Gervais / MacLeod 19: Living in Truth, fighting The Lie

Yahoo recently bought Summly, a startup run by a 17-year-old, for $30 million. Since the product was shut down, it was a “talent acquisition” (or, “acq-hire”) intended to hire the team, making the list price a pure hiring bonus. This move has, predictably, generated a lot of buzz.

Let’s look at the economics of the damn thing. The information that’s coming out seems to indicate that three engineers will join Yahoo, with an 18-month commitment. Prorated over that time, that’s $6.7 million per engineer per year. Of course, Yahoo hopes that these engineers will stick around for longer than that– perhaps five years, making that price only $2 million per engineer-year. Such numbers are not atypical in the world of acq-hires. Companies routinely pay $5 million per head (40 years of salary, at market rates) just to get a team of validated talent. There are two ways to look at this. The first is to conclude that in-house engineers are getting screwed: if a relationship with an engineer (expected duration: about four years) is worth $5-10 million, doesn’t that mean they’re severely underpaying in-house talent? I think software engineers are underpaid, but on average, we’re not worth $2+ million. Some of us are, most aren’t.  The second possibility is that the engineers being hired are just far superior to Yahoo’s in-house talent. I doubt that as well. I’m sure that Yahoo has amazing software engineers making much less than $6 million per year.

What does it say that Yahoo is buying high-school-age engineers at a panic price?

Of course, some people are taking it as a sign that Yahoo doesn’t have internal talent, or can’t get it. That’s offensive, and almost certainly not the case. I’m sure that Yahoo has plenty of capable people. What acq-hires say is not that a company is so bereft of talent that it can only get it from outside, but that a company can’t recognize talent at the bottom. It’s there, but the middle-management filter is so defective that the executives have no clue what they have. This is similar in character to a hoarder. By “hoarder”, I’m not talking about people who keep receipts or silly mementos, but the pathological kind whose living quarters become filthy, dangerous, and borderline uninhabitable, and who require psychiatric help for normal living. A true hoarder will have to buy a new coat every winter because the old one, without fail, gets lost in a personal junkyard of useless stuff. Anyway, such a person’s likely to be needlessly spending $500 on winter clothing every season, because his house is such a pigsty. What he needs is already there, but inaccessible. This is the problem that rank cultures have when it comes to talent. They become so unable to spot talent at the bottom that, even though they have talent “lying around somewhere”, they can’t (or won’t) find what they have. So they have to panic-buy it in this ridiculous bubble climate. What’s this about? It’s about trust.

Yahoo is not getting hoodwinked– at least, not in this. As the executives see it, they’re buying a trusted team. Capable software engineers are worth these “absurd” amounts seen in acq-hires if they are trusted by the organization. Give a good engineer full autonomy over her work, and give her important work, and she’ll deliver millions in value. That probably applies to these guys, but it also applies to Yahoo’s stronger engineers. On the hand, if you don’t trust her, use her for fourth-quadrant work, and fail to develop that talent; then she’s worth, if you’re lucky, 2 to 5 percent of her peak potential. This is only tolerable in software because 2-5% of a competent engineer’s peak potential still exceeds the market salary.

Trust sparsity

Large rank-culture companies seem to be talent hoarders, with no exaggeration in the use of the word hoarder. They bring smart people in, because the talent is “worth having around”, especially at a wage level that is insignificant to a corporation. They let it go to waste. They build up a formless array of people at the bottom (with more rigid, but pathological and constantly changing, managerial structures to organize and stack-rank them them) and, not knowing where the talent is, tend toward prevailing trust of everyone down there. Clearly some of those nincompoops at the bottom have talent and some don’t, but it’s rarely worth it to sort through the mess in the basement. This becomes a self-fulfilling prophecy. Good engineers don’t want to work in companies that don’t trust them, so they leave; good managers don’t want crappy reports, so they quit. The end result is an all-levels flight of talent from the firm. What results is a loss of trust in all levels of the firm. Executives start assuming that their reports are all morons (the “bozo bit” defaults to the “on” position) and that the only candidates for decision-making roles are “special people” hired from outside. Workers stop believing that their managers give a damn about their career development. It’s a omnilateral breakdown of trust that is very hard to reverse.

When people stop trusting each other, they become dishonest. No, I’m not saying that a company like Yahoo is full of liars– I doubt that to be the case. However, there are degrees of honesty, and the important ones (e.g. willingness to share bad news and explore difficult realities, as opposed to merely furnishing truthful answers to simple questions) require trusting the other party with the truth. That’s the endgame of trust sparsity. It creates a world in which some degree of dishonesty is not only beneficial, but necessary for one who wishes to survive.

I mentioned, in Part 1, the social currency of credibility that is supposed to come from work performance, but that Sociopaths find other ways to get. They realize that, even if the organization wants to think that social status mirrors contribution and capability exactly, it can be tricked and “merit” can be bought on a black market. Trust sparsity exists in an organization when people tend to distrust the competence and decency of the other players. Employees doubt they’re fairly compensated or well-directed, managers distrust their reports to get their jobs done and tend to micromanage, and people are afraid to work with other teams, because the default assumption about another person in the company is that he’s an unreliable idiot. The “bozo bit” starts out in the on position (meaning people are, by default, regarded as idiots until proven otherwise).

Trust density is the opposite, in which people are generally assumed to be competent and decent. The “bozo bit” starts out in the off position, and only people who prove to be really bad are distrusted (and in a functioning organization, they’ll be let go). This matter of trust sparsity versus density seems to be a binary property of social groups. Once a company “flips the switch” to trust sparsity, it becomes impossible to get anything done without disproportionate credibility. This turns into a “permission paradox” state where the only way to get a project that would confer credibility is to have it already– unless you want to take the “fake it till you make it” strategy. That’s when MacLeod Sociopaths (who, again, are not always bad people; but invariably willing to break rules) start to take over. Bad artists borrow, good artists steal.

That’s why “why not?” cultures are superior to “why you?” cultures. MacLeod Sociopaths will just take credibility, no matter what the official culture is. If they can arrogate it silently, they do so. They’ll ask for forgiveness, not permission. The difference between good Sociopaths and bad ones is what they do with that purloined freedom. A “why you?” culture ends up relying on its Sociopaths, who are a difficult crowd to aduit.

When you have trust density, honest people are at an advantage in the environment of transparency and collaboration that it generates. Getting real work done is what people recognize. When you have trust sparsity, however, you end up with communication droughts, and it tends to be dishonest manipulators who acquire credibility and push themselves ahead.

Living in Truth, and the Lie

This is the most personal topic in the MacLeod series. The other organizations I suffer abstractly, as much as anyone else does. Those traits of organizations irritate me, and I find them perniciously inefficient, but they don’t mess up my life. This is an issue that has rocked my career (in good ways, an bad) from time to time. I care a lot about this one. I’m going to talk, for a bit, about living in truth.

When you live in truth, you decide to be consistently honest, and to assume good faith from other people (although you do not take them at literal word). You live and work as if it were a trust-dense environment, and you don’t try to hide the fact that you’re doing so. You’re honest with your manager, even if he’s not forthright with you. You inform counterparties of the risk inherent in deals you wish to make, even if it’s to your disadvantage. You don’t bullshit, and you don’t tolerate others’ nonsense either. In the classical sense of the word, it’s cynical: live virtuously and honestly, assume basic goodness in others, and oppose dishonesty. 

The modern concept (and the name) comes from Vaclav Havel, who championed “anti-political politics“. The idea is that, rather than directly opposing an overbearing political force, to live as if one were free. No violence or protest needed. Just do the right thing, anyway. This is a courageous and rare thing to do, for the obvious reason that political authority (especially under Soviet rule) can be terrifying. If one person lives in truth, he gets shot or thrown in jail (as Havel did, being imprisoned for several years). If a million people do it, society changes. The Lie’s only scalable weapon in the face of exposure is further dishonesty and, eventually, it becomes absurd and falls in on itself.

It’s actually much easier for us corporate denizens to live in truth, because we really have little to lose. What might happen? A job might end. That’s the loss of a relationship with someone who didn’t value us in the first place. We might get bad references (hire a lawyer; a well-written C&D will clear that up). Then there’s the “job hopping” stigma. Okay, that’s real, because there are a lot of imbeciles out there who are stuck in the 20th century who’ll throw out your resume for having “too many jobs”, but there are non-imbeciles out there as well. These are all serious consequences, but nothing compared to what real dissidents have faced: prison and death. So what the hell is our excuse? I’m not asking for self-immolation here, but moral courage would be nice. My experience in the corporate world has convinced me that it’s thin on the ground. People prefer the comfort of the Lie over a life in truth.

What does “truth” mean in a corporate context? It means doing the right thing, even if it hurts. It means placing value on personal health and progress, profitability of the business, and cultural integrity. It means taking responsibility for strategy at one’s appropriate scope, rather than using the following-orders defense for failure. It’s never easy, and it’s often punished. A synonym for living in truth is for an employee to be (a word I’ve used before) self-executive.

In a culture of truth, employees are self-executive and it’s assumed that they will be. Trust density dominates. I don’t intend to claim that what I’m discussing in a panacea that magically causes dishonesty to go away, but a self-executive world is one in which the honest can fight back. They have a chance. They’re informed, and it’s worthwhile for them to speak because people in power will actually listen to them. Nothing can change the fact that there are bad actors out there, and good people who work together badly. Even the best organizations will have to deal with that. But a self-executive world is one in which good people can still win.

I’ve talked about truth, and we can agree that it’s good. What does The Lie look like? Well, in typical corporations, the powerful aren’t explicitly dishonest. They’re careful not to say anything on record that is literally untrue. It’s more that they’re so opaque with information that emergent dishonesty is the norm. Valuable information is so guarded that people don’t even know if they’re doing their jobs properly, which makes it easier to mask a termination as “for performance”. Managers can claim that “there isn’t money in the budget” for a raise when that is only correct with the added context, “for you.” There’s a lot of dishonesty that opacity enables.

Corporations like The Lie because it creates an executive in-crowd. A nasty joke has been told, and the target doesn’t even notice. Sociopaths get the joke, and the Clueless butts have no idea what’s happening. MacLeod Losers would get it, but they’ve chosen not to be in the same room. The Lie is also an extremely powerful weapon. If you’re in on the Lie and have some control over its direction, you can use it to take people down. That’s why reputation economies tend to be hacked by the worst sorts of people. The Lie is very good at ruining reputations. That’s how the fucking thing fights back: it reduces the credibility of its opponents with (big surprise) deceptive half-truths, opacity, and outright lies.

In terms of corporate employment, reputation damage– in forms like immediate firings, bad references, and possibly frivolous lawsuits– is all that it has. That should establish it as very weak. Why? The Lie’s counterattack has constant total strength but a variable number of targets. It’s like a fireball spell that, if it hits one target, does enough damage to kill a demigod but, if it hits fifty, barely scratches them. If everyone fights The Lie and The Lie fights back against everyone, its weapon is so diluted as to be impotent. No one will buy into The Lie if it starts smearing more people– especially if they experience getting smeared, which is one way for a person to learn viscerally that The Lie is a lie.

Right now, people are terrified of bad references, short jobs, and public terminations. People don’t “bad mouth” unethical employers for fear of severe career repercussions. Now, I tend to agree that people who air “dirty laundry” (mistakes and embarrassments within normal bounds, that any complex entity will endure, as opposed to real ethical problems) are doing something that they shouldn’t, but some companies and executives are just deeply unethical and deserve to have their secrets blown. Right now, this sort of thing doesn’t happen until it’s far too late– investors were defrauded, employees robbed, and customers left hanging– because no one is willing to risk long-term blacklisting to do something that, while desirable to society, confers little personal yield. The Lie perpetuates itself by making truth scary for the individual who might expose it.

“Stone Soup” and convex dishonesty

Why does The Lie exist? I’m going to tackle a related question: is dishonesty always bad? With dishonesty, I’m not talking about “white lies” or inconsequential politeness or even the semi-formalistic lies (such as never disparaging an ex-employer or boss, instead saying “I was looking for new challenges”) required by decorum, but rather about willful deception of other people with the goal of altering their behavior. In other words, deception means serious sociopath stuff. So, I think it should be obvious that we’re going to fall somewhere between “always wrong” and “most often wrong”. I intend to convey that it’s the latter: it’s most often wrong, but not always. There are situations that require dishonesty.

There’s a parable, probably going back to medieval times, about a village in a deep state of famine. Each villager has plenty of produce, but they hoard food, never sharing or trading it because they distrust each other. Everyone’s malnourished; they’re probably making bad decisions, and slowly dying.

A pair of outside strangers, also hungry, comes to the village and asks for food. Slammed doors. Nothing. So they camp out in the town square, put a rock in a cauldron with some water, and start boiling it. Curious villagers, from time to time throughout the afternoon, come by to ask what they’re doing. “We’re making Stone Soup, a delicious specialty where we’re from. Would you like some?” Villagers agree to partake, and the travelers suggest that Stone Soup is even better with just a few carrots. Parsley’s good too. Rice. Chicken. Soon enough, the whole village is on it, with each contributor thinking he or she is adding just a little extra to a completed product. Of course, the stone is actually inert: “Stone Soup” is just hot water! So the stone is taken out at the end, and the soup is served to the village. Everyone gets a much healthier meal than they’ve had in months. Victory. The End.

This is a case where’s pre-existing trust sparsity within the village. They don’t share food, because they don’t believe the others will be fair to them. Instead, each eats only the one food product he or she has, and they’re all malnourished. The travelers, needing to eat, do something dishonest. Asking for food doesn’t work, so they make up a nonexistent delicacy, offer to share, and ask people for ingredients one-by-one. The result is that everyone gets a bowl of real soup. They all benefit, but it’s still dishonest. This isn’t a polite white lie or a “protocol lie” where both parties understand the truth can’t be told. It’s intentional deception with the explicit goal of altering economic behavior: legally, we call that “fraud”. Yet it’s clearly a good thing they did. This is a model case of convex dishonesty.

What’s convex dishonesty? It exists when one party gets commitments from others through dishonest means, under a situation where a small number of commitments will lead to failure but a large investment will pay off multiply (convexity). The goal, of course, is to succeed and pay everyone back.

For a less defensible example, let’s say that I have a business strategy that will require investments of $1 million from five people. If all contribute, we’ll net $21 million. I take $1 million for the execution and pay $4 million back to each of the principals. If we don’t get all five commitments, however, everything is lost. It’s very risky to go in as the first, second, third or fourth investor, because you’re betting on the whims of all the others. The fifth investor experiences no risk. A devious way to maximize my chance of success would be to tell each of the 5 participants that the other four were already committed, implying that there’s no risk. If I pull it off, everyone wins. We all get a payday. However, if one of those players can’t invest, or doesn’t trust me, then we all lose.

Why is that convex? It pertains to the input-output relationship between resources and payoff. In the example above, the payoff function is zero from 0 to 4 commitments, and $21 million at 5. That’s the “hockey stick” graph that is the epitome of convexity. Typically, a convex profile means that a mediocre commitment will result in failure (hosing the investors) while a large one will deliver outsized success. Investors are effectively betting on whether they believe others will commit, and the fraud is in convincing them that the others have.

Stone Soup has a similar profile. The value of the soup is somewhat subjective, but convexity is clearly in play. If one villager puts food in the soup, he gets screwed. He’s giving away some of his food for a “soup” that he could make at home. He’d probably be very angry. If twenty villagers participate, however, they get a food that they couldn’t have made alone.

With convex dishonesty, you’re typically generating validations (often “social proof”) to create the impression that a project is almost in a desirable state, in order to motivate people to contribute so you can get to that point. You’re selling a “vision” to get commitment before you have any way of knowing whether you’ll gather enough to deliver. I’d imagine that most startup entrepreneurs understand this intuitively: one has employees, investors, customers and press, and all are looking for progress with the other groups to see general “traction”. It might be tempting (and it’s generally quite wrong) to exaggerate one’s success in other departments– for example, to hire people at a low salary with the promise that “Series A funding will be here in two months”, or to mislead investors with inflated customer numbers (don’t do that). It’s just very hard to orchestrate a situation where that heterogeneous collection of needs and resources grow together.

Convex dishonesty isn’t always good. It’s often bad. What’s wrong with it? Well, most scams look like convex dishonesty. For one game-theoretic example, consider the “drop-our-books” prank played in junior high schools across America. The butt of the joke is told that, at a certain time, the whole class is going to engage in some disruptive behavior (such as dropping one’s book on the floor, clapping, or yelling out). If disruption of class is considered “good” (e.g. positive utility in schadenfreude against the teacher) then it’s convex. If one student does it alone, he’s embarrassed and possibly punished, so he loses. If all the students do it, they laugh at the teacher’s expense but can’t all be singled out, so the group wins. Of course, the fraudulent aspect of this is that only one person (the butt of the joke) will actually engage in the behavior. The other students laugh at his expense.

In fact, phenomena that “look like” convex dishonesty can reach extremes of evil. Ostracism is a case of that. I’m not talking about mere individual social rejection, but when a community is persuaded to reject someone entirely. Influential people in that group create the usually-fraudulent perception that no one likes the target, which compels individuals to reject that person because “everyone else” dislikes him. It’s not convex in the typical sense (there’s no clear “payoff function” with a convex shape) but it has similarities insofar as it uses dishonesty to push the community from one Nash equilibrium to a worse (at least for the rejected person) one.

Trust sparsity and convex dishonesty

If we jump back to Stone Soup for a second, we find an impressive moral message. In this contrived (but not uncommon) circumstance, deliberate deception is heroic. Amid the trust sparsity of that village, a convex deception is the only thing that can get them to work together and produce a decent meal.

I contend that these travelers are archetypal MacLeod Sociopaths. Yes, they saved the villagers’ lives. They were certainly decent enough to share the Stone Soup that they created. (A modern executive would take an 80-percent cut of the soup as a “stone fee”, giving the villagers the scraps.) They also did it for selfish reasons: they didn’t want to starve either. One can argue them to be thieves: all they brought to the soup was a worthless stone, but they got to share in the final product. Their fundamental, catalytic function, however, was to make this trust-sparse group of people work together with the lubricant of convex dishonesty: the lie that this Stone Soup had pre-existing value, and just needed a little bit more from each. Whether these outsiders were good-hearted altruists or dishonest egoists (sociopaths?) is beside the point. They were necessary.

That is what trust sparsity is about. Within a trust-sparse corporate environment, to do anything requires a certain dishonesty (also known as “social proof arbitrage”). Trust sparsity means that everyone’s default will be to look at you with the “bozo bit” on, and ignore your input. The first thing you must do– the only thing that’s important– is flip that damn switch using whatever means possible. Until you’ve done that, nothing you achieve will matter. After you’ve flipped your “bozo bit” to the off position, you can get some real work done. But if your “bozo bit” is on, the only thing you’ll be able to do is fourth-quadrant work. Get out of that mess as soon as you can. Fourth-quadrant work will stink up your career if you’re on it for too long.

What exactly am I advocating?

My message might seem muddled at this point. I railed against The Lie, but I just said that people should flip their “bozo bit” to off using “whatever means possible”. It’s actually quite altruistic to do so, because you can’t get real work done till you’ve zeroed that “bit”. Does that means I’m advocating dishonesty? Possibly so.

When you live in truth and become self-executive in the honest way, you’re taking on a major risk. You’re flipping your own “bozo bit”, and letting it be known that you expect others to do so as well. You’re refusing to be deprived of credibility, and in a visible and above-board way. Often, this means you’re arrogating more autonomy than your manager has. It’s dangerous. It can get you fired. Most people prefer the safer and subversive convex dishonesty. They’re not trying to defraud anyone, though; they fully intend to pay the villagers back.

How do The Lie, and convex dishonesty, interact with the traditional MacLeod tiers? MacLeod Losers live with the Lie. It becomes an annoying landscape feature, rather than a moral calamity, to them. Clueless tend not to know that it is a Lie. They’re the “useful idiots”. Most of the MacLeod Sociopaths have, however, risen to a level (just past the Effort Thermocline) where they’re cognizant of The Lie. It’s a like a hedge maze whose structure is evident from above, but befuddling and illegible from the inside. Sociopaths, with a reaper’s-eye-view, learn how to use The Lie.

Where are the people who oppose The Lie and live in truth? I contend that those are the natural Technocrats, and it’s telling that the original MacLeod pyramid has no place for such. I guess that such people are assumed to be flushed out, and that’s not a bad assumption. That is the fundamental evil of organizational opacity, wherein truth-tellers can be isolated, punished, and ejected. The Lie can push them out, and make itself stronger. Its opponents are either pushed out in a humiliating way (“making an example”), isolated and ejected invisibly, or silenced into non-participation. At the same time, the bad MacLeod Sociopaths learn how to mix their own power with The Lie, an alloying process that makes both stronger.

The Lie loves trust sparsity, because it makes it easy to play divide-and-conquer games against the powerless. Moreover, the only way to get any work done in a trust-sparse environment is to use convex dishonesty. It’s to counterfeit credibility (go ahead, it’s usually a bullshit currency that deserves it) as far as you can, and to live in a “why not?” culture instead of “why you?” by changing your history as much as is needed. That’s a practical necessity for most people (even good people in the desirable subslice of the Sociopath type) if they want to get any work done.

I don’t like that. I don’t like that the need for dishonesty is there. Even good lies– even full-on, obvious-after-the-fact convex dishonesty– are damaging to relationships. My advice: be cautious. Be smart. If a personal relationship is valuable to you outside of the organizational context, don’t pollute it with a lie (even a convex one). But most human organizations won’t let you do X until you’re a “real X” with 5 years of experience in a 3-year-old technology. How do you become a real X? You should just become one, through any means possible. Your decision, today. Better to fake it now than to never make it. “You don’t need to hire an X. I am the resident X. Of course I have production and leadership experience!” Never claim a specific competency that you don’t have, or promise work that you can’t fulfill, but if you need to inflate experiences to tweak perceptions in the right direction, go right ahead. Your enemies are cheating in the exact same way, and they’re much worse people, so why not? If you can afford to live in truth, do it. If you can’t, then bolster your career with enough convex lies to get permission to tackle real work. But then, because you still are a decent person, it’s on you to deliver what you promised.

Ultimately, a lot of decisions aren’t made based on merit, but on gut decisions derived from social status and “feel”. That is why the Draco Malfoy type whose family “was Ivy before George III” sees his career advance just a little bit faster than everyone else’s. It’s not that there’s a conscious decision to promote him based on irrelevant social status. It’s just how people work when trust sparsity has set in and people are waving feeble lanterns at midnight. If you can push yourself forward with just little bit of convex social-proof arbitrage, then you should. Like I said, I don’t advocate this style of deception if you want a persistent personal relationship– that slight social superiority puts one just-above-zero in a trust-sparse environment, but it’s not worth it to gain that petty sort of elevation in genuine relationships– but it’s a fine way to move about at work.

Or, you can go the other way. You can disobey the Lie. Sometimes that’s the right thing to do, as well. You can get up at 4:00 in the morning when The Lie is asleep and get to work. You can live in truth. Both, as I see it, are morally valid options for the individual.

Organizational benefits of trust density

I consider it morally acceptable for a person to use convex lies to push his career forward. Why? Because most companies put people in roles that are three levels below their frontier of ability. The assignment of fourth quadrant work that is itself dishonest. How am I justified in saying that crappy work assignments are dishonest? The truth about the junk work is that it’s evaluative. It has very low importance in the function of the business, and not much is learned in doing it. Rather, it’s just there to see if the person is “good enough” for real work, a decision that often isn’t made until he’s “paid dues” and “proven himself” in a years-long wringer of boring, unimportant work where there are high expectations of dedication and obedience to managerial authority. In my opinion, this is a terrible statement about an organization. It means that it doesn’t trust its own hiring process.

Some people (MacLeod Sociopaths) bypass all that evaluative time-wasting nonsense and put themselves on real work. This can be done by public honesty (living in truth) but that tends to entail more risk of sudden income loss than most people can tolerate. So usually, they do it in dishonest ways. They fake credentials and experience, careful never to explicitly lie, but fudging on subjectives like “production experience” and “leadership role”. They find social proof arbitrages and credibility trades and hack the system as it exists. This is good for them, but it’s bad for the organization itself.

The Lie can be seen as a waste-pile of formerly convex dishonesties that were useful to the organization at one point but are now pathological. For example, let’s say that the organization was divided on the matter of who should be CEO: John or Kara. John got the job over his more competent co-founder, Kara, because he had “investor connections” that weren’t real and never came through. However, with John as the leader, they were able to work together as a group, and other funding came in later. A convex deception! Three years later, it’s discovered that John’s claim to the CEO job was utterly false. The company can either fire him or (often, the more expedient choice) assimilate his lies by changing the story.

I tend to think of organizational opacity as a core aspect of The Lie, rather than something that just enables it. For example, companies always claim that compensation is fair, but keep specifics extremely murky so that no one can really audit them. The reason they do this, of course, is so they can be unfair when it’s expedient. If they’re desperate for talent, they’ll go up by 20% without raising salaries across the board. In truth, the culture of opacity and hierarchy that companies create surrounding compensation, division of labor, performance evaluation, and pretty much anything else that matters, is all there to enable expedient lies. Those errors are supposed to cancel out over time, but MacLeod Sociopaths find ways to turn such errors into a true currency that they can trade and invest for profit. As they do so, The Lie invisibly gains strength. Virtually no one intends to build up The Lie, because almost everyone is acting out of self-interest only. It happens day by day. When compensation becomes unfair and information becomes asymmetric, The Lie gets stronger. When internal headcount limitations are put in place, and closed allocation sets in, The Lie gets much stronger.

Most convex dishonesties are “good lies” of the Stone Soup variety. People are embellishing credentials to counterfeit credibility and therefore be permitted to do real work that’s of benefit to them and the organization. Those convex lies generally don’t contribute to The Lie directly. In fact, these are people fighting against The Lie, by subverting its attempts to disempower them. Unfortunately, they’re often indirectly responsible for feeding The Lie. When a convex lie fails (i.e. the payoff is never realized, and the lied-to parties get burned) people become, justifiably, angry. They bought into a party with counterfeit credibility, and lost. This validates credibility’s necessity! (What happens when people with real credibility fail to deliver? Credibility is defined more conservatively, and the environment becomes more trust-sparse and dysfunctional.) The Lie becomes stronger. Those who are aware of The Lie being a lie are never fully comfortable with it, but they prefer the static falseness of The Lie over the chaos of unknown truth values. This gets to one of The Lie’s stabilizing social purposes. It does try to wipe out Truth, and with a vengeance. It fights that with the most ardor imaginable, because that’s an existential struggle. The Lie fights truth hardest of all, but The Lie also fights other lies, and that’s why people tolerate it.

One of the easiest ways to make enemies to counterfeit some social status currency (or credibility). That’ll piss off both sides, on the matter of how people feel about that currency. People who buy into it become enemies, in defense of what was just diluted by an attempt at counterfeit. People who oppose that currency despise the counterfeiter with equal fervor because the fakery validates it. So when people feign credibility for a convex deception and fail, they’re a common enemy for everyone. That’s good for The Lie. The Lie loves common enemies, and if those enemies are liars, it can make itself look truthful or, at the least, “credible” (there’s that concept again). That’s because people tend to assume false dichotomies on a variety of moral issues, creating “sides” that lead to wrong conclusions.

I’ve opined on moral alignment and noted that, while good always treats other forms of good with basic respect– there can be disagreement and debate, but not malicious harm– there is no such convenant among evil. Good respects good as inherently valuable. Evil does not respect other evil; it only values strength. This gives good a certain unifying strength: a more cohesive, visibly altruistic, message. While good people often argue endlessly about tactical concerns, they’re all “on the same side”. That leads to a misperception that there’s an “evil side”. There isn’t. Evil fights good and evil. It lacks that cohesiveness. What is it, then, that makes evil strong, with enough power to oppose good with almost equal force? Most people aren’t “aligned with” good or evil. They’re in the weak, indecisive middle. Evil is more willing to recruit them. Good wants to recruit people honestly, and treat them as equals. That doesn’t “scale” into the moral middle classes. Evil is much more comfortable with recruiting them as inferiors and with dishonesty. One time-honored recruiting tactic, for evil, is to choose some powerless (or nonexistent) subsector of evil and punish it brutally, thus appearing to weak souls to be an anti-evil force, thus good. The Lie works in a similar way. I don’t mean to imply that typical status-inflating convex lies are evil, but most people find them to be unethical. When The Lie smashes a caught liar on the rock, it persuades the weak-minded (often, disproportionately represented in the Clueless ranks that are an organization’s muscle) that it stands for what is (if clearly not truthful) ethical, at the least. Of course, that’s a lie on it’s own.

