HubrisNovember 11, 2022
The rich get richer.
Data supports it. In the past three decades, the share of U.S. wealth held by the top 1% has gone from 24% to 32%. Like most cliches, “the rich get richer” became a cliche because it’s true… of money, and power. The powerful tend to aggregate more power, incumbents get reelected 90% of the time.
It makes sense. Money buys you power and influence, which begets more money, which buys more power and influence. This is the basis of capital accumulation and wealth creation — a virtuous upward cycle. It’s also the reason we (should) have progressive taxes and regulation: to prevent the natural order of economics from doing its thing, making rich people richer and poor people poorer.
What makes less sense? Why does one person or firm not have all the power? Why don’t a few families control all the wealth, one or two governments control the globe? Why isn’t there a president of Earth? As much as it seems that power and wealth are centralized, the world’s richest man owns just 0.04% of the world’s net worth.
Throughout history, nobody has come close to amassing total control. The mightiest empires were still minority owners of planet Earth. Before her death in 1901, Queen Victoria oversaw a kingdom that spanned roughly a quarter of the globe’s land surface and ruled just 23% of the world’s population. At its peak in 1300, the Mongol Empire controlled about 18% of the Earth. The Roman Empire was even smaller (4%).
As they gained territory and resources, each empire continued to expand. Brits in 1910 had witnessed six decades of growth. With each land grab came greater stores of resources, more coffee and molasses to import to their island. This created new markets and business opportunities to fund more land grabs. And the wheel turned.
However, from the British Empire to the Qing Dynasty to the Ottomans, they all have one thing in common: They all fall.
A celestial pillar of the universe is that it abhors absolute control. No individual or institution has ever achieved it. Apex predators cannot eliminate their prey without starving themselves. If there are too many wolves eating too many deer, the wolf population declines, as they run out of deer to feed on. Balance is fundamental to ecological systems, and the same is true (over the long term) in our human-made world.
A powerful entity or person collapsing under the weight of their own success is not a novel concept. The Ancient Greeks had a word for it: hubris, an excessive confidence in defiance of the gods. For us, it means excessive confidence preceding downfall. Which more or less equates to the same thing, because for the Greeks, defying the gods almost always led to death.
A more recent version of this ancient story that fits our tech-obsessed moment is Frankenstein. Inebriated on his own brilliance, Dr. Frankenstein tries to defy the natural order and create life. In doing so, he makes something too hideous to contain, and that’s his doom. His last words in the novel are an instruction to “avoid ambition.”
Corporate hubris takes various forms. Research shows overconfident CEOs are prone to distorting their investment decisions: They overinvest when cash flows are strong, and cut too deep when they need external financing. Case in point is Meta, where we’re witnessing hubris play out in dramatic form. The unconstrained boy-king is betting his company — his shareholder’s company, really — on a fever dream in which he is God in a world littered with Nissan and Nespresso billboards, a “metaverse.” More recently, FTX founder Sam Bankman-Fried believed he could defy the laws of economics and borrow against large sums of a fake currency he made up. Essentially, Bankman-Fried constructed the Burj Khalifa on a foundation of quicksand. And now comes the fall.
A desire to keep things as they are can also initiate a slow burn to the ground. The innovator’s dilemma is not a function of arrogance, but limits — the limits power imposes. A colleague of mine at NYU, Aswath Damodaran, has done important research on the life cycle of successful corporations. Vibrance and innovation fuel their ascent, but the comforts of cash flows and the desire to keep them flowing make them slow and afraid. The best companies build moats so they can protect their earnings and extend their lifespan. The next best firms recognize they are maturing and age gracefully: They return money to shareholders, distribute dividends, and pay debt down. Also, few CEOs invest the GDP of Costa Rica into a megalomaniacal, yet lame, attempt to replicate our world … without legs. A digital Frankenstein, if you will.
Success can be our undoing when we’re promoted beyond our true capabilities. The Peter principle holds that because people get promoted on the basis of prior performance, they will inevitably rise to the level of their incompetence. Our brains make it easy for our ambition to exceed our ability: The Dunning-Kruger effect describes a demonstrated cognitive weakness, that the less we know about something, the more we overestimate our knowledge. That’s why stupid people, and people who make great cars and then buy media companies, are so dangerous.
This has been a banner week for the powerful coming undone. In no particular order, the largest social network company in history, Meta, which has lost more than two-thirds of its value over the past year, announced it was laying off 11,000 people; the most prominent crypto billionaire lost nearly his entire fortune after he overleveraged his empire to keep it expanding; and the richest man in the world … impregnated a bathroom sink before putting on a master class on how power corrupts.
Elon’s comical first few weeks at Twitter have gone worse than expected, and most people expected a train wreck. As I write this, the most recent news is that Twitter’s senior InfoSec and Privacy executives quit. They haven’t disclosed the details, but it seems likely they were asked to do something they believed to be illegal or unethical. That’s in the midst of an ongoing collapse of verification on the platform, a new policy that “comedy” is allowed (unless you’re making fun of Elon), and a steady flow out the door of the engineers who know how Twitter’s service actually works.
The inevitable collapse of the powerful is a good thing, and I’m glad we live in a universe that embraces this as a governing principle. Absolute power and wealth concentration are incompatible with the innovation that characterizes humanity’s upward movement. The crashing to Earth can cause collateral damage, but it’s a creative destruction.
What is the lesson, what can be learned? Every day, no matter how successful we become, we need to earn our success. We need to be kind and appreciative; we need to surround ourselves with people who will push back on us and question our beliefs and actions. We need to demonstrate humility. You are never more susceptible to a huge mistake than right after a big win, when you begin to believe the falsehood that your success is all about you. Yes, you’re brilliant and hardworking, but greatness is in the agency of others, and timing (and other features of luck) is everything.
The flip side is less discussed but more important. When you’ve fucked up, when things are going poorly — a relationship ends, you have professional disappointment, or you’re in financial stress — forgive yourself. Mourn, then move on. And moving on means finding the people and activities that give you the strength and confidence to believe you have value, that you are the solution to your firm’s needs, and that you could make someone else’s life wonderful. I have known many really successful people. But there’s a distinction between success and happiness. The delta boils down to registering one truth and surviving the accompanying emotions: Much of your failure, and your success, is not your fault.
Life is so rich,