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Saturday, August 02, 2008

The Laws of Relationship Capital, Part 10: The Tenth Law

by Adam J. Kovitz, CEO, Founder & Publisher

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Ten months ago I began a series in The National Networker to talk about a subject that I am most passionate about: Relationship Capital. I started my idea around ten laws that build upon each other and lay out a foundation upon which to build. Since releasing the first installment, I’ve been asked to contribute the Ten Laws of Relationship Capital as a chapter to the book The Emergence of The Relationship Economy, been asked to give talks and call for research to further our understanding of this potentially world-changing concept. As we wrap up the Ten Laws this month, we continue our discussion of Financial Capital in what is the most controversial of the Ten.

The Tenth Law

The Tenth Law of Relationship Capital states that:

Relationship and Intellectual Capital always conform to the laws of nature and humankind. Financial Capital does not…necessarily.

2nd Generation Capital

The Ninth Law states that “Financial Capital is merely a reflection of and cannot exist without some combination of Relationship and Intellectual Capital.” Financial Capital has been our best way of recording (so far) who we know (Relationship Capital) and what we know (Intellectual Capital) by valuating it and subsequently transacting it. What we might not have noticed is that the end product of Financial Capital has been filtered and processed. And while filtering and processing works with diamonds and crude oil…

Would you rather listen to a 2nd or 3rd generation recording of your favorite music or the Master Copy?

Would you rather eat highly-processed foods with preservatives and artificial colorings or the healthier food in its purest state?

In this regard, the filtering and processing of Financial Capital is what’s questioned in the Tenth Law.

The 2nd Generation Problem

In an ideal world of Financial Capital, those who worked hard would be incentivised by profit, would be ranked higher and would appear as a less risky investment and life would be all around “good”. Unfortunately, this does not necessarily happen (or might have at one time), due to some major factors of the filtering and processing process:

  1. “Healthy” Competition – in its initial phases, competition is used to incentivize people to work. The downside is that it is not sustainable over time – there can only be one winner while everyone else loses. In a world of 6 billion people, the odds aren’t that good that you or I will win when competition needs an advantage/disadvantage scenario to be effective. Equality does not work in a competitive environment, and over time, gets squashed as competitive advantage can often be attained by crossing the line of morality and ethics.
  2. The “Bigger is Better” Mentality – in our current Financial Capital-driven economy, we show favoritism to the big and punish the small. We continue to over pad compensation for the CEOs of the largest companies in the world while other workers in the same companies are paid significantly less and often struggle to survive. We also punish those who cannot pay their bills on time, have overdrawn their accounts and have poor credit scores – how? We charge them more.
  3. The Push for Constant Growth - Even to survive in our current economy, the pressure is on for us to continue upward growth at all costs, for the benefit of our shareholders, employees, etc. Again, this is not sustainable as nature is cyclical, yet our economy depends upon building sandcastles that can never be destroyed.
  4. Short Term Incentive – Or current Financial Capital-driven economy is run off the concept of time value of money – we would rather have $100 today than tomorrow because it “looks better on the books”. This can lead to a myopic view of the world and can spell disaster for a company that is looking for sustainability, and while patience may just be a virtue, it often gets swept aside.
  5. Underdeveloped, inconsistent and/or unrecognized valuation of Relationship and Intellectual Capital – While profit growth is easily valuated, growth can also occur in understanding, skills and education, brand recognition and goodwill and trust, yet these intangibles are a much harder business case to make. Without consistency and a deeper understanding of the root cause of Financial Capital, the filtering and processing thereof lead to Capital that is “less pure”.
  6. The Dehumanizing Effects of Financial Darwinism – The over-reliance and over-skewed emphasis on Financial Capital as a metric of determining one’s worth and the resulting rewards or punishment leads to dehumanization and de-sensitivity. And while Darwinism might describe how we got here, it does not necessarily dictate the way humanity needs to exist from here on out. There is a considerable difference between those who cannot pay their bills and those who refuse to pay their bills. Our current evaluation systems do not account for this and still regard them as equal.
  7. Over Exceeding our Means – When we find unethical ways to overvalue, prey upon the unsuspecting and buy on credit, we are simply acting in a way that is both fiscally irresponsible and considerably unsustainable. The sandcastle metaphor holds true here as well.

The Sustainability of “Raw” Capital

I am no economist or lawyer so I will not go any further in discussing what’s wrong or right with our current economic system. But just because I don’t have a degree doesn’t mean I can’t weigh in with the observation that things are considerably unbalanced economically at this time – it doesn’t take a rocket scientist to see this. And even though I am a recovering engineer and rocket scientist, I do know one of the fundamental concepts of engineering: K.I.S.S., or “keep it simple, stupid”. The more complexity we add to any system, the more room there is for “human error”.

