Is Capitalism having a mid-life crisis?
The future of capitalism depends on what's scarce and what's abundant, and who owns the means of production. Let's talk about the new scarcities: attention and experience.
What's next? That's a burning question, in times of crisis more than in times of normality (if these exist any more). When Fjord published their annual trend report back in December, my favourite line was:
Capitalism is having a mid-life crisis.
To get this out of the way: Fjord is part of Accenture Interactive, which hosts this blog.
But let's get back to our question: Are we seeing a mid-life crisis of capitalism unfolding now right before our eyes, just as we anticipated only four months ago? A mid-life crisis would imply that capitalism still has about half its life ahead of it. If we take into account that modern capitalism took off with the Industrial Revolution, this would mean another 150+ years of capitalism.
The future of capitalism
Is that good news? Obviously, this somewhat depends on your stance on capitalism. If you'd rather take a more analytical perspective, we come back to a question that we discussed previously on this blog: Is modernity ending with the digital revolution, or is it just entering into a new epoch? And what does this mean for capitalism?
For capitalism, of course capital is of utmost importance. Capital in this context is defined as the means of production. Historically, capital has been scarce and thus expensive, while labour oftentimes was abundant and thus cheap. Over the last couple of years, we've seen the price of capital falling. Has capital become abundant?
The price of capital is indicated through interest rates (the price of debt financing) and dividend yields (the price of equity). With interest rates near zero or even below, debt has become cheap. With rising stock prices, dividend yields are diminishing. This may indeed indicate that capital in the form of both debt and equity has become abundant, and thus the price of capital has dropped.
What's scarce is getting more expensive
The recent setback of the stock market doesn't change much: falling stock prices first and foremost indicate diminishing earnings in the near future, due to the unprecedented global crisis. The price/earnings (P/E) ratio might still be the same or similar. And stock markets have already recovered most of their losses from the March sell-off.
Part of the reason is that, in today's world, low-risk investments have become scarce. And what's scarce tends to get more expensive. Thus, bond prices are rising and, inversely, returns falling. In a VUCA world, you can have either low-risk investments or returns, but not both. There is no risk-free interest, but plenty of interest-free risk.
Venture capitalist Albert Wenger argues that technological progress has shifted scarcity for humanity:
When we were foragers, food was scarce. During the agrarian age, it was land. Following the industrial revolution, capital became scarce. With digital technologies scarcity is shifting once more. We need to figure out how to live in a World After Capital in which the only scarcity is our attention.
If we follow this argument, capitalism has already shifted from capital, which used to be scarce and now is abundant, to attention, which used to be abundant and now is scarce.
Experience is the most critical value driver
Today’s attention economy is dominated by the mass-manufacturers of consumer attention: Apple, Amazon, Google and Facebook. All of them capture and monetise (and to a certain degree, monopolise) our attention. While their business models are different, all of them are experience-driven. They are competing with every other experience human beings could possibly have, including sleep.
This makes them, and other pure digital players as well, competitors for each and every other business. Time and attention are the ultimate scarce resources, since a day has only 24 hours, even for billionaires. And, to put multitasking aside, any minute spent with Apple, Amazon, Google or Facebook cannot be spent with someone else’s product, service or experience.
The current crisis severly restricts a lot of products, services or experiences that require physical proximity, and so digital products, services and experiences thrive. Experience is the most critical value driver right now. The pure digital players are transforming everything into a service and changing consumer behaviour at scale. This corresponds to a shift from physical objects to experience in the realm of science. (That's a topic we might well explore in more depth in future.)
The share of mind and time spent translates well into market share, value creation, profits and market capitalisation. That’s why Tesla is now worth more than Volkswagen, Daimler and BMW combined. Remember, stock markets are trading our future expectations.
A structural shift of capital
Is the attention economy still a capitalist economy? That depends on the means of production and their ownership. I'd argue that the means of production for the mass-manufacturing of consumer attention are still scarce and dominantly owned by the Big Tech oligopoly. In comparison, industrial means of production have become abundant.
This would amount to a structural shift of capital. Thus, the future of capitalism is a new phase with a new kind of capital: networked capital, based on information technology and powerful platforms.
The experience revolution comes with a bunch of shifts: value creation shifts from rigidity and waste to resilience and sustainability, from the factory of the Industrial Age and the office of the Information Age to the studio of the Imagination Age, from work and products to service(s), and from material, physical objects to immaterial experiences.
Capital both precedes and follows this shift, and capitalism will change, but is not going away anytime soon. And with capitalism, economic growth will continue, despite the widespread critique of growth and the emerging debate about degrowth. And that's good news, since for solving global problems like climate change, not to mention pandemics, degrowth is not an option.