That is the fundamental problem with convex dishonesty. It’s sometimes expedient, and sometimes a person’s career needs it, but over time it strengthens The Lie (one of whose sources of power is a fear of status-inflators and subversives; being one justifies it). When you run a convex fraud, you’re borrowing credibility on fraudulent terms (stealing) even though you have the (morally good) intent of paying everyone back multiply and making your creditors more than whole. The problem is that if you succeed, you validate that credibility currency that you stole, strengthening The Lie. If you fail, you give the Lie and the useful idiots a common enemy in you, also strengthening The Lie. I won’t call convex dishonesty unacceptable as a means of corporate survival and self-advancement, because it’s often just necessary in a trust-sparse environment, but it is corrosive to organizations. One way or another, this class of dishonesty strengthens The Lie.

An organization that wants to be healthy can’t tolerate The Lie. It needs to kill it at root. If it’s going to avoid generating one, it needs to create a trust-dense environment where the “bozo bit” is always off. There’s no alternative, because when trust sparsity is in effect, the only people who can succeed (and acquire credibility in the pseudo-meritocracy) are those willing to partake in convex dishonesty. This generates an undesirable selection pattern in which organizational success favors convex dishonesty, which evolves into all-out dishonesty. Over enough time, this moves away from the good-faith, “team-building” convex deception and toward outright “cooking the books”.

Solving It

This is why trust is so damned important, but trust is hard to manage at scale. You might trust your friends, but do you trust their friends? At some point, the warm-fuzzy social currency of trust needs to give way to structure. You actually need to go into the painstaking process of formalizing social contracts. If you’re running a company, what does the Employee Bill of Rights look like? You don’t need one at 8 people; you certainly do need one at 300. You need to set minimum trust, by which I mean giving employees enough basic credibility that they don’t need to perpetrate convex lies to grow and take risks. You also need to set maximum trust, both to crack down on the proto-managerial thugs who’d abuse the power vacuums left by formal management’s fundamental decency to extort others into supporting their career goals, and to give meaning to the minimum trust offered. (If people are “boundlessly trusted”, that just means you’ve been lazy and will rule ad-hoc, because the concept makes no sense.) There’s work to do on where to set the posts, and while I think it’s obvious where I stand (trust people with their own time; distrust those who attempt to control others) I will flesh that out further in further installments.

In Part 17, I discussed financial trust and the use of extreme transparency to ensure investors, employees, and management that everyone’s being compensated fairly. In Part 18, I discussed industrial trust– do you trust your employees to get the work done, and to do it well?– and how it requires not micromanagement but a self-executive focus on driving toward Progressive Time. Now I’ve discussed the forces that conspire against trust. People either need or think they need convex dishonesty to get things accomplished. Organizations compensate by creating an internal social currency called “credibility”, which evolves its own pile of lies that become The Lie. The Lie generates trust sparsity as its beneficiaries fight for its upkeep, and the organizational self-loathing and dysfunction that come out of trust sparsity generate more convex dishonesty to overcome an increasingly strong Lie. The alternative is to Live in Truth– to name The Lie and stand in opposition to it. Individually, this is dangerous and impotent: you lose credibility, become “disgruntled guy”, then “fired guy“. Collectively, it’s powerful. If The Lie cannot discredit the group as a whole, it falls to pieces. Organizations, however, shouldn’t wait for whistleblowers to call them out. Reliance on individual heroism is not a good strategy, but shows the absence of such. If you want a healthy organizational culture, you have to fight The Lie proactively. Living in Truth must be a central pillar of the culture.

Gervais / MacLeod 18: more on trust, Square Root Syndrome, Brownian and Progressive Time

In Part 17, I discussed the financial considerations of starting a technology company financed by passive equity-holders. In that model, these investors are enabled to enjoy the high rate of return associated with human creative risk, but do not take an active management role. I used the term “lifestyle business” but I’ve since realized that I’m talking about something more specific: mid-growth businesses. “Lifestyle”, as I’m using it, isn’t about size, but about intended growth rate. It refers to businesses that prioritize long-term cultural health over rapid expansion, but that have a clear interest in growth itself. It’s not headcount or revenue growth that the mid-growth business optimizes for, but healthy growth: growth that doesn’t compromise the culture.

A low-growth business might be a restaurant with inherent scale limitations, or a “4-hour work week” business intended to run itself later in time. The ceiling is fairly low, and consequently there’s not a lot of interest in passive equity financing. Banks will make loans (debt financing) and usually require personal liability. Failure rates are considerable (business is always risky) but not so high as to make this completely untenable. On the contrast, a high-growth business is insistent on rapid growth– in headcount, revenues, footprint, and market dominance. 100 percent per year is barely socially acceptable; 150-200% is expected. Investors take an active managerial role and lose interest if growth falls short of 10% per month. The major downside of the high-growth business is that the vast majority run out of money and fail.

I’ve been trying to figure out a way to address the needs of the 1%- and 2%-per-month growth businesses. That doesn’t deserve to be sneezed at! If one could invest $10,000 into a business whose value grew reliably at 1.5% per month, that would turn into $356,000 after 20 years. That’s not the kind of thing that screams “fuck-you money” to thrill-seeking prospectors, but it certainly would make most passive investors happy. The conclusion I’ve come to is that we need passive equity financing of a very large number (a “fleet”) of highly capable but slow-growing (by VC-istan standards) businesses. Right now, regulations exist to keep “dumb money” away from such “lifestyle” businesses, judging small investors incapable of getting a decent deal, considering the “principal-agent problem” involved. My methodology (in the previous essay) fixes that by making compensation and profit sharing extremely simple and transparent while handling “HR expediencies” in a such a way that they don’t compound over time. Good. Solved that problem, at least on a technical front. That’s one of the major obstacles right now against my vision of connecting passive capital with human creativity in a way that doesn’t involve the career volatility and ethical compromises of VC-istan. It’s not the only obstacle, but it’s the biggest one.

Compensation is the harder of the two trust problems in organizations: do the owners (principals) trust the workers (agents) not to steal from them by overcharging or through various devious manipulations (e.g. “holding the company hostage” with key information)? Extreme transparency on compensation and culture helps a lot there. The more openness there is about the way decisions are being made, the more it is made clear that devious play-the-company-against-itself tricks won’t result in outsized personal yield, the less likely defection is. There’s a second question of trust, which is traditionally left to managers (owners don’t get involved): can we trust people to get the work done? That’s a fun one, too. Why do so many projects fail to ship? Why are so many people seemingly incompetent at self-executivity (including many actual executives)? That requires introducing the phenomenon of wasted time in an interesting context: Brownian time.

Brownian Time

I once found myself in a discussion about the value of an hour of time. A friend of mine were trying to determine whether it was possible to value work on hour-by-hour basis? We realized that, for most work days, only 3 hours (the square root of 9) actually mattered. The other 5-6 were spent in meetings, goofing off, or general “zoned out” low productivity, for most people. This seems to be the norm, and it’s not an intentional or morally bad thing. People just can’t hold intense concentration over an 8-hour contiguous block of time that someone else picked, five days in a row at the exact same time. It’s not possible.

We realized that this idea (“Square Root Syndrome”) applied to more than just hours in the day; it was visible at larger scales. Three hours of the workday really matter; the rest is wasted. Days in a week? It seems typical to have real victories on 2 out of the 5; the other 3 are unstellar and see minimal useful work. Stuff gets done, but rarely important stuff. Apply this to the 49 weeks in a typical work-year: 7 weeks pertain to real highlights– macroscopic achievements, lines on the resume– and the other 42 are forgettable. Then look at a 36-year software engineering career. Six years of the typical engineer’s career are spent on jobs that really deliver– lead to promotions, “fuck you money”, interesting contributions to humanity. The other 30? Wasted on executive pet projects, startups that go nowhere, ingrate bosses, and bad ideas. That’s not how it is for everyone, but those numbers seem pretty typical.

The depressing conclusion of this is that out of a whole career, only a little bit counts: 3 hours/day times 2 days/week times 7 weeks/year times 6 years gives us 252 hours that are really worth a damn. Of course, that’s not how actual careers work. It could be zero hours in a person’s career that count, meaning that there’s no progress and it isn’t really a career. It could be several thousand that matter. I’ll get to that later on.

This recursive “square root” relationship is what I call Brownian Time. It shows us the downside of unstructured, chaotic behaviors. If there’s no feedback or conscious work at using time properly, you get square-root scaling.  So you get twice as much out of a 4-hour meeting as you get out of a 1-hour meeting. (That’s generous; for most 4-hour meetings, one gets less.) I don’t know that the actual human pattern follows an exact power of 0.5, but it’s not far off. Why is it Brownian? It pertains to the a fractal pattern called Brownian Motion, which is a model for a variety of random processes including stock prices. If a stock has volatility (variance) of 1% per day, its volatility over a 256-day year is 16%. Most of the ups and downs cancel each other out. If one could call the good days in advance (and, of course, one can’t) then one could hold the stock for only a few days that year and realize all of its gains (or losses) in that small slice of the year. Brownian Motion is random “drift” that scales with the square root of time. If your goal is twice as far away, it’ll take 4 times as much drifting to get there.

In practice, I don’t care much for “Agile” software development practices, which often become the opposite. If you have mutual trust between managers, software engineers, and customers, then it can work well, but it’s not needed. If there isn’t that trust, Agile breaks down horribly and becomes not only a justification for intense micromanagement that borders on emotional bullying (several status checks per day) but with rigidity in such micromanagement that generates undesirable process complexity. Good teams are already doing things that look like Agile without necessarily calling that: keeping each other informed, taking full ownership of quality issues, and prioritizing important issues over silly and egotistical ones, without going nuts if (oh, my God!) something goes into version control without an associated “story”.

Yet I decided to read into “the dark side” and found a good talk about Agile by Mike Cohn, and I got a sense of what Agile really is and why it exists. Cohn isn’t trying to give evil managers a cudgel or mire teams in 45-minute “standups” where managers get to sit down. He’s trying to fix the Brownian Time problem. Between the burndown charts and time-management protocols, he’s trying to create a framework in which a team’s use of time show linear productivity rather than a square-root relationship. That, I’d say, is admirable.

Related to “Brownian Time”, of course, is Brownian Management. Requirements accumulate with no discrimination regarding which are the real requirements and which are “nice-to-haves” and which are fourth quadrant bullshit laid on because it’s free to tell someone what to do. Managers squabble over headcount and people are moved. Authority topologies change and expectations (always poorly laid out) shift. People are pushed left, than right. Ninety percent of work exists to counteract side effects of other work. From a microscopic level, people seem busy, but from a macroscopic perspective, nothing’s getting done. From an outside perspective, it looks infuriating. Ten thousand people are being paid to accomplish what looks like it should be done by 100. In other words, Square-Root Syndrome seems to apply to groups of people just as it does to time.

Progressive Time

If all the value in a creative person’s career could be condensed into 252 hours, that would be quite an unhappy conclusion. An incredible amount of time would be wasted. If we’re going to graph the per-hour economic yield of a typical person’s career (which rarely tells the whole story, because there are interactions between one hour and the next) we’ll probably find something like that. Nassim Taleb made almost all (over 98%, if I recall correctly, of his $40 million lifetime P&L) of his lifetime earnings as a trader in one day: the October 1987 stock market crash (“black swan”). This is why narratives work for us: they capture the small number of high-impact moments; Rocky Music plays in a “practice montage” of three minutes that stands in for 3 years of intense training. Sure, one can put the most critical parts of a drama (unfolding over five years) in a 3-hour movie, and that tells the whole story. Yet we know, from experience, that you can’t get to any level of readiness for the critical moments with a measly 3 hours of preparation. It takes deliberate practice. It requires progress, and that involves making sure future hours are informed by the past and present, so the right decisions are made, and the best ideas are had, in those 252 critical hours.

One neat thing about learning as opposed to economic “doing” is that it scales better. You don’t get Square Root Syndrome with building up a knowledge base. In fact, you probably get synergy: faster-than-linear scaling of economic value. However, economic value itself is not what I intend to measure. Here’s I’m just talking about productivity: the pushing forward of a project (which might be to learn a new concept). With well-structured learning processes, people continue to push forward at an approximately linear rate, rather than experiencing the Square Root Syndrome of Brownian Time.

Most individual productivity strategies (such as the Pomodoro Technique) are designed to bring peoples’ awareness and planning up to a level where linear Progressive Time is common, rather than square-root Brownian Time. The idea behind Agile, executed well, is the same: to put enough microscopic consciousness of time into the process to remove the drift that causes Brownian Time. If a team is getting bogged down with Brownian Management, escalating technical debt, or other scaling problems, it should show up on the burndown chart.

I still don’t like Agile, because it’s built on fundamental closed-allocation assumptions. I dislike the idea of having a totalitarian Product Owner with unilateral priority-setting authorities, on the assumption that engineers will “just go do it”. Totalitarian “get it done” management is appropriate for existential threats, but those are rare and shouldn’t be assumed in normal planning. It would also be better if engineers were empowered to push for Progressive Time on their own terms (self-executivity). I think there are some good ideas in “Agile” that deserve further inspection, but I wouldn’t buy the thing wholesale, and I’ve seen it become a disaster in practice.

Square-Root Syndrome and Hierarchy’s Role

I’ve already stated my hypothesis that something like a Square-Root Syndrome applies to people. If there are 100 people in an organization, then it’s probably doing the work of 10 people. Again, I don’t know that 0.5 is the exact right power to apply, but it’s not a far-off guess for a start. I’ll get back to that.

Why is “bigness” maladaptive? Why aren’t biological cells 20 meters in diameter? The answer is simple. At that size, it will starve. Surface area grows quadratically in the diameter of the cell, while mass and need for nourishment grow as the cube. In other words, a cell’s ability to nourish itself grows as the 0.6667th power of the size. The same seems to hold with organizations, although we’re no longer talking about a 3-dimensional physical space, but an N-dimensional abstract space– ideas, information, social connections, business strategies. I’m keeping this hand-wavy intentionally, but let’s focus on the N (it works as metaphor, at least) and talk about dimensionality.

Let’s say that we’ve hired four people whose fluencies (0 to 10) in various programming languages are as follows:

Person | Java | Python | Haskell |  C  |
Alan   |    6 |      2 |       0 |  7  |
Barb   |    7 |      6 |       0 |  3  |
Carl   |    5 |      5 |       5 |  4  |
Diana  |    0 |      7 |      10 |  5  |

Who is the best programmer? Clearly, there’s no good way to answer that. Alan is the best at C, Barb is the best at Java, and Diana is the best at Haskell and Python. What about Carl? He’s not especially strong in any of the languages, but if there’s a project that requires Java and Haskell, he’s the only one who is ready (non-zero fluency) to do it! At 4 dimensions, we already have a world in which there’s no well-defined concept of the “best” or “worst” of these four programmers.

Dimensionality is relevant to organizations because, even though organizational dimensionality isn’t well-defined (there isn’t a clear set of “4 meaningful dimensions” that exist platonically, because what dimensions are relevant is somewhat subjective) it pertains to the optimal size of an organization. The more dimensionality there is in a business problem, the more it favors larger organizations with more specialized players. At least as metaphor, the idea of a cell in N-dimensional space works. Capacity for nourishment grows (in size p) as p^(N-1), and need for it grows as p^N, so overall organizational productivity grows as p^(N-1)/N and per-person productivity evolves in proportion to p^(-1/N)– it decreases.

What is the appropriate N for a typical corporation? Surprisingly, it’s disappointingly low. Businesses need a lot of different skill sets to operate, so one might expect this to make the case for high underlying dimensionality. If there are 10 dimensions on which people are evaluated for fit, then we get N = 10 and we scale as p^0.9, meaning we only get 7% more inefficient for each doubling in size. However, let’s consider two things. First, the proper value for N might not be an integer; it could be something like 2.35. This is a “fuzzy logic” situation where it’s subjective which dimensions matter, and how much. (This is an abstract fractal space, not a clean geometric one.) Does it matter if Carol speaks German (a candidate 5th dimension)? It depends on what the company is doing and what it needs. So the matter of which dimensions are included and excluded (a social phenomenon, not an explicit mathematical one) is unclear and could be akin to dimensions “possibly mattering, but intermittently and not all that much”. The effective N is much lower than the number of actual candidate dimensions (which is, at least, in the hundreds and arguably infinite). Second, organizational decision making is executed by humans, who can’t even visualize more than 2 dimensions easily. Three is possible, but a stretch. Four is just way outside of our experience. People making important “big company” decisions are not going to take stock of all the possible candidate dimensions. Everything gets collapsed into 2 dimensions: vertical (social status, importance, proximity to decision makers) and horizontal or “lateral” (all that other crap). Then, N = 2, and one gets exactly the square-root scaling. Since the “lateral” dimension is treated as inherently inferior (anything important would live in the vertical dimension) it might be more reasonable to treat the effective N as some lower value: 1.9? 1.85? 1.1? I won’t even begin to claim what the right number is, but it’s between 1 and 2 for most companies, and that induces something worse than square-root scaling.

If one finds this fractalized organizational pseudomathematics to be “hand wavy”, I’ll agree that it is, but there’s an important message in it. The more hierarchical and social-status driven an organization is (i.e. the lower the effective dimensionality, or the more social forces there are that collapse the organization into an org-chart or a “ladder”) the worse its capacity for nourishment (in this case, information rather than physical food) will fall behind its need. It will starve.

This is one of the inherent problems with big organizations. Their high underlying (“true”) dimensionality of needs requires size, but humans can only visualize two dimensions well as they work out their social plans, and this low effective dimensionality leads to information starvation, opacity, and inefficiency.

Management as a factor

The metaphor above discusses the biological cell, which does not scale to enormous size because of its surface-area-to-volume ratio would become too low to sustain it. Organizations have this issue as they get big: important players are on the surface, while most sit in the starving interior. This is made worse by the exertion of hierarchy, whose effect is to prioritize one point on the surface– the executive apex. (That’s where the low effective dimensionality, above, comes from.) How does this pathetic scaling relate to Brownian Management? It comes down to the MacLeod Clueless.

Losers sit away from the information surface area. They like the interior– it’s warm and comfortable and someone is closer to the outside than you in any direction– and avoid the edge. Clueless tend to be nearer to that edge, but are starved of important knowledge, or lack the competence to get it. Incidentally, they’re also the culprits in the bumbling, non-strategic, inconsistent direction of others’ time that becomes Brownian Management. They play a major role in the duplication of efforts, the go-nowhere projects, and overall waste of such a large amount of time. They get the information handed to them, which is rarely what they’d need to be properly strategic, and if the Sociopaths at the surface are engaged in zero-sum squabbling, they’ll cancel each other out. Why don’t Losers, who tend to be more strategic, fight back against the waste of Brownian time? The answer is that it won’t get them anything. They’re more likely to get fired than noticed in a good way, so they keep their heads down and implement ideas they know to be bad. Only when the ill-conceived project starts demanding above-board personal sacrifice (i.e. it becomes a “death march”) do they push back, and usually by leaving.

Solving It

Understanding of organizational efficiency usually comes down to discussions of percentages. “I was only at half speed today.” That’s not the right way to understand this particular problem. First, there’s the matter of faster-than-linear returns on performance (convexity). Even without that, though, we see that often organizational inefficiency isn’t some percentage cut. That would be tolerable. Eighty percent efficiency, meaning 20 percent is dropped on the floor? That’s a cost of doing business. Square-root scaling, however, means that efficiency goes to zero with growth. You might start out at an acceptable 80% efficiency, but find yourself at 8% when you scale up by an order of magnitude.

Preventing personnel congestion is a matter of conservative hiring. Only hire multipliers who will make the whole group more productive. It’s not that mere adders should be considered unacceptable. For commodity labor, that’s perfectly fine. However, if the work is a commodity, you can specify it contractually and hire it on the market. Why bring a new person on board (and increase communication complexity) for that? I’m loathe to use the word synergy because it has become such an MBA buzzword, but that’s exactly what I’m talking about.

I believe that a company that grows conservatively can avoid Square-Root Syndrome in its people. Communication topologies and political complexities will get more complicated, but that can be offset by sharing of ideas and collaboration. So long as growth is slow enough to remain strategic and cooperative, it’s a good thing and will probably improve per-person efficiency. The problem that VC-istan companies seem to inflict on themselves is that they grow so fast that internal competition (for larger equity shares, executive roles) emerges and the whole thing implodes.

However, if you hire for synergy and avoid the Square-Root Syndrome of rapid expansion and turnover, you get to a point where the second trust problem (investors’ ability to trust in the organization to do the work) solves itself. Hire great software engineers and give them just enough direction to outline the problem, and just enough incentive (profit sharing, not equity in some far-off liquidation that might involve horrible investor preferences that wiping out common stock) to care about the profit motive, and they’ll get their work done.

Thus, most important on a day-to-day level is avoiding Square-Root Syndrome in time: getting employees to work in Progressive Time. That doesn’t mean that every idea has to come to fruition or that failure won’t be tolerated. Instead, it’s the opposite. It’s okay to fail so long as you can affirmatively answer the question: did you learn something? The difference between Brownian and Progressive Time is that the latter has a memory. The first is bumbling blindly and retracing worn paths, usually under (MacLeod Clueless) managerial dictation. The second is exploration that builds a knowledge base and enables future explorations to be more successful.

VC-istan, by the way, lives in Brownian Time. Now that M&A has replaced R&D, institutional knowledge of failures just dissipates, resulting in massive duplications of effort that swell up every few years. There is progress, but it’s at the Brownian drift rate (with selection imposing macroscopic forward movement; in other words, mindless evolution) rather than anything that could legitimately be considered deliberate forward progress.

What’s the practical way to do all of this? How does one inject these principles into a software company?

  1. Self-Executivity in Progressive Time. Personnel reviews aren’t about “How loyal were you to your boss’s career goals this year?” No, they’re about: did you work in Progressive Time? What did you learn? What did you teach? What multiplier effects did you have that made the whole company better? Why is this a better place to work in 2013 than it was in 2012? Why are you better in 2013 than in 2012?
    • By the way, I fucking hate the term performance review. If I were running a company, there’d be no such thing. There’d be regular impact reviews. You’re assumed to be performing. You’re trusted (and those who prove unworthy of trust are packaged out) to be working hard and in good faith. The impact meeting is to discuss unintended effects (that he or she might not see) of a person’s work and behavior on the company. Very low (or negative) impact doesn’t mean you’re a horrible person who deserves to be humiliated; it’s assumed to be no-fault but means that you need to do things differently.
  2. “10-Year Fit” / Invest in Employees. I will confess that I’m somewhat of a “job hopper“, and I’m shameless about it. Most companies (and even many managers in the more progressive firms) don’t invest in their peoples’ careers and don’t deserve loyalty. Progressive Time is not compatible with a head-down-and-following-orders attitude toward work. However, I am personally tiring out of the job-hopping lifestyle. So instead of the typical corporation where one has to be a lucky protege to have a real career, I’d build a company around the concept of the 10-year fit, and aim to invest in employees and get progressive returns amid convexity. Fuck aiming for 10 years, let’s make it 50. You can leave and I’ll make sure that you have a great title and reference, but my job is to make things so great that you never want that option.
  3. Agile that Doesn’t Suck. The good thing about Agile is that it exists to coerce time into a linear, progressive march rather than the haphazard, Brownian stumbling of managed work when it isn’t monitored. The problem with it is that it involves closed-allocation assumptions and limitations of self-organization. Perhaps Agile could be adapted to an open-allocation world, however. That deserves a lot more investigation.
  4. Three-hour Workday. Employees are expected to work full-time in spirit, not in hours. Project plans will be based on 3 dedicated hours: that’s three hours of “metered work”, certainly not inlcuding goofing off and eating and water-pooler chat. Three is intended as the minimum obligation; of course, no one will be tracking and a person who delivers the typical corporate workday (9 hours at 33% efficiency) is in good standing instead of three solid hours. Three hours is also a right: 180 minutes of uninterrupted “building time” per day during daylight hours without meetings or those god-awful impromptu status pings. Employees should ideally be spending the other 4-7 “off-meter” hours each day to learn new skills (Progressive Time) or experiment or use Coursera or share ideas with each other.
    • In practice, few people would be able to get away with a strict 3-hour day. It’s somewhat of a planning fiction that accounts for the difficulty of estimation and the extreme long-term importance of off-meter time. In this model firm that I’m building up, I can’t see anyone working less than 6 hours per day and fulfilling the softer, off-meter obligations such as continuing education, and the average would be the standard 8.
  5. Culture of Mentoring. The most junior engineers are expected to use their off-meter hours to learn from more senior people. The most highly-compensated people, if they wish to remain so, are expected to share knowledge and multiply their expertise across the company. This expectation of mentoring (for senior hires) and progress (for junior hires) would be the only interference with self-executive culture. If we are to stay self-executive, we must be competitive in the market place; to be competitive, we must be progressive in the growth of internal skill.
  6. Well-defined Audit Cycle. With the overall goal being to have each employee in Progressive Time, there’d need to be some sort of incremental work monitoring. As much as “status” meetings are disliked, there’d need to be an understanding of how often a person or team is expected to ship or demo something. Demos would invite the whole company (not one manager). I think I’d have junior hires on a 3-week audit cycle (in which, “here’s what I’ve learned” is perfectly acceptable) and senior engineers expected to demo once every 8 weeks (as a minimum; I’d encourage the same 3-week cycle). The most senior, fellow-level, engineers wouldn’t have an audit cycle; since they’d be expected to be continuously multiplying their expertise across the company and mentoring new people, such a thing would be irrelevant.

So, that solves the second trust problem: how does one ensure people get their work done? You need the right structure. It’s not about Agile or gamification or anything out of management books, and self-executivity is a necessary but not sufficient condition. You also need to put everyone in linear (Progressive) rather than square-root (Brownian) time. You need to make that a cultural pillar: not working hard, but working mindfully.

Gervais / MacLeod 17: building the future, and financing lifestyle businesses

I’ve opined quite a bit on the VC-funded ecosystem (“VC-istan”) and put forward the hypothesis that we’d be much better served by a fleet of 50,000 so-called “lifestyle businesses” than 500 red-ocean, get-big-or-die future corporate megaliths. It’s not that I dislike VCs. I have no issue with them, as people. However, I think that centralized power is generally undesirable. The information-theoretic incompetence of central authority is why command economies don’t work. The current system for financing high-risk technology businesses is out of whack. There are a small number of investors, and they all know each other, and the career matrix of their industry requires them to collude rather than compete. It’s not that they’re explicitly price fixing, but that their careers rise and fall on access to black-albatross deals (black swans are not big enough) that come once in a decade, so they optimize for social access rather than economic efficiency. They compare notes in a way that is almost certainly illegal, but it’s hard to hate them for doing so if one understands their career concerns.

VCs also exist in a framework where making quick returns is more important than building great companies, which favors aggressive-growth businesses bent on upsetting established players in winner-take-all markets (or, more often, threatening to upset those established behemoths and getting acquired in a panic) but overlooks concepts that might be “niche” today but that will build out the future. What we have is a system that overlooks a massive space, favors large companies with horrible management structures, and worst of all, keeps a large amount of capital out of the human creative process.

VC overlooks a massive space

Creativity doesn’t come from large organizations. It comes from people. Large companies can encourage creativity by providing resources and autonomy and, then, getting out of peoples’ way. Or, they can stifle it, via subordination and corrupt, creaky permission systems. Most go toward the latter. If your business truly requires creativity, your only option is to set up an R&D environment that trusts people with their own time. Provide direction, keep incentives aligned, and keep them on-task enough that their work benefits the company. Then get the hell out of their way. Goldman Sachs did this with their “core strategies” division, giving a set of software engineers and quantitative analysts (“quants”) a level of autonomy that was unheard-of by Wall Street standards, especially then. This generated a technical infrastructure far superior to what its competitors had, and they’re still catching up. It’s due to core strats that Goldman didn’t melt down during the Crisis of 2008 as other banks did; because of the software they built, Goldman could assess its financial risk on a firm-wide basis and hedge.

If you want creativity, put your most talented in an R&D center and let them get to work. The researchers are trusted, implicitly, with their own time, and the executive’s role is to be a filter, deciding when creative assets are “ready for prime time” and when they need more refinement. Typical, risk-reductive management will destroy their creativity and you’ll get nothing.

Self-organizing and generally small teams are, in general, where creativity will come from. It doesn’t require a corporate megalith. You’ll get your best performance from small groups of people who picked each other (rather than being glued together by a manager saying, “be a Team, now!”) and who are deeply invested in trying out a new idea. This can happen inside a large corporation, but it’s atypical. We’re going to need a lot of small organizations if we’re serious about building the future.

The future’s not going to be built by well-connected, materially ambitious, and usually already independently wealthy “credible founders” trying to build 750-person companies, get their pictures on the cover of Forbes, and sell to Yahoo for the GDP of a small island nation. Those people have made their beds and are half asleep. Those “founders” are well-connected early retirees playing startup. They aren’t interesting. Don’t waste a minute thinking about them. Rather, the future’s going to be built by the rebellious sorts of people that VCs wouldn’t even touch, because they carry mediocre paper (note to all: “we don’t invest in ideas, but in people” means “we invest in resumes“).

