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PRELIMINARIES

 ME & JOE & WEALTH CREATION CURIOUS & OPTIMISTIC BENEFICIARIES VICTIMS & STUDENTS

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COMPLEXITY CHANGE CONFLICT SCARCITY = APPARENT CHAOS ? but things are NOT RANDOM there are PATTERNS ! WHY is the JOINT STOCK COMPANY so successful at WEALTH CREATION ??

JSC
CURIOUS there are many ways of ORGANISING activities why are some COMPANIES more successful than others? why are some MANAGERS more successful than others? can we LEARN from & IMITATE successful organisations? OPTIMISTIC the JSC is SURPRISINGLY successful success is not random there is a PATTERN take a DIFFERENT look at an old institution unusual insights emerge & lead to a better UNDERSTANDING

BENEFICIARY LEARNING, INNOVATION and ASPIRING trying to understand the JSC WEALTH is important more CHOICES seem to result in less infant mortality

VICTIM wealth creation isn’t easy WHO is tying our shoe laces together? who is to blame for this CONSPIRACY?
STUDENT what is going on??
NB. THERE’S NO USER MANUAL !

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SCOPE
 from LEARNING & INNOVATION to WEALTH with the JSC AGE OLD PROBLEMS COMPLEXITY CHANGE CONFLICT SCARCITY

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ECONOMIC REALITIES
SPECIALISATION SCALE SCIENCE SYNERGY IMITATION INVENTION INVESTMENT = LEARNING & INNOVATION

ESSENTIAL CO-OPERATION
SELF HELP - FAMILIES - PARTNERSHIPS - CHURCHES - CLUBS SOCIETIES - VOLUNTARY GROUPS - PUBLIC AGENCIES or PRIVATE COMPANIES

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Providing more CHOICES and more SYNERGIES for MASLOW’S INDIVIDUAL ASPIRATIONS SURVIVAL SECURITY FRIENDSHIP INDIVIDUALITY ESTEEM FULL POTENTIAL

JSC
from

LEARNING & INNOVATION
to

WEALTH CREATION

NB. BAFFLING DIVERSITY !

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ISSUE
 CO-OPERATING with STRANGERS CO-OPERATION? HOW? WHO DECIDES?

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?

EVOLUTION or PLANNED DESIGN CUSTOMER CHOICE or EXPERT REGULATION ENTREPRENEURS or BUREAUCRATS HEURISTICS or ALGORITHMS CO-OPERATION or COERCION ???? MARKETS ?
or

PLANNED DESIGN ?

TWO OPPOSING WORLD VIEWS

FOCUS on the -

JSC

the JSC is an EVOLVED INSTITUTION enabling STRANGERS to CO-OPERATE in the LEARNING & INNOVATION process
ADVANTAGES for ALL FOLK in the LONG TERM EFFICIENT low cost EFFECTIVE customer benefits MORAL lawful activity POTENT better than competitive alternatives the JSC is also ROBUST !!
NB. BOTTOM UP EVOLUTION OR TOP DOWN DESIGN !

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THEME
 ROBUST INSTITUTIONS EVOLVE TOLERANT of IGNORANCE IMMUNE from TREACHERY

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How do we organise co-operation? LEGAL CONTRACTS UTOPIAN BLISS

KNOWLEDGE

IGNORANCE

?
TREACHERY
John Gray

NAÏVE TRUST

CO-OPERATION

‘We are ignorant of what it is we do not know, even though we know more than we can ever say’ ‘From the bowels of Christ, I beseech you, think that you may be mistaken’ Oliver Cromwell ‘Organisations based on trust and good intentions are very fragile & easily invaded & exploited by opportunistic agents’ Oliver Williamson ‘Evolutionarily stable strategies are stable because they are immune from treachery’ Richard Dawkins
NB. AUTOMATIC RESPONSE TO PARASITES & PREDATORS !

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Becker. Stacey Lever. North Kant. Wolf. Fukuyama Friedman. Hicks Metcalfe. McNeill. Solow. Diamond NB. Wilson HISTORICAL EVIDENCE ECONOMIC ANALYSIS CONTROL THEORY NATURE of PROFIT SAFEGUARD of COMPETITION INDIVIDUALITY of REALITY MAGIC of PROPERTY COMMON LAW CULTURE Braudel. McGregor. Chandler Kirzner. Maslow. Novak. Ganguly ECONOMIC THEORY PUBLIC CHOICE POLITICS ORGANISATION STRUCTURES COMPLEX SYSTEMS EVOLUTIONARY PROCESSES Smith. Kuhn. Baumol. Pinker Coase. Holland Dawkins. Axelrod. Hardy. Akoff. Dennett PHILOSOPHY & HISTORY OF SCIENCE Popper. Romer Posner. A DWARF ON THE SHOULDERS OF GIANTS ! jpb . De Soto. Cziko. Ormerod. Williamson Ashby. Porter. Romer Buchanan. Kirzner. Rubin MacGregor. Levitt Rosenberg. Senge Checkland. Rothschild Hayek. Ricardo. Pollard. Ridley Nozick. Nelson.SOURCES  KINDRED SPIRITS just a few GUIDES & MENTORS 5 CREATIVE ACCOUNTANCY BUSINESS STRATEGY MARKETING PRACTICE TECHNOLOGY MANAGEMENT Kaplan.

ILLUMINATING REALITY ! jpb .THE CASH FLOW MODEL  BUSINESS ACCOUNTS  BUSINESS STRATEGY  MARKETING  TECHNOLOGY AGE OLD PROBLEMS  COMPLEXITY  CHANGE  CONFLICT  SCARCITY ECONOMIC ANALYSIS  SATISFICING  SUPPLY & DEMAND  COMPARATIVE ADVANTAGE  TOTAL FACTOR PRODUCTIVITY  ENDOGENOUS GROWTH WHY IT WORKS .THE CONTROL MODEL  NATURE of PROFIT  SAFEGUARD of COMPETITION  INDIVIDUALITY of REALITY  MAGIC of PROPERTY RELEVANT SOURCES     COMPLEX SYSTEMS EVOLUTIONARY PROCESSES HISTORICAL EVIDENCE ECONOMIC REALITIES NB.STRUCTURE  MODELS PROBLEMS REALITIES & UNDERSTANDING TOPICS 6 JSC WEALTH MACHINE HOW IT WORKS .

