Memo To: Website Fans, Browsers, Clients
From: Jude Wanniski
Re: Wisdom From Gary North
One of the free websites to which I subscribe is “Gary North’s Reality Check.” Gary is an economist and social philosopher who does not mind getting out of the box in his views and writings, so I always read at least the first few paragraphs of his usually lengthy essays. When he is on, he is really on, which means he hooks me into reading the whole darned thing. That happened this morning when I took a look at the offering that showed up in my in-box. If you find it as interesting as I did, please forward it to your children, grandchildren, nieces or nephews. Perhaps 20% of them will read it and take it seriously, and it will make a difference in how they live their lives. It's perfect for a Labor Day weekend.
THE CURSE OF THE COMFORT ZONE 9/3/04
By Gary North
I regard the comfort zone as the most important single factor in keeping people from success in this life. It is the crucial restraining factor that keeps people from becoming more productive.
I am speaking here of producers' comfort zones. I am not speaking of consumers' comfort zones, which I recommend. Familiarity should not breed contempt for consumers. Old ways, like old dogs, are our friends. But only as consumers. You can't teach an old dog new tricks, which is a major problem for producers.
The producer's comfort zone is the way of life that we fall into but rarely choose for ourselves. It is the day-to-day world that provides us with a sense of order. It is that array of habits and daily assignments that lets us function without giving much thought to what we are doing with our lives. And then, one fine day, we are on our deathbeds thinking, "Where did the time go? What have I accomplished that will still make a difference a week after I'm buried?"
It is this legacy that testifies to our success, if any. For some people, it's a pile of money. That legacy is rarely put to good use by our heirs, whether biological or institutional. But even our non-monetary legacies are at risk. Three thousand years ago, an unnamed philosopher wrote:
Yea, I hated all my labour which I had taken under the sun: because I should leave it unto the man that shall be after me. And who knoweth whether he shall be a wise man or a fool? yet shall he have rule over all my labour wherein I have laboured, and wherein I have shewed myself wise under the sun. This is also vanity. Therefore I went about to cause my heart to despair of all the labour which I took under the sun. For there is a man whose labour is in wisdom, and in knowledge, and in equity [justice]; yet to a man that hath not laboured therein shall he leave it for his portion. This also is vanity and a great evil (Ecclesiastes 2:18-21).
We are not trained early in life to think carefully about our personal legacy -- what it could be, how it can be achieved, and who will inherit it. If we were taught, we would probably not pay much attention. That is the curse of youth. When we possess more of the crucial asset -- time -- we fritter it away.
We all have about the same amount of time: eight decades. Rich or poor, smart or dim-witted, we get on average about eight decades to do with what we will. So, in this sense, there is something like equality. Funerals testify to the only democratic institution that really works as promised. "One man, one funeral."
THE RULE BY THUMB
We know the phrase, "rule of thumb." But "rule by thumb" is closer to the truth. There are five digits on a hand. One of them is crucial: the thumb. Better to lose two fingers than lose your thumb. Here we see Pareto's law in operation once again: the 20-80 rule.
In every institution, every society, 20% of the people provide 80% of the productivity. It works the other way, too: 20% of the people provide 80% of the problems. The correct goal is to be in the first group. A secondary goal is to try to avoid dealing with the other group.
In any profession, 20% of the participants provide the leadership. They make most of the money. They are the least likely ones to be fired. Within that group, 20% are the dominant ones. That triumphant 4% enforce the rules. I suppose there is a third layer of Insiders: the 0.8% who make the rules. But I can't prove it.
If I were to give advice to a young person, I would tell him to identify that area of service in life in which he is especially gifted, and from which he derives a sense of satisfaction, and pursue it relentlessly. This need not be his occupation. How you put food on the table is far less important than the performance of whatever skill you have that makes the world a better place to live in.
What does it take to become part of the top 20%? It takes a basic skill or affinity. This is usually difficult to identify early in life. I was fortunate. I knew by 16 what my skill was: public speaking. But I have not pursued it relentlessly because, by age 26, I had developed a more important skill: the ability to write.
I have no other skills worth mentioning. I have pursued writing relentlessly ever since I was in my mid-twenties.
Each normal person has such a skill. I am convinced of this. His innate abilities may not be sufficient to make him a leader, but his dedication to self-improvement over decades is worth the equivalent of at least 20 IQ points.
In every area of life, rule by thumb will manifest itself. The 20% who are the most dedicated will lead. Then there are two other layers of 20%. Membership in these may be based on brains or unique circumstances that give people an edge. These advantages are unpredictable. It is like being a great athlete or famous performer. This edge cannot be imitated or produced through special techniques. It is what made the Beatles and the Beach Boys and the Rolling Stones dominant, and a thousand top-40 performers forgotten. Nobody knew in advance.
In contrast, membership in the top 20% is open to those who adopt a particular pattern of living. The most important single characteristic is a person's unwillingness to remain in a comfort zone.
PUSHING YOUR LIMITS
The comfort zone is our area in which we function, if not effortlessly, then at least predictably. In our jobs, in our hobbies, in our relationships, we go through the motions. We have an advantage over our competitors. We assume that we will always retain this advantage. We think the market is on our side because we deserve risk-free living. We think past performance is a guarantee of future success. It isn't.
