Joost Bijlsma

How volatile are things really?

Three thinkers reflect

It has become a cliché to say that we live in turbulent times with great changes. But to what extent are things actually changing, what are the implications and how should we deal with them? These three thought-provoking books offer completely different perspectives on this…

Time of stagnation due to headwinds

Robert Gordon, ‘The Rise and Fall of American Growth’, Princeton University Press, 2016

To what extent are these times changeable/different?

Looking at things from a purely economic perspective Robert Gordon draws the conclusion that the times we are living in are not that changeable at all. He argues that the United States is experiencing a slowdown in growth. Between 1920 and 1970 the American economy, measured by productivity per capita, grew by an average 2.8 per cent a year (compared to 1.7 per cent from 1970 to 2014), a rate never again achieved over longer periods after 1970. Over the past 10 years the output per person has fallen dramatically, from around 2 per cent in 1999 to 0 per cent 2014. So it is more accurate to say that we are living in a period of stagnation.

Should we be worried?

Not really. Gordon stresses that lower growth is in itself not that unusual; it is the unprecedented growth that the country experienced from 1870 to 1970 that is remarkable. That is when the foundation was laid for our modern standard of living. He calls that period a ‘special century’, during which inventions were made that were genuinely life-changing, such as aeroplanes, central heating and the transition to urbanisation. There was also a huge rise in labour participation rates, for example among women. This was the real great leap forward, according to Gordon. Any improvement we are still able to make now is less significant, he says.

What is a good strategy?

Gordon states that there are various types of headwind that will further dampen growth in the United States over the next 25 years: growing inequality between rich and poor, a slowdown in the rise of educational attainment, a decrease in the number of hours worked per person (partly due to an ageing population) and the growing burden of government debt. According to the economist, the US government should focus on improving education, using taxes to achieve a fairer distribution of earnings and raising the minimum wage. That is what is needed to turn the tide of dwindling growth. He makes no secret of the fact that he has doubts as to whether this can be achieved.

The most amazing time ever

Salim Ismail, ‘Exponential Organizations’, Diversion Books, 2014

To what extent are these times changeable /different?

This is the most amazing time ever to be alive, according to the foreword of Exponential Organizations. Author Salim Ismail, founding executive director of Singularity University, states that everything will change as a result of technological developments. He warns that no organisation can escape new competition. Neither age nor size, reputation or current sales figures can guarantee that you will still be here tomorrow. Those who stand still will be swept away by Exponential Organizations (ExOs). An ExO is an organisation that has an exponential growth curve thanks to the full implementation of communities, big data, smart algorithms and new technologies, among others. Examples include Airbnb, Uber, Quirky, Haier and Waze.

Should we be worried?

Large, unwieldy organisations should be. They are less agile and therefore vulnerable to fundamental changes. However, it is possible to turn your company into an ExO or to start a new one yourself. This requires the courage to take risks and to develop completely new products and services. Constant experimentation and adaptation are the only way to survive in a changing environment. Companies need to fundamentally change the way they are organised. ExOs are characterised by a greater degree of self-organisation and much more efficient use of data, ICT and manpower.

What is a good strategy?

Large organisations that want to become ExOs should start working with small, autonomous innovation units reporting directly to the CEO ­– renamed ‘chief exponential officer’ by Ismail. He cites the Chinese white goods giant Haier (formerly Qingdao) as a good example of an ExO which has evolved out of a large company. CEO Zhang Ruimin has transformed the Chinese company from a centralised organisation with 80,000 employees into 2,000 self-managing teams (ZZJYTs) responsible for their own sales and earnings. Any employee, supplier or client can suggest new products. The company uses a community management system to encourage hundreds of thousands of users to provide feedback. Employees, suppliers and clients decide together which product ideas will receive funding. Anyone in the company who puts forward a winning idea is made leader of a unit. Every three months colleagues vote on whether the leader should be allowed to stay. This system has made Haier the most valuable brand in China, with sales that have quadrupled in 14 years.

Read an interview with Salim Ismail on ING World.

Time in which we close our eyes to unpredictable disasters

Nassim Nicholas Taleb, ‘Antifragile, Things that Gain from Disorder’, Random House, 2012

To what extent are these times changeable /different?

Our existence has always been determined by change, but we are under the illusion that reality is more predictable than it is, according to the leading thinker Nassim Nicholas Taleb. Real life is much more complicated than our memory would have us believe. “Our minds are in the business of turning history into something smooth and linear, which makes us underestimate randomness.” In addition we have the arrogance to suppose that we can predict the future.

Should we be worried?

Well, not about volatility, because that is healthy. Survival is a matter of constantly adapting to changes. Experiencing shock makes people more resilient, keeps them alert and makes them more likely to adapt. In the same way that a child – that has not yet developed the ability to think logically – learns from small pains in order to avoid serious hurt.

What is worrying is our attitude to volatility. Unlike nature, people today do not like mistakes. Like an overanxious parent we try to supress shocks. In doing so we – without realising it – are making ourselves more vulnerable to major disasters (Black Swans). This is compounded by the fact that we are afflicted by neomania, which makes us build complex systems. The larger and more complex communities and systems get, the more likely they are to collapse. The bigger they get, the more susceptible they become to Black Swans. This applies, for example, to large organisations. The bigger they are, the sooner they will have to face the music. Taleb uses several examples to illustrate this. Someone who is pelted with a thousand pebbles will fare better than someone who has to withstand a single large stone weighing the same as the thousand pebbles. And large animals – such as mammoths and dinosaurs – are more vulnerable to extinction, for example because they are less able to cope with food shortages.

What is a good strategy?

Taleb advocates taking an antifragile approach. What he means by this, is that we need to be more aware of the fact that not everything is under our control. And that we have to learn to love chaos and that it is good for us. To paraphrase Taleb, companies should avoid growing beyond a certain critical limit. They are also advised to expose themselves more to minor shocks and volatility. Furthermore they should aim to be simpler, less efficient and build better buffers. Taleb also believes that there should be greater appreciation of people who take risks, such as craftsmen and entrepreneurs. Taleb states that we have achieved what we have achieved thanks to the willingness of a certain group of people to take risks and make mistakes, and that we need to encourage, protect and respect these people. The author calls for more ‘skin in the game’, people who take a personal financial risk as a result of the decisions they make, for themselves and for others. In his opinion, that is what we really need now. “At no point in history have so many non-risk-takers, that is, those with no personal exposure, exerted so much control.”

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