Denis Diderot's Encyclopedie is hailed as a treasure trove of eighteenth-century Enlightenment principles, but it can also be an interesting lens into perspective on the factors of economic growth.
The Encyclopédie was a project led by Diderot that published 28 volumes between 1751 and 1772. Designed to collect all the world's knowledge, with 71,818 articles and more than 3,000 illustrations, written by more than 140 contributors, it was a courageous attempt and the heart of the Enlightenment.
The Encyclopédie (or Dictionary of Science, Arts and Crafts Systems) is best known for its collection of essays by Rousseau, Montesquieu, and Voltaire, among others, and promotes values such as secularism, reason, and tolerance. However, it is the science and technology section of the book that provides an interesting answer to the long-standing puzzle of the Industrial Revolution.
Few would question the proposition that human capital is fundamental to economic growth. However, there is much evidence that human capital had little impact on economic development during the Industrial Revolution, arguably the most important era of economic growth. In the United Kingdom, the cradle of industrialization, primary school enrolment was only 11% in 1850. In contrast, Scandinavia, despite achieving near-universal literacy at the beginning of the 19th century, has lagged behind economically for a long time. Human capital is widely seen as a powerful predictor of economic development, but why did it lose its importance to the Industrial Revolution?
In a 2014 paper, Mara Squicciarini of KU Leuven and Nico Voigtlander of the University of California, Los Angeles attempted to address this dilemma by dividing human capital into two categories, one that had an impact on the Industrial Revolution and one that did not.
The two economists found that the Encyclopedia's subscription rate was a favorable predictor of urban growth after the start of industrialization in France in the mid-18th century. That is, if at the end of the 18th century there were many people in a French city who were interested in mechanical craftsmanship and considered themselves intelligent (as their tendency to subscribe to the Encyclopedia reveals), the city would have grown much faster. Those early adopters of technology – we now call them entrepreneurs, or even founders – drove the dynamism of the overall economy. In contrast, other indicators, such as literacy rates, do not predict future growth.
In their analysis, the Encyclopedia's subscription rate was used as a measure of "upper-tail human capital" to contrast it with the literacy rate, which represents "average human capital." The term "upper tail human capital" refers to specific human capital at the upper end of the knowledge distribution, such as engineers, machinists, and entrepreneurs, who have the knowledge and skills needed to generate and apply new technologies at the heart of the Industrial Revolution.
According to the two researchers, it is "upper tail knowledge" rather than "average human capital" that drives industrialization. This finding is important because, while worker skills, such as literacy and primary education, can help increase productivity with existing technologies, only the skills of top engineers and entrepreneurs can lead to social innovation and drive the kind of rapid technological progress that occurred during the Industrial Revolution.
From this point of view, Haier's founder Zhang Ruimin, at the peak of his management career, called for a "new enlightenment" in the global business community, which has great meaning. As we enter the era of the Fourth Industrial Revolution, established companies tend to resist the arrival of new management paradigms.
Maximize the value of people
For the "new enlightenment", Zhang Ruimin explained, where is the new? The new is the enlightenment of people's self-consciousness. In contrast, traditional enterprises have never regarded people as autonomous people, and only Haier has found the enlightenment path of people's independent consciousness by exploring the "integration of people and singles".
Is there any research on people in traditional businesses? Of course, there are, but it boils down to two main theories: Theory X and Theory Y. Both of these theories are theories of human motivation and management, created by Douglas McGregor in the 50s of the 20th century while working at MIT's Sloan School of Management, and further developed in the 60s.
McGregor's work, rooted in the theory of motivation, goes hand in hand with the work of Abraham Maslow, who created the hierarchy of needs. These two theories describe contrasting models of labor motivation applied by managers in human resource management, organizational behavior, organizational communication, and organizational development.
Theory X explains the importance of enhanced supervision, external rewards, and punishments, while Theory Y emphasizes the motivating role of job satisfaction and encourages employees to complete tasks without direct supervision. Management's use of Theory X and Theory Y can affect employee motivation and productivity in different ways, and managers can choose to implement strategies from both theories into their practice.
In Zhang Ruimin's words: "The premise of Theory X is that 'at the beginning of man, his nature is evil', and he believes that people are indulgent and hard-working, and must be strictly controlled. The premise of Theory Y is that 'at the beginning of man, his nature is good', and he believes that man is still good, and there is no need to strictly control it, as long as it is guided according to the situation. "Related to Maslow's hierarchy of needs, the assumptions of Theory Y emphasize higher-level needs of employees, such as respect and self-actualization.
