Island Economics

Cultures and how to see the world accurately

Envy and victims = economic and personal vitality destroyers

Forecasting and scenario planning Experts & Dummies

Ethics, sustainability and virtue

Business Values

Discussion Outline

Island EconomicsBuilder

Island EconomicsHealer

Island EconomicsFarmer

Island EconomicsPhilosopher, Poet, Artist Sage

Island EconomicsCommunity

We all live in a Yellow SubmarineSpiral Dynamics

A theory of human development

Human nature is not fixed

People will adapt to their environment when forced by life conditions by constructing a new model of the world.

Cultural DNA

Spiral Dynamics

Memes & DNA

• Systems of values

• Apply to individuals and

cultures

• Negative and positive

• Each new system modifies

or builds on the previous

Stage/Wave Color Code Popular Name Thinking Cultural manifestations and personal displays

8 Turquoise Wholeview Holisticcollective individualism; cosmic spirituality; earth

changes

7 Yellow FlexFlow Ecologicalnatural systems;

self-principle; multiple realities; knowledge

6 Green Human Bond Consensusegalitarian; feelings; authentic; sharing; caring ;community

5 Orange StriveDrive Strategicmaterialistic;

consumerism; success; image; status; growth

4 Blue TruthForce Authoritymeaning; discipline;

traditions morality; rules; lives for later

3 Red PowerGods Egocentricgratification; glitz; conquest; action;

impulsive; lives for now

2 Purple KinSpirits Animisticrites; rituals; taboos; superstitions; tribes;

folk ways & lore

1 Beige Survival Sense Instinctivefood; water; procreation;

warmth; protection; stays alive

Source: Don Beck Ph.D

Spiral Dynamics’ Takeaways

• We make mistakes as people, companies and groups when we think people are like us.

• We need to meet people at their level – not ours.

• Zen training = we can see what is real when we quit judging and saying “this is GOOD - this is Bad - this is NEUTRAL & this is… fill in the blank.

• Most consensus, democratic or group systems are reactive systems not proactive.

• Bottom line is everything connects & economics is about people in action not money in action.

Forecasting and ScenariosStand in the Future

3 Same Subject Experts

Forecasting and ScenariosStand in the Future

3 Experts and a Dummy

Forecasting and ScenariosStand in the Future

3 Experts and an Artist

Simplicity & Complexity

• Complex problems require complex solutions

• We make mistakes when we over- simplify complex problems

Simplicity & Complexity

• Complex problems require complex solutionsProblem; Need sustainable economy that provides Jobs

Problem; War

Problem; Starvation

Problem; Ignorance (root)

“Just be ethical” & “Just Love More”

What causes a Financial Crisis?

What Causes a FinancialOpportunity/Crisis?

People will rationally “binge”

“Men, it has been well said, think in herds; it will be seen that they go mad in herds,

while they only recover their senses slowly, and one by one!”

– Charles Mackay

“Irrational Exuberance” –Alan Greenspan

Cycles Happen• Financial meltdowns are a

systematic and normal dysfunction of government influence, greed, fear, and are normal in our world.Tulip mania – 1620

Mississippi Company France 1719/1720 & John Law

South Sea Company London 1711/1720

Wall Street 1929

Junk bonds 1980s

Dot.coms/telecom 1990s

Sub-prime mortgages/CDOs

People Make Mistakes

What Causes a Financial Crisis?

Mis-pricing of risk

MPT (Modern portfolio theory)

Increases in real risk are not captured in nominal market prices

Asset prices become irrational

Finance 101

• Present value should reflect the risk of actually receiving future income

• Capital value is a function of present and future income!

• Misjudgments about future income distort present capital values (Manias/Emotion, squinter problem)

Finance 1001We want to Believe!

• A person will not wish to know something, if knowing that something will cost him or her.

Coal and Global Warming

Meat eating and Environmentalism/Global Warming

Driving “Hummers”

Not walking/riding bike

Eating Junk food – other stuff…

Free money=distortions

• In financial bubbles, mis-pricing is sustained by infusions of debt

• Higher and higher asset values are supported by borrowed funds

• Excess liquidity – based on future promises to pay – transforms investment into speculation; prudence loses out to greed; illusion trumps reality (beliefs VS truth)– for a time

Systems are reactive

World Economic regulations, contracts, laws and “Order enhancers” have inadequate pro-active mechanisms to prevent financial crises

[bureaucratic /boards]

Bottom line is: Groups tend to be reactive

Someone fell off the Empire state building….

What is the fair value of an investment in business?

