Economics 3 - Dynamics within each Chapter

TLDR;

• Economic Chapters are not static. They follow cycles.
• Each chapter has implications to how businesses are structured
• Each chapter has implications on how jobs are valued

In introducing the series I highlighted that there were two ways to look at economic chapters. The first being the approximate patterns and trends observed at a high-level giving rise . This was explored in detail in the first two posts.

The second is the inherent messiness and dynamism that drives “Evolution” within each chapter. This post will elaborate more on this.

PREMISE 3: Change is constant within each Chapter.

Also, by the way, a truism for life.

Each chapter follows a lifecycle

Just like a literary chapter, a chapter often begins the introduction of something new , a phase of disruption - a tragic end… and a cliffhanger that trails off into the next. In short, each economic is dynamic - and follows its own “lifecycle”:

1. Emergence.
   • Each chapter is revolutionary in nature, heralded by a significantly impactful revolution - often technological. I qualify these developments as those with true structural change - many overhyped technologies may not necessarily
2. Reaction.
   • As the emergent technology proliferates, there is a shift in social, political and financial resources to accommodate these. Some of these periods coincide with a degree of societal upheaval (e.g. Luddites in Chapter 4).
   • Resources are unraveled away from the previous Chapters’ and allocated to the new one.
3. Normalcy. Over time, a new norm emerges. This degree of normalcy and stability however, slows the rate of competition or differentiation to take place.
4. Desire. The world once again seeks out for new pathways to differentiate. Continual innovation yields some results, but not all are disruptive enough to launch into an entirely new chapter. Those that breakthrough, can define the emerges of a new chapter.

Business and Individuals are key vehicles of chapter evolution

Two assumptions to mention beforehand:

First - businesses who want to prolong their growth and stay competitive often do so in two ways: via overseas expansion, and/or to find a way to differentiate. This mirrors progress and human desire (in the western ideology) - I think of the words “stand-out”, “Unique”, “exceptionalism” as the core drivers of this.

Second - Large Multinational Corporations are a useful unit of measure to understand how chapters have evolved.

This is so, as modern MNCs have been around for a long time, presiding of several of the Chapters discussed in the last post. They also, by definition, have a global presence, pointing to their ability to be the result of, and/or instigator of change arising from global trends.

The life cycle of each chapter mirrors business cycles

As a chapter evolves, there are ‘uge implications to companies and individuals. I reiterate again that businesses, as the ultimate creators, deployers and appliers of new technology are important vehicles that drive progress and change in chapters.

To illustrate the idea, I will use the digital chapter to show how companies have adapted and responded to the emergence of a new dominant economic activity.

1. Commercialisation of new technology
   • Generally, a significantly disruptive development, by doing currently known things better, cheaper, faster heralds a new chapter. This can be driven by different reasons: purely technological / R&D, regulatory, etc.
   • Key signposts are the emergence of a completely new set of companies (e.g. Startups in today’s language). Though the trend of “startups” are a relatively modern term, new businesses and entrepreneurs have been present since the dawn of time - often with ambitions far more noble than the “quick-IPO” trend these days.
   • Incumbent companies on the other hand will start to adopt the technology too.For example, a company may begin to exploring new technologies to apply to their business, be it for their internal operations or their products.
2. Shift of the Profit Core
   • As pre-existing goods and services become commoditised, higher profit (through higher margin goods and services or improved efficiencies) are sought.
   • As with governments and the financial systems, businesses too, reallocate resources into these new areas to enable higher growth / margins.
   • For example, a company may invest into more digital services as opposed to its traditional core business of manufacturing.
3. Organisational Restructuring
   • Firms would create new departments and business functions. For example, a new HR or Strategy department as management became “professionalised” in Chapter 5; new IT department as computing became a thing in Chapter 6.
   • New leadership roles could also be created. For example, a company may create a new role for a Chief Digital officer.
4. Consolidation
   • Businesses rethink how the technology fits into their strategies, potentially (i) spinning-off new companies, (ii) out-sourcing to emerging players and/or (iii) keeping some degree of capability within their own business.
   • New “Champions” emerge, who control the dominant share of the market they play in.
5. Monopolistic Tendencies
   • After consolidation, a critical mass is reached, allowing these “Champions”, with reasonably good management, to exist for a very long periods of time.
6. Decline
   • A drop in relative profitability as new technologies and companies emerge.
   • There is a shift in the world’s top tier talent as most flock to a now quickly emerging new chapter.

Each chapter has implications on how jobs are created, and labour is valued.

The concept of “work”, is a key mechanism in how each chapter relates to the individual. How humans have lived our lives over millennia remains hinged on some story of the “value” an individual can bring to society. Kings, priests, weavers and office-workers are beholden to this.

To explain this - I wanted to include a demonstration of this concept. I think of the phrase: “I was born in the wrong era” as being the representative question to explain this concept.

For example:

• A strong, possibly psychotic combatant today would probably land himself in prison, while he would have been hailed as a respected warrior in Chapter 1 (Consumption). In today’s context, he would probably be in the army…or prison.
• A creative hands-on individual - good with their hands could have very well thrived during Chapter 3 (Manufacturing Craftsmanship). We see this when tradesmen are counted amongst a mid-tier social class in many historical societies. These days, crafters and manufacturing workers can be counted amongst “starving artists” or “coolie” trope.
• Conversely, an uncharismatic, albeit brainy computer-savvy geek would have been trodden on in previous eras, but now has the opportunity to thrive in our current digital world (Chapter 6).As a result of this thinking - I believe the answer to the question is a resounding Yes. There are real implications as to how well your innate skills fit what is being valued by the particular economic chapter you live in. Tough.

This lifecycle understanding explains some more micro-concepts within the economic chapters and is manifest today in how we see some industries rise and fall; some jobs falling out of favour. While this ends this post, there are some further case studies in the addendum post to explain the concepts above through examples.