Welcome to Disrupting Japan, straight talk from Japan’s most innovative founders and VCs.
This is our 250th episode, and I wanted to give you something special; something I have been thinking about more and more as my career in startups and venture capital has developed.
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Today we are going to talk about a group of people who are perhaps the most reviled and maligned by technologists and innovators worldwide. People who stand in opposition to everything innovators hold dear. Today we are going to talk about the Luddites — those individuals who through a combination of ignorance and shortsightedness opposed technology and change.
But that’s not really true. The Luddites were not who you think they were. In fact, almost everything you have ever been told about them is wrong.
In truth, the Luddites were not really opposed to new technology. Not even when it threatened their livelihoods.
There is growing concern today about AI taking our jobs, but if AI had emerged 220 years ago, the Luddites would have embraced it. Far more important, they would have held a much better understanding of the true dangers posed by today’s new business models than do most of the AI advocates or critics talking about it today.
Although the Luddites are accused of opposing the very technology that resulted in the incredible progress and the rise of living standards that we have experienced over the past 200 years, that’s simply not the case.
In fact, as you’ll see, although the higher living standards and shared prosperity enabled by the technology of the industrial revolution are undeniable, we actually have the Luddites, and not the technology, to thank for that.
The Luddite in the Mirror
So who exactly were the Luddites?
You have probably heard that they were cloth workers in late 18th century England who, early in the industrial revolution, saw their livelihoods threatened by the new textile factories, and they tried to shut down those factories by destroying automated looms and other textile equipment.
That much is completely true. The important question, however, and the one with a wildly misunderstood answer is “Why?” “Why were the Luddites breaking machines and shutting down textile factories?”
The mythology is that Luddites rejected the new technology because they benefited from the old system. Rather than embrace technology which would lift millions out of poverty, lengthen lifespans, and lead to greater shared prosperity, the Luddites selfishly wanted the world to stay as it was. They were backward-looking rubes who simply could not see the bigger picture.
And that, all of that, every single word of that, is simply wrong. If anything, the Luddites were alarmed because they saw the big picture far too clearly.
So let’s take a quick step back into the world of the Luddites and see just how much like us they really were. And also see that although the technologies are completely different, how the new business models of the industrial age changed society in very much the same ways as the new business models of our emerging AI age.
As the industrial revolution was gaining momentum in the closing decades of the 1700s, textiles were one of England’s most important and profitable exports, and they were manufactured using what was called the “domestic system.”
Textile workers worked with their own machines in their own workshops. Some of the more enterprising had multiple machines and employed others. The work was distributed, done mostly at home, and the finished product delivered to merchants. This system is where the English term “cottage industry”comes from.
By and large, these clothworkers did not have leisurely or even particularly comfortable lives, but it was a better living than agricultural work and much better than most of the newly emerging factory jobs. What these clothworkers did have, however, and what they were very afraid of losing, was a degree of economic freedom.
The freedom to negotiate fair prices with their customers and, based on those negotiations, the freedom to decide what and how much they would produce.
These proto-Luddites had no problems with machinery or technology. They used and maintained machinery. They experimented with and developed technology. What they objected to was not the new technology, but the new business models.
To understand the Luddite’s position here, we need to understand that new technology was not the only thing powering England’s industrial expansion. These new factories were also powered by some of the most horrific forms of child labor imaginable.
Children as young as six were forced to work 14 to 16-hour shifts crawling under machinery to recover scraps of cloth and reaching into running machines to untangle threads and remove debris. Some business owners even made deals with the government to take orphans off public hands and put them to work in their factories.
And to be absolutely clear, these children were not paid. They were given enough food to keep them alive and only allowed to sleep a few hours a day. When children tried to escape, they were brought back in chains. These children would either die in one of the frequent industrial accidents or they would literally be worked to death.
Working conditions could have easily been made safer, but pausing or turning off the machines would lower profits. The whole point of this innovative new business model was that it produced textiles continuously, 24/7.
Things like idling machines or buying safety equipment would cut directly into shareholder value. Since there were always more bodies to feed the machines, it would have been unfair to the shareholders not to leverage that resource.
No one knows how many children died in those factories. Neither the politicians nor the business owners benefited from that kind of record keeping. Slaughtering children has always been bad optics.
