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Thursday, February 13, 2014

The End Game of Capitalism: A Transition to a Post-Scarcity Society

The Brilliance of Capitalism

Capitalism is one of the greatest inventions in the history of modern civilization.  We owe much of our modern prosperity and technological advances to the implementation of capitalism.  The alternative of a state run economy is too inefficient and requires a concentration of power that is too corruptible to sustain a high level of prosperity.  The beauty of capitalism is in the invisible hand of the free market, which is force that self-corrects and transmits the price of goods and services.  The invisible hand is an emergent property that naturally arises in populations of humans that exist a safe environment with freedoms of education, creativity, and travel.

The Limitations of Capitalism 

Despite the glaring success of capitalism, ultimately it is an amoral economic system.  The engines of the free market will drive forward independent of human well being or human suffering.  When left to its own devices, capitalism has a tendency to disproportionately favor greedy and self-interested behavior that results in monopolies, which stifle competition, innovation, and prosperity.  This is especially true for markets that have high costs of entry or have physical barriers, such as cell phone providers that share a limited range of the electromagnetic spectrum.  Additionally, due to the cyclic nature of the market, it is nearly impossible to prevent periods of reoccurring recessions.

Healthy capitalism requires a large consumer middle class population that drives demand and creates jobs.  The role of government in capitalism is to protect the middle class to ensure that a large population will always exist to purchase goods and services.  In this way, the government must impose regulations on the free market to protect the consumer from the dangers of unfettered capitalism.  Capitalism may be the best economic engine ever devised by humans to create prosperity and distribute wealth, but left to its own devices, unfettered capitalism will eventually cannibalize itself by consuming the consumer class.

Below I have identified three fundamental problems that are innate to capitalism and could lead to its downfall.  It is possible that unforeseen changes in technology, culture, market forces, or government regulations could render these predictions useless.  However, I believe that these three problems and their extrapolated logical outcomes are so fundamental to capitalism that the likelihood that they become true are very high.

The Finite Planet Problem

The essence of capitalism relies on the conversion of natural resources and ideas into goods and services.   However, in a finite world, natural resources are limited.   This simple fact puts an upper limit on the amount of physical goods that can be produced by humans, and limits the duration that capitalism can continue to be the engine of economic prosperity that it is today.  If the planet runs out of natural resources, capitalism can only continue by creating information based commodities such as art, entertainment, and computer programming.  It will be a major challenge for capitalism to create enough jobs out of creative industries alone.

Furthermore, as the cost of energy increases, the cost to transport goods also increases, and this cost is transferred to the consumer price of the physical good.  Experts have predicted that we have already reached peak oil production, and that demand for oil is going to exponentially increase as China and India become more industrialized, and the earth's population reaches an estimated 10 billion by the year 2050.  If the world's markets continue to rely on fossil fuels for the transportation of goods, the exponential increase in price for oil has the potential to wreak havoc on an already weak global economy.

But for the sake of argument, lets make an assumption that a technological breakthrough, such as solar or fusion energy, will provide us with a renewable source of energy for the next several hundred years to provide cheap transportation of goods and wide spread recycling of natural resources.  Even still, capitalism is faced with another issue unrelated to finite natural resources.

The Indefinite Population Growth Problem

The human population will not continue to grow forever.  Given a finite amount of livable and farmable land on earth, the earth can only support so many people.  However, long before we reach this hard population limit, humans will begin dying at an equal rate than new humans are born, and the population will reach a stable point at around 10 billion people by the year 2050.  Hans Rolling gives an excellent TED talk on this subject.  The driving force for the decreasing birth rate is education.  As women become better educated, they have less children.  If capitalism is such a powerful force that it spreads wealth and prosperity to every single living human, inevitably the education levels will increase to a point where the population begins to decline.

A general rule is that as a population grows, the economy also grows.  Considering that the earth's population has been exponentially growing for the last 500 years, this has been a very good thing for market growth and capitalism.  However, as a population growth rate stagnates or declines, the economy will shrink.  When an economy shrinks, it creates deflationary pressures which make money more valuable over time.  Although this sounds good on paper, (who doesn't want their money to be worth more over time?)  it has the potential to damage the economy because it will decentivize bank lending.  This is incredibly dangerous to job creation because bank lending is an absolutely essential part of job and industry creation.

