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“What’s Moral Is What’s Legal… And What’s Legal Is For Sale”: Negative Network Effects Run Amok

Here’s the U.S.economy in a nutshell: Corporate America is an anti-social Black Plague, gorging on cartel-monopoly profits reaped from negative network effects running amok, enriching the few at the expense of the many and concentrating political power in the hands of the most rapacious, anti-democratic corporate sociopaths.

Let’s start with network effects: the conventional definition is “When a network effect is present, the value of a product or service increases according to the number of others using it.”

So for example, when telephone service was only available to a few users, its value was limited. As more people obtained telephone service, the value of the network increased to both its owners and to users, who could reach more people and conduct commerce more easily as a result of having telephone service.

In the conventional analysis, negative network effects occur from “congestion,” i.e. the network is adding new users so quickly that “more users make a product less valuable.”

But this superficial analysis misses the fatally anti-social consequences of corporate negative network effects, a dynamic described by analyst Simons Chase in this essay. Here is an excerpt:

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The Managerial/ Professional Class Is Burning Out

If you work for Corporate America in a managerial or professional capacity, you know all about burnout, because you see it all around you or are experiencing it yourself. Readers describe what they are seeing in the top ranks of S&P 500 corporations, and the stories (anonymous because everyone knows the truth will get them fired/blacklisted) are all about the high personal costs of earning big paychecks by making the numbers–not just revenue but the all-important profits that power the multi-trillion-dollar valuations of U.S. corporations and the stock market that glories in their magnificent and ever-growing profits.

Corporate America depends on this class of workers to reap its stupendous profits: the attorneys, physicians and nurses who churn out the billable work; the CPAs who either cook the books or look the other way when others rig the books to make the company look more profitable than it actually is; the managers who squeeze the line workers to produce more; the software engineers and project managers who are always under deadline and always pressured to use cheaper temps; the Wall Street work-hounds who have to use uppers and other dangerous stimulants to function for 70-80 hours a week, week in and week out; the multitudes addicted to painkillers or other prescription drugs to manage their psychological and physical pain; the working parents whose family life is imploding under the demands of their employers; social workers burdened with ever-larger case loads–the examples are endless.

Even if you don’t work in this class, you see burnout all around you: people burned out by crushingly long commutes, by juggling two jobs, or small-business owners resorting to self-exploitation, i.e. working ridiculous hours for little or no pay, just to keep their enterprise (and dream of self-employment) alive.

What no financial analyst dares confess is the corporate profits they cheer every quarter have come at a cost that many Americans will soon be unable to bear. Millions of highly experienced, essential employees of Corporate America, from physicians and nurses to top managers and technologists are either planning to quit, retire, cut their hours or file a workers compensation claim for stress related to their work.

There is a growing body of medical and business-management literature on occupational burnout: Occupational burnout–Maslach Burnout Inventory

A growing body of evidence suggests that burnout is clinically and nosologically similar to depression. In a study that directly compared depressive symptoms in burned out workers and clinically depressed patients, no diagnostically significant differences were found between the two groups; burned out workers reported as many depressive symptoms as clinically depressed patients.

Working Parent Burnout Costing Employers

Check out the burnout rate in the most profitable sector of the economy, finance and financial services:

Though no one dares connect rising workloads and corporate profits, isn’t it more than coincidence that U.S. corporate profits soared not just when production was offshored and financialization took off, but when workloads increased and “work-life balance” became a buzzword for what was no longer possible?

Many people are lauding corporate efforts to ease stress at the workplace with onsite yoga classes and the like. I call B.S.–what people want is less pressure, more time with their families, and to be treated as human beings rather than interchangeable units of production. Yoga classes and the occasional corporate party don’t provide these essentials.

Guess what happens when corporate profits tumble: all the wealthy people at the top of the pyramid lose a lot of money: the executives counting on huge gains from stock options, hedge funds who’d bet the farm on this corporation’s “outperformance,” and the big institutional owners of the company’s stock.

No wonder the pressure on the managerial class is so unremitting and intense: the whole rickety structure of wealth in the U.S. stock market is poised to collapse once profits crater.

