Buffer-less: How Capitalism builds fragility into the system

Ruthless capitalism builds fragility into systems. The doctrine of maximizing profits by ruthlessly pursuing efficiencies is at the core of capitalism. Profit maximization entails eliminating redundancies which incidentally eliminates buffers. By ruthlessly pursuing efficiency, capitalistic systems end up being bufferless.

Buffers are essential for stability. A bufferless system is a very fragile system. When you create a system that doesn’t have a buffer, you have actually created a problem. That system is not stable. The system is fragile. It can crash anytime.

The system might appear to be strong because its churning profits, but actually that system is very weak because the retained profits can be swallowed back anytime during a reversal when the system crashes. If the system is poked by a tiny toddler finger, it can crumble like a deck of cards. The gains made in a decade are taken away in a single crisis year.

We have seen the proliferation of companies with weak balance sheets and a very weak resource base to weather any storm (big or small). The same goes for individuals, personal balance sheets for the generality of the global populace (in rich and poor countries) are structurally fragile. The same goes for countries, regions, and the globe.

A person who doesn’t have any savings, doesn’t have any medical aid, and doesn’t have any sort of resource base to fall onto in times of an emergency is a fragile person even though the outward appearance might not give that impression. What happens when you fall sick? What happens when you have an accident?

By avidly and fanatically implementing Just-in-Time (JIT) systems, companies and entire industries enhance fragilities. A break down or delay at one node along the supply chain causes bottlenecks and untold damage down the entire chain bringing the entire system to a standstill.

This dynamic plays out visibly with capitalism at a company level. Most companies don’t want to have idle cash sitting on the balance sheet. It is deemed as wasteful. Why should having an extra pot of cash on the balance sheet be deemed as wasteful? Because investors are seeking profit ruthlessly. They want that capital deployed into business. They want that capital to be out there working. They want that capital to be generating more profits for the investors. And thus, we have balance sheets that do not have an emergency fund.

Excess stock is seen as an unnecessary hindrance on working capital. Its cash tied-up in stock. “We are losing out on interest”, that's what the CFO says. “Its a drag on performance, its eating into our bottom line”, that's what the MD says. No one wants to view the excess stock as a call option on stability. It’s the price of buying stability. It’s an insurance contract that protects the business (and its historical gains) from collapsing if the intricate global supply chains are jammed, for a reason that is beyond our control.

An additional human resource is viewed as wasteful. Staffing levels are ruthlessly optimized. Resignations by two or three employees can cripple an entire department, or the entire company if it involves senior management. A problematic hand-over in one position can be problematic for the entire company because “know-how” and information are heavily invested in one person, because that was the most optimal way to operate.

A single point of failure from a single human resource node can result in the company failing to deliver service. Accounting practices suffer from this a lot because they try to squeeze every juice out of the only asset they have: the human resource. Companies make money by sweating their assets. For accounting firms, this means sweating their staff. Buffers are deemed to be a drag on the bottom line.

Chronic and perennial budget deficits for nation-sates are seen as a good thing because it is an expansionary fiscal policy. It’s a key driver of growth. Ruthless pursuit of growth at all costs results in fragile governments. A budget deficit is essentially a bet that the future state of the economy will be so good that it will allow us to raise enough taxes to cover up for the deficits we are incurring now. If the bet doesn't pay off due to an unexpected tiny toddler finger poke somewhere, then the entire fiscus is in trouble. Government surpluses (buffers to cushion against any trouble) are seen as a drag on growth by economists.

Capitalism is a system that is fundamentally built for extreme fragility. It does not allow buffers. Capital has to flow to those units that are able to maximize returns. If a system is set up in that manner, then it is subject to gyrations punctuated by bouts of activity and sudden crashes which usually occur when the system is at its highest point of elevation. The highest point of elevation is exactly where the system is the most fragile.

The global capitalists have waged their bets on China alone being the manufacturing hub for the world because that's where the costs are lowest. Its only China that allows our 2021 civilization to enjoy cheap goods. It maximizes profits for the capitalists. Diversifying supply chains and creating other manufacturing hubs, say in Southern Africa and Latin America (where wages are equally low) are seen as sub-optimal decisions.

Whichever way you look at it, at whichever level, instability is built into the system. The system is designed to crash. It is designed to fail, occasionally.

I am not a socialist or a communist or an anarchist or an anti-globalist. I am merely pointing out the fragility built into systems of our civilization by ruthless capitalism.

Ciao!

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