Logically speaking, there are two ways to bring about a more sustainable economy or what I (and others) call “The Relationship Economy”:

  1. Redo our entire economic system from the beginning based upon principles of cooperation, sustainability, long-term planning (the “seven generation” approach might even be considered) and of course, Intellectual and Relationship Capital, or
  2. Re-tool our current economic system, implementing and integrating the principles above and fund research and development into Intellectual and Relationship Capital as well as the education thereof at all levels.

Certainly option 1 does indeed lend itself to the K.I.S.S. approach, but the most likely (and perhaps realistic) approach if any is option 2. For us to first “dip our feet into the water”, laws supporting the filtering and processing of “Raw” Capital (Relationship and Intellectual) into Financial Capital should be biased towards incentives for profit, but not at the expense of the innocent, the environment, the unsuspecting or uneducated and overall sustainability. Strong accountability measures must be taken at all levels and true equality must reign supreme. Further incentives must be given to grant authority to more individuals as we must all become the watchdogs to safely guard and protect our delicate new Relationship Economy.

The Journey Has Already Begun

While this certainly seems like a tall order and even “utopian”, is there really any other option that we have other than to simply do nothing? Is doing nothing even an option? In my mind, not if further generations are to have the opportunities we’ve had. The good news is that we have already to begun to take certain steps towards the Relationship Economy. Networking is certainly a start. Thanks to networking, we are building relationships and trust, which in turn, lead to the Financial Capital that puts food on our families’ tables. We must be careful, however, to build temporary trust and alliances to overthrow or gain competitive advantage over others. This is not networking for sustainability.

The internet is further exacerbating our abilities to connect with one another in a more meaningful fashion thanks to the “Web 2.0” explosion of free media and content available to the masses. Networking and the internet provide fertile soil for the seeds of populism. We are beginning to see more examples of the meek inheriting the earth when Democratic Presidential hopeful Barack Obama raised more money through such means by asking for smaller donations from many versus his opponents during the primaries who relied upon traditional larger sums via special interest groups, lobbyists and corporations.

The World of Tomorrow

The future can be bright, should we choose to make it so. In the world of the Relationship Economy, Big Brother will rule the day; not the one we think of from Orwell’s 1984, but one where we are all “Big Brother” and watch over the system to hold others accountable – either our actions lead us to trust or away from it. No longer do we abdicate our authority and personal power to a select privileged few. Secrets do not exist in a true Relationship Economy as well all know each other’s business. Since this is the case, we all must work together in teams to find ways of moving forward and profiting. Profit, itself, is achieved through the populistic views on the morality of the day and sustainable models.

Even the ways by which we make a living change. We will no longer require that we work standard jobs, rather we work on projects for specified periods of time. When we’re done, we move on to others. Choosing to work on anything pertaining to sustainability would reward us with the Capital we need to live, including volunteer work. Of course the concept of “volunteering” and “work” will have new meaning as all projects (formerly known as jobs) will require volunteers who will be compensated for their time and efforts. Others will make a living by inventing and creating new projects.

Traditional roles will still need to be filled. The Relationship Economy will still need folks to interpret and enforce laws (although crime rates and terrorism will dramatically decline – when everyone is working and making a living – there is relatively no incentive to short circuit, rebel against or “game “ the system. Healthcare professionals will continue to be needed as well.

If everyone is able to earn a decent living in a Relationship Economy, they can afford suitable housing for their families and hunger and malnutrition will be an option, rather than a reality with no escape.

Humanity 2.0 can be achieved. Utopian?…definitely. Impossible/improbable?...not by a long shot.

The End?

The Ten Laws of Relationship Capital are intriguing in the sense that they combine so many disciplines of our understanding. They show a deeper insight into many things we take for granted, and can provide keys to better understanding our past, present and future. They point to our humanity as the key to either destroying everything we hold dear or making this world a better place for generations to come.

What’s past with this series on Relationship Capital is just the prologue. I thank you for reading this and urge any and all who see the sense in it to test these ideas out for themselves, teach it to others and use it to develop more sustainability in your lives and those of your family and friends.

The Emergence of the Relationship Economy

Relationship Capital is the cornerstone of the Relationship Economy, which RNIA defines as an “economic system in which Relationship Capital influences the production, distribution, exchange, and consumption of goods and services.” I am proud to have contributed discussion of the Ten Laws of Relationships Capital to the upcoming book The Emergence of the Relationship Economy, now out as an eBook and in hardcopy. With a forward written by Doc Searls (of Cluetrain Manifesto fame), it is being considered a “must read” for anyone responsible for the strategic direction of their business. If you would like to purchase your own copy of The Emergence of the Relationship Economy, please click here.

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The Emergence of The Relationship Economy

The Emergence of The Relationship Economy
The Emergence of the Relationship Economy features TNNWC Founder, Adam J. Kovitz as a contributing author and contains some of his early work on The Laws of Relationship Capital. The book is available in hardcopy and e-book formats. With a forward written by Doc Searls (of Cluetrain Manifesto fame), it is considered a "must read" for anyone responsible for the strategic direction of their business. If you would like to purchase your own copy, please click the image above.


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