12 May 2008

The problem with capitalism

This piece is intended to be an overview on the end of Capitalism as we know it. It claims to be an analysis of the end of mass economies of scale and the introduction of the concept of qualitative economic process and socially sustainable Capitalism.

While the concepts of commodity fetishism by Karl Marx and conspicuous consumption by Thorstein Veblen were introduced initially as social byproducts inherent in the flawed behaviors of economic models such as the industrial revolution and unrestrained capitalism, it would actually seem that they are constant behavioral flaws of human kind and are only magnified by the economic system we choose as a social organism. Inefficientaccumulation of products and systemic resource waste is inherent with the human condition and present in most economic systems. Capitalism only provided a more acceptable vehicle for such genetic tendency. While it is now generally agreed that Capitalism offered the most efficient system to allocate scarce resources, in practice, Mass Capitalism only offered a short term better system to allocate such resources; and in the trade-off between raising the standard of living of million of people and misallocating resources the ultimate net result was on the positive side. However, the accelerating process of industrialization at the global level, the loop-sided world demographics and the speed at which society now reacts to changes thanks to new technologies calls into question the viability of this state of affair going forward.

The incessant need of Mass Capitalism to continuously increase levels of production pushes the system toward larger and larger misallocations of shrinking resources and lower standards of quality at the production and cultural level. Scarily, the rate of speed at which such process develops is also exponentially increasing.

Mass Capitalism helped raise the standard of living of more people around the world than any other social system ever did (while at the same time- just to mention a few recent other social systems - Socialism, Communism and...Nazism not only impoverished their subjects but also killed millions of them). For this reason we shall always be indebted to this system and recognize why it has worked so much better than other ways of social and economic organization so that we can improve upon it and avoid its potential future implosion.

For this analysis to begin, we need to understand what the main drivers are behind human behavior and social dynamics:
humans are a generally illogical and emotional species
humans have to act on imperfect information
the vast majority of humans acts on even lower standards of imperfect information due to inferior education/knowledge
humans are driven to social organization because it is the only way to guarantee security and eventually the expression of self
humans are creative
humans are driven first by self motives and then by social reasons
humans aspire to a higher living condition
most humans believe in some sort of cosmic order (religion) even though they do not fully understand it nor can they explain it
humans are inherently driven to reproduction.

If we agree that the above elements are indeed correct, it becomes evident that every successful economic and social form of organization will have to include the personal profit motive and the eventual expression of one's self. What seems to be evident is also the need to improve the general level of information available to all participants for their decision making process. This has been improved by new technologies such as internet and mobile communication but I believe we should reach for higher goals and a widespread improvement of education should be the overriding objective of every society.

Society should also promote personal security and systemic stability; these goals should be the main prerogative of every government. Stability and security are the most necessary elements of every successful society. Historically, this has revealed itself to be a sticky point; a point often manipulated by the powers that be (or the wannabe powers that be). Manipulation has often come with the mixing of a spiritual mandate along with secular execution. For this reason, it would seem prudent to increase the division between the personal spiritual sphere of each member of society and the secular business of governing the system. Furthermore, a new and better society should encourage a de-leveraging of the ideological component in the political process and move toward a socially beneficial pragmatism.

Lastly but certainly most importantly, if we agree that humans aspire to higher living conditions for themselves and for their offspring, the concept of basing our society on quality and not quantity becomes a natural evolution of our blueprint for a better future.

Mass Capitalism was a necessary condition at the onset of the industrial revolution; it was needed to put in motion the necessary critical mass to change the world (or at least the Western side of it) from a feudal and agricultural system to a mechanical and modern one. It was a little bit like lighting a fire in the woods by striking two stones against each other to produce that one spark. Mass Capitalism succeeded in changing the rules of production and reward. Meritocracy and not just land exploitation surely crept into the system; entrepreneurship became that never ending spark which propelled the West to the fastest improvement in standards of living ever recorded. More people were made part of the process and more goods were produced and so the story goes.

Unfortunately this process is not sustainable. Part victim of its own success and part spinning out of control, Mass Capitalism must morph into a better system. The never ending need of the system to produce more goods or services which eventually must be sold for ever lower margins has created two major distortions: a strain on physical resources and a watering down and misallocation of cultural resources.

The need to create massive economies of scale force fed products (often completely useless and unquestionably idiotic) down the throats of consumers. The introduction of the concept of a disposable society many years ago was the first unwelcome by-product of Mass Capitalism. The very disturbing element is the now accomplished osmosis of the disposable concept from production to the cultural sphere (Lindsay-Paris-Brittney bubble anyone?). If Mass Capitalism starts negatively interfering with the cultural foundations of society, consumers will become hopeless victims and unconscious executioners of their own demise: they will be demanding more and more unnecessary products/services that the system cannot sustain (due to resource constraints) and they will be making decisions based on lower and lower standards of information therefore fueling a suicidal spiral for the system.

