Category Archives: Business

Business

Value(s) by Mark Carney: Chapter 1 Perspectives of Value – Objective Value: Key Takeaways / Analysis / Citations

Leave a comment

Part 1 The Rise of the Market Society

Chapter 1 Perspectives of Value – Objective Value

Key Takeaways

The first two chapters of Value(s) cover objective value versus subjective value measurement:

Objective value is determined by the fixed and variable costs that go into production of the good or service. It’s the idea that the underlying value is determined not by demand and supply but by how the product or service is created. Objective value is also associated with the classicists: Smith, Ricardo and Marx.

Subjective value, explored in chapter 2, is determined by how exchange value (the market price) reveals the underlying value at a given moment in time. Its underlying value is determined by the demand and supply, preferences and somewhat by scarcity. It is associated with the neo-classicists: Alfred Marshall, Carl Menger and William Jevons. 

Mark Carney’s central point in these first two chapters is that subjective value which is flawed. And that subjective value, in the form of the market economy, has permeated every facet of life turning everything into an economist’s calculation and taking the relationships and intangible value for granted.

Oscar Wilde’s “the price of everything and the value of nothing” is Carney’s central critique of subjective value.. 

This concept that money is a proxy for value is an obvious one but it is worth repeating. If the economic value of a good is determined by the price in the market, then people start developing the classic capitalist critic which continues to be attractive, especially for folks who aren’t interested in economics and instead think that capitalism is merely luck-based gambling coupled with inequality in the form of accruing capital deployed with the reward of interest. 

So, this is a complex topic. How do you measure value? Amazon rainforest is only valuable if you strip it of foliage. Amazon the company is valuable and on a ledger at $1.5 trillion equity valuation as of March 2021. Mark Carney believes we first need to understand how value was measured in these first two chapters.

Value in the economic theory distinguishes between value creation and value capture/extraction/rent seeking. Value theory has been explored by Aristotle (the “just price”), St. Thomas Aquinas talks about a just price + value capture and Dante says usury, interest or rent-seeking, are evils that send the issuer to the 7th ring of hell. The concept of interest is discussed on the basis of disutility (ie. opportunity cost). Disutility is the cost synergies of the absence of the thing i.e loss of profit = interest. If I lend you some land I own, then you should pay me interest. The word interest goes back to ancient humanity when it literally meant lamb. So I lend you my land then you pay me in lambs develop with you using that land…. 

Value at the nation state level was about trade routes, silver and the balance of payments ie. selling more things then you buy. Value perception changed as moving things around was how you made value in the mercantilist age of European empire building. Distribution was the valuable item itself.  

Mercantilism theory of “why a nation became rich” is perhaps today known as crony capitalism, according to Carney. Net export was the measure of value and the surplus was in the form of gold which was the measure of wealth. Gold and silver were the global currency and then banknotes were offered by central banks which we redeemable as gold or silver at that central bank with banknotes. The common good was in the name of nations, but the self interest was selective for those who were members of the mercantilist/crony capitalist class. 

St Antonino (1389 – 1459) defined mercantilism. East Indian Company, a mercantilist company that ran India was responsible for half of all global trade in the mid-1700 to 1800s. Securing gold was the mechanism for measuring value for many centuries…value was measured in gold and silver. This was obviously flawed since a new gold mines would the debase gold as a proxy for value…

There are other thinkers Mark Carney calls on:

Davanzati (1529 – 1606) defined value in use versus value in exchange. Argued that gold had no value in use but value in exchange since it can be used to command other goods. 

Sir William Petty (1623 – 1687) develops a theory of labour in Oliver Cromwell’s Commonwealth government that is the modern basis for gross domestic products, which is another heavily debated metric in economics because of its flaw in measuring value. Petty defines the natural price as the par value of land. This approach predates but also predicts Adam Smith’s approach. Petty was able to explain national production. The only thing that matters are merchant trades, clothing, food and housing. Lawyers have no value in this theory. Petty’s national account: the GDP, we use it as a compass today.

https://en.m.wikipedia.org/wiki/Physiocracy

Physiocratic emerged as another way to look at value creation. The term is based on ‘government by nature’. Laissez-faire and wealth was solely from agriculture. Government by nature that value was derived solely from agriculture. Quesnay’s Tableau is the first to see the economy as a system and applied a systems-thinking approach. He also saw that exports generated gold which was the best measure of value they had at the time. Quesnay saw the farmers are the value creators, supported land is more important than the mercantilists in his view as the flag bearer for the Physiocratic movement. The problem with their approach was the industrial revolution was about to reveal that agriculture alone was indeed not the best way to measure the source of value. 

Richard Cantillon (1680 – 1734) who built on Quesnay’s ideas but he’s not that important. There are three heavy hitters that Carney addresses.

The biggest contributions to value measurement are the classists. 

The Classists: Adam Smith, David Ricardo and Karl Marx. They shared three basic ideas: 

  • The Economy requires labour: The value of a good or service is determined by the inputs to create it, particularly labour.
  • The Economy is dynamic / changes in labour and technology: workers, landlords, industrialists respond to changes in the real world. This process triggers value creation and changes its distribution model. 
  • The Economy is the process of exchange that affects trade: the process of exchange effects value creation and distribution, Ricardo focused on gains from exchange of foreign goods and Marx focused on value of work and income distribution. Smith was interested in the systems thinking like Quesnay. 
  1. Adam Smith (1723 – 1790)

Viewed as the father of modern economics, Smith (from Fife, Scotland) warned scholars about conflating money with economy and for good reason. He too knew that money was a proxy for value. The Wealth of Nation is the most owned economic text, least read (because it is not easy to read for today’s modern English standards) and is thus easily misinterpreted. Carney argues that Smith is loved by the left and right. For example, he is caricatured as the father of laissez faire capitalism despite the fact that the “invisible hand” appears only three times in any of his books and only twice in “An Inquiry into the Wealth of Nations” (1776), according to Jess Norman, Adam Smith: What He Thought, and Why it Matters (London: Allen Lane, 2018), pp21-2. What made him pan-ideological is that Adam Smith applied the scientific method to social scientific observation rather than ideological dogma. The ideological spectrum is a flawed generalization that gets dashed when it interacts with the unique circumstances that define any human interaction (but unfortunately, helps people simply/generalize and feel they know what’s going on, when in fact, ideology is a short-hand used to limit solution development). And as such, Smith was interested in understanding reality rather then bending it to any normative purposes.

Carney’s emphasis in talking about Adam Smith is on the fact that:

  • Adam Smith was chiefly concerned with the idea that life involves continuous exchange. 
  • He believed that the desire to be loved and lovely led to a feedback of mutual cultural memes (Richard Dawkins-style)
  • He famously exalted the fact that the butcher’s self interest (or self-love) got the meat on your table. 
  • He showed that social trust is the engine of prosperity. 
  • He would not have recognized modern financial, economic infrastructure but believed in the living system of his time.
  • He expanded the physiocrat definition of value being solely from agriculture to the definition to industry which was also ground breaking.
  • He was worried about industry capturing government officials. 
  • He was very critical of monopolies and value capture.
  • He was critical of mercantilism/crony capitalism and thus he promoted free trade.
  • He valued competition in the pin-factory example.

What was Adam Smith’s contribution to a Theory of Value?

For Carney, Adam Smith’s formal theory of value was unsuccessful. He, like the other classicists, argued that labour was the main source of value. Total value creation equals the time spent by workers on production taking into account quality and effort. Labour is the measure of exchange value of all commodities. For example, in a hunter only economy where one beaver is as hard to hunt as two deer, then the price of one beaver is two deer. The price of a good is usually therefore based on the relative ‘estimate’ of the labour to procure that good. But Smith didn’t touch on the fact that the act of valuing effects the three things Smith valued most in a functioning market: trust, fairness and integrity. Why does labour and price have such gaps then? Smith doesn’t understand and he didn’t resolve the gap between market prices (nominal/money price) and labour value (real price)….Ricardo and Marx would build on Smith’s work to answer this ‘gap’ problem..

  1. David Ricardo (1772 – 1823)

Ricardo (from Liverpool Street / Spitalfields Markets area of London) made his money by speculating successfully in government bonds with a networth of £100 million in today’s terms. He bet on the outcome of the Battle of Waterloo and made a fortune. Then he promptly retired to his Gloucestershire estate to write.

Carney’s view is that David Ricardo made critical contributions to economic thought:

  • Free trade makes sense through the argument of competitive advantage which is a core position in economic liberalism today. The competitive advantage of wine from Portugal versus England is the classic example, it’s true but not always as obvious. His idea has largely been accepted that it is better to trade with other regions of the world where they have a relative efficiency of production rather than to prop-up domestic producers in the name of economic nationalism. Countries ought to specialize and trade more was Ricardo’s view. 
  • The Corn Law which was a protectionist move to support English landlords and it received Ricardo’s aggressive critique in Essay on the Influence of a Low Price of Corn on the Profits of Stock (1815). He explained that increasing tariffs on grain imports increases the rents of landlords, decreases the profits of manufacturers and slowed the economy’s rate of growth. 
  • Smith and Ricardo aligned on the idea that imports increase exports and growth country-to-country. They both agree that consumers should seek the cheapest price for a good. Monopolies would only serve to create fat, happy management. 
  • Ricardo expanded on this free-trade view with the law of diminishing marginal returns. Here, Ricardo was arguing that more and more inputs into a fixed amount of land would lead to diminishing returns from that land. Therefore restricting foreign inputs would bring more marginal land into production and thus lessen capacity into new production, since grain prices would increase, manufacturing would decrease and landlord rents would increase (Ricardo wasn’t a big fan of landlords). The point was that landlords had the ear of the political elite, Ricardo had the ear of the economic engine. 

