The WeWork debacle should be an indictment of modern finance
It happens every few years – not quite with the regularity of the seasons but with the inevitability of a natural disaster. A new company is founded on the basis of a new and seemingly ingenious concept, and then rocket-fuelled by growth-boosting investor capital. It briefly burns bright and then implodes, collapsing under the weight of its own balance sheet.
The latest tech financial calamity is WeWork, an office space and “workplace solutions” operator that is now shrinking rapidly, after a planned initial public offering (IPO) was scrapped when potential investors rejected its absurd $20bn (£15.5bn) valuation. WeWork’s collapse is a businessschool study in the excesses of private capital in an unregulated market that fetishises the wealth-creating genius of the lone pioneer.
WeWork’s strategy wasn’t simply to fulfil a practical need: its aim was market domination, to be achieved by undercutting its competitors in a race to the bottom, using investor capital as oxygen to sustain losses while other serviced office-space providers ran out of breath and expired. The idea was then to leverage its reach to name its terms and prices. But despite investors’ indulgence of loss-making ventures that promise enormous future profits, WeWork tested that tolerance with a loss of $219,000 (£171,000) every hour while failing to reach ubiquity fast enough. What WeWork was offering – workspaces and hot desks for the urban freelance – was not, to use the jargon of such companies’ own marketing, sufficiently “game changing”.
Adam Neumann, WeWork’s now ejected founder, is making off with a $1.7bn reward for failing to achieve his vision and appearing to lose investors eye-watering sums of money. As with most tales of financial hubris and reckless over-expansion, the architect absconds with the spoils while the company’s employees pay the price. About 4,000 WeWorkers are expected to be fired. Their new chairman told them they were “taking one for the team” – one of the lesser-known features of the market’s invisible hand.
Neumann was a unicorn founder out of central casting. He is a longhaired messianic hyper-connected bro, whose rather basic business idea was propped up by a talent for raising money and the networks needed to do so. (His wife, Rebekah, is Gwyneth Paltrow’s cousin.) But the crisis at WeWork isn’t just one more bursting-bubble tale fronted by another Steve Jobs wannabe: it exemplifies the increasing volatility of the economic model that inflated the unicorns of the past. And it involves three trends that underpin the growth of enterprises looking to make money by catering to the modern workforce: the expansion of the gig economy, the relatively low cost of commercial real estate, and the increase in financial flows from sovereign investors in search of political capital.
What sets WeWork apart is that it is a company built on the rubble of the financial crisis. Its customers are largely drawn from the precariat – workers who no longer expect to find permanent jobs and so instead become full-time gig-economy labourers. The financial crash, combined with the sophistication of remote working solutions, meant that employers were able to create two tiers of labour: full time with full benefits for their most profitable workers; and task-specific gig contracts, without pension or paid leave, for everyone else. Even the cost of the physical space, the ground rent required to house employees, can now be passed on to workers, who pay to rent their own desks in co-working spaces.
This is where WeWork comes into the picture: providing offices to house these satellite employees, and giving them a sense of belonging in their satellite workplace. WeWork buildings have canteens, free coffee stations, an engineered sense of camaraderie and community. Like the Japanese rent-a-family industry, WeWork will sell you the love and warmth of an employer when your real employer is absent, or short of affection.
The aftermath of the financial crisis also made it easy for WeWork to buy and lease cheap commercial property as a result of a real-estate market crash followed by low interest rates – enabling it to become the largest private-sector tenant in New York and London. Its unravelling is already rattling property markets in the US, the UK and Ireland.
Investments that pumped up WeWork embodied another post-crisis trend – financial adventurism as a geopolitical tool. WeWork’s largest backer, Softbank’s Vision Fund, is largely funded by money from Saudi Arabia and Abu Dhabi. This is what analysts call dumb money: huge investments in high-profile tech companies such as Uber, Slack and DoorDash, with the aim of multiplying political clout rather than financial returns, at a time when economic power is shifting from Wall Street to Silicon Valley. Saudi investments buy more than allies in Washington: lavishing money on Silicon Valley helps crown prince Mohammed bin Salman to land soft interviews in the western press and cosy chats with the titans of tech.
