Road To Serfdom

Originally written in 1944 by Nobel Laurette Fredrick Hayek, this is relevant today.

A Tale of Two Gardens

A land owner had two gardens. He gave his first son the northern garden and his second son the southern garden. Each garden had equal sun light, rain and supply of workers. The first son loved tulips. He studied their varieties and the science of their growth. He commanded his workers to plant in his field all these varieties in colors and hues. He commanded them to rise early and care for this garden every day with no rest. The second son loved the garden and its workers. He gave them each a plot of the garden and told them to plant as they wish. They may work as they please, and sell their plot to another worker.

The two sons later died. In the northern garden, there was no one to command the workers. The tulips died and the workers abandoned the field. The southern garden's workers continued to take care of their plots. Lazy workers would sell their plots to give way to more eager and productive workers.

We live between these two gardens. We work for the son who treats the field as would a mercenary, without regard for the garden or the worker. The purpose of the garden and the worker is his own glory and the glory of his tulip. Some of us live in gardens where despite knowing a better flower, are restricted from growing. For some of us this is not flowers but rice, or automobiles or new business models that may lift our countrymen out of poverty.

May we all one day live in the southern garden, with a master who loves the field and its worker. May we live in such a garden where the master's reward is the growth of the field and worker for its own sake. May wild flowers in all their sizes and shapes grow in this garden with worker and flower alike surviving beyond the life of their master.

Why I Hate This Graph

The following is a common relationship shown between life expectancy and health expenditure. Most use this to argue that those with nationalized health care systems, namely Canada, are more effective than the US, who despite high health expenditure carries a lower life expectancy.

I hate this graph for several reasons. Let's first ignore the idiot who tried to draw a linear curve through the dots. Also, let's ignore that most countries enjoy lower cost for American health technology because the U.S. population's higher price for care subsidizes their access. The problem with this health expenditure and life expectancy relationship even asks the wrong economic question.

Most view economics as a machine. You input labor and resources and you get productivity and growth. The job, therefore, of economic policy is to optimize labor and resources to get higher productivity and growth. In this view it should seem matter of fact that output should come from input. Spending more on health should yield greater health.

Economics and health economics for that matter is emphatically not a means of optimizing scarce resources. The question of any economic order is how to create the infrastructure and property rights such that those who innovate take existing inputs of production and create new value.

American Reinvestment Act appropriated funds to repair NJ roads, but defeated its purpose of boosting economy by creating productivity reducing auto traffic.

Absolute Value

One of the first lessons in economics 101 in regards to the theory of the firm speaks like a mantra. The professor asks, "What is the purpose of the firm?" The reply without thought is a resounding, "To maximize shareholder value". In reality, however, this service to the shareholder presents many well studied principle agent problems. Managers are tempted to inflate earnings or deflate costs in a myriad of accounting witchcraft. Likewise, shareholders don't necessarily hold the firms best interest in mind as well. They are likewise interested in short term gains to push up their equity returns. So it begs the question, why do we gather in this thing called the firm? To what do we owe our efforts?

We find commonly that the daily humdrum employee thinks nothing of the shareholder and everything about their manager; quite possibly there is too much regard for their manager. Personal performance is self-judged by their manager's reaction. And so there is this chain of performance self-judgement up the chain of the corporate command. There is no effort to maximize shareholder value. The effort typically is to please the boss and nothing more. Such individuals value the job rather than the product or service. They tend to be less collaborative and less willing to innovate in ways that might fear the security of their job. Such tendencies are common in cost centers.

To what value, therefore, should we strive? If maximizing shareholder value leads to all the manifold principle agent problems we face, to whom shall we measure value? Some would answer that it is value to the customer toward whom we should strive. But does the customer necessarily know what is valuable? In fact this is the power of many brands that attract such a customer following. The customer covets but doesn't know why. They are drawn to the brand's mystique. There is something about all of the product or service's emergent properties that almost cannot be put into words. All that to say - the customer isn't rationale.

All of these prior attempts of value pursuits strive for what I might humbly submit is relative value. They are coupled by the estimation of an individual or setting. The value of an output is dependent on their existence. Our efforts to maximize shareholder value depends on the existence of the shareholder. Our efforts to maximize customer value, depend on characteristics of a customer that are prone to change.

A value to which we should strive is an absolute value. This value deems the product or service intrinsically valuable. It is valuable no matter who or at what age or time esteems it. It doesn't depend on who consumes or uses it for other production efforts. It is customizable and flexible. Over time consumers find new ways of using it and innovating from it. While such value is almost impossible to achieve, it is something one should strive.

The Great Society

Why are we addicted to central authorities? Why is it that we progress to great heights in human progress of democracy, freedom, rights to property and the pursuit of happiness when suddenly tyranny prevails? Why does a society rich in culture and human values suddenly become subservient to a single leader that rules with an iron fist?

The Bible in Micah 4:

1 In the last days
the mountain of the LORD's temple will be established
as chief among the mountains;
it will be raised above the hills,
and peoples will stream to it.

2 Many nations will come and say,
"Come, let us go up to the mountain of the LORD,
to the house of the God of Jacob.
He will teach us his ways,
so that we may walk in his paths."
The law will go out from Zion,
the word of the LORD from Jerusalem.

3 He will judge between many peoples
and will settle disputes for strong nations far and wide.
They will beat their swords into plowshares
and their spears into pruning hooks.
Nation will not take up sword against nation,
nor will they train for war anymore.

4 Every man will sit under his own vine
and under his own fig tree,
and no one will make them afraid,
for the LORD Almighty has spoken.

In the last days we will have a final sovereign king of all things. He will not rule with an iron fist, but with justice and mercy. Every nation will submit to this ruler. Finally, all will bury their weapons.

The greatest question that governs all debate is to what degree can humans govern their own actions and their own property, be that property land, votes, or resources. We see in this prophecy that the final yearning in human hearts for an ultimate sovereign ruler and ultimate personal freedom will one day be reconciled.

Every human being will sit under their own fig tree and their own vine. They will no longer fear. This is the ultimate fulfillment of property rights and sovereign rulership.

What Zune's Failure Says About Microsoft's Innovation Management

Today (12/31/2008) Microsoft's Zune froze for its customers owning the 30 GB Ipod knock-off. We have all experienced Microsoft related technology failures, the ever infamous "blue screen of death" not withstanding. Why can't Microsoft seem to innovate well?

An annoying technological glitch reveals something deeper about Microsoft's corporate culture. McShane and Glinow write in their work Organizational Behavior, that the spirit of Microsoft captures "A tremendous work ethic; Bill Gates is always right; an us-versus-them mentality; and Bill Gates is always right.". Does anyone imagine how employees may freely share their ideas and foster an open environment of innovation?

Pascale, Millemann and Gioja's Self-Organization and the Corporation write that corporations that apply principles of self-organization can “exploit opportunities and improvise in highly advantageous ways.”

It is not surprising then that much of Microsoft's products capture the personality of its boss, Bill Gates, rather than the aggregate self-organized open environment of innovation that captures the spirit of Apple and Google.