Wednesday, 25 March 2015

Entrepreneurship

In this exclusive interview series, we speak to Sir Richard Branson (Founder of Virgin Group) and Robin Li (Founder of Baidu). We discuss the fundamental nature of entrepreneurship, entrepreneurs themselves, and the role of entrepreneurs in society and the economy. We look at the key sources of entrepreneurial ideas, characteristics of successful enterprise and the role of wealth in the entrepreneurial journey. We also look at how entrepreneurship has changed, what the future holds and how entrepreneurs are addressing some of the world's most pressing problems from poverty and economic crises to climate change and health.

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Vikas Shah, Thought Economics, March 2015
Updated from original edition, published January, 2013

"...Over 28% of all the 'history' made since the birth of Christ was made in the 20th century." noted the Economist in June 2011, adding "... Measured in years lived, the present century, which is only ten years old, is already 'longer' than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010..." Google's Executive Chairman Eric Schmidt also notes that, "...every two days now we create as much information as we did from the dawn of civilization up until 2003."

The evident growth in humankind led early economists such as Thomas Malthus to foresee a future of doom for our burgeoning civilisation. "Extermination, sickly seasons, epidemics... and gigantic inevitable famine..." were considered near-certain as a result of an increase in human density on our planet. The truth is that Malthus (and his counterparts) were (largely) wrong. While the astonishing growth of our species' numbers over the past century has come at a heavy price (resulting in hunger, conflict and more)- it has also delivered incredible economic and social growth. As at March 2015, the combined market capitalisation of the 10 largest companies in the world was US$ 2.86 trillion- the equivalent of around 50% the size of the entire world economy in 1960 (and less than 4.5% of the world economy today).

"When conjectures are offered to explain historic slowdowns or great leaps in economic growth, there is the group of usual suspects that is regularly rounded up-prominent among them, the entrepreneur. Where growth has slowed, it is implied that a decline in entrepreneurship was partly to blame (perhaps because the culture's 'need for achievement' has atrophied). At another time and place, it is said, the flowering of entrepreneurship accounts for unprecedented expansion." (Baumol, 1990) There is historic precedent for this... "From the fall of Rome (circa 476 AD) to the eighteenth century, there was virtually no increase in per capita income in the West. However, with the advent of entrepreneurship, per capita income grew exponentially in the West by 20% in the 1700s, 200% in the 1800s, and 740% in the 1900s..." (Murphy, 2006).

Conservative estimates state that over 400 million people in 54 countries are actively engaged in entrepreneurship- (loosely defined as starting and running new businesses). This figure doesn't include the (potentially) hundreds of millions more engaged in forms of pseudo-entrepreneurship in science, medicine and politics- their contributions no-less important to our society's economic, social and intellectual growth.

So what is the role of entrepreneurship in society, economy and the story of our civilisation?

In this exclusive interview series, we speak to Sir Richard Branson (Founder of Virgin Group) and Robin Li (Founder of Baidu). We discuss the fundamental nature of entrepreneurship, entrepreneurs themselves, and the role of entrepreneurs in society and the economy. We look at the key sources of entrepreneurial ideas, characteristics of successful enterprise and the role of wealth in the entrepreneurial journey. We also look at how entrepreneurship has changed, what the future holds and how entrepreneurs are addressing some of the world's most pressing problems from poverty and economic crises to climate change and health.

Sir Richard Branson is Founder of the Virgin Group. Virgin is one of the world’s most recognised brands and has expanded into many diverse sectors from travel to telecommunications, health to banking and music to leisure. There are now more than 100 Virgin companies worldwide, employing approximately 60,000 people in over 50 countries.

Branson has challenged himself with many record breaking adventures, including the fastest ever Atlantic Ocean crossing, a series of hot air balloon adventures and kitesurfing across the English Channel. He has described Virgin Galactic, the world’s first commercial spaceline, as being “the greatest adventure of all”. Space travel has been a dream for Branson since he watched the moon landings on TV, and he registered the Virgin Galactic name in 1999. Testing for commercial service is underway, with Branson planning to join his family on the first space flight.

In 2004 he established non-profit foundation Virgin Unite to tackle tough social and environmental problems and strives to make business a force for good. Most of his time is now spent working with Virgin Unite and organisations it has incubated, such as The Elders, Carbon War Room, B Team and Branson Centre of Entrepreneurship. He also serves on the Global Commission on Drug Policy and supports ocean conservation with the OceanElders. Branson was awarded a knighthood in 1999 for services to entrepreneurship.

Robin Li is the Co-Founder, Chairman and Chief Executive Officer of Baidu, Inc. Since founding the company in January 2000, Robin has led Baidu to be China’s largest search engine, with over 80% market share. Baidu is the largest Chinese search engine globally and the second largest independent search engine in the world. China is among the four countries globally—alongside the United States, Russia and South Korea—to possess its own core search engine technology.

In 2005, Baidu became a NASDAQ-listed public company and in 2007 was the first Chinese company to be included in the NASDAQ-100 Index. In 2007, The Financial Times listed Baidu as one of the Top 10 Chinese Global Brands, with Baidu being the youngest company as well as the only Internet company in the top ten.

As one of the pioneers and leading figures in China’s Internet industry, Robin’s achievements are widely recognized. In 2013, Robin became a member of the Chinese People's Political Consultative Conference. He currently acts as Vice Chairman of the All-China Federation of Industry and Commerce and Vice Chairman of the Internet Society of China (ISC).

Q: What does ‘entrepreneurship’ mean to you?

[Sir Richard Branson] Entrepreneurship is about taking risks, pushing boundaries, and not being afraid to fail.

I tend to go with my gut feeling and by personal experience- if I relied on accountants to make decisions, I most certainly would have never gone into the airline business, most certainly would not have gone into the space business, and I certainly wouldn’t have gone into most of the businesses that I’m in. In hindsight, it seems to have worked pretty well to my advantage!

[Robin Li] I have a strong desire to do what I like to do. I think that happens to be a necessary quality for entrepreneurship. For me, entrepreneurship is about doing what I can to positively impact people’s lives through technology. I come from a technology background, so naturally I feel that I can make the most meaningful impact through tech, but depending on their background and their abilities, others might choose other approaches. I also believe that whether it’s innate, or it's an something that wells up later in life, the urge to entrepreneurship only bears fruit when you plant the seeds at the intersection of passion and ability—the overlap between the things that you love, and the things that you’re really good at.

Entrepreneurship means a constant willingness to keep learning. It’s about maintaining that start-up spirit—where you’re forever young, and forever in crisis. It’s about always having your mind on the business: Lying in bed and constantly asking yourself, “What should I do?

Q: What is the role of entrepreneurs in an economy and society?

[Sir Richard Branson] It's my strong belief that those with the power to help should be encouraged to do exactly that: It’s important for entrepreneurs to nurture talent, to provide advice and to provide investment where required. Increasingly we are hearing more about how big business needs to play its role in society for the greater good. We all have a role to play and it makes business sense. In fact, consumers demand that business be responsible.

[Robin Li] Entrepreneurs have been absolutely essential in the transformation of the world we live in. By creating new businesses and new markets, they’re real change agents in history. This is something that’s been happening for many hundreds of years. As an entrepreneur you have a certain perspective and real motivation to see what’s in store for the future. And in trying to anticipate the future, entrepreneurs are chief agents in bringing the future about. It’s really been the role of the entrepreneur to take the measure of what people will want in the future, and to change the way people think and behave. They are and will continue to be a vital force in defining the world of the future.

That’s a lot of responsibility, and entrepreneurs need to demonstrate a consciousness of their importance and the potential they have to do both good and evil. They have to have a greater sense of social responsibility, especially in times of crisis, whether we’re talking about economic, environmental, or social crisis. Entrepreneurs should be focusing their efforts on creating a more equitable, just, and sustainable future

Q: What are the key drivers for an entrepreneur?

[Sir Richard Branson] It’s a combination of passion, vision, creativity and a sense of adventure.
I have said on many occasions the reason to start a new business should not be about making money! You need to have a passion for the project and want to make a difference.

At Virgin we enter into new markets to stir up the competition and offer a choice and transparency to the consumer.

[Robin Li] I don’t think that those who set out to create companies with nothing in mind other than making money are apt to succeed. That’s not going to get you out of bed, eager to get to work. It has to come from a higher place. In my case, I knew that I had the ability, through these technologies that I understood well and could confidently implement, to make a real difference in the access ordinary people had to information. And I knew that connecting people to information in the easiest, most convenient way would make a tremendous difference in the world. It wasn’t an abstract desire to create. And money is just an afterthought. What drove me to it was this desire to make a difference in an area that badly needed it, and my recognition that I was the right person to step on and take on that challenge.

Q: What are the characteristics of a great entrepreneur?

[Robin Li] I think that only a very small handful of entrepreneurs are “born” with all the requisite abilities they need to succeed. Most of us have many skills that we’ve needed to learn along the way. In an incredibly dynamic industry like the Internet, you’re faced with the constant possibility that you, the disruptor, will quickly become the disrupted. You have to be ready to embrace change, and to be ready for it not just in terms of your business, but psychologically ready for the kind of change—excited by, and attracted to, change itself. I think an entrepreneur needs to have finely tuned sensitivity to what change is coming. You have to have almost a precognition of what’s around the next bend. But you need to balance this with an ability to shut out noise, to avoid distraction and to stay focused on what you’re doing. It’s not easy in such amid the great clamor and the rapid change.

Great entrepreneurs thrive and feel truly alive when they’re in the heat of competition. They have an intense desire to do everything they do to the best of their ability. They are not afraid of losing. They take risks, but informed, calculated risks, neither heedless nor needless.


Q: What are the sources of entrepreneurial ideas?

[Sir Richard Branson] There are many things that can inspire an entrepreneurial idea - for example if you receive poor customer service you may be inspired to create a better product or experience.

Listen to friends and family - they often have great ideas and can offer invaluable advice.

I always carry a small notebook to jot down thoughts, ideas and conversations I have with people when travelling or working. The idea to start an airline came when I was stranded in the Caribbean and decided to charter a flight out - I sold seats to the other stranded passengers to pay for the charter.

Have an open mind as you never know when an opportunity or idea might present itself.

In the next 10 years, we will all head into unknown territory as we face a vast increase in our demand for energy, yet remain worryingly over-dependent on oil. If entrepreneurs go into the field of renewable energy for the right reasons, along the way they are likely to create some very exciting new technologies and successful new businesses.

[Robin Li] Opportunities generally arise from landscape change. But entrepreneurial ideas can come from anywhere. They can come from recognizing where the pain points, the bottlenecks, and the inefficiencies are. They can come from late-night conversations with friends, or from random eureka moments. But for me and for Baidu, one source of entrepreneurial ideas has been the need to serve the underserved population. Serving the underserved is a real impetus for innovation. Making technology accessible to people who aren’t inherently tech-savvy, and who might be far from fluent with technologies that educated and wealthy urbanites now take for granted, isn’t about making simplified, dumbed-down versions. It actually poses technology challenges. A great example of this is speech input for mobile phones. Speaking is the most intuitive interface of all, but there’s a real challenge in being able to capture words accurately—and an even greater challenge in actually understanding the meaning of those words, and their intention. I think that in today’s world, looking to serving the needs of the next billion Internet users—or even the next three billion—will generate many of the greatest entrepreneurial ideas.

Q: What do you feel are the characteristics of a successful enterprise?

[Sir Richard Branson] I believe that success in business can be measured by if you enjoy what you are doing; create something that stands out; create something that everyone is really proud of.

A great company needs to have an excellent product or service at its core; needs strong management to execute the plan and a good brand to give it the edge over its competitors. It also needs excellent people who really believe in what they’re doing. People are at the heart of all Virgin businesses. Often entrepreneurs can create a good product and a brand but need to bring in management to help expand and create a truly great company.