However, Zhang Ruimin believes that no matter which assumption is made, the positioning of people is still a passive person, and they are the objects that need to be managed, rather than autonomous people. And the unity of man and single is to solve this problem, so it is a new enlightenment.
On September 16, 2023, at the 7th Rendanheyi Model Leading Forum, Zhang Ruimin said in his keynote speech: "Since the industrial revolution, the main body of traditional enterprises has always been shareholders, that is, enterprises are shareholders, so the existence of enterprises is to create value for shareholders. The new enlightenment of the integration of people and orders lies in proposing that the main body of the enterprise is no longer shareholders, but people, and everyone in the enterprise. Everyone is the main body of the enterprise, and this is the new enlightenment movement in the corporate world. ”
For enterprises, this involves the reshaping of one of the most important purposes: from the purpose of maximizing shareholder value in the past to the purpose of maximizing the value of people.
In order to illustrate the relationship between the maximization of human value and the unity of human beings, Zhang Ruimin talked about an ancient Chinese Zen case.
Hentai Zang was a bhikshuni (female practitioner) during the Wu and Zhou dynasties of the Tang Dynasty. Once, Endless Zangni said to Huineng, the sixth patriarch of Zen Buddhism, "I have read the Nirvana Sutra for many years, but I still have many questions and hope to get advice. Huineng replied, "I am illiterate, please read the scriptures to me, and I may be able to help you clear up your doubts." Endless Zangni couldn't help but laugh and said, "You don't even know a word, how can you talk about interpreting the scriptures?" Huineng said: "Truth has nothing to do with words, truth is like the bright moon in the sky, and words are just fingers pointing to the bright moon, fingers can point out where the bright moon is, but the fingers are not the bright moon." ”
In Huineng's eyes, there are thousands of Buddhist scriptures, but they are just fingers pointing to the moon, and only Buddha nature is where the bright moon is.
Zhang Ruimin said that in the same way, the maximization of human value is the bright moon in the sky, which is the truth pursued by Haier as an enterprise, and the unity of people is just a finger pointing to this bright moon.
To achieve this, it is necessary to creatively disrupt the classic model, including the management model, the organizational structure, the compensation method, etc.
Comparison between the classic model and Rendanyi Source: Haier Culture
Zhang Ruimin drew a diagram listing the differences between the classic model and the newly enlightened Rendanyi enterprise, which shows changes in purpose, management model, organization, salary, etc., and there is no doubt that more can be listed.
Looking back at Haier's history, since the establishment of the Rendanyi model in 2005, all these contents have evolved many times, and will continue to evolve in the future, because they are all uncertain, and only the maximization of human value is certain.
So what is the maximization of human value? Zhang Ruimin is well-read, and once quoted physics to give an explanation-
When I first studied physics, I was amazed by the phenomenon of perpetual motion of subatomic particles. Electrons and protons coexist in dynamic equilibrium, which is produced by their equal and opposite charges. It maintains a constant existence that allows atoms to aggregate into molecules in many different forms, each with its own unique properties, and there is a huge amount of energy in these atomic structures. Applying this idea from physics to business, small teams of people with different backgrounds, skills, and ideas can coexist very effectively. Creating small, diverse teams with equally dynamic ideas and actions is key to the sustainability of a business. They can be self-organizing and mutually reinforcing. Ideas, innovation, and implementation are continuous. They can easily connect with other teams, just as atoms aggregate into molecules, to collaborate on projects and create new solutions.
It is for this reason that Zhang Ruimin challenges the tradition of shareholder primacy in the value equation, placing a premium on employees and the value created by them. He also recognises the need to empower employees to be closer to their customers. He believes that for Haier to survive, the nature of the work of the entire organization must change: from simply giving orders from superiors to focusing on zero distance with users, quickly responding to and meeting any emerging needs; This, in turn, means that Haier can no longer rely on employees who act like "screws", but needs entrepreneurs who become makers, self-organize into small and micro enterprises, ecological chain groups, and innovate with the support of the platform.
Micro and micro enterprises are micro enterprises that are close to the end user and appear in the form of start-up teams; Chain group is the small and micro group on the ecological chain. There are two types of chains: Experience groups act as user touchpoints who know who their users are, where they are, what they want, and how to connect with them. Their responsibility is to identify the "pain points" and needs of users. They understand that specific user knowledge is a valuable resource, and they have a variety of ways to benefit from these insights. The Chuangxin group is responsible for creating solutions. They can attract a variety of resources (from within or outside) to achieve their goals. These resources may include knowledge, specific components, or in some cases, funding.
