Listening Where Mental Models of People Conflict

Two people with conflicting or incompatible mental models will likely:

• See different slices of the real world (read blog post “Q7- We Found the Enemy: Our Own Concepts!”);
• May be looking at the same thing but will interpret what they see differently;
• Use different language, or use the same words but with different meanings; and
• Will not be aware of all the above and will not know why they are unable to communicate productively (unless they practice internal listening and the rest of the discipline of “Mental Models” in Learning Organizations).

If they harbour mental models of each other that the other does not agree with (“On Michael Jackson, or Our Mental Models of People We Know”) then listening stops and the erosion of goodwill starts; further communication is unworkable.

What are the options in such a case?

1. Option 1: Stop communication. To preserve goodwill, an agreement to acknowledge the fact that they have basic differences and to respect each other’s mental models instead of -
2. Option 2: Use force so that the mental model of the more powerful will prevail or
3. Option 3: Agree to obey the authority and judgment of a third party or
4. Option 4: Use universally-accepted protocols for validating, eliminating or selecting mental models.

Unfortunately, protocols for Option 4 are not yet fully developed. The scientific method is a rather well-developed and tested set of protocols for validating mental models, but applied only to empirical validation or only on “what is” and “what works” (in figure below, only right side of Ken Wilber’s quadrants). Knowledge management is engaged in seeking, innovating, developing and re-using “what works”. Sustainable development criteria falls on the lower right quadrant.

Parallel protocols for validation and selection of mental models for the left side of Ken Wilber’s quadrants (see figure below) are not yet fully developed. Protocols for application to validation of experiential data (upper left quadrant) are still being developed in the discipines of transpersonal and paranormal psychology and in phenomenological research. There is no consensus on how “individual benefit” (upper left quadrant) is to be defined and assessed. What does it consist of? Money? Social opportunities? Learning and realizing human potential? Security? Maslow’s Hierarchy of Needs is a step in clarifying this area. The Universal Declaration of Human Rights and the slew of accessory protocols on other aspects and varieties of human rights is a notable contribution on the lower left quadrant. Surprisingly, the Rotary Club’s “Four-Way Test” fits very well with Ken Wilber’s framework and provides commonly-understandable or laymen criteria for the four quadrants:

I have written about Ken Wilber’s framework and applied it in many ways in past blogs:

• Comparing the expanded KM framework and Wilber’s framework: “Tacit-Group Processes in KM” and “Practical Exercise #15: Ingredients of Effective Group Action”
• Applied to estimation of global stocks of human capital, relationship capital, tangible assets, structural capital and natural capital: “Towards a Global Balance Sheet”
• Applied to understanding learning organizations: “Knowledge Pathways in a Learning Organization”
• Applied to classification of memory: “Four Types of Memory”
• Applied to understand societal megatrends: “Combining Megatrends #1 and #2: the Next Societal Innovations?”
• Applied to evolution of institutions: “Evolving Forms of Governance”
• On the scientific method’s bias for the external world: “A Paradox of 20th Century Scientific Practice”

Cheers!

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L21- On Michael Jackson, or Our Mental Models of People We Know

Through our experiences with friends and colleagues, we form a mental model of each person we know.

1. The “Business Card” Stage

When you meet a person for the first time, you tell each other basic facts about yourselves. You exchange business cards (or calling cards or name cards). You get to know superficial information about each other:

• Name
• Organizational affiliation
• Position in the organization
• Academic “pedigrees”
• Telephone numbers: direct landline, cellphone, fax line
• Geographical addresses: work and residence
• Email address
• Website of the organization

When you accept each other as a friend or a link in a virtual social network such as Facebook or LinkedIn, the same thing happens when you access each other’s profile page, except that you get usually more information about each other through this medium. Members of social networks can also update, add/modify, decide who gets to see how much about himself and engage in a large variety of voluntary interactions with each other.

People can become “acquaintances” but this is a superficial level of relationship. Most relationships stop at this stage. A small percentage proceeds to the next stage.

