Can Capitalism Survive? | Chamath Palihapitiya on Business Casual with Kinsey Grant

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Key Takeaways

  • Innovation and productivity growth are the most important features of capitalism
  • The pandemic has highlighted our lack of preparedness because of slowing innovation and productivity
  • Historically, innovation, productivity, and wealth transfer worked in unison- everyone got a “piece of the pie.”
  • As companies increase employee compensation, the wealth gap narrows allowing for upward mobility
  • Chamath Palihapitiya disagrees with “Trickle-Down Economics” – the idea that if you put money in the hands of the wealthy, and it will trickle to those with less
  • “If a consumer mismanages his finances and goes bankrupt, why shouldn’t a business?” – Chamath Palihapitiya
  • Buybacks should be allowed only if a company:
    •  1. Invests in R&D
    •  2. Has a fixed gap between CEO and employee pay
    •  3.  The share value is below a certain amount

Intro

Chamath Palihapitiya (@chamath), is the CEO of Social Capital

Host: Kinsey Grant (@kinseyrgrant)

Innovation and Productivity Growth Define Capitalism

  • Innovation and productivity growth are the most important features of capitalism
  • Two out of three S&P 500 companies don’t spend money on R&D innovation = a perversion of capitalism
  • The pandemic has highlighted our lack of preparedness because of slowing innovation and productivity
  • The U.S. chose to be an inefficient economy:
    • Most companies focused on short-term profits
    • There was a lack of large investment in R&D
  • Productivity and innovation allow companies to hire more people, which then increases employee’s bargaining power to demand more compensation
  • Companies are like sports teams: you pay more for stars because stars deliver!
    • We reward athletes who have the greatest productivity
  • As companies compensate employees more, the wealth gap will narrow
  • Narrowing the wealth gap allows for a robust middle class and opportunities for upward mobility

Assessment of Capitalism in America Today

  • In the 1700s, the U.S. implemented capitalism and democracy together and got this 200-year boom
  • Historically, the U.S. had lots of innovation (even after wars), productivity, and wealth transfer
    • Usually, innovation, productivity, and wealth transfer worked in unison
    • Everyone got a “piece of the pie”
  • In the 1970’s we got off the gold standard and dynamics began to change
  • Chamath Palihapitiya disagrees with “Trickle-Down Economics” – the idea that if you put money in the hands of the wealthy, and it will trickle to those with less
  • Trickle-down doesn’t work because democracy is influenced by money and hence the poor lack voice
  • Problems arise when checks and balances disappear:
    • The wealth doesn’t trickle down
    • There are no productivity gains
    • The owner class is better positioned than the worker class

Importance of Allowing Companies to Fail

  • Increasingly, people who play by the rules, get hurt
  • “If a consumer who mismanages his finances, goes bankrupt, why shouldn’t a business?” – Chamath Palihapitiya
  • From 2009-2020, S&P 500 companies returned 90 cents on every dollar – this sort-sightedness can result in:
    • The future shareholders getting screwed because the company is not investing in R&D
    • The employees getting screwed because the focus is on short-term earnings and can result in layoffs and out-sourcing of jobs

Buybacks Should be Restricted

  • Chamath would ban buybacks in the open markets
  • Buybacks should be allowed only if a company meets these conditions:
    •  1. They invest in a certain amount of R&D
    •  2. They compensate their employees appropriately with a fixed gap between CEO pay and employee pay
    •  3.  The share value is below a certain amount that can be measured by an independent party
  • Otherwise, buy-backs are short-term profiteering

Additional Notes

  • Be authentic and be yourself
  • Mental health is increasingly important because our life span is so much longer than our parents
  • If you want to live to 100, figure out how to get in your own mind and fix yourself
  • Say things from your heart, not your ego
  • People have politicized the crisis “because it is faceless and nameless and we’re looking for someone to blame” – Chamath Palihapitiya
  • Noteworthy organizational systems exist within companies but not so much at the governmental level. E.g. Apple which guarantees healthcare and promotes remote work
  • Companies have stepped in to fill a void left by the government
  • A pandemic is a valuable time to change things up – it makes us all equal
Business Casual : , , , , ,
Notes By EWerbitsky

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