9: Nuclear Monopoly, Startups Were Cool in 1892, Tricksters Spring, Luck & Morality, The Factory Workers discussing Immanuel Kant
L’interdit engage la transgression, sans laquelle l’action n’aurait pas eu la lueur mauvaise qui séduit - Georges Bataille
Investing & Business
The Coolest Oligopoly on Record: Submarine Nuclear Missiles
Reading time: ~10 minutes
Two weeks ago, I commented Devro Plc ($DVO) in my newsletter, a player evolving in an oligopolistic market under a disciplined player, Viscofan. You can access the issue here.
In this article, Value Don’t Lie analyzes another kind of oligopolistic market: nuclear power components and related services!
BWXT is a spin-off from Babcock & Wilcox Company (abbreviated B&W), an American group providing services in the fields of renewables, environmental and thermal energy technologies.
At the time of the spin-off, BWXT was the sole manufacturer of naval nuclear reactors for submarines and aircraft carriers for the US Govt. It also offered facility management for nuclear plants, environmental remediation services, and manufactured components for the commercial nuclear power industry.
As VDL notes, in the following years the business has greatly benefited from an expanding naval spending:
Key take-aways:
The nuclear operations segment is the sole producer of nuclear reactors for naval ships. They’ve got great visibility into long-term production — much, much greater visibility than your typical public company.
Overall, BWXT has the makings of a great business — low/no competitors, great earnings visibility, good margins — at a reasonable price of 21x forward earnings.
The Full Circle of Entrepreneurship
Reading time: ~10 minutes
Paul graham published an interesting article reflecting about the Forbes 100 list of the richest Americans and what it can tell us about the current economy by comparing it to the same ranking in 1982 (and the NY Herald Tribune list of 1892!).
Key take-aways:
#1 Inheritance is no longer the most common source of wealth, it has been replaced by venture building
In 1982 the most common source of wealth was inheritance. Of the 100 richest people, 60 inherited from an ancestor. There were 10 du Pont heirs alone. By 2020 the number of heirs had been cut in half, accounting for only 27 of the biggest 100 fortunes. […] The reason the percentage of heirs has decreased is not that fewer people are inheriting great fortunes, but that more people are making them. […]
Of the 73 new fortunes in 2020, 56 derive from founders' or early employees' equity (52 founders, 2 early employees, and 2 wives of founders), and 17 from managing investment funds.
#2 It has been made possible by a qualitative focus from highly capitalistic industries where dealmaking abilities are key, to the tech industry where technological prowess is king
The tech companies behind the top 100 fortunes also form a well-differentiated group in the sense that they're all companies that venture capitalists would readily invest in, and the others mostly not. And there's a reason why: these are mostly companies that win by having better technology, rather than just a CEO who's really driven and good at making deals.
To that extent, the rise of the tech companies represents a qualitative change. The oil and real estate magnates of the 1982 Forbes 400 didn't win by making better technology. They won by being really driven and good at making deals. And indeed, that way of getting rich is so old that it predates the Industrial Revolution. The courtiers who got rich in the (nominal) service of European royal houses in the 16th and 17th centuries were also, as a rule, really driven and good at making deals.
#3 Contrary to what most of us might think, there is nothing new under the sun: 2020 is the new 1892
In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. They found 4047 of them. How many had inherited their wealth then? Only about 20% — less than the proportion of heirs today. And when you investigate the sources of the new fortunes, 1892 looks even more like today. Hugh Rockoff found that "many of the richest ... gained their initial edge from the new technology of mass production."
#4 … Then why did we go through a complete circle? The answer is oligopolies
In the late 19th and early 20th centuries, financiers like J. P. Morgan combined thousands of smaller companies into a few hundred giant ones with commanding economies of scale. By the end of World War II, as Michael Lind writes, "the major sectors of the economy were either organized as government-backed cartels or dominated by a few oligopolistic corporations."
In 1960, most of the people who start startups today would have gone to work for one of them. You could get rich from starting your own company in 1890 and in 2020, but in 1960 it was not really a viable option. You couldn't break through the oligopolies to get at the markets. So the prestigious route in 1960 was not to start your own company, but to work your way up the corporate ladder at an existing one
#5 What can we expect going forward? More of the same. Launch your own company, like yesterday!
If you only look back as far as the mid 20th century, it seems like people getting rich by starting their own companies is a recent phenomenon. But if you look back further, you realize it's actually the default. So what we should expect in the future is more of the same. Indeed, we should expect both the number and wealth of founders to grow, because every decade it gets easier to start a startup. […]
The decreasing cost of starting a startup has in turn changed the balance of power between founders and investors. Back when starting a startup meant building a factory, you needed investors' permission to do it at all. But now investors need founders more than founders need investors
Thought-provoking stuff…
The Tricksters Spring
Reading time: ~10 minutes
Philonomist is an online media focused on a practical philosophy of the corporate world. I find their approach really interesting and easily understandable because of how it is linked to concrete events.
In this article, Apolline Guillot analyzes how the covid-19 pandemic and the related restrictions made people shift from civil disobedience to what one could call “a trickster game”.