What was David Ricardo’s contribution to a Theory of Value?

In Principles of Political Economy and Taxation (1817), Ricardo argues that labour theory of value; value depends on the labour for its production and not on the cost of that labour. The iron law of wages: wages rise and fall, profits fall and rise correspondingly. Profits grow….If the prices of food, agriculture is less productive then the profits decline. His Essay on Profits argues that profits depend on wages, wages on essentials and essentials then impact the price of feed. His theory of growth showed that profits grow, capitalists invest, expand manufacturing which created more and more jobs and wages. The price of food regulates wages.

Carney, and others, identify two problems with Ricardo. First, Ricardo doesn’t pay much attention to organizations of production (division of labour for example) instead focusing on monetary and fiscal areas which leaves an incomplete picture of value. Second, Ricardo labour theory of value doesn’t account for “differences in the time horizon of the returns to the various factors of production.” (page 35, Value(s)). He should have established a relationship between capital and labour as he had between land and labour wages. His solution of providing a value for capital as accumulated labour doesn’t really work since if you build a factory you would expect to be paid back over several years but if you worked in the factory you would get paid on a monthly basis….so the horizon of the worker is shorter than that of the capitalist. Marx would close off this problem of accounting for value through labour. 

  1. Karl Marx (1818 – 1883)

Marx (Trier) was a Hegelian. He followed the dialectic model of thinking which for Marx revealed new truths and he had revised his writings to fit into oppositional forces as he doubled down on Hegel later in his writing. Marx is often mined by people to back their prior position. The Communist Manifesto (1848) and Das Kapital (1867) are well examined. Marx is the first economist you learn about in school and his name remains an adjective, a noun and a social theory because his ideas were used by various political actors to revolutionarily bend the bandwidth under which human nature operates. And the results were mixed, to be diplomatic about it.

What was Karl Marx’s contribution to a Theory of Value?

  • Marx’s view on value, like Smith, centres on a social and political context. 
  • He sees that the history of society is a back and forth ie. Hegel’s idea. 
  • Marx was more explicit that production is a social activity that requires production.  
  • Production and distribution of value was critical for Marx. 
  • Regardless of changes in technology, the value of every good is determined by the labour to put it into production. 
  • He believed that every good has two values: useful value and exchange value.
  • Like Smith and Ricardo, Marx saw labour at the centre of value but he also solved for the time horizon gap between labour and capital. The surplus value goes to the individuals who took the original risk to create the enterprise and then pay the labourers a subsistence wage and pocket the rest of the surplus value / the gap.  
  • Marx also argued that capitalists would replace labourers with machines if the cost of restoring labour power was above subsistence wages.
  • Capitalism would overrun overtime the bargaining power of labour as they replaced labourers with machines and other automation.. 
  • In his views, commercial speculative firms do not add value to capitalist production and by capturing the available surplus, capitalists do not re-invest in production but horde value for themselves as surplus. 
  • Labourers, who do not own the means of production, become alienated and then that surplus value is taken away. 

The response to these three classists encapsulated the modern expression of how objective value is measured. However, Carney will show that value is measured subjectively. It is critical for Carney that we acknowledge how value measurement has been distorted over time so that we can then reset the system of measuring values for a better world for all…ambitious! To that end, Carney seems to recommend a return of these objective measures of value with hybrid additions from the likes of Carl Sunstein and others.

Previous Chapter
Next Chapter
Introduction: Humanity Distilled Chapter 1 Objective Value
 Chapter 2 Subjective Value Chapter 3 Money & Gold
 Chapter 4 Magna Carta  Chapter 5 Future of Money
 Chapter 6 Market Society Chapter 7 Financial Crisis
 Chapter 8 Safer FinanceChapter 9 Covid Crisis
 Chapter 10 Covid Recovery Chapter 11 Climate Crisis
 Chapter 12 Climate Horizon Chapter 13 Your Values
 Chapter 14 Values in Companies Chapter 15 ESG
  

Analysis from Part 1 and Chapter 1

  • Theory (9/10) versus Practice (5/10) Rating (out of 10): Theory is nice, these men were seeing the world from their own vantage point as we all do. Even Ricardo. Attempting to develop generalizable systems like a generalizable measure of value is kind of bunk, though. Anyone with a social science background will tell you predictability and perfectability aren’t what we humans are. There are pockets of predictability like “I am going to wake up today” but then there are less predictable things we do like “I am going to brush my teeth today…maybe.” The fact is there is no generalizable theory of human behaviour, folks. A bell-curve or overton window of human behaviour but it is evolving, alongside culture and many many variables. Human’s aren’t that predictable: that’s what makes us awesome!
  • This chapter is a good primer on an economic theory of value. Not so much on an intangible theory of value which would be handy for climate change which comes up later.
  • Subjective value is the target of his central criticism. Except, that objective value described in this book is accountant focused. It fails to measure the things we care about about like love. It’s only useful for economist minded people.  Many people do not “value” economic thinking at all. And they have rights, preferences, influence on politicians hence the tendency to ignore capitalism in their personal and/or political decision-making. 
  • Ivy League Fallacy: some of the most theoretical and therefore impractical people graduate from Ivy League universities. Insulation from failure is also a major risk for Carney who doesn’t seem to notice he is detached as well. Mark Carney thinks he’s smart because he is smart but also he jumped through the hoops, he is not one for breaking the mold very much…It’s also possibly that I’m just jealous.
  • Mark Carney believes that at the Bank of England which he joined in 2013 and his colleagues figured out “how to rebuild the social foundations of financial markets following the financial crisis in 2008” (page 28, Value(s)), I’m afraid that Senator Palpatine disagrees with you?…It just seems like a pretty grandiose claim.
You think you are influential? Senator Palpatine, he knows how to pull strings, Mark Carney. He’s behind it all!
  • What about the concept of Networks in value creation? We buy and sell products and services from people who are top of mind. Adam Smith touches on this with the idea of being loved. If we have a good relationship with someone we work to support their goals. The labour put into helping someone we care about is a premium on that good or service.
  • Who cares that Adam Smith was uncomfortable at Oxford? Well, a dude who went there himself. Balliol College, Oxford but the wizard hat sorter put Carney in Nuffield College….To be clear, I think Mark Carney has written an important book here, and he’s generally a unique voice in finance, but occasionally, he reveals some pretentious tendencies that Harvard and Oxford imbue in their students (“I am so smart because Oxford told me so”).

Citations Worth Noting for Part 1: Chapter 1:

  • Marianna Mazzucato, The Value of Everything (London: Allen Lane, 2018), p. 6
  • Sir William Petty, ‘The Political Anatomy of Ireland – 1672’, in A Collection of Tracts and Treatises Illustrative of the Natural History, Antiquities, and the Political and Social State of Iralen, vol II (Dublin: Alex. Thom & Sons, 1861), p 50.
  • Jess Norman, Adam Smith: What He Thought, and Why it Matters (London: Allen Lane, 2018), pp. 21-2. 
  • David Ricardo, ‘Chapter 1: On Value’, in On the Principles of Political Economy and Taxation (1817): https://ww.marxists.org/reference/subject/economics/ricardo/tax/ch01.htm (accessed April 2021)
  • Sir William Petty, ‘The Political Anatomy of Ireland – 1672’, in A Collection of Tracts and Treatises, vol. II (Dublin: Alex. Thom & Sons, 1861).
Business

Value(s) by Mark Carney: Intro, Humanity Distilled: Key Takeaways / Analysis

3 Comments

Mark Carney is a banker with a compelling track-record as well as a citizen of Canada, Ireland and the UK. He was born in 1965 in Fort Smith, Northwest Territories, Canada and has a global perspective and an impressive resume. At the same time, he could probably be your favourite prof in university. So there’s that too. In life, you should always plan for multiple paths, and so what makes this book doubly interesting is that it is possible that Carney will enter the political fray in Canada and / or seek more global posts as a thought leader in finance and banking. At the very least, teasing the thought of Carney as Prime Minister of Canada will sell a fair number of copies just for the opposition research. In a parliamentary committee testimony in May, Carney was interrogated by a conservative MP signaling that the Canadian Conservative Party is a bit scared and annoyed that Carney is helping Boris Johnson but also working with the Liberals… Guaranteed that if Carney was saying he wants to join the Conservative Party of Canada, the Tory caucus would sing his praises. Such is the absurdity of partisan politics. This book threads the needle across a fundamentally flawed ideological spectrum. And Carney offers the intellectual firepower and vision that Canada has struggled to cultivate within the legal/business class that dominate its representative democracy.

