5. R&R-Capitalism

R&R-Capitalism by Andrew Guthrie-Dow

To understand capitalism, even a little bit, is difficult, but why? With time-and-effort, I or anyone could read-up on jet-engine-maintenance, or brain-surgery-for-beginners, and get to the agreed-basics pretty-quickly. Somehow to me, capitalism doesn’t seem to fit into this category of understandability. Perhaps if we first try to comprehend why understanding it is difficult, so difficult in-fact it is continuing to be hotly debated even after hundreds of years, we might gain a little enlightenment on how we should “attack” the subject.

My background is IT, so this shapes my view of things. Through this IT lens, Capitalism rather like Evolution, seems to have characteristics of an algorithm. They both take inputs, process them, and spit-out results. For products, raw materials are collected, processed, physical-objects manufactured and sold to customers for profit. For services, like the dirty-state the unwashed-floor of a hospital-ward can be upgraded to a clean-state by hiring cleaners. Or in the case of Evolution, a niche-area like a riverbank ends-up being populated by organisms that can exploit it. 

But unlike computer or mathematical algorithms, no human has sat-down and designed them, tested them and optimized them. In fact, it is very difficult or even meaningless to assign a purpose of these “undesigned” algorithms. Does Capitalism exist to ease the creation and distribution of wealth, or Evolution to ensure the continuation of a species (think parasites that go extinct when their host species vanishes)? But this does not mean that we humans can’t understand it at least to a degree where we can influence things to our benefit, whether this be a rich, happy and inclusive economy or the development of new and better breeds (by “unnatural” selection). So, let’s see how this might be done.

There just are a few tools that are used to understand things. You can just describe the thing under discussion, and that’s a good start. Historians do that, newspapers do that, often philosophers do that. The temptation is to go further; can you analyse the thing – break it down into smaller parts and by understanding those individually, then be able to comprehend it in its entirety by working-out how the parts work individually, collectively, and collaboratively.

This approach lends itself to modelling; either mathematical models and/or computer models and/or physical models (think the Moniac fluid machine of Bill-Phillips). These models can then be stress-tested to see if they behave in an identical way to the thing itself. Even if they do it doesn’t mean you’ve understood the thing as it might be operating in a different but parallel manner (think electromagnetism with Kelvin’s vortices versus Maxwell’s field theory).

A fascinating topic in modelling is “grain-size” (I’m a geek so I’m allowed to be fascinated by grain-size). In the IT modelling of supply-chains, I was involved with the generally-agreed-direction was to model smaller-and-smaller things, and thus approach reality. Markets could be broken-down into channels, and sometimes channels into individual entities, such as companies or groupings. The ultimate here is the individual consumer, fridge, company, store, factory etc, etc. This is becoming increasingly possible.

Why not have a super-computer modelling the entire world’s populations, bank-accounts, salaries, down to and including what’s in people’s bookshelves and wardrobes at any moment? For all I know, subsets of this world-wide model are very possibly already in place, sitting in the data-centres of the world’s security-centres, there to alert them to terror-related activities and operations of foreign agencies.

If economists ask politely, this treasure-trove of information could be used to do economic what-ifs on a mega-scale. What happens if we reduce the price of a Big-Mac by fifty-percent, or we create a salmonella scare in Switzerland? We would finally have the tool to do this modelling with realistic-inputs; not aggregates or guesses, but real, individual data. This data could be anonymised to avoid misuse, but I think we could all agree that anyone who buys instant-mashed-potato should be identified and strongly-encouraged to visit their local shrink.

This world-wide, real-time, detailed-model is actually a simulation of (economic) reality. You could safely explore questions such as whether we should go back to the nineteenth-century and replace income-tax with import-tariffs. The unexpected consequences of doing this could also be probed. One might be on smuggling, that age-old activity that in recent years has almost fallen into disuse, except for the notable exception of illegal drugs. 

Whole communities used to survive off smuggling in previous centuries, from intentionally ship-wrecking cargoes to supporting huge gangs of customs-officers. It’s been suggested that up to ten-percent of the economy in the middle-ages was centred around smuggling – happy days, and ones we might soon be recreating with guidance from the US.

However, I am a great believer in education to augment natural-talent, so I would suggest new courses and curriculums are created to cater for the new trading conditions – “Navigation-for-Smugglers”, “Resisting-Interrogation-Techniques”, or “Basics-of-Money-Laundering” should-and-must be taught at school for both the academic and vocational streams. 

Another way is to experiment. I like this approach as it doesn’t rely on any genius insights - just keep kicking the thing until it is forced to give-up and shows you what it’s doing and how it’s built (sorry for the technical explanation-here). Let’s also experiment big-time – not with a few economics-undergraduates given a few dollars to buy different coloured sweets/candies to provide insights, but the whole economy of a sovereign-country. 

