love is the truest denominator of a life well lived.


The book.

The book.



Want to Disrupt It? Democratize It.

Here’s a staggering number. In Kenya, M-Pesa’s expected to shift 20% of the country’s nominal GDP.

Lesson? It’s the Democracy chapter of the Manifesto, plus a little bit of the Creativity chapter: pick an industrial age market or industry, and democratize it; liberate it from the strictures of plodding, ponderous, autocratic command-and-control organization. Better yet, pick a radically underserved market or category, and democratize it. Better yet, simplify complexity to add power to the punch. 

If one-fifth of Kenya’s GDP is shifted through a p2p transfer system so simple that the barely literate can use it effortlessly—but the developed world is subject to more and more severe crises because of industrial age banks—how long do you think it’ll be before this great contradiction collides with reality? If one of the poorest countries in the world can ignite a radical institutional innovation, how long do you think developed countries can keep rest on their tired, fading laurels? I’d suggest that all the above should strike a little bit of fear into the hearts into the people formerly known as the masters of the universe—because while they might not know it, they’ve just been checkmated. M-Pesa creates less volatile, transient, fragmentary, more authentic, enduring, meaningful value—where it’s needed most.

It’s a textbook example of the power of thick value, constructive advantage, and smarter growth—and it’s why you should think about getting some.


From Cost Advantage to Loss Advantage

"Amazon is working on a solution that could revolutionize digital gift buying. The online retailer has quietly patented a way for people to return gifts before they receive them, and the patent documents even mention poor Aunt Mildred. Amazon’s innovation, not ready for this Christmas season, includes an option to “Convert all gifts from Aunt Mildred,” the patent says. “For example, the user may specify such a rule because the user believes that this potential sender has different tastes than the user.” In other words, the consumer could keep an online list of lousy gift-givers whose choices would be vetted before anything ships.

Amazon’s idea has raised the ire of the Miss Manners crowd, which thinks the scheme rather uncouth. After all, receiving an e-mail notification of a forthcoming gift - and thereby being able to check its price - is hardly the same as unwrapping the item at home.

…The proposal has also brought into focus a very costly part of the e-retailing business model: Up to 30 percent of purchases are returned, and the cost of getting rejected gifts back across the country and onto shelves has online retailers scrambling for ways to reduce these expenses.

"It’s in the millions of dollars, and it might even be billions," said Carl Howe, a Yankee Group consumer technology analyst. "If you can get the right gift to a person the first time, this could be a huge cost-saving invention. From a retailer’s perspective, this is like gold."

Amazon’s timeline for introducing the idea to consumers is unclear, as is its plan for marketing the concept without offending gift givers who take great pride in their selection of unfortunate Christmas sweaters for their favorite nieces and nephews. Officials from the Seattle retailer did not return numerous e-mail and phone requests for comment. But Amazon appears to be quite serious: Its patent was awarded not just to Amazon, but to its founder, Jeff Bezos.

Amazon’s patent is 12 pages long, with numerous diagrams, including a “Gift Conversion Rules Wizard” that shows how a user could select rules such as, “No clothes with wool.” The document makes for curious reading, reducing the art of gift giving to the dry language of patentry.

"It sometimes occurs that gifts purchased on-line do not meet the needs or tastes of the gift recipient," the patent says. “In some cases, concern that the gift recipient may not like a particular gift may cause the person sending the gift to be more cautious in gift selection. The person sending the gift may be less likely to take a chance on a gift that is unexpected but that the recipient might truly enjoy, opting instead for a gift that is somewhat more predictable but less likely to be converted to something else.”

Kind of awesome? It’s a small but textbook example of one of the world’s biggest companies shifting from an industrial cost advantage, to it’s more powerful, more evolved 21st century counterpart: a loss advantage

Loss advantage is one of five new sources of next-level advantage. I argue are making yesterday’s obsolete in the Manifesto. Think about it this way: Amazon’s no longer hopes to sell you stuff, slightly more cheaply (a cost advantage). Instead, it hopes to not have to sell you stuff you don’t want, so you lose less. And crucially, so less is wasted by not just Amazon, in terms of marketing, sales, and distribution—but also by people, communities, and society (fewer natural resources utilized, less carbon emitted).