Today we usually try to gloss over this behavior with the rejoinder that “attitudes and values were different back then”, but that’s not really the case. Even by the standards of the day, these new business practices were appalling. Many religious, social, and political groups were outraged and worked to force business owners to respect social norms and basic human decency.
Many business owners did, of course, but they were quickly outcompeted and bankrupted by the business owners who chose not to. Working children to death was just so damn profitable. William Blake famously referred to these factories as the “Dark Satanic Mills”.
Our proto-Luddites were not simply worried that their way of life was changing, but that it was changing into something horrible.
The Broken Legal Shield
It’s also important to understand that these business owners were actually breaking the law. Not just social norms, but the actual law. Labor protections in that era were not exactly robust, but some basic rules did exist.
When challenged on their illegal labor practices, the new business owners responded in exactly the same way today’s new business owners do. They claimed that since no one imagined this new technology when those labor laws were created, they clearly did not apply to them. Forcing them to abide by the law would only slow progress. And just like today’s business owners, they had legions of supportive journalists and caravans of lobbying money to amplify that message.
It’s quite impressive how effective and unchanged this strategy has remained. Over the past decade, Uber and other gig-economy companies executed this playbook exactly. They claimed that since their new technology did not exist when the relevant labor and licensing laws were passed, those laws should not apply to their new business model. They argued that if they were forced to pay minimum wage or comply with licensing and insurance laws, their business model would collapse and that would slow the march of progress for everyone.
Interestingly, that playbook worked well in the US, but not everywhere. There are many markets where Uber is required to follow local labor and licensing laws. And you know what? Uber does fine in those markets. They are a little less profitable, of course, but they do fine. Their business model never required them to ignore labor and licensing laws, it is simply more profitable if they can do so.
For over 200 years, business owners have used this slight of hand to sidestep both criticism and regulation. They simply assert that any criticism of their business practices is actually hostility towards and fear of progress and technology.
Right now, this “old laws don’t apply to new technology” grift is being used by AI companies to deflect copyright concerns.
I’m not talking about using copyrighted works to train AI. Admittedly, that’s a grey area. Rather, I‘m talking about the simple fact that I can pay OpenAI $20, and with a bit of prompting, it will sell me all kinds of copyright-infringing images and whole passages lifted from books and screenplays.
That is straight, blackletter-law copyright infringement for profit. It makes no difference what the user does with the image they paid OpenAI to generate. OpenAI is violating the law when they sell it without permission. It’s a commercial transaction.
The AI companies usually imply that the customer is at fault for requesting the images. But again, No! The law is clear. Asking a company to create a work that could infringe on someone’s copyright is not illegal. However, creating and selling that work without securing the necessary rights? That’s illegal.
My point here is not that AI companies should be shut down for copyright infringement. I don’t think they should be. The point is that we need to stop falling for this 220-year-old slight of hand where the existence of a new technology is used as an excuse to violate any laws or social norms that might reduce profitability.
I’m not anti-technology. I’m just anti-bullshit.
The Luddites’ Demands
OK. Let’s get back to our Luddites. So what did the Luddites actually want?
That turns out to be a surprisingly easy question to answer. In the first decade of the 1800s the Luddites’ demands were frequent, focused, and clear.
Between 1800 and 1812, Parliament was presented with multiple petitions asking for things like minimum wage laws, government support for the unemployed, cracking down on the deceptive labeling of poor-quality goods, putting an end to the worst of the child labor abuses, giving working-class men the right to vote, and perhaps most importantly and emphatically, enforcing the laws that the new business owners were routinely violating.
What the Luddites did not ask for (at least at this stage) was that machines be banned or that technological progress be stopped. The Luddites were focused on ensuring that workers would be paid fairly and that they would have some basic rights. The Luddites clearly understood, perhaps better than we do, that it was not the technology that posed a danger to society, but these new business practices.
The Luddites did not want to stop progress. They just wanted everyone to share in the benefits of that progress. They were only opposed to the new business models that were designed to make a handful of people extraordinarily rich while making life worse for everyone else.
Unsurprisingly, the business owners saw things differently. Just like today, business owners lobbied lavishly to ensure that their new business models would be exempt from any laws that threatened to cut too deeply into their profits.
