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The Postmodern Hangover
Our 2022 annual letter
Since the end of the Cold War, Americans have been both blessed and cursed with unprecedented peace. The West is no longer developing; we say it has "developed." If we take this notion at face value, we have decided that growth is no longer a priority.
In our letter, we reflect on why it feels like progress in America has stalled, the trajectory of both technology and culture, and what the long-term future of industrial companies looks like.
It was a cold, sub-forty-degree night in November 2022 when we first stepped foot in Oak Ridge, Tennessee. Once home to ground zero of the Manhattan Project, nearly 70,000 of America’s most ambitious engineers, scientists, and technicians, and some of the best research institutions in the country, the “Secret City” is now dominated by drab chain restaurants, barely profitable franchise motels, and merely thirty thousand residents with a median income below the national average. A snowy winter may have been just around the corner, but it was clear that another, far more cancerous winter had been raging for decades.
The story of Oak Ridge—the erosion of cultural and intellectual activity, the exodus of scientific and industrial jobs and talent, the proliferation of highly financialized chain restaurants and corporations—is not a new one. Across the American heartland, hundreds of towns like Oak Ridge, which once epitomized cultural vitality in the 20th century, now represent cultural decay in the 21st. While these changes have become obvious across middle America in recent years (especially to highbrow American political commentators), they do not tell the story of just one neglected region. They describe the arc of the United States and, more broadly, the major players in Western civilization since the 1970s.
Like many venture capital firms in hard tech today, Countdown was founded upon a deep-seated unease about the lack of technological progress in America. Since the turn of the millennium, the country has birthed companies like Facebook, Google, Uber, DoorDash, Stripe, and Slack with an average GDP growth rate of 2%. Yet, despite the intensity of Internet- and software-related innovation and modest economic growth on paper, a future replete with interplanetary travel, limitless energy generation, and supersonic aircraft continues to elude us.
Countdown has always believed that a lack of fundamental technological progress is inextricably linked with the increasing prevalence of now culturally barren cities like Oak Ridge across America. It is no coincidence that the mass-offshoring of the industrial base in states like Tennessee and Pennsylvania has immense consequences for our nation’s ability and will to realize progress in those very same areas. Yet, as we have written in the past, revitalization of American industry is not guaranteed; and, amidst a steep fall in capital markets, the conditions for investment success in our areas of focus remain as stringent as ever.
As we look to 2023 and beyond, we continue to believe that the United States is undergoing a slow but steady transformation in the organization of capital and development of culture with significant downstream effects for companies maturing in the following decade. As such, we focused much of our time in 2022 sharpening our view on how capital is organized today, the present-day cultural zeitgeist, and, most importantly, the world hard tech companies will face if they wish to succeed in the coming decades.
The Power of Profit
Capital, in its most general form, refers to anything that provides value to those who own it—whether it be equipment, technology, intellectual property, or cash. But the development of present-day capitalism is primarily a story of the massive accumulation of and organization around financial capital (“financialization”). There is no clearer example of this transformation than the near synonymy of “capitalism” and “finance” today. Almost anything that has “value” is presumed to be valuable because it can be used to generate profits.
Historical economic data paints a similar picture, showing the exponential growth of the U.S. financial services industry. In the mid-1950s, the industry accounted for a mere 3% of total U.S. GDP. Today, it is worth close to $5 trillion and accounts for 7.4% of total GDP, and the FIRE (finance, insurance, and real estate) sectors, which provide an even more accurate representation of "finance," account for over 20%. Moreover, the growth of finance and financial services in contemporary America has been unparalleled compared to nonfinancial sectors. Between 1980 and 2005, financial profits grew by 800% while U.S. non-financial sector profits only grew by 250% during the same period.
However, the financial sector’s market-leading profit generation and outsized contribution to GDP is a relatively recent phenomenon. Financial sector profits grew at the same rate as the rest of the American economy as late as the mid-1970s. And by quite some margin, the greatest driver of GDP growth and the largest contributor to corporate profits until the late 1960s was America’s manufacturing base. At its apex in the late 1950s, manufacturing alone accounted for roughly 27% of GDP and employed over 30% of the American workforce. Yet, today, the sector represents just 12% of GDP and employs under 10% of the national workforce, representing a major decline in its relative importance since the postwar era. We believe that this shift from manufacturing prowess to financial services prowess mirrored a broader paradigm shift in capital formation in America from industrial assets to financial assets. Whereas industrial capitalism organized assets and labor around and found value in the means of production, financial capitalism today centers around the means of commodification.
