I began this series with the prediction that in the next few decades disruptive technologies will bring the global economy to a total collapse.
I also stated that before I show what can be done to prevent such collapse, we need to understand how the market economy operates, and what are its strengths and weaknesses. For that purpose I devoted the previous two posts in the series (Part II : What Is Capitalism? and Part III : 12 Capitalist Myths) to explaining how the market economy works, and describing some of the problems of the market economy; the fact that it rewards marketability over merit, it is driven by corporate-induced consumerism, it overcompensates those at the top and disparages those at the bottom, it is inherently exploitative, its highest ideals are cynicism, nihilism and greed, and the economic theory behind it is based on flawed assumptions, such as the premise that humans behave like profit maximizing automatons.
So how do we confront such an immense and complicated challenge as preventing a global economic collapse and putting the economy on a path to prosperity? What should be evident by now is that the current economic system is hopelessly beyond repair; no amount of reforms can solve its problems or prevent it from total collapse. What we need therefore is a fundamentally new economic paradigm - one which can put us on a path to sustained growth and prosperity, and at the same time be robust enough to address all of the issues above.
What Promotes Economic Growth?
Let’s start with a thought experiment: consider the life of King Louis XIV of France - the Sun King. A king known for his self-indulgence and extravagance. Think of his self-promotional paintings, sculptures and murals, of his lavish parades and spectacles, gilded carriages, and the epitome of his opulence – the Palace of Versailles. A palace so grand that it had to be maintained by some 5,000 servants, and annually consumed 6% of the entire national budget of France.
Now consider this: today, the lives of hundreds of millions of people are – in many ways – better than that of the King of France. They live longer and healthier lives, they have more freedom and ease of movement, they have far more goods and services available to them, they have access to much more knowledge and entertainment, and they can have life experiences the Sun King couldn’t even dream of (think skydiving, for example).
What this tells us is that even though the kings of the past lived opulent lives in relative terms - that is, when compared to the rest of the population at the time, the same cannot be said in absolute terms. Because if we remove the futile ornamentation, today hundreds of millions of people live better than these kings. What’s more, unlike the kings and emperors of the past, we are able to maintain our standard of living without having to starve and impoverish the rest of the population.
Now, here is another thought experiment: take a look at the world we live in – the internet, smartphones, airplanes, satellites, skyscrapers, and so on. All these things were completely alien to our great-great-grandparents. Yet, we do not have any more resources than they did. If you come to think of it, we do not even have more resources than our Stone Age ancestors did. With the same resources as our Stone Age ancestors we were able to create all the marvels of modern life.
How then can we explain the fact that today – having the same resources as our Stone Age ancestors - hundreds of millions of people can live the life only very few rich and powerful individuals could afford throughout history? We can attribute this reality to progress in three critical areas: technology, organization, and conception. In other words, what drives economic growth are advances in science and technology; more integrated social, economic and political organization; and people having a more congruous conception of their self and of the world around them.
Now, how can this inform our understanding of what an ideal economic system should be like? What this tells us is that we must judge the merit of any economic system on the basis of how effectively it fosters technological, organizational and conceptual development.
Let’s examine how well the market economy performs in these three areas:
The dominant conception of the individual in a capitalist society is that of a rational being motivated by self-interest - ie. profit maximization and the accumulation of financial wealth. While this view certainly motivates people to be industrious and productive it also yields suboptimal results. That is because, as we’ve discussed before, in such a system the interests of people constantly come in conflict with each other. This means less congruence, a less efficient use of resources, and at times resistance to progress. What’s more, when the dominant conception is that of self-interest (ie. greed), anyone who deviates from the dominant conception by holding higher ideals (ie. generosity) is essentially penalized by the system.
Another way people think about themselves and about their role in a capitalist society is as consumers and producers. Such self-conception certainly helps keep the economy going, but it is also incompatible with our social and cultural life. That is because what we value in the marketplace – productivity, competition, efficiency, and so on – has essentially no value in our relationships. And what we value in our relationships (and indeed what is indispensable for the flourishing of humanity) – love, trust, care, the raising of children, and so on - has essentially no value in the marketplace.
One more dominant view is that competition is the best engine of progress. While it is true that competition generally makes products and services cheaper and of higher quality, here too there are problems. One problem is that competition doesn’t always promote progress. This is most evident in the case of large corporations who spend billions of dollars on patent litigation every year at the expense of innovation. However, an even bigger problem is that – when competition is viewed as the main engine of progress - people are less likely to innovate when competition is less intense. This means that there will be innovation only in some places, some of the time.
