Money is the universal incentive that encourages everyone to find efficiency in what they do. Personally, you might make the cost-saving decision to turn off lights and heat when you’re not home. But it’s also the same cost-saving business decision to replace salaried workers with automation.
In the 21st century, we are more quickly approaching capitalism’s paradox than expected.
Capitalism is working as intended. A constant exercise of finding the most efficient way to use scarce resources.
It is providing miracle abundance through increasingly efficient processes that raise the public standard of life for everyone. Yet this progress comes at the cost of replacing labor with automation (or globalization providing cheap labor) and in recent trends has been distributing this new found wealth unequally. If you fire all your workers so you can automate/relocate to a country with cheap labor, then no one will be able to buy what you produce. Those with money can invest to make more, often while displacing lower and middle classes who traditionally powered the economy through consumption of its services.
This creates a paradox of abundance being created without anyone who can pay for it. This is dangerous because this begins to rip apart the mutually beneficial relationship between producer/consumer that holds our economy together.
We can see the beginning of this efficiency paradox today.
In terms of food, production and supply chain institutions have become so efficient that half of the food that America produces is thrown directly into the trash without ever reaching a mouth. This food abundance problem occurs simultaneously as 43+ million Americans every year live in hunger.
Automation of transportation
The automation of moving humans, goods, and deliveries dramatically brings down the costs of travel and commerce, even advancing the possibility of a more sustainable access-economy. Yet simultaneously threatens to replace the jobs of over 5 million blue-collar Americans.
Grocery stores and retail stores are already saving money through self-check out aisles, allowing one employee to manage multiple machines instead of one each. Amazon is even testing a model of removing cashiers entirely.
This brings down the cost of goods you buy while replacing the bi-weekly paycheck received by 6% of working Americans (8 Million people). Further exasperating this trend is online shopping. CEO of Alibaba, Jack Ma, makes the analogy that instead of building new warehouses, stores, and hiring workers to compete with Walmart, Ali Baba simply needs two servers.
Blockchain and smart contracts aim to remove intermediaries between individuals. But this also means a dip in many high-salaried jobs. Why hire accountants, compliance, and fraud departments when you can create smart-contracts that replace similar functions in real-time without error?
And if the aspirations of blockchain visionaries comes true, then also much of the processes provided by governments, peer-to-peer relationships, and access to services.
Populism. A response to inequality.
This is already creating political polarization seen in the American Rust-Belt where this loss of production work (employment dropping from 18.9 million jobs to 12.2 million) has devastated towns and left millions in poverty and without a future they can believe in.
Capitalism is working as intended.
But we don’t have to look at this negatively. Our economy isn’t in danger from a lack of things, rather distribution.
Society gains the more anyone can specialize. Together, we create a wealth of services than we could do alone. Thomas Thwaites proved how much we depend on specialized processes of each other by quite comically making a toaster oven completely by himself, starting by mining and processing the raw minerals for the metal.
If someone from the medieval ages took a visit to the present, they would call this abundance the final stage of utopia.
Thus, to look at this paradox more objectively, it helps to look at how we got here. How did we go from our earliest tribal hunter/gather societies, where everyone is working together to fight for survival, to the modern economies of today, where decreasingly small percentage of the population focuses on these basic necessities for everyone. My favorite analysis of these transitions come from Marx’s Stages of Economic Development. Yet instead of ending with “communism”, my belief is that the incredible abundance created through capitalism creates the conditions for post-scarcity lifestyles and economies.
From Communism to Capitalism to Post Scarcity
Primitive Communism (Tribes)
From 2.5 million BC to 10,000 BC (90% of human history), the evolving human race used simple carved tools for hunting and cooking. This sort of proto-society, still seen in certain remote tribes today in the bushes of Africa, Amazon, and Western Philippines, allowed for small clans to group together for survival. By combining efforts, the basic necessities of the tribe could be met by sharing the fruits of hunting expeditions, so that even if one individual didn’t have a successful hunting day, they’d still eat because another hunter in the tribe would share their kill. This socio-economic system allowed for small groups of humans to band together their efforts, yet was limited to ~15–35 people per clan. In this economic system, everyone plays an equal part contributing towards the sustainability of the tribe and divisions of labor are almost non-existent. Zero room for specialization.
