Some people (Mr. Spock and many engineers come to mind) think that the last link in the chain in terms of human evolution is to become a person whose actions and decisions are determined solely by logic. The perfect person, in this view, is one who is totally logical. In my view, this would lead to many wrong decisions and a much poorer world in every sense of that word.
It is interesting that mathematicians (of all people) have already proven that logic cannot be used to solve all problems.
Kurt Godel demonstrated the limits of formal systems in 1931. Godel’s theorem of incompleteness (SEE WIKIPEDIA ENTRY ON GODEL) states that:
‘For any consistent formal theory that proves basic arithmetical truths, it is possible to construct an arithmetical statement that is true 1 but not provable in the theory. That is, any theory capable of expressing elementary arithmetic cannot be both consistent and complete.’
My friend Jean-Luc Cooke (an encryption specialist) put this in English for me this way:
‘If you can exactly describe a system using a set of rules, then there exist statements in that system that are true but cannot be expressed using the rules of the system. Simply, there exist truths in a system that the rules cannot explain. Logic alone cannot lead you to all truths, some truths will defy all proof.’
So at the end of the day, logic can only get you so far and then you are in a box. I tell my students in both entrepreneurship and architecture, that every project that humans undertake (including things like marriage) is fundamentally an act (leap) of faith. Analysis can help you make more informed decisions but I can tell you that lots of things work that logic tells you aren’t supposed to.
Our bid for a NHL team for Ottawa was considered impossible but the people behind the initiative to Bring Back the Senators wanted to succeed beyond all reason. It didn’t hurt that they were very smart people and lucky too.
Fred Smith was totally committed, mind and body, to making Fed/Ex work. But when he started there was no market for overnight package delivery, none. His first night in business they moved eight packages in their entire system. But it did eventually work and Fred Smith became a legendary, if somewhat controversial, figure.
Kevin Rose wanted digg.com (his new age Internet newspaper) to work; In fact, he spent his last dollar on it. His girlfriend dumped him because she wanted to spend that on a down payment for a home. 18 months later, Kevin (age 29) was on the cover of Business Week and had made $60 million. It shouldn’t have worked. In fact, why didn’t the New York Times come up with this revolutionary new business model for a newspaper on the web? Why did they just put their same processes to work on the Internet and get the same tired result? Because logic will only take you so far.
An even more important example is the Grameen Bank of Bangladesh. Founded 30 years ago by Nobel Peace Prize winner (2006) Muhammad Yunus, the bank broke all the rules of sound banking practices. Logic says it shouldn’t have worked yet it did. Let me explain.
Muhammad Yunus believed:
1. Other Banks will only lend to people with collateral. To him that means they only lend to people who don’t need money. Grameen Bank will only lend to people who do need the money. As a result, they don’t take or ask for any collareral.
2. By not taking any collateral, most Banks believe that loan losses will be unacceptable. Not so. Grameen Bank has a recovery rate of more than 97%.
3. The less money you have, the greater poverty you are experiencing and the greater your need, means you go to the front of the line for a loan at Grameen Bank.
4. Most banks in Bangladesh (and many other countries too) would not lend to women because they are not ‘business oriented’. Grameen’s clients are 94% women and their success rates in starting new enterprises and taking care of their families is huge just as their ability to repay their loans to the bank is vast.
5. The borrowers/members/depositors of Grameen Bank are also the owners so borrowers feel a loyalty to their bank and feel the need to make sure that their loans are repaid. It is similar in that way to Co-op banks in Canada, like, for example, the Caisse de Depot et Pacement, which started in Québec. Caisse members own the bank. It costs $5 to become a member of the Caisse.
6. When you belong to a co-op like I do (I am a card carrying member of the Caisse Populaire), they treat you like a real person. They trust you. They will give you a loan when you need it. They don’t just use scoring machines (which all other Canadian Banks do) and, if you fail the machine test, sorry, the loans officer in a major Canadian Chartered Bank has no flexbility to approve even a $100 loan. Despite the fact that the Caisse still uses a human approach to lending based on trust, their loan loss ratio is less than .5%, significantly lower than most major chartered banks.
