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)
- Warren
- Director
I've been thinking about this for sometime now and what I can figure out is 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. We are heading back towards an agricultural-based society. Maybe this is a good thing as we focus more and more on locally grown items and less on mega farms. We have yet to achieve the ability to synthesize our basic foods. We can genetically modify, but cannot manufacture.Of course this presents dangers such as monopolization of water supply, which I think is a danger that we will face in the future.
- Daniel Dyer
- Trustee, Work & Learn, Inc.
Airbnb is post-capitalist only when James Heskett mistakenly defines "profit and investment" as the "driving forces of capitalism". George Gilder correctly defines knowledge and entrepreneurship as the true driving forces of capitalism, proven for many decades by the experience curve and innovation. Airbnb and like companies are accelerating capitalism, not replacing it.- Anonymous
I wonder how old school thinking and philosophies about economics and business will grasp this. Companies still do not even know how to use social media, which is probably the easiest form of technology..- Ruth Winett
- Owner, Winett Associates
With the Internet of things some businesses will disappear, but new ones will appear.For example, digital cameras have destroyed some businesses (analog cameras, film, and companies that developed and printed photos) but created others (digital camera companies, phones and notebooks that take photos, paper and printers for printing digital photos, and companies that produce calendars and books out of digital photos).
- Peter McCann
- Consultant, McCann Corporate Consulting Associates
Things are different this, deja vu all over again. The marginal cost of renting a room may be close to zero - for the intermediary; but, the marginal cost is not zero although less than before for the buyer and seller, and, critically, the marginal cost of the first item remains as high as before (meaning buying the condo costs as much, for example). Next, some intermediation has existed for many, many years; and one might point to marriage matchmakers, pimps and stock and bond salesmen (all men at that time). The electronic data and communication did not end marriage matchmakers, pimps and stock and bond salespeople; but, there was a concentration as the cost on entry into the game became higher. Finally, it is unlikely that the internet of things and 3-D printer will replace modern hospitals, auto assembly plants, oil refineries and corn fields. There will be increased productivity but the day of zero marginal cost for more than a smallset of goods and services is not even on the distant horizon.
- A J Balasubramanian
- Vice President, CVT
Digital / Internet technologies have helped us reduce the search and transaction costs significantly. Every product and service has an information content, to increase its value. But, information cannot replace physical goods, though it can drive the prices down. In the case of Airbnb model, the unused capacity is leveraged perhaps, which would make the firm relevant. But we all know that Firm's goal should always be to reduce cost of transaction. While firm level jobs may be lost because of such innovations, there is new value creation some where else. For example, we are able to use otherwise unused spare capacities, which is good for the society. In fact, the biggest problem of modern society is not non-availability of enough resources, but using the available effectively. Alvin Toffler has dealt with these ideas in this book "Revolutionary Wealth". But the larger danger is people with ideas wielding far larger economic power in the system, even though it may be often ephemeral.
- JTG
- Consultant
The trend and development cited by Prof Heskett will not likely be doing away with the capitalist society. The driver for investment is still profitability or at a more crude and fundamental level, cash or asset. In the Airbnb example, all that Airbnb function is as an intermediary. All it does it just to overcome the barrier of imperfect information between asset owner, the person with the extra room, and the punter.We still need someone who is enterpreneaurial with the money or the asset that is under utilised seeking higher returns for the under utilised asset to participate in the market place.
With the new technologies, the capitalist society as we know now may change. Instead of organise corporation, we may see more smaller nimbler and highly flexible organisations or households popping on to the scene. However, that prediction was there back in the 90's with the arrival of the internet and dotcom version 1. Fast forward twenty years, we see economy power still concentrated in the few, even in the digital market place. The infiinite number of international digital villages that was envisaged did not materialised, well at least not in the exact form or shape that was envisioned.
We are seeing the beginning of dis-intermediation in the land of goods as what we had observed in the land of services in the last 2 decades. In this more diverse world, "real assets, book value, and good brands will still mattered"
- Hugh Quick
- home, none
In my opinion Capitalism means accepting that personal property is allowed and using 'money' to facilitate the exchange of goods and services. So we are still capitalists but I do think that some of the rules need to be updated.- David
- Partner, Construction
Things still need to be built before they can be shared.Food needs to be grown.
Water and electricity piped.
The old industries aren't going anywhere for sometime to come.
- Barry Shere
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 the entrepreneurship that Mr. Dyer so rightly associates with capitalism.Two observations regarding the social sector: 1) Some (many?) of the social organizations are capitalist in disguise, using a social appeal for their own profit (through compensation and other perks); 2) There is a hundred year history of capitalism's superiority in terms of improved living conditions for the masses.