[Robin Li] From my own experience, I think success comes from focus and persistence—in my case focus on and persistence in technology. I’ve really done one thing for well over 20 years now. I’ve always believed that hard work and the ability to stick to it can overcome almost any differences in natural intellect among people. Success comes not from IQ but from values, passions, willingness to learn, motivation to improve, and dedication.

Focus is not at all easy. There are countless temptations along the way, and often an entrepreneur will waver and be tempted to pivot to another opportunity. For Baidu, in our crucial years, we resisted the siren song of things like wireless value-added services and games, which many of our Chinese peers were seduced by. It may have meant good short-term revenues, but it took them off mission while we continued to stay very focused on search.

Every company is going to experience the ups and downs, and be plagued by all manner of troubles and problems. But if you hew to your ideals and believe in your future, that can go a long way toward getting you through the difficult stretches.

I would also add that a strong core company culture is really important. It’s the glue that can really hold a company together. For us, that core culture has always been about “simplicity and reliability.” Simplicity means that we encourage a real directness and candor in speech. We don’t use any honorific titles, and we keep the organization very flat. There’s an abhorrence of any office politics. Reliability means that every Baidu employee brings a spirit of professionalism and we expect and deliver nothing short of excellence.

Q: What does wealth mean to you as an entrepreneur?

[Sir Richard Branson] Money is not my first priority - I have always pursued what I am passionate about whether that will make me money or not, my fascination is learning and discovery more than being rich and powerful. I believe that success in business can be measured if you enjoy what you are doing; create something that stands out, create something that everyone is really proud of; be a good leader and be visible.

Wealth may improve aesthetic aspects of life in terms of being able to over indulge and travel to luxurious locations however, true success in life can only be gauged by something which is priceless; how much love you have in your life – I am truly fortunate to be surrounded by extremely loving and fun family and friends and nothing beats spending time with the people I love.

[Robin Li] I didn’t start with anything, and I do the things that I do because I believe profoundly that they are of tremendous value, and because I’m good at what I do. That’s why I stay up late and get up early, excited still every morning when I wake up. A lot of people work through the week just waiting for the weekend. Not me. I’m exactly the opposite: When the weekend comes, I can’t way to get back into the office. I see change happening in the world every day, and every day I see that things that we’re working on impacting people’s lives. This is what gives me a sense of fulfillment. So no, I don’t work for money. My personal definition of wealth and fortune are very broad. Money is not nearly the most important piece of it. What matters is that you’re doing something that you love and finding fulfillment in that.

Q: What is the role of philanthropy in entrepreneurship?

[Sir Richard Branson] I’ve always regarded business as a powerful tool for delivering positive change in the world; so in my opinion entrepreneurship has a crucial role in addressing these Global challenges and many others besides. Public funding and open-ended research is absolutely crucial for coming up with better ideas, novel technology and progressive policy, but it seems only the markets are capable of pouring resources into truly scaling things up; and those markets began with entrepreneurship.

Prizes can be a real catalyst for moving an idea along, especially if it’s a novel but profoundly important area. The X Prize foundation are a shining example of how prizes can incentivise innovation, and we liked the concept so much we even have our own equivalents, like the Virgin Earth Challenge, a $25m prize for ways of removing greenhouse gases from the atmosphere to help tackle global warming and help people and the planet.

[Robin Li] Naturally I support and encourage philanthropy on the part of entrepreneurs, and I’m very glad to see that engagement with broader social issues, giving generously to worthy causes, and working for a common good are now things very much expected of corporations. I would add that the best thing an entrepreneur or company can really do is to build in a real nobility of mission from the very outset. If you set out to do something where your company’s success also means bringing tangible benefit to society, that’s really the highest form of philanthropy. Baidu’s a great example of this. When our business does what we set out for it to do—to provide the best and most equitable way for people to find what they’re looking for—then we’re doing great good in the world.

Q: How does entrepreneurship manifest in the arts?

[Sir Richard Branson] I think within the arts and entrepreneurship you have to show a desire to be creative, to stand alone and follow your passions, even when those around you might not share your idea or vision.

I believe we need to encourage all young people to consider an alternative to the traditional career path, and I think entrepreneurship offers some hope. I identify with these young people. As a young businessman, I faced my fair share of difficulties when I was starting up. Our music mail-order business was almost brought down by postal strikes in the early 1970s, but we adapted, and that prompted me to start Virgin record stores.

Q: What is the role of education and mentoring in entrepreneurship?

[Sir Richard Branson] In 2010, we launched Virgin Media Pioneers, an online community for young entrepreneurs, with the aim of helping young people realise their potential. By championing a cause that is both close to my heart and vitally important to the future of the UK's economic recovery, we are providing easy access to peers, practical advice from experts and tangible support for young entrepreneurs

I still find it strange that you can access money as a young person to go to university but that level of funding or even a fraction of that amount is not available to people with good ideas to set up a company. We must try to make early stage finance more available and ensure the banks do look at micro-financing or low rate long term loans for aspiring business builders. Together with Virgin Media Pioneers, we are campaigning for a fund for young entrepreneurs on similar terms as student loans.

Q: What are the key differences you see between entrepreneurship across cultures (e.g. USA vs. China)?

[Robin Li] One thing you notice among the more successful private enterprises in China is that their CEOs tend to be their founders. It’s not like any of them are doing it for the money: These are all people who are already very well off by any standard. They continue to work hard because of a kind of idealism. While in the U.S., founders often either cash out or are moved aside by their boards in favor of professional managers at the first sign of difficulty, in China that’s not often been the case at all. I understand this very well, personally. I doubt that many professional managers would have made some of the decisions that I’ve made as Baidu’s CEO over the last 15 years—decisions that have proven to be the right ones for the business.

We’re starting to see convergence, especially in culture, between U.S. and Chinese companies in the Internet space at least. I often travel to the U.S. and always meet with leading Internet companies there—from founders and CEOs down to ordinary engineers—and I’m finding that they’re increasingly interested in what’s happening in China, and much more receptive to working together with Chinese companies like Baidu. Despite the well-known obstacles, I nevertheless see communication and cooperation across the Pacific growing, and that’s very encouraging.

Q: What is the role of government and policy in entrepreneurship?

[Sir Richard Branson] Governments and policymakers usually have an important role to play in creating the fertile grounds for entrepreneurs to succeed. Many of our Virgin businesses wouldn’t be able to operate without the rules and regulations that govern their sectors. Though as with many instances in life, one must generally find a balance between enough policy and regulation and not too much.

An analogy I find useful is to think about entrepreneurship like a game of football. There are certain rules of the game which you must follow, such as there being two halves, running for 90 minutes and not being able to use your hands, but when it comes to how you arrange your team, and what strategies you use to score goals, it’s completely up to you. The same should be true for business: policies and regulation can create the pitch and the rules and then entrepreneurs can play how they like.

Many democracies go hand in hand with entrepreneurship, though I’ve seen many examples of people building successful businesses in less democratic political regimes. Like nature, even if the environment isn’t ideal, entrepreneurship will find a way.

[Robin Li] Speaking here just of our home market, China, the government obviously plays a supervisory and market-regulatory role. At the same time it can and often does play an important role in providing support to companies. The government should create an environment in which companies can foster innovation and grow. It should create systems that are conducive to creativity and fair competition, including a legal system that safeguards the rights and legal interests of entrepreneurs. I believe that innovation flourishes best under a system that gives maximum free play to entrepreneurship.

Q: How do you feel entrepreneurship has changed over the last quarter-century, and what do you think the future holds?

[Sir Richard Branson] The big change to entrepreneurship over the past 25 years has been technology. Now, more than ever, anybody can create their own business and be up and running in the time it takes to register a website. The growing start-up community has fostered a spirit of creativity and collaboration where everyone feels they can become a successful entrepreneur. And they’re right – they can! In the future I think entrepreneurship is going to become even more widespread than it is today. More and more people are realising the way to get ahead in the business world is to get out there, be brave and make things happen.

Q: What would be your message to future entrepreneurs?

[Robin Li] This is something I speak about quite often, and I always emphasize that entrepreneurs should focus on what they believe is worthwhile, exercising their own judgment without blindly following the crowd. Find that sweet spot at the intersection of what you do best and what you love to do the most, and your odds of success are immediately much higher. If you do what you excel in doing, you’ll be better than your competition. And if you focus on what you love to do, you’ll be doggedly persistent even when faced with strong competitors, reversals of fortune, and beguiling distractions.

Not everyone makes it. There’s no small amount of risk, and failures large and small along the way are inevitable. But if you really have the ambition to become an entrepreneur, if you’re someone with a dream planted firmly in your heart, if it’s something you want so badly you can taste it, if you believe you can make it, and if you’re sure that you’ll be bringing something great into the world that will benefit society, then you shouldn’t let anything stop you, and you should just reach for it.



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"The essential point to grasp is that in dealing with capitalism we are dealing with an evolutionary process...." wrote Joseph A. Schumpter in his seminal work 'Capitalism, Socialism and Democracy' (1943). He continues to write that "Capitalism... is by nature a form or method of economic change and not only never is but never can be stationary. And this evolutionary character of the capitalist process is not merely due to the fact that economic life goes on in a social and natural environment which changes and by its change alters the data of economic action; this fact is important and these changes (wars, revolutions and so on) often condition industrial change, but they are not its prime movers. Nor is this evolutionary character due to a quasi-automatic increase in population and capital or to the vagaries of monetary systems of which exactly the same thing holds true. The Fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers’ goods, the new methods of production or transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates."

Schumpter also noted that entrepreneurship (as the engine of capitalism) cannot be studied in isolation from time or context.

"First," he identifies "..since we are dealing with a process whose every element takes considerable time in revealing its true features and ultimate effects, there is no point in appraising the performance of that process ex visu of a given point of time; we must judge its performance over time, as it unfolds through decades or centuries. A system—any system, economic or other—that at every given point of time fully utilizes its possibilities to the best advantage may yet in the long run be inferior to a system that does so at no given point of time, because the latter’s failure to do so may be a condition for the level or speed of long-run performance." He continues to explain that "...since we are dealing with an organic process, analysis of what happens in any particular part of it—say, in an individual concern or industry—may indeed clarify details of mechanism but is inconclusive beyond that. Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull..."

Humanity is quick to forget the context by which it moves forward ‘on the shoulders of giants’. Our rationalistic and reductionist thinking mean that we see phenomena (such as economies) in isolation, and break them down into components. This process may help an observer understand how a thing or a system works (at any given moment in time), but will give you little indication of what led to its being, or the context in which it exists. Understanding- for example- what makes Sir Richard Branson successful is not a matter of analysing the performance of each component of his businesses now, but rather requires an understanding of the cultural, social and economic contexts leading those businesses to emerge from the abstract space of the mind into reality… in other words, their story.

In much the same way as its biological counterpart, entrepreneurial evolution is a story of the success of good ideas. Billions of iterations occur, and those which add value to the system of humanity flourish, and become part of our culture- and increasingly quickly. The Wright brothers made the first powered flight in 1903 (over a distance of 120ft). Just 66 years later in 1969, two humans were stood on the Moon looking back at earth - and in 2012, almost 3 billion air passengers were carried a combined distance of over 5 trillion kilometres (enough to get to the sun and back over 16 thousand times). In a similar feat, our species progressed in less than 70 years from the first basic digital computer in 1941 to having the total sum of human knowledge in a globally connected amorphous cloud of computers.

Our innate capability to generate ideas is potentially the most powerful faculty our species has at its disposal. Entrepreneurs are simply those who take a gamut of resources (capital, knowledge, tools, infrastructure) and transform their ideas into physical or virtual assets which can then be absorbed into society and wider culture.