You can think of a loss advantage as minimizing what economists call a deadweight loss, the sum total of potential gains that are foregone in a given transaction, allocative inefficiency. And, intuitively, in this example, you can consider just how sharply, thanks to a smaller loss, the incentives for gift-givers to send via Amazon, and for gift-receiver to ask for Amazon proliferate. Why? Because Amazon’s offering people something just a tiny bit more useful: it’s creating thicker value. 


The Art of Constructive Advantage

Thick value: it’s the foundation of 21st century economics. To create it, you’ve got to do stuff that, at a minimum, is what the economist Jack Hirshleifer once famously called socially useful. Better yet, you’ve got to do meaningful stuff that matters the most, to people, society, and the future.

Here, then, is an example of stuff that’s not:

Cantor Fitzgerald is one of the biggest brokers of United States government securities, considered among the safest places to put one’s money. Cantor Gaming handles some of the riskiest. It runs the sports book at the M Resort, a relatively new casino popular among Las Vegas locals. It has or will soon start handling the sports betting operations at the Vegas Hard Rock Hotel and Casinoand at the recently opened Cosmopolitan of Las Vegas and the Tropicana Las Vegas, all on or near the Strip.

And Cantor is banking on the next frontier in gambling: a license that would allow sports betting on mobile devices anywhere in Nevada, as long as the bettor had an account at a casino.”

Needless to say, a broker “growing” by investing in (wait for it) mobile betting is the epitome of dumb growth. While you might think it’s profitable in the near term, here’s what’s for sure: it’s unlikely to yield medium term returns, let alone long run returns (because Wall St’s social subsidy, by definition, can’t endure forever—America’s already nearly broke just to the tune of yesteryear’s bailouts).

Nor is it a foundation for global growth: it’s likely that emerging markets might just be looking for financial products and services that are a wee bit more useful to communities starved of capital than squandering it on betting (which is purely socially useless, if not destructive). Like, for example, the P2P lending that’s already disrupting finance in Africa. 

Lesson? 21st century advantage is constructive, not just competitive. It stems from creating thicker value than rivals, by scaling greater heights of social usefulness. Cantor’s seeking an industrial age competitive advantage, by extracting value. A better—and smarter bet—is creating authentic, thick economic value instead.


Purpose First. Then Profit.

One of the most striking findings in the research that led up to the Manifesto was this: 90% of boardrooms tend to think profit is the fundamental animating purpose of commerce, companies, and trade. 

It’s not. Profit is an effect, not a cause; a reward, not the accomplishment (unless your goal is an economy that’s nothing more than a herd of drooling zombies lumbering their way around a game of creaking musical chairs). The cause, the accomplishment, the outcome—these are the stuff of purpose. In short: though the vast majority of beancounting, overquantified, fatally oblivious C-suites think so, from an economic perspective, profit is not purpose. Put the two together, and you get what might call a yawning, gaping “purpose gap”.

The result of the purpose gap? 90% of companies can’t get to grips with one of the most significant and powerful institutional innovations around. They can’t craft a meaningful, resonant—and disruptive—philosophy, a statement of first principles that defines in sharp, clear terms how they will create value (instead of merely extracting it), because they don’t (or won’t) put a bigger, more enduring purpose first.

The endgame? Many industries become ponziconomies, creating little or no authentic economic value—because the bulk of firms within them are earning profits which are mostly an illusion. 

Here’s the redoubtable Bill Black on what happens when profit replaces purpose.

"1. The fictional profits fool creditors and shareholders — they are eager to lend to and invest in firms reporting record profits. Rather than discipline accounting control frauds, creditors and shareholders fund their massive growth.

