The forced consumption hypothesis
Plundering may result from radical innovation meeting overinvestment, assetisation and politically connected entrepreneurs
Do you think innovation is always for the good of humanity? Think again.
When coffee bean merchants and coffee brand producers introduced pods and capsules designed to work with novel espresso machines since the seventies, they were planning to encapsulate ground coffee they were already selling for several times its current consumer market price by kilogram. Did that innovation benefit coffee bean producers? Certainly not. Did that innovation benefit coffee-drinking consumers? Some would say yes by taking commercial revenues (resulting from multiplying sold quantities by consumer market prices) as a measure of customer satisfaction. But I am quite a disbeliever when it comes to such an incarnation of customer value into monetary prices for products and services. For sure, that innovation benefited those coffee intermediaries which organise the coffee production and sale process from agricultural producers to coffee-drinking consumers.
For sake of consumer protection, coffee is fortunately not a compulsory consumption and consumers may enjoy informed consent and freedom of choice by drinking water or tea. They can still buying ground coffee notwithstanding Hollywood stars hired to promise some coffee pod Eldorado. Other industries may tell a different story.
An era of permanent radical innovation (story-telling)
In recent decades, innovation has invaded economy and the polity, claimed to be a fundamental business purpose and a critical industrial policy objective. At the same time, its very notion has been stretched to the point of becoming synonymous with everything that can generate money gains …sometimes with guile.
The dot-com bubble burst of 2000-01, and recent debacles of star starts-up such as Theranos,[1] 23andMe,[2] and Spruce Power Holding Corporation,[3] the successor to XL Fleet Corp, may have alerted financial investors, policy-makers and academics about the limits of such an innovation miracle story-telling. Yet, a Rockefeller Foundation’s and Global Business Network’s joint report of May 2010 titled ‘Scenarios for the Future of Technology and International Development‘ reiterated:[4]
“We are at a moment in history that is full of opportunity. Technology is poised to transform the lives of millions of people throughout the world, especially those who have had little or no access to the tools that can deliver sustainable improvements for their families and communities. From farmers using mobile phones to buy and sell crops to doctors remotely monitoring and treating influenza outbreaks in rural villages, technology is rapidly becoming more and more integral to the pace and progress of development.” (Peter Schwartz, Co-founder and Chairman of Global Business Network)
Quite the contrary, at the beginning of the XX century, Th. Veblen developed a thought-provoking critique of the liaison dangereuse between robber barons and the business firm, opposing the financial rent-seeking by predatory banksters to the production and productive priorities by engineers;[5] Schumpeter praised Veblen’s hints on the working of the business firm.
At the beginning of the XXI century, another counter-story of innovation may be told along with yet another financialisation of corporate affairs, which made the innovation process dependent on financial market investors and submitted to create shareholder value. Not only business firm units became tradable commodities, but also research and development (R&D) processes were reorganised to fit into financially tradable assets.
Assetisation of research and development (R&D)
In a competitive financial market, returns on investment are expected to be ‘normal,’ unless something unexpected occurs. Innovation is deemed to be one if not the most important among the unexpected, one which can be strategically sought for. Therefore, along with the financialisation of corporate affairs came an organisation of R&D around radical innovation ventures jointly and massively funded by public and private actors, the former seeking for growth, the latter for shareholder value, the financial market’s invisible hand touch supposedly aligning both with public interest and social welfare …by compound returns.
This transformation burgeoned into a venture capital scene made of entrepreneurial dreams about path-breaking technologies capable to prompt revolutions in economy and society, always driving humanity to unknown but marvellous venues. As a matter of fact, over-investment and loss risk exposures exacerbated.
Some innovation succeeded. Notwithstanding the dot-com bubble burst of 2000-01, new information and telecommunication technologies are here to stay. Others were less successful, raising even more challenging social issues.
Claims of war: when financialised entrepreneurship meets political corruption
An entrepreneurial venture can fail. When it does, both entrepreneurs and financial investors are supposed to lose own money and resources they invested in. In fact, even when a venture succeeds in generating an outcome, the latter may involve tricky challenges which expose economy and society to hazard and potential welfare losses. This is where the visible hand of social norming and legal ruling should grasp those outcomes, if gatekeepers of private and public nature do not fail.