This is most intuitively understood by looking at the most valuable companies of each respective period. Previously dominant companies like General Motors, Ford, Boeing, U.S. Steel, Bethlehem Steel, and Phillip-Morris thrived by employing heavy machinery, training, and specializing labor, monopolizing raw materials, and optimizing for equity ownership by a few select families and entrepreneurs. Through their unparalleled command of physical resources, these companies built empires. Yet, by the late 1990s, the market capitalization pendulum had swung to companies with deep marketing expertise, global market reach, worldwide supply chain optimization, and a services focus, such as AT&T, IBM, Coca-Cola, Procter & Gamble, and Walmart. They developed, packaged, and sold commodities to the masses. Importantly, drastic cultural and political changes echoed this shift in capital organization as well. By the turn of the 21st century, average Americans were united more by their favorite consumer brands than by their preferred labor union.
There are a handful of underlying factors for why this shift occurred, and numerous principles that arose out of this shift govern economic behavior today. It is crucial to understand both as the economic landscape potentially shifts again.
The story of the financial revolution began in August 1971 with the practical dissolution of the Bretton Woods system, which resulted in the U.S. dollar shifting from a fixed standard pegged to the price of gold to a free-floating, “fiat” model backed by the full faith and credit of the U.S. government. This collapse of a stable dollar ended predictability in international exchange rates and opened the floodgates for further deregulation of currency movements, leading to the global adoption of floating exchange rates, a new regime of free trade in goods, and the free movement of capital around the world. Practically speaking, both the U.S. deficit and dollar-denominated financial assets in circulation increased rapidly. Most of the latter ended up in the reserves of other countries’ central banks, and increased reserves worldwide allowed central banks to expand credit and liquidity in their own economies. This opened up new possibilities for leverage in private markets and coincided with a new intellectual framework that emphasized the importance of rapidly proliferating financial assets.
Just as the shift to a “fiat” currency regime took hold, a new way of thinking about corporations arose that prioritized maximizing shareholder value and share price—as opposed to maximizing market share or accomplishing company-specific goals. Although Milton Friedman likely did not imagine the extent to which the financial sector would balloon, his seminal essay in 1970 titled “The Social Responsibility of Business Is to Increase Its Profits'' perfectly encapsulated the emerging thought of the time. What followed was a new managerial class subject to serious oversight from institutional investors. Personified by corporate leaders such as Jack Welch in the 1980s, this new cohort of executives was uniquely trained to optimize return on equity, secure market-leading cash flow and profit margins, and, above all, generate stock market performance that exceeded investor expectations.
The widespread acceptance of shareholder value maximization theory in the 1980s led to two major developments that continue to define markets today. The first was the growth of institutional shareholders and their expectations. These firms and asset managers have a fiduciary duty to secure returns. The second was the explosion of short-term value optimization, with the explicit goal of improving profit margins and returning capital to shareholders.
The subsequent growth in both the number and influence of institutional investors was unsurprising. Shareholder value theory considers the input of and returns to professional investors as instrumental to incentive alignment. Furthermore, beginning in the 1980s, as more American families participated in financial markets, and as financial credit and leverage became increasingly available, the buying power of institutions such as pension funds, hedge and mutual funds, investment banks, and insurance companies increased. In fact, the proportion of U.S. public equities managed by institutions has risen steadily over the past six decades, from just 8% of market capitalization in 1950 to a staggering 67% in 2018. Today, institutional investors not only enjoy concentrated market power but also typically expect companies to report updates transparently, gauge profitability, and distribute any returns on a quarterly time horizon.
With an ever-increasing focus on short-term profitability and capital efficiency driven by a growing institutional investor base, firms have evolved to meet the demands of asset allocators by pursuing business strategies that expand valuation and share price potential with low (if any) required capital expenditure or R&D investment. For most companies, effective strategies have included spinoffs (which isolate business units expected to trade at a higher valuation), share buybacks (which return money to shareholders at the expense of reinvestment in the business), and outsourcing (which involves subcontracting operations or obtaining goods from an outside supplier with the goal of lowering labor costs). It is difficult to overstate how popular these strategies have become; as one example, the total value of share buybacks and dividends has exceeded free cash flow for thousands of companies since 2013.
