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The Economics of Abundance

Rafe Furst — Fri, 20 Apr 2012 16:28:51 +0000

Here are some things I used to believe:

The power of the free market comes from competition
If you are nice to someone, you will be rewarded commensurately
A penny saved is a penny earned
The more scarce something is the more valuable it is

I no longer believe these statements to be true. To understand why, I’d like to share a little of my journey as an entrepreneur and investor.

In the mid to late ’90s I was working on a startup and getting my feet wet as an angel investor in Silicon Valley. I, like everyone I knew, was an adherent of the Chicago School of Economics and the Efficient Market Hypothesis. One of the mantras of this religion is that

The invisible hand of the marketplace will feed us all, but we have to compete vigorously with one another for it to work its magic.

Signing a Non-Disclosure Agreement on a first date — that’s not just good business, but a moral imperative as well.

Flash forward to my first TED Conference several years ago. I learned phrases like “Social Entrepreneur”, “triple bottom line” and “doing well by doing good”. And while I didn’t feel like these were exactly oxymorons, I didn’t really understand how powerful this new mindset could be. Can you really make more money by putting your customer’s well-being ahead of your own?

So, in the spirit of TED, I started experimenting with a personal monetary policy that combined philanthropy with investment. In practice this meant spending my time and money helping others with their ventures, not worrying so much about “return on investment”, and seeing what would happen if I left that part up to the universe. In other words, testing out how real Karma actually is.

I would give people loans to go to conferences that would enrich their lives, and I’d ask them to “pay it forward” instead of pay me back. I would invest in ideas and projects that had little “logical” chance of success because I believed in the individual, and that they’d somehow figure out how to make money. I did deals on handshakes and email confirmation. I let the other party suggest terms they thought was fair, and I didn’t negotiate looking to get the biggest piece of the pie that I could; instead I worked with the other party to increase the size of the pie that we would share.

Normally when we give our time or money to people in a business context, we are expecting an immediate quid pro quo, whether it be an airtight contract or a thank you with a solemn promise to return the favor. But because I was feeling financially secure at the time, and I’d adopted this mindset of presuming the universe would sort out the Karma in the end, I was treated to a much different experience than I’d ever encountered in business.

First off, the Karma was often instant; I’d do something for someone and within days, sometimes hours, I’d get an unexpected favor in return. Secondly, the return I received was usually greater than what I gave. Third, it wasn’t always the person I gave to who gave back to me. Sometimes I could tell that the original person talked to another and there was a sort of “Karma chain” that was coming full circle. But other times I couldn’t see a causal relationship between my giving and what I was receiving. Maybe it was there, but it certainly was not obvious or predictable.

I started to get this odd impression that if I were trying to give my money away — which I certainly was not — that I actually couldn’t do it. What I sensed was that the more I gave out, the more came back. Now, I’m not suggesting that the Karmic return I received was in cash, but rather the social currency I was building up exceeded the value of the cash and time I was putting out.

A Theory of Abundance

Being trained as a cognitive scientist, and having earned most of my living by understanding probabilities, I know that this impression could easily be explained away with cognitive biases and logical fallacies. But since it cost nothing to imagine an alternate explanation, I started to explore the idea that Karma was a universal force, just as real as gravity, entropy, and the invisible hand of the market.

In science, for a new theory take hold, it has to explain and predict all the same observations that the old theory did, but also explain and predict stuff that the old theory can’t. In physics, we saw this when Einstein refined Newtonian mechanics with his Theory of Relativity, and then again when Quantum Mechanics showed us a more nuanced understanding still.

So let’s re-examine the tenets of “Newtonian Economics”:

The power of the free market comes from competition
If you are nice to someone, you will be rewarded commensurately
A penny saved is a penny earned
The more scarce something is the more valuable it is

I suspect if asked to answer True or False, most people would say they believe these statements to be True. And it’s not that I think these aren’t perfectly valid under many conditions. But like we found out with Relativity and Quantum Mechanics, there’s a more nuanced refinement which better explains and predicts. Here’s my Theory of Abundance in a nutshell:

The real power of the free market comes from competition cooperation
If you are nice to someone, you will be rewarded commensurately with multiples
A penny saved is less valuable than a penny earned
The more scarce something is the more valuable it is; but some things are more valuable the more you give them away

Let me explain.

1. The Power of the Market Comes from Cooperation (not Competition)

“[Competitors] always beat cooperators when they encounter each other in a well-mixed population…. [But] cooperation can thrive when cooperators huddle together to form clusters.” (Martin Novak, Director of Harvard’s Program for Evolutionary Dynamics)

For a market transaction to take place, two preconditions must hold. First, both parties have to be made better off after the transaction than before. Second, both parties must trust that the other party will honor their end of the bargain; i.e. not lie about the nature or value of what they are giving, and not reneg or change the deal at the last minute. In other words if you and I transact in the marketplace, I must trust you to do something that helps me, and vice versa. This is cooperation.

Yes, there is competition that takes place to determine which two parties get to transact. But once that’s been determined it’s all about cooperation. The whole trick of the market, the reason it exists, is not to facilitate competition, but rather to form “clusters of cooperation”, even in the midst of a well-mixed population of competitors.