Value(s) basically advocates for the marriage of solidarity, a sense of fairness with the dynamism of markets. Markets, being social conventions, can be harnessed for good, according to Carney, who clearly lands closely to MacKenzie King, who also wrote a book before running for public office. That book was called Industry and Society which at the time was not widely read and was incoherent. The reason I mention MacKenzie King the Pragmatist In Chief is that he is typically on the top three best Prime Ministers of Canada list and Value(s) is easily the best pre-political primer since the Audacity of Hope. Value(s) is not really an emotive, poetic document but I think the rigour of Value(s) makes it a book that you can imagine is referred in 2121 as a historical document. Not kidding here. This book is really a doorway to better understanding how value has been approximated over the last few centuries.

Unfortunately, while Carney’s Value(s) is a blueprint for political leadership, it is also unapproachable for people with a reading level below Grade 8…(and maybe Grade 7 with a glass of wine because when you watch too much tv, you’re reading level slowly declines over time…the golden age of television has yet another unintended consequences, other then the decline of cinema)….. As such, this series of posts will explore his ideas (I hope clearly) as well as provide a tough critique where there is disembodiment between his theory and practice/reality. 

Private Sector experience:

  • Goldman Sachs (1990 to 2003)
  • South African international bond market launch and the Russian financial crisis were where he cut his teeth.

Current Private Sector roles:

  • Brookfields (2020 to present)

Public Sector experience: 

  • Deputy Governor of the Bank of Canada (2003 to 2008)
  • Governor of the Bank of Canada (2008 to 2013)
  • Governor of the Bank of England (2013 to 2020)

Current roles:

  • COP26 point-person on finance for Prime Minister Boris Johnson
  • UN Special Envoy on Climate Action and Finance

Political Leanings:

Note that Carney makes no mention of the fact that he is likely advising the current Prime Ministers Office and Cabinet Ministers in Canada, in Value(s). He is a prospective Prime Minister of Canada via the Liberal Party of Canada which is the default / natural governing party in federal Canadian politics. 

Mark Carney’s central question in Value(s) is: 

How do we bring some humanity into our capital-centric system of valuation? 

Since we observed that human nature supersede socialist command economies (acknowledging the fact that Wal-Mart and other companies are command and control entities), we ought not to try to escape capitalist markets of value measure, Carney argues, instead we should figure out:

How do we mitigate capitalism’s destructive power and harness its constructive power for a brighter future? 

The Parable of Pope Francis: ie. markets are humanity distilled…markets take out all the best of us

Carney recounts how Pope Francis invited him, then the governor at the Bank of England (salary of £480,000 per year) and other elite decision-makers, to a conference. The pope raised a glass of grappa and said “Humanity is many things – passionate, curious, rational, altruistic, creative, self-interested. But the market is one thing: self-interest. The market is humanity distilled.” The Pope’s challenge to these insiders is “to turn grappa back into wine, to turn the market back into humanity. This isn’t theology. This is reality/ This is the truth.”….and then everybody cheered and said saluti. (Page 3, Value(s))

  • How do we turn grappa back into wine?
  • What’s grappa?
  • The market is humanity distilled, markets of exchange are self interested actions distilled into a quantified format where the nuance is lost. 
  • Humanity is many things, our jobs as bankers is to turn this market back into true reflection humanity…..

Threadneedle Street Thinking:

Carney argues that radical changes are required to build an economy that works for everyone within that economy (staying vague about global, national or local economy). His audience is certainly white dominions / advanced countries that he is most familiar with as a private and public sector banker. He is threading the needle between capital or monied interests and some social democratic concepts, nominally speaking. 

In order to come to that conclusion that we need our system of valuation to be adjusted to reflect more what it does presently, first Carney asks you to consider

  • What is value? 
  • How is it grounded? 
  • Which values underpin value? 
  • Can the act of valuation in the market also reflect values in society? 
  • Are we under-valuing what matters most? 
  • Why is Amazon worth $1.5 trillion while the value of the actual Amazon rainforest(s) is $0 trillion?
  • As Oscar Wilder said “we know the price of everything and the value of nothing?” 
  • As Albert Einstein said “not everything that counts can be counted, and not everything that can be counted counts.”
  • As John Kay said “profit is to business as breathing is to living. Profit is not the purpose of business, it is necessary but not the purpose.”
  • Have we moved from a market economy to a market society? Carney says “yep” and then asks how do we bring back humanity in our calculation of value?

Valuation and markets are disconnected. Values represent the principals of behaviour. Rawlsian idea of the veil of ignorance, not utilitarian or libertarian. 

Three Crises: 

  1. Credit, 
  2. Covid, 
  3. Climate change

Imposes costs created by this generation on future generations. 

To stop the catastrophe, we need:

  • Dynamism
  • Resilience
  • Fairness
  • Responsibility 
  • Solidarity shared
  • Humility: to act as custodians 
  • Sustainable globalization 
  • Markets are incentives to build social capital. 
  • Help us realize our potential. 
  • Leaders have to earn their legitimacy.
  • Great leadership is ethical…….next Carney will look at how value is determined historically….
Previous Chapter
Next Chapter
Introduction: Humanity Distilled Chapter 1 Objective Value
 Chapter 2 Subjective Value Chapter 3 Money & Gold
 Chapter 4 Magna Carta  Chapter 5 Future of Money
 Chapter 6 Market Society Chapter 7 Financial Crisis
 Chapter 8 Safer FinanceChapter 9 Covid Crisis
 Chapter 10 Covid Recovery Chapter 11 Climate Crisis
 Chapter 12 Climate Horizon Chapter 13 Your Values
 Chapter 14 Values in Companies Chapter 15 ESG
  

Analysis of Introduction Humanity Distilled:

  • Not a Light Read: Carney is a bit academic and pretentious and so I don’t know that this book will be widely read, therefore, I have provided these detailed summaries for the benefit of others who don’t have the time but the inclination. This book is not a light read….
  • Well Sourced: Academics like to detail to the reader ‘what you are going to learn before you learn it.’ Value(s) does this. Typically, this is a no-no. Mark Carney presents his book as a well sourced academic textbook rather than a public intellectual page-turner, it ought to be distilled which is what I’m attempting to do here. Note also that there is bias of course in the academic work that Carney sources…consensus is rare, making jobs for academics plentiful. 
  • Grounded Enough?: Mark Carney has the financial and global connections / rolodex and the experience from one of the most successful investment banks, for 13 years, which means he’s likely cut-throat. Or did he get where he is through sheer intellect? It isn’t clear that politics is in his blood. Politics is about winning, fighting off the other candidates and horse trading / cutting deals. Often, the choices are between bad and worse. Carney hasn’t been in that circumstance as much based on his writings here. Yes, he’s been in the top public / private sector tower of central banks but very far from the general economy or the consequences of his actions (the data that describes the consumer price index is a bit different from the abject poverty in rural Canada for example). Ironically, I speculate Carney may be more like the bankers who leveraged and imploded Canadian ABCP asset backed commercial paper in Chapter 7 then he realizes. Monday morning quarterbacking the financial crisis and being lucky doesn’t = great leadership. Having said all that, he’s still pretty cool.
  • All That Glitters: At the Bank of England, Mark Carney explains as the governor touring the gold vault that those gold reserves are mostly pointless beyond a back-store of value. The gold is less valuable now that it is NOT the basis of central bank money management since finding new gold mines used to mean inflation automatically. The British pound is a FIAT currency after-all.
  • Financial Community Is More Selfish Then Carney Lets On: One thing that will come up multiple times in Value(s) is that Carney underplays just how much investor folks are more self-interested then altruistic compared to a bell-curved population average. There is a stronger interest amongst financial specialists to capture a value / capital / make money which is why some folks getting into finance in the first place. This mentality is what Bill Maher / Marxism / Socialism ridicules. That ridicule asks what did you do to become so wealthy, BitCoin enthusiasts or stock speculator? Reading the market? Fundamental analysis? Financial players are mostly in the value capture game rather than value creation game and so their service is more to help price assets and to allocate capital which is valuable to be sure….but they definitely of incentivized by making money themselves over that of allocating scarce capital….
  • Multiple Pathways: Perhaps influenced by his British spouse (“happy wife, happy life”), Carney is very much a British man with a Canadian accent, the book is written in British English with “s” and not “z” for equalise, organise and characterise, autumn instead of fall. In the Audible (audiobook) version of Value(s), Carney pronounced aluminum the British way (“Ali-min-ium” and not the Candian way “Aluminum”.) Expect that as a line of attack if he does join the political fray via the Liberal Party of Canada. There are multiple pathways for Carney, Canadian PM, best-selling author and another global post. It’s a win-win to suggest he’ll enter Canadian politics….it sells more books.
  • Market Logic and the Ideological Spectrum Are Illusions: David Simon another brilliant man (wrote ‘The Wire” HBO show) and Mark Carney have much in common: they both protest capital as the problem and solution. I have long maintained that money is a proxy for value. It’s the values that people price that is the problem/opportunity. The wealthy tend to value putting a high price on drug offences and sending drug dealers to jail. David Simon makes a relatively cursory case for mitigating the negative effects of capitalism but the problem he and Carney have is that it is what is in human nature that needs to be harnessed. We are cruel to be kind and we are adaptable to how value is measured.
  • Gell-Mann Amnesia Effect: If Carney says one thing that I think is a bit wrong, then does that error mean the areas in which he is an expert and I don’t have enough knowledge could also be wrong as well? This is known as the Gell-Mann Amnesia Effect. David Simon’s criticism of political donations do lack a bit of nuance…off topic, I know, but Simon is right about the Ideological Spectrum and is a brilliant TV writer but his views on political donations are a bit warped; The Wire and Political Donations. David Simon is misguided on political donations, first it’s often reverse causation, interests donate to the horse they think will win and or aligns with their views already. And no one will ever prove my case or otherwise conclusively as politicians vary. Second, if a politician collects $1M from special interest X and $500K from special interest Y in which Y is the opposite of X. Then the politician is not perfectly beholden to either X or Y donor, is she? Boom! The politician has $1.5M from donors that he/she will show to be satiating. Same with any one voter or one million voters. Gather up trust, potentially betray said trust with the plausible deniability of the legislative process…that is how politicians operate in a representative democracy, it’s ugly but true.
  • Writing This For A Long Time: Mark Carney’s PhD thesis was “Dynamic advantage of competition.” In one sense, that’s obvious but not for people doing the dynamism. Competition is really bad for the people doing the creating. Makes you strong yes, but no one willingly supports competition at the entrepreneurial level. So this hits on the issue of the expert may not be the most appropriate person to build the future. 
  • Euro-Ameri-centric? Is Carney really talking about Anglo-Saxon and European conceptions of value for the most part or where is the line there? Does his message resonate with different cultures that he doesn’t work in very much? Is Value(s) getting translated into Mandarin? Will the general public read this book as closely as I have? 
  • Another MacKenzie King Mention Here: From a political perspective, Carney is aligned with the 3rd way style Labour party of Britain that can create successful coalitions with various interest groups with competing appreciations for economics. His embrace of the market as well as some undefined mixture of solidarity is not novel, it is precisely what MacKenzie King did by showing he could work with both labour and management in contract disputes. 
  • Expert/Metaphor Disconnect, Should the Pope Be Dictating Public Policy? Is it possible to turn grappa into wine? People of all socio-economic statuses drink wine, but grappa is a very European thing…is the Pope out of touch or is Mark Carney out of touch? Or am I missing out on the finer things in life? Is the Pope really just saying that human nature suggests that we need to impose agreeable behaviour? The folks who typically self-select into banking are focused on enhancing their own interests (and their shareholder by the way) by maximizing shareholder value, buying low and selling high and thus capturing value. To a certain extent value creation through the allocation of resources is certain value facilitating and thus partial value creation and value capture….
  • Great Speaker: Carney gave a commencement address for the University of Toronto, 2016-2018 MBA program which was further insight into his thinking…