In the end, the Luddites’ petitions for economic relief, social reforms, and enforcement of labor laws were not only ignored, but Parliament moved aggressively in the opposite direction. In 1809 Parliament repealed all those labor and industrial laws the factory owners found so inconvenient.
It is here, after a decade of setbacks, that the Luddites turn their attention to the machines.
The Luddites in Action
By 1811 the Luddites were running out of options. The laws promising basic legal protections had been repealed. They didn’t have the right to vote. Collective bargaining and labor organizing were basically illegal.
They couldn’t call a strike, but there are other ways to shut down a factory. And so, under the banner of the mythical Ned Ludd, the Luddites began breaking into factories and destroying machines. Their goal was to hit the factory owners where it mattered, in the pocketbook and thereby force them to come to the negotiating table.
The Luddites were strategic. They did not break all machines in a factory, nor did they target all factories. They focused on those factories they considered to be breaking established labor practices or producing inferior goods, and they only moved after advance warnings and threats had failed to get the owners to change their business practices.
Machine breaking was a tactic not an objective. The Luddites were not anti-progress technophobes. They were labor organizers. They were activists.
Of course, to the new business owners, that was much, much worse.
The fame of the Luddites spread quickly across the country. Their support for working-class rights made them widely celebrated as a popular, Robin-Hood-like figure. At this point, Parliament could not help but take notice of this groundswell of public support, the growing concerns over inequality and poor living conditions, and the increasing risk of violence that was stemming from it.
And so, Parliament responded by bringing both sides to the table and passing some basic laws to ….
No … just kidding.
Parliament responded with the 1812 Framework Bill that made breaking textile machines a crime punishable by death and by deploying 14,000 soldiers to put these Luddites back in their place.
That was the beginning of the end for the Luddites. It’s a great story from here. There were battles. There were killings and assassinations. There were hangings. But two years later, by 1814, the Luddite movement had been crushed.
The rebranding of the Luddites and everything they stood for began almost immediately. They were quickly recast not as working men demanding a living wage and basic rights, but as backwards-looking rubes who simply feared this new technology that was going to make life better for everyone.
Well, we know that the Luddites were not backwards looking rubes. We know that they were not opposed to the technology itself. Perhaps unsurprisingly, the claim about technology making life better for everyone turns out to be a lie as well — or at least criminally far from the whole truth.
Old Business Models that Make Life Worse
The truth is, life got worse for a long time before it started to get better. In the century before the industrial revolution public health and lifespans had been slowly improving, but these trends reversed in the early decades of the industrial revolution. Poverty increased, food quality and safety plummeted, working hours increased, and lifespans began to shorten. Army records show that the average height was dropping. Personal freedoms were curtailed, and urban epidemics ran rampant. The overall quality of life for most people living though those times declined sharply.
Things were terrible in the cities, but people continued streaming into already overcrowded urban centers making life harder for everyone. Today many wonder that since life was harder in the cities, why people didn’t just stay in the countryside?
Most probably wanted to, but agriculture was also being industrialized. Scotland’s Highland Clearances are the most famous, but forced rural depopulation happened all over England. Wealthy, often absent, landowners amassed more and more land, shut down access to the shared commons, and forcibly evicted families — sometimes entire villages — who had farmed the land for generations, or even centuries.
As bad as things were in the cities, these people had nowhere else to go.
Life started to improve again around the 1830s, but it was not technology that was responsible.
In the 1830s efforts to get the government to reign in the most abusive business practices and act for the common good finally started to gain traction. The Factory Act of 1833 prohibited employment of children under nine years old and restricted working hours of older children. It also required that all working children attend school.
In 1848, the Public Health Act authorized the use of government funds to improve public health and safety, and it was greatly expanded in 1875. It is from this point that lifespans and quality of life begin to rapidly improve for everyone.
These improvements were not caused by technology or capitalism per-se, but by doing what the Luddites had advocated decades earlier — forcing some of the surplus capital to be used for the public good. “Forcing” is absolutely the right word here. The business owners fought for decades to prevent it.
Would the industrial revolution have happened if the demands of the Luddites were met at the beginning rather than decades later? Yes, it clearly would have. Economic growth actually accelerated once these reforms were finally passed, but some short-term profits were undoubtedly a bit lower.
From our vantage point 220 years later, it’s tempting to view this suffering as a temporary and necessary sacrifice, perhaps noting that things began to improve after only 40 years. While that may seem quick to us, for those living through it it’s two generations.
