Process
Status Items Highlights Done See section below Claims None Questions None Output None
Highlights
Time 0:09:39
Two Thirds: Ethical Fashion Example
- Lutz Schwenka founded Two Thirds, a sustainable clothing brand, in 2010 as an ethical alternative within the fashion industry.
- Two Thirds manufactures in Spain and Portugal, adhering to EU wage and environmental standards.
- Their Portuguese workers earn around 1,000 euros monthly, which offers a decent living standard given the lower cost of living.
- The company exclusively utilizes organic and recycled cotton, as well as alternative materials like hemp and linen. Transcript: John Biewen Says the Portuguese workers who make his company’s clothes start at about 1,000 euros a month, 10 times the typical pay in India or Bangladesh. It’s only $1,100, but the cost of living in Portugal is barely half what it is in the United States or a big Spanish city. Lutz Schwenke The areas where it’s produced in north of Portugal, it’s quite impressive. I mean, if you go here into Barcelona and you order with milk, you pay 253 euros, whereas you go there into the villages and I ended up paying 90 cents for a coffee. John Biewen Those European garment factories also have to meet EU environmental standards, unlike the plants in parts of Asia, where environmentalists have captured awful images for decades. Lutz Schwenke I don’t want to name a country, but you have this factory in Country X, and they dye the product, and there’s a river just behind, and the river has the same color of the day than the clothing That they produce inside, and there’s still a lot more of that that you think. Two-thirds doesn’t use any conventional cotton grown with pesticides. John Biewen It uses organic and recycled cotton and other fabrics like hemp and linen. But the most unusual business practice that Lutz and his company adopted is meant to address yet another fashion industry sin, waste. It’s estimated that globally, humans are hauling clothing to landfills and incinerators at the rate of one garbage truck every second,
Time 0:10:18
European Garment Factories and Environmental Standards
- Lutz Schwenke founded Two Thirds, a sustainable clothing brand, in 2010.
- Unlike many Asian factories, European garment factories, particularly those in Portugal used by Two Thirds, must adhere to EU environmental standards.
- Schwenke points out a stark contrast where factories in some unnamed countries pollute rivers with dyes, matching the color of the clothes they produce, highlighting lax environmental regulations.
- Two Thirds uses organic and recycled cotton and other sustainable fabrics like hemp and linen, avoiding pesticide-laden conventional cotton. Transcript: John Biewen European garment factories also have to meet EU environmental standards, unlike the plants in parts of Asia, where environmentalists have captured awful images for decades. Lutz Schwenke I don’t want to name a country, but you have this factory in Country X, and they dye the product, and there’s a river just behind, and the river has the same color of the day than the clothing That they produce inside, and there’s still a lot more of that that you think. Two-thirds doesn’t use any conventional cotton grown with pesticides. John Biewen It uses organic and recycled cotton and other fabrics like hemp and linen. But the most unusual business practice that Lutz and his company adopted is meant to address yet another fashion industry sin, waste. It’s estimated that globally, humans are hauling clothing to landfills and incinerators at the rate of one garbage truck every second, 24-7. It’s crazy. Lutz Schwenke It’s, I mean, it’s a system of total overproduction. John Biewen The fast fashion industry has doubled production since 2000, making mountains of cheap, low-quality garments designed to be worn just a few times. And sure enough, people are buying more clothes than ever and wearing those garments fewer times before tossing them. In part because of this excessive production, the clothing industry produces more greenhouse gases than air travel and global shipping combined. There’s so much overproduction that a staggering
Time 0:22:45
Profit Making, Not Maximizing
- Marjorie Kelly argues against profit maximization as the primary goal of companies.
- She suggests companies should be profit-making, ensuring their survival and sustainability.
- However, they shouldn’t prioritize maximizing profits above all else, as this can lead to detrimental consequences. Transcript: John Biewen Argues that a huge amount of damage comes from the idea that profits, the gains that go to owners and shareholders, must be maximized. That article of faith needs to
Time 0:22:56
Profit Making, Not Maximizing
- Aim for companies to be profit-making, but not profit-maximizing.
- Profit is essential for survival, but maximizing it often leads to harmful practices.