2. The fictional profits and the large bonuses they drive create a “Gresham’s” dynamic in which bad ethics tends to drive good ethics out of the marketplace. The CFO that fails to emulate the fraud recipe will report far lower profits in the near term and will fear losing his job. More junior executives whose compensation is based on the firm’s reported income have perverse incentives to engage in accounting fraud to ensure that the firm “hits the number” and have reduced incentives to blow the whistle on frauds.

3. Lenders engaged in accounting control fraud create “echo” epidemics of fraud. They use their powers to hire and fire and create compensation systems to create perverse incentives in other fields: among their employees, “independent” professionals, and agents (e.g., loan brokers).

4. When several large lenders follow similar fraud strategies they can hyper-inflate financial bubbles.”


See the problem? Chasing fictional profit—thin value—is more often than not just a messy, agonizing, prolonged way to commit competitive suicide.

Want to be disruptive? Get a bigger purpose. Embed it in a resonant, meaningful philosophy. Then live it, breathe it, create thicker and thicker value than your rivals even think is possible in their wildest, most impracticable dreams—use it to not just beat your competitors, but to better them.


What’s the case for Constructive Capitalism? Why should you be a Constructive Capitalist? 
The simplest reason is: because Constructive Capitalists don’t just outperform—they redraw the boundaries of disruptive outperformance.
The chart shows the performance of Constructive Capitalists vis a vis market indices (the Nasdaq, S&P 500, and Dow Jones) over the last decade. Here’s the rub. A broad enough basket of equities can only go up, right? Wrong. In a stark contradiction of the conventional wisdom, the noughties were the worst decade in financial history. If you’d put $1000 into the markets in 2000, you would have, for the first time in recent financial history, lost roughly 20-30% of your money, and been left with only $700-800 at the end of the decade.
But if you’d invested the same $1000 in the Constructive Capitalist portfolio—a cohort of radical institutional innovators, focused on constructive advantage, smart growth, and thick value—you would have more than tripled your returns (or, in the Street’s jargon, achieved an “alpha” of over 300%). 
Yet, that’s just the beginning of the story. What’s more significant is that the performance of Constructive Capitalists isn’t just countercyclical, skyrocketing during the downturn, and then collapsing during today’s nascent, halting recovery. Rather, they are rebounding harder and more intensely than the markets—suggesting that their performance is structurally disruptive. They’ve built stronger economic foundations, that underpin structural outperformance, deeply rooted superiority in 21st century terms—because, as I discuss in the Manifesto, Constructive Capitalists aren’t just seeking industrial age efficiency, productivity, and effectiveness: they’re taking a quantum leap beyond them.
Want to join them? The lessons are simple. If you’re a C-suiter, get constructive. If you’re an entrepreneur, seek a constructive advantage. If you’re an investor, invest in constructive firms, markets, and economies. And if you don’t, won’t, or can’t—well, then, maybe you should prepare to be structurally disrupted.
Why does mattering matter? There’s a lot more to the case for Constructive Capitalism, of course, than mere financial superiority—competitive context, social relevance, engaged people, stronger foundations, more enduring growth. But if you’re looking for a place to begin, you can start with the hard truth that even in 20th century terms, 21st century renegades outperform—disruptively. 

What’s the case for Constructive Capitalism? Why should you be a Constructive Capitalist? 

The simplest reason is: because Constructive Capitalists don’t just outperform—they redraw the boundaries of disruptive outperformance.

The chart shows the performance of Constructive Capitalists vis a vis market indices (the Nasdaq, S&P 500, and Dow Jones) over the last decade. Here’s the rub. A broad enough basket of equities can only go up, right? Wrong. In a stark contradiction of the conventional wisdom, the noughties were the worst decade in financial history. If you’d put $1000 into the markets in 2000, you would have, for the first time in recent financial history, lost roughly 20-30% of your money, and been left with only $700-800 at the end of the decade.

But if you’d invested the same $1000 in the Constructive Capitalist portfolio—a cohort of radical institutional innovators, focused on constructive advantage, smart growth, and thick value—you would have more than tripled your returns (or, in the Street’s jargon, achieved an “alpha” of over 300%). 