2. If You Are Nice to Someone, You Will Be Rewarded With Multiples

This is the Karma effect that I described earlier, and we’ve all experienced it at one time or another. One thing I’ve noticed since I started believing in Karma, is that the more trust I put in others (or in the universe), the bigger the Karmic multiple.

3. A Penny Saved is Less Valuable Than a Penny Earned

Amongst my Silicon Valley friends, there was one who was legendary for “wasting” money. He’d never haggle, always buy the most expensive brand, waited until his lights were turned off to pay the utility bills, and leave thousands of dollars in cash, checks and stock certificates laying around, stashed in old sock drawers, forgotten about. His cost of living was easily twice the average of me and my friends. Yet, somehow he always had way more money than any of us. He was the first of my friends to become a “millionaire”, and opportunity seemed to fall out of the sky and land in his lap.

What I learned from observing my friend, is that the time and mental energy most people spent on preserving the resources they had accumulated, my friend spent figuring out how to make more of it. So while his burn rate was 2x average, his earn rate was easily 5x.

One interesting aspect of this philosophy is that, if you believe you can always earn more money tomorrow, it helps you act on the natural generosity you are born with, today.

4. Some Things Are More Valuable the More You Give Them Away

Until a brave theorist named Brian Arthur challenged the Chicago School dogma, economists thought that return on investment could only diminish as you scaled up your investment. But now we know that with certain types of resources like the FAX machine and the internet, we get not diminishing returns, but increasing returns. With abundant resources, the more you give one away, the more valuable every other one of them becomes. It’s known more commonly as the network effect.

I believe Karma exhibits the network effect too, because it’s infectious. If I see someone do a good turn, I’m more likely to do something good too. Behavioral psychologists have shown this is true in many different contexts. We’re just hard-wired to imitate behaviors of other humans.

Giving creates more giving. Add a dash of cooperation and creativity, multiply by Karma, and you get Abundance.

Societal Dilemma

Taken together, these four pillars of the Theory of Abundance suggest that when it comes to maximizing profits, we’re underperforming in our society. We’re in a Prisoner’s Dilemma on a global scale. We are playing a game of maximizing scarce resources, and ignoring the immense — and multiplicative — shared value that’s within our reach through radical collaboration and presumed abundance.

In future posts, I’ll describe experiments being done and case studies that support the Theory of Abundance and show us the way out of our collective dilemma.

Education 2.0

Rafe Furst — Fri, 25 Nov 2011 17:07:19 +0000

In what turned out to be the most popular TED talk of all time, Ken Robinson asked us to wake up and smell the coffee: our system of education is stuck in the Industrial Revolution where it was invented. Moreover, it’s killing creativity, crushing spirits, and preparing students, not for success and wellbeing, but rather unemployment and dysfunction. Waiting for Superman confirmed this this, adding that the public schools in the U.S. are bankrupt, both financially and morally.

Yet, all around the world, there are signs that the Berlin Wall of education reform is crumbling. Here are a few shining lights:

TEDucation

No single institution or movement has done more to spark educational change than TED.com. Hundreds of millions of people are watching their videos and learning from inspiring individuals sharing ideas and experiences that cannot be learned in a traditional school environment. And there’s an acceleration effect because many of the talks are about education and the transformation that’s going on in areas you would never know about otherwise. Best of all, these talks are free.

Working from Within

There are groups like Decision Education Foundation which go into schools and augment their capacities by teaching skills that should be part of every curriculum. And there are individuals like John Hunter who teach lessons which cannot be learned at home or on the internet (unlike the three R’s).

Not Waiting Around

There are many groups who are not waiting around for Supermen like Hunter to save the existing system. Rather they are working alongside it to make it more effective. There are after school programs, like Self Enhancement, Inc., which miraculously has transformed an entire population of at-risk youth into a community of high school graduates (100% in 2008 and 2009) many of whom go on to thrive in higher education settings. Dave Eggers, the bestselling author, started a grass-roots initiative to provide extracurricular tutoring in which the tutors get just as much benefit as the kids. And there’s El Sistema (“The System”), which famously produced the virtuoso symphony conductor, Gustavo Dudamel, but which more importantly is transforming our idea of what education is.

Reinventing the Model

Others, like John Hardy, are taking taking the idea that education can be revolutionized, and are just doing it. And in doing so are challenging our most basic assumptions, such as “adults know what’s best for kids to learn and how to teach it to them.” What if there were a school with no classes, no grades, no tests, and the students (age 5 to 18) decide what they are going to learn and how to run the school? If you are thinking “Lord of the Flies”, tune in to hear about the Brooklyn Free School and free your mind….

Turn On and Tune In

It’s no surprise that formal education is moving online. But did you know that it’s top notch and free? Check out the Khan Academy which has delivered almost 100 million lessons to students around the world in math, physics, finance, history and more. And why pay over $300K attending Stanford to get a degree in Computer Science when you can take the same classes for free online?

