🤫 The 5 Secrets of Capitalism
🤫 The 5 Secrets of Capitalism
My Ha-Joon Chang-inspired list
More and more I find myself asking: how can we build a sustainable capitalist enterprise? Is this even something worth doing? Capitalism has a role to play in society - but what it looks like today is unsustainable. I am not an economist, nor do I pretend to know the full answer to this question, but I think a starting point is to examine what we’ve all been socialized to believe.
Here are 5 of my favorite “secrets” or counterarguments to the accepted wisdom about capitalism:
1. Profit is not king
Investors are.
You’ve heard it said that the goal of corporations is to make a profit. Many, like the famed management consultant Peter Drucker, would disagree. They’d say the goal of corporations is to make their customers, shareholders and investors happy.
If the economy lived on profits alone, then Amazon wouldn’t have taken ten years to turn its first tiny profit, and we certainly wouldn’t be able to take Uber rides everywhere despite the company never having made a profit until October 2022. Even the government of the United States isn’t revenue positive. Indeed, we’ve run deficits for most of our history, and especially since 1970 (the current debt ceiling debate centers around this issue).
A break-even world can still be a perfectly capable capitalistic society (in fact, this ethos is what drives the product-centric approach of The Difference Engine).
2. Growth at all costs is an unnecessary obsession.
CEO’s are told that if their company does not grow, it will die a quick death. Growth at all costs drives companies and nations to exploit people and our planet’s limited resources.
And yet there are countless examples of companies that haven’t grown much for centuries and still generate healthy revenue (one of my favorites was started in 1790). Indeed, a company need only grow as much as it needs to sustain its customer base - so if the population grows 2%, that’s all a company needs to do to keep up.
There’s nothing inherently wrong with growth, but endless growth at all costs isn’t really sustainable. The shareholder-driven fallacy that growth must happen in order for a company to be considered healthy has massive detrimental impacts on our psyche and society.
3. Capitalism is about collaboration not just competition
Competition and capitalism go together like roasted jalapeño cream cheese on a double toasted jalapeño wheat bagel.
But only if you are into jalapeños as much as I am.
Think about it: how many people does it take to make a car? Thousands. From the people who design the seats, to the merchants who ship them - cars, like many other objects of a post-industrial society, are a testament to unprecedented human collaboration.
Certainly, competition is important to a capitalist enterprise - but if competition was the lifeblood of capitalism, corporations would not thrive in economies dominated by oligopolies and monopolies (like ours).
4. More education doesn't mean more money
The more you learn the more you earn right?
If that were true, many of my friends would be the wealthiest people in the world and I’d be bumming off them the rest of my life.
A capitalist system is premised on the idea that there is a discernible ratio between knowledge and wealth. While it may be true that the more wealth one amasses, the more educated they are likely to be, the reverse is not true.
Unless your parents are already wealthy and can pay for your education, more education actually costs money. Students in the United States now spend $173,684 on average (with interest) for a four-year college degree. There is a constrained market for academic achievement and a ceiling for how much a degree can earn.
A capitalist system can lead to the illusion that the more degrees one amasses the more they make. That’s because most people confuse income with wealth. Wealth has momentum. It accumulates over generations for some. The rest, particularly newcomers to this country, are accumulating income instead. Higher levels of education are correlated with a higher income, not higher wealth. A person who inherits family wealth need never go to college, merely reinvest their inherited wealth in safe investments and reap the rewards. Indeed, many of the most successful companies in the U.S. were started by wealthy individuals who never graduated from college.
It takes hundreds of years and dozens of generations of consistently educated people to transform increasing income into accumulated wealth.
5. Equal opportunity is a starting point
Capitalism functions on the premise that if you just give everyone an equal chance, those who are competent will rise to the top and reap the rewards. In other words - if everyone starts at the same starting line in a race, the most athletically gifted and best trained will win.
The problem with this approach is that it fails to account for the runners themselves. Some runners are shorter, some taller. Some have practiced in warm climates, others in cold weather. Some can afford better shoes and a professional trainer, while others have trained on their own.
How you show up to the starting line changes everything.
People should be rewarded for performance, but we must take their backgrounds, identities and skills into account. Every child takes a standardized test, but the hungry child does poorly not because she isn’t smart, but because her family cannot afford lunch. A textbook capitalist would find this hunger to be a sad, but understandable detriment to the child’s performance. A sustainable, compassionate, and frankly more efficient capitalist society would ensure, by any means necessary, that the child was well-fed, not only because it would be the right thing to do, but also to ensure the most accurate test result possible.
There is room for this. A compassionate society can also be the most capital-efficient.
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