The WeWork debacle should be an indictment of the character of contemporary finance capitalism – but it is almost certain to become another unremarkable instalment in the folklore of modern business, another natural disaster that wrecked thousands of lives and careers before the market moved on to its next unicorn. Nothing will change, and there will be no introspection. And it will happen again soon, because late capitalism is sustained by the myth that spectacular implosions like this one are acts of God – when they are entirely man-made.
• Nesrine Malik is a Guardian columnist
The WeWork debacle should be an indictment of the character of contemporary finance capitalism
have come into possession of sums of money far in excess of his income as a political aide and former police officer. But after a bizarre television interview in which he vaguely claimed that he had become rich by virtue of his love for “buying and selling” used cars, Queiroz disappeared completely: hidden in a neighborhood controlled by the same militia that murdered Marielle.
The phrase “Where is Queiroz?” has become a taunting internet meme used to symbolise the criminality at the heart of the Bolsonaro family as well as a protest against the stalled, and perhaps deliberately impeded, police investigation, which to date has arrested no one. Brazil’s largest news magazine, Veja, recently published a cover story announcing that, unlike the Rio police, it had succeeded in “finding Queiroz”: living in a wealthy neighborhood near Brazil’s most expensive private hospital, where he regularly goes for treatment.
Bolsonaro has repeatedly used – or abused – his powers as president to block the investigation into the stillmysterious deposits made into the bank account of his eldest son and his wife. The president has all but relinquished his reputation as an anti-corruption crusader with his nowobvious fixation on ensuring that no investigation is permitted to proceed.
Bolsonaro has removed officials from the branch of the federal police investigating Flávio and Queiroz. He is threatening to change the leadership of the Rio branch of the federal police and replace them with loyalists to his family. He has stripped the agency that discovered Flávio’s suspicious financial movements of virtually all of its authorities. He appointed as chief prosecutor a man who is openly critical of the anti-corruption investigation that Sérgio Moro led. And just last month it was reported that Bolsonaro had a meeting in the presidential palace with the lawyer representing Flávio in the corruption investigation.
Meanwhile, Bolsonaro’s other son, the city councilman Carlos Bolsonaro, is under investigation for the same kickback scheme of which his older brother is suspected. And Bolsonaro’s attempt to appoint his son Eduardo as Brazil’s ambassador to the US has been widely viewed as corrupt if not an illegal act of nepotism.
Bolsonaro’s carefully cultivated image as a political outsider vehemently opposed to corruption was always an obvious myth. He is the opposite of an outsider: before his election as president, he had been a congressman for almost 30 years, closely connected to the Rio de Janeiro political machine.
But Bolsonaro’s extremist ideology and his propensity for garnering attention through outlandish statements (such as proclaiming that he would rather learn his son was dead than gay, and explicitly praising the torturers of Brazil’s military dictatorship) did relegate him to the fringes of political power in Brasília. That is what allowed him to claim the mantle of outsider and frame himself as an adversary of systemic corruption rather than what he seems to be: a direct beneficiary.
Any lingering doubts about the legitimacy of this anti-corruption image are being quickly dispelled by his personal involvement in these corruption scandals and his devoted obstruction of all investigations involving himself and his key family members. Just nine months after being inaugurated, polls now show that he is plagued by historic levels of unpopularity for a firstyear president.
As has happened in so many other countries in the democratic world, including in the US, an “outsider” president elected on promises to “clean up” rampant political corruption has proven even more corrupt than those he denounced.
Brazilians have always known that Bolsonaro is a demagogue and extremist. But these scandals and his attempts to keep them concealed are now making it clear to all but his most devoted followers that he is at least as corrupt and friendly to criminal elements, if not himself a criminal, as the scoundrels who have dominated the country’s politics for decades.
David Miranda is a member of the Brazilian congress for the Socialism and Liberty Party and a Guardian US columnist