By Erik Dolson
I’ve been trying to tackle an idea that Capitalism may contain a poison pill, a seed of self-destruction. It’s possible I’m overcomplicating an idea and honestly, I don’t know if I have the horsepower or the education to sort it out.
But the gist is this: A century ago Kurt Godel proved that any self-referencing system will be either incomplete or incoherent. In the hundred or so years since, from Mendelbroit and Hofstader with fractals and chaos theory, this has been shown: Any system that contains a strong self-referential component may result in unpredictable outcomes.
How does this relate to Capitalism? Let’s say that Company B is one of the best at what it does. It earns piles of money based on fine engineering, a culture of excellence, and its reputation. As it dominates its market, growth slows. The world can only buy so many of its widgets.
But in Capitalism, growth becomes an end in itself. Growth becomes a measure of management success. This is the first element of self-reference. Company B’s management is not focused on building the best widgets, but on growing the company. It branches out into other markets, ostensibly where its expertise would be an asset but where its abilities face unfamiliar challenges.
In Capitalism there is also a focus on profits, aside from the focus on growth and apart from success in building widgets. This is a second element of self-reference. If management is directly rewarded for increasing profits, an intense focus on cutting costs might result in a loss of engineering expertise and the culture of quality which brought about the success of Company B in the first place.
Growth and profit are good tools to measure success. But when trying to improve numbers designed to measure a different process becomes the primary goal in and of itself, when “beating the test” takes priority over building the best possible widget, the outcomes will be unpredictable.
Jack Welch of G.E. was a brilliant man, and his management ideas proliferated. But G.E. was not the success it seemed under his leadership. Boeing, Wells Fargo, Enron, AT&T and many others, each in their own way at the apex of their industries, fell into a recursive trap of putting growth and profit as a primary focus that displaced practices that brought them success in the first place.
Does Capitalism encourage and perhaps require this? Is this an inevitable force within “creative destruction?”
Karl Marx laid it all out in Das Kapital - whether you agree with his prescriptions for society (and generally speaking, I don't) his analysis of the capitalism of his day was spot-on. He hit many of the same points making the case that "capitalism carries within itself the seeds of its own destruction."
The worship of growth, relentless focus on cutting costs to maximize short-term profit, and indifference to human and environmental degradation all lead inevitably to a sociopathic end.