Business, Finance

Howard Schultz on Leadership and Politics

Leave a comment

Jump Into The Pool

Entrepreneurship is getting increasingly possible with technology and access to capital. This is an enormously good time to become one, you need to understand fiduciary responsibility and the values you want to bring to the business. If you have a great idea that you are passionate about you need to decide if you are willing to make the sacrifice. There is no mentor, no instruction manual; you simply need to jump into the pool. 

Find out what the price of success is and pay it.

Starbucks as a Value Based Company

In 1986, Starbucks was a coffee supplier with 10 stores. They believed that values and profits were not mutually exclusive. Schultz grew up in the projects and when his father broke his hip, he was fired and there was no hope in the family. That memory sticks with Schultz so much that Starbucks has an employee healthcare plan that invests in people. There is an employee college degree program. Starbucks had a race relations day in 2018 in light of a discrimination in their stores. Starbucks values are progressive.

Starbucks China

Starbuck has >3500 stores in China. So how do you transfer your culture in a different market? Howard Schultz actually had struggled with China, he sent two Americans to lead the Chinese expansion. It was a Tea-drinking society. But bad management decisions were reversed when Belinda Wong became CEO of Starbuck China, she was able to attract great people, identify the right cultural mix and bring the Starbucks brand into the heart of the Chinese consumer.

Localizing Your Brand to Other Cultures

Jack Ma asked Howard Schultz to speak in China in front of his Alibaba staff. As Schultz was talking, he noticed that most of the people in the audience were really old. But it was explained to him that those were the parents of the employees. Every company wide event, Ma invites the parents of the employees because the family unit is so important to Ma. Jack Ma created a family company. Howard Schultz copied that so that Starbucks employees invite their parents, aunts, uncles and celebrated the children and the family, to grow with the company. They want Starbucks healthcare for the parents; created with the Chinese government and an insurance company. The price of admission is that you need to be value based but you need to have the financial performance as well. Again, these aren’t mutually exclusive things, according to Schultz.

Be Intellectually Curious

You should be looking around corners and see what others don’t. Sometimes you will be in an uncomfortable situation because of that. You can’t learn stuff in a textbook. It’s not the worst thing to make a career mistake. Learning and practicing your craft in whatever role you are in now is critical.

For example, Howard Schultz worked for Xerox because it was considered such a great company. Xerox training centre for professional selling skills. He became an assistant of a sales. You had to take the humility of rejection and perseverance and keep going in sales. Creating leads for the actual sales person.

Ask HR What You Can Do

Ask them by stating: This is where I am today, what can I do outside of the reference of my immediate job to go get myself more informed and more involved. Ask your manager, why was that decision being made? You have to be prepared to learn, asking questions.

Easier to Disrupt Rather Than Invent a New Category

Most business ideas that turn into startups: those businesses to do not succeed. As a baseline, the odds are against you. There is always this question of what is the best road to take. Should I disrupt a category or invent one. It is very very hard to change consumer behaviour. Unless you have the most compelling platform and win the long race of losing money, it is much easier to disrupt an existing space.

What size of a business are you thinking about?

Howard Schultz invested in AllBirds shoes, the ethos and the quality of the shoe, social media and emotionally engaging with the consumers set them apart. There is always an opportunity for a niche player and we will have the nibble-ness that big companies simply don’t.

Importance of Focus

You need to have Focus on the business. Where can you add to the business. You will have a challenge and see where you can see where you are applying your time. Assess what you think that you have had the impact that you think you should have had.

Ensure Your Economic Model is Viable

Everyone has a financial model and economics. If you can get 20% operating margin, you’re good ie if you have a 1M store you want to get a profit of 200K. If you are getting only 10% then you aren’t doing it right. Use the monthly income statement as a report card of what you already know. The income statement is just on aspect of the company. But the other issue is the values of the company. You should be engaging people on what is going on. Don’t be formal about these things; you need to be in the mud.

Think Customer First

Always imagine the customer and the employees at the table during your decisions. Does this solution improve the customer and employee story?

Do Your Due Diligence

If you are getting investors, do your due diligence on them. Their history should be the due diligence on the company. Talk to the entrepreneurs on how they acted in the past given a certain situation. You should want to know how that person has acted in the board room. One question is going to be how will we work together when/if things go wrong. Then set up a hypothetical. How can I rely on you. Then ask that person with the investors. Do your homework on your investors.

How much equity to give up?

As little as possible. At the same time, most CEOs are worried about control, but you can maintain control of the company even was 10% or less of the ownership as long as you lead well and keep making money.

Under promise and over deliver

The entrepreneurs should explain why they believe in the idea. It has to be personal relationship with the project. You have to promise the investor, with 100% conviction, that the investor will get the rate of return that they deserve.

Overinvest in Culture

Culture has been a catch-all but what does it really mean. It is vitally important in order to be success. You should understand human behaviour and then elevate your group of people that they are part of a company that is larger then themselves and their behaviour which will ultimately define the company. You want to have a company where your people are talking about their job in a positive light at the dinner table. They should love what this company stands for. You should also look at the actions you might not approve of and stand up and say that is not consistent with the brand of the company. And then have townhalls where people can express how they feel and where there will be no retribution and have it out. No retribution is key.

Hire a Values-Based Team

You should try to attract great people. People don’t want to be managed, they want to be part of something bigger than themselves, they want to see themselves as part of that vision, they want to be appreciated. So a good manager should create the atmosphere that we are building something larger than anyone of us.

You have to have a high standard, and you have to define what is mediocrity, what does it mean, what does excellent performance. “Our individual and collective responsibility is to the 300K employees of Starbucks” Howar Schultz. If you see something inconsistent with the value and you basically let it slide then you’re screwed.

Dealing with Competition

Do your homework about the marketplace. Features, benefits, price and experience understand it. Be mindful of the competition. We should be in control of our own destiny and need to believe in our own goals, regardless of the competition.

Cannibalize Yourself, Innovate and Undermine Your Comfort Zone

You have to be ahead of infrastructure, can the company take on a new startup like project? On the one hand companies chase too many things too early. Schultz doesn’t think that you can create value in having too many projects with the limited resources you have. You want to have incrementally accretive improvements to the brand.

Leadership

It’s easy to lead when things are going well, it’s harder to lead when things have gone the wrong way. Growth typically covers over the mistakes. So the challenge is to continue the behaviour of an entrepreneurial. Story telling is a great way to tell the story of the company.

