Two Clocks in Every Company

Abstract

A farmer whose well has always given water does not measure the aquifer beneath it. The pump runs, the tank fills, the crop is watered. If more land goes under irrigation, the pump runs longer and the tank still fills. Nothing in the daily experience of the farm says that the water is coming from a store laid down over centuries and refilled, each year, by a fraction of what is now being drawn. Then one August the pump draws air. Ammanuel Santa Anna uses this image in his manuscript on the costs of the machine metaphor in business. A firm that systematically underinvests in the long-cycle assets that generate its future earnings, he argues, is consuming the ecology that sustains it, and its earnings can look healthy the whole time it does so. He ends the passage on the point that matters for anyone reading a set of accounts: "the yield can be maintained until, suddenly, it cannot."