Shifting from Cumulative Wealth to Resilient Wealth

by Greg on December 16, 2010

Resilience Continuing to explore the ways in which technological and social change affect our relation to money…

In my last post I discussed some of the reasons people will gravitate towards collaborative non-market oriented production as a substitute for monetary purchase. In this post I want to explore further how the notion of “wealth” shifts as this change proceeds. Specifically I want to propose that our understanding of wealth will shift from a model focused on accumulation to a model that focuses on resiliency.

Cumulative Wealth is the current norm that we are all familiar with. It consists of uniform fungible money that is saved and invested (accumulated) so that it can eventually be spent on future needs. Foremost among those future needs are retirement expenses.

The conventional wisdom tells us that we need to start saving early and accumulate sufficient wealth such that we can eventually, at which point those savings will be liquidated. Hence, there are two distinct phases to life – the productive stage during which you produce more than you consume, and the consumptive (retirement) stage during which you consume more than you produce. This division pervades the cumulative wealth model…all economic activity is either production or consumption, earning or spending…sellers need buyers and borrowers require savers.

The cumulative wealth model relies on two premises relevant to our current discussion: A) that monetary transaction is the best way to acquire needed goods/services, and B) that money is difficult to acquire on demand and therefore should be accumulated in advance to prepare for future needs. The first premise was discussed in my previous post. The second premises is worth examining in greater detail.

Retirement, is undergoing a cultural transformation. Fewer people expect to retire at the traditional age of 60-65, and many of those that do will continue to earn income through part time work. While the financial industry would love to convince investors that this shift will allow them to take more investment risk (as noted in the link), the more logical conclusion is that people who don’t expect a traditional retirement will feel less need to accumulate wealth in the first place.

The notion that money is difficult to acquire on demand is also gradually changing. New financial resources such as Crowdfunding (Kickstarter) and P2P lending (Prosper) allow people to access funds from new and more diverse sources than were previously available. Likewise, online work platforms like Elance allow anyone with relevant skills to access work on a flexible basis with a minimum of administrative friction. While Elance and the like may not be thought of as the most prestigious venues, numerous other crowdsourcing platforms are developing to offer serious professional challenges to distributed workforces. These innovative platforms certainly do not portend the day when money falls from the sky, but they do point to a more efficient and accessible labor market for motivated people with relevant skills.

Resilient Wealth is the logical reaction to these changes. Resilient wealth represents the shift away from protecting ourselves with the accumulated earnings of past labor. Instead resilient wealth is gained by expanding our ability to respond and adapt to future circumstances. That entails expanding networks, building capabilities, practicing resourcefulness and improving learning capacity. In describing the characteristics needed to thrive through the Big Shift John Hagel writes:

In a rapidly changing world, though, it is not enough to have a few trust-based relationships.To get access to a broader and more diverse range of knowledge flows, we must find ways to scale the number of trust based relationships that we can build and maintain.Rather than a few trusted strategic partners, we must find ways to weave together large ecosystems of participants that can help us to more rapidly refresh our knowledge stocks by tapping into many diverse environments.

These sorts of resources – scalable trust based relationships and diverse knowledge flows – do not accumulate in the same way that financial assets accumulate. Doubling the size of one’s network does not necessarily mean doubling the amount of “stuff” that can be readily consumed. Doubling the size of one’s network does however entail a dramatic increase in the ability to adapt to future circumstances. Resilient wealth therefore provides stability and security of a new sort – the security that opportunity will be accessible regardless of what the future brings.

As change comes more quickly I think we will find greater returns to resilient wealth and diminishing returns to cumulative wealth. As financial capital becomes more abundant and accessible, returns to capital investments of all types will continue to decrease and become more volatile. As markets become more efficient, access to opportunity will gradually become more valuable relative to monetary savings.

How do you see yourself building resilient wealth rather than cumulative wealth?

What innovations are enabling you to substitute on-demand opportunity for financial savings?

How would a culture organized around the pursuit of resilient wealth look different than contemporary culture?

photo courtesy of unclesond

14 Comments | Start a Conversation...

clayforsberg

As always, a very provocative post, Greg. I could write an entire post on just in a comment. But, it’s your stage and I will focus only on a portion of your third takeaway question – what would a resilient wealth culture look like.

