Thinking lazily about wealth, its creation and distribution

As most of you know, I was born and raised in Calcutta; I spent my first 23 years there, fifteen of them being educated by the Jesuits. Calcutta, where, from 1977 to 2010, there was a “democratically elected communist government”. And the Jesuits, with their focus on promoting social justice. Between the two, they made sure that I experienced something about the moral, economic, social and political implications of unequal distribution of wealth.

[This is not meant to be an economics lesson, even though I read economics at university. I am keen on trying to explain my thoughts from a “first principles” basis, so that I can engender some real dialogue with readers rather than get bogged down in definitions and semantics. The objective of this post is to excite that dialogue, so that I can learn and refine my understanding. And perhaps help you refine yours in the process].

I’ve had an interest in The Maker Generation for some time now, as evinced by these posts over recent years: The Maker State (2007); Dersu Uzala (2008)Ragu and Bolognese and Cory Doctorow and Makers (2009); Better Mousetraps and the Maker Generation (2010); The Maker Generation in the Enterprise (2010);  and most recently 2012: The Year of Maker-Friendly (2011).

For many years now, I’ve been trying to document what it means to make something when you’re a “knowledge worker”. More recently, I’ve started writing a book on the subject (my fifth unfinished book; this Christmas I intend to finish one of them!). But that’s for another day.

Today’s post is about wealth, its creation and distribution. Over the years, besides Calcutta, besides the Jesuits, there have been a number of influences on me when it comes to this post. My father, my family and close friends are the obvious ones. But two other influences have material bearing on what I’m intending to write here, material enough for me to share them here. First off, this post by Paul Graham from May 2004 on How To Make Wealth. I was very taken with it when I read it, even if I didn’t make a song and dance about the post right then. For sure it influenced my thinking. And more recently, this very recent article by W Brian Arthur on The Second Economy. I would urge you to read both articles  slowly, take your time, it is well worth the investment.

So now you have an idea of the people and concepts that influenced what I’m trying to write here. It’s a classic provisional, partly formed Sunday post. I tend to write all my posts start-to-finish in one sitting, usually a couple of hours, usually no going back. Write, quick preview for any images or inserts, then publish. Here goes:

Doing anything at all requires an expending of energy, an effort. This effort gets called work. As you expend the energy, something around you changes. You can imagine this change to be an output, an output of the work you perform.

This output has value. The value can be positive or negative. That depends on whether someone else values the output you’ve created. If someone else values (and values positively) what you’ve created, then you’ve created wealth.

Value can be expressed in many ways; money is just one way, and it is a useful way. Because you can then convert that value you’ve created into something else you may want or need, by using the money you’ve received for the value you’ve created to “pay” for the value someone else has created, to pay for the something you want or need. This is why money works as a store of value and as a medium of exchange.

Everyone can create wealth as a result, just by expending effort to make something that someone else values; that wealth becomes “fungible” if you can exchange the value you create for the value someone else creates. If you exchange one thing for another then you’re bartering. Money, by being a medium of exchange, simplifies this process.

So all human beings can create (and destroy) wealth. This wealth that is created gets distributed in a number of ways, depending on how the wealth is created.

You make something and you sell that something for value; the terms differ but the principle is the same. You do a job and get a salary; you make a sale and get a commission; you invest and get a return; you advise and get fees. Most of the time it’s that simple.

If the value of what you create is greater than the value of the things you want, then you will start accumulating wealth.

There are some quirks. If the something that you make has physical form, then you can rent it out rather than sell it. So you can keep “creating wealth” as long as there’s a rental market for the something you make, a house, a car, a boat, whatever. We’re very clever, we human beings, so we come up with even more extreme ideas. The something you make does not have to have any physical form for it to be designated your property; the State is prepared to let you keep making money from something you did once, and call it “intellectual property”. And sometimes you can even get paid for destroying something: say for example you’re in the demolition business.

One way of looking at all this is that wealth gets created by people doing work, in a plethora of ways. And wealth gets distributed in a plethora of ways as well: through jobs, trading, investments, patents, copyright, and suchlike.

These ways of distributing wealth are usually directly connected to the ways of creating wealth. If there is inequality in the landscape of creating wealth, then there will be inequality in the landscape of distributing wealth.

When it comes to creating wealth, people have advantages (and disadvantages) all the way from birth: inherited wealth; the atmosphere at home, the stability and care from the family; health and nutrition; education; cultural nuances, and so on. We’ve come to recognise this inequality and we’ve tried to deal with this in a number of ways, usually by passing laws against discrimination, occasionally by putting in mechanisms to correct historical inequalities via positive discrimination for a period of time.