- It is not necessary to extract the most possible at all times from a situation or a company, some might argue it’s better to extract less.
- There have always been business people content with making enough profit, not the maximum possible.
- Large-scale change requires more than just encouraging ethical choices; systemic changes and new rules are needed to shift the existing system. Transcript: John Biewen Article of faith needs to go away, she says. Ellen McGirt What I say is that we need companies that are profit-making, but not profit-maximizing. And there’s all the difference in the world is in there. You need a profit just to stay alive, right? You need more money coming in than going out. That’s kind of a rule of life in the economy. But maximizing profits, buying newspapers and squeezing them to death until they lie on the floor and die, no, that isn’t necessary. We don’t need to maximize profits. John Biewen And that’s what we need to step away from. There are and always have been business people in the profit-making world who were happy to make enough and not necessarily the most profit possible. But a lot of observers, including some who work in business, say large-scale change will never happen by merely encouraging that choice as a matter of values or virtue. Many argue the capitalist system needs a good, strong push. And that means changing some rules. Here’s one way to look at the idea of a better capitalism. What if the free market consistently worked as advertised by its biggest
Time 0:25:11
Peter Thiel on Competition
- If founding a company, aim for monopoly and avoid competition.
- Competition forces you to focus on incremental improvements and small margins, preventing you from building something truly valuable.
- Instead of competing in crowded markets, create new ones where you can dominate. Transcript: Jordi Llatje i Espinal Speaker is Peter Thiel. Peter was the founder of PayPal and Palantir and Founders Fund and has invested in most of the tech companies in Silicon Valley. John Biewen Thiel steps in front of the class and comes right out with his central piece of advice, an idea he says he’s completely obsessed with.
Time 0:25:22
Aim for Monopoly
- Peter Thiel’s central piece of advice to startup founders is to always aim for a monopoly and avoid competition.
- He believes that competition is for losers.
- Thiel cites big tech companies like Apple, Google, Microsoft, and Amazon as examples of successful monopolies, highlighting their high profit margins and accumulated cash. Transcript: John Biewen Steps in front of the class and comes right out with his central piece of advice, an idea he says he’s completely obsessed with. Jordi Llatje i Espinal If you’re starting a company, if you’re the founder, entrepreneur, starting a company, you always want to aim for monopoly. And you want to always avoid competition. And so, hence, competition is for losers, something we’ll be talking about today. John Biewen Teal, who is known these days as a mentor and patron to J.D. Vance, went on to offer some familiar examples of companies that are nailing it, in his view. Jordi Llatje i Espinal If you look at sort of the, some of the big tech companies, Apple, Google, Microsoft, Amazon, they’ve just been building up cash for year after year. And you have these incredibly high profit margins. And I would say that one of the reasons the tech industry in the US has been so successful financially is because it’s prone to creating all these monopoly like businesses.
Time 0:25:22
Peter Thiel’s Competition is for Losers
- Peter Thiel, founder of PayPal and Palantir, advises aspiring entrepreneurs to aim for monopolies and avoid competition.
- He believes that competition is for losers and that successful tech companies like Apple, Google, Microsoft, and Amazon have thrived by establishing monopoly-like businesses.
- These monopolies allow companies to accumulate vast amounts of cash due to high-profit margins.