To begin – education will change. Focus will not be on learning a trade or a profession, but learning the art of thinking. This would encompass not just a class or two, but entire fundamental curriculum. Abstract thinking will be stressed. So will the art of self-expression – writing, art, etc. This curriculum will also feature de-emphasizing ‘physical possession dependence’ (PPD).

Occupation training will be handled more “on the job,” since every company will be different in their approach. Business will operate looking forward towards opportunities and evolution rather than looking backwards at tradition. Enough for now.
Sebastien Paquet

A few observations:

Cumulative wealth used to be tangible, like grain, but it was eventually converted into explicit symbols that indicate that “the world owes you something”. As such it depends critically upon social conventions and agreement. If for some reason these agreements and expectations break down, you’re left holding a big bag of nothing.

Resilient wealth is basically adaptive capacity. It reminds me a lot of Buckminster Fuller’s definition of wealth as: “Organized capacity of society to apply generalized principles toward present and future life support”.

Unlike cumulative wealth, which is externalized, resilient wealth is largely internalized (in individuals, in communities, in networks) and non-transferrable. It is also harder to lose or destroy.
Sebastien Paquet

Last thought. Precisely because of how hard it is to duplicate or transfer (at this point in time at least), resilient wealth offers sustainable competitive advantage.
Gregory Rader

Clay, it’s your stage too, no need to hold back for my sake….

I am curious what an education that focused on the art of thinking would look like. The dilemma with such a program is that it would be very powerful if executed effectively but it would also risk becoming esoteric and inapplicable. That risk might be less of an issue if education was intermingled with work more thoroughly such that “students” would always have opportunities for real world application.

Are there any specific programs that you have in mind as examples?
Gregory Rader

Seb, I think your last point is very under appreciated. Resilient wealth cannot be stolen, taxed, inflated or deflated, which is a huge advantage. It also cannot be invested and leveraged (explicitly anyway) which would seem to be a disadvantage, at least to the cumulative wealth mindset.

You comment suggests a number of interesting parallels – cumulative wealth is explicit, tangible, provides extrinsic motivation, and is externalized from the user. Resilient wealth is implicit, intangible, reflects intrinsic motivation, and is internalized by the user. These distinctions would seem to track the shifts in the broader economy quite well…
Jim Perkins

I have been thinking for some time that the baby boomers’ retirements might involve relocating the population to self-sustaining farms. My vision is placing something like 40-80 people in a community on a traditionally sized 160 acre farm where food is grown onsite, energy is produced onsite and waste is dealt with onsite. Water would be sourced onsite also. These communities would cushion the culture shock of re-ruralizing the population and today’s telecommunications technology would allow a wide variety of entertainment, educational and cultural opportunities to be beamed into the communities. In addition to being almost wholly self sufficient the communities could export organic, naturally grown foods to local metropolitan areas. Using a community to produce food and also using the best methods (like Fukuoka) would ease or even eliminate much of the work that is customarily associated with agricultural pursuits.
Jim Perkins

Sebastian: I believe that part of my mission is to find a way to make the self-sustaining lifestyle more appealing to more people. How can I bring all the benefits of city living together with the benefits of being on the land and self-sufficient? It’s a question that I contemplate all the time.
Sebastien Paquet

Jim, this makes total sense and might work. The Transition Movement is pretty much in line with this vision. The key problem to overcome is that most people don’t want to relocate to a self-sustaining farm unless they’re pretty much starving.
Gregory Rader

Jim, I would recommend checking out the this video: http://www.youtube.com/watch?v=Obpjv5FtWxk

It is long and sometimes difficult to follow but the conclusion is very profound. That conclusion, as best as I can summarize, is that complex systems scale in efficiency and innovative capacity greater than linearly as they get larger. The specific factors mentioned in the video scale at the 1.25 power, such that relative to a group of 40 people a group of 400 people (10x larger) would be 18x more innovative and a group of 40,000 people (1000x larger) would be 5,623x more innovative. The video cites data on income, patent applications and numerous other factors to empirically support this theory.

