I’ve often wondered how business people think differently than other people. To date, I’m most familiar with the world view of engineers and artists. As an engineer, I find I’m drawn to the minutia sequencing action to produce results. As an artist, I’m drawn to the interplay of my senses and thoughts with other people’s life experiences. But business? I have no idea. The offer to review Andy Kessler’s new book Eat People came at a good time, as I’m going to have to figure out this business stuff if I want to make a living doing my own thing.
Briefly, Eat People (and Other Unapologetic Rules for Game-Changing Entrepreneurs) is an informal manifesto on the nature of wealth creation, a question that Kessler ponders throughout the book through the exploration of history, his own experiences in the workplace, and the ideas of people he has interviewed over the course of his journalism career. I imagine that Kessler is the kind of guy that is attracted to people who really are living by their own rules, and within the context of business he labels one class of entrepreneurs as “Free Radicals”. These are people who create wealth by actively scaling up volume and driving down prices, waste abundant resources to extract what is precious, eliminate jobs, and harness the labor of other people to do the value-creating work. They’re pro-globalization and pro-obsolescence, profiting where opportunity allows them to practice their brand of innovation.
Increased Productivity Creates Wealth
Kessler’s central premise is that it’s increased productivity that creates wealth. On first read it sounds stupidly obvious, but it’s actually more subtle a statement. First, accept a definition of productivity in economic terms: “output per worker”. By increasing the output of a worker, “more output” is created with the same expensive resource; you can say that it’s this increase that literally creates more from nothing. For example, if you could make 10 hamburgers for sale in an hour, but then found some way to make 20 hamburgers an hour, you could say that your increased productivity has produced 10 more hamburgers worth of value. Whatever your innovation was, you’ve been able to create more valuable assets in the same amount of time, which once sold gives you more buying power. And with more buying power, you improve your standard of living. It is this ability to increase productivity that Kessler puts a premium on, with all other business activity acting in either a supporting role or (in the worst case) as form of systematic thievery.
How to be a Free Radical
A true Free Radical, as I understand the concept, is a kind of hero-entrepreneur that creates new ways of making abundance while making a profit. Unconstrained by the mindset of the non-creating drones who see any profit-driven motive as inherently evil, the Free Radical endeavors to create opportunity that destroy less-efficient means of production. If that happens to put a few people out of work, such is the price of progress. Rule #7, for example, is the “Eat People” rule, and it targets inefficient processes that employ people in jobs that could be replaced by robots. However, over the long term, it’s those same efficiencies that allow people to buy more at a lower cost. That we can afford to buy gigantic televisions for under $500 which, even ten years ago, easily 10 times more expensive, is an example of how our standard of living has improved.
Yes, there are many counter-claims that arise, but Eat People isn’t a book written to defend an economic theory. Instead, it’s more of a thought-provoking manifesto about the mindset needed to identify explosively productive–and therefore profitable–areas of endeavor. Kessler has identified 12 such “rules”, listed below:
- If it doesn’t scale, it will get stale.
- Waste what’s abundant to make up for what’s scarce.
- When in doubt, get horizontal.
- Intelligence moves out to the edge of the network.
- Wealth comes from productivity; everything else is gravy.
- Adapt to humans; don’t make them adapt to you.
- Be soylent–eat people.
- Markets make better decisions than managers.
- Embrace exceptionalism.
- Be a market entrepreneur and attack political entrepreneurs.
- Use zero marginal cost to create a flood (or someone else will).
- Create your own scarcity with a virtual pipe.
Although they’re called rules, I find it more accurate to think of them as “themes” that Kessler explores in some detail. Each theme isolates and expands upon each aspect of the “increasing productivity creates wealth” formula in a somewhat roundabout but entertaining fashion, and with focused reading I’ve come to an understanding of economic forces that I didn’t have before. Here are my impressions of a few of the sections:
1. IF IT DOESN’T SCALE, IT WILL GET STALE
The basic premise: if you create an abundance through ever-increasing volume and ever-decreasing price for a market with a bottomless apetite, you have something that is scalable. And scalable is good, because that abundance can be used by others in their own value-creation endeavor, creating a massive wave of innovation. For example, computer memory used to be very expensive and used quite sparingly. Now, it’s abundant, and has been incorporated in lots of devices because it’s cheap. If it had remained expensive, you could argue that the rate of innovation in electronics would have stagnated and not benefited as many people. And, if you are the supplier of abundant cheap value, Kessler suggests, you can make a fortune.
2. WASTE WHAT’S ABUNDANT TO MAKE UP FOR WHAT’S SCARCE
Continuing from the previous chapter, Kessler notes that every economic era has been characterized by a “canonical abundance, marked by the plummeting price of a key factor of production.” In other words, when a product like steel became cheap enough, durable railroad tracks could be built from it compared to brittle cast iron.
