The Next Digital Economy: Why Refusing to Grow is Better Business

November 2, 2016

NOTE: Images in this archived article have been removed.

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This is an interview I did with myself about my book – trying to explain what matters about it, as briefly as possible.

Q. Your title is provocative. Are you saying we should throw rocks at the Google Bus?

A. No – but the real protests by San Francisco residents struggling to afford to remain in their city do epitomize the way the tech economy has failed on its promise. Instead of making the world easier and more livable, it ended up doing the same old extraction. Google was the ultimate success story of the people’s revolution against corporate capitalism: two kids in a Stanford dorm room, writing an algorithm that took down Yahoo, and used the links between people to organize information from the bottom up. Now, it was using public bus stops for its private buses, transporting alien employees to the mothership in Mountainview.

The promise was a p2p economy, as distributed as the networks themselves. The reality has been a doubling down on the same old extractive, growth-based capitalism.

Q. What’s wrong with growth? Isn’t that what every company wants?

A. Growth is fine if it’s organic to your marketplace. But not if it’s simply a way of satisfying your debt structure. Twitter is considered a failure with $2 billion of revenue a year, because it can’t find more growth. Great, sustainable companies must pivot away from revenue in order to grow. I was at an executive retreat of a Fortune 100 company where the CEO had his minions chanting “5.2!”, the percent growth target for the coming year. When I got up to do my keynote, I couldn’t help but ask if one of the world’s twenty biggest corporations must still grow in order to be okay, then isn’t there a problem, here? Eventually, you run up against the limits of physical reality.

That’s why GE sold off is washing machine business in the 90s. Jack Welch realized the company could only have a sustainable business by selling people washing machines, but that it could grow by lending people the money they needed to buy washing machines. So they sold off their productive assets and became a bank. Jeff Imelt, the current CEO, is working hard to reverse all that today and to become a value-creating enterprise.

Q. So companies shouldn’t financialize. Is that what you’re saying?

A. Yes. But most startups are really just that: ideas that can be sold at a higher price to a new round of investors. It’s “flip this startup.” Get to IPO or acquisition.

Young developers aren’t aware of the financial operating system on which their companies are running. They think that’s just “business,” when it’s a very particular model of VC: one that recognizes the importance capital but ignores the other two factors of production, land and labor.

And that makes them act in irrational and extractive ways. Amazon destroys the book market; Uber destroys the cab industry – not to create a marketplace but to establish a “platform monopoly” they can leverage into another vertical.

The real product of these companies is their stock. The original idea – the platform or app or device – is really just a marketing tool for the stock. So many great young developers have surrendered their ideas and their missions to their investors. The investors don’t want a sustainable company – or at least they don’t care about that. They just want to sell their stock and get the capital gains.

Q. Is this unique to Startups? Digital companies?

A. No – but digital companies, and the speed at which this is all taking place, has laid this bare. Made it apparent.

The Deloitte Shift Index of 2011 showed corporate profit over growth has been declining for 75 years. That means companies are great at taking all the chips off the table but terrible at deploying assets. It’s a form of corporate obesity. They bankrupt their marketplaces, and end up holding n the money. That’s not good for business. They have to become holding companies, themselves. That’s what Google did when it became Alphabet: they went from being a technology company to becoming a holding company that buys and sells technology companies.

When you look at Amazon, Uber, Facebook, and the other digital behemoths out there, you come to realize that these are not companies in the traditional sense of the word. Digital companies are essentially pieces of software that convert circulating currency into static capital – into share price.

