Capitalism vs. Socialism: Toward building a new model to describe our economic world.

A response to Overcoming Individualism by Matt Hartman, Co-chair of the North Carolina chapter of the Democratic Socialists of America

I’ve been following the actives of the Democratic Socialists of America for several months. While I am definitely sympathetic to the values and aspirations of the organization, I have been less impressed with its strategy and vision for the future. Based on Matt’s article, I suspect its leaders are beginning to have similar reservations. But it also appears to reveal that its leaders are still struggling to grasp the nature of the problems the nation and its members are facing. In my opinion what they haven’t yet recognized is how substantially our world has changed. They don’t yet see that a 19th century solution simply won’t solve our 21st century problems.

What people like Bhaskar Sunkara don’t recognize is that the reason most people are “not being drawn to the movement as workers” is because the very concept of “worker” in the traditional economic sense is disappearing. What he and others don’t seem to see is that this change is a big source of much of the social discontent spreading throughout the developed world. The transfer of wealth from workers to capitalists is real (probably more real than what it was in the 19th century), but the causes are much different.

What needs to be recognized is that the concept of “labor” or “work” from an economic point of view is just another resource used in the overall production process. It is an expense to be minimized. Strictly speaking it is no different than any other resource like coal, grain, iron or silicon. Also like these other physical resources where multiple different materials can be used to solve the same problem, human effort isn’t the only possible source of “work”. Much like the production process can be engineered to eliminate a resource like fossil fuels, it can also be changed to reduce and even eliminate human effort.

Now the automation of human labor has been happening for centuries. But as I have pointed out before and what most people have failed to recognize is that for the most part we have only been automating and augmenting one aspect of work – physical effort.

But work involves more than physical effort. Any productive actively also requires intelligent direction that has typically required human cognitive effort (what most people call thinking). But it has always been extremely difficult to automate this aspect of work and so human beings have remained essential to the production process. Until, that is, we developed what Steve Jobs liked to call “a bicycle for the mind”.

Think of it this way (and I suspect most employers probably already are):

Imagine all the world’s workers have banded together and formed a company called Workers, Inc. Workers, Inc. sells labor to companies throughout the world. It sends humans to them to perform services and collects payment for that work (the company’s revenue). The humans that Workers, Inc. sends out need to be maintained and taught in order to be productive. So the company spends money to feed, house, repair and educate them (the company’s expenses).

The company is profitable and growing. While it has always competed with machines for physical labor, until recently it had a monopoly on the market for cognitive labor.

But a competitor has appeared. Intelligent Robots, Inc. is now offering its services to the world’s businesses. Its robots currently don’t work quite as well as the humans provided by Workers, Inc., but they are typically cheaper, work longer, are often easier to operate, can do things the humans can’t and are improving rapidly. Workers, Inc. is still competitive for most tasks, but it is being forced to drop prices for several services. It has also been forced to spend greater and greater amounts of money on education which is reducing profitability.

To make this a little more interesting now imagine both these companies decide to issue an IPO. You are an investment manager of a large hedge fund. The bankers representing Workers, Inc. and Intelligent Robots, Inc. approach you about buying shares. How would you view these opportunities? What do you think about their profit potential? What are their risk profiles? Would Workers, Inc. be a great widows and orphans stock? Is Intelligent Robots, Inc. just a risky startup? Would you buy one or the other, both or neither? Would you short either one? Do you think both companies will be around in 25 years?

I would argue you can already make this choice. Whose stock would you rather own, Amazon or Walmart; Tesla or GM? Wanna take a guess on which of these companies are most likely to be doing a couple of trillion in revenue in 25 years with only a handful of employees?

The bottom line is the concept of a “workers paradise” obviously doesn’t make a whole lot of sense in a world without workers. Because of this I view both capitalism and socialism much the same way I view Newtonian physics. Neither is wrong per se so much as they are an incomplete view of how economic production can work. Like Newtonian physics, capitalism and socialism are a set of social rules that work well within the bounds of certain parameters. In this case they both work as long as we assume human effort is required for our survival.

But once you push outside those boundaries the rules no longer apply. You need new rules to deal with the new environment. For the first time it may be possible for humans to survive without working. We are moving from a world of scarcity where a great deal of brute force was required to make anything of significance to one of abundance that requires little from us.

This could be wonderful. But it will only be wonderful if we all agree that everyone is entitled to this future. This is the fight I think we need to be having (and the battles for “Medicare for all” and a UBI are a great start). If we don’t I think there is a very real risk that this future with slip through our fingers in a series of senseless battles over rules and values that are no longer relevant (e.g. socialism vs capitalism, left vs right, etc.).

Like physics during the 20th century, society needs to develop a new model (or explanation) of how our economy works and then figure out how to base our solutions on it. Our economy is much larger and becoming increasingly more complicated than it was in the 19th century. We need the economic equivalent of General Relatively and the Standard Model (an understanding of which was needed to enable technologies like GPS and semiconductor manufacturing).

My guess is that at least parts of this new model already exists although we haven’t recognized and accepted it yet. But before we can accept the new model, we need to recognize the limitations of the old ones.

We need to stop looking to Marx or Smith, as brilliant as they were, for solutions to our current problems. Their solutions no longer scale. Our world is a 1000 times more complex than anything they could have possibly conceived. Personally I would begin by looking to people like PikettyRaworth and Kelly who I think have captured aspects of the new model. But I have yet to see anyone who has pulled together all the pieces and would encourage the search for others.

Finally, to circle back to Matt’s article, I would like to point out that the rapidly changing rules of our economic game cuts sharply across almost all racial, cultural and political lines. Anyone whose survival is based on their own employment or the employment of others (e.g. children and Social Security recipients) is at risk. If we continue to divide against each other in a desperate attempt to preserve our own positions, we will all lose. This, in my opinion, is the common ground on which to unite not just those on the left, but the entire nation. At this point I don’t think we have much choice.

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