(Also, I follow the exchange rates of the dollar to Latin American currencies in my work, and have been astonished to see those currencies weaken while the U.S. administration is printing dollars. Of course, all those currencies are issued by countries (still) more "social" than the United States.)
- Dennis Hopwood
- Director of Human Resources, Whitman College
Marx and Schumpeter had it right (see 'sch?pferische Zerst?rung', and 'Schumpeter's Gale'). Capitalism periodically destroys and reconfigures previous economic orders through "creative destruction", devaluing existing wealth through wars and economic crises, in order to clear the ground for the creation of new wealth. The tide goes out and the tide comes in.- Edward Hare
- Retired Director, Strategy and Planning, Fortune 250 Mfr.
Once again, we may be over-estimating the effects of change in the short term. I'm reminded how economists once celebrated the emergence of the "service economy" and today lament the lack of manufacturing jobs.Capital still matters, and so do capitalists. Granted, in some sectors more than others but....it matters.
- Atul Guglani
- Director, Mantex Technologies
The Zero Marginal Cost will be the Neo Capitalist. Where knowledge and entrepreneurship will drive a parallel economy. It will not replace the conventional capitalism, but compliment it with more job creations and more wealth creation.- Gerald Nanninga
- Principal Consultant, Planninga From Nanninga
A key part of capitalism is consolidation. Current business trends are pushing consolidation to extremes. The internet allows you to be everywhere all the time at near zero cost. The result is that key functions are being consolidated globally into a small handful of firms that employ next to nobody.The long-term net result is a world of winners and losers, where the few survivors of the massive consolidation win big, and the rest are either out of work, under-employed, or sponsored by a venture group in hopes of eventually becoming a winner.
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.
- Robert White
- Founder, PR Matters
I wonder what sort of percentage of the "post-capitalist" economy the likes of Airbnb represent? I suspect less than one, and barely a few at most. And isn't Airbnb still part of the capitalist enterprise, since it is profit-focused and expects a return, besides wanting to go down the predictable capitalist, money-making route of an IPO? How different are they, really?Clearly research and economic surveys would need to be conducted across all countries in order to determine this. The driving forces and companies of a classic capitalist model, not-post, however, remain dominant.
Interesting, too, that co-operative-based, community-shared economic organisations and businesses have been overlooked here. After all, they successfully reject the capitalist model and any excess/value/profit is returned to the community creating it.
They have also been around for as long as civilisation (one also thinks of bartering, too) and, to this day they provide a compelling, ethical, dynamic economic model entirely different to capitalism's.
- Tom Dolembo
- Founder, New North Institute
We use airbnb for our BNB here in Michigan, and our experience was interesting. We were almost fully booked for the entire summer 3 days after launching our website on airbnb. The secret wasn't so much airbnb, it was the international social network that trusted airbnb (and thence us) to serve up a great experience. We are just the happiness vector. By using airbnb we skipped years of word of mouth and thousands of dollars in useless regional marketing and were able to connect directly to our customers, almost all were not from Michigan. More than a few made arrangements from cell phones. What this meant to us was that there is a ready market for specific experience services, and media often fails as intermediary. Social networks are creating their own demand for services, and I think this will extend to medical, security, religion and caregiving to such an extent that the old business models will fail to new ones like airbnb. We were immediately successful after launch though we had spent a long time getting ready and permitting etc. It doesn't hurt that for eight weeks of the year we live in unparalleled paradise. But then, most B and B's up here have failed for lack of customers.
Taking a 30,000 foot view, I would say that the revolution that is occurring, and I still believe it is a revolution we are having not a recovery from recession. What we have is a shift of cost from production of product to delivery of experiences. People want to be free, happy, excited about what they do, and satisfied in their lives. They now know they can have it. When they have enough toasters and washing machines, and they find they can rent transportation, they want to live for the moment, be happy in any way they see fit, and anybody who can meet that demand will have business. This means that the capitalist nose to the grindstone wait until you're 65 Protestant ethic simply doesn't fit. The paradigm I see for the future is almost free energy, universal wealth, beleaguered nationality, and prosperity based on interactions versus transactions. Capitalism is based on concentrated wealth, cheap labor, limited access to resources and nationalistic domination. It requires
a belief, almost spiritual fanaticism, 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, and as we all know, money can't buy me love. I am not an optimist, just reading the bones.
