Apr 25, 2019

Axios Future

By Bryan Walsh
Bryan Walsh

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Any stories we should be chasing? Hit reply to this email or message me at steve@axios.com. Kaveh Waddell is at kaveh@axios.com and Erica Pandey at erica@axios.com.

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1 big thing: The challenge to icon Milton Friedman

Friedman, 1986. Photo: George Rose/Getty

When hedge fund CEOs, presidential candidates and college professors shout that something is wrong with capitalism as practiced, they are — unwittingly in most cases — attacking a long-deceased, 800-pound gorilla in the economy.

  • Thirteen years after his death, Nobel laureate Milton Friedman — a 5-foot-tall University of Chicago economist — continues to exert a dominant hold on public opinion with his stark call for a stripped-down, profit-making-only role for business.
  • But the Friedman Doctrine, as some call it, is under threat as Americans attempt to make sense of the anger in the roiled U.S. heartland, beset by hollowed-out cities, bankrupt pension plans, and decades of flat wages.

What's happening: In recent months, hedge fund billionaire Ray Dalio, BlackRock CEO Larry Fink, numerous Democratic presidential candidates and others have called for a more socially minded corporate America.

But if Friedman were alive, he with mighty certainty would have some choice words in response.

  • Friedman's thinking was best boiled down in a 1970 essay in the NYT magazine in which he called a business focus on social outcomes "pure unadulterated socialism."
  • Writing amid the public turmoil flowing from the Vietnam War and attacks on corporations, he said businessmen who embrace social responsibility were "unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades."
  • The sole duty of a corporation was not to get involved with social good, but "make as much money as possible while conforming to their basic rules of the society."

Over the subsequent years and decades, Friedman's philosophy became orthodoxy, visible in tax law, accounting standards, business school curricula, and deep-seated corporate and societal attitudes. "There is a 'before-Friedman' and an 'after-Friedman' when it comes to corporate social responsibility," said Jennifer Burns, a professor at Stanford and the author of a forthcoming biography of Friedman.

  • In his defense, scholars say Friedman cleared away prior decades of muddle-headed corporate inefficiency because he "understood that by having corporations focus on one objective, we can hold them accountable," said Charles Calomiris, a professor at Columbia University.
  • But critics say corporate America needs to take a broader view of its societal role, including greater responsibility for employees and their community. Friedman "fit an earlier age very well — when excessive regulation, taxation and New Deal-era controls held back American business competitiveness," said Bruce Mehlman, a leading policy lobbyist. 
  • "But the right answer for 1970s America is no longer optimal for 2020 America. Friedman was visionary for his time, but the pendulum needs to swing back," said Mehlman, whose latest presentation includes a slide on Friedman (slide 19).

Dalio's and Fink's firms did not respond to requests for comment. But leading economists contacted for this post said they do not see a lot of meat in complaints voiced by the business community and others:

  • Larry Summers, a professor at Harvard and director of the National Economic Council under President Obama, said that the Friedman Doctrine "is being more seriously attacked by commentators, but I don’t anticipate big changes in practice."
  • "Despite some noise from far-left Democratic candidates like Elizabeth Warren and Bernie Sanders, I don’t see any prospects for change in the current philosophy of American corporations in maximizing shareholder value," said Robert Gordon, a leading economist at Northwestern.
  • "We need tax-based reallocation and investment, as well as increased worker and environmental protection to make a positive change," said Adam Posen, president of the Peterson Institute for International Economics. "Milton Friedman opposed that too, which his view on profits reinforces."
2. A look at Elon Musk's new chip

Illustration: Aïda Amer/Axios

Tesla's share price plunged by more than 4% today after a key bull, Dan Ives of Wedbush Securities, downgraded the company. That was after, in conversation with analysts this week, CEO Elon Musk emphasized the advantages of a new chip. Weighing in on the Hardware 3 chip is Axios Expert Voices contributor Sudha Jamthe, director of DriverlessWorldSchool and an instructor of AV Business at Stanford Continuing Studies. Jamthe owns a Tesla and shares of the company's stock. Her post:

Tesla's new proprietary chip for self-driving software is key to CEO Elon Musk's promise of a driverless robotaxi fleet by 2020. The chip alone won't deliver fully autonomous cars that can operate anywhere but it could help to increase the value of Tesla vehicles.

