The Software Society

How digital technology is changing our culture and economy

Managed Capitalism

[Continuing discussion on themes from The Software Society: Cultural and Economic Impact (2013), by William Meisel]

“Pure” capitalism is often represented as simply letting Adam Smith’s “invisible hand” do its work. The ideal situation, in the purist view, is government not interfering with any aspect of the economy.

This extreme view of capitalism isn’t supportable. There must be some regulation. In the US, we expect government to help avoid poison in our food, fraud in advertising, pollution of our air or water, and corruption in our politics. To say that eliminating all government regulation would make a perfect economy is akin to saying that eliminating laws, police, and prisons would reduce crime or that eliminating stoplights would improve traffic flow. Established regulation of industry is one of the strengths of the US economy; many developing countries face a huge cost in eliminating pollution and other issues in their economies as they mature. The extreme view of capitalism as “anything goes” (more elegantly stated as “laissez faire”) driving an optimal economy is as unsupportable as the early Communist version of socialism.

An economic system must be managed to some degree. The real issue is making good decisions in recognizing when management is required, and in making management minimal and effective. Like the management of a company, there also must be a process for examining what is working and what isn’t and for making adjustments. In the past, a Congress that took its