Wework, Uber, Lyft, Netflix, Bird, Amazon: late-stage capitalism is all about money-losing predatory pricing aimed at creating monopolies

Wework is definitely a piece of work, a money-hemorrhaging bezzle whose recently ousted founder siphoned a reported $700m out of the company while self-dealing and presiding over a series of bizarre missteps (from serving tequila shots and hosting a dance party with Darryl from Run DMC at the same meeting where he announced mass layoffs to banning his employees from expensing meals containing meat while getting caught eating meat himself).

But in addition to its grifty sociopathic founder, Wework follows a common pattern of tech businesses: backed by titanic amounts of money that allows it to sell at predatory, money-losing prices in order to force out all possible competitors and establish a monopoly.

Wework's real story isn't the terrible dude at the front of the parade: it's the giant VC and private equity funds who shower him with literal billions.

These businesses' explicit plan is to bankrupt or scare off anyone who wants to run a real business, one where entrepreneurs compete by lowering prices through applying a process to inputs to make something more valuable than the sum of its parts -- instead, these businesses (Matt Stoller calls them "counterfeit capitalism") compete solely on access to capital, which they use to create products that are worth less than the sum of their parts.

Stoller compares the outcome of this to "Gresham's law," which describes how, when counterfeit money is in circulation, "bad money drive out good." That is, if you get a counterfeit coin, you try to spend it as soon as you can because if it is detected while you have it, you lose. The person whom you trick into receiving that coin also tries to spend it as soon as possible, until the only coins circulating in the economy are the fake ones, with everyone hoarding the good ones so they can ditch the shams.

In Stoller's conception, counterfeit capitalism creates and economy where bad businesses drive out good: where running a business that increases prosperity by figuring out how to make better products at a better price has to compete with businesses that will always underprice a profitable rival to drive them out of the market, then jack up prices to provide the monopoly profits that the company's investors can use to do the trick again and again and again.

It's been more than two years since the repeal of Godwin's Law, so it's nice to have an alternative to turn to in these dark times. Truly, we are living in the era of Gresham's Law.

Endless money-losing is a variant of counterfeiting, and counterfeiting has dangerous economic consequences. The subprime fiasco was one example. Another example was the Worldcom fraud in the late 1990s, which forced the rest of the U.S. telecom sector to over-invest into broadband. Competitors have to copy their fraudulent competitors. It's a variant of Gresham's Law, which says that "bad money drives out good." If you can counterfeit something for cheap, the counterfeit will eventually take over the entire market and drive out the real commodity. That is what is happening in our economy writ large, a kind of counterfeit capitalism as 'leaders' like Neumann are celebrated and actual leaders who can make things and manage are treated like dogsh-t.

This kind of counterfeit capitalism is terrible for society as a whole. At first, with companies like Walmart and Amazon, predatory pricing can seem smart. The entire retail sector might be decimated and communities across America might be harmed, but two day shipping is convenient and Walmart and Amazon do have positive cash flow. But increasingly with cheap capital and a narrow slice of financiers who want to copy the winners, there is a second or third generation of companies asking Wall Street to just "trust me."

As euphoria in capital markets takes hold, predatory pricing scheme come to entirely wastes capital on money losing enterprises, and eventually these companies become Soviet-style generators of white elephants and self-dealing. The men and women who run them have to be charlatans, because they are storytellers justifying losses. Powerful men are sucked in, consultants start explaining to old-line economy companies how they too can become like WeWork, and eventually more and more of the economy just adopts counterfeit capitalism.

WeWork illustrates everything that's wrong with the economy and with our capitalist system - and shows just how far that system has gone off the rails [Matt Stoller/Business Insider]

(via Naked Capitalism)

(Image: RaphaelQS, CC BY, modified)