THE JOINT STOCK COMPANY  CO-OPERATIVE VENTURES PARTICIPATION & CONTRIBUTION 7 CORPORATE WEALTH PROFIT ! JSC ! INVESTORS with CAPITAL ENTREPRENEURS with IDEAS INVESTMENT ENCOURAGED  Limited liability  Stakes can be cashed  Anyone can join INNOVATION REWARDED  Finance available DRIVEN by PROFIT OWNED by SHAREHOLDERS and CONTRACTS for SUPPLIERS for EMPLOYEES jpb NB. PROFIT FROM PLEASING CUSTOMERS ! .

THE WEALTH MACHINE  CIRCULATING RESOURCES picking up PROFIT each cycle DYNAMIC EBB & FLOW of OPPORTUNITIES 8 SOURCES of FINANCE OWNERS LOANS CASH POOL CREDITORS FIXED ASSETS MATERIALS DEPRECIATION DEBTORS CASH COSTS VARIABLE FIXED DIRECT INDIRECT DISTRIBUTION FACTORY SALE ! STOCKS FINANCIAL ITEMS PROFIT TAX DIVIDENDS RETAINED PROFITS NB. THE MAGIC ROUNDABOUT ! jpb .

THE BUSINESS ACCOUNTS  IDENTIFYING FLOWS MEASURE or MIRAGE? 9 RESOURCES IN SUPPLIERS EMPLOYEES CASH CUSTOMERS SALES ASSETS WEALTH OUT Dynamic fluctuating ebb & flow of resources WHY MEASURE?  EFFICIENCY & WEALTH PAST PERFORMANCE  SOLVENCY & HEALTH CURRENT POSITION  LIQUIDITY & RISK FUTURE PROSPECTS THREE REPORTS  PROFIT & LOSS ACCOUNT  BALANCE SHEET  CASH FLOW STATEMENT DIFFICULTIES  Income fluctuates  Assets must be  Costs must be  Uncertain future PRINCIPLES  CONSISTENCY  PRUDENCE  ACCRUAL  GOING CONCERN HOW MUCH PROFIT not CASH? SPENT on CAPITAL or REVENUE? WHERE IS IT GOING? TIMING is not consistent VALUED and there are no market prices ALLOCATED and there are no invoices ESTIMATES are never ‘correct’ for comparison for safety for timing for clarity but the ACCOUNTS tell only HALF THE STORY with focus on  COSTS but not QUALITY / SERVICE / SKILLS  YESTERDAY but not TOMORROW  COSTS of DOING but not COST of ALTERNATIVES  RULES but not LEARNING / INNOVATION NB. CAVEAT EMPTOR ! jpb .

THE PROFIT & LOSS ACCOUNT  PROFIT or CASH? TIMING ISSUES INCOME when EARNED when the deal is struck not when the cash flow in when INCURRED when committed not when the cash flows out 10 EXPENDITURE the day to day transactions of the wealth machine involving a SURRENDER and a GAIN of a benefit culminating in the PROFIT & LOSS ACCOUNT CREDITORS COSTS DEPRECIATION VARIABLE FIXED DIRECT INDIRECT MATERIALS CASH SALES & DEBTORS DISTRIBUTION STOCKS SALE ! FINANCIAL ITEMS PROFIT TAX DIVIDENDS RETAINED PROFITS EXPENDITURE GOING OUT BALANCING across the SALE ! NB. BUY NOW PAY LATER ! INCOME COMING IN jpb .

debtors and cash 11 LIABILITIES what we OWE to pay never = EQUITY to pay long term = DEBT RESERVES to pay next year = LOANS to pay this year = creditors dividends tax a snapshot of the balance culminating in the BALANCE SHEET BALANCING across OWNERSHIP ! OWE OWN OWNERS EQUITY DEBT CASH DEBTORS & prepayments CREDITORS & accruals FIXED ASSETS . WHO PAYS HOW MUCH WHEN ? jpb .THE BALANCE SHEET  CAPITAL or REVENUE? VALUATION ISSUES ASSETS what we have of VALUE FIXED for generating income CURRENT for funding stocks.DEPRECIATION SALE ! STOCKS FINANCIAL ITEMS GOODWILL DEFERRED INCOME PROVISIONS PROFIT TAX DIVIDENDS RETAINED PROFITS NB.

THE CASH FLOW STATEMENT  STREAMS POOLS & LEAKS REAL ISSUES when push comes to shove MARGIN & SPEED minus INVESTMENT = NET CASH FLOW with a little help from INVESTORS and BANKERS PROFIT is good but NO CASH NO BUSINESS !! 12 BALANCING across the CASH POOL ! SOURCES of FINANCE OWNERS LOANS CASH SALES & DEBTORS DRIPPING IN ! CASH CREDITORS COSTS VARIABLE FIXED DIRECT INDIRECT LEAKING OUT ! FIXED ASSETS MATERIALS DISTRIBUTION SALE ! STOCKS FINANCIAL ITEMS TAX DIVIDENDS NB. YOU CAN’T EAT PROMISES ! PROFIT jpb .

