Rob’s comments are in italics.Derek’s comments are in normal font.
Today we're going to be talking about several frameworks you've got in mind for life operating an enterprise, all sorts of things. So, where do we need to start?
I thought I'd return to the focus, which is the core of what we set out to do with sovereign finance, which is to show some light on the whole nature of wealth and the creation of wealth. I've identified six foundational principles on which the operation of any enterprise applies. When we talk about an enterprise, we're primarily thinking of a business operation of some sort, but it could be any undertaking where people work together. It could be a charity, it could be a sports club or a social activity, or it could be a government.
I'll run through the six of those. From some conversations I've been having with people, I was reminded of something called the seven P's principle, which I'll talk about, and there's the five Y's methodology. So let's move on to the principles…
1. Ethical and Philosophical Foundations
The first principle is the ethical and philosophical foundations that you adopt. Now, each of us has, if you like, principles in life. For some people, it's “I'm out for all I can get.” For some people, having as nice a time as possible is important. For some people, it's...
As much freedom as possible, or as much time with the kids as possible, or...
Yes, each of us chooses our own ethics. Wise men have repeatedly advised adopting the golden rule: do unto others as you would have them do unto you.
That's broadly all major religious teachings, I think?
Yes, it's the core of the practical down to earth aspect of every religion as far as I'm aware. I was educated in a Christian environment. As far as it went, we started every day throughout my entire schooling with a religious service, which was entirely Christian. We had one period or more every week of religious instruction, which again was entirely religion. I don't think throughout the entire 13 years of my schooling, there was any discussion more than the most passing references to Buddhism or Islam or Taoism or any of the others, or indeed the fact that there were numerous indigenous religions.
You have to find them out for yourself.
When it comes to ethical teaching, as far as your behaviour with other people is concerned, I think they're all in agreement. You can look on Wikipedia and see the phrasing in about a dozen different contexts. The ethical principle is what we call the golden rule. Even if you're not religious, you might choose to adopt that. In my experience, it makes for a more pleasant life than the alternative.
I think we're all religious in some way. It's just that whether you adopt a, I don't particularly feel enamoured with institutionalized religion. However, I think everyone has a religious practice that pertains to ethics and behaviour.
Well, of course, even if you're an atheist, it's a question of faith. It's not that faith is monopolized by people who are theists or deists. The number one is to adopt a principle. It makes sense in business because your reputation follows you around. If you have a reputation for ripping people off, you'll find it harder to get customers over time. You'll have a less pleasant experience of dealing with your customers. So it's entirely a matter of enlightened self-interest.
2. Maslow's Hierarchy of Human Needs
The second principle is Maslow's hierarchy of human needs. If you offer a product or service, you won't get anywhere unless somebody wants it. They will want it because it satisfies one or more levels in that hierarchy.
It must scratch an itch somewhere in the pyramid.
In a couple of presentations, and also in my book, The Letter from 2100, I indicated that there was a revised version of that hierarchy, which he wrote in a later book about 20 years after his original exposition. I did a further revision of it myself and I’ll talk about that in a little while.
Essentially, if you're unfamiliar with the concept, the most basic level of the hierarchy is meeting your physical needs. You need air, you need water, you need food, you need adequate clothing and adequate shelter. You need some sort of healthcare and sanitation. If you haven't got those, to varying degrees, you'll be desperate to get those before you can satisfy anything else.
Then you have the need for safety and security. Above that, you've got the need for love and friendship, for self-esteem and for what he called self-actualization.
He then added another level at the top, called transcendence. After discussing it with several people, I revised it to be essential. Some people argue that the whole hierarchy of needs is completely inverted.
I don't think that's true because you need those first two levels before considering anything else. As soon as you've met your physical needs, your safety and security, and if you put transcendence next, the others will come much more freely.
Everything else falls into place much more nicely, everything else falls into place with much less friction once you've got that in place.
Yeah, exactly.
3. Conscious Capitalism
My third concept is what I call conscious capitalism. By that, I mean the fact that we all need capital if we're running an enterprise. At the very least, you need the space to operate it in the communication devices you use to communicate with your customers and prospects.
You'll need some sort of machinery or tooling for most practical businesses. You'll probably need vehicles to get around in, and you need to own those. You need to operate in a way that allows you to justify the investment in those and maintain the investment. I'll come to another aspect when I get to foundation number six: having a centre of proportion.
4. Right Accounting
The fourth foundation is what I call right accounting, which means you allocate expenses correctly. I want to fully consider the biggest possible perspective on the whole thing. For example, if we look at what happened with drink containers over the past 50 years, beer and milk bottles have been returned, cleaned, relabeled, and reused.
The bottle was manufactured once, it made many trips, eventually it was degraded in some way or broken or lost. It served its purposes. The same works for soft drink bottles. Then the manufacturers decided that they could make more profit by not bothering to collect, return, and wash and just buy a new bottle.