I don’t think that most venture capitalists can detect the people who are capable of building the future. I don’t even think I can do it well on a person-by-person basis, and I’m one of the smartest fuckers out there, so I know that they can’t. It’s just naturally very hard to predict, for highly convex creative endeavors, who and what will succeed and what will not. That’s why you need a fleet. A fleet is more than a portfolio. Portfolios are manageable; that’s even a title and job description: portfolio manager. With a fleet of 50,000 “lifestyle” businesses, there’s no central authority that will be able to manage it. The solution will be to fund creativity on a broad-based scale and passively enjoy the rewards. The moral problem, here, is that we need a structure that guarantees that investors participate in rewards. That’s actually a hard one to solve. I’ll get back to that. 

VC favors fast-growing companies with horrible management and culture

In truth, venture capitalists don’t care about corporate culture. It’s not that they’re bad people; of course, most of them aren’t. It’s just not their job to babysit. Ideally, they want to hand a wad of cash over to those they fund, and get a much larger wad of cash back. They’ll only intervene if the macroscopic performance of the company falters (and if the cause of macro-scale failure is microscopic cultural corruption, it’s far too late; just shoot the fucking thing in the head and liquidiate). Founders are implicitly trusted to deal with the internal, cultural issues, unless the company starts to fail in a macroscopically visible way.

Fast growth is what often ruins the culture. Consider Valve’s self-executive open allocation, for an example of what is good. This is a great way of doing things, but it actually makes it very hard to hire “credible” executives. If you make employee autonomy an inflexible pillar of your company, you can’t hire entitled, semi-retired executives who want the fall-back of authority as opposed to genuine leadership. Employee autonomy isn’t usually eaten by messianic founders. That can happen, but more often it’s sold off to parasitic executive implants. Often, the founders don’t even have a choice. One of the perks of being a venture capitalist is the ability to give executive sinecures and portfolio companies to your underachieving drinking buddies from business school.

A company that wants to have a culture worth caring about is going to have to put the brakes on the malignant sorts of growth, in order to prevent the culture from being sold off entirely in a managerial hiring frenzy. It will even have to give low-level employees some veto power over executive hires, which is not that radical because proper management works for the managed (as well as for investors; interests shouldn’t oppose). It will need to seriously consider an Employee Bill of Rights. It will be able to grow fast (possibly 20 to 30 percent per year, and at twice that rate in early stages) by normal-people standards, but not at the “rocket fueled” rate expected by typical VCs.

VC excludes a large pool of capital

Right now, a middle-class family has two main options regarding direct financial investment in capitalistic activity. One is to buy debt, and the other is to buy stocks, both cases, in large and established companies. Regulations exist to keep their “dumb money” out of the small, much riskier endeavors like new businesses such as VC-istan corporations and lifestyle businesses. Now, I fully agree that a retired widow shouldn’t be putting her $400,000 life savings in one lifestyle startup. It’s too risky. She should have the option of putting that money into lifestyle startups, plural, in some broad-based way that protects her from the swings of any one company, but allows her to participate financially in human creativity, which can be expected to deliver better average returns than established, rent-seeking corporations with no interest in inventing the future.

What is a “lifestyle business”?

I don’t think “lifestyle businesses” deserve their negative reputation. Who says that it can’t become a more ambitious project over time? Nintendo was founded in the 1880s– as a playing-card company. It wasn’t founded with the intention of creating the dominant gaming console 100 years later. To me, “lifestyle” simply means that the founder intends to be with the company for a long time, and would rather grow at a modest (10-30% per year) rate than keep doubling up to appease investors hell-bent on a quick exit. What’s wrong with that? To be blunt, I think it’s a luxury of the already-loaded to consider something growing at 2% per month “mediocre”.

When founders expect to be with a company for 20 years, they’re going to take the long-term cultural issues seriously. They won’t bring in the human garbage that rapid-growing startups often hire when their investors say, “It’s time to hire real executives”, because they don’t want to subject themselves and their employees to atrocious middle management. A founder who can’t say, “that’s our acquirer’s problem”, is going to think differently.

I see lifestyle businesses as an increasingly tenable alternative to the get-big-or-die gambits. Why increasingly tenable? The global economy now grows at 5% and that’s accelerating. (Developed-world economies are stagnating, however; nation-states are becoming obsolete and that, temporarily during this period of adjustment, hurts those of us under the auspices of highly successful nation-states.) Prevailing poverty is turning over to prevailing prosperity. This won’t happen overnight; it’ll be 100 years before the tyranny of geography is over, and there some utterly dire ecological problems we need to solve along the way. However, it doesn’t need to happen overnight. A business thrives if it turns less into more, and with “the pie” growing annually at 5%, that’s a fortunate and “un-level” playing field. The zero-sum, Malthusian mentality of a 10,000-year agrarian era with almost no growth is obsolete. Winner-take-all, “red ocean” markets still exist, but those tend toward natural monopoly, which leads to commoditization and regulatory interference. They’re not that interesting anymore. In the seven minutes that it takes the average adult to read one of my blog posts, the world will become over $1 billion wealthier. In a few minutes, progressive, positive-sum interactions between people just generated enough wealth to make 1,000 people millionaires. 

What this means is that dominate-or-die will no longer be the prevailing business reality. Yes, growth will still be required, but it will be increasingly possible to grow (explore, improve, profit) without domination.

However, economic growth is not “magic”. It happens, minute by minute, as people discover better ways of doing things. It’s the process of “mining chaos” that I’ve discussed earlier. It’s impossible to measure, but I would be surprised if I haven’t added $1 million to the economy over the past year, by helping the most talented people better understand the market and allocate their assets more efficiently. (My estimate of my impact is $2.4 million.) Growth happens because people (for a variety of reasons, some altruistic and some selfish) go out and do things. They take a “why not” approach, not a “why me” approach. The vast, vast majority of them were not drinking buddies with venture capitalists at Harvard Business School and, therefore, they cannot access traditional funding for these red-ocean gambits designed to be “X killers”, where X is some powerful corporate behemoth that the VC hopes will not just be typically inefficient and (as corporations generally are) reduced to 10% of its strength, but so inefficient that it can’t fight back with even 1 percent of its strength.

The financial problem

There’s a deep economic problem with the funding of lifestyle businesses, however, and here it is. Many economists will argue that “profits shouldn’t exist”. What does this mean? No economist would seriously argue that they do not exist, or that there aren’t good logical reasons for them to exist, rooted in imperfect information and the fuzzy question of where the line between labor and profit (for small businesses, managed by their owners) lives. Just as financial arbitrage is possible for people with superior technical infrastructure (competitive advantage) it is possible for a firm to make a profit based on its advantages. What these economists mean is that in an ordered, fair, and stable world, no one would be able to sell something for a price higher than the sum value of the capital, materials, and labor required to make it. Profit comes from the same place as economic growth, from which things that aren’t “supposed to exist” emerge: chaos.

One important distinction that average people often fail to make about “greedy corporations” is that profit is not the corporate economy’s true evil. If a large company is making “too much profit” off of its customers, there’s usually an appropriate response: buy stock. Rather, the robbery takes the form of executive markup. Being extremely technical on terminology, even CEOs are “labor”. Almost every large company has been hijacked by an entrenched, entitled caste of useless parasites whose compensation is justified by social access and failures of self-regulation (i.e. corruption in wage setting) instead of a fair market value for the work. In fact, if corporate executives had full authority to set compensation, there would never be such a thing as profit. They’d take it all for themselves, and owners would get shafted just like employees do. Corporate boards are supposed to step in and prevent this, but the “country club” mentality is so severe among that set that this self-policing is effectively a joke. They all go to the same parties and sit on each others’ boards. No, there isn’t one capital-C Conspiracy “to rule them all”, but there’s enough upper-class collusion to keep anyone else from getting a fair shake. Not wanting to lose executives’ jobs in a shareholder revolt, companies will allow just enough profit to appease equity owners, but deploy it in a different way. They have replaced dividends with “buybacks” that enable next year’s gigantic executive stock grants, nominally tied to “performance”.

These phenomena are important for analysis to show that one can’t reflexively or implicitly trust labor, insofar as even the looting executive sleazebags who periodically ruin the economy are, technically speaking, still “labor”. There’s a natural conflict of interest. Profit is return on capital, and labor would prefer increases in baseline compensation. Labor that controls its own compensation is especially dangerous.

This brings us directly to the moral problem of business finance, and separability of risk. A substantial number of people would be more productive and effective as key operators in small businesses (if they could raise money) than as subordinates in large companies. The problem is one of trust. If there’s a passive financial backer, and a working entrepreneur with no “money in the show”, then the latter holds all the operational power. Once the check clears, very little explicitly prevents the newly-crowned executive from defection. Banks require personal liability on loans, in order to keep people honest. Venture capitalists, having an in-crowd that compares notes to an extent that’s almost certainly illegal, can use its reputation economy as a cudgel. Entrepreneurs are terrified of the barbaric violation that will be inflicted on their reputations if they even hint at defection. (This keeps founders honest, but it also allows extortive terms like multiple liquidation preferences and participating preferred, which would never exist if founders could decline term sheets without reputation risk.)

The problem here is that there’s an underserved valley of business concepts. What’s the actual failure rate of businesses? No one really knows, because the terms are somewhat subjective, but the most credible estimates seem to refute the claim that “90% of new businesses die in 5 years”. It seems that about 40-50 percent of companies given full-time investment will survive 5 years, with much of that failure in the first year, and higher per-year survival rates as time goes on. Think of that as a 15% per year rate of job loss, which is worse job security than typical corporate employment (~4% per year) or incumbent politicians (~2% per year). It’s risky, but not as horrible as it’s made out to be, and would be tolerable if such job loss weren’t packaged with personal financial risk. Moreover, not all businesses that are closed were money-losers in the first place. A large number of them made money, but at low margins that were not enough to justify the managerial labor (from the owner, usually) required. They “failed” when for accounting for the owner’s opportunity cost, but not always objectively. What I mean to say is that the gargantuan failure rate of VC-istan is not the norm across all of small business.

Let’s consider the spectrum of business possibilities by survival rate. VCs want to fund the 0-20% category that, if they succeed, will deliver massive returns. They’re only concerned with expected value. For bank loans that require personal liability, it’s just not wise (and probably impossible to get funding) for anything riskier than 80%. So banks can cover that 80-100% range where, even if the business is closed, the loan will probably be mostly repaid. Technology lifestyle companies live in that 20-80% range that is, right now, completely unfundable. There is too much risk in this “no-man’s land” for bank loans, but almost no chance of them being billion-dollar concerns in less than 15 years, but there’s no good reason why they can’t be a profitable avenue for investment.

The issue is one of structure and incentives. Good-faith business failure is OK, so long as the successes cancel out the failures. No investor should risk her entire life savings on one lifestyle business, but investment into the class of them, in a broad-based way, should be possible. Making that possible is a valid (and, likely, profitable) business goal. That’s not what we’re worried about. A 20-80 percent chance of failure isn’t a catastrophic problem in a portfolio of businesses, seeing as the successes among these “lifestyle companies” will be substantial: not the 1000x returns that the VCs seek, but plenty of 5x and 20x hits. The issue that must be addressed is “moral hazard”. How do we guard against bad-faith business failure, or against managerial looting of what should be profit?

How does a passive investor of a lifestyle business demand profit, when their executives would always favor personal compensation? Bank loans compensate by refusing to take equity and requiring personal liability on debt– meaning that good-faith business failure is punished as well; there is no discrimination in that– while VCs take control of businesses, and have a perverse and probably illegal reputation economy (that also punishes good-faith business failure). Yet, while it’s conceivable how one might fund a fleet of 50,000 lifestyle businesses, it’s a harder problem of how to keep them all of their founders honest. It will require equity financing, because there’s too much risk in them for debt. Yet there will too many of them to manage with a feudalistic, VC-istan reputation system. So what’s the answer?

Solve It!

It’s easier to solve two problems at once than one in isolation.

Reiner Knizia, world-famous board game designer, once said that it’s a lot easier to fix two design problems at once than a single issue. Chances are, the design’s position in the state space is already a local maximum, so changing one thing is likely to degrade fitness, while changing multiple might improve it. Here, I’m going to argue that solving cultural problems and the “moral hazard” issue of the lifestyle business aren’t separate issues, but actually two facets of the same problem.

First, let’s get back to financial theory. People with capital to put at risk are owners, and employees implement their financial strategies in exchange for stability. There’s a risk transfer here, and it seems symbiotic, but with the potential for adversity. It’s the classic “principal-agent problem“. How do the owners know that their employees won’t rob them blind? In a small business managed by the owner, that’s relatively straightforward, but often, owners are unable to execute their interests by dictation and need to hire a special kind of labor, management. Managers are especially dangerous, because their job (traditionally) is to enforce the owners’ interests while remaining indifferent to those of employees (including their own). People who will take (and enjoy) such a job are generally not the nicest people.

Ownership, here, pertains more to financial risk than to paper. When a bank writes a loan, the bank is in the ownership position (even if it is a debt-holder rather than in equity) and the business owner is a manager– until the debt is repaid. Once management comes into the mix, there are three tiers. It gets messier, morally speaking. Managers end up with information advantages over employees and owners both, and will sometimes exploit the other two sets of people. As soon as managers are being hired, the relationship between owners and employees becomes one where defection is possible and distrust is common.

The MacLeod process starts when a subset of managers becomes a fourth tier of proto-executives (MacLeod Sociopaths). These are the ones who turn their information advantages into overwhelming personal yield. If they’re smart about it, they won’t rob the company explicitly, but use their information advantages and control to make themselves look like high performers, increasing their relative position. Those who fail to do so end up, socially and financially, in the lower Clueless tier. Thus, a MacLeod degeneracy can be viewed as a process in which a subset of managers use their extreme advantages of information to conspire against the workers (who suffer a degraded work culture) and the owners (who are loaded with externalized downside risk they are rarely even aware of) as well as against any managers (proto-Clueless) who cannot or do not participate.

Lifestyle businesses keep the three parties (financial owners, management, and employees) in alignment on culture. In fact, a primary motivation for a manager of a lifestyle business is building a desirable culture, since she intends to work at that company for a long time. That’s not an investor-facing issue, but it’s of interest to investors as well. For long-term organizational health, culture becomes important. I discussed, previously, why a good corporate culture is expensive in the short term. It’s cheap in the long run– for everyone involved.

Where there is the potential for disalignment is on wages, and that’s where “profits shouldn’t exist” comes in. Managers and employees both want to push compensation up (until there are no profits) so investors would lose if that were taken to its logical extreme. That’s the fundamental fear one would have when investing in a lifestyle business– what if these people take the money and throw a huge party, leaving their backers out? In order to keep the arrangement fair to equity-holding investors, they need to have some authority over compensation. However, for most industries, investors are not authorities on what fair compensation is. That is something I intend to address.

VC-istan’s solution is for managers (especially founders) and investors to collude. Investors are not shafted by their hired small-business managers (founders) because they are in on the whole mess together. Culture and career development are thrown by the wayside as they work, together, to drive for rapid high valuation (stability optional) and acquisition. Workers get the shaft: bullshit token ownership in a world where hours are long, business models are unproven, firing is fast and usually without severance, and management is almost always incomptent. VC-istan solves one problem, by defusing the potential for managerial abuse of investors (who take an active role in directing the company). However, workers (investors of time) get screwed.

Notice, above, what I said about employees, especially in new and unproven businesses. They’re investors of time. This isn’t just a metaphor, but an actuality. This is one of the reasons that I think VC-istan is fundamentally careerist and mediocre. Typical employees such as software engineers are not treated with the respect that would be accorded to investors, but seen as third-class citizens. A VC-istan engineer typically faces an employment contract where he vests no equity if he is terminated before the end of the first year. It’s not uncommon for engineers to be fired (“cliffed out”) at 364 days. If you “cliff out” an investor, you go to jail and, when you get out, you never raise a dime again. Yet cliffing-out of employees (for bullshit “performance” reasons that are thinly-veiled extortion– a threat to the employee’s reputation if he fights back) is a VC-istan institution.

If employees are investors (again, of time) then there is a common interest between the two parties, both of whom are often excluded by a conspiratorial set of morally bankrupt executives. That’s interesting! Perhaps the moral hazard of funding lifestyle businesses and the cultural desires of employees are facets of the same problem. I believe that they are. Both low-level employees and investors have an interest in guarding themselves against managerial malefaction.

The typical business is extremely opaque with information, with every piece of it guarded as if it were a competitive advantage. Thus, employees have no idea whether they’re being fairly compensated, and investors rarely know if the business is well-managed. Investors and employees almost never talk to each other; it would be treated as inappropriate, and insubordinate, for an employee to even dream of initiating such interaction. (The firm’s executives would fire that employee for jumping rank.) So if investors find out that a company’s badly run, it’s almost always too late for them to fix it. Talented employees have already quit, external relationships are beyond damaged, and the criminals have already cashed themselves out.

Investors fear that management and employees will collude on compensation, effectively overcharging the company’s ownership for their services. One solution is for investors (as seen in typical corporations) is to set tight limits on compensation and risk allocation. Then, managers and employees compete with each other and, more interesting, managers compete with other managers. You get a MacLeod hierarchy quickly out of that; the managers who can hide risk (“heads, I win; tails, you lose”) and make themselves look like indispensable high performers become executives (Sociopaths). The other solution is for investors and business managers (or founders) to create a tightly-controlled reputation economy that aligns their incentives, but abuses employees. That’s VC-istan, and it only works when you have a pool of Clueless young talent and the means of convincing them they’re on a path to extraordinary compensation. That’s not sustainable, because the lie will eventually see daylight, and talented people will stop taking terrible offers from bad startups. In any case, it doesn’t seem like there’s a good resolution in any of this muck to investor/employee (especially investor/manager) competition. 

So, look again at the common MacLeod pattern. A subset of the management tier finds ways to transfer and hide risk. As important work becomes increasingly convex, it will be correspondingly difficult for anyone to prevent this (e.g. by contractual provision). Fighting against this behavior through normal means won’t work. The source of the problem must be addressed. In this case, it’s information asymmetry. A small set of managers can conspire against employees and investors (and other less-aware, Clueless, managers) because they hold the critical information. When abuse of information can’t be prevented (as it can’t, in a convex world) the alternative is transparency: democratize it. Investors and employees win. Sociopathic executives lose. Hey, that sounds like a fair trade!

The solution is to be transparent about both culture and compensation. Employees should know whether they’re getting a fair deal, investors should know what they’re paying for work. Cultural expectations should be explicit and spelled out in an “Employee Bill of Rights” over which employees, managers, and investors all have a say. Financial and strategic matters can come down to the traditional vote-per-dollar shareholder system. Everything cultural (e.g. closed or open allocation) needs to be on a one-person, one-vote system.

Details of how to make that work could stand to be fleshed out, and those would merit an essay of their own, but here’s a set of thoughts I had. It’s fundamentally hard to define what the “fair” value of anything is, which is one of the reasons why transparency is so important, but external market salaries are pretty easy to discover. That gives a reasonable starting point.

If I were running a technology company, everyone would get the market rate, plus 20%, based on objective job description, for salary. I would be upfront with investors about this. Yes, I am “overpaying” engineers, so I can be selective. I want this to be a destination company right now, and not hire cheaply to get a job done and then have to fire people when I decide to upgrade my quality bar. We are paying now for quality. That salary number would be published internally to employees and investors. Oh, there’s one other rule. There’d be only three levels of software engineer: Apprentice, Engineer, and Mentor/Fellow (equal; one for teaching and one for research). The Mentor/Fellow level would be maximum salary in the company. No one would get more in base salary. Not even me, and certainly not some damn non-technical executive. That’s to keep such people from robbing investors (and employees).

This is not hippy-dippy egalitarianism. It’s not altruism either. I’d be doing all this for purely selfish reasons: building a great company and getting rich, all without robbing people because, well, I don’t like doing bad things.

This company would be intended for slow growth (10-30% per year) and hire only the best technological talent. Now, when you employ 20-50 people (mostly software engineers) and pay them market-plus-20%, something funny happens. Mature technical enterprises can easily break $1 million per employee. That is, you generate a lot of profit. So, there’s a question of how to share it. Obviously, investors must get some. Employees should get some, too.

I’d favor profit sharing over equity, because I don’t think it’s good for a company to have hundreds of “owners”, many of whom are no longer part of it, and I don’t think the bullshit “partnership” of a 0.03% slice in an 50-person company is going to fool anyone for much longer. Also, we’re talking about lifestyle businesses which, while they might be sold at some time, are not intended specifically for that purpose. “Liquidity” might never happen. Let’s stop betting our lives on such things. Most employees would not have equity. They wouldn’t need to worry about options exercise or 83(b) election or liquidation preferences. Instead, they’d get considerable profit shares. Here’s a model for how that would work. About 20 percent of profit gets invested back into the business, no matter what, unless there’s a conscious decision to reduce cash holdings (and pay dividends) at business maturity. Thirty-five percent goes to equity-holders, who decide whether to reinvest it or take a dividend, and 45 percent is paid in compensation to employees.

I don’t know that 45 percent is exact right amount to give to employees, but it’s that neighborhood (35 to 65%). The intuition behind it is as follows. High-end investment vehicles (e.g. hedge funds, venture capital) charge a baseline management fee of 2%, plus and 20% of profits (“2-and-20″). That’s what wealthy investors have to pay to participate in the above-normal returns of these funds, and they’re happy to do it.  The elite quant funds (who can reliably deliver double-digit returns) charge more: as high as 5-and-44. I’d be charging no ongoing “management fee” (once capital is raised) but investing a high share of the proceeds into employee morale. Effectively, the model here is “0-and-45″ for access to elite technological talent (as opposed to 2-and-20 for access to elite financial strategies). I don’t know what the exact right number is, but I think 45 is in the neighborhood.

Employee profit-sharing would be in proportion to “points”. Here are the rules of profit points:

  1. Profit points are compensation, not equity. You keep them as long as you work for the company. If you leave before an annual payout, you get a pro-rated share on payout date. (It’s not like banking where leaving before “bonus day” means you get nothing.)
  2. Each employee has at least 1.0, with the intention of keeping the average at 1.5-1.75 (and never more than 2.0) per head. Meaning: no one has less than half an average slice. 
  3. The total number of points is published, and if anyone holds more than 3.0 points, that person’s amount is public within the company. Except in extreme crisis (read: desperate CxO search) no one is hired with more than 3.0, or raised to that point in the first year. Meaning: anyone with a large slice better be deserving, because it’s public information, and that may only occur after one year of work, so employees aren’t hoodwinked by executive implants who start on top.
  4. Anyone with managerial authority (should such an institution become necessary) has his or her share published automatically. Meaning: management is there to benefit investors and employees, and they have the right to know exactly what they’re paying for the service.
  5. Profit points should not, in general, be allocated faster than profits can increase. Meaning: business risk might reduce the value of profit points, but dilution shouldn’t. Your share as a percentage of the whole may go down; the expected value should be going up.

The reason I call these “points” instead of “shares” is because they need not be disbursed in whole numbers– an employee might have 1.5 profit points– and also to distinguish them from investor shares, which deserve to be separate (investors shouldn’t be diluted by employee hiring).

One other thing I would consider allowing, for very senior hires who might not be able to accept market-plus-20%– for example, you can’t raise a family in New York on 1.2 times the typical software engineer salary– would be zero-interest advances against profit points. The existence and structure of the program would be public; that someone is using it would be private. The purpose of this is to accommodate “HR expedient” hiring of people at compensation levels greater than what is fair (based on others’ compensation). Yes, it’s allowed to happen as a temporary measure, but the “advance” model keeps it from becoming perpetual inequality.

What’s above, I think, is a principled rubric for allowing some opacity (in fact, a lot of it, because a healthy software company would generate $50-250k+ per profit point under this model) in the pursuit of “HR expediency”, but keeping abuses from getting out of hand. If someone’s getting 10 times more than a colleague, the whole company will know and have a right to an opinion (possibly, including the right to vote on such things, just as investors would have) about it.  

How transparency Solves It

Ultimately, the principal-agent problem that currently blocks the financing of lifestyle businesses is that investors (who do not know enough about technology to evaluate decisions being made) don’t know if they’re getting screwed on compensation, because they don’t know what market salaries are. No one wants to fund such a business, out of the fear the a CEO will give himself and his employees high salaries, blowing up what could be a successful business by taking such pay, thereby stealing from investors. VC-istan solves this by having investors explicitly manage compensation, often to an overbearing degree. (VC: “You can’t pay an engineer $160,000! That’s too much for just a programmer!”) That kind of micromanagement doesn’t scale to a fleet of 50,000 lifestyle businesses. Compensation needs to be simple, obviously fair, and accessible to investors. My model is one in which, unless there is profit returned to investors, founders earn no more than senior engineers.

What’s also being thwarted, under this model, is self-perpetuating salary inequality. Since outsized salary takes the form of advances against profit points (that would only be extended if it’s likely that they’d be repaid) people who require high compensation (and are afforded it, for HR-expedient reasons) would not have be able to leverage their salaries into persistent, across-the-board improvements (in “performance” bonuses, calculated as a percentage, and in raises). The existing system is good for people who can negotiate amid opacity, because they tack market conditions (getting pay improvements when the market’s strong, negotiating for more autonomy when it’s weak) and move themselves forward via calculated job-hopping, but it’s not the best for the world.

I haven’t said much about how this solves cultural problems. Obviously, there’s no guarantee that it would. Those things come down to more than money alone. However, I believe I’ve made a start on it. Incentives are not the only thing that matters, and financial incentives are not the only kind of them, but there’s a start, here. If everyone at a specific job description is earning the same salary, and bonuses are based on (fairly allocated) profit points, then the incentive structure seems better. The employee’s question then isn’t, “How do I get a $10,000 raise?” (usual answer: get an offer elsewhere) but “How do I improve the company so my profit points are worth $10,000 more?”

VC-istan startups rarely deliver raises and their equity compensation is, for the most part, pathetic. A software engineer joining a 50-person company is lucky to get 0.04%. What that means is that his financial incentive isn’t to improve the company’s value, because the difference between delivering average and “10X” work for a year, on a 0.04% slice, won’t even pay his Starbucks budget. Rather, his incentive is to become an executive and get a real slice. If you don’t see how this is a recipe for an engineer-hostile, fucked-up culture, you don’t understand technology.

My system wouldn’t entitle an engineer to that token ownership, but it would allow a much greater non-owning participation and that, for such a minority share, is preferable. With the numbers above, the least-compensated engineer of the 50-person startup would be entitled to 0.45% of the annual revenue, not 0.01% per year (minus a bunch of wonky VC robberies like “participating preferred”, over which the employee has no control) of some highly unknown (median: zero) value at “liquidity” in the future.

This “uncanny valley” of trivial ownership is, in my opinion, worse than the total (and mutually understood) non-ownership of an employee in a traditional corporation. The non-owning corporate employee has no expectation of getting a ten-fold increase in “equity” because he has none (unless it’s a publicly-traded company and he bought stock on the market). He’s just there to trade labor for money at an agreed-upon and well-known rate. If he’s playing for comfort and stability (MacLeod Loser) he’ll be happy with a 4% raise each year, to account for costs of living. If he’s going for rapid career growth and personal yield (MacLeod Sociopath) he’ll probably “job hop” if he’s not on track for 15%-per-year. But it’s obvious who the players are and what they want. There’s no “You’ll get rich on this!” mythology devised to turn the MacLeod Losers into Clueless. VC-istan, on the other hand, is all about cutthroat social climbing. Engineers want to become executives and get real equity slices (although they seem to harbor a delusion that they’ll still be able to code, and use their control of the division of labor to give themselves the best projects, in such positions… instead of having their lives eaten by useless meetings, which is what actually happens when they become executives). Executives without investor contact want to become executives with investor contact, so they can break off and be founders next year. Founders want to be “angel investors” (read: rich, but still considered important by smart people). It’s a world powered by the young and the Clueless– Clueless who are trying to be Sociopaths, and often very bad at it.

Transparency on all fairness issues (compensation, employee autonomy, cultural guarantees) is the antidote to Cluelessness. If there’s no Cluelessness, then there aren’t “Clueful” sociopaths robbing investors and exploiting employees. Then the goal isn’t to “become an executive” but actually to fulfill a role well and make the company great. Imagine that! It’s not a magical antidote that will cure all forms of cultural malfeasance. I don’t think it can be expected to solve all problems, but it starts the conversation.

Gervais / MacLeod 16: Healthy culture vs. “Why you?”

I’ve discussed a number of problems that businesses face, and started work on at solutions. There’s one major issue that I still need to address. A good organizational culture is expensive. It’s not enormously so, and it pays for itself over time, making it far cheaper than the alternative, but one has to make the conscious decision to pay for culture, or most often it won’t exist. MacLeod pathologies, most pronounced in the stable but undesirable corporate rank culture, seem inevitable because, without ongoing investment in culture, they are. One has to knowingly stand apart from such pathology to prevent it, at least at scale.

