Saturday , December 7 2019
Home / Charles Hugh Smith / Corporate America Is an Anti-Social Black Plague: Negative Network Effects Run Amok

Corporate America Is an Anti-Social Black Plague: Negative Network Effects Run Amok

Summary:
The anti-social carnage unleashed by Corporate America's "lock-in" / negative network effects has no real limits. Here's the U.S.economy in a nutshell: Corporate America is an anti-social Black Plague, gorging on cartel-monopoly profits reaped from negative network effects running amok, enriching the few at the expense of the many and concentrating political power in the hands of the most rapacious, anti-democratic corporate sociopaths. Let's start with network effects: the conventional definition is "When a network effect is present, the value of a product or service increases according to the number of others using it." So for example, when telephone service was only available to a few users, its value was limited. As more people obtained telephone service, the value of the

Topics:
Charles Hugh Smith considers the following as important:

This could be interesting, too:

Tyler Durden writes Epstein Was A Mossad Agent Used To Blackmail American Politicians, Former Israeli Spy Claims

Jeffrey P. Snider writes You Will Never Bring It Back Up If You Have No Idea Why It Falls Down And Stays Down

Tyler Durden writes Things You See At The Top: Woman Calls Pile Of Crap “Artwork”, Successfully Sells It For 5,000

Tyler Durden writes Bernstein Analyst Says Masa May Have “Last Laugh” With SoftBank’s WeWork Investment

The anti-social carnage unleashed by Corporate America's "lock-in" / negative network effects has no real limits.
Here's the U.S.economy in a nutshell: Corporate America is an anti-social Black Plague, gorging on cartel-monopoly profits reaped from negative network effects running amok, enriching the few at the expense of the many and concentrating political power in the hands of the most rapacious, anti-democratic corporate sociopaths.
Let's start with network effects: the conventional definition is "When a network effect is present, the value of a product or service increases according to the number of others using it."
So for example, when telephone service was only available to a few users, its value was limited. As more people obtained telephone service, the value of the network increased to both its owners and to users, who could reach more people and conduct commerce more easily as a result of having telephone service.
In the conventional analysis, negative network effects occur from "congestion," i.e. the network is adding new users so quickly that "more users make a product less valuable."
Even the most imaginative and far-reaching narratives about non-obvious economic fragility and off balance sheet risks are mere rants without constructive ideas about causes and solutions.
Consider network effects, the popular economic construct applied to market concentration and increasing returns for strategies pursued by some leading tech companies. This dynamic economic agent is also known as demand side economies of scale.
W. Brian Arthur, the economist credited with first developing the theory, described the condition of increasing returns as a game of strategic positioning and building up a user base to the point where 'lock in' of dominant players occurs. Companies able to tap network effects have been rewarded with huge valuations and highly defensible businesses.
But what about negative network effects? What if the same dynamic applies to the U.S.'s pay-to-play political industry where the government promotes or approves of something through a policy, subsidy or financial guarantee due to private sector influence.
Benefits accrue only to the purchaser of the network effects, and consumers, induced by the false signal of large network size, ultimately suffer from asymmetric risk and experience what I'm calling a loss of intangible net worth for each additional member after the 'bandwagon' wares off.
If this were the case, then you would see companies experience rapid revenue growth (out of line with traditional asset leverage models), executives accumulating huge fortunes and political campaign coffers swelling.
But the most striking feature would be the anti-social outcomes, the ones not available without the instant critical mass of government-supported network effects, the ones that, at scale, monetize a society's intangible net worth.
Some products tied to these metrics include: prescriptions drugs, junk food targeting children, mortgages, diplomas, and social media. The list of industries that are likely to have gained through the purchasing of network effects in D.C. maps closely to the decay that is visible in U.S. society.
The full social cost of social media's negative network effects are difficult to tally, but studies have found that loneliness and alienation are correlated to how many hours a day individuals spend on social media. (An Internet search brings up dozens of reports such as NPR’s Feeling Lonely? Too Much Time On Social Media May Be Why.)
Facebook is trying to leverage its social media "lock-in" to issue its own global currency and both Facebook and Google are trying to offer banking services without any of the pesky regulations imposed on legitimate banks. (Will $10 million in lobbying do the trick? How about $100 million? We've got billions to "invest" in corrupting and controlling public agencies and political power.)
Once Corporate America locks in cartel-monopoly power, i.e. you have to use our services and products, the corporate sociopaths use their billions in market cap and profits to buy the sociopaths in government. Pay-to-play is the real political machinery; "democracy" is the PR fig-leaf to mask the private sector "lock-in" (monopoly) and the public-sector "lock-in" (regulatory influence, anti-competitive barriers to entry, the legalization of corporate fraud, cooking the books, embezzlement, etc.)
Consider Boeing, an effective monopoly which used $12 billion in profits to buy back its own shares and "invested" millions in buying political influence so it could minimize public-sector oversight.
Rather than spend the $12 billion designing a new safe aircraft, Boeing cobbled together a fatally flawed design dependent on software, as described in The Case Against Boeing (The New Yorker) to maximize the profitability of its "lock-in".
Then there's the opioid epidemic, whose casualties run into the hundreds of thousands, an epidemic that was entirely a creature of Corporate America seeking to maximize "lock-in" profits by buying regulatory approval and pushing false claims that the corporate products were safe and non-addictive.
Note the media sources of these reports: these are the top tier of American journalism, not some easily dismissed alt-media source.
What does this tell us? It tells us the anti-social consequences are now so extreme and so apparent that the corporate media cannot ignore them. Once Corporate America locks-in market, financial and political power, it acts as a virulent Black Plague on the social order, legitimate democracy, and an entire spectrum of intangible social capital including the rule of law.
As Simons put it: "The ethical dimension underpinning the whole system is this: what's moral is what's legal and what's legal is for sale." Where does this Black Plague pathology take us? To a collapse of the status quo which enabled it, cheered it, and so richly rewarded it.
Corporate America Is an Anti-Social Black Plague: Negative Network Effects Run Amok

My recent books:


NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Karen K. ($5/month), for your splendidly generous subscription to this site-- I am greatly honored by your support and readership.
Charles Hugh Smith
At readers' request, I've prepared a biography. I am not confident this is the right length or has the desired information; the whole project veers uncomfortably close to PR. On the other hand, who wants to read a boring bio? I am reminded of the "Peanuts" comic character Lucy, who once issued this terse biographical summary: "A man was born, he lived, he died." All undoubtedly true, but somewhat lacking in narrative.

Leave a Reply

Your email address will not be published. Required fields are marked *