Here is the transcript for The Digital Economy Should Be About Capital Creation
I don’t own the rights to this video. This speaker is talking about how some big technology companies are now more like financial companies because they’re mostly buying and selling other companies (because of the need to show ‘growth’ on their balance sheets) rather than producing, selling and making a profit from goods and services.
Douglas Rushkoff: The Digital Economy Should Be about Capital Creation, Not Extraction
13th Centry Economics Will Fail the Digital Economy
Part 1 INTRODUCTION
2 For 75 years now, corporate profit, over their total value, has been decreasing
3 That means corporations are really good at accumulating money but increasingly worse at deploying that money, at making money with money
4 This is really serious
5 [:26]Pharmaceutical companies don’t know how to make drugs, they only know how to acquire companies that do
Part 2 GOOGLE BECOMES ALPHABET
7 [:33] Google, even, is no longer a technology company — Google became Alphabet — it’s a holding company
8 Google’s new business is buying and selling technology companies
9 They bought a robot company, now they sold the robot company so they might as well be Goldman Sachs or Merrill Lynch or somebody
10 They are a meta company now
11 Because they don’t know how to create value
12 That’s because they’re using a bankrupt method
13 They’re using a 13th century, corporate operating system to run digitally-enabled businesses but I’m arguing is that thirteen century model is obsolete
14 It was based on going to South America and enslaving people and taking their precious metals
15 It doesn’t work for a digital economy
16 It doesn’t work for an economy where people are buying and selling and trading and making videos and exchanging value
Part 3 CREATE CIRCULATING VALUE
18 [1:29] And if you want to do well, if you wanna actually make money, you have a better shot of it by creating circulating value
19 Think eBay, not Amazon
20 Think Bitcoin, not Uber
21 And you’re slightly on the path
22 It’s a peer-to-peer networked economy that we’re moving into it
23 [1:52] If you can conceive of that, if you can get yourself out of the frame of mind where you want to get to ring the bell of the Nasdaq Stock Exchange
24 You’re not gonna get to do that, I promise you, you’re not
25 That’s not the way to go, you don’t want to sell your business
26 You want to run your business and make money doing your business and you have such a better chance of becoming a true millionaire and doing it in a way that’s not taking value from other people but is actually promoting business activity on a, on a wider scale, and on a more distributed scale than was possible back in the Middle Ages
Part 4 – SHORT-TERM FOCUS ON GROWTH
28 [2:30] Right now most CEOs are selling off their best businesses
29 They are cannibalizing their most productive enterprises in order to show short-term growth to shareholders
30 That’s actually bad for the long-term success of the business because without successful revenue-generating industries, it’s hard for the business to keep going
31 They actually need revenue, you need to be selling something, you need to make money in an ongoing way
32 I know that’s … heresy. I know that’s … I know! I get it! I realized that’s … bizarre to say it
33 but their way to communicate that to shareholders is to say, “Look you’re gonna start making dividends”
34 Dividends are okay. You’re gonna make money for owning my shares of stock
35 Now what we have to do is start looking at the tax code to stop punishing revenue-generating businesses and instead, start punishing ones that don’t generate revenue but just try to grow the business at the expense of the economy — that’s not hard to do
36 It’s …, we have to increase the tax on capital gains, and decrease the tax on dividends
37 This will encourage businesses to make money rather than to just eat themselves in order to show growth
Part 5 – HOW BANKS CAN HELP CREATE REAL VALUE
39 [3:50] How do we help people create value rather than suck it out?
40 How do we help businesses and neighborhoods circulate value rather than take money off the table?
41 So you look at a bank:
42 See all the bank has to do, and they … just called an experiment. It’s not a new banking system. Don’t worry just a little experiment in a couple of towns…
43 So, normally, a pizzeria wants to do an expansion
44 They come to the bank and they say look we want to expand put in a ladies restroom, separate from the men, we need $1, to do that, the bank will give them a hundred thousand dollars, 8% percent interest and in one year you pay back your loan
45 [4:3] But the bank should do instead is say look, “Luigi, we love your idea for an expanded restaurant”
46 We will give you fifty thousand dollars toward that expansion if you can raise $5, from your community, through crowdsourcing
47 So what we’re gonna do it’s put this $5, aside for you, and we’re gonna give you this tool, this app that we’ve developed, which will allow you to raise money from your community.
