The Alchemy of modern economics – the Fundless Society

I must admit that the subject of this post has simmered long time and the trigger was the recent discussion in one of LinkedIn groups: a laid-off 55-year old professional struggling to get back into organised employment. I won’t go into all the comments and advice that the poor chap got – most of them were in vein of a soothing moral support group. Not one participant  left mail to send CV (and there are more than one exec who, I am sure, could help) – and this is basically what  he needs. Not well-meant empathy and guidance how to keep his spirits high, fill his (now) abundant free time with meaningful volunteer work etc. In course of discussion, a lot of info about  abusive and sadistic employment conditions here in Israel came out. 

For some time now, I have this nagging sensation that in the recent years we have been witnessing a new type of economic alchemy which is forced on people. Again, I don’t know what’s going on in other places and describing only the situation here in the “Holy Land”. I am talking about fundless economic activity.

The numbers have all been made public: the money that fueled the Start-Up Nation in the 90s seeped out and the local, Israeli, investors haven’t compensated for it. Apparently, they piggy-backed, in a relatively small amounts, on the American partners’ $, and when  Uncle Sam withdrew his nickel and dime, our Rich Man didn’t come forward to share in the risk. To the present day, they remain very much risk avert.  The “Start-Up Nation” was hurled into a whirlwind of acute funding starvation. This financial anorexia gave rise to a weird business phenomenon – endless consultants (formerly VC people themselves) instructing and guiding entreprenuers how to jump-start companies without money. As plain as that. In the last 5 years (at least) I have attended several conferences, where those  “start-up mentors” explained ex-cathedra, how to build a company on a “boot-strap”,  bluntly and shamelessly admitting that there are none, nor will there be in the near future, any investments available for young companies. Moreover, they “wisely” advised to harness a team of  groupies, who would be happy to work for equity – until the money starts to come in. Which is questionable in itself.  All of the speakers were dead-serious, although those who had some sense of self-humour joked that they are preaching the “gypsy horse” principle. 😦

If one reflects carefully, this self-financing recipe doesn’t stop there – at the entrepreneur level. It actually admonishes and promotes wageless work.

And speaking of the latter – there is another phenomenon that connects to the above. What I decided to label “the cripple companies”. Those “boot-strap” ventures, if, indeed, succeed to kick off, continue to operate in a deficient mode. For example, they lack marketing and HR (refrain from hiring professionals in those fields, developing and executing strategy). May be, this skewed logic can somehow be justified for young companies running on a low budget. However, there is no excuse for this practice in an established organizations, with 20 employees and more. Moreover, it seems that many of the seasoned corporations, with a nice revenue sheet, deliberately forgo these ‘peripheral’ activities. Question being how really secondary they are to the ROI. I guess it’s all in the eye of the debater (I am a biased one, because am, in the apparently “redundant”, sphere of marketing).

But, the “logic” of the twisted situation doesn’t end there: I have recently learned from the aforesaid discussion in LinkedIn, that not only the “soft” peripheral operations are getting axed. One of the commentators enlightened us that hi-tech companies decided to waive QA as well. And then are ‘surprised’ time and again why customers are unhappy. A great wonder, indeed. We, as a society, seem to have truly embarked on the path of becoming the ‘gypsy horse’.

The third ingredient of this pungent alchemic potion is people who are expected to work for pittance. Just to have a reason to wake up every morning. The modern day educated slaves. The aforesaid LinkedIn discussion, and many other, exposed the sad reality of  older workers, working mothers and such who must take up abusive job offers, especially in sales and telemarketing,  just to secure some sort of income. In this kind of  jobs, one is expected to dig up their own salary, the formula being: base monthly! wages of around $500-$600 (half of the minimal wage in Israel) and the rest – bonuses from sales. However, the remuneration scheme is so prohibitive, that the employee has actually a zero chance to reach even a minimum wage ceiling, let alone  a decent one.

These poisonous (and potentially – deadly) bubbles of the recession bring me to the conclusion that somehow we  (the 90% ordinary folk) are expected to shoulder economic activity without money.  And it’s not that the money has ended, all of a sudden. There is a nice Russian proverb for the skinflintlyness of the heavy moneybags (and yes, they are still filthy rich, despite some of them losing a bit of wealth): a dog on a haystack – can’t eat the hay himself and won’t let others eat it.