- Adam Smith, a proponent of competition, would have likely opposed such monopolies due to their potential for rent-seeking and price gouging. Transcript: John Biewen Steps in front of the class and comes right out with his central piece of advice, an idea he says he’s completely obsessed with. Jordi Llatje i Espinal If you’re starting a company, if you’re the founder, entrepreneur, starting a company, you always want to aim for monopoly. And you want to always avoid competition. And so, hence, competition is for losers, something we’ll be talking about today. John Biewen Teal, who is known these days as a mentor and patron to J.D. Vance, went on to offer some familiar examples of companies that are nailing it, in his view. Jordi Llatje i Espinal If you look at sort of the, some of the big tech companies, Apple, Google, Microsoft, Amazon, they’ve just been building up cash for year after year. And you have these incredibly high profit margins. And I would say that one of the reasons the tech industry in the US has been so successful financially is because it’s prone to creating all these monopoly like businesses. And it’s reflected by the fact that these companies just accumulate so much cash, they don’t even know what to do with it beyond a certain point. John Biewen The leaders of those tech giants probably weren’t thrilled by Thiel’s comment, since they’ve all been sued for monopolistic practices by the U.S. And European governments, along with Facebook, which Thiel neglected to mention. Business people don’t usually put it as bluntly as Thiel did, but it is standard practice in the business world and completely rational for someone looking to invest or start a company To choose an industry with few or no competitors. Adam Smith, back there in the 18th century, could not have imagined Google, Facebook, or Amazon. But he did know a monopoly when he saw one, and he raged against the rent seeking, the price gouging, that the monopolists of his time engaged in. This was Smith’s obsession. Markets, he said, should be managed intelligently to maximize competition in every way. Competition between companies to win customers.
Time 0:25:31
Peter Thiel on Monopolies
- Peter Thiel advises aspiring entrepreneurs to aim for monopolies and avoid competition.
- He believes that competition is for losers and that successful tech companies like Apple, Google, Microsoft, and Amazon have thrived by establishing monopoly-like businesses.
- Thiel points out that these companies accumulate vast amounts of cash due to their market dominance, although they have faced antitrust lawsuits.
- While Thiel’s perspective is blunt, seeking industries with limited competition is common practice, contrasting with Adam Smith’s emphasis on maximizing competition to benefit consumers and workers. Transcript: Jordi Llatje i Espinal You’re starting a company, if you’re the founder, entrepreneur, starting a company, you always want to aim for monopoly. And you want to always avoid competition. And so, hence, competition is for losers, something we’ll be talking about today. John Biewen Teal, who is known these days as a mentor and patron to J.D. Vance, went on to offer some familiar examples of companies that are nailing it, in his view. Jordi Llatje i Espinal If you look at sort of the, some of the big tech companies, Apple, Google, Microsoft, Amazon, they’ve just been building up cash for year after year. And you have these incredibly high profit margins. And I would say that one of the reasons the tech industry in the US has been so successful financially is because it’s prone to creating all these monopoly like businesses. And it’s reflected by the fact that these companies just accumulate so much cash, they don’t even know what to do with it beyond a certain point. John Biewen The leaders of those tech giants probably weren’t thrilled by Thiel’s comment, since they’ve all been sued for monopolistic practices by the U.S. And European governments, along with Facebook, which Thiel neglected to mention. Business people don’t usually put it as bluntly as Thiel did, but it is standard practice in the business world and completely rational for someone looking to invest or start a company To choose an industry with few or no competitors. Adam Smith, back there in the 18th century, could not have imagined Google, Facebook, or Amazon. But he did know a monopoly when he saw one, and he raged against the rent seeking, the price gouging, that the monopolists of his time engaged in. This was Smith’s obsession. Markets, he said, should be managed intelligently to maximize competition in every way. Competition between companies to win customers. And as we heard back in episode four, he wanted workers to have leverage too so employers would have to compete for their labor, pushing up wages. In one more famous passage from The Wealth of Nations, Smith laments another way in which business people conspire to avoid competition, by colluding with one another. Lutz Schwenke People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or
Time 0:27:20
Promoting Competition in Capitalism
- Encourage competition between companies to benefit consumers.
- Empower workers so employers have to compete for labor, raising wages.
- Implement laws and regulations to level the playing field.
- Strengthen environmental protections and enforce them robustly.
- Increase taxes on corporations and the wealthy to fund public services. Transcript: John Biewen Was Smith’s obsession. Markets, he said, should be managed intelligently to maximize competition in every way. Competition between companies to win customers. And as we heard back in episode four, he wanted workers to have leverage too so employers would have to compete for their labor, pushing up wages. In one more famous passage from The Wealth of Nations, Smith laments another way in which business people conspire to avoid competition, by colluding with one another. Lutz Schwenke People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. John Biewen For people who believe in capitalism but want it to work better for more people, examples like these can lead to one kind of response. Laws and regulations, thoughtfully designed to level the playing field so markets do in fact bring good things to lots of people.
