We love denouncing evil corporations. So much so that one – now all-knowing – corporation made it their tongue-in-cheek mission to avoid being evil. That little cultural nugget implies certain inevitable temptations that stand in the way of any successful corporation.
What are these temptations? We are all familiar with the phrase ‘power corrupts’, but to what sorts of power does this phrase refer? What do we mean by ‘corruption’? Can we be no better than supreme court justice Potter Stewart?
I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description ["hard-core pornography"]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.
—Justice Potter Stewart, concurring opinion in Jacobellis v. Ohio 378 U.S. 184 (1964)
I think we can do better by understanding the lifecycle of productive ventures in the context of their environment. In part I of this series I proposed that there is a consistent pattern in the evolving structure of human societies. That argument described the overall human created environment – the accumulated stack of social ‘technologies’, that forms the background for all economic activity. That stack has been developed through four economic paradigms:
- early hunter-gatherer tribes employed relational economies
- stationary agrarian civilizations added a layer of hierarchical political structure
- industrial societies fully embraced an additional layer consisting of transactional mechanisms (markets, money, prices, etc)
- we are now currently building a fourth layer that I have been referring to as the attention economy
[As an aside, my current speculation is that beyond the attention economy, additional layers of technology will form something like relationship economy 2.0. I may write more on that at some point, but given our current vantage point any such extrapolations are more science fiction than informed forecast.]
Does this framework help us differentiate between the evil corporations and the good citizens?
I think it does. The key insight comes from recognizing that while the socioeconomic environment develops in one direction through those stages, individual ventures tend to develop in the opposite direction. Individual ventures take shape at the contemporary edge and, as they grow, are gradually caught in an undertow that pulls them from the edge and into the depths of the dominant paradigm.
The prevailing wisdom in the start-up community illustrates this pattern beautifully…
A Cynical Take on The Start-Up Lifecycle
The seed of a the modern consumer internet start-up – let’s call our hypothetical example, Undertow Inc. – takes shape when a few collaborators (a relational group) get together to hack up an idea. If all goes well they produce a beta product for release to a select subset of the public (an attention economy). The attention economy is where they will remain for some time, gradually building up their credentials (registered users, pageviews, etc).
As their achievements compound they eventually encounter the boundaries of the attention economy in its current stage of development. Users and eyeballs are great but in order to pay the bills – and more importantly for our ambitious little sociopaths, to scale - they will need more than attention. They will need money. Preferably lots of it…a war chest so to speak (a now doubly anachronistic euphemism derived from political conflict).
Once Undertow Inc accepts outside investment the transactional economy has its hooks in. Our fledgling start-up is now the steward of scarce transactional assets, and will need to establish formal structures to manage and account for those assets. Even so, these are still early days. The VC investors would rather hit a home run than pinch pennies so the focus remains on growing the attention asset.
It is only after ‘product-market fit’ is firmly established that the transactional economy hooks begin skewing incentives. It is at this point that advertising begins colonizing all corners of the user interface. Carefully tested eye-candy is introduced to draw attention to anything monetizable. What was once an innovative product becomes the gaping mouth of a conversion funnel. Initial success (hype) create a snowball effect, as the herd of VC sheep begin carpet bombing offer sheets with increasingly unreasonable return expectations. [Remember, this is the cynical version of the story ]
If/when Undertow Inc “successfully” reaches IPO scale it is thoroughly bound to the transactional economy. Non-financial goals take a backseat to maximizing profits. Moreover, the profit seekers in question are more fickle than ever. The long-term VC is replaced by a faceless mob of institutional investors and day-trading CNBC junkies. [This last part is generally left out of the silicon valley version of the script]
The most successful institutions eventually arrive in territory more commonly populated by the industrial icons of an earlier generation – the political economy. As Undertow Inc assumes a dominant position relative to its competitors, the temptation to fortify that position via political finagling becomes almost irresistible. The first tentative steps into this territory are likely defensive in nature – protecting IP from patent trolls, or perhaps a reluctant lobbying effort to fend off a predatory incumbent.
Those same defensive capabilities are easily redeployed offensively…and the once disruptive upstart assumes the role of the politically connected incumbent
The Generous Version
Ok, that was the cynical version. I present it first A) because it was more fun to write with a touch of humor, and B) because sadly that is the script we encounter in the popular media most often. The temptation of ‘growth for its own sake’ is difficult to resist and those organizations that embrace the temptation enthusiastically are celebrated most visibly.
Fortunately, there is a more generous perspective on the above story. I argued in part I that each successive paradigm is spawned by, and founded upon, the social technology established during the preceding paradigm (i.e. markets are created by governments, etc). Nevertheless, those foundations are far from perfect. They are full of flaws and extraneous material, just as our bodies are full of hidden genetic defects and vestigial organs.
The value of the process described above becomes clear when we acknowledge that the impetus for foundational reform rarely comes from within. The government is about as likely to reform itself as the human appendix is to decide it has outlived its usefulness and spontaneously disappear. The same can be said for the systematic distortions in the financial markets as currently constituted.
Innovation comes from the edge. Some innovations can spark positive change while remaining at the edge…pulling the action away from obsolete social technology. In other cases the existing foundations still provide irreplaceable supporting functions. In these cases reform must be carried to the core, which occurs only when foundations are built to support the necessary reforming innovations.
What does that mean?
