Chuck Darwin<p>Another aspect of debt, <br>considered as an information technology, <br>is that if affects the information environment of the borrower. </p><p>If you are managing a company which has borrowed money, <br>making your payments becomes one of the survival conditions for that company. </p><p>At low levels of debt, generating short term cash flow is one priority among others, <br>but for a highly indebted company it becomes a signal which swamps all others. </p><p>You might want to change the world, but if you don’t meet the coupon payments, you’ll never get the chance to see if your other strategic priorities would have worked.</p><p>Consequently, a company with lots of debt cannot help but have a bias toward the short term. </p><p>Which might be considered problematic, <br>as the last few decades in the Western capitalist world have seen the rise of an industry <br>(leveraged buyouts, or “private equity”) </p><p>which has made it part of its fundamental operating strategy to load companies up with debt. </p><p>Considered in this light, debt is a technology of control as well as of information <br>– it’s a means of exerting discipline on management teams who might otherwise be tempted to follow priorities other than short-term financial returns.</p><p>This is, as far as I can tell, the real meaning behind the populist critiques of “<a href="https://c.im/tags/financialisation" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>financialisation</span></a>” in the economy. </p><p>There’s really nothing particularly bad about the growth of the financial sector, <br>even to the extent that it’s outstripped the growth of the “real” economy. </p><p>Quite simple mathematics ought to be enough to convince us that as the economy grows, <br>the number of links and relationships between producers, consumers and investors will grow at a faster rate, <br>and so you’d expect the parts of the economy in which decision making and information processing take place to grow faster than the “real” economy. </p><p>It’s the same logic by which the brains of primates take up proportionally more energy than those of rodents; </p><p>finance is part of the real economy, just like the cerebellum is a real organ.</p><p>What’s bad about “financialisation” is neither more nor less than the over-use of debt. </p><p>Modern corporations do often behave badly, <br>and they make systematically worse decisions than they used to, <br>this isn’t a delusion of age. </p><p>They do this partly because they have outsourced key functions <br>(cutting themselves off from important sources of information), </p><p>and partly because their priorities are warped by the need to generate short term cash flow. </p><p>Both of these problems can in large part be traced back to the private equity industry, <br>working either as a direct driver of excess leverage, <br>or as a constant threat which makes managers behave as if they were already subject to its discipline.</p><p><a href="https://c.im/tags/Management" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Management</span></a> <a href="https://c.im/tags/science" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>science</span></a> and <a href="https://c.im/tags/cybernetic" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>cybernetic</span></a> <a href="https://c.im/tags/history" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>history</span></a> is all about things which began as solutions, <br>💥then turned into problems because the world changed. </p><p>Once upon a time, back in the 1970s, <br>private equity and LBOs were the solution to a problem of lazy, sclerotic incumbent management teams, <br>self-dealing and failing to make tough decisions. </p><p>But it’s now the 2020s, and private equity may itself be the biggest problem in our global information processing system. </p><p>The way that corporate history progresses is that we try to keep up with the ever-increasing complexity of the world, <br>♦️and then when this is no longer possible, we have a crisis and reorganise. </p><p>We’ve had the crisis <br>– or perhaps we are still going through it <br>– and now it’s time to think about how to reorganise.</p><p> <a href="https://c.im/tags/debt" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>debt</span></a> <a href="https://c.im/tags/information" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>information</span></a> <a href="https://c.im/tags/technology" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>technology</span></a> <a href="https://c.im/tags/criminogenic" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>criminogenic</span></a> <a href="https://c.im/tags/organisation" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>organisation</span></a> <a href="https://c.im/tags/Stafford" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Stafford</span></a> <a href="https://c.im/tags/Beer" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Beer</span></a> <a href="https://c.im/tags/Barry" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Barry</span></a> <a href="https://c.im/tags/Clemson" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Clemson</span></a> <a href="https://c.im/tags/accountability" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>accountability</span></a> <a href="https://c.im/tags/sink" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>sink</span></a> <a href="https://c.im/tags/Boeing" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Boeing</span></a> <a href="https://c.im/tags/737MAX" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>737MAX</span></a> <a href="https://c.im/tags/Boeing" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Boeing</span></a> <a href="https://c.im/tags/merger" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>merger</span></a> <a href="https://c.im/tags/McDonnell" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>McDonnell</span></a> <a href="https://c.im/tags/Douglas" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Douglas</span></a> <a href="https://c.im/tags/engineering" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>engineering</span></a> <a href="https://c.im/tags/culture" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>culture</span></a> <a href="https://c.im/tags/cost" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>cost</span></a> <a href="https://c.im/tags/control" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>control</span></a> <a href="https://c.im/tags/Ricardian" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Ricardian</span></a> <a href="https://c.im/tags/Fallacy" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>Fallacy</span></a> <a href="https://c.im/tags/hard" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>hard</span></a> <a href="https://c.im/tags/data" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>data</span></a> <a href="https://c.im/tags/culture" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>culture</span></a> <a href="https://c.im/tags/best" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>best</span></a> <a href="https://c.im/tags/practice" class="mention hashtag" rel="nofollow noopener noreferrer" target="_blank">#<span>practice</span></a></p>