For many nonfinancial corporations, another popular tactic to increase short-term profitability and maximize valuation has involved establishing and supporting for-profit financing divisions within the company itself. As an example, by the late 2000s, even nonfinancial companies like General Electric, ExxonMobil, and McDonald's had created massive financial units that extensively borrow and lend at profit margins that far exceed nonfinancial operations. Finally, as famously covered in the aftermath of the Great Recession, financial corporations pursued the securitization of commodified debt products to widen available product offerings for sophisticated clients with minimal upfront investment. Derivative financial instruments such as futures contracts, swaps, and exotic options helped the financial sector dramatically boost lending activity and profits at the turn of the 2000s.
Taken together, profitability strategies and financial engineering have reliably increased stock performance for public companies across sectors for over forty years after a decade of stagnation in the 1970s. Surprisingly, this has remained true even in cases where net income for companies has largely plateaued (as observed in the 2010s). In line with the widely accepted intellectual and legal framework of this period, the highest priority for companies has remained guaranteeing a baseline level of return for shareholders which, ultimately, helps maximize valuation. Fittingly, institutional shareholders and their underlying investors have increasingly expanded their financial capital base and reaped the rewards of companies that operate astutely in a highly financialized economy.
Finally, the mass-organization and accumulation of financial capital in the United States is deeply intertwined with the increasing prevalence of “free trade” globally. It is no surprise that the end of the Cold War in the late 1980s helped accelerate financialization. First, many previously sequestered countries like China and South Korea began loosening restrictions on capital flows and eliminating domestic protectionist policies. Then, they began pursuing low-tariff trade agreements with other nations (spurred by WTO accession) and sought to increase foreign direct investment to fund economic development. As a result, with protected naval trade routes, the dominance of the US dollar as the reserve currency, and these preferential trade agreements, many American companies shed domestic manufacturing operations in favor of offshore foreign suppliers and began focusing on international market expansion for new revenue streams. As the perceived cost of pursuing international expansion approached near-zero, outsourcing became a no-brainer for many of the country’s largest companies. Finally, American companies and institutional investors were able to seek out preferential tax treatment and investment opportunities outside the mainland, in search of high-return opportunities in countries that were ripe for economic growth.
As a result of these structural changes in international relations post-1980 and the effect of those changes on domestic business and investment strategy, global trade skyrocketed from 39% in 1990 to 61% of global GDP by 2008. GDP for the West’s trading partners in Asia and Central America increased as did corporate profits of American companies. Higher profits and greater cash flow contributed to higher valuations and a lower real cost of goods for both businesses and the American consumer. On paper, the economic consequences of financialized free trade were immensely lucrative for all participants. But most importantly, the geopolitical consequences of free trade had seemingly made global peace possible.
Before the world economy reorganized around financial capital, two world wars and an intense Cold War with the USSR dominated international politics and global culture, with seemingly little end in sight. However, by the turn of the millennium, financialization and free trade had embedded incentives for nations to forgo conflict to ensure continued economic growth. Despite political, philosophical, and cultural differences, we appeared to have reached a state of economic mutually assured destruction: trade partners could not risk the threat of military conflict if it meant major disruption to foreign investment, corporate profits, and investment returns. As a result, thanks to fundamental economic changes over the course of decades, the threat of war between nations had seemingly plummeted. Perhaps we had truly succeeded in creating a peaceful and prosperous world order, the likes of which had never been seen before.
Since the end of the Cold War, we have been both blessed and cursed with unprecedented peace and prosperity. The rapid onset of globalization and democratized finance have improved living conditions across the world. The West is no longer developing; we say it has “developed.” If we take this notion at face value, it seems that we have decided that domestic growth is no longer a priority for us in a financialized world.
The real rate of GDP growth in the United States has shrunk significantly from 4.2% and 4.5% on average in the 1950s and 1960s to 2% on average in the 2010s. Despite shareholder returns and corporate profits reaching their highest levels in recent history, GDP growth has steadily slowed. In fact, research suggests that high shareholder returns are not indicative of high growth; and, in many instances, equity returns have been inversely correlated with per capita GDP growth. In the past decade or two, many political economists have rationalized this growth slowdown as a sign of success.
In line with the intellectual framework of financialization that prioritizes high share prices and profit margins over increasing market share and revenue expansion, management teams today place corporate focus on cost-cutting rather than explosive growth. This sclerotic focus on shareholder returns disincentivizes both capital expenditure and R&D investment, which are two reliable ways to accumulate assets and explore avenues for unexpected growth. From this lens, it is no coincidence that a general sense of stagnation in capital-intensive industries has taken root in the collective psyche of the West. It is no surprise, for instance, that one of Boeing’s largest recent product launches was the 737 MAX, an aircraft as derivative in name and in design from the original 737 developed over half a century ago—a point closer in time to the first commercial flight ever than to today. It is also no surprise that the software sector is now perceived as the primary driver of innovation in the United States. The ability of a software company to generate high gross profit margins without sustained capital expenditures has allowed it to attract investment from institutional investors who, in turn, seek out returns predicated on the promise of future capital efficiency.