Q. Okay, then. What should they do differently?

A. I’ve got six main suggestions.

  • Take less money. Sounds ridiculous, I know, but if you want to have a company that answers to no one, and is allowed to make money for a whole long time by selling goods and services, then take less capital to begin with. Go for the lowest valuation possible, because then it will be easier to fulfill your investors expectations. If you get a high valuation – say 50 million dollars – and your investors are expecting a 100x return, that means your company has to become worth $5 billion for investors to be happy. If you don’t reach that size, they would rather the company die. A single or a double is not sufficient. It’s a home run or nothing.
  • Make “them” rich. This means to make your customers, employees, and suppliers wealthy. Don’t take the traditional Walmart approach of squeezing everyone else until they’re bankrupt. When your customers have no money, they can’t spend it with you. When your cab drivers can’t pay their rent, they can’t drive for you. When your suppliers can’t make a profit selling to you – even if you are the monopoly player – they go out of business. Then you can’t make money off your marketplace, because it is gone. So instead, create platforms that let others profit by engaging with you. Whether that’s giving your uploaders a better share of the ad revenue from their videos, or giving your drivers a livable wage.
  • Promote flow over growth. We have to get off growth and start looking at how to optimize for the velocity of currency. More transactions. Instead of taking ten dollars off the table, think of how to make the same dollar ten times. If you’re focused on revenue instead of growth, consider delivering dividends to your shareholders instead of capital gains. Also look at bounded investing, like the US Steelworkers did with their retirement accounts: they invested in construction projects that hired steelworkers. They invested, and made the same money back.
  • Experiment with new models. Banks can offer half their business loans in cash contingent on a borrower’s ability to raise the other half with a crowdfunding app supplied by the bank. Then the bank is becoming something more than the monopoly lender; it’s also the facilitator of local economic development. Or Walmart could experiment by setting aside one aisle for locally produced goods.
  • Platform cooperatives. Imagine if Uber’s drivers owned 50% of the company. Then they wouldn’t be doing the R&D for a robot driving company that they don’t own. They’d be investing their work for their own futures. Or consider giving employees real participation in your enterprise – not just silly options that only work if you’re a unicorn. Real, ongoing, ownership in the company that isn’t dependent on a freak sale.
  • Finally, consider cutting the employees in on their increased productivity. If you can cut the work week down to four days, why reduce their salary as well? Why deliver all the gains to the shareholders, and put the employees at risk? Our relationship to work is backwards; we use “employment” as a way to justify letting people partake of what we already have in abundance. We are tearing down houses in California because we can’t find enough people with “jobs” to justify letting them live in them.

Q. Is there a role for government or policy?

A. Mainly, reverse tax punishment for dividends vs. capital gains. Charge low tax on dividends and revenue; charge high tax on capital gains. This will lead shareholders to stop pushing for growth and start looking for sustainable revenues.

Q. Finally, you see this as a pivotal historical moment? Explain.

A. Yes. As I see it, it’s a new renaissance – but much different from the last one. The original renaissance was great in many ways, but it quashed a thriving p2p marketplace, and replaced it with the chartered monopoly and central currency. It set in motion the monopolistic, growth-based, extractive, colonial corporate economy in which we live. Think Conquistadors, British East India Trading Company, and Walmart. These days, that has translated into Google/NSA, Amazon, and Uber.

But we may just be in a new renaissance. Think of the parallels:

Printing press / Internet

Circumnavigate globe / orbit the planet

Perspective painting / hologram, fractal

The list goes on.

A renaissance is an opportunity to retrieve – literally re-naissance or “re-birth” – the mechanisms and ideals suppressed in the last renaissance. In the case of the last Renaissance, the things that got rebirthed were the centrality and empire of ancient Greece and Rome. Meanwhile, it wiped out the commons, p2p trade, and distributed prosperity. The medieval marketplace and its local currencies were legally and forcibly shut down.

So in a digital renaissance, we see some of those mechanisms retrieved. We don’t go back to the Middle Ages, but we bring forward some of their long-repressed innovations, such as the commons, p2p trade, alternative currencies, and distributed prosperity.

After all, digital really means the digits – the fingers. It’s a restoration of our productive capability as well as our ability to transact directly. Networks make the old marketplace finally scalable. Land and labor are brought back into the equation, along with capital rather than just “externalized.”

We finally have the choice whether to use technology to optimize humanity for the marketplace or use to technology to optimize the market for humanity.

Douglas Rushkoff

Douglas Rushkoff is the author of Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity, as well as a dozen other bestselling books on media, technology, and culture, including Present Shock, Program or Be Programmed, Media Virus, Life Inc and the novel Ecstasy Club. He is Professor of Media Theory and Digital Economics at CUNY/Queens. He wrote the graphic novels Aleister & Adolf, Testament, and A.D.D., and made the television documentaries Generation Like, Merchants of Cool, The Persuaders, and Digital Nation. He lives in New York, and lectures about media, society, and economics around the world.

Tags: digital commons, new economy, p2p economy