48 What you do is — you ask your patron for $1 now and then they can get $12 of pizza at the expanded restaurant
49 So the customer now is making twenty percent back on their money, which is better than they’re going to do in the stock market, or anywhere else
50 They get $2 back
51 You get to pay back half your loan in interest, but half your loan in pizza, which is cheaper to you than capital
52 We get, as a bank, we get your proof of concept
53 We can see that, okay, your community really what does want to support this
54 and the community now gets to invest not just in the S&P fund, not just in some mining company in the Philippines but they get to invest in their own Main Street, they see their restaurant expand, they see the property values go up, they see their tax base get better, they see their public schools get better
55 and they see a business … they relate to a business now as community members
56 So now the bank is seen less as the pure extractor of value from this town and the exclusive purveyor of capital, and instead as the facilitator of local economic activity
Part 6 – ROLE OF BANKS
58 [6:07] And why is that important?
59 Because it’s Rushkoff is right, if Piketty is right, and capitalism is itself about to crumble under its own weight
6 What is the role of the bank going to be, on the ground?
61 Can the bank establish itself as something other than the pot of money?
62 Can the bank reposition itself as an expert in how to facilitate local commerce?
63 If they can do that, then there’s a place for them in the digital economy as well as the current one
Part 7 – SUPERMARKETS
65 [6:42] Another simple idea:
66 Say you have a supermarket chain
67 and we all know that supermarkets are being looked at now is the extension of big Agra and unsustainable long distribution chain of food
68 Everybody wants to go to the local, local and the community supported agriculture and grow their own stuff
69 How can the supermarket chain look like something better than Walmart, just this big industrial wasteland?
70 Well, what if they open their parking lot on weekends to a farmers market?
71 You can charge for spaces if you really want
72 But more importantly, you just allow that activity to happen — you’re seen as a partner in that activity, rather than as a competitor to that activity
73 Yes, people might start to favor buying produce and agricultural products from that farmers market
74 Okay, but maybe the farmers market does that better?
75 And what do you do better?
76 you do packaged goods
77 you do long distance stuff, you do cans, you do frozen
78 you do what is super market does best
79 This way, you’ve shown yourself, really, as able to specialize in what you do and at the end of the day when that farmers market is done, you take all the groceries you take all the produce that wasn’t sold, buy it at discount from the local farmers and sell it on your shelves Monday Tuesday and Wednesday
80 so again it’s a simple way for a supermarket to see its competitors not as competitors at all, but as partners in food and then you will become the hub, the locus of this activity, of this value creation
81 You know, it’s a matter of seeing this other activity less as a leak, less as a drain on your revenue and more as a source of exchange, as a source of value creation
82 Because if your town is bankrupt, if your town has no way to create value they’re not going to be good customers anyway
Part 8 – THE SCORCHED EARTH APPROACH TO BUSINESS
84 Walmart, Walmart is right now closing stores because after twenty or thirty years of operation, it’s bankrupted its communities
85 It doesn’t let anyone else create value, and that doesn’t work in the long run
86 It only works when you have a ‘scorched earth’, ‘flip this house’ approach to your business
87 But if you’re not gonna sell your business, if you want to stay in your business you’ve gotta find ways for your customers to create and retain some value, otherwise they go away
88 But I get it, this sounds like it sounds like communism
89 I know that, but the thing is that the other one that communism!
90 it’s the other one that’s communism!
91 Make money for a living! Work for a living!
92 This is cool. Work for a living!
93 It’s actually fun, and you have customers, and they want what you have and you sell it to them, for a profit!
94 So you take how much it cost you to make the thing, you add something to that and then sell the thing to someone else and you end up with more than you started with, it’s just genius.