The free market is relentless in spotting weaknesses in existing systems of production. Entrepreneurs are alert to poor performance. They are always on the lookout for opportunities to serve customers better and extract more money from them. They are hungry. Or maybe they are merely in the competition for the joy of winning. It doesn't matter what their psychological motivation is. They are on the prowl, looking for ways to do things cheaper, better, and faster.
The best way to gain a monopoly is to price your product in such a way that it does not call forth competition. Let me provide my favorite example. This company controls at least 95% of the market. It has controlled it for at least eighty years. Everyone uses the product. Yet only one brand name is known to 95% of the buyers. The company has squeezed out competitors to such a degree that you can't name a competitor. Yet no special legislation has granted the company this monopoly.
I can name the product. You will know the company. I can name the company. You will know the product. The company is functionally identified with the product. The product is baking soda. Name the company. What color is the box?
Arm & Hammer has a lock on the industry. Why? Because buyers can't tell the difference, one brand to the next, and the price is so low that it isn't worth the advertising budget to differentiate a rival brand's product. If Arm & Hammer doubled or tripled the price, rivals might enter the market. But the company keeps prices low.
There are very few Arm & Hammers in this world. Like the Queen of Hearts in Wonderland, everyone else has to run fast just to keep in the same relative position. The thumbs of this world are suspicious of any comfort zone. They correctly regard it as an illusion. They are unwilling to assume that someone is not gunning for them. This is another way of saying they assume that there is a customer out there with an unsatisfied desire. Offer him a better deal, and he will abandon his present comfort zone for a new one.
DISCONTENT IS TO BE AVOIDED
Here comes the hard part. We are not to be discontented with our condition. Yet we are not to be comfortable, either.
Let me use an example from another area. Once married, we are supposed to be content with our decision. We are not to have roving eyes. A man is supposed to trust his wife, but not take her for granted. The same is true for the wife. Everyone wants to be trusted. Nobody wants to be taken for granted.
The distinction between contentment and the comfort zone is analogous. We are to be content with whatever we have. We are not to be content with our level of service. As consumers, a comfort zone is wise. As producers, it isn't.
But what if our level of service is dependent on what we have? That is a paradox. We must solve it.
R. C. Sproul is a widely published theologian. His 1980 book, "Stronger Than Steel," is not a theological treatise but the story of a strange kind of religious revival. It is the story of a small steel fabricating company that was facing bankruptcy in the early 1970s. The union leaders hated management. The union went on strike. But management and labor faced a problem: bankruptcy. The banks would lend no more money. The bills were coming due. Something had to change.
The parent company, Textron, dismissed a large chunk of senior management of the subsidiary. That made change possible. Enter Wayne Alderson. He had survived the purge. He thought he could solve the problem.
He saw the problem in terms of human capital, not physical capital. It was the breakdown in cooperation that was killing the company. Desperate, management allowed him to do anything he wanted. Desperate, the union leaders decided to give him a chance to prove his point.
He adopted a totally new human relationships program. He called it "The Value of the Person." There were to be prayer meetings before the work day, which managers and workers attended voluntarily each week. Meetings were held in the most dismal part of the foundry. Managers were to slacken their heavy-handed enforcement of rules. Workers were encouraged to show up on time. Families were brought together for company-wide parties.
It was a program of love that was implemented only because of the initial presence of fear. The company was not going to survive unless everyone agreed to change and unless the system of management -- leadership -- was also changed. Results:
The scorecard for Operation Turnaround's twenty- one month history went like this: (1) sales went up 400 percent; (2) profits rose 30 percent; employment went up 300 percent (the work force grew to over one thousand employees); (4) productivity rose 64%; (5)labor grievances declined from as many as twelve per week to one per year; (6) chronic absenteeism virtually disappeared; and (7) quality of the product became the best in the history of the plant (pp. 72-73).
Discontent had been basic to everyone's life in the company, from top to bottom. Discontent did no good. The company was on the verge of bankruptcy. What was needed was a change in attitude, from top to bottom. It had to come from the top. The leaders had the responsibility to initiate change.
As the turnaround took root, people's attitudes changed. There were reserves of productivity that had been bottled up and buried because of resentment. When Alderson's new policies were implemented, people dug up those bottles and opened them. There was a massive infusion of capital -- just no extra money.
Alderson began outside of his comfort zone. When he was brought in to settle the strike, violence was expected. It was physically risky for him to serve as management's deal-breaker. But his internal sense of contentment enabled him to deal with his discomfort zone. He knew what had to be done, and he also knew that everyone had run out of answers. Workers didn't want the plant to close, and neither did management. But each side was willing to have the plant close to get its way over the other. Alderson's program transformed the mutual resentment into productivity: overcoming the bottlenecks.
DISCOMFORT CANNOT BE AVOIDED
Because we as consumers are always shopping for a better deal, we as producers can never sit still. Because we as consumers are always ready to consider making a decision to improve our lives at the margin, we as producers are under pressure to come up with new opportunities to make consumers' lives better.
