Responses to ‘EA economics challenge’

There’ve been quite a few Twitter-responses to my post ‘An economics challenge for enterprise-architects‘, about a literally-fundamental flaw in present-economics, and what we as enterprise-architects could do about it.

(This gets long again: sorry…)

Most of the responses pose good questions, which I’ll come on to in a moment. But first, one response was so far wide of the mark that I’d better not say who wrote it:

• “A strategy that depends on a rethink of the basics of Economics has a low chance of success.”

Apart from one comment I’d made right at the end of the last post, asking for ideas about a possible ‘roadmap from here to there’, there was nothing that was about strategy either in that article, or in the two posts that preceded it. It was all about structure, and narrative – in other words, about architecture, and what has to happen before strategy-exploration can take place. Where the heck that idea about strategy came from, I do not know: to be blunt, it was a complete red-herring, and one that we must reject at this pre-strategy stage.

As for “a low chance of success” etc, all I can guess is that the person concerned didn’t read the article properly, or even at all. The key point made very early on in the article was that we don’t have a choice about this: there is a fundamental flaw right at the root of current economics – a flaw so serious that, if unaddressed, it would inevitably cause a complete catastrophic collapse of the entire economic system. The evidence that we’re seeing now indicates that that point of failure is not far off: hence we must find ways around that structural flaw, and rebuild the overall system to bypass it.

The practical problem is that the flaw is right down in the foundations of the system: so yes, we are talking about a major rebuild here – but we do not have any choice about the scale of that rebuild if we’re to have an economic system that will work at all at large scale in the longer term. That’s what I’ve been trying to address in an architectural sense in this brief series of articles. Hence the correct way to frame that person’s assertion above is actually the exact opposite:

• “A strategy that depends on avoiding a rethink of the basics of Economics has a low chance of success.”

More accurately, that kind of strategy – the most common type of ‘strategy’ at present – has a zero chance of success in the longer term. That’s the problem I’ve been aiming to face here: I just wish others were more willing to face it, too, instead of trying so very hard to pretend that the problem doesn’t exist…

A much more useful comment came from Martijn Linssen:

• “Great post but link to #entarch confuses // it was a pretty “controversial” post and I liked it, but ending references to #entarch sent me into the woods”

In other words, what has any of this to do with enterprise-architecture?

Short answer: a lot.

The slightly longer answer is that this is enterprise-architecture, albeit at a much larger scale than most of us are familiar with.

Think about it: An enterprise-architecture is about identifying the structures and relationships and resources and other items that an organisation needs in order to deliver on its value-promise within its broader shared-enterprise. Enterprise-architecture also assists in designing and developing those structures and the like; and also to help keep things on track in change-management and deployment, and perhaps in some aspects of operations too. Now compare that to economics: in essence, it’s exactly the same role and task. Economics is enterprise-architecture, or an aspect of enterprise-architecture, at a societal or even global scale.

(To be more precise, most current ‘economics’ is actually a subset of business-architecture, misframed as ‘enterprise’-architecture. It’s a term-hijack, in which the small subset of economics that deals with business-transactions purports to be the entirety of the scope, and actively prevents any discussion of any other facet of full-scope ‘management of the household’. In short, the same kind of problem as IT-centrism, but ‘business-centrism’ in this case, and writ large – so large that most people seem to unable to see the mistake at all. Oh well…)

So it’s actually the same as any other enterprise-architecture gig:

• What’s the overall enterprise-vision?
• What are the drivers?
• What structures exist (‘as-is’) and/or are needed (‘to-be’)?
• What are the services within this context?
• What are the protocols between services, the processes within them?
• What forms of governance are needed, both to guide change, and at run-time?
• What are the resource-needs and resource-flows, and what governance do they need?
• What are the information-flows, and their structural trade-off between ‘backbone’ versus agile?
• What are the performance-metrics and reporting?
• What ‘dashboards’ are needed at each level and in each context?
• What are the relationships needed between people to make this enterprise work, and the structures and processes and governance to support those relationships?
• Overall, in the human sense, what’s the story?

And so on: it is enterprise-architecture – just on a larger scale. And the reason why all of this is of real, practical, immediate concern to everyday enterprise-architects is actually the same as why business-architecture matters to IT-architects: we can’t do our domain-level work without at least being aware of risks and opportunities and impacts from the big-picture context. Enterprise-architecture is also one of the few disciplines within the business-context that must take a longer-term view: and as a former professional-futurist, the issues I’ve described here may be barely-visible out only on the far horizon at present, but believe me, they’re coming up on us very fast indeed. (As I said in one of the previous posts, anyone who thinks otherwise isn’t thinking…) We need to be ready for those changes: and enterprise-architecture would – or could – form a key part of how we can get ready.

Another sense in which this is like enterprise-architecture is that this is mostly about decision-support – not decision-making. The task here is about identifying options, and the implications and consequences of each option. In some cases we might go so far as to develop preliminary designs – though mainly to give decision-makers something more tangible to argue about. Yet the decisions are not ours to make: we don’t attempt to usurp the authority of those who do have the duty of decision-making. In this case, that authority and responsibility – gods-help-us… – rests primarily with politicians and the like. “Interesting times ahead” indeed… But at least we can be – and should be – ready for root-level change, even if others aren’t.