7. Grameen Bank has a $400,000,000 USD lending book and over 2 million clients in Bangladesh (that works out to an average loan of just $200).
8. Muhammad Yunus has correctly identified micro credit as the most efficient and effective means of lifting people out of poverty by giving them the means to start a personal business that will sustain the borrowers and their families. A business has the unique advantage of producing recurring income. These are not handouts. They are giving people ‘fishing rods, not fish’.
9. Yunus criticizes development agencies as always doing things like studying ways to reduce poverty or working indirectly through still other government or NGO bodies to do things that again are indirect– like build a dam. He believes as I do that entrepreneuship is the most efficient user of scare capital and scarce resources; by giving micro capital directly to the people, he lets them decide how to self organize to the greatest effect. There are no intermediaries, no ‘wise’ bureacrats telling them what to do. And by the way, making efficient use of scarce capital and scarce resources also happens to be better for the environment.
Logic said the Grameen Bank wouldn’t work, but it did. Thank God. (An example of how micro lending works is provided at the end of this post.)
Oh, by the way, I forgot to mention, Grameen makes a profit, every year.
(October 13th, 2006 was a great day for entrepreneurs and entrepreneur educators everywhere: Muhammad Yunus won the Noble Peace Prize that day. It was an indirect recognition by the Nobel Committee no less, that support for entrepreneurs and entrepreneurship is one of the keys to economic takeoff.)
Let’s look at another example from the world of mathematics. There is no known algorithm that will generate all prime numbers. Hence, we can use prime numbers as the basis for encryption systems.
But how do we know that the largest prime number yet found isn’t the last one in the series? How do we disprove that?
By using the exclusionary principle.
Let us assume that we do in fact have ALL the prime numbers there are, that there aren’t anymore. But we also know that if multiply all the prime numbers there are and then add 1, we will get another prime number (a number which can only be divided by itself and 1). Therefore, we couldn’t have had all the prime numbers in the first place and thus there can’t be a limit on the number of primes that we can find. That is, there is no possibility that the largest prime number we can find is in fact the largest possible.
Now we cannot generate an algorithm that will generate all prime numbers and there is no apparent pattern, at least not one the greatest mathematicians that have ever lived or anyone else for that matter have been able to detect.
So although we can’t generate an algorithm that will produce all the prime numbers and we can’t deduce a pattern in the series of primes, we do know by logical inference that there is no limit to how many there are.
There is no known means of logically inferring primes (i.e., generating them), so you cannot find primes by an act of logic and therefore the only thing you are left with, if it isn’t logic is that it is an act of faith. Q.E.D.
Even more simply, who could have guessed that energy and matter are related through the speed of light squared? What type of thinking can get you there? Some of it is clearly right brain, logical thinking and some of it is left brain thinking—a leap of faith.
Many of Einstein’s findings could not be proved experimentally for decades after he postulated them…
So if you want to innovate, be more creative, be a more interesting person, make fewer mistakes in business and in life, then relying wholly on logic will unnecessarily limit you and disappoint you and everyone around you.
Dr. Bruce
Readings: Subsequent to writing this essay, I read three great books that you can refer to that build on the idea that logic can only take you so far. They are: Predictably Irrational by Dan Ariely, Blink by Malclom Galdwell and The Black Swan by Nassim Nicholas Taleb. Gladwell shows how our unconscious mind can make (good and bad) decisions in less than two seconds from the scantiest of evidence. Ariely shows how prone we are to acting irrationally depending on, for example, the power of suggestion. Finally, Taleb demonstrates that unusual and rare events are actually much more common than our typical models of probability theory (based on bell curve distributions) would suggest and that it is irrational to assume economic systems will behave any better than, say, weather systems.
Postscript 1: Get a Personal Business for Life
At a minimum, it is my contention that perhaps every man, women and child should have their own Personal Business for life, a PB4L. It can provide them with real security, something to fall back on when everything else fails. It was only when India and China unlocked the power of their entrepreneur class, that their economies really took off. A PB4L must have the following characteristics: i. it is not a hobby, ii. it must be low risk, iii. it must be started with less than $15,000 in capital, iv. it must make a profit, v. it must be scaleable, vi. it must be able to survive the Founder, vii. it must not be hourly based, per se, i.e., hourly consulting will not do or cutting lawns is not necessarily a PB4L. Here are a couple of examples from the entrepreneurship program that I run: qwantz.com and gradeAtechs.com (now much bigger than a PB4L).
