Unplanned Obsolescence
Why does my dad’s stereo from the 1980’s still work like it’s fresh out of the box, but my iPhone becomes obsolete the moment a new software update is released? Keeping up with the Joneses in the 21st century requires the purchase of the same technology over and over. The old factory warranty gimmick has somehow become an exact science on the life expectancy of each device. The principles of our so-called capitalist system are supposed to drive infinite innovation in every industry to create better goods at a cheaper price. In reality, the global monopolies have endowed us with crappy products with shelf lives shorter than Oreos.
Globalization has spread the industrial supply chain so thin they’ll have to start calling it a global supply thread. Free trade was supposed to increase market competition with expanded options for resources and labor that would drive down prices and enhance the economies of developing nations. However, corporatism and the vast disparities in exchange rates have shaped a global economy that monopolizes resources and bottlenecks industries into one controlled and fragile logistics network.
The general assumption is that things are not made like they used to because of corporate greed and the shareholder derived incentive to decrease quality for greater profits. This theory fails to mention that most multinational companies have diminished profit margins as they intend to drive value via expansion and sheer volume. The quality of products is not important as long as more units are being sold each year. In many cases, technology has actually become relatively cheaper over time, but this is the fallacy of globally made products that sacrifice quality for production volume.
The incentive for corporations to produce decent products at a profitable rate has been twisted into a motivation that ignores the customer for the interests of the shareholder. Share price is dependent on following factors that have nothing to do with the quality of goods or method of production:
Non-Operating Revenue Growth – Revenue can come from a variety of sources independent of the primary product sold. Interest income from bonds or customer financing, investment income from exchange rates, or even dividend income from subsidiaries. Corporations can prioritize non-operating avenues if it’s more cost effective than operations or the tax burden is favorable.
Stock supply – The most basic dynamic of share price is of course the demand for that company stock and the supply of existing shares. In 1982, the SEC allowed corporations to repurchase their own stock which decreases the existing supply and drives up the price. The SEC provided corporations with a tax-efficient alternative as well as total immunity from the liability of market manipulation.
Speculation – the price-earnings ratio that was commonly used to determine share price is now irrelevant in today’s market. The subtleties of stock bubbles include a complete disregard for valuation methods. Algorithmic trading, hedge fund/index consolidation, and global governmental forces all contribute to a steady flow of cash into the broader stock market that is unconcerned with silly profitability measures.
Once a corporation reaches a certain size, it no longer functions like a business that is concerned with the end product or the satisfaction of their customers. The limitless scope of the corporation allows liability to be spread so wide that the individual customer is trivial and literally not worth the time. The only concern by management is endless expansion and cost-effective ways to drive revenue that have nothing to do with the actual business. Corporations begin to act like banks when a majority of revenue comes from investments and financial instruments rather than operations. When any entity has billions in cash, the most favorable approach to making more money is to simply utilize the existing debt-based inflationary economy we’ve come to know and love.
Business operations are only conducted at the office level. Each one is not required or even desired to drive any real profit because that would incur unwanted tax. When local offices are effectively producing more than their administrative cost, the corporate office will tell them to expand operations, invest in new assets, and hire more people. In some cases, a high performing will be told to spend more money on unproductive activities or financial instruments to ensure they revert to the mean. Executive compensation is not determined by the success of the Scranton Pennsylvania branch, they get their bonuses based on stock price which can be adverse to the priorities of the average employee.
The cost to produce any given device and the price of which to sell it at is totally inconsequential when the success of your business is determined by foreign exchange rates or Blackrock’s portfolio allocation. There are countless case studies of corporations that switch priorities away from their primary business. McDonald’s could be considered a real estate company instead of a fast-food franchise. Starbucks creates insane amounts of income from investing the cash sitting in their customer’s rewards program accounts. Oil companies spend and make billions on raw land to offset carbon emissions penalties with government credits. Even Enron, a company built on fraud, utilized their nonexistent equity to trade the energy market and make billions.
The power of the consumer is diminished as the corporation cements its market share with legal patents and M&A activity. It doesn’t help that many people have become reliant on certain products, so the degradation of quality is of no matter. Non-universal hardware, subscriptions, and service fees lock consumers into unwanted brand loyalty that remains at any price. Their “favorable” financing options allow anyone to afford to pay for the obsolete merchandise with a 144-month term loan. There used to be antitrust laws and public recusancy that would never allow this type of despotic behavior, but like liquid to a container, businesses take the shape of their regulatory environment.
Monopolies can only exist under controlled economies. Companies with subsidies stemming from government contracts could care less about consumer sentiment when their profitability is guaranteed by an entity with limitless capital. The corrupt trade agreements of the past like NAFTA seemed great in the short run for gross domestic product, but the crippled labor market and dependency on foreign supply chains have proven that globalization is dangerous.
The same corporations that expanded globally under the purview of free trade must now face a multipolar world with heightened economic and geopolitical risks. If your business is reliant on supply chains in the Red Sea, or labor from China, or materials from Kazakhstan, you may have some logistical issues. Cheap debt and American financial superiority have facilitated decades of easy economics for corporations. Those favorable factors are not guaranteed to last forever. When the tariffs kick in, when supply chains are halted by terrorism, when financial markets struggle, and debt becomes sufficiently priced… these corporations will fail.
The small business has been unfairly described as risky despite its non-reliance on a low Federal Funds rate or cheap labor from India. The multinational corporations have had an economic edge for over 100 years, but they are dependent on this advantage. Without all the government subsidies, U.S. dollar superiority, or an international workforce, they must return to true free market principles or die trying. The zombie companies plagued with debt and incompetence will finally fail under a sustained period of higher interest rates. The small business that has survived multiple wars and recessions will not be phased by geopolitical strife or a failed stock market. They made their living by providing decent service and quality products produced from locally sourced materials. When the going gets tough, they don’t get bailouts from the federal government, they have to respond to external situations with true business practices.
The free market has always been the end all be all. Somehow along the way we were convinced that this corrupt corporatism is a failure of capitalism that must be appeased with more socialistic methods and corporate favors. The obsolescence of goods and services is no accident, its planned and strategically formulated by a Board of Directors who take advantage of global economy that should not exist. It is said that you can’t change anything by fighting an existing reality; to change things you must create a new model that makes the existing one obsolete. Lucky for us, this new model is really just the old one. Enough small businesses working in tandem to create a well-functioning gray market economy will make any corporation antiquated. We can’t beat them at their game, but we can surely play our game better. The game is independence, play to win and make those corporate parasites obsolete.