Constraint: This socio-economic system has natural size constraints. Groups that grow any larger quickly extinguish the resources around them (natural vegetation and wild animals).
Agriculture introduces Slavery
In 10,000 BC, starting first in the Fertile Cresent of south west Asia before spreading across China, Europe, Africa, and Americas over the next few thousand years–humans enter the neolithic revolution, also known as the agricultural revolution.
The technologic introduction of arrow heads, more sophisticated daggers and knifes, hammers and chisels, and sickle blades allowed for new opportunities. The population constraints of tribal life were surpassed as humans were now able to domesticate animals and crops, allowing for more humans to live in higher density (civilization) in sedentary locations instead of following the food. Because a smaller group of laborers could maintain sustainable and reliable food production, others were freed to delve into specialization of non-survival systems. This movement away from nomadic lifestyle and the ability to create food abundance by a smaller group of people created new power relationships between people that didn’t exist before.
As humans began to live in much higher density, a much more sophisticated form of organization was needed to accommodate humans living in larger groups than our human minds can handle organically. Called the Dunbar-number, our monkey-minds are only able to maintain active relationships with 100–150 humans. Governments to manage these civilizations were now necessary, and with that, war-machines to protect the interests of these population hubs.
This system introduced some socio-economic incentives. Those who owned land could create farms and produce food, and thus were naturally incentivized to reduce the cost of labor through slaves, often enemies captured in battle. This makes food cheap, allowing citizens to climb the Maslow Pyramid by reliably knowing where their next meal comes from. This introduced new power-dynamics (heads of government, record keepers, officials of the military) because those with land were able to leverage their assets for prestige and power over those who depended on the abundance created by them. This socio-economic system developed the age of empires, most notably the Roman empire fueling their economic system with constant conquest to provide new slaves to work the food-centers and claim new land to reward loyal auxiliary soldiers who fought on behalf of the empire. (Egypt also has parallels of funding expansion with slavery)
Constraint: An empire with an economic and military system that relies on constant seizure of lands and enslaving captured enemies is not sustainable.
“Slaves acquired by conquest built most of its bridges, roads and aqueducts and took jobs in farming, mining and construction. As this cheaper labor replaced Roman citizens, idle, unemployed, hungry people filled the capital.”
In Rome, free grain supply and entertainment was provided to appease growing discontent. This created weakness within the empire that makes it vulnerable when faced with other stresses in it’s system.
“The emperors added holidays until, eventually, the Romans spent half their days attending gladiator games, public executions and chariot races. Disgusted, the satirist Juvenal accused his fellow citizens of selling out for bribes of “bread and circuses.” The Romans did nothing to prove him wrong, until two centuries later the empire was divided forever and Rome was sacked by Visigoths”. — Alice Schroder, Bloomberg
“Feudalism is a decentralized organization that arises when central authority cannot perform its functions and when it cannot prevent the rise of local powers.”— Lynn Harry Nelson, University of Kansas
Eventually the empire implodes and local rulers take back power from an empire that overstretched itself. In Europe, local rulers did not start from scratch and still had aging roman infrastructure, and roads, and cities and knowledge created from the past. Local rulers become royal families who now have personal incentive to sustain both the power and stability of their family’s rule. Thus, to prevent the tensions that brought-down slave empires of the past, these laborers were granted more rights. Serfs were given security and more rights in exchange for a tax of their food production. Increasing rights to peasants maintains the sustainability of production.
This system was useful in decentralizing power into smaller kingdoms which experimented with their own policies of sustainability and strength. No royal family wants to be the one to lose claim to the throne.
