I was delighted to hear President Barack Obama yesterday describe a marketplace mechanism as the platform for improving the meritocracy of healthcare, something I have talked about with regards to economies, venture investing and technology products for the last two years. I can only muse that the recent visits from David Axelrod’s and Bill Clinton’s staff to our blog delivered some inspiration for the change we need to undergo as a country.
Perhaps one of my readers was right, I should be running things in Washington. But enough about me.
Our greatest assets
We should be proud to live in a country that has repeatedly earned its stripes as a staunch democratic and a fierce capitalistic nation at the same time. Each individually breaking new ground in creating building blocks for a more effective economy. We are blessed that way. Not all countries in the world have both assets represented in a single economy and their imbalance makes them more vulnerable.
More vulnerable than we are, for we can quickly swing either way and tap into those resources to correct a temporal imbalance that threatens our economy. With the rest of the world watching over our shoulder, learning from our resolve.
Artificial segregation is our biggest problem
Just like how we are still extremely racially divided (I should know) do we remain politically divided. We act as if we live under separate roofs on a single property, sharing a bathroom through which we regularly flush the disdain for each other, in subtle and not so subtle ways. Whites against blacks, democrats against republicans, opponents of regulations against proponents of regulation, proponents of gun control versus opponents of gun control, etc. Indian reservations with autonomous rulings are a stark reminder of how we allow segregation to perpetuate.
We often take a hard stance by associating ourselves prematurely to an (artificial) association, without reevaluation of our actual stance based on the acute problem that is being presented. I could categorize myself in any of the aforementioned groups depending on the economic problem at hand and may want to change my mind at any time based on timing and perhaps my deeper understanding of the issue. The timing and situation would define my choices, not a party line.
We are all right
Monolithic democratic societies and monolithic capitalistic societies simply don’t work, history has proven that out. Pure democracies (I should know given my country of birth) are known for their endless debates where everyone has a voice that eventually yields nothing but burgeoning baggage of complacency. Pure capitalistic societies are driven by classic Neanderthal behavior, where the biggest stick gets rid of everything in its way and drives the majority of less fortunate and lucky to despair.
For years have we benefitted from the surplus of democratic and capitalistic assets while ignoring the deficiencies in both. Now, the state of our economy forces us to illuminate and evaluate all the pluses and minuses.
Meritocracy = democracy + capitalism
We need our economy to be an organic reflection of the current opinions and capacity of our people, not a delayed distortion field of vintage parties, segments or groups. We need to combine the value of our democratic and capitalistic assets and get rid of the deficits of both.
Mathematically put: opinions plus actions minus complacency minus abandonment equals a meritocracy. And a meritocracy is the product of free-market principles (extensively described in my previous blogs). Free in terms of equal access to all participants, supply and demand.
Just like in the Venture business, politicians better prove that they accurately represent the meritocracy of opinions from the people (all people, not just the ones that vote). If not, replacement and removal of politicians will soon be upon them soon. They better stop bickering about party lines and start worrying about why the majority of people in the US still don’t vote (36.8% voter turnout).
Perhaps technology can help shape up politicians by building a ballot marketplace in which for certain decisions, the house of representatives, senate and president can directly tap into the opinions from the people they represent.
Our financial system is not a meritocracy
Barack explained why healthcare is not a meritocracy yet needs to be, and if you read my marketplace blogs you would not be surprised to find that our stock-markets are not meritocracies either. Stock-markets, the way they work today, violate fundamental supply and demand rules associated with free-markets. The foundation of our financial system (copied around the world) is based on the same artificial arbitration as healthcare, posing a systemic risk to our economy.
Testament of the misalignment in our financial system is its size; an exorbitant 11-times the size of the businesses it represents (2008 Wikipedia). That means that the size, performance and characteristics of our financial system is far removed from the size, performance and characteristics of the underlying businesses. It also means we have become a nation built on gamblers rather than on value creators, and that too poses a high risk to our economy.
So, to remove the systemic risk of our economy we need to remove most derivatives (similar to parties and associations in politics) and create a marketplace (which is macro-economically not the same as an exchange) in which the meritocracy of ideas meets with as few financial derivatives as possible. That will re-ignite the innovative culture our country was founded upon, as it tears down the artificial arbitration that prevented a meritocracy of ideas from taking shape in the first place.
We need a transparent, trustworthy and flatter economy if we want to protect its vibrant future.