Labs (a regulated monopoly). Two notable exceptions were Thomas Edison, who functioned before government was significant, and Xerox Corporation, which made effective use of a ninety-year-old invention.
Innovations rarely come from the competitive market. The great variety of junk - hundreds of breakfast cereals and thousands of cosmetics and tens of thousands of television commercials - are the modest innovation resulting from the competitive free market.
Next time a politician spouts rhetoric about competition and the free market being sacred in our society, recall the metaphor of the small dish on a large table filled with junk food.
Who Really Believes in K-Competition?
The chairmen, presidents, directors and senior officers in the top few hundred corporations seem to all belong to the same few private clubs. The Alexander, the Virginian, The Bohemian, and other clubs of this ilk produce a very chummy set.
Is it possible that they mouth the litany of K-competition to keep their employees struggling against each other, their political allies patiently delivering subsidies to their companies, and the yuppies swallowing this vapid competitive ideology? Meanwhile, top management quietly cooperates, colludes, and disdains the practice of K-competition?
When society is complex enough to have a commercial sector inside an industrial sector, a new form of commerce focused on lifetime business relations emerges.
Honestas is the god of clientricism, a commercial experience new to this century. Honestas is a reverse image god, difficult to understand outside of a certain context. You can only see her when the light streams through, illuminating her shape. Some readers may not know that honesty is a negative term; negative as in film negative. It is most accurately defined as a reverse image: Honesty is the absence of deceit. An honest person is one who does not deceive others.
Honesty and truth are often confused. Truth is unrelated to honesty. Truth is a notion of philosophy concerned with hierarchies of knowledge. Allah and the Pope are, for example, sources of truth. Truth also relates to statements of logic such as: "The syllogism is true." (Jane loves dogs, Julius is a dog, Jane loves Julius.). Honesty is merely the absence of deceit. Deceit is the willful misleading of other people, not to be confused with accidental behavior.
Why is honesty deified in clientric commerce? Clientricism focuses on long-term relations with a client, relationships designed to last a lifetime. Such relations can only proceed in the absence of deceit.
How does one worship Honestas? With difficulty. She is an unpopular god in the United States because we are surrounded by heathens who find that a little deception makes life easier. Many institutions favor deception: fifty percent of statements by public office holders are deceitful. The public dialog believes that deception can be cute and successful. That’s why over thirty-five percent of advertisements are intended to deceive.
The first two minutes of the ten o’clock evening news explain everything. The president says, “We are in favor of the UN request for more US troops.” The UN does not respond: a vote of the General Assembly would most likely be opposed to this proposition. The UN secretary general probably did make the request, but not without clearing it first with the United States ambassador. The ambassador must have asked the secretary general to make the request, and we go on from there. Conscious deceit in this instance is premised on the believed need for secrecy of international relations.
This deceitful news announcement is followed by an ad for the largest and most expensive American car. The American car bursts through a finish line tape, ahead of three foreign cars of the same class. The voice-over announces an American auto magazine quote about extraordinary power. On a straight-away accelerating from twenty-five to sixty miles per hour, this may be true for the American car. The ad succeeds because it caters to an audience with limited knowledge of accelerating power. How, after all, does power relate to acceleration from a stop, acceleration on the open road where turning and balance count, or sudden acceleration to pass? The three foreign cars would do better at these common meanings of power. Advertisers believe this deception to be effective. Most viewers believe it to be trivial puffery.
Worshipping Honestas in this environment is a challenge. The risky future of the United States in a world of commerce with increasing clientricism is related.
The gods of commerce are Urbanus, Ganesh, Horos and Honestas. Urbanus is the god of trade, an ancient god for whom cities have been built. Ganesh is the first god of industry, a youth less than two hundred years old; the god of the potential for improvement, nay the god of progress. The second god of industry is Horos, the god of efficiency. Horos has become the daily breath for many of us in the modern world. Together, Ganesh and Horos have become the center of the pantheon of worship in the powerful nation states at the end of the twentieth century. They have eclipsed nearly all other gods in the organization and practice of our daily lives.
Honestas is a new god on the horizon, associated with the client-focused qualities of business that are emerging in commerce. She is the fresh green snippets of growth squeezing up through the garden. Her progeny are small but myriad. Her role in the future is important and vital.
What is Clientricism?
Clientricism is when you have a commercial relationship with specific, named customers. Reaching the mass market is no longer a concern. Neither is market share. You're not aiming for economies of scale. What you're aiming for is a long-term relationship with identifiable customers. This is achieved by offering uniquely-tailored goods and services.
All kinds of businesses have a client list that they work with for long periods of time. Boeing makes aircraft for a list of airline company clients. Many other companies work only for government defense departments. Telephone companies, cable companies, banks and utilities have a complete list of their clients. Doctors, insurance and financial advisors, artists, hair stylists and dentists often have long-term client relations.
A business with a client list and the goal of long-term relationships is very different from that of a trader or an industrialist. Unlike the trader, each single sale is not the important goal of a clientric business. My auto mechanic has often checked out my car for noises that I hear or minor radiator problems and not charged me for the time. It's a long- term relationship in which I bring him new customers. Occasionally, I get a thousand-dollar repair job on my car.
Clientric business is also unlike industrial business, which aims for expanding market share with the lowest production costs. American Express, The Wall Street Journal, and The New York Times are examples of clientric companies that aim for a limited market segment and avoid the lowest cost options. The American Express Card is more expensive than other, similar cards. The Wall Street Journal and the national New York Times are more expensive than USA Today and have much larger news collection staffs. All three companies aim for superb client relations: 800-number calls are responded to immediately, and charge card and delivery problems quickly nipped in the bud.
A traditional tangible product can be produced by a clientric business. The earliest manufacturing company that embodies such a concept is the Lincoln Welding Company. At the turn of the century, Lincoln donated welding equipment to trade schools because they understood that the students who learned to weld with their equipment would be loyal, life-long customers. Lincoln Welding is still around, still offering a high-quality product.
Like an industrial business, a clientric business uses long-term budgeting with multi-year projections. The difference is that the clientric business does not focus as vigorously on cost cutting. It has large budget line items for quality, innovation and improvement, and treats profit as another line item, not the bottom line. Sales volatility is controlled, not by firing employees who are highly trained, but by building reserves and carrying a large line of credit. A single good decision can rarely increase business. A single bad decision can cost the company, and great care must be taken to avoid losing clients and their business. Budgeting, intelligence and planning are vital.