PRODUCT DIFFERENTIATION  COST STRUCTURE .ADVERTISING.BUSINESS STRATEGY  DISCOVERING MARGIN & SPEED SHAPING CURVES REVENUE ££’ss MARGIN SPEED 13 PROFIT COSTS PRICE VOLUME what BUSINESS STRATEGY delivers the MAXIMUM PROFIT ? where does MC = MR ? the curves are not ‘KNOWN’ or ‘FIXED’ they depend on : PRICING POLICY . INVESTMENT & QUALITY of INPUTS  SALES VOLUME . QUALITY. PROMOTION. SERVICE. SCALE. DYNAMIC & INTERACTIVE SYSTEMS CONTINUALLY EXPERIMENT to DISCOVER PROFIT  HIGHER PRICES  LOWER COSTS  HIGHER VOLUME = LOWER VOLUME ?? = LOWER QUALITY = LOWER PRICES ?? = LOWER COSTS = LOWER PRICES ?? NB. JUGGLING WITH COMPLEXITY ! jpb .SPECIALISATION.INNOVATION. DISTRIBUTION COMPLEX. SCIENCE. COMPETITION.

...PRICES  SPECIALISATION & MARKET POSITION NICHE EXPERTISE 14 WHAT DO WE DO BETTER THAN OUR COMPETITORS ? CONSIDER MARKET NICHE? but .. RISK of MARKETING MYOPIA? YESTERDAYS PRODUCT? or BROAD MARKET? but .... PRACTISE MAKES PERFECT ! jpb .. RISK to EXCELLENCE? JACK of all TRADES MASTER of NONE? How to SECURE HIGHER PRICES ? & ADVANTAGE CONSIDER - LEADERSHIP VOLUME PROFIT  SUBSTITUTES ?  IMITATION ?  CUSTOMER LOYALTY ?  SUPPLIERS ?  SUPPORT SERVICES ?  DISTRIBUTION ? SPECIALISE !! INNOVATE !!  REGULATION ? ACQUISITION of SKILLS FOCUSED EXPERTISE SKILLS FULLY UTILISED DIVISION of LABOUR NB....

RESTRUCTURING RIGHT FIRST TIME etc etc NB.SEPARATION .effort .SIZE REDUCTION . KEEP IT SIMPLE STUPID ! jpb .COSTS  SPECIALISATION & COST BEHAVIOUR COMPLEXITY COSTS 15 PARADOX ££’s ‘Hawthorn’ effect ££’s INDIRECTS relentless increase bureaucracy & restructuring attention .focus COMPLEXITY ££’s % waste ££’s complex intermittent simple continuous VARIETY time time PARETO ££’s ££’s number of varieties LEARNING CURVE vital few frequency cumulative volume COST REDUCTION SIMPLICITY .INVESTMENT .DESIGN AUTOMATION .SCIENCE .INNOVATION .

SERVICES & FINANCE  LOWER CAPACITY COSTS COSTS = AREA OUTPUT = VOLUME  AFFORDABLE LUMPS of INVESTMENT & RISK  MORE OPPORTUNITIES for in house facilities vertical integration long production runs automation/mechanisation process flow skills training NB. THE BIGGER THE BETTER ! jpb .VOLUME  SPECIALISATION & SCALE ECONOMIES GLOBAL MARKETS 16 volume maturity cow decline star growth development problem dog local / national / international / global Profit Costs critical critical divest? milk? acquisition? relaunch? drive down the learning curve? Technology critical innovate? find the niche? market research? Capacity critical invest? advertise? promote? COMPETITIVE ADVANTAGE from SPECIALISED NICHE and SCALE  LEARNING EFFECTS of SKILL ACQUISITION  LEARNING EFFECTS of SKILL UTILISATION  SPREAD of FIXED COSTS over more units  PURCHASING POWER for MATERIALS.

THE CUSTOMER IS KING ! jpb .MARKETING TASKS  CUSTOMER VALUE & MARKET RESEARCH CHOICES 17 COMPETITION? COMPETITORS are PACE SETTERS NOT WINNERS! CUSTOMER VALUE PRICE? DECISION QUALITY? SPECIALISATION INNOVATION COSTS VOLUME SERVICE? RESPONSIVENESS  COURTESY  AVAILABILITY  PERFORMANCE  PRESENTATION  PACKAGING  CONSISTENCY  CHOICE  ADVERTISING  RELIABILITY  EFFICIENCY of DISTRIBUTION CHANNELS MARKET RESEARCH  INFORMATION to reduce risk (about yesterday?)  REAL BEHAVIOUR (not saying but doing)  JUDGEMENT CRITERIA (technical specification?)  MATCHING customer & product  TESTING (not subterfuge and intrigue)  BEWARE of ‘me toos’ (competitors do market research)  NB the best info comes from your existing customers ! OR real products at real prices against real competition in real markets !!?? NB.

IMPROVE QUALITY PUSH PRICES .better than competitors  MARKET GROWTH .technical innovation .CHECK COMPETITION saturation advertising spend ££ effective spend voice unheard in the market place volume NB. VALUE FOR MONEY ! jpb .QUALITY  BRAND POSITION & ADVERTISING PRODUCT DIFFERENTIATION 18 QUALITY VALUE BEST CHANCE  PREMIUM MORE VOLUME BUT TOTAL REVENUE ? GOOD QUALITY AT A PREMIUM BUT WILL THEY PAY THE PRICE ?  MARKET NORM ALWAYS RISKY  ECONOMY STANDARD QUALITY AT A DISCOUNT BUT IS IT JUST A COMMODITY ? NEVER PRICE (NOT COST) ADVERTISING for  VOLUME .persuade to try  MARKET SHARE .a bundle of new promises .better than prior art ACTIONS = CHECK CUSTOMERS .

FIRST PAST THE POST ! jpb .COMPETITIVE ADVANTAGE  BRAND LEADERSHIP & ALTERNATIVES CHOICES for CUSTOMERS them 19 Quality Service Price index oh dear ! us we’re ahead ! steady improvement ?! DYNAMIC COMPETITIVE MARKETS  CONTINUOUS improvement needed to progress  NEW OPPORTUNITIES are always opening up performance is RELATIVE & CHANGING A CONTROL SYSTEM ! COMPETITORS SET POINT CUSTOMER DECISIONS INVESTMENT RESPONSE PRICE QUALITY SERVICE INFO WINNERS TESTS MARKETS NB.

