For many years, the Forgotten Men and Women who build, maintain, and protect America were ignored as elites built empires on their backs. For decades, the threat of globalization and automation threatened their jobs. They spoke up, but not enough people listened to words such as these:

We don’t expect you to understand who we are. But we ask you to hear us, and beyond that to listen to us when we tell you we will not be having our jobs taken away and given to robots. We will not have you take away our right to work and earn a decent living. And lastly, and most importantly, we will not allow you to take away our dignity!

Oh wait, those aren’t the words of a blue-collar worker. That’s wealthy actor Bryan Cranston of Breaking Bad fame. You see, actors and writers are on strike partly to protest the threat of AI to eliminate their jobs. The next economic revolution is going to hit white-collar workers hardest and they finally know it. As the Forgotten Men and Women say, welcome to the party pal.

The upside is that we can finally have a conversation that’s decades in the making. But simply complaining about how elites act is not enough. We need to articulate how our business leaders should act, or more importantly how we would act if we owned all the means of production.

So, how would you act?

You: The Factory Owner

Imagine you own a furniture factory in North Carolina. Something like this:

You make high-quality couches for $400 each and sell them for $1,000. Your factory currently runs at capacity, you pay your people an above-average wage with benefits, and after paying your operating expenses you turn a small profit of $100,000.

You hire a management consultant to see what improvements you can make to the operation. She presents you with two opportunities to make those tables for $200 each. Same materials, same quality, same sales price. Just lower costs.

• Option #1: Close your American factory and open one in Vietnam where labor is cheaper.

• Option #2: Install automation equipment in your existing factory and lay off half your workers.

Both options initially cost $500,000 but your annual profits multiply to $500,000 as well. One year of profits pays off the whole investment and the rest is yours to keep going forward.

What would you do?

Your answer says a lot about the type of capitalist you are. And what type of capitalist anyone is pretty much determines our future as a country.

But Whose Capitalism?

Believe it or not, there’s something that Main Streeters and Elites actually agree on. It’s that capitalism is the best economic system known to man. It’s not even close. Communism leaves people dead, poor, or a slave to the state. Socialism leads to rationing and the loss of economic mobility. Only capitalism leads to prosperity and opportunity.

But that’s where the agreement ends. Capitalism exists on a continuum. On one extreme is laissez-faire capitalism where there is little, if any, government involvement. Laissez-faire is French for “leave alone”. That means no tariffs, no antitrust laws, no Federal Trade Commission. Nothing. This version of capitalism believes that if government simply protects individual rights, market forces will guide everything else. In this version, profit maximization is the miraculous invisible hand.

On the other side of the spectrum is state capitalism, where governments heavily manipulate markets through either regulation or outright ownership. Look at the ten largest companies in the world and you’ll see that a bunch of them are state-owned enterprises, particularly China.

Besides China, other large economies practicing state capitalism are Russia and Saudi Arabia - which owns the most profitable company in history. What else do those countries have in common? Their citizens are robbed of life, liberty, and the pursuit of happiness. They don’t have free speech or freedom of religion. Most have no opportunity to escape. This is not a coincidence and is the first clue that state capitalism is for losers.

The classic criticism of laissez-faire capitalism is that it leads to lowest common denominator behavior with owners always chasing the highest price at the lowest cost in order to maximize profits. To a degree, that’s true. But also true is that laissez-faire capitalism is a unicorn. It’s talked about a lot but nobody has actually ever seen it. In reality, the world’s capitalist economies have plenty of regulation. There nothing laissez-faire about mandatory business shutdowns during COVID or Canadian truckers having their bank deposits frozen by the government. And the world’s capitalist economies have plenty of businesses that don’t pursue the lowest common denominator, otherwise Ferrari and Rolex wouldn’t exist anymore.

So there’s a tug-o-war. On one side are people trying to push capitalism closer to the Adam Smith laissez-faire model. On the other side are people pushing state capitalism.  

Taking Sides and Choosing Freedom

Which side do you think the elites are on? They claim to be free market fans one day, then show their true colors the next.

Jamie Dimon of JPMorgan Chase, one of the most powerful men in the world, calls himself an “American patriot” and a “red-blooded, full-throated, free enterprise capitalist." Then he goes on to say that there “won’t be a decoupling (with the CCP) and the world will go on.”

Nike’s CEO John Donahoe did one better. He said, "we are the largest sport brand (in China), and we are a brand of China and for China.” Imagine, Nike, a company born in Eugene, Oregon is now a brand of China and for China.

These elites could care less about America or free markets. Or the Uyghurs for that matter.

They are on the state capitalism side. What is the WEF if not a quasi-government institution using coercion and collusion to create a global economy in their image. They use the word capitalism, but they mean power and control.

Adventures in State Capitalism

Imagine if the government made you stay in your house, then told you that in order to come out you had to take a drug that was produced by one of three big companies. Imagine those companies have former FDA officials on their boards of directors. Imagine those companies reporting record profits during a global pandemic and being shielded from liability for vaccine injuries, with government intelligence services pressuring social media billionaires to suppress even the mere discussion of the vaccine not doing what vaccines are supposed to do.    

