Understanding the Context: A Brief Econo-History Lesson in Three Parts (Pt. 2)

The Golden Rule: He who has the gold, makes the rules.

From the dawn of civilization to the early 1800s, items were created by craftsmen working individually or in small groups.  The products – typically one-of-a-kind, custom works – were crafted, sold and used all within a few miles at most.

• Capital requirements were low – it didn’t require a fortune to establish yourself in business.
• Production capacity was low as well – you could only make or sell a very limited number of items in your shop each year.
• Distribution costs were insanely high by today’s standards – any distance beyond the range of a team of horses resulted in an imposing financial barrier for all but the smallest and lightest goods.

Part 2 – The Industrial Revolution

Engines powered by steam.  Manufacturing machines powered by engines. Work performed by or with machines rather than by hand.  Items transported to market in hours or days, rather than in months or years.

• Production capacity simply exploded – a factory could produce more items in a day than a craftsman could produce in a year.
• The cost of distribution plummeted as various forms of transportation were invented, adopted, and supplanted by the next innovation in transportation in a breathtakingly short period of time.
• But these improvements came at a steep price: the capital requirements of industrial manufacturing flew out of reach for all but the wealthiest or most well-connected.

Inexpensive, high-quality products – and plenty of them – poured from factory assembly lines.  Suddenly, virtually everyone could afford items that were once – only a few decades earlier – limited to the wealthy.  Standards of living rose as incomes grew while prices of manufactured goods fell, and the word “consumerism” soon entered the lexicon.

We now take for granted the revolutionary advances in producing goods and services, yet these changes turned the world upside down – resulting in a complete rewrite of the rules of business.  And not always for the better.

No risk, no reward.
No capital, no reward.

Capitalism.  Those who had the capital and took the risks were entitled to be rewarded for their efforts.  Or that the means of production – and the rewards thereof – should be controlled by its owners/investors.  The very essence of an “ownership society” that is now widely considered virtuous.

But let’s turn the concept on its head for a moment.  It also holds true that only those with access to the financial resources needed to own or invest – in other words, the wealthy – were able to control the means of production. The capability to produce goods, formerly available to anyone with the proper tools and training, was now limited to those who could raise the necessary capital.

The new manufacturing paradigm ultimately resulted in excluding all but the very few with the wealth needed to compete in this new capital-intensive economy.  And since the financial risks of a business venture were limited to those with a financial interest, so too were the rewards reserved exclusively for investors and providers of capital.

Time is most definitely money.

In order to realize the benefits of mass production, specialized buildings called “factories” were now required, filled with expensive equipment and workers who were now paid for their time rather than on the ultimate success of the business.   An entire branch of applied mathematics called “Operations Research” emerged to help factory owners realize the highest return on their investment in assets and labor costs.

To maximize the production output of a factory, owners needed their employees to work together in an orchestrated manner.  This complex, daily waltz required workers to arrive and depart at the same time each day, and with sufficient numbers in attendance to fulfill all of the necessary production tasks.

In exchange for the implied promise of steady employment, workers were required to submit to the constraints of the factory’s production schedule.  The price workers paid for this illusion of security was the loss of their autonomy and control over their own time.

More than 150 years would pass before the concept that productivity required adherence to an arbitrary schedule was seriously challenged.

Introducing the Wage Slave.

With the capital requirements for industrial-style production unimaginably beyond the reach of all but the wealthiest, most workers were faced with a bleak choice: work for The Man or starve.

Wage Slavery: the term coined in the early 1800s to describe being compelled to sell one’s labor and submit to the dictates of an employer in order to survive.

In fact, Wage Slavery shared some remarkably similar traits with the shameful system of Chattel Slavery that existed in the US up until 1865.

Like a Chattel Slave, a Wage Slave possessed no economic autonomy, and had no financial interest in the success of the business enterprise.  The key difference was that a Wage Slave’s decision – coerced as it may have been – to relinquish their autonomy and instead sell their labor to an employer was theoretically voluntary.  A Chattel Slave had no say in the matter, and the decision was forced upon them at birth.

“But wait a minute“, you say. “A slave was not compensated for their work, while an employee was.“  Not so.

While it’s true that a slave did not receive a weekly paycheck, their owner did provide them with food and shelter – miserable though they might have been.  A Wage Slave was paid by their employer, but was then required to provide for their own food and shelter – miserable though they might have been.  Both were compensated – one in goods and services, and the other in cash.

Taking care of what you “own”…

Let’s put aside for one moment the enormous moral and ethical abomination inherent in ownership of one human being by another, and the forced compliance that was imposed upon its unwilling participants.  From an economic perspective only, it’s arguable that – given a choice – it might be better to be a Chattel Slave than a Wage Slave.

We’ve already seen that as far as economic autonomy, opportunity, and compensation were concerned, the distinction between Chattel Slavery and Wage Slavery came down to whether there was at least the appearance of a voluntary choice.

But the difference in their economic consideration is both jaw-dropping and troubling to anyone exploring this concept.

A Chattel Slave is considered an asset by their owner. Chattel Slaves had to be purchased, just like any other asset, tool or livestock.  And as such, its owner wants to maximize the asset’s productive capacity and lifespan.  The owner has an economic interest in maintaining the Chattel Slave’s health and well-being.

From an economic point of view, it’s rational for an owner to care for their Chattel Slave as best as they possibly can.  Only an economic psychopath would inflict damage on the productive capacity of an asset through neglect, misuse, or worse.

…Squeezing every last bit out of what you don’t.