This is a bit of a swindle because it's the customers who are paying for the bottle, whether it's a plastic one that then gets thrown away and pollutes the environment in various ways or whether you have to pay your local council to be an unpaid servant of the system by taking your bottles to the bottle bank, which you have to drive to in your car.
The local authorities gather them all up and take them to a glass company, which melts them down and turns them into bottles.
Which is what you had in the first place!
There's obviously a lot of extra effort, money, and energy going into this.
It's quite a lot of energy to melt glass.
Indeed. What I mean by right accounting is looking to the future and a more functional social and economic system. All of those things would be considered, and they would all be fed into the policies that were followed.
5. Energy and Entropy
The fifth foundation is grasping energy and entropy. We obviously need energy. We need to put fuel in our cars. We need to draw from the electrical grid to power our devices, heat, light, warm, and cool our environments, and run our machinery.
Entropy is the amount of energy lost over time. It includes decay, disruption, corrosion, breakage, and wear. Some of it is dissipated at every energy conversion as low-level heat, making it unavailable for further useful work.
This is why, although energy is not created or destroyed, it needs to be constantly replenished with high-quality energy. This impacts the fact that we've had this great bonanza for the past 300 years of burning up this great stock of fossil fuels. We will be looking at that within the lifetimes of many people living on the planet.
It will be a bit of a scramble to make that transition, which would have been very easy if it had been embarked on 50 years ago when it was obvious to many people that this would become a problem. We also need to know that we need to operate within the broader context of the oil, gas, and coal industries and the geopolitics surrounding them.
I was thinking about energy from the perspective of an artistic endeavour. You, as the main input into your work, still need energy, and your energy peaks and drops throughout the day as well.
Yep, this is true, yep.
6. View Money as a Tool
The sixth foundation is viewing money as a tool, not as a deity, not as something to be worshipped, not as something that is the point of the exercise; it's something that is subservient to the practicalities of operating the end.
It's the means, not the end.
So those are the core principles of the core foundation. Any thoughts on that, Rob?
No, to me, that makes sense. We've obviously been having these conversations for a long time. I guess the question is, how are these trends changing? I mean, you mentioned that there must be a scrabble towards more renewable energy sources and doing those practically. I guess I'm interested in how things are changing in the current pivotal time that we're living through.
I think we need to be aware that over the decades, more and more of the energy we use has to come from current sunlight and not from three million-year-old sunlight that's been stored under the ground in concentrated form for us to rip through. We should adopt policies that ensure we are not more vulnerable than we have to be to the shocks that come about.
My other thought was that there is a move towards or higher prioritization of achieving self-actualization. I think more people are pursuing that in arranging their work and orienting themselves in it. One of the good outcomes of the last few years has been the realization that you can pretty much organise your work any way you want, as long as you're solving a problem for people and it's valuable.
The 7P’s Principle
As I was going to mention, the 7P principle is a jokey way of saying something that is actually pretty obvious, and we've all probably been guilty of ignoring it. The principle is Proper Prior Preparation Prevents Piss Poor Performance.
Or ‘measure twice, cut once.’
We've all been guilty of doing things in a slightly slapdash shooting-from-the-hip way. That's something to remember when you catch yourself doing it to take another look. See what you could have done to think things through in advance and plan things out, and then follow the plan. That also involves modifying the plan over time if circumstances don't seem to unfold in the way you've anticipated.
I have a client who talks about the importance of having what he calls confidential sounding boards. These are people you can go to who will triangulate and give you an impartial opinion. Having a few of those will hopefully lead you to make better choices.
Absolutely, good one.
The 5 WHY’s
The five WHY’s, I mean, there's a slight pun here because it's not the letter Y, it's the question WHY.
Five WHYs sounds like what my four-year-old daughter does in the kitchen when I'm trying to do anything. “Why are you doing that, Daddy?” It's the question I hear all morning.
Well, that's a good question. When something goes wrong, the question is, why did it go wrong, and what can we do to fix it? For instance, suppose you go, “Well, the car didn't start.” Why didn't the car start? It's got a flat battery.
If you don't go any further than that, you go, well, I'll charge the battery up, and then it'll be alright. The idea of the five whys is that when you get the answer to the first why, you go, well, why was that? So you go, well, why was the battery flat? Then you go, well, because power was drained out of it.
Then you go, well, why was the power being drained out of it? You go, well, there was a component in the engine management system or something leaking current even when it was all supposed to be turned off. Eventually, by the time you've asked the question why five times, it might be four or six, but usually, it's around that you get to the root cause of the challenge.
The original context was a manufacturing production line. I think it was part of the Toyota management system to identify the root of the issue rather than the symptoms.
Imagine if we asked the five Y's in healthcare rather than just treating symptoms. That would be quite something.
Absolutely, yeah. Watch this space.
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