Here are a few major ways that it is more expensive for a company to have a healthy organizational culture than the default, broken one. These points are inspired by technology, because it’s what I know. Most of these pertain to risk rather than expense, but the former is generally perceived as the latter, since the real business of business often tends to be risk transfer.

  • Thoughtful and strategic growth. VC-istan startups collect smart people and leave them to fend for themselves, as the company grows ambitiously but not strategically. Healthy culture requires personnel growth in tandem with the legitimate workload (essential or interesting work; not fourth-quadrant executive nice-to-haves). If the workload grows, you must hire more people. If it doesn’t, you shouldn’t. Slow growth might seem less risky, but in the context of VC-istan, it’s much more risky; it’s seem as appropriate for niche “lifestyle businesses” but likely to fail in winner-take-all “red ocean” markets. 
  • Progressive hiring. Most technology companies look for “plug and play” hires who already know the technologies they have and can turn a profit over salary in 1 month instead of 6 months. The tight deadlines of a VC-istan startup seem to necessitate this adversity to ramp-up time. If you’re hiring for culture, though, you need to take account of future potential and you can’t, in practice, be selective for cultural coherence and plug-and-play. You have to hire the people who will make your company great in the long term, rather than for immediate technical-stack fluency.
  • Mentoring. Most companies talk about this lofty ideal, inherited from the guild cultures of old, but few actually do it. One negative side effect of convexity is that, because the time of a seasoned veteran has an order of magnitude more short-term economic value than that of a competent intermediate, mentoring is generally seen as too expensive by executives. Demands placed on the most productive people (by senior people, with power) are already so high that mentorship of new hires (with no power) invariably gets the shaft.
  • Open allocation. Employees are directly responsible for making their work useful to the company, without managerial interference. This is more managerially challenging because it relies genuine motivation, rather than extortion. The upshot of it is that even undesirable work will be done well, because if it’s genuinely important, someone will want to do it after some time. The drawback is that, with work direction coming from the demand rather than supply side, it tends toward “eventual consistency” rather than having the quick-but-sloppy immediacy of managerial edict.
  • Innovation time. So-called “20% time” is not the same thing as open allocation. A healthy company needs both. Open allocation means that a person has the right to move to another sanctioned project without requiring permission, but it’s not “work on whatever you want”. Innovation time means that the employee can work on anything, as part of a team or entirely self-directed, that benefits the company. It enables people to work on 3rd quadrant (interesting but discretionary) work that might have a major payoff (convexity) in the future, but the limited amount of innovation time keeps divergent creativity (which might never pay off) from going off into the weeds.
  • Severance. You’ll need to fire people who just don’t work out. If you fire someone without a severance package, you’re gambling with your reputation. Startups don’t fear termination lawsuits, knowing they’ll either be big or dead by the time that one would conclude– it’s tomorrow’s problem. But severance is also about PR. Reputation risk is more immediate. People talk. Internet happens. If you’re in dire financial straits and everyone knows it, you can lay people off and they probably won’t expect a large package, and the good faith coming from mutual suffering will keep them from disparaging you. If, however, you’re flush with cash and you fire a basically decent “no-fault lack of fit” employee without severance, you’re an asshole and deserve what happens to your reputation.
    • Oh, and don’t even think of using “Performance Improvement Plans”, which allow HR departments to claim they “saved money” on severance while externalizing costs to the team and manager. The morale toxicity of having a “walking dead” employee in the office for one month (hell, even one week) is more expensive than a 3-month severance. Also, most “low-performer initiatives” are dishonest layoffs that turn into politicized witch hunts. You’ve been warned.
  • Firing and demoting toxic high-performers. People can be individual high-performers but damaging to the group. If you can isolate them and demote them out of managerial authority, then fine. Often, the only separation that will work is termination. Toxic people tend to have a desire for control over others that exceeds their leadership ability. They need to be fired, even if they seem “essential”. They aren’t. No one is essential. If someone is insistent on controlling others or, worse yet, bullies or harasses them, you must get rid of that person. You’re a business, not a day care.

All of these efforts pay off in the long term, but are costly enough in the short run to introduce risk. VC-istan, with its disposable-company attitude and obsession with fast growth, is rarely going to pay for any of those. This might seem contradictory: isn’t VC-istan all about embracing risk? It’s not that simple. Organizations tend toward “risk-against-risk compensation”, where increasing risk of one variety requires a zero-tolerance crack down on the other forms of risk, in order to keep total risk below some accepted level (“risk budget”). VC-istan loads up on one kind of it– business-model risk– while being extremely risk-averse with regard to the rest, explaining why most of these “VC darling” startups have horrendous corporate cultures. Messianic founders (often, people with VC contacts who are also too narcissistic to be anything but “serial entrepreneurs”, because they can’t keep normal jobs for longer than 3 weeks) have a tendency to take all the creative risk for themselves. At the interface level of the company, they exhibit an extreme (and not always undesirable) affinity for rapid, sudden changes (pivots) in business model and vision. However, the firm’s entire risk budget is allocated to people at the interface. The interior (where engineers live) is neglected and gets no risk budget (read: only what one can hide). While the company is swift and small, it’s more like a tough culture in which it can still be enjoyable to be a low-level employee– one thrives by hiding risks, working very hard, and getting lucky. Once professional managers (who reduce risks, even of the good kind, because it’s what they’re trained to do) are hired, rank culture sets in and the company is no longer with caring about, except for true shareholders (and not people sacrificing their careers to vest tiny slices of equity).

Good and bad risks– and why the distinction used to not matter, and now does

Companies exist to shift around risks, but this raises a question. Is moving risk the only thing we should care about?

Clearly, there are some good and some bad risks. Most business risks that companies take are beneficial to them and, sometimes, to society at large. Those are good risks. Funding basic research is a good risk; the worst-case scenario is a well-understood financial loss, and the upside is immense. Playing Russian Roulette is a bad risk: it has no upside for anyone, and there’s a 1-in-6 chance of a bullet in the head. Risk can have an irremovable moral character, and the business world tends to ignore that.

Financial risk can be commoditized and transferred, due to separability. This leaves the risk (which can be traded on a market) without a directional moral character or color. All that matters is the (explicitly quantifiable) amount of it that there is. With separability, you can take the attitude that there’s a fixed, quantifiable “pool” of risk that may be taken, and risk allowance will be allocated according to political standing. When you’re dealing with separable commodity risk, it doesn’t matter who has the allowance or what kind of risk it is. As an owner or top executive, you set a maximum amount, let the politically empowered or daring take risks (for personal and corporate benefit) until that limit is reached, and hope for the best.

The problem, in a fully convex technological economy, is that most risks are no longer separable, meaning raw amount of risk (e.g. statistical variance) isn’t the only vital concern. Why? First, there are too many important risks to set up a market for transfer. With industrial commodity labor, individual efforts were concave. Now, each employee is a source of convexity. Creative risks, in the technological world, are individualistic and non-fungible. The payoff distributions are not Gaussian. Old models break down, and management according to risk allowances and principled reduction result in lost upside. In the concave, industrial world, this was tolerable. Concavity, which favors risk aversion, means there’s little value to extreme high performance. Taking a haircut on the upper end was fine: a “Maserati problem”. Convexity’s different. Without that “fat tail” upside, one cannot compete. Losing the upper end means losing almost everything.

Good risks generally involve growth and building: “blue sky” R&D is an example. Bad risks usually involve damage and harm: “low performer” witch hunts might reduce costs, but can demolish morale forever. Bad risks tend to be concave (downside-heavy) and good ones convex (upside-heavy) but that isn’t strictly or uniformly true. In any case, typical industrial-era, MBA-toting management never bothered to learn the difference between good and bad risks because, until recently, it didn’t matter. Risk was a measurable but fungible (thus, always financial) quantity to be sloshed around. Loss induced by sloshing costs was minimal: a rounding error. With inseparable risks, sloshing is infeasible. Risk must be “allocated” and executed where it “naturally” lives. The concrete result of this, amid widespread convexity, is that employees must be trusted with their own time and risk. Not taking that approach will hamstring a business.

What do the players want?

MacLeod organizations exist to transfer certain kinds of risk– especially the personal risk of income volatility that has little to do with business, but is a motivating factor for people to go to work, even under disadvantageous (MacLeod Loser) conditions. If one wanted to see it this way, one could perceive the (idealized) corporation as a purification plant that takes peoples’ personal income risks (bad risk) and turns it into an engine that can provide them steady employment while delivering high average returns for those who can tolerate volatility (good risk). This is the sort of thing that becomes possible in a world of separable risks.

Regarding risk, individual people generally don’t want sudden losses of income or painful or disruptive changes in their daily routines. They especially hate involuntary geographical mobility, one of the strongest predictors of mental illness. The first (and legally inviolable) provision of the corporate social contract is that the employee gets paid speedily for work furnished. Implicitly, they also harbor expectations regarding career management, fair warning of job loss, and fairness– those are delivered with less of a scrupulous reliability, because they can’t be legally enforced. Ultimately, however, most people are looking to be separate from the potentially life-ruining risks that they’d face on a daily basis if they interacted directly with the market. These are the MacLeod Losers. They take a steady wage that falls short of their expected productivity (and that they will lose if severely unproductive) and the difference is the risk premium they pay. The risk-seeking and entrepreneurial MacLeod Sociopaths collect these risk premiums and often get rich.

Intermediate management (which, in a risk-analytic perspective, includes executives, insofar as they are “upper management” but sit between risk-exposed owners and risk-selling workers) is a disease and a treatment. The problem with such people is that they often find ways to take upside risks while externalizing the downside (“heads, I win; tails, you lose”). Executives combine the ambition of ownership and the risk-aversion of management, and often the most fit personality type for this is a thief with a mature and nuanced understanding of risk and a preternatural skill for externalizing and hiding risks. At some point, an Effort Thermocline forms and the true executives, collecting only upside, are less accountable and less productive than the downside-laden chumps below them. Those who succeed in the trade of risk and credibility (the right to take organizational risk in one’s own direction) become the MacLeod Sociopaths. Those who fail become the Clueless, who inadvertently serve as a countervailing force to the mounting pathology and sociopathy of the shell-gaming Sociopaths. The Losers, on the other hand, are aware of the risk transfer that’s going on and, as long as their personal risk is reduced, they don’t care who wins or loses.

The new fourth category of the Technocrat has a different attitude. Clueless are laden with bad risk and unaware of it, thinking they’re doing right by their companies. Losers want to get rid of personal income, location, and condition-change risk. Sociopaths try to take existing good risk for themselves and externalize bad risks, but their main goal is their personal balance (good risk, minus bad risk). Technocrats actively seek good risks, biased toward the convex-friendly opinion that taking desirable risks (rather than reducing disliked ones) is the optimal strategy. They want improvement, hard problems to solve, and creative endeavor.

The Miser’s Question: Why you?

When does emotionally neutral (and justifiable) corporate risk aversion turn into resentment, bad faith, and moral corruption? The answer is the Miser’s Question.

When a person tries to pursue creativity that entails risk (especially, the financial kind) for others, he’s going to run to into the Miser’s Question. Why you? It’s not rejection of the idea. It is to say: the idea sounds like it has merit, it could be a good one, but what makes you the one to execute it? What’s your competitive advantage over the other guys? Shouldn’t we bring in an expert to make those calls?

For a brilliant cinematic example of the Miser’s Question, there’s a scene in Fargo where Jerry Lundegaard– the protagonist, an emasculated and fairly stupid man turned to crime in desperation– discusses a business proposal with his father-in-law, a wealthy banker. For maximal humiliation, the banker recognizes the deal as a good one, takes it for himself, and offers Jerry a trivial finder’s fee. The banker didn’t perceive Jerry as having the competence to execute it. (To his credit, the banker was probably right. The movie is about Jerry’s incompetent execution at, well, a lot of things.)

Worse is a move that I call the Miser Bomb. It’s when a boss takes a subordinate’s idea and gives it to someone else he perceives to be more credible. That’s evil. Once the Miser Bomb falls, the relationship between that manager and the employee is over. Having an idea rejected is just business. The Miser Bomb is rejecting (and insulting) a person. It’s a good idea, but we don’t trust your judgement. That wound never heals. It leads irreversibly to resentment, adversity, and sabotage.

A true-blue Sociopath would fire a subordinate as soon as he drops the Miser Bomb. At that point, it’s probably the only reasonable thing to do: summarily terminate this guy who will never be invested in his work, and will almost certainly desire to undermine his superiors.

I don’t like “why you?” and I especially dislike “why you?” cultures. Having grown up in blue-collar Pennsylvania, I can say there’s clearly a set of hard-working, intelligent people who end up not achieving much because they feel that ambition and upper-tier achievement “just aren’t for our kind”. (Of course, that’s bullshit.) In the Philippines, this is referred to as the “crab mentality“, which refers to the tendency for captured crabs in a bucket (that, individually, one could escape) to pull each other down, so that none get out and all die. It’s militant mediocrity. “Why you?” is the crab-mentality conviction that anything interesting (executive-level business problems, hard-core machine learning, self-executive direction of one’s own career) can only be performed by anointed “special” people, rather than learned through trial and error. Startups are supposed to be beyond that, but I find the opposite often be true. Often, a good idea will be met with, “That would require hiring a real X with production experience at scale.” Never is approached the idea that “real X”es didn’t descend from heaven, but learned those skills by, you know, doing X without asking for permission from risk-averse, emasculated imbeciles who use words like “scaling” without knowing that they mean. This “real X” obsession is often related to a disgusting, social-climbing “our people aren’t good enough” attitude that I’ve seen in many startups, and it must be run away from with extreme prejudice.

Given the toxicity of “Why you?”, why does it still exist? There’s an amazing saying (often falsely attributed to Eleanor Roosevelt) that explains it:

The best minds discuss ideas, middling minds discuss events, weak minds discuss people.

Apply this maxim to business and investment. The most progressive thinkers want to participate in human creativity, so their goal is to validate new concepts in a calculus that balances their divergent creative needs (exploration) with the convergent, pragmatic motive of turning a profit (exploitation, here used non-pejoratively). Middling businessmen want to see numbers about the market, some projections and charts, and fetishistic buzzwords that make them feel safe. The small-minded and deficient operate based on emotion, superficial assessments of character, and credibility. They’re the ones who ask “Why you?”

VC-istan, as I see it, is still a “Why you?” culture. Investors are looking for “track record”. What galls me is when they say, “we don’t invest in ideas; we invest in people”. That’s supposed to sound agile and progressive. Actually, the people who say that sound like small-minded dipshits. If you’re an investor or executive, then your goal should be to invest in human creativity (not “people”, meaning resumes or superficial reputations) and, while pragmatic compromise is always necessary, if creative excellence isn’t your aspiration as an executive/investor, you’re a supernumerary, conformist bag of waste and you should just sit this life out. If you’d rather invest in “track record” than potential, then I’m sorry but the future just isn’t for you.

The answer to “Why you?”: Why not?

The problem with “why you?” is that people internalize it, especially after 20 years of disempowerment. If you’re obsessively questioning whether you’re “good enough” to try something, you’re wasting time that could be spent either learning the requisite skills, or just going the fuck out and doing it. There are a million things worth doing, and if we leave them to “special” or “credible” people, most of them will never be done. There are only about 23 people in the world who are perfectly and implicitly credible (Google’s Jeff Dean is one) at any given time, and each can do a maximum of maybe 6 things-worth-doing at a time, which leaves 999,862 things worth doing that won’t be attended.

The only business organizations that are worth caring about have “why not?” cultures where people focus on doing rather than jockeying for permission to do things.

“Why not?” is not about irresponsible permissiveness. It’s a real question, not rhetoric. There are often good reasons not to take risks. That question must always be examined, and any reasons considered. If, however, the worst-case scenario is merely an affordable expense of time, people should go for it. That should be encouraged in all levels of an organization. People should be implicitly trusted with their own time, and encouraged to take beneficial risks.

The reason I don’t see a future in VC-istan is that it’s doomed to continue along with its “Why you?” mentality, if for no other reason than its centralization of power. VC may be a slight improvement over the traditional corporate culture that peaked in the 1970s, but it’s every bit as doomed to MacLeod stratification, upper-crust entitlement, and pervasive mediocrity. It’s so far along that path that it can’t come back. We need a genuine “why not?” culture; that, more than anything, is going to define creative health over the next several decades.

What will overwhelm VC-istan and drive it into obsolescence? I’d put my money on an armada of 50,000 or more small companies, not focused obsessively on rapid growth. These are derided as “lifestyle businesses”, but I trust them more than anything else that is out there to build out the future. The lifestyle business is viewed as a failure because, in the current regime, it’s too small to be safe. A competitor can kill it, and the owners’ lives are probably ruined. That’s a real problem. It makes a lot of great people not want to do lifestyle businesses, because there is this serious risk. VC-istan is there to provide a safety hatch for good-faith business failure, which lifestyle businesses don’t have. Good-faith failure at a lifestyle business still fucks up your life. If we can provide a reliable, working path for talented entrepreneurs to start lifestyle businesses without egregious personal risk, we’re headed in the right direction. Nothing can (or should) protect businesses that fail in the market from dissolution and reallocation of the (underused) resources, but we should make it easier for the people who fail in good faith to try again. We need to make “yeoman capitalism” a legitimate and sustainable mode of existence.

Moreover, a fleet of 50,000 strong but not gigantic businesses is, in my opinion, a hell of a lot more robust than VC-istan’s few hundred red-ocean “X killers”, where X is some giant corporation that, while sluggish and mediocre in the development of internal talent, still has the means and will to fight viciously against (and possibly demolish) anything with any real chance of killing hit. VC-istan despises lifestyle businesses not because there’s anything wrong with them, but because it favors get-big-or-die “X killer” gambits that are continually reliant on external capital.

The solution to our problem is coming into view, but we still have questions to answer. It would be a great thing to have 50,000 lifestyle businesses building real technology. How on earth are we, as a society, going to pay for it? We come back to age-old economic problems of risk and finance. I’ve painted the broad strokes; the finer ones are where I intend to go next.

Gervais / MacLeod 15: What is being rich?

After the 14 previous essays, we now have a deep understanding of why business organizations degenerate (i.e., why, for most people, work sucks). We’ve got a working taxonomy of the players by rank (MacLeod hierarchy) and moral behavior (alignment). We know about the social substructures that keep corporate hierarchies internally stable, even while enervating them and leaving them exposed to external risks, such as obsolescence. We have an understanding of why MacLeod institutions were successful in the past, but won’t be in the future. We know how (internal) corporate evil works, and why it exists. We have a sense of why previous (financial and social) risk transfers enabled the corporation to exist, and the chaotic, playful force that will undermine a centuries-old way of doing things. We have the language to discuss workplace cultures and organizational health. We’ve even taken a glance at the creative emptiness of chaos (the source of growth and risk) and, with an expanded alignment model, derived the importance of the The Fringe– the barrier between well-adjusted and ill-adjusted alignments that generates a highly ambitious “ring-shaped” space that sets up the eternal struggle between lawful evil (psychopathy) and chaotic good (technocracy). God sent me to kick some philosophical ass. I can’t judge my own work, but I’d like think ‘dem boots got broke in.

Yet before we can solve individual or organizational problems, we have to answer one more question: what the hell do all these players actually want? If you say, “Money”, I’ll put a dunce cap on your head. Money just enables the trade of stuff people want. It must be of low intrinsic utility, so people will happily let it go to get things they actually want, but legibly scarce enough to hold value. People generally get money from corporate institutions and use it to get services from other corporations, so there’s another interesting question: what the hell do corporations want?

First, I’m going to discuss individual material desires and aspirations. Then I’ll get into the concepts of wealth and work and how they’ve evolved from the primal to agricultural to industrial eras and, additionally, how they’ll change again in the (future) technological age. We’ll encounter some surprises there. Then I’ll get into what organizations want (and should want) for themselves.

Individual material aspirations

Why do people want to be rich? What is it about material wealth that drives people? There seems to be a five-tiered hierarchy of material aspiration:

  • Survival: Basic, inflexible needs like food, shelter, and health care. 
  • Leisure: Freedom-to. Meaningful activities and pursuits such as reading, sports, travel, and social engagement.
  • Comfort: Freedom-from. Purity of experiences (e.g. first-class travel). Liberation from time-wasting chores, unpleasant side effects of Leisure, and artifacts of low social or economic status.
  • Status: Social resourses to maintain an undeserved income and (for some) extremes of sexual access and libertinism.
  • Power: Capacity to raise or lower others’ Status levels, whether through political, business, cultural, or religious dominion.

I might be showing my cynical (in the classical sense) bias here, insofar as this depiction places a virtuous “getting off” point somewhere in the middle of the Comfort tier. The first two levels (Survival, Leisure) have an obvious natural necessity and inclination toward virtue, and the third (Comfort) has clear hedonic value but can tend toward excess. Status and Power, on the other hand, pertain to the raw, zero-sum bickering that often makes people miserable and morally bankrupt. There are moral notions of status and power– rooted in earned elevation and in technical excellence– but those tend to be focused toward progress and health (Technocratic ideals) rather than zero-sum socioeconomic squabbling.

A simplified model would claim that people “max out” one tier and go to the next. That’s about right– one tends to claim primary focus for a given person at a given time– but, of course, it’s not so cleanly delineated. No tier is ever perfectly maxed-out, as made evident by the fact that we die, precluding perfect Survival. There are also trade-offs. A person with moderate means could decide to travel further, to more exotic locations (more Leisure) or, instead, to travel nearer but with better accommodations (more Comfort). That inclination comes down to individual taste.

Let’s look at how these tiers worked at various points in history, and attempt to project them into the technological era.

Material aspiration in history and future

In the primal era, work and play were so intertwined that Survival and Leisure were intimately linked, because the activities people did to survive (hunting, trapping, collecting and gathering) fulfilled most peoples’ primal industrious needs. Comfort, however, was utterly unimaginable. There simply was no such thing. The gods might afflict you with illness, or you might be wiped out by a more fearsome tribe that sweeps into your range. Status pertained to sexual access and reproduction. What was Power? It started when primal people began to speculate on the whims of the gods, and developed protocols for resolving status disputes. Those who managed to win others’ trust in divination became priests and, probably, the first law-makers. One presumes that there was a selection process in humanity’s priesthoods, evolving from random pretense to principles that, in their contexts, worked more often than not. Over time, this favored free-standing logical principles that became the first laws.

As humanity moved toward the agricultural era, ownership (of land, people, and resources) was invented, and that became the new Status. People who controlled and enforced the laws pertaining to ownership had Power. Leisure separated from Survival, because most of the activities people did for their sustenance were no longer fulfilling. The Comfort tier– nonexistent in a primal world– emerged, but in a form that was deeply intertwined with the Leisure and Status tiers below and above. Ownership enabled permanent social classes, and they developed divergent ways of pursuing leisure. Non-owning poor hunted for edible animals on foot, and ate them. Rich owners chased small or inedible animals on horseback, and made them trophies. The stratification of Leisure by Status generated the first notions of Comfort: different modes of doing things, some with obvious hedonic superiority over others.

The five-tiered hierarchy is most prominent in the (current) industrial age, with business sectors and commodity markets pertaining to each category of need. Whole companies are dedicated to peoples’ Leisure, or Comfort, or Status needs. Employed people will generally have their Survival needs met and abundant access to Leisure. Comfort has advanced to levels that would be considered heavenly a hundred years ago, but it’s still somewhat scarce. Most people can’t afford first-class plane tickets at full fare, or to live in the nicest neighborhoods, or even to live less than 30 minutes from work. Status is necessitated by the fact that it’s still impossible for the vast majority of people to fulfill Comfort without a parasitic lifestyle and the social access to enable it. Power pertains to control over such social arrangements and that interpersonally exploitative resource: connections. (I don’t use this view of connections to denigrate genuine relationships; I’m talking about “I’ve got connections, bitch.”) Corruption no longer happens in “smoke-filled rooms”, and bribes to sleazy politicians (almost all of them) are no longer bags of cash, but invitations to important parties. “You have a kid in high school? Every Ivy League admissions dean comes to my winter party. Keep me a friend, Senator.” That’s how Power works.

I contend that we’re not yet in the technological age, but we’re coming to it, and the successful institutions of the 21st century will be those that embrace it. At some point– and this is not a pre-requisite for advancement to a technological state, but a likely byproduct of it– we may reach a point where average people can have Comfort and obviate the nasty, socially destructive competition for Status and Power. We might move toward a world where people focus on the virtuous notions of status (patterns of excellence) and power (expansive, enlightened altruism). That would obviate a host of nasty human problems that seem intractable at our current level of advancement. Or, we might discover that people are boundlessly greedy and competitive, and then see no real progress. I tend to believe it will be a mix of the two– people will still compete over stupid shit, but it will be less harmful to outsiders, as one sees with the ridiculous but externally inconsequential/harmless ego-fest surrounding Manhattan nightclub admissions– but there are too many variables involved to make firm predictions. That world is probably 30 to 150 years out, in any case.

What makes someone rich?

In the primal world, persistent wealth was probably rare, and not universal. A person was rich in his tribe if he had high status. A tribe was rich if it could use and defend a large range for hunting, gathering, and proto-agricultural return-and-forage practices. What wealth existed was probably connected to religion: objects (fetishes in the true sense of the word) believed to convey connection to, or favor from, the gods. Of course, such wealth wasn’t transferrable; it only had value to those who believed in the same gods.

Persistent wealth came into the fore in the agrarian era, as societies invented permanent ownership relations, backed first with claims of divine sanction, and later with social-contract arguments and political force (states). Still, culture and religion only went as far as others bought into them, so there was a need for societies to agree mutually on stores of value that made sense between them. Grain could rot, and land could only be “owned” as far as it was defended, so something else was required. Furthermore, the need to maintain power relationships (land ownership, slavery) necessitated force, and that required hiring soldiers. It was best to pay them with a currency of universally legible value, like gold. Whatever bought the sword became money. Being rich, in the agrarian era, was owning lots of stuff and having the means to defend it and to extract its value.

The industrial era moved away from physical wealth and toward debt currency. While industrial labor is (for most individual workers) concave, industrial processes are (at least as one scales from zero to completion) still convex, due to nonlinear synergies. This meant that an industrialist would have to take control of others’ time and resources (a natural source of debt) for some time, running a loss for a while, before there was any payoff. Finance formalized this, and also enabled risk transfer. People with financial capital could put it at risk (for expected profit) and, thus, enable entrepreneurs to pay workers immediately (removing risk, for them). This allowed macroscopically convex (thus, risky) endeavors to be taken on by large numbers of people, while the risk was passed to those who could afford it. In the industrial era, to be rich is to have access to financial capital.

In the previous eras, but most especially the industrial one, wealth was intimately connected to control of time. What we’re learning in a world of ubiquitous computing and 24/7 connectivity is that time doesn’t have anything close to a uniform value. For me, the 8:00 am hour is much more productive than the 8:00 pm hour; but for many people, it’s the opposite. The semi-bored passive time that advertisers cultivate is of minimal value, but an interesting commodity in its own right because there’s such a massive quantity of it.

More interesting than the static non-uniform value of time, however, is the concept of progressive timewhich is compounding interest of skill and knowledge derived from heterogeneous experience. In the late industrial era, time became money; work was all about the trade of one for another. However, with the micro-convexity (as opposed to the macro-convexity of all industrial efforts) of creative endeavors becoming the norm in all important work, we’re finding some extreme nonlinearities. There’s immense value in “10,000 hours” (I won’t debate exact numbers, but it’s the right order of magnitude) of deliberate, focused, and progressive practice. There’s very minimal value in 10,000 hours of non-progressive commodity labor. The programmer who spends 10 years doing difficult, creatively taxing, educational work can justify $500 per hour of economic value to her future time commitments. Yet a programmer (similar on paper) who did the more typical bland corporate drudge work for that same amount of time (i.e., he has the same year of experience, repeated 10 times) is probably worth less per-hour than he was when he started. So time can no longer be valued in isolation (whose time it is, what work will be completed) but it must be connected with both past (previous skill investment) and future (potential long-term yield).

To refine a numerical intuition for this, let’s say that you’re building technical infrastructure that will double the value of your business. If you hire the best specialist you can get, he’ll get it done in 4 months: a doubling in that time is 19% per-month growth. If you hire a 1.8-level (above-average, but not exceptional) programmer like me, outside that specialty, I’ll take 12 months (6% per-month) as I get up to speed and learn from mistakes; unlike the veteran specialist, I’d need to ramp up on the clock. If you hire a 1.1-level (mediocre) “commodity” developer used to curiosity-starving corporate programming, it’ll take 5 years including “rejection cost”– the task may not take that long, but you’ll have failures and restarts. That’s 1.1% per-month growth. If we could project these rates over $1,000 for two years with a compounding-interest model, we’d see that the world-class expert turns it into $64,000; the above-average programmer like me turns into $4,000, and the mediocre delivers only $1,320. That is progressive time in action.

