Thursday 1 September 2011

Startups, China, and my increasing ambivalence about capitalism

I used to be all for entrepreneurship. I long took it for granted that I’d found a software startup as soon as possible after graduating. But I’ve started to worry that prolonged direct contact with the incentives of a free marketplace would either demand that I be - or worse, turn me into - someone more morally compromised than I really want to be.

The genius of a free market is that it measures the entire complexity of the world in one dimension - price. But this one dimension along which the world is measured does not precisely correspond to "good", in any human sense. It's not completely unrelated; it correlates well enough to have produced immense advances in human well-being over the last few centuries. But the invisible hand teaches to the test: it optimises ruthlessly for the one thing it measures. The market is like evolution: not evil, but an extremely powerful force not quite aligned with your or my interests.

This ruthlessness is why I'm uncomfortable with hard libertarianism, which essentially tells us that markets are good: the more of our lives we run through them, the better the world will be.

I also think it's the big reason that people are uncomfortable with China's commercial culture. The economic cultures of "the West" have co-evolved with the development of commerce, and in doing so have built a sort of cultural and institutional immunity which blunts the less pleasant consequences of a free market. Lacking this immunity, China's sudden adoption of capitalism in the 1970s has led to a ruthlessly profit-seeking environment which I can only describe as nastier than the developed-economy bubble I live in.[1]

I'm not talking about truly evil things such as melamine-doped milk, although you can bet the milk suppliers were under strong market pressure to do that too. I'm talking about the pervasive stories of sharp practice, of bending the rules, of seeing what you can get away with. I'm talking about the outsourced factories that progressively increase error tolerances until the commissioning company kicks up enough of a fuss - then wait a bit, and start increasing them again a couple of months later. "Third shift" knockoffs. Fake Apple stores. The Foxconn suicides.

And yet. For several years now, I have been immersing myself in the startup literature, with its emphasis on "hustle" and "scrappiness". Spend long enough in this world, and it seems that relatively few of the sharp practices that would make me reluctant to work in China are actually considered wrong - and definitely not beyond the pale. Paul Graham once said something to the effect that most successful startups have at some point done questionable things to get themselves to the next paycheck. AirBnB got its start by spamming Craigslist posters, Plaxo spammed its users' contacts, and Zynga (of Farmville fame) gained a substantial chunk of its revenue from incredibly deceptive "lead-gen" offers.

Startups do seem most prone to shady behaviour early in their lives. This makes sense - that's when they are most desperate, don't have a reputation to uphold, and are least beholden to the norms of larger businesses. Perhaps it's just that in China, with most private industry arising from nothing within the last three decades, all commercial culture descends from startup culture.

Be that as it may, why does this affect the aspiring entrepreneur? Sharp elbows may be part of the game, but why wring one's hands about the rules of a game?

Ways of thinking are habit-forming. Hackers almost universally acknowledge that learning to program changed the way they view and interact with the whole world. Why should intensive study of another way of thinking be any different?

If you have friends who have gone into investment banking, you probably already know what I mean. Direct engagement with the market makes you learn to think like a market; you have to. At that point, I suspect that internalising its values is all too easy. And those values are so superficially similar to human principles that it's easy to convince yourself they're the same thing.

And so we end up with a three-time startup CEO skimming off $625 from an experiment in altruism, bragging about it, and then acting hurt and confused when people react negatively. After all, it was allowed by the rules, right? And if I didn't, someone else might. And in any case, it was an experiment, and all I was doing was providing results.

As a very perceptive comment on HN put it, this is an almost autistic response. The fact is, humans are really bad at explicitly drawing up rules[2]. Instead, we use social conventions - morality - to establish and enforce a consensus that's usually more restrictive than the rules themselves. [3]

But adherence to convention is actively cautioned against in startup circles. Naughtiness, subversion and a refusal to play by the rules are prized. "If you're running a startup, you had better be doing something odd. If not, you're in trouble."

I linked earlier to an excellent post at Less Wrong, about the idea that cultures develop a memetic immunity to ideas and beliefs with dangerous consequences. I believe that market capitalism is one of these sharp-edged ideas, against whose consequences we have developed both cultural and institutional protection.[4]

Founding a startup involves discarding this suffocating, inefficient insulation against the market, accepting its demands head-on, and (hopefully) reaping the benefits. But discarding one's immunity can be dangerous. As that article concludes:

Another heuristic is to listen to your feelings. If your conclusions seem repulsive to you, you may have stripped yourself of cognitive immunity to something dangerous.

I can't say for sure whether these habits of thinking are induced by prolonged operation in an amoral market, or whether they just make you better at it. Either way, I am becoming unsure that these are the waters in which I want to spend my life swimming.

[1] This isn’t to say that China won’t develop its own immunity. Indeed, there are signs that it already is, and much faster than the developed nations did at the equivalent points in their own industrial history. But right now, it’s the Wild West, with all that implies.
[2] Aside: Actually give us a genie that obeys us literally, and wishing for anything at all would become almost indescribably dangerous. There is a whole group of people who think that technology might provide such a genie in the foreseeable future, and are understandably eager to get good at explicitly encoding human morals first.
[3] The aforementioned entrepreneur apparently didn't understand this himself. As the outrage mounted, he emailed Jonathan Stark, the originator of this experiment in altruism, asking for his reaction. Stark responded by directing him to the project's Facebook page, where the community's moral consensus on his actions was readily visible, and described them as the ones whose opinions mattered. This was interpreted as "stomping on [his] olive branch" and "refus[ing] to address [his] question", without any understanding that the message was one of moral convention and the social construction of acceptable behaviour.
[4] It's not that I think that I know something better. The alternatives tried so far are horrific, or don't scale, or both. But the best that I can say about free markets is that they are, like democracy, "the worst system, apart from all the others". I support them on that basis, but they are dangerous machines, and should be operated, where possible, with suitable protective clothing.

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