Degenerate Capitalism

I like this quote. It's fun. A few among you will recognize this as a play upon the words of the Tao Te Ching. A fewer subset of you will understand what it means. I will explain its deeper meaning to you.

The Tao is the nature of something. It defies explanation. We can learn every fact imaginable about foxes, but we cannot understand the experience and culture of being a wild fox because we are not part of their Tao. It is a rich experience that no amount of written knowledge can capture. And so it is for the typical person in their labor and their everyday retail transactions trying to secure a good future for themselves and their family.

Degenerate capitalism only understands a pursuit of profit and cannot understand the experience of the working Americans. You cannot reduce the market to a number like the Dow Jones Industrial Average because it is not measuring the real economy. Your numbers can show that people went hungry when Congress cut snap benefits to millions of Americans. What your numbers cannot do is help you experience the anxiety that they are experiencing. Wise people know that a hungry and frightened population produce derivative effects that cannot be ignored.

Wall Street itself is derivative, and measuring it with the Dow is not measuring the real economy. This is the wisdom behind those words. Who knew that such a humble sentence could say so much. It's like a colorful little bird that flew into the room. Isn't it wonderful?

I feel a little guilty taking credit for this quote, because I haven't said anything that Lao Tzu hadn't already said 2500 years ago.

The Doom Loop of Degenerate Capital​

I am going to describe a theory of Capitalism. I lack the requisite knowledge and experience to assert any kind of academic credibility on the science of economics. As such, I will more appropriately describe this work as economic philosophy even if it smells like science. In any case, my hope is to produce something capable of being scienced by the friendly folks who science economics.

Defining Degenerate Capitalism in a shared context of Market Capitalism​

We start with a couple of working definitions to establish a common context.

Market Capitalism: The idea that resource allocation and production are wholly determined by company management.
Degenerate Capitalism: The idea that corporations have a fiduciary responsibility to pursue capital above all other things.

These ideologies stand in opposition. The management of a company would like to raise employee pay because they believe investing in their employees will make the company more competitive. In market capitalism it's a business decision and not one bats an eye. Under degenerate capitalism like we see today, management could be sued by shareholders for failing to uphold their fiduciary responsibility to shareholders.

How do we know that we are in a degenerate capitalist system right now? It's the fact that shareholders can sue management at all! Shareholder remedy under market capitalism should be in electing a new CEO and board of directors, and nothing else. Shareholder threat is a primary mechanism through which this disease spreads today.

The Degenerate Cycle​

Degenerate Capitalism is a disease infecting Market Capitalism. Here is how it works.

Infection Phase​

The degenerate cycle begins with market capitalism and a company that produced a wonderful thing. Rags to riches, blah blah blah, we have a wealthy private company. Opportunists secure executive positions within the company and consolidate power. Degenerate capitalists everywhere want a piece of it and the ideal vehicle for this is incorporation. Company culture transforms from one that focuses on innovation and improving their wonderful thing into one focused on maximizing the profit it generates.

Loss of Expertise Phase​

Among the first things they do is cut costs. One of the first places that they cut is employee pay and benefits. This seems like a good way to cut costs if you are looking at it through the narrow derivative lenses of Wall Street, but it is every bit as foolish as cutting maintenance to a bare-bones budget. The result of this is that the company loses their best engineers. Top engineers are the first to walk out of the door because we can succeed anywhere, and it simply isn't worth our time to deal with corporate shenanigans. Without the brilliant people needed to evolve the product line, innovation stops. You start to see this when production output becomes trivial variations on the existing product instead of innovation and new products. Your product, now painted blue or yellow. The company enters a period of stagnation.

The Stagnation Phase​

This phase is most distinctly recognized when a company cannot innovate and can no longer compete in a fair market. The US economy is littered with such examples. Media corporations spent the 90s and 2000s trying to figure out how stop people from sharing content online, while The Internet "blew their doors off" to use an old trucking expression and invented an extraordinary wealth of commercial services in their wake.

Last I checked, media corporations were still figuring out how to seek rent for broadcast TV over ATSC 3.0. I just don't know what to say. I am not a television executive but this business decision feels questionable to me. I would normally argue that media executives would know better than I, but I'm not so sure here. I would be building TVs with an AI that I could bring up with the remote to fact-check broadcast content as I watch. I could watch a politician lie and get debunked on TV in real time. I would probably implement it similar to how we do closed captions. There is a lot of potential revenue in an idea like this.

The automobile industry hasn't truly innovated in years but has made several technological advances in areas of safety. It should be noted that these innovations are primarily driven by the interests of government rather than industry. China is profiting from our lack of industry and cranking out electric cars while our industry produces rows of $100,000 trucks that sit unsold on dealer lots for years while consumers wait for a product that they actually want to buy. China meanwhile is producing dies that stamp out classic American car parts our industry can no longer produce. We could be making peace with Cuba and helping their country produce classic car parts in their country that needs a lot of them while also being a good global export for them.