Yet, that’s just the beginning of the story. What’s more significant is that the performance of Constructive Capitalists isn’t just countercyclical, skyrocketing during the downturn, and then collapsing during today’s nascent, halting recovery. Rather, they are rebounding harder and more intensely than the markets—suggesting that their performance is structurally disruptive. They’ve built stronger economic foundations, that underpin structural outperformance, deeply rooted superiority in 21st century terms—because, as I discuss in the Manifesto, Constructive Capitalists aren’t just seeking industrial age efficiency, productivity, and effectiveness: they’re taking a quantum leap beyond them.

Want to join them? The lessons are simple. If you’re a C-suiter, get constructive. If you’re an entrepreneur, seek a constructive advantage. If you’re an investor, invest in constructive firms, markets, and economies. And if you don’t, won’t, or can’t—well, then, maybe you should prepare to be structurally disrupted.

Why does mattering matter? There’s a lot more to the case for Constructive Capitalism, of course, than mere financial superiority—competitive context, social relevance, engaged people, stronger foundations, more enduring growth. But if you’re looking for a place to begin, you can start with the hard truth that even in 20th century terms, 21st century renegades outperform—disruptively. 


Netflix’s Big Mistake

In a very interesting—and telling—recent exchange, investor Whitney Tilson explained why he’s shorting Netflix—and Netflix CEO Reed Hastings publicly replied, defending his decisions, promising returns.

What’s interesting about the exchange isn’t the fact that two giants went head-to-head publicly. Rather, it’s that two giants went head-to-head publicly and revealed just how arid, barren, and downright lame our economy’s overlords’ way of thinking about advantage, superiority, and value really is.

Consider how sharply both frame the discussion purely in yesterday’s terms: the industrial age conceptions of “competitive advantage”, achieved by “beating” the competition, and “creating value”, for shareholders (and all the attendant biz 101 jargon that goes with it: “COGS”, “opex”, etc). What’s missing? There’s not a single line from either about, well, Netflix creating authentic economic value, mattering, doing meaningful stuff. Just about the same old tired, threadbare notions of financial value, dominance, and value extraction. Yawn—it’s the thinking behind the ponziconomy, writ small.

Neither seem to have the tiniest morsel of a shred of a clue that if you want to achieve superiority in the 21st century, there’s no poorer way to begin than the above. That’s because the 20th century’s sources of advantage—scale, brands, cost advantage, market share, “differentiation”—are, in today’s radically altered economic world, sources of disadvantage (hi, Detroit, Wall St, big pharma, and big food).

Advantage in the 21st century is constructive, not just competitive. There are five sources of constructive advantage (each discussed in detail in the Manifesto): loss advantage, responsiveness, resilience, creativity, and difference. Netflix’s overlords aren’t just failing to strive for a single one of these—reading Reed Hastings, it’s pretty clear that they’re not even beginning to think in 21st century terms. Rather, they’re reliant on brand, scale, and market share—all of which are already starting to limit them from creating thicker, more enduring value (as real costs rise, and marginal returns diminish). When a boardroom can’t even perceive the contours of the competitive landscape, achieving superiority becomes something less than a game of chance. My prediction’s simple: a player like Apple, laser focused on resilience and creativity, will be able to disrupt this ponderous, info-poor, coordination-intensive, diminishing returns-focused model with ease, grace, and fluidity.

Netflix’s big mistake isn’t what Whitney Tilson suspects: more deeply, it’s that Netflix is bringing yesterday’s ammunition to today’s battle. And what that logic suggests is that, in the Street’s jargon, perhaps it’s time to not just “short” Netflix—but Tilson as well. 


Betting on recovery? Perhaps you should think again. Consider what the chart suggests: that investment has yet to “recover” in any meaningful sense—in fact, it’s still cratering. Instead, from a structural perspective, America’s still pursuing what I call in The Manifesto dumb growth: growth driven by (debt-driven hyper) consumption (mostly, of “consumer goods”—trinkets and gewgaws). That kind of “growth” is dumb for many reasons—but the biggest is the simplest: rather than creating real wealth, it simply transfers it (from the poor to the rich, the young to the old, and from tomorrow to today).