SERVICE  BRAND LOYALTY & REPEAT PURCHASES EXISTING CUSTOMERS are VALUABLE ASSETS 20 ENCOURAGING LOYALTY  COURTESY COMMUNICATION UNDERSTANDING HELP with a SMILE FAST ON TIME WHEN WANTED  AVAILABILITY  RELIABILITY PREDICTABLE FLEXIBLE EFFICIENCY of DISTRIBUTION CHANNELS QUALITY = FUNCTIONAL BOND SERVICE = SOCIAL BOND LOYAL CUSTOMERS  FREE ADVERTISING  NO GO AREA for COMPETITORS  SPEND MORE  LOW RISK THE LOYALTY DISCOUNT diminishing returns 5% 4% 3% 2% small discounts big incentives they don’t like the product ! 1% 0 loyal customers NB. RESPOND ! jpb .

MORE & MORE FROM LESS & LESS ! jpb .TECHNOLOGY  APPLICATION of SCIENCE TECHNOLOGICAL & ORGANISATIONAL ‘KNOW HOW’ 21 SCIENTIFIC METHOD  OBSERVATION  MATHEMATICAL THEORY  TESTABLE HYPOTHESES  EXPERIMENTAL VALIDATION  PEER REVIEW no one can claim superior access to wisdom but the process of science and it’s application as technology is the best bet ‘KNOW HOW’ = ‘SURVIVAL VALUE’ GROWTH OPPORTUNITIES – SCALE – GLOBALISATION ! SPECIALISATION – TECHNOLOGICAL INNOVATION !  MASSIVE REVOLUTION IN MICRO ELECTRONICS  SYNERGY of BRAINS & MICRO CHIPS  SPEED & DYNAMICS  BARRIERS DISAPPEAR ‘KNOW HOW’ - LEARNING and INNOVATING in the  PRODUCTS  PRODUCTION  PEOPLE R&D FACTORIES HUMAN CAPITAL JSC NB.

A BETTER MOUSE TRAP ! jpb .PRODUCTS  R&D & INNOVATION ‘KNOW HOW’ = LEARNING & INNOVATING 22 TECHNOLOGY is ‘KNOW HOW’ and is exploited throughout the process from INVENTION to APPLICATION  INVENTION  MARKET RESEARCH  DEVELOPMENT  TEST MARKET  ADVERTISING  PRODUCTION  DISTRIBUTION  SALES INNOVATION FUNNEL MANY MANY IDEAS BUZZ AROUND PROJECTS COMPETE for SCARCE RESOURCES & MOST FAIL SELECT FEW REACH the MARKET from RESEARCH thru DEVELOPMENT to MARKET NB.

CONTINUOUS IMPROVEMENT !! jpb .PRODUCTION  FACTORIES & CONTINUOUS FLOW for SALE ‘KNOW HOW’ = DESIGN & OPERATING METHOD A COMPLEX INTERACTIVE LOGISTICAL SYSTEM PROCUREMENT OPERATIONS DISTRIBUTION 23 SAL E! STORE PRE-PROCESS STORE STORE MACHINES SUB ASSEMBLY ASSEMBLY/PACKING INFORMATION SERVICES ENERGY LABOUR FIXED ASSETS MATERIALS  CONVERSION PROCESSES  ADDING VALUE for CUSTOMERS  MAXIMISING SALES REVENUE ORGANISING COMPLEXITY  SIMPLIFY SEPARATE REDESIGN  MANAGE CULTURE CRISIS  SELF CONTROL INFORMATION DECISIONS GOALS MOTIVATE DOWNSIZE AUTOMATE CHARISMA HYPE NB.

in REALITY  BEST OPTION from PAST EXPERIENCE  BETTER OPTION from FUTURE EXPERIMENT LEARNING INNOVATION INVESTING in PEOPLE  SPECIALISED SKILLS ACCOMPLISHMENTS & APTITUDES  EDUCATION EDUCATION EDUCATION  EXPERIENCE been there seen it done it bought the T-shirt  SELF CONFIDENCE for experiments & failures  FLEXIBILITY MOBILITY RISK THRESHOLD HEALTH STRENGTH ENERGY NB.PEOPLE  HUMAN CAPITAL & PATTERNS in the BRAIN ‘KNOW HOW’ = CREATIVE LEARNING  BRAINS make MODELS  MODELS are tested in REALITY  DOCKING of PROBLEMS & SOLUTIONS 24 PROBLEM BETTER MODEL LEARNING BEST OPTION AVAILABLE AT THE TIME INNOVATIVE UNDERSTANDING EVIDENCE OF OUTCOMES CREATIVE INNOVATIVE EXPERIMENT TWIN LOOPS . PERSONAL PORTFOLIOS OF SPECIALIZED SKILLS ! jpb .in the BRAIN .

HEURISTICS or ALGORITHMS? 25 SCIENCE is solving increasingly intricate puzzles. EFFECTS ARE THE CAUSE ! jpb . success is awesome & intoxicating but scientific KNOWLEDGE is no longer about CAUSE & EFFECT because : INFINITE REGRESSION to the ULTIMATE CAUSE of CAUSE  INNOVATION is about HITHERTO UNCONNECTED IDEAS  INACCURACY of MEASUREMENT LEADS to UNKNOWN EFFECTS  INTERACTION means CAUSES can’t be ISOLATED  DECISIONS themselves CHANGE the EFFECT  FEEDBACK results in EFFECTS becoming CAUSES  EMERGENT PROPERTIES of SYSTEMS don’t have CAUSES COMPLEXITY EXPLODES the necessary computer would be the size of the universe itself ! MORE MEASUREMENT & INSTRUCTIONS THE PARADOX = PRODUCTIVITY HIGHER COST & LOWER VALUE! the REALITY of MANAGEMENT is HEURISTIC : BUILD on past success  CHOOSE the best option at the time  DO DEALS for mutual advantage  EXPERIMENT to discover improvements  TIT FOR TAT to protect investment  LEARN from experience PATTERNS EMERGE IT IS NOT RANDOM !! NB.COMPLEXITY  UNLIKELY TRUTH & WHO KNOWS? the PROBLEM of SCIENCE ..

