The problems with capitalism

By devin, 17 January, 2016

I have a surprising number of friends who want to do away with capitalism entirely. The hope is to create a new economic order, with the aim of achieving some or all of these goals (among others):

  • Freedom to work on what you want, for greater job satisfaction
  • Decrease income inequality, by allowing the poor and middle class a larger share of income

A major new technology that we have now that will enable this new economic order is the internet. Because of the internet, we'll be able to abolish corporations and make everyone happy. A great example of this was the now defunct (which is still on github). I was captivated by its description of a world where we didn't need managers. In the new economy ushered in by Bettermeans, teams of smiling people would collaboratively post tasks, decide how hard they were, and complete them together in small teams of self-motivated people. No hierarchy needed! If the project took in money, contributors could vote anonymously to assign "credits" to a task, which then could be shared out as shares of the real money later.

Since learning about bettermeans, I've had a small amount of experience with actual, "putting our money where our mouth is", experiments in two such new economy projects. I've learned a few things. The most important takeaway, and the thing you should take away from reading this is:


You can't just ignore thousands of years of collected wisdom because you have clever ideas about what a "new economy" should look like.


I'm just as guilty of this as anyone else, which is why I feel comfortable saying it so bluntly.

Capitalism, and in particular corporations, have survived and flourished not because they're oppressive, but because they work. I usually hear the limited-liability corporation described as a huge innovation: entrepreneurs can take huge risks and if they fail, they just have to go to bankruptcy court instead of jail. They bear a lot of the cost of the failure, but it's shared in part with the investors. This enables them (sometimes) to try to start multiple corporations.

The power of small business entrepreneurship is really exciting. I'm writing this post from Beijing, and China is a really great illustration of the fact that entrepreneurship both lifts people from poverty and makes consumers' lives awesome.

Yesterday at 8am I ordered a new kettle on, and by 6pm it had arrived at my office, so I could bring it home to use that night. This is made possible by the swarms of couriers riding their bikes around the streets, often with gigantic trailers packed full of packages.

Every day when I walk to work, I pass 10 convenience stores. Five of those have street meat carts outside. I also go by 4-5 restaurants selling fried bread or hard boiled eggs if I want breakfast. That's 20 or more entrepreneurs, working for way less that minimum wage, and making a sweet living for themselves. I don't imagine it's an extravagant life, but it's at least comfortable. The other day when I bought some strawberries and the owner's bird knocked 2 RMB behind a counter, he wasn't too worried about it. 

It was against this backdrop that I abandoned the corporation for a recent project I started on. I was investing about $25 per month into the project plus my free time and labour; it wasn't a huge commitment, but it wasn't trivial either. We decided we would, perhaps inspired in part by Bettermeans, allocate our earnings based on a group consensus of the value of the different tasks we'd completed. At different points, probably 20 people contributed to the project; none of them were employees, but neither were they volunteers. Two people could probably be described as the founders, and a fluctuating group of around 6-10 people could be described as the board, or the "core team". Does this sound confusing? It was.

The project began with a lot of enthusiasm, shone brightly, and then after a few spectacular arguments started to die out. I found the following issues, each of which are incredibly relevant to any "new economy" venture you may be considering:

1) A corporate structure manufactures trust. If you abandon that, you need an alternative way of building trust. You don't get trust for free, it takes time and real interaction! This was a big issue in the project I described above, and was the source (in my opinion) of the arguments. More insidiously, I think it was a big demotivator. Before I met the second founder, I was much more skeptical of the project as a whole. Once I met him in person for about an hour, I found myself much more willing to contribute to the project. As a few other people floated through project management and sales roles, I found it hard to work with them until I had spoken to them one on one or in person.

2) A corporate structure includes explicit agreements of shared understanding, and as a bonus, everyone already knows what they are. They know what a boss is, what a manager is, and what an employee is. They will get an employee contract, or have some other defined role within the nation's legal framework. You can build these in a non-corporate structure, but you'll be facing an uphill battle of understanding for every new term or structure you introduce.

3) When employees have contracts, they know what they will get paid. When embarking on your new venture, you'll have troubles guaranteeing anything.

This third point warrants expansion.

Deciding compensation by consensus sounds like a good idea, unless you have any experience of trying to reach consensus  with a group. This process erodes trust between group members, because inevitably people will feel like their contributions are being undervalued by someone else. I always say, everyone in a group should feel like they are doing more than their share, because we all overvalue our own contributions. The idea of deciding by consensus will give accurate valuations on people's work only if each decision maker has a greater than 50% chance of choosing the correct value. I don't think this works, especially if non-programmers are evaluating programmers' contributions.

Further, anyone who has experience in trying to find consensus without just voting knows it takes forever to do. That added time is added bureaucracy. This isn't good for the bottom line of the company/organization/group that's trying to produce something. Any new economy will unfortunately still need people to produce things rather than talking for hours and days about relative contributions.

Another layer of bureaucracy is added if it's not clear who is in charge. In the old economy, hierarchy made it close to explicit who was in charge. Company politics and human nature makes that a bit fuzzier, but in the end, you generally have a idea of who is in charge of decisions about yourself, coworkers, or a project.

I think these problems are fixable. I would love to read a design of what a new economy organization would look like that used plain language rather than jargon. Until that happens, I think the old economy will keep on doing what it does best: producing stuff and spurring progress.

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