All along with financialisation patterns since the eighties, war-mongering claims were loudly shouted in connection with some politically-connected industries. Shall we raise reasonable doubts when someone shouts at bombastic threats, asking for billions of other people’s money to address them?
Military wars are examples of dismal businesses which develop to serve themselves. Political appeal for exceptional spending enables exceptional profiting. Financial interests get involved not only by funding military spending by public treasuries, but also by organising the belligerence investment process, transforming military resources into tradable assets which have been sold around the world. War benefits may result, including from plundering enemy’s assets. In his Essay on “Economic Possibilities for our Grandchildren”, published in 1930, J.M. Keynes traced
“the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England’s foreign debt, balanced her Budget, and found herself with about £40,000 in hand. This she invested in the Levant Company --which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England’s subsequent foreign investment. Now it happens that £40,000 accumulating at 3 percent compound interest approximately corresponds to the actual volume of England’s foreign investments at various dates, and would actually amount to-day to the total of £4,000,000,000 which I have already quoted as being what our foreign investments now are. Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest!” (J.M. Keynes)
Keynes was praising financial investment in view to better satisfy human needs, but he seemed quite overconfident in the benevolence and sustainability of investing at compound returns…
The military-industrial complex is not the only industry with strategic political connections. Drawing upon another climate change war climax, electric transportation and batteries were overinvested in recent decades by financial investors dreaming of exceptional financial returns. Financial market prices burgeoned and capital markets acted like “an unbridled horse” (FT). Every year those investors kept spending while expecting accumulated investment to grow at exponential rates. For instance, Bill Gates candidly declared his own hurdles in developing new battery technologies which failed to deliver commercial success so far:
“Here’s the problem: Storing energy turns out to be surprisingly hard and expensive.” (Bill Gates)
“You can have a miracle in storage, which means a grid storage battery. And we should pursue it as hard as we can. I’ve lost more money in battery companies than anybody, so I’m taking it seriously. But if the battery can only go a certain distance, the only two other solutions to give you reliable power that’s cheap and clean is nuclear fission and nuclear fusion.“ (Bill Gates)
Billionaires may be willing to lose own money in whatever venture they mused upon. Big corporations and institutional investment funds are definitely less free to play with other people’s money. As long as commercial success remains elusive over time, overinvestment and loss risk exposures became apparent. Indeed pressure grows to find solutions to make it happening. Well, political connections could force it happening …by law. And compulsory consumption bills for electric cars have become the new normal in some countries…
Another public health war climax has recently concerned the pharmaceutical industry. Especially vaccination makes some dreaming to replace (rather than assist) medical establishment through straightforward connection between drug producers and patients.
“The rapid design of safe and efficient vaccines against COVID-19 was an inflexion point in biotherapeutics. Although mRNA therapeutics had been decades in the making, the successful COVID-19 vaccines from BioNTech–Pfizer and Moderna illustrated the efficiency of the platform. As a result, today, the once-waning nanomedicine field is reinvigorated. In academia, this is evident from an ever-increasing number of publications and heightened academic interest in RNA biology. In parallel, the pharmaceutical industry is allocating more resources towards the development of mRNA modalities for the treatment of rare diseases, many forms of cancer and infections.”
Where does this quote come from?
Quite surprisingly, this quote does not come from a financial newspaper report on biotech.[6] The “once-waning nanomedicine field” in one of the biotechnology ventures which have a long history of elusive success and consequently over-investment and loss risk exposures (WSJ). But when political connections enter the scene, dreams of profit can be made true …by law.
In guise of conclusion
Hopefully, a different time may come in which fundamental research shall be disconnected from financial dreams and social nightmares driven by compound returns.
Fundamental research may be better developed and humanity better served by patient investing which contents itself with sustainable simple interest returns, as well as by spending through public interest institutions submitted to public and scientific debates for all the time it takes to discover viable solutions which better satisfy human needs.
[1] https://www.wsj.com/articles/theranos-and-elizabeth-holmes-history-of-the-wsj-investigation-11629815129
[2] https://www.wsj.com/health/healthcare/23andme-anne-wojcicki-healthcare-stock-913468f4
[3] https://www.sec.gov/news/press-release/2023-208?utm_medium=email&utm_source=govdelivery
[4] See also: https://www.rockefellerfoundation.org/insights/perspective/innovating-for-a-bold-future/
[5] Veblen, Thorstein (1921). The Engineers and the Price System. New York: B. W. Huebsch.