The Curse Of Capitalism

I wrote a piece a while ago about capitalism.

That capitalism encourages consumerism. I guess not too controversial of a take. But I’ve been thinking about capitalism some more. Now I think it doesn’t just encourage consumerism, but forces it.

Economies Of Scale

So I’m an app developer and my apps are… moderately successful. But I can’t compete with the well-established players. Why? Is it because their apps are better? No, in fact in many ways the big players’ apps are inferior to mine. So why are they out competing me? It’s because they’re the entrenched players. They already have a massive install base so they have money to spend on things like marketing which allows them to gain more users. It’s a vicious cycle.

One example of this is Duolingo. It’s the most popular language learning app in the world. Why? I don’t know. It does work for some people, but there seems to also be a ton of people complaining about it. In fact I just saw a post about this the other day.

And this is in app development where the playing ground is more or less level. Just look at the major companies that have started up recently. I asked ChatGPT for some and it gave me these: Airbnb, Uber, Snapchat, SpaceX, Stripe, WeWork, Robinhood, Peloton, Impossible Foods, and Zoom. These are mostly tech companies. And for good reason: the startup costs for tech companies are much lower. In fact with the rise of serverless

which I’ve called one of the most significant advancements of the 21st century

the costs scale with the number of users.

Now imagine how much worse it would be if I was making a physical product. I have no idea how you would even get started. Because the incredibly low prices we enjoy are the product of massive companies competing. It would take a ton of work to get into the industry.

The Curse Of Capitalism

And if you think about it once a company gains economies of scale it becomes an arms race. There’s a saying from Lewis Carroll’s novel “Through the Looking-Glass”, where the Red Queen says: “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

And this means… well I’ll just let ChatGPT explain it:

The significance of the Red Queen quote lies in its metaphorical depiction of a world in which the environment is constantly changing and becoming more complex. The quote suggests that in order to survive and succeed in such a world, one must continually adapt and improve at a rapid pace, even just to maintain one’s current position.

This concept has been applied in various fields, such as evolutionary biology, where the Red Queen hypothesis proposes that species must constantly evolve to keep up with changing environmental conditions, such as the presence of new predators or competitors. The quote has also been used in business and technology to emphasize the need for companies to continually innovate and improve to remain competitive in a rapidly changing market.

This illustrates that companies have to spend a lot of time and effort into improving themselves just to survive. It is high pressure all the time.

Now on one hand this has led to major benefits from capitalism. Things are getting more efficient, they are getting cheaper, and GDP is going up. However, this also has a negative effect, in that companies are encouraged to cheat. I call this the curse of capitalism.

You can see it all around you. Companies are forced to take any advantage they possibly can. Sometimes this can manifest in mostly benign outcomes like advertising. But then it can also manifest in more questionable behaviours like lobbying or dumping or using unsafe/underpaid labour or destroying the environment. And it doesn’t matter how ethical a company is. If they want to survive in this world they’re going to have to do it. Otherwise someone else will do it and they’ll lose their competitive advantage.

ESG

Now there are some practices such as ESG (Environmental Social Governance). ESG refers to a set of criteria that investors and companies use to evaluate the sustainability and ethical impact of business practices. So it’s doing things like reducing carbon emissions, reducing waste, providing fair wages, and providing safe working conditions.

But I am highly skeptical of ESG. In the words of Milton Friedman, “The business of business is business.” So ESG is, in my opinion, whitewashing a brand. I suspect for most companies ESG is only a token expense that makes the company feel better about itself. And if fact I’ve heard studies that companies that do ESG will sometimes cheat in other ways. This is a phenomenon called ‘moral licensing’.

Now there are some companies that are genuinely doing a lot of ESG. More than what makes business sense. But these companies have way too much money and are not worried about losing their economies of scale very easily. Like Apple.

Conclusion

There are some people that say the free market will fix everything. Just unregulate everything. No, no, no, no, no. That will not fix things. It will only make things worse. Because of the curse of capitalism.

It is the role of the government to keep the curse of capitalism in check. To make sure companies are behaving above board. I guess, at least here, governments are doing a good enough job. I mean, when they’re not making up fake ‘wokeness’ issues to attack.

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