The decline in real investment has also coincided with a decline in investment in American workers. In a world where offshoring is dominant and capital efficiency drives returns, the implicit corporate view is that workers are inputs to be continuously replaced—by computers or outsourcing—in service of shareholder value. This managerial mindset stands in stark contrast to the often-begrudged assumption during industrialization that individual workers are essential contributors to the value-creation process and capable of ingenuity. The prevalence of the former view has coincided with substantial reductions in the relative amount of capital allocated to the development of labor as well as labor’s share of corporate profits. For example, the federal government spent 30% less on workforce development than it did in 2001 in real terms, while labor’s share of nonfarm business income has steadily declined from 65% in 1947 to 57% in 2019. Moreover, increasing corporate profits have not translated into similar growth in workers’ earnings. Large numbers of Americans are making less in real terms than their parents did at the same age. Almost 90% of Americans born in 1940 had higher real incomes than their parents, but only 50% of those born in 1984 did. This decline in the perceived importance of the American worker has also coincided with a record number of skilled labor shortages across the country, with over three times as many shortages reported in 2019 compared to the early 2000s.
Both offshoring and the decline in worker investment have also blunted a previously vibrant sense of community in former industrial centers like Oak Ridge. By hollowing out the American industrial base in the name of shareholder returns, we also enabled the destruction of the communities that constituted it. In place of trade schools, factories, and politically-charged unions, an emerging cohort of conglomerates gave increasingly suburban Americans a plethora of commodities made possible through global trade—from household goods delivered in 24 hours to, more sinisterly, a smorgasbord of addictive drugs. Additionally, the growth of retail and services businesses helped draw ordinary Americans to “experiences” outside of their communities more than ever before. Air travel, theme parks, chain restaurants, and mass tourism became our preferred ways to spend time off, but the feeling of life and excitement on a trip to Disneyland only makes the feeling of isolation felt back at home in Anytown, America more stark.
At the same time, these cultural changes have been coupled with the mass-adoption of debt and the psychosocial normalization of this fact. While debt instruments have become essential tools in the arsenal for investors and businesses to multiply shareholder value, the same cannot be said for the average American. Once everyone could readily access and trade credit with few, if any, restraints, accumulating debt became ubiquitous with being American. Household debt as a percentage of GDP has nearly doubled since 1970 to just under 80%. This proliferation of debt has also unsurprisingly resulted in widespread financial unease and a general delay in many key life milestones, from buying a house to having children. One recent survey found that in our debt-ridden world, finances are the top stress in life for 73% of Americans; and another study unsurprisingly found that having student loan debt inhibits one’s ability to start a family. It should be no surprise that Americans feel more stressed and lonely than ever.
For decades, journalists, policymakers, and popular thinkers have lamented about the downstream effects of the financial revolution without understanding that this revolution has been the direct cause. Yet, this persistent miscalculation is not a harmless mistake. In fact, it suggests a heretical conclusion: that we are not culturally and intellectually interested in grappling with what we have traded off in favor of the proliferation of financial capital. We have not crippled American manufacturing capabilities; we have increased share prices for our investments in multinational firms, who have offshored manufacturing to increase profit margins. We have not given Americans an unpayable amount of student loan debt; we have given them the opportunity to receive “higher education.” And we have not destroyed the American sense of community; we have become more integrated into the larger globalized community, as proven by the rapid growth of the international tourism industry.
This obfuscation is a direct result of postmodernism. Born out of the immense tragedy of the World Wars and likely also the claims to absolute knowledge made by the Nazis and the Soviets, postmodernism describes the set of beliefs characterized by skepticism towards the existence of an objective reality or truth. For postmodernists, reality is constructed through symbols that do not have inherent meaning or value outside of their cultural and historical context. There is no correct morality or view of progress because every culture has a different conception of what is right and wrong. While postmodernism has led to an increase in civil rights, perceived social freedoms, and democratization, it has also led to the rapid rejection of institutions that have helped erect human civilization. Organized religion, which has a claim to absolute truth and divine revelation, has drastically declined in prominence. The military, which has a claim to absolute force, has become increasingly criticized as a force for destruction rather than order. And the state itself, perhaps humanity’s most important sociological innovation, is criticized by both the right and the left as corrupt.
