Jeffrey Saltzman's Blog

Enhancing Organizational Performance

Values and Addiction

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Saltzman: one who processed and sold salt. Salt used to be worth its weight in gold. In fact before there was gold as a valued metal, there was salt as a valued mineral. Up until the 1900’s salt was difficult to obtain and given its importance in sustaining life it was quite prized. It is speculated that the rise and fall of certain civilizations was impacted by their access to salt. The word “salary” came from the Roman word “salarium” or salt money and Rome’s legionnaires were occasionally paid in salt. While the locals may have been dubious about the value of a Roman coin backed by a far away government, or by a lack of enough coins in circulation to maintain a money-based economy, a soldier who had salt had a valuable commodity that was easily traded for other goods and services. And in periods of uncertainty salt was as good as, in fact better than coinage for its value was clear to everyone. Too much salt though causes problems and salt was used militarily to gain control over others as far back as 4500 years ago by salting the fields of people you were at war with to prevent them from growing crops. Too little salt and life becomes very difficult perhaps even leading to death, too much salt can cause the same outcome, but in just the right amount salt is a pleasure as evidenced by humans evolving receptors on our tongues for detecting and enjoying the taste of salt. Salt today is very common, one of the few bargains you can find at the grocery store, and we now tend to over-salt our foods resulting in some long-term health issues. Salt moved from a rare material of very high worth to a commodity. Science and technology allowed for that to happen.

Gold is another rare commodity that has served as a basis for monetary systems. But as opposed to salt you can live without gold. The value of gold is totally dependent on what someone is willing to pay for it.  In 1980 a troy ounce of gold was selling for about $641 dollars, by 2000 its price had fallen to $272. On June 19th, 2008 on the spot market for gold, an ounce was selling for $903. People have recently turned to gold and hence have run up the price, because of the perception of safety in gold holding its value better during uncertain times than other potential investments. But gold in and of itself has little/no inherent value, other than its use in some manufacturing processes and products. Its true value lies in its desirability and the demand for it from other people, simply because it is rare and desired. (All the gold ever mined by humans would form a cube 19 meters on a side).

In my town one way you can tell the age of a house is to look at its position relative to the road and its garage size. My town was founded in 1695 and while I don’t think there are any houses left that go back that far, the oldest houses are those that are right up against the road with little to no driveway in front of the house. The reason for that is simple. Of the little traffic they had back then, when you pulled up to a house on your horse you did not need to pull into a driveway. The next generation of houses had smallish driveways but no garages then came single then double and now most new houses are built with 3-car (or more) garages here. We live in a society that has become very energy dependent and automobile centric. Our road systems, our transport systems, most of our cities, the way we shop and travel to work, the way we build our homes are all centered around our use of the automobile as a means of transport and predominantly our automobiles run on gas and our society as a whole is very oil dependent.

The price of oil is now a source of concern to many if not most. Heating our homes, running our cars, the costs of goods and services are all getting more expensive due to the added energy costs in producing those products and services. Oil and hence energy historically has been a commodity, one that has been more or less reasonably priced here in the USA. In the very recent past, many would think nothing of filling up the tank on a nice Saturday and going for a ride in the country. People now think twice about what filling that tank will cost. I am certainly not the first to say it but as a society we are addicted to oil and historically the reasonable price has exacerbated that addiction. We are still addicted to oil but now the oil is getting very expensive and will likely push higher. Debates go on about why that is happening. Is it the oil companies, the countries with the oil resources, the refineries, or oil speculators, the hedge funds, the declining value of the dollar?

Oil has been referred to as black gold. (Was it Jedd Clampet who originally called it Texas tea?)  But rather than a comparison to gold, oil is more like salt. At this moment in time our society is so dependent on oil, given the way we are structured, that we literally cannot continue as a society without it. So in uncertain times what is oil worth? What should it be worth? What is it worth to keep our society functioning in the much same manner to which we are familiar? While I am feeling as much pain as the next guy when I have to fill up my gas tank or home heating oil tank, I could not help but think about what may be happening in the manufacturing sector now that the price of oil is as high as it is. Friday, June 13th, 2008 appearing in the Wall Street Journal was a story that started off this way. “The rising cost of shipping everything from industrial pump parts to lawn-mower batteries to living-room sofa is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas.”