The real trick is to convert what is abundant (and therefore cheap) into the scarce things that you really want. The chief scarcities, which Kessler passes to us via his buddy George Gilder, are human ingenuity and time. If you can convert abundance of steel into time saved, you’ve got it…think faster locomotives and steel railroads. Or converting computational power into a replacement for human ingenuity, as software does. And that is what people will pay for.
5. WEALTH COMES FROM PRODUCTIVITY; EVERYTHING ELSE IS GRAVY
Kessler notes a study that proclaims that productivity is the “single-most determinant of a country’s standard of living”. This isn’t the same as profits, mind you. It’s about how much more you’re making. In other words, what you can do to increase productivity. If you can create something that allows people to do more in any fashion, you’ve contributed the ability to create more wealth.
This chapter is notable for its discussion of money and how it works. After a bit of puzzling it out, I was able to finally piece together an understanding of how the U.S. Federal Reserve system works:
- Banks borrow their money supply from the Fed at a low interest rate in exchange for regulation. This cheap money from the Fed can be loaned out to businesses at much higher interest rates, ensuring that the banks can profit.
- Banks loan out as much of that money as they dare to businesses who need it to grow.
- Businesses use their loans to hire people and purchase capital goods so they can make stuff and profit.
- The money spent trickles into the rest of the economy.
The interesting part to me is that the money supply needs to be carefully matched to the actual amount of wealth (in terms of tangible goods/services) that is available. The Federal Reserve controls this supply through working with the banks, who are the entities that actually loan money to business so they in turn can profit by marking up the interest rates from the Fed.
If the Fed makes too much money available to the banks, they may loan too much and flood the market with cheap money. This leads to more money vying for the same amount of available goods/services. Since the amount of goods/services available hasn’t increased, prices go up. And when prices go up, that means everyone’s buying power goes down. Kessler makes some interesting side comments about how the Fed made too much money available prior to the year 2000 just in case all the world’s computers crashed; the extra money in the system had to be absorbed somehow and was channeled into bad investments which helped screw up our economy.
But I digress. This chapter is about how productivity is everything, and Kessler makes several observations on how efficiency and effectiveness affect the formula. His definition for productivity, which I think belongs on a coffee mug, is this:
Productivity is doing the right things while doing things right.
He’s got more to say about sustainability (the signal of the ending of abundance) and how productivity has a limited shelf life as well.
7. BE SOYLENT–EAT PEOPLE
The short of it: If you can come up with a way to eliminates the need for people, you have found another way to create abundance, scale, and increase productivity. It’s harsh, but viewed through the strict lens of Kessler’s definition of productivity, it works.
Basically, anyone who is not creating improvements in productivity are potential targets for job elimination. Using myself as an example, consider graphic design. A graphic designer is necessary if you want to create a corporate identity for your business, because they have the skills and training to do the work and you do not. However, if you can replace the graphic designer with a process or product that provides the SAME level of value you seek at lower cost, you’ve have the opportunity to make a lot of money. The catch here, of course, is the determination of “value”. In graphic design, a talented human designer is going to better at creating value than a clip-art package or contest-based design site like 99designs.com. For some people, the value is worth paying a premium. For others with a lower standard of aesthetics, the clip-art identity is all they need. If you could come up with a way to deliver guaranteed value at a lower cost, you have found something that represents an opportunity to profit.
The argument can be understood further by looking at jobs that have already been eaten. For example, there are fewer bank tellers now because of ubiquitous Automatic Teller Machines (ATMs). Banks were able to make cash available to us through these machines 24 hours a day and in multiple locations, which saves us time while saving the bank money. Jobs were lost, but time was saved and profits were gained.
So how do you find these opportunities to eliminate people? Kessler has a fascinating hierarchy of usefulness based on the view that increasing productivity is the highest virtue. First, he splits people into two job categories; those people who work to increase productivity are at the top of the utility pyramid and are labeled CREATORS. Everyone else is providing a service of some kind, and are labeled SERVERS.
A creator, in Kessler’s nomenclature, is someone who increases productivity, which is what ultimately creates wealth. The more people doing this, the better. Servers, by comparison, serve the people who generate the wealth. They can make decent money, as lawyers and doctors are in the server camp. Also included are cashiers, designers, plumbers, carpenters, and so on.
Kessler goes on to describe several subclasses of server who are actually produce no value at all, but just take it out of the system. They add cost to the system and, in Kessler’s eyes, have not merit. Politicians he holds in particularly vile regard. They all have fun named like “Slopper” and “Slimer”. Free Radicals are crusaders against those people, who suck value out of the system to pad their own pockets at our expense. They charge tolls, raise fees, and slow down innovation. The fewer of them, the better. Eat their jobs.