On the cultural level, postmodernism looks at rearrangement as progress. The musical anthem of postmodernism is Bohemian Rhapsody: a brilliant and disorienting six-minute track mixing together the opera, ballad, and rock genres with allusions to Renaissance scientists and biblical figures alike. And artists increasingly take existing objects and motifs and reinterpret their symbolic forms, whether it be Andy Warhol’s Colored Mona Lisa or Xu Zhen’s Hello, a spatially distorted Corinthian column sitting on Stanford’s campus in the heart of Silicon Valley. The closer one looks, the more one finds as manifestations of these themes of rearrangement and symbolic fixation: the proliferation of analytic philosophy, McMansion architecture, conglomerate corporations, re-interpretive movies, and even cronuts.
The rise of financial capital is perhaps the purest reflection of postmodernism. Both postmodernism and financialization emphasize the importance of symbols, rather than underlying reality. On a firm-by-firm level, financialized corporations use complex optimization strategies and share buybacks to pad overall payouts, rather than meaningfully improve underlying assets through significant capital investment. With computers alone, a hedge fund in a 50th-floor Manhattan office could lock itself in with its computers and still have all the resources necessary to accumulate endless financial capital and “grow shareholder wealth.” Investors care more about the numerical symbols on companies’ balance sheets than what they actually produce. And on a macroeconomic level, the very idea that GDP growth and “progress” are essentially interchangeable presupposes a postmodern world view. In previous eras, progress was often judged on the basis of new ideas, art, literature, and inventions—as things in themselves—but developments in these areas are now seen as secondary as long as we believe our economic data paints a picture of growth. In many ways, we view these creative pursuits as valuable insofar as they contribute to GDP by becoming commodified, packaged, and sold to consumers for dollars.
As it turns out, entire multi-billion dollar industries have been built around the creation, movement, and manipulation of words, presentations, charts, and other symbols, from "strategy consulting" to "business intelligence" to "marketing." Day trading as a financial phenomenon can be seen as a quest to profit off of rapid symbolic movements on a screen. One often forgets that each click-transaction symbolically represents what could amount to dozens of tons of oil, copper, or eggs, especially for large commodities futures. These phantom movements are inherently more volatile than movements in the physical world, and financial systems built off of this volatility can become increasingly affected by unchecked psychosocial mania. It is thus no surprise that we have experienced a greater density of financial crises in the postmodern era than ever before. In our fast-paced, financialized economy, the smooth functioning of markets depends on more rational, critical thinking than ever before because each decision has many hyper-leveraged consequences.
A Minimal Future
After decades, we are beginning to come to grips with postmodernism and financialization because their costs are now staring us in the face. The onset of COVID-19—and more importantly, institutional responses to it—revealed how fragile the offshored supply chains we have constructed over the past fifty years really are. The war in Ukraine showed how quickly our munitions stockpiles can become depleted, even in a small-scale conflict. And in just the past few weeks, an alarming number of incidents, including the Ohio and Texas train derailments, have revealed the fragility of our industrial infrastructure resulting from decades of disinvestment. On the sociocultural front, our isolation and lack of optimism are pushing American society to a breaking point. Our fertility rate is at an all-time low, while the prevalence of unease is at an all-time high. The current cultural paradigm offers us no clear solutions.
Amid the increasing cultural and economic tumult of the postmodern era, one curious cultural counterweight has begun to develop outsized influence: technology. In what seems to be a direct contrast to the commodification of derivative work that defines much of America, the information technology sector has shown that it can create something from nothing and grow it into something big. The key question of our time is whether technology will deliver on its groundbreaking promise. Will technology help us create things that are fundamentally new, in a way that grandly revives our faith in progress? Or, will it merely help us realize incremental changes that serve our present-day economic and cultural framework?
