Let’s Talk About Evolving American Capitalism Part 1: What’s The Problem?
For many of us in America who work for — or start — companies, the predominant preoccupation permeating the status quo is:
Growth, and ultimately profit
This multi-part series is my exploration into what I see as an inherent misalignment between what is beneficial for the established capitalist status quo, and what is beneficial for society. In this series I assert and will endeavor to prove that:
- A myopic focus on maximizing dollar profits is actually inhibitory to maximizing societal profits.
- Capitalism can still be the best core engine for maximizing societal profits and does not need to be replaced, but to become the best means to deliver health and happiness of all members of society (everyone — all classes/races/sexes/gender identities), capitalism as we have known it needs to (continue) evolving — for the transformation has already begun.
Let’s begin with a brief look at how several of the most powerful capitalist institutions currently exhibit a myopic focus on profit:
- Wall Street likes to obsess over the 90-day earnings report leash, where expectations of companies are for an endless streak of “up and to the right” growth/earnings-derivative ratios. Those who don’t meet expectations of growth and dollar profits are punished by analyst assessments and investor selloffs.
- Private equity likes to obsess on buying distressed companies at low valuations, extracting operating “efficiencies” through aggressive cost cutting measures such as firing slews of employees, and then flipping those anemic companies to new buyers at higher valuations, repeating this cycle over and over to aggregate bigger and bigger profits.
- Sand Hill Road Venture Capitalists require in exchange for their participation of dollars, a “growth at all costs” mentality to chase massive growth into massive total addressable markets in the pursuit of soaring valuations, expecting that most companies will burn out/implode along the way of trying to grow at all costs, but that hopefully at least one company in each round will achieve enough growth to be acquired or go public for a large enough sum to return the fund, plus profit.
Proponents of the focus on growth and profit will say that these entities and this system (as it exists today, pre-evolution) creates value by leveraging these entities’ accumulated expertise to hold companies accountable — by influence, or if necessary force — to operate by good tenants of economics where waste is eliminated, productivity is increased, innovative and intelligent risk-taking is rewarded, and society benefits as a result of continuous economic growth.
Yet, in human biology we call endless “up and to the right” growth cancer. Cancerous growth is the label assigned to the perpetual spreading of human cells for the sake of spreading, across the body, into organs and vital life systems, exploiting ever-more of the body’s resources without consideration of the body’s non-cancerous cells’ ability to survive. We know this type of myopic growth as one of the most fearsome and depressing diseases in our entire world. My mother passed away from cancer in 2015, and years later it still saddens me to my very core. It always will.
One of the things that my mother tried hard to communicate to me while she was still with us so that I might internalize it long before my life was drawing to its own end, was that life is best lived not for the sake of work, but for the pursuit of being happy and fulfilled.
Defining profit as simply money is where capitalism breaks down when it comes to making people happy and fulfilled over the long-term.
Simply making more and more money after a certain point does not make people more happy and fulfilled. There are countless studies that prove this and countless conversations at the end of one’s life proving that what they want most is not their cash and possessions to be stacked from floor to ceiling in their dying days, but to be surrounded by their closest friends and family. Human beings are social creatures, who thrive on relationships, which are not possible to purchase with money; the ones worth keeping anyway. Just listen to the woes of people who lament that their legions of “friends” quickly disappear as soon as their money dries up.
So how then could a myopic focus on dollar-profit not lead us into a depression?
I don’t think that our depression is a new phenomenon just arising in 2020. I think we have been depressed for some time; it’s simply that we haven’t noticed it, what with all the distractions of things and experiences that a robust dollar-profit-driven economy provides.
Until recently, I honestly must say that I never truly stopped focusing on work for long enough to consider what a happy life, on my own terms, would look like. I just assumed that I was already fulfilled because I was doing pretty well by the growth and profit terms of the status quo. I felt that work challenged me and tapped into my passion for learning and my competitive nature, and I figured it would continue to leave me feeling fulfilled, even climbing to greater levels of fulfillment if I kept at it. I figured that focusing on work would bring success, and in turn success would produce recognition and money, which would be the raw materials which I could easily refine through reflection from my jet ride spent answering emails from New York City to the Maldives into happiness.
Then came the year 2020.
Since April 2020 I have found myself in a period of intense reflection, away from the normal economy-boosting distractions, trying to integrate my mother’s pearl of wisdom into my life, and this introspection has led me to this essay.
If you are like me, then you have also been thrown into a state of existential questioning since COVID-19 ravaged the globe, since the murder of George Floyd sent our country into a racially-charged crisis the likes of which has not been seen in decades, since Trump misinformed, mislead and abused his position as president, and since many, many other problems have pierced our comfort bubbles and interrupted our normal distractions.
In reflecting on this societal preoccupation with growth, I have come to the following realization:
Under the rules of engagement for our current style of capitalism, our myopic focus on endless dollar profit growth has led us to a depression of a different kind: one not of the economy, but of the soul.
Again, capitalism isn’t the issue here. It’s a very effective system.
The problem is the myopic focus our strain of capitalism places on growing dollar profits, which creates a breeding ground for exploitative behavior by discouraging the consideration of revenues and costs that impact the society that a business cell lives within, but are not clearly, or in the short-term beneficial or detrimental to the business cell itself. It is this pretending as if the business cell exists in isolation and this ignorance of the revenues and costs that are not captured in the balance sheet and income statement that turns the growth of profit cancerous, and hinders society’s ability to be healthy and happy.
To understand more about why dollar profits are currently the only focus of capitalism, let us think deeper on the dynamic of the status quo. The focus on constant dollar profit-oriented growth has likely thus far been the goal for myriad reasons, including insufficient scientific and other research into the diversified revenues/costs, the difficulty in quantifying things such as the costs of racial/sex/gender discrimination, and that the trend of thinking in a deeply quantified manner is still a relatively recent manner in which our society has begun to operate.
