Long Finance and Creating Change: Professor Michael Mainelli

Professor Michael Mainelli co-founded Z/Yen, the City of London’s leading commercial think-tank and venture firm, in 1994 to promote societal advancement through better finance and technology. At Z/Yen, Michael’s specialty is enhancing the performance of profit-making, charitable and government organizations and investments in conditions of high uncertainty. In 2005 Z/Yen kicked off the Long Finance initiative to explore the question, “when would we know our financial system is working?” We asked Michael about Long Finance and how it relates to his vision of political and societal advancement.

How would you describe the “power of ideas” to change the world?

Ideas themselves are amazing. Our bodies turn foodstuffs into electrical patterns in our brains that we then transmit with one another and change the world. I happen to like Richard Dawkins’ concept of idea replicators, called memes. From his book The Selfish Gene: “Examples of memes are tunes, ideas, catch-phrases, clothes fashions, ways of making pots or of building arches. Just as genes propagate themselves in the gene pool by leaping from body to body via sperms or eggs, so memes propagate themselves in the same pool by leaping from brain to brain?” In some ways, these viral memes take us over. Much of mankind’s output, our technology, our energy, our resources, our time, our brain-width  are subverted to the cause of replicating music memes. We can imagine memes as seeds of ideas showering down upon the earth, randomly distributed. We can expect great ideas in small countries and large ones, roughly on a per capita basis. Our job must be to nurture them. To treat ideas like seeds that need the right soil, the right nutrients, the right sunlight and the right water to grow, and then propagate.

Mankind changes the world through ideas. I agree with H G Wells that: “Human history is in essence a history of ideas”. I would suggest that ideas change the world in three ways. First, an idea can inspire change — consider the idea of “betterment”, say Kantian idealism, or progress. Second, an idea can change the way you think – take Popperian falsification for example. Third, shared ideas can make people more effective at working together — the scientific method unites researchers around the world. That said, like any source of power, ideas can inspire ruin, damage the way you think and help people wreak mutual havoc by slavishly following harmful ideas.

What do you see as the key challenges for global society to address in the 21st century?

While the two biggest challenges of the 21st century lie clearly before us — population growth and resource scarcity – a host of murky challenges sit between today and their solution. I think we all have a small imp of fear that maybe, just maybe, everything isn’t quite what it seems — a bit like the hollow earth theory or UFOs. As an example I take close to heart, we live in a strange world where, after millennia, we still don’t know the price of fish. If we knew the correct price of fish, one-third of the world’s fisheries wouldn’t have collapsed and we wouldn’t be projecting total global fisheries collapse within the next fifty years while the seas grow increasingly acidic.

The physicist David Deutsch remembers in his book The Fabric of Reality the wonder of being told as a small child “that in ancient times it was still possible for a very learned person to know everything that was known.” He points out that a good interpretation of ‘everything’ was that the very learned person should have the right concepts, explanations and theories to understand and explain the fabric of reality. Deutsch contends that the four key theories for understanding the universe are quantum physics, epistemology, the theory of computation and the theory of evolution. Deutsch prompted an excellent, similar question for me, “what should a learned person know in order to know everything that is known about Commerce?”

On our way to a sustainable and equitable world we encounter wicked problems. Fritz Zwicky, C West Churchman, and others contributed to the development of the term “wicked problems”, which was introduced in the 1970s by Horst Rittel and Melvin Webber, in a treatise for planning for ill-defined design and planning problems. In this context “wicked” means messy, circular and aggressive. These problems are not the comparatively tame problems most decision theorists study, for example chess, game theory or puzzle solving. The world really is messy, circular and aggressive. According to Laurence J Peter of The Peter Principle fame, “Some problems are so complex that you have to be highly intelligent and well informed just to be undecided about them.” But if you have a unified theory of Real Commerce, you can make sense of how the world really works, so shouldn’t we be using it on ‘Wicked Problems’?

Our firm, Z/Yen, a think-tank and venture firm in the City of London, kicked off Long Finance in 2005. Long Finance tries to answer a slightly narrower question in Commerce, “when would we know our financial system is working?” Established with Gresham College, Long Finance has grown into a movement of several thousand people and an active online community. The initiative seeks to expand frontiers, change systems, deliver services and build a sense of community. Long Finance has held numerous events. Guests speakers have included Brian Eno, Professor Avinash Persaud, Neal Stephenson, Stewart Brand, and others. One highlight for me was 350 people singing for financial reform in an insurer’s auditorium in the City of London. Long Finance has launched four cross-cutting programs:  The Eternal Coin, Meta-Commerce, London Accord, and Financial Centre Futures.