I propose a world-body of some sort guarantees the bold initiative of such a sovereign-country in trialling, for instance, MMT (Modern-Monetary-Theory). In the vanishingly-small probability that the project goes terribly-wrong, with the price of wheel-barrows to transport the cash generated soaring, the world-body could step in and rescue the country concerned. Unfortunately, of course, by the time the bale-out occurs priorities may have changed, and the volunteer-country is left stranded with hyper-inflation, mass-unemployment, civil-disorder, and a fast-rising fascist movement. No matter - at least we will have got the answer to whether the new-idea-on-the-block is game-changing, or just a load of old-bollocks as its detractors always said it was.

Well, you would think so at least, but it seems economics more than in any other discipline, is the terrain of the “true-believer”. To this strange entity no outcome or fact can’t be used to prove the opposite of the bleeding-obvious. The policy didn’t work, then either I need to tweak the model a bit more, or the policy wasn’t implemented correctly or fully, or dark-forces conspired to thwart the desired outcome.

Which is why that if a newly formed sovereign-country, maybe a future Scotland, should carefully examine others previous successes and failures before doing anything “bold”. Perhaps playing the existing flavour of the capitalist “game” better than your competitors is no bad thing to do to begin with. Then after some initial success you can safely decide to back your currency with giant cowrie-shells, declare a universal two-day week, write-off all foreign debts, and set-up a trading-hub in the Darien-gap. 

That’s enough macro-economics; let’s “do” micro-economics, starting with my favourite phenomena, bubbles, pyramid-schemes, Ponzi-schemes and scams. There’s almost a hierarchy in these activities, from legal-but-insane, through semi-legal-and-dishonest, onto illegal-and-dishonest, finishing with the absolutely-criminal, each taking advantage of a capitalist-framework, vulnerable-people, and careless-organizations. Bubbles first; they’re really fun.

My favourite bubble is the tulip-bubble of the Dutch-Golden-Age (1636-1637). Everyone sort-of knows the story, but I think context is important. Things were booming, new discoveries were being made and everyone felt the sky-was-the-limit. Arguably being the first-ever major such bubble, few alarms were raised. There doesn’t seem to be a specific trigger for the crash, it just seems the bubble ran-out of new investors, which led to the “emperor-has-no-clothes” moment. 

What I particularly like about tulip-mania is its sheer idiocy – tulips for God’s sake. Were not talking about new wealth generated in the South-Seas, or a new internet-driven-economy, just bleeding tulips with a few dashes of colour bought about by a genetic-variation in a plant-virus. What’s even funnier is the Dutch who I lived amongst for over twenty years are usually a very sensible bunch, particularly money-wise. What went wrong then? 

This is still hotly debated. My favourite (demented) analysis, closely argued though it is, is that the whole thing was mostly rational, and no threat to the author’s favourite economic-theory of BTN (Beggar-Thy-Neighbour). Somebody had to be irrational though, my candidates being the investors left with no money as they had spent it all on a bunch of tulip-bulbs which now had zero value. Any insights from all of this? Is it rational to (always?) follow-the-herd, is it rational to (always?) breakaway from the herd, or is it rational to (always?) double-guess the herd? To me though, once you realize you are running with hundreds if not thousands of large-beasts in close proximity, perhaps caution should prevail.

Now for Pyramid-schemes. Here we’re leaving the world of the legal-but-dumb, to that of semi-legal-and-dishonest. These schemes are fairly boring, but share some common components. First there is something real being sold, though it tends to be something a little off-piste (think Tupperware or female-sex-products). Also, they tend to follow the direct-selling channel with individuals being ambassadors of the brand, and having unique access to the product-or-service being sold.  What quickly happens by design is that more-and-more champions are recruited and recompensed, with those early entrants getting the bigger slice of revenues. These can and do run for years, with their ultimate owners frequently being able to fend-off any law-suits or prosecutions.

Ponzi-schemes target that worst of all human genes, GREEDe1, situated on chromosome-five of the human genome, so is not sex specific. If epigenetic factors magnify the expression of this gene, the result can be tragic for the individual concerned. A whispered-way of getting rich reaches the individual, and in secret they are lured into the scheme. There’s always a sneaky-hidden method to quick-riches, as in the eponymous scheme itself which supposedly invested in international-postal-reply-coupons (whatever they were), or by lending your money to an investment guru with the standing of Bernie-Madoff. 

What I find hilarious is that often these schemes were not entirely set-up with criminal intent. What started as a risky strategy attracted so much money that you can’t invest if quickly enough, so you pay-back your old clients with money from the newer ones. Once down this path the only way out for the perpetrator is a one-way-flight to South-America leaving a forwarding address in Kazakhstan. In the case of Madoff, he thought he could ride the wave forever (wrong), and for the original Ponzi, he just knew things would blow-up as hey had in the past for this small-time crook who hit the big-time.

Now scams. Nasty things and nasty people behind them. Nothing much more to say about these except humans are very vulnerable to manipulation. The great saying is that there’s a scam for everyone, each targeting a particular human vulnerability. Greed is often the crux, sometimes a vanity-attack, sometimes leveraging your natural urge to help people, romance scams etc. Its very difficult to keep them all at bay, but perhaps a starting point is to be honest with yourself and identify your soft-spots, which are vulnerabilities, not necessarily weaknesses (mine are vanity and trying to help people). Always pass anything out of the ordinary through another brain; we’re all wired differently and they may easily see what you don’t.