. … we look for GOD in the wrong place he is not the ‘DESIGNER’ but the EMERGENT ORDER in COMPLEX EVOLVING SYSTEMS on the edge of chaos  CREATIVE DIVERSITY not STANDARDISATION  UNOCCUPIED NICHES not STRUGGLE  ACQUIRED IMMUNITY not TREACHERY  CO-OPERATION not EXPLOITATION  CHOICE not COMPETITION CO-OPERATION EMERGES from LOCAL ACTIVITY in the JSC ! NB.. SERENDIPITY ! jpb .COMPLEX SYSTEMS  NON LINEARITY & ITERATION 26 'KNOW HOW’ EMERGES ORDER & FEEDBACK EMERGENT PATTERN unexpected FEEDBACK FEEDBACK LOCAL ACTIVITY simple rules of behaviour UNINTENDED CONSEQUENCES UNEXPECTED RESPONSES from SIMPLICITY to COMPLEXITY SCIENCE has solved the MYSTERY but left the WONDER of UNLIKELY TRUTH .

ENTREPRENEURS or BUREAUCRATS? 27 SALE !! QUALITY & PROFIT are NOT ALTERNATIVES.. PROFIT ONLY comes from SATISFIED CUSTOMERS. CORRUPTION & COVER UP  encourages INTERVENTIONIST instincts & delusions of control & hinders CO-OPERATION & local KNOWLEDGE REGULATION is no substitute for entrepreneurial action & risk as suppliers have much more to loose from antagonised customers than from malleable inspectors ENTREPRENEURS DISCOVER a BETTER WAY ! NB.CHANGE  FLEXIBILITY & WHO RESPONDS? the PROBLEM of STRUCTURE . red tape & small print  provides CARTELS ‘legal’ protection from competition  replaces CAVEAT EMPTOR with a false sense of security  separates RESPONSIBILITY from control  confronts the innocent instead of THE GUILTY  presents opportunities for BRIBERY. ENTANGLED IN RED TAPE ! jpb . BUREAUCRATIC REGULATION : inhibits INNOVATION as change & flexibility are reduced  drives CAPITAL & investment overseas or underground  diverts resources from CUSTOMERS to the ‘rules’  incurs COSTS of quangos.

SELF REPLICATION 2 .EVOLUTIONARY PROCESSES  CONTINUOUS COPY VARY SELECT EVOLUTIONARY STABLE STRATEGIES EMERGE MAXIMUM VALUE MINIMUM RESOURCES 28 SURVIVAL EFFICIENCY the EDGE of CHAOS = CREATION = the EMERGENCE of ORDER ! STAGNATION CHAOS EXTINCTION EXTINCTION MUTATION RATE 1 . IMITATION. SYNERGY. SCALE. SCIENCE.RANDOM MUTATIONS 3 .DEVELOPMENT 4 . INVENTION. WASTE NOT WANT NOT ! jpb .NATURAL SELECTION = dna inexorable repetition = opportunities to progress = influences in the environment = effects on the gene frequency ECONOMIC REALITIES = SPECIALISATION. INVESTMENT 2 + 2 = 5 ECONOMIC SYNERGIES SURVIVE ALTERNATIVE STRATEGIES DIE OUT ENVIRONMENTAL DEVELOPMENT & DIFFERENTIAL SURVIVAL SPONTANEOUS CO-OPERATION DISCOVERY & IMMUNITY SPECIALISATION & NICHES TRIAL & ERROR DIVERSITY & REPLICATION NB.

CO-OPERATION or COERCION? 29 DIFFERENT people at DIFFERENT times have DIFFERENT perspectives from DIFFERENT inheritances DIFFERENT experiences & DIFFERENT circumstances . RESULTING in CONFLICT RESOLUTION as more PARTICIPATION & CONTRIBUTION produce more WEALTH. IT’S THE ECONOMY STUPID ! jpb .CONFLICT  CUSTOMER WISHES & WHO CHOOSES? the PROBLEM of POLITICS ... COERCION to resolve conflict results in power being concentrated in ELITE DICTATORSHIPS – BISHOPS PRINCES GENERALS or MAJORITIES  INEFFICIENT  market information & control are absent  INEFFECTIVE  KNOWLEDGE for decisions is incomplete technical detail innovative alternatives Joe’s wishes unintended consequences  IMMORAL  majorities DICTATE their perspective to minorities  interest groups are BRIBED in return for support  bequests from tax leads to CORRUPTION  VULNERABILITY from dependency on others  ALIENATION from remote decisions  DEMORALISATION from unfulfilled expectations  HELPLESSNESS as one ‘dictator’ succeeds another  IMPOTENT CAPITAL MOBILITY DEFEATS IMPOSED CONTROL the benefits of ECONOMIC CO-OPERATION exploit wealth creating realities within robust institutions where everyone participates & contributes without harm to others.. INCOME & COMPASSION for more PEOPLE in MASS MARKETS NB.