Put simply, "We are what we think. All that we are arises with our thoughts. With our thoughts, we make the world...." (Buddha)


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Thursday, 19 March 2015

Capitalism - What Comes Next?

In this exclusive interview series, we speak to Nobel Prize Winning Economist, Edmund Phelps (Director of the Columbia University Center on Capitalism & Society and the McVickar Professor of Political Economy at Columbia University) and Professor Lawrence ‘Larry’ H. Summers (Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as the 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama). We look at the story of modern capitalism, the benefits it has brought, and the challenges it has created. We explore the 'post crisis' economy, the role of government in society, the relationship between capitalism and conflict, inequality and look at what needs to be done to 'fix' our global economy, and the science of economics itself.

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Vikas Shah, Thought Economics,
Originally published September 2011, updated March 2015


In any iteration of human civilisation, the primary 'mode of operation' of society often impacted the 'mode of thinking' of the time. This can be seen in the spirituality and 'reverence for nature' held by agricultural and pre-industrial societies- and can also be noted in the rather more 'material' thinking (held in esteem within mercantile civilisation) and the 'mechanical and scientific' mode of thinking we saw during our industrialisation, which has persisted through to the present day. These 'modes of thinking' also influenced what we (as a species) were capable of achieving. As individuals and small family units, while reasonably successful- our actions provided little more than secured food and shelter. When we began 'group think'- however- things became interesting. Religion and culture provided us with a uniquely shared mode of thinking which mobilised tens of millions of individuals (who shared that religion or culture) to perform astonishing feats of success (e.g. building pyramids, cities, and more), and to perform astonishing feats of evil (e.g. engaging in war, committing genocide).

Economically, this mass-mobilisation of individuals, resource and capital into action (capitalism) has persisted for hundreds of years. Capitalism is, "the dominant economic system in today's world, and there appears to be no alternatives in sight..." (Richard Swedberg, Cornell University, 'The Economic Sociology of Capitalism'). This system has lifted hundreds of millions of people out of subsistence and- in a relatively short space of time- has allowed society to perform miraculous feats of innovation and development ranging from dramatic improvements in our lifespan, to the development of mass-communications, the internet, financial markets, and technologies which have sent members of our species to view Earth from other worlds while others send sensors deep into the planet, and far into space- probing the origins of man, and the origins of the universe itself.

In the past century, as our civilisation embraced technology and transportation, we globalised- connecting the dots in capitalism to create a profoundly powerful economic civilisation. Our understanding of this phenomenon, explains Swedberg, has been largely been based on, "...the proposition that interests drive the actions of the individuals, and that interests [in capitalism] come together in a very specific way. The actors in society are driven by a variety of interests – political, economic, legal and so on. The plurality of [these] interests make the analysis realistic as well as flexible. Interests of the same type, as well as of different types, may reinforce each other, counterbalance each other, block each other, and so on. Interests, very importantly, are what supplies the force in the economic system – what makes millions of people get up in the morning and work all day. Interests also explain why banks, financial markets and similar institutions are so powerful: they can mobilize and energize masses of people into action through their control over economic resources."

As the blinkers of egoism have been lifted, we (as a society) have realised that capitalism- while ostensibly responsible for the vast majority of our civilisation's advances in the past quarter millennia- has also been responsible for creating vast inequality, conflict, and potentially irreparable damage to our planet. With no viable alternative to capitalism, however, the time has come to discuss "What happens next?...."

In this exclusive interview series, we speak to Nobel Prize Winning Economist, Edmund Phelps (Director of the Columbia University Center on Capitalism & Society and the McVickar Professor of Political Economy at Columbia University) and Professor Lawrence ‘Larry’ H. Summers (Charles W. Eliot University Professor and President Emeritus at Harvard University. He served as the 71st Secretary of the Treasury for President Clinton and the Director of the National Economic Council for President Obama). We look at the story of modern capitalism, the benefits it has brought, and the challenges it has created. We explore the 'post crisis' economy, the role of government in society, the relationship between capitalism and conflict, inequality and look at what needs to be done to 'fix' our global economy, and the science of economics itself.


Edmund Phelps is both the Director of the Center on Capitalism and Society and McVickar Professor of Political Economy at Columbia University. He is the winner of the 2006 Nobel Prize in Economics. His career began with a stint at the RAND Corporation. Back east in 1960, he held appointments at Yale and its Cowles Foundation until 1966, then a professorship for five years at Penn. In 1970 he moved to New York and joined Columbia in 1971. Phelps's work can be seen as a program to put 'people as we know them' back into economic models - to take into account the incompleteness of their information and their knowledge and to study the effects of their expectations and beliefs on the workings of markets. He has adopted this perspective in studying unemployment and inclusion, economic growth, business swings and economic dynamism. Phelps was elected a Fellow of the National Academy of Science in 1982 and made a Distinguished Fellow of the American Economic Association in 2000. In 2008 he was named Chevalier of the Legion of Honor and was awarded the Premio Pico della Mirandola for humanism and the Kiel Global Economy Prize. In the same year the University of Buenos Aires Law School established the Catedra Phelps for Programs on Dynamism and Inclusion. He also holds many honorary doctorates and several honorary professorships. An extraordinary tribute occurred when scholars came from around the world for a large Festschrift conference in his honour just three weeks after 9/11.

Former Treasury Secretary Lawrence H. Summers is one of America’s leading economists. In addition to serving as 71st Secretary of the Treasury in the Clinton Administration, Dr. Summers served as Director of the White House National Economic Council in the Obama Administration, as President of Harvard University, and as the Chief Economist of the World Bank.

Dr. Summers’ tenure at the U.S. Treasury coincided with the longest period of sustained economic growth in U.S. history. He is the only Treasury Secretary in the last half century to have left office with the national budget in surplus. Dr. Summers has played a key role in addressing every major financial crisis for the last two decades. During the 1990s, he was a leader in crafting the U.S. response to international financial crises arising in Mexico, Brazil, Russia, Japan, and Asian emerging markets. As one of President Obama’s chief economic advisors, Dr. Summers’ thinking helped shape the U.S. response to the 2008 financial crisis, to the failure of the automobile industry, and to the pressures on the European monetary system. Upon Summers’ departure from the White House, President Obama said, “I will always be grateful that at a time of great peril for our country, a man of Larry’s brilliance, experience and judgment was willing to answer the call and lead our economic team.” The Economist recognized his influence when it defined the “Summers Doctrine,” an approach to economic policy during financial crises that fuses a microeconomic “laissez faire” mentality with macroeconomic activism. “Markets should allocate capital, labour and ideas without interference, but sometimes markets go haywire, and must be counteracted forcefully by government.


Q: What is capitalism?

[Edmund Phelps] As a matter of history it's crucial to distinguish between what I have taken to call 'mercantile capitalism' and what I like to call 'modern capitalism'. Mercantile capitalism I think of as prevailing in Britain, Holland, Spain and elsewhere from around 1500 to 1800 or so. The American colonies were, of course, part of that. Following this, thanks to a number of antecedent developments; political and economic- by the early years of the nineteenth century, Britain was able to put all the 'bricks in place' for a prototype of modern-capitalism that launched with the end of the Napoleonic wars in around 1815. Then I see America as joining that list in around 1830... and one must give recognition to France within this story- even though they never became as strong an example as Britain and America. In the 1860's and 70's, Germany joined the group- and things began to become complex.

Fundamentally, modern capitalism was a system for indigenous innovation- while mercantile capitalism didn't have much innovation at all. Perhaps more importantly- the innovations that did occur during the mercantile period were, in essence, applications of scientific and navigational discoveries outside the economic system. What was striking about the modern economies is that they were internally creative. I don't just mean creative in the sense that you may refer to an individual's potential creativity before they have done anything... I mean that they [participants in modern capitalism] actually delivered. They delivered new products and new methods with stunning frequency- ultimately every day! This occurred right through the early nineteenth century, and some countries went through this journey again- the United States, for example- during the inter-war period between around 1921 and 1941- it was an extraordinary time. This happened again between 1955 and 1975 and then disquieting things began to develop.

Q: What have been the greatest benefits to society from free-market capitalism?

[Prof. Larry H. Summers] There have been no engines of human progress that have been nearly as effective as freedom, markets and technological-progress. People today live longer, richer, safer and more fulfilling lives than they did hundreds of years ago, and they did three hundred ago, and so on. The reason for this is the progress that has been inextricably intertwined with market-based systems.

That does not mean that markets do not need to be supplemented, monitored, regulated and stimulated. Nor does it deny the fundamental importance of non-market institutions, of which the most important is the family. But… as a way of organising the production and distribution of goods and services, there’s no real alternative to markets.

Q: What are the key drivers of economic growth?

[Prof. Larry H. Summers] Education, health, innovation and entrepreneurship are core to economic progress, it’s hard to imagine people who are sick making rapid progress! Without knowledge it’s difficult to produce anywhere near the cutting edge in today’s global economy. Successful countries, like successful companies are those which encourage initiative and innovation.

Q: What are the key problems with modern-capitalism?

[Edmund Phelps] I think there are some very worrying developments.

If we start with demographics- we have the huge wave of retirement coming up in the next ten years. The United States will be, to an appreciable extent- much more than before- a country of older people. These people will be drawing on retirement and medical benefits. More than that, they will be withdrawing their labour services from the economy, and they're not being replaced by a new-wave of young people coming up. Capital is going to find itself with less labour to work with so I'm afraid business investment activity is going to be weak ten years from now... and is weak already in anticipation of that. The decade beginning around 2020 will not be a good time for capitalism.

Next, if we turn to innovation. there's been a tremendous slow-down in productivity, beginning in the 1970's. Economists all knew about that- many wrote about it. As recently as the late 1990's I realised that the slow-downs of productivity had a lot to do with the rise of unemployment. I had thought, until then, that it was just bad-economics... that some people were just too feeble-minded to separate the level of economic activity from the growth of the output produced by the economic activity. It turns out the man on the street was right, and I was wrong... there is a very close link between productivity growth and unemployment. Primarily, the massive productivity slow-down in Europe accounts for the fact that the German unemployment rate barely budged from 0.8% from around 1960 to 1973. And now? it's around 8%. A spectacular rise in unemployment.... So why has productivity slowed down? I think there has been an underlying decline in the rate of innovation in the economy. There's not as much tinkering... not as much dreaming... not as much conceiving new-ways to do things... If we go a level below this and look at the cause of that. We see that a huge amount of short-termism which has crept into the system. CEOs routinely devote their lives to hitting the next quarterly earnings targets... and that doesn't leave very much time for thinking about the medium term future. This creates a number of mysterious questions. Taking Silicon Valley, which is so famous and so admired... why didn't all those venture-capital firms multiply and sweep through the world? You have a small number a small number of venture-capital firms which tend to operate in Shanghai and other places, but you have not had an explosion of venture capital... There are a lot of very worrisome questions about what has happened to the dynamism of modern economies such as Britain, America, France and Germany. We did, of course, have the internet revolution... but that too was in just a pretty small sector of the economy. I'm worried that a lot of that innovation is not very job-creating... and to the extent that it is also job-creating, those jobs can be done perfectly well by production workers in China... maybe it doesn't need the loving attention of craftsmen (for example).

Q: Are there any specific areas of additional dynamism needed in our economies?

[Edmund Phelps] I don't think there was ever a specific need for dynamism... Dynamism is the elixir of life. We need to have new challenges! We need to have new ideas! If we don't have new ideas, and we don't the opportunity to work on ideas, develop them, test them, try them out in the market, use them, take them home.... if we don't have that, we're going to be zombies. I think this is a very serious thing. I'm not saying that there's some problem out there which means that some particular innovation is needed for an un-met need... although a cure for cancer would be nice. The NIH actually undertook to do this, around twenty or thirty years ago, and it was an amazing thing- around a year ago- when they made a public statement confessing to failure. They confessed that they had been unable to do it.