In healthy capitalism, banks are tasked with helping to facilitate the movement of capital in the economy.  An inflation rate between 2-3% is ideal for this practice, because it creates an incentive for banks to loan money.  If inflation was too high, it would be unlikely that banks could get a return on their investment greater than the rate of inflation, they are better off purchasing physical assetts.  If we had negative inflation, or deflation, banks would have an incentive to keep their money, because without any risk their money will gain more value over time.  The bank's money will literally become more valuable by doing nothing.

Deflation tied to a declining population growth is already happening in Japan where the population has been declining for several decades, and their economic growth has been severally limited by the resulting shrinking economy and deflationary forces.  A government can intervene and force a bank to make loans, but this practice would harm the overall efficiency of capitalism, because it would handicap the ability of the market to self correct itself using the market's invisible hand.

But for the for the sake of argument, lets make another assumption.  Lets assume that our government and business leaders come up with brilliant solutions that perfectly balances a declining population with renewable energy sources, and both the finite natural resources and the declining population growth problems are fixed.  Capitalism is still faced with yet another threat to its long term viability.  

The Jobs Problem

As I mentioned previously, capitalism is faced with the monumental task of providing enough jobs for the expected global population of 10 billion people.  Without enough jobs, there is no mechanism to distribute wealth and prosperity in a free market, and capitalism as an engine of economic prosperity and wealth distribution will fail.  Emerging technologies such as robotic automation and computer artificial intelligence are replacing jobs that once only humans could perform.

In addition to increased automation of manufacturing jobs, there have been multiple forces that have been acting for several decades now that have lead to increased unemployment.  In the United States starting in the middle of the 20th century, woman in increasing amounts began entering the labor force.  This was a great force for social equality, but it drastically increased the labor pool.  Coupled with increased life expectancy, an increasing retirement age, exponential population growth, and globalism, employers began to have access to a much larger labor pool than before.  More workers competing for jobs, leads to more competition, which has lead to better educated workforce,  which leads to higher productivity.  Combined with automation, fewer workers are required to do the same amount of jobs.  All of these factors decrease the number of jobs required to meet demand, which leads to higher unemployment.  Higher unemployment gives employers even more leverage because if more unemployed workers are competing for the same job, they can treat their workers poorly and pay them less.  As wages go down, the middle class erodes, which leads to less demand for goods and services, and less well paying jobs.  Meanwhile, corporate profits continue to increase because productivity is so high.  This is a vicious cycle that drives up unemployment, and will continue until the middle class disappears.  A society that once had a booming middle class, will eventually consist of a large lower class and a small ultra wealthy class.

A large lower class will inevitably lead to massive amounts of poverty and all of its ugly symptoms.  With no safety net, the impoverished masses will resort to crime and trade on unregulated black markets.  Life in lawless frontiers will lead to a violent honor culture.  The poor will be segregated from the wealthy, and will not have equal access to food, healthcare, and education.  After several generations, this will result in a permanent impoverished lower class.  The alternative to this dire scenario is to create a massive welfare system that will require immense resources and will have to be paid for by the wealthy minority.  However, like most humans, the wealthy are self-interested individuals and as history has shown many times over, power and wealth is rarely given up easily or willingly.

The End of Capitalism

If the demise of capitalism is to happen, the fall will not be quick.  It will be preceded by a breakdown in the mechanisms that fairly distribute wealth, and it will be a long and slow decline that stretches over many decades or centuries.  The long term viability of capitalism to create prosperity and distribute wealth comes down to three questions:
  1. Does Earth have enough natural resources to sustain indefinite growth?
  2. Can the population continue to grow indefinitely?
  3. Can capitalism create enough jobs to employ 10 billion people by the year 2050?
If the answer is "no" to any of these questions, than it is in our best interest to develop an economic system that is sustainable in a finite world, does not rely on indefinite growth, and maximizes the well being for the most amount of people possible.

