The Great Greek (de)fault

ParthenonAbout 2500 years ago, Athens determined the original genetic code for our modern democracies. Even further, our entire modern civilization stands upon the shoulders of Greek giants, be they philosophers, mathematicians, scientists, or statesmen. Is it the same Greece that today threatens to unravel our entire economic system? Probably not. The Adriatic sea still has the same name and fills the same space on the globe, but the water is no longer the same. Pericles has been replaced by Papandreou, much to posterity’s dismay. Greece has, rather ironically, become the Achille’s heel of the Euro zone.

Almost 100 years ago, the nations of the world plunged into the largest-scale and most absurd carnage yet to have been known by mankind. A single diplomatic incident (not so far from Greece) triggered a chain reaction of nations declaring war upon each other for the sake of honoring their alliances. If ever there was a time to not keep a promise, that was the time. The sum result of all nations keeping their promises to each other was catastrophic.

Political alliances have since been eclipsed by debt covenants. Greek citizens will soon decide whether or not their country will respect its covenant. For an outside observer, it would seem that if they stick to the covenant things will be very hard for a long time, whereas if they opt for default, all hell will break loose with no clear view on what will be left when the dust settles. A referendum may lead to the second outcome, and Pericles would have difficulty understanding such an absurdity.

Pursuing the comparison of the current risk of systemic breakdown with the first world war, why would it be preferable for a nation to honor its covenant today whereas it would have been better in 1914 to nullify its alliances? Probably because the alliances of that period led invariably to the disorder of war, whereas the act of honoring a debt covenant in our period is what keeps the current economic system from collapse.

That, at least, is the simple answer, which may in fact be faulty if collapse appears as the most probable outcome anyway. Maybe we need to start thinking outside of the machine that operates us. Perhaps the entire debt structure of our modern civilization is just not sustainable. Perhaps, beyond a certain level of debt, the lender must share responsibility with the borrower for the consequences of excess.

That bit of wisdom even precedes ancient Greece. The book of Leviticus ordained debt forgiveness after 50 years, and such a solution was seriously advocated last July by Hannes Androsch, one of Austria’s previous ministers of finance. But if parties within a single nation can hardly agree on such policy, it is highly improbably that it could be negotiated internationally. A coordinated transition to a more stable economic system is the thing we need most, and the very thing that seems most unattainable.

The Greek prime minister’s disruptive call for referendum may someday have the same historical significance as the assassination of Archduke Franz Ferdinand in 1914. Whatever becomes of Greece (and the rest of us) in the wake of such a self-imposed disaster, the Parthenon will remain standing, as will the numerous neoclassical buildings that house so many of our financial institutions.

– by Carsten Sprotte, Oct. 31, 2011

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Counting what counts

Chip Conley founded the successful California hotel chain called Joie de vivre. Most people in France will not have heard of it. Indeed, as a California-born now Parisian, I had not heard of it either until I discovered Chip on TED. It was refreshing indeed to come across someone who still believes you can derive value from services delivered by human beings. How many potential investors have I met who flee service like the plague. Better to be hospitalized than to invest in hospitality! The promised land is scalable technology, dummy!

Chip’s speech is big, not because it illustrates how he made his hospitality business successful, but rather because he touches on the really big issue of how our world’s accounting systems — from GDP all the way down to your personal accounts — are fundamentally flawed. Not that they don’t count correctly, but rather because they count the wrong things. We don’t count the things that are most important to us as a society, and ignore the external social and environmental costs associated with the things we count.

Take this. I made a significant contribution GDP this year thanks to the legal fees my company paid to get its capitalistic framework set up. Imagine, if we downsized the entire legal profession by somehow allowing people to advocate their causes in simple language, our GDP would really take a beating.

Each unit of production in our economy does not have the same value. The resulting accounts can end up grossly distorted, and our modern economies are in fact grossly distorted. This is just as easily recognized by the groaning masses as it is by the think tanks and policy-makers who have been trying to pick up the pieces since 2008.

The obvious conclusion is that we need to change, on a massive scale, what we count. Chip gives the example of a GNH (Gross National Happiness Index), not just as a cool idea, but as an actually GDP replacement measure currently used in a real country on planet Earth.

If we cannot change what we measure, we then have proof that the system we created has imprisoned us. But when enough people become aware, change will come.

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Fail your way to success

Is experimentation more effective than engineering in achieving an optimal solution? This is the case made by economics writer Tim Harford in his latest TED talk. He further advocates that schools, politicians and companies adopt this trial and error approach, which he opposes to the so-called “God complex”. One of the most compelling examples, I find, is the one from Unilever about manufacturing detergent.

As a consultant and trainer in the field of organisational learning, I agree that experimentation and mistakes are the best sources for learning. I believe that the most successful companies are those that are able to adapt. One of my favorite quotes from Charles Darwin is the following: “It is not the strongest of the species that survives, nor the most intelligent. It is the one that is most adaptable to change.”

What I would add to Harford’s demonstration is the imperious need, not only to transform our beliefs about trial and error, but also to be able to capture and reuse the results of each trial and error. This is commonly referred to as knowledge management. Companies suffer just as much from this lack of continuity as they do from error-averse culture. If we start each trial and error with the best available hypothesis as an input, we are that much closer to the better solution. As Samuel Beckett wrote: “Fail, fail again. Fail better.”

As an entrepreneur and head of, which is my main hat, I intuitively and wholeheartedly adhere to the trial and error thesis. Only fools (and bankers) believe in business plans. Of course, I have one as well, and have in fact invested enormous time into it. If a business model doesn’t even work on paper, it more than likely will fail in application. Unfortunately for those who believe in their business plans, the reverse is far from true. Both opportunity and setback cause a young business to evolve on a weekly basis, sometimes in unexpected directions.

Example from this very week. The ParisSharing business plan was focused on capturing English-speaking customers in the first three years, assuming that these would require a lower cost of acquisition for both cultural and linguistic reasons. The new reality: we suddenly have a small group of associates and lead customers who speak Japanese and have close ties with Japan. I do mean suddenly, and we did nothing in particular to attract them. But now it has become obvious that this represents an opportunity to tackle a market that we had previously considered impenetrable.  As early as next week, translations into Japanese will commence, contrary to plan.

I’ll end off by suggesting that the cultures and economies that have most rapidly developed over the past several hundred years are those in which trial and error were not only tolerated but encouraged.

So, if you really think you have the solution for a complex problem (a healthcare system, for example), your credibility is waning. But you may still have potential as a politician.

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