Q: What is the impact of economic stagnation?

[Prof. Larry H. Summers] We need to take a broad perspective. Economic growth this year (2015) is almost certainly due to exceed 3 per cent, that’s the rate at which the global economy doubles in a generation. That’s a growth rate 10-100x more rapid than has been observed through most of human history. None of that is to minimise our problems, but rather than to show the fact that we live in a world where growth is taken for granted; and that is not in the normal historical condition of man.

Stagnation in the industrialised world has many reasons, there are serious issues of demography- with populations ageing and sub-zero replacement (fertility). There are real-issues of shortfalls of demand that lead to shortfalls in hiring, and shortfalls in investment. There are important issues in areas such as Japan and Europe, where barriers exist to economic dynamism and entrepreneurship. The challenge of maintaining growth that is sustainable and strong appears particularly pressing right-now in much of the developing world, with real issues around governance in countries like Brazil and Russia. China is facing challenges after years of remarkable growth, and the weaker industrial-world economy puts further pressure on them.

Q: Are we facing a "new-normal"? What can we do to secure our economic future?

[Edmund Phelps] I think we are facing a new normal. This new-normal will have a higher natural rate of unemployment... like seven percent rather than five and a half that it was in the 1990's. Slower growth is also part of it.. maybe at two percent per annum instead of three percent that we have seen in more recent decades, and four that we saw in the 1950's and 1960's. This, of course, raises the question... "Oh my god, what can we do about this!?"

Sure, we can do some things that would be good to do in response... It would be good to get rid of this short-termism... some of which is coming from the financial sector. These financial guys are putting a lot of pressure on the CEO's to be short-termist... to deliver short-term results. We do need a reform of the financial sector, and we do need more ways of nurturing venture capital. I've been advocating a first-national bank of innovation. America is a country that has subsidies for almost everything.... education, farming... and hidden subsidies for manufacturing and exporting... you name it! There is very little subsidy, however, for work - and almost no subsidy for innovation. There is a tax-credit and some tax-deductibility for research and development expenditures, but research and development expenditures are confined to a small number of industries- and that's not a huge amount of money. We have to make it easier for a young entrepreneur to start a company... to start his innovative project. We have to make it easier for an established company to start a new innovative project.

I know there are a lot of scientists out there who say, "you dummies out there in economics, you don't realise that science is the fountain of all progress... and we'd have more technical progress if we had more scientific activity..." and then of course, the green people say, "...yes, we ought to set-up national institutes for reduction of carbon-use, solar, and so forth...". The trouble is... those science projects will not create a lot of jobs for ordinary people. It may create some jobs for scientists and engineers... We're not going to get back to the dawning of the modern age from 1815 to 1870, where everybody and his brother was running around trying new ideas.... we're not going to get there by having some grants for research projects. We have to get back to our roots... get back to the old spirit of experimenting, exploring, trying things out, discovery... on a broad scale. Every company would, ideally, be doing a lot of this all the time.

Q: What should be the role of government as it relates to the economy?

[Prof. Larry H. Summers] Governments have a basic role in providing public-goods, those goods from which everyone benefits, but where only a small fraction of those benefits are received by the provider. Examples include national defence to basic research and environmental protection. Governments have a crucial role to ensuring fairness; to ensure every child have a chance, and that those with a chance get the education and healthcare they need, to ensure that revenues for state-functions are collected based on ability to pay rather than neglected because of political power… Governments have a crucial role in establishing a framework in which capitalism can operate. They must prevent and, where necessary, regulate monopoly. They must establish framework for property and contract rights, and a structure in which markets can operate.


Q: What are your thoughts on the role of government in inspiring ideas (for example, using the space programme and lunar missions)?

[Edmund Phelps] The programme to go to the moon and explore space was a wonderful expression of modernism... but I'm afraid it would be disastrous if we made that a recipe to be used all-over the economy... we wouldn't want the whole economy to be under the direction of a bunch of NASA's. This has to be at a grass-roots level.... I think Buzz-Aldrin was right that the lunar missions were inspiring... they intended to be inspiring... but maybe it's a mark of the change in our times, that nobody even thinks of proposing something new like that, they don't care anymore.

Q: What have been the benefits of, and challenges brought by, capitalism?

[Edmund Phelps] There's no question, anymore, that the material benefits of capitalism were phenomenal- almost from the get-go around 1815. There was a tremendous pick-up in the growth rate of aggregate output and standards of living were increased tremendously. That resulted in huge increases in public-health with a corresponding reduction of disease- and the emergence of all-kinds of comforts...

Modern capitalism ought not to be viewed as merely a system for producing goods (more or less the same goods that had been produced during the mercantile period). It was a system that stimulated the production of new commercial ideas- and stimulated the development of those new commercial ideas by entrepreneurs. It also stimulated the development of a crude financial system- that lent some support to entrepreneurial activity- and this system led many producers to spend time or hire people with expertise in evaluating new products and new methods of production. Consumers also came to have a new way of life! Consumers would go to the mall on Saturday morning to look at the new stuff on display! More generally, though, western society went from a life in which ordinary people were not much involved in the economy, to one where people were engaged in conceiving new ideas, experimenting, tinkering, exploring new possibilities, experiencing the 'new' - this was an intellectual revolution. I like to amuse myself by pointing out that the arts changed alongside. Music became completely different two or three times after 1815- the visual arts such as painting followed the same trend. Modern capitalism offered a new way of life, not just a higher standard of living.

The downside? Well.. of course there's always a downside to everything. Modern capitalism is a system in which some people are very lucky- they just happen to be at the right place at the right time... and can cash in big-time; while other people aren't! Some people are very unlucky- they make decisions which turn-out to be ill-fated. That could, of course, have been true to some extent in mercantile times also. With the transformation of capitalism from mercantile to 'innovational', however, there was a tremendous increase in uncertainty. The future became anyone's guess... In that sort of a world, you can find yourself on a very bad path- or you can find yourself on a marvellous path which you had never dreamed of! So there's just naturally a considerable amount of inequality that this system generates.

Q: Why do poverty and inequality exist on such a large scale?

[Edmund Phelps] As I just said, there is naturally a huge amount of inequality in modern-capitalism. Capitalism can, to a degree, address that inequality by subsidizing- in one or more ways- the employment of workers at the bottom... low wage workers. It also helps to pull up their wages. This helps increase economic inclusion and reduce inequality so that low-wage participants in an economy can feel that they're not receiving unnecessarily low-wages and low-rewards... that society has addressed their situation and done something about it. We could interpret John Rawls book, 'A Theory of Justice' as- essentially- being an argument for low-wage employment subsidies up-to the fullest level- as far as society will allow. A crude translation of Rawls would be, "maximise tax revenue in order to maximise the money the state has to put into things like low-wage subsidies."

That will, of course, leave the Bill Gates' of the world who are very rich because, besides being very bright and driven, they got extraordinarily lucky. Wealth inequality of that sort doesn't cause me concern- It doesn't matter to me that the Rockefeller's may own half of Maine (for example) or that Ted Turner may own half of Montana... What does it matter? I think Ted Turner did a great thing with CNN and he's very rich! so what? I just don't get it. I just never understood why there was such an aesthetic revulsion to outsized rewards for people who had a big idea and- generally speaking- worked their heads off to develop that idea. I don't have any problem with it. I understand, though, that some very rich people use their wealth to get involved in politics- and I find that a little bit ugly. It's important to say that this is on the 'left' and the 'right' - there are plenty of leftist billionaires, and even more right-wing billionaires around.

[Prof. Larry Summers] On a global scale, inequality has declined more rapidly than ever in human history over the last several decades, as China and India- which together comprise around one third of our global population, have converged towards the industrialised world. It is markets, markets for export, markets for foreign investment, markets that promote the flow of capital, that have made that possible internationally; and it has been the increasing adoption of markets, rather than command and control domestically, that has explained China’s take-off since 1979 and India’s take-off over the last generation.

The story of economic development used to be one of divergence, with the rich-countries pulling away from the poorer countries. Increasingly today, it is convergence and the adoption of market systems has a great deal to do with that. To say that markets work better than command and control is not in any-way to endorse laissez-faire or simply leaving markets unregulated and un-supplemented.

Even as inequality across countries has gone down, inequality within countries in many cases has gone up, and that makes a strong case for policies which make taxes more progressive, and to make fundamental public investments; particularly in education and health, that give everyone a chance to succeed.

Q: What do you feel is the social context of capitalism?

[Edmund Phelps] I think modern-capitalism has given a huge breadth of people a range of opportunities that could not have been imagined in 1750 or earlier. Ordinary people have opportunities (at least in the more capitalist economies of the western world) for meaningful careers- careers of problem solving, venturing into the unknown- and in the course of that not only experiencing the development of their capabilities but also self-discovery- discovering who they are. More than that... it's about having an adventure that leads them to become something that they didn't know they could be... to become something way beyond what they could have been had they not taken that adventure. This development is not something you can do on an island alone (although even Robinson Crusoe could come out of his journey almost disbelieving what he had been able to do!) ... The social-interactions are an important part of this. The interactions you have with other people lead you to become a different person. A person you could not have become had you not had them.

Money culture has really taken-over to excess... In the nineteenth century, people were on a tremendous adventure. They didn't know what the future held. They were meshed in a colossal discovery process which was enormously exciting! Now it seems that people are in business just to make money. They want to take the adventure out of everything, they want to mechanise things as much as possible... they want to take the business of making mortgage loans to home-buyers, for example, and turn that into some sort of standardised packaging... so that nobody ever sees the home-buyer or even the house... people just enter a code into a system and get the terms of a loan.

Q: What do you feel is the relationship between capitalism and conflicts (such as the Arab Spring)?

[Edmund Phelps] As I see it... and I feel pretty-sure after talking with experts, that I'm right about this... The revolt of the urban youth in Tunisia and Egypt is all about wanting to have careers... wanting the ability to start your own business... wanting the ability to enter an existing enterprise without benefit of connections (i.e. solely on your CV to date and the people you or your family know).

I think Egypt and Tunisia were examples of yet-another economic system... namely the system which, for a lack of a better word, we call 'Corporatism'. This system has private ownership... one of the things that Egypt did, for example, in the last ten or fifteen years was privatise a lot of enterprises. Those enterprises became owned by people in the military. Corporatism doesn't mean social-ownership... that's socialism. Corporatism means that there is a great deal of central control, directed by the government, of the private sector. A great deal of regulation... a great deal of two-way communication occurs with the private sector seeking favours from the government and the government seeking the same from the private sector.... In Egypt and Tunisia, you had a very rudimentary corporatist system which was being exploited all-out by the rulers who took advantage of their powers to put their cronies in place as managers and owners of various enterprises. The bulk of the population, many of whom who- by this time- have college or university degrees of some sort.. cannot break into the system! They can't get jobs in those enterprises.. they are strictly for the insiders. They can't even sell their fruits on the streets without a license- and there aren't very many of those [licenses] distributed. It's a very closed system... a system that's about as far from modern capitalism as you can get! Well functioning modern capitalism allows anybody to start-up a company, to go into business for himself, and start coming up with new ideas, and working on their development.

In the European corporatist model, you have giant employer-federations and you have giant labour-unions... and so you have a tri-partite system of economic power. In Tunisia and Egypt I think it's fair to say that the labour-leg of the tripod isn't there. It's just the businesses and the government.

Big corporations are highly politicized and have close relations with their national governments... Corporatism has always been around... there were certainly corporatist strains in Bismarck's capitalism. The government was pretty-cosy with a lot of big companies. Companies were going in and out of government offices trying to get contracts, trying to get favours.