Now that we have a company with a mandate to be ever more profitable, and the same company is unable to effectively compete in a fair market, it treads upon a path of rapacious ruin for survival. It must acquire revenue but cannot earn that revenue from a fair market. The degenerate phase begins.

The Degenerate Phase​

Companies in their degenerate phases are identified by degenerate behavior. Degenerate behaviors are actions taken by a company to unfairly compete in the economy. Market manipulation and rent seeking become the primary modes of making money. Degenerate actions are described as such because their production cost to the overall economy is higher than the value of their economic output. In a fair market, they are either losing money or extracting that value from elsewhere like exclusive contracts and reduced market competition. Typically they exclusively realize only a small part of the overall value denied to the rest of the market.

Instead of spending capital on making really awesome coffee makers, Keurig invested in figuring out how to exclude anyone else from making cups that work in their machines. While we intuitively know that this is "just bad" for the economy, I think we can declare it more formally. Their invention does nothing for the economy. Instead of improving the coffee-making experience, it makes it worse by restricting the suppliers and raising the cost for consumers. It's bad for other producers because they cannot compete in the market. The short-term boost they get from market manipulation is a net loss to the economy overall regardless of how you slice it. This boost is made completely moot when consumers shrug and move on causing the company to fail.

Government manipulation is a huge concern. It is the main reason that I am writing this right now. The cost of this problem today is incalculable. Most legislation going through Congress in the last 40 years has been written by corporations. Most of them are degenerate companies bending the law in their favor to gain market advantages. They have been rather effective at funneling 100% of the economic gains we produced into the pockets of a few companies. Achievement unlocked! The most unfortunate part is it still doesn't change the fact that they are living on borrowed time and that their businesses are still doomed.

Another popular mode of degeneracy comes in the form of mergers and acquisitions. Use the assets of another company to hide bad balance sheets and reduce competition. They take on new debt and cook the books so that their impending losses will not be apparent to buyers. It shuffles money around but rarely accomplishes much to advance the business while costs continue to rise. I'll stock up on popcorn as economist after economist looks at the foundational economy from which Wall Street is derived and realizes that they are in quicksand sinking fast.

I could go into stock buybacks and such, but you get the idea or you wouldn't be here now. The point is that you recognize companies enriching themselves by stealing from the rest of us instead of increasing our overall economic output. They are like black holes sucking the value from our economy. They are like rabid animals uncomfortably close to taking the rest of us down permanently while they spiral toward their inevitable demise.

The Implosion Phase​

The General Public encounters this in the form of a news story about a brand we haven't thought about for the last decade closing for good and we say, "I didn't know those guys were still around." This is the sad day when the world comes crashing down around the company and they can no longer finance their way out of it. Occasionally, a brilliant CEO can turn it around but the reality is that corporate CEOs are most likely to come from the same line of degenerate thinking and continue to run it into the ground while they personally extract millions on the way out to their private lifeboat off of the sinking ship.

Companies often go under at this stage, but they occasionally restructure and continue with the degenerate phase. Eventually they end up as dinner for private equity. Degenerate companies cannot end in any other way because they are degenerate.

There is hope​

It starts with a crisis. A crisis of significant impact opens a nexus where particularly astute leaders can shape direction moving forward and forcibly yank the company culture from this trap. This is usually driven as a ground-up employee action instead of a top-down managerial directive. To succeed here, I would need both enough authority within the company to steer the direction of a major product, and corporate leadership able to identify opportunities within that space to produce healthy company goals that I then help them achieve.

Hey, I didn't say it would be easy: I am just showing you the way. That's why you need especially astute people to execute on a plan to free corporations of degenerate capital so that our country can realize its true future potential.

In Conclusion​

I believe there are good techniques already available to economists that help us identify degenerate companies. I don't know of them or what they would be, but they exist because they must. They must be configured to identify degenerate companies so that we can stop the drain of our resources and the corruption of our government by these modern day robber barons.

Degenerate Capital not only destroys companies, but the companies and organizations surrounding them. It corrupts the culture of companies, markets, and governments. It replaces ideals of community with selfishness. It replaces the richness of company culture with a sterile blandness of utility. It normalizes ideas of austerity once unthinkable. It has replaced The Great American Melting Pot with a confidence man and a whore wearing a fancy dress from a designer I've never heard of nor care about.

Capitalism is a scary word for many people out there right now because the major symbols of capitalism, the corporations, are hostile to us. We do not want to do business with corporations because corporations exploit us at every available opportunity while our government stands around with its thumb in its ass. The only winning move in an unfair market is to not play at all, and so here we are. Government isn't going to solve this alone. We need help from our business leaders to shoulder out the degenerates and create a business environment that all of us can confidently transact.