Transparency Means Sharing the Responsibility

In 2008, Starbucks suffered from hubris. Howard Schultz had to return to the company as CEO. He wasn’t really paying attention at board of directors level. So on his return, he said that here is the real problem; we are losing money for reasons X, Y, Z and there is a financial crisis right now. Schultz believes that you should trust your people enough to give them that information. How can you ask of them if you don’t share with great transparency. 50% of our customers who came last year, aren’t coming to Starbucks this year. The economic crisis was completely challenging. Are you going to hide the ball or share that bad information? Schultz believes you should share it so that people can take action on the ground.

Cuts Sometimes Must Happen

You might have to make cuts if the downturn is serious. The sooner you make the cuts to the company the better. There will be a significant impacts. You need to show empathy in that situation. You should dream it, but never say it out loud. There is no straight line, most of the challenges are not going to appear in the textbook. Make sure you have the right team in your game.

Presidential Run – January – March 2019

Howard Schultz initiated a presidential run in 2019 that looked at running as an independent and not a democrat. While it was short lived, it was memorable and thoughtful.

Schultz Identifies the Problems in US Federal Democracy Well 

Parties Are Bunk

The two party system is a duopoly that does not represent the American public. 

Extremism

is both a means of intensifying the GOTV “get out the vote” and a product of gerrymandered seats where the only flank to worry about is even a less compromising extremist insurgency (progressive left and radical right). 

Hyper-Partisanship

If you say one thing positive about your opponent or move 5 inches away from the ideology, “you’re out” your own party will enforce a toll on you.They are unwilling to work together, hence the need to break the status quo…

Hyper-Media Partisanship

As mainstream media became increasingly under threat by a new online forces, they too have re-oriented over the last decade into hyper-partisan, re-enforcing.

The Public Doesn’t Get Represented

It’s so screwed up that really only 8 battleground states actually have impactful voters; the other 42 statesgo solidly one way or the other. While these 42 do fluctuate that gerrymandering certainly doesn’t help break the state by state red state blue state issue. If you are a democratic in a red state you’re screwed and vice versa. 

Legislative Gridlock

The federal government was not able to pass bills under Obama and then under Trump, executive orders shot up precipitously. If you read the Master of the Senate, you’ll see that parliamentary politics is a series of negotiations, faction building exercise. What Schultz was pointing out was evidently true, that the two party system has crushed compromise in the age of the internet. In the 1990s, everyone was worried that Gore and Bush seemed cut from the same wool, now it’s that the only way to get elected is to say the most unbalanced, irresponsible things.

Overlap of Self-Interest and Public Interest

Obviously successful politicians are interested in self-interest and self-preservation, and not doing the right thing on a regular basis but it is compounded by the fact that they do not know what the public actually wants…. just those who show up on their team as supporters + what can be legislatively accomplished after the election results are tallied.

Ideological Framework is A Form of Prejudice

The ideological framework that fits into two parties has been a taught way to organize voters into discreet camps. It has the comforting benefit of being able to distill complex reality into a coherent paragraph, the tragedy is that people actually believe that paragraph can make sense across all policy areas. The idea that ideology should be consistently applied is a marketing technique too, that you are voting for these specific policy preferences therefore “vote for me.” It’s goofy and wrong. The ideological spectrum does not overlay cleanly to delivery or outcomes across all policy areas. The budgetary and technical constraints of government do not match up with the ideological spectrum except in extremist regimes which are typically disastrously managed. And in fact, the spectrum is a crutch for our cognitive weakness and love of consistency and predictability, most voters should hate the left and right nomenclature because it does not reflect their needs and desires, but ultimately, people are busy and not compelling alternative is in place yet. Schultz simply said I would be the power broker between these two political machines…

Independents aren’t in the Middle

Instead, independents reject the spectrum. Being an independent is synonymous with being intellectually free. 40% of Americans are independents and it’s a mistaken idea that independents are in the middle, it’s more that they hate being owned by one or the other party which can then take them for granted.

The Schultz Brew

His solution is for him to run as a centrist that can deliver a bipartisan presidency. That can work with Democrats and republican lawmakers who he has pull but no allegiances to. Schultz wants to break the log jam in legislation. A fairly noble goal!

Getting People in a Room

Crowdsourcing policy solutions organically. This approach is a common one, but by lifting the partisan lens, Schultz is suggesting integrative solutions is what is needed.

What Schultz Got Wrong

Not offering anything truly innovative alongside his candidacy: he basically said he alone would fix the US.

Extremism is a bargaining position 1/2 of the time

The reason that hard left candidate can win is that about 50% of their supporters know intuitively that a lot of the ideas on the far left aren’t financially or economically feasible, but that the tactic Trump initiated which was to shift the overton window further to their position which will be a better starting point for negotiations in the legislative system that the US has. There are elements of free education at the university level, but education is certainly overrated, it’s the person learning that matters. The fact is there is never any thought put into the execution of the policy. Schultz has a sense of this which is his saving grace. The tepid and annoying middle, is far more likely the outcome in negotiations, and Schultz is saying “I’ll be standing right there to get deals done.” 

In Practical Terms

A big part of his gamble was that Bernie Sanders or a further left of centre Democrat would win the nomination. That turned out not to be the case as there were more centrist candidates vying for status in the eventual nomination’s team of rivals. So a running joke in Washington was that Schultz was enriching consultants who knew that he was not going to cross the finish line at all.

The Startup Logic In a Government Context

In order for Schultz to win, he has to win which seems circular but it’s true. Expectations of government are unrealistic, that projects have to be perfect from day one: Optics Optics Optics! Starbucks wasn’t built in a day though. For Schultz, he has to get Democratic and Republican voters to pivot to him in a system that has hardwired disappointing but binary choices for many many generation. The voter has to not worry that their vote is “splitting” or “spoiling” the vote before the election has been tabulated. Post-facto claims that X candidate split the such-and-such vote is a classic claim but it is wrong-headed since t only be derived after the vote. Pre-vote, it is a partisan campaign tactic. 

Howard Schultz Is Boring and Partisan

His ideas on what’s broken about US politics were spot on (I would have made drastic chances) but as a presenter, when you are competing with a train-wreck that everyone loves to hate or loves to love, Schultz was not the compelling story of 2019. He likely sold a few copies of his book however. By taking firm stances, he only subtracted from the coalition in his campaign, the triangulation trap being what it is. Saying that unions aren’t the answer to most companies he says, the management needs to do right by their employees. Don’t tell the teacher’s union of America. He was also saying the Democratic party was garbage, but then didn’t really show up with anything other than the line that he was the centrist candidate to steal votes from Trump and the eventual Democratic nominee. Ultimately, his talking points are simply a centric Democrat in the Joe Biden, Pete Buttigieg, Amy Klobuchar lane…If he had played in that arena, he might be president today. Not to say that would be how he would want to win…

Art, Business

Will Wright on Game Design

Leave a comment

Will Wright in a Nutshell

Video games Wright has designed: Raid on Bungeling Bay (1984) SimCity (1989) SimEarth (1990) SimAnt (1991) SimLife (1992) SimCity 2000 (1993) SimCopter (1996) The Sims (2000), Spores (2008). Will Wright is the game designer behind wildly success simulation games / non-zero sum games. SimCity was one of the first truly viral single player zero-sum games on the market in early the 90s. He went onto develop SimEarth, SimAnt and SimFarm to name a few. He then developed The Sims which was another massive hit. He also create Spore and is currently working on Proxi….below are notes from his Masterclass as well as interviews over the years. Enjoy!

The Fundamentals of Game Design

You should understand that games are a vehicle that helps us derive an alternative perspective on reality. We observe reality only through our own perspective, games enlighten us by providing another perspective. As a game designer, you are really just building a toy. It is when the players plays with the discrete toy that it turns into a game.

Psychology of the Players, Designers and Co-workers

  • A major part of game design is to understand how to use game mechanics to try to predict how people will play the game.
  • Real world simulation is Will Wrights focus. Games are toys. Games have basically borrowed from many other design fields such as:
  • film,
  • mathematics,
  • interior design,
  • architecture,
  • theatre,
  • books,
  • journalism,
  • radio,
  • TV,
  • cognitive psychology,
  • fine art,
  • product design,
  • engineering,
  • data science
  • and other video games.
  • In order to be great game designer, you need to be well-rounded. You should expose yourself to design fields; how does a designer work? Always think about how to communicate your design basically. Design a game on a piece of paper and you are better off developing on a simple piece of paper then spending a lot time building up a grand design. Share your ideas with others. Same with story telling really.
  • Your team needs to understand the total vision for this product. You also want to prune your ideas like a tree. Test different avenues to figure out what is working what is not.
  • Already read up on ‘user centred-design’

Embrace Constraint

Without constraint there is no design. Know the constraints that you have. The constraint can be what are the user constraints or computer constraints.

Design Beyond Zero-Sum Game

Both people can win! It doesn’t have to be violent to be fun. Will Wright was never really interested in zero sum. You don’t have to build the largest city. Certain players are just trying to build fun cities where their imagination can be invested. We are able to externalize imaginary world.

Game Ideas

Once you have a game idea, it’s more emotional = more important to you. Game designer can do any product area and it’s cool. Find your palette for exploration. Ant colonies are very intelligent. So take this into an approachable game because it has the potential to be very emotional.

Research Without Limitations

You had to go to the library. For SimCity, Will Wright had actually started from another game idea which was an helicopter bombing game. Then he researched systems thinking and urban systems to support SimCity. You shouldn’t really look at the real world but rather other research that attempts to understand and describe that world.