They simply sit on their piles of money, wailing and mourning  the “recession”, not contributing anything to remedy the situation, expecting the improvement to materialise out of thin air. Or actually, out of OUR pockets. Loss of potential profits? Their great-grand-children are well provided for as is. They don’t  need more.

Rest of us? Who cares? Really…..

P.S. –

1. “Methodological Note”:

I see social networks as a great source of  useful statistics (beyond standard M&S  trends gauge), because members are not solicited for info and simply volunteer true detail.  They can be a powerful leverage for change, if anybody bothers to draw conclusions and actually do something about it.

2. What is the “gypsy horse” idiom: based on a folk tale about a miserly gypsy who wanted to see how much hay he can cut out his horse’s daily ration and still keep it working. So every day he withheld some more until he reached the point where the horse dropped down and died.

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24 thoughts on “The Alchemy of modern economics – the Fundless Society

  1. The only comfort is that the situation in the future would probably be worse. Most of the routine jobs today wouldnt be there within 10 years, and the increased life expectancy would result with lack of funds to support the unproductive years ahead 🙂

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  2. Dunno Tal, am not that sure. Judging from history – post great-depression – there were some business and social laws changed. But, there was the WWII as well. The course of history will repeat itself again or there will be some moderation due to the “new times”?

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  3. VIckie:

    Enjoyed reading your article–very thought-provoking. We face unprecedented times–soooo many changes — affecting soooo amny people.

    Your description of the dog on the haystack unable to eat yet refusing to let others eat –VERY DESCRIPTIVE of today’s economy — and a sad state of affairs.

    I appreciate you asking the HARD questions–turnng over stones to see what lies beneath their shiny surface–it will take honesty and transparency and courage and shouldering the load TOGETHER to make this work for all.

    Best to you

    Shalom,

    SKip Pettit

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  4. You know Skipp, I think there has been a precedent to our times – the Great Depression of the1929 and the period that followed. My problem is that, nobody seems to want to learn from history and prefer to think that we – and our situation – are unique. It’s not so. The principle is the same – the means (technology and certain security threats) are different and more dangerous.

    Indeed, if the pendulum doesn’t move back into the middle and continue to stop only at poles, Einstein’s prediction that the WWIV will be fought with sticks and stones will sadly come ture. And I don’t see any winners in that scenario.

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  5. I normally think that if a thing is inevitable it is wise to accept it (maybe even welcome it sometimes). However, the point made by the ‘gypsy horse’ analogy is well made. The developed economies are in grave danger of killing the goose that laid the golden eggs.
    2007/08 the financial world imploded after selling very dodgy lone’s to people who were never going to be in a position to pay back. Not content with that they then divided them up, mixed then with other less risky loans and sold them on within the financial market. This process got repeated and repeated and repeated…. Bingo! Collapse.
    The law givers (governments) then told the banks to hold capitol but also said invest; result = paralysis (barking dogs sat on hay).
    Look East, the Chinese and Indians are coming with their own low cost outsourced economies to draw on;
    Vietnam, Cambodia, Laos…

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  6. Philip, you are right of course in your analysis, however my point is that, one cannot view economy separately of the society. This thought brought us to the present-day crisis. It’s not only the banks, it’s the private investors as well that under the pretext of the general psychological gloom stopped fueling economic activity. Someone has to enlighten these circles that the moment middle class is impoverished, the 100,000 Ferraries sold all over the world are not a match to hundreds of millions of Ford Focuses. These made the world tick. I am making a generalisation to illustrate the point. Rich cannot exist without middle classes and I get the feeling they forgot it.

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  7. Hi Vicki,
    Oh I so agree!
    Its as if the well off have become totally focused on wealth and have overlooked the process of generating wealth. They don’t see any further that the bank balance.
    I am a keen lover of wine (hic hic…) but seriously, the major Chataux of Bordeaux have concentrated their sales on China in pursuance of profit over the last few years. They seem to have lost the love of wine, wine making and wine selling and found the love of money. The heart just seems to have been lost.
    Shalom,
    Philip

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  8. Bull’s eye, Philip. The rich don’t feel the need to generate wealth, however their huge latent bank investments are in the companies that are bound to collapse if this circle continues. They will loose the ability to buy Maseratis.