Ecological diagram of chain group contract Source: Haier Culture
If both parties can work together to create value for users, they can share the profits. Collaboration is critical because if they can't create value for users, they don't get paid at all. In other words, Haier has a Nash equilibrium across the enterprise, which means that people from different departments don't break each other. Previously, in traditional organizations, people occupied different silos and didn't talk to each other. These departments are often alienated from the end user, operating in isolation, often in a mechanical and aloof manner. Now, decisions on the allocation, hiring, dismissal, reward, and remuneration of key personnel are made by small, independent units, rather than by superiors; Key operational partnerships occur autonomously in the internal market, which is dominated by the integrated mechanism of value creation and value sharing fostered by chain group contracts.
In early November, Thinkers50, a London-based ranking of management thinkers, presented Zhang with the Lifetime Achievement Award, an organization whose mission is to identify and highlight the contributions of thinkers to management thought on a global scale. Haier, led by Zhang Ruimin, has been fighting bureaucracy for 40 years and maximizing the value of people in large, complex modern organizations. Stuart Crainer, author of The Management Century (2000) and one of the founders of Thinkers50, said the success story of the Haier model is now having a growing impact in Europe and around the world. Gary Hamel, the guest of honour and a renowned management guru, said: "Haier has broken the stereotype of management time and time again: it is impossible for a company to do both exploration and profitability at the same time. Large institutions can be just as entrepreneurial as startups, and bureaucracy is not a constant in the universe. ”
This recognition of Chang's achievements is not a trivial move, and the award places him in a very unique group of laureates, including Charles Handy, Philip Kotler, Rosabeth Moss Kanter, Tom Peters, Henry Mintzberg, The likes of Ikujiro Nonaka and Richard D'Aveni have profoundly influenced the way we look at businesses and their behavior. It is also important to note that among these carefully selected management thinkers, Zhang Ruimin is the only doer.
Lessons of the New Enlightenment
Returning to the thesis of Squeccarini and Voitland, they capture the key point of prosperity that is the importance of scientific and technological knowledge and its effective application. The authors hypothesize that early adopters use their newly acquired knowledge to build technology-based businesses that drive regional prosperity. There are indeed other supports for this claim.
Two economists, Enrico Moretti and Dan Wilson, have written about the impact of star scientists on high-productivity tech industries, while Dan Stangler, head of research at the startup-focused Kauffman Foundation, argues that "gazelles" Startups (a metaphor for high-growth companies) have a disproportionately large impact on economic growth, albeit in smaller numbers.
Together, these studies point out that when knowledge becomes economically "useful", whether it is the beginning of industrialization or the growth of digitalization, the technical and managerial elite begin to promote growth. Its key role is particularly evident in the transition period from the old economic system to the new economic system.
If we want to grow in the future, we really need to launch a new management enlightenment that will allow more companies to become subscribers to the new encyclopedia of our time – which may include technical know-how, but also the right mindset, whatever you call it: "maker", "hacker", "open innovation", and so on. And this is what Haier is doing, and it is also trying to promote it to the world.
In the old Enlightenment, there were two key words: one is rationality, and the other is freedom. The Enlightenment, sometimes referred to as the "Age of Reason," was characterized by a sense of confidence and enthusiasm for human reason, not primarily for reason as an independent source of knowledge, but for the universal cognitive faculties of mankind. The age of reason contrasts with the age of religious belief, not with the age of sensory experience. The rise of empiricism in scientific practice and theory of knowledge was characteristic of this period. Second, the Enlightenment also left us with a belief in the value of learning, the comprehensive role and scope of education, and its role as a fundamental force in society. For example, the knowledge contained in the Encyclopedia is consciously social in its production and social in its orientation – it is seen primarily as a tool for education and the betterment of society. And the underlying DNA of all this includes critical thinking and free debate. Politically, freedom also means freedom of religion, freedom of the press, and freedom from unreasonable government. Throughout the Enlightenment, the goals of rational humanity were considered knowledge, freedom, and happiness.
Diderot described the purpose of the Encyclopédie as "to change the way people think." This is also the purpose of the New Enlightenment. The Enlightenment was based on the ideal of emancipation through education and knowledge. In the New Enlightenment, we need to rethink how the old Enlightenment must be renewed in order to achieve this liberation.