[Prof. Larry H. Summers] It’s very tempting to suggest that terrorism is caused by poverty. I hate terrorism, and I hate poverty, but my reading of the evidence suggests that they are less closely tied together than many suppose.

Those on the planes on 9/11 were highly educated and had cosmopolitan, international experiences. Most of the studies of terrorism find that it has more to do with disillusionment on the part of those who do not feel themselves fully part of progress at moments when rapid progress is underway- rather than it coming from people who are simply frustrated at being poor. The phrase, “revolution of rising expectations…” is often historically apt.

Europe was flourishing in an economic sense, in June 1914, and it was at war by August of that year. There are plenty of good arguments for economic growth, and for markets, but I think it’s somewhat na├»ve immediate and direct linkages with terrorism!

As my Harvard colleague Steven Pinker has emphasised, deaths due to violence have been on a long-term downward trend for thousands of years, hundreds of years, and for the last several decades. While the causes are complex, the greater sense of human enlightenment, empathy and connection that is present in the modern world, have to be an important part of the story – and that is surely related to what capitalism has brought.

Q: Is there a relationship between Oil and the well-being of economies?

[Edmund Phelps] This is a question which has been debated for a long time... You certainly can see that in some countries in the Middle East (excluding North Africa) that the government acquires the ownership and possession of the oil- and then uses the oil to spread money around the country... not only to keep itself in power, and prevent political competition- creating an absence of new ideas, new energy and so forth... but also the whole population can live off these stipends, subventions, emoluments... this flow of money that comes to them without having to lift a finger. This is tremendously damaging to whatever curiosity, drive and zeal the individuals were presumably born with.. and becomes very damaging to these economies.

It's very dangerous to generalise though. If you look at Norway, for example, it's done a pretty good job of not throwing-around the oil wealth in a way that would be a 'death-knell' to society. They recognise that oil will not last forever, and place their oil revenues into a sovereign wealth fund. Then, of course, you have to determine what you do with the income from the sovereign wealth-fund! The returns on sovereign wealth can, of course, be used for various purposes to better society. Maybe Norway is saved by the fact that their oil-wealth is not so colossal that it puts the whole rest of the advanced economy in the shadow- so that it doesn't matter anymore. Maybe also good sense and propriety combined with prudence and abstemiousness... avoiding 'blowing' all that money day by day has also contributed.

Q: Has globalisation and the advent of multi-nationals impinged on competition and innovation?

[Edmund Phelps] Is the pharmaceutical industry more nearly-monopolised or more nearly under the control of a small oligopoly now that many companies have become globalised? It seems the case in pharmaceuticals that they have all become globalised- so they all compete with one another as before, but they're all global now- rather than national. I would suppose that there's more competition now of American pharmaceuticals, for example, with pharmaceuticals in Switzerland and Germany and so forth- than there was in the 1920's or the 1890's! A large company now has to answer to a whole-lot of governments whereas previously it only had to answer to one- or one central government, one state government and one local government. That's not only a distraction, but introduces significant red tape (getting permissions from a number of governments for example).

Q: What is the future of economics as a discipline?

[Edmund Phelps] Economics is in a tremendous crisis... especially since it doesn't know it's in a crisis.

This may sound funny... but it didn't damage me (personally). I spent most of my career trying to put people back into economics! The day I won the Nobel prize, I was asked at a press-conference to encapsulate my life's research in one sentence. I said, "...in my work, I've tried to put the people back into economic theory..." Some of my earliest work looks at a farmer considering new seeds and fertilisers... contemplating whether or not he can take the risk of trying any of these new things.... and whether he should adopt them. The answer depends on his educational background.... his willingness to bear some uncertainty... and so forth. Later on, when I was working on unemployment and inflation- I asked myself... What would I do if I was a company? I realised I would be worried about what other companies were doing about their wages! In the process of increasing their wages, to the extent that they are, I must increase mine too in anticipation. I then introduced wage-expectations and price-expectations which were not talked about before. Later on, around 2000- I started talking about the visions of entrepreneurs... those are real life people who have visions! People who from any walk of life can have an idea.... A truly modern economy is all about ideas and people!

Economics has contributed to the march away from these principles by reducing economies to 'stochastic steady-state models' in which prices are the entire interest. Prices, in these models, 'vibrate' in some way. I find this incredible.... This thinking began seeping into the financial sector so then the banks started importing French mathematicians to work out how to price various assets as if anyone could possibly know what these assets are worth? We live in an uncertain world... not just a vibrating one! Economics will (and should) always have a scientific side... but it has to remember that no piece of evidence is ever decisive on its own... we have to understand that our subject is human creativity. That will be a very different kind of science from what we have had before. There hardly is any science of creativity yet- yet alone a science of individual or societal creativity which understands the interactions of people- that's the next giant-step.


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"Economists..." wrote Sendhil Mullainathan in his 2004 paper, 'Psychology and Development Economics', "...often study scarcity, yet their conception of decision-making assumes an abundance of psychological resources. In the standard economic model, people are unbounded in their ability to think through problems. Regardless of complexity, they can costlessly figure out the optimal choice. They are also unbounded in their self-control able to costlessly implement and follow through on whatever plans they set out for themselves. Whether they want to save a certain amount of money each year or finish a paper on time, they face no internal barriers in accomplishing these goals. Furthermore, they are unbounded in their attention. They think through every single problem that comes at them and make a deliberative decision about each one. In this and many other ways, the economic model of human behaviour ignores the actual bounds on choices(Mullainathan and Thaler 2001). Every decision is thoroughly contemplated, perfectly calculated and easily executed."

The reductivist fallacy behind this 'rational economic agent' is similar to the paradox in thinking described by the British Philosopher Karl Popper, in his seminal lecture "Of Clocks and Clouds" (1966) where he makes the distinction (as summarised by David Brooks) between clocks as, "neat orderly systems that can be defined and evaluated using reductive methodologies..." and clouds which are, "irregular, dynamic and idiosyncratic." Brooks describes how Popper felt Clouds were, "...Hard to study because they change from second to second.." and can, "...best be described through narrative not numbers...". Popper himself wrote, "...according to what I may call the commonsense view of things, some natural phenomena, such as the weather, or the coming and going of clouds, are hard to predict: we speak of the `vagaries of the weather'. On the other hand, we speak of clockwork precision' if we wish to describe a highly regular and predictable phenomenon."

He elucidated his concept looking at the paradigm of a cloud or cluster of small flies or gnats. "...Like the individual molecules in a gas, the individual gnats which together form a cluster of gnats move in an . astonishingly irregular way. It is almost impossible to follow the flight of any one individual gnat, even though each of them may be quite big enough to be clearly visible." Likening this to our own society, he continues, "...the cluster does not dissolve or diffuse, but it keeps together fairly well. This is surprising, considering the disorderly character of the movement of the various gnats; but it has its analogue in a sufficiently big gas cloud (such as our atmosphere, or the sun) which is kept together by gravitational forces. In the case of the gnats, their keeping together can be easily explained if we assume that, although they fly quite irregularly in all directions, those that find that they are getting away from the crowd turn back towards that part which is densest. This assumption explains how the cluster keeps together even though it has no leader, and no structure-only a random statistical distribution resulting from the fact that each gnat does exactly what he likes, in a lawless or random manner, together with the fact that he does not like to stray too far from his comrades. I think that a philosophical gnat might claim that the gnat society is a great society or at least a good society, since it is the most egalitarian, free, and democratic society imaginable."

If we compare our economy to this 'cluster of gnats' we see a range of (disorderly) economic actors ranging from central banks, to financial institutions, investors, businesses, consumers and more. Each actor appears 'unpredictable' yet the cloud (the economy) "keeps together fairly well.." If any economic actor strays too far from the crowd, the gravitational pull of capitalism- where the human system is at its most dense (the need to work, access capital, be part of the group to flourish- manifested perhaps best in cities) quickly causes the actor to return to the core. This 'core' gives the economic system a perceived order (which we misinterpret quantitatively and reductively) and gives it a sense of arrogance claiming it is a good society, a free society, and (perhaps most arrogantly) a democratic one.

"Everyone agrees that people have reasons for what they do..." wrote H. Simon in his 1986 essay, 'Rationality in Psychology and Economics', "...they have motivations and they use reason (well or badly) to respond to these motivations and reach their goals. Even much, or most, of the behaviour that is called abnormal involves the exercise of thought and reason. Economics sometimes feels called on to defend the thesis that human beings are rational. Psychology has no quarrel at all with this thesis. If there are differences in viewpoint, they must lie in conceptions of what constitutes rationality, not in the fact of rationality itself. The judgment that certain behaviour is "rational" or "reasonable" can be reached only by viewing the behaviour in the context of a set of premises or "givens." Economics without psychological and sociological research to determine the givens of the decision-making situation, the focus of attention, the problem representation, and the processes used to identify alternatives, estimate consequences, and choose among possibilities-such economics is a one-bladed scissors. Let us replace it with an instrument capable of cutting through our ignorance about rational human behaviour."

In Simon's assessment (above) lies perhaps the biggest clue in answering "..what follows capitalism?". As society progressed through industrialisation- it was unsurprising and (largely) appropriate that our thinking became reductivist, we made machines- and those machines, in turn, made us... The world has, though, evolved and modern civilisation- in its highly globalised form, is as much a knowledge economy as a mechanical one. This is an iteration of civilisation which can leverage the power of capitalism to ensure the billions living in poverty 'join the economy'. This is an iteration of civilisation which has the innovative power to create solutions for ecological problems our predecessors have created, and the power to create economic entities which provide opportunity for a huge number of people to generate wealth in a democratic fashion.

We have had mechanical-capitalism. Now it's time for human-capitalism.



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Sunday, 1 February 2015

Storytelling


How Creativity, Animation and Stories define us.

In these exclusive interviews we speak to Ed Catmull (Co-Founder of Pixar Animation, and President of Walt Disney Animation Studios), Nick Park (Oscar Winning Writer, Director and Animator with Aardman Animation) and Jonathan Gottschall (A world expert in storytelling and Distinguished Research Fellow in the English Department at Washington & Jefferson College). We discuss the fundamental role of storytelling in human existence, and learn the secrets of creativity, animation and great stories.


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Vikas Shah, Thought Economics, February 2015

For a significant part of human history, it was thought that a sharp line existed with us (as humans) on one side, and the rest of the animal kingdom on the other. In truth however, there is very little that separates us from the other species with whom we share this planet.

We are part of the continuum of evolution,” notes the leading primatologist, Dr. Jane Goodall, “and [we] are not the only beings on the Earth with personalities, minds, thoughts and feelings.” Dr. Goodall has spent the vast majority of her life studying primates in their natural habitats to learn more about them and- in turn- ourselves, and when I asked her about what is it that makes us human, she paused and gave a rather beautiful response. “For me, our sophisticated way of communicating- with words- is that crucial difference. It meant that for the first time, we could teach another about something that wasn’t present… whereas young chimps just learn by observing. We can read books about the distant past, and plan the distant future. Chimps can only plan the immediate future. As far as we know, they don’t have any concept of a distant future to plan for.” (Thought Economics, June 2013)

This capability to communicate is hooked on the fact that we are hard wired to understand our existence, not in isolation as a series of causal events- but rather, in a discernable context… as a story. As Sir Ken Robinson notes, “Human beings have very powerful imaginations; and we don't live in the world in the same way that other creatures seem to. We don't live in the world quite so directly, we live in the world of ideas... we have concepts, artefacts, languages, music, images, theories, philosophies, faiths and values which we work-on, inherit, construct, challenge, change and form. We end up living in the world virtually through the ideas that we conceive.” (Thought Economics, October 2014)

Each of the 100 billion humans who lived and died before us, and the 7 billion who exist now, carry a unique biography. Each of us was born into a line stretching back thousands of years, will lead lives that nobody has ever lived before, and will die an uncommon death. Humanity relies completely on storytelling as the primary architecture by which we make sense of our lives and communicate our culture, heritage, news, values and knowledge between people, generations and even through time. Stories engulf our lives in a way so primal and profound, that only perhaps the most skilled meditators have been able to quieten their conscious minds sufficiently to experience existence outside their narratives.