2. The “Regularized Communication” Stage

When two people communicate regularly for personal, work-related, social or other reasons, they begin to see behavior patterns of each other and they form mental models of each other. This process is very often an unconscious process on both sides. Our mental model of a person we know consists of:

• Memories of his actions particularly those that we liked or disliked
• Personal or work-related qualities we attach to the person based on the pattern of our experiences with him
• Labels or words we associate with the person
• Our judgments or attitudes towards the person or how he “measures up” to our own internal standards
• Our memories of pleasures or hurts we experienced with or due to (in our perception) the person
• Our level of comfort or trust on the person
• Etc.

3. The “Mutually Imprisoned” Stage

It is an unfortunate fact that in most cases, we form and revise mental models of people we know largely in an unconscious and therefore unsystematic manner.

Yet, our mental models of people we know, once established inside our heads, affect the way we behave and communicate with those people. They provide screens which color or slant our perceptions of those people. We stop seeing them as they truly are because our mental models act as if we are looking at them through colored eyeglasses or lenses. If our mental models of a person includes a strong judgment we have formed about him, for better or for worse, that person becomes the beneficiary or victim of our (internal) judgment.

We stop seeing people as they truly are because our experiences about him from the past intrude in how we experience him in the present. Our mental models then become our self-inflicted but unconscious mental box or mental prison that dictates how we relate to the person for the rest of our life. Then, we both become the unknowing victims of our unconscious mental models of each other. Unfortunately, we are often unaware that we have entered the “mutually imprisoned” stage.

A common negative result of this tyranny of our mental models of each other is divorce. It is likely that spouses who have come to dislike each other have formed mental models of each other that are no longer true representations of the other person. A well-known positive result of the tyranny of our mental models is the public adulation over Michael Jackson. It is likely that the mental model of Michael Jackson in the mind of a fan is a distant or perhaps distorted representation of the true Michael Jackson. Whether positive or negative, our unconscious mental models can act like tyrants who distort our thinking and seeing without our knowledge and permission.

To escape this stage, we need tools for consciously managing our mental models about people we work with — a pre-requisite for productive learning and working together as a group. We need Indigo Learning Practices.
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MICHAEL JACKSON

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Thanks to Wikimedia Commons and my acknowledgement to Alan Light for the use of the image in this blog post.

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L13- Learning How to Learn

From two earlier blog posts (F9- Economics of Unconscious Learning and Q13- Learning = KM + “Power of the Third Kind”) we noted two things:

1. Most (about 70%-95%) of our individual knowledge now we did not learn from formal schooling. We learned more from work and from life than from formal means.
2. Our learning from work/life has been largely an unplanned, informal and unconscious process.

Isn’t that shocking?!

The UNESCO Task Force on Education for the Twenty-first Century, headed by former two-time EU president Jacques Delors, concluded in 1996 that there are four critical types of learning for the 21st century:

• Learning how to learn, or learning to know
• Learning to do
• Learning to live together, or learning to relate
• Learning to be

(see “Learning: the Treasure Within; Report of the UNESCO Task Force on Education for the Twenty-first Century”)

JACQUES DELORS (picture courtesy of Wikimedia Commons)

Our school systems are primarily aimed at “learning to do” or providing professional or technical knowledge. This D Series of blogs on Indigo Learning Practices is aimed at contributing skills towards the other three largely ignored but equally critical learning, particularly learning to live together — a foundational skill in building relationship capital.

To develop a new formal and systematic system for learning how to learn, we start by being conscious and keenly observant of our daily learning processes. Psychologists call this practice metacognition. MIT Prof. Donald Schon studied and described the personal knowledge processes of a “reflective practitioner”. Prof. Charles Tart of the University of California at Davis calls it “self observation” (interview by Dr. Jeffrey Mishlove in the book “Thinking Allowed: Conversations in the Leading Edge of Knowledge and Discovery”).

At CCLFI, we call it internal attention or simply “listening within”.