The Sims looked at how we spend our lives. How do we improve ourselves. By delivering a speech in front of a mirror, by reading lots of books, your Sim improves their standing in the world. So the game reflects reality but is not a full simulation, it is a still very much a game.

  • Thinking in Systems: A Primer, Donella H. Meadows. Chelsea Green Publishing, 2008.
  • A Pattern Language, Christopher Alexander et al. Oxford University Press, 1977.
  • Flow: The Psychology of Optimal Experience, Mihaly Csikszentmihalyi. Harper Collins, 2009.
  • Urban Dynamics, Jay W. Forrester. Pegasus Communications, 1969.
  • Maps of the Mind: Charts and Concepts of the Mind and its Labyrinths, Charles Hampden-Turner. Collier/Macmillan, 1982.
  • The Ants, Bert Hölldobler and Edward O. Wilson. Belknap Press, 1990.
  • Gaia: A New Look at Life on Earth, James Lovelock. Oxford University
  • Press, 1979.
  • The Ages of Gaia, James Lovelock. Oxford University Press, 1988.
  • Reality Is Broken: Why Games Make Us Better and How They Can Change the World, Jane McGonigal. Penguin, 2011.
  • The Medium Is the Massage: An Inventory of Effects, Marshall McLuhan. Gingko Press, 2001. The Society of Mind, Marvin Minsky. Simon & Schuster, 1988.
  • Blood, Sweat, and Pixels, Jason Schreier. HarperCollins, 2017.

Zero In on A Concept

  • Look at the components, look at the concepts. How do we think about perspectives. 2 or 3 ideas will gain tractions. Start designing your model. Once you have a general subject for a game you will need to look at different perspectives: for example if you interested in a stock trader, you might want to explore how a stock trader lives and works.
  • For difficult design choices you will have to trust you gut. Will Wright was not sure about the appeal of The Sims but he knew it was interesting to him. Trust your gut. You should take any experience and should be able to find the interactive and interesting.

Coming Up with Ideas: Randomizer

Want to come up with a creative idea really quickly? Go on Wikipedia an click on the “random article” button. Read the articles that you find interesting…

Build A Tangible Model

  • Find the fun in the game. Then try to figure out what are the parts that are fun. And build a compass in order to navigate the kind of tree.
  • You should be prototyping the game at this stage. Turn the concept into the game. Prototype is a way to ask the interaction question: you might have a visualization or graphics question. You need to answer and interact with this and then talk to others.
  • Figure out Where are the Failure States. How much difficulty is there with using this product.
  • Answer specific questions for your user testers.
  • Keeping an open mind is essential, read this story about Ojiro “Moppin”

The Interactive Process of Research > Simulation Prototypes (Paper or PPT or Graphical) > Game Play Prototypes

Here are some free and inexpensive engines for you to explore: Unity, Unreal, Gamemaker Studio, Twine, PuzzleScript, Godot, and HTML5.

The Relationship Between Story and Games

We have our own little models of the world. And this influences our behaviour. It’s not really enough to build effective models of the world. Other methods:

1) Play: Toys: symbolic representations;
2) Story: Stories: friends learning;

  • You have the toy experiences and other people’s experiences. We are able to build a better model of reality with the addition of new play and new stories.
  • Cool stories you can deconstruct the universe and then play in them. Games with agency are very different. Will Wright believes you should enable users to tell the story: we fundamentally want to capturing. People want to express themselves through play.

Design Player-Centred Experiences

  • PT Barnum said “no entrepreneur went broke overestimating the intelligence of the American public.“
  • You should try to build a mental model of your players head, according to Will Wright.. A magician plays with the mental model of his/her audience. When they use slight of hand to misdirect the audience.

Human behaviour is derived from mental models / filters

I imagine what they think of me. They think of who they are from my perspective, often. We collect data through our senses. We identify patterns. We apply schema to organize experiences and predict outcomes. We are You observe what the hypothesis is and experiment and understand. All our models are played in the schemas (expectations, categorizations), and the model and the behaviour.

Allow your Mental Model to Diverge from Reality

SimCity doesn’t match reality. What is correct, versus what is entertaining? As an entertainment designer, a real city is much more political and not something fun. The real world of municipal government is not a game for Will Wright.

Motivate Your Player, Then Get Out of Their Way

If you can get players motivated. You follow your own games. Once you get motivated, then get out of the way. The most fun people have is when they can draw a cause effect with their actions and the outcome in the game.

Enable a Flow State

  • Your game can’t be anxiety inducing and not too boring as well. You want to make meet a flow state: a state of complete absorption in a task, characterized by a slowing of time and a loss of time.
  • To get your players in the flow state you need to balance the difficulty of your game against the maximum ability of your ;layers. If there are fail states, they should be quick, make sense and factored into the next game loop.

Failure Is Helpful

There was a pottery class where one half of the class was told that their final grade would be determined by the quality of their best pottery. The other half of the class, their grade would be determined by how many pots they made. Of course the more pots you make the better you get at pottery. So the students that were graded by how many pottery projects they finished also tended to have the best quality pottery.Failure as long as it’s entertaining.

Design Nested Loops

You have success and failure. Learn from that longer loops of success and failure in the game. You want to understand the success and failure here. So then you have to have these success and failure loops. There is an orthogonal game loop; this is where some players actually build their own goals in the game.

Make Failure Fun

  • Will Wright always tries to have a lot of humour in the failure that the player experiences in his games. Make Failure Funny or at least somehwat Fun. That the accident is funny. Will Wright suggests that it is critical that you understand how the system actually works.
  • The player can choose the goal state. There are sloops of achievement peaks. You want to catch the metrics on testing.

Develop the Games Language

  • Don’t be afraid to use common metaphors and references to traditional games here.
  • Use the language of your game to influence players behaviour.
  • Develop a Game Language: the magic circle they are building a temporary community of games. Are you playing or not?

Rewards and Incentives

  • There were weird easter eggs in your game? Good.

Reference Real World

  • Use metaphors:
  • The Sims is a doll house.
  • SimCity is a train city.
  • The metaphor of the trainset.

Designing a Visual Aesthetic

  • The visual aesthetic is going to define the effect of the game. Look at fine art. Will Wright likes the toy-like feel and more playful and touch able.
    This is a toy like model like.
  • Looking at the style of the 1950s comic book covers: the games of Spore was all about being fun.
  • What can we do to have more involvement and where it is more fun.
    Art director should try to give you choice; think about the alternatives.

Game Mechanics

  • What is the locked door, what direction do you need to take to engage in the game. You should have a leaderboard or scoring system, you can add more difficulty to that process.
  • There are overt rules. Control the player, your encounter the world.
  • There are hidden rules: SimCity is actually really simple; The Sims don’t speak normal.

The user actually creates a causal; the players are imagining the simulation is better than they think.

Monte Carlo Method as a Shorthand for Statistics

  • You throw darts on a board and see where they land. If you throw 100 darts then you will have a breakdown of where they land that can be statistically accurate. This can serve as an alternative to complex pixel counting.
  • You want to ensure the player experience the signal, not the noise.
    The player should always want to feel that it is their fault if they win or lose; agency is essential. The lack of agency in democracy is astounding.
  • Humour is absolutely essential to effective change in people’s minds. The only way to win an argument is to make people laugh.

Iteration and Scoping

  • You should recognize when you’ve reached the summit of your local maxima of your design. You need to push to overcome that local maxima by making a dramatic change to find the better design elsewhere.
  • Conduct ‘feature triage’ where your designers assign a priority value to a feature and then your engineers assign effort costs indicating the amount of time it will take to execute such a feature.You should be continually attacking the highest risk. You can then mitigate these different risk. You should try to prune the design tree.
  • You need to explore really good games; There is this challenge where you have reached the maxima where if we move it slightly it will be worse. You want to find a slope.

When in doubt, double it

If you double it sometimes the idea that is prototype that you are building, you need to recognize failure and the move forward and Will Wright was working on a helicopter bombing game and was designing cities to bomb when suddenly he realized he was having more fun designing the cities. The cities that he was designing turned out to be the most interesting part hence the creation of SimCity.

Playtesting / Kleenex Testing

You start UAT testing of the game. The user might come up with how something fix. Try “Kleenex Testing” just watch two people try to play your game. They will talk to each other about the game. They do not have any assumptions about the game… Find out how they play why they are not pressing the right button. They will explain what they think about the game. These types of testers are helpful, you have no intention of having they play again hence they are Kleenex testers. The model or filter can actually be very different from what I was thinking. Then you need to attack the risks of the user experience.

Steps in Playtesting

  1. Get your prototype to a point where the players can interact wit it without your impacting them by begin directly involved;
  2. Next, invite 3 groups to test. Gamers, non-gamer whatever.
  3. Group the players into demographic groups;
  4. Set up three copies of the game in the same room, have beverages and snacks ready;
  5. Offer a brief introduction;
  6. Rotate through the room with the designers, taking notes. Have the group puzzle through the game. Focus on their frustrations;
  7. Study the notes;
  8. Can that behaviour be used to enhance the game or not?
  9. How can your future designs maximize the feedback from this playtesting?
  • What patterns did we observe?
  • What fun was had and what frustration was expressed?
  • Did we observe unexpected behaviours?