That’s it really, except to lament the near extinction of the traditional conman (they are mostly men) caused by that all pervasive internet. Most scam are now online and there are only fading memories of the great con-artists of the past. Where are all those wonderful time-share schemes now? A down-payment of a hundred-grand, a guaranteed two-weeks a year access, and the renting out your place to others; how could it go wrong? The buildings fine, the paperwork’s fine, the legal-stuff is fine, where’s the catch? 

The catch is the scheme is designed to fail; how else can the founders take out a salary of five-hundred-grand a year each? You are left with nothing but a legal-mess. And the founders themselves? Even if they do end-up in court they are very likely to say they are just business-people, not very successful ones (five similarly failed schemes in the past), but business-people nonetheless, and should be applauded for trying to create wealth and opportunity, not vilified by evil operatives in the press.

Lastly in micro-economics I thought I’d do a bit inspired by a book from the late English comedian Spike-Milligan. In his book “Adolf-Hitler: My-Part-in-his-Downfall” Spike details his worthy contributions to the collective project of defeating Hitler. My book concerning Capitalism would be slimmer and even more self-deprecating: “Capitalism: My-Part-in-its-Continued-Existence” where I chronicle how Capitalism managed to withstand my best (unintentional) efforts to destabilize it. Who knows, it could even motivate others to do likewise (I do hope so).

There you are, middle-age is knocking-on-the-door, you have plateaued at work, and there’s some idiot on the morning news suggesting we all take up bird-watching. Its at moments like these that the Capitalist-bug bites you, so you decide to set-up your own business. I like this about Capitalism as it allows you to take this decision regardless of ability or preparedness; there are no entry-tests or minimum-academic-achievements that prevent an oddball/idiot/genius from trying-their-luck. Then the fun starts. What will I sell, who will be my customers, how do I finance things, and am I capable of pulling-the-whole-thing-off? Let’s answer these questions and doubts.

Unless you are a total dreamer, and there are some, by the time you reach such a decision the answer to the last question, “can I do it”, has been answered. Of course you can. You’ve come this far operating under someone-else’s fiefdom so you’re obviously capable of doing it. Perhaps the cleverer question is should you do it, but I caution against going down this route. You’ll only convince yourself it isn’t sensible, and you will have missed this once-in-a-lifetime opportunity. There are some decisions where you need emotion to drive you, not logic. Do it. You can always go back to whatever it was you were doing before if it all goes horribly wrong. You can even try again with a different approach or angle (e.g. opening a Welsh-Language-Hub, but this time not in Basildon, or rebranding that Ted-Bundy collection of yours).

The first question is an interesting one; what do I sell? Let’s attack it from two directions; from what the customer wants, and what you can offer. People, including myself initially, often have a rosy-view of a customer. They think she/he wants a new or better product or service which will bring light-and-joy, like the invention of sliced-bread or Post-it notes. Well, they did bring joy, but they are an exception. Mostly what the customer wants is for someone to take their pain away, like doing the accounts for them or writing some code or documentation. This is the sad-but-true dirty-little-secret of Capitalism; customers mostly give you money because they want you to do the boring, mind-chilling, back-breaking and soul-destroying work, instead of them, while they focus on the “fun-bit” (if there is one). Use this insight as it may make the difference between a dismal-but-solvent business and a glorious-but-failed one.

But I haven’t yet answered what will I sell? Following-on from the logic above, what do I know well which I dislike doing but the customer dislikes doing even-more? This should be bleeding-obvious to you now – whatever it is you are currently doing, but doing it for yourself, not some remote company or organization. This also embraces the second question of who your customers are going to be. They’ll be a subset of the ones you deal with now, but they will do business with you instead. Not only that, but I’ve a sneaking suspicion that’s what they would like to have done already, but the opportunity was never there. Well now it can be.

The other alternative is to sell whatever is at the centre of a hobby of yours. This way you’ll know all about the subject, which is essential, but finding an angle to monetize it can be difficult. Again, look to remove pain from your customer’s experience. For me these two options confronted me as they will you. In my case was it implementing high-value IT supply-chain systems, training people to use them and documenting them (have you ever documented an IT system? Its more fun documenting how to open a door or boil a kettle; no, I take that back, it’s worse!), or finding a lucrative angle on kinky S&M sex while high on ecstasy. I chose the former – who knows how the universe might have evolved if I had chosen the latter?

And then finance. My advice is leave this till last – money can always be found. In my case I put together a really good presentation of a five-year business plan, complete with scenario planning and all that ROI (return-on-investment) and free-cash-flow rubbish. I showed it to the Dutch bank manager who said it was one of the best pitches he had ever seen, but nether-the-less wasn’t going to give me any money as it was “outside of the bank’s lending criteria”. I replied “but why then let me waste an hour of yours-and-my-time?” to which he replied, “but I was looking forward to it”. Bankers, don’t you love them!