The nature of clientric business can be understood by studying differences. Consider the following list of headings in the San Francisco Yellow Pages:
Contractors Referral Services
Controls, Control Systems & Regulators
Convention Services & Facilities
Convents & Monasteries
Conveyors & Conveying Equipment
Cookies & Crackers
Cookies & Crackers -Whsle & Mfrs
A Yellow Pages listing is about as close as one can get to business reality. There are nearly 380 separate businesses in these categories, including many national and a few international ones.
Some eighty of the 380 Yellow Pages businesses are traders. A few in the convention services listings are local print-copy shops, local hotels that depend on walk-in convention business, even a bus tour of the city. Most of the cookie listings are retail bakeries. Some of the cooking utensil listings are retail stores. In most of these cases, customers only come in once and are not seen again. Not all retail is trade because some unique stores, such as handmade women's gowns, receive sixty percent of their business from repeat clientele.
Two hundred of the 380 are industrial companies and appendages. In the contractor categories, several own large pieces of equipment that are cost-effective on large-scale jobs. These businesses have grown to fill the geographic niche in their area. In the controls category, nearly every business is the appendage or outlet for a large, specialized industrial manufacturer. Each control device or system is highly specified to a technical niche, such as the Fenwal thermo switch and automatic gas ignitor. These pieces of equipment are made in low-cost, heavily equipped factories that distribute worldwide. Some of the cookie companies are production lines, like Pepperidge Farms. The conveyor equipment and the cooler companies are similar to the control systems companies. The copper companies are vestiges of the earliest industrial forms, not very different from their ancestors a hundred years ago.
Among many of these industrial companies are some that have clientric attributes. Most of the contractors work with a short list of clients over a long period of time. Many of the distributor outlets work with a limited number of repair workers and engineers who are long-term clients.
Slightly under one hundred listings appear to be clientric companies. A few of the smaller contractors are really sub-contractors who work for a short list of general contractors. Most of the convention services are small, specialized companies that work with a client list that provides eighty percent of their revenue. These same clients provide word-of-mouth referrals for the remaining twenty percent revenues. Convention services include catering services, specialized tour services, convention organizers, facilitators, display and exhibit experts, equipment rentals, and audio-video specialists. The cooking schools service communities of special interest. Scattered through all the categories are specially skilled workers, consultants, professionals and technical institutions that are clientric with repeat customers and established reputations. Not all of them understand the clientric nature of their businesses, not all run their businesses well, and not all will be in the Yellow Pages next year.
There are several listings that elude my three categories. The convents and monasteries are not commerce. Some of the convention centers and bureaus are built with public funds and managed by government agencies for civic goals that are not one hundred percent commercial. The contractor referral services are oddities because their client appears to be the public, but is really the contractors who hire them. I can’t categorize the five names listed under cooperatives.
Five Distinct Characteristics
A clientric business, when it is well-run, has five distinct characteristics. Recourse, employee and customer esprit de corps, general absence of advertising, open or transparent systems (especially the financial ones) and cautious expansion plans.
A brief explanation is in order.
Recourse is the implicit and explicit message that the customer will always be made whole in the event of errors, omissions and misunderstandings. Recourse is the touchstone of long-term relations.
Esprit de corps reflects the everyday working and operating environment for customers and employees. Maximum authority is delegated to employees with customer contact, which embues employees with a positive attitude.
Advertising has little or no relevance for a company that has a list of its customers and seeks long-term relations. Satisfied customers promote the business.
Openness is the sine qua non of trusting relationships. A trusting relationship is at the core of long-term customer interaction.
Caution is important to clientric businesses. Expansion is seldom considered important if it might reduce attention to existing customers.
Clientric Business World View
The clientrist’s focus on long-term customer relations requires a calculus-like approach to human relations that is very different from the short division people skills of industrialism.
People remember being mistreated and deceived, and will behave differently as a result. Because of this longer-term clientric calculus, (and it is still a calculus) arising from a world view of social resource optimization, the clientric business behavior favors honesty, caring, and concerns for the common good.
Clientrists are post-industrial in this most essential business world view. Business doors remain open in physical, metaphorical and behavioral ways. There are so few good clientric businesses in most readers’ friendship networks that this description of a clientric business world view may seen incredible. The clientrist you know could be your doctor, lawyer, graphic designer or business consultant of exceptional caliber.
The need for this open-door world view arises from the desire to establish long-term client relations. Such relations are generally founded on mutual trust and the customer's recognition of competence in the business.
Both trust and recognition of competence are in turn based on the known absence of deceit and ready access to objective evaluations. This in turn favors openness in information, openness in finances and participating in or creating organizational structures that cope with the occasional lapses of mutual confidence, such as legally binding warranties, consumer mediation groups and labor contracts. In other words: Tell the client about all the alternatives. Have public audits and publish financial statements. The open door business world view is predicated on the necessity of these behaviors.
The view is of a safe world. The door is open because the world is safe. There are hazards in the world, some persistent, some probabilistic. They are, however, something to cope with methodically with the help of friends, associates, affiliations, organizations or technology. Hazards are also of low probability, and worth rationally ignoring. Technology is helpful to hazard avoidance in the sense that a credit system will keep most frauds away from a business.
The clientrist business person, like a technologist, can be found in many nations and in many skin colors. What distinguishes this person is his or her business world view, consisting of ten domains, ten pillars of perception. The clientrist may not be able to elucidate any of these stances, but behavior embodies values. Our business person, when confronted with a new situation, will bring all ten elements to bear, sometimes in sequence, sometimes all at once. No personality is predicted, no age, gender, or ethnicity has these attributes inherently. A world view is created by experience in a family, in a culture and in a business.
Questions uppermost in the clientric mind: What's really going on? What is the evidence? What are the numbers? What are the rewards? What changes will it cause? What is the most efficient way to do this with materials and people? What are the organizational implications and could they be helpful to my clients?
To visualize the open door quality in the business world view of the clientrist, let us return to our business person dealing with a lease negotiation. The clientric business person would view the lessor as part of his business and wish to maintain friendly relations. The key elements in most such leases are mediation provisions brokered by mutual friends. The recourse is always to mediation and mutual advantage in order to preserve a friendly relationship.
Economic theory is based on primary experience with trade and early experience with industry. An up-to-date economic theory for a post-industrialist society would not be based on price competition or economies of scale.
When business people listen to economists, the vast majority compare the experience to a meeting with aliens. Why is economic theory so disconnected from business experience?
The price of marijuana is a good case in point. The marijuana business lacks industrialism; it appears to be a pure version of trade. Each single sale appears to be the final objective of the seller.