In a handful of important ways, the history and ethos of Silicon Valley are fundamentally non-postmodern. People like Gordon Moore and Robert Noyce came to California and willed into existence some of the most valuable and influential companies in the world today, including Intel. Companies like Intel, Microsoft, and Apple created software tools that everyone could use to harness the powerful new computing devices that Silicon Valley created. Companies like Google, MySpace, Facebook, and Reddit created new digital communities and hive minds that have changed the way humans interact and trade knowledge. In other words, the belief that anyone, with the help of a computer, can create something productive has uniquely infected Silicon Valley. However, the form of creation that software has popularized is itself definitionally symbolic. Most software companies have quite literally shown that “development” is determined by the manipulation of programming languages. It is a trite but true quip among critics of modern-day Silicon Valley to say that these companies exist in digital hyperreality; many are content with the continued proliferation of B2B SaaS and derivative digital productivity tools. As a result, software seemingly exists in this ideological purgatory. Software companies are predicated on a non-postmodern cultural spirit to produce something largely postmodern, which presents a peculiar paradox.
One contrarian view of the deep ideological tension inherent in information technology is that it is a productive one. Because software companies have increasingly straddled the creative ethos of Silicon Valley and permutative postmodernism, information technology sits in a superposition. By building companies that satisfy our economic system and bring a new type of value-creation process into the world, the sector is the perfect candidate to push past postmodernism. In other words, it is not merely that “software is eating the world”; more importantly, the world is also eating software. We are now expanding the frontiers of our cultural and economic values, having fully lived the software revolution. Culturally, the future of technology is becoming a growing tool and recurring theme in our art. The promises of abundance are prompting us to question whether the concept of scarcity might disappear altogether—a potentially dangerous notion.
There are already undercurrents that this expansion of the Silicon Valley ethos from software (more narrowly) to technology (more broadly) is effecting a large-scale transition in the way capital is organized. In one phrase, technology capital (or “techno-capital”) is beginning to replace financial capital. In the period of industrial capitalism, power resided in those who controlled the industrial assets of America: railroads, natural resources for raw materials, and factories. In the period of financial capitalism, power resided in entities like investment banks, hedge funds, and other large money managers because they controlled the financial assets of America. In the coming period of techno-capitalism, power will reside in those who control the technology assets of America: software, AI, robots, supercomputers, and more.
Various market phenomena already make sense as manifestations of this new form of techno-capitalism. For one, we expect to see an increasing number of smaller tech companies opting to partner with and receive investment from larger tech companies instead of traditional asset managers. The latest high-profile examples of this burgeoning paradigm are Microsoft’s $10 billion investment in OpenAI and Google’s $400 million investment in Anthropic. How does one meaningfully value OpenAI’s LLMs based on financial metrics alone, even future projected ones? The difficulty in answering this question is incredibly revealing. Microsoft and Google have different immediate motivations for investing in these respective companies compared with financial asset managers. Whereas the latter care solely about direct returns on capital largely realized by future liquidity events, the former are motivated in part by their ability to access the technology capital of these companies and to boost their own competitiveness. Microsoft can incorporate OpenAI’s models into its search product to gain market share back from Google. In this way, Microsoft can derive immense value from its partnership with OpenAI without OpenAI ever opting to go public—and OpenAI benefits from not becoming legally beholden to a mass of public shareholders.
In fact, we’ve already observed an increasing tendency for tech companies to remain private for longer durations of time. Going public has been demonstrably associated with a direct decline in technical innovation, and in a world where technology capital is principally important, companies may stay private in perpetuity to preserve and grow it. One can imagine a whole array of other economic implications that stem from this trend: the proliferation of technology Caesarism, exemplified by Musk and Zuckerberg, in which founders largely retain control over their technological fiefdoms; the rise of new private funding structures that look different from traditional venture capital firms; and an increasing concentration of power in the hands of an increasingly small number of companies that amass all the technology capital.
These are not new ideas, but there are additional socioeconomic implications of the rise of technology capital. On the domestic economic front, we are already seeing growing anxiety within American workers of all types related to job loss as software, machines, and AI threaten an increasing number of professions. After the release of DALL-E 2, a large number of Twitter threads written by digital artists appeared, expressing deep existential worries about the meaning of their work should it be completely replicable by AI. Moreover, many columnists have also begun writing with stress about the ability of the incoming wave of AI to replace vast swaths of white-collar work. In light of this, whereas class conflict was historically centered around the fight for relatively higher wages at jobs, we envision growing class conflict for jobs, period—thanks largely to increasing labor leverage and the growing productivity of technological assets. The competency bar for people that work with and control techno-capital will be increasingly raised.
