Throwing Rocks at the Growth Curse
I’ve spent the last week making my way through Douglas Rushkoff’s “Throwing Rocks at the Google Bus”. If you’re considering starting a business or are interested in finance and entrepreneurship, this is a book you really must read.
In a nutshell, “Throwing Rocks at the Google Bus” is about “how growth became the enemy of prosperity”. Rushkoff critiques the very basis of modern economic thinking and calls out the grand illusions so deftly hidden behind the enticing veil of the digital economy. An economy dominated by the stock market, venture capital and platform monopolies, it turns out, is not particularly good at creating real value. When the accumulation of capital is prioritized over the movement of capital, the principles that underlie how we create and exchange value become skewed in favour of a winner-takes-all game.
Startup culture, in other words, is no longer about building a profitable enterprise, it’s about building a sellable enterprise.
Consider, for instance, the cannibalistic nature of venture capital. Rushkoff outlines how entrepreneurs these days have little hope of ever escaping the abstracted game controlled by investors who seek to make big exits. When people put money in a startup, it’s not because they’re interested in growing a sustainable, profitable company. Quite the contrary. At each stage of the investment cycle – from angel investors to Series A, B and C funding rounds – everyone is trying to 100x their contribution. (The perfect worst-case scenario of what this does to company incentives was illustrated during the 2017 cryptocurrency ICO boom – more about that here.)
This poses a serious dilemma to the college kids who just won a hackathon with a smart idea. As soon as money starts flowing into their project, they become obligated to build a billion-dollar company – fast.
As Rushkoff points out, “Venture capital is not patient money. If a company doesn’t hit in two or three years, it’s considered cold and may as well not exist at all. So instead of developing a long-term strategy, companies make quarterly and semi-annual plans – each with its own fantasy megaexit.”
Here’s the tragic irony: for the investor and, increasingly, for the entrepreneur, it becomes all about the valuation, not the actual profits. Pie-in-the-sky outlooks about potential revenue are worth far more to an investor than revenue itself. In fact, as soon as a company starts taking in money, it can be judged on those profits and losses. But investors don’t want that. IPO valuations, stock prices, arbitrage opportunities – these are the things that bring home the bacon.
Take the example of Zoom’s IPO on April 18, 2019. Zoom shares initially sold for $36 at the IPO price (paid by institutional investors) and then jumped to $62 at the opening price (paid by the general public to those institutional investors). But Zoom did not reap any benefit from this 72% jump on the secondary market. $258 million of value went straight to bankers’ pockets, not towards the success of Zoom as a company.
Since day one, WeWork, the highest-valued startup in the US, has never made a dime in profit. The company made a $1.8 billion loss in 2018 and has already lost $690 million in 2019. Despite not having a clue where future profits may come from and explicitly bracing for a recession, the company recently filed for an IPO underwritten by JP Morgan and Goldman Sachs. The IPO prospectus boasts a banner page with the words “We Dedicate This to the Energy of We – Greater than Any One of Us”, and elsewhere states that the company’s mission is “to raise the world’s consciousness” – not what you’d expect from what is essentially a failing real estate giant. Yet venture capitalists think the company is worth around $47 billion.
Startup culture, in other words, is no longer about building a profitable enterprise, it’s about building a sellable enterprise.
Is growth the new enemy of prosperity?
This is the curse of the growth economy: when we value quantity over quality, price over purpose and growth over sustainability, we end up creating a system that channels the most money to the places that promise the highest returns. All effort and energy go towards increasing financial capital at the dire expense of other forms of capital such as land and labour.
As Rushkoff explains, “Central banks pour more money into the economy and scratch their heads in amazement that it doesn’t lead to jobs and inflation.” The reason is that money that is poured into the economy doesn’t get converted into jobs and wages. Instead, it gets stuck in the investment sector where abstract financial instruments absorb all the value. The people who win are the wealthy fast movers who trade the stock market or turn their $100,000 initial investment into $1 million – certainly not communities that would benefit from job creation or ecosystems that would benefit from environmentally regenerative business practices.
At a macro level, we are trapped in a vicious cycle. Our businesses are responsible for more value extraction than creation, so our economies suffer. We hit periodic crises and central banks resort to methods like quantitative easing, but interest rates are so low that holding money isn’t profitable anymore, so everyone turns to stocks, commodities and private equity. Those investments end up grossly overvalued compared to their underlying assets – and so the more money that pools into this abstract financial game we’re all playing, the more extractive our business become, and the cycle continues.
When we talk about extraction, we’re not just talking about large tech companies that replace jobs with machines, we’re also talking about the literal extraction of resources from the earth. Facebook, Apple, Google and Uber might operate primarily on the seamless user-end of the supply chain, but they’re strongly embedded in a network that extracts human and natural value.
Our exploitative relationship with the earth is becoming increasingly clear to many; what is less obvious is the way that investors mirror this behavior, reinforcing the extractive thinking that runs through our economy and our culture.
As an economics student whose first taste of startup culture took place right in the heart of Silicon Valley, “Throwing Rocks at the Google Bus” was a game-changer for me.
I read this book soon after attending an economics conference at Bretton Woods, where, in 1944, 730 delegates from all 44 Allied nations met to carve out the future of the global economy. We cannot ignore the fact that 75 years ago, the majority of economists were men raised in schools of thought designed by other men centuries earlier, in a time when the whole world seemed a vast, open plane to be mastered and conquered. Infinite growth was their assumption for the economy they were shaping. We now know this is simply not possible - not on a finite planet, with fast depleting natural resources. Business today needs to distance itself from this mindset and wake up to the realities in which we now live. Billion-dollar valuations cannot make up for jobs lost, forests cleared and species decimated.
As we hurtle towards the zenith of the 21st-century digital economy, we need to think far more closely about what comes next. When the platform monopolies have absorbed all the small players, when AI has successfully ousted the majority of humans from active participation in the economy, and when our ecosystems are destroyed, rendering plant and animal life untenable, where will we go, and what will we do? This is the trajectory of an economy which we prop up daily, that focuses solely on financial forms of capital.
The economic challenge of our times is to uphold and value all forms of capital – money, people and planet. Harmony and real prosperity lie in the sane, considered exchange of value between all three.
These observations are no longer the preserve of the radical few. They are mainstream and need to be made more so – especially amongst economists and students of the economy.
Energy flows where our intentions lie.
I urge you to read this book!
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