Throughout history, societies have succumb to violent revolutions typically when the ruling class amasses too much power.  Capitalism has a tendency to produce wealth inequalities that can lead to violent revolution when the consumer class no longer has buying power or leverage in the market place.  Violent revolution is the ultimate trump card, but comes at an extreme cost.  Representative democracy is supposed to be a balance of power to prevent this, but ultimately any government is corruptible given enough time.  Today, thanks to rulings like Citizens United that gives corporations similar rights as people, and enables corporations to influence political outcomes with money, has essentially made political bribes legal.  This results in a consolidation of power between the public and private sectors that creates a concentration of power that is extremely corruptible.

A pessimist would say that this is an inevitable scenario because greed is human nature, and that society needs to to hit a reset button every 500 years to redistribute the resources so that it can start anew on fair ground.  I think that this cycle of violent revolution can be broken by creating a society with a fundamentally different economic system where greed and monetary wealth are obsolete.  What will this post-capitalistic society look like?

The Post-Scarcity Economy

Technological innovations will allow human societies to transition from a capitalistic economy that relied on scarcity to determine value, to an economy of abundance where scarcity no longer influences the value of a commodity.  In general, prices are high when a commodity is both in high demand and scarce.  If a commodity is in high demand, but abundant, then its price will remain relatively low.  If clean drinking water were ever to become scarce, its price would be astronomical.

Technological breakthroughs in energy production, manufacturing, and medicine have the potential to make nearly every commodity abundant.  For example, scientific advances in energy production such as solar, fusion, anti matter, and eventually a Dyson sphere around the sun will provide abundant renewable energy that will allow for cheap transportation, production, and eventually amazing feats like weather control and space travel.  Advances in manufacturing such as 3D printing, robotics, artificial intelligence, and eventually star trek style replicators will provide abundant and cheap manufacturing of shelter, food, consumers good, vehicles, roads, cities, space elevators, space stations, moon colonies, space ships, etc. Advances in medicine such as stem cell therapy, genome sequencing, gene therapy, organ growing, and decoding the human brain will eradicate all common diseases, depression, psychopathy, dramatically increase the human life span, and even allow humans to interact in computer simulated environments like in the matrix.

In an economy where everything is abundant,  money is obsolete.  It is true that no resource can be perfectly abundant.  Everything will be abundant, within reason.  If a steak costs a penny, you can easily eat 20 steaks in a week, but you still could not purchase 10 million steaks.  One could not purchase all the steaks in the world to corner the market by creating artificial scarcity.  Living in a near-scarce society simply means that in a practical day to day life, every material want will be abundant within reason.

The critical element in creating physical abundance is energy.  Given enough energy, every physical resource becomes renewable.  To implemented a fair and efficient way to share the renewable energy, energy credits can be given to every person.  If energy production is unlimited and free, the concept of ownership over energy will not makes sense.  This society will have to be constructed around the idea that every human owns an equal percentage of the energy output, and that it should be distributed equally among all people.  This will keep the invisible hand of the free market in tact, so that commodities based on human creativity can still flourish.

If all physical commodities become abundant, the only commodities that will remain scarce will be life, sex, and happiness.

A Society of Happiness

Societies that attempted to become utopias have failed in the past because their leaders were ignorant of human nature.  Marxist tyrants of the 20th century were impatient fanatics who wrongly thought of humans as blank slates that could be rewritten through massive social engineering projects in a single generation.  They were motivated by their personal dogmatic imaginations of absolute power and by an incomplete science of the human mind.  A successful human utopia cannot be based on the philosophy of a scientifically illiterate fanatic.  It must be founded on tenants of human nature that are discovered through honest empirical inquiry, and are always open to question.  A human utopia must be grounded in the human universals that create happiness.

Capitalism has created a culture that values wealth, monetary gain, and where self worth is produced by one's profession and career success.  The age of abundance will make one or all of these traits obsolete.  An often overlooked element of a utopian society is what will be left for the humans to do?  Think of the billions of hours spent by humans throughout history trying to survive or accumulate wealth, just so that we can maybe be happy sometime in the future.  We spend the vast majority of our lives sleeping or working.  If every waking moment of our lives is suddenly leisure time, what are we supposed to do?

