Inverted Alchemy: An Integral Economy: February 2017

Monday, February 27, 2017 will be a day I remember for a long time. The truth is I remember most days but Monday was special. In partnership with my team at M·CAM and growing number of the leadership at CNBC, my Innovation Alpha-based CNBC IQ100 powered by M·CAM U.S. equities index was celebrated with two articles and three on-air segments. And with good reason. The CNBC IQ100 powered by M·CAM has done something that hasn’t been seen since 1954. It grew over 40% in a 12-month period. Far exceeding the “Trump-rally” of the S&P, NASDAQ, and Dow Jones Industrials, our Innovation Alpha method continues to demonstrate the unique insight that M·CAM provides the market and shows that by measuring the quality of corporate innovation, far greater investment returns are accessible in the equity markets. That’s good news, right?

Well, not so fast. It was 1999 – nearly 20 years ago – when I first demonstrated the algorithm that powers our current market methodology. By 2000, Inc., Forbes, and the Wall Street Journal had published articles about our methodology. The U.S. Senate Banking, Finance, Government Oversight and House Judiciary and Commerce Committees had all heard that there was a way to reliably measure innovation in American industry. By April of 2001, our methodology had been demonstrated around the world in the EC21 Conference in Europe to the State Council of China. The Financial Accounting Standards Board (FASB) spent weeks in our offices in Charlottesville and in meetings in Connecticut to embrace the rationale of our methodology in accounting standards now promulgated around the world. But on February 27, 2017 my index out-performance is a result of one thing: willful ignorance.

I’m puzzled over the monotony of my last several decades of experience. As evidenced by the CNBC IQ100 and its celebration on Monday, making qualitative measurements of corporate innovation and its use affords reliable market visibility on value. Where researchers like Dr. Hall, Dr. Shapiro, Dr. Lemley and countless other economists tried to understand innovation through quantitative lenses, M·CAM always held that the intent – not the artefact – of the innovation impulse was relevant in understanding innovation. And intent can be proactive and constructive or can be reactive and destructive with respect to value. Rather than adopting a predatory instinct to exploit this insight exclusively for our commercial advantage, M·CAM maintained over 1/3 of its corporate activities in Innovation Literacy – the explicit sharing of our capabilities with others. Periodically it’s been welcome – primarily in countries seeking to build their economic capabilities. Frequently it’s been rejected or ignored by G-20 countries bent on profligate spending on defense, infrastructure, energy, health-care, and telecommunications. That’s right, when the public’s money is being spent – reliable, qualitative assessment of innovation is unwelcome. That feels wrong, doesn’t it? Shouldn’t public procurement concern itself with the quality of the technology it procures?

Not so fast. The problem governments have with reliable, qualitative assessments of innovation is that it makes occult patronage far less viable. If best quality or best service was the mandate, precision matters. But when officials in government directly benefit from influence afforded by incumbent multi-national companies while in office and land in cushy Government Relations roles in those same corporations upon their departure from Public “Service”, pointing out material misrepresentations is unwelcome. And this is as prevalent in Australia and the U.S. as it is in Papua New Guinea and Somalia. Over the next 10 years, Australia’s government choices will cost its citizens an avoidable loss of over $50 billion. In Papua New Guinea, reckless financing of oil and mineral projects will lead the country into functional insolvency despite its vast wealth of resources. In the U.S., President Trump’s commitment to defense and infrastructure will lead to an annual loss of over $750 billion in inefficient spending. The EU will pour billions of euros into “innovation” funding programs which have already been demonstrated to merely re-distribute money – not create industries or wealth. These governments all know it… and continue the status quo.

How did we get here? The answer is quite simple: surrogacy. When ordinary citizens acclimate to the notion that “someone else” needs to take care of them, the ceding of individual accountability and discernment supplies the power leakage that accumulates in bureaucracies. This power overwhelms the public service intentions of officials who realize that they are the gate-keepers of the public treasury. And patronage (in the best of cases) and graft and corruption (in the most common cases) are born. But remember, corruption is a derivative not of bad individual actors. Rather it is the consequence of mass abdication of personal accountability and responsibility. When We The People acknowledge that WE are responsible for our own actions and our destinies, than our interest in remaining engaged and informed goes up. When we surrogate our well-being to anonymous public sector agencies, we fuel the abuse that besets us.