Progressive time is a source of discomfort to corporations as well as the workers who have to deal with them. On one hand, micro-convexity generates the rampant job volatility for which trigger-happy employers and job-hopping employees are known. On the other, such a world creates short-sighted institutions with no desire to invest in talent (taking the risk that it leaves them). Yet competence with progressive time’s nonlinearity has become crucial, because machines are taking over the non-progressive work, and the only thing for humans to do is the progressive, micro-convex stuff.

With industrial macro-convexity, banks could intermediate between (a) those with capital to put at risk and (b) people judged highly competent to use it. Not many “highly competent” people were needed, so one could select them based on career trajectory and personal buy-in: only give money to the well-established guy putting up a substantial amount of his own capital. This excluded some talented people (like me) who could never meet such a bar, but it wasn’t a major loss back then; we didn’t need many convex thinkers. Sparse finance was OK. Society did not need a large number of people with the executive freedom conferred by access to capital. Micro-convexity is different. It creates an intractably self-executive world. Raw talent matters in a way that it never did before. The good ideas need to come from everywhere: not just seasoned, unobjectionable gray-haired men.

In short, being rich in an agrarian world meant that you had the gold to hire soldiers or to pay the government (taxation) to uphold your property rights. Being rich in the industrial era meant having the financial resources to direct others’ time– their commoditized time, presumed not to have progressive nonlinearities to it. In the technological era, progressive time (more concretely realized in access to talent, knowledge, and skill) is king. Most startups are failing in the 21st century not because there is a lack of capital, but because they don’t know how to attract, assess, and develop talent.

What do organizations want?

I think I’ve modeled the material aspirations of people well. What do companies want? The answer is, of course, that they are not living beings. “They” don’t want anything; people within them do. They do seem, however, to develop an emergent character that is some conglomerate of the people within them. When the organization’s small and selective in its people, that tends to amplify group strengths more than it converges to the gray-goo, muddled weakness for which corporate groupthink is known. However, as it grows, the MacLeod process seems to set in, and that group character (derived from its executive nerve center, which is increasingly pathological) evolves into something bland and somewhat psychopathic.

Two people can have a brilliant, interactive conversation, but a hundred people can’t. Either a few will speak, with ninety-some listeners, or they’ll break off into separate cliques. That’s fine. At a dinner party, the subgroup conversations coexist concurrently and don’t conflict. To a very mild extent, they’ll develop their own social languages, but that’s fine. However, what is a corporation? To the eyes of those who interact with it on a regular daily basis, it’s a Giant Fucking Pile of Resources– money, people engaged in a pattern of time-limited subordination, and relationships based on institutional reputation. Naturally, there will be competition as peoples’ visions of what to do with those resources conflict. People might have the best intentions and charitable vision, but to their opponents, they’re “bike shedding”. They clobber each other, and anything with an individual color is washed out, and there’s very little agreement on anything with a creative or socially positive character, which some in the group will view as wasteful. What’s left is the common social language. Profit. The Pe-en-ell. Dominance (of a market sector, or of a relationship). Growth for growth’s sake.

The Corporation is a god for the godless. Ancient people first created fictional psychopaths to justify actions that, while judged to be abstractly beneficial for the group, were dangerous or harmful to some. There was, at least, still some character to that supernatural being. It had a gender. He or she had a face, a body, some scriptures, and probably a cult. Over time, most of us realized that these gods don’t exist. (I’m not saying that a God doesn’t exist; only that concrete, interventionist ones don’t.) Late in the agrarian era, we replaced concrete ethnic deities with abstract ethnic ones called nation-states. Those lost power over time in favor of more universal fictitious psychopaths called corporations, who dropped all pretenses of “godness” and focused full-throttle on fitness as measured by the crass common language of a typical executive suite: revenue growth. So that’s where we are, but it’s not where we have to be.

The large, hierarchical business corporations are going to struggle in the technological era. To be competitive, a company will need to harness self-executivity. But corporations don’t keep small executive suites only because they’re elitist. That’s a part of it (okay, a big part) but it’s also logistically difficult for a company to have a large number of people in its nerve center. Startups struggle with this, and often cease maintaining a self-executive culture, at about 20 people. I think that gigantic, unified conglomerates of people might be on their way out. In 2000, the typical high-impact company had a core of 30 executives and 2,000 human workers. In 2050, such a company might have 30 self-executive humans and 200,000 CPUs. The “big” companies of 2050 might have a couple thousand employees. 

With the increasing importance of progressive time and self-executive behavior, the typical hierarchical goons– and the internal police forces that mandate subordination through laughably ineffective HR policies– are goners. There’s about as much of a place for them in the future as there is for headsmen and alchemists.

What large institutions will surive? Universities (but of a less exclusive sort, enabled by technology) have a good shot, being inherently pushed toward progressive guild culture. Guild culture can’t grow quickly, but it can tolerate scale. A few of these business corporations will reinvent themselves into forms that can coexist with self-executive free agents. For an analogy, medieval Rome was a prosperous city of about 30,000 people– still impressive by the standard of its time, but no longer a belligerent continental empire. Google, for its part, will probably live on into the 22nd century as a prestigious think tank, but the zombie dinosaurs who invented “calibration scores” (a mean-spirited and psychotic performance review process) will be the stuff of history books.

With the large, uninspiring conglomerates headed toward extinction, doesn’t this render growth– the boundless desire to subsume more people and become of those giant corporations– self-defeating? Perhaps. That deserves discussion.

Obscene growth is a drive emerging out of fear. In a zero-sum world, entities are either pressing their borders forward, or something is pressing in on them. Expansion in all dimensions (financial footprint, geographical reach, headcount) is required. The good news is that we don’t live in a zero-sum, Malthusian world anymore. That was the way things worked up until 1800: economic growth was slow (below 1% per year) and lower than the rate of human population increase, but the former is accelerating (almost 5%, globally) while the latter seems to be leveling off. Human potential productivity has grown, thanks to technology. One no longer needs to control a large number of people to do something excellent and sustainable. It can involve a small number of people, and they need not be controlled.

In the zero-sum world, dominance was requisite because it was the only source of stability in a winner-take-all world. Rapid growth in footprint was essential, in order to claim critical corners before a competitor does. This sort of speedy expansion is deeply risky, the result of it being that organizations needed to compensating by annihilating many beneficial (e.g. creative) risks. It’s a good thing that we don’t have to live in such a world anymore. With economic growth strong and accelerating (taking a global perspective) due to technology, we’ll be able to focus on health rather than growth for it’s own sake. And we should.

A brilliant dark age

As I’ve developed the almost metaphysical concept of chaos (creative emptiness) I like it more and more. I could be wrong, but it seems that we are moving toward a “dark age”, with the crumbling of an institutionalized, regimented way of life. Most of our going assumptions about what Work is and how it must be done won’t survive, but creativity will accelerate. It’s a brilliant darkness ahead.

Gervais / MacLeod 14: expanding alignment, plus well-adjustedness

I didn’t intend this to be part of the Gervais / MacLeod series. It was just for fun. Yet, here we are with the 14th essay that answers a burning question. I’ve talked about alignment a great deal and tendency for organizations’ fates to come down to a battle royale between chaotic good and lawful evil. Why? What causes it to form this way? Why don’t lawful good and chaotic evil, instead, end up in an existential armageddon for once? I’ll explain that, and more.

The classic model of alignment comes with two spectra– moral and civil– and three levels in each. This gives us the tools to talk about various approaches to life. The moral spectrum (good vs. evil) is a primary motivator for action– especially the dangerous action that role-playing systems tend to model– and the civil spectrum (law vs. chaos) helps us understand alternative approaches, and conflicts within morally united teams– lawful good wanting to work with established players, chaotic good wanting to overthrow them.

This two-dimensional model captures a lot of truth. However, there are some issues with it:

  • How does one differentiate the True Neutral zealot– ideologically committed to neutrality– from the garden-variety neutrality of unaligned humans (or animals)?
  • Neutral Evil is typically viewed as inherently more evil than lawful or chaotic evil, due to its civil fluency. Is this fair? Can’t a person be moderately evil but without civil bias? Dick Cheney and Adolf Hitler are both “neutral evil”, but the latter was a lot more evil.
  • Moral neutrality almost sounds pejorative. To call someone lawful neutral or chaotic neutral is to imply that she’s not a good person, but corrupted by civil bias and amoral. If we’re keeping with the idea that the “morally middling” 80 percent are in fact “neutral”, then this isn’t exactly fair, especially to the 75-ish percentile people who are quite decent. That’s a wide range and a lot of people in it are mostly good, but not just not far enough in that direction for it to be an alignment in the old-school sense.

I’d go further and say that alignment is somewhat of a misnomer, because it implies taking an abstract stand. Lawful people don’t uphold all laws, because that would be contradictory. Each has a set of laws in which she believes. Good people don’t all have the same concept of moral good, and the same applies to evil. Furthermore, most evil people aren’t aligned with evil at all. Most evil people respect force and power– not evil on its own. Many of these additional concerns can’t be accommodated in a two-dimensional model, but they are important.

Expanding to 9 levels

I’m going to propose a system where morality and civility have nine levels. At this level of granularity, we can accommodate most human variation while retaining enough of a distinction at each level to give insight into how an RPG character should be played, or (in the real world) how such a person might act. Each of the traditional three levels is split three ways, like so:

  • good => Virtuous, Heroic, and Exemplary.
  • moral neutral => Pliable, Natural, and Humane.
  • evil => Calamitous, Sadistic, and Corrupt.
  • lawful => Compliant, Authoritarian, and Fanatic.
  • civil neutral => Skeptical, Pragmatic, and Affable.
  • chaotic => Entropic, Rebellious, and Free-minded.

The Moral Scale

Exemplary people (+4; 0.05%) will seek opportunities for self-sacrifice. They’ll gladly take on pain, suffering, and risk of death for the benefit of others. This doesn’t mean that they’re stupid, and they’re not going to take on degenerate risks, but they tend strongly toward selflessness. That said, some people find them to be narcissistic and exhausting. Because of their inflexible commitment to, at the least, what they perceive as moral good, they can’t have strong civil alignments or ties to human institutions. In many circumstances, such a person is “too good”.

Heroic people (+3; 0.95%) have a strong moral code and a self-sacrificing streak, but not necessarily the overarching or messianic ambitions. The Exemplary seem often to have desire to die for a good cause, while Heroic people are unflinchingly accepting of Good’s perils but not drawn to them. For example, a Heroic person would risk death to save a child and expect no reward, but not seek opportunities to do that.

Virtuous people (+2; 9.00%) have firm commitments to what they perceive as moral goodness. There’s a philosophical strength to the Virtuous person. Such people are restrained by their strong moral bearings– they won’t rob others, except in dire circumstances– but rarely sacrificial. Under extreme duress, one might show weakness. Still, they have strong principles that they will go into harm’s way to fulfill, and they consciously make positive action a routine in daily life. Typically, these people have the most balanced ideology of moral virtue. There’s an altruistic code, but enough flexibility to depart from it in unusual circumstances. This often takes the form of “humble good”, and it’s where many of our moral role models actually were.

Humane people (+1; 20.0%) are the neutral-leaning-good category. They generally don’t have a moral code, but want to do the right thing for other people. These people show a clear bias toward the good, but without the principled resolution of the Virtuous. They tend to act according to local definitions of virtue that make sense based on the information they have, but don’t have the hunger or commitment to refine that definition of virtue or expand their locality.

Natural people (0; 40.0%) favor good slightly, but tend to be most strongly influenced either by self-preservation, or by ideology (such as civil bias). They’ll dutifully follow a morality that seems about right to them, and they generally frown on malice, but they’ll break from their values with sufficient payoff, and especially when fear is involved. Hedonic, economic, and pragmatic concerns dominate their moral calculus.

Pliable people (-1; 20.0%) have notable weaknesses. With nothing to lose or gain, they’d prefer to do the altruistic or beneficial thing, but that tends to manifest as superficial politeness rather than ethical resolution. The Pliable are untrustworthy and often greedy.

Corrupt people (-2; 9.0%) are the first level of true evil. They don’t delight in harm and pain for their own sake. They’ll eagerly do the wrong thing for benefit, and might seek out opportunities to do so, or to exploit others, but harm is not of free-standing value. It doesn’t matter to them who gets hurt. These people use evil toward neutral and selfish ends (self-enrichment, power). From a morbidly individualistic perspective, this is the “most fit” alignment of the typical psychopath.

Sadistic people (-3; 0.95%) enjoy others’ suffering. They are less “fit” than the Corrupt because this desire to harm others has become so intense as to become a weakness. They will actually work against their own advancement in pursuit of others’ pain. Sadistic people rarely have personal ambitions other than raw dominance over others, and they tend to shy away from typical rewards (fame, fortune) insofar as these make it harder to engage in such behaviors. Serial killers tend to be Sadistic rather than Corrupt.

Calamitous people (-4; 0.05%) are the closest to cosmic or “satanic” evil that humans get. Corrupt people will do evil things for personal gain, and Sadistic people enjoy evil at a hedonic level, but Calamitous people actually have a vision of evil that usually motivates belligerence. Widespread depravity is their ultimate goal. It’s not enough to harm and dominate other people; they actively run campaigns of broad-based moral ruin, even knowing that such will probably result in a dishonorable and possibly horrible death. This level of evil is practically “selfless” and thus hard for people to comprehend and, when it meets power, absolutely devastating. Moral weakness (Pliable) and failure (Corrupt) are things that people understand. Sadistic people are generally held to be psychopathic and perverse. The Calamitous level is beyond most peoples’ comprehension.

With this expanded spectrum, we can now differentiate between the “neutral good” of Jesus (Exemplary-Skeptical) and that of Paul Graham (Virtuous-Affable)– as well as the “neutral evil” of Dick Cheney (Corrupt-Affable) versus Hitler (Calamitous-Pragmatic).

Good, evil and society

For both the moral and civil scales, two points seems to represent the barrier between well-adjustment and imbalance, with three being unambiguously maladaptive. Virtuous (+2) people have a hard time rising to the top, being limited by principle in what they can do. Heroic (+3) seem self-defeating in their uncommon adversity to moral compromise. Corrupt (-2) people can rise to power if they hide themselves, but the Sadistic (-3) are often sidetracked by opportunities for malice that don’t serve coherent goals.

Calamitous evil, although disastrous when it gains power, is quite rare in stable human societies. Even George W. Bush– one of our most deservingly detested political leaders– is merely Pliable (neutral-leaning-evil). He’s a weak and incurious person, and as a member of our parasitic and malignant upper class, he’s certainly been an operator for evil generated in his milieu, but not a principal originator. It’s not in his nature to be evil, but it’s within his capability. Dick Cheney and his warmongering neoconservative friends are solidly Corrupt careerists with, probably, a few Sadistic people thrown in. I’m not saying that these aren’t awful people (they are, clearly) but they’re not in the same category as Hitler. Calamitous evil is just at another level. It’s not even the perverted self-indulgence of the Sadistic, but a frighteningly clear vision of hatred and misery.

One perverse advantage that the higher degrees of evil sometimes have is in their incomprehensibility (to normal people) and their apparent selflessness. Sadistic evil, from a distance, has an erotic allure. In reality, it’s boring and revolting– de Sade’s writing is, like any fetish pornography, repetitive and bland to people without such tastes, and so devoid of interest that you’ll go back to your homework– but the perverted intensity of it makes it superficially attractive. Typical people (even good people) have, at the least, intellectual interest in whether there’s a hedonic benefit to the misery and pain of innocents. (If you’re wired properly, there’s none.) Calamitous evil has an even greater power, in that it appears deeply selfless. For a concrete example, Hitler’s being a bachelor (he was “married to the Aryan race”, and presented himself as celibate) was an effective political asset because it showed singular dedication to his (depraved) vision. In that peculiar time, the incomprehensibility of Hitler’s Calamitous evil made it possible for him to disguise how evil he actually was.

Evil societies tend to form concentric circles of decreasing evil in order to recruit the whole spectrum. Calamitous evil (Hitler) provides the intensity of vision and belligerent ambition. The Sadistic level of evil (Mengele) becomes useful to it in its willingness to go into pursuits that most people (even the Corrupt) would find distasteful and horrible. At the Corrupt level, there are careerists driven by the potential for immense personal gain; most of the Nazis, in truth, were in this category. Finally, the Pliable level of neutral-leaning-evil (especially when there is a lawful civil bias) provides an army of “useful idiots”.

This capacity to mobilize is almost never seen in the good, which might be why good societies are so damn rare (and good organizations usually small). Evil has no qualms about recruiting, exploiting, and mobilizing the moral middle classes. It realizes the need to corrupt them if it is going to get its way given humanity’s desire to think of itself as democratic. The selfish greed of the Pliable, the fear of the Natural, and the indignation of the Humane (which can be misdirected via dishonesty) can be evil’s friends.

Once evil is mobilized, it tends toward civil fluency. When evil is out of power (Beer Hall Putsch) it will rally the chaotic and mutinous. When it is in power (Third Reich) it will use the lawful, rigid, and self-limiting. Good lacks this exploitative desire. Even the lawful good wish for justice and consent rather than forceful subordination or dishonest subversion. Good wins over evil in the game of culture, soft influence, and eventual progress; but evil wins when it comes to coercion, power, and immediate force.

The Civil Scale

Fanatic people (+4; 0.05%) have an extreme bias derived from some set of principles and traditions, usually of human origin. At this level of “extreme lawful” alignment, it’s important to specify what set of laws is to be fanatically obeyed, it being different for each person. It might be a religious scripture or a political ideology, but there’s an intent to follow some set of existing principles so literally as to leave no room for judgment. The Fanatic will override his own conscience, or selfish desires, to fulfill what is perceived as inerrant and, quite often, perfectly constant law. Fanatics rarely get along even with conservative institutions, because they are more insistent on following law than the people in power are. Predictably, Fanatics often oppose other lawful or Fanatic people who support different conceptions of law.

Authoritarian people (+3; 0.95%) recognize the need for some human judgment and improvisation, but take an extremely conservative view of it. That sort of thing is best left to a very small set of carefully vetted people who are well-educated in the principles of law, which should change slowly if at all. Those who depart from authority, even with the best intentions, are seen as dangerous and should be opposed reflexively. Civil authorities can only be opposed if a higher constitutional principle necessitates it. People at this level of lawfulness tend to be organizationally or politically ambitious, finding most competition for powerful positions to be too lax to get the job done.

Compliant people (+2; 9.0%) believe that it is almost always right to obey laws and social mores. They’re probably the most tolerant of subordinate positions, without the strong belief in a higher principle of law that motivates Authoritarians and Fanatics (the latter, sometimes into conflict with authority) or the burning desire to become its executor. They follow laws and meet social expectations in order to minimize discord and resistance, but will oppose authority, in the face of objective evidence, if they find it distasteful.

Affable people (+1; 20.0%) want social harmony, but fully accept the need for change and occasional revolution. They’re not likely to start insurrections, but they recognize the necessity of occasional chaotic breakthroughs. Still, they prefer to avoid conflict and proximity to rapid change. They like the abstract idea of reform, but aren’t likely to get mixed up with reformers.

Pragmatic people (0; 40.0%) are devoid of civil bias. They judge power, establishment, and institutions on their own observed merits and have no strong tendency to attribute positive or negative aspects regarding what they can’t see. They will take prestige and reputation as having some signal, but they’re not inclined to buy into them inflexibly.

Skeptical people (-1; 20.0%) believe that organizations tend to be slightly worse than their people, and to dislike extremes of power, believing (as Lord Acton said) that power corrupts.While individualistic, they tend to have faith in institutions and powerful people if they get to know them well, and they prove trustworthy. Even though the Skeptical person’s trust in authority is weak, however, there is still often a lingering belief that establishment confers validation. A Skeptical person would be inclined to distrust college admissions, but still be more interested in talking to a Harvard graduate than someone from a lesser-known school; there’s a lot of noise, but some signal there.

Free-minded people (-2; 9.0%) dislike being told what to do. They don’t have an ideological dislike of authority, but they would prefer not to have it intrude in their lives. If it works for others, fine. They recognize the need for laws and obey them (at least in spirit) the vast majority of the time for pragmatic reasons, but they tend to distrust authority. Opposition to ineffective or malignant authority is, of course, seen as a virtue. The free-minded alignment might be seen as the most libertarian, because the more chaotic alignments prefer to topple organizations even if they’re supported by democratic consensus.

Rebellious people (-3; 0.95%) see authority as inherently wrong and vicious. They dislike it, and enjoy the process of overthrowing it. To them, almost all institutions are either undesirable, or so pregnant with future malignancy, as to deserve overthrow. Establishment, power, and reputation are taken as negative validations. Periodic revolution is viewed as a necessity. Rebellious people will sometimes ally with, and even develop admiration for, the very few institutions they find to be in concord with their values, but the set of organizations they do not find to be disgusting is small.

Entropic people (-4; 0.05%) thrive on conflict and volatility. As maladjusted as the Fanatic, they have an almost obsessive hatred for any attempt to create order or persistence in human affairs. Such people are not necessarily cruel– typically, they are not– but they have an overpowering will to summon chaos. Entropic people often tend toward anarchism.

One of the most interesting things about the civil spectrum is that it has a certain near-circularity to it at +4. Entropism tends toward self-contradiction, and Entropic people are Fanatic about a certain abstract principle or law, but that is chaos itself. An interesting debate could be had about how to classify the ideologically dedicated “true neutral” (as rare as I think such people are). Is someone who is radical in neutrality being fanatic in adherence to the principle, or entropic out of an inflexible desire to thwart any moral or civil direction? It’s not clear. In order to keep a firm separation between Fanaticism and Entropism, I insert this distinction: Fanatics believe there is some conscious, organic, or otherwise positive entity (law) to be upheld. It might be the will of a god, a human cultural vision, or concern for the ecosphere, but there’s something that must be protected from natural disorder. The Entropic, however, believe that chaos is an ideal. This might be a self-defeating ideology, since I’ve noted before that chaos is a fundamentally creative emptiness. It will always be filled. The perfect void is unattainable except, perhaps, in death (the matter of afterlife being unknown). 

Extremity and well-adjustment

There are some interesting “derived statistics” that can come out of alignment. Since these spectra have a fairly clear ordering but no obvious mathematical placement (i.e. it’s not clear how distances between categories compare) I’m going to use the “city block” (L^1) metric for simplicity’s sake. The distance between two alignments (m1, c1) and (m2, c2) is |m1 – m2| + |c1 – c2|.

First, let’s examine extremity, which is distance from (0, 0), or the Natural-Pragmatic alignment. Are there useful insights that can be attained about an alignment based on this statistic?

In general, I believe that extremity has a limit at 5 points, so I’ll exclude extreme corner alignments.

This means that:

  • Fanatic and Entropic people can only be morally middling: Humane, Natural, or Pliable. Extreme civil bias gets in the way of a directional moral position. 
  • Rebellious and Authoritarian people can also be Virtuous or Corrupt.
  • Free-minded and Compliant people can, additionally be Heroic or Sadistic.
  • Skeptical, Pragmatic, and Affable (civilly middling) are compatible with the whole moral spectrum.

Looking at it from a 90-degree angle, this is the same as saying:

  • Exemplary and Calamitous people can only be civilly middling: Skeptical, Pragmatic, or Affable. Extreme good or evil require fluency with order and disorder alike.
  • Heroic and Sadistic people can additionally be Free-minded or Compliant.
  • Virtuous and Corrupt people can be Rebellious or Authoritarian as well.
  • Humane, Natural, and Pliable (morally middling) are compatible with the whole civil spectrum. 

This seems about right. While someone might have a philosophical alignment exceeding 5 points of extremity in theory, it’s hard to imagine how that would be played out in his everyday life.

Those with extremity of 0 or 1 are the Central. That’s about half the population. Such people tend to be idiots in the classic sense: unconcerned with global affairs or ideology. This is a highly adaptive state to be in, because Central people can tolerate most social arrangements. Whatever the circumstances, they’ll usually find a way to fit in. They tend not to rise in organizations or societies, however, specifically because they’re adaptive. Societies know how to make them happy at the bottom and in the middle.

At extremity 2 and 3, subsuming about 45% more, we have Ideological people. They tend to take strong stands and have notable levels of ambition. They’ll have discernable opinions and tastes. Most politicians are here, including George W. Bush (Pliable/Affable; extremity 2) and Barack Obama (Virtuous/Affable; extremity 3).

At extremity 4 and 5, with only 1 out of 20 people here, we have the Radicals. This is an interesting place to be, but it’s not very adaptive. Radical people tend not to succeed through established channels.

Extremity doesn’t tell the whole story, however. From its perspective, one who is Virtuous/Compliant (2, 2) is as extreme as a Corrupt/Free-minded (-2, -2) person, but the former is more likely to get along well in society than the latter. The first might be taken as self-righteous, and occasionally go too far out of his way to help someone, but he’s not going to end up in the jail. The second probably will. Extremity gives us a good sense of how likely a person is to oppose her immediate interest or to disregard her instincts in a natural environment. However, it paints a distorted view of adaptability to modern society, which favors law over chaos and (so long as its moral immune system functions) good over evil.

So let’s look at a different statistic: well-adjustment. This is derived from one’s distance from (1.5, 1.5)– lawful but not too lawful, and good but not too good. The closer one is to this point, the more people comfortable people will be, in general, around that person. For reasons that will become clear later, I’m going to define the well-adjustment statistic like so:

W(m, c) = 4 – |m – 1.5| – |c – 1.5|

In other words, it’s 4 minus that distance. The reason for this seemingly arbitrary choice will become clear later. Remembering my constraint that extremity can’t exceed 5 points, we get a value between -4 and +3 at the integer points, and a maximum of +4.0 allowing mid-points.

Here’s what’s interesting about the well-adjustment statistic. The magnitude of it isn’t that important. Much more crucial is the sign. Positive, negative, and zero (or “near zero”, if including non-integral alignment statistics) each have social meanings, but the difference between +1 and +4 is minuscule.

Why is that? Trust relationships and personal affinities tend to be pretty binary, with occasional mid-grades but most results either “yes” or “no”. We can model that with an ”S-shaped” logistic function. Each point of well-adjustment might represent a factor of 2 in terms of a person’s ability to win the trust of others: a person at +1 is trusted with 2:1 odds (66.7%), one at +2 is trusted with 4:1 odds (80.0%) while one at -1 is trusted with 1:2 odds (33.3%). Trust is a subjective thing, and it doesn’t matter what these numbers precisely are. I think this model is conceptually correct.

An organization, however, is a convoluted network of these S-shaped trust and credibility functions, and it tends (groupthink) to amplify small signals and even noise. The result is that instead of the factor of 2 per point of well-adjustedness, we might see 10. The person at +1 may irritate a few people and cause disagreement, but won’t make so many enemies as to get himself kicked out of the organization. The person at -1 might get lucky and have a supportive manager, but will never make enough friends to climb the corporate ladder. The sharpness of this S-curve– rapid switch from near-zero values to near-one– makes it look almost like a step function. The inflection point is right around a well-adjustedness of 0.

If it isn’t clear what I’m talking about, here’s a graph of a logistic function, and here’s one of the social acceptability function. (In the real world, it probably looks more like this. Whether the island of well-adjustedness has a perfect diamond shape is irrelevant: that’s an artifact of the model. In our discrete, integer-point, space it’s close enough to get right the points we care about.)

So now we can look at three sociological categories, noting that sign of well-adjustedness (unless we deal with non-integer values and care about defining “near zero”) is predominantly what matters. A person would be happier, all else being equal, to be at +2 than +1, but it’s not going to have a major and discrete effect (promoted vs. fired) on his career.

Positive well-adjustment (1 to 4 points): this is a contiguous “island” of space containing most of the central, common, alignments with a bias toward lawful good. In this space are:

  • Skeptical/{Humane, Virtuous}
  • Pragmatic/{Natural, …, Heroic}
  • Affable/{Pliable, …, Exemplary}
  • Compliant/{Pliable, …, Heroic}
  • Authoritarian/{Natural, Humane, Virtuous}
  • Fanatic/Humane

People of such alignments generally can find a home in almost any organization. They’ll be well-liked and accepted, most of the time, in the typical neutral-aligned organization. Winning others’ trust won’t be a problem for them, and they won’t have to work hard to do it. That said, because they’re well-adapted to organizations, they’re not especially unhappy at the bottom, so they aren’t the fastest climbers. In the MacLeod organization, they tend toward Loser and Clueless levels because, as they’re well within the organization’s comfort zone, it can always find a comfortable place for them.

