• 02 Apr 2014
  • What Do You Think?

Has the Post-Capitalist Economy Finally Arrived?

Summing Up Capitalism is far from dead--but how it works is changing for good, say James Heskett's readers this month. What will it require from us?
by James Heskett

Summing Up

What Will Capitalism Require of Us in the Future?

If one were to sum up the ideas in response to this month's column, it could be: Capitalism as we know it is here to stay; the question is about its long-term impact on our way of life.

Daniel Dyer made a case for capitalism as we know it when he said that George Gilder correctly defines knowledge and entrepreneurship as the true driving forces of capitalism. "Airbnb and like companies are accelerating capitalism, not replacing it." As Hugh Quick put it, "Capitalism means accepting that personal property is allowed and using 'money' facilitates the exchange of goods and services. So we are still capitalists…" Barry Shere commented that "I do not see how profits are neutered as a result of the pressure on prices and margins per transaction. As for lowered investment requirements, that should spur … entrepreneurship …" Peter McCann pointed out that things are déjà vu all over again. "There will be increased productivity but the day of zero marginal cost for more than a small set of goods and services is not even on the distant horizon." Ruth Winett added: "With the Internet of Things some businesses will disappear, but new ones will appear." Dennis Hopwood said that "Capitalism periodically destroys and reconfigures previous economic orders through 'creative destruction' … The tide goes out and the tide comes in."

Others concentrated on imagining what the next era of capitalism will bring. Tom Dolembo commented that "the revolution that is occurring … is a shift of cost from production of product to delivery of experiences…Capitalism … requires a belief … that wealth is exclusively for a privileged few and that universal wealth is impossible. That's a hard sell when it costs so little to be happy …." Warren speculated that "we are going to come up with a self-sustaining economy meaning that we will revert back to small towns that depend less on trade and more about the common sharing services between each other." JTG added that "With the new technologies, the capitalist society as we know now may change. Instead of organized corporations, we may see more smaller, nimbler, and highly flexible organisations or households popping onto the scene…."

Another line of thought concerned what capitalism will require of us going forward. Ganesh Ramakrishnan commented that though there are many signals showing the need to repair old school capitalism, we have a long way to go. "We need the discourse to be expanded beyond simplistic dichotomies such as free market versus state control." Zufi Deo argued that if we see this process as post industrialisation, it may help explain trends more effectively. "For example, … the need for human beings to focus more on their intellect as opposed to physical labour are redefining our existence…. It will necessarily mean a new way of life."

Gerald Nanninga suggested one possible future scenario: "A key part of capitalism is consolidation. Current business trends are pushing consolidation to extremes… The long-term result is a world of winners and losers, where the few survivors of the massive consolidation win big …Unless you want civil unrest, a parallel network (government?) will need to be developed alongside of capitalism for those who do not survive the massive consolidation."

What will capitalism require of us in the future? What do you think?

[summing up]
Is There Really a Formula for Great Leadership?

The overall sense of responses to our question for the month is that the leadership stars of today-Jobs, Bezos, Gates, etc.-should not cause us to change our time-honored ideas about great leadership. Among the notions advanced were that they: (1) are special, (2) are entrepreneurs first and leaders second, (3) or represent a kind of leadership important for only one phase of the longer-term development of a business. Comments did suggest, however, that some ideas about leadership can benefit from a reexamination.

Tema Frank addressed a couple of these points when she said, "The fact that we can name so few leaders as readily as the ones cited in the article is because they are exceptions. There is no question that brilliant, strongly mission-driven founders can inspire people to follow them, despite personality flaws… Once the excitement fades, a different type of leadership is essential." Bill Eickhoff added, "I would compare Jobs, Bezos, etc. to Ford, Edison, etc… No one ever raves about their so- called 'leadership' style. These men were outliers. Their style is not duplicable." Kim Forbes set forth an interesting hypothesis in commenting that "We will always be able to identify examples of leaders that 'buck' the now orthodox definition of the balanced, emotionally intelligent, people-focused leader… the likes of Gates and Jobs may have highly effective leaders below them and they are the true heroes of these large successful corporations, in spite of their dysfunctional 'leadership'."

