What I Don't Like About Capitalism Part I

Only the biggest wins. This doesn't mean the best.

April 18, 2018

This post is part of a series: Part I, Part II

It is often said that in the American economy there is no second place, only first place and losers. Our system, via our herd nature around the stock market, tends to reward winners 10 to 100 fold.

Prominent venture capitalist and creator of the <img> and <blink> tag, Marc Andreessen, described our economy as a power-law distribution:

…Success in software follows a power-law distribution. It’s not Coke and Pepsi and a bunch of others; it’s winner take all. Second prize is a set of steak knives, and third prize is you’re fired.

Not sure if its intentional or not, but I believe Andreessen is channelling Alec Baldwin’s character in Glengarry Glen Ross.

In tech, we call this race to becoming the biggest “scaling”. Being able to scale to tens/hundreds/thousands of users/clients/verticals is critical to success. Venture capital is injected to make this scaling happen as quickly as possible.

From an engineering perspective, scaling is such an interesting problem. What’s the impact of a block of code executed a million times over? Or finding potential bottlenecks in software that are imperceptible now.

But it’s not just a software problem. “Scaling” a business means making sure all resources and outcomes are as efficient as possible, maximizing for profits to appease the markets (all while not sacrificing executive pay).

I’ve come to view “scaling” as an exercise of exploiting resources, squeezing every ounce of juice from a grape. It’s a good sentiment in a “use every part of the buffalo” way, but often times it takes a dark path…

  • Use every available CPU cycle, compress and minimize every kilobyte.
  • Grow two chickens in a cage that used to hold one.
  • Now grow four chickens in a cage that used to hold one.
  • Outsource and offshore for pennies what you used to pay dollars.
  • Hire part-time employees for 35 hours a week to avoid paying full-time benefits.
  • Coax young people with ample free time and less responsibilities to work long hours for no pay.
  • Make side-cash by eagerly mining users’ personal data with third-party scripts.

I tend to dislike the final outcomes of this exercise. I feel like it creates more injustices than benefits. But at its core, this is capitalism. The free market forces the price of goods down to zero. Once down to zero, businesses must find cheaper alternatives and “clever” workarounds. For the consumer, products get cheaper and that’s very good, but the cost is shifted to the labor force, the global supply chain, and the environment. There is social inequality and now everything lacks quality.

My favorite counter-example to the biggest-is-best phenomenon is In-N-Out. In-N-Out is only ~600 stores nationwide and will never unseat McDonald’s. In-N-Out will never scale as large as McDonald’s because their delicious burgers and (debatable) fries are made from fresh, never frozen ingredients. It’s a family-owned business, not venture funded. They willingly pay livable wages, they offer employees a 401(K). It will never be the biggest, unless they compromise their valueset.

Or take my company. We’ll never be a 200 person agency. Nor do we want to be. In fact, I’ve been in circumstances subcontracting through those agencies that get a big name client, schmooze and woo the C-level folks, then go on to assign junior designers to produce junior level work for this big name client. We couldn’t even fathom that at Paravel. You hire us, you get us. Plain and simple.

Not everyone needs or values quality in their food, clothes, web design, or healthcare. I get that. That’s fair. I think I get dismayed that the power-law distribution effect means 80% of the market is a single product of garbage quality, not out of choice but out of the market rewarding a single competitor. Second place doesn’t help either, it’s usually just a cheaper, more disgusting version of the leading brand (e.g. Pepsi).

So that’s my issue. Capitalism and its power-law distribution tends to reward low-quality goods and services over high-quality. And I don’t think that’s supply and demand. I think markets seeking profit margins skew the results. I’m not sure that’s beneficial in the long-term.

I recently read an article by Paul Ford called “Bitcoin is Ridiculous. Blockchain is Dangerous” that beautifully illuminated some of my feelings…

“Here’s what I finally figured out, 25 years in: What Silicon Valley loves most isn’t the products, or the platforms underneath them, but markets.”