Negative well-adjustment (-1 to -4 points): these “far out” alignments generally lead to social rejection in large groups, unless that person’s alignment is hidden (as the evil tend to do). A person sitting at -1 might have a shot at finding his own tribe but, in general, the odds of such a person in a large organization are poor, unless it has a directional alignment of its own (which is rare, at scale). These alignments are:

  • Entropic/Any
  • Rebellious/Any
  • Free-Minded/{Sadistic, …, Natural | Heroic}
  • Skeptical/{Calamitous, …, Pliable | Exemplary}
  • Pragmatic/{Calamitous, …, Corrupt}
  • Affable/{Calamitous, Sadistic}
  • Compliant/Sadistic
  • Authoritarian/Corrupt
  • Fanatic/Pliable

People might look at these alignments and say, “that’s not true, I know someone exactly like that in power!” Of course. I don’t doubt it. There are means of getting power that don’t require winning the trust of large numbers of people or of organizations, and there are always outlier cases where a marginally under-adjusted person (-1) gets through. Additionally, there are groups with directional alignments, in which case the well-adjustedness formula changes. My argument is only that people in this space rarely win enough social approval through typical means to be a commonplace organizational force.

The Fringe! (0 points)

Perhaps the most interesting space is the diamond-shaped region (technically open in the lawful good quadrant, because of my 5-point limit on extremity) where well-adjustedness equals 0. People of positive well-adjustment are used to social acceptance and take it for granted. Those of negative well-adjustedness experience social rejection and tend to change their alignment, to hide it, or to accept permanent exclusion. Yet the border region has its own character. These people, experiencing social acceptance some 50-ish percent of the time, have plenty of experience with both sides of the social approval function. They tend to be loyal to organizations that treat them well, but they also tend to be highly ambitious. Fringe players have to move up before conditions change and exclude them. They’re always on the bubble– never comfortable. One might thing of these as akin to the MacLeod Sociopaths. Alignments in the fringe region are:

  • Free-minded/{Humane, Virtuous}
  • Skeptical/{Natural | Heroic}
  • Pragmatic/{Pliable | Exemplary}
  • Affable/Corrupt
  • Compliant/Corrupt
  • Authoritarian/Pliable
  • Fanatic/Natural

In the mathematical model I’ve created, this zero-contour has the shape of an open diamond. In reality, it might be more like a crescent shape or something else. Who knows? Its specific shape is not important. But look at the club we have here! There could not be a more heterogeneous group of people. Let’s cluster them a bit based on similarities in behavior. Then we have:

  • Fanatic/Natural live on the fringe, being lawful to a degree that others find absurd. They go in their own set. There aren’t enough Fanatics, in general, for them to have macroscopic importance. We’ll ignore those. 
  • Lawful evil cluster. Compliant/Corrupt are deep into lawful evil territory; the not-fully-evil {Pragmatic, Authoritarian}/Pliable and not-fully-lawful Affable/Corrupt cluster generally have no problem working with them.
  • Chaotic good cluster. Free-Minded/Virtuous are core of chaotic good. They are also able to recruit the Free-Minded/Humane, the Skeptical/Heroic, and the Pragmatic/Exemplary.
  • Swing players: the Skeptical/Natural have no moral bias, but tend to wind up on the fringe of organizations for what is perceived as apathy. However, they can join with whichever of the two clusters above they perceive to be stronger.

This, in a nutshell, is probably why so many organizations’ cultures and futures come down to a battle between lawful evil and chaotic good.

Gervais / MacLeod 13: Separability, work and play

We are close. Close, that is, to having done sufficient exploration into the role and operations of economic organizations (such as the corporations or nation-states we love and hate) to start solving some of these organizational problems– to attempt to invent the future.

My role now, in analyzing the organization, is to watch for The Shark. Creative divergence is fun, but at some point, convergence becomes necessary. One needs to make a coherent whole– to solve the problems one has set forth. This can be brutally difficult to do. It’s why the sixth and seventh books of the Harry Potter series are so long and complex, and why some doubt that any person (even a clearly strong storyteller like George R. R. Martin) can handle the monstrous convergence task existing after the first 5 books of A Song of Ice and Fire. To his credit, I think Martin has the right idea– to put the continuing world exploration into a companion book, and finish the damn story in the next two books. Divergence is the fun, playful, erotic part: branching. Convergence is the difficult, thanatoptic pruning task. Writers refer to it as “killing your darlings”. Steve Jobs said it succinctly, for consumer technology: real artists ship. If you diverge for too long without tying everything back into a coherent whole, you Jump The Shark. That’s not something that happens when people are “out of ideas”, as if there were a finite pool of them. When a narrative reaches The Shark, changing writers and hiring an untapped, relief writer won’t help. Shark-jumping occurs when further new stuff (e.g. new characters, motifs, and ideas) can be added, but there’s no good place to put them without loss of clarity. After the shark is jumped, more neat stuff can be added, but the whole (degrading in quality) no longer provides its own reason to care about that stuff.

This isn’t just “meta” wankery. I wouldn’t pollute this series (already tens of thousands of words) with my own problems as a writer. Creative divergence and convergence are at the core of the topics I intend to discuss today. This is the fun topic. It’s why work can, if conditions are right, not suck. I discussed, in Part 9, the role of the organization of a computation problem for an optimization problem, while the “fitness landscape” grows increasingly complicated. In Part 12, I tackled chaos and risk. Financial risk has been commoditized and can generally be measured, sold and bought. Performance risks, at concave labor, tend to be normalized by the Central Limit Theorem when there is a large team of people. Companies want to be able to do this with all kinds of risk, but creative and chaotic risks are harder to manage. The concept involved is separability.

If I had an asset (a security) that, in one hour, would either be worth $10 million or zero based on a coin flip, I’d be inclined to sell it for a middling value. As I alluded in Part 12, this is identical to having $5 million (expected value, my financial wealth) and a zero-mean random variable: 50% chance of +5 million, 50% chance of -5 million. I’d do best to keep the former but have the latter risk off my books.

I might find a wealthy, risk-neutral person and sell him the security. Since it’s not worth it for him to buy it at its expected value, I’d probably sell around $4.99 million, the other $10,000 being a risk premium I pay to him to have that coin-flip out of my portfolio. That’s a case of separable risk. In that scenario, I have financial wealth of $5 million and pay $10,000 to cancel out a risk source threatening a sudden (and possibly catastrophic) swing in income. Here, my making the trade has no effect on the outcome of the coin flip. Risks can be moved around (and, from a cynical perspective, hidden) when they are separable.

Let’s change the game. I’m building a company, or writing a novel, or engaging in some creative effort that involves a lot of work. Let’s keep the same payoff structure, 50/50 chance, $10 million but include individual performance. If I’m diligent, it might be higher than 50%. If I’m lackadaisical, it will be less. If I’m noncompliant (don’t do it at all) then it’s zero. It would no longer be wise for someone to buy at the “expected value” of $5 million.  If I get all the risk off my books, I have no incentive to perform. I might be able to sell that “chance at $10 million” for $100,000 if I’m lucky, in which case, I’m an employee.

There’s a partial solution, which would be to sell some of my risk. I might reach an agreement with a counterparty where I take a $2 million advance and offer him 50% of my upside. He loses $2 million (paid to me, either way) if I fail, and nets $3 million if I succeed. From my perspective, I’m paying a risk premium of $500,000– hefty, but the fact that I’m selling my own performance risk (read: hedging against myself) doesn’t entitle me to the best terms. From his perspective, he’s making a winning deal so long as he believes that, even with my reduced incentive, there’s better than a 40% chance that I succeed. This seems like a win-win.

Here’s the problem: let’s say I make two deals of that sort, getting $4 million with no risk, then I don’t perform. That’s fraudulent and undesirable. I could potentially go further and make twenty such deals. I collect $40 million but am negatively exposed to my own performance (with $10 million coming in, and $100 million owed to counterparties). Not only would that leave me without incentive to perform, but I’d be unable to afford success. So I don’t perform and rob my counterparties blind (and, one hopes, end up in jail). Sold in these large, incentive-affecting blocks, my performance risk isn’t commoditizable.

Clearly, financial markets have regulations in place to prevent those types of abuses: for an obvious starter, executives can’t short-sell their own companies. With commoditized risk, the corrupt cases are few enough that laws can be written to preclude abuses. “Insider trading” can be defined and banned because the set of people who have privileged information is sparse and that set of people isn’t hard to define. Creative and chaotic risks don’t work that way; information asymmetries and incentive effects are much more brutal and fairness is impossible to define. A sane, just regime of risk commoditization is hard to put in place for chaotic risk. It’s an unsolved problem.

Why is risk commoditization so important? It keeps society and the economy fresh. Left to their own devices, economies will converge to a “power law” arrangement where a few have the bulk of the wealth and most have none. It’s not about talent, nor is it about intentional malice or greed. It’s just the result of a mixture of random drift and the feedback cycle of wealth that exists when its many forms (social status, financial capital, access to jobs) are transferrable. It becomes pathological because elites tend toward entrenchment. Then, the executive nerve center (of an organization, or a society) is characterized by complacent mediocrity. Talent desires to break through, but is increasingly far from the resources (capital) needed to put it to use. Risk commoditization is the only mechanism that will connect talent and resources, which are often far away from each other due to the tendency of both to have lopsided (non-democratic) distributions. With commoditized risk, talent (traits that confer favorable odds regarding chaotic and performance risks) and capital (put at risk for mutual benefit) can find each other.

This has always been a hard thing to get right. How is good-faith business failure separated from negligence, incompetence, or outright fraud? It’s not as easy problem to solve at scale. Additionally, talent often has no collateral. Bank loans require personal liability and some capital investment, as such deals probably require, but that limits access in a major way. One needs money to play, and can’t go into high-risk sectors. Venture capital doesn’t require personal financial liability, but views its (otherwise benighted, and somewhat illegal because of the collusion) small-town reputation economy as the machinery that keeps entrepreneurs honest. All of these mechanisms have scaling limitations. They’re only available to a small set of talented people who are in access to some resources; the financial transfer just gets them more. They can connect resources with talent but in a limited, much-to-few, way. A small number gold-stamped “worthy individuals” get the credibility and right to some risk. The rest of the talent is seen as unneeded and, therefore, not developed. Such people are consigned to implement the ideas of others with more social access and credibility. This could be tolerated in a time when most of the work that society needed to be done, and done by humans because there was no alternative, was rote, mechanical, and uninspiring. That was the case for thousands of years, and isn’t anymore. Let’s focus on the history of work– and, later, its purported opposite, play.

Some people fetishize the hunter-gatherer existence, whether they’re talking about prehistoric humans, nomads who coexisted with (or parasitized) agrarian societies, or even contemporary cultures of that kind. One good thing about such lifestyles is that the toxic separation of work and play doesn’t seem exist. People do, and the things they do to subsist don’t seem painful. They enjoy hunting, gathering fruit, teaching others how to do these things, and learning about the natural world. People in such societies seem to spend about 50 hours per week on productive or resource-gathering activity, but without the clock-punching, mind-numbing monoculture of activity, or the required unhealthy arrangements (10-hour block, ass-in-chair, constant visibility). I don’t mean to imply that the more primal lifestyle is superior. It ended for many reasons. It terms of the ability to support a large population, it’s not nearly as fit as agriculture. There’s no way the Earth could support even a tenth of its current population as hunter-gatherers. A stable hunter-gatherer world would entail control of population growth, which requires the dominance of some humans over others. Since it’s mostly subordination (and not productive activity, which humans seem to enjoy) that makes Work such a life-ruining, millennia-long, species-wide clusterfuck, I don’t see primality as any solution. The evidence is strong that Work sucks not because agriculture or technology are unnatural, but because of who we are. The dreamed-of primal utopia is quite flimsy against the same greed that ruins work.

If primal humanity can be described in moral terms, it’s sociopathic– certainly in the MacLeod sense, and often in the truer sense. Lives were nasty, brutish, and short. Positional violence among men, in order to increase social status, was common, with a per-year death rate of men in violence being comparable to those experienced by modern gang members, prisoners, and soldiers. Female sexuality was under male control, with the strongest men having exclusive sexual rights to tens of women– their consent being irrelevant– and the shut-out men angry and tempted toward positional murder. This was the state of affairs in which psychopathy conferred an individual advantage. Most modern people wouldn’t consider it desirable. Yet, there was a way in which the primal and nomadic people were, for lack of a better phrase, more alive than the sedentary, often servile, and often less healthy agricultural people. I’m going to crib the some observations from Paul Graham, in “You Weren’t Meant To Have a Boss“:

I was in Africa last year and saw a lot of animals in the wild that I’d only seen in zoos before. It was remarkable how different they seemed. Particularly lions. Lions in the wild seem about ten times more alive. They’re like different animals. I suspect that working for oneself feels better to humans in much the same way that living in the wild must feel better to a wide-ranging predator like a lion. Life in a zoo is easier, but it isn’t the life they were designed for.


Having seen that happen so many times is one of the things that convinces me that working for oneself, or at least for a small group, is the natural way for programmers to live. Founders arriving at Y Combinator often have the downtrodden air of refugees. Three months later they’re transformed: they have so much more confidence that they seem as if they’ve grown several inches taller. Strange as this sounds, they seem both more worried and happier at the same time. Which is exactly how I’d describe the way lions seem in the wild.

“More worried and happier” is a great observation. The YC founders left their corporate factory farms for the MacLeod-Sociopathic world of business formation, and found that it’s more fun out there. It’s also much harder, much higher in risk, and much more chaotic than the monoculture of bare-minimum subordinate busywork. Is it better than corporate junk work? That depends.

First, longevity is a problem. Almost no one can commit a 480-month block of time (with no departure longer than 2-3 weeks) to that kind of intense work, or even one-fifth of that amount without a break. Second, it would be unwise for most of us 99-percenter poors to bet our incomes on that kind of work, when we need fairly regular paychecks. Even people who have enough savings to last a few months need to worry about their resumes. Paul Graham’s thesis is that neither of these concerns is in force anymore. With the returns available from technology startups (rapid generators of value) being what they are, longevity isn’t an issue (cash-out, travel the world, come back fresh) and neither is the day-job economically competitive. That’s the theory.

There’s much truth in Paul Graham’s ideological commitment to the technology startup as the organization of the future. The uncertainty pertains to the timeframe and also the logistics– it would be good for society for the world’s smartest 10 million (or more) people to have implicit autonomy over their own time, but who will pay for that? It will pay for itself over time, but who takes the initial risk? An investment model (with returns enriching the backers) is obviously requisite, but how is that going to be set up at scale? VC-istan takes a much-to-few model: a lot of resources go to a small number of in-crowd-approved, people deemed actually to have the right to be founders. The advantage it gets out of a much-to-few topology is that it generates a reputation economy discouraging defection. Founders are kept in check by the investors’ ability to lock them out of ever again receiving investment (which is also used for extortion).

VC-istan, in 2013, has met congestion, as seen in the sobering market performance of the genuine concerns (e.g. Facebook) and the proliferation of batty, nonsensical operations (e.g. “Groupon for pets”). VC-istan is now a big company, bereft of real vision, as high-profile investors have congealed into one executive suite. It will be obsoleted by a fleet of smaller, long-term-oriented lifestyle businesses not focused on get-huge-or-die gambits in deep-red oceans. How this will be funded– i.e. what process will discover and enable the relevant talent, and connect it with appropriate risk and capital allocations– is a completely open question. Perhaps that is the problem of the early 21st century. It’s clear that work and money require redefinition, as machines take over the grunt work to which semi-coercive labor was originally directed.

Returning to the primal world in which the evil of institutionalized, subordinate Work had not been invented, we see that it was still sociopathic. Positional violence and warfare among men were common, for one thing. The primal state had its appeals– living under the sun, not caring whether it’s a Tuesday or a Saturday– but people had strong reasons to move away from it as they discovered agriculture (a process that, in truth, occurred gradually over thousands of years) and, later on, writing, law, and the division of labor. There was one inherent problem with this new world. Something horrible became possible: slavery.

When the idea of slavery emerged, it was probably seen as merciful and humane. A fully primal tribe, if victorious in war, would be inclined to kill off the defeated group– at least the men, and probably the women, who were also quite capable of being deadly– to avoid retribution. Primal societies couldn’t use captives as slaves, because they engaged in work activities (such as hunting) that were dangerous, as a defector could murder his masters out in the wild. Agricultural societies, however, could delegate work that was undesirable and free of risk to the superior to a class of permanent subordinates. Primal and agricultural societies both began partaking in one of the most profitable, yet morally rancid, businesses ever devised: the capture and sale of humans.

This created a stratification of work. Most slave-owning societies had multiple tiers of slave. Above them were a class of servants given the work that could only be trusted to free people, followed by financially independent yeomen, and finally the slave-owning leisure class. With productive activities being intertwined with social class– some being desirable, others being dishonorable– and therefore often divorced from intrinsic motivation, it was necessary to separate work from leisure.

As the agricultural era evolved into the industrial one, slavery fell in favor of semi-coercive wage labor. Conditions like morale mattered enough in the industrial context that such economies could not make use of enslaved people. Companies needed to provide financial risk reduction and uniformity in working conditions, setting up the MacLeod Loser trade (facilitated by the Clueless) with people who had a very limited ability to refuse. The industrial era’s sunset will see the semi-coercive model go into obsolescence, pulling society toward fully non-coercive self-executive labor. That, however, is still in the future for most.

Even for high-status people, work became a psychological monoculture (making it unhealthy and, worse yet, boring) in the agrarian and industrial eras. Slave sellers had to run auctions, keep books, and haggle. Monarchs had to hear petitions and pay attention to castle intrigue. Low-status people were subsumed in painful and rote physical labor, while high-status people found their lives devoured by a 24/7 job of social maintenance and posturing. At all levels of society, there emerged a common and unifying thought: I kinda hate this shit. So what did people do when they got away from it? Something that is often called play.

I can’t do justice to play in a few thousand words. As a game designer in addition to the other stuff I do, I know better. It’s emergent activity that is not generally oriented toward production, although there are often echoes of productive activity within it. For most of our history, the ultimate form of upper-class play was hunting– work, in a primal context; play, in one where the activity was irrelevant to the lord’s soul-destroying job of maintaining social position. Play is work-like, but helps people escape into something real that provides a genuine sense of accomplishment.

Indeed, for a lot of people, their play is more like work– open-source software, altruistic travel, amateur art– than the subordinate junk activity that they’re paid to do. Play seems frivolous and indulgent, but it actually leads somewhere. It goes into (as I defined the concept in the last essay) chaos. I mentioned in the previous essay that chaos can be viewed as a creative emptiness. In the vacuum, something new emerges. Play is the chaos that exists when extrinsic direction is removed form activity, often enabling creation that would never occur in a subordinate or mercenary context. Sometimes, that creation is much greater value than anything produced in typical “work”.

Heading into chaos is not profitable, most of the time, but when something novel and useful is discovered, the rewards are immense because so few people can navigate any specific neighborhood of chaos. In this metaphor of chaos as “like” a physical space, we can get a physical sense of the divergent and convergent aspects of the creative process. Divergent creativity (branching) is heading deep into chaos. The issue is that most paths “into chaos” don’t lead anywhere. One needs, at some point, to pop back out and explore a new path. Convergent creativity (pruning) is an anchoring process that extends order and refines the understanding of what kinds of chaos are potentially desirable. Convergence kills off the explored but useless branches, and it reminds us why “chaos” is viewed as a desolate void by most. With divergence only, one will explore limitlessly without return. But if convergence is over-emphasized, one will not go far enough into chaos to find anything that is of value.

Large organizations eventually get to a point where they view their role as keeping chaos out. Law and order are the business of business. Salaries must be paid, deliverables must be met, and work must be defined to leave as little room for variation as is possible. This might induce a psychological monoculture that is unhealthy, bizarre, and probably causative of early cognitive decline, but that’s what the money’s for. This variance reduction serves these firms well in a concave world. Reining in slackers and incompetents compensates for the management’s (counterproductive) interference with the stars, who might only be 1.25 times more productive than the average. To be competitive and functional, organizations in concave labor must drive out variance as much as they can. That means they push away chaos, and drive out play.

Divergent creativity might be called free play. That’s Calvinball. The rules don’t exist yet. Things should be explored. At some point, however, limitless divergence fails to satisfy certain needs. Players want feedback on performance and, often, direction and rules. This necessitates structure that kills off some of the less beneficial or important fruits of chaos. Convergent creativity is discipline. It directs play and makes it more beneficial and focused. The “darling killing” convergence of the novelist produces a coherent story instead of an orderless array of ideas, characters, and settings. Convergence is less “fun” than the divergent part of creativity– it’s demanding and feels more like work– but it’s equally important.

Organizations typically allocated the iota of divergently creative work that they needed done to the caste of people called executives. A very limited role in the convergence process (related to trimming away pesky human chaos, but involving no real control or creative input) went to managers. Workers got no room for risk, no play, no creative control. That model worked for more than 200 years, and it took something radical (widespread, commoditized, and extremely cheap computing) to kill it.

In the concave world, risks are separable and can be commoditized. The top executives can bicker over who gets how much risk to play with, and manage accordingly. The convex world’s risks are non-separable. Move the rewards to one party, the idea generation to another, implementation to a third, and responsibility to a fourth, and you’ll get deceit and dysfunction. If anything worthwhile is being done, there’s just too much chaotic risk that can’t be moved around. People need the right to risk, and they need to be trusted with their own time, or what they produce will be of so low value as to render the enterprise unable to compete. Convexity mandates that people become more self-executive, and that their companies let them do so. The semi-coercive wage labor of the industrial world is dying out. What’s replacing it is fully non-coercive work: disciplined play.

If disciplined play and self-executive, well-treated labor shall carry us forward, then what is the role of the organization? Given how exceedingly difficult it seems to be for a corporate organization to avoid falling into dysfunction, are they desirable in the first place? Why not have some utopian “market state” of self-executive free agents, with no need for these stodgy and often corrupt corporate employers? The answer is that it won’t work. So long as people need an income to survive– and a high one, thanks to corrupt influences on the housing market, a transportation regime that stopped improving in the 1960s, the 9/11 every 24 days that we call our healthcare system, and the expensiveness and exclusivity of the educational institutions that can still place children decently in this imploded economy– they live in a tough-culture reality. The 99%, out of panic, make disadvantageous Loser/Clueless trades that hurt not only them but, in a convex world, society by depriving the world of talent’s proper applications.

The obvious solution to that is a guaranteed basic income. One major advantage of the technological era is that autonomy with one’s own time is often enough “capital” to build something great, computing costs being minimal. But we’re about as likely to see a basic income in the U.S. as we are to change the weather with complaint. Europe’s recent economic crises also show us that, while such states have desirable features, the bigger problem remains unsolved. Europeans have a far better healthcare system and humane vacation allotments (20 days, generous by U.S. standards, is an EU minimum) but their work life isn’t exactly a self-executive paradise. The ideal of a welfare state, to me, is not that it enables people not to work, but it that liberates them to work.

Europe’s systems, with harsher personal bankruptcy laws and more resistance to business formation, haven’t achieved self-executivity much better than we have. With sweeping social reforms (such as basic income) off the table– not impossible, and certainly not unreasonable ideas, but far out of my power– we need to focus on what technocratic individuals can actually do. We can harness individual, mostly localistic, energies. We have one source in those who are starting companies and genuinely want to build great organizations: companies actually worth caring about. That may be a “selfish” motive, and it’s certainly a pragmatically localistic one, but it’s what will save us: people who (for a mix of selfish and altruistic reasons) want to build excellent businesses.

Most of VC-istan, in my mind, doesn’t qualify. These build-to-flip gambits are mostly marketing experiments designed to exploit existing technological trends. Since most of them aren’t building real technology (which requires investment) and measure their own health by “virality”, the get-big-or-die mentality is appropriate for them. We can preach the virtues of open allocation, but cultural health just isn’t important to executives of a company who plan to sell it in 3 years. We need to talk to the people building lifestyle businesses expecting to last 20 years or more. Even if the material ambitions of such firms seem lower– a steady few million per year, instead of corporate Big Swinging Dickery– it’s from a fleet of some 50,000 (plus or minus) small technology companies that we’ll probably get the first successful approach to convexity. In technology, there aren’t as many of those. No one is funding lifestyle businesses yet. One of the biggest financial questions of the 21st century is how to get money into that market. Now that securities markets have been shown to be vulnerable to manipulation, with the housing market continually exposed to execrable corruption, is there really a good reason not to find a way for a much larger pool of capital (not only venture) to connect with talent? While an individual business is certainly too risky for less sophisticated, middle-class investors (hence, the regulations pertaining to accredited investors) there should be a broad-based, relatively de-risked way for them to put money into independent talent.

Financial risk is, of course, one of the foremost problems with the concept of a “self-executive utopia”. There’s another important issue to address, however. While self-executive disciplined play can handle convexity, where does that discipline come from? When and where do people learn the skills necessary to perform convex work at a level even close to what people will pay for? A fully self-executive world still leaves unanswered the question of progress. Who pays people to learn how to become great at things?

Concave labor seems dull; convexity seems sexy and exciting. There is, however, one virtue in concavity. It favors equality. If the best people are only 1.5 times as productive as the mediocre, there’s benefit in bringing the laggards up to speed and giving the competent less attention. The contemporary Theory-Z cult of teamism makes a lot of sense. Convexity, however, seems to reward doubling down on successes and discarding failures. In the short term, that’s correct. That’s exactly what one should do, if optimizing for immediate payoff. Having the best and oldest people mentor the new and young inflicts an opportunity cost– a loss. Guild cultures (lawful good) tolerated that, expecting to be repaid in loyalty from developed talent, but self-executive cultures (chaotic good) struggle with it.

Becoming great at something requires a balance of law and chaos. For example, there’s no educational program in existence that can train someone to be at the forefront of technology. It requires a lot of independent learning (self-execution; disciplined play). Such a person needs enough fluency with law (and humility) to stand on the shoulders of giants, but enough chaotic capability to get out there into chaos where no one will tell a person to go.

There are a number of interesting subproblems that come out of this understanding of convexity. How do we get the desired productivity out of disciplined play? How do we get the right kind of play? Where does the discipline come from? Finally, from a manager’s standpoint, how do we handle convexity’s risks, given the innate non-separability that hasn’t been seen at such scale before? After 13 very long essays, it looks like we finally have the tools to solve some of these problems and, one hopes, the insights necessary to make it possible for business organizations not to suck.

Gervais / MacLeod 12: Growth, chaos, and risk

As I get further into the organizational problem– with the hope of, one day, working a way out of it– it becomes increasingly clear that there is no simple solution. There are a variety of principles that sometimes contradict. Consider bridge bidding, with various guidelines on how to send signals to one’s partner and find a winning contract, but with ambiguity and even contradiction. There are a variety of strategic concerns that must be balanced, and what makes it interesting is the fact that the right thing to do is not at all obvious. If bridge were deterministic and solved, there’d be no such thing as a good bridge player. It’s the difficulty and chaos of the game that makes it fun. Then, the more complex game of business formation will even be harder to “solve”. I expect that, when I finally am ready to “solve it”, I’ll arrive at twenty principles that should, by then, seem obvious– not one “closed-form” model. Certainly, I think the previous 11 essays have given us some insight into organizational corruption, without falling back on any prevailing pessimism (that organizations always tend toward failure). We have a good sense of why the MacLeod tiers emerge. We still need the core ideas that will help us build something different.

There are a few concepts that deserve further exploration: growth, risk, and chaos.

Growth, and how it influences behavior

Macroscopic economic growth is a fairly modern phenomenon. Before 1700, global economic growth was never faster than 0.3% per year, and generally slower. Most people who were rich had made others poor to get there. A zero-sum approach to human problems made sense. Conservative, religious institutions had a lot of power, and for understandable reasons. If large-scale material growth is not to be expected, then people need to organize themselves in a way that does the best with what is available. Religion gave people access to social plans that had been tested by time. Some of its dictates were nonsense; some were incredibly valuable. On the whole, it probably did more good than harm from a single-time perspective (its retardation of progress requiring another discussion).

A late 18th-century Anglican clergyman named Thomas Malthus is notorious for having been “wrong” in his thesis about population sustainability– he predicted a mid-19th century calamity in England. In truth, he wasn’t that wrong with most assumptions. By 1798, economic growth had accelerated to just under 1 percent per year. He asserted that exponential population gains would outpace economic growth, which he modelled as linear. On that, he was incorrect. On the conclusion– that the economy was not growing fast enough to support human population growth, and that the latter would be checked by famine, disease, or war– he was still right. Malthusian catastrophes are all over the place in history. One was to see it is that the Industrial Revolution intervened. A darker view is that the 19th-century English catastrophe was outsourced to Ireland.

Religious institutions, being conservative while expansive both in time and space, were storehouses of “big picture” knowledge about a society’s history and evolution. Typical people saw rises and falls: frenzied victories, hideous defeats, tribal and racial hatreds, and the formation and dissolution of societies and cultures. There’d be spells of peace and war, and control would pass from one set of hands to another, but global progress was rare until the 18th or 19th century. Religion– and, later, the narrative-driven nation-state– emerged to create order in an almost zero-sum world where it was inconceivable that any economy could grow at a rate comparable to the human desire to populate. It didn’t solve the problem, but it provided explanations and planning. Over time, religion’s central role was eclipsed when competent outsiders and specialists began attacking human problems. One of those specialties was economics, truly a “dismal science” in a time of sub-1 percent growth, explanatory of famine and war.