So far we have been looking at a host of murky challenges just related to finance. The problems here are big enough, why are some people poor, why do we have impoverishing financial crises, why can’t we recommend financial products for retirement that work, why do we fund unsustainability? Our Meta-Commerce program attempts to emulate Meta-Mathematics by setting out the network of necessary solutions that lead to an equitable society across time and space. So far, three themes emerge from the network of questions, fairness, trust and value. Along the way we’ve been exploring long-term performance measurement, governance, structures and the nature of money. We’ve also published positive and specific recommendations on subjects such as discount rates, Confidence Accounting, Index Linked Carbon Bonds, Pensions Indemnity Assurance, common tenders, mortgage markets, standards markets for regulation and insured utility banking.

Where will we find the important ideas for addressing these challenges?

I’d paraphrase William Gibson, the ideas are already here, they are just not very evenly distributed. New technologies mean that more and more ideas are being transmitted to more and more people. I look for great advances in linking up people and their knowledge in new combinations. I have long suggested that four basic areas of knowledge, or four streams, need to be integrated in order to understand and explain everything that has to do with the price of fish:

Choice: understanding how people develop knowledge and biases and how these perceptions affect behavior. Normative aspects of choice such as fairness, trust and ethics feature in this stream;

Economics: pondering models of exchange between people and expanding the debate about the role of government and social institutions;

Systems: in the world of commercial and political economics, systems thinking encourages us to break down complex systems into sub-systems with interlinked information loops of feed-forward and feed-back;

Evolution: in particular innovation and competitive selection. This stream highlights wicked problems that can’t be solved, just evolved towards incomplete solutions, such as climate change.

Two other words help to explain the integration of knowledge that we seek. They might seem archaic, but we believe they are useful for our purposes and in any case overdue for revival. The first is consilience, which means the unity of knowledge, or, more literally, the leaping together of knowledge. The idea originates in ancient Greece, although the English term is usually attributed to the nineteenth-century thinker William Whewell, who sought to describe a synthesis of inductive reasoning from several disciplines. The humanist biologist Edward Wilson revived the term in the late twentieth century in his book of the same name. Consilience is the best we can find to describe, in one word, the integration and fusion of knowledge we envisage when we describe the blending of our four streams into real commerce.

The second word is catallactics. The Austrian economist Ludwig von Mises used this regularly, as did Friederich von Hayek. In the 1940s, Hayek said that catallactics “was derived from the Greek verb katallatein (or katallasein) which meant, significantly, not only ‘to exchange’ but also ‘to admit into the community’ and ‘to change from enemy into friend.’” Indeed, Hayek even suggests that someone who studies exchange or commerce might be called a catallactist rather than an economist. There is a rich point here: we assert that real commerce, combining the several disciplines that affect the price of fish, is more akin to catallactics, as Hayek defines it, than to economics as normally defined. Communities matter.

I love repeating this hoary story about how fish trading works. Back in the early 1900’s, on rumors that sardines had disappeared from their traditional waters in Monterey, California, commodity traders started to bid up the price of tinned sardines; a vibrant market ensued and the price of a tin of sardines soared. A classic bubble. This fervent trading went on for some time. One day after some successful trades a buyer chose to treat himself to an expensive snack; he actually opened a tin and ate the sardines. They tasted awful and made him feel ill, so the buyer called the seller and told him the sardines were no good. The seller said, “You don’t understand.   Those are not eating sardines, they are trading sardines.” Ultimately, sardines off California were fished out by the 1950s.

First, this story again illustrates our frequent ignorance about the price of fish. Had people really known the price of fish over space and time, they wouldn’t have overfished the North Sea, the Grand Banks of Newfoundland and other fishing stocks including Monterey’s. Second, we need a set of tools, or conceptual frameworks, to help understand what is happening in the supply and demand for fish, the wider politics of fishing communities, and the even wider global market pressures on fishing industries. Economics alone is not sufficient. In fact, as with all systems, it’s wicked and evolving. There are complex interactions among fishermen, sardines and the Pacific Decadal Oscillation. Third, we need a consilience of ideas, alongside economics, in essence theories about how the world really works, to help make better decisions about long-term value. Fourth, community behaviors, catallactics, matter. Communities need to make better choices.

You often emphasize the importance of long term thinking in how we design solutions to our grand challenges. Why is a long term perspective important and why is it so difficult to achieve?