There are a couple of ways out for burnouts fleeing Corporate America, but each has its own trade-offs and costs. One is early retirement, another is early retirement plus a low-paying, low-stress part-time job. Another is self-employment in the cash-only economy (One Part of the Economy Is Booming: The Underground/Cash-Only Sector October 9, 2015) or in other sectors open to self-employment.

Financial independence is the American Dream because it gives us the freedom to say Take This Job And Shove It (2:31, Johnny Paycheck).

Unfortunately, the costs of starting and operating a small business are risingdue to junk fees imposed by local government, higher taxes, soaring healthcare insurance costs, etc.:

The Troubling Decline of Financial Independence in America (August 28, 2015)

The Fading American Dream of Working for Yourself (October 2015)

Many refugees from Corporate America would love to quit tomorrow but as they explore the alternatives, they find that their income will drop from $90,000 or $100,000 to $30,000 or less outside the fortresses of Corporate America and Government.

That means completely reworking the cost structure of one’s household: paying off all debt, downsizing expenses not by hundreds of dollars but by thousands, and figuring out ways to develop multiple income streams that the household owns and controls.

It can be done, but it requires a revolution in understanding and financial arrangements. Longtime readers know this is what I have written about for ten years in the blog and in books like Get a Job, Build a Real Career and Defy a Bewildering Economy, which can also be read as a primer for those seeking self-employment.

Of related interest:

In a culture where work can be a religion, burnout is its crisis of faith (from 2007, but even more valid today)

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The Changing World of Work 5: “Human Robots” and High-Level Skills

A diploma by itself does not create value; only experiential skills create value.

While it is impossible to summarize the job market in a vast, dynamic economy, we can say that the key to any job is creating value. That can be anything from serving someone a plate of mac-and-cheese to fixing a decaying fence to feeding chickens to securing web servers to managing a complex project–the list is essentially endless.

The question is: how much value does the labor create? The value created, and the number of people who are able to do the same work, establishes the rate employers can afford to pay for that particular task/service.

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The Changing World of Work 3: “Full-Stack” Skills

More important than being a full-stack employee is owning a full stack of skills.

My longtime friend G.F.B. sent me an article on the emerging value of tech-savvy generalists: The full-stack employee by Chris Messina:

Nearly two years after I left Google, I’m starting to understand what’s going on in the professional sphere. The conventional seams between disciplines are fraying, and the set of skills necessary to succeed are broader and more nebulous than they’ve been before. These days, you’ve gotta be a real polymath to get ahead; you’ve got to be a full-stack employee.

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Here’s What’s Wrong with Corporate America–and the U.S. Economy

Will we ever tire of navigating the multiple layers of intermediaries between the customer and the provider, while corporate profits soar to unprecedented heights?

If we had to summarize what’s wrong with Corporate America and the entire U.S. economy, we can start with all the intermediaries between the provider and the customer. There are a number of examples we’re all familiar with.

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The Underbelly of Corporate America: Insider Selling, Stock Buy-Backs, Dodgy Profits

The hollowing out of corporate strengths to enable short-term profiteering by the handful at the top leads to systemic fragility.

Anonymous comments on message boards must be taken with a grain of salt, but this comment succinctly captures the underbelly of Corporate America: massive insider selling, borrowing billions to buy back their own stocks to push valuations to the moon so shares granted as compensation can be sold for a fortune, and dodgy accounting strategies that boost headline profits and hide the gutting of investments in long-term growth.

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What’s the Source of Soaring Corporate Profits? Stagnant Wages

What if all the low-hanging fruit of outsourcing jobs and financialization have already been plucked by Corporate America?

The connection between soaring corporate profits and stagnant wages is both common sense and inflammatory: common sense because less for you, more for me and inflammatory because this harkens back to the core problem with the bad old capitalism Marx critiqued: that capital dominates labor and thus can extract profits even as the purchasing power of wages declines.

(What Marx missed because he was early in the cycle was capital’s dominance over the central state’s political machinery–a topic covered here in The Purchase of Our Republic.)

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