Start sharpening your skills of listening within by practicing the following:

• Study your attention habits. When you read newspapers, notice that you habitually zero in on certain sections and always ignore other sections. Is it time for you to free yourself from your unconscious attention habits and consciously plan and select your information sources?
• When you encounter a “silly” or “stupid” idea, it is your unconscious mental models, assumptions and value systems that are labelling the idea as “silly” or “stupid” or whatever. Suspend your judgment; hold your horses. Use the moment as a mindful opportunity to discover your unconscious assumptions. Are they still valid? Or are they valid in this instance?
• Have you tied yourself to a pet theory? A theory or framework is double-edged: it allows you to see things that otherwise you could hardly see, but it also channels your seeing and thinking in particular and predictable ways. Theories and frameworks come and go. Is it time to let go of a “pet”?
• Notice what things, events, words, experiences, people or any trigger make you uncomfortable, uneasy or drain you of energy. Very often these things happen repeatedly but you never noticed, until it surfaces as disproportionate anger, headache or sickness (because these drains lower your body’s resistance to germs and viruses). Listen to your body. Practice observing what and how these things drain you. Study how you can avoid these energy drains. An energy drain may stem from an internal resistance on your part against something; if you find a way to inwardly accept that something then the energy drain can fade away.
• Be aware of your learning preferences and your thinking and learning style. Take a free online MBTI test or online learning style inventory and be more aware of the best ways that YOU learn.
• Install a feedback habit within you. After finishing a task exceptionally well, ask yourself “how did I do that?” and “what made me do that task so well?” or “what do I do to repeat the success?” Practice the same feedback habit after making a mistake. Write down your learning and other insights in a journal that you can re-read later.
• When you are driving in heavy traffic and you notice that you are tense, watch the tension within you. Many times the tension will die off simply by watching it. Don’t say “I am tense” because that statement makes you identify yourself with the tension. Objectify the tension by saying to yourself “I see tension in me”. Of course, continue to pay attention to your driving! Practice this skill minutes before you attend a meeting that you expect will be tense. Start by noticing and watching that expectation within you. That expectation is inside your head; what will happen in reality could well be something else!

In the February 2007 issue of the Harvard Business Review, Bill George and his associates wrote about learning how to be an inspiring and empowering leader. They asked 75 members of the Advisory Council of the Stanford Graduate School of Business what is the most important capability that leaders must develop. Their answer was nearly unanimous: self-awareness!

If you have your own personal practice in sharpening how you learn from daily work and daily life, please share it by clicking the Comment link below.

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Listening (and Building Cross-Cultural Relationship Capital)

A good listener seeks to discover and understand the assumptions of a speaker. Cultural assumptions are particularly challenging to discover, because people are most often unaware of their cultural assumptions. This challenge has become more acute in a rapidly globalizing world economy, where cross-cultural collaborations and cross-cultural communications are multiplying all around us.

Some years back I met an American lady in a party. She had been stationed in the Philippines doing development work. She complained to me: “Filipinos sometimes say ‘yes’ just to be polite and then I later discover to my dismay that ‘yes’ actually meant ‘no.’ Why don’t they tell me the truth from the start?” She sounded perplexed and appeared irritated.

I paused for a while.

Then, instead of answering her directly I asked her a question: “Have you experienced being a guest with other Filipinos in a Filipino home where the host offered food?”

“Yes I did,” she answered.

“Did you notice how the host keep offering the food and how the Filipino visitor keep declining, but in the end relented and accepted the food?”

“Yes I did notice that,” she answered.

Then I explained, “Among Filipinos who are not acquaintances, visitors who accept food immediately after the first offer are viewed or interpreted as eager to get a free meal or quick to take advantage of the host, or as an uncouth ‘kalatog pinggan.’”

“Kalatog pinggan” (literally “clanking of dishes”) is a derogatory term Filipinos use to describe people who gate-crash parties or fiestas (town celebrations) or who constantly look for opportunities to get a free meal from anyone.

I continued to explain, “To avoid being viewed as taking any advantage, the visitor will say something like ‘Thank you but I am not hungry’ or ‘Thank you but I just ate something before coming here’ – statements which may in fact be untrue.