Thus, we can see how the dominant conceptions in a capitalist society propel people to compete, work hard, and support the economy, but ultimately result in conflict, indolence and inefficiency.
Capitalist society is organized around the marketplace, and the mechanism by which it operates is the use of money as a medium of exchange. All institutions in a capitalist society – whether they are legal, political, financial, educational or cultural – are geared toward facilitating the process of production and the accumulation of wealth.
One of capitalism’s greatest merits is its ability to efficiently employ scarce material resources in the process of production. This is made possible through the commercial use of a skilled labor force, extensive global supply, production and distribution chains, advanced technology and logistics, and sophisticated financial instruments.
Paradoxically, the capitalist system’s remarkable ability to facilitate efficient use of scarce resources in the economy is only comparable to the degree to which it restricts the flow of resources that are materially abundant. Thus, even though we are at a stage of technological development where we have the ability to share nearly all human knowledge and culture with all of humanity at almost no material cost, we are prevented from doing so. The reason for this is evident; the people who produced the knowledge and art need to make a living (ie. they need to survive), and the system is structured in such a way that people’s continued survival depends upon their ability to sell commodities in the market. Therefore, all human knowledge and culture in a capitalist economy has to be commodified and sold to consumers for a price – thus restricting the flow of knowledge in society, and making us poorer than we would otherwise be.
When it comes to science and technology, we can safely say that capitalism has been responsible for much of the scientific and technological advancements of the past few centuries. Yet, many critical scientific and technological developments occurred despite the capitalist system, not because of it; this includes computer chips, the internet and the human genome project. The reason for this has to do with the fact that under capitalism there is only an incentive to invest in profitable ventures, and what cannot be easily commodified cannot be profitable. This means investment in consumer goods and disinvestment from basic science and from technologies that promote the common good.
As we move forward, technological progress will become more problematic under the current economic system, because of the effect of disruptive technologies. We’ve always had disruptive technologies under capitalism; the Model-T replacing the horse and buggy, refrigerators replacing iceboxes, and so on. However, over the next few decades new technologies will begin to displace workers at a much faster rate than new employment opportunities are created, which will eventually bring the economy to a total collapse.
Thus, as we can see, the market economy certainly has its merits in fostering technological, organizational and conceptual development. Its most powerful feature in doing so is the mechanism through which it operates: the use of money as a medium of exchange. Though this mechanism is very crude and simple, it nonetheless lets people know exactly where they stand in relation to the goods and services they need or want, and motivates them to be industrious.
At the same time, we can also see that the current system has major drawbacks in each of the areas mentioned, which impedes progress. As we go forward these would start to significantly outweigh the benefits – to the point where the economy ceases to function entirely.
Alright, now that we’ve pretty much exhausted the subject of how far from ideal the current economic system is, let us examine, for a change, how an ideal economic system would function:
The Ideal Economy
Flow of life. Unlike the market economy, where the dominant conception of the self is that of profit maximizing automatons or mere passive consumers of commodities, in the ideal economy the conception of the self goes to the very essence of our being. It sees humans first and foremost as living beings and, as such, as creative beings.
We are engaged in the creative process continuously; at the most elemental level, with every breath we take we sustain the life of the cells in our body (and at the same time we sustain the life of plants). Essentially, we are engaged in the creative process whenever we promote or sustain the flow of life. We do not have a choice whether or not to engage in this process – it is in our nature. The question is how earnestly do we engage in it, and are we able to realize our full creative potential as living beings.
Thus, in contrast to the market economy, where the market value of our labor is only tangential to its intrinsic value, in the ideal economy what truly matters is the intrinsic value – how much we contribute to the world through sustaining and promoting life.
Flow of resources. In an ideal economy resources must be allocated in the most efficient way. What this means in terms we can all understand is that, given the state of technology, humanity must be able to make the most out of the resources available.
The distinction that it depends on the state of technology is important here because as soon as there is a technological advancement or breakthrough, resources in the economy are no longer considered to be used in the most efficient way and therefore must be reorganized. Moreover, because we live in a time of rapid technological change the reorganization process itself must be streamlined to be quick and efficient. The better the flow of resources in the economy, the more humanity can make out of its resources at any given time.
Allocation of resources. How then should scarce resources in an ideal economy be allocated among individuals? The general rule is that access to resources should depend on the creative potential of the individual; the more an individual contributes, the more access to scarce resources she should have. This means that those who contribute the most should also have the most access to resources, and those who contribute the least should have the least access. There is certainly nothing perplexing about this rule, as it is a logical consequence of the idea that resources must be allocated in the most efficient way. Humanity can only make the most out of its resources if those who contribute most – those who can make the most out of the resources - have the most access.