The first is a new understanding of human nature. Perhaps the greatest legacy of the Old Enlightenment is our insistence that we are "rational individuals." However, this rational individual model is wrong – the fault lies not only in the rational part, but also in the individual part. Our actions are strongly influenced by those around us, which is the source of much of our wisdom. An individual's ability to thrive is due to learning from the experiences of others. In other words, we are not individuals, but members of a social species.
In fact, beginning with Adam Smith's observations, the concept of the "rational individual" has reached its current form, in which people are "guided by an invisible hand...... to promote the good of society and provide the means for species to reproduce". This is the origin of the "Homo economicus" hypothesis, which sees man as a self-focused, materialistic creature who always acts independently of others, constantly trying to maximize utility through rational calculations.
In fact, Adam Smith said, "It is human nature not only to exchange goods, but also to exchange ideas, assistance, and favors...... It is these exchanges that lead people to create solutions for the good of society. Marx also expressed a similar meaning, that is, society is the sum total of all our social relations.
Most economics and most management systems assume that people make decisions independently and do not influence each other. This is completely wrong. The social bridges built between individuals are the source of innovation and growth. The New Enlightenment believed that it is best to think of humans as a species that is constantly looking for new opportunities, new ideas, and that their social networks are the main, perhaps the greatest, resources for finding opportunities.
This approach to social learning also has an advantage that is absolutely unique and important for the social species: individuals behave in the best interests of both their own and the best interests of everyone in the social network. On this basis, the New Enlightenment believed in the consistency of individual and organizational incentives. This means that the best personal benefits and organizational benefits are the same, and individuals can learn the best behaviors by observing others.
Cities are a great example of how the process of finding new opportunities can shape human society. Cities are the main productive centers of society, and as we have seen in the papers of Squeicharini and Voitland, cities that are adept at finding new opportunities are more prosperous. Long-term economic growth is largely driven by social innovation, and cities are able to facilitate the human interaction and exchange of ideas needed for good ideas and new opportunities.
Zhang Ruimin likes to quote Kevin Kelly: "All companies are dead, and all cities are almost immortal." "Why? Because the company always tries to become a self-contained system, the goal is to make an empire, and there is no empire that cannot collapse. And all cities are almost immortal because all cities are ecosystems.
This leads to Zhang's ecosystem thinking, which enables Haier to create a single-grouped, dynamic, and responsive organization to meet changing user needs. The focus is on collaboration and attracting new resources to solve user pain points, rather than trying to invent, create, and own everything yourself. This greatly reduces the cost, time and risk of failure, and also leads to the subversion of Haier's employees from rational economic people to autonomous human makers.
Secondly, in the transformation from homo economicus to autonomous man, there is a value that stands out, that is, dignity, which is also the essence of the New Enlightenment. Dignity itself can be made up of nine needs, including rationality, security, rights, responsibility, transparency, justice, opportunity, innovation, and inclusivity. Dignity-based governance is the best predictor of corporate progress and social cooperation, and dignity is even more important than freedom.
In the 21st century of the New Enlightenment (and the century to come), attention needs to be paid to individual and collective dignity. One of the most valuable lessons of human history is that any thought, ideology, and domination that repeatedly ignores the attributes of humanity and the need for human dignity fails, even if it sometimes takes decades or more to die. In order for the New Enlightenment to stand the test of time, they must take into account the basic attributes of the human person and balance them with the corresponding nine dignified needs.
Gary Hammer also said when presenting Zhang Ruimin with the award: "If you want to create a business for the future of mankind, you must first create a business that is suitable for humanity." In such an enterprise, everyone is the main body, and everyone enjoys dignity, just like Zhang Ruimin said: "The most important principle of the unity of human nature is the emancipation of human nature." "The emancipation of humanity is not a luxury, but a necessity, because it would be a very bad bet in these uncertain times for companies to essentially ignore and abandon the initiative and ingenuity of the 99% of the organization and instead rely on a few people at the top to find the future.
Through the New Enlightenment, we learn that many of our traditional ideas about ourselves and how society works are wrong. Those who have the best ideas are not only the smartest people, but also those who are the best at taking ideas from others; It is not only the most determined people who are driving change, but also those who fully cooperate with like-minded people; It is not wealth or prestige that motivates people the most, but the respect and help of their peers. Perhaps, a famous quote by Zhang Ruimin can best explain the essence of the New Enlightenment: "I want an organization that enables all the people who work in this organization to do extraordinary things." ”