Decoding Capitalist Society: Lessons from a Dying Economist
This article summarizes the insights of a Japanese economic commentator, Shan Qi Yuan, who, facing his own mortality, sought to impart crucial knowledge to his son about navigating capitalist society. Diagnosed with esophageal cancer, Shan Qi penned a letter, later published as a book, outlining the "cruel logic" he observed. This article will break down Shan Qi's arguments.
The Traditional Working Model: A Capitalist Game
Production, Consumption, and the Role of the Company
Shan Qi views the economy as a system of production and consumption, fueled by capital and labor. Companies, representing assets, generate profits through business operations. He simplifies this to illustrate the relationship between labor and capital.
The Profit Margin: Labor vs. Capital
To illustrate his point, Shan Qi uses a simplified example. If an employee generates 20,000 yen in value daily but receives only 10,000 yen in salary, the remaining 10,000 yen becomes profit for the company. This highlights an inherent dynamic: the more labor earns, the less capital accumulates, and vice-versa. Shan Qi argues there is no fairness in this dynamic.
The Power of Rule Makers
Shan Qi emphasizes that those who create the business operating model have the power to dictate the rules. This gives them an inherent advantage, similar to the first player in a game of chess. This advantage can compound over time. While workers may think they can leave a company that does not suit them, Shan Qi says that most companies in the same industry follow roughly the same rules, thus neutralizing any choices that laborers may attempt to exercise.
The Sacrifice of Freedom: Laborer's Dilemma
The commentator highlights that laborers, through participation in commercial activities, sacrifice their freedom. It becomes easier to be oppressed within the boundaries created by the private sector.
Escaping Oppression: The Stock Market and Entrepreneurship
The Path to Freedom: Equity and Wealth Creation
Shan Qi suggests escaping the oppression of the traditional working model by pursuing equity. He cites Bill Gates's former CEO, Baomo, as an example of an employee who became wealthy through owning stock. He believes that true wealth-generating work should involve the opportunity to earn stock returns. Shan Qi believes that entrepreneurship is a path to gain back freedom in a capitalistic society.
Entrepreneurship: A Viable Option?
Shan Qi recognizes that starting a business can be beneficial. He suggests that growing the value of a company is a way to increase personal wealth. He also states that today's business environment is better than in the past, and this point is often overlooked.
Shifting Industries and Lower Barriers to Entry
The industrial landscape has shifted from manufacturing to service and information. This has resulted in a significant drop in the capital needed for entrepreneurship. The labor market is also more fluid, meaning that even if a business fails, individuals can often return to employment.
Personality and Investment: Choosing the Right Path
Entrepreneurial success is often linked to personality traits. If one is not suited to be a leader, they can join a promising company or invest in other entrepreneurs.
Understanding Labor Relations: A Coordinate Diagram
Shan Qi uses a coordinate diagram to illustrate labor relationships and choices. The axes represent "leaders vs. followers" and "risk-taking vs. risk-averse." The "weakest" position is the risk-averse follower, representing the traditional working class. Escaping this position, regardless of direction, improves one's ability to exchange interest.
Financial Strategies: Conservative Investment for the Masses
Long-Term Stock Investment: A Practical Approach
Compared to his more aggressive stance on equity, Shan Qi offers conservative financial advice, recommending long-term, diversified stock investment. Stock prices reflect future profits, but real-world investment is complex. Diversification mitigates risk while allowing for potential returns.
A Step-by-Step Investment Plan
Shan Qi suggests dividing one's initial funds into two portions: six months' living expenses and the remainder for investment. He recommends investing entirely in global stock index funds (ETFs) for a return rate of five years, followed by continuous investment as funds become available.
Balancing Aggression with Caution
This conservative investment strategy complements his more aggressive stance on wealth creation through equity. Shan Qi stresses that being solely involved in production without capital accumulation can lead to oppression.
Equity vs. Dedicated Investment: Risk and Opportunity
Why Not Focus Solely on Investment?
Shan Qi addresses why most people seek equity through employment rather than dedicated investment. The key is risk. For most, capital represents savings or loans, making investment losses painful and potentially irreversible.
Workplace Equity: A Lower-Risk Entry Point
He argues that pursuing equity through employment is less risky. Even if a company fails, the skills and experience gained remain with the individual. This allows for more opportunities in the future, as one does not need to remain "undefeated" in the capital market. The accumulated skills, experiences, and relationships will remain even if the company goes bankrupt.
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