Early Testing versus User Testing

Decipher Underlying Problems: you need to do option of X, Y and Z.

Signal versus the Noise

  • You want to see what all the problems that these users are having in common. If all these designers can see then:
  • “Your garden is not complete until there is nothing else you can remove.” Japanese Proverb.
  • If a player is playing until 5am then you know they love that game.
  • You can capture metrics for player.

SimEarth, SimAnt and SimFarm

You could adjust the model, Will Wright got caught up in creating the perfectly complex models and saw that they didn’t really like that complexity. The Sims was simply fun because you could mess with the people. You should revisit the assumptions with the way people are interpreting what you have done.

Focus Group Testing Is Bunk

Focus group testing s something that is kind of useless. It’s a big mistake to basically try to get your audience to design your game. They will frequently say what they think the interviewer wants them to say.

Sound Design is very powerful. Players will imagine that the game has better graphics because of the sound design. Film score music is incredibly powerful in effecting player perceiption. And it is a lot easier to prototype music than any other art so getting that right is both critical and very possible.

  • Fall back on humour. Humour can make any error easier.
Miyamoto and Will Wright

Pitch Early, Pitch Often

  • The first game you design is your pitch.
  • Explain your game to people, frequently. You should try to evolve the pitch by watching how people respond. You should try to refine the pitch as you progress. Verbally describe the game. You can pencil out a few details. You should try to pitch in your head. But also with the Sims, the Dollhouse didn’t make sense. You have to rethink, you have to learn to pitch for the consumer. People will start playing the game that you have described in their head as you describe it.
  • Always Pitch the Feeling, how can I make them feel the best about the direction.

Pitching – Reference the Topic

Here’s why it’s cool to build a city. Talk about this is where YOU can do X. It makes this more interesting.

Pitching – Anticipating Questions

Why is that going to fun. People will try put you into a landscape of games this is just like X game. You can take this into a totally different direction by anticipating their questions. And reshaping their perception.

Pitching Tips

  • Everything is going to build on it’s own merits. You have to be careful about talking about something that it is not trending. Do not try to catch the latest trend.
  • There is no one-size fits all pitch. Your investors want to know that this will make them money.
  • The potential team want to hear about something they would be interested in building it.
  • Game journalists will want to hear about why your game is exciting and different.
  • Refine your language based on your audience.
  • Pitch from the perspective of the player.
  • Master your log line, make sure your one line description of the game is spot on: Hotline Miami (Devolver Digital, 2012) “Hotline Miami is a high-octane action game overflowing with raw brutality, hard boiled gunplay, and skull-crushing close combat”

Common Mistakes

  • Never talk about the genre. They tend to provide to much information.
  • Don’t Fill In the Blanks: important to let the participant fill in the blanks themselves.

The Platform

Technology, the demographic and the type of gamer is critical in console development. Understand your game in relation to the types of platforms that most make sense.

  1. The iOS App Store and Steam has made innovation in gaming more easy;
  2. Player types have different expectations for what you are building and what they are willing to play;
  3. Don’t really on the hardware features of your platform of choice since you don’t want to be locked into one other the other.
  4. The Free to Play model only works if you have millions of players downloading your game since the conversion rate is about 5% to paying users. Whenever you encounter a micro-transactions in a game decide if you enjoy that or find it exploitative.

Consider the Economics

  • You have to fundamentally think about something cool and only then choose to monetize it. Some people are uncomfortable with that. Do not lead with monetization, always lead with value creation first.
  • Leadership: you should try to instill the design team to the team. You should try to find talent on the team.
  • You don’t want to be wasting too much on meetings: group memory.

Look for Outspoken Collaborators

You want to have constructive meetings, you would have a cannery in the coal when someone asks a pointed question. You should stop the meeting at somepoint. Arbitrary time frames like 1 hour should be avoided just stop the meeting.

  • Be comfortable with criticism
  • Seek insights from your entire team
  • Use a game design document to keep track of your project

AI could Fundamentally Craft the Game

Neil Stephenson Diamond Age: the computer is customizing the game around you to make it more interesting and then have people that have a shared vision meeting each other.

Game Ideas – Be Open Minded

  • Take a board game and add or subtract a few rules to see how it works.
  • Think in systems…
  • You will need to be open-minded to design the future. The best way to predict the future is to invent it.
Art, Business

David Baldacci On Commercial Writing

Leave a comment

David Baldacci is an author of many paperback novels. These notes are from his MasterClass.

Finding the Idea

The Writer Prism

Writing is a lifestyle: it needs to be incorporated in your daily life. You need to be looking at the world, but combining what’s black and white + your imagination with a few tweaks of reality. Writers run reality through a filter of your own creativity.

Look for Problems to Solve: wouldn’t be cool if something normal was actually changed slightly? You want to have the puzzles in your story, you have to leave clues, it tests your wit and cleverness. Make sure the story is puzzling.

Entertain and Inform: think about the opioid crisis and automation; rustbelt towns. Paying people $9 an hour to run around an Amazon warehouse. You want to feel a bit smarter after having read that book by raising awareness of these or other major trends and concerns.

Write about things that you are passionate about: Michael Crichton loved dinosaurs, don’t write a dinosaur story as a result of Jurassic Park. Don’t jump into the story for 100 pages and run out of the gas, either. That’s a risk when you don’t write from the heart.

Story Combinations: read the front page of a newspaper story then read a back page story and look at whether you can combine those two in a plausible way.

Research and Method: You have to learn about the industry you are covering. You need to be a journalist and then learn about it first hand. You will have better plotting and writing as results.

Live Your Research: If you use a real gun in your novel? It helps if you actually have fired such a gun.

Go to the places you are setting your novel in: People will see if you got the information right, so make sure you are accurate or there will be hell to pay.

Character of the Location Is Important: the location will drive and imprint on the soul of the characters. It makes it more monumental. If you pick a coal mining town, visit it because it is critical to understand it for the plot.

Zero Day: Baldacci interviewed people, study nuclear weapons and then distill into a 2 pager. John Puller is a researcher who can explain it in dialogue. You do not want to lose the audience. Really use a lot of easy dialogue to explain the situation to the reader. As a writer, leave almost all of your research out!

Research Methods and Sources: “does anyone know a secret service agent?”… Baldacci was able to get a connection through his friend network. Don’t just go in cold-turkey. You have to show that you respect what they do. Do what Robert Caro did and move to Texas to study the hill country. Ask how did you become a secret-service agent. Ask questions like what is it like being [job]? Always remember to not record others without disclosing it. Don’t send important information in emails; you should be very discrete.

Buildup the Plausibility: if it could happen, it’s been considered by your audience to be real. No one can argue that is implausible. If you can imagine it, they have already done it….in the US military.

Research isn’t as hard as the story: you should try to do research and then write and then research more. It is so attractive to continue to research, it’s like going back to college. But don’t forget to write.

Outlining Your Story: do your outline for where you have to get to. Baldacci doesn’t do some work. He writes out what is the big story. He recommends winging the story and it might be more interesting to plan to the halfway and then figure out where to go.

Do Mini-Outlines: do not get overwhelmed with the story. You should focus into discrete tasks. You have to build the building blocks, and then you don’t feel overwhelmed. If you are thinking about all 145,000 words, 500 pages you would freak out and not start!

Working on small bullet points: you do not want to focus on the whole book. You should sweat about the small scenes, since small scenes make great novels, it doesn’t work in reverse. You need to work with outlining and then you need to let your mind grow and flow. Work on the forces behind an action…

Surprise Your Reader: You want to slant the reader into expectations that you then skew; you want the reader to say I never saw that coming. You want the reader to say “not going to try to predict what is going to happen in this novel. I’m going to read on.”

Constructing a Powerful Chapter: if you try to figure out the whole novel at once well then you should start with the “big pop”; which should be the first chapter. It’s the touchstone of the story. It’s the most important chapter. You want it to be more important. The mothership is the first chapter.

Create Momentum with Short Chapters: hurry up so we can get to something massive. You want the rapidity of chapters to signal imminent events. You have to hit these chapters quickly and hard.

Create Some Balance: if you have just interior monologue, you want to have some break up in the type of chapter. You should diversify. Dialogue is a powerful story telling mechanism. Bullet point your writing in the outline. You are always going to add as you write. Why are you writing Chapter 12?

Why are your writing Chapter 12? Be sure you know what’s the purpose of every chapter in your book and what isn’t the purpose of this chapter.

  1. Convey information,
  2. Develop character or
  3. Move the plot forward.

Tension, Pace: building mystery into the thrillers. The mystery has to be in there to trick the reader. You need to build the mystery incrementally. It’s not easy to build a mystery.

Lay the Groundwork to Make It Plausible: you have to lay the groundwork. It has to be clue by clue. You need to have all the material together. Then the twist is something that the reader would say “that makes sense.” You cannot have one false note in your story. “I never saw that coming” is key because the reader is engaging the story to try to solve the problem.

The sound of the car, the plane going over: the red herring: it’s a misassumption; and you assumed it was an airplane when it wasn’t it was a bi-plane, that’s a red herring.

