Thursday, December 06, 2007
The Macropocalypse and The Future of the Firm
"...Facebook is a profit-seeking business and just like any other profit-seeking business it will engage policies and practices that have the potential for profit and negative consequences for its consumers.
What about this is hard to understand?"
What's hard to understand about this is...welll...umm everything.
Let start with the basics: it's hard to understand how such companies hope to compete. The implication is that they have to do so by trading the most value from consumers to shareholders.
Now, that sounds asinine. But it's a very deep economic insight. Because that's exactly what companies as disparate as the Gap, Wal-Mart, and Microsoft have been doing for the better part of a decade.
But the game's up. That was yesterday. Not only can this trade not work in a world where the balance of market power is shifting to consumers - this trade never really worked at all.
No value was ever created. It was a shell game; a deception; a masquerade of value creation.
Let's rewind for a second.
The original purpose of the corporation - and of business - was to make everyone involved in trade better off.
Stop and think about that for a second - everyone.
Somewhere along the way, in the annals of corporate history - we lost that purpose.
And the firm became what the commenter's describing: a value-shifting machine, not a value-creating machine.
So: the fact that people can even think that such a design makes economic sense - businesses exist solely to maximize profits, at the expense of consumers - speaks volumes about what's really wrong with th larger economy today.
It doesn't - and the longer we buy into it, the harder, nastier, and more cataclysmic the coming macropocalypse (see - liquidity crunch becomes full-blown global banking crisis) is gonna be.
The macropocalypse isn't just about bad loans - it's happening because the ways in which we manage are deeply obsolete. Whether it's letting Wal-Mart get away with shifting massive costs onto sweatshop workers, or letting unscrupulous bankers and brokers sell contracts no one but a few eggheads understands to small towns and grandparents - the problem is the same: the firm is rotting from the very core.
Best blog post I've read all year.
I think the word for it is "greed".
Financial innovation strategies in this case are actually obfuscation. Searching through hedgefunds and the link to see where the paper trail and money ends is like dropping down a wormhole without an exit. Measurements of value broken down into smaller and smaller, and more abstract chunks(hedgefunds and the recent subprime meltdown) is like adding mirrors, that, like shadow reality reflectors, add zero's to the end of balance sheets where none exist....
Umair, you have the Facebook debacle to thank for helping you hone your thoughts to this simple, brilliant insight. It deserves meme-status.
Another insight, however: you're craving apocalypse, just like all jilted enlightened culture crusaders should:)
Are you familiar with Adam Arvidsson. I'm reminded of him following your thoughts lately. How about this paraphrasing of one of his presentations:
That emerging value is contingent on the production, and growth of community (instead of the production and growth of material wealth). Value is no longer compressed into "price" (my words -S.R.). Ethics are now taken into equal consideration, because they are needed to sustain community, which is the emerging root of "value"
I disagree that the corporation was created to make everyone in trade better off. Corporations flourished during the industrial revolution because they limited investor liability (that’s why we call it the Limited Liability Corporation). That was important when you had child laborers sucking back slag gas and coal dust 18 hours a day.
Corporations, like every tool, have only reflected those who use them.
Platforms, which are essentially the new corporation in that they organize work/people/activity, etc will simply reflect the behaviour of those who create or manage them. Facebook shifts value from one to another because the CEO is a punk who has no respect for those around him. Flickr, on the other hand, has built two-way resepct into every facet of the business because Butterfield and Fake are intelligent, empathetic people.
Nothing changes but the scenery.
Limited liability came long after the invention of the corporation.
You can certainly disagree, but it's a historical fact that the original purpose of the corporation was to finance projects for the common good.
Thx for the comments.