Time 0:28:09
Better Capitalism Through Regulation
- For proponents of a better-functioning capitalist system, regulations are key.
- These could include bolstering labor unions, implementing stricter environmental protections, and increasing taxes on corporations and the wealthy.
- Such measures aim to create a more level playing field and distribute wealth more equitably.
- Additionally, curbing financialization practices like stock buybacks, which prioritize shareholders over workers and productive investments, is crucial for a more balanced and sustainable economic model. Transcript: John Biewen Who believe in capitalism but want it to work better for more people, examples like these can lead to one kind of response. Laws and regulations, thoughtfully designed to level the playing field so markets do in fact bring good things to lots of people. This could mean a return to what historian Brad DeLong called the arsenal of social democracy. Empowered labor unions, stronger environmental protections with robust enforcement, higher taxes on corporations and the wealthy, both to raise revenue for public projects and To reduce the astronomical wealth gap between the richest people and the rest of us. Getting to a better capitalism could also mean reining in what many consider the excesses of financialization. Those maneuvers by investors and corporations to make money, as Orrin Kass puts it, by turning financial assets in circles. Jordi Llatje i Espinal Yeah, stock buybacks are a fascinating case study in all of this. John Biewen Of the conservative group American Compass. When corporations haul in profits they don’t know what to do with, they increasingly just buy up more of their own stock
Time 0:29:52
Stock Buybacks: Unproductive Capital
- Stock buybacks are when companies use profits to buy back their own shares, instead of investing in growth or raising worker pay.
- Market fundamentalists argue that this returns capital to investors who can then invest it more productively elsewhere.
- However, there’s no evidence this happens, and the capital often ends up in index funds, not productive investments.
- This removes capital from the productive economy and puts it back into financial markets where it might not contribute to anything productive.
- Stock buybacks became legal in 1982 and reached over 1 trillion in 2022 for S&P 500 companies. Transcript: Jordi Llatje i Espinal When you say, you know, we're concerned about these stock buybacks, it seems to be companies disgorging massive amounts of capital instead of investing it. The response from what I would call the market fundamentalists, who believe markets can do no wrong regardless of what rules there are, or especially if there are no rules, what they Will say is, no, no, no, this is good. The company is returning the capital because they can't think of as good a use for it as someone else will. So now the people who receive the capital as investors will put it into other companies that will do more and better investment. And this is how we become more productive. John Biewen He says the trouble is there's no evidence that this is actually what happens. Jordi Llatje i Espinal When you think about the people who actually receive the proceeds of stock buybacks, they're not people out there looking for places to make real investments that deploy productive Capital. They're people who are going to put it into their index funds, and off we go, spinning up more assets in circles. And so the net effect is actually to disgorge capital out of the productive economy, away from corporations that might actually deploy it, and back into the financial market where It may not do anything productive at all. John Biewen Stock buybacks became legal during the Reagan administration in 1982. The practice has grown more and more common, especially these days as corporate profits soar to record levels. In 2022, companies in the S&P 500 did more than 1 trillion in stock buybacks for the first time.
Time 0:32:01
Taxing Corporate Profits and Financial Transactions
- One proposed strategy to better utilize corporate profits involves increasing taxes on them.
- The 2017 tax cuts significantly reduced the corporate tax rate, and further reductions have been suggested.
- Conversely, some advocate for raising the corporate tax rate.
- John Fullerton suggests a tax on financial transactions to curb unproductive use of capital in esoteric financial instruments. Transcript: John Biewen 2017 tax cuts under Trump slashed the corporate rate from 35 percent to 21 percent. Trump has proposed cutting it further to 15 percent. Kamala Harris says she’ll push Congress to raise the corporate rate to 28 percent. As dry as it can be to talk about, the investment of capital and the rules and guardrails around that activity have a powerful influence on what happens in the world. Remember John Fullerton in episode one talking about his epiphany a couple decades ago, that bankers like him were, in important ways, doing destructive work. I then sort of looked in the mirror and realized it was young kids like me who think they’re so smart, who are actually driving, because finance really drives the economy. Lutz Schwenke It’s what the economy is in service to financial capital in more ways than we realize. John Biewen By this point in our season, it should be clear what John’s talking about. The people who control those mountains of capital really are the deciders. Should I spend this capital to build affordable housing and address that critical shortage, or put it into a private equity firm that’s buying up homes and flipping them for a quick Profit? Should I invest my capital in any traditional sense, in the real economy, towards production of any actual product or service, which would almost certainly create jobs, or just put It into some esoteric financial instrument that’ll kick out a few cents on the dollar? John
Time 0:36:11
B Corp in Delaware
- Rick Alexander, a corporate lawyer in Delaware, initially dismissed the B Corp movement as something only small companies like Ben & Jerry’s would be interested in.