Postscript 2: Pre-Conditions for Economic Takeoff by Nations
Walt Rostow established some of the pre-conditions for economic takeoff in his pioneering work in the 1950s and 1960s. He was fascinated by the subject. Why did some nation states takeoff while others who started at about the same level remained stagnant or worse, went backwards. Argentina had a higher GDP per capita than Canada did at the end of WWII but was nowhere close by the end of the millennium. Why was that? Walt said that nations would develop because they had peace, civic order, good government, decent education and health systems, adequate infrastructure, access to capital and efficient and free markets. To this I would add, respect for the sanctity of contracts, high levels of trust between persons and support for entrepreneurs and entrepreneurship. Trust is a key component. Governments must trust that most people will voluntarily pay their taxes; businesses must trust that their suppliers will supply them on time and that their clients will actually pay them for the goods and services they provided. Trust me, it doesn’t matter if you have reams of signed legal contracts; if the other side doesn’t intend to live up to their obligations, you are in trouble.
Today, we can also add another pre-condition for economic takeoff from the work of Hernando De Soto: high rates of home ownership. Home equity is the number one source of startup capital for entrepreneurs world-wide.
My guess is that capital for new enterprise startups comes largely from these sources: 1. home equity, 2. soft capital (loans from family and friends), 3. supplier credit (30, 60, 90 day terms from suppliers), 4. launch clients (people or businesses that give you an advance on an order; e.g., the Ottawa Senators sold $22 million in season tickets in December 1990, 20 months before they began play in the NHL in October 1992), 5. retainers and progress payments (e.g., a client of mine, one of the top advergaming outfits in the world, gets 30% down upon execution of each contract and two progress draws of 30% each. Only 10% remains to be paid on delivery of their online, collaborative games so, the more they sell, the more cash they have on hand). These sources are part of what is called self capitalization or bootstrap capital. More Sources of Bootstrap capital. Capital from Banks, VCs and Governments would probably be the smallest sources of cash for new enterprises and are obviously not forms of bootstrap capitalization.
Postscript 3: Micro Capital at Work
Gulbadan Nesa in the village of Bishnurampur received a $90 loan from the Grameen Bank in 2001 when she was completely destitute. She bought some egg-laying chickens, which have an interesting characteristic: they lay eggs every day– it is the start of a sustainable cashflow. She has since traded up and now is selling construction materials. She is an entrepreneur; she is self sufficient; she now has her own home; she can take care of her family. Now, she must also learn that once you have struggled to build a successful business, you have to hold on to it: it’s a BUILD AND HOLD stategy.
A friend of mine and successful Ottawa Entrepreneur, Peter Patafie, once told me that his priorities were:
#1 Take of his business.
#2 Take care of his family.
#3 Take care of himself.
When my students asked him about #1 and #2 (Weren’t they in the wrong order?), he replied with a question of his own: What is the number one cause of divorce? It turns out to be financial distress. Sure people say that they fell out of love or what have you, but the real underlying cause, is bill collectors calling at dinner time and saying: “Mrs. Smith, when can we expect payment?”
(There really is no such thing as Creditor Proofing yourself as an entrepreneur but there are a few appropriate steps you that you can take to protect your family so that even if you fail, hopefully, your family will still have a place to live and some means of support.)
He said, take care of your business first so you can take care of your family. It is part of your social responsibility too, in Peter’s mind. That is, an entrepreneur is pursuing a moral route in life by following Adam Smith’s Invisible Hand. He or she is, in fact, serving a moral purpose by first pursuing their self interest because by doing so they can provide for themselves and their families and NOT BECOME A BURDEN ON THEIR FELLOW HUMANS OR THE STATE. After this is done, they can generate a surplus (called a profit) to take better care of their employees, reinvest in their businesses, provide more and better products and services to their customers, pay their taxes and give to the less fortunate.