An ounce of marijuana cost fifteen dollars in 1963. Since then, the price has risen steadily. Today the same ounce costs approximately two hundred and fifty dollars. Users do report that today’s marijuana is about twice as powerful, and inflation in the intervening years has been quite high. Still, the rise in cost is astronomical.
Calculating the amount of inflation in the intervening years should justify a price four times greater. Factoring in the increased potency should only increase the original price by double, for a total price today of one hundred and twenty dollars. So how did the price climb to two hundred and fifty dollars?
The one hundred and thirty dollar difference between the market price and my calculations is strong evidence that economic theory doesn't work. Marijuana should be a clear and simple test for economic theory. It’s pure trade. Without similar products on the market, price substitution is not a factor. There’s a large population of well-established buyers, and strong competition among producers and sellers. Marijuana is the economic definition of a perfect market.
In addition, the intervening thirty years have seen the introduction of three additional factors that should have lowered the price of marijuana even further. The market size in the United States went from a few million buyers to tens of millions. Production moved from overseas to domestic. Criminal penalties dropped from a felony, mandating a twenty-year prison sentence for marijuana possession, to a misdemeanor with a much more lenient sentence in many states. The price should not have gone up much. If anything, economic theory would have predicted that marijuana should still be fetching fifteen dollars an ounce.
Any economist can come up with a rationalization. The rationalizations I have heard are convoluted. What good is a full-blown economic theory, held sacred by many, when it can't explain an everyday occurrence that fits all of the theory’s primary definitions -- free market, price, demand and supply?
The Building Block of Economics
The fallacy of economics is its choice of a theoretical building block. The smallest economic block is the notion of an exchange of goods and services for a price. The smallest act is an exchange of ten dollars for a book. This act, an exchange of a good or service for a price, is considered identical to all similar acts, that, added together, are treated as an homogeneous cluster.
That cluster of acts added together becomes a point on a supply and demand curve. The curve has a supply side -- for all books published in the United States ranging from 200 to 400 million per year -- and a demand side for similar numbers. At an average price of ten dollars, presumably 300 million books are sold. If the price goes up, fewer will sell. If the price goes down, more will sell. Asking this may seem ludicrous to most readers who aren't economists: Do more people buy a book because it is priced a dollar less?
Economic theory seems to be based on observations of trade and early industry, not clientricism.
A Transaction is the smallest indivisible unit.
The smallest building block in clientric business experience is a transaction, as opposed to an exchange. A transaction occurs in a context of commerce, perhaps a department store. This store allows the return of unsatisfactory merchandise, such as a book with missing pages. Store employees give advice on the product and patiently answer questions. Price is a subset of a transaction and the importance of price varies from all to nil. Traditional economic theory, where price is all, originated in eighteenth century Scotland, a trade-based society that worshipped price.
The father of traditional price-focused economic notions, as translated into theory, is Adam Smith. Smith was a great genius, a Scot born several decades after his country lost its independence. Smith spent most of his life in Edinburgh with a few years at Oxford and in France, where he was influenced by the French Enlightenment.
Adam Smith championed two ideas to the pinnacle of Western thought. No one -- not Marx, Einstein, Darwin or Freud -- has come close to proposing ideas that carry such weight in social thought and are deeply embedded in the American mental cortex.
A fundamentally Smith building block concept is exchange-for-a-price. Smith also developed the idea of the invisible hand, where individual competition benefits the common good.
Is exchange-for-a-price a reasonable building block? The answer depends on whether you’re a trader or in another form of commerce. While we’re at it, let’s also ask whether a
theory built on price alone can be logically sound?
Stand behind an imaginary gas station, where a trader attempts to sell you a brand new VCR. The model displays no identifying logos or language. How much will you pay for it? One hundred dollars? Fifty dollars? Make me an offer.
In the trader’s car is a new copier. It's beautiful, but sports an unfamiliar brand name.
The trader also proffers an office space for rent, at today's special low price. Make me an offer.
The questions you will ask yourself are not questions of price. The trader will gladly give you any of his three items for a low price. He has to. Without specific information, his merchandise is worth nothing to you. With information, you might be willing to hand over a thousand dollars or more.
There’s lots of information you’d like to know before buying. What nation's electrical voltage system does the VCR plug into? What tape formats will it play? How many scan lines does it output to a television? Where can it be repaired? The VCR could damage your existing tape library without this information, and then you’d be looking at a negative price.
Information about the social and technical systems surrounding the VCR, in this instance, weighs heavier than price by a large margin.
Without a repair contract or maintenance plan, the copier is nearly useless and of nominal value to most buyers. Repair and maintenance count for many times more than purchase price with any copier. Maintenance includes supplies. You may have gone to a flea market and seen ten-year-old, perfectly good copiers for which supplies no longer exist. That's why perfectly good copiers languish in flea markets. The day your “bargain” copier stops, money flows from your pockets to repair services, who may not be able to fix it. The rush report sits on the desk, staff scurries around looking for quick copy services or a replacement copier, and you have chaos.
Then there’s the rental office. The price you'll pay depends on information about many relevant services. Is the office zoned for the uses you require? What about lease conditions? Insurance? Access to telephone lines? Heating? Lighting? These service details could render a dollar-a-year rental offer too high to be appealing.
In America, transactions include five elements: price, information, service, repair and recourse.
Recourse is what happens when something goes wrong. The new roof leaks and the low bidder has moved to Canada, but Sears, good old reliable Sears, will come out and fix it. That's why Sears has over fifty percent of the residential roofing market, regardless of price.
We all know people who only shop for price. What happens when they buy off-brands or products and services without identification? Occasionally, when it comes to service, repair or returns, they get burned. Gamblers tend not to tally up the cost of their hobby; price-shoppers rarely reveal or consider the situations where a bargain has, over time, cost far more than the original purchase.
How many price-shoppers are there? A recent American Demographic magazine survey reports that seventy-six percent of those queried would rather spend more on a high-quality product than save money by buying a cheaper one.
Conceding that the basic building block of economic theory is not price, but a transaction with multiple factors including price, what does that do to economics?
When the emphasis on price is replaced by other factors, secrecy, competition, cunning, homogeneous product marketing, and the universal nature of economics are demoted. Price-setting also undergoes a change.
Pretty shocking changes, all from the replacement of the basic building block. It’s especially shocking, since the financiers who worship the traditional building block are managing the budgets and finances of many Western nations.
Traditional business theory idolizes a sneaky bastard who cuts costs to the bone , concentrating on volume sales at the highest mark-up.
Incentive to behave otherwise -- the so-called “level playing field” -- is supported by government pressure for public financial statements and minimum quality control.