Today's leadership heroes, however, stimulated debate about just what constitutes leadership. It is an important discussion, as several pointed out. Paul Stavrand put it this way: "… we need to be concerned about the outcomes of business practices and products on our global society, and evaluate leaders accordingly." Yadeed Lobo commented, "… the mark of a great leader is the impression they leave on any employee." G. P. Rao added: "… lack of humility and leadership appear to be … inconsistent, if not contradictory… In the ultimate analysis, however everything boils down to perception of the team members or subordinates or followers of the leader concerned."

The importance of maintaining an open mind on the subject of leadership was stressed by several. Ronnie Kavuma commented that, "I think that there is a place for both kinds of leaders and/or their schools of thought in the modern high tech and versatile business environment." David Wittenberg said: "… an effective leader must be true to himself. Personalities differ, so leadership styles differ. It is a common fallacy that there is only one style that leads to leadership success." Pradip Shroff added: "The simple fact is that leadership is an art and science of blending various styles based on the situation." Yan Song summed up this point by commenting that, "Stereotyping leadership might be the greater danger here. Evolution neither begins nor ends with current crops of leaders. In all practical situations, one needs a mixture of different leadership styles to induce human energy … " Jerry Houser advised us to consider that "… understanding leadership means understanding the emotions of leaders and followers. Brain science is making me question much of the literature I've read on leadership." These comments call for the question: Is there really a formula for great leadership? What do you think?

Original Article

When this column was inaugurated 14 years ago next month, we were asking ourselves whether we had entered the era of the "new economy." Warren Buffett was telling us that we had not—that real assets, book value, and good brands still mattered—but many didn't believe him. Now questions are again arising about whether we are about to experience a post-capitalist society centered around the creation and sharing of goods and services that have marginal costs approaching zero.

I was reminded of this by an email from Sam Mayville, who wrote to me after reading that Airbnb, an Internet site connecting people seeking and supplying overnight accommodations, was shooting for a $10 billion valuation. He was curious how an organization with few tangible assets under ownership and very few employees could have a higher market value than the large tech hardware and software company that employs him.

Putting the question of the valuation aside, we have to ask just what impact Airbnb and other organizations like it will have on the economy? How will this affect capitalism as we have known it?

Jeremy Rifkin believes he knows. In his new book, The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism, Rifkin argues that the very forces that brought capitalism to the fore are now promising to push it into the background. The competition that capitalism has fostered is bringing marginal costs of production down far lower than anticipated by economists, to near zero in sectors such as publishing, education, energy, and even manufacturing. This is occurring not only through MOOCs (massive open online courses) but also such things as 3-D printing of products.

An important driver is the Internet of Things that connects information about everything and everybody on a real-time basis, providing all of us with a wealth of information that will accelerate productivity gains and encourage collaboration and sharing on what Rifkin terms a "collaborative commons." As marginal costs approach zero, the driving forces of capitalism--profit and investment--are neutered. As a result, a social sector that doesn't rely on profit will play a larger role in the creation and distribution of goods and services, becoming a more significant employer in the process.

How about employment? Will a post-capitalist society create or destroy jobs? For example, Airbnb now lists on its site more than 600,000 accommodations, from rooms to sofas, with choice locations (even if on a sofa) going for as little as $25 per night. Nightly rentals are beginning to exceed the volumes of the largest hotel chains. What happens if the chains, with much higher marginal costs, are forced to cut back on employment? What are the implications for manufacturing if we are able to manufacture many of the things we need on our 3-D printers with recycled materials? Will the Internet of Things and "collaborative commons" enable even greater productivity and efficiency leading to fewer jobs? Or do these innovations foster self-employment in renting our rooms or printing our products? As marginal costs and prices approach zero, how much income are we going to need anyway? How will this affect the distribution of wealth?

Does this generation of new thinking (about the importance of collaboration and owning versus sharing) and new technologies have ramifications for the for-profit sector that extend far beyond higher productivity and lower costs? Is the new (post-capitalist) economy finally here? What do you think?

To Read More:

Jeremy Rifkin, The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism (New York: Palgrave Macmillan, 2014)