The real challenge? Shifting to a model of smarter growth, driven by investment, not consumption. Why? Because the industrial age’s tired, rusting diminishing returns assets are tapped out (think a decaying, obsolete national physical infrastructure, or, at a more advanced level, financial market microstructure, social infrastructure, etc). Investing in the foundations of a 21st century economy is the single most powerful key to reigniting prosperity. 

Real recovery begins with smartening up yesterday’s dumb growth.

Betting on recovery? Perhaps you should think again. Consider what the chart suggests: that investment has yet to “recover” in any meaningful sense—in fact, it’s still cratering. Instead, from a structural perspective, America’s still pursuing what I call in The Manifesto dumb growth: growth driven by (debt-driven hyper) consumption (mostly, of “consumer goods”—trinkets and gewgaws). That kind of “growth” is dumb for many reasons—but the biggest is the simplest: rather than creating real wealth, it simply transfers it (from the poor to the rich, the young to the old, and from tomorrow to today).

The real challenge? Shifting to a model of smarter growth, driven by investment, not consumption. Why? Because the industrial age’s tired, rusting diminishing returns assets are tapped out (think a decaying, obsolete national physical infrastructure, or, at a more advanced level, financial market microstructure, social infrastructure, etc). Investing in the foundations of a 21st century economy is the single most powerful key to reigniting prosperity. 

Real recovery begins with smartening up yesterday’s dumb growth.


Leapfrogging into the 21st Century

Every week, Ms. Ruto walked two miles to hire a motorcycle taxi for the three-hour ride to Mogotio, the nearest town with electricity. There, she dropped off her cellphone at a store that recharges phones for 30 cents. Yet the service was in such demand that she had to leave it behind for three full days before returning.

That wearying routine ended in February when the family sold some animals to buy a small Chinese-made solar power system for about $80. Now balanced precariously atop their tin roof, a lone solar panel provides enough electricity to charge the phone and run four bright overhead lights with switches.”

An awesome example—but what’s really going on here? Developing countries are seeing a 21st century energy infrastructure emerge—one that’s built on two of the principles in The Manifesto: value cycles and resilience. It’s a grid that cycles power renewably, instead of just “generates” it via non-renewable sources. And it’s a grid that’s massively, flexibly decentralized—so it’s marginally resilient relative to the monolithic industrial age architectures that developed countries continue to invest in.

The point? It’s about thick value and smarter growth. Developing countries are on the cusp, just maybe, of a taking a quantum leap past developed countries, leapfrogging them by letting 21st century institutions emerge. And that’s awesome. 


America’s Addiction to Dumb Growth

 Americans are less economically mobile than people in other developed countries. There is a 42 percent chance that the son of an American man in the bottom fifth of the income distribution will be stuck in the same economic slot. The equivalent odds for a British man are 30 percent, and 25 percent for a Swede.”


Smart growth is what, at the end of the day, constructive capitalists really ignite. It’s about an authentic, meaningful prosperity—that’s shared more broadly, fairly, and enduringly.

Needless to say, economic and social mobility is a key aspect of smart growth. After all, if you’re locked into a economic stratum, prosperity can’t be said to mean much, no matter how steeply national income is “growing”. Hence, America’s declining economic mobility reflects it’s pursuit of dumb (and dumber) growth.


THE LAWS OF CONSTRUCTIVE CAPITALISM

1. AN ORGANIZATION CANNOT ALLOW ECONOMIC HARM

"Through the act of exchange, AN ORGANIZATION CANNOT, by action or inaction, ALLOW people, communities, society, the natural world, or future generations to come to ECONOMIC HARM."



2. THICK VALUE IS AUTHENTIC, MEANINGFUL, AND SUSTAINABLE

"the fundamental challenge of 21st century economics is creating more value of higher QUALITY, NOT just low quality value in greater QUANTITY.”