Experience should demonstrate that openness in business is preferable to secrecy. Good restaurants have their kitchens open to interested diners. In the past ten years, restaurant kitchens have become an evening’s entertainment. It’s now commonplace for businesses such as one- hour film developers and eye glass manufacturers to reveal production facilities to the public.
We fear secrecy. It’s fear that passes laws to prevent used-car dealers from turning back odometers. Fear has created open bidding for government contracts. Choosing between patronizing an open business, like Macy's, which will be in the same place tomorrow, or the peddler in front who may not, our tendency is to buy from the peddler only when product quality is unassailable or a loss is no threat.
We feel the same way about competition. Most goods and services that have daily significance are immune to competition. We buy food and clothing, live in homes and apartments, and listen to records, read magazines, and tune to radio stations that are appropriate to our tastes and interests. Who chooses a doctor, dentist, hospital or masseuse for the most competitively priced service?
Any item or merchant claiming to be “the most competitive” usually instills doubt in the buyer. The reaction is a hyper-conscious review to see if preferred products, brands and services are offered. Service and recourse are questioned and small print is actually read. The buyer still may maintain a distance, with only periodic shopping experiences. Credit jewelers, crooked electronics outfits and high-pressure auto dealers frequently promote themselves as the most competitive. Being burned once is a sufficient lifetime deterrent.
Recent exceptions to the most competitive burners are the new mass market discounters like Home Depot and Circuit City. These discounters combine low prices with extensive inventory of brand-name products and excellent recourse.
Am I exaggerating? Am I the only one who stays away from stores and merchants who have cheated me? Am I unique in avoiding tourist traps because the emphasis on competition obscures junk or dishonesty on a grand scale?
Quantity is not competition. Different brands of the same goods in one store, or similar stores clustered together in the same shopping mall, provide service. When the customer has choice, the customer is better served. Price is rarely affected by proximity. An organic food store doesn't cut prices when the pesticide-ridden grocery store next door lowers its prices. A craftsman jeweler located near a credit jeweler can maintain his own clientele - and charge prices considerably higher than the credit jeweler.
Cunning is Out
We don’t seek cunning in the people who sell to us. Cunning may be considered a positive value in American business, but buyers, investors, and those seeking partners avoid it. How can we explain the large number of dishonest and misleading television ads, except to recognize that our society tolerates and, in many instances, admires cunning. Advertising of the deceptive American nature is not found in Scandinavia, Holland or Japan, all societies considerably less complex than ours. Cunning becomes a greater social evil in an increasingly complex society because complexity provides opportunities to confuse and mislead the buying public.
Transaction-based economic theory explains why cunning, which has clear overtones of dishonesty, becomes less effective in the marketplace in a complex society.
Could we have airplanes if the aircraft manufacturers and airline companies were as riddled with corruption as the United States Congress? Corruption is close in meaning to cunning. Would you buy food, medicine, or computer diskettes from a company noted for its cunning? Baby food? When glass was detected in Gerber baby food, the company sold out within six months of disclosure. The glass was not so much the problem; instead, it was Gerber’s less-than concerned public response to accusations that soured their market.
Honesty and Cooperation
Honesty becomes more critical as cooperation grows.
Cooperation has both a social meaning and an abstract parallel notion in the form of systems reliability. A system’s reliability is predicated on accurate internal information. A software bug that destroys the system is either information in the wrong place, information at the wrong time, or a wrong definition. A reliable system functions like a cooperative. Information must be accurate to achieve reliability, and must be passed along honestly to achieve cooperation.
The Decline of Homogeneous Products
Homogeneous products become less relevant to final consumers, who more often choose products for specific qualities. The tea drinker, for instance, will gravitate toward high-quality teas. Giant conglomerates buy out these specialized products in an attempt to corner every tiny niche and diversify. Why? Because their mass homogeneous markets are shrinking.
There are two reasons for this shrinking. As our lives become more complex, we require products and services with more information and more specialized connections to other products and services. An example of this increasing need for interconnection is found in kitchenware design. Where we might once have used one pan for many cooking functions, we now rely upon a batterie de cuisine servicing the microwave oven, the dishwasher, a gas flame, an electric grill, or even the rice steamer. Smaller, specialized businesses have sprung up to meet all of these needs. The second reason for the shrinking of the mass homogeneous market is the availability of automated production equipment. Small businesses can produce smaller production runs of unique products at modest prices.
Mass-market homogeneous products and services, while declining in the United States, are still supported by unsophisticated buyers: children, tourists, and many Third World residents.
Economics is Not Universal
Farewell to a wonderful claim that economics has said to be universal. United States economists have never hesitated to give advice to Chileans, Nigerians, Indians and anyone else who might ask for a loan from the World Bank. Every culture is presumed to have the same economic system, with uniform currency, interest rate and trade. Every economic society is presumed to be based on a supply and demand curve that focuses on price minimization and profit maximization.
Transaction-based economics does not agree with this presumption. Transactions in different cultures vary considerably. Some countries have one hundred percent trade. Others are five percent trade, twenty percent clientric. Economic systems displaying these disparities on a large scale must be different.
What is the extent of variance? That topic is the subject of my future research. Three cultures that have consumed my interest for some time are the Japanese, the French and the
The elements of a Japanese transaction include those found in American transactions, with one deletion and one addition. The deletion is recourse. In Japan, recourse is not an issue; everything can be returned or refunded. To the Japanese, a dissatisfied customer is a business disgrace. It should come as no surprise that the Japanese have a high proportion of clientric businesses.
Enter status, the addition to the Japanese transaction. Japan is a highly stratified society, from number one (the emperor) to number 120,000,001 (a Korean immigrant). Status is virtually unchangeable. Most Japanese products and services are sold to minute status categories. The Japanese examine each product or service to see if it fits their social niche.
French Recourse? Mais Non!
Interestingly, the French also have a status element in each transaction. Like Japan, France is a highly stratified society. One buys flowers and bread at outlets suitable to one’s position in the social hierarchy.
However, the French transaction lacks two elements essential to the American transaction: recourse and repair. Recourse doesn't exist in France. A shopkeeper will readily say, “You bought it, you keep it. If you were foolish enough to buy it in the first place, it's your problem.”
Repair is so rare in France that one seldom sees a choice of goods or services that are repairable.
All of this makes sense when you realize that the Japanese buy and import many French products - purses, perfume and clothing - none of which require specialized repair.
Credit characterizes Arab transactions.
Arab societies are almost one hundred percent trade. Unlike American, Japanese and French transactions, credit is central to the Arab transaction. The price negotiation for every item that Westerners perceive in Arab markets is really a negotiation about credit.