Yeah, it really happened and it’s not anything approaching free-market capitalism. Here’s why this is important. Business and government elites use the theoretical drawbacks of pure laissez-faire capitalism to trick you into handing them the keys to the economy. They say that, unchecked, businesses will destroy the environment, abuse workers, and only seek the lowest costs no matter what damage it causes. It’s true, these things can happen, but capitalism as a system is not the problem. The real issue is the type of person who’s in charge.

How do we know this? Well, the very elites who tell you they’ll protect the environment fly private and mine cobalt from kids in Congo. The elites who tell you they’ll protect workers sidestep accusations of slave labor in their supply chains and spent the last 40 years moving production to China in a race to the bottom.

Back to You: The Factory Owner

That brings us back to the factory scenario. Would you tell the management consultant that you’re choosing option #1 (offshore) or options #2 (automate)?

Oh wait . . .

I’m hoping you didn’t choose either, because those aren’t the only two options. How about option #3 where you do nothing? You already sell out your production run of quality products, employ people at a fair wage, and make a profit. Life is good for all involved. No need to screw it up.

Or, how about option #4 where you look at ways to lower the number of rejects and streamline some bottlenecks on the production line? Even if you only boosted production by 10%, profits would skyrocket. No layoffs. And with that extra profit you can invest in expanding the line further and actually hiring more people. Or giving your existing workers a raise.

You have all kinds of options when you run a business, it’s only a matter of what you value. You can determine what people value by the decisions they make in situations like these.

What Do You Do With What’s Left Over?

In 2015, Zume Pizza raised $375 million to challenge Pizza Hut and Domino’s using robotics and AI.

No seriously, machines would make the dough, spread the sauce, and move pizzas in and out of the oven.

Zume’s main pizza kitchen could create 370 pizzas per hour, exponentially more than your average Domino’s. Humans only needed to apply ingredients because of the various sizes, weights, and textures involved.

Pretty much everything else was done by robots. Pizzas were delivered in a specially designed package to keep them from getting soggy. Zume even created trucks that could cook the pizza on the way to your house. Finally, its predictive analytics also allowed Zume to prebake pizzas based on projected demand and deliver some orders in just a few minutes.

Zume was started by Julia Collins and Alex Garden with hopes of making it the “Amazon of food”. Imagine owning a pizza company that needs fewer employees and can make way more pizzas in an hour than any competitors. It would be like printing money, which is why potential follow-on investors valued the company at $4 billion.

Spoiler alert: Zume Pizza crashed in 2020. Turns out automating pizza-making is tougher than they thought. Follow-up funding fell through, the company laid off most of its staff, then pivoted to being a robotics-based manufacturer of sustainable packaging products. Their mission now is to reduce the use of plastic, which means you’re stuck with Domino’s again (for now).

I can’t vouch for whether founder Alex Garden is a huckster or the real thing. But he said something on a This Week in Startups episode in 2017 that stuck with me ever since. Garden didn’t deny that certain jobs would be lost to automation in the coming years, just like jobs were lost to mechanization during the Industrial Revolution. He essentially said the impact automation will have on people depends on what you do with the “value capture.”

Value Capture. That’s The Key to All of This.

Companies create value by making goods and services that people want or need. For every transaction, the company gets to keep a portion of the revenue. That’s value capture. It can be increased in many ways, such as by offering valuable innovations, cutting costs, gaining efficiencies, or maximizing pricing power. Every improvement made in any of these areas increases value capture.

What did Zume do with the value capture from automating pizza production?

• The pizzas only cost between $10-20. No delivery fee. No tipping. At the end of the day, it was cheaper than Domino’s.

• The pizzas were higher quality. No sugar in the dough or sauce. Organic vegetables. One slice was half the calories and fat compared to Domino’s or Pizza Hut.

• Workers were paid $15 per hour at a time when the minimum wage was roughly $7.

• Workers got full benefits immediately and stock shares after six months.

• Workers who were automated out of jobs as the company rolled out its technology were retrained at the company’s expense to fill other positions.

In summary, they made higher quality pizza, and paid their employees well, all at a lower price. That’s how you handle value capture. This goes beyond the hokey “triple bottom line” folks and their “people, planet, profits” nonsense – while they market digital Fentanyl and 3,500 calorie diets. It’s a private, capitalism-based system for distributing value capture to the people who made it possible in the first place.

There’s no single right answer to how value capture should be handled. The only wrong answer is believing that profit maximization is the only goal, regardless of collateral damage. That’s soulless capitalism. We prefer care capitalism, as we’ve written about.

Remember that capitalism is just people. Every business owner is the steward of a kingdom of sorts. Some of those kingdoms are small and local. Some are massive and global. Sometimes everyone sacrifices in the beginning to gain a foothold, like you see at most startups. At some point, however, if the company hits its stride, the owners have a choice about what to do with value capture going forward. Choose wisely, be good people, and ask other business leaders to do the same.

This is the way.

God bless and God bless America,

- Jeff Perlot