Innovation as organized crime
Shein’s long await IPO is (confidentially) here. And while analysts proclaim $90bn valuations all I can think about is what this says about the current state of innovation.
Shein’s meteoric rise rests largely on an incredible ability to produce, merchandise, and move ridiculous volumes of cheap clothes. Following their initial global expansion in the 2010s, the business took off during the pandemic, rapidly rising to become the second most popular ecomm platform in the US1 and recently launched its own marketplace where third party sellers can hawk their wares. But scratch a little deeper and the rotted infrastructure of the endeavour comes clear. This of course shouldn’t deflect from the organizational marvel that is production and distribution on this scale, at this price point.2 The issue is how not what.
You don’t get to be gigantic without breaking a few eggs. And when your business model is pile ‘em high and sell ‘em cheap, the smashing scales exponentially.
There’s the massive waste issue. The company churns out thousands of new items *daily* for sale at incredibly low prices. And as such, they’re cheaply manufactured and effectively designed for disposability. To sustain this price point requires either predatory pricing or old fashioned exploitation. And judging from the publicly available information, Shein has gone for option two. There’s the benefits of state-sponsored slave labor through use of materials sourced from Xiajiang. There’s the savage working conditions of warehouse workers. And of course, there’s the IP theft.
The company has been and continues to be sued by countless brands including Oakley, Dr. Martens, Ralph Lauren, and Stussy which claim Shein has blatantly ripped off their designs. This wave of suits culminated in July 2023 with a RICO Action – that’s right, the good ole Racketeer Influenced and Corrupt Organizations Act, the one used to bring down the mafia – filed in California. The suit, filed by independent designers Krista Perry, Larissa Martinez, and Jay Baron, accuses Shein of "produc[ing], distribut[ing], and selling exact copies of their creative works,” claiming its actions are “part and parcel of Shein’s ‘design’ process and organizational DNA”.
So many eggs, so much broken.
What’s been striking about the reporting of the company’s propose IPO is that I’ve seen no mention of the lawsuits or the (rotten) business model.3 If we’ve learned anything from previous bubbles, it’s that so-called fundamentals don’t matter as long as you can position yourself as a technology company with monopolistic tendencies.
Innovation, dear boy, that’s what we’re valuing.
And that brings me, at last, to the real point. Shein is representative of a model of corporate growth best described as innovation as organized crime (IaOC).4 IaOC rests on the following assumptions:
Innovation is ultimately the only valuable thing a business does.
Innovation should face no constraints. Doubly so if said innovation is “technology”.
Inputs lack value, only outputs have value.
Exploitation is simply the price of innovation.
There are of course corollaries and addendums such as genius must not be constrained, the future justifies whatever misery is required today, and regulatory arbitrage justifies most things; or: it’s legal somewhere, so just behave as its legal everywhere. But the fundamental business model is one where innovation not only justifies but almost demands criminal activity.
Examples beyond Shein abound. There’s Uber, cryptocurrencies, Amazon, the vast majority of A16Z’s web3 portfolio, food / grocery delivery platforms like GoPuff, e-bike and scooter companies such as Bird, and of course, almost all of so-called “AI”. The list is seemingly endless and the products varied but all are connected by practices that under almost any other circumstances would be considered organized crime. From systematically violating local regulations around license to operate, to labor violations, to collusion, price rigging, and market consolidation, to blatant IP theft, we operate in an economy where claims of tech-enabled innovation provide wide-ranging cover for criminal behaviors.
The rot stems from a confluence of forces, some playing out since the early 1980s, others more recent. There have been material changes such as:
Regulatory retrenchment (declining antitrust enforcement, declines in white collar crime prosecutions, tax code changes, etc.)
Broad, economy-wide financialization (valuation uber alles)
Historically low interest rates (fuel to the criminal enterprise fire)
Declines in state capacity (to create, protect, and redistribute).
These have conjoined with ideological shifts that Maria Farrell beautifully summarizes as the Silicon Valley Personality Disorder: “Libertarianism for me. Feudalism for thee.”
Together these shifts have brought us to a place where innovation is irrationally prized with the organizational means by which it is achieved is increasingly criminal in nature.
But there’s hope for us yet.
In fits and starts the neoliberal orthodoxy and its merry band of pirates policy entrepreneurs are facing increasing scrutiny and push back. Big policy shifts like the return of industrial strategy (in the US), the resurgence of antitrust, and general dissatisfaction with the rot economy are opening new challenges to the IaOC model of commerce. While these all face continued resistance from those for whom IaOC is both a financial boon and an ideological preference, there is, for the first time in a long time, an active effort to develop countervailing power.5
Who knows what will happen with Shein’s IPO. Maybe they’ll hire the world’s best general counsel and beat back the charges, flying to ever greater heights. Or maybe they’ll simply join the litany of other flash in the pan “tech” companies that flamed out into mediocrity or worst post-listing. Or maybe they’ll face actual justice and we’ll look back on this as a hangover from a different, deeply flawed age.
For now, though, we live in a world where IaOC is often the accepted, celebrated route for introducing “novelty”. We deserve better.
I read this somewhere recently and now I can’t dig out the citation. If I’m wrong, HMU.
Given the realities of organizational life, I’m always amazed that ANYTHING ever gets done. And I’m doubly amazed when it’s done at such vast scale. I mean, I always know it ultimately rests on lots of people getting horribly exploited, but there’s a brief shining moment when I’m awed by the achievement before I remember the how.
I’ll admit I’ve only read the business press on this - Bloomberg and the FT - but nothing, really?
I’ll come clean on my own theft here. I was thinking of Charles Tilly’s “War Making and State Making as Organized Crime” when naming this.
Marc Andreesen, manifesto writer extraordinaire, anyone?
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