Is is simply not reasonable, then or now, to ask people to accept that their lives are going to get worse, that more of their children are going to die of preventable causes, and that their children’s lives will shorter and harder than their own, all on the promise that “Hey, maybe things will start to get better again for your grandchildren.”
Can you even imagine being asked to endure that kind of suffering while being told that the incredible fortunes being made by a very few were either a natural and unavoidable side effect of new technology or celebrated as proof of the value that these new business owners were creating for society?
New Business Models that Make Life Worse
Actually, it’s not hard to imagine. Today’s new business owners make the same claims.
Those pointing out the harms new business models are causing or insisting that laws be enforced and social norms be respected are often dismissed as Luddites who are simply afraid of new technology and want to hold back progress. Pushing back against even the most ridiculous claims can earn you the Luddite label.
Whether it’s Sam Altman making vague promises about how AI will make us happier, cure cancer, and create better jobs for all if he can just raise a few hundred billion dollars more. Or Elon Musk making the laughable claim that his Optimus Prime robots will fix American healthcare and ensure we all lead more conformable, leisurely lives. There rarely any media pushback.
I don’t really mean to single out Elon here. A lot of billionaires are saying the same kind of things.
It’s just that Elon is so outspoken and so completely unburdened by self-awareness that he is almost a caricature of the gaslighting business tycoon.
He publicly proclaims his mission to create technology that ensures we all live better, healthier lives, while routinely violating labor, safety, and environmental laws and insisting his employees work 60-hour weeks with minimal vacation in order to give him a shot at becoming the world’s first trillionaire.
“Well”, you might argue, “perhaps Musk thinks that it’s the role of government rather than the private sector to provide for the general welfare.” Obviously, he does not. When Musk was given one of the most powerful jobs in the US government, he gleefully set about taking a chainsaw to the very programs that could help ordinary people navigate the disruptions caused by these new business models.
It’s the same old dodge we’ve been seeing for over 200 years. Today’s profits are theirs to keep, and the better jobs and improved living standards are someone else’s problem. The exact path to the promised benefits is always a bit long and vague, but importantly it involves no inconvenience on their part. In fact, they argue, the promised benefits can only be achieved if they manage to amass ever-increasing fortunes, which just like in the time of the Luddites, they celebrate as proof of the value they are creating for society.
We’ve been talking mostly about Georgian England and modern America, but this pattern of new business models making society worse until the business owners are forced to change is a universal and timeless one.
During the Meiji Era, Japan speed ran 120 years of industrialization in 30 years, and the path was much the same. Conditions in the early factories were horrible. Under feudalism peasants had few actual rights, but there were accepted practices and a certain paternalistic attitude that could keep abuses in check. These were discarded under the new business models, and life became much harder for most people.
Today we are relearning the lessons the Luddites understood 220 years ago.
Society only benefits from new technology and new business models when we collectively force business owners to respect human dignity and redirect some of the new capital to social good. Employment rights, consumer protections, healthcare, education, and safety laws only come about after they are forcibly demanded by the people, and not one second before.
There’s Nothing Wrong with Capitalism …
I have a number of Millennial and Gen-Z friends who are genuine communists. Not tax-the-rich, join-a-union communists, but bona-fide seize-the-means-of-production, you-have-nothing-to-lose-but-your-chains communists.
They are smart people. I enjoy and value my conversations with them. With today’s growing inequality and increasing feelings of helplessness, I completely understand why those ideas can be appealing.
It’s important to remember that Marx was living in and responding to the world of the Luddites. It gives you a much more sympathetic reading of Marx. He was witnessing seemingly endless columns of children literally being chewed up by machines in order to make a few people incredibly wealthy while life got harder and harder for everyone else. He was watching decent business owners, those who refused to work nine-year-old children to death, get out-competed and put out of business by business owners who had no problem doing so. He was watching the government not only get behind, but actually try to accelerate these trends.
He was taking all this in and thinking. “This is not sustainable. The people need to stand up and put a stop to this!”
He was right. The people did. Not in the way Marx expected, and certainly not once and for all, but they did.
The problem was not capitalism itself, and the solution was not technology itself. The solution was the exercise of popular will, of democracy. People demanded that consumers and workers be protected and that economic gains be used to benefit society as a whole — even if it risked lowering short-term profits.
