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Musings Report #23 6-6-14 Our Competitive Edge Is Flexibility / Willingness to Risk
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For those who are new to the Musings reports: they are basically a glimpse into my notebook,the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
Our Competitive Edge Is Flexibility/Willingness to Risk
Global competitiveness surveys often focus on math test scores and labor costs, with the assumption that higher STEM scores (science, technology, engineering, math) lead to higher productivity and lower labor costs make nations attractive to global capital.
This line of thinking is common-sensical as far as it goes--technology drives productivity increases, so higher tech skills are essential--but it doesn't touch on the key characteristics of long-term productivity expansion, which include flexibility, diversity and the willingness to accept the risks and insecurities of adapting to changing circumstances.
All adaptations are intrinsically risky. The stark choice of "adapt or die" arises when circumstances change to the point that the default settings--i.e. behaviors, habits and strategies--that worked well in the past stop working or fail.
In other words, if we knew the right response, we wouldn't need to adapt--we'd already have the "correct answers." Adaptation becomes critical precisely when the "correct response" is unknown because changing circumstances have pushed beyond the limits of our "this solution has always worked fine" defaults.
Some adaptations will succeed, others will fail, and still others will have no discernible effects (i.e. they're neutral). It's a paradox: if we knew the adaptations that would be successful ahead of time, we'd still be using our existing models, behaviors, strategies, etc. and by definition these responses would be modest extensions of what has worked well in the past.
What is increasingly likely for macro-reasons is that our toolbox of existing models, behaviors, strategies will stop working well enough to sustain the status quo, and only those with the flexibility and willingness to accept the risks of adapting will adapt successfully.
Success adaptation is by no means guaranteed, but those who learn to "fail often, fail fast" and quickly adopt successful models, behaviors, strategies will be the most likely to adapt successfully.
Intelligence and other attributes (for example, natural resources, cheap labor, etc.) are thus over-rated: As Charles Darwin observed, "It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change."
In this context, I was struck by this article on the preference of young college-educated Chinese for the security of government positions--in effect, betting their future on the belief that the state is impervious to the macro-changes that will disrupt the global economy and resource distribution.
Tiananmen, Forgotten: "Nationwide, China’s best and brightest are chasing the stability and prestige offered by the state system: A survey conducted by Tsinghua University reveals that state-owned enterprises and government organs rank as the two most desirable destinations for university graduates."
While 22% of recent college graduates in China declared a desire to start a business, experts say that less than 2% actually start businesses after graduation.
I suspect these numbers apply to recent graduates in the U.S., other Asian countries and Europe as well: the desire for entrepreneurial enterprise is much greater than the number who grasp the nettle of actually starting a new business.
The key question is: where is it easiest to start an enterprise (and that includes non-profits, co-operatives, etc., not just sole proprietorships) or switch careers? Where is it easiest to "fail often, fail fast"? I think the "ease of failure, risk and adaptability" is scale-invariant, meaning that it sorts the wheat from the chaff in communities, cities, regions, states and nations.
There are undoubtedly pockets in many regions where the opportunities to risk failure to speed adaptability are abundant, but most nations are largely wastelands of adaptability, where risk is discouraged, costs for starting new enterprises are high, capital is unavailable or too expensive, and society frowns on failure rather than recognizing it as a badge of honor and the necessary feature of stable success.
In my analysis, global competitiveness boils down to the cultural and economic willingness to encourage adaptability via "fail often, fail fast" risk-taking, for it is this risk-taking and failure that powers fast learning and widens the bandwidth of knowledge that leads to higher sustained productivity.
Summary of the Blog This Past Week
About Those Forecasts of Eternally Rising Corporate Profits... 6/6/14
The Purchase of Our Republic (guest essay) 6/5/14
Nobody Wins Elections Promising to Trim Waste/Fraud and Simplify Regulations 6/4/14
"Buying Time" Doesn't Fix Financial Crises, It Makes the Next One Worse 6/3/14
The Destroyer of Fake "Recoveries": Unintended Consequences 6/2/14
Best Thing That Happened To Me This Week
My brother's skin graft is healing nicely. Here's to fast healing and health!
Market Musings
I marked up a chart of the Dow Jones Industrial Average (DJIA) on Wednesday to show the classic rising wedge pattern that the index has traced out this year. Rising wedges tend to resolve in reversals. The highs and lows squeezing into a narrowing trading range reflects a weakening of bullish pressure (i.e. new highs are weak) and complacency (i.e. little selling).
The Chaiken Money Flow, a measure of buying power and volume, is at new near-term highs, reflecting a strong bullish bias.
Today's advance seems to have broken out of the wedge to the upside, reflecting the bullish buying power. At 16,924, 17,000 now beckons, potentially a mere day away with another strong advance.
Patterns help us identify potential points of reversal and continuation of the current trend. There is little evidence of reversal as this wedge is broken to the upside, but there is still a possibility that it is a "fake-out" surge that fails to keep advancing much above 17,000. As always, let's watch developments without bias one way or other, and look for further evidence of continuation or reversal.
From Left Field
Remembering Tiananmen: The lessons of history (The Economist) As our bureau chief leaves China, he reflects on the crushing of the protests he witnessed 25 years ago, and what has transpired since.
Average monthly salary of college graduates in China drops to ¥3680 ($590), down 35% in 3 years, its lowest in 4 years -- funny we never read about this in all the "bullish on China" stories.... $600/month doesn't go far in China now, after a decade of fierce inflation....
Why Do China's Reforms All Fail?
With Choice at Tiananmen, Student Took Road to Riches -- to get rich is glorious....
A Student’s Memory of His June 3 Night on Tiananmen Square (via Maoxian)
Tang Jitian Recounts Torture and Detention in Heilongjiang (via Maoxian) -- The following is an account by human rights lawyer Tang Jitian, one of four lawyers detained earlier this year while investigating illegal detentions in a "legal education center" in Heilongjiang.
U.S. Teacher: I Did 7 Months Of Forced Labor In A Chinese Jail -- yikes....
The People's Republic of Amnesia: Tiananmen Revisited. By Louisa Lim Oxford University Press; 248 pages; $24.95
Machines v. Lawyers: As information technology advances, the legal profession faces a great disruption.
The Bidding For The 2022 Olympics Is A Disaster Because Everyone Figured Out That Hosting Is A Total Waste (via George B.)
France experiments with paying people to cycle to work -- better than paying to sit at home....
A New Chemical Recipe Raises Prospect Of Inexpensive Fuel (via Steve K.) "This tubelike molecule, called a MOF, can transform ethane (small structures with light blue dots) into ethanol (structures with added red dots)."
70th D-Day anniversary in Normandy
"There is only one corner of the universe you can be certain of improving, and that's your own self." Aldous Huxley
Thanks for reading--
charles
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