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The Illiquidity of Talent and Fungibility of Capital

Most of the time I am very eager to generate ideas on how to generate capital. I believe that a well-armed war chest is a very powerful enabler for many changes I wish to see in this world.

However, the world is awash with capital. Capital, by itself, is dumb. It provides no insight on how to do things. It just enables things after you know what should you do. The real bottleneck is in the lack of talent. Capital is commodity. Anybody’s money is equally green. For talent, this is not the case. Capital is not a substitute for talent.

Another problem with capital is that it is too liquid. Sure, foreign direct investment such as building a factory is hard to reverse, but most investment came in stocks and bonds in Indonesia, which is very easy to be subjected to capital flight.

Capital is also fungible, which provides flexibility. You can fund a nuclear fusion research with money obtained from selling billions of dollar worth of Indomie, but you cannot run the research by hiring noodle researchers instead of nuclear researchers. Talent is not fungible. Specific talent is meant for specific purpose.

The talent itself is not too liquid either. They need years of education, training, and experience before they are effective at problem solving or breakthrough innovation.

There is a very interesting read on why most problems don’t need additional money, but are talent-constrained (Source: Why you should focus more on talent gaps, not funding gaps).

All of these facts somehow make me think that the relation between capital and talent resembles to that of energy and entropy. Entropy is just the number of all possible configuration (or combinations of states) for a given amount of energy. I think that is also true for talent, as it utilize the available capital to different possible outputs.

A long term strategy to optimize talent and capital should look like this:

  • Capital Generation. Some industries are easier for starting a company, others are less so. Independently (I suspect), some industries have higher ROA or ROE than others, or in other words, need less capital to generate a given return. We should choose the easier industry with the higher ROA or ROE because our sole purpose at this phase is merely mindless capital accumulation. The talent that we need should also be the normal talent that is usually available at the labor market. We have no need more niche specialist, at least not yet at this phase
  • Talent-generating Capital. We should invest the accumulated capital to develop talent that directly benefit us. Two reasons to support this proposition. First, there is a clear market need for such kinds of talents, so we would not misallocate limited capital for developing useless talent, or the wrong talent for the wrong place and the wrong time. Second, it is easier to convince the gatekeepers to green-light such initiatives. Although we might be the capital holder, we are still accountable to the board of directors, especially if our stake has been diluted along the way in raising capital for our ventures. The talent to be developed will yield short- to medium-term benefit the board of directors personally either in terms of dividends or capital appreciation from the improved profit of our corporations.
  • Talent Diversification and Moonshots. We will then try do diversify our talent base. We should start covering talent base that is not directly benefiting our current business. We will do that by funding the education and training of talents in sectors that we are not yet operating in, as well as provide funding for the educated and trained graduates to experiment in the real world to gain experience. Think of it similar with Manhattan Project or Bell Labs. There are two reasons for this goal. First, by this time our core business should already mature and we have to search for new avenues for growth. Investing in these moonshots can sustain our business for multiple decades ahead. Second, developing talent need an immersive environment. We are basically subsidizing them to obtain experience in the simulated future-state of the world by working in our moonshot projects. Along the way, they are also developing themselves as highly-skilled and experienced talent ready to be deployed elsewhere. Fundamentally, we are accumulating our national talent reserve the same way we are accumulating our capital reserve, although developing talent reserve is trickier because talent is not as fungible as capital.
  • Beyond Shareholder Value. As our talent infrastructure grows, our talent can be deployed elsewhere. Our highly-skilled and highly educated, experienced, seasoned, and battle-hardened talent can take their post either in our company/conglomeration, the public sector, and the non-profit sector to solve the talent-constrained problem.

Essentially, developing talent cannot be done by simply throwing money. Money should be the fuel and the grease to the machine, but the machine itself has to be carefully construct so the fuel and grease can properly move the machine to produce the desired output.

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