Podcast Summary

The Elves and the Shoemaker – LSE Public Lectures and Events (20 Nov 2012)

Host: LSE Film and Audio Team
Speaker: Giles Hedger, Managing Director & Chief Strategy Officer, Leo Burnett
Theme: Using the parable "The Elves and the Shoemaker" to interrogate the core of creative value and how it's generated, both in economics and culture, with lessons for business, marketing, and the broader economy.

Overview

This lecture sees Giles Hedger repurpose the classic fairy tale "The Elves and the Shoemaker" as a metaphor for value creation, especially in creative industries like advertising. Hedger explores what he calls the "miraculous" moment of creative value, how it powers economies, where it goes unnoticed, and why its essence is misunderstood in a world obsessed with commoditization. Drawing on examples from music, film, business, and pop culture, he argues creativity sits at the heart of real economic progress.

Key Discussion Points and Insights

1. Introduction and Premise: The Problem of the "Flat Pack Economy"

• [04:00] Hedger describes his professional and existential concern that modern economies risk "sleepwalking into...a flat pack economy."

  "Too much of what is bought and sold is simply too much the same. There are too many variations on too few themes."

• Hedger’s worry: competitiveness becomes about speed and cost, not about unique value.
• He proposes using "The Elves and the Shoemaker" as a parable for alternative, high-value economics.

2. The Parable Broken Down: Anatomy of Value Creation

The Story Elements

• [07:35] The shoemaker uses his last scraps of leather, goes to bed defeated, and wakes to find exquisite shoes made—by elves.
• Selling these, he’s paid double and repeats the process, success multiplies, and soon his shoes become the must-have product of the town.
• The magic: "the elves get involved"—the mysterious moment of value creation.

The Parable’s Lessons (for Markets and Creativity):

• Short-term: A premium product sparks exceptional demand and improved fortunes.
• Medium/Long-term: Pre-orders and evolving business cycles create lasting prosperity.
• Crucial observation—"But what really happens when the elves come out?" This is the bit economists and even creative business measurements often ignore.

3. Principle #1: Value Creation is Ancient, Not Modern

• [16:00]

  "The act of value creation is ancient and predates not just the Internet but also the steam engine. It is a set of quite...primitive impulses that come together when something is created."

• Hedger warns against believing creativity is a modern, post-industrial "gimmick."
• Metaphor: If we only innovate in "services" and ignore core creative products, our economies will be all lounge, no airplane—missing substance.

Examples:

• The Killers’ ‘Mr. Brightside’ [19:00]: Two musicians combine verse and chorus, producing an iconic song through essentially low-tech, analog creation.
• Pixar/Up [22:00]: Despite technological sheen, the root of Pixar’s value lies in a simple, analog idea ("how many balloons would it take to lift a house?”), and thousands of pieces of hand-drawn art, not just code.

4. Principle #2: The "Value Chain" Is a Myth

• [29:00]

  "There is actually, controversially, no such thing as a value chain."

• Moving products through a sequence of markets, transport, warehouses—this is not the same as creating value.
• Example: Lettuce, whether in the ground or wrapped in plastic, is still just lettuce, with convenience or psychological tweaks—not true new value.

5. Principle #3: Creativity = Complete Problem Solving

• [32:20]

  "Creation is...problem solving. If you haven't solved a problem, then it is unlikely that you have created anything."

• Cites the "low-energy light bulb" as a half-solved problem.
• By contrast, Christopher Wren’s St. Paul’s catastrophe-defying double dome took 45 years of creative problem-solving.

6. Principle #4: The Exponential, Invisible Power of True Creativity

• [39:00]

  "The value of creativity is exponential."

• One pound spent on creative stimulus (like effective advertising) can yield ten pounds in media impact, 100 million in incremental sales, and billions in brand value—examples drawn from real marketing figures.
• Yet, most of this value is invisible and only realized over time and scale.

Star Wars Case Study

• [44:00] Value wasn’t in toy sales, franchises, or sequels, but in the original act of creation by George Lucas—"the genius that was created at Source."

  "The two and a half billion pounds [purchase price] is simply a 35-year delayed paycheck for the genius that was created at source."
  — Giles Hedger [45:00]

7. Principle #5: All Value is Subjectively Perceived

• [51:20]

  "There’s no such thing as a unit of pleasing stuff. It all begins when you do something, put it in front of someone and they think it’s fab."

• Even products with mass appeal work only when they align a million subjective desires—not through any objective standard.

8. Principle #6: Assembling ≠ Creating

• [54:30]

  "Value is not assembled. Value is created."

• Adds the notion of "creative value added"—the slice of value that emerges not from input+assembly but from unique, intangible creation.

9. Principle #7: Creativity is Mostly Invisible and Intangible

• [1:01:20]

  "Most of the value we create is invisible...what makes most of it valuable, in the end, is what it means to others. Meaning is, in the end, the most valuable stuff there is."

• Hedger argues that many creative and economic decisions fail because they ignore these unseen, cultural, emotional, or "meaning" components.
• Example: Mad Men’s Don Draper "carousel" scene [1:05:00], which understands emotional resonance as the essence of brand value.

