Executive Summary: Our team sport of capitalism is crumbling because we have mutated its definition to mean capital inflation. This flawed interpretation has fueled a systemic reliance on capital engineering: the tendency to artificially inflate the monetary value of an asset significantly higher than the real-world value it creates. During the easy-money era, companies became the assets systematically inflated in value, rapidly scaled, and sold. As traditional policy backstops are exhausted, we must reverse the unproductive use of capital and the decoupling of price from value. We must build holistic companies that balance stakeholder incentives and generate lasting value, rather than structuring them for monetary arbitrage.
In a 2021 Axios Momentive Poll, 2,309 participants answered the question, “Do you think the evidence for capitalism, as an economic system, is now better, worse, or about the same, when compared with 50 years ago?” 41% of that group answered, “worse than 50 years ago.” In that same poll, respondents were asked, “Do you think the evidence for socialism, as an economic system, is now better, worse, or about the same, when compared with 50 years ago?” 43% answered, “worse than 50 years ago.”
What is your interpretation of these responses? Given that this random set of respondents lives under the exact same economic regime, the split opinion implies that the collective can’t even agree on which economic principles we are actually practicing and doesn’t internalize the essence of either capitalism or socialism.
I was actively involved in the housing crisis autopsy at Capital One. For the last few years, I have been actively involved in addressing issues faced by mid-sized private equity-backed and venture capital-funded companies.
Through these two economic cycles and working with dozens of companies and their executives, I learned that our team sport of capitalism is crumbling under the weight of 8 billion people playing this game with no rules of engagement or clarity on what even the most basic words mean. A few decades ago, this game was actively played by only a small fraction of those people. The rest were passive participants focused on value creation. Today, most doctors focus on moving patients through an assembly line, billing for services, and their personal brand rather than patient health. Even farmers are far more focused on marketing their creations than they were a few decades ago.
There are two fundamental gaps in how we practice capitalism. In this four-part series, we will discuss one of them: the lack of focus on productivity. In fact, some of the arguments I make in this article form a trailer for the introduction to my book Congruence: The Playmaker’s Guide to High Value Companies.
Let’s start with capitalism's definition. Here are three definitions from three distinct sources:
There is a very important takeaway hidden in these definitions. One word that is pervasively used by everyone these days is not in any of these definitions. That word is GROWTH!
Everyone is harping on about growth in every corner of our economy. The word growth doesn’t even appear in capitalism's definition. Understanding the mutated inclusion of growth as the goal of our economy will reveal the biggest flaw in how we practice capitalism.
Capitalism should provide access to capital and create incremental value with that capital. Return on capital must come from our ability to create intrinsic value with the capital. Capitalism is not intended to artificially inflate the sourced capital by constructing an extrinsic illusion of value. Inflating capital without value creation is called capital engineering.
Capital engineering explains every single scandal in our ecosystem. When we colloquially use the words Ponzi scheme or pyramid scheme, we are referring to capital engineering. But capital engineering is everywhere if we look carefully enough.
Make a list of the top ten company-level scandals or sector-wide disasters in history. Whether the actions were embraced by a single individual, executives in one or more companies, or all operators in an entire sector, we can trace the root cause of scandals to the tendency to inflate the monetary value of an asset significantly higher than the real-world value that the asset is creating.
But this is a collective behavior and not just the actions of a few. On the back of my Kellogg MBA, I spent a couple of years working at Capital One to help unwind the mess we created in the 2000s through mortgage-related assets. When the depth of that mess came to light, there was no hesitation in blaming “Wall Street” for causing the bubble and calling mortgage assets “toxic.” It’s convenient to blame everything on a street. But Wall Street did not cause that bubble. Every stakeholder group in the ecosystem took part in causing the crisis:
We all played a part.
The systemic problems start at the very top. In democratic, wealthy countries, Gross Domestic Product (GDP) has been the primary measure of quality of life for decades. Although metrics are important, relying on the same single measurement for decades means we focus on making the numbers look good while allowing the underlying behaviors to degrade. This phenomenon is called the Hawthorne Effect, and it exists everywhere.
The United States GDP has been rising like clockwork for decades. In fact, the near-perfect smoothness of the trend line is concerning. Like the adage of not trusting someone without flaws, this GDP curve's perfection is manufactured. Why? If this line isn't rising so smoothly, elected officials struggle to claim they are consistently improving quality of life.
Our unhealthy focus on this GDP curve is the starting point of capital engineering, which then trickles down through every aspect of our economy. In 2022, US GDP shrank for two consecutive quarters, which is the technical definition of a recession. Elected and appointed officials went through weeks of media campaigns to claim that the country was not in a recession. Why does it matter whether a number largely disconnected from practical daily realities goes down by a tiny margin?
It doesn't. GDP numbers carry only the importance we choose to assign them. It is akin to associating happiness solely with money and then engaging in high-risk activities to make money. We choose to give GDP figures massive importance and choose to prop them up by any means necessary.
