Future Here Now: Capitalism breaks because it's fragile
SIgnals
Most of us have come up in a world that takes capitalism as a given. And especially, in the U.S., in a world view that takes a particular approach to capitalism as a given. Some writers call it corporatism or end-stage capitalism. Increasingly, I think we have to call it Fragile Capitalism.
Nicholas Nassim Taleb came up with this idea more than a decade ago, teaching us that most contemporary economic systems were inherently fragile as a result of their complexity. And in the years since, it looks to me that he has been proven right.
Taleb demonstrated that a large number of business systems and industries had done two things in the later decades of the Industrial Revolution: they had squeezed out as much redundancy as possible in the name of “flexibility,” and they had outsourced as much of their operational costs as possible to suppliers and contractors. All of this was in service of shareholder value, which became the megalomaniacal focus of business operations in the wake of the Greed Is Good 1980s.
The problem that Taleb spotted in the early 2010s was that highly efficient product lines and just in time inventory and far-flung supplier networks worked just fine as long as everything worked fine. But introduce what Taleb had previously coined as a Black Swan Event, like a tsunami or a strike or a set of stupid decisions in one economic sector, or a worldwide pandemic, and those systems broke like a water glass knocked off the table. The pinnacles of Industrial era financial and systems engineering turned out to have no resilience. Which meant that when things went wrong, they went very wrong, and fast.
Since then, we’ve seen some minor movement toward re-introducing resilience, especially in the onshoring of suppliers and diversifying of supply chains. But a lot of the sources of that fragility are still in place, in systems large and small. Perhaps that’s because when they break, big companies can weather it — or at least put off the day of reckoning with financial juggling and layoffs. But as we saw earlier this week, nothing gets hidden for all that long anymore, and choices create unintended consequences that can undo all of the benefit.
These three stories examine fragile capitalism in a few sectors that are - or have been -historically dominated by small operators, and which are currently experiencing fragile capitalism. Even if you are not a fisher or a homebuilder, maintaining your resilience in your business and in your industry may make all the difference between thriving and failing.
Competition in fishing industry
This is an older article, but I chose it because it shows a trend that we are seeing across multiple industries - and one that is getting some investigation. Historically, we have thought of fishing as being done by independent small operators — think the TV show The Biggest Catch — but the reality is that corporate operators are increasingly taking over significant fisheries and markets.
From a wider perspective, one of the fundamental problems of a monopoly, which is what these companies are trying to establish, is that control over a market and its product ends up in an artificially small number of hands. That has the documented effect of pushing prices higher than demand alone would create, and often of decreasing quality and employee safety in the name of “cost savings.”
But the other thing that a monopoly creates is a fragile industry. If a member of the seafood collective mentioned in the article gets in legal trouble, or has unsafe hiring practices, or other behavior that might get it in trouble, the overall effect on the supply of fish will be minor. You won’t have any extra trouble at the grocery store and you won’t see the prices double overnight, because other members of the collective will be able to pick up the slack. If a corporate fisher that monopolizes the market gets in similar trouble and gets grounded, the effect will be immediate and dramatic. This is just another reason why antitrust regulations are so important. It’s not just about price, it’s about having a resilient industry.
Carbon Sinks and People Damage
https://www.vox.com/climate/359230/carbon-capture-environmental-justice-louisiana
One of the reasons why we sometimes aren’t aware of it when fragile approaches to capitalism breaks is that the people who deal with the breaking are out of sight to those of us who have the priviledge of not having to live there. This article describes a new development in Cancer Alley — a section of Louisiana that hosts both residents and huge heavy industry — and a proposed project that promises to have big environmental benefits. For someone, at least.
One of the problems — and there are many, nested upon each other over generations here — is that the scale of the proposed project places the local population at big risk in the event of a malfunction (and with operations of this size and complexity, it’s unreasonable to assume that something won’t go wrong sooner or later). The scale of the operation means that the impacts are not likely to be small — as might be the case for any one location if, say, the total amount of production were generated in 20 smaller operations spread across three or four states.
Of course, that idea gets laughed out of the room because it’s not “efficient.” We have all bought into the idea that industrial operations have to be as large as possible in order to optimize efficiency, but it merits remembering that concentrated operations also mean that the unintended consequences, or externalities, will be comparably sized.
We can pretend that’s OK as long as those unintended consequences are somehow outside of the “real” profit calculation. But from a larger perspective, the consequences of a larger operation will affect more people, ranging from the residents who suffer to the health care systems that strain to support them.