Human happiness is very complicated.  There are many different kinds of human happiness.  In a post-scarcity society, where robots do all of the manual labor, and all of your material needs are met, there is no need to work hard.  Can humans be happy without hard work?  From my own experience, I know that hard work in of itself can be a source of happiness.  Seeing the fruits of one's labor is a deeply satisfying feeling.  It breeds self confidence and pride.  To take that way, is to remove a large source of human happiness.  A perfectly safe and sterile world is boring.  Boredom is a source of great human suffering, and the human mind is not adapted to a world that is boring.  In a society where every physical commodity is abundant, the human need for happiness will be a huge in huge demand.

This will create a massive entertainment industry. Our artists and entertainers will be tasked with keeping 10 billion human minds occupied.  We will literally have a society that revolves around the idea of maximizing human happiness.  Imagine a world where the greatest problem is how to create self esteem for every person through friendships, family, community, and love, and can to satisfy their curiosities through travel, art, fashion, science, and space exploration.  Even if this is possible, there will still be two human universals that will remain scarce:  life and sex.

The Scarcity of Life and Sex

The scarcity of life will be lessened by improvements in medicine.  The human lifespan will dramatically increase and consciousness will eventually be downloadable to a computer chip, and our minds will be able to participate in matrix style computer simulations.  An alternative to death will be digital heaven.

The scarcity of sex is a little bit more tricky.  The desire to procreate is hard wired in our genes through billions of years of selection forces that selected genes that promote competition and procreation.  Many facets of sexual attraction are born out of power inequalities.  In a world without power, how we will we know who we want to have sex with?  Will we fetishize everything? or create arbitrary power inequalities?  On the other hand, if people are sufficiently occupied with other forms of happiness, its entirely possible they will care less and less about sex.

The Post-Scarcity Transition

The transition to a post-scarcity society as described above will not be easy.  Once a post-scarcity society exists,  it may be easier to sustain, but getting there will be the hardest part.  It would be best to have a slow transition from capitalism, but technological advances in the next 20-30 years may force the transition before the world is ready.  Where do we start?  To remedy the problem of unemployment, could we create more jobs by changing the work week from 40 hours to 20 hours for full time employees?  At what point is it too inefficient to have X amount of employees doing the same job.  1 person working 40 hours is better than 40 people working 1 hour.  But what about 2 people working 20 hours?  Every compromise like this will lower the efficiency of the market, and hinder economic prosperity.  If we make the transition too fast the economic foundation of society will collapse before we can gain a foot hold in post-scarcity.  To be successful, it must be a slow transition over many generations, but we may not have this luxury.

One possible way to make the transition is that of the co-op.  Similar to the society described in Manna, if a million people all buy into a corporation for $1,000 each, they will have a trillion dollars to start this society.  Initially, they will have to buy land and technology, but as they grow they will be able to accept more and more participants, until they reach a tipping point where they are self-sustainable and money is obsolete.  At this point they will be able to allow an ever increasing amount of people into their society.

If the transition to a post-scarcity society is successful, capitalism should be fondly remembered as an imperfect, yet essential tool that brought humans out of the dark ages, and provided us with the stability and technological ability to make the leap.  The transition to a post-scarcity economy will not be easy, and will certainly require technological advances in energy, automation, and medicine that have not yet been made.  Given these advances and a devotion to equality and human happiness, humans may be able to break their cycle of violent revolutions and usher in a stable period of peace and well being.

Resources

This essay was mainly inspired by four books and essays that I have recently read:

Manna by Brian Marshall.  I highly recommend reading this short book if you are interested in what the transition to the post-scarcity could look like.  Its a great little scifi novel that can be ready in an hour.

In Praise of Idleness by Bertrand Russel.  An essay written over 100 years ago about the effects of increased automation on the worker.  Still highly relevant even today.

The Blank Slate by Steven Pinker.  Hands down the best book ever written about the human mind.

The Foundation Series by Isaac Asimov, especially Foundation and Foundation and Empire.  This series shows how certain truths can be extrapolated to their logical ends.

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