The Arab buyer invariably knows the credit history of the long-term seller and the seller's family. The final price seems to include compensation for past credit behavior, future risk and the relative social power of the seller to the buyer. Almost all other elements of the transaction are minor, aside from status and credit history, since the buyer-seller relationship is close to a monopoly, with rare changes in transactors occurring.
That long discussion over coffee in the souk is about whether the buyer paid on time last week, whether the future marriage of a daughter might put the buyer's family in a financially precarious position, and whether the prospective husband will be a prospective customer.
As a consequence of different national elements of transactions, we should expect different societies to have differing economic systems. They do.
United States Trends
In transaction-based economics, a transaction has macro-economic effects. A predictable trend is the increasing number of small businesses. As buyers become more sophisticated and diverse in their tastes, the need for increased personal services and for more specialized products arises. Such businesses are necessarily small because service and specialization are inherently personalized; information is tailored to each buyer.
The countervailing trend favors large businesses in fields such as automobiles, copiers, and computers, where repair, maintenance and recourse are vital. For buyers, repair, maintenance and recourse are considered more accessible when dealing with a large company. Canon has repair outlets in hundreds of cities, as do major auto dealers and Sears. When we buy a product that requires repair, and we don't know where we'll be when the product breaks down, we buy from a company that is represented in many locations.
We return to the earlier discussion of marijuana. Why hasn’t its price behaved according to predictions for a traditional economic trade good?
Examine the big jump in price that occurred in the late 1970s, when the United States government started dumping the poison Paraquat on the growing marijuana crop. The poison didn't reduce the marijuana supply, but it did force buyers and sellers to form trust alliances. Buyers were forced to buy only from sellers who were known to be reliable and who could guarantee the absence of poison in their product all the way back to the grower.
Growers also became direct sellers in this period. The poison on the crops put a premium on a trusting relationship. Buyers and sellers moved away from a trade relationship to a clientric relationship which was operated at a higher price level. Low-price sellers were driven out of the market for lack of buyers. Clientricism is a post-industrial stage of commerce and is discussed under the god of Honestas, the god of trust.
Social organization can be charted in two dimensions: cohesion and complexity. Such a model explains some elements of commerce and markets.
As she governs the provinces of cohesion and relationships, Honestas also holds sway over emerging theories of organization. I say emerging, because of course there are many existing business organization theories drawn from experience in trade and industrial societies. Honestas enters the scene when the definition of organization is used for to groups of people who depend on each other in long-term business relationships. You can easily see when and how Horos and Ganesh hold sway in these relationships; where snafu becomes the operative word.
Do you ever wonder how eighty million turkeys get delivered three days before Thanksgiving? And why very few are left over? Or why perfect strangers on the beach are tanning themselves equidistant from each other? Or why, when the speed limit was reduced to 55 miles per hour in the late 1970s, traffic fatalities declined?
These are all questions of organization, the rather invisible structure of the systems that surround our lives. In the past, we have been misled into trade-based, pre-industrial thinking that the invisible hand of the competitive market is accommodating. That is not the case.
Even the slowest mind has a gut-level sense of organization, because it is a key issue in team sports. Football teams train to work together. These teams are highly structured organizations with individuals performing very specialized functions: offensive teams, defensive teams, kickers, halfbacks, and numerous types of coaches.
In arguing against the invisible hand of the modern commercial marketplace, I feel the responsibility to find ways to help more people perceive and understand the vital social organization behind market activities.
The following chart summarizes the concept of social organization.
Along the left side of the chart is a measure of personal cohesion. The strongest cohesive group might be two lovers having good sex together. The weakest might be two strangers who don't speak a common language, passing on the street.
Better examples of extremely cohesive groups are a choir and a crew team. These groups even breathe together.
There is even a negative part of this line where a group experiences dehesion, actual hostility between members. Examples of this type of group are lacking because there isn’t much “groupness” in such a case. A group of prisoners, in some instances, might qualify.
The other dimension, left to right, is complexity of the group function. At the extreme right is the Apollo moon mission, the most complex human endeavor of recent times. Putting men on the moon involved the successful coordination of millions of people, from those who built rockets and rocket parts to the tens of millions whose taxes paid for the excursion. Errors of even one-tenth of one percent in the physical parts of the rockets and capsules would have kept the project from realization. Most error tolerances were hundreds of times smaller. Organization was key.
The least social complexity is two strangers passing on the street. Neither education, communication nor coordination is needed in such a case.
Scattered over the chart are diverse examples of organizations. A symphony is in the upper left because it requires a great deal of training and is cohesive in a very precise form, to the fraction of a second. The amount of education, skill, experience and support staff required to make a symphony work is very large.
Corporations are a large circle in the middle. They require far less cohesiveness than a symphony, but in many instances, such as an airline or telephone company, they involve careful coordination, training and mutual support of tens of thousands of people, with a very low tolerance for error.
The interesting dots in the lower center of the chart are moviegoers or airplane passengers. In both instances, we encounter strangers who sit in close proximity, so the cohesion element is small. However, the complexity of these two examples is different from two strangers passing in the street, where potential coordinated behavior is implicit at every moment. The moviegoer and plane passenger egress in case of a disaster has been previously planned and thought out. In an airplane, numerous other disasters have been anticipated and built into the training of flight attendants. Most airlines carry medical supplies to be used by the presumed medical personnel probabilistically expected among the passengers in case of a stroke or heart attack emergency. Complexity in this circumstance is considerable. In both the theater and the airplane, even the air supply is provided; in the airplane, it is a vital matter.
Political organizations, while lower on the cohesion scale than their commercial counterparts, extend further to the right on the complexity scale. Political organizations rarely have as great a cohesive quality as the prototypical corporation because political organizations and government agencies are much more often the byproduct of diverse self-selecting in their membership. Corporations tend to hire only people who are like existing employees. Exceptions in government are the FBI and CIA, which, in the past, have had high proportions of Mormon employees. Political organizations are commonly much more complex than corporations.
Political organizations, which include government agencies, often deal with far greater technical and social complexities than commercial business. Government institutions must always satisfy a diverse group of constituencies and goals. The Peace Corps has employees, volunteers, Congress, host countries, State Department and intelligence agencies to deal with in addition to vague goals and changing strategies. A commercial business has a narrower focus, with fairly clear and measurable goals such as making net profit and growth.
Two interesting parts of this chart are the 1978 Israeli Air Force strike against Syria and networks. The Israeli Air Force ranks as an extraordinary event of human activity. A small group of men, working together with a level of precision comparable to symphony musicians, destroyed ninety Syrian jet planes with no loss of Israeli life. This mission was accomplished with aircraft and machinery designed, built and maintained by thousands of people who were almost all strangers to each other. This is organizational elegance extraordinaire.
