The consumers of investment

On last week’s Bottom Line on Radio 4, Evan Davis asked whether ‘the market’ really does act to distribute capital in an efficient manner. During the discussion it was claimed that, taken as a whole, neither the airline nor the car industries had produced a return on the investment made in them; indeed investors had not even, in the end, got back what they had put in. Putting that together with the same assertion about the railways which recently came to my attention, & it starts to look like a law of economics, one which, if it does not do so already, will eventually apply to the newer technologies of computing & mobile communications.

We tend to focus our attention on those who do, in the shorter term, make spectacular fortunes for themselves – the Railway Kings, the Henry Fords, the Bill Gates or Michael O’Leary’s – or those who go rapidly & spectacularly bust, bringing ruination to widows & orphans & other trusting investors of life savings, thereby earning for themselves only contumely, contempt & accusations of incompetence or fraudulent practice.

Money invested does not disappear, into thin air or clouds of smoke, nor does it turn into a dead parrot. One way or another it provides income for all sorts of people, from those who deliver personal services to the (temporarily) rich, designers & sellers of fast cars & large yachts, art dealers, some living artists, but also to computer engineers, drivers of steam trains, factory workers, small businesses which supply components, miners, metal-bashers, and lawyers. Some of it even, via taxes, goes to pay civil servants, policeman, soldiers, nurses, teachers & politicians. But, sadly, in the end there may just not be enough money left over to honour the promises made to investors.

And few would say that it was therefore all a complete waste of money & effort. We still use & value, gain great benefit from, cars & planes & trains, the way they have changed the way we live our lives, the opportunities they have opened up for us. Travel by water may not figure large in our consciousness these days, being unattractively slower than the alternatives, but most of the world’s trade still moves on ships. And the invention of the wheel pre-dates recorded history. Although the capital invested has either evanesced or, perhaps, like a battery, gone permanently & irreparably flat, its useful energy all gone, the processes set in motion by those initial injections of investment energy continue, fed by what?

In his book Why Most Things Fail, Paul Ormerod, focusing on companies & brands, concludes that, while innovation is the best strategy for survival (ie continuing to be in a position to provide a return for your investors), it can be no guaranteed way of avoiding the processes which bring about extinction in a complex, ever-changing & interconnected world where the future lies shrouded & out of sight.

Innovation should not however be confused with The New, or abrupt changes of direction which require hefty new investment & steep learning curves. But nor does it mean sticking stubbornly to one’s last in the belief that tried & tested is always best. The best-managed organisations are always innovating at the margins, in ways which may not be obvious to the regular customer but astonish the returning visitor with their unfamiliar familiarity - & improvement.

For, as David Edgerton pointed out in his book, The Shock of the Old, for most scientists & engineers, their role is to operate & maintain things, adapting the old or adopting the new to meet the changing circumstances of the world about them. It is use which gives technology its value.

Ormerod’s model of extinction shows that acquiring knowledge produces considerable returns in the sense of a sharp increase in the longevity of firms. But even knowledge does not have to imply total novelty, in the sense of previously unknown facts or processes. Knowledge of the ways of the world & of how other agents – be they employees, suppliers, customers or competitors – are thinking & behaving is just as, if not even more, valuable. In this it would also be a mistake to think that in the modern world knowledge is only, or best, delivered electronically.

In another fascinating insight from The Bottom Line, discussing the results of an earlier survey which showed that the average CEO spends 60% of their (long) working hours in meetings, all last week’s participants stressed the importance of real-time interaction – preferably face-to-face – because of the amount of information conveyed by all the various modes of nonverbal communication & the relationships of trust which it fosters.

But, as a corollary, it is dangerous to collect all this information from people who are just like you – group-think is stultifyingly dangerous, makes the whole herd more vulnerable to extinction.

Even a small change in the angle of view can show the familiar in a wholly different light, & itself leads to an increase in knowledge.

Link
BBC Radio 4: The Bottom Line