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Book 4 (Skin in the Game)

The Skin of Employees

Employees exist because they have a lot of skin in the game, they share risk with their employers – enough for it prevent them from being undependable.

With employees, you are buying dependability.

And dependability is a driver behind many transactions. People of some means have a country house—which is inefficient compared to hotels or rentals—because they want to make sure it is available if they decide they want to use it on a whim. There is a trader’s expression: “Never buy when you can rent the three Fs: what you Float, what you Fly, and what you…(that something else).” Yet many people own boats and planes, and end up stuck with that something else.

A person who has been employed for a while is giving you powerful evidence of submission – this is displayed by many years of being deprived of personal freedom for nine hours a day, his ritualistic and punctual behavior, and having not done anything violent after a bad day. He is an obedient, housebroken dog.

The Company Man

People realized that working as a company man was safe by the 1990’s, given the company survived. But Silicon Valley put traditional companies under threat. After the rise of Microsoft and the personal computer, IBM had to lay off “lifers” who realized their job wasn’t so low risk after all. These people could not find a job somewhere else; they were useless outside of IBM.

The company man has now been mostly replaced by the companies person. People are no longer owned by a company but by something worse: the idea that they must be employable. The employable person is married to an industry where he does not only fear upsetting his boss, but other potential employers.

Coase’s Theory of the Firm

An employee is—by design—more valuable inside a firm than outside of it; that is, more valuable to the employer than the marketplace.

Companies lock their employees in by offering them the perks of a good life, for example, by sending them to some exotic location where labor is cheap, and where they can enjoy a relatively high standard of living. But this employee has no real insight into his position in the company, and will be terrified of going back to his old mediocre life – this leads the employee to highly value company politics, and this is what the company wants.

In the famous tale by Ahiqar, later picked up by Aesop (then again by La Fontaine), the dog boasts to the wolf all the contraptions of comfort and luxury he has, almost prompting the wolf to enlist. Until the wolf asks the dog about his collar and is terrified when he understands its use. “Of all your meals, I want nothing.He ran away and is still running.*3

What would you like to be, a dog or a wolf?

No matter what, don’t be a dog claiming to be a wolf. Male Harris Sparrows that have darker color correlate with better fighting ability, but experimental darkening of lighter males will get them killed, not raise their status, because behavior was not altered. Wolves are trained to survive, but employees abandoned by their employers cannot bounce back.

What matters isn’t what a person has or doesn’t have; it is what he or she is afraid of losing.

Putin and Terrorism

Putin, to Orthodox Christians in the near East, is a savior, the first Czar with balls since Catherine the Great. It is easier to trust the words of an autocrat than a fragile elected official. Since 2001, policy makers have failed in fighting Islamic terrorists. They allowed terrorism to grow by ignoring its roots – Wahhabi/Salafi education. But this was not their fault, as decisions to target these groups cannot be made by sterile bureaucrats,

You need an autocrat (Putin) to fight autocracy (Salafism etc…) Democracies are sterile because policies keep changing and leaders have too much to lose, so they make concessions, and ignore the so-called elephant in the room too often.

Skin in the Game: Hidden Asymmetries in Daily LifeBook 4 (Skin in the Game) 1

"Silence is the best expression of scorn" - G.B. Shaw

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