If we understand ourselves as consumers, we can understand ourselves as producers. But, as consumers, our decisions affect lots of people in little ways. As producers, lots of people's little decisions can affect us in big ways. Usually, these ways are negative.
Why? Because consumers think what they have now is merely a temporary negotiating position. They want more. They are in a comfort zone for as long as a better deal doesn't come along. There is some entrepreneur out there trying to make them a better deal.
As consumers, our comfort zones change. Therefore, as producers, our comfort zones must change. But we don't want our comfort zones to change as producers. We want stability. We want predictability. We don't want to be pressured by those thoughtless consumers to keep improving our output.
Producers regard complaining customers as a liability. But if complaining customers are complaining because someone else has just made them a better deal, or they think that it's worth their time to go looking for a better deal, we had better take seriously the complaints.
Most consumers would prefer to stick with existing suppliers. Most consumers are in a comfort zone. They don't want to have to run searches for better deals. But discontent with bad service can force consumers to go shopping.
I have found that consumers who are short-changed are blamed by producers if they complain. The specialist producer assumes that his product is the best and complainers are short-sighted. The victimized consumer becomes the bad guy. I have seen this so often that I regard it as normal -- with the 80% who are not the leaders in their industry.
The top 20% are open to suggestions, which is the main reason they are in the top 20%. They see their comfort zones as temporary. They know that they are under the gun of rivals, who seek to take advantage of any weakness in order to lure away their customers. They are content with the consumers' discomfort zones. They have come to grips with this in their operations. They have re-structured their thinking and their institutions to keep ahead of the consumers' ever-arising discomfort zones.
Producers look at their comfort zones and think, "This is mine. I deserve it." But in a free market, the customer alone is entitled to maintain his comfort zone. If he doesn't want to change, he doesn't have to change. If he decides it's not worth his time seeking for a better deal, no one can tell him otherwise. This is what freedom means.
When we as producers seek the comfort zone that we enjoy as consumers, we are on the road to bankruptcy. We have put up a neon sign that announces, "Come and Get Us." As consumers, nobody is shooting at us. Someone new is slapping us on the back and telling us how great we are. As producers, lots of people are shooting at us. Someone familiar is shouting in our ear, "What have you done for me lately?"
What we seek for ourselves as consumers -- a place of our own where we can be comfortable -- we must constantly accept as producers. This is why producers want to find a way to escape our fickleness. It boils down to this: our comfort zones as consumers can be secured only by our discomfort zones as producers. If producers seek to create comfort zones for themselves, the only way they can do this is by creating discomfort zones for consumers -- zones in which no one is hustling to serve consumers well.
So, discomfort cannot be avoided. Either we forfeit our comfort as consumers by ceasing to impose pressure on producers to meet our demands, or else we forfeit our comfort as producers by ceasing to offer better deals to consumers. But then the discomfort of falling revenue intrudes.
Producers are always ready to reduce pressure on them from newcomers who cater to the whims of consumers. They create cartels, trade associations, and other institutions to keep out competition. Such agreements always fail. Newcomers enter the market and make better deals. Even that most venerable of cartels, the diamond cartel, is breaking down because of new sources of supply and distribution.
So, producers turn to government to keep out newcomers. They send lobbyists to the capital city. They persuade legislators to pass laws to "protect the consumers." From whom? From scurrilous producers whose products do not meet industry standards. What the producers really mean by "industry standards" is "today's high prices."
Consumer legislation is in fact producer legislation. It is designed to restrict markets and thereby reduce the discomfort zones of existing producers.
Producers are specialists. They specialize in whatever is profitable for producers in their industry. They are alert to shifting consumer demand. They do not want consumers to exercise their shifting tastes by spending money with new companies. They want to keep consumers' discomfort zones under control. They seek out a "business-government partnership" to keep consumers' discomfort zones under control. The government puts a gun in the belly of a new producer and says, "You aren't meeting industry standards. Cease and desist." This is bad for consumers. But consumers are not well organized. They also trust politicians who call for consumer protection, which is in fact producer protection from consumers.
Your job as a producer is to become content with your consumer-imposed discomfort zone. This means that you must constantly seek to improve your productivity.
The way to a comfort zone as a consumer is to become content with what you possess. But if you continue to increase your productivity, this will produce a surplus: income over expenditures. In other words, you will have to become a saver or an active investor. You must become a capitalist.
Thrift. This is the way to wealth. This is the road out of personal poverty. This is the means of improving the output of other workers and therefore the means of overcoming their poverty. It's a win-win deal.
To the extent that you create a permanent comfort zone as a consumer -- contentment with most of what you already possess -- you create the means of dealing with your discomfort zone as a producer. You build up a nest egg of savings. You invest in your education. You improve your productivity. You acknowledge that you are not entitled to a comfort zone as a producer. You must become content with life in a discomfort zone.
When most producers accept this, freedom is secured. Whenever they refuse to accept this, freedom is at risk. A nation of comfort zone-seeking producers will provide money to elect politicians who see their task as putting consumers into the straitjacket of the status quo.
When the consumer is in a straitjacket, he is in a discomfort zone. So is liberty.
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