Why Capitalist Corporations are Failing and What’s Next
Social hierarchies don’t have to be zero sum but when they are perceived that way things get ugly. For instance a more educated populace could mean everyone’s status is raised or it could mean a red queen’s race for greater and greater degrees conferring the same status.
Whether education status is zero sum or not has a lot to do with whether degrees are just virtue signalling or represent real skills. So if in some very early human society people go from not speaking language to fluent then all status has increased. Everyone has more prestige as the society prides itself on its language skill.
But then likely humans keep creating fancier and fancier language well past practicality. So now the prestige becomes zero sum as the only respect the unnecessarily fancy language can achieve is by displaying some supposed relative superiority, not a real useful skill.
And the way to enforce fancy language prestige is by bullying those with simpler language. Under pressure nearly any merit can go through this life cycle from value, to virtue signalling, to bullying.
Status Ponzi Schemes
Status isn’t a material good that can be horded. Once people suspect your status is not deserved only force and dominance can continue your prestige. At this point a status Ponzi scheme can be used. In exchange for their respect offer others a shot at one day enjoying your status — a power culture built on fake merit.
The problem for the Jeff Bezos and Elon Musks at the top of this Ponzi scheme is making a new generation believe that there will continue to be growth necessary to justify their loyalty. Especially as population growth is slowing and approaching stall. Jeff of course is aware of this Ponzi scheme:
We can have a trillion humans in the solar system, which means we’d have a thousand Mozarts and a thousand Einsteins. This would be an incredible civilization.
By Jeff’s logic our current 8 billion people should have produced many more such individuals than the 2 billion of Einstein’s time or 791 million of Mozart’s.
Of course that’s not what happened, Einstein and Mozart are genius for the ages and Bezos, at 60, will be lucky to even end up fondly remembered in his own time. That’s because individual genius is a merit that has transitioned from real value into bullying.
In a world of group effort a trillion humans don’t have an advantage over 8 billion any more than increasing the size of a single kitchen staff by orders of magnitude will necessarily produce fine cuisine.
So as the status Ponzi scheme crumbles we get variants of dissent:
The criticism has always been directed to social utopias when economists say that under socialism nobody really wants to work. We are witnessing the same things play out under the capitalist mode of production. Nobody wants to work anymore, and the robots are not yet fully here to take over.
Ah but the robots can’t ever take over because that will collapse a status Ponzi scheme as well.
But even were humanity to take to the solar system and increase their population to trillions that still wouldn’t be enough. Any Ponzi scheme also relies on excluding large segments of the population.
Any status partially based on the uniqueness of an individual is going to suffer as people are less unique. As Syndrome of The Incredibles quipped, “With everyone super, no one will be.”
So unless we become less zero sum and pride ourselves on a society full of Mozart and Einstein as barriers of education, race, gender, and class lift, the status Ponzi scheme still collapses as it is unable to pay out to such a broad base.
Americans should feel pride for the creation of Amazon but Jeff Bezos arguably doesn’t deserve anymore credit than thousands or millions of others.
Amazon Web Services wasn’t any one person’s single idea. No proverbial apple fell on some Newton’s head, no Henry Ford or Steve Jobs-like character had a brainstorm. Instead, it rather emerged. The idea grew organically out of the company’s frustration with its ability to launch new projects and support customers.
Not that Steve Jobs deserves that much status either as his company mostly just put together the combined output of a generation of engineers and scientists.
But unfortunately Americans after the Greatest Generation have trouble feeling this sort of group accomplishment. We didn’t survive a great depression, stop Hitler, or create Great Society programs. The prosperity we created is extremely unequally shared.
Even our society’s small attempts at reducing race and gender based oppression are mocked as “woke”. If our society was really capitalist then equality of workers would be embraced for the efficiencies it provides. Glass ceilings would melt away as they only hurt productivity.
Instead of being satisfied with capital Jeff Bezos wants the status afforded to an astronaut. He and Elon Musk aren’t capitalists so much as status junkies. Nor does philanthropy appeal to them as it did to Leland Stanford (though you can see MacKenzie Scott’s philanthropy here).
In Leland Stanford’s 19th century a wealthy person would have a private carriage and his children might make an educational Grand Tour. If real space travel were available then maybe Jeff could buy similar status but even then the internet, available for even poor workers, would show you the experience.
Philanthropy wise Leland could create Stanford which led to Silicon Valley and arguably changed the direction of the world. What can Jeff or Elon do that would even come close?
