Tuesday, December 13, 2011

Factors of Production In The Social Age

In The Wealth of Nations, Adam Smith identified the "factors of production" as land, labor and capital. Land can be expanded to include anywhere things can be produced (farmland, factories, or cubicles); labor can be expanded to include expertise, skill and knowledge; and capital may include other properties with value (things like money and ideas) that can be either exchanged for materials (money for iron or wheat) or synthesized with land and labor into something more valuable than the individual components (think of a raw idea that, over time, gets shaped into a product or service by scientists and engineers, then gets produced and sold).

Throughout the industrial and post-industrial era, there has been a tension between landlords, workers, and financiers. Standing in the middle of that tension is management. Management typically does the bidding of landlords (by collecting rent) and financiers (by maximizing the return on the financiers' investments). It doesn't take a Nobel Prize in economics to figure out that workers might often feel (rightly or wrongly) that their interests weren't being represented. The perceived devaluation of labor by landlords and investors provided the basis for Marxist theory, and set up the economic struggle for power that continues to this day.

My friend Jessica Miller-Merrell of XceptionalHR (aka @bloggingforjobs) recently shared a story with me of an organization that used a website's social tools to register their displeasure with an (admittedly) misguided policy in a big way. I mean, a REALLY big way. Big enough that it caused serious management headaches and got the policy changed.

This story really resonated with me, because it illustrated how today's workplace and economic environments have changed. I would also argue that they've changed for good. Much of the pricing power of "the market" for land or any other resource comes from the ignorance of the buyer. It's what's called "assymetric information", and it's the reason anyone who's taken an economics course knows at least one Latin phrase: caveat emptor, or "let the buyer beware". Actually, they probably also know ceteris paribus, but that'll be another post.

Today's social world makes it harder and harder for sellers to make profits based on the buyer's ignorance. Some would argue that's a bad thing, but in the end it ensures that people get the most for their money, and that's generally a good thing in the eyes of many.

The real game-changer with social media, however, is happening with labor. Jessica sees it. I see it. And any company that doesn't see it (especially since human talent is at a premium) is on thin ice. Companies no longer can simply make up rules according to their own wishes and simply for the benefit of their investors. The workers of today are too savvy and, increasingly, too connected. Tools like Change.org and sites like Glassdoor bring together worker interests and put management on notice. Smart companies recognize that their workforces produce tremendous value (in some cases, in this information and service-based economy, all of the company's value), and they treat them with respect and as partners. Antagonistic management practices still exist, and many an investor thinks that their money is more valuable than someone else's sweat (and vice versa, to be fair). The Social Revolution, though, pulls the curtain back and reveals the truth. And the truth, in this case, will set many free.

Thursday, December 8, 2011

The Smart Bet...?

Those who know me know that I tend to be a bit of a political junkie. I'm not sure whether that stems from my appreciation for good archetypes, high drama, or some Quixotic quest to see a sensible solution served up to the masses. Regardless, the GOP primary race has been intriguing for some time.

The following post from Noreen Malone over at New York for some reason reminded me of gambling. That idea probably crops up from the recent attention I've been paying to game theory and behavioral economics. Malone seems to think that mere spoiled mindsets are behind the GOP donor base's attempts to find somebody to run whom they can stomach. Some gambling concepts might cast their actions in a different light, while also underlining some of the risks they run.

Pot Management

When poker players first start out, many have a tendency to fold after their initial card draw. Multiple reasons exist to at least play through some of the hands (setting up bluffs; the possibility of a positive outcome), but perhaps the most important reason is pot management. If you're in the game, folding hands is a great way to burn through your reserves while ensuring that you have nothing to show for it. You must take a strategy into the game about how much you are willing to spend and under what conditions. Otherwise, you may as well leave.

Know When To Fold 'Em

Not to go all Kenny Rogers, but sometimes you have to question whether you should be in the Poker Room at all at certain times. I don't think the majority of GOP donors have reached this point yet, but the time will soon come when they start having those conversations.

You Don't Have To Bet Every Race

This concept is near and dear to me, as I received it from my friend Tom, a horse trainer turned bartender who was legendary at both. Tom explained to me that his track record in terms of betting was far into the black over time, because he understood the importance of identifying advantage. There's a long list of analogies you could draw from this point, but politics definitely fits. Don't be surprised if, at some point, the speed of donations made to one side or the other slows dramatically.

Losing The Battle To Win The War

Known in less scrupulous venues as the long con, contests can be lost for the sake of producing long term advantage. Resting your best player in a meaningless game, running a contest at less than full speed to hide capabililites, throwing away good hands, bluffing with bad hands, or running lackluster candidates to avoid placing your "A" team into difficult circumstances (like a protracted period of economic flatness) are all examples of thinking for the future (despite how cynical some of those actions may appear).