“Despite these answers from the visitor, a good host will repeat her offer because she understands that the visitor does not wish to impose any inconvenience on her, the host. If the host does not make a second offer, the common interpretation among Filipinos is that the host was never serious nor sincere in her offer in first place.”

“This cycle of offer and decline is often repeated a second time,” I continued to explain, “The repeated offer is a sign that the host really would like to play the role of a good host, and the repeated decline is a sign that the visitor really would not wish to impose or take advantage of the generosity of the host.”

“Finally, the visitor would accept and eat the food, and everyone is happy. This ritual is repeated almost every time a stranger visits a Filipino home. It shows that among many Filipinos not telling the truth is a lesser evil than not starting or not maintaining good interpersonal relationships.”

“Now I see,” said the American lady.

Preference for good interpersonal relationships and social harmony — which are common across Asian cultures — can become anti-learning if a person will choose not to speak, oppose someone, or voice out his truth for the sake of avoiding “rocking the boat” called “harmonious relationship.” “False harmony” is the first of William Isaac’s four stages towards generative dialogue. We will discuss this and other blocks to learning in the next blog post L13 and future posts in the L Series.

In a cross-cultural encounter, a person from another culture has at least two choices:

• Judge a behavior of another as stupid, silly, perplexing or unproductive, or
• Listen closely to understand (which is not the same as appreciate or agree) the cultural meanings behind the behavior.

The first choice is often not a conscious choice but an automatic judgmental reaction, often by people who have rigid beliefs about what is “right” and what is “wrong.” The second is often a conscious choice followed by a considered process of listening, asking, and attempting to understand or see the assumptions and meanings behind the perplexing behavior. This process requires 100% listening, awareness of one’s own mental models, assumptions and values, and temporary suspension of one’s judgment based on those values — skills that are integral in indigo learning practices and personal knowledge management, and in the broader capacities required in a learning organization.

Rigid beliefs and automatic judgmental reactions (or being unaware victims of our own childhood and cultural programmings) are becoming counterproductive in a world where cross-cultural encounters are multiplying exponentially. Indigo learning practices and related skills are needed more and more if people of different cultures are to live together peacefully or to work together productively in an ever more crowded and more interconnected world. New capacities are needed for all of us to build cross-cultural relationship capital together.

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Emerging Indigo Practices

From previous blogs, I tried to show that major world problems stem from our lack of knowledge in the indigo quadrant (lower left quadrant in the diagram below):

• The $50 trillion global financial crisis resulted from loss of business confidence or trust. Using KM language, it is loss of stakeholder capital, which lies in the indigo quadrant (see “Q22- $8.3 Trillion: Cost to Americans of Disinvestment in Trust” and “A Value Driver behind Relationship Capital”).
• The numerous on-going armed conflicts all over the planet and the threat of a global nuclear war are manifestations in low or negative relationship capital, which belongs to the indigo quadrant (see “War: Consequence of Negative Relationship Capital”).
• Weaknesses in KM initiatives often lie in the indigo quadrant (see “Tacit-Group Processes in KM”). Because organizational cultural and behavioral issues need to be addressed, experienced KM practitioners accompany KM initiatives with change management (click “Change Management must accompany KM” in the CCLFI opening page).

When two long-term societal megatrends are combined, we discover (see “Q27- Combining Megatrends #1 and #2: the next societal innovations”) that the next significant societal innovations are expected in the indigo quadrant. In my contribution to the book “The Future of Innovation” (to be published by Gower in the autumn of 2009), entitled “The Future of Innovation Must Be Sought in Non-Technological Spheres” I wrote, in part:

“Mankind has demonstrated that its ability to technologically innovate is far greater than its ability to anticipate, learn and solve the negative social consequences of those innovations…

Innovation in the future will be driven by common threats confronting mankind. Ironically, most of those threats are man-made. Innovation will proceed in the general direction of preventing and resolving conflicts, governance at all levels, advancing human rights and human security, cross-border agreements in preventing and fighting crime and terrorism, eliminating social exclusions and other social ills that lead to poverty, generating consensus on environmental problems and solutions, and value creation.”

