We're still far away from being a decent cosmic civilization

or... How capitalism and communism both failed in search for the system that would advance the human race most efficiently.

Looking at the state of the world today, all the protests, economic downturn, debt problems, etc. prompted me to write an analysis of how capitalism works using simple model with a few actors. I'm a graduated Economist turned computer programmer, but that's beside the point...

Imagine a simple world with only 2 people living in it. One of them has learned how to produce food, the other how to produce clothes. Let's imagine they both start with the same amount of money emitted by the central bank.

At first person A produces enough food for himself and for person B to consume. Person B does not own a land, so he cannot produce food. He produces clothes instead. They trade food and clothes on par value, and have equal amount of money after each day.

One day, person A invents a way to produce clothes for himself. The new process enables him to produce all that he needs and even produce food required by person B. Person B is out of customers, so he starts losing money. Soon, person B has no cash left, while person A is mightily rich. Person B, seeing no way to survive, starts to get angry. Person A sees that he would lose his only customer, so he invents welfare. Even if person B cannot contribute to community, person A sets aside some of his money each day and donates it to person B so that he would be able to survive.

As you can see in this example, the consequence of liberal capitalism is that rich would become richer, and poor would become poorer unless poor are able to invent or produce goods and services that community requires. The main problem with this is that chances of poor inventing anything are really low: poor have less money for education, and by definition don't have resources to finance things like scientific experiments, which are often required to invent useful technology. There might be some very smart and bright people who are able to have a great idea on their own, but percentage of those are really low. Result of this is that most of the population in capitalism would remain poor. To paraphrase the movie In Time:

Many have to be poor for some to be rich

Now, I would't have anything against capitalism, as long as I'm on the rich side ;)

Free market and fair market

In today's markets all the companies are fighting for profits. Fighting to survive is the same as fighting to get rich. Most successful companies build products and services that most of the people want. Now, you can get bigger stake by either growing the markets share against you competition or creating new markets. Looking at the most profitable legal industries, you can see why for example oil companies and pharmaceutical companies are really not incentivised to advanced the human race. It is better if patient is never cured, because he stops being a customer. Who in their right mind would give a customer a product that would make him leave? Oil companies have all the incentive to prevent any non-oil engine entering the car market. In fact, many of them are actively searching for and tracking inventors that might develop alternatives, and are then either buying or destroying patents. Of course I have no proof for this, but it is expected. Anyone running such company would have a really big incentive to do so. Remember from the last post, capitalism is all about swimming or sinking. This makes market leaders fight and slow down invention, even when they are inventors themselves. They want to milk the cow as long as it's possible, before allowing the human race to progress further. A popular quote says that the solar energy would become prevalent as soon as the electric companies figure out how to put a meter on the Sun rays.

Is there a solution to this problem? I don't know. As long as we live on a planet where resources are scarce, it's questionable. Some might disagree with me. Famous engineer Jacque Fresco says we could automate almost everything and all live happily. I'm not sure about automating dentists, doctors and engineers. Also also technicians that would need to keep all the engines running. And it still does not show where the inventions would come from, if everyone can live their life fully without any incentive to invent new stuff. Except for, maybe, someone being proud of his invention and showing it off the world.

Communists tried to solve the problem the other way: limit the amount of wealth one can accumulate. When nobody can get too rich, they won't be incentivized to do bad things. However, Soviet Union economy showed another problem with this line of thinking: without capitalist incentive, there is no desire to invent. In 1990. they were still producing same models of cars, guns, trains that were invented 40 years before. The progress halted. So, communism does not advance the human race either.

In short, both capitalism and communism fail to give us efficient way to advance the human race. Communism gives no incentives to anyone, and capitalism makes the most innovative companies slow down the pace in fear of running out of fresh ideas and being overrun by competition. Having the most powerful companies slowing down innovation is even harder problem, because they do have the resources to do so easily. They can influence lawmakers, buy out sole inventors and small companies that could become future competitors. Given the fact that they are the only interested party in most cases, they win easily.

Is there a solution?

It seems to me that the only way to fix this problem would be to reset the human race and have someone implant different principles in a new generation of humans to come. A generation where greed, jealousy, laziness and similar traits would be shun upon by everyone and person would be socially excluded if he tried to exert such behavior. Some records state that there were civilizations that worked that way: Mayas and Inca in South America. But, as we all know, conquistadors destroyed them.

Now, I'm not saying that history should be erased from our heads. In fact, we need to know it and know why it was wrong and why we need to prevent such thing happening again. We should be armed against further conquistadors should they ever come (maybe from outer space, who knows). I just don't see us transforming our society to this new level gradually without some cataclysmic event. There are too many powerful stakeholders today that wish to maintain the status quo. Even experiments like communism would never had happened if it wasn't forced upon nations by victors of wars in the first half of XX century (namely WWII and the Russian Revolution).

In the meantime, quit bragging, embrace capitalism and focus on your education and inventing new useful stuff. This is the best system we've got so far.

Tweet to @mbabuskov Tweet Milan Babuškov, 2012-08-24