The economic implications of the Fifth Wave

mall1

Enter Tyson’s Galleria, a golden temple of consumption for upscale shoppers.  Built in 1988, it was expanded in 1997 and made to appear – so the designers thought – like a “European streetscape.”   In reality, it looks a bit like a hallucination by M. C. Escher.

I experience Tyson’s Galleria, which I occasionally visit on rainy days, as a problem and a possible falsification of the propositions inherent to the Fifth Wave.  The latter predict traumatic assaults on the centers of authority in every domain.  Meanwhile, Tyson’s Galleria rolls on, imperturbably ostentatious.  Stores come and go, but the system remains untouched.  A top-down, hierarchical structure – the shopping mall – seems to be surviving, in fact thriving, in a networked age.

So I am driven to reflect on how business and economics must function under the conditions of the Fifth Wave, and whether this theoretical model coincides with reality: that is, whether the hypothesis animating this blog can be falsified.

Let’s begin, as the king in Alice in Wonderland urged, at the beginning.

A Revolution Without Revolutionaries

Crudely put, the Fifth Wave is the revolt of the public.  Interested amateurs – for that’s what the public is – have rebelled against being treated like a “mass,” and against the established hierarchies which “massed” them for convenience.  The public is no mass, but an archipelago of tastes and predilections only rarely integrated along shared points of reference:  with opposition to the established order, in recent times, becoming a powerful integrative force.

In such an environment, we should expect persistent attacks on the legitimacy of the economic system and the power of dominant corporations.  This secular tendency should have been reinforced by the 2008 financial crisis, which exposed the system’s official administrators as helpless and, in the perception of many, corrupt.  If ever there was a time to challenge the economic status quo, this should be it.

Yet the challenges have been mostly confused and rhetorical, empty of conviction and utterly ineffective.  The indignado movement in Spain complained in its manifesto that the country’s “obsolete and unnatural economic system” had enriched a few and plunged the majority into “poverty and scarcity.”  One would expect a call for radical action to follow:  instead, the manifesto timidly suggested an “ethical revolution.”

The indignado movement could muster large protests and attract global attention, but was an unmitigated disaster for the Spanish left – the only political force which could be expected to feel sympathy for the protesters’ anti-capitalist ideals.  In elections held under the shadow of huge demonstrations, Spain’s socialist party was essentially destroyed, and the conservative Popular Party won big enough to rule uncontested for years into the future.  Similarly, despite their clever slogan about the “99 percent” taking action against the economic elites, the various “Occupy” protests in the US soon fizzled into political irrelevance.

The evidence of the indignados and the occupiers (and other such groups) appears pretty conclusive:  when it comes to economics, the public in revolt is not particularly anti-capitalist, anti-business, or even anti- any specific corporation, no matter how unpopular or powerful.  GoDaddy endured public outrage because of its position on SOPA, but that was a transient episode:  when GoDaddy changed its stand, the protests ended.  No significant protests at all took place against BP during the Deepwater Horizon oil spill.  Google and Microsoft inspire anxiety in Europe’s political class, but the European public is happy to exploit these platforms to evade and abuse their elites.  Similarly, the campaign against Walmart in the US has been conducted by organized pressure groups and elected officials, and is not the result of a revolt from below.

This is a revolution without revolutionaries, without an ideology, without mass movements or political parties.  Top-down organization and formulaic imperatives are precisely what the public is rebelling against.

A Marketplace Massacre

The public imposes a single all-important demand on business, the same as it does on government, politicians, educators, media, and service providers:  that every transaction treat the customer as a person, with active tastes and interests, rather than as a passive and undifferentiated member of a mass.  The disaggregation of the masses is a revolutionary event.  It marks the passing of John Kenneth Galbraith’s “new industrial state,” in which big business and big labor divided the spoils of the modern economy at the consumer’s expense.  Today, big business is baffled, big labor is in full retreat, and the consumer – the mutinous public – is in command.

Companies which cater to idiosyncratic tastes have thrived.  The standard example is Amazon, with its vast inventory and “people like you” algorithm, though a host of online stores fit the bill as well.  (The trajectory of the commercial web betrays the public’s lack of interest in anti-capitalist jihad.)  For a success story in brick and mortar I would nominate Starbucks, where you can linger as long as you wish, sipping “latte” with cinnamon and caramel but no trace of milk, if that’s what you crave.

But these are momentary victors, who may be – many certainly will be – defeated and replaced tomorrow.  The revolutionary economic impact of the demand for subjectivized treatment is not to be found in long tail effects or the growth of the digital bazaar, but rather in the marketplace turbulence such a demand must cause – in the churning of innovation and production, of corporate organization and corporate extinction.  Industrial behemoths which imposed on the public the inflexibilities of their production systems will be toppled:  the economic equivalent of the Mubarak regime is surely GM.  Their successors, however, will lead an impermanent existence in a landscape swept by contradictory impulses.