We do need to be wary of the age-old enterprise-architecture trap of jumping to solutions before we’ve even assessed the context. The popular obsession with ‘alternative-currencies’ is one example of this unfortunate trait. Another example in the Twitter-stream came from Michael Vrijhoef:

• “Shortest answer to the posed problem: Unified common goals, disposal of religion and value of ‘self'”

Well, yes, that would be close to my preferred solution too: but fact is that we’re nowhere near any solution-stage as yet. It’s not a wise move to go jumping for ‘the answers’ when we’re still nothing like clear enough about the questions that we need to ask here. (There’s a very good reason why in the TOGAF ADM we don’t look at any would-be ‘solution’ until Phase E of the cycle: the same applies here.) Keeping ‘solutions’ at bay until we do understand the context is one of the hardest parts of the enterprise-architecture discipline: and it’s one that will really matter in this context.

We also have to be especially aware – and wary – of surface-level ‘solutions’ that fail to address any of the deeper underlying issues. Sadly, such would-be ‘solutions’ are very popular, mainly because they change only the things that we know and understand – giving us the comforting illusion that we’re doing something about it, whilst still allowing us to avoid facing ‘the unknown’ where we know the real problems reside. Roland Ettema sent a link to a McKinsey article [behind their registration-paywall, unfortunately] that illustrates this trait all too well:

• “interesting timing Tom, see mckinsey quarterly #sustainable ‘In search of a sustainable model for global banking’.”

The blunt fact is that minor tweaks to the banking-system won’t make any real difference here: in essence, it’s like tweaking the position of a single deckchair on the Titanic in the forlorn hope that this will somehow save the ship. It won’t: the problems are much deeper than that – and much more visceral, too.

Chris Potts came up with some useful comments to link us back to classical-economics:

• “Echoing my recent Tweet, each of us is an economy-of-one. If we’re in a household, it’s a layer on top. // Being an economy-of-one, each of can use the 4 Factors of Production to create value (Land, Labor, Capital, Enterprise) // Re: Factors of Production. The assumption of possession is in the eye of the beholder. #entarch”

And Richard Veryard pointed to a previous post of his on much the same themes:

• “I talk about the 4 factors of production in my paper on the future of money. #LongFinance ‘Sempiternal Coin‘”

Chris is certainly correct about two key points there. One is the fractal nature of economics and its enterprise-architectures: much the same issues repeat at every scale. If a pattern that we develop won’t work at some scale, it probably isn’t actually working properly at any scale – and in fact that’s we’re dealing with right now, in mainstream economics. It’s not quite true to say that an individual is ‘an economy-of-one’, because the functional focus of economics is not so much within but between ‘economic entities’; but the economic relationships between individuals is probably the place where we need to ‘test-bed’ any new economic ideas – because if they don’t work there, they won’t work anywhere.

The other valid point Chris makes above is about the dangers of possession-based assumptions. The catch there is that the ‘4 Factors’ arose not only out a possession-based culture, but one in which even the nature of the purported ‘possession’ was different to now – namely the primarily pre-industrial context of early 18th-century Britain. There, the aristocracy still possessed most of the Land; the still relatively-new merchant class possessed the monetary Capital; between them they would create the Enterprise, “the animal spirits of the entrepreneur”, around some joint venture. The collective Labour, whilst technically possessed by itself, was not far off a possession of the aristocracy – via the remnants of the feudal-system – and of the merchants – via a vast yet carefully-maintained gulf between the incomes of rich and poor, and an equally carefully-maintained absence of any social safety-net (particularly severe in the new cities, where the old safety-nets based on the mutual-responsibilities of village or extended-family became fragmented and no longer available). What we don’t see in that context is the major capital focus of the industrial age, namely machines: the nearest equivalent in that period would usually be the physical structure of a ship, the ‘machine’ for a trading-voyage.

Even in the later industrial period, it’s also very much a physical model of economics: in fact we see an almost complete absence of awareness of many typical capital-type concerns in the present age, most of which are not physical. For example, there’s conceptual capital, such as ideas and innovation and other ‘intellectual property’; or relational capital, such as goodwill or market-share or the fabled ‘eyeballs’ of the dot-com era; or aspirational capital, such as brands and enterprise shared-vision and the like. Even by their very nature, it’s definitely problematic to view any of those forms of capital from a ‘possession’-oriented lens. There’s also financial capital, yet even that is often in a much more abstract form from the simple monetary finance of the 18th-century: and when trades and ‘ownership’ can last for literally milliseconds or less – or never exist at all, as in some futures-derivatives – there are significant problems there too around the classical notions of ‘property-rights’ and possession.

So yes, the classical ‘4 Factors’ do still apply – sort-of. But they need a radical rethink even for present-day possession-based economics; whilst for any truly viable and sustainable economics – such as the responsibility-based approach that I’ve been somewhat-tentatively exploring so far – that rethink of all economics-assumptions would have to be radical in the most literal sense, right down to its deepest roots.

So there’s a lot to do here: and yes, it is a kind of enterprise-architecture, albeit on a much broader scale than most architects would deal with at present. If you’re interested, let’s keep talking?