In the specific area of KM, this means that tools, technologies and practices for effectively managing relationship capital would be important. Below is a list of such KM tools (reproduced from a previous blog post: “Practical Hint #17: Tools for Managing Relationship Capital”):

• Social Network Analysis (SNA), sociogram or stakeholder analysis: Maps and analyzes frequencies of communication, teammate preferences, perceived closeness of interpersonal relationships, degree of agreement/disagreement, etc. between people in a group, organization or network
• Team building and team learning exercises
• Setting up a cross-functional KM Team
• Customer relations management, business development, account management, or business partnership management: Management of relationships with customers, suppliers, partners, etc.
• Customer clubs and e-communities: strengthens a company’s communication and relationship with customers, allows customers to participate in product improvement or R&D, makes some customers feel special by receiving advanced news or product prototypes, etc.
• “Customer ba”: Part of the task of some Japanese customer relations managers is to create an affirmative, trusting and creative “relationship space” between himself and the customer.
• MBTI, Belvin types and other psychological profiling tests: Assessing potential for complementarity and good mix of thinking and working styles among prospective team members
• Various tools in brand management and marketing which enhance reputation and credibility of the company
• Various HR/OD tools to enhance employee loyalty and morale: recognitions, honors and awards; policies that allow appropriate decision-making to employees; CEOs that listen e.g. allow direct emails from employees; facilities that show the company cares e.g. day-care facilities within company premises for young children of mother-employees, etc.
• Group exercise in mind mapping: Allows members to see and better understand the assumptions of other fellow members
• Professional and personal profiles of staff, Expertise Directory, company White Pages: Facilitates staff in getting to know each other and each other’s skills, expertise and talents
• Face-to-face meetings and SN functionalities among e-community or e-CoP members: Mutual trust in a virtual CoP or e-community is best nurtured through face-to-face meetings, and through appropriate social network functionalities in the website of the CoP
• Visioning exercise: Co-creating and contributing to an organization’s vision tend to enhance buy-in and engagement of members in programs, projects and activities aimed at the vision of the organization.
• Negotiation: collaborative/integrative negotiation training, skills development (thanks to Peter Spence), and related tools in conflict management
• Leadership (thanks to Peter Spence): one that knows and appreciates many of the above.

Accordingly, I have decided that the next blog series will be on “Indigo Learning Practices.” We will call it the L Series.

Cheers!

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Four Types of Memory

Ken Wilber pointed out that there are four fundamentally distinct types of knowledge, which he calls the “Four Faces of Truth”. Based on his framework (see previous blog on “KM and Trans-Societal Megatrend #1 and “Tacit-Group Processes in KM”), we therefore see four types of memory:

Transactive memory is what a team informally develops among themselves after working closely together over time. The team informally develops a group tacit knowledge of “who knows what,” “who knows who,” “who does what best,” “who cannot do what,” “how team member A thinks,” etc. This transactive memory is lost to a team member who leaves and joins a new team.

Collective unconscious is Carl Jung’s term to refer to the accumulated experiences and memories of mankind. The collective “national pain body” and “racial pain body,” according to Eckhart Tolle, are accumulated memories of violence and suffering that underlie the consciousness and behavior of a group.

I have written about the “Organizational Brain” in my Overview chapter in the book “Knowledge Management in Asia: Experience and Lessons” published in 2008 by the Asian Productivity Organization, Tokyo, Japan. If you wish to receive a copy of this chapter, send me an email. In this book I used the descriptors “embodied knowledge,” “embedded knowledge” and introduced the new term “enculturated knowledge” for human capital, structural capital and relationship capital, respectively. In parallel, we can use the descriptors “embodied memory,” “embedded memory,” and “enculturated memory.”

In the next blog, I will use Ken Wilber’s framework to delineate important knowledge pathways in a learning organization, and provide a way to understand the specific knowledge pathway called the SECI model of Nonaka.

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KM and Trans-Societal Megatrend #1

Trans-societal Megatrend #1 (see Q14- Naming trans-societal Megatrend #1: “towards yin”?) can be viewed from Ken Wilber’s framework, as in the following diagram.