The Apollo mission is in the same class. On that project, engineers and administrators deserve credit for doing their jobs well and being part of a larger social system that required superb socio-technical competence.
Networking is a currently popular yet vague term. Its vagueness can be handled by making the dot larger on the chart.
Networks refer to relationships that, while stronger than one’s presence on a mailing or telephone list, fall short of a group of friends extending themselves to help another friend. Networks seem to be held together by shared values, which means that they are larger and more effective when the values that hold them together are cooperative, cohesive ones. Networks seldom have much structure other than a potential list of members. They can't handle complexity without adding structure, in which case the network becomes something else, such as a club, association, or union.
What's Interesting About Networks?
A network is an understandable, viable and useful form of organization in a highly specific niche that may not have been apparent before. A network is useful for helping a group who share commonly held values to provide mutual support and to pass on information relevant to those values.
The most recent uses of networks have been in business. I started the first business network with a few friends in 1974. Nearly all of the members of the network were in clientric businesses. The network grew to over 600 businesses that helped each other when mutual help was beneficial.
Our model was copied in late 1970s Sweden as part of national policy to generate more small enterprises. Sweden was fertile ground, with a long history of cooperation and interest from private and public entities. One-third of all Swedish consumer purchases are still made at cooperative enterprises. The network project was successful over the six-year period I witnessed. Thousands of new businesses were started and thousands of established businesses learned to cooperate. In Sweden, business cooperation reached a pinnacle, with networks bidding on large commercial projects including electronic manufacturing and shipbuilding.
The business network spread from Sweden to other parts of Europe, and entered the United States in the mid-1980s with grants from the German Marshall Fund. Here, the model expanded rapidly, starting, not surprisingly, in the heavily Scandinavian-populated Minnesota and Northwest, and spreading throughout the midwest and central states.
The Thanksgiving Marketplace
The annual American ritual of Thanksgiving, with delivery and transactions of millions of turkeys with little or no waste, would appear to be orchestrated by the miraculous invisible hand in the market. Not so. Many similar feats of human cooperation occur all the time, with the complex structures behind such events invisible to us. With its tradition of specific foods, Thanksgiving affords little waste because the dictates of the tradition are uniform.
The same scale and complexity of the Thanksgiving turkey marketplace occurs every time there is a national election. National elections require coordination, cooperation and a decentralized social process. The commercial marketplace never enters the election process.
Christmas, with its annual delivery of presents to children worldwide, is another similar event. The market plays a role, but so does every other social institution. The whole process is a decentralized organization. Unlike Thanksgiving, Christmas is known for its waste. Christmas merchandise frequently remains unsold, or is broken, unavailable or returned to the seller. Christmas is based on gifts and individual tastes which are not specified by tradition, so waste occurs regardless of the invisible hand of the market.
Work takes on new perspective in a clientric world. Workers choose their pace and make decisions about the impact of their work.
In the clientric business, consequences are everything. If you make a mistake, you attempt to right the wrong, or at the very least, to hold sway over the mishap to the eventual satisfaction of your client. One’s ability to perform is predicated upon the knowledge of consequences, and the ability to proceed with one’s actions in good faith. Livelihood, or the ability to work, is slowly moving away from the territories of trade (take this deal, or shove it) and industry (take this job, or shove it), into the domain of Honestas. There, the prevailing tone is more “take this job (or deal) because it is mutually beneficial to our long-term relationship.”
Historic Meaning of Work
The nature of work has changed radically in the past several decades. In the late 1950s, I worked in a factory and on the railroad, where I found conditions of employment comparable to those described by Dickens - ell, sanitation was much better than in Dickens’s day. In the small- and medium-sized companies I work with today, conditions are so different that it is difficult to make behavioral distinctions between the owner and the shipping room staff.
Today's worker is motivated by concepts that focus on meaningful work. What is meaningful work?
A Zero Job
If the task is to measure the degree of livelihood failure for any job, then let’s begin with the worst job imaginable and give it a zero. What are zero jobs? An 800-number telephone operator, who sits at a computer in an Iowa warehouse, taking orders for Time magazine subscriptions from customers who are motivated by the television offer of a free Walkman with a new subscription.
This job fails to deliver, in three ways, what I call “The Three Dimensions” of contemporary livelihood measurement.
The Three Dimensions of Job Measurement
Number one is the Pace Control dimension. Number two is the Consequence dimension. Number three is Vulnerability.
The way we handle time is relevant to how we lead our moral and ethical lives. If we schedule everything tightly and crowd each appointment closely together, we leave little time for the unexpected conversation with a desperate friend or the act of freeing a butterfly from a plastic barb. A life filled with hectic movement does not meet even modest humane measurements. Unfortunately, contemporary life continues to be negatively affected as individuals determine their own pace less and less.
When I write on a computer, my pace is influenced by the machine just as my sensibilities are kinesthetically directed by the keyboard-screen interactions. A nine-year-old trying to do the same thing cannot accomplish what I can because neither his muscles, his motor energy (that wonder that makes young people jump and run to open a package), nor his emotional temperament are trained in the same way.
The most obvious machine examples that dictate our pace and focus are a chainsaw and an airplane. Imagine using either one in an intense moment of sorrow. Chances are, you'll cut off a leg or neglect to tell the airport control tower that you are making a right turn on take off. These machines obviously dictate our pace, our focus and our timing. So do other machines to different degrees. A bulldozer driver is kinesthetically clumsy and ferocious. Such a person cannot be directly sensitive to the small plants it backs over. A hand-shovel operator works differently, and is far more sensitive to his or her surroundings. He or she might notice those small plants.
We all work with machines that take away our personal sense of time. As machines shape (read “direct” if you really understand this issue) the pace and focus of our daily life, to that extent they dictate success or failure of work on the pace control dimension.
Using a scale of zero to ten for the pace control dimension alone, the work conditions of a dentist, crane operator, airline pilot and truck driver are close to zero. A university administrator, trial lawyer, Tupperware salesperson or minister are closer to ten.
Then there’s Consequence. What are the consequences of anyone’s work? Do factory discharges poison people who live downstream? Do soldiers use a product to kill noncombatant villagers? Do we perpetuate the eviction of elderly widows from their homes?
Most of us recognize that we cannot know the consequences of our actions. “Doing good” can unpredictably produce a poor result. A generous gift of a house results in a needy person’s removal from the welfare roll. Helping a woman get the job promotion she desperately wants precipitates self-confidence, followed by a divorce and remarriage to a man in her new department. Meanwhile, her former husband and three children mourn her loss.