Maintain a Ticking Clock: you need to make sure the time is ticking with this story. If you let something lapse, you don’t want people to be reading back earlier in the book to remember why the time is ticking on this story.

Take a Reader on the Roller Coaster Ride: you cannot sustain a constant action packed story, there is too much going on. You can’t sustain that. You need to have chapters where your characters heal their wounds, go get beer, have a pattern of crazy things happen then there is a lull, you need to rest the audience. The same with films as in books, the same needs to happen.

Give the Reader a Recap: the reader probably has too much going on in their lives to remember everything from earlier in the book. You can’t trust that something 18 chapters ago is going to be remembered by the reader. Detectives say “here is what we know about the situation….”

Build Anticipation with Cliffhangers: anticipation needs to be built. You have a cliff hanger. Pause in mid-scene. You can’t use every chapter to do this but it’s a fun trick. Your main character has to let himself go and nothing, he doesn’t seem to care about life…then the news comes in about who killed his family. Boom, end chapter.

Cliffhangers: Zero Day, you need to entice the reader to keep going. To makes sure they continue to turn the page. The so-what of your writing. Why did you spill this ink?

Creating Compelling Characters: You remember the character. You know his character. You need characters badly. It’s the only shot you have to connect with the audience. You need to have deep characters. You have never met a perfect human being; and just like in novel, you need flaws to make them humans, it gives you plot engagement too. You can root for them. How can I make any reader like this guy? Mistakes.

Give Your Character Baggage: Fodder, that you can foreshadow with. After he hit rock bottom. The best way to get readers into the story, is to put your character in rock bottom. Then it comes a challenge to show how they survived the situation.

Sidekicks Should Be Deep: You have to have an aircraft controller with your characters. Do not ignore your sidekicks. The journalists and the detectives and they could just float away: but instead they have to work with each other.

Antagonist is a Complex Character: It gives them depth and complexity. If you have an evil genius; No one want to think he was just a psycho. You actually ought to meaningful motivation.

Memory Man: Amos Decker: The character that sees the world very clearly. Why is his mind so weird? The narrative shows that the character is very unique in the way they notice certain things and analyze the world around them.

ID the Emotional Context: People don’t really talk pointlessly. What is the emotional context. You need to round out the scene. How would you feel if this happened to you. You need to get into the emotional side.

Make Every Word Count: When you are writing dialogue, you need to make sure the characters are efficient. You might realize that the story is very important to you or the description of the forest in Tolkien is very important to him but not to your reader. Be brief, every word matters.

Become a Student of Humanity: You need to listen to people. Watch their body cues; you can tell they are prevaricating. Live in the real moment and see if you can accomplish that.

Read Dialogue Out Loud: Test your ear. If you were worried about it, get your friend to talk the scene out with you. Does this sound right?

You can use shorthand in your writing, the reader doesn’t want to know about these short-hands. Be very careful about the readers. You should have shorthand stuff; technical language is useful but make sure it is against something that the reader can read. People actually know, that could insulate the reader. Do not insult your readers.

Writing Action: You want action to see if you can jolt the reader. Then the action can convey the information. You can actually learn about the character through action, it has to be important. You want to make sure you don’t screw this up.

What does it feel like to be shot or hurt? Know how to describe that. You should show the consequences of these actions. Slow down the fight scenes. Savor them if you can.

Choreograph Action Scenes: you should try to visualize the scene. Plan the details.

Make the Action Believable: This guy bleeds. You neve want to write science-fiction where the character is completely crazy. He almost died there are consequences to the scene. No one will buy it if the hero is impervious to harm.

Writing Process: Baldacci was a lawyer but he also had to find the time. He would spend time at night 10 to 2am. But if you really like your stories you will take those 4 hours a day to focus in on your writing. He wrote 4 hours per day. Either write in the mornings or evenings. You should set out little goals for every writing session…

You Have to Find the Time: If you really wanted to be a writer, find the time. Writing is a compulsion. You find your time if you are really into your career. So writers are ready to find the time. You have to be creative to find the time to do your stories; 4am to 8am or 10pm to 2am….

A Good Clip: 2,000 words, or 5 pages per day. Baldacci doesn’t write at all some days. He could write 5,000 words in one sitting. So every day is a bit different. You may find one process doesn’t work. The perfect place is in your head: you should be able to write anywhere. You should be focused and be productive in a coffee shop or subway car.

Immerse Yourself: You should re-read the first chapter of the novel then the last two chapters you recently wrote to get you warmed up, that way you can avoid doing the next scene cold.

Breaking Writers Block: Go work on another project, and take a shower, go exercising. He does a lot of long walks, let your mind wander.

Self-Imposed Deadlines: Baldacci has an April and November deadline per year. Baldacci never misses those marks. He is the fastest editor in the west. He then does the editing in the novel and then mixes and moves plot points around nearing the final draft. Have an internal deadline; when you immerse yourself in the material; you have to live with the material.

Editing Process: go through the manuscript and then edit 12 times and then do the big boy edit (one final read through), you turn the manuscript around start to finish and then cross out other aspects. And then remove the preachy time or soap box type stuff. You cut out a lot of material or you just have to add a few lines. Copy-editing stage: this is where you work to get the manuscript off your desk.

Check Your Pacing, Chapter by Chapter: look at the roller coaster ride that you’ve built and lay out how to make it more appealling.

Walk Away from the Material: Take a break, and have a clean look at it again. During the editing, you should know where you are in a novel just be reading a few lines.

First Draft: there is a lot of tightening that needs to happen and then you cut some sections out.

Know When to Let It Go: you have to wear your psychologist and writers caps; reader might feel differently You have to let it go before you edit it to death. Let it go and then move on to the next book.

Working With An Editor: build trust with editors. You have to have trust and confidence. Writers have to have trust. The editor is trying to make it better. A good editor will say promo! you need the editor to tell you the truth where the plot is not working. there will be disagreements over the manuscript. Open communication is essential. Not any word is set in stone, take feedback in context.

The Buck Stops with You: you should make the changes, then copy-edit. The buck stops with you. You can’t really change that much. So you have three opportunities after your first draft.

Editorial Letter: take feedback positively, character X could use more attention, similar to actors on the screen. Try it and see if it makes the story better. In fact, that’s how several other novel series were born for Baldacci.

Navigating the Publishing Business Part 1: if you are given an advance, then you are given 15% of the book’s cover price, so if the book is $25 then you get $4 bucks. Then you’ll learn about royalties. The publisher gets better placement of the book on Amazon for example, then you get this bigger pie because they want to grow your share. Get all your expenses in there, but then we have money left over which Baldacci splits with his publisher. He gets 50% of the revenue in that deal. You should learn about the business, you should learn about the publishing industry. You will then feel more in control. Understand the industry, you won’t get screwed. You want to help sell this book that drives the publisher’s profits.

ThrillFest: is a July convention. Do panels. And then they have publishers and then pitch ideas.

Look to this as a Career: you want an agent that manages your career not your one book. You want to negotiate your own deals. You want to have sage advice. Are you receptive about the craft? You need to lift yourself out of the sludge. If you tell your agent that you are only doing one novel then you will lose their interest fast since they want to milk you just as much as a multi-book publishing deal. Align your interests otherwise you will get screwed.

Actively Promote Your Book: print ads, airport placements. Be prepared to publicize this book. If this is one book success, then you will lose your audience. You can reach people and build the ecosystem with more than one book.

Pay Attention to World Rights: be sure you do not sell world rights to the publisher. You can sell your American rights and then British, you should be wise to meet your country by country publisher to get better deals on a bilateral basis. If you sign off World Rights, then your publisher will do all that work for you and get a better deal for themselves. Don’t work with a publisher that want to do World Right or nothing at all. You should do your own World rights deals and build your fan base over there.

Establishing the Booksellers: you should do book signings. Walk around the stores, how many returns do you get? how many people do you see? There are book stores on book tours that you have to visit. You need to promote your book by being present.

Build Your Fan Base: you need to write regularly just like podcasts etc. 1 per week and for a book, it’s 1 per year? He has many characters with multiple series. You have to get out there. He went around the world to get fans. You want to build your fan base by writing another and another. You shouldn’t just write every 5 years, there is a free market, people will forget you and your books. Note that Baldacci writes okay books twice a year (3 months to write one + 2 editing). They know that they will be consistently reading, that’s the way the market place is. The biggest problem; you need to follow-up with a reasonable fan base; or they will forget about you.

You can do self-publishing, editing and sell copies. You can have thriving careers on Amazon. You can send sample chapters as well.

Stay Focused on What is Important: some authors actually forget about what got them there which was the writing and thinking.

Writing A Series: if you have the motivation to write a series. A is for Alibi, B is Burglary, don’t say that you can’t take on a series. The world will miss out on a great character if you don’t write a series..

Give Your Characters Wiggle Room: so that you can potentially write a separate series featuring them.

Next Books: always sell the idea to the publisher that you want to write a series of 8 books.

Be Consistent

Everything is consistency; if your character reappears in a new book than you need to know about them. Be consistent with what they do. You should master your own material. Do not screw up the arch, make sure that your character actually follows an arch.

Books Change The World

So be the next vital cog in making this system work. We need people’s inner drive. Don’t give up what you care about. If writing is your passion, then follow the words and good things will transpire.