On the global economic front, it is likely that the era of financialization coincided with the apex of “free trade.” The incentive for countries to trade—offshore for bilateral economic benefit—will gradually become displaced by an incentive for countries to technologically innovate—replace human labor with technological assets for unilateral economic benefit. The countries that are best able to do the latter will concentrate geopolitical power. This is why China and the U.S. have both become increasingly focused on technology acquisition and IP protection, rather than mere tariffs or quotas. For example, in the past year, President Biden has taken the unprecedented step of establishing export controls on advanced chips to China, leading Morris Chang, the founder of TSMC, to declare, “Globalization is almost dead.” Furthermore, in a world where American firms are more technologically equipped to outcompete global wage arbitrage or simply barred from taking advantage of it, our economic incentives may tilt towards protecting our technological assets instead of maximizing financial gains. What is another $5 billion for an American cyberintelligence company that creates a radically powerful method of digital surveillance, if China can use that technology to attack our Asian allies and cripple our geopolitical position? It is thus not hyperbole to say that we will experience increasing isolationism between technological great powers and that competition is necessitated by this reorganization of capital.
As technology capital continues to proliferate and the intellectual framework for understanding its importance grows, a shrinking number of people and companies will have a growing amount of technological leverage. Software companies are already extremely high-leverage; a team of ten engineers can make large changes to an application’s codebase that affect millions of users across the world. However, other companies are also becoming increasingly high-leverage in the real world by embedding digital capabilities for physical tools. In the future, an autonomous manufacturing company may only need one-tenth of the operators required today for a large purchase order. Most imminent, though, is the rapid acceleration of AI replacing "knowledge workers" such as accountants, lawyers, business analysts, and other white-collar workers, who were previously structurally necessary for the postmodern, financialized world. In just a few years, a single legal AI product could feasibly replace an entire team of paralegals and associates at a law firm. Even creative professions are potentially at risk. One can imagine a world where each person can receive a hyper-personalized stream of computer-generated content, thereby automating most of the $1 trillion entertainment industry.
The above is just one possible economic implication of the rise of technology capital, but it is indicative of a larger, more fundamental cultural change. Modernism was about the collective; the machines of the industrial revolution required mass labor participation. FDR’s New Deal exemplified this way of thinking, and it is further no surprise that socialism gained worldwide popularity during this period. Postmodernism was about plurality and diversity; personalized self-expression and commodified abundance birthed in us feelings of freedom coupled with pangs of anxiety and claustrophobia. Over time, debt accumulation and cultural and intellectual depletion resulted in the American population. However, in the future, these Malthusian constraints may cause the American will to exert itself in both increasingly creative ways and potentially dangerous ways. Furthermore, an increasingly small number of people may have a growing amount of cultural and social influence—a product of the immense leverage technology bestows upon its creators.
From below and behind, the cultural bugs produced by postmodernism have increasingly produced a sense of constraint, a feeling of social nausea, and a desire for self-sufficiency among Americans. From above and ahead, the growing accumulation of technology capital among a small number of firms and its replacement of human touch is reducing the number of (though increasing the value of) people who can participate in building this future. What will those who find themselves increasingly unnecessary to the technologized world, unburdening themselves of postmodern clutter, seek out? The current answer has often been to drown oneself in digital content and material goods, but many have begun to look for curation and simplicity. These forces may give rise to the emergence of a cultural minimalism in which hyperflexibility, cleanliness, brevity, and quietude become the dominant themes of Western cultural expression. The birth of cultural minimalism already appears to be underway, as seen in the sleekness of design, the sterility of newly constructed factories, the shift to remote work, the relinquishing of physical clutter, the essay (or tweet) form as the primary mode of written intellectual expression, or a general aesthetic minimalism. If Bohemian Rhapsody is the anthem of referential postmodernism, then the lofi hiphop mix—clean and unobtrusive—is the anthem of minimalism.
The New Industrialists
Today, Silicon Valley is rediscovering its “hard tech” roots and venturing into something new. Whereas software simultaneously hangs onto the old cultural paradigm and reaches into the new one, the belief that one can create or organize something from nothing in the physical world appears to reflect a more ambitious spirit that suggests the beginning of something truly new. Companies like SpaceX and Anduril are breathing life into this way of thinking. An increasing number of companies are taking software out of the purely symbolic, digital realm and using it as a tool to build in and organize the physical world. We’re now seeing a proliferation of software-defined manufacturing, software-powered logistics, and much more.
As technology capital proliferates, the idea that anyone can create something from nothing—not just in the digital world, but also in the physical one—will grow. Accelerated by the increasing rejection of postmodern remixing, “building” and “creating” will take on new cultural importance, particularly if we’ve already seen the apex of globalization. Domestic industries will need to be reconstituted, though in starkly different ways than observed during the last century. As we’ve already seen in the past two years, hard tech has the potential to continue gaining traction. However, at the same time, in an era of minimalism defined by simplicity and lightness, why would anyone choose to go against the cultural grain and build physical things with their hands at an inherently high and chaotic cost? Because though the road may be extremely steep, the rewards will likewise be extremely rich.