    Speaking of wine, many of the boutique wineries here in Israel sell 90% of their produce to Asia. Primarily, Korea. Apparently, Koreans really love Israeli wine. We don’t have much opportunity to enjoy it.

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  9. Hi
    Thanks, I think a government must handle the problem
    Also pressure groups, contribute to gov decisions, and perhaps should promote such a group. Every case I’m willing to help.

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  10. Thanks, Eric. However, I beg to differ – I think that government’s power here is limited. The only thing it can do is maybe pass a law that will forbid the abusive employment mode I mentioned above (telemarketing and sales), but not much beyond that. What can they do? Pass a law for an employer to be a “mentch” – a decent human being? Dunno any legal authority that can coerce that.

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  11. I think social behavior based on rules, so my opinion on the subject, the chances are slim and I’m sorry not optimistic about. Anyway, we can talk on phone

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  12. Great article and how true… but when you talk about the working educated poor, don’t forget about the teachers, nurses, social workers and other therapists….

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  13. True Moti, however, you know – pardon my cynics – these professions always “endowed” their practitioners low salaries. The problem now, that high-earners like engineers, joined the poor. Now think of the standard middle-class couple of social worker and engineer in the present situation.

    Maybe the problem will give rise to a solution, because the care professions are accustomed to no money (as I mentioned), but the engineers are not.

    Question being, how much longer middle class can sustain the crisis.

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  14. This is why we need a separate public and private realm instead of the hybrid mess that evolved during the medieval period. See Hannah Arendt’s the Human Condition for an in-depth theory on this. She argues that in the early Greek age, economics solely resided in the private realm with the family. The public realm was for action and politics. Establishing a private realm again means that biological factors such as pro-creation, food creation, labor, and the like would be private matters solved within the confines of this realm. To me this means that politicians would not be paid by the government.

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  15. Dear EC, there are “minor” differences between the ancient times and now: like, amount pf people living in the modern times as opposed to the past, the physical impossibility of the direct democracy style Athens, the eradication of slavery world-wide etc.

    The modern formula has stop working for us that’s for sure. Importing ancient systems into the present reality, without moderation/fine-tuning…. Don’t think it will work either.

    Besides, what politicians have to do with it? Pass a bill that outlaws excessive cannibalistic greed or compelling businessmen to become better human beings?

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  16. I am reminded of the economy of Second Life, where people work forever, and for no charge, paying money actually, because the economic conditions creates a type of hell where you are stuck, and the supply is so great, that individuals don’t leave. I believe Business Week did an article on it.

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  17. Thanks, Rich but what’s the solution? How we break though this harmful paradigm? You see, when the slaves get poorer and even die, the rich cannot go it alone anymore. It’s symbiotic existence and I think they don’t get it.

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  18. I can be reached on Facebook by looking up Richard Hutnik. Also if one goes to GamesByRich.com they can get in touch with me. If individuals are serious about having answers, please go there and contact me.

    The actually solution isn’t going to be able to fit into a post, but in doing. I would need people to commit to something different here. But, if you want a really short answer that would be where you find it, it would be to form a tribe online that would work together to generate enough value to be able to generate money, and do things. Yes, you need to go into this horror of a situation discussed, and get it to work. Idea here is to do things that one can do to make a difference, and not be a victim and beg the powers to be to throw crumbs.

    Anyhow, PLEASE reach out to me if serious here about wanting to do things. Personally I am working on a paper for engagement, which is mean to provide a framework for doing this, so need to focus there. But I am willing to do things if people want things to happen. I will say the answer isn’t in money though.

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  19. A very thought provoking article. It really hits home on the trend that is shrinking the middle class and threatens the outlook for economic support for our small and startup companies.

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  20. Thanks Emmitt. What really puzzles me, is that those guys invest their money in Fords and Toyotas. And don’t realise that if we will not be able to afford those, their investments will go down the drain and they will LOSE wealth themselves. There are much more Focuses sold all over the world than Maseratis. For the life of me, I don’t know how they fail to see that.

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