In fact, this state of affairs is in everyone’s interest, as every person – without exception – benefits the most from it. Every person benefits because there is more economic growth and more progress in science, technology, medicine, engineering, art, culture and all other spheres of life. When there is more progress, every individual – in absolute terms – has a greater ability to contribute (and consequently has more access to resources).
Common interest. In an ideal economy, it is in the interest of every individual - without exception – that resources in the economy are allocated in the most efficient way, which means having an optimal flow of resources. This way every individual gets what she wants, which is having more resources available to her. Similarly, it is in the interest of every individual to contribute the most she can, and to realize her full creative potential, because that would give her access to the most resources. It is also in the interest of every individual to make the most out of the resources she has access to (in other words, to use them most efficiently), because then she has an even greater potential to contribute, and has access to even more resources. Finally, it is in the interest of every individual to help all others realize their full creative potential, because that would generate the most economic growth and the greatest possible flow of resources. Thus, in contrast to the market economy, where the interests of people perpetually come in conflict with one another, in the ideal economy the interests of individuals consistently align.
Now let’s look at a practical example to illustrate the difference between the two systems. Suppose a patient has a certain condition and goes to a doctor. In the market economy both the patient and the doctor want to maximize their profit (or utility). This creates a clash of interests, since the wellbeing of the patient and the financial interest of the doctor do not align. Even though the doctor is required to act in good faith, he has a financial incentive to over-diagnose and over-treat the patient so he can maximize his profit.
In contrast, in the ideal economy both the patient and the doctor want to have the most access to resources. This creates an alignment of interests; the patient has the incentive to make a full and speedy recovery, because he can contribute the most when he’s healthy, and thus have the most access to resources. The doctor also has the incentive to fully restore the patient to health, because restoring the patient to health is the most she can contribute to the flow of life in that situation, thus getting the most access to resources. The doctor has no incentive to over-treat (or under-treat) the patient because the only thing that matters is the end result. But wouldn’t the doctor and patient have an incentive to abuse the system, and use more resources than needed in the process of treatment? The answer here is no, as well. As we’ve stated before, it is in the interest of individuals to use the resources available to them most efficiently, because that too directly leads to greater access to resources.
Liberating Technologies. Similarly, everyone without exception benefits from automation - when new technologies substitute for human labor. In fact, even the people who are directly displaced by these technologies benefit. The reason here is that automation facilitates the flow of resources, so everyone has more resources available to them. At the same time we have to understand that unlike the market economy, where access to resources depends on income from employment, regardless of intrinsic value, in the ideal economy access to resources depends on the intrinsic value of what the individual contributes. Doing work that machines can do better and faster does not contribute to life in real terms - it does not facilitate the flow of resources, it impedes that flow. Therefore, it is in the interest of individuals that their labor is automated, because automation liberates these individuals from doing menial labor and allows them to do things of greater significance. Thus, the ideal economy effectively resolves the issue of disruptive technologies, since in that system automation always facilitates the flow of resources - to everyone’s benefit.
With the advance of technology, and as more and more industrial processes become automated, the flow of resources would increase and resources that were once considered scarce would now become more abundant.
Flow of knowledge. Though it makes sense to allocate materially scarce resources according to how much individuals contribute, it makes no sense to apply the same principle to resources that are materially abundant. The simple logic here is that the more access people have to materially abundant resources, the greater is their potential to contribute. This is particularly true when it comes to access to knowledge, because we are at a stage of technological development where the material cost of providing everyone with access to all human knowledge is negligible. For resources to be allocated in the most efficient way - and for humanity to make the most out of its resources - everyone must have access to resources that are materially abundant.
Here then we see how fundamentally different the ideal economy is from the market economy. That while the objective of the market economy is to facilitate the accumulation of wealth, the objective of the ideal economy is to facilitate the flow of resources, the flow of knowledge and ultimately, the flow of life. Thus, we can say that, in essence, the ideal economy is a flow economy.
Now we know how the flow economy works in principle, but how does it work in practice? How is it structured? What is the mechanism behind it?
Toward a Flow Economy
What should be evident by now is that the flow economy operates in a way that is very different from the market economy. It is so radically different from anything we are familiar with in the current system, in fact, that in order to understand how it works we have to forget everything we know about how the market economy operates, and about the mechanism of using money as a medium of exchange for commodities (goods and services) between individuals.
The flow economy is structured around the integration of four highly sophisticated mechanisms: a Resources Flow Mechanism (RFM), a Life Flow Mechanism (LFM), a Knowledge Flow Mechanism (KFM), and a Human Interface (HI).