With that in mind, understanding storytelling is a crucial part of understanding ourselves.


In these exclusive interviews we speak to Ed Catmull (Co-Founder of Pixar Animation, and President of Walt Disney Animation Studios), Nick Park (Oscar Winning Writer, Director and Animator with Aardman Animation) and Jonathan Gottschall (A world expert in storytelling and Distinguished Research Fellow in the English Department at Washington & Jefferson College). We discuss the fundamental role of storytelling in human existence, and learn the secrets of creativity, animation and great stories.

Ed Catmull, Ph.D, is co-founder of Pixar Animation Studios and President of Walt Disney and Pixar Animation Studios. Previously, Catmull was Vice President of the computer division of Lucasfilm Ltd., where he managed development in the areas of computer graphics, video editing, video games and digital audio.

Catmull has been honored with five Academy Awards, including a Technical Achievement Award, two Scientific and Engineering Awards, and one Academy Award of Merit for his work. In 2009, the Academy of Motion Picture Arts and Sciences awarded Catmull with the Gordon E. Sawyer Award for his lifetime of technical contributions and leadership in the field of computer graphics for the motion picture industry.

He also received the ACM SIGGRAPH Steven A. Coons Award for his lifetime contributions in the computer graphics field, and the animation industry's Ub Iwerks Award for technical advancements in the art or industry of animation. Catmull is a member of The Academy of Motion Picture Arts and Sciences, the National Academy of Engineering, the Visual Effects Society, and the University of California President's Board on Science and Innovation. Catmull was honored with the Randy Pausch Prize from Carnegie Mellon University's Entertainment Technology Center in 2008, and was selected as the recipient of the IEEE Computer Society's 2008 Computer Entrepreneur Award.

Catmull has a bachelor's degree in computer science and physics and a doctorate in computer science from the University of Utah. In 2005, the University of Utah presented him with an Honorary Doctoral Degree in engineering.

English animator Nick Park is the creator of the Academy Award-winning Wallace and Gromit Claymation films.

Park began using his mom's 8-millimeter camera and pieces from her dressmaking kit to create stop-motion films, and at age 13 he finished his first short, Walter the Rat. At 15, he submitted another creation, Archie's Concrete Nightmare, to the BBC's Young Animator's Film Competition; the piece didn't win, but it aired on BBC2.

Park studied art at Sheffield City Polytechnic before moving on to the National Film and Television School, where he began work on his first 35-millimeter Claymation film. A Grand Day Out tells the tale of a middle-aged man named Wallace, who builds a homemade rocket and takes his quietly frustrated but faithful dog Gromit into space to procure some moon cheese. The unfinished product caught the attention of Aardman Animations Ltd. founders Peter Lord and David Sproxton, who hired Park in 1985.

At Aardman, Nick Park initially contributed to commercials and music videos, including Peter Gabriel's award-winning "Sledgehammer," while finishing A Grand Day Out. Additionally, he began work on Creature Comforts, a five-minute piece in which zoo animals offer a range of opinions on life in confinement. Both were completed in 1989 and nominated for Best Animated Short Film at the 1991 Academy Awards, with Creature Comforts claiming the prize.

Park followed with two more Wallace and Gromit shorts, The Wrong Trousers (1993) and A Close Shave (1995), which further refined the characteristics of the well-meaning but shortsighted inventor and his silent canine compatriot. Both were well-received and garnered Academy Awards.

Having secured Hollywood's attention, Park and Lord co-directed Chicken Run (2001), a feature-length animation film distributed by DreamWorks Studios. A feature-length Wallace and Gromit adventure co-directed by Park and Steve Box, The Curse of the Ware-Rabbit (2005) also fared well for Aardman and DreamWorks, but the two studios soon ended their association due to creative differences.

A fire at an Aardman Animations warehouse destroyed several original Wallace and Gromit sets and storyboards in October 2005, a misfortune that was offset by an Academy Award win for Ware-Rabbit a few months later. In 2007, Park oversaw production of Shaun the Sheep, a television series based on a character from A Close Shave. The fourth Wallace and Gromit short, A Matter of Loaf and Death, earned Park another Oscar nomination in 2010.

Known worldwide by fans of all ages, Wallace and Gromit have become cultural icons in their creator's home country. In 2009, London's Science Museum opened the "Wallace & Gromit Present: A World of Cracking Ideas" exhibition, where fans could inspect the duo's famed offbeat inventions. In conjunction with the exhibition, a contest was created for kids to submit their own weird and wonderful creations.

In 2013, Park presided over the opening of the Thrill-O-Matic, a Wallace and Gromit ride, at the Blackpool Pleasure Beach theme park.

Jonathan Gottschall is Distinguished Research Fellow in the English Department at Washington & Jefferson College. His research at the intersection of science and art has frequently been covered in outlets like The New York Times Magazine, The New York Times, Scientific American, The New Yorker, The Atlantic, The Chronicle of Higher Education, Nature, Science, and NPR. His blog, The Storytelling Animal, is featured at Psychology Today. The Storytelling Animal was a New York Times Editor’s Choice Selection and a finalist for the LA Times Book Prize.

Q: What is creativity?

[Ed Catmull] I think of creativity very broadly, for me it’s about solving problems. A lot of people put creativity into the narrow bucket of artistic expression; including film-making, creative writing, music and so on- but there are many who understand that if you look at science and engineering, there are a lot of very interesting problems that require creativity and you see a great outpouring of new ideas.

Fundamentally, where creativity is concerned, people are trying to express an idea or solve a problem. This applies in business, the arts, or even solving family or societal problems.

Creativity has a spectrum: if you compared segments such as the arts, business and so on, you find things in common, and differences. If you look at the arts as an example, there are people who stir us and make us think about things differently or see things in a different way- but you also find people in the arts who do derivative work. You might ask what the difference is between someone who creates art that stirs us, and someone who creates derivative work- and it’s pretty hard to define, but you do know it. In business you also find people who think in a process-oriented way, replicating what is known to work externally or internally. On the other hand, you find businesses that challenge themselves in what’s happening both within and without and creatively change the world. We always have this mix in each area, but people tend to categorise creativity by discipline rather than by the individuals within those disciplines.

One of the surprises to me was when I began diving deeply into what happened at Toyota many years ago. I was looking at this firm because in the early days of PIXAR we were a manufacturing company! What I realised was, that in studying other manufacturing companies, in particular Toyota, I could see that their mechanism for distributing responsibility and pushing it far down the organisation turned them into a creative enterprise! This is the opposite of what most people think, which is that the purpose of manufacturing is to reliably produce the same thing over and over again. In one sense, this is one of the goals- but in order to achieve that goal, the group of people doing it had to be very creative in order to solve the problems that came up. To me it was a great revelation to find creativity in the midst of something that was not thought of as being creative.

[Nick Park] Creativity makes us human, it defines our humanity… that freedom and ability we have to contemplate our existence, make changes to it, and leave it different to how we find it.

I believe that everyone is creative in some way or another whether that be using words, music or using one’s hands to paint, or whether it be changing the environment, or making the world more beautiful in some way.

Creativity makes you very powerful, and being a storyteller is a very powerful position. A friend of mine told me that the ability to move people is a great power, perhaps one of the greatest you could have.

[Jonathan Gottschall] Creativity is hard to define, and probably harder to teach.. The last book I remember reading about the subject was Jonah Lehrer’s now infamous ‘Imagine,’ and the advice on how you become more creative struck me as obvious or vague with little gems like, “hey, go take a warm shower and may be an idea will come to you…” I’ve sometimes suspected that the buzzwords of creativity and innovation, amount to little more than a way of selling business books and TED talks.

As far as I can tell, there aren’t any shortcuts to becoming more creative. You find something you really care about. You immerse yourself in it. You work like hell. If you do that—and if you get lucky—you might turn up something new.

Q: What is the role of storytelling in human culture?

[Ed Catmull] Storytelling is our fundamental way of communicating with each other, and informing each other. If we start from the beginning, one of the most rewarding things for the child and the adult is having the child on your lap whilst you tell them stories or read to them from a book. You are not only telling a story, but forging an emotional bond in doing that. Then you go to school and receive another form of storytelling, where you’re told the stories of our past, our history and our culture; what happened with our presidents, kings, revolutions and heroes… Whatever those stories are, they are always simplifications of what happened… We can never live through the events of the past, the only things we have left are the stories… The art-form of storytelling is trying to figure out how you capture the essence- to inform someone about what’s important in what happened, but they can never live it themselves. This is an on-going process.

If you look at the world of animation, we went through something in developing this art-form and we tell new people what happened. When we tell them what happened, it becomes a mythology; we lived through it, they cant. All they can have are the stories.

As we move forward into the future, people aren’t trying to relive the stories of what happened in the past, they’re creating their own. We want people to think about creating their own stories and live their own experiences, but at the same time pass on the essence of what happened to other people in other places.

[Nick Park] Storytelling seems so important to humans. Every culture revisits stories throughout their lives- from children hearing the same stories over and over again, to people sitting around the campfire sharing tales and experiences.

There seems to be something very primal and basic about storytelling that involves us re-affirming who we are, our world, how we understand it, and the forces that are shaping it from within and outside. Someone once told me that stories are the rooms in which we grow up; and as children- that’s how we explore the world! You can encounter allsorts of evil and other things- stories help equip you for the world!

Humans seem to have this ability to contemplate our world and our existence. We tell stories that speak of truths about this existence, that are not necessarily there in a physical or immediate way.

[Jonathan Gottschall] People sometimes look for a role that storytelling plays in society, but I object to that. Story is not a single-purpose tool like a hammer or a screwdriver. It is a multipurpose tool, somewhat like a Swiss Army Knife.

In a very basic evolutionary sense, it’s quite weird that we tell stories at all. We spend an enormous amount of energy and time telling stories without any obvious biological benefit. Why do we spend such huge chunks of our lives inside all types of story worlds? What are the possible benefits that offset the costs?

For a long time, anthropologists have argued that story acts as a social glue; it binds a society together around a common culture, core values, and collective identity. That can be hard to see in our big, modern societies but if you go back and look at the traditional tales of small-scale tribal societies, it’s pretty obvious. And even today with our fractured media world, we are spending a lot of our lives absorbed in the same stories. You might read Harry Potter at a different time than me, but we’re both reading it. You might binge-watch something on Netflix at a different time than me, but we’re both being subjected to the same stories. And stories almost always portray a basic human morality. They are set up so that they affirm the prosocial values of the protagonists, and condemn the greed and selfishness of antagonists. And studies show that the values we read about in stories sink in. They shape how we look at the world.

So we love stories. We are enormously fascinated by the fake struggles of fake people. But the love is mixed with a little Puritanism: If it feels so good, it can’t be entirely good for us. So, for centuries we’ve worried not only that stories waste our time but, worse, that they promote laziness and moral corruption. I think this worry is misplaced. My book argues that stories—from conventional fiction to daydreams—are an essential and wholesome nutrient for the human imagination. Stories help us rehearse for the big dilemmas of life, bring order to the chaos of life experience, and help unite communities around common values. We shouldn’t feel guilty about our time in storyland.

Q: Is storytelling learned or instinctual?

[Jonathan Gottschall] Story is absolutely instinctual. There are aspects that are learned, and an awful lot of learning goes into becoming a master storyteller- but the hunger for story is instinctive, and the structures of storytelling seem to be instinctive also.