This attempt to reduce unequal wealth distribution has probably gathered pace over the last 50 years. It would appear to be true for most democracies; it is likely that steps to reduce inequality have existed longer in the developed world when compared to the developing world.

Fifty years. And I get the impression that wealth inequality has increased during that time. And increased at some pace, particularly in the west.

Hmmm.

There could be many reasons. Equality of opportunity does not guarantee equality of outcome. Some people don’t like hard work. Market mechanisms to value outputs aren’t necessarily fair. A free market can be gamed, sometimes despite regulation, sometimes because of regulation. Barriers to trade, particularly protectionist barriers, can be erected by the incumbents to try and prevent erosion of the power to create wealth, or for that matter erosion of the accreted wealth. Yes, there could be many reasons.

If anti-discriminatory legislation and short-term positive discrimination have not succeeded, then perhaps we need to look at what we can do to change the way wealth is distributed rather than just the way it is created. This can happen in a number of ways; in fact this does happen in a number of ways:

People can amass wealth and give it away, distribute it to the masses, make donations to charities and nonprofits. People can pool their wealth in groups and communities, so that everyone in the community gets helped, as in Acts 2:42 or perhaps in some of the modern Kibbutzim.

Free markets alone don’t seem to work, if the last 50 years are anything to go by. [And non-free markets, if we look at communist examples, appear to fare at least as badly if not significantly worse.] Jobs as the basis for distribution don’t seem to work; for one thing, not everyone has a job; in future, with the current economic environment and demographic trends as the backdrop, full employment is not likely to be anything more than a theoretical economic model, much like the “rational actor” who preceded behavioural economics.

The recent book by Erik Brynjolfsson and Andrew McAfee, Race Against The Machine, is well worth a read in this context; it shares a relatively gloomy outlook on many types and styles of job, a view that is echoed in W Brian Arthur’s article on the Second Economy, which I referred to earlier, since it was the trigger to my writing this post.

So where do we go from here? One of the ideas I’ve been playing with is a simple one:

What if people got paid for their data?

We live in an age of lifestreaming. For decades customers “spoke” in the past tense, “I bought” or “I did”, because it was expensive to invest in the infrastructure to collect anything else. IT-intensive investments were made at the point of sale and in the back office, and so everything the customer did was viewed as a transaction in the past.

More recently, with the ubiquity of smart device and connectivity, customers began to speak in the present tense: “I am doing”. Even more recently, customers have begun to speak in the future tense “I will do” “I plan to” “I want”. Sometimes they even speak in groups “we intend to” “we are prepared to”.

The data in the lifestreams has value.

Soon everyone will be able to lifestream.

What if people got paid for their lifestreams?

Just wondering.

Views? Flame away, I do this to learn. And sometimes I learn best when someone tells me I am talking absolute balderdash and poppycock. As long as you take the time to explain to me why I am so wrong.

 

19 thoughts on “Thinking lazily about wealth, its creation and distribution”

  1. Re: Equality of Opportunity / Outcomes, John Quiggin has some detail on there not actually being Equality of Opportunity (http://johnquiggin.com/2003/12/17/outcomes-and-opportunity/) largely based on inheritance effects. His recent book (Zombie Economics) has an entire section on this (the takedown of Trickle Down Economics). Without going into details, trickle-down *requires* that Equality of Opportunity and Outcomes be in active opposition. A fascinating read….

  2. Is that not the whole issue with the fact that we do not have an open facebook ? If lifestreaming is a proxy for past and future intent, it’s clearly the best data we can ever provide, yet here we are having locked it inside a commercial company that has no particular purpose other than become ubiquitous and capture ever more data that it will then monetize on our behalf. It writes the rules and transcends national boundaries. Here we are, having locked ourselves and our precious lifestreaming data into an environment where it essentially belongs to someone else. We made the product, but we own nothing of it. All we have is our ability to migrate elsewhere and to stop feeding the machine.

  3. Data about people certainly has value, but I can only see that it increases the unequal distribution of wealth since rich people’s data (purchasing intentions) is valuable and poor people’s is worth very little.

  4. JP, I’ve been pondering this, more along the lines of what all good people must do to get more people back to work. Your approach to understanding the nature of work in terms of the value of data, or content, is intriguing and most timely.

    As someone whose work is to get paid for content — discovering it, creating it, packaging it — I’ve come to believe we are encountering in our fractured economy a question of those in power recognizing just how much business has been devalued. By power I mean not just personal wealth but power over resources, budgets, and yes, people. Some might say that what we’re witnessing is a re-valuation of a lot of people’s data — that this is merely a market correction that is going to force people thrown out of work to think about how to create value in a different way. That’s partly true, but it’s not the whole picture.

