Do We Trust Our Future?

(This article originally appeared at Harvard Business Review)

What happens when there is a mass loss of confidence in the financial system? This very contemporary question was put in unexpected historical context for me this Christmas by a book I was given, A History of the World in 100 Objects by Neil MacGregor, Director of the British Museum. It is based on one hundred radio lectures given by MacGregor (which can be heard here) about items from the Museum’s collection, each chapter discussing a specific artifact. Some of these are mundane, such as an arrowhead or a drum, while others are grand, such as the Rosetta Stone or a Welsh gold cape. For someone like me who has spent his life designing products and thinking about how objects acquire personal and cultural meaning, it was a perfect gift.

One of the first artifacts I thumbed to, a 400-year-old Ming banknote, has striking parallels to today’s world, where there is broad disillusionment with the financial system and a lack of confidence in its future.

The Ming note is an early example of paper money, something that today we take for granted. But if you step back and think about it, paper money represents a remarkable act of faith that we carry around with us every day. It’s an abstraction of coins made from precious metals, which are in turn an abstraction of goods such as crops and livestock. This pattern of abstracting further and further away from “real” things and “real” value has continued to the present day, giving us credit cards and collateralized debt obligations (not to mention casino chips).

MacGregor writes, “[The] ability to convince others to believe in something they can’t see but wish to be true is a trick that has been effective in all sorts of ways throughout history. Take the case of paper money: someone in China centuries ago printed a value on a piece of paper and asked everyone else to agree with them that the paper was actually worth what it said it was…The whole modern banking system of paper and credit is built on this one simple act of faith.” 

Paper money is certainly more convenient than barter and gold coins, but the abstracted leap of faith requires something to back it up in order for sufficient quantities of people to buy into it. MacGregor quotes Mervyn King, the Governor of the Bank of England, who jokes that “I think in some way the right aphorism is that ‘evil is the root of all money’!” since trust in whether the money would be properly backed was the key problem, leading the state to become the issuer of money. King continues, “And then the question is, can we trust the state? And in many ways that’s a question about whether we can trust ourselves in the future.”

The Ming note is printed with the statement that it is “To Circulate for Ever” — quite a vote of confidence from the treasury, and presumably one necessary for such an innovative approach to payment and livelihood. Paper money was part of a larger overhaul of the financial system by the first Ming emperor after the previous dynasty — the Mongol Empire — had collapsed. Similar to how fiscal innovations in recent years were justified by statements about economic growth and prosperity through home ownership, Ming’s new financial instruments were described as being for the social good (in their case, funding education for children).

But the new system didn’t work very smoothly and eventually the whole thing collapsed, though not without an early experiment in quantitative easing (i.e., printing more money) which led to devaluation of the currency. Mervyn King says, “Once people realized the link had broken down, then the question of how much it was worth was really a judgment about whether a future administration would issue even more, and devalue its real value in terms of purchasing power. In the end this money did become worthless.”

From Bernie Madoff to derivatives to the housing bubble to dubious AAA credit ratings, we continue to find new ways to encourage people to make financial leaps of faith. Have we reached a breaking point where the abstraction has gone too far, and is too complicated for 99% of people to understand what they’re signing up for, that we must backtrack to more conventional methods? And has the level of trust in private and state financial institutions sunk so low that most people now feel there is no accountability or responsibility for the promises made, or that sound decisions will be made to guarantee “circulation forever”?

I believe that we have. As the Ming dynasty shows us, a properly operating financial system is both symbolic and symbiotic. It doesn’t matter if the ones driving the system trust it and the artifacts representing it, if the majority of the public doesn’t, the system will crash. The well of trust is so poisoned today that it’s hard to see how we can continue forward as is, though unfortunately, relatively little has been done at a structural level to make the necessary changes. 

Can we pull ourselves out of a Ming nosedive, or will we ignore history and repeat it?

ID Magazine to Cease Publication

ID Magazine, the venerable standard of industrial design in the US, is closing after 55 years as a print publication. It will continue doing its design annual, but only online.

I’ve certainly had my issues with ID Magazine, but still it’s sad to see it go after not being able to adapt to the world we’re in now.

From the press release:

December 15, 2009

To Readers, Advertisers and Friends of I.D. Magazine:

Since 1954, I.D. Magazine has served as one of America’s leading critical magazines covering the art, business, and culture of design. Today it is with regret that we announce its closure. The January/February issue of I.D. will be its last; subscribers to I.D. will receive Print magazine for the balance of their subscription.

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frog design has put up a flickr slideshow of some of its famous back-cover ads from ID over the decades, check it out

Tide: Now That's Cold

Tide (laundry detergent brand of Proctor & Gamble) has recently launched a detergent specifically designed for cold water usage. In other words, even white clothes that normally go in hot water can now be done in cold water.

The commercials cite the monetary savings from not heating water for every wash, a smart move in this economy. As Sustainable Life Media points out, this also has environmental benefits.

The major laundry brands have all developed cold water-specific detergents for developing countries where availability of hot water is spotty or non-existent. Could this be an example of innovation transference from emerging markets to the US?

Saving the Car Companies is a Giant Triple-Bottom Line Experiment

Despite car czar Steve Rattner’s protestations that saving GM and Chrysler is simply an investment decision, it seems to me that we are actually witnessing one of the largest triple-bottom line pushes ever made at major corporations. And not of their own volition.

Bottom Line 1: Financial. Obviously the goal is to get the GM and Chrysler back into stable fiscal shape if at all possible. The Obama administration doesn’t want to be in the car business, and would prefer to back out as quickly as possible, which means getting the companies back on their feet, financially.

Bottom Line 2: Environmental. The administration has made producing hybrid and more fuel-efficient cars a string attached to the investment

Bottom Line 3: Social. While there are no requirements, so my knowledge, to dictate social responsibility in the way that it is usually thought of (worker rights and pay, community investment, etc.), in a sense GM and Chrysler are both beholden to the American people, and have a responsibility to help get the economy back in shape, given their large economic footprint. Many workers would love to have the salaries and job protections that auto workers enjoy, so that’s not the issue, but more the larger social ramifications if the companies were to collapse. And because of the massive taxpayer investment, the companies need to do good, be good and act good, in order to show good return faith to the public.

Harley Davidson in a Skid

Reveries has some thoughts on the freefall that Harley Davidson currently finds itself in, battered by the recession

Harley’s slide certainly is tied to the recession, but there’s more to it than that. When times are bad, obviously it’s less likely that people will “shell out up to $20,000 or more for something that is basically a big toy.” It doesn’t help much that most of the Harley market consists of baby boomers who are watching their savings implode. But it also appears that Harley contributed to its own troubles in a chain reaction of mistakes.

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Harley is like Starbucks in that it created a strong customer experience, a sense of belonging, and then expanded that massively to a more mainstream audience. In the process, both lost their way. Starbucks let its experience get diluted at the edges, which impacted its core business. And the idea that by offering small luxuries it is recession proof has been sorely tested lately.

Both companies were on the vanguard of the experience economy, as Pine and Gilmore termed it in their book of the same name. They wrote, “The company that is perhaps most successful in embedding its goods into a total experience is Harley-Davidson. How many other company logos do you find tattoed on users’ bodies?” (p18).

Harley Davidson likes to pretend that they are of the people, for the people, a FUBU for boomers. But in reality they are in the high-end luxury escapism business. And when the bubble bursts, that’s a bad place to be.