It would be nice to think that government responds to the people, but for the most part it doesn’t…at least not anymore. The political economy serves and is sustained by the transactional economy. The government is an enormous bureaucratic Leviathan and, for the most part, it accepts input only through other bureaucratic channels.
Institutionalized lobbying is one of the few effective ways of introducing new ideas into the bureaucracy. Admittedly, this dynamic is difficult to see in the current environment, wherein lobbying takes a predominantly abusive form. If we were to consider earlier eras, in which the shift from political economy to transactional economy was closer to the frontier, this dynamic would be more pronounced.
We can see shades of that prior dynamic today in emerging economies like China where there exists a constant tension between the need for rapid growth and the need for policies that restrain the worst abuses of a growth-at-any-cost attitude. In that sort of environment there is much greater potential for productive friction at the interface of government and market.
In the developed world there is a similar opportunity for productive friction at the interface of transactional economy and the attention economy. Assets produced by transactional economy players are actively spurring the growth of the attention economy. At the same time, the undertow from the transactional economy (return expectations), reigns in the self-destructive potentialities that might follow from an unconstrained attention bubble.
In both cases, some degree of backtracking is justifiable and generative. Obviously, the further a given institution backtracks the more circumspect its motives become. We are right to denounce the government when it attempts to prescribe cultural norms – matters that are rightly decided by relational groups. The freedom to ignore such manipulations is the founding principle of modern government. Likewise, our attention economy innovator comes off as increasingly suspicious the further it backtracks.
The Evil Corporation
So what makes a company evil?
The answer should not be difficult to discern. The evil corporation is the one that succumbs to the temptation of growth for its own sake, becomes cancerous or parasitic, artificially fortifies its dominant position, or undermines progress to reinforce its own necessity. It is the corporation that backtracks, not to build generative foundations, but to feed at the teet of powerful incumbents.
The evil corporation is the immortality project, both literally and figuratively. It is both the corporation that attempts to avert its own natural life cycle and the corporation founded for no reason other than to facilitate the founders own denial of death.
How does a growing company avoid becoming evil?
This one is not terribly complicated either. It starts (and ends?) with adherence to basic economic principles – investing resources such that marginal benefits exceed marginal costs – inclusive of all economic domains in which the organization participates. Non-evil ventures build foundations as necessary to support their core value-producing activities. They do not harvest one market in order to produce illusory growth in another. They do not consume attention assets in order to generate financial returns. They do not ride the undertow into the deep water hoping to become one of the sharks.
Of course, “don’t be evil” is a cute slogan but ultimately it is external pressure from upstarts – particularly from those that don’t sabotage themselves – that keeps the system balanced. Attention economy stalwarts like Wikipedia and Craigslist have dramatically exceeded all expectations by embracing their niche. The value propositions they offer are fundamentally products of the attention economy. Recognizing this, they have primarily invested their resources into efforts that further those attention markets.
Such strategies do not necessarily imply any sort of purity. Both organizations still need to pay the bills and employ reasonable staffs. They both engage transactional economies as appropriate – Wikipedia through its donation drives and Craigslist by charging for certain listings. What they have avoided are the types of hooks that would corrupt their incentives…that would turn their focus away from maximizing attention and towards maximizing financial profits.
Now obviously that example does not apply universally…every venture will not necessarily look like Wikipedia. This analysis is not intended to imply that every organization should migrate to some idealized location on the socioeconomic map. Some value propositions inherently belong in the transactional economy…
Smartphones, for example, are designed by massive teams of highly educated engineers who are co-located in lavish all-inclusive facilities. Smartphones are manufactured on massively expensive capital equipment with the help of a small army of Chinese laborers. It would be naive to argue that such highly refined production processes should somehow shift towards the attention economy. Likewise, full time bloggers need to pay the rent, artists need to eat, and some products that initially serve attention markets are improved by embracing the scale and refinement possible in the transactional economy.
I am arguing instead that the pitfalls inherent in any foundation building exercise should be carefully considered. Just because it is fun to dip your toes in the undertow doesn’t mean you should allow yourself to be pulled out to sea. Bigger is not always better.
Though it may be difficult today to see that financial returns are not unequivocally preferable to attentional returns, people would have once said the same about money. There was a time when most necessities were produced in relationship economies and money was primarily a tool in the pursuit of political status. When organizations (or individuals) lose sight of this perspective they flirt with the worst possible outcome…
The unintentionally evil organization becomes addicted to the temptations offered by the incumbent paradigm (money, political influence, etc). It becomes a slave to inertia. Once it sets its transmission in reverse it cannot reengage forward momentum. A foundation building exercise becomes a permanent course reversal. The organization the rose to prominence on the edge unwittingly morphs into an evil empire.
[Facebook seems to be on this path, positioning itself at once as a disruptor of political ossification while at the same time embracing the profit motive in the most depressingly ill conceived manner.]
Avoiding this fate is easier said than done. Every successful venture eventually faces the innovator’s dilemma. The unintentionally evil corporation compounds the challenge by misunderstanding its inherent fit with its environment.
The prevailing wisdom in entrepreneurial communities obscures this challenge through its treatment of ‘product-market fit‘…presuming from the start that the only worthwhile goal is to migrate into the transactional economy as rapidly as possible. That approach will prove appropriate for only a small minority of entrepreneurial ventures. A more honest approach would first consider how a particular venture should be positioned relative to the intersection of attention economy economy and transactional economy.
photo courtesy of aeroSoul