But shouldn’t we feel bad about destroying jobs? Kessler notes, “in a world where all we do is wash each other’s cars, no wealth would be created.” If you can get rid of humans, you probably have found a way of increasing productivity, as awful as that sounds. Every job is fair game in the information economy. If you could get your car registration renewed without going to the Department of Motor Vehicles, instantly, would you do it? You’ve cost a DMV employee his job because you wanted to save a few minutes. However, Kessler believes, over the long term that displaced worker will find a better job. We would all be, as Keller says, “picking artichokes for a living” if progress didn’t continuously move society as a whole forward.
It’s an interesting argument.
The Remaining Rules
Kessler’s set of rules/themes provide further insights into the mechanisms that a Free Radical are ready to apply. I found them all interesting, though to understand some of the concepts I had to draw on prior knowledge and be on the watch for critical distinctions. Take rule #8: “Markets make better decisions than managers”. The chapter really is talking about the generic idea of a market, not “The Stock Market”, yet it leads with a description of stock market operations. It’s a fascinating discussion, but you have to remember what Kessler’s point is at the end of the chapter: markets can help discover price. The followup examples, however, are few.
Although I found the structure of the book to be more conversational than rigorous, it’s also thought-provoking in the way that an article in WIRED helps me connect disparate ideas together in unexpected ways. For example, Kessler’s dip into a four-characteristic model of human intelligence (Rule #9: “Embrace Exceptionalism”) has given me a new view of my own cognitive abilities. The related discussion of Griggs v. Duke Power Co describes how companies have to use colleges as a workaround to screen for general intelligence, because the direct use of general aptitude tests is a violation of civil rights law. I find tidbits like that fascinating, and Eat People has its fair share of them.
What of Morality?
Increasing productivity in the way that Kessler champions has the side effect of eliminating entire industries, which creates uncertainty for the people whose livelihoods are linked to them through no fault of their own. There are a lot of people, whose goals are to have a steady job so they can raise a family and be part of a community they love. The Free Radicals create wealth is created, sure, and our standard of living slowly increases from decade to decade. But this is not much of a consolation prize to the people who bear the brunt of the change.
Kessler is not ignorant of this, and the last chapter of Eat People takes the time to discuss the moral implications. For example, are profits inherently greedy? Kessler sidesteps the issue a bit by putting his emphasis on the creation of wealth as an altruistic initiative, raising everyone’s standard of living and creating the future. In the journey to a better tomorrow, many of us will experience turbulence.
As I’m not an expert in business or business books, I can’t say that Eat People is a great book. For all I know, this is stuff that’s been hashed and rehashed before. However, as an artistically-inclined engineer-designer that’s trying to figure out just how business people think, I found the book quite thought-provoking. And I can agree with a lot of Kessler’s underlying philosophy, because I also place value on the ability to create and innovate. Personally, I see merit in growing the economic pie for everyone, and I am disgusted by people who only take without adding value. Perhaps I am just cynical enough to believe that it’s profit that ultimately is the last word in motivation, measured not only in dollars but also in security, power, and self-satisfaction.
I’ve gotten a little taste of how the larger world of economics, business growrth, and markets work from the context of being an innovative creator / Free Radical. I find the idea very exciting.
On a final note, Eat People isn’t a how-to book. It doesn’t provide a rigid set of steps that will help you put together your business plan and execute your way toward radical entrepreneurship. That’s up to you to figure it out: the book merely tries to open our eyes to new patterns. I would classify it as a book of observations from a guy who has spent quite a bit of time looking at a certain kind of business in an analyst role. Kessler himself notes that what he’s talking about here won’t help you if you are “milking an existing business” for profit, and there are plenty of other ways of making money, and plenty of other books that will show you how to run an enterprise. Eat People is a book that distills Kessler’s own passion for a certain kind of entrepreneurship. The twelve rules/principles (thirteen if you include the bonus rule) could save these entrepreneurs much time, helping them recognize the economic waves as they develop. The independent-minded, free-thinking creator is then in the position to harness those waves to success.
Eat People (and Other Unapologetic Rules for Game-Changing Entrepreneurs)
by Andy Kessler
Published Feb 3, 2011 by PORTFOLIO / PENGUIN
Final Word: I find myself thinking about the concepts presented in this book frequently, not only for business ideas but for story ideas. I found it a fascinating launching point for further investigation of many topics of interest to me, from market psychology to cognitive science to the history of industry.
Available at Amazon.com.