Quality Income Stream

High future income

Priced right

Good Corporate Value

(Warren Buffet would buy it)

Today where does most corporate value come

from?

Intangible Assets!

Intangible value 3-4-14

Microsoft: Market value: $318 billionBalance sheet assets:

~45%%Goodwill/intangibles:

55%

Starbucks: Market value: $54 billionBalance sheet assets: 20%Goodwill/intangibles:

80%

Facebook Market value: $173 billionBalance sheet assets:

~10%%Goodwill/intangibles:

90%

Growing Importance of Intangible Wealth

Change in U.S. Employment:

Tangible sector (manufacturing, construction, natural resources, real estate, wholesale and retail, transportation and warehousing)

= job losses

Intangible sector (education, health care, computer system design, finance and insurance, scientific research, etc.)

= job gains

Valuation & Sustainability

Intangible Assets = Stakeholder Relationships

(are the relationships sustainably nurtured and part of culture) Create value thru growing relationships with…

Customers

Employees

Owners/Investors

Suppliers

Competition (Strategic relationship)

Community

How Do Companies Create (Intangible) Value?

• The Good

• The Bad

• The Ugly

The Good (Virtue Capitalism)

Manage Risk

Be Opportunity seeking

Constantly reassess business practices

Through 1)systems and culture

2)Best practice adoption

Optimize Stakeholder Benefits as goal

A culture where Virtue matters

Transparency (I am what I am-no hiding anymore)

The Bad Brute Capitalism, Crony

Capitalism Feed Shareholders,& Abuse Stakeholders

Feed Mangers & Abuse shareholders and everyone else

Hire slaves, compete only on pricing/low costs

abusing market power

Take the money and run: short term-ism

Always with a smile of course

Unsustainable values & practices= Eventual Failure

The Ugly (Punting on the trading floor)

No net wealth creation(Rob Peter to pay Paul)

Exploiting the emotion & Irrational Exuberance(Market traders/short term-ism)

Exploiting emotions = False Valuations(Enron: Ponzi Scheme; sub prime mortgages, CDOs, CDSs, 50,000 dogs)

Encourage unsustainable pricing of securities (CDOs, CDSs, government bonds, currencies)

INEVITABLE FINANCIAL MELTDOWN

The Ugly

Reality=life goes on

Unsustainable trends are unsustainable…

Herbert Stein

Reality=life goes on

Net wealth creation will happen

Wealth transfer will happen

Irrational Exuberance will happen

False Valuations will happen

So what do you do about it? Use your head and heart & Think!Has your brain ever hurt from thinking?

Summary

Island Economics= everything connects

Cultures = meet people at their culture

Scenarios =Experts, dummies and Artists

Ethics, sustainability and virtue matter

Summary

Complex problems require complex solutions

People won’t learn the truth if it could hurt them (Duh!)

Beliefs are more powerful than truth. Emotions

Manias happen markets are cyclical. Emotions

Life goes on, Relax and enjoy!

Zen Master gets sick (story)

suffering exists

We suffer because we grasp and obsess;

We can do something about suffering;

We can live a spiritual life.

Neither shall they say, Lo here! or,

lo there! for, behold, the kingdom

of God is within you. Luke 17:21

“Peace comes from Within; DO not seek it without.” Buddha

If you look at the Peacemakers

that we know from history and

today; Joan of Arc, David,

Gandhi, Dalai lama, Mother

Theresa, M. L. King Jr., Nelson

Mandela, Desmond Tutu,

St. Francis, Fethullah Gulen,

Malala Yousafzai, they were

willing to risk their lives, their

social comforts and

acceptance to pursuit virtue-

infused ideals.

7 Social SinsWealth without Work

Pleasure without Conscience

Knowledge without Character

Commerce without Morality

Science without HumanityWorship without SacrificePolitics without Principle

– Mahatma Gandhi

8th sin added by Arun Gandhi, his grandson:

Rights without Responsibilities

I grew up among the Sages.

All my life I listened to their words.

Yet I have found nothing better than

silence.

Study is not the goal, doing is.

Do not mistake “talk” for “action.”

Pity fills no stomach.

Compassion builds no house.

Understanding is not yet justice.

Whoever multiplies words causes

confusion.

The truth that can be spoken

Is not the Ultimate Truth.

Ultimate Truth is wordless,

the silence within the silence.

More than the absence of speech,

More than the absence of words,

Ultimate Truth is the seamless being-in-

place

that comes with attending to Reality.

—Shimon ben Gamliel

Questions & Thank You