PLURALISM ADVANTAGES of HISTORICAL EVIDENCE  REALITY from the PAST  AWAY from the EMOTIONAL PREJUDICE of the moment But LESSONS  IDEAS have invariably been proved WRONG  IDEAS have invariably been IMPOSED upon poor joe  DETECTIVE WORK is necessary to reveal a golden thread of BOTTOM UP DISCOVERY & ACCUMULATION of SURVIVAL SYNERGIES as Joe & his mates respond to TOP DOWN IMPOSITION by BISHOPS PRINCES GENERAL & MAJORITIES MORALITY & LAW = obligation & trust = harms & hards in the warp & weft of society common law evolved CULTURE & RELIGION = learning across generations = centuries of experience  breaking the grip of established AUTHORITY  opening up DIVERSITY and choice  encouraging CO-OPERATIVE INSTITUTIONS  establishing SCIENTIFIC METHOD  REWARDING successful innovation directly  ENABLING economic growth by a generally accepted system of tort law.TOLERANCE . free trade and innovative technology  DEFENDING created wealth from predators and parasites NB.HISTORICAL EVIDENCE  STATISTICAL UNIFORMITIES FREEDOM & DEMOCRACY EMERGES 30 Why did it the jsc evolve when it did where it and why not elsewhere? Why Western Europe? Why 1500 AD? INDIVIDUALISM . PATTERNS FROM THE PAST ! jpb .INDEPENDENCE .

no deal..SCARCITY  QUARTS & PINT POTS & WHO BENEFITS? the PROBLEM of ECONOMICS . GENERALS & MAJORITIES succumbing to violence SATISFIED CUSTOMERS ARE THE ONLY WILLING PAYERS! NB. PRINCES. THERE’S NO FREE LUNCH ! jpb .  CUSTOMERS WON’T PAY for inefficiency ineffectiveness immorality or impotence  ‘KNOW HOW’ is more valuable than ‘resources’  PRICE increase = lower OUTPUT & INVESTMENT throughout history a shortage of willing payers has resulted in BISHOPS. if your costs are not covered .CUSTOMERS or EXPERTS? HOW MUCH? WHO PAYS? WHO BENEFITS? there’s not enough to go round! everyone wants different things! 31 for all goodies someone somewhere has to pay & pay again to maintain! The difficulty is finding willing payers? Ask the tax man! Everyone is his own willing expert!  SPENDING is easy but FINANCING is difficult  spending OTHER PEOPLE’S MONEY is even easier  income is what SOMEONE IS WILLING TO PAY.

PLAY THE GAMES ! jpb .ECONOMIC REALITIES  SURVIVAL BEHAVIOUR SUCCESSFUL BEHAVIOUR EMERGES CO-OPERATION EMERGES 2+2=5 32 relentlessly seeking the BEST PERCEIVED SURVIVAL VALUE in excess of the UNAVOIDABLE COSTS available at the TIME GAME THEORY TIT for TAT TRANSPARENT GENEROUS PEACEFUL FORGIVING ‘nice’ . clear & simple strategy never wins at the expense of others only retaliates if provoked reverts to co-operation after retaliation ‘THE KEY TO DOING WELL LIES NOT IN OVERCOMING OTHERS BUT IN ELICITING THEIR CO-OPERATION NO CENTRAL AUTHORITY IS NEEDED. RECIPROCITY IS SELF POLICING’ .AXELROD. COLONISE ideas & successful strategy spread in populations experience from successful cultures over generations LEARNING INNOVATION generating & testing new ideas  NO PRESCRIPTION because different people are at different positions at different times  NO EQUILIBRIUM just dynamic discovery & accumulation by evolutionary trial & error NB.

now the right.ECONOMIC ANALYSIS  ADMITTING IGNORANCE CO-OPERATIVE SYNERGIES EMERGE ANALYSING CHOICE 33 ANALYTICAL TOOLS for UNDERSTANDING ALL HUMAN BEHAVIOUR  SCIENTIFIC  ORGANISATIONAL  POLITICAL  ECONOMIC  SUPPLY & DEMAND  COMPARATIVE ADVANTAGE  TOTAL FACTOR PRODUCTIVITY ECONOMICS is a DISCOVERY and ACCUMULATION process in our ignorance we are forced to choose to survive – Herbert Simon – ‘we encounter many branches in the maze of life’s path. we follow now the left fork. THE BLIND WATCHMAKER ! jpb . The metaphor of the garden of forking paths is irresistible to anyone who has devoted their scientific career to understanding human choice'? Herbert Simon - SATISFICING Adam Smith - SUPPLY & DEMAND David Ricardo - COMPARATIVE ADVANTAGE Robert Solow - TOTAL FACTOR PRODUCTIVITY Paul Romer - ENDOGENOUS GROWTH NB.

SATISFICING  INDIVIDUAL CUSTOMER & INVESTOR CHOICE MACHO MANAGERS think they ‘GET a GRIP’’ by PURPOSEFUL PLANNED DESIGN but REALITY is DIFFERENT 34 CONSUMER & INVESTOR CHOICES involve individual decision making behaviour based on HERBERT SIMON'S 'satisficing'  BUILDING on proven inherited success. don't reinvent the wheel  freely CHOOSING between options available at the time and the place. there is no better place to start. imitate success. Generals or majorities  EXPERIMENTING to generate diversity and increase the chances of discovering new tricks  CO-OPERATING with others to discover better tricks from synergies which are not available to individuals  RETALIATING against the inevitable parasites and predators to defend and accumulate benefits  LEARNING from the successful outcomes of differential survival and starting again HERBERT SIMON again . The metaphor of the garden of forking paths is irresistible to anyone who has devoted their scientific career to understanding human choice' NB. A GARDEN OF FORKING PATHS ! jpb . unhindered by 'rent seeking' Bishops.'We encounter many branches in the LABYRINTH of life’s path. we follow now the left fork. now the right. Princes.