The mass consumer was an invention of the industrial age:  “one size fits all” followed the logic of the assembly line.  The conversion of the masses into a networked public only became possible with the arrival of digital technologies.  A very different logic now seems to be at work – innovation has caused an atomization of demand, and atomized demand has driven ever faster rates of innovation in nearly all fields of economic activity.  It is not an illusion that life today feels like a sequential wrestling with one new thing after another, in a vertiginous cycle of change.

speed of innovations chart

Nor is it just speculation that this churning of new things must be disastrous for companies which specialized in producing the old things.  Half the firms listed on the Fortune 500 in 1999 had dropped out by 2009.  According to Richard Foster, the average lifespan of a company in the S&P 500 has declined from 67 years in the 1920s to 15 years today.

s&p index lifespan

If the information in both charts is integrated, the story that jumps out needs no words for the telling.  And the reality behind this story of change and pain is wholly consistent with the predicted effects of the Fifth Wave on the marketplace.

speed of innovations company lifespan chart

Individual shops at Tyson’s Galleria do indeed come and go.  Shopping malls rise and fall.  It’s been Tyson’s good luck (so far) to count among the risers.

A Corporate Bum’s Rush

The public is perfectly indifferent to this rolling massacre of corporations.  And so it should be:  out of the carnage, it gets what it wants.  Some company delivers the goods.  That others tried and failed – and died – is of little consequence.  The first are now last, and the consumer is in command.

We come here to a great paradox and final explanation why the new-model public, so destructive of the status quo, has tolerated and to some extent embraced the standing economic system.  The market is pure trial and error.  In business, most new trials fail.  That is also true in nature.  More to the point, it is true of every sphere of human activity.  Most new government policies fail.  Most educational reforms fail.  Most hypotheses fail.  The trial part of trial and error entails mostly error, unless the set of trials is large and competitive enough to produce a possible success, and the system is smart and agile enough to recognize success and reward it.

Many of the structures battered by the Fifth Wave are captives of single-trial processes, and seek to define success and failure hierarchically, from authority.  It should not come as a surprise that new initiatives typically fail – and that failure is typically explained away and doubled down on.  Governments, for example, tend to explain the failure of policies to achieve economic equality as a matter of insufficient rigor and comprehensiveness.  Such arguments persuade only while they are unquestioned, which is why governments around the world, democratic as well as authoritarian, have lost their public’s trust.  Right now the public always questions.

In business, an immense variety of trials gets conducted in parallel for every potentially profitable outcome, and success or failure is determined from below, by the consumer.  If a company fails badly enough, it’s gone.  The void is filled by a more successful company.  Speeding up this process obviously benefits the consumer, who receives more and more varied products.  Such a quickening of the rate of change represents the remarkable adaptation of the market, as a system, to the hostile conditions of the Fifth Wave, including the pervasive anti-authority sentiment:  but for the individual company, it’s a bum’s rush – an unmitigated disaster.

The problem is structural.  Today’s companies are organized for the industrial age.  Beyond a minimal size, each company is a little bureaucracy set up to do one thing – or a few things – well.  It may do its thing better or worse than competitors, but if asked to do something different, or keep changing what it does, it will perform terribly.  Bureaucracies are good at conservation, dismally bad at change.

The corporate world is aware of the problem, and is presently engaged in a frenzied tinkering on the margins of the status quo in the hope of finding a solution.  Calls for “changing the culture,” for implanting a “culture of innovation,” for “thinking like a start-up,” have become the background noise of doing business.  Unfortunately, the malady isn’t cultural or psychological.  It’s structural, and it threatens the authority of powerful persons and groups within each corporation.  Few of them can be expected to embrace the threat.  Attempts have been made to replace hierarchy with “councils,” and bureaucracy with a more networked approach.  I don’t know of any signal successes from these experiments, which run up against the spirit of bureaucracy – and, I suspect, against the grain of human nature.

Beyond the intrusion of business consultants earning billions, little has changed structurally since Henry Ford’s day.  If change does arrive – if the speed of networking can somehow be wedded to the decisiveness and stability of hierarchy – it will represent a transformation in human relations as radical as any in history.  Until that happy moment, however, the chaotic churning of company births and deaths will probably continue to accelerate.

mall2

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One Response to The economic implications of the Fifth Wave

  1. Nate says:

    I wonder how much feeling like a person is hyper customization and how much is the emotional labor of those in the service industry?

    This link is good reading: http://jezebel.com/5984285/prostitutes-nurses-and-nannies-all-have-in-common

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