But so far we have been rather esoteric and theoretical; let us analyze a few case studies to gain practical insight into our intuitions. A while ago I got lost in the Chinatown area in Los Angeles. While I was looking for the old Chinatown which is now being transformed into sort of a West Coast SOHO with numerous art galleries (quality) springing up everywhere, I actually ended up in the new Chinatown. The new part is much bigger and full of small and medium markets selling all kinds of junk (quantity). Needless to say that this area was much more popular and that the vast majority of the goods offered were nothing more than a sad waste of natural resources. I was especially surprised to see the mountain of absurdly low quality clothing items for sale and the disproportionate amount of idiotic toys for sale (disproportionate to the amount of kids in this town and the number of idiotic toys they should be wasting their time with daily). The really low prices clearly did not seem to take into consideration the real labor behind the making of these products or the resources needed. Economies of scale might be justifying those products but common sense and resource based accounting might disagree. Even if these products were more useful than they really are (and I bet that 95% of those absolutely un-wearable shirts I have seen will end up being destroyed or hopefully recycled into something else) this dynamic cannot continue. The low prices are guaranteed by the cheap labor of developing nations; such cheap labor and social acceptance of appalling living conditions will quickly dissipate and costs will rise tremendously. Disappearing natural resources will increase the speed of such cost adjustments.

But more to the point: WHY? Why wasting natural resources and human resources to justify economies of scale to produce unnecessary products?

Why instead can't we leverage the human capital available (as raw as it may be) to produce a new spark: Qualitative Capitalism. Why not trying to raise the standard of living of the majority of people on earth by helping them develop useful skills and helping them develop that innate human creativity. Why not create better products not more, better services not more mind numbing. Why not promote craftsmanship and pride instead of multitude and platitude?

Market fundamentalists will argue the above mentioned call for common sense is not a viable course of action because prices will increase, less products will be available, and less people will benefit. I disagree wholeheartedly. We don't need all these products in the first place. Good quality products will last longer and will make us feel better because we will care more for them. No more coffees in despicable plastic cups; let us rediscover the pleasure of a china cup and a hand made spoon. A long lasting quality product may cost more but when amortized over a longer period of time it will actually be cheaper.

And again, do we really need 400 television channels broadcasting 24 hours a day? I guess that explains the barrage of highly foolish reality TV shows, talk shows and so on. A more informed consumer base would require probably less channels but of quality content. Quality must become the new point of reference and permeate all areas of society.

It has been done before. Think of the Italian city states and their role in promoting the Renaissance. Think of their pride in developing the Craft Guilds as vehicles for transmission of knowledge. That was a highly entrepreneurial historical period (within the context of an archaic society) which sparked mechanical discoveries, leaping cultural innovations and set the foundations of the future Western success. Quality was the driving force not quantity.

Capitalistic society needs a new Renaissance.

Here's a few ideas on how to proceed:
Improve the educational system. In the USA this is a measure that should be executed at the Federal level. More money should be directed for education (public or vouchers for private) and higher general standards should become the sanctioned rule. At the global level, the USA should promote higher standards of education in poorer countries and create an international coalition of developed countries based on international standards in education and research
Encourage specialized research and specialized craftsmanship. Make this process a more integrated part of the educational system.
Encourage free trade and free money flows. Free trade of goods, services and most intellectual capital is unquestionably the path to prosperity.
Negotiate higher environmental standards at the global level. This is not a choice we have; it is an inevitable negotiation we all have to face.
Regulate a clear division between the spiritual and secular spheres of society. Citizens' spirituality is welcome but it should not in any way interfere with the secular governing of society. While we achieved this division in the West a long time ago, it was never achieved in most of the Eastern world and it is a division that, regrettably, is blurring in our own society as well.
Along the lines of the previous point, de-leverage the ideological component in the political process. In the USA, it requires new rules of engagement to be less prone to media manipulation and more pragmatic oriented. Debates on issues and solutions, not on ideological hot air; require every candidate to have a specific platform to be allowed to run. Regulate the media exposure allowed to limit the manipulative factor, to reduce the costs (a billion dollars to run for President??!!??) and limit the ideological leveraging.
The executive powers should have at the Federal level main areas of competence such as defense, security, education and health coverage and a few others but more pragmatic decision making should be happening at the localized level.

In the end however, a new Renaissance will not spark out of regulations and mandates; it will blossom out of creativity and need, it will creep into each one of us out of a biological need to be better. People will wake up one morning thirsty for quality, hungry for knowledge. I think that moment is near.

The End of Capitalism as We Know It
by Davide Accomazzo
C/- safehaven

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