I’m a proud lifelong capitalist. I’ve spent almost my entire adult life building, selling, and investing in companies. However, I am just as annoyed by the mindless assertion that “capitalism is to blame for all modern problems” as I am by the mindless assertion that “capitalism has lifted millions of people out of poverty.” Nonsense. Capitalism has done no such thing.
Capitalism is the greatest engine of prosperity that humankind has ever created, but it is only an engine. Like all engines it needs to be properly loaded. Too much load and the engine grinds to a halt, but too little load and it quickly spins out of control and destroys itself.
It’s really quite an elegant system. Consider the question. “What is the purpose of capital under capitalism?” Marx claimed it had exploitative and extractive objectives. Most modern economists attribute goals of increased efficiencies and productivity.
The truth is far simpler.
The purpose of capital under capitalism is to generate more capital. That’s it. Anything that generates more capital is a good use of capital; the more the better. We can break it down into things like investment, income, and profit, but those are all just transitory phases of capital. If you want to be a good capitalist, your objective is to generate new capital from existing capital. That’s all.
Capital is not a means to an end. The means and the end are the same. There is only capital.
This seeming pointlessness may look like a flaw, but it’s not. This simplicity, this single-minded focus is exactly what makes capitalism such an incredible engine for human progress.
Again, however, it is only an engine. And engines are only useful when they are part of a larger system designed to extract productive work from them.
The fact that some new technology can make our capitalist engine spin faster is not progress in itself. It only becomes progress when the engine is controlled and managed so the power can be harnessed for social good.
However, business owners who want to stay in business will never add these controls or loads voluntarily.
It’s tempting to think that today’s technology and social norms will protect us from the kind of abuses the Luddites witnessed. Without question, the harms caused by today’s new business models are trivial compared to abuses of the Luddite’s time.
However, child labor is still frighteningly common in some parts of the world. When business owners decide to use it, it is not because they don’t have access to modern technology. It is not because parents in those societies love their children any less than we do.
Japan’s business owners in the late 1800s could select from the world’s best technology and labor practices, and they opted for the most abusive and exploitative business models their labor force could be made to endure.
Abusive business models continue because they are just so damn profitable. Moral business owners who resist abusive and deceptive practices will be outcompeted and bankrupted by the immoral business owners who embrace them. And the immoral business owners will not change until they are forced to.
The Final Lesson of the Luddites
The Luddites understood all this. They understood that even the most basic rights and respect for human dignity are never given willingly. They must always be demanded, by force if necessary.
Today’s technology and business models are very different than those the Luddites experienced 220 years ago, but the relationship between new technology, new business models, and social well being remains almost exactly the same.
Capitalism in its single-minded focus on creating more capital will always try to optimize away inefficiencies like labor rights, safety regulations, consumer protections, environmental laws, and human dignity. It will always strongly resist any attempt to syphon off capital to be used for the benefit of society.
But that doesn’t mean it’s bad.
Capitalism is like a nuclear reactor. When properly monitored and controlled it can produce tremendous amounts of safe, reliable power. You can always get a bit more energy out of the reactor by pulling out some control rods, but you might not want to do that. If you pull out too many, the reaction becomes uncontrolled, the reactor consumes itself, and then poisons everything for a hundred miles around. Of course, if you put in too many control rods, the reaction stops and you don’t generate any power at all.
Both nuclear power and capitalism require constant monitoring and control.
It’s our job as citizens to be vigilant and ensure that this marvelous capitalist engine is properly controlled and is producing useful work. Because as the Luddites and many others have discovered, when left to its own devices, this marvelous capitalist engine will happily consume us and our children in order to produce a bit more capital.
We don’t really live in a capitalist society. We live in a society powered by capitalism, and that’s a good thing. However, it only remains a good thing because of people like the Luddites. People who are willing to embrace new technology but also insist it not be used in business practices that harm society.
The Luddites understood that using technology to just make our capitalist engine spin faster is not progress. They also understood that it takes a lot of pressure from the people to make sure new technology actually delivers on its promised social good.
Thankfully, there are plenty of people today who think like the Luddites. People willing to embrace new technology, but who understand deeply that technology only becomes progress when society as a whole benefits.