Capitalism only survives as long as raising capital is rewarded. A private jet, mansions, box seats at sporting events, and trophy spouses won’t cut it. Maybe participation in a pedophile ring would but that seems not to have gone well.
Meanwhile the real big ticket items like longevity or a body that a young person would willingly desire are off the table. Ironically such real incentives would require the kind of group effort that status Ponzi scheme capitalism cannot allow. Admitting that group effort exists would further reduce individual status.
So the main current reward of capital becomes not participating in the status Ponzi scheme and young people have caught on that even that reward is available to them in part by opting out.
From that point of view our current oligarchs can be considered victims of this Ponzi scheme. They devoted their lives to a system promising Einstein and Mozart level of respect and despite their enormous efforts it never came.
Even if they now spent all of their fortunes building a coed, top tier, free university as Stanford did, the populace is already highly educated as never before. The not so ruling class, when denied respect, can only bluster by destroying Twitter or starting a failed insurrection.
However there is still a great deal of hero worship for many of our captains of industry and big name academics. Much of this is the result of the sort of enormous undertakings being attempted. Because human lives are so short a 100 year war on cancer or perhaps 1000 year attempt at AI needs intermediate results that can be celebrated.
Towards that end Ponzi scheme fraud can be seen as a fake it till you make it virtue. Capitalism is stalling out but hype is still the only way to overcome such large waits for return on investment. We have to celebrate smart phones while hoping for larger accomplishments and as long as we are exaggerating credit might as well lionize Steve Jobs as well.
Except that at some point the hype becomes counter productive. What started as incentive now blocks the slow progress that is possible without fraud. A busted fake it till you make it scheme like Theranos doesn’t benefit anyone and an entire economy of over inflated status and expectations won’t end well either.
Short Term Investment
But Theranos had two strikes against it — being riddle with status hierarchy was just the first. The second problem goes back to Dodge v. Ford Motor Company:
A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end and does not extend to a change in the end itself, to the reduction of profits or to the nondistribution of profits among stockholders in order to devote them to other purposes.
Even if Theranos could have been a true group effort instead of a status vanity vehicle corporations are unable to invest for the very long time frames necessary.
There are seven companies worth over a trillion dollars in 2024 and anyone of them is capable of sustained investment. However none of them can look forward the decades or centuries necessary to solve problems bigger than, for instance, fully autonomous driving. Their investment is constrained to roughly a decade out on problems with somewhat known solutions.
On the biology side the number one company is Eli Lilly at around $700 billion and that’s not nearly enough for moonshot biology problems. Jeff is also aware of this problem:
Altos Labs raised US$3 billion in a funding round from investors in January 2022. It is said to be the best funded biotech start-up to date. Investors reportedly include Amazon founder Jeff Bezos and ARCH Venture Partners founder Robert Nelsen.
However even if Jeff put his full $200 billion into a solution he would have to be joined by scores of other oligarchs to have a chance. The complexity of the human body and the universe in general makes its problems less of the gold rush that capitalism excels at and more of the basic research it does not.
Of course universities are set up for basic research but not at the level of prolonged investment necessary. Nor can a government reliant on keeping the stock market pumped up gather the votes for really long term investments either. Investment longer than a human life span puts status off the table and that turns off most politicians as well.
IP Mercantilism
In response to failing capitalist corporations, the beginnings of a new form of mercantilism are already being developed. The original tenets of mercantilism:
That every little bit of a country’s soil be utilized for agriculture, mining or manufacturing.
That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
That a large, working population be encouraged.
That all exports of gold and silver be prohibited and all domestic money be kept in circulation.
That all imports of foreign goods be discouraged as much as possible.
That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
That as much as possible, imports be confined to raw materials that can be finished [in the home country].
That opportunities be constantly sought for selling a country’s surplus manufactures to foreigners, so far as necessary, for gold and silver.
That no importation be allowed if such goods are sufficiently and suitably supplied at home.
can be modified:
- That every little bit of a country’s research be utilized for long term benefit.
- That all intellectual property in a country be used in domestic manufacture.
- That a large, highly educated, working population be encouraged.
- That all exports of intellectual property or intellectual property investment be prohibited.
- That all imports of foreign goods be discouraged as much as possible.
- That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of intellectual property.
You can see the new mercantilism policies already being enacted:
In a major move, on August 9, 2023, President Biden signed an executive order to create a mechanism for restricting outbound investment in the semiconductor, quantum information, and AI sectors in foreign “countries of concern,” a designation that includes China.
If you want major, long term, investments in research and development then the first order of business is insuring those investments pay off for the nation making them.
