Article: Investment based or debt based?

Professor Prabhu Guptara said something very interesting to me the other day. Well actually he didn’t, I apologise, I read an interview with him in a magazine, but anyway, he said that “The best good outcome <from a financial crisis and recession> would be the discouragement of our debt-based economic system… … and the encouragement of an investment-based financial system”.

What’s the difference between a debt based and an investment based system? Surely if there are investors there will always be borrowers and therefore people in debt. Not so, I realised some time and mugs of tea later. As I now see it a lender insists on a return of the loaned capital plus (usually) a percentage interest. A borrower therefore has to pay off the initial sum plus interest regardless of the use to which he puts the money and the profits gained. An investor, on the other hand, entrusts the money to a steward and hopes for his money back plus a return on his investment but insists on neither – he takes the risk and no one gets in debt. Professor Prabhu Guptara was talking about money (and what a radically different place our world would be if this was the prevailing system) but it got me thinking more broadly. I think we tend to manage all our resources in a similar way. If we’ve been managing our money in this way we’ve probably been managing our other talents in this way too: Talents such as time, energy, creativity, health, pigeons and relationships.

We consciously or unconsciously manage quite a few economies. There’s time management, money management, our energy, even our relationships.

What difference does our management system make? What difference would it make to our lives and the lives of those around us if they were investment-based rather than debt-based?

I think that we have two roles with respect to the idea of being an investment based economy:

We are investors of talents

We are managers of talents

How are we as investors? Let’s think crudely about energy for a moment. We often talk in terms of using energy; what about investing energy? What’s the difference? Do we hope for a return? If we do we are investing, if we don’t we are spending. The returns we hope for can be diverse. When I invest energy in a day’s climbing I’m hoping it will result in a lot of fun and refreshment, for everyone on board and, on our return, for our friends and family by infection. Investments don’t always yield a return but neither do we develop a debt or deficit because we only invest what we already have. This all requires a good degree of awareness regarding our energy balance.

A good investor will be sensitive to what he has and does not give out beyond his means – this would put him in debt. I’m very good at this – getting into debt. Symptoms are lethargy, poor concentration, irritability, poor performance under pressure, lack of motivation, lack of sense of humour, unhappy wife, inefficiency, early morning inertia and stapler accidents.

So how good are we as managers? I’m not sure we can separate our role as a manger from our role as an investor. We can’t be good at one and not good at the other. To be a good investor we need to be a good manager of what has been invested in us and being a good steward will make us a good investor.

Back to energy: Could it be that we’ve been operating a debt-based energy system – we use as much as is available and our exertions are only limited by the amount we can muster – no matter if we become overdrawn, lethargic or ineffectual. If the energy is still available we’ll keep using it. If this is the case we may be so used to living in energy debt that having energy to invest may be a distant memory we associate with our youth.

It’s very difficult to live an investment based life in a world that is debt based. To find a home larger than a tree stump without getting into debt requires considerable capital. To sleep ourselves into a state of investable energy is to win derision from friends and colleagues – “You go to bed at what time?”. To play is to encourage patronising looks and judgements on your maturity. To use the word recreation at work is to run the risk of being called lightweight.

Let’s not be directed by those on their way to bankruptcy. Let’s instead think about how we can become good investors and good managers.