We Are Superman

It turns out that kids really can teach themselves and each other, when provided with the right guidance and framework. And it’s not just in resource-rich areas like Brooklyn. In India, Kiran Bir Sethi and Shukla Bose are showing the way. But it also turns out that kids don’t need guidance from adults, they just need access to learning tools and for adults to stop interfering. If you haven’t seen Sugata Mitra’s experiments of providing free internet terminals without instruction to rural Indian kids who don’t speak English, you need to watch what happens.

It turns out it’s not just kids who can learn from one another. The Barefoot College is turning grandmothers into solar technicians and teachers of solar technology. Oh, and again, a common language is not necessary in either case.

It turns out, it’s not just schoolchildren and the elderly that can learn from one another. Skillshare is connecting individuals who want to learn anything to people who want to teach them. Why not teach a class yourself in your local area? After all, we are all Superman or Superwoman in something.

So, what are your favorite examples of Education 2.0?

The Secret to a Great TED Talk

Rafe Furst — Wed, 09 Mar 2011 04:31:30 +0000

Recently I learned from two separate people how the Obama campaign won the 2008 presidential election and it’s fascinating. Basically everyone who was a part of it learned the “campaign narrative” structure and delivered their personal message to spread the gospel:

The Story of Me: why I’ve personally been inspired by this campaign
The Story of We: why we (me speaking and you listening) are united and inspired by this campaign
The Story of Now: why it’s urgent that you take action now; the train is leaving and you can jump aboard or be left behind

If you think about it, this is a very powerful narrative for creating grass-roots action of any sort. Having just spent the last week watching many dozens of TED talks (and having watched hundreds of them over the past few years), I’ve been thinking about the fact that the great ones all follow a shared structure, which I will share with you now:

The Story of Me: sharing something personal, preferably something that makes me vulnerable, and gives you a reason to care about what I have to say
The Story of Wrong: how I once believed X, and through a series of events have now come to believe “not X”
The Story of What If: an invitation to you to consider my new theory that explains the world better than X did

Thoughts?

Investing in Superstars, part 2

Rafe Furst — Fri, 25 Feb 2011 16:44:03 +0000

For the background to this post, start with part 1. The follow up is here: part 3, part 4.

In a subsequent post, I’ll talk about some lessons we’ve learned. In the mean time, what questions would you have, either as a prospective investor or investee in the above scenario?

Will You Die From Cancer?

Rafe Furst — Fri, 01 Oct 2010 23:05:12 +0000

Use the arrows that appear if you hover over the bottom right of the Prezi. You may want to expand to full screen first.

All feedback welcome. If you like this, what subject would you like to see addressed next using Prezi?

The Most Important TV Show in America

Rafe Furst — Fri, 26 Mar 2010 15:20:44 +0000

Remember Jamie Oliver’s TED Prize Wish? Well tonight is the prime time season premiere of his Food Revolution show on ABC. The Huffington Post called Undercover Boss the most subversive show in America, and I can’t disagree. But in terms of importance to the future of America (and by extension every country which imports American TV and culture), Food Revolution I can’t imagine a more important show.

It’s not just the lives of individuals who eat crap (which is most of the country, frankly, even though they have no idea how toxic what they are eating is). It’s the happiness and achievement potential of today’s youth. It’s the emperor with no clothes at the center of the healthcare debate. And it’s a lynchpin for economic recovery and sustainability.

Watch the premiere, and spread the word…

The Technium

Rafe Furst — Tue, 23 Feb 2010 18:10:27 +0000

Here are the slides from his talk. My favorites are 3, 4, 8, 10, 15, 19, 21, 23, 26, 28, 29, 35, 37, 38, 53, 66, 68.

Kevin Kelly

View more presentations from TEDxAmsterdam.

Four Ways to Fix a Broken Legal System (TED 2010)

Rafe Furst — Tue, 23 Feb 2010 04:55:44 +0000

This was one of my favorites of the year.

“Bad people do bad things”

Rafe Furst — Thu, 10 Sep 2009 14:44:00 +0000

In listening to this account of Hemant Lakhani, convicted in 2005 of illegal arms dealing, I was reminded of another This American Life episode about Brandon Darby. Underlying both stories are accounts of seemingly incompetent, misguided, would-be bad guys who were actualized on a path of evildoing by law-enforcement agents during sting operations.

What I found most interesting was the quote in the title of this post, said by the prosecutor in the Lakhani case. This was his justification for why it was okay to have the U.S. military supply Lakhani the weapon that he was convicted of illegally dealing. (If you listen to the story you will learn that Lakhani had been making promises to the informant of being able to procure weapons for a long time and he’d been unsuccessful on his own).

While it seems on the surface that “bad people do bad things” — i.e. that’s how bad things get done, they require a bad person to do them — renowned Stanford psychology professor, Philip Zimbardo, has a different theory, which he uses to describe what happened in Abu Ghraib:

Click here to view the embedded video.

Reinventing Liberal Arts Education

Rafe Furst — Mon, 01 Jun 2009 18:53:30 +0000

This was one of the most important and encouraging talks of this year’s TED conference: