Medium – How Growth Became the Enemy of Prosperity and How To Fix It
In his new book, Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity, noted media theorist and author Douglas Rushkofftakes on the failure of the digital economy to make things better for more people. At the core of Rushkoff’s critique is what he calls the “obsolete economic operating system that emphasizes growth” and the abandonment of core values that occur once companies go public and succumb to short-term thinking.
Rushkoff suggests a shift away from the growth pressures of publicly traded markets and platform monopolies — and toward collaborative models that build on the contributions and add to the wealth of their workers, communities, and consumers.
In 2013, protesters in San Francisco, angry over gentrification and rising expenses, threw rocks at Google workers in a private bus. What was it about the incident that inspired your title?
The protests epitomized our widespread frustration about the poor distribution of wealth in the digital economy. Not just the elevation of real estate prices in San Francisco, effectively evicting the very people and businesses that embody the spirit of the city, but also the sense of betrayal that a company founded by two kids in their dorm room, a company that promised to do no evil, and seemed based on the idea that little links between people mattered more than the top-down choices of a behemoth like the old Yahoo, was now a growth-driven, shareholder-dominated behemoth. Those buses: the way they carted their employees back and forth from the Valley. They seemed to be the spaceships of an alien invasion.
You argue that growth-based capital business models have spoiled the liberating potential of the Internet and the broader economy. What is it about digital technology that makes these old ways of operating the economy even more destructive?
Digital companies tend to grow a whole lot faster than industrial age companies. It’s a lot quicker to scale up on Amazon Web Services than it is to build factories, deliver goods to showrooms, or establish global supply chains. Digital companies and business models also tend to scale more totally and rapidly than their predecessors. So while automobiles replaced horses in the industrial age, that took decades to happen and involved many different automobile manufacturers. When Amazon replaces the book industry, or Uber replaces the taxi industry, it happens a lot more rapidly, and there’s often one dominant player.
The main way the digital version of capitalism is more destructive is that most of these business models are not developed for long-term prosperity. The businesses do not need to succeed. They simply need to dominate their markets completely enough to establish monopolies, and then leverage those monopolies to move into new verticals. Amazon chose the book industry because it was low-hanging fruit: a vulnerable industry with no growth potential, easily disrupted by a player with a big enough war chest to undercut everyone’s margins. Amazon doesn’t need to make money with books.
Because Amazon doesn’t need a thriving book industry and Uber doesn’t need a thriving cab industry, these companies can take more scorched-earth approaches toward their markets. They can destroy the underlying business landscape. It’s the same strategy Walmart used — undercutting local retailers, paying employees poverty wages. But where it takes Walmart a couple of decades to bankrupt a community (at which point the store closes and moves on), digital companies can disrupt and destroy a marketplace much more completely and rapidly.
It’s not digital technology’s fault. It’s the fault of the business model. Thriving companies, like Twitter, are considered failures because they produce revenue instead of growth. That’s the big problem: revenue is discouraged because it has limits. The $2 billion Twitter makes off 140-character messages is considered a failure, because it turns out that’s about all you can make per year off a tiny app that delivers 140-character messages. Everyone should be celebrating, but instead they’re going to force Twitter to destroy itself in the quest for growth.
In your book, you contrast sustainability with the dominant paradigm of growth at any cost. Where do innovation and increases in actual useful wealth fit into a sustainable no-growth or slow-growth model?
A more realistically financed company gets to grow whenever it’s appropriate. You get to grow at the rate of increasing demand rather than the rate demanded by your debt structure. Innovation can take many different forms. You get so much more innovation when you’re not looking for ways to prove that it led to instantaneous growth. If I need to show growth in the next six weeks, the only way to do that is to fire people. If I’m allowed to wait a few months or even a year or two before getting the payoff of an innovation, then I’m free to develop new technologies and processes. Or I can develop products that invite user interaction. Or even develop apps and services in a way that lets a viable marketplace grow around them.
Innovation can be focused more on making products and services better than simply making more immediate profit off them. So instead of jumping into video services or data harvesting or some other signal of growth to investors, you can focus on the core proposition.
Even in nature, systems often reach a particular size. Like a coral reef. This doesn’t stop individual creatures from evolving, or the whole reef from developing new mechanisms for maintaining itself more effectively.
The audience addressed in your book is businesspeople and programmers likely to run businesses. Why them?
Businesspeople only take in advice that is very clear about its intentions and effect. Bernie Sanders’s impact is limited because he attacks business and billionaires. That’s not the way to communicate with them and create change (though some billionaires do get it.) The better approach is to show how the current game plan isn’t simply contributive to wealth inequality and incompatible with the survival of the human species. It’s also bad business!
We need to offer businesses a better path to prosperity. They are all failing in one way or another. CEOs are trapped by ignorant shareholders; shareholders are trapped by ridiculous policies. The current tax code punishes those who make revenue, while rewarding those who take passive capital gains. That’s no way to encourage economic flow or more transactions.
I’m not attacking business. I’m defending and reviving the obsolete business practices of buying and selling goods and services — which I still think can be rescued. CEOs are desperate for someone who can explain to them how to communicate with their shareholders in a way that lets them value the long-term profitability of their companies over the short-term share price. And by writing this book to them, and justifying my arguments as better business decisions, it makes more sense.
This is not the story of a system that has been corrupted by bad actors. It’s a system behaving exactly as it was programmed to. We just have to remember that we can optimize it differently.
What do you have to say to a young person (perhaps with a family) about to get a huge infusion of investment capital that will put him or her on the grow-and-sell-out path? What are the advantages of refusing big investment capitalization?
Many young entrepreneurs are actually eschewing that huge infusion of investment capital. They’ve watched the HBO comedy Silicon Valley, and know how that one works. (Mike Judge‘s show is a public service.)
Success stories are plenty. They’re not the Mark Zuckerberg stories where the winner has to figure out a way to give back 90% of his money. They’re stories like Scott Heiferman, who runs a successful company called Meetup. Great revenue, a couple of hundred happy employees, millions of users, patient investment. Or Yancey Strickler and Perry Chen with Kickstarter. They took only the capital they needed, and at the lowest possible valuation.
The bigger issue is that most digital businesses won’t make money. Not until they learn to help their users create value. Mining people’s data just won’t be a good long-term strategy. Too many companies are mining data, and the market research industry just isn’t big enough to carry the entire digital economy.
What advice do you have for readers who want to have successful businesses that create authentic value in the digital age?
The easiest advice: Make your users rich. It’s really as simple as that. We’ve moved from an industrial age, extractive economy to a digital age,distributed economy. While industrial processes were biased toward extracting value from people and places, digital technology is more biased toward networking and decentralization. Networks distribute value better than they monopolize them.
So succeeding in a digital age, creating authentic value, means sharing the means of production. It’s not about sharing the money after the fact. It’s about having businesses process and platforms that create opportunities for users, vendors, suppliers, employees, to create value.
That will look different for different industries. For banks, it might be supplementing commercial lending with crowdfunding. The bank is not merely the provider of capital (and extractor of value in the form of interest) but the provider of the expertise the town requires to capitalize itself. For Walmart, its as simple as setting aside one shelf for locally produced goods. For Fortune 100 companies, it’s replacing share growth with dividends (which then allows them to earn revenue rather than just show growth). It’s thinking like Uber, except giving your drivers shares in the company. Or like YouTube, except giving the video makers half the ad revenue.
There’s a critique of how we deal with currency in the book that goes hand-in-glove with your criticism of our growth based “operating system.” How does currency currently operate? How you would change it?
Central currency is borrowed at interest; this means the borrower (or the company that has accepted investment) must grow. Interest also sets in motion the growth-based business cycle, where investors look at companies less for earnings than for opportunities to sell. They aren’t patient enough to collect the winnings as revenue. They want to sell the company itself.
The currency is extractive by its very nature. We pay to use it, which means the banks act as a drag on all economic activity. Money is the best business in town, which is why the banking and financial services have gotten disproportionately large.
I’m trying to help people, businesses, and government retrieve some of the market systems that were forcibly repressed by chartered monopolies back at the dawn of the industrial age: local currencies, market moneys, and regulations that favored peer-to-peer exchange as well as simple revenue. These sorts of moneys — many of which were issued at the opening of the market day and redeemed at sundown — were optimized to promote transactions. They were more like poker chips than a precious metal you would save. They just helped keep track of who was getting what, and helped merchants “settle up” at the end of the day. It was money built for trade.
As people got wealthy using this money, the aristocracy was threatened. So they outlawed local currencies, and forced people to use central, bank-issued currency. This gave the wealthy a way to make money simply by lending their wealth. But it slowed down the economy, and forced dependence on the same feudal lords of the Middle Ages — or, today, the banks who have a monopoly. We have no way to exchange goods and services with one another without borrowing central currency from banks.
Monopolies, from Walmart to Uber, borrow money a whole lot more cheaply than you or I. They enjoy a competitive advantage over smaller businesses because of their tremendous cash war chests. The retrieval and implementation of local currencies and the creation of worker-owned cooperatives gives smaller and local businesses a more level playing field. That’s why Winco — a worker-owned version of Walmart — is beating Walmart in pretty much every market where they are competing head to head. Winco operates less expensively because it doesn’t have shareholders to pay in addition to its workers.
Meanwhile, local currencies give impoverished towns in Euro-crisis-stricken Greece and Spain the ability to transact internally and get many of their needs addressed without going into more debt to national and international banking cartels. They shouldn’t need to borrow money from banks simply to transact amongst themselves.
Likewise, our current tax policy rewards capital gains (extraction) with a very low tax rate, while punishing dividends (along with revenue, earnings, and payroll) at a very high tax rate. If we want to promote transactions and circulation, we should reverse that. We can initiate business plans and economic policies that are optimized less for growth than for the velocity of transactions.