Governments have three primary tools to prop up GDP numbers. Rich Western countries have exhausted these options to maintain an easy-money era. Let's look at the US data to understand the predicament.
The first tool is the interest rate at which banks borrow from the Federal Reserve. Nearly all public conversations about interest rates stem from this single blunt instrument. The Federal Reserve lowers this rate to encourage more borrowing and spending in our economy. When banks can borrow money more cheaply from the Fed, it lowers interest rates for companies and consumers.
Here is a striking reality that only sinks in when looking at the historical data: the US Federal Reserve kept benchmark interest rates near 0% through most years between 2009 and 2021. Interest rates were never close to 0% between 1955 and 2009. Never. It is critical to internalize how zero interest rates artificially inflated perceived growth for over a decade.
Low interest rates mean individuals and institutions with excess cash must seek out riskier mechanisms to find a return on investment. Is it a coincidence that sky-high prices for cryptocurrencies, NFTs, and chronically unprofitable companies were rampant during that decade? It was a completely predictable outcome, even if official reports rarely present the full picture.
What else happens when interest rates sit at zero? Everyone borrows to spend. Individuals and companies access cheap loans, which triggers more spending. Consumer debt in America in 2022 grew 33% higher than in 2010, while US corporate debt reached twice its 2010 level. Again, look around and ask where all that spending actually originated.
You might say we have dealt with leverage before. But we have not under these conditions, because governments have consumed the other two economic tools as well.
The second path for government intervention is direct spending on public projects, known as fiscal spending. We accelerated fiscal spending to the point where the US national debt by 2022 reached three times its 2010 level. The US national debt-to-GDP ratio, which measures the ability to service national debt, reached 130%. As a reference point, when the Greek government required an international bailout, its debt-to-GDP ratio sat at that exact same level.
A government can deploy its third tool: printing more money and devaluing the currency to service debt. The technical term for this is quantitative easing. Since the 2008 financial crisis, the Federal Reserve expanded its balance sheet tenfold, moving from roughly $1 trillion to over $8 trillion in assets, effectively increasing the volume of money in circulation.
The overuse of these three tools fueled the good times over the past decade, but it came at a steep cost. Having exhausted these levers, the real economy struggled to produce organic growth even by standard GDP metrics, while inflation surged. Although policymakers initially labeled that inflation "transitory," it was the direct, cumulative result of ten years of zero interest rates, aggressive fiscal spending, and quantitative easing, rather than just temporary supply chain disruptions.
High inflation means the purchasing power of every dollar held by a consumer or business decreases. This forces one of two outcomes: either consumers and companies reduce their living standards and operating expenses, or they continue spending using debt. Cutting spending reduces GDP, which suffers from an unhealthy dependence on continuous consumption.
Conversely, if individuals and companies attempt to maintain past spending levels, less capital remains to service accrued debt. This triggers defaults on personal and corporate loans. Loan defaults place lending institutions at risk, restricting credit for future investment and reducing employment within financial institutions. That path also leads to contracted spending and economic contraction.
Looking at these macroeconomic trends, the shortsightedness of those managing these policy levers becomes glaringly obvious.
In sum, the US economy has become largely capital-engineered for short-term optics. Once these policy options reach their limits, central banks have to raise interest rates and shrink balance sheets to contain inflation, while governments face pressure to curb fiscal deficits. Managing all of these adjustments simultaneously at this scale is unprecedented. Executing these adjustments will inevitably force economic contraction.
Notice that this analysis does not rely on value creation through technological breakthroughs or sustainable energy. To inflate GDP numbers artificially, an economy does not have to create intrinsic value. It simply has to pull these three levers. That same short-term, paycheck-to-paycheck mentality trickles down directly into how companies are managed today.
With all this easy money pumped out to maintain a meager GDP growth rate, let’s look at what transpired below the macroeconomic surface. Companies reflect the overarching behaviors encouraged by their financial environment.
Social outlets, conferences, and executive forums gave nearly all their airtime to fundraising, share price markups, and non-stop hiring conversations. As that cycle winds down, it is appropriate to evaluate the actual results.
When I started working with private companies following my experience dealing with the fallout of the mortgage-backed financial crisis, I felt a strong sense of déjà vu. During the 2008 crisis, the assets we engineered and inflated in value were complex mortgage packages. In the easy-money era that followed, newly created companies became the assets systematically inflated in value and sold. This was the recent cycle's version of capital engineering.
This behavior is sector agnostic. The tendency to hyper-scale, the method used to inflate a company’s market price rapidly, infiltrated consumer-facing and business-facing companies across software, hardware, packaged goods, services, and emerging markets. Value creation in these sectors is necessary, and markets require sustainable companies to thrive. However, owners of capitally engineered companies focus primarily on short-term share price markups and flipping ownership stakes to the next buyer at a higher price, rather than on profitability, customer value creation, or long-term stakeholder alignment.
