> Contemporary economy has surprising amount of internal inefficiency causing most of the value to be wasted. This is the point “Efficiency Cult Capitalists” s

> Contemporary economy has surprising amount of internal inefficiency causing most of the value to be wasted. This is the point “Efficiency Cult Capitalists” seem to miss. They think market forces will drive conpanies to be more efficient, but they don’t reliably do so except in the very long term (larger timescales than a typical human career length.) As a startup your costs are high relative to your income and so you have an incentive to use labor efficiently (VC incentive warping aside.) The only way you can grow profits is by using labor to grow production or marketing. But one you have an established share of the market, the equation reversed and you have lots of revenues and relatively smaller costs. In addition you have a new production-neutral way to create value: you can use labor to build a moat that will prevent competitors from springing up in your wake. This decreases labor efficiency, because you’re doing more labor and not increasing production at all. But it creates value by stalling depreciation on your previous capital expensitures. It’s not clear to me what incentives decide how much companies invest in production vs moat building. In the case of software companies I’ve seen it seems to be that moat maintenance is typically at least half of the labor. I have no idea how that gets established. I would be interested if anyone has ideas on how that balance gets struck. Of course inefficiency is opportunity. And so high rollers can use a bunch of cash to crash over someone’s moat, and then compete with them on efficiency. However, the market incentive here is that once you are over the moat you just split the market. Both companies save the cost of actually investing resources in efficiency, the moat buster gets a return for their effort. However, I do think there is another opportunity: if you can get over the moat, and then instead of trying to own the market yourself (at which point you are competing on level terms with the incumbent) if you can create a private market (like Lyft, AdWords, etc) then you invite a thousand smaller companies to compete on efficiency... this allows you to marshal a larger volume of management resources than a CEO could direct, which gives you an advantage against the incumbent. You will shrink the overall profit pool (due to increased efficiency) and you have to share that pool with your contractors, BUT you have a shot at taking the entire market, so that could be worth more than the cabal spoils you’d get coordinating with the incumbent.