However that’s just the beginnings of the issues IP mercantilism faces:
The university system cannot handle beyond publish or perish research and judging and encouraging long term basic research requires a whole new alternative economy.
The argument has been that hording IP reduces the global research effort and so is counter productive. However now that it’s increasingly clear that COVID was created in a lab, regulating research will have to go hand in hand with investment and there is no way to globally regulate.
Meanwhile war sanctions are quietly continually growing. More directly for IP mercantilism is Florida’s 2023 legislation
An act relating to agreements of educational entities with foreign entities; amending s. 288.860, F.S.; defining terms; prohibiting state universities and state colleges from accepting grants from or participating in partnerships or agreements with a college or university based in a foreign country of concern or with a foreign principal unless specified conditions are met
and the federal pending BIOSECURE Act.
However the long term research first tenet of IP mercantilism is stalled. The original mercantilism encouraged long term investment by granting monopolies and the break from these monopolies was the start of modern capitalism:
By the mid-19th century, opposition to the East India Company’s monopoly status reached a fever pitch in Parliament fueled by the free-market arguments of Adam Smith.
Perhaps though mercantilism and capitalism can be thought of more as phases of one system. The technology behind increased longevity and true AI are such daunting and risky tasks that free markets and individual status are very inappropriate — think atomic energy / nuclear weapons.
What would the equivalent of an East India Company given a monopoly over some form of long term research look like?
Giant Bureaucracies
IP mercantilism is not the front runner for replacing or augmenting capitalist corporations.
According to our analysis of occupational data provided by the U.S. Bureau of Labor Statistics, there were 23.8 million managers, first-line supervisors, and administrators in the American workforce in 2014. (This figure includes both the public and private sectors but does not include individuals in IT-related functions.) That works out to one manager and administrator for every 4.7 employees. Overall, managers and administrators made up 17.6% of the U.S. workforce and received nearly 30% of total compensation.
How many of these 23.8 million overseers do we actually need? We can get an answer by looking at the management practices of a small but growing number of post-bureaucratic pioneers. Their experience suggests it’s possible to run complex businesses with less than half the managerial load typically found in large companies.
As status Ponzi schemes collapse one response would be to replace them with more and more bureaucracy. If nobody wants to work then we will assign people to force them to work and other people to force the people we assigned and so on and so on. Plus the more people the more status for those at the top.
Furthermore the levels of bureaucracy can be external as well. Financialization of the world economy is also ever increasing bureaucracy.
The problem with giant bureaucracies is that, combined with short term investment, they might eventually implode the economy. Such a system must be continually bailed out by the government as its only advantage to society is fuller employment. Effectively a giant bureaucracy system is centrally planned fraud via emergency response.
What makes a giant bureaucracy system different from our current corporations is the low rate of turnover. In such a system today’s top corporations are also tomorrows and the next days — generational or even slower change instead of fairly frequent.
People might also work much fewer hours and for less pay. The stock market would be less volatile and retirement, if possible, would come from bonds and other interest rate dependent investments.
Overall quality of life might improve with communities, unions, etc. making a return — or not. Like IP mercantilism we can already see giant bureaucracy policy choices — monopolies are not divided, too big to fail is a thing, stock markets are federally managed — including even by direct investment, larger companies have percentage wise less regulation and taxes, and less nationalized industries.
Less nationalized / government run industries is a double whammy because not only do very large industries like private basic banking exist where they should not but the rent seeking by these industries makes smaller business too expensive to run. Pure rent seeking industries tend to hire large work forces to make it politically harder to unseat them.
Nor are giant bureaucracy, rent seeking industries always easy to spot. How much transportation costs exist in the US because we don’t have a reasonable rail system like other countries? How much of government sponsored “home ownership” is just rent seeking by industries profiting from ridiculously expensive urban sprawl? How much prison industrial complex do we need?
Post COVID tremendously highlighted how far giant bureaucracies have come with the irrational attempt at rejecting all forms of remote work and rampant greedflation. The success many companies have had moving to a 4 day work week is also only possible where giant bureaucracies forced 5 days in the first place.
The official declaration of the move from capitalism to giant bureaucracies is something that can only be made in retrospect after enough time passes without any market disruption. However it’s clear already that giant bureaucracies are pushing for the win and alternatives like IP mercantilism are up and comers in their infancy.
That we still declare ourselves as living in a capitalist society instead of a giant bureaucracies society maybe more a matter of marketing than anything else. Perhaps the extended life cycle of a merit is value, virtue signalling, bullying, hypocrisy.