The Bear’s Lair: Big is Very Ugly

Apple (Nasdaq:AAPL) is bringing out yet another virtual reality headset, the “Vision Pro” to appear early next year, priced at $3,400. This follows the total failure of Meta’s (Nasdaq:META) Metaverse and similar virtual and augmented reality products launched by Alphabet (Nasdaq:GOOG), Microsoft (Nasdaq:MSFT) and others – I bought my son a $30 virtual reality headset in 1999! This is yet another indication that the biggest companies tend to follow one another like sheep and are not at all where innovation comes from. Since Bigness leads to Badness, I thus applaud the work of the Federal Trade Commission’s Lina Khan in attempting to slow the flow of corporate mergers, which generally subtract value.

We are told that Vision Pro will offer “automatic dimming of the real world around your screen rather than its outright cancellation” – presumably Apple hopes that people will wear their absurd goggles as they go about their business. The problem is that 90% of humanity are completely incapable of processing information coming from two independent sources at once and will therefore tend to ignore the “dimmed” source to concentrate on the VR magic. This will result in millions of Apple consumers tripping and falling flat on their face (possibly destroying $3,400 worth of gadgetry as well as their nose) — or worse if they are driving a car at the time. There is no reason to suppose the software will be more valuable than Meta’s Metaverse, of which the only known benefit was to make the company’s billionaire owner Mark Zuckerberg look an utter prat by conversing with an avatar skeleton of himself.

Large companies and innovation have always been uneasy bedfellows – one thinks back to Ford (NYSE:F)’s 1958 Ford Edsel, launched in September 1957 and soon a dismal failure. Marketing types claim that the car’s name was one reason for its lack of appeal, but “Edsel” was the name of Henry Ford’s son and Henry Ford II’s father, so the gesture of naming the car after him is pleasantly reminiscent of the family company that Ford to an extent still was at that time (its Initial Public Offering had only taken place a year previously, in 1956). The real error, of course, was committed by Henry Ford in 1893 when he named his eldest son Edsel – an old Germanic word meaning “wealthy man’s estate” which at that stage was irrelevant to the impoverished and between-bankruptcies Ford. Had old Henry been sensible and named his son “George” it is likely that the George sedan would have been a rollicking success, particularly in England where the late King George VI was then much lamented.

Government, also these days excessively large, is no better when it comes to dealing with new technology. Matt Clifford, Artificial Intelligence advisor to Prime Minister “Squishy Rishi” Sunak has already given his preliminary view on AI – it will “kill many humans.” There are two observations here. Quite true: if you give even current AI to the Pentagon it will “kill many humans” though only in about 20 years’ time when the Pentagon has spent $5 trillion or so developing weapons systems that use it. However that, rather than ever more expensive procurement and ever more woke soldiery, is supposed to be the Pentagon’s job. Indeed, by the time the current generation of generals have finished remodeling the armed forces, we may need an AI filled with technological testosterone to face the enemy at all.

Second, unless attached to some weapon, the current new generation of AI is unlikely to kill anybody at all, except possibly through traffic accidents caused by distracted drivers interacting with it. ChatGPT and Midjourney produce prose and images in a way that was previously impossible and may through increasing our productivity throw many people out of work, while generating new and better jobs to replace them. However, governments concentrating on their theoretical lethal applications, are very likely to produce regulations that prevent their healthy development, especially in the regulation-intoxicated atmosphere of Britain or the United States. Again, this is an effect of Big Government, not the effect of the wholly benign technological innovation of AI. It would also most likely cede advances in the field of AI to Communist China, not a result we should view with equanimity.

The one problem with AI currently is its partial domination by large organizations (Microsoft, in the case of ChatGPT’s OpenAI) and their tendency to impose loathsome leftist agendas on the product. ChatGPT appears to have done so this week by closing down a derivative product GIPPR, that used its services to produce an AI service free from ChatGPT’s robo-wokery. As the free-speech Twitter alternative Gab and others have discovered, it is necessary to avoid the large tech companies in all facets of your business if you wish to avoid their ideological indoctrination of your customers. (Tucker Carlson has demonstrated that the same reality applies to the major media organizations.)

The large organization blight extends far beyond the tech sector. I have written at length about the decline in U.S. productivity growth since the 1970s. Much of this is due to government regulation, and another portion to insane monetary policy, but there can be little doubt that an additional retardant has been the massive unproductive blob of the Fortune 500. In the 1970s, it was accused of being run by “country club management.” In reality, the management practices of that period had a number of advantages. First, having learned from the self-destruction of the 1960s conglomerates, 1970s management tended to stick to businesses it knew best, undertaking few takeovers and investing heavily in research and development – the archetypal example was Reginald Jones’ General Electric, which doubled profits in the nine difficult years of his stewardship (1972-81) before being destroyed by the very different Neutron Jack Welch.

Second, 70s management was cheap for shareholders. Salaries were much lower in real terms than they had been in the 1920s, stock options were not yet common, and share buybacks were effectively illegal until 1978 – oh, happy days! 1970s top management’s principal extravagance was a country club, not a yacht – thus the accusation of “country club management.” Only inflation was a problem, inflating and distorting profits artificially, until the accountants – mirabile dictu – invented a system of inflation accounts that worked and could be understood by shareholders. (In following decades, as management became greedier and shareholder transparency about its costs became anathema, that system was so complexified as to become incomprehensible and then abandoned.) With few mergers, the damage management could do was limited, and its cost even more so. Little wonder that innovation and productivity growth were relatively high, even in the corporate behemoths.

With the additional influence of “funny money” negative real interest rates encouraging leverage, the modern Fortune 500 has become far less effective than in the 1970s. Mergers and acquisitions proliferate, adding to the remuneration of the top managements concerned but generally subtracting from shareholder value. Vast global supply chains were constructed, that generally proved horribly vulnerable to the disruptions of Covid-19 and geopolitical tensions. Armies of hugely expensive consultants are hired, to undertake pointless IT projects that stretch to infinity, because when they are completed, the consultants’ remuneration will cease.

Share repurchases were undertaken, some of which have already had to be reversed at much lower prices in economic downturns, and many more of which will suffer this fate when the next downturn finally arrives. Management remuneration has soared into the stratosphere, and now largely consists of stock options, which are not accounted for properly but endlessly dilute shareholder interests. Finally, in recent years, top managements have been bullied by their young staff mis-educated at top colleges into engaging in woke virtue signaling, most of which appalls the ordinary people who are customers of the company’s projects.

As I said, Big is Bad. In fact, it is very ugly indeed. We must restructure our economic system to breakdown bigness wherever it exists and return the economy to the innovations of the small-scale private sector: companies of no more than 500 employees, all of whom are personally known to top management.


(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)