This article is translated from the article by Chari, the founder of TaleX. The original link is: https://x.com/TaleX_chain/status/1854678350565953804

Introduction 1

The combination of modern technology and modern free market economy has brought about one of the greatest institutional innovations in human history. This innovation gives everyone the opportunity to give full play to their talents and obtain the wealth they deserve. The first major institutional innovation is the free market economy based on modern technology. — Li Lu (Li Lu on Modernization)

The free market economy is perhaps the greatest institutional innovation in human history. Everything we enjoy today seems to be derived from it. Entrepreneurs confidently commercialize technological inventions and compete fiercely, seeking survival and development in various ways. Capital gathers behind them, either providing resource support or forming alliances.

Entrepreneurs and capitalists believe in social Darwinism: as long as they can make money, they ignore criticism that is tainted by "the dirtiest blood," as Marxists might say. They naturally abhor government intervention, respect precedent more than authority, and participate in politics only to limit government power.

The free market economy allows anyone to freely choose partners, technology commercialization directions, target customers, and even competitors. This freedom quickly verifies every business opportunity and quickly transforms ideas into productivity and products, and then into profits.

From the Age of Exploration to the discovery of the New World, from Watt's improvement of the steam engine to Edison's founding of General Electric, from the civil aviation network that allows people to travel around the world to the Internet that allows people to communicate instantly anytime and anywhere - almost every modern achievement has been made possible by the free market economy.

A key cornerstone of a free market economy is the protection of private property rights.

Private property protection provides a basic order in a free market economy, giving individuals and businesses control over their own resources and creations. They can freely trade, rent or invest these resources so that they flow to those who are most able and willing to use them effectively. Property rights ensure that they can enjoy the fruits of their labor without fear of arbitrary confiscation.

The combination of free trade and property rights has enabled countless partnerships, created countless new products and services, and ushered in a century of increased wealth and rising living standards that far exceeded all the previous millennia.

Yet there is a fundamental paradox here.

Freedom implies a completely open structure, and the main principle of price formation in a free market economy is supply and demand. In cases of extreme imbalance between supply and demand, especially when supply is monopolized, the protection of private property rights is negotiable.

Supervoting stock, or dual-class A/B shares, first appeared in the 1920s. The structure was initially adopted by newspaper companies such as Dow Jones & Co. (publisher of the Wall Street Journal), The New York Times Co. and The Washington Post Co.

The official reason is to prevent outside investors from interfering with content creation and ensure that founders retain editorial and operational control of the newsroom. But in practice, this undermines property rights protection by separating ownership from control.


When Google (now Alphabet) went public in 2004, it made clear its intention to ensure founder control through a dual-class share structure. Following this precedent, many tech companies — Facebook (now Meta), Tesla, Snap, Lyft, Pinterest, Alibaba, Spotify, DoorDash, and others — have adopted similar structures that allow founders to maintain control while gradually selling their shares.


While this may seem unfair, there is no coercion involved — it all happens in a free market economy. Even Warren Buffett, who is openly against dual-class share structures, has invested in companies like Google, Facebook, and Apple (which adopted a dual-class share structure in 2005 via a shareholder vote).


The reason is simple: capital is growing too fast, with too much money chasing too few fast-growing companies and entrepreneurs. Supply and demand dynamics have caused capital to lower its standards.

The good news is that entrepreneurs now have unprecedented control, which gives them greater strategic flexibility and resilience in the turbulent, fast-changing technology sector. They can ignore short-term profit fluctuations, focus on long-term market goals, make ultra-long-term strategic investments, and create breakthrough technologies that change lives. They can also reduce or eliminate dividends and keep the maximum free cash flow within the company to prevent capital from exhausting resources.

The bad news is, they do. All of the dual-class companies mentioned above — with the exception of Apple, whose founder is now deceased — have never paid a dividend since their IPO. In fact, the lack of dividends isn’t limited to dual-class companies; companies where the founders have majority control rarely pay dividends either.

Even the archetypal capitalist, Warren Buffett, has never paid a dividend at Berkshire Hathaway, even though the company's cash pile has at times exceeded $320 billion.

This practice of placing all free cash flow under the control of the entrepreneur means that capital has not only lowered its standards - it has also lost its influence. Capital appears to own shares in the company but has no voting rights and cannot receive dividends.

Investors can only watch as the company continues to raise funds from the capital market, the founders sell shares in the market, and the company's operations do not return any returns. The investment income of the so-called "buy low and sell high" is only borne by other investors who eventually "buy high and sell low".

Occasionally, entrepreneurs may extend a little favor, especially when they feel their stock is undervalued. Some companies, such as Facebook, Alibaba, and Spotify, have launched stock buyback programs. However, rather than being written off, these repurchased shares are often used for employee incentives. Stock buybacks used for incentives increase the share price, making the stock more attractive to employees, further reducing the cash outflow for employee compensation. It's just another way to protect a company's cash flow.

While these technology companies’ control over free cash flow enables them to make long-term investments in cutting-edge technologies and create enormous social and economic value, this absolute control over free cash flow also brings considerable negative externalities.

Article author: Chari, Founder and CEO of TaleX

(Disclosure: The author holds BTC/BNB. This article does not constitute investment advice. DYOR)