So, if consequences are beyond us, what can we know? Look downstream. As far as you can see, that’s all you know. If you see the effluent entering the river, dead fish downstream, and sick eaters of polluted fish, that’s pretty far. With such a view, we might be able to act with some knowledge of our consequences.
Compare our ability to view with our own eyes the consequences in two situations. Situation A puts you in top management, where you review technical reports on effluent and interrogate experts. Situation B sees you in a lower-level job, where you leave every day at five p.m. and your bosses assure you that the effluent is clean, and that company experts have given the river a clean bill of health.
The ability to see farther down the stream of consequences gets a higher mark on this dimension of desirable livelihood. It is assumed that being able to see longer-range consequences is, in itself, a sufficiently positive measure. If you can see, you can monitor and change behavior. A social activist worker, shielded by his corporation from seeing the consequences of his actions, can make far more harmful decisions than a morally weak worker who can see quite far down the stream of consequences.
Looking carefully at typical jobs, at the companies and institutions in which they are presently mired, we can readily find a simple rule of thumb to measure consequence.
Consequence and Management Structure
An employee's ability to see the consequences of his or her own actions increases in direct proportion to the openness of an institution, the availability of management reports, the degree of decentralization in management, and the closeness of the institution to its customers, community and suppliers. These conditions also help to define the clientric business.
The ability to see consequences decreases in circumstances of secrecy. Secrecy exists where financial and management information is lacking, the organization is highly centralized and hierarchical (such as the military or CIA), and workers are isolated from other workers, customers and related peers involved in the final use of the institution, product or service.
High-scoring jobs in the Consequence dimension would be top managers who work directly with customers, dentists (on this dimension they score highly because they see the consequences of their work), residential care nurses, and self-employed accountants. A low-level machine operator manufacturing an unrecognizable part in a secret project, a clerk who spends full-time checking signatures of check endorsements against signature cards, and a truck driver carrying unknown cargo for a large company rate close to zero.
Companies with job rotation, a practice that increases employee knowledge and experience, do well on the Consequence scale, as do companies where a broad base of employees are involved in decision-making, and where employees deal directly with customers.
The third dimension is the easiest to understand. Vulnerability. Job vulnerability.
When a conscientious person sees something going wrong in their work environment, that person must have the freedom to act positively or stop working at their own discretion. If an action is polluting the river, then the employee deserves the right to inform management, and request that they halt the polluting action. The employee also needs the option to do more research, and even to report this research to the local press without fear of being fired or punished.
Vulnerability is a dimension that measures individual freedom to exercise intelligent choice. If an employee raises strong objections to working conditions and retains his or her job and dignity, this freedom is obviously desirable from a livelihood vantage point. If the employee can be fired for even the slightest questioning, then the job scores poorly. Today, nearly fifty percent of all United States workers can be fired on a boss’s whim. Many more see wages and opportunities for promotion frozen in retaliation for the slightest criticism.
I recall a farm worker who was directed to set the gauge on a pesticide dispenser far higher than was reasonable. After protesting to the field manager, the farm worker was told to get back to work. Knowing he would be fired for mentioning the high gauge again, the farm worker did what he was told.
Unions, as well as the Civil Service, have been a great help in mediating such situations. Companies with grievance and internal appeals processes score high in the Vulnerability dimension.
When these three work conditions are examined in terms of their relationship to the client, it is evident that both parties benefit.
Employees who control their own pace can relate directly to the customer in a form that customers desire on terms that strengthen the client relationships. Consider the decades of telephone operators who had a strict eight-second limit on dialog with customers and penalties for exceeding the limit. Customer service? Employees who control their own pace also reduce the error rate that ultimately impinges on customers. Determining the outcome of work and feeling confident in acting as a consumer, a citizen and an employee are clearly representing the interests of the client population. Customers are the real and intended beneficiary of high scores on the three dimensions of job measurement.
Would a clientric company have a sales staff paid on a commission basis?
Commissioned sales people are rare in trading companies. The concept of a commissioned sales staff took root and flourished in an industrial setting. Small company trading environments don’t foster specialization, which, while it may occur in production, does so on a very limited scale. The trader does most of the final sales work, and the necessity of protecting the gross sales margin does not allow much room for commission incentives.
The industrial environment is quite the opposite. The producer can have large excess inventories which necessitate a sales force. Sales commissions make sense because the object is to get market share and keep the production line moving.
The clientric company wants to serve the customer, and for a long time. What is the role of a commissioned salesperson in such a company? Can a salesperson who has focused on getting new customers as fast as possible also function as an effective information gatherer on customers’ changing needs? Will a commissioned salesperson allocate the time to bring the customer into the home company to see what innovative accommodations can be made?
I’m reminded of a client in Western England, a traditional woolen mill in a dormant industry. Industrial processes and scale of production had long ago forsaken this little company. English woolen clothing is hardly in the vanguard of fashion. The first marketing expert hired to fix the company’s low sales recommended the use of stylish fabrics that rely on time-sensitive fashion and big sales commissions. When that recommendation failed, I was their second hope.
Looking around the mill, I suggested that they convert their focus from fashion to furniture. Instead of manufacturing wool for fashion fabrics that no longer appeared to be popular, they could turn their attention to the manufacture of upholstery fabric. My main point was that sales could then be made directly to furniture manufacturers without commission.
Furniture company buyers were invited to the wool factory, housed in a great castle that was part of an impressive estate, and encouraged to meddle with the production process. Buyers were then able to achieve the fabric output that suited individual furniture manufacturers’ uses. The intimate relationship of the fabric producer and the fabric buyer, each of whom had special fabric needs, allowed fabric buyers to hone fabric production output to suit furniture producers’ needs.
Will Clientric Personnel Practices Have an Effect on Society?
Our society has already absorbed many of the managerial values of the industrial business person.
Today, a popular parenting book advises parents to act like CEOs. This is hardly a new notion. In my child-rearing years, my wife and I adopted an approach that resulted directly from the managerial training we had both received. Neighbors had an indelible list of do’s and don’ts for their children. Three wrongs (which might include eating off the floor, saying a bad word and playing with one’s genitals) resulted in a general reprimand for all three undesirable actions. My wife and I limited reprimands to individual incidents, and encouraged positive behavior along with the reprimand. Eating off the floor would be discouraged, but a cookie would be placed on the table as a lure to encourage the desired behavior.