When we were looking at “Tacit-Group Processes in KM” and “Gaia Consciousness”, we were in fact using Ken Wilber’s framework:

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When we were examining the global balance sheet of tangible and intangible assets (see “Towards a Global Balance Sheet”), we were also using Ken Wilber’s framework:

In fact, the expanded KM framework (see “Practical Exercise: Ingredients of Effective Group Action #15″) emerged from the simple observation that answers to “What are the ingredients of effective group action?” can be grouped in a way from where the commonly-accepted categories of intellectual capital or knowledge assets naturally emerge! Surprisingly, the grouping is consistent with Ken Wilber’s framework.

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Which falls neatly into the categories of intellectual capital:

Now, what we are observing (see Q14- Naming trans-societal Megatrend #1: “towards yin”?) is that there is a global megatrend running across many sectors of society: corporate wealth creation, global economy, community development, educational psychology, national development, national security, attitudes to environment, psychology, international conflicts, religion and organizational dynamics. In other words, the megatrend is trans-societal. It can be summarized as:

What do you think?

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From Corporate Disregard to Corporate Embrace of Stakeholder Capital to Socially-Embedded Corporations

I flew to Singapore to read an invited paper on Monday April 13, 2009 for the Fifth International Research Workshop on Asian Business sponsored by the Singapore Management University. My paper is entitled “Corporate Social Responsibility and Emergent Models in Management of Stakeholder Capital in Philippine Conglomerates.” That’s a mouthful, so let me share with you the gist in bullet points:

• The 10 richest Filipinos are mostly Chinese-Filipinos with their own conglomerates and corporate social responsibility (CSR) programs.
• They are politically and economically influential; and the paper examines indications whether and how they are developmentally influential.
• Philippine corporations’ attitudes to stakeholder capital (the external component of relationship capital) have been evolving, from disregard in the 1970s to being committed in 2000s.
• Corporate attention to their stakeholders was basically government-driven in the earlier periods, but the growing CSR practice in the Philippines has been internally-driven; now, corporations better recognize stakeholder capital and its contribution to their value creation.
• One of the Chinese-Filipino patriarchs, John Gokongwei Jr. recently announced he will donate half of his personal wealth to various charities.
• CSR is a “retrofit” which leaves the fundamental corporate structure untouched.
• New models seem to be emerging which may be harbingers of new corporate models driven by socially-responsible goals.
• The new corporate characteristics are: more networking and partnerships with civil society, bridging leaderships, more innovative and socially-responsible investment (SRI), greater community engagement and reinvention of global supply chains towards “triple bottom line.” Corporations are less and less the enclaves they were.
• I call this emergent model the socially-embedded corporation.

I end my paper with a teaser question.

If, as many observe, (a) the global economic crisis is a “wake up call” to flaws in the US economic model, and (b) the global economic center of gravity has been moving towards East Asia, then the question is: what, if any, are the emergent economic models in East Asia, and in China in particular?

Click here to get: a copy of my paper (pre-publication draft) and a copy of my PowerPoint presentation.

Cheers!

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Towards a Global Balance Sheet

I compiled various estimates of entries in the expanded KM framework towards a global balance sheet.

Negative side (see diagram below):

• Annual cost of corruption = $1 trillion in 2001-2002 according to the World Bank Institute, when GWP = $30 trillion. Now that GWP is 62 trillion, this estimate may be approximately $2 trillion.
• Losses from the global financial crisis had been reported in my previous blog post: $8.3 trillion in Wall Street and $50 trillion worldwide according to the Asian Development Bank
• US federal obligations by end-2008 = $65.5 trillion according to Shadow Government Statistics
• Losses from global climate change = 5-20% of GWP (or at least $3 trillion in 2008) according to a study by the Government Economic Service, U.K. headed by Sir Nicholas Stern
• Annual forest loss = $2-5 trillion according to an EU-commissioned study The Economics of Ecosystems and Biodiversity; the losses from other forms of natural capital are currently being estimated.
• Depletion of oil in Gulf countries up to 2020 = Gulf countries’ cumulative oil earnings up to 2020 = $4.7 trillion according to Ernst & Young
• About $2 trillion worth of minerals are extracted yearly, according to Dr. Philip Brown of the University of Wisconsin
• My estimate of annual cost of risk from global nuclear war = $591 billion per year, or NPV of $11.8 trillion (see my previous blog post)

