The Next Economic Paradigm

Tag: borrow

The New Economic Paradigm; Part 5: The Entrepreneurs

There is no shortage of entrepreneurs in this world.

6 Billion of them wander the Earth looking for assets that exists at a low state of productivity waiting to be elevated to a higher state of productivity.

The entrepreneur must first be able to identify an asset as an asset.  Next they need to identify the lower level of productivity and they need to be able to imagine the higher potential level of productivity.  The entrepreneur must identify and manage some risk, perform leadership tasks; and as a result, elevate the asset to the higher state of productivity.  Profit is the difference between the lower and the higher state – minus expenses.

Unfortunately, today this process starts at the forest and ends at the junkyard.

This is how our economic system is organized.  The next economic paradigm flips that idea over.  Instead of accounting for natural resources as the tangible element and human knowledge as the intangibles element; the next economic paradigm must account for the natural resource as the intangible element and the human knowledge as the tangible element.

The current problem is not that knowledge is intangible; rather, knowledge is simply invisible.

The Ingenesist Project will make knowledge assets visible by provisioning all of the information that an entrepreneur now needs to identify the knowledge asset and the associated states of productivity.  Entrepreneurs can then increase human productivity using knowledge assets applied to natural resources, instead of natural resources applied to consumption.  The implications are vast.

Returning to the financial analogy:

With a financial bank, the entrepreneur assumes that they have the knowledge required to execute a business plan and the go to the Financial Institution to borrow the money.

With an “Innovation Bank” the entrepreneur assumes that they have the money to execute the business plan, and they go to the innovation institution to borrow the knowledge.

While this may sound trivial, the implications are vast:

1. A virtuous circle now exists between society and the financial system
2. Profit is derived from increasing human productivity not natural resource exploitation.

Economics is the science of incentives:

A financial Bank seeks to match a surplus of money with a deficit of money.  It is in the best interest of the bank to find rich people who will not need their money for a while, and poor people have the best likelihood of paying the money back in time.  The process assumes that the borrower has the knowledge required to execute a business plan when they seek to borrow money.  However, that FICO score does not measure knowledge explicitly, so little incentive exists to make it tangible.  All of the top ten reasons why businesses fail are due to failures of knowledge.  The financial system is collapsing under the weight of failed knowledge.

By contrast, the Innovation Bank seeks to find people who have a surplus of knowledge and people who have a deficit of knowledge about what they intend to produce. The innovation bank then uses a series of statistical calculus (the same calculus as the credit/insurance/risk management professions) to match most worthy surplus of knowledge assets to most worthy deficit of knowledge assets.  Here, the opposite assumption is made; everyone assumes that the borrower has the money required to execute the business plan and they go to the innovation bank to borrow the knowledge.  People have an incentive to accumulate knowledge.

Simplicity that defies comprehension:

The business plan for the new entrepreneur is deceptively simple to do and nearly impossible to monopolize; anyone can do it not just the wealthy and their chosen few.  The next 3 modules will outline how new enterprises will be constructed from the virtuous circle created between the financial bank and the innovation bank.  This changes everything …. and did I mention that the implications are vast?

Share this:

The Next Economic Paradigm; Part 4: Institutions

In part 1, we introduced a new paradigm of economic growth; the innovation economy. In part 2, we identified information as the currency of trade for an innovation economy and we defined that currency’s relationship to knowledge and innovation.  In part 3 we demonstrated a structure for a knowledge Inventory that would enable an Innovation Economy.  In this module, we will discuss the institutions in social media that could keep an Innovation Economy, free, fair, and equitable.

In civil society, there are laws and regulations that protect our constitutional rights; these are essential institutions.

The legal system of the United States is extremely expensive, however, the expenditure is necessary to keep the society upright, productive and prevent it from falling into chaos.  Where a country’s legal system fails, so does its economy.  Entrepreneurs do not invest in places without a good legal system and where property rights are not protected. It is that important.  Investment abhors risk.

Arguably, the most important element of the Innovation Economy will be the vetting mechanism.