Stories are universal. As far as we know, there has never been a society without storytelling in the history of the world. Furthermore we are hard pressed to identify societies where stories are significantly different from our own. If you travel to the Africa or the Arctic Circle or to any far-flung place you will find that their stories are , more or less, exactly like ours. They translate easily- we can enjoy their tales, and they can enjoy ours. It’s just not plausible that all these people around the world happened- by chance- to develop the same forms and structures of stories.

The other line of evidence that’s even more powerful is children’s storytelling. Kids come into the world wired for story. We don’t have to bribe or teach them to do it. You take small children, put them into a room, and they’ll spontaneously create stories. This isn’t a Western thing. It’s a people thing. Children’s make believe is universal.

Q: What makes a great story?

[Ed Catmull] Most of us recognise that there are some films, for example, that have impacted world culture. Into this you could put Toy Story, Star Wars, The Little Mermaid, Beauty and the Beast, Aladdin, Lion King and more.

When you have a story that touches culture so strongly, you will always have people that say that they want to replicate it in some way. The safe way to do that is, “I will do something like what they did because if they touched world culture and copy what they did, then I will touch world culture too…” It doesn’t work that way!

To touch world culture, you have to tell something new and take a different kind of risk. Stories are the communication of our emotions to other people, we are drawing on the life experiences of the storytellers who- in turn- are trying to put those life-experiences into their stories. Rather than copying the generic form of a story, they are trying to do something else. How do you do that? One of the ways is to draw on your experiences, and of those around you. What we did at PIXAR, to avoid the trap of repeating what someone else did, was to go out into the world and go somewhere where you would learn something you wouldn’t otherwise know. In Finding Nemo for instance, the filmmakers went to Australia and went diving down in the reefs! With Ratatouille, they went into the 3* Michelin restaurants in Paris… into the kitchens… to see what really happens. What happens in that kitchen is not the same thing that happens in your home kitchen, or the same thing that you see on the Cooking Channel! When making Ratatouille, we got an insight into what takes place in those kitchens (which we could only have made by being there) and we put those insights into the movie. Since most people have never been inside the kitchen of a real high-end restaurant, they wouldn’t know whether what they are being shown is correct or incorrect- how would they know? Yet- we put it in there, and the audience senses that it’s real. It’s not explicit… but they sense that it’s real, and they know they got something they didn’t see before, it touches them and gives them something new.

[Nick Park] We like to keep coming back to stories for some reason. The scriptwriting guru Robert McKee says that classic stories are those you can come back to again and again, they don’t fade with time and hold power across generations. They speak of some truths that are universal, and perhaps humour is a big part of that. Homer (not Simpson!) eluded to the fact that things are funny because they’re true; and that’s quite a profound statement. It doesn’t matter how abstract, absurd or ridiculous what we’re seeing is- we ultimately recognise something within it that makes us laugh.

Great stories can also be quite an extreme form of our own lives in caricature, yet recognisable. Stories cannot exist without this simple truth. You don’t always inject that truth deliberately, but it has to be there.

There’s a striving for authenticity underneath storytelling. That’s what makes clay so attractive to me, it’s a real material. What’s been important in creating the stories and characters is that there’s been some kind of struggle going on… creativity usually needs time and a struggle, and that’s what makes it hard- what means everyone isn’t doing it- but that’s what makes things that are unique and special.

Great stories often come from a creative struggle and a long incubation period.

There’s a lot of interest in the literal effort that goes into animation; with people talking about the millions of drawings and frames, models and movements- but it’s the story that matters- that’s the thing we want people to relate to. We want people to relate to the characters, be gripped, compelled and engaged.

There’s something about the technique in which animation is made, which also has a lot to add to that. I’m a great admirer of CGI, and especially PIXAR. I love their work and learn a lot from it all the time. For me however, a lot of our story is born of the technique. Gromit for example, was born out of the clay technique. I don’t know if I would have arrived at Grommit, or the same Grommit if I was working on a screen. I was actually planning to have him as a much more lively and exuberant dog to start with, but the difficulties of the technique made him the way he is- I found it so hard to move him, and to re-sculpt every frame, that I started to just move his eyebrows- I found that gave me so much! It was a great economy, but it was wonderful. Moving his brow made him an introvert, a very feeling and put-upon dog that had very strong feelings and emotion- this contrasted well with Wallace who was already the extrovert. The intensity of Wallace made Grommit suddenly feel very human and misunderstood… this wasn’t by design, I found it in the clay.

Economy can be a huge strength to storytelling. It’s not about being elaborate and expensive, less can be a lot more.

[Jonathan Gottschall] Story has a universal grammar, without which you have almost no chance of making a story great, and without which you simply cannot rivet people’s attention, rouse them passionately, and change how they look at the world. The structure is extremely simple.

A story always has some form of character. The character has some type of problem, predicament or trouble in their life that they want to solve. Stories around the world have a problem-solution structure.

You’ll find some counter-examples to this pattern, but you will find these to be primarily in the realm of 20th century experimental fiction where- on purpose- writers try to break the rules. Those are fascinating artistic experiments, but they universally fail to attract big audiences. Rather, they’re designed for an elite or academic audience.

If you want to really absorb human attention on a grand scale, you have to stay within the grammar.

But the grammar isn’t enough of course. A great story has a lot more to it. When that little kid comes into the world, they already know the basic grammar: batman is in trouble, the baby is in trouble, how are we going to save them? Great storytellers use the basic grammar, but they also employ a great deal of subtle art and craft.

Q: Is there a biological component to our love of stories?

[Jonathan Gottschall] Biology is deeply involved in our processes of storytelling and story enjoyment. There are tendencies within the brain that create a story-hunger. The brain needs stories to make sense of the chaos that is continually pouring through your senses. The brain filters and sorts this information, hunting for story-patterns. The downside of this is that the human mind seems unable to tolerate a vacuum of story. Stories create meaning and they are comforting. So if the brain can’t find a meaningful story to account for some phenomenon it tends to simply make them up. You see this in a lot of psychological research. You also see it in conspiracy theories and perhaps religion.

There is a peculiarity about the way story is processed by the brain that can account for its power. You can slide a person into an FMRI machine that watches the brain while the brain watches story, that can read the brain while the brain reads a story. And if you do that you’ll find something interesting--the brain looks less like a spectator on the action, than a participant. So if Clint Eastwood is angry on screen, your brain looks angry too; if the scene is sad, your brain will look sad too. Not like you are sitting back passively and watching someone else get angry or sad, but that you are actually experiencing the emotions yourself.

So stories are so powerful for us, at least in part, because at a neurological level whatever is happening on the page or stage isn’t just happening to them, it is happening to US as well. “We” know the film is fake, but that doesn’t stop unconscious parts of the brain from processing it as real.

Q: Can stories impact and change society?

[Jonathan Gottschall] When I go into my introductory literature classroom, I sometimes point out how strange it is that we spend such a large part of our lives telling and absorbing stories. Why do we care so much about the fake struggles of fake people? I ask my students for an explanation and eventually one raises a hand and says, “escapism.” They look at story as a kind of mental vacation. They go into storyland, they have a nice time, but then they walk away unchanged. Research suggests this is wrong. It suggests that we are moulded strongly by the stories consumed in our lives. Stories wash over our lives, shaping us in the way that flowing water shapes a landscape.

Studies repeatedly show that our attitudes, fears, hopes, and values are strongly influenced by story.

For instance, if psychologists get a bunch of people in the lab and just tell them all the reasons it is wrong to discriminate against homosexuals, they don’t make a lot of progress. People who feel differently, dig in their heels, they get critical and skeptical, and they don’t walk out of the lab with more tolerant views.


But if we watch a show like Will and Grace—or modern family, or glee, or Six Feet Under, and so on--that treats Homosexuality in a non-judgmental ways, lab studies suggest that our own views are likely to move in the same direction.

And if a lot of us begin empathizing with likeable gay characters—on shows like Ellen, Modern Family, The L-Word, Glee, Six Feet Under, and so on—you get a driver of massive social change. American attitudes have liberalized with dizzying speed over he last 15 years or so, and many social scientists give TV a lot of the credit. Social scientists have a theory to explain this rapid pace of change: They call it “The Will and Grace effect.

By the way, the psychologists even have a theory for why this works. The best predictor of whether or not you’ll have liberal attitudes toward homosexuality is whether or not you know one, and that you know that you know one. Whether you have a friend or a family member who is gay. This is a better predictor than education level, or religious affiliation, or whether you are democrat or republican. But here’s the cool part: it doesn’t seem to matter if the people you know are real or not. Fake gay friends like Will and Jack seem to do the job.

Q: What makes a great animation?

[Nick Park] People often look at animation and say, “wow, you can be so creative… that’s the freedom of animation!” In a way, they’re right… but… freedom can be a great set-up to fail. If you have too much budget, you can end up with enough rope to hang yourself! Discipline is very good for creativity.

We fight this constantly on projects- how do we find solutions by being creative rather than using another helicopter shot, or blowing something up. We want to film creative solutions that are more to do with the edit and story, and less to do with special effects.

An example for me was when we created the penguin, Feathers McGraw in ‘The Wrong Trousers.’ He was such a simple thing, and I had a wonderful reaction. My colleague Steve Box animated him for me, and we very much talked about making sure that we didn’t make him some funny Disney-style penguin with Donald Duck actions as he waddled along. He’s almost not a penguin, he’s a milk-bottle floating along; and this brought the sinister aspect to the character. He turns in basic ways and gives solitary blinks. This gave the character a lot of power rather than doing an elaborate animation.

Q: Why has animation grown to become such a popular art form?

[Ed Catmull] Reality can never be expressed in a complete and true story; it’s always going to be too complicated. The story we can tell, whether it’s live action or animation, is an abstraction. With animation, you easily accept the fact that what you’re seeing isn’t reality. With live action, people sometimes think they’re seeing reality – but with animation we don’t have that delusion, and that allows the animator and storyteller to focus on the essence of what they’re trying to tell, and in doing so- we connect with people. From the viewer’s perspective, this allows them to accept the rules of the world they’re being immersed in and to feel the emotions that come from that; and this happens regardless of whether it’s hand-drawn animation, puppets, paper cut-outs or full CG. We just accept it as a different world, accept the rules of the world, and explore how to connect with it. Animation gives a great freedom to the storyteller.

Q: What is the role of anthropomorphism in animation?

[Ed Catmull] If you look back at the earliest days of animation, it tended to be very much gag-oriented. People were enthralled by funny and silly things that were happening on screen. You had plants dancing, boats tooting around… that wasn’t anthropomorphic, but they had a sort-of life to them. Then Walt Disney put together a group that went to the next stage; they wanted the audience to believe what that character was thinking.

As a species, we think at a different level than other creatures; we recognise of course that pets and animals think, but there’s something different about our thinking. In recognising thought processes in something like a lamp, and believing that the lamp is thinking, something in us connects with them. We can call it anthropomorphism, but in reality we are trying- in an abstract way- to touch some of our deepest emotions and sensibilities.

Interestingly, we have had numerous cases where animation seems to have touched people who have specific brain processing problems and issues where they almost can’t understand other people, because there’s something about the presence of a real person that makes them cower. Animation gives them a safe space; something about it draws them out. It’s a very interesting phenomenon.

[Nick Park] There has been a great tradition in animation to use anthropomorphism, and animators are able to bring animals and objects to life.

We accept something from an animal where we feel for them more because they’re helpless, vulnerable, cute or powerless – or they express some focussed aspect of ourselves. When I did Creature Comforts back in 1989, it was fundamentally just human beings talking- that was what we did first, interview people talking… then we added the animals. Until that point, the founders of Aardman had done similar things with human beings, and I took it into the animal kingdom. Grommit isn’t really a dog, he’s a person!