Now let’s take a look at each of these mechanisms separately:
Resources Flow Mechanism (RFM). The objective of this mechanism is to map out all material resources available to humanity, track how they are being employed in the economy at any given moment, and evaluate the rate of flow of each resource. The more accurate and comprehensive is this data the better.
Certainly, we already have much data about our resources and where they are employed in the economy; data about raw materials is held by governments and by extraction and refinement companies; data about how each resource is used in the production of goods is held by the industrial manufacturers themselves; and data about how resources are used by individuals can be derived from “smart” devices. All that is necessary is to aggregate and index all this data. While this is a good start, by no means is this sufficient for the task at hand. What would be necessary, therefore, is to have a constant stream of data about all resources in the economy and how they are employed. With the advance of technology, this would be possible within twenty years or so. One method to accomplish this task could be, for example, employing countless nano-robots, equipped with sophisticated sensors, that would move around and continuously transmit data about how every resource in the economy is used. These nano-robots would basically do in the physical world what Googlebot does on the internet.
Knowledge Flow Mechanism (KFM). The objective of this mechanism is to determine the state of human knowledge and the state of technology. This would require an artificial intelligence capable not only of processing information but, more importantly, of “understanding” this information. There is already quite a lot of progress on this front, with artificial intelligence technologies such as IBM’s Watson and Apple’s Siri. However, it would probably take another decade or two to have AI that is fully capable of “understanding” concepts, ideas and even human behavior.
Life Flow Mechanism (LFM). The objective of this mechanism is to determine how much each individual contributes to sustaining and promoting life. The challenge here is that often individuals’ contributions have long-lasting effects. This is particularly true for the more important contributions – in science, engineering, medicine, literature and so on. Since the flow economy allocates resources according to individuals’ contribution to life, it is important to capture the full effect of each individual’s contribution. This means that the LFM must be able to not only determine the immediate effect of an individual’s action, but also predict its long-term effects as accurately as possible. Certainly, this is a daunting task, but not an impossible one!
Let us then consider what kind of technological capabilities are necessary for this mechanism. This mechanism must have (1) an advanced sensory capability, it must be (2) capable of understanding the complexity of the human experience, and it must have (3) a highly sophisticated predictive engine.
Now, let’s think for a moment about the mechanism’s “understanding” capability. Obviously, we cannot expect this mechanism to have pre-existing understanding of the workings of the products of human creation or the intricacies of human behavior. Nor can we expect it to understand the nuances of medicine, or architecture, or literature for that matter. That doesn’t mean however that it cannot develop such understanding over time. In fact, all that is necessary for this mechanism to do that are two basic capabilities: the ability to identify cause-and-effect relations and the ability to recognize patterns in the environment.
When we combine such capabilities with access to a vast knowledge base (from the KFM) and the ability to process a continuous stream of data from billions of individuals from around the globe, what we get is a mechanism capable of developing an ever more refined understanding of the full spectrum of human experience.
Similarly, when it comes to the predictive engine, here too we’re not starting from scratch. In fact, we can tap into the collective wisdom of hundreds of thousands of financial and business analysts, actuaries, risk managers, mathematicians, statisticians, and so on, whose job it is to forecast and predict the long-term performance of businesses and economic trends. What would be necessary here is to translate their – mostly commercial and economic - insights into humanitarian terms, and then code these into predictive computer algorithms. But that is not the end of the story; the mechanism must constantly compare its predictions to the measured effects, and revise the predictive algorithms accordingly. Thus, over time, the mechanism will be able to provide ever more accurate predictions.
Finally, the least complicated of the three technologies is the sensory capability. We already have technologies that can track our movement and provide rich contextualized data about it. One such technology - STATS’ SportVU - is applied in the world of sports:
“SportVU can tell you not just Kevin Durant’s shooting average, but his shooting average after dribbling one vs. two times, or his shooting average with a defender three feet away vs. five feet away. SportVU can actually consider both factors at once, plus take into account who passed him the ball, how many minutes he’d been on the court, and how many miles he’d run that game already.”
If we build on this technology and integrate it with the other two components what we get is an incredibly powerful mechanism that is fully capable of meeting the objective of determining how much each individual contributes to sustaining and promoting life. At the same time, we must recognize that the computational needs alone of such mechanism far exceed the processing capabilities of all the computers used today in the world (the hope here is that this issue will be solved in a few years with the advent of quantum computers). Perfecting the predictive algorithms of such mechanism and making them sensitive to the subtleties of human behavior, however, may prove to be a far more difficult challenge, and require anywhere between fifty and eighty years to complete.