Fortunately, social media has the potential to serve this function; in fact in many cases it already does.  A feedback system supports Ebay ($35B Cap), community flagging supports Craigslist (40M ads/mo), peer review supports Linkedin (150M users).  These are not small numbers.  All markets must have a vetting mechanism in order to operate efficiently and if done correctly, social vetting has vast economic implications for an Innovation Economy.

First, let’s return to our financial analogy.

In the old days, the banker was the person to know if you wanted to be successful in town.  But with the emergence of the credit score, the “banker” became digitized; now a Saudi Billionaire can lend money to a young couple in Boise to buy their first home – and neither is aware of the other.  The credit score is responsible for the creation of great wealth because many more entrepreneurs could borrow money to invest in enterprise.

The credit score is statistical in nature; it isolates about 30 or so indicators of your financial activity and puts them on a bell curve relative to everyone else.  These include how much debt you have, how much your assets are worth, your income, etc.  These ratings are run through the FICO Equation and out pops your credit score.  Anyone can now predict the likelihood that you will default on your obligation.

All of the data that feed FICO are collected from public records, your employer, and the people who you borrow money from because these same organizations have a vested interest in a system of correct credit scores.

We are competing with ourselves.

It is interesting that you and I do not compete for our credit score because it is not a ranking system. On the other hand, with no credit, we are invisible and the system shuts us out.  With bad credit, the system shuts us out. We lose some freedom and privacy, but we accept these terms well because they provides us with tremendous benefit to finance a business, automobile, or a home without needing to save cash.

Now we will draw the comparable analogy from the social media.

In the old days, the hiring manager was the person to know if you wanted to get a job.  They would read your resume and compare it with “bell curve” in their experience about what has worked or not worked in their past.  This worked great in the industrial economy, but it falls far short in the innovation economy.  Innovation favors strategic combination of diverse knowledge where the Industrial economy favored identical packets of similar knowledge.

Not unlike the FICO score, the knowledge inventory is a collection of statistical variables and the social network is the reporting agencies who have a vested interest in a system of correct values.  Unlike FICO however, the variables are infinite and it responds to positive event input.
Social networks are by far among the most exciting and important new technology for an Innovation Economy.

Social networks must now evolve to become the vetting institutions for knowledge assets.

All the pieces are almost in place; now we need to develop a new type of search engine.

The Percentile Search Engine is generic term for the ability to make statistical predictions about all types and combinations of knowledge Assets in a network. Conceptually, the percentile search engine is where all of the equations that we use to analyze financial assets are now applied to knowledge assets.  The main characteristic is that the search engine returns probabilities for the entrepreneur to test scenarios.

For example; an entrepreneur may want to know if her team has enough knowledge to execute a business plan.  Perhaps the team has too much knowledge and they should try something more valuable.  Maybe the team does not have enough knowledge and they should attempt another opportunity or accumulate training.

The search engine can look into a network and identify the supply and demand of a knowledge asset. If it is unavailable or too expensive, the search engine can adjust for price, risk, or options that may emerge at a later date.

Talent will bid up to their productivity value, and brokers will bid down to their productivity value.

Competitors can scan each other’s knowledge inventory to compete, cooperate, acquire, or evade. If a key person retires, the entrepreneur would simulate the knowledge that is lost and reassign people strategically. All of these scenarios can be examines prior to spending money. They can be made during the project cycle, or after the project is completed.  Lessons learned can be used to adjust the algorithm perfecting it over time.

For example: companies such as Disney and Boeing both use Engineers, each would have proprietary algorithm of knowledge that represents their “secret sauce” of success. These recipes can be adjusted and improved to reflect and preserve the wisdom of an organization.

When the innovation economy will catches fire….

Over time, these algorithms will far more valuable then the Patents and Trade Secrets created by them – this will allow technologies to be open sourced much more profitably and shared across more industries.

In the next module, we will talk about the entrepreneurs.

Share this:

The Innovation Bank

So now, what are the entrepreneurs going to do with this percentile search engine?

Entrepreneurs wander the earth looking for valuable things that are being used at a low level of productivity and they move those assets to a higher level of productivity and then pocket the difference, called profit.

