This article on virtuous capitalism is part of the NextGen summit on business transformation, in which I will have the pleasure of participating on November 26-27 by moderating two roundtable discussions with decision-makers from the economic, political, and social spheres.
Railways, cancer drugs, power grids, computers... The greatest successes of capitalism stem from collaboration among hundreds of different companies. Thus, capitalism is a team sport.
At the heart of the capitalist economy, we find large multinational corporations: automobile and aerospace manufacturers, banks and insurance companies, pharmaceutical giants...
By coordinating collaboration among numerous different actors, these large companies make possible the design and mass production of increasingly complex products and services. In some cases, such as an Airbus aircraft or a nuclear power plant, the actors contributing to the value chain number in the hundreds! Through this coordinating role, large companies bring significant value to our society.
The problem with this system is that the central coordinating role allows large companies to acquire a dominant position vis-à-vis other actors in the value chain. Instead of fairly sharing the fruits of collective success, many large companies prefer to hog the lion's share.
The digital revolution has not changed the situation. The vision of Internet pioneers, who dreamed of a more decentralized economic system, was quickly overshadowed by the emergence of large digital platforms.
These platforms have become even more powerful than old industrial conglomerates because they combine financial power with technological superiority. Instead of solving the problem, digitization could even exacerbate it by accentuating the concentration of wealth in the hands of a few large companies.
If markets were perfectly competitive, this problem would not arise: an actor trying to capture too much value would be quickly sidelined by its customers and suppliers, who would turn to less rapacious competitors.
However, the reality of many markets is far from perfect competition. In many sectors, there are in fact oligopolies, sometimes reinforced by secret agreements of non-competition among leading actors.
Today, thanks to the progress of digital technologies, we have the opportunity to envision completely different economic models. Models that would combine the creative and innovative power of capitalism with greater justice in the distribution of wealth.
Imagine a system that would connect the information systems of all economic actors - companies (large and small), states, research centers... By relying on technologies like blockchain, this system would collect and share quantitative and qualitative data in real time on the activity of different economic actors.
We could call this system "VRT" (for "Value Redistribution Technology"). With the help of artificial intelligence algorithms, VRT would be able to calculate the contribution of each actor to value creation.
When a product or service is sold, the system would instantaneously calculate the amount to be paid to each actor based on their contribution. Wealth would thus be distributed not according to the unilateral decision of the strongest actor, but according to algorithms that take into account principles of distributive justice.
Let's take a down-to-earth example, that of the tomato market:
Thanks to its dominant position, the retailer captures about 70% of the margin realized (5 cents out of 7), while the farmer captures only 30% (2 cents out of 7).
On the other hand, our VRT system could distribute the margin according to each actor's share in unit production costs. Consequently:
The retailer, who bears 40% of the costs (5 out of a total of 13), would receive 40% of the total margin realized, or 2.8 cents per tomato instead of 5.
This article on virtuous capitalism is part of the NextGen summit on business transformation, in which I will have the pleasure of participating on November 26-27 by moderating two roundtable discussions with decision-makers from the economic, political, and social spheres.
Capitalism is a team sport
Railways, cancer drugs, power grids, computers... The greatest successes of capitalism stem from collaboration among hundreds of different companies. Thus, capitalism is a team sport.
At the heart of the capitalist economy, we find large multinational corporations: automobile and aerospace manufacturers, banks and insurance companies, pharmaceutical giants...
By coordinating collaboration among numerous different actors, these large companies make possible the design and mass production of increasingly complex products and services. In some cases, such as an Airbus aircraft or a nuclear power plant, the actors contributing to the value chain number in the hundreds! Through this coordinating role, large companies bring significant value to our society.
The current system does not redistribute wealth sufficiently
The problem with this system is that the central coordinating role allows large companies to acquire a dominant position vis-à-vis other actors in the value chain. Instead of fairly sharing the fruits of collective success, many large companies prefer to hog the lion's share.
The digital revolution has not changed the situation. The vision of Internet pioneers, who dreamed of a more decentralized economic system, was quickly overshadowed by the emergence of large digital platforms.
These platforms have become even more powerful than old industrial conglomerates because they combine financial power with technological superiority. Instead of solving the problem, digitization could even exacerbate it by accentuating the concentration of wealth in the hands of a few large companies.