Positive side (see diagram below):

• US GDP in 2008 = $14.33 trillion according to CIA World Factbook
• China’s GDP in 2008 = $4.4216 trillion, according to its National Bureau of Statistics and China’s forex reserves by end-2008 = $2 trillion according to Christopher Barker
• GWP in 2008 = $62.25 trillion according to the CIA World Factbook
• Human and social capital in US in 2006 = $153 trillion according to Dr. Gary Becker and Kevin Murphy of the University of Chicago. If this is growing at 2.14% per year, then it would be about $163 trillion in 2009.
• Gulf countries’ cumulative oil earnings up to 2020 = $4.7 trillion according to Ernst & Young
• My estimate of global knowledge assets = $871.5 trillion. According to the World Bank’s World Development Report 2009, 69% of GWP is from services which is knowledge-intensive, while 28% is from industry which is technology-intensive. In the US, human and social capital constitute 74% of total assets, while the remaining 26% is financial assets. If we assume that 70% of GWP is contributed by knowledge assets over the next decades, the NPV is $871.5 trillion at 5% discount rate.

What do we notice?

• Total US federal debt exceeds the wealth (GWP) created by the world economy in one year.
• The world is drawing from its natural capital at an annual rate about equal to the 2008 Wall Street meltdown.
• Knowledge is our biggest and growing asset for creating wealth.

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War: Consequence of Negative Relationship Capital

The Achilles heel of humankind is negative relationship capital. In my last blog post, we saw that the more than $50 trillion worldwide financial loss from the global financial crisis is an indicator.

Another consequence of negative relationship capital is war.

Which war after World War II cost the most human lives?

It is not the Korean War. Nor is it the Vietnam War. It is the Congo War which involved eight African nations and 25 armed groups, and cost 5.4 million lives. Its root cause? Some believe that that war was not ethnically motivated but that it was fought to gain control over natural resources worth an estimated $24 trillion!

Ingrid Samset found that resource-based exports is correlated with conflict, and presence of a natural resource is correlated with civil wars that endure (see: “Natural resource wealth, conflict and peacebuilding”)

I will do something foolhardy: estimate the cost of the risk of global nuclear war. It is foolhardy because there will be people who will criticize my assumptions and/or my computations.

I will repeat the Bayesian approach I used in a paper I wrote a long time ago (“Consequences of Nuclear Attack on the Military Bases” in: Foreign Relations Journal 1(2):90-114, June 1986, Philippine Council for Foreign Relations). Basically, the Bayesian Theorem says that the expected cost of an uncertain event is the cost incurred if the event happens multiplied by the probability of the event occurring within a given time period. This is the same principle insurance companies use to compute annual premiums.

I will make the following assumptions:

• A global nuclear war will result in 95% wipe-out of Gross World Product (which is estimated at $71 trillion/year).

• The chance of this occurring is 1 in 100 years.
• The average discount rate over the next decades is about 5% per annum (we cannot use prevailing T-bill rates which have been abnormally brought down by central banks during this global crisis, or else we may overestimate the cost).
• Over 100 years, the NPV is practically that of a perpetuity = annual cost/discount rate.

The loss of GWP entails: annual cost of $590 billion and present value of $11.8 trillion (almost the US GDP of $14 trillion/year!).

Because this is the cost of a risk, we do not actually physically feel it before it actually happens. But that makes it no less real. A ship is insured at Lloyd’s because its owner would rather pay a small annual premium (a real cost) than face the (not yet real) risk of losing the value of the entire ship in case it sinks. Now, if there was a super-Lloyd’s willing to insure the world against the risk of global nuclear war, this super-Lloyd’s would charge us an annual premium not too far from $590 billion.

Yes, a fundamental weakness in planetary relationship capital is the Achilles heel of humankind.

What do you think?

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