The whole argument is to properly define what constitutes a transgression (the trickster game), and how it differs from civil disobedience. While civil disobedience is utterly political and partisan, the act of transgression simply has to to with the (non-necessarily violent) act of trespassing beyond a given limit. Transgression is what gives that stroll 10 minutes past the curfew its special taste.
The rest of the article analyzes what the consequences are for the corporate world & for society as a whole. Should managers and politicians respond with a more severe enforcement?
Not according to the writer, quoting Georges Bataille:
« L’interdit donne sa valeur à ce qu’il frappe. Souvent, à l’instant même où je saisis l’intention d’écarter, je me demande si, bien au contraire, je n’ai pas été sournoisement provoqué ! »
Trying to curb transgression is an uphill battle. And the risk is to be faced with an even worse scourge: disengagement.
More insidious than disobedience, more corrosive than transgression, it is disengagement that threatens where control is reinforced. Once installed, a work-to-rule and a slowdown are much more difficult to undo than a frontal attack.
It is therefore better to turn a blind eye to the micro-transgressions of your employees: if they play with the limits you set for them, it is because they still recognize them and make the effort to reappropriate them!
(You can also listen to Apolline Guillot’s interview on Swiss radio RTS here!)
Moral Luck - Am I More Moral if I’m Lucky ?
Reading time: ~10 minutes
1000 Words Philosophy is basically a website where people can contribute articles on specific philosophy concepts in 1000 words or less!
I was really interested about the article on Moral Luck, which is a concept that is easy to understand, but on which I had never bothered to put words before (and I suspect you might discover this, too!)
Basically, accepting the existence of moral luck is saying that how moral you are can depend on factors beyond your own control. E.g., if you have an accident and kill two people, does that make you a worse person (morally speaking) than if you had only killed one?
If you answer no, you are accepting the Control Principle (judging morality based on the factors that are withing one’s control). If you answer yes, then you are rejecting the above-mentioned Control Principle.
When answering this type of question, there are subcategories of moral luck that can help refine your answer:
#1 Resultant moral luck
In a scenario where you commit the same fault, do the consequences alter your morality? (e.g. hurting 1 vs. 2 person after losing control of your vehicle)
#2 Circumstantial Moral Luck
You are determined to commit a fault, but are prevented by factors beyond your control. Are you more moral than if you had committed the fault?
#3 Constitutive Moral Luck
If you agree with the hypothesis that one’s upbringing or experiences can affect his character traits, is one less moral because he does a wrong because of his character traits? (e.g. losing one’s temper, becoming violent)
#4 Causal Moral Luck
If you agree with determinism (i.e. that everything about the way we behave is defined by the laws of nature and predictable ex ante), can you assess one’s morality at all?
I believe each of these definitions of Moral Luck can find strong arguments supporting it and debunking it, and would gladly jump on a discussion if someone wants to talk about it!
Arts & History
Bring Back the Autodidacts!
Reading time: ~10 minutes
This article is a tribute to Jonathan Rose’s Intellectual Life of the British Working Classes. I believe it gives a nice overview of the book’s themes and the core thesis.
This work is a colossal recollection of earlier biographical works done on contemporan working class workers, at an age where literacy through the social classes reached an infathomable level:
Rose painted a vivid, sometimes barely believeable, portrait of men and women over two centuries, many of whom were engaged in arduous, physically demanding labour, yet became autodidacts of astonishing erudition. There were the miners who assembled after work to discuss, deep into the night, Immanuel Kant; the Nottingham hosiery workers addicted to Italian opera and the works of Shaw, Dickens and Thackeray; the routine engagement of so many with Homer, Shakespeare, Bunyan, Austen and, as the 20th century arrived, with Wells and Mansfield and Conrad. One is astonished not just by the intellectual ambition, but the powers of concentration.
The main argument for explaining what created this perfect literary storm is the confluence of five factors:
Mass literacy had become a reality; books were affordable; newspapers and journals were everywhere; cinema was in its infancy and television had not yet arrived. The word was then dominant over the image.
I also believe that the conclusion is making a strong statement for the comeback of the autodidacts:
These fruits of ‘peace, print and Protestantism’ were also empowering. One hears too often the cry that ‘We were never taught that at school. That wasn’t on our curriculum’, as if education begins and ends at the school or university door. We should arm ourselves again with the intellectual, transformative ambitions of those [autodidacts], and reach beyond our boundaries
If you’re interested in reading more about Rose’s book without having to delve in, you can read this review which I found really well structured. It gives more details about the book structure and has some interesting passages:
Whatever the cause of this obsession with the written word, visitors to Britain from overseas continued to be amazed about how much the working classes read. Elsewhere, according to Carl Moritz (1782), reading was restricted to the higher order; in Britain, it was pervasive and crossed the lines of class.
Treat for the Ears
Ever heard a New beat song about finance?
New beat is a Belgian electronic dance music genre that fused elements of new wave, hi-NRG, EBM, acid house and hip hop (e.g. scratching). It flourished in Western Europe during the late-1980s.
Other Interesting Links
Until next week!
Antoine