LOW DEMAND OVER SUPPLY GLUTS QUEUES PRICE TOO LOW .SUPPLY & DEMAND  MARGINAL UTILITY & OPPORTUNITY COST COSTS & PRICES 35 DEMAND PRICE MARGINAL UTILITY SUPPLY OPPORTUNITY COST PRICE TOO HIGH . INNOCENT SIGNALS ! jpb .EXCESS DEMAND INADEQUATE SUPPLY QUANTITY PRICE in a free COMPETITIVE MARKET with CHOICE provides INFORMATION for decisions AUTOMATIC SAFEGUARDS are built in as PRICES are necessary for proper CHOICES everyone takes DECISIONS after negotiating their ‘BEST VALUE’ from MARGINAL PRODUCTIVITY firms RESPOND by searching for the best OPPORTUNITY COST  CUSTOMERS must be willing to purchase  SUPPLIERS must be happy to deliver  EMPLOYEES WORK  BANKS LEND DECENTRALISED decisions & dispersed wealth result in effective & efficient ALLOCATION as more people PARTICIPATE as they choose & innovate for satisfaction & profit NB.

and also individual level. they result from trade. It does not follow that the doctor should do both. It maybe that a doctor is better than a farmer both at practising medicine and growing potatoes. The Open University . GUNS or BUTTER ! jpb .COMPARATIVE ADVANTAGE  SPECIALISATION AGAIN No NOT ABSOLUTE but COMPARATIVE ADVANTAGE 36 DAVID RICARDO explained comparative advantage and emphasised the mutual benefits for everyone from specialisation and free trade but the concept is troublingly counterintuitive – Nobel laureate Paul Samuelson – 'thousands of important and intelligent men have never been able to grasp it or believe it even after it was explained to them' ..‘The principles of comparative advantage and gains from trade are the most important results in the whole of economics. If each specialises in the activity in which they have comparative advantage and engage in trade they are both better off than if each tries to be self sufficient’. with money or barter  specialisation and trade will EVOLVE because extra 'VALUE' is created. it does not require understanding or the intervention of the specialists  REAL WAGES are determined by the value of output  PRICES are determined by supply & demand  PRICES & EXCHANGE RATES don’t determine trade.. They apply at national. they are measurements of opportunity costs NB. KEY POINTS –  EVERYONE has different OPPORTUNITY COSTS and a comparative advantage in something  EVERYONE benefits from SPECIALISATION and trade even when the gifted are better at all activities  the principle explains TRADE advantages at INDIVIDUAL and national level.

'know how‘. ‘total factor productivity’. understanding and practice. NB. MONEY IS NOT A PROBLEM ! jpb . Solow defined ‘total factor productivity’ as technological innovation.TOTAL FACTOR PRODUCTIVITY  MEASURING IGNORANCE PRODUCTION FUNCTION OUTPUT O2 37 2000 Ok O1 change due to technology change due to capital 1950 k1 k2 CAPITAL per LABOUR unit In 1957 Robert Solow used 'growth accounting' mathematics to analyse historical GDP data and identified the overwhelming importance of a residual. in securing growth and NOT the Neoclassical endogenous input variables capital (resources) and labour (effort).

tax.. R&D.ENDOGENOUS GROWTH PRODUCTIVE OUTPUT from ‘KNOW HOW’ 38 MONOPOLISTIC COMPETITION in COMMERCIAL R&D DEPARTMENTS ‘KNOW HOW’ a NON-RIVAL PARTIALLY EXCLUDABLE GOOD PAUL ROMER and endogenous growth theory lifted some of the gloom of the ‘dismal science’ by focusing economic analysis on INCREASING RETURNS and Adam Smith's 'Pin Factory'. A LEG UP NOT A HAND OUT ! ! jpb .. Technology  education. training. wages and prices  establish property rights  low intervention. inflation  establish trust for investment and saving Endogenous growth theory. The failure of Eastern Europe to achieve economic growth was beginning to be explained as EVOLUTIONARY THEORY was integrated into economic orthodoxy. competition. education  diversity. NB. emerged in the 1980's as mathematical tools offered opportunities to model the complex non-linear processes of human behaviour. capital. protectionism. incentives and coordinating institutions . education. and also the debilitating effects of political collective decisions. intensive interactions  Enable MARKET CO-ORDINATION  free trade. Trade. regulation and taxation  Enable the growth of HUMAN CAPITAL -  Tort Law. Romer integrated into mainstream economics the growth effects of TECHNOLOGICAL ‘KNOW HOW’ from specialisation and scale through education. health.

not bishops princes generals nor majorities . VARIATION is REALITY …  from GENES to ORGANISMS to CULTURES … PROPERTIES of the whole EMERGE …  POPULATION FREQUENCIES CHANGE Blind generate &test . & at the same time automatically adjusts to change & complexity.aspiration endeavour & ingenuity to discover the best option available at the time . MARKET FORCES ! jpb .not design . expectations & knowledge. PRINCIPLE FEATURES OF MARKETS decentralised decisions where customers vote using price information about competing alternatives by a voluntary exchange of private property ESSENTIAL PREREQUISITES  rules for the definition exchange & protection of private property  uninhibited access to customers  obligation & trust UNAVOIDABLE CONSEQUENCES  rising prices to pass on information  bankruptcies when losers fail to respond efficiently & effectively  unemployment following adjustment to change there’s no such thing as society … only different people at different time in different places choosing different things  EDUCATION EDUCATION EDUCATION  AVERAGE is an ABSTRACTION ….tyranny and oppression is not an ess – crowd trouble emeges !! NB.WHY MARKETS ?  CO-OPERATION OBLIGATION & TRUST COMPLEXITY CHANGE CONFLICT & SCARCITY 39 IT IS EASY TO SATISFY MAJORITIES IN STABLE SITUATIONS but the market continually responds to individuals with different preferences.

WHY JOINT STOCK COMPANIES ?  SELF SUSTAINING GROWTH TORT TRADE & TECHNOLOGY 40 OWNERS HIGH PROFITS SUPPLIERS HIGH PRICES SECURE CONTRACTS JSC HIGH WAGES SECURE JOBS CUSTOMERS LOW PRICE HIGH QUALITY EMPLOYEES To resolve the conflicts & make the m/c work the Owners must decide because of –  THE NATURE OF PROFIT  THE SAFEGUARD OF COMPETITION  THE INDIVIDUALITY OF REALITY  THE MAGIC OF PROPERTY INFORMATION CONTROL PURPOSE IMMUNITY MAXIMUM PROFIT . profit is created.if you don’t the Japanese will !! There are no customers no suppliers no employees & no share price in a profitless company! OWNERSHIP RISK . either way all participants benefit. OWNERSHIP RESPONSIBILITY is to SEARCH for PROFITABLE INVESTMENT the only POWER OWNERS have is NOT to INVEST NB.Is VITAL OWNERSHIP IDENTITY . Additional wealth.is irrelevant It is not a zero sum game.everyone else has a contract OWNERSHIP BEHAVIOUR . BREAKOUT ! jpb . it is spent or invested.