‘Long’ has always fascinated me. I gave a 2007 lecture, “Stealing the Silver – How We Take From The Dispossessed, The Poor, And Our Own Children”, on those crazy Victorians who made things to last for 150 years, and clearly applied a very much lower discount rate to their descendants than we do to ours. So Long Now, a crazy attempt to build a clock that bonged once every hundred years with the cuckoo coming out once every thousand, clearly got my attention. Long Now was looking at 10 millennia. We’d be wonderful financiers if we could look forward just one lifetime. Stewart Brand writes in The Clock of the Long Now: Time and Responsibility: “Is there a resolution to the paradox between karma and discounting? There is at least relief from it in the pace layering of civilization (where the pace of change slows from rapid Fashion down through Commerce, Infrastructure, Governance, and Culture, to glacially slow Nature). In the fashion and commercial domains a discounted approach to the future is necessary to maintain the customary swift turnover. An increasingly karmic and careful approach, however, is appropriate to managing the slower layers of infrastructure, governance, culture, and nature. It would be nice to have one body of economics that embraces all the levels, but we don’t yet.”

All that said, ‘long’ is not just another four letter adjective for ‘good’. Long Finance is really about ‘appropriate’. I think that there are some real problems achieving a long term perspective because of our need to measure and reward performance. Current governance systems implicitly incorporate short term evaluation and frequent measurement leading to a focus on the short term. What’s the point of thinking about my long term impact if I won’t be able to hold on to the position I have today due to a short term fluctuation into underperformance? And the frequency of evaluation is accelerated by technology and media into very short term, sometimes harmful, feedback. On the other hand, can we just say, “sure, take a long term view as a steward or agent for us and we’ll only come by every few years to see how things are getting on, and may not bother to change things even if they’re not going so well”?

A related problem is that we have the ability to revise our decisions, sometimes all the time.  I think the UK government has moved to policy being made Newsnight to Newsnight, i.e. the morning after a news program that affects polls they feel they have to do something immediately.  Many decisions, particularly systemic decisions, are best made over longer periods of time after there has been time for proper observation and analysis, but the court of public opinion demands immediate justice. Heck, it’s hard just to stick to long term decisions on weight loss or quitting smoking. Robert Ghanea-Hercock and I have been cooking up an idea we call “Long Decisions”.  We compare knowledge creation over the centuries with decision making.

Advances in science over the past five centuries have not been accompanied by a corresponding set of advances in arriving at decisions, so far. The wicked problems are certainly here in the environment, poverty, finance, forestry, over-fishing, population…; the technology is here or soon-to-be-here in the shape of numerous ICT systems; our analytical capabilities seem to grow headily; yet we seem to make decisions using simplistic applications from ancient Greece (democracy) or Rome (representative democracy) or the military (command-and-control within primate groups). There are some inklings of new approaches though, “liquid democracy” trying to apply shareware approaches to political parties in Germany and Sweden, lots of online decision-making tools or suggestions, more participative cooperatives, new financial approaches such as social impact bonds, etc.  Somewhat grandiosely, if the First Enlightenment was about science (“how we know what we know”), then Long Decisions might be a Second Enlightenment about decisions (“how do we decide what we want to be”). We’d like to explore these new ways of deciding. And equally, how to make long decisions stick.

How would you describe your values and/or vision for change?

All change starts with questioning followed by intolerance and impatience. Somewhat richer is Paul Feyerabend’s comment in The Tyranny of Science: “We have to conclude that science did not start from experience; it started by arguing against experience and it survived by regarding experience as a chimera.” Lévi-Strauss once concluded that, « Le savant n’est pas l’homme qui fournit les vraies responses, c’est celui qui pose les vraies questions ». (“The learned man is not the man who provides the correct responses, rather he is the man who poses the right questions.”) This is an old point that cannot be made often enough – or can it? Change starts with you, inside, questioning, your first step motivated by intolerance and impatience with the present. At Z/Yen, our annual strategy review stresses audacity, “punching above our weight”, objectives we can take pride in, even if the objectives are not directly commercial. It may seem slightly depressing, but the vision can sometimes best be seen on a headstone. One good version might run, “I found this a frightfully interesting specimen of enquiry, though I won’t be around to mourn its loss.”

Notable replies

  1. A well rounded idea involving systems thinking with the long view in mind and #wordplay to inspire…

    “Two other words help to explain the integration of knowledge that we seek…

    The first is consilience, which means the unity of knowledge, or, more literally, the leaping together of knowledge.

    The second word is catallactics… “was derived from the Greek verb katallatein (or katallasein) which meant, significantly, not only ‘to exchange’ but also ‘to admit into the community’ and ‘to change from enemy into friend.”

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Written by Justin Brown

I'm Justin Brown, the founder of Ideapod. I've overseen the evolution of Ideapod from a social network for ideas into a publishing and education platform with millions of monthly readers and multiple products helping people to think critically, see issues clearly and engage with the world responsibly.

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