- Gabriel
- chief questioning officer, Questions1st
Not sure if you saw the news: "Airbnb Is in Advanced Talks to Raise Funds at a $10 Billion Valuation Private-Equity Firm TPG Likely to Lead Funding Round for the Online Home-Rental Company" http://online.wsj.com/news/articles/SB10001424052702303802104579451022670668410Other success stories which are part of the "shared economy" get capital infusions from venture capitalists, so I don't see why they would be considered post-capitalist.
- Ganesh Ramakrishnan
- HR Senior Director, OFSS
Fundamental changes of the kind that will take us to a "post-capitalist economy" require much longer time frames.Yes, there are many signals of the need for repairing the old school capitalism and possible solution ideas. Equally, there are disturbing indicators that many changes are like the old wine of human foibles packaged in new e-enabled bottles. Examples:
-technology accelerating the disruption of distribution especially in the music/entertainment industry but further consolidation of big studios and media companies
-crowdfunding and co-creation lets many niche ideas to emerge from all quarters but venture capital firms are concentrated in very few clusters in a handful of countries
-the 2008 crisis was the biggest and latest to expose the hollow and severely damaging practices cloaked in the name of sophisticated investment products but other than a bailouts bonanza, has there been any real change? Even a cogent proposal for the way forward?
-long tail market platforms and globalization brings talents and frugally engineered products from hitherto untapped corners of the world but the dumping of restricted or inferior products in these huge emerging markets and exploiting questionable labor practices is a major concern
Not to strike a totally pessimistic chord--overall we are moving in the right direction--but the point is that we have a long way to go. We need the discourse to be expanded beyond simplistic dichotomies such as free market versus state control.
- SAMIR JOSHI, Ph. D
- UNEMPLOYED, NOT KNOWN
In past when the high-tech stat invasion of the economies of the world, I grossly remember (still subject to verification) US Bureau of Labour Statistics predicted increase of high-tech jobs at almost twice the rate of the economy as a whole between 1982-1995. After some time it had changed the statement and forecasted high unemployment due to the invasion of privatization and globalization policy.I examined the time series data of public and private sector employment with reference to India from 1991 to 2009. I found hardly any increase in the employment of the formal sector of the economy. It inferred that economy grew at the faster rate but the growth remained impotent in the light of overall employment scenario. Due to the invasion of computer technology certain middle-level jobs are vanished from the market and technology related jobs have increased. Even self employed people have lost their business and compel either to diversify or to search the employment. Concentration of wealth continued as before with a little change in the light of technology oriented business.
- Mike Venuto
- retired, Dragonfly enterprises
This is an implosion in our current recognition of "capitalism" and it is moving through the economy as a practice and concept. Where it will end up is still uncertain and will develop progressively over the next few years. It is another blow to the middle class... and Main St. as economic stalwarts of the practice of a traditional "mixed economy".- Yadeed Lobo
The idea appears radical on the surface. Does this mean we will have to change our valuation methodologies in accounting?Maybe a nice couch with extra legroom would go for a few dollars more. Then the reporting and auditing conundrum raises its head .The Big 4 would have to bifurcate all over again to become the Small 1000.
Graduate and interns would have to work for free or perhaps start paying for the internships. So many different things would start to unwind! From transactions to trust based contracts and leases.
Airbnb appears almost like a rental accommodation site with one major difference. No long term contract or bonding requirements. It does have marginal costs as the pricing clearly shows service fees and cleaning fees are built into the price. And yes the big question about safety and contracts for stay are still not quite clear.
So while it is easy to speculate on the new economy much like the early 2000's its just the facade which has changed. Capitalism is still alive and kicking but is much more less prominent on the surface.
- Zufi Deo
- Co Founder, www.startupready.net
I think if we see this process as post industrialisation it may help us explain the trends more effectively. For example, cost of production are going down, self automation going up, the need for human beings to focus more on their intellect as opposed to physical labour are redefining our existence.I feel this fundamental shift will necessarily mean a new way of life.
What will it be? How do we plan for it? How we we exist in it? I think these questions will play a more important role in our lives in the coming years.
Look forward to other thoughts and comments.
- Sid Mehta
- Founder and CEO, Foremost
James Heskett's article doesn't reach to the issue at hand. There is indeed a huge change (and it's not the kind of disruptive change that happened when the printing press was invented and thousands of scribes lost their jobs and a new industry was invented). The current changes are disrupting industry after industry, so that the entire face of business is changing, in which an individual and creativity matter far more than any organization, its assets, it's competitors, etc. This is the most fundamental and central issue that HBS should be looking in to. It changes everything we were taught about forming and running businesses - it's now all irrelevant. If B Schools don't make this there No 1 task they will become irrelevant in 10 years. If I had a son I wouldn't send him to B School anymore. I'd use that money for his startup.