Over the coming weeks, Inverted Alchemy is going to take on a new form. You, the readers of this blog, are going to help select the themes you would like to learn more about. I’m going to listen and respond. Since 2008, I’ve tried to point out what I think matters. Now it’s your turn. And together, maybe we can begin reclaiming a bit of our accountability and in so doing Create a More Perfect Union.

Over the past few months, I’ve been exposed to the Australian Technical and Further Education (TAFE) system. In a class-based, caste-inspired social engineering experiment, Australia took Adam Smith’s division of labor principle to the extreme insuring that the erudite universities preserve their fraternity of elitism and broad irrelevance (Australia ranks last on the OECD’s measure of industrial engagement with universities – behind Mexico!) while the “working class” are afforded sufficient skills to serve as grist for the industrial mill. In 1946, Sir Eric Ashby callously observed:

“Here is the criterion for determining what subject or parts of a subject should be taught at a university. If the subject lends itself to disinterested thinking; if generalisation can be extracted from it; if it can be advanced by research; if in brief, it breeds ideas in the mind, then the subject is appropriate for a university. If, on the other hand, the subject borrows all its principles from an older study (as journalism does from literature, or salesmanship from psychology, or massage from anatomy and physiology) and does not lead to generalisation, then the subject is not a proper one for a university. Let it be taught somewhere by all means. It is important that there should be opportunities for training in it. But it is a technique, not an exercise for maintaining intellectual health; and the place for technique is a technical college.”

“If it breeds ideas in the mind”! As though a plumber may not be as likely to encounter a notion of genius as an ivory tower ensconced academic! Really? And the Committee on Australian Universities in 1957 warned of the risk of any technical institution daring to venture into the realm of the Academy as they would present a risk to the “urgent national need” for skilled and semi-skilled labor. In 1899, the State of Victoria was the home of the first inquiry of the Fink Commission (named for Theodore Fink) which sought to improve the quality of the mechanical and technical training efforts of the 19^th century. In what was to overhaul both primary and secondary education (as well as reify the divide between university and vocational tertiary education), the turn of the century brought with it the “development” imperative to insure that sufficient tradesmen were available to meet the requirements of the industrial and mining mandates of the country. In short, with the exception of the University elite, education is a means to a “gainful” employment for the industrial, social, or economic mandate determined by…, well, no one is really quite sure. At no point is the individual considered relevant in setting the purpose for their industry – they are just expected to rent their labor to whatever industry the establishment deems relevant.

I am fundamentally concerned with the absence of a meaningful critique of the theoretical underpinnings of the Adam Smith and Marxian argument which merely recites the dogma of labor vs. elite. From the fourth century BC forward, the notion of division of labor has been rooted in the meeting of sufficiency at a caloric level (consumption to combustion / extinction). Ibn Khaldun would be appropriately referenced in his work Muqaddimah in which he discussed the communal requirement for division of labor. Arguing that division of labor allows for the needs of a community to be met more efficiently if tasks are divided than if individuals have sole responsibility for all necessities, Khaldun anticipated the rise of the industrial model in the 14^th century. Focusing on Smith and Marx orthodoxy (not to mention Alexis de Tocqueville, Immanuel Kant and others) leads to the reification of the linear notion of production as a means to consumption and extinction without addressing the underlying moral constructs surrounding:

A. Replenishment of matter and energy rather than the extractive / extinction utility;
B. Consideration of who sets the priority for what is manufactured and to what end;
C. Purposeful despotism when labor is allocated against priorities set by hierarchy into which choice labor allocation has no correlation to real or perceived need; and,
D. Notions of equivalence to those things that do not serve a consensus “need” but rather are seen as standards of “development” or artifacts of “status”.

When one is building a ship or a road, technical precision is the difference between fit-for-service and structural failure. When one is dressing a wound, changing a bed-pan, welding a steel frame, designing a house – some standard of care is essential. And I’ve been engrossed in reading what is required to meet the technical education standards for these and hundreds of other careers. At the same time, I’ve been examining the University end of town. The profligate elitism that permeates the dichotomy between tertiary education in Australia borders on the comical. I’ve made the very recent mistake of reading doctoral dissertations from several of Australia’s leading universities and what I find amazing is the degree to which they are largely over-weight literature review and underweight substantive contribution to advancing the state-of-the-art. Ironically, Australian universities measure their academic relevance in large part on the number of times their work is cited paying no attention to whether their work is being celebrated or impugned. All publicity is good – apparently.