Clearly, we live in a different time. Economic growth is faster than population increases, so the average person’s standard of living is improving. We hit a phase change at some point between 1725 and 1925, the exact date of it still being debated, at which point economic growth stopped being subsumed by population increases, enabling genuine long-term improvement. The zero-sum outlook no longer makes sense. Progress and growth are now expected. So what causes economic growth? Where does it come from?

“Improvement of processes” is a common first answer. The Industrial Revolution enabled us to get better at stuff. It’s the culmination of thousands of years of progress. Writing gave us stable history. Mathematics gave us precision and mechanisms for solving problems. Empiricism and science gave us the ability to measure things. Technology made us more powerful, more productive. Each invention or innovation we kicked out pushed us forward, and the economic value of our knowledge base has been a faster-than-linear function of its size, while that knowledge base itself grows exponentially. We’ve had an ongoing story of faster-than-exponential growth going back to the advent of sexual reproduction 1.2 billion years ago due to a self-accelerating improvement of processes, but it’s still a bit vague what that means. We should find “improvement of processes” to be intensely suspect. Why aren’t processes already in the improved state?

Almost always, improvements come from outsiders, so the macroscopic change is a “creative destruction” driven by replacement. Most of China’s lasting intellectual accomplishments came from the “outside elite” of its scholarly civil-service structure, and not the upper-crust mandarins. Greek philosophical advancements are not owed to reputable clerics of that time, but to heathens, many of whom disavowed the traditional gods and were persecuted for doing so. In medieval Europe, a despised class of merchants grew richer and, eventually, more powerful than the hereditary aristocracy. Large companies are often defeated by innovative small ones run by people the conglomerate would never hire. Social substructures seem to have a “natural growth rate” that, to the extent that it evolves, decreases over time as the substructure reaches saturation or even decline. What drives the faster-than-exponential growth seen thus far is the generation of new ones with faster growth rates. Where do those come from? There is, metaphorically, a place where genuine creation occurs. Chaos. Nothing begets something because there is no nothing. The closest this world (possibly the universe, possibly any universe) has to nothing is pure chaos, which is still fundamentally creative. I’ll get back to that concept.

In 2013, most genuine growth– of the economy, of human knowledge, of technology– comes not from established entities but from new ones trying to force their way into existence as they emerge out of chaos. Large, established organizations have given up on progress, by cutting R&D funding and focusing on next-quarter profits. Progress has also given up on them. The smartest and most ambitious people, who wish to harness chaos for new creation (or, to see it more cynically, enrichment beyond the pittance judged fair by some massive organization) generally lack interest in the corporate behemoths with entrenched processes and slow growth. Don Draper, in departing from a sclerotic corporation (in which his advertising agency had become a subsidiary) to form a new one, said it best:

Who the hell is in charge, a bunch of accountants trying to make a dollar into a dollar ten? I want to work. I want to build something of my own.

Draper (a MacLeod Sociopath, without question) doesn’t want the restrained, conservative growth of a bulky corporate enterprise. He wants something more rapid, personal, and fun. So he left an existing substructure to form a new one.

That was 1963, when the first hints of a technological era just appearing. In 1863, industrial growth actually was the most exciting game in town, and people would have been thrilled at the prospect of turning “a dollar into a dollar ten”. For millennia, humanity had been in a zero-sum arrangement where being powerful meant dominating and controlling other people. From the Egyptian pyramids to the Colosseum to the aristocracy of the Southern United States was a trail of monuments that required slavery. Industry provided a way out: the possibility to turn $1.00 into $1.10 without hurting anyone. Compared to the zero-sum squabbling, that was immensely progressive. With industry catching on, nations all over the world abolished slavery in the mid-19th century. Getting rich no longer required making others poor, or unfree, or dead. The downside of this was turning work into something often too stable and boring to excite the Don Drapers of the world.

Why is it so common to call someone like Don Draper a sociopath? The state of society delivers a prevailing growth rate. For agrarian societies, it was near zero. For industrial ones, it was slow (1 to 5 percent per year). As we move into the technological era, it might become higher. Whatever that rate is, evidence strongly suggests that there will always be people who want to grow their fortune at a faster clip. One way to do this is to steal. That’s what war (ending lives to rob the dead) and slavery (stealing freedom and autonomy) were about. The other, much harder, way is through new invention and the creation of value that didn’t exist previously. It might like these are being put forward as vice and virtue, eternally separate. It’s not so. It’s a lot more complicated. Is mining for gold, diluting its financial value in the same way as counterfeiting does, a zero-sum theft of financial value that delivers nothing to the world? Or is it, since the yellow metal has some hedonic value in so far as people like to look at it, a productive activity? This is hard to answer. Additionally, how does an enlightened or altruistic industrialist (circa 1750) ensure deliverance of value when powerful forces will divert any produce to zero- or negative-sum pursuits, such as warfare? How does the engineer make sure his efforts are used to build more plowshares rather than swords? I don’t think he can. In any case, that’s not important from a macro perspective. New invention and raw theft both come from a class of rule-breakers who aren’t content to have their fortunes grow at the prevailing rate.

The problem of chaos

Often, “chaos” is used to describe squalor or malfunction, but its original meaning is closer to abyss, or the formless void from which the universe emerged. It’s not “nothingness”, because things (such as the universe) come from it. One might think of it as a pregnant silence, or a blank canvas. It’s creative emptiness.

Experientially, we know that the best way to create a chaos is to clear something away. Many meditation practices can be viewed this way. The principled and mindful attention, with a calming intent, to thought processes leads us away from the toxic, repetitive, and mostly negative thoughts that occur in conditioned life. We create a chaos into which new forms of thoughts and experience– which wouldn’t have otherwise existed– can come into being. Sensory deprivation, sleep, and dreaming are also forms of chaos, in so far as they induce experiences that seem not to be produced by the objective world.

Chaos, as a source of something, we welcome so long as we trust our ability to filter the positive from the negative. Chaos, as a state of nothing, we view negatively. We strive to differentiate ourselves from the scarcity, formlessness, and indifference of primordial chaos. It is an open question how far chaos is to be desired. It’s chaos that creates the need to build, and that gives us the tools to do it. Law, order, and structure with intent toward permanence are built by some to protect people against the pain of chaos. However, an alternative approach (more common in Eastern religions) is to embrace chaos and impermanence– to recognize that it is better to adapt to chaos than to cling to the flimsy things that we invent to protect ourselves from it.

It is reductive and useless to call chaos “good” or “bad”. It’s neither. Nor is it random. In fact, some aspects of it (such as unexplored mathematics) are quite structured. It is, however, unexplored and mostly incomprehensible. People find it discomforting, the ultimate chaos (from a human viewpoint) being death. There are, however, degrees to which people accept or avoid it. Those who engage chaos directly will be more creative, but also more volatile. Stepping back from the metaphysics, we have (in chaos) a way to understand economic progress. In pre-industrial times, a person wanting to become rich without harm to others might search for gold. The earth itself was once a chaos. The Greeks acknowledged this by assessing ownership of all material wealth to the temperamental god of the underworld: Hades.

In 2013, gold is a effectively a commodity. It is expensive per ounce, but because a large amount of human service is required to produce that ounce (reflecting the metal’s rarity). Nothing special distinguishes that service. So, those who aspire to wealth (or growth) in 2013 are not likely to dig for gold. The technocrats don’t have a special proclivity for digging the earth in search of a yellow metal. They leave that to the specialists who have the equipment. Instead, they mine chaos.

Entrepreneurs and innovators scan various chaoses with the hope of putting something together that is of value to other people. Transfer occurs from one chaos (unrealized ideas) to a painful one that there is benefit in filling (unmet human desires). It might be called “magic”. It isn’t. However, it’s unpredictable and intermittent by nature. Once that chaotic transmission is completed, the work involved is no longer inherently exciting. It’s a commodity. (Making easier the jobs of those who have to do it, on the other hand, remains potentially fruitful.) Once the chaos is taken out of the equation, what remains is dull labor.

From chaos, we can understand the nature of convexity. There are some people who have the skill to go “into” chaos (or, at least, a subchaos related to a specialty) and find something useful. To the unskilled, chaos simply looks “random” and dark. To continue the metaphor of chaos as a space, the improbability of a find is (to an unskilled person) an exponential function of how deep into chaos it lives, because more “lucky” steps are required for an unskilled person to get there, and the multiplication of low probabilities has that effect. In other words, the farther a find or job is from the well-ordered and easily understood territory, the more that personal skill and knowledge matter, it’s likely an exponential relationship. Things being valuable in proportion to their rarity, we see where convexity comes from.

The risk thing

Industrial businesses begin as chaos-mining operations, but after carving out a space of order, seek to protect it. Standardization becomes the goal. We can’t exactly quantify (or even perfectly define) chaos, but we can quantify risk. Risk and chaos are fairly related. Risk pertains to how interactions with chaos might affect an entity’s economic health. It’s not concerned with the whole of chaos, but only about what threats might come out of it. Financial risk is even measurable, to some degree, enabling portfolio managers to discuss “how much risk” the company has. We’ve now seen a mature commoditization of that kind of risk, with markets able to price assets not only based on their expected (average-case) yield but to account of risk according to what the principal players find desirable.

All else the same, risk is considered undesirable. Most people would rather have $5 million than a 50% chance at $10 million. Let’s separate the value of an asset into its mean value and a zero-mean risk variable. The first possibility is that one has $5 million. The second is that one has $5 million plus a 50% chance of winning $5 million and a 50% chance of losing $5 million. Most people would value that zero-mean risk negatively. A person with the latter portfolio might be inclined to “sell” that risk for -$10,000– that is, to pay $10,000 for someone else to take that variation and have a solid $4.99 million instead. Much of finance is about figuring out fair prices at which to transfer risk.

I’ve previously discussed law and chaos in the context of alignment. Are these connected with the chaos described above? Absolutely. Risk and chaos aren’t the same thing; the latter is an injection from chaos known to have an effect on one’s well-being. Computationally, we process risk because chaos is beyond what we can quantify. Civil alignment correlates to a person’s attraction or repulsion to chaos. Lawful people tend, in general, to have faith in the infrastructure that humans have created to hold chaos at bay. They prefer by-the-book solutions to problems because they fear the chaos of improvisation. Chaotic people, on the other hand, see chaos as potentially beneficial. They want to mine it. Measured in terms of risk, lawful people are, in general, going to be more risk averse. Chaotic people tend to be risk seekers.

This is not necessarily true, however, in terms of financial risk, on account of its commoditzation. Financial risk can be separated into an expected value and a zero-mean random variable whose variability itself can be measured. This enables the commoditization (measurement, trade) of financial risk. That’s not to say that there aren’t black swan, out-of-context, risks out there (that rarely follow Gaussian distributions) but those are often placed in a different category. Because of this commoditization, financial risk has largely been divorced from a personal law/chaos bias. Lawful people with means will pursue investment strategies with high volatility in order to get high returns; those with less means or likely to need liquidity soon might favor less volatile strategies. However, it has little to do with a person’s often visceral reaction to chaos.

If financial risk is a commodity, it can be allocated. Traders have risk allotments based on past performance and seniority that represent how much risk they can take on behalf of the firm. Such rules are necessary to resolve the conflict of interest that exists. Traders, usually paid on commission, have an upside-biased risk profile: making $40 million is twice as good as making $20 million, but losing $20 million and losing $40 million are identical– both result in getting fired, but there’s no further consequence. Without risk limits, traders would have the incentive to take on risks that the firm (absorbing wins and losses) would not want.

Typical business organizations do not have as well-formed an understanding of risk as trading desks, because financial risk has been mostly commoditized, while the performance and chaotic risks that businesses deal with cannot be. However, that mentality is still in force. The organization earns a profit because it takes on risk: otherwise, in a competitive market, there should not be profits. There is, therefore, a certain amount of risk to be expected, and little more should be tolerated. As a trading desk would distribute risk allocations among its traders, a standard business organization attempts to create a risk allocation regime for its people. The firm must allow some small set of people to take chaotic risks, because the world is lawless and volatile and a firm that ignores chaos outright will struggle to thrive. Those people are called executives. Then there are people trusted with financial and performance risks (such as assessing people to be hired and fired). Those categories of risk are seen as “less dangerous” because financial risk is easy to measure, and performance risk over concave labor, while not directly tradable, falls within a tight bell curve. Those people are called managers. Workers, in this model, should not be trusted with any risk at all. As the organization sees it, they already bring too much risk by walking in the door to have any right to ask for more.

In the optimization model put forward for the corporation, I discussed the idea that a manager’s job is to hill climb to the top of a neighborhood (gradient ascent) and find a local maximum, while executives are trusted with non-local explorations that might lead to finding better hills. Non-locality implies that the executive is going into uncharted territory, or engaging directly with chaos. He’s not, however, typically allowed to go very far in, but he has some non-zero chaotic risk allocation.

The human side

One way to view the organization’s miserly risk allocation protocol is to say that it’s inhumane and demoralizing. Engagement with chaos is part of what makes us human, is it not? Most Americans participate in activities that are more industrious and difficult– such as picking their own fruit, open-source programming, and independent writing– than their pointless, subordinate office jobs. Even risk-taking is a hobbyist activity, if sometimes a destructive one, in the form of gambling (engagement with an otherwise uninteresting chaos). “Work”, for most people, is a boring and unhealthy psychological monoculture, leading to the question: why do people tolerate it in the first place?

Risk and chaos are the forces at play. Deep into chaos is somewhere that most people don’t want to be. It’s lonely, unsettling, and weird. Without financial constraints, most people would still fall into routines over time: people, places and work that make them happy. So there is an inherent willingness for those who are more chaos-averse to enter the ordered zone of a facile subordinate position. There are psychological reasons for people to take the MacLeod Loser deal. Many people would rather have the comfort of a stable group than attempt to lead it and risk rejection or group dissolution. Organizations exist to diminish chaotic risk for themselves, but in doing so, create a realm that is highly ordered and allow the chaos-averse to make a home there.

There are also the financial aspects, and that discussion becomes a bit less humane. People make the financial Loser deal because most of them have no choice. They need a stable monthly income. That trade, both from a micro- and macroeconomic perspective, tends to get worse over time. The low savings of lifetime wage-takers forces them to continue making this risk-reducing trade, limiting their leverage, and consigning them to take deals that are increasingly risky (end of corporate loyalty) but increasingly costly to them. It’s a feedback loop that keeps “the 99%” tied in to a certain pattern where they are forced to buy risk reduction, even if it brings them down to a subsistence wage.

There are some, however, who react with a certain insubordination. They get what business corporations are about and learn quickly how to play them. Initially, they will not be allocated chaotic risk by their firms. They just take it. These are the MacLeod Sociopaths.

Convexity and chaotic acceleration

Business corporations exist to create a process that reliably generates income. Their initial architects might glance around in chaos early on to find a source of profit, but once that is accomplished, they are almost all about law. What little engagement with chaos the firm needs is handled by a nerve center containing a small set of people called “executives”. Everything else lives in, or is forced to live in, the concave, far-from-chaos world of “another day, another dollar”.

The industrial world began when scientific advances altered the labor model. I’ve discussed concavity and convexity, but what’s the labor model that has been with humanity for most of its existence, before the industrial era? A binary one, in which there are compliance and noncompliance. That’s the world of slave labor. A noncompliant person was beaten, a compliant one was not. This judgment of compliance might not have had any connection with reality, of course, and hardworking people frequently got the “noncompliant” treatment. It was about emotion and perceived loyalty. The industrial world, in which productivity was derived from systems of conditions rather than exertion alone, encouraged people to look into concerns like morale and quality of training as “hidden” force multipliers that mattered at scale, far more than individual perceptions of loyalty. It no longer matted how many compliant people one had, but how they were arranged. The concave model replaced the binary loyalty-based model of slave labor, and it became clear that coercive labor was no longer tenable. Semi-coercive wage labor, with the worker financially dependent but free enough to change bosses, won out.

Since the 1940s, the binary model of labor has returned, but in a different and benign form: computing. Given a job, properly specified, a computer will do it without complaint. Such machines are extremely good at following deterministic laws. In almost all cases, a computer program will get the right answer to a well-formed problem either 100% of the time, or 0% (a bug). Exceptions (non-deterministic “Heisenbugs”) exist and are extremely painful to deal with, but they tend to be rare in critical components, at least by human standards. Almost no human could multiply two 100-by-100 matrices without mistakes. If the labor is intrinsically binary in value, we can specify requirements and usually program to them. If it is concave, we can often specify what perfect completion (or, at least, an arbitrarily close approximation) is and program for that. Work that lives in the lawful world that human society has already explored is all being done, or will soon be done, by machines.

What’s left for us to do? Convexity, which will require us to move away from semi-coercive labor to a fully free system based on intrinsic motivation. The industrial world saw risk as a commodity that could transferred, and allocated the right to take risks to a small number of people. That works for the typical financial (or performance) risk, since it can be separated into a constant expected value and zero-mean random variable, the latter of which can be traded (often “synthetically” through derivate contracts). In the convex world this separation of risk cannot be performed. It doesn’t make sense. Workers not allowed to take creative risks won’t create. It won’t be useful to employ them, then. The three-tiered corporation ceases to be functional.

What remains, once the machines have conquered the concave world, is the chaos of an unsolved problem. Can we handle it, as humans? Sure. We always have. But how will corporations survive it? They exist to produce law but, in the technological era, the rate at which a company will need to grow to be competitive is one that is innately chaotic. Some companies claim (most, without meaning it) that they want every employee to participate in the growth process. Not so far from now, that will be reality, but that requires a dramatically different view of the organization.

Gervais / MacLeod 11: Alignment and careers.

I discussed recently the process of social competition that enables the lawful evil to succeed in large corporations. That’s one of their two main weapons. The other one (existential fear) requires a more through exposition of the career trajectories most common for each alignment. I’m going to focus on each of the nine possible alignments.


Between extremes of altruism and egoism is what most people are: localist, with concern for others being highest regarding those who are close to them and being low (to zero) at the periphery. Good people are oriented toward expensive altruism. If they’re honest, they’ll acknowledge that they are localist, too, for practical and biological reasons. However, they try to extend basic concern for others’ welfare to the universal scope: all humans, possibly all living beings. They aren’t perfectly universalist, but they try. Morally neutral people tend to favor pragmatic localism. How far can one reach, really? They tend to step away from the Golden Rule: can one really know another’s tastes? Should one really care, when there is work to be done? Therefore, moral neutrality steps away from idealistic or normative concerns and toward functional ones: does it work? Evil is militant localism such as racism, jingoism, or classism. While sadism and egoism– a locality of one– can be (and often are) components of evil, they’re not required. It wasn’t egoism but militant racism and statism (that is, belligerent localism) that motivated the totalitarian Axis powers in World War II.

While good values good, the same is not true of evil. Evil despises good, which it views as weakness, but does not hold other evil in any regard; it values strength only. Good values compassion and kindess and judges institutions based on how much good they deliver to others. Moral neutrality values competence and efficiency and assesses organizations based on how well they meet their purposes, as long as those are not evil. Evil values power, the aggrandizement of its chosen locality, and the overwhelming subordination or defeat of everything else.

Civil bias (law vs. chaos) tends to come down to two questions: an individual’s preferred means, and how he or she tends to view organizations. Lawful people tend to favor tradition and, so far as they accept change, they prefer to interpret old rulings for new circumstances. Civilly neutral favor evolutionary progress: small steps when possible, large steps when needed. Chaotic people favor revolutionary change. Lawful good people view institutions as more just and honorable than the people who comprise them, while chaotic good view them as corrupt and self-serving, even if the individual people are good. Lawful neutral people see institutions as reliable and competent machines that are more than the sum of their parts. Chaotic neutral people see them as stifling and ineffective wastes of talent. Finally, lawful evil view organizations as strong and as a means to extend one’s power. Chaotic evil see organizations as weak and disempowering.

Careers of each

1. Lawful Good

All of us is the best us.

Lawful good, in the corporate context, tends to be the “team-builder” alignment. Such people never want to fire anyone (except law-breakers). Those who are lawful good expect organizations to live up to their lofty principles, and are continually surprised and disgusted when they fail. Despite stereotype, such people are not always dogmatic rule-followers. A lawful civil bias means that one tends to favor institutions as a default; not that one continues to favor those that prove ineffective or malicious.

In fact, it’s often a lawful good person who engages in one of the most feared forms of adversity to an organization: whistle-blowing. When such a person perceives that an organization is being evil in a way that is contrary to outside law, she exposes the fact. Moral bearing is stronger than civil bias, since even the most civilly biased (lawful or chaotic) person knows there are exceptional institutions that deserve special treatment.

Lawful good people tend to be honest to a fault. They prefer public discussion over private subversion. No one should be excluded. They’re often a very predictable alignment, and this weakens them in corporate competition. They want to do the right thing, but will often take direction from power and tradition on what that is.

In rank cultures, lawful good tend toward team-serving localism. They won’t try to upset an unethical manager, but will try to do well by the people around them. They are eager to please and to perform, so they tend toward middle management (MacLeod Clueless) in such organizations. In (chaotic evil) tough cultures, they look for ways to protect people, but often leave themselves exposed and are shot down by competitors. They get flushed out. Lawful good thrive in guild cultures– the epitome of lawful good– with clear expectations and definitions of progress. In self-executive cultures, they can do well as mentors and team builders, but they tend to wish for more guidance.

Lawful Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. High |
Manager      | High    | V. High |
Executive    | Low     | Medium  |

2. Lawful Neutral

Who are we to question those who came before us?

To the organization, the lawful neutral person is an ideal middle manager. The lawful good might turn disloyal in the face of evil, while lawful evil turn treacherous on a whiff of weakness. Lawful neutral tend to be the “useful idiots” who have no strong moral compass, but a preference for order. They can be altruistic, but usually in the form of providing stability and comfort to those below and diligence to those above them. They like to participate in the upkeep of the organization.

Where lawful neutrality becomes potentially limited is in the face of multiple definitions of “law”. Most organizations want people to be lawful with regard to their own laws, and neutral with regard to those that the outside world expects the organization to obey– fluent enough to disobey them when it’s advantageous. With their strong lawful bias, lawful neutral people rarely have the fluidity to be desirable as executives, because those jobs require a willingness to depart from tradition and expectations. So they tend also to end up in middle management (MacLeod Clueless) where they can be relied upon by those above them for good or bad.

In rank cultures, lawful neutral people tend toward conformity but above-average performance. In tough cultures, they are often flustered and disgusted by the breach of rules by the most successful, but may not do anything about it. They tend to perform well in guild cultures, and to struggle in self-executive cultures. Lawful good and lawful evil find themselves without direction in self-executive culture but can make their own: lawful good will try to assist and mentor others, while lawful evil will attempt to set themselves up, informally at first, as power-holders. Lawful neutral people are left with no idea of what to do.

Lawful Neutral
Rank/Fitness | To Rise | To Keep |

Subordinate  |         | V. High |
Manager      | V. High | V. High |
Executive    | V. Low  | Medium  |

3. Lawful Evil

A place for all: the bottom for the weak, the grave for those who oppose me. 

Lawful evil is an alignment, within a corporation, that is surprisingly fit. Such people are institutionally ambitious, because they equate organizational position with strength and seek it. The other lawful alignments can find self-esteem in lower levels of an organization, and in filling a role well. Lawful evil typically has a genuine desire for the organization to be macroscopically successful, and will avoid hurting it, but views the company’s interior as ripe for plunder. Damaging it is bad; its people are fair game. Lawful evil will tolerate a subordinate position if it suits certain strategic goals, but ultimately seeks localistic dominance of some sort: either the organization’s conquest of the outside world, or personal domination of the organization. Like lawful good and neutral, lawful evil can be a team-building alignment, but only out of the need to win supporters.

Of the alignments, lawful evil comes closest to our associations with psychopathy. Neutral evil can be worse because it is more unpredictable and fluid. However, it tends to be less ambitious, leaving the lawful variety the strongest force of organizational corrosion.

We are now prepared to discuss the second organizational weapon of lawful evil, the first (covered in Part 10) being social competition, at which psychopaths excel. The second is existential fear. I’m not talking about real existential risks, so much as the social currency of existential risk. “We won’t be able to [X] unless [Y].” There are a lot of code words that come into play here. Deliver, used intransitively, is a great one. ”We won’t be able to deliver if…”. Lawful evil does not enjoy conflict; it wants its ideas to seem inevitable. Lawful evil discovers quickly what an organization perceives as its existential risks, and uses those to expand the network of feared possibilities in order to get what it wants by making the alternative seem terrifying. If lawful evil wants to set up a tough culture (that it can exploit for rank) for example, it will use a zombie invasion of “low performers” to justify a “5% must die” annual witch-hunt. Existential fearmongering is an especial problem for startups, where there are real existential risks that the company faces.

It is in the face of perceived existential risks that companies abandon their culture, ethics, and decency. We won’t be a real concern unless we hire executives. To hire executives, we must sell off employee autonomy. The problem is that businesses, especially when starting out, do have real existential issues. There are deadlines that must be met and deliverables that must be provided. The problem is that lawful evil is great at manipulating existential fear.

Lawful evil tends to excel in rank cultures, which are the epitome of that alignment. In tough cultures, lawful evil engages with and builds a network of bribes and extortions enabling it to subvert the performance assessment process, while making sure not to do anything where there’s any risk of getting caught– it deceives organizations but, being lawful, still respects them (or, at least, the power they have). Lawful evil finds guild cultures convenient but will make sure not to fulfill any guild-culture promises unless it’s individually beneficial. In self-executive cultures, lawful evil will attempt to set up social competition and create a tough culture that it can then manipulate for rank.

Lawful Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Medium  |
Manager      | High    | High    |
Executive    | High    | V. High |

4. Neutral Good

We ought to do the right thing.

Neutral good, being free of civil bias, will work with or against powerful institutions. Its civil fluidity tends to keep it from falling into institutional traps or bad trades, as there isn’t a strong loyalism to it, but also permits it to work with established players that chaotic good would find distasteful. Neutral good will tolerate an institution in accord with its conscience, but will rarely put forth above-normal effort for its upkeep except when under a belief that it’s a good organization.

Mostly, neutral good is tolerant of subordination as long as it isn’t asked to do something it considers evil. Lawful people want to rise within organizations to get the validation of an important position. Chaotic people want to change them (into something they find acceptable) or destroy them. Neutral people don’t care, any more than they expect the organization to care. They will take responsibility if it is given to them, but not seek it.

Neutral good people tend to accept rank cultures as the default and are not surprised or shocked to find out that that’s what most companies are. As long as they aren’t asked to do something evil, or in a macroscopically evil company, they’re usually okay, but they will turn disloyal if confronted with evil. They dislike tough cultures strongly. Those who leave companies conscientiously when they turn to tough culture tend to be the neutral good. Neutral good tend to see value in both the guild and self-executive culture and perceive no major difference between them, and behave the same way– altruistically and progressively, without pushing for major change– in both.

Neutral Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | High    |
Manager      | Low     | High    |
Executive    | Low     | Medium  |

5. True Neutral

Let’s get back to work.

Original D&D rules specified “true neutral” as having an almost ideological faith in the need for “natural balance” between good, evil, law, and chaos. That not what I mean here. Most people don’t have an “ideological neutrality”. They’re just neutral. They have good values, but don’t always meet them. (Moral neutrality is better modelled as “weak goodness”.) They don’t have a strong civil bias either way. This is what most people are.

The truly neutral are the most fluid, because they can succeed in any kind of organization. They can do good or evil, follow laws or break them. In the lawful-evil environment of the rank culture, they will accept lawful evil and the most successful will adopt it. They can equally well adapt to the chaotic evil tough culture or the chaotic good self-executive culture. They don’t expect there to be rules, but if they exist, they’ll assess the rules, the benefits of following them, the penalties for breaking them, and decide accordingly.

True neutral are most at-ease with the Loser trade of the MacLeod hierarchy. They’re willing to subordinate, if afforded easy jobs with steady compensation. It doesn’t take much else to please them. Lawful people want an important role, good people want to improve the organization in spite of itself and often at the expense of powerful people, chaotic people want change, and evil people want to use it for malicious purposes. Neutral people, in general, just want a paycheck and a few friends. They like to be in an “in-crowd” but they don’t expect to be rich or to make major decisions.

True neutral people, being highly adaptable to large institutions, tend not to rise not in spite of their adaptability, but because of it. They can find comfort at the bottom, being easiest for organizations to accommodate. That being the case, why would they bother to rise?

The true neutral tend to find niches in rank cultures that keep them in comfort. They tend to leave tough cultures not for an ideological reason, but because such cultures are uncomfortable, pointless, mean-spirited and inefficient. Regarding guild and self-executive cultures, they tend not to form strong opinions. They don’t perceive workplace culture when it works well and doesn’t affect them.

True Neutral
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. High |
Manager      | Medium  | High    |
Executive    | Low     | Medium  |

6. Neutral Evil

Heads, I win. Tails, you lose.