A Wage Slave represents an expense to their employer. Hiring a Wage Slave costs an employer nothing, and for each one hired there are others who will battle fiercely to be selected for the next open position.  An employer – burdened with the cost of expensive buildings and machinery – is motivated to produce as much as possible – and as quickly as possible – in order to realize an attractive return on the assets’ investment.

With no investment at stake and a ready supply of replacements in waiting, an employer’s economic interests are best served by working their employees as hard as possible until they burn out – whereupon their places are immediately taken by eager replacements. [for additional gruesome and depressing details, see "The Jungle" by Upton Sinclair]

It’s no surprise that Communism, Socialism, and the like sprung up like mushrooms after a summer shower in response to the abuses that are inherent in the Capitalist economic system.

to be continued…

Understanding the Context: A Brief Econo-History Lesson in Three Parts (Pt. 1)

To tell where one is going, one must first know where one has been.

Before diving into the main premise of this blog – a quiet Revolution has begun to swing economic advantages away from big corporations, and towards individuals and small groups of global collaborators – it’s essential to understand how we arrived where we are.  Only then will it truly be possible to appreciate the insights that will later unfold.

Part 1 – Before the First Revolution

From the dawn of civilization to the early 1800s, items were created by craftsmen working individually or in small groups. The products – typically one-of-a-kind, custom works – were crafted, sold and used all within a few miles at most.

• Capital requirements were low – it didn’t require a fortune to establish yourself in business.
• Production capacity was low as well – you could only make or sell a very limited number of items in your shop each year.
• Distribution costs were insanely high by today’s standards – any distance beyond the range of a team of horses resulted in an imposing financial barrier for all but the smallest and lightest goods.

When everything is expensive, it’s good to be rich.

Since everything was custom-made – by hand – everything was very expensive. It took a long time to make anything, and only a very few of anything were being made at any one time.  Low production quantities and high production costs result high prices for goods and services.

Additionally, the quality of goods and services varied wildly from place to place, since they depended upon locally available skills and resources. If one wanted items of higher quality than local craftsmen were capable of producing, it required traveling to cities and kingdoms known for creating the best of a particular item – and then arranging to transport it back home: an expensive, time-consuming, and dangerous (bandits, shipwrecks, etc.) proposition.

While the wealthy could purchase clothes and furniture that were truly works of art, the rest of society made do with items that were serviceable at best, and crudely-made at worst.

Work hard and succeed – or else.

In this pre-industrial society, there was immediate connection between an individual’s talent and ambition, and their prospects for prosperity. Each individual could determine – more or less – for themselves when and how much to work. Anyone who was bright and willing to work hard had a pretty good shot at the brass ring.

Due to the absence of modern financial lubricants such as lines of credit and interbank clearing houses, these craftsman and their helpers were only rewarded based upon their success in the market – in other words, sales.  Only after items were sold and paid for was there was money to pay the staff.  The ability to put food on the table was directly linked to the bottom line – and only to the bottom line.  That alone was incentive enough to ensure that everyone showed up for work each morning.

The freedom to starve.

Although workers possessed (to a greater or lesser degree) autonomy with regard to where, when, and for whom to work – and were able to exert a direct impact on the ultimate success or failure of the venture – the price paid was in a lack of security.  Extreme weather, wars, spoiled ingredients, acts of God – or even loss of favor in the local market – could wipe out a business overnight, with devastating consequences for all concerned.

Without credit facilities to tide the business over the rough patch, the only options were to sell anything of value for seed capital, or pack up and move to a hamlet in the neighboring valley in search of a new employer.  Either way – whether starting a new business or finding a new employer – it was a race against time to reestablish oneself before starving to death.

to be continued…

Welcome to the Digitalist Revolution!

Anarchist: Extreme radicals, who sought to undermine the capitalist system and the state. (OldBaileyOnline.org)

We are in the midst of a Revolution that will radically change the nature of society and economics, yet relatively few people are aware of it – and fewer truly understand its causes and implications.

And in an ironic twist of fate, “capitalism” as we once understood it began to collapse at nearly the same point in time that “communism” completed its own journey into to the “dustbin of history“.

Although not an economist or historian by profession, I have an MBA in Finance and am a keen student of history.  I am a marketer with expertise in online marketing and the internet, and solid understanding of how digitalization and technology are combining to forever change the face of marketing, economics and society.

I am compelled to share my vision of what the future holds for marketers, entrepreneurs, and businesses.  I believe that we are at the beginning of a dramatic reordering of our global economy.  The rules have begun to change, and they no longer stack the deck to the advantage of past favorites.

Those who realize that a Digitalist Revolution is taking place – and that a new world order is now replacing the “capitalist” structures that we have enjoyed for the last 100 years or more – will be best situated to exploit these opportunities that favor the nimble to the detriment of larger, lumbering competitors.

Small and under-capitalized businesses,  formerly at a severe disadvantage now find that their compared to larger and more established firms, are now discovering that their adaptability and inability to afford the cost of traditional advertising are positive advantages.

The weak shall indeed inherit the Earth, and through the sheer force of their numbers shall lay low the corporate behemoths that until very recently dominated the markets.  The very advantages that benefited large corporations – size, scope, scale, access to capital – now serve to work against them.

This blog is my Digital Manifesto

Over the coming weeks and months, The Marketing Anarchist plans to provide a series of postings that provides the context of the Digitalist Revolution, the forces of social and technological change that – when combined – gave birth to the Revolution, and how each of us can take advantage of the opportunities created by the Revolution to ensure prosperity for ourselves and other like-minded souls throughout the world.

Power to the People.  Right on.