Capitalism rewards understanding: Why your business needs Philosophers

This week’s Facebook IPO is the start of something strange: soon everyday people will own parts of a company whose stated mission is to undermine their privacy. As a publicly held company, Facebook really only has two ways to boost their share price: add more users, or use data mining to make each user more profitable through advertising. They’ll be doing both.

At its core, Facebook is built on the assumption that people are willing to have their private lives intimately examined by marketers in order to talk to their friends online for “free.” Is this a valid assumption? Facebook is hoping it is.

Other businesses have come and gone because their core assumptions about the world were invalid or outdated. Kodak, Blockbuster, and (soon enough) The Yellow Pages were all companies that just couldn’t accept that the world was no longer what they believed it was. These once-vibrant companies started down a hill of decline because they didn’t ask and answer the hard questions at the heart of their businesses. Given the right moment each of them could have been saved—by Philosophers.

For most of history, the future looked more or less exactly like the past. This is no longer the case. The world has seen as much change in the past 50 years as it did in the previous 500.

But first, some background. 

For most of history, the future looked more or less exactly like the past. This is no longer the case. The world has seen as much change in the past 50 years as it did in the previous 500. Capitalism has an interesting side effect: progress. But all this scientific, technological, and social progress has a side effect of its own, complexity and confusion, which can easily lead to incorrect assumptions about the world. Said another way, all this change has made the world easier than ever to misunderstand. Businesses need to understand the world as it is, because capitalism rewards understanding. 

This may sound abstract, but everything in the world started out as an idea: democracy, capitalism, even the computer you’re reading this on right now. Ideas are tools that we use to model the real world and structure events around principles that our minds can grasp. Businesses are ideas too—in a much more significant way than a balance sheet or shareholder report might suggest. And businesses, like all ideas, are built.

Like building a house, there are right and wrong ways to build an idea. A house needs to reflect facts about the real world to survive earthquakes, floods, and keep the people inside warm and alive. In the same way, an idea or business model needs to be consistent with itself and the world at large. And like a poorly built house, an idea that isn’t consistent with reality will collapse under its own weight. A successful business is built on the competent execution of good assumptions; it’s able to recognize and adapt to changes in the world.

For bad ideas and business models, it used to be that failure from inconsistencies took some time; competition was slow and expectations were low. But the speed of progress and the accompanying intensity of competition have put all business models—and all ideas—under tremendous pressure. Companies that make bad assumptions about the nature of the world are quickly punished for doing so. This is where Philosophers come in. 

Far from being a bunch of crusty old men debating the minutiae of obscure terms, Philosophy is two things. First, it’s the process that structures serious attempts to understand reality—to create a consistent mental model of the world. Second, it’s the surviving record of those attempts. It’s a shame that when people think of the discipline it’s the second quality that comes to mind because the first one is exciting and essential: Philosophy is the set of tools that test ideas to make sure they’re properly built. These tools work very well; they gave us mathematics, economics, psychology, and of course science to name a few. 

When a Philosopher sets about answering a question, they start at the start and nothing is off limits. This is a characteristic of those in the Liberal Arts, but given how seldom these skills are explicitly celebrated is it any wonder these students chronically undervalued—both by employers and often themselves? But with some slight tweaking each can offer much to the other. Businesses need to recognize that there are right and wrong ways of looking at the big picture, and Philosophers (and Sociologists, Historians, Political Scientists and others) need to recognize the merits of what they do—outside of the historical record.

Given the amount of time, energy, and money that’s needed to bring the ideas to life as companies and products, why not test-drive them first? Besides, the world is far too exciting a place to be run by only MBAs.