The consequence for our three children, now grown, is hard to evaluate. They seem more likely to make moral judgments from context and reflection than their peers who were raised with negative reinforcement, and possibly confusing messages. Our adult children seem more flexible-curious than rigid-certain, as a result.
It is not unreasonable to expect consequences in society from the structure and values of primary businesses a century after those structures have taken root. By the 1950s, most Americans were part of some larger national mainstream organization, be it a church, Kiwanis, Rotary, Elks, Shriners, women’s clubs, veterans’ groups, sororities, alumni organizations, military reserves or even a political party chapter. Joining groups was consistent with industrial society expectations.
Today, membership in such organizations is dwindling. Individual autonomy more closely resembles the small business quality of many clientric businesses.
Will the autonomous individual American of tomorrow be more clientric? Will he or she seek long-term interpersonal relationships based on openness, honesty and a public commitment to remedy errors and overcome difficulties? Will this commitment to remedy errors take on the formal quality of a manneristic society?
Is the Hierarchical Structure of a Clientric Company Different from that of an Industrial Company?
Rudimentary evidence suggests that the answer is yes. Many management consulting firms prescribe flattened hierarchies for large companies. Their reasons are twofold: to create a more flexible and responsive management, and to encourage delegation of decision-making to a lower level.
Neither of these reasons follow automatically from observing the transition from industrial to clientric business. In fact, such reasons may come from a misreading of the trend towards clientric business.
The goal of a clientric business is to actively respond to the immediate and future needs of individual clients and to maintain an enduring relationship. This is done by rapidly adapting, by correcting errors and by anticipating difficulties. Such responses require autonomy of decision-making by even peripheral employees. “Flattening” the existing hierarchy may or may not facilitate employee autonomy. It may be possible for employees and departments to exercise great autonomy, even with out-sourcing and dependent-contractors, without changing the existing hierarchy.
Using a military analogy, one new lieutenant with two sergeants may command a company of only twenty-five soldiers. A traditional lieutenant may command ten sergeants and one hundred soldiers. But you still have sergeants and lieutenants.... captains, majors and generals, too.
What is the Role of Government in a Society with Many Clientric Businesses?
Americans don’t really have much choice about the kind of government they get. The political debate rages over more or less bureaucracy, more or less centralized government - but not over the kind of government itself.
Government in America has grown from a seed to a great tree, in an ad hoc manner that creates and situates government when and where we want it. Thirteen states formed the nation, and local municipalities, in most cases, formed the states. A neighborhood forms a water district, a municipality, a school district. Over 600,000 elective offices govern this country.
Most countries, with only a handful of exceptions, owe their government structures to emperors, kings and princes. That makes American government structure unique and so autonomous that reform is questionable.
American government is already somewhat clientric in structure, just like many businesses that mistakenly characterize themselves as industrial (banks and utilities) but are really clientric. Our governments (thousands of them) seem to have an industrial outlook. They hire people on a consistent basis to patch up new problems and reconcile policy conflict by becoming inefficient. The Immigration Service is a good example of this type of learned inefficiency.
Converting an industrial company into a clientric one is a challenge. Consider the issues raised on social sorting, or the way an institution creates itself by selecting employees. Is such a conversion even possible?
One thing we know about new clientric companies is that they step into niche markets where specialized information is needed. Clientric companies also dominate niche markets where tailored services are required. What this suggests is that small governments may form to carry out the functions that existing governments are unable to provide.
These new governments may not even be governments. It is possible that they will be non-profit or enterprise businesses.
Is the Clientric Company a Cause or a Remedy in a Snafu Society?
A superficial view of the situation suggests that the proliferation of small, poorly capitalized, autonomous niche companies might increase the level of snafus in our country.
Another view would see that many industrial companies treat customers in large clusters. They hardly know that individuals exist. Government agencies seem to operate in the same industrial mode. Unmoderated industrialism on a grand scale is more likely to be the real cause of snafus.
Consider this recent snafu told to me by a client whose business facilities were damaged in a flood. He repaired the damage in two weeks, with all necessary approvals from his insurance company. The insurance company reimbursed him within one week of filing, but required two check endorsements from the SBA and the mortgage holder, a large East Coast bank.
Obtaining two endorsements took nearly three months and more than a full week’s worth of my client’s top-management time. That is a snafu, caused by a government agency and a bureaucratic industrial company.
The genuine question in my mind is whether clientric companies will emerge to solve snafu problems in the future.
The nature of an efficient service provider is that it duplicates a complex skill over and over. A private detective is a good example. A client calls about a suspected scam artist who is new in town. The detective creates a ten-page dossier on this scam artist, and upon delivery to his client, is paid five thousand dollars. Then, as the scam artist makes the rounds, the phone starts ringing from other clients, each wanting to know about the suspect. The private detective modifies the ten-page report slightly to suit each client and collects many more fees.
Is this a model of the way that snafus will be remedied in the future as more clientric businesses arrive on the scene? Will becoming expert at diagnosing recurring problems and reselling packaged solutions constitute the new method of snafu-solving in our society?
Alfons Trompenaars.................................................... 9
Alfred Chandler Jr....................................................... 2
bourgeois values.......................................................... 3
business attitudes....................................................... 10
business world view.............................................. 2, 12
business world views................................................. 16
Calvinist doctrine......................................................... 6
Charles Hampden-Turner............................................ 9
chemical companies.................................................... 9
clientricism..................................................... 3, 10, 13
commerce.............................................................. 4, 14
Competition........................................................ 13, 19
conviviality.................................................... 15, 16, 17
diversity............................................................... 15, 16
Ecology of Commerce................................................ 3
Fulani........................................................................ 5, 9
Ganesh................................................................ 4, 7, 11
gods of commerce..................................................... 10
Honestas................................................................. 7, 12
Hong Kong................................................................. 15
Horos...................................................................... 7, 12
industry................................................................ 10, 17
institutions of tolerance............................................ 16
James Beniger.............................................................. 2
Japan....................................................................... 5, 18
Joe Corn....................................................................... 2
Karl Marx..................................................................... 2
Mancur Olson............................................................... 2
Mary Douglas............................................................... 2
Max Weber................................................................... 4
Occam's Sledge.......................................................... 11
Paul Hawken................................................................. 3
price competition...................................................... 19
profit motivation.......................................................... 3
Protestant Ethic and the Rise of Capitalism.............. 4
rain forest societies.................................................. 19
Smarland..................................................... See Sweden
Social Sorting........................................................... 14
The Seven Cultures of Capitalism............................ 10
Thomas Hughes............................................................ 2
trade............................................................... 10, 12, 18
Urbanus............................................................ 7, 11, 14
West Africa.............................................................. 5, 9