“It’s remarkable how much you don’t know about the game you’ve been playing all of your life.”

  • Mickey Mantle

There are games everywhere in life. In America there is a master game that we all have to play in. Its effects are pervasive and regularly visible. Yet to many people, the effects are misunderstood or misattributed.

The game is capitalism. A form of capitalism with a very specific set of rules that were set out and codified in the late twentieth century. There’s regular evidence showing how unaware people are to the game they’ve been playing all of their lives. Fortunately, it’s a simple game to understand.

The latest example comes from Southwest Airlines’ decision to get rid of “bags fly free.” This comes on the heels of eliminating open seating earlier in the year. Corporate greed. Out of touch executives. MBA creep. None of these reactions people have had are wrong, but they’re misattributions. They don’t understand the rules of the game.

The game is Milton Friedman’s capitalism. It’s a paradigm that took hold in mindshare, judicial thinking, and legal interpretation in the second half of the twentieth century.

What are the rules?

People running a public company have one legal responsibility, and that responsibility is a fiduciary duty to shareholders. Not to customers, not to the community, not to a country. Fiduciary is a fancy way of saying trust. That could have a broad interpretation, but in the game of Milton Friedman’s capitalism, fiduciary responsibility has come to mean one thing–driving up the stock price. Stock prices live on a spectrum of numerically driven reality to socially constructed reality. Tesla’s stock price is an example of a socially constructed reality, but it is still based on the story of future growth.

For a company three things can grow:

  1. Revenue (the total amount of everything sold)
  2. Income (what is left after paying all expenses)
  3. The story (of future revenue and profits)

If you understand these rules, you can make sense of and even anticipate how public companies will behave.

Every year, every quarter public companies must show growth–or sell the public markets on a story of future growth. This understanding is the disconnect people have when they see something like company x has record profits, yet lays off thousands of people. There is a never ending, relentless need to show growth by increasing revenue or cutting costs.

Storytelling is why you hear Daniel Ek brand Spotify as “the future of audio” or Mary Barra call General Motors the future of “zero crashes, zero emissions, and zero congestion”. Why doesn’t Ek just call Spotify a great streaming music service or Barra call GM an automaker? Because they have to sell a story of a bigger future with greater growth.

And yes, that can often result in companies doing things that work to increase growth in the short-term yet are harmful in the long-term. That’s what people are catching on to with memes about private equity ruining everything, and ‘enshittification’ becoming a known concept. Time will tell if that will be Southwest’s fate.

The root though, is the game of Milton Friedman’s capitalism.

There are countless other games we all play every day, whether we want to or not.

Most people cannot opt out. A very select few can change the game, or change the rules. A society is a system after all, and Donella Meadows explained to us that the most powerful and lasting way to change a system is a paradigm shift. It’s also the most challenging to do.

Footnote:

This biography about Carl Icahn is a good look into the old world being blindsided by the new realities of Milton Friedman’s capitalism. In the 1980’s Icahn ran through companies like a buzzsaw whose managements had not yet realized that the game had changed. These battles defined what “fiduciary responsibility to shareholders” would look like moving forward.