C for Capitalism, C for Corrosion — Part 1

Ouroboros depicts the cyclic Nature of the Universe: creation out of destruction, Life out of Death. It eats its own tail to sustain its life, in an eternal cycle of renewal.
“In the long run we are all dead.”

While this powerful statement made by John Maynard Keynes, the twentieth-century economist, has been sufficiently democratized; his foretelling of the economic aspects of decades to come through the essay “Economic Possibilities for Our Grandchildren” (1930) is insightful. He says,

“We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come — namely, technological unemployment. This means unemployment due to our discovery of means of economizing the use of labor outrunning the pace at which we can find new uses for labor.”

For Keynes to develop this insight in mid-twentieth century, post the second industrial revolution and before the dot com bubble is remarkable. While his statement focuses on how technology could affect employment, a precise study should involve how the undercurrents characterizing this effect are governed by paradigm shifts in the prevailing economic system (market capitalism). Most of us, who are reluctant towards noticing it, need to analyze how the shift arises from the core of a system which assigns a price to every aspect of life for exchange at the marketplace:

The capitalist system itself.

We are witnessing an era wherein the Collaborative Commons and Internet of Things are giving rise to a “Sharing economy”. Reason: the recurring technological successes which are a result of triumphs of capitalism even as they strike at the very root of capitalist system itself. Have a look:

Technological progress driving down prices in a loop

How does this loop strike the root of capitalism itself? As the capitalist system approaches its epoch, the very undercurrent marked by increasing productivity resulting into a decrease in the price of goods leads to a zero marginal cost situation. E.g. how technology has led to the availability of less expensive or even free eBooks due to the detour it affords from a number of middlemen (publishers, editors, distributors and retailers). Same applies to the entertainment industry. Thus, profit-making: capitalism’s primary objective, is jeopardized even as a period of exchanging goods and services for free sees the light of the day.

But there are those who still harp the tune of the sustenance of the capitalist system through the “freemium” economic model which yields profits. E.g., music streaming services like Spotify, magazines like The Economist which offer free music/articles to a degree so as to lock in consumers and subsequently convert them into subscribers thus generating sufficient revenues.

The counter-argument to this is: How long is this sustainable? Spotify’s free-to-paid conversion ratio was 37% in 2016. While by industry standards it is a very decent number, in the grand scheme of things under the ambit of a capitalistic model, the end consumer base pumping revenues is quite narrow and further diminishes as an enhanced clutter emerges in the music streaming space. There shall be newer models to attract more consumers but given how goods are being democratized and the rise of “prosumers” (consumers who are also producers), sharing economy seems to be a not-so-distant reality.

While the collapse in the price of goods leading to leaner profit margins is a worry in the current capitalist system, the concurrent increase in the volume of goods is an aspect that is changing the economic landscape in newer ways. We might be approaching an era of an abundance of goods, services rather than the scarcity of the same. But what we should consider, in parallel to this abundance is the fact that the rate of replenishment of natural resources is clearly not making up with the rate of exploitation of the same. Land, water and petroleum reserves are still scarce. Perhaps it is vital to explore these dimensions towards utilization of increasing technological progress. Else, Keynes’ quote could very well serve to be the profoundest statement ever made.

Additional references: “The Zero Marginal Cost Society” by Jeremy Rifkin