I think this has to challenge what we think of as “sustainable”. In a certain sense no major human innovation has been sustainable in that we could never reasonably go back. The invention of language was a one way move; we could never reasonably give up language and survive as pre-language humans did. Perhaps more relevant, the invention of agriculture was a one directional shift in that modern humans could never survive a hunter-gatherer lifestyle (we have lost all our hair, our jaws have shrunk, our digestive systems couldn’t endure the diet, etc). Yet, dependence on language or agricultural or technology do not make us less survivable as a species if these tools are resilient and lead to further progress.

I think our challenge is to adapt to innovations without destroying the valuable qualities of prior lifestyles. The appeal of the self-sustaining community is that the individual can intuitively comprehend his role and importance in the community, his dependence on others is limited to those he has close personal relationships with, and his needs are met without undue damage to the environment. Rather than return to the farm, I would prefer to pursue ways to bring those values into environments that maintain the innovative capacity of the modern city and modern global economy.
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http://profiles.google.com/jordan.greenhall Jordan Greenhall

@gregoryjrader:disqus You’ve tagged a very good distinction, but something nags at me that there is a depth here that hasn’t been sounded. For example, you say “protecting ourselves with the accumulated earnings of past labor” when describing cumulative wealth – when this description equally applies to “resilient wealth” in the sense that your network (and its relationships of trust and obligation) is the product of an accumulation of your past activities (i.e., relationship and trust building, delivering value (and incurring credit), etc.
I think that the difference is between one dimensional and high dimensional wealth. One dimensional wealth has no context (gold hath no smell) while high dimensional wealth carries with it all of the total context of its actual accumulation. When I meet a man rich in one dimensional wealth, I do not know if he is a productive individual or a thief. When I meet a man rich in high dimensional wealth, I know in a strong sense, everything about him.

Thought provoking. Thanks.

http://OnTheSpiral.com/ GregoryJRader

@google-b694ac91f29da52c0558509c1861c1c4:disqus I think both factors have a role to play. Your notion of dimensionality does add an interesting layer to the argument. And while I agree that the distinction I proposed is not black and white, I do think there is a sense in which “resilient wealth” or “high dimensional wealth” tends to be more forward looking than traditional notions.
High dimensional wealth may derive from accumulated social capital investments as you describe, but it can also derive from future potential (more readily than traditional wealth). Due to the legibility of traditional wealth, you generally have to demonstrate a compelling risk/reward thesis in order to attract investment. Due to the illegibility of high dimensional wealth, people tend to be more willing to “invest” in the success of others without necessarily receiving a quantifiable return on investment.

The notion of dimensionality helps to explain why this would be the case. Suppose you offered to invest financially in my future success. The only way for me to justify your investment would be to earn an appropriate financial return. Regardless of whatever qualitative success I might have, your investment will be a failure (financially speaking) if I am unable to produce the expected ROI. Presumably this should make you more cautious about investing.

If you made a similarly “valuable” investment by offering help in kind, there are many ways in which I might return the favor in the future. Presumably this should make you more willing to invest on the basis of potential alone…or perhaps better phrased, you should be willing to consider investments across many more dimensions of future potential, rather than considering financial potential alone.

[No subtext intended with the example above, just trying to keep the pronouns simple ]

http://profiles.google.com/jordan.greenhall Jordan Greenhall

Greg, this sounds dead on. And, in fact, sounds important. I wonder if one can do math on high dimensional wealth?

http://OnTheSpiral.com/ GregoryJRader

This is a tough one. To whatever degree these dynamics rely on illegibility they will be inherently resistant to quantification. Or conversely, explicit quantification will kill the golden goose…whatever accounting unit you use becomes the new standard that crowds out anything not convertible into that unit.

My intuition (subject to revision) is that this sort of thing would require a shift to completely different notions of “accounting”. It would require an accounting system that is itself qualitative and somewhat illegible…more like an inventory than a traditional accounting ledger. Some items in that inventory might be convertible into standardized units while others will have to be acknowledged as inherently resistant to conversion.

Shifting from Cumulative Wealth to Resilient Wealth

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