The lethal economics of corporate kung fu

Last summer, the internet reacted with outrage when a man was barred from filing a wrongful death lawsuit against Disney after an employee ignored his wife’s food allergies, leading to her tragic death^[1]1

Shortly after, a New Jersey couple injured in an Uber was prohibited from suing the company because their daughter signed up for UberEats, which has an arbitration clause. Issues like this are a common sight in news headlines (and Louis Rossmann videos)^[2]2 every day. But why?

In early 2018, one of the realizations I had was that companies can find myriad ways to avoid being subject to laws and market forces, even if they’re not monopolies. They are in fact incentivized to do so if they’re profit maximizing. I jokingly came up with the term “corporate kung fu” to describe such behaviors. However, I quickly learned that corporate kung fu isn’t the exception to corporate behavior; it’s the rule. With that realization, I decided to start documenting cases of business behavior in order to categorize them. Over time, my concept of corporate kung fu slowly matured into “corponomics” or the study of how companies practice corporate kung fu to alter their operating environment^[3]3 to increase profits.

What is corponomics?

Unless you’ve paid off some rock to live under, you’re deeply familiar with corponomics, although not by name. It appears in both big and small ways pretty much everywhere in contemporary life. Arbitration, which was mentioned above, is something most consumers and even workers are subject to. It effectively entails waiving your right as a citizen to a jury of your peers in favor of a corporate-designed adjudication process. That’s not to say that arbitration is completely arbitrary, but it isn’t without tradeoffs. Most importantly, though, it robs you of the choice of how you want to pursue compensation, even superseding your legal entitlements as a citizen. 

Along with arbitration, some other common tactics include:

• Imposing penalties (known in economics as switching costs) on consumers who leave services “too early.”
• Dark patterns designed to capitalize on your limited, precious attention and cognitive bandwidth. For example, hiding cancellation buttons or auto-renewing services without clear communication.^[4]4
• Preventing reuse or repair of goods, forcing repeated purchases.
• Monetizing your activity or behavior without your explicit consent. While this behavior is now seen as par for the course for internet companies, it’s showing up elsewhere. Car manufacturers are now selling driving telemetry to data brokers. In other words, even if you’re paying for the product, you still are the product.

I'll stop here, but the list is truly endless.

The cost of corporate kung foolery

Corporate kung fu is big business; it’s all the ways companies nickel-and-dime customers without necessarily improving the quality of what they’re offering. Customers hate it, but companies won’t stop doing it because it brings in millions of dollars. This leads to a paradox of sorts. Econ 101 tells us this shouldn’t be possible—these egregious consumer rights violations should eventually moderate themselves out of existence through competition as customers and workers choose to interact with firms that treat them better. Under this view, we’re forced to conclude that people simply find this behavior acceptable. 

However, when you look closely, you’ll start to see that some forms of corporate kung fu are just market failures. This is a fancy way of saying that the so-called free market fails to function in the way a market is expected to. Market capitalism cannot resolve market failures by itself. In fact, this behavior, which stems from straightforward market incentives, suggests that the system encourages these types of failures so that companies can maximize profits.

Going back to my example of termination fees, like when you’re charged to leave an internet provider, this literally makes it more expensive to seek out a competitor. Even if you’re not an economist, you likely recognize competition as one of the key defining features of a functioning market. If customers are punished for seeking out alternatives, then this prevents the market from providing the best possible outcome for consumers. Heck, this arguably isn’t even a market. 

Corporate kung fu encompasses a wide range of behaviors, with some being nothing more than an annoyance. You may grimace but will ultimately pay termination fees. Similarly, you’ll accept that your credit card was charged when you forgot to cancel a service or that Facebook has captured and used your data even if you’ve never registered for any of Meta’s services. Sometimes, though, corporate kung fu proves lethal. I'm not just referring to the waiver of wrongful death lawsuits; companies can knowingly adopt harmful business models and profit immensely from them. The most notable example is Purdue Pharma, which played an outsized role in the American opioid crisis and subsequent opioid deaths. The company aggressively marketed its addictive drug OxyContin while downplaying its dangers.

Why do companies practice corporate kung fu?

Corporate kung fu often arises from information asymmetry—the gap between what consumers know versus what producers disclose. If you take an entry level economics course, information asymmetry is taught as an edge case in certain markets, like the market for used cars. But it permeates the modern economy and arguably turns a lot of Econ 101 on its head. In the modern world, most of the things we buy require technical expertise to build or are services, which are naturally difficult for consumers to compare to one another. Furthermore, tactics like marketing and branding allow companies to extensively alter the information environment that the public has access to when making decisions about what to buy.

Companies, as profit maximizers, follow the path of least resistance to making money. Sometimes that means improving a product so that it’s offered at a lower cost or with better service. However, if the public lacks good information, it’s more economically efficient to practice corporate kung fu. Why would you voluntarily cut costs to reduce prices or spend more to increase the quality of your service? This is risky and is only economically sound if it’s your only option. Nobel Prize-winning economists Robert Shiller and George Akerlof actually model this in their book Phishing for Phools: The Economics of Manipulation and Deception.

Corporate kung fu creates innovations in response to competition, only the purpose of these innovations is to figure out how to avoid economic competition by using psychological, regulatory, legal, and other means to protect profits at all costs. The end result is that market capitalism incentivizes market actors to find cleverer and cleverer ways of bypassing the “rules” of market capitalism. Or, as author and activist Cory Doctorow more succinctly put it, “capitalists hate capitalism.”^[5]5

Why does corporate kung fu matter?

Behind some of our biggest challenges, you’ll find information asymmetry and corporate kung fu at play. For instance, since the 1950s, the oil industry has known about climate change. Their response was to fund disinformation campaigns and support politicians who would keep their subsidies flowing. In other words, oil companies increased the switching costs of moving away from oil. While we’re now starting to make a lot of progress on renewables, it’s important to understand that if market actors like oil companies actually behaved the way Econ 101 suggested, in alternatives would have begun sooner. Acknowledging this isn’t about assigning blame; it's about understanding that making market capitalism work requires recognizing how competition incentivizes companies to externalize costs and shape the world. Even if the shift toward renewables is “satisfactory,” we must remain vigilant for instances where corponomics leads to catastrophic outcomes, like the opioid crisis. 

More frightening examples of corporate kung fu are the silent tragedies, the ones that few people know about, which result in costs that the public quietly bears for generations. My go-to example is DuPont’s decision to use lead in gasoline. Despite knowing ethanol was a safer, more effective alternative, DuPont pursued lead because it was more profitable while gaslighting the public about its safety. The result? Millions of deaths and cognitive impairment in hundreds of millions of people due to lead exposure. Even today, we’re still dealing with the consequences of this decision. That’s to say nothing of the environmental costs of aerosolizing lead everywhere.

How can we combat corporate kung fu? 

Corponomics reminds us of the asymmetry between individuals and corporations. As disheartening as this can be, it underscores the importance of building strong institutions to keep companies in check. As consumers, it's crucial to consider more than just price when buying goods or services. My blog, Misaligned Markets, is dedicated to the project of aligning markets and people. I invite you to join the conversation and the community to meet people who want to learn kung fu how we can make markets accountable to people.

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