- Delaware, where many large corporations are incorporated, seemed an unlikely place for B Corps to thrive.
- However, after researching B Corps and stakeholder capitalism, Alexander changed his perspective.
- He was particularly influenced by Lynn Stout’s argument against programming corporations to be sociopathic by solely focusing on maximizing profits.
- Stout argued that people have interests beyond self-interest and corporations should be designed similarly. Transcript: John Biewen Eventually, Rick’s work introduced him to the B Corp movement. B Lab wanted Delaware to create a new legal entity and corporate structure, the Benefit Corporation, so B Corps could operate in the state. Jordi Llatje i Espinal And at the time they came to Delaware, I was the chair of this committee of the bar that sort of every year would look at the statute and look at what was happening in the world and decide Whether changes were needed. And to be like candid, we just kind of laughed and we said, well, that’s cute. That’s something like, you know, Ben and Jerry’s, they were one of the early B Corps. That’s something like Ben and Jerry would like, but we’re serious. Delaware, you know, all the big multi-billion dollar companies are incorporated here. We can’t, we’re not interested in that. But they were persistent. John Biewen Alexander started doing research into the B Corp idea and the wider network, though still pretty small and fringy, of business reformers. Jordi Llatje i Espinal You know, there’s this whole movement out there talking about stakeholder capitalism and conscious capitalism and all these different things out there. And I started looking at them. And the one thing, there was an academic, her name is Lynn Stout. She’s passed away too early, but she was at the time, she was a corporate law professor at Cornell and one of the things she said was that well people also have interests just like self Interests just like corporations but people don’t walk around saying I’m just always going to take as much as I can from every situation that I can and never think about anyone else’s Interests. And when you do meet people like that, you call them a
Time 0:46:01
Limitations of Voluntary Business Reform
- Many capitalist reform efforts, like ESG and stakeholder capitalism, appeal to the bottom line, arguing that doing good won’t hurt profits.
- However, real change requires breaking free from the core assumption that the primary goal of business is maximizing profit.
- Voluntary efforts to shift business culture and goals, like the B Corp movement, are promising but slow.
- These reforms may take generations to achieve meaningful change, but urgent action is needed given the current global challenges, and voluntary change is too slow.
- As Frederick Douglass said, “Power concedes nothing without a demand.” Transcript: Ellen McGirt One problem I see with Rick Alexander’s approach is that he’s still appealing to the bottom line. And this is something I’ve found again and again with so many capitalist reform efforts. ESG, stakeholder capitalism, and so on. Folks are trying to get people to run their businesses differently. But they feel compelled to say, but your profits won’t suffer. John Biewen Right. You can do more good, but don’t worry. You’ll still be doing just as well as you’re doing now. Ellen McGirt And I’m afraid that’s just not going to get it done. If you’re not breaking out of the core assumption that the number one task of business is to make a profit, and not just that, the largest possible profit, then it’s hard to see real change Coming. And sure enough, after years of this kind of talk and these earnest efforts, real change has not come. So I think what this episode shows is both the promise and the limitations of these voluntary efforts. Folks like B-Lab with the B Corp movement and benefit corporations and Rick Alexander with his drive to get investors to think and behave differently. These are attempts to shift the culture and the goals of business and finance. John Biewen And that’s inspiring. But at this that shift will take generations, and we don’t have that kind of time. That Frederick Douglass quote comes to mind, doesn’t it, Ellen? Power concedes nothing without a demand. Ellen McGirt It never did, and