That said, I see that the main reason as to why dollar profits became the myopic focus was through a mix of conscious and subconscious thought oriented around protecting the interests of the status quo.
Focusing myopically on dollar profit growth creates high barriers to entry into the membership of the status quo, which is what prevents erosion of the benefits of being part of the status quo that would arise from a diluted membership reducing the per capita benefits. Hence, the the income and wealth gap does not fall because the system’s rules were written to ensure that the vast majority the incredible wealth produced by capitalism will be retained by the status quo.
What are some of these high barriers to entry? They include the dynamics of relationship-driven investment opportunities, company recruiting biases, private school systems, corporate stock buy-backs, corporate donations, and the incestuous relationship between K Street lobbyists and politicians, to name a few.
Who does the “status quo” refer to? While there does exist a trickle of those lucky enough to be admitted into the status quo each year, the overwhelming membership in the status quo counts those who are lucky enough to be born into it. In addition to the “new-money” members, primarily the status quo refers to the generational power-retaining classes such as “old money” or “old politics” families.
Additionally, the status quo confers a halo-effect of privilege to those who share easily recognizable surface-level traits as the status quo. Due to the historical dynamics of colonialism, this means white people, and men in particular. The tech industry also seems to have actually done a lot to bring new members into the status quo compared to historic years, but still low in absolute terms and overwhelmingly focused on the halo-effect beneficiaries.
When only profit-type growth (which is most easily attainable for those born into the status quo and has generational inertia) is promoted as the ideal model for the whole of society, this is the act that blocks broader, societal-type profit.
To be clear, this is not an indictment serving guilt to people for being born into certain groups, nor is it a belittlement of the successes of those who do climb into the status quo. We don’t control where we are born, and there are still examples of the fabled “American Dream” meritocracy every day.
This is also not to say that there are no members of the status quo who do care about societal-type growth (diversity in companies, reversing or halting planet destruction, paying above minimum wage, public healthcare/education, etc.).
What we can control is our recognition of how the rules are written, what influence that has on our society, and how we wish to proceed with this knowledge.
As long as the focus of our economy is myopic dollar-profit growth, the status quo will be insulated from change, true societal growth will be stymied, and society will be less healthy and happy.
After reflecting on all of this, I immediately felt a wave of disillusionment with the focus of our economy’s sole goal of dollar profit, downright depressed about the lost potential for our society at-large to progress, and absolutely terrified about the fate of the world as we know it during the rest of this century and beyond.
As I began to share this post with friends, I was bombarded by dozens of messages asking whether I had seen The Social Dilemma. Indeed the question is paramount — why are so many smart, capable and creative minds working to get more people to click on ads, spend more money, take out more debt, and become more addicted to convenience? Why do so many of these capable people work to get other people hooked on products such as social media, which can addict and warp peoples’ minds while arbitraging their data in the name of carrying on the status quo of pursuing growth and profit? Why do empathetic, emotionally intelligent people agree to create algorithms that supercharge the arsenals of police departments, federal enforcement agencies, or criminal justice systems that were all created or beholden to protecting the status quo and inhibiting societal growth?
Where for instance are the algorithms that figure out how to place foster care children in the most caring homes adapted for each child’s specific situation and experiences? Despite the societal profit that could create, it’s not dollar-profit growth, so it doesn’t get the same attention from developers as a job at Facebook.
What about the investments into empowering small, family farmers to buy crops and use crop rotations that can minimize pollution and provide more healthy food options for the nation? Despite the societal profit that could create, the status quo likes its ethanol subsidies and small producers can’t grow as fast or turn a profit as large a single enterprise, so it doesn’t sound interesting for investors when compared with the next billion dollar agriculture venture (or the next money-printing SaaS company).
The rules of engagement we play by in our dollar-profit strain of capitalism call anything that doesn’t create the best possible chances for dollar-profit growth a bad investment, despite the societal profit that could be created by expanding the definition of profit.
Does focusing on increasing the wealth of an already wealthy small number of individuals in the hopes of increasing your own salary at year-end from $120k to $130k feel meaningful when stacked up alongside what else is happening in the world around you?
Does optimizing prices for +15% ROI across a portfolio of products sound like something that would make you feel more fulfilled than optimizing the recruiting and training process to boost workforce diversity at your company, including management levels? Surely both would be an engaging intellectual challenge. Only one will be universally accepted in our current strain of capitalism given its dollar profit focus.
Would you rather say to your family, partner, friends and yourself that the work you do every day is not only keeping your e-commerce company in business, but also directly contributing to reducing greenhouse gas emissions, and thus continuing to keep the planet “in business” for future generations, including your children?
Once more, I think that capitalism is a very powerful force that can achieve an incredible amount of societal good. Capitalism focuses all of an organization’s efforts on achieving the goal of maximizing shareholder value, which is currently defined as dollar profit (revenue minus costs).
The evolution lies in how we define shareholders and profit.
For those of you who feel I am spreading heresy, I am thankful that I was born into and live in a country that among a large mix of positives and negatives, crucially enshrines freedom of speech in its fundamental ruling documents. I look forward to a productive discourse, with the hope that this is possible over the internet.
For those of you whom these questions and ideas resonate: is protecting the status quo by focusing on endless dollar-profit growth really what you want your career and life’s work to be about? Or do you want your life’s work to be part of the creation of a new status quo?
Stay tuned for the continuation of this multi-part series, where I will share a few ideas of how we might be able to define profit and shareholders, how capitalism has already begun to evolve, and new ways in which we can continue its evolution to maximize society’s health and happiness.