Still fighting to restore some normal computation to Casa Mudge. Meanwhile, we needs must blog daily.
There’s most read, and then there’s favorite. This is a post which yr (justifiably) humble svt is, regrettably, but not regretfully, not at all humble about.
Blast from the Past!
A post we really, really loved to write, and read, and re-read…
From last summer, originally posted September 6, 2007, and originally titled “Our intangible riches”.
Submitted in the spirit of: MUDGE takes well written good ideas where he finds them. And riffs from there. Hang on!
Oil, soil, copper, and forests are forms of wealth. So are factories, houses, and roads. But according to a 2005 study by the World Bank, such solid goods amount to only about 20 percent of the wealth of rich nations and 40 percent of the wealth of poor countries.
So what accounts for the majority? World Bank environmental economist Kirk Hamilton and his team in the bank’s environment department have found that most of humanity’s wealth isn’t made of physical stuff. It is intangible. In their extraordinary but vastly underappreciated report, Where Is The Wealth Of Nations?: Measuring Capital for the 21st Century, Hamilton’s team found that “human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”
The World Bank study defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and nonrenewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most of us think of when we think of capital: machinery, equipment, structures (including infrastructure), and urban land. But that still left a lot of wealth to explain. “As soon as you say the issue is the wealth of nations and how wealth is managed, then you realize that if you were only talking about a portfolio of natural assets, if you were only talking about produced capital and natural assets, you’re missing a big chunk of the story,” Hamilton explains.
Intangible capital accounts for 77 percent of the wealth of nations!
Not what one would expect is it? We think of capital as natural resources, or manufactured products. But human labor, knowledge and social institutions comprise 3/4 of all of the wealth of the world. Striking, isn’t it?
The rest of the story goes off in a somewhat different (geopolitical) direction than I want to take this concept (Reason being whom they are), but feel free to read the interesting interview:
[Per L-HC’s reformed process, please click the link below for the complete article — but then please come on back!]
I’m going to place this in a corporate context, for after all, MUDGE is this latter day convert to corporate life.
Years ago, attended a conference discussing the then new and hot topic: Knowledge Management. The consultants running the event, we’ll call them members of the class: wizards of all that is new and hot, tossed out a stunning statistic at us: 80% of the value of a corporation walks out the door every evening at 5pm, hopefully (as far as the stockholders are concerned) to return the next morning at 9am. 80%. It’s the people, of course. Bricks, mortar, research and manufacturing hardware, unending banks of air cooled servers humming away in the bunkers: 20%.
Flesh and blood: 80%. Or, have it World Bank’s updated way (it’s been 10 years, after all, and their wizards are undoubtedly newer and hotter) and call it 77%.
I dare say, though, that it takes a particularly forward thinking set of corporate leaders to truly own that statistic in any meaningful way. And MUDGE doesn’t consider management forward thinking if the extent of its reflection in that sphere is hiring those “wizard” consultants. Nope, those new and hot guys will be onto the next new and hot concept before the gig is over.
Leaving management remaining ready willing and able to discount the value of its flesh and blood assets by, let’s figure, 75%.
Yes, I’m thinking that if you held a typical CEO’s hand in the fire and said, “All right you (more than likely unqualifiedly) outrageously wealthy captain of industry, what percentage of value of your organization is its human capital?” do you honestly believe that she’d [we’ll be PC today, defying the statistics, I’m afraid] apply a value of more than 25%?
I think not. The evidence is all around you.
And I mean this literally.
Walk down your block any weekday morning. Take a look at the number of cars in driveways. All those people operating from their home offices? Some of course are fortunate as MUDGE often is, working from home for a corporate giant.
But increasing numbers are what we should call CDPs, corporate displaced persons, refugees from the Corporate Bulimia© that cheerfully spews out that human capital as readily as people deal with slightly too elderly seafood.
So, our CDPs, of an age that for considerations such as health insurance costs makes them unattractive as new hires elsewhere, set up shop in their dens as “consultants” themselves. Only these aren’t the McKinsey style wizards of all that is new and hot — these are the gals and guys who know how to analyze market trends to predict supply chain requirements in sufficient time, or who know how to write (and better yet fix) COBOL programs, or know the transportation industry from railhead to 40,000 feet cruising altitude.
In short, this is human capital. Rehired at consultants rates, and finally valued as a result.
Captains of Industry! You could have had these guys for a song — you did have these guys for a song, and at the first blip in oil prices, or at the burst of the first Internet bubble, or lately, the disquieting rumblings of financial uncertainty due to the mortgage derivative crisis, you cast them out.
Or, in the direst twist of all, their jobs are surplus, because you’ve found the folks in Galway or Bengaluru or Manila who will do what they promise is the same work for 70% cheaper.
And when times seem better, you’ll hire again (corporate bulimia don’t ya know — should I copyright that term? Corporate Bulimia©), although the good ones you laid off will be long gone, and you’ll happily hire the inexperienced (but health insurance wise, golden) and empty young to fill the ranks.
How long before you figure out that the World Bank has it right? That the accumulated institutional knowledge that you blithely lay off (yeah, right size) or outsource because you value it so cheaply is the engine driving your success?
Some of our CDPs drop out of corporate life altogether, and corporations are the poorer for it. Perhaps they accumulated or salvaged some capital of their own before they were evicted from their offices and cubicles.
These are the ones you might find owners of (i.e., cooking, scrubbing toilets, entertaining strangers) that charming new bed and breakfast near the town center that they poured so much sweat equity into, working the same killer hours or more, but now at least with a boss who appreciates those efforts, themselves.
Great place to stay next time you’re in town. A terrible waste of 25 years of hard-earned, hard-learned experience, i.e., human capital.
It’s it for now. Thanks,