The chart I included in the cover image tracks the share price trajectory of a real consumer apparel company. From its founding in 2016 through 2021, the company’s shares were held by the founders and a handful of private investors who comprised the board. The market price ticked up like clockwork because this small group of insider investors determined the company's paper worth. Conversely, the share price was not grounded in operational profitability or sustainable customer value creation. Each funding round was celebrated with fanfare, supported by public relations that painted a picture of guaranteed growth aimed directly at future buyers.
Then the company went through an exit. Whether through an initial public offering (IPO), a sale to a private equity firm, or an acquisition by a large strategic buyer, the expectation built into the prior pricing rounds was that market value would continue climbing.
However, the reality was predictably different. As with this apparel company, the market value of capitally engineered businesses often craters after ownership transfers because new owners gain full visibility into the underlying operations. Within eight months of its public listing, this company’s price dropped by 73%. An investor who bought $100 worth of shares at the public listing held $27 worth of shares eight months later. This was not a cherry-picked anomaly; it was a structural outcome tracked across multiple sectors.
Consider the broader data illustrating the effectiveness of companies created through that cycle. There were 1,035 IPOs on the US stock market in 2021, a record figure 120% higher than the 480 IPOs in 2020. These figures included a surge in Special Purpose Acquisition Companies (SPACs), which served as an accelerated route to list immature companies publicly.
Easy-money conditions enabled private companies to hyper-scale and go public with frothy market prices. However, over 60% of companies that went public during that period traded well below half their initial listing value within a few years. SPAC listings posted an even worse track record, and a majority of companies that went public during that boom remained unprofitable years later.
These unsustainable structures lead to substantial investor write-downs, negative net value for customers, disrupted career growth for employees, and heightened risk for other companies in the value chain. Private companies play a vital role in capitalism, but inflating the share prices of immature operational models leads to market destruction. The fate of hyper-scaled companies built on capital engineering was predictable because the underlying mechanics were clear from the start.
Many finance professionals argue that the 2007–2008 crisis was as severe as economic downturns can get. I disagree. The fallout from the easy-money era will prove far more challenging once its full effects take hold because traditional policy backstops have been exhausted and the boom cycle has gone on for nearly two decades.
First, fiscal and monetary tools are constrained. Fifteen years of near-zero interest rates, extensive quantitative easing, and unprecedented fiscal stimulus have ballooned national debt levels across developed economies. Central banks and governments can no longer sustain zero-cost capital or routinely backstop underperforming businesses. Historically, market corrections rarely occurred with such limited policy headroom remaining.
Second, this reset impacts every single corner of our economy. During the 2008 financial crisis, structural weakness was heavily concentrated in on-paper pricing of a specific mortgage asset class. In contrast, the easy-money cycle created operational fragility across all industries, leaving few sectors untouched.
Third, leadership across both public and private sectors encouraged the belief that capital could expand indefinitely without underlying productivity. There is no free lunch anywhere in nature. As a business engineer who has led numerous turnaround efforts, I know firsthand that driving real behavior change across complex organizations is exceptionally difficult without significant discomfort. Reversing the two-decade-long addiction to cheap capital and the resulting skill gaps across the economy requires significant psychological and behavioral restructuring.
Given this reality, we must critically evaluate our roles in the current ecosystem. Are our daily decisions driving intrinsic value, or are they contributing to capital engineering distortions? Even market participants who act as standard-bearers for private capital often express skepticism about current incentives. Yet, we can still harness the genuine power of capitalism.
Here are the questions we must ask ourselves to reverse the unproductive use of capital:
Putting our investor hat on:
As a worker:
As a consumer:
As a member of society:
The essence of capitalism is to build holistic companies: businesses that balance the incentives of all stakeholders, including investors, customers, employees, partners, and society at large. Capitalism is a team sport best played with transparent rules and disciplined execution. It is time for serious, grown-up conversations about how companies operate. Let’s focus on building companies that generate lasting value, rather than structuring them solely to benefit from financial arbitrage.
John Oommen is an electrical engineer turned company-level evolution architect who partners with private company investors and middle-market CEOs to mature and transform portfolio companies. He is the author of Congruence: The Playmaker's Guide to High Value Companies, creator of the underlying proprietary Congruence mindset, model, and method, and pioneer of the Playmaker Capability, which is a must-have value injection mechanism that dovetails purpose, strategy, and operations.
Over more than two decades, John has led company-level transformations, M&A integrations, and operational turnarounds across dozens of mid-market, VC and PE-backed, and Fortune 100 companies, including General Electric, Accenture, Blue Ridge Partners, and Capital One, as well as enterprise clients like Emerson, Ferguson, Cox, Avaya, and Nortek, alongside numerous mid-market companies. He specializes in addressing business-to-business market problems spanning industrial manufacturing, distribution, technology, and tech-enabled services. John holds an MBA from Northwestern University’s Kellogg School of Management, is a certified Six Sigma Black Belt, and is based in Chicago.
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