Yet this socio-economic power structure couldn’t withstand the black plague.
When half the population of Europe was wiped out by disease, the value of labor increased proportionally. This gave peasants more bargaining power, as if their lord was too onerous, they’d leave for another lord who was in demand of labor.
“Before the plague, rising population had kept wages low and rents and prices high, an economic reality advantageous to the lord in dealing with the peasant and inclining many a peasant to cleave to demeaning yet secure dependent tenure. As the Black Death swung the balance in the peasant’s favor, the rural worker indeed demanded and received higher payments in cash (nominal wages) in the plague’s aftermath.” — David Routt, University of Richmond
This also created a necessity for innovation. As innovation advanced, it’s proceeds were then being distributed more to the peasants who were demanding higher wages from their lords. This began to significantly erode the socio-economic order between lord and serf.
“Serfdom had practically disappeared in the last part of the 14th century. The immense majority of the population consisted then, […] in the fifteenth century, of free peasant proprietors. […] The emancipation of the English peasantry released the material base of the feudal mode of production, the village economy, from the prerogatives of lordship, allowing it to develop according to its own internal propensities.” — Marx, Capital
Private property is no longer a reserved right of the aristocracy, but rather a reward to those who are mindful towards market forces (efficiency). Price signals allow complex social interactions that allow anyone to specialize and become an expert in their domain, providing a wealth of services that would be impossible to organize by a centralized planner. Capitalism is by far the most superior global incentive to efficiently exploit scarce resources and services into abundance. This system has allowed us to terraform the earth to perfectly suit our needs — standards of life such as advanced medical care, transportation, fully stocked grocery stores with products from across the world — are beyond our ancestor’s imagination.
When you look at our current society and economy through a broader timeline, you discover there is no “status quo”. We are not at the final stage of utopia. And just like previous socio-economic systems before us, our system has inner-contradictions which create unsustainable tensions. As business owners replace laborers with technology, wealth is concentrated amongst those who already have it. And if the laborers employed by these business owners are getting paid less (or fired), who’ll buy the products produced by these business owners? The paradox is these efficiencies make products and services more abundant than ever before, but decrease the ability to distribute this abundance and thus creates unsustainable wealth inequality.
Only under capitalism, would you be fearful of a robot taking our job. Instead it should be a celebration of an ongoing transition towards increased quality of living and leisure.
Post-Scarcity (enough abundance for everyone)
Every socio-economic transition is born with the infrastructure and knowledge of the system before it. A post-scarcity economy is no different. The internet, AI, and automation are shaped in the free market as much as these technologies disrupt the market.
In fact, the world’s most successful capitalists recognize the potential social upheaval as technology is increasingly impoverishing the masses to profit a few.
“The robot that takes your job should pay taxes” — Bill Gates
Smarter minds than myself are already proposing methods to create a social safety net through the abundance automation creates. We could look towards models like the Alaska Permanent Fund, which says every Alaskan has right to he land, thus oil companies in Alaska have to pay them for the right to drill and cut an annual check to every Alaskan made from the profits of oil drilling. Perhaps this same sort of model could be scaled to create a social-safety net, taxed from technological gains created through automation. This would provide workers displaced by automation the safety to invest in education of new skills relevant in a changing economy, or at the very least avoid dropping into poverty and creating societal disruptions.
This is the challenge that engages me most.
What is the best way to address these contradictions of capitalism? How do we redistribute this wealth in a way that expands the potential of humanity as a whole? How do we overcome that while still allowing for everyone to participate in solving problems? What does culture and humanity look like when freed from the necessity of work for basic survival?
Failing to address these questions doesn’t stop this transition, thus it’s important to steer things in the right direction.
I believe these are important questions to ask. Because when everyone has the safety and ability to contribute to a greater whole, it makes a better world for everyone.
In future articles, I dive into how communities can fund their own automated infrastructure to create a compelling future to believe in.