Neutral evil people are the most dangerous, without the adherence to law that restrains them, nor the chaotic impulsivity that brings them to failure before they can do great harm. A lawful evil person would rather enslave than kill, while a chaotic evil person would rather kill than enslave. Neutral evil enjoys both equally.

Lawful evil, in an organization, still wishes for the macroscopic success of the organization. Neutral evil is indifferent. I believe that I am correct in my assessment that not all evil is egoism, and that militant localism suffices, but neutral evil tends most strongly to severe selfishness and greed. It doesn’t favor or oppose localities (races, corporations, nations) so much as it just doesn’t care. What it is not– at least, not as much as lawful evil– is organizationally ambitious. It will climb if the opportunity is presented. Without that, though, it will happily indulge in mere sadism, which can be enjoyed even in a position of middling authority.

Neutral evil is rarely happy at the bottom of an organization, but can tolerate a subordinate role with access to a coveted in-crowd. Angela, in The Office, exemplifies this tendency. She’s happy to use economically meaningless forms of power, such as dominance of the “Party Planning Committee”, to exclude and cause pain to others.

Neutral evil enjoys rank cultures because they provide opportunity to dominate others, and tough cultures because they bring ruin and pain to people. Neutral evil tends to silently disdain self-executive and guild cultures, will not attempt to subvert them, but will manipulate them if it can.

Neutral Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Medium  |
Manager      | Medium  | High    |
Executive    | Medium  | High    |

7. Chaotic Good

Evil presses in. Do what you will, but I will fight. 

Chaotic good views disruption and transgression, if toward a beneficial goal, as virtuous. Both lawful and chaotic alignments exist out of a fear of entropy, but with different slants. Law fears natural entropy (corrosion) and puts faith in institutional and traditional safeguards. Chaos fears human entropy (corruption) and puts faith in continual revolution. From the chaotic perspective, anything human that is not subjected to regular revolutionary improvements will turn necrotic and dangerous. Doing the right thing is requisite, but improvisation is acceptable and expected.

Both lawful and chaotic good tend, philosophically, toward universal altruism, but lawful good tends to think in loss-reductive terms. From the lawful-good perspective, there’s a utopia or even a heaven that is achievable, and one can iteratively reduce error, or discrepancy between reality and that state, to zero. Chaotic good treat change and the creative process as having inherent hedonic value and therefore conclude that no perfect stable state can exist; we should strive, instead, for perpetual growth and improvement. While lawful good wants to minimize error in a quest for zero (concavity) the goal of chaotic good is to maximize some hedonic function that can go toward infinity (convexity).

While chaotic good is attractive in a literary sense, it’s often socially maladaptive. People like the idea of it– a will toward good that is so strong as to override the stagnation and corruption of authority, but not always the people who exemplify it. Relevant is the common quote about loving reforms and hating reformers. Most people find chaotic good individuals to be self-righteous, dangerous, and impulsive in the rejection of authority.

In general, as well, most people struggle with chaotic morality, which vexes them even more than evil, which is easier for most people to comprehend, if not accept. For an example, consider the term cynic. True cynicism is the epitome of chaotic good. It favors economic and social simplicity out of a distrust for establishment, while striving for general and contagious happiness and virtue. Modern usage of the term has discarded the ancient, philosophical ideals and focused on one trait: distrust for human law and of organizational motives. People even misuse the word cynicism, sometimes, to describe lawful evil, describing such people as “cynical manipulators”. If people use a word to mean its opposite, they really don’t understand the concept! Societies and organizations have a hard time dealing with rejection, and tend to conflate those who abandon its conscience (apostatic, chaotic) with those who have no conscience (psychopathic, evil).

Technocratic (chaotic good, chaotic neutral) leaders have a strong affinity for the chaotic good and will attempt to promote them quickly, before they get turned off or washed out by the organization’s inefficiencies. Other than that, they rarely rise through the hypercompetitive main channels (which favor the lawful) and find it difficult to keep jobs. They are averse to subordination, and are even more hostile toward typical middle management positions (where they have a limited power that they must use for ethically questionable purposes).

Chaotic good find rank cultures to be inefficient and corrupt, but as those don’t have the mean-spirited character of tough cultures, they’ll attempt to reform it (and, usually, be fired for it) rather than fighting it head-on. Tough cultures they either fight or leave on account of conscience, unless they can find a meritocratic niche that is more like a self-executive culture. Self-executive cultures are the chaotic good’s favorite, those encouraging change and transgression. Chaotic good tend to distrust guild cultures (being cynical, in the true sense of the word) but will contribute positively when in a genuine guild culture.

Chaotic Good
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Low     |
Manager      | Low     | V. Low  |
Executive    | Medium  | High    |

8. Chaotic Neutral

Change before you have to. 

Chaotic neutral is the “problem solver” alignment. This alignment has a reputation for being fickle, but they actually have an important organizational role. They like to solve problems and try new things because it’s fun. Chaotic good wants to advance humanity by solving difficult problems. From a chaotic neutral perspective, that creative stimulation has merit standing alone. It’s a game. Chaotic neutral want to change organizations in spite of themselves. They want to make things work.

Chaotic neutrality can be ruthless, but it’s not malicious. If people lose their jobs, that’s undesirable but acceptable. This alignment tends toward libertarianism. Institutions are distrusted and naturally impermanent. Upkeep of them, when they become inefficient, is just dishonest. Inherent in chaotic neutrality is a steadfast belief in creative destruction and a libertarian ethos. Change should be embraced; people will adapt.

Technocrats and the better kinds of MacLeod Sociopaths tend to be a mix of chaotic good and neutrality. Chaotic neutrality is somewhat less admired in the abstract, because it can be interpreted as selfish: bias toward change because one finds it personally enjoyable. For example, it’s the chaotic neutrality of most computer programmers that drives the burn-everything-old, bet-the-company-on-us rewrites that software engineers regularly engage in, largely because they’re more fun than working with mediocre legacy code. That said, chaotic neutrality is slightly more organizationally adaptive than chaotic good, in so far as moral good or evil are each sources of discrepancy with typical (morally neutral) institutions while neutrality confers the most fluency.

Chaotic neutrality finds rank cultures to be inefficient and distasteful. It views tough culture as superior to rank cultures, and necessary to purge the rank culture’s accumulated rot. It generally dislikes guild culture, which it views as meek and enabling, and would prefer the creative expression and liberty afforded by a self-executive culture.

Chaotic Neutral
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | Low     |
Manager      | Medium  | Low     |
Executive    | High    | Medium  |

9. Chaotic Evil

I will burn everything! If you die, I will laugh. If I die, I will laugh. 

Chaotic evil is the evil of the madman. It tends to be maladaptive in organizations. Those who are chaotic draw attention to their moral character, while the lawful and neutral can hide it. Chaotic good are still often rejected when found out as good, but they are admired at least abstractly, and that can give them a chance. Chaotic evil shows itself as treacherous. Only in a damaged environment can chaotic evil have any advantage. Otherwise, the neutral evil, who can use chaos when they need it, are best equipped.

Chaotic evil has a literary attractiveness because it’s self-limiting and cathartic. It rises to power for a short while, burns brightly, turns to madness, and implodes. Its taste for destruction is so strong that it tends inevitably toward self-contradiction and collapse. In the corporate context, we might rarely see it. Or would we?

There are degrees of chaos is chaotic evil, and not all are like Kefka or The Joker. Ryan, in The Office, is (slightly) chaotic evil and, being an agent of technical change and improvement, delivers some needed future-awareness to the backward Scranton branch. Chaotic evil is the least organizationally adaptive of the nine alignments, but the more moderate varieties of it (as opposed to the caricature, which is insane chaotic evil) can find success. Chaotic evil people can rarely keep their impulses in check for long enough to rise to the top, but their mean-spirited ideas often linger on. The malignant, viciously political, performance review systems for which Enron, Microsoft and Google are well-known emerged from chaotic evil minds– and were retained because the lawful and neutral evil leadership decided that, hey, that kind of chaos works. 

Chaotic evil tends to fight and attempt to purge rank cultures, not because they are inefficient, but to torch the weak. Naturally, chaotic evil has the most affinity for the tough culture (that culture itself being chaotic evil) and it will actually fight, on a matter of principle, against the lawful-evil proto-managerial extortionists trying to turn it into a rank culture. Chaotic evil tends toward exploitation of guild culture, but with minimal success because such cultures are actually resilient against that type of evil. In a self-executive culture, the chaotic evil person will play for personal gain and, often, abuse the self-executive culture’s openness with information and find a way to steal from the company.

Chaotic Evil
Rank/Fitness | To Rise | To Keep |
Subordinate  |         | V. Low  |
Manager      | Medium  | Low     |
Executive    | Medium  | Low     |


We now have a sense of how alignment plays out in organizational cultures. There are a few interesting notes we can make:

  • the character of moral neutrality is generally a more adaptive variety of good. Organizations don’t especially want good or evil, both distracting people from the organizational goal, which is usually neutral. The moral flexibility of the neutral person is generally preferred. Good can be a slight advantage of the chaotic, as chaotic behavior makes one’s moral bearing public information, but chaotic good is still often maladaptive. 
  • lawful people are the most likely to become and stay middling managers. This should not be surprising to anyone.
  • lawful evil and chaotic neutral people are most likely to become executives. Following are the chaotic good, who are hampered by their moral compasses, and neutral evil, whose sadistic tastes do not require an important organizational role that a lawful evil person has more cause to desire.
  • lawful evil are the most likely to be career executives. When they get the position, they are the ones most able to keep it. Why? Because the perversion of law toward personal benefit is quite natural for them.
  • in addition to social violence, lawful evil are prone to manipulate a company’s existential fears. This might be the main advantage of the lawful evil (as neutral evil use both social and physical violence if they can get away with it). Lawful evil can best tap into the fear of organizational dissolution because it shares that fear.
  • the Technocratic impulse comes from the chaotic good and chaotic neutral. Chaotic good express altruism through creativity and revolution. Chaotic neutral join in because solving problems and inventing new things is fun.
  • chaotic evil, despite its colorful literary presence, is not a major organizational concern. We just have a lot more to worry about from the lawful and neutral kinds.
  • neither the self-executive nor guild culture is immune against evil. The evil cultures (rank and tough) can turn neutral and even good people toward evil activity, but the reverse is not true. A naive guild or self-executive culture will find itself exploited by evil, especially of the lawful kind.

The last of these points should be the most jarring. Why can’t the good cultures defend themselves against evil? Organizations are quite adept at handling law and chaos, hand-picking lawful people for management roles and a few chaotic ones for executive positions, while rejecting most of the chaotic. What is it about workplace cultures that leaves them hapless in the face of good (which they cannot pursue) and evil (against which they cannot defend)? How do we patch the best workplace cultures– the guild and self-executive ones– to make them evil-resistant?

Gervais / MacLeod 10: The pull of lawful evil


I’ve posted a lot about organizations and their corrosion (See: Part 1Part 2Part 3Part 4Part 5Part 6Part 7Part 8, Part 9). but there’s something that I realize I have not covered, and it’s one of the most important topics to address before attempting to solve the general organizational problem. What are we up against? What is it that makes organizations turn toward moral failure (tough culture) or extortive self-diminishment (rank culture)? What are the personal motivations of people who cause organizations to deteriorate? What are the natural forces that drive them? Why do they exist? What do they want?

I’ve discussed evil abstractly, but not what it looks like, or how it works. I mentioned that truly toxic people (Psychopaths) are superior at social competition without getting into what “social competition” is and why it tends to easily to evil, when other kinds of competition do not so commonly go that way. What is it about social competition that makes a certain alignment (lawful evil) so good at it? What is it that organizations do to fill their top ranks with the horrid people who give the MacLeod Sociopaths such a bad name?

Rank theory of depression

No one knows for sure, but I’ve suspected for a long time that the rank theory of depression is, at least, partially correct as an explanation of why the disorder exists. According to that hypothesis, the depression machinery (psychological “source code”) exists as a way of helping people adapt to low social status. Reduced libido and appetite, physical lethargy, and disinterest in social activity would conceivably be useful in helping a person survive low status in our evolutionary environment, in which status conflicts were a frequent cause of death among males. Of course, it would only confer an evolutionary benefit if it existed to handle transient social disadvantage. (In the long term, evolutionary fitness sees no difference between death and non-reproduction, so an organism would do better to fight permanent low status and risk death, than to accept it.) The moodiness associated with adolescence may tie into this: young men, not yet at their strongest, are presumably the most prone to the transient low status that mild depression helps a person survive.

The above being said, clinical depression– which is, to complicate things, probably a collection of diseases with similar symptoms rather than one illness–  is almost certainly a pathology of that system. Old code that is maladaptive in modern society is being called by inappropriate triggers (possibly biological malfunctions). The person might be reacting as if to low social status for no discernable social reason.

Rank theory, to me, seems to explain, for example, why exercise helps so much for mild depression. The brain takes bodily activity as a signal of a person’s social status. An active body means that one has been invited on the hunt and that tells the brain that its low-status response is inappropriate. A sedentary lifestyle means that one has fallen to low rank and is one of the less necessary and subordinate people, making semi-hibernation adaptive.

One piece of evidence weighing against rank theory is that it would predict depression to be more common in men– for whom, there was more variation in social status (for reproductive reasons) and a higher rate of positional violence– while it seems to be at least as common, if not moreso, in women. The reason I do not believe that justifies a challenge to rank theory is that I think there’s an extremely large amount of “code sharing” in the human brain between genders. If it took millions of years for that code to emerge through natural processes, one might expect nature to reuse as much as possible of the hard-to-make stuff that made humans intelligent. I don’t see any reason to believe there’s any gender-specific code. Certain pieces are called more often in men than women, and vice versa, but it seems to be all available to both. The rank-theoretic function of, at least, mild depression may have had the original purpose of keeping men alive during spells of transient low social status but, once it evolved, there was no reason it could not be triggered (especially by pathology) in women as well. We’ll get to a much more exciting case of code-sharing (from female evolutionary incentive to mostly male application) later on.

Good and evil

What are good and evil, in truth? Every religion or philosophy has a different stance on it, but one issue that it seems to get tied up with is the fact that there were two evolutionary pressures that were on our ancestors: r- and K-selection. The first, r-selection, favors rapid reproductive proliferation. This is seen in many of the lower animals, where a brood of hundreds of spawn is common, but only a few live. Parental investment is nonexistent or low. K-selection, however, favors quality: a smaller number of offspring, with each of them given high parental investment, with the hope of making them more successful.

Early in their evolution, human societies developed a tension between K-selective– monogamous, family-building, future-oriented, superego– lifestyles and r-selective– polygamous, harem-building, present-oriented, id-driven– behaviors. Among the more powerful men, there were the r-strategic “alpha” males who’d have harems and hundreds of offspring, with almost no paternal investment in any of them: lots of kids, most would fare poorly. Then there were the K-strategic “beta” males with small numbers of wives (one or two) and fewer children but who put high levels of investment in them. Finally, there were the omegas who had no wives, little or no access to sex, and a strong reproductive drive to positional violence to better their opportunities. Modern civilization began as the K-strategists took over and started laying rules to reduce positional violence: men didn’t covet others’ wives, murder was no longer acceptable, polygamy was discouraged. Monogamy encouraged paternal investment, and it also introduced stability due to the reduced rate of male positional violence, with fewer men being left sexless. It also was the first move toward gender equality. While not all women in monogamous marriages were well-treated (history tells us that a horrifying number weren’t) they were undeniably better off than in harems, where they were treated like livestock. A man who is going to have all of his children by one wife is going to have strong incentives to treat her well.

If it seems sexist that I am focusing on male status variance and polygyny only, that’s because there is, in nature, more cause for status variation in men, due to the reproductive bottleneck of the woman’s womb. Men can sire five hundred kids but women cannot. They have more reproductive upside. They also have more downside, since low-status men are judged to have nothing to offer (except unneeded sperm) and ignored or discarded by society. A woman has a womb, putting a higher floor on her reproductive value. So it was typically men who went to extremes in social status– and had evolutionary incentives for antisocial behavior.

Societies quickly learned the value of monogamy, even if no human group perfectly observed it. It reduced positional violence and, by requiring men to treat women better, led to healthier offspring. It made a world in which the most successful men took an interest in social justice and progress (to create a better world for their few children; “few”, here, meaning less than 20) rather than acquiring more wives. Much of our evolution was an arms race between the r-strategists and K-strategists within us. Religions defined the r-strategist as “evil”– irresponsible, dangerous, malicious– and the K-strategist became “good”.

Over time, we’ve developed a more mature understanding of this. Sexual activity is not the best way to assess moral decency. It was the dishonesty and violence associated with those powerful and promiscuous men that made them so toxic– not the sexual pattern only. There are good people who are sexually prolific, and evil people who are restrained or even abstinent. So it’s not especially useful, from a modern view, to overemphasize this dimension of morality over other, more important ones, like honesty, compassion, and altruism. Nonetheless, we’re aware of the fact that, for evolutionary reasons, there are two conflicting personalities that live within us. Most people have a mix of r- and K-strategic tendencies, due to the fact that both strategies played a role in our evolutionary history.

There is an adaptation that seems to shut down the K-strategic personality outright, although that person may conform to social norms (law) and observe traditionally K-strategic behaviors (monogamy, sexual restraint). Like a cancer cell, the person becomes more fit at the expense of the larger organism. We call this type of person a psychopath.

The less-severe sociopath is used to include, as well, chaotic people with conscience (good, neutral) but not the socially-induced superego. It’s also preferred in popular use because psychopath sounds like psychotic, while those categories of illness are quite dissimilar. The problem with the concept of the “sociopath” (one who is chaotic or evil) is that it lumps together types of people who could not be more different. When we finally solve “The Organizational Problem” (as if it were that easy) we’ll see that the battle between chaotic good and lawful evil (two opposite sets of people labelled “sociopaths”) is one of the most exciting conflicts.

Two kinds of psychopathy

Most people associate the word psychopath with a serial killer or common criminal living in social depravity, but those are the lower classes of psychopaths. The upper-class psychopaths are the white-collar criminals who rob companies for nine-figure sums and often get away with it. These are the people who ruin companies. To understand the latter category, we need to understand social competition and its evolutionary frame. It was born, I believe, in the harem.

A male psychopath (extreme r-strategist) in the prehistoric world had his work cut out for him– kill men, rape women, enslave children. One might expect that would should be (because of their reduced reproductive variance) K-strategists, but with code sharing, it’s quite likely that there will be females with the same impulse. How does she do it? How can a woman play the extreme r-selective game of the male psychopath? It’s biologically impossible for her to have 50 kids. In a typical pre-monogamous context, she has to do it in two generations. She needs to have a high-status, psychopathic, alpha-male son. How does she do that? It helps, but it’s not enough, for such a spawn to have an alpha father. As an r-strategist, he’s going to have a lot of progeny and most will be failures. She needs more than a high-status father, because that alpha’s throwing seed all over the place. How does she maximize her chances of her children being the ones who inherit that paternal status? She has to establish herself as the queen of the harem and the legitimate wife, so her children are heirs and the other womens’ are bastards. Within the harem is the birth of social competition.

This is a different sort of contest: a degrading and subordinate kind where the victor is chosen by an external agent. The high-status man needs to believe he is making the choice as to the favorite in his harem. From his perspective (and that of proto-Clueless women in the harem) it’s a beauty contest. He picks a favorite based on some measure of attractiveness that is presumably correlated with reproductive health. Of course, the more effective social competitors (proto-Sociopaths) know that it’s an easy contest to corrupt.

The would-be harem queen must engineer a situation in which she’s the most attractive. The psychopathic man kills rivals, but she can’t. As a means of tearing down a rival with more natural beauty (however it is defined) physical violence is out. The man views his harem as personal property and won’t accept it if one of the women in it starts harming or killing the others. He might punish her and, even if not, it won’t have the desired competitive effect. The hurt rival will then appear injured, not ugly or unhealthy. Recall what I said about depression and code-sharing: that process of adaptation to (temporary) low social status exists in both men and women. A would-be harem queen could win if she were to find a way to trigger this depression process inappropriately in her rivals. After she does so, these others (of superior natural beauty) will appear sick and weak (and therefore reproductively unfit) to the alpha male. So the aspiring harem queen would harass her rivals– especially more attractive ones– in order to inflict an invisible injury that the alpha-male judge would not see: induced depression. She’d continue until only her supporters remained. The alpha would then perceive her as the most beautiful, and choose her.

Thus emerged a second variety of psychopathy focused on social competition rather than violence. The old-style, violent sorts (chaotic evil) of psychopaths became the lower classes. They could be useful to an evil organization attempting to establish itself, but were too impulsive to be trusted to rule it. The socially competitive and dishonest ones (lawful evil) emerged. Of course, the code for socially competitive nastiness crossed genders quickly, if not immediately. Women do not have a monopoly on this sort of pernicious social competition. Men can do it, too. In the modern context, it seems to arise independent of gender. It’s just what psychopaths (male and female) do to climb social hierarchies.

The workplace

It should be obvious where I intend to go: the workplace.

The metaphor is strong. The harem queen competition is a degrading and subordinate “beauty contest” where “beauty” is assessed by an external agent– a dominant and brutal male who perceives the harem as his property. The corporate contest is a degrading and subordinate one where “performance” is assessed by external superiors called “management”. A would-be harem queen is only effective if she can trigger invisible mental injuries (depression, anxiety, motivational collapse) in her rivals that look like low reproductive fitness; otherwise, she’s found-out for being antisocial and destructive and will be punished or expelled. Analogously, a corporate social competitor is only effective if he or she can trigger invisible mental harm in rivals that looks like low performance; otherwise, he or she is found-out for being toxic and “political” and will often be terminated.

What makes corporations different is the recursive nature of the harem. At the ground level, the harem queen is the managerial favorite (“golden child” or ladyboy) and the “alpha male” is management, but that manager is often vying to be a harem queen within another harem. It’s harems all the way up to the executive suite. Who’s the “alpha male”? A pile of money. Kapital. An imaginary psychopath called “The Corporation”. This is not so far-fetched. Humans have been inventing imaginary psychopaths and using them to control other people for thousands of years.

The private-sector social climbers who claw their way to the tops of typical corporations are not “alpha males” as the Ayn Rand fantasy they have would suggest. Corporate strivers are emasculated harem queens. At least to the men among them, who are often insufferable in their machismo, it should be pointed out at every opportunity. (Minor nit: entrepreneurs aren’t “alpha” males or females in the pre-monogamous sense either. They’re beta. Why? Alphas are r-selective, present-oriented and consumptive; betas are the positive-sum, future-oriented productive people who built civilization.)

Companies often give a spiel about “accommodating depression”, but the truth is that for the bulk of companies– rank and especially tough cultures– this is impossible. Depression is a landmark feature of the “corporate ladder” competition that they use (because of a lack of vision) to evaluate their people. It’s a war of attrition, and depression is one of the most powerful agents of that. It cannot be accommodated; it would break the game. The context-specific, socially- or occupationally-induced mental illnesses– usually mild, but with paralyzing motivational consequences– that punctuate the corporate career, popularly known as “nervous breakdowns”, must exist in the corporate game. What’s the alternative? Letting everyone have a real career?

Technocrats want to change the game. They want to unleash creativity and improve processes so everyone wins. They don’t want their colleagues to become depressed and fail out to make space. True Psychopaths (social competitors) do want that. They’re made for a negative-sum war of attrition. Just as the would-be harem queen makes her more attractive rivals appear unhealthy via a campaign of harassment, corporate psychopaths turn more talented rivals into non-performers or social misfits through a campaign of discouragement, dishonesty, and sabotage.

MacLeod Losers just don’t want to have mental breakdowns– that’s understandable– so they avoid risk and discomfort. Their intentional restraint of dedication prevents them from reaching a level of emotional investment in the organization where its volatility could effect their mental health. They stay out of the worst social competition and generally avoid getting hit with anything that would ruin a career. The Clueless cope by finding or creating a “reality distortion field” that protects them from induced depression and, additionally, encourages them to want things that don’t actually matter (and thus, for which there is not much competition). Psychopaths have a natural skill at social competition; it’s natural to them. Lack of conscience and adeptness at social competition have a million-year-old genetic correlation. It’s the Technocrats, who want to end the zero-sum social competitions of yesteryear, who are most exposed.

Cultural dysfunction

Corporate macroscopic evil (Xe/Blackwater, U.S. health insurance) is notorious but rare. Very few corporations exist for evil purposes; most are macroscopically neutral on the moral scale and, while insistent on their own law, macroscopically neutral on the civil scale as well. My exposition has been all about the internal moral and civil character of organizations, that tends to emerge despite the “true neutral” macro-alignment of an organization as it relates to society. Rank cultures (MacLeod-style bureaucratic dysfunction) are lawful evil. Tough cultures (sink-or-swim, Enron-style cultures) are chaotic evil. Guild cultures (progressively conservative, with symbiotic hierarchy) are lawful good. Self-executive cultures (Valve-style open allocation) are chaotic good.

Previously, I was hand-waving with terms like “negative sum” or “egoism”, but now we have a firm understanding of what drives most internal corporate evil: social competition designed to interfere with performance. Inducing depression, anxiety, or loss of motivation in more talented rivals is one of the most powerful tools in the social warrior’s arsenal. Now we know why MacLeod organizations are so goddamn depressing: for the same reason that compost heaps are hot. The stuff is generated everywhere.

Lawful evil wants to dominate while chaotic evil likes to destroy. So the purpose of induced depression is different in a rank versus tough culture. In both cases, the means of warfare is to load someone with unnecessary, counterproductive stress until that person breaks, then rationalize that person after-the-fact as being “not a team player” (rank culture) or “a piker” (tough culture). The difference is that, in rank culture, the person need only submit and the induced-depression campaign stops. In tough culture, the attacker won’t stop until the target’s performance has dropped so low as to drive the person out of the company.

This micro-character may emerge in spite of the organizational macro-alignment. For example, while tough culture is an emergence of chaotic evil, most tough-culture executives see themselves as neutral. Like pre-monogamous alpha males, they think they’re objective and infallible judges of the beauty contest, capable of assessing and rewarding “performance”, but the beauty/performance they are able to see is the outcome of a attritive social war that has already happened; the harem queens (“top performers”) have already been determined– the people who were most ruthless in that prior social war, not those with the most actual merit.

From a macroscopic perspective, tough cultures actually perform badly. People do a lot of busy work, but the error rate becomes intolerable and the vision is lost as power shifts to the (non-strategic) people with the strongest reality distortion fields, and to the antisocial players at the top, who loot and rob the organization. The chaotic good who might stand up to a rising tide of evil in the organization are long gone by that point. It turns out that an epidemic of unnecessary depression and anxiety is not good for business; who would have guessed?

Rank cultures, into which tough cultures evolve when let to their own devices, tend to be less radical and quick in their toxicity. What happens after a while as vicious but rationally repressive systems stabilize is that the punishment (induced depression) is replaced with the threat thereof. Instead of actually creating a hostile situation that will interfere with performance and induce illness, only the capability to do so is needed. The gun is waved but never fired. Tough cultures actively induce anxiety, which becomes depression. Rank cultures are just uninspiring, from inside and without. Over time, the rank-culture organization becomes so inefficient that it’s not even good at being evil.

That internal currency that companies create called credibility plays a role. You need credibility to get anything done that involves other people and, in the contemporary Theory-Z (teamist) environment, a lone actor can’t accomplish much of anything. Because low credibility makes it impossible to get anything useful done, it’s demoralizing and humiliating. Credibility reductions are a great way to engage in the social warfare that comprises the vast majority of any company’s internal evil. If there is no credibility floor, evil is at an advantage.

Guild cultures account for future potential in assessing credibility and thus create a floor for a diligent student. One can escape from social warfare, hit the books and get better at one’s craft. It’s safe in the library. Self-executive cultures have a more fluid, market mechanic for operations but recognize markets as short-term noisy and only eventually consistent, so they assess a basic minimum credibility to individuals, even if ruthlessly killing off failed ideas. Tough cultures do not have a credibility floor. One can fall all the way to zero due to unpredictable fluctuations. A worthy player can be killed by the dice. Psychopaths love tough cultures. They figure out how the damn thing works and load the dice. Rank cultures emerge out of tough cultures because, when there is no credibility floor, most people (MacLeod Losers especially) prefer the comfort of a dictatorial, extortionate manager who can unilaterally ruin them, but won’t do so if certain easy-to-fulfill conditions are met, over a capricious market that has no rules and might kill them off “at random”. Who is it that profits most from that change? Lawful (and neutral) evil psychopaths, whose network of extortions and alliances will hamstring the chaotic evil tough culture and form the next generation’s rank culture.

Now, we’re more equipped to assess concept of good, evil, law, and chaos as we attempt to attack the MacLeod Problem. We have a much stronger sense of what evil, in this context, is. We have a better sense of what we’re up against. Now we can focus on the ultimate chaotic-good Technocrat’s problem: taking these parasitic, social-climbing harem queen bitches (that term used gender-neutrally, most of our adversaries being men) down for good.