    If we look at history, it seems that human nature always trips up the most beautifully conceived systems, such as ours in the United States. This particular stumble began in the 1990s. I now believe more fervently than ever that humans do indeed need checks and balances over our behavior. The discrepancy in compensation between senior executives and the regular employee is unbelievably vast. I’d like to think it’s not a result of greed, but I don’t know anymore. Hence my belief in reasonable checks and balances over a free market system. Unless we accept this as a condition of a civilized society, our only other alternative is the mandatory redistribution of wealth our friendly neighborhood marxists would like to see.

    In what I hope is the temporary absence of a free market — in the presence of today’s oligarchy and what some are now calling a plutarchy — the good people who possess the resources — the power to hire and the power to help — must begin doing so. I mean the private sector here. The folks who are set for life must look within themselves to take care of their brethren. Not by wasting money but by spending it wisely — restoring robust features to projects via additional workers, hiring part-time workers, and even reengineering hiring processes to get people into the workforce faster.

    I’m sure you remember, from your Jesuit training, “whatsoever you do for the least of my brothers, that, you do unto me.” I guess I’m suggesting that the path to human value begins with that distinctly human quality, empathy. So my initial reaction to what you share here is, I hope that those holding power understand that everyone who is at work has the potential to add value. Let’s learn about value by bringing more people back to the workforce.

  5. Thanks for your great thoughts JP, as always!
    I fear that the opportunity to monetize your lifestream is fading as Facebook is establishing itself as the broker of their customer’s data (and in the process also obliterating the emerging social analytics intermediaries).
    With regards to creating value: you can create value ‘locally’ through destroying it ‘globally’. Your former employers are a great example of this. The best and brightest went into finance because it paid better than every other profession. As a result, we had a whole generation of people — who would have been great scientists, great doctors, great creators of other things — attracted to a business which ultimately only provided, to a substantial degree, toxic waste. And that is the tragedy of our time: this diversion of enormous amounts of talent, only to destroy value.

  6. Mahesh, thanks, will read over the next couple of weeks. Part of the cunning plan I had when I wrote the post, I needed some reading material.

  7. Fred, As long as artefacts like “intellectual property” exist in their current form, governments can legislate for the value of personal data regardless of where it is currently marooned or imprisoned.

  8. Joel, not sure I agree. While there is bound to be some correlation between socio-economic grouping and value of personal data, i don’t think it’s as simple as that. Location matters, as does age and gender. Size and influence of network matters. Your risk appetite matters. If you’re a tastemaker within your social network that matters as well. And anyway I’m more of a believer in the Nohria and Lawrence Four Driver model than I am in the Maslow hierarchy.

  9. Mary, I think the current concepts of “job” are under real pressure. The question may not be about job creation, it may be about valuing what an individual does. I remember an old interview between John Harvey Jones and an Indian maharaja. Harvey Jones told the maharajah that he had n thousand surplus staff he should get rid of. The maharajah said “yes, but what will they do?”

    Once we value human dignity, we begin to value what individuals do. And we arrange, in some form or the other, to convert that valuation into something the individual can use. And for individual read community, same thing.

  10. Michael, it’s easy to blame bankers for every aspect of the crisis. Too easy. Greed comes in many forms, and exists in many places. A separate post will cover that, if it becomes something that others want to debate as well.

  11. Zynga’s and Facebook’s IPOs prove there’s now more money in applications that help people spend time rather than save time. Attention’s – the new wealth creator…sounds right.

  12. JP,

    Good Read!. I always thought people do lifestreaming only to be in touch with their network – be it friends, followers. With respect to followers, lifestreaming helps to build the Klout of the individual that he can monetize in other channels (be it TV, Print, etc.). This largely applies to celebrities. Or they have Klout in other media channels and they would get paid for lifestreaming anyway!.

    For normal individuals to do lifestreaming – there is a great possiblity for compensating – if they are served with products/services that they intent to leverage. Am still wondering why Facebook / other networks dont do this?. They apply lots of intelligence/natural language processing to build a persona of myself and serve targetted ads. Instead, I would say – ‘Facebook, Ask my permission to serve relevant ads with privacy/security. I will share my interests and plans for the future. And in the process, you (Facebook), me and the rest of the businesses can benefit’.

  13. Since life moves in cycles, what is of value or creates wealth becomes wealth destroying just by passage of time, and with “human” touch of greed. So really wealth creation is a myth, but a good purpose to tell ourselves.

  14. @clive I think that Doc Searl’s insistence that we’ve moved from attention to intention is more important. but I agree with you on the apps that spend time point.

  15. during my schooldays, the jesuit priests used to tell all the students “both howards hughes as well as the beggar on the school doorstep will leave the same estate….. everything they have….

Let me know what you think