Now that we know its capabilities, it is time to examine how the life flow mechanism works in practice. Since the objective of this mechanism is to determine how much an individual contributes to life, what the life flow mechanism actually does is predict and measure the change in creative ability (of all individuals) that results from an individual’s actions. For this reason the mechanism needs to form a baseline of creative ability (BCA) for every individual, as part of its ongoing operations. This baseline is necessary for the mechanism to be able to measure the change in creative ability and, more importantly, creative potential of individuals. The baseline has to take into account the fact that individuals’ creative ability varies as a result of physiological changes (health, age and so on) as well as changes in the environment (weather, temperature, time of the day, etc.). Once the BCA is established the mechanism works as follows:
The mechanism detects a pattern of behavior and tracks all individuals affected by the behavior. Then it connects with the KFM to identify the pattern, and with the RFM to determine what scarce resources are used in the process. Following these steps the mechanism uses the individuals’ BCAs to isolate the effect of the behavior from other variables that have an effect on the individuals involved. The mechanism then uses these BCAs to predict the immediate and long-term effect of the behavior on the creative ability of all individuals involved. Finally, the mechanism measures the actual effect, and revises its estimates. Throughout the process the mechanism incorporates new data into the KFM, RFM and LFM.
Thus, the Life Flow Mechanism determines how much the individual contributes to sustaining and promoting the flow of life - by predicting and measuring the change in creative ability that results from the individual’s behavior. The mechanism also determines how much the individual contributes to the flow of resources in the economy - by measuring (with the help of the RFM) how efficiently are scarce resources used in the process.
Human Interface (HI). The Human Interface is the mechanism through which individuals interact with resources in the economy. It provides individuals with information on all the resources available to them, and the means to make use of these resources. It also provides individuals with personalized feedback on their creative ability and their contribution to the flow of life, as well as data on the state of the economy. The objective of this mechanism is to enhance the human experience and help individuals realize their full creative potential. The interface is designed to be as dynamic, seamless and intuitive as (technologically) possible.
All the mechanisms of the flow economy are subject to the same principles as any other resource in the economy. The more effective these mechanisms are the more efficient is the economy, and the more everyone benefits. The algorithms by which these mechanisms operate are applied universally and are entirely transparent to all individuals. This virtually eliminates the possibility of any individual or group manipulating or corrupting these algorithms. At the same time, every individual can contribute to perfecting the algorithms and technologies behind the mechanisms – thus ensuring that these mechanisms perpetually evolve.
Here then we witness a complete paradigm shift in economic theory, as the flow economy systematically resolves the problems inherent in the capitalist system. Instead of appealing to people’s lowest motives - cynicism, nihilism and greed - the flow economy appeals to people’s highest ideals. Instead of being driven by corporate-induced consumerism it is driven by the need to sustain and promote life. Instead of overcompensating those at the top and disparaging those at the bottom it compensates everyone according to their contribution. Instead of being inherently exploitative it treats everyone equitably. And instead of rewarding marketability over merit it rewards us for making meaningful contributions to the world.
What is equally important, however, is that the flow economy does not resolve the inherent problems of the capitalist system at the expense of productivity, efficiency, motivation to contribute or economic growth - like other economic systems do (Socialism and Communism). Instead, the flow economy resolves these problems while putting us on a path to sustained growth and prosperity.
The End of Capitalism Series:
- The End of Capitalism, Part I : Disruptive Technologies
- The End of Capitalism, Part II : What Is Capitalism?
- The End of Capitalism, Part III : 12 Capitalist Myths
- The End of Capitalism, Part IV : Toward a Flow Economy
For more about Capitalist Myths see:
- Capitalist Myth #1 : The Fallacy of Laissez-Faire Capitalism
- Capitalist Myth #2 : Consumers Are Not The Bosses
- Capitalist Myth #3 : Dividing The Pie
- Capitalist Myth #4 : Capitalism Isn’t Moral, It Is Nihilistic
- Capitalist Myth #5 : Capitalism Is Inherently Exploitative
- Capitalist Myth #6 : Corporate Bonuses Don’t Improve Performance
- Capitalist Myth #7 : For Motivation, Money Isn’t Everything
- Capitalist Myth #8 : Market Value Distorts Intrinsic Value
- Capitalist Myth #9 : Highest Ideal Under Capitalism: Cynicism
- Capitalist Myth #10 : No Dignity In Work
- Capitalist Myth #11 : No Such Thing As A Self-Made Man
- Capitalist Myth #12 : Greed Is Not Good