10. Principle #8: Creativity Isn’t Democratic—It’s Elitist (and That’s Good)

• [1:07:00]

  "It is not a for-everyone thing. It's about the best. And we need centers of excellence in order to compete in the world."

• Hedger pushes back against the notion that "now everyone can create." True value comes from a spiking 5% of massively successful creative phenomena.
• Only exceptional, "bell-ringing" efforts earn a premium.

Example: Michelin Tyres [1:09:10]

• People are indifferent to most tyres—cutting through with creative value is a high bar and makes the difference between commodity and brand.

11. Principle #9: Ideas Mean Nothing Without Craft

• [1:12:00]

  "Ideas are worth nothing. The only time when they start to be worth something is when they crystallize and work."

• Gives the example of "Jaws"—the idea ("fear/sharks") became valuable only in its masterful execution, especially via John Williams’ soundtrack.

12. Principle #10: Creativity Is a Driver, Not a Byproduct, of Prosperity

• [1:15:00]

  "Creativity is a driver of prosperity, not simply some sort of decadent byproduct of it."

• Cautions against believing creative achievement is a post-prosperity indulgence; throughout history, creative success has typically occurred "against the odds."
• Example: Bands like Radiohead emerged from adversity, not comfort and abundance.

Notable Quotes & Memorable Moments

• "I am an economic creationist...value is only created when it is actually created. It can’t simply be generated or assembled in a nonspecific hope-for-the-best kind of way."
  — Giles Hedger [05:45]

• "If we assign the creative project to this post-industrial era, what will happen is we will innovate around the periphery...we’ll forget the core product and cease to create value around that core product."
  — [17:30]

• "There is no such thing as a value chain... All you are doing is pushing parcels of value around. Nothing in that is creating anything."
  — [29:15]

• "If you haven't solved a problem, then it is unlikely that you have created anything."
  — [32:35]

• "The two and a half billion pounds [that Disney paid for Star Wars] is simply a 35-year delayed paycheck for the genius that was created at source."
  — [45:00]

• "Most of the value that we create is invisible... meaning is in the end the most valuable stuff there is."
  — [1:01:25]

• "Ideas are worth nothing. The only time when they start to be worth something is when they crystallize and work."
  — [1:12:00]

Key Q&A Segments

On "Value": Is commercial success the only measure?

• [1:22:00]
  Q: Does "value" in advertising go beyond commercial success?
  A: Hedger argues there’s a rich intersection:

  "The best examples tend to bring those two worlds together...the creatively rich and the commercially effective."

• Creative achievement isn't always synonymous with market success, but successful creative work often is both.

On Product vs. Marketing Value

• [1:25:00] Q: If a product is already "miraculous," what’s the role of advertising?
  A: The more intrinsic value a product has, the less creative compensation is needed. For highly differentiated products, marketing merely needs to elegantly present reality.

On BlackBerry vs Apple

• [1:27:00]

  "Apple...have prioritized design within their business...and when those two agendas [design & functionality] come together, something magical happens and those products are selling magic."

On Monopolies, Competition & The Parable’s Limitations

• [1:29:00] Q: What if the parable keeps going, what about competition?
  A: Any value-creating enterprise, when faced with competition, must keep innovating and may seek to "wrap intangibles" (brands, narrative, experience) around products to sustain value.

Timestamps for Key Segments

• 00:02 – 04:00: Host intro, event context, Hedger’s background
• 04:00 – 09:00: The "flat pack economy" and why creative value matters
• 09:00 – 16:00: The "Elves and the Shoemaker" parable, breakdown of its mechanics
• 16:00 – 22:00: Principle #1, ancient origins of value creation; Killers, Pixar
• 29:00 – 32:20: Principle #2, the myth of the value chain
• 32:20 – 39:00: Principle #3, creativity as problem solving
• 39:00 – 47:00: Principle #4, the exponential, invisible power of creativity (including Star Wars)
• 51:20 – 54:30: Principle #5, the subjectivity of value
• 54:30 – 61:20: Principle #6, assembling ≠ creating; creative value added
• 1:01:20 – 1:07:00: Principle #7, intangibility/invisibility of creative value; Mad Men scene
• 1:07:00 – 1:12:00: Principle #8, creativity's necessary elitism
• 1:12:00 – 1:15:00: Principle #9, ideas vs. execution/craft
• 1:15:00 – 1:19:30: Principle #10, creativity as a driver of prosperity
• 1:19:30 – 1:32:00: Audience Q&A (value definition, product vs. marketing, Apple vs. Blackberry, limitations of the parable)

Conclusion

Giles Hedger passionately defends the idea that the real moment of value—the "elves" of economic success—is the often invisible, subjective, hard-won spark of creativity and problem-solving at the source. In a world at risk of commoditization, he urges recognition, measurement, and cultivation of creative value as a core national and economic priority. The magic is real, he insists—and it’s what keeps economies, companies, and cultures extraordinary.