In short, neither end of the social engineering experiment is serving the public good or global relevance. But the failure is one that transcends the current social discourse. The root concern is that there is no clear vision – no organizing principle – around which the industry of education can rally. Complacency fueled by the illusion of over two decades of economic growth without a recession has led to a generation of politicians and civil servants who merely recite their mantras about jobs, innovation, and growth, without a single clue as to what any of these mean in a global market context. Australia will be spending over $120 billion dollars on defense over the budgeted future without a clear doctrine justifying what it’s actually defending and against whom these defenses are aligned. Australia will be building infrastructure for growth but cannot articulate what purpose this growth will serve. And nowhere in the dialogue is any recognition that Australia – a net consumer of other people’s ideas, services, and programs – could invert that dynamic and become the world’s leader in the unleashing of innovation from across the globe.

What does this mean? First we must examine the core capabilities of the fully functioning education ecosystem. As the abject failure of pundits and analysts have shown in the 2016 U.S. Presidential election, if you measure consensus assumptions, your conclusions are entirely wrong. In 2006 and 2007, I correctly described the conditions and the timing of the Global Financial Crisis in 2008[1]. Was I forecasting an outcome using predictive analytics? No. I was merely observing irrefutable documented behaviour in an occult industry and critiquing the system level convergence that was certain. From mass pandemics (the Asian bird flu) to resource shocks to social paroxysm (the Egyptian multi-coups), the “trained” and the “expert” are left agape when linear regression behaviour is punctuated by disequilibrium events. Regrettably, education’s obsession with the scientific method have taught regression but have assiduously ignored its dominant fallacy – that we know the variables that matter and we recognize that which is significant. Elementary statistics teach us that interrogatory inquiry presupposes:

1. Known variables;
2. Known scale in which these variables operate;
3. And Measurement Error.

Interestingly, the same discipline teaches us the error of untested assumptions about normalcy, kurtosis, skewness, and orthogonality. However, the modern education system and the scientific method upon which it is built fails to account for these in every instance diminishing the efficacy of social and technical interventions. We are not as much facing a 4^th Industrial Revolution[2] as we are a Scientific Renaissance.

And while the exceptional “successes” of modernity – from Bill Gates to Mohammed Yunnus to Eleanor Ostrom – have changed the scale, scope and impact of incumbent modes of human interaction, they have not fundamentally ushered in new modes of thinking, examining and engaging a world in a regenerative and productive way. At the margins, Hunter Lovins and others have pointed to an opaque future in which biomimicry opens new design and engineering consideration. This is an important harbinger of humanity’s future. But for global citizenship to be possible with as many at 10 billion inhabitants (or more) on the Earth, integral isomorphism will be required.

What is Integral Isomorphism? Ironically, it’s quite simple. It’s the way the world and the cosmos works. From intergalactic conductive matter, to light and magnetism, to photosynthesis to mitochondrial respiration within our cells, observable principles are evident in unconstrained fractals and these principles underpin the animating impulses of relativity, thermodynamics and quantum mechanics. Unconcerned with linear duality, integral isomorphism engages persistent, generative, infinitely orthogonal dynamics of activation, transmission and perpetuation where systems are regenerative at every level. In other words, to be a productive citizen in the 21^st century, a person has to expand their sensory ability, entertain divergent contextual perspectives, synthesize and integrate multiple perspectives and narratives with tolerance, see the costs and benefits of all actions to all actors within the ecosystem, select appropriate tools to form reproducible experiences, and optimally engage rather than consume the environment in which we live.

For education to be relevant in the 21^st century, it must be emancipated from the linear industrial construct of creating rent-based industrial employment and social pacification and liberated to enable citizens to productively engage in valuable pursuits at the individual and collective level. This is not an indictment of industry – it is the recognition that as industry is already in the throes of transformation, so too must education transform.