Think pet rock, condo conversions, sand, corn, etc.,…it goes on forever.

The entrepreneur needs to have a clear view of what the asset is, the lower level of productivity, and the higher level of productivity of the asset. These three elements are the focus of all business plans. Then they set things in motion and give life to the market system.

When we look at financial banks we see the classic entrepreneurial activity. In the simplest form, banks do little more than find people who have a surplus of money and they match them with people who have a deficit of money.  Bankers have a clear view of the asset, the lower level of productivity and the higher level of productivity for the asset.

They pay a lower interest to the depositor than they do to the borrower and pocket the difference. In addition, they enjoy a multiplier effect that allows them to lend the same money many times effectively creating money from a promise to pay, or debt.

It is in the best interest of the bank to find rich people who will not need their money for a while, and poor people that have the best likelihood of paying the money back in time. This is to minimize the risk that the depositor will pull out their deposits and the risk that the borrower will not pay back the loan. The problem is that some assumptions need to be made, some of which may no longer be valid:

The bank assumes that the borrower has the knowledge required to execute the business plan that they are financing. Unfortunately, the credit score does not predict knowledge on future ventures.  For this reason, new ventures are not easy to finance.

The financial bank makes the assumption that the entrepreneur has the knowledge to execute a business plan that they seek money to fund.

On the other hand, the Innovation Bank makes the assumption that the entrepreneur has the money available to execute the business and is searching for the knowledge to do so.  This service will be required in the innovation economy since no single person can live long enough to possess as much knowledge as is required to manage the complexity of problems that face the World. We will need to mind meld.

The Innovation Bank simply matches most worthy knowledge surplus with most worthy knowledge deficit and a market is born.

The challenge for the innovation Bank is to match the most correct knowledge surplus to the most correct knowledge deficit. This is accomplished with the computer enabled knowledge inventory. A search can be conducted of the supply and demand for knowledge assets. The Percentile Search Engine will calculate the probability that the specific business objective will be successful.

The business plan for the entrepreneur is very simple but the implications are vast.

Share this:

The Percentile Search Engine

The Percentile Search Engine is a way of using a computer to make predictions about all types of combinations of knowledge Assets.

Conceptually, the percentile search engine is where all of the equations that we use to analyze financial assets are now applied to knowledge assets. The main characteristic is that the Percentile Search Engine returns probabilities – that is, what’s the probability of success for any number of scenarios.

For example; an entrepreneur may want to know if her team has enough knowledge to execute a business plan. Maybe the team has too much knowledge and they should try something more valuable. Maybe the team does not have enough knowledge and they should find someone else, take training, or try something simpler. The Percentile Search Engine can look into the community and identify the supply and demand of a knowledge asset. If it is unavailable or too expensive, the Percentile Search Engine will even tell them what training they need to increase their probability of success.

The entrepreneur may also want to determine what competitors have a dangerously high probability of competing with her new business. The Search Engine will allow competitors to scan each other’s knowledge inventory to determine how long it would take for their secret sauce copied. They can take then choose to take evasive action, compete, or cooperate. If a key person retires, the entrepreneur would simulate the knowledge that is lost and reassign people strategically. All of these scenarios can be examines prior to spending money. They can be made during the project cycle, or after the project is completed. Lessons learned can be used to adjust the algorithm perfecting it over time.

While companies such as Disney and Boeing both use Engineers, each would have proprietary combinations of knowledge that represents their “secret sauce” of success. These recipes can be adjusted and improved to reflect the wisdom of an organization.

Over time, these algorithms will far more valuable then the Patents and Trade Secrets created by them – this will allow technologies to be open sourced much more profitably and shared across more industries.

Literally thousands of new business plans will emerge from this important new paradigm. Knowledge will become tangible outside of the organizational construct of the corporation. Knowledge combinations will become the new corporate structure. The rate of change of knowledge with respect to time is the key metric and fundamental building block of the innovation economy.

Share this:

Powered by WordPress & Theme by Anders Norén

css.php