If you think of raw materials, infrastructure, worker’s wages, transportation and the local business climate (taxes etc.) as all components of the total cost of a product, oil may not be all that inappropriately priced at the moment. For it seems that we are reaching a point of balance whereby given the total cost of producing a product, it is beginning to look attractive again to bring manufacturing back to the USA given the high cost of transport. The current price of oil and hence the transportation costs of goods is offsetting the lower wages paid elsewhere. At the current oil price the incentive to move manufacturing outside of the USA is disappearing. So while we are facing pain at the pump, every time we fill our tanks, at this price point are we now paying a price that will eventually bring manufacturing jobs back to these shores? Can we actually be heading down a path that will create local manufacturing jobs by paying these insane prices? But we are not the only ones paying these high prices. Those located in low wage countries (those where the cost of oil is not subsidized) are paying higher prices as well. How much greater is the pain for them? How will it end? As in the cold war the answer may be which society can outspend the other prior to collapse.

At the current price point for oil there certainly seem to be incentives for entrepreneurs to develop energy alternatives to oil. And any discomfort that the oil producing nations are currently feeling has nothing to do with the current price of oil per se, but that at the current price we have reached a point where alternatives to oil energy will be developed, potentially causing the long-term value of oil to plummet. At the current pain level we just might decide that it is time to kick the addiction. Remember what happened to the value of salt, a once hard to find commodity.

The percentage of 12th graders who report that they smoke cigarettes daily has dropped to just over 10 percent. And new work published May 22, 2008 in the New England Journal of Medicine suggested that those who decide to quit smoking are influenced by individuals from social networks with connections up to 3 degrees of separation (meaning a friend of a friend of a friend).  Work done on the brain has recently shown that the same parts of the brain are used when remembering the past and attempting to envision the future. This would suggest that those kids who develop the ability to kick their addiction, influenced by their extended peer set and develop a past, a history of not smoking will be more likely to envision a future for themselves where they do not smoke.

If we speculate that similar mechanisms may be at play in organizations (since organizations are simply an amalgamation of people, most of whom attended 12th grade), it may be that once organizations develop alternative energy solutions to service their needs, perhaps influenced by those other organizations with whom they are only remotely connected, that a critical mass will begin to develop. Once we head down the path of alternative energy, once the momentum is built and new products and services that are not as dependent on oil are more commonplace additional new products and services will likely arise. The difficulty of seeing an alternative energy future, to envision what that future may be like may ease once there is some alternative energy history in place, if not in the immediate organization itself then within peer network organizations.  Envisioning the future is apparently more easily done when you can refer to the past, even perhaps if that past is not your own but from elsewhere within your network.

Other organizational behavior may be operating based on similar mechanisms. Why over a very short period of time did organizations move from a defined benefit employee retirement plan to a defined contribution? (Yes, they saved money and reduced risk exposure, but what made that course of action acceptable?) Once the trend began, and a little history developed, with few exceptions the rest moved in lockstep. Some now have even done away with any retirement contribution. Will the rest shortly follow? Why did organizations move to outsourcing, off-shoring, why do they merge and reorganize the way they do? Could it perhaps be because of historical memory, perhaps even if it comes from other organizations? The likelihood of that greatly increases when you consider the way that people today shift from organization to organization carrying their organizational memories with them.

Too little oil can make life very difficult, but too much oil can cause an addiction to a predominantly single energy source, rather than a nice diverse basket of energy resources. We all know that the prudent course to take when investing is to diversify, to spread your risk around, yet we as an economy, as a society were willing to place most of our eggs into the oil energy basket, because it was economically attractive to do so. It is time for us to spread the risk around. Science and technology can make that happen. Just the right amount of oil, providing critical products that are hard to reproduce using alternatives, but also incenting alternative energy solutions would seem to be in our long-term best interest. Drilling in ANWAR on the north shore of Alaska or drilling off of our coasts has been described as giving the addict one more hit, it may provide very short-term relief, (given the lead time in exploring, drilling and commercialization, the time until that relief might be measured in decades) but does nothing to get us past our addiction.

For the short-term I will likely need to take out a loan every time I fill up the tank, but I can envision a future…..

© 2011 by Jeffrey M. Saltzman. All rights reserved.

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Written by Jeffrey M. Saltzman

November 9, 2009 at 8:03 am

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