If markets were perfectly competitive, this problem would not arise: an actor trying to capture too much value would be quickly sidelined by its customers and suppliers, who would turn to less rapacious competitors.
However, the reality of many markets is far from perfect competition. In many sectors, there are in fact oligopolies, sometimes reinforced by secret agreements of non-competition among leading actors.
Technology in the service of greater distributive justice
Today, thanks to the progress of digital technologies, we have the opportunity to envision completely different economic models. Models that would combine the creative and innovative power of capitalism with greater justice in the distribution of wealth.
Imagine a system that would connect the information systems of all economic actors - companies (large and small), states, research centers... By relying on technologies like blockchain, this system would collect and share quantitative and qualitative data in real time on the activity of different economic actors.
We could call this system "TRV" (for "Value Redistribution Technology"). With the help of artificial intelligence algorithms, TRV would be able to calculate the contribution of each actor to value creation.
When a product or service is sold, the system would instantaneously calculate the amount to be paid to each actor based on their contribution. Wealth would thus be distributed not according to the unilateral decision of the strongest actor, but according to algorithms that take into account principles of distributive justice.
A concrete example: the tomato market
Let's take a down-to-earth example, that of the tomato market:
Imagine a farmer who grows tomatoes at a unit cost of 8 cents and sells them to a large retail chain for 10 cents, making a unit margin of 2 cents. The retailer charges an additional 5 cents for various activities necessary for sales (logistics, financial, marketing costs...) and resells the tomato to the final consumer for 20 cents, making a margin of 5 cents. Thanks to its dominant position, the retailer captures about 70% of the margin realized (5 cents out of 7), while the farmer captures only 30% (2 cents out of 7).
On the other hand, our TRV system could distribute the margin according to each actor's share in unit production costs. Consequently:
The farmer, who bears 60% of the costs (8 cents out of a total of 13), would receive 60% of the total margin realized by the value chain, or about 4.2 cents per tomato, instead of the 2 he received in the old system; The retailer, who bears 40% of the costs (5 out of a total of 13), would receive 40% of the total margin realized, or 2.8 cents per tomato instead of 5.
In the example of the tomato, it is the retailer who takes advantage of its dominant position to capture the margin. In other sectors - imagine for example a product made from rare raw materials or difficult-to-produce industrial materials - it is the actor upstream in the value chain that could find itself in a position of strength.
Examples of such systems already exist in the real world, for example in the football market. Imagine that Auxerre (currently in Ligue 2) has trained a young talent, which it sells to Bordeaux (currently in the middle of the Ligue 1 standings) for 5 million euros. The young talent explodes and 2 years later, Bordeaux sells him to Real Madrid for 50 million euros. More and more often, contracts provide that in case of capital gains realized on the sale, the original club receives a portion of the transfer fee. In the example, if the contract provided for a 20% indemnity for the capital gain, Auxerre would receive an additional 9 million euros.
Greater distributive justice would not be the only benefit of this system. By giving all actors a global view of the value creation chain, this system would provide stakeholders with a wealth of information to reflect together on how to bring more value to the final customer. It would thus be a vector of collaboration and open innovation.
By reinforcing the traceability of each company's activity, TRV would also provide many solutions in the fiscal domain:
By making fraud much more difficult, such as counterfeiting or tax evasion.
Obviously, it is the value distribution algorithms that are at the heart of VRT. So what principles, what distribution keys would be appropriate and fair to use?
In the example of the tomato, we used unit production costs as the distribution key. This is an indicator that has the advantage of being available in many companies thanks to analytical accounting. But is it a fair indicator that reflects the contribution of different actors to value creation?
We could imagine using other distribution principles, oriented more towards value than cost. For example, based on feedback collected from final customers. Let's go back to the example of the tomato. We could ask the final consumer:
What is his level of satisfaction with the characteristics of the product purchased?
The margin would then be distributed according to the feedback given by final consumers. In the case of complex products or services, feedback could be collected not only from the final customer, but throughout the value chain.
The implementation of such a system is perfectly feasible on a technical level. We already have all the necessary technology to run VRT. But does our society have the political will to go for it? Is such a system socially desirable? What would be its benefits? And its drawbacks? What distribution keys would be the fairest?...
And on the organizational level, what would be the impacts for companies? What changes should they make to adapt to VRT ? How could VRT promote infra- and inter-company collaboration?