The big picture: Other carmakers are focused on autonomous driving for ride-sharing, but Tesla isn't accepting that consumers will abandon car ownership. It is chasing a hybrid model of individual car ownership with the option for owners to earn money by sharing their vehicles via robotaxis.

What's happening: Tesla says it has deployed its Hardware 3 chip — which uses a neural network designed to support its self-driving software — in many of its 41,000 employees' Tesla vehicles since December 2018.

  • The company is collecting driving data from these cars to feed into its self-driving AI. It has also begun to deploy the new chip into all new Teslas, so that the company can collect data from all cars sold since March.
  • Musk suggested the speed of the chip is comparable to Nvidia’s top-of-the-line AV AI chip — which Tesla and its competitors have been using — and, because it was custom built for their self-driving AI, it can run it faster.
  • Hardware 3 is designed to exclusively run software that is cryptographically signed by Tesla. This would prevent hackers from controlling Teslas remotely or compromising them via fraudulent software.

The value of the cars could go up, Musk says: Tesla says it will send out self-driving software via over the air update by 2020, which would make vehicles with Hardware 3 capable of full autonomy. It would allow a Tesla owner to potentially add their car to the company's robotaxi pool and earn money off of rides.

Yes, but: Tesla's self-driving software is not yet fully developed, and Musk has missed ambitious deadlines in the past.

3. Automated firings at Amazon

An Amazon warehouse in Orlando. Photo: Paul Hennessy/NurPhoto/Getty

In a 14-month span starting in August 2017, Amazon fired about 300 full-time employees at a single warehouse in Baltimore because of their productivity, according to reporting from The Verge that Amazon confirmed to Axios.

Kaveh writes: That's a significant chunk of the roughly 2,500 people employed at the Baltimore warehouse where the firings occurred, reports the Verge's Colin Lecher.

  • "Assuming a steady rate, that would mean Amazon was firing more than 10 percent of its staff annually, solely for productivity reasons," Lecher writes.
  • Extrapolating to North America, that churn rate would mean thousands are fired every year for packing boxes too slowly.
  • In a statement to Axios, Amazon said that "in general, the number of employee terminations have decreased over the last two years at this facility as well as across North America."

According to documents The Verge obtained, Amazon has a system for automatically rating warehouse employee productivity and sending them warnings or even a pink slip if their numbers fall — "without input from supervisors."

  • The Verge quotes Amazon as saying that that supervisors can step in and prevent an automated firing from taking place.
4. Worthy of your time

Rebecca Zisser/Axios

The big Ireland privacy hole (Nicholas Vinocur - Politico)

How depreciating currency could save the economy (Dion Rabouin - Axios)

Kroger's online upheaval (Heather Haddon - WSJ)

Peak older worker (Howard Schneider - Reuters)

The new military revolution (Christian Brose - Foreign Affairs)

5. 1 musical thing: Nonstop death metal

At the Inferno Festival in Oslo. Photo: Per Ole Hagen/Redferns/Getty

A band called Dadabots plays live death metal music on its YouTube channel — 24/7.

Erica writes: If that sounds tiring it's because it is not humanly possible. Dadabots can only play without any breaks because it is actually an AI program, constantly generating new death metal music.

  • The band was created by CJ Carr and Zack Zukowski, music technologists who wanted to prove that a computer could pinpoint the subtle differences between genres like death metal, heavy metal and math rock, reports Motherboard.

Listen — if you're into it.

Bryan Walsh