THE CONTROL MODEL  ADAPTIVE SELF REGULATION AUTOMATIC RESPONSES WEALTH OUT unknowable outcomes 41 BARGAIN PRICES . HANDS OFF ! SET POINT SCARCITY jpb . different times … NB.CHOICES BEST PERCEIVED OPTION AVAILABLE AT THE TIME ACTUATOR RESOURCES IN 2nd law costs OWNERSHIP RESPONSES . different experiences.PERSONAL RISK / REWARD PROFILES SPECIALISATION SCALE SYNERGY SCIENCE IMITATION INVESTMENT INNOVATION  different people. different places.DIVERSITY CONFLICT COMPLEXITY CHANGE ALGORITHM SYSTEM CUSTOMER VALUE JUDGEMENTS .INFORMATION SENSOR COMPETING ALTERNATIVES .

PROFIT is not a part of zero sum games where STEALING is the only option. UNFAIR & UNJUST ! jpb . PROFIT in positive sum games becomes a MORAL imperative and explains why the Bishops after outlawing USURY in 1571 revised their decision and inlawed it only 50 years later in 1624 NB.THE NATURE of PROFIT  INFORMATION DISPERSED & TACIT KNOWLEDGE 42 MULTIPLE ROLE  MEASURES how much wealth is created maximum value at minimum cost  SIGNALS where to concentrate activities where scarce resources produce most satisfaction  REWARDS innovation investment & risk spur to change & experiment  FACILITATES the ebbs & flows of uncertainty copes with inevitable losers INDISPENSABLE in all COMPETITIVE DYNAMIC MARKET SYSTEMS If information & motivation are to be effective profit must be maximised it cannot be ‘just’ or ‘fair’ PROFIT is a SURPLUS resulting from WEALTH CREATION it cannot be an EXPROPRIATION from buyer to seller.

LIKE IT OR LUMP IT – VOTE WITH YOUR FEET ! jpb .THE SAFEGUARD of COMPETITION  ALTERNATIVE OPTIONS ACCESS to CHOICE Not REGULATION but AUTOMATIC CHECKS & BALANCES  CONTROLS EXPLOITATION & CORRUPTION 43 SUPPLIERS CUSTOMERS EMPLOYEES FINANCIERS must be happy to deliver must be happy to purchase must be happy to work must be happy to lend otherwise they choose the alternative  FEEDS PROGRESS MORE DIVERSITY & CHOICE MORE CONSIDERED DECISIONS MORE PROGRESSIVE LEARNING THE BETTER EMERGES OTHERWISE the ALTERNATIVE WINS COMPETITION between gives and PRODUCERS CUSTOMERS EVERYONE CHOICE PROGRESSES INTEREST GROUPS will always try to RIG COMPETITION for Their own advantage but the best antidote is ANOTHER COMPETING INTEREST GROUP NB.

MY HUMBLE CONTENTION ! jpb .THE INDIVIDUALITY of REALITY  CONTINUOUS CHOICE CONTINUOUS EVALUATION 44 FULL POTENTIAL  PURPOSE ESTEEM INDIVIDUALITY FRIENDSHIP  RESPECT  INITIATIVE  CULTURE SECURITY FOOD SEX SHELTER  INDEPENDENCE  MONEY EVERYONE has a DIFFERENT POSITION at DIFFERENT TIMES for DIFFERENT REASONS the cause of all CONFLICT the source of all CREATIVITY MONEY gives some OPTIONS & INDEPENDENCE but doesn’t help with DECISION MAKING CULTURE gives some GUIDANCE but doesn’t help with PERSONAL DECISIONS INDIVIDUALITY & INDEPENDENCE are about PERSONAL CHOICES NB.

THE MAGIC of PROPERTY  ASPIRATIONS & INCENTIVES IMMUNITY from TREACHERY 45 RESOURCES CONTROLLED by their OWNERS for BENEFIT or SALE tend to be & EFFICIENT use of SCARE RESOURCES REDUCING WASTE & DEPLETION and CREATING VALUE In excess of COSTS The NATURAL EVOLUTION of the extended phenotype BIOLOGY BEHAVIOUR TOOLS PROPERTY each is an extension of genetic inheritance each addition is painfully acquired through & PRIVATE PROPERTY Is not forced on people if greater benefits are perceived collective ownership will thrive OWNERSHIP BEHAVIOUR CREATES WEALTH OWNERSHIP IDENTITY IS IRRELEVANT … unfortunately all property becomes a target for parasites and predators and must be defended if it is to exist … NB. THE TRAGEDY OF THE COMMONS ! jpb .

sacrifice some of today’s pleasurable consumption & tomorrow will be better There is no secret economic activities are well understood but organisation is necessary as the co-operation of strangers is essential .drive down the learning curve SCIENCE .experiment to find the emergent 2 + 2 = 5 synergies they can’t be predicted they must be discovered IMITATION .more volume lower cost .make a better mouse trap & the world will beat a track to your door INVESTMENT .scientific problem solving ‘know how’ is massively & increasingly available to all SYNERGY .copy successful practice there’s no better place to start INNOVATION .WEALTH CREATING ACTIVITIES  CO-OPERATIVE SYNERGIES EVERYDAY CHOICES GO LEFT or RIGHT? 46 SATISFICING !! SPECIALISATION . NO ONE SAID IT WAS EASY ? .here’s the rub how do we organise the activities of countless SPECIALISING agents on an ever increasing SCALE with ever more disparate knowledge ?? Co-operations EVOLVES in ROBUST institutions - JSC jpb NB.focus education & training to acquire better skills which can be offered for sale SCALE .

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