Despite the fact that the rise of technology capital will accelerate the birth of a minimalist culture, the most successful hard tech companies will forcefully and necessarily position themselves as anti-minimalist. Out of necessity, these hard tech companies will accumulate debt and invest heavily in new high-risk projects while others are increasingly afraid to. Their employees will have meaningful in-person work and equity-based ownership while others take on high-wage but low-ownership, digital-first jobs. And their founders will be true renegades, ambitiously rejecting new cultural norms. As hard tech companies will discover, only by framing themselves as anti-minimalist can they acquire bold, technical talent around certain geographic hubs in a world where others are dispersing.
For both hard tech companies and American society at large, the quest to hire talented engineers will be an existential one. Engineers with specialized skills will be in increasingly high demand because the tribal knowledge they possess will be in rapid decline. For example, after decades of disinvestment, only a very small number of engineers today still understand how to create nuclear reactors, build ships, or produce rare-earth industrial magnets. Over the next decade, the same phenomenon may arise across other physical industries. Nevertheless, given the nature of work in physical tech, we may begin to see a clustering effect where entire communities arise as homes to their employees. Today, South Bay in Los Angeles stands as a major example of such clustering, but other urban centers in the Midwest, Southeast, and Pacific Northwest with lower real estate costs may emerge as fertile ground for skilled engineers. Over time, these communities will become new cultural counterweights to growing minimalist tendencies.
Finally, the organizations that manage to accrue both technical talent and techno-capital in hard tech will capture political imagination and power in ways no other companies can because they will become increasingly important for national security. In a world past free trade’s prime, the rapid proliferation of high-potential technology will heighten perceived geopolitical risks that only hard tech companies will have the power to mitigate. As of today, Anduril is the most successful tech company that has capitalized on this paradigm shift; but, the promise of new technological leverage for national defense and offense is still a major opportunity. Hungry teams will sense a major opportunity to serve as domain experts in areas policymakers will increasingly be unable to understand and to revitalize critical infrastructure that depends heavily on government funding.
Nevertheless, the success of new hard tech companies in an age of cultural minimalism is far from guaranteed. As investors, the optimistic vision of a minimalist future is one in which hard tech companies succeed massively despite prevailing cultural headwinds. These companies will become monopolies or oligopolies, similar to those who excelled during the industrial revolution by becoming hyper-focused on market share. One can feasibly imagine an America with multiple, domestic TSMC-sized chip companies, vast techno-industrial supply chains for everything from rare earths to PCBs, and a presently inconceivable array of companies that will discover new drugs and materials (perhaps powered by machine learning). However, there are more ways than one in which the minimalist culture will work to suppress the possibility of industrial greatness. Crippled by debt and structural inflation, many hard tech companies may fail to meaningfully exit the startup phase. Current industrial giants like Boeing and Lockheed Martin could become increasingly subsidized by the state and fail to retain engineers with critical knowledge. Eventually, this would definitively open the door for other civilizations to capitalize on and encourage our own inability to muster industrial prowess.
The financial road to industrial progress will be inevitably difficult, and the stakes are incredibly high. But, the idea that one can join a like-minded team, build hard things with their hands alongside incredibly powerful machines, and directly receive the fruits of their labor through equity will stand in stark contrast to the minimalism that will pervade mainstream culture. And while the growing power of new technology capital may foment anxiety and unease among workers, the promise of participating in the building of a radically new world—one which may or may not come to fruition—will have religious power over a growing minority. Not unlike the Rockefellers and Carnegies of the industrial revolution, this new contingent has the potential to capture the entire imagination of the free world.
In closing, the arc of history is rarely as clean, true, or engaging as what we’ve laid out here. However, we have two motives for exploring these topics. First, even if just a small fraction of this letter is true, then we have a responsibility to rethink how great companies will take shape in the future. Second, for us, our mission is more exciting and lucrative than ever. Countdown is building a generational firm—one that serves as a bulwark against the zeitgeist of today and, potentially, tomorrow. We will help our exceptional founders will hard tech companies into the new world and, by necessity and to our founders’ gain, claim cultural and economic ground that no one else will. This is the definition of outsized opportunity, and this is what we will continue to do.