What I love about PIXAR is that they’re animals are a certain degree of anthropomorphism… lets take Nemo- he’s very human in aspects of his speech and emotion, but he’s very much a fish too! Let’s compare that with Sharks Tale where the characters are very much more humans dressed as fish….

The balance with anthropomorphism is how much reality and how much fantasy you choose to use!

[Jonathan Gottschall] Good question. I’ve never considered it before. But here’s what I would say. Anthropomorphised stories seem- in the main- to be targeted at children; just take a look at films from Disney Pixar or at folk tales from around the world.

In Brian Boyd’s On The Origins of Stories he noted something simple yet powerful. He said that the first job of a storyteller is to rivet our attention. If the storyteller cannot grip the attention of an audience, then what’s the point? Without attention, Boyd says, art dies.

So it seems to me that one common strategy for riveting children’s attention is to anthropomorphise animals, plants, and inanimate objects in order to grab attention and to signal the magical nature of the story-world they’re entering into. Some stories for adults also anthropomorphize, but they’re few and far between in comparison to those aimed at children.

Q: How has technology impacted animation?

[Ed Catmull] If I go back to the earliest days of animation when film was just invented, it was a new technology- although, we don’t think of it in those terms now. When the technology was new, it stimulated people to try to use this technology to tell stories. Until that time, storytelling was verbal, books, plays and so forth. The technology of film broadened the base of storytelling and brought more people to it. I don’t think many people understood the interplay of technology and art, but instead focussed on the final output. Over time, people remembered the art- but down-played the technology. Over time, technology ceases to look new and becomes an artefact of the past. When computer graphics arrived, it injected into the art form of new technology which then stimulated more people.

The number of animated films produced now is much higher than 30 years ago, and more people have access to it. One of our goals is to ensure that we don’t forget that it is this combination of art and technology and that it is an on-going stimulating relationship. We don’t want to forget this as people have in the past. As computers get faster and more accessible, you open the door for more people to use it; you now see more pieces, such as the funny little vignettes produced on YouTube. If you look at feature-length films; they’re more widely available for sure, but I wouldn’t call it ‘democratisation’ as they still cost many millions of dollars to make. But the trend will continue as costs go down and more people are enabled to tell stories.

At the same time, the new technology is enabling a lot of stuff that isn’t very good … but in this process, you will also find gems, because people who don’t ordinarily have access now do so. We will have surprising new storytelling in the future; but we can’t foresee what that is. When you enable more people have access to storytelling technology, you are giving yourself more opportunities to be surprised.

The internet has clearly altered the mechanism by which stories get out into the world. This has pros and cons. It enables a large number of people to distribute their work in various forms, and also enables a large number of people to sift through work and recommend it to others. At the same time, the mass of the content being generated is so large, that you lose a shared cultural experience. It used to be that movie-houses and radio became a nationwide shared experience. Television then became a shared experience due to a limited number of channels… now we have this technical evolution where there’s a diminishing of that, with a few long-form programmes coming out with cultural impact. Rather than watching certain channels for example, people may watch a particular series such as Sherlock Holmes – and I wish we had more content like that! My daughter and I watch Dr. Who all the time, it’s watched a lot here in the USA and for those who are watching it, it’s a shared experience. But it is shared with a smaller percentage of the population than when I was young.

The Internet gives you different types of experiences, but I wish more people could share them.

[Nick Park] I wouldn’t want to sound like a stick-in-the-mud as technology is part of the artform now. We use technology, we make armatures for our puppets- we use video to record and playback, but we want to retain a hands-on quality.

CGI doesn’t help or hinder, it’s a choice… The challenge is different… Technology enables the animator to manipulate the character in the most human way they can. What I like about clay animation is that it’s very direct. When we know that we simply can’t do something using clay- for example, fire or a waterfall- we may use CGI. I like the charm that comes from reality- from fingerprints, from clay, from people actually manipulating things.

However… CGI is great for certain subjects. Let’s take the film Frozen for example. The way the ice crystals were, or the snow… or the building of the tower… the dress of the girl – and how realistic everything was. It was so amazing- but it’s not in my aesthetic- that’s not my personal artistic style.

[Jonathan Gottschall] Today, we often hear a doom and gloom narrative suggesting that that twitter or facebook or whatever are ruining story. But I don’t think the digital revolution or social media are killing storytelling—quite the opposite. First, many people use their social networking accounts as storytelling platforms: Facebook, for example, is a way for many people to tell their continuously updated life story. Even many twitter users tell serial stories, and the site is—in large part—a way for people to promote and share links to longer form storytelling.

The larger point, for me, is that I think story is utterly unkillable. People are storytelling animals, and that won’t change until human nature does. In the future, story may evolve in new directions (in my book, I talk about the emerging form of video game storytelling). But in a thousand years the basic structure of story will be exactly like it is today. What’s happening right now is NOT that modern technology is crowding out storytelling, it’s that most of us are using new technology to cram more story into our lives than ever before.

Q: How can people benefit from applying creativity into their lives?

[Ed Catmull] Most of us want and have a deep feeling of needing safety. The easiest way to see and get safety is to repeat the things that you believe worked in the past, and believe that others are doing; and that applies at a personal level or business level. If something is known to work, you tend to want to copy it and it feels safer.

What differentiates the creative person, is that they are willing to abandon certain elements of the past and do something they haven’t done before. This is tricky as you can’t abandon everything, and you don’t really know what to abandon; you are going into unknown territory. The differentiator is: do you have the ability to let go of certain things with the belief that if the new thing you try doesn’t work, then you can always go back to the thing that worked. A lot of people can’t do that, and it’s an emotional need for safety that keeps them from venturing into doing something that may not work. By definition, if you’re going off into a new area, then a certain percentage of things you try won’t work and furthermore, you don’t know how big the problem will be if you try something new! It could be rather minor, or very major. The mind-set of the creative is that they will still continue to do it!

Q: What would be your piece of advice to the next generation to put creativity into their lives?

[Ed Catmull] I’ve thought a lot about this; and it’s a hard thing to describe. People want to go to the safe side… they want to repeat what works without understanding that rut they are in. Even for people who venture into the unknown and do something original, a large proportion of those people, having experienced something new, then fall back into repeating what they did in the past.

People should adopt a fearlessness where they are trying new things, but then accept that by doing this- a certain percentage of things will fail. Failure is not a necessary evil, but rather- it is a positive part of on-going progress. If you don’t have some failures continually, it is a signal that you have retreated into the conservative past.

Most people still interpret failure as an unfortunate thing to get to success, but this isn’t actually what it means. What failure really means is that you are trying to live life, and the fact that you fail means that you are trying. As soon as you try to avoid failure, you are facing the wrong direction.

[Nick Park] Yes, do it!! [laughs]

The way younger generations are naturally comfortable with technology is great- but they have to realise that technology is a tool. David Hockney was using an iPad last time I saw him on TV, he commented that the Paintbrush itself was technology!

An interesting parallel; I’m writing a new script for a feature film at the moment. It’s been a good 2-3 years in writing, and I’ve read so much about screen-writing techniques and theory- but ultimately the war is between you and a blank piece of paper. It relies on you for good ideas, and to work those ideas up. You can use those techniques and tools to help you stay on course and to challenge you, but tools will never be a substitute- they won’t help you to write a great script- you need creativity and good ideas.

Technology could become a substitute for creativity if we’re not careful. Let’s not forget that you can be incredibly creative with a pinhole camera or a pencil and a piece of paper. Having technology won’t make you more creative….

Creativity comes through practice, learning and doing it!

[Jonathan Gottschall] You don’t need to tell people to go have sex, to eat, or to breathe. If people can do these things, they will – they don’t need your encouragement. People are going to consume stories, and they will consume them heavily.

Stories are a very good thing. They are one of the things that make life most worth living. But you can have too much of a good thing. Compare story to food. A tendency to overeat served our ancestors well when food shortages were a predictable part of life. But now that we modern desk jockeys are awash in low-cost grease and corn syrup, overeating is more likely to fatten us up and kill us young. Likewise, it could be that an intense greed for story was healthy for our ancestors, but has some harmful consequences in a world where books, MP3 players, TVs, and iPads make story omnipresent—and when we have, in romance novels and TV shows like Keeping Up with the Kardashians, something like the story equivalent of deep-fried Twinkies.

So people need to learn to regulate their story diets. Flipping on the TV to channel surf is like standing in front of an open refrigerator and boredly stuffing food in your mouth. Instead, plan out a Netflix strategy. Plan out a novel strategy (I like to work my way through good internet lists of classic thrillers, sci-fi stories, mysteries, and canonical classics). Try not to consume in a haphazard way but to do so more thoughtfully.


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A characteristic of humanity is our unwavering sense of growth. As C. S. Lewis wrote, “…We seek an enlargement of our being. We want to be more than ourselves. Each of us by nature sees the whole world from one point of view with a perspective and selectiveness peculiar to himself. And even when we build disinterested fantasies, they are saturated with, and limited by, our own psychology. To acquiesce in this particularity on the sensuous level- in other words, not to discount perspective- would be lunacy… we want to escape the illusions of perspective on higher levels too. We want to see with other eyes, to imagine with other imaginations, to feel with other hearts, a well as with our own.” (An Experiment in Criticism, 1961)

Lewis was here talking of literature, but where we consider this [literature] as a metaphor for storytelling, the depth of his analysis can be seen. “[Literature] admits us to experiences other than our own…” he writes, “Those of us who have been true readers all our life seldom fully realise the enormous extension of our being which we owe to authors. We realise it best when we talk to an unliterary friend. He may be full of goodness and good sense but he inhabits a tiny world. In it, we should be suffocated. The man who is contented to be only himself, and therefore less a self, is a prison. My own eyes are not enough for me, I will see through those of others. Reality, even seen through the eyes of many, is not enough. I will see what others have invented. Even the eyes of all humanity are not enough… Literary experience heals the would, without undermining the privilege, of individuality. There are mass emotions which heal the wound; but they destroy the privilege. In them our separate selves are pooled and we sink back into sub-individuality. But in reading great literature I become a thousand men and yet remain myself. Like the night sky in the Greek poem, I see with a myriad eyes, but it is still I who see. Here, as in worship, in love, in moral action, and in knowing, I transcend myself; and am never more myself than when I do.

This urge to transcend flows from without and within ourselves. Maya Angelou told me “We have some impulse within us that makes us want to explain ourselves to other human beings. That’s why we paint, that’s why we dare to love someone- because we have the impulse to explain who we are. Not just how tall we are, or thin… but who we are internally… perhaps even spiritually. There’s something, which impels us to show our inner-souls. The more courageous we are, the more we succeed in explaining what we know.” (Thought Economics, October 2012)

Whether we look at the domains of art, the humanities or science, we see storytelling as their basis- a foundation on which things can be built. In each of these intellectual territories, the works that stand tall- sculptures, essays, theories, films and more- do so because they speak authentically, and with certain essential truths that we can each resonate with intuitively and naturally. As a Jewish teaching describes “Truth, naked and cold, had been turned away from every door in the village. Her nakedness frightened the people. When Parable found her she was huddled in a corner, shivering and hungry. Taking pity on her, Parable gathered her up and took her home. There, she dressed Truth in story, warmed her and sent her out again. Clothed in story, Truth knocked again at the doors and was readily welcomed into the villagers’ houses. They invited her to eat at their tables and warm herself by their fires.

Storytelling is ‘that’ which makes us human, and our relentless pursuit of the story of our species means that each of us is now able to start our own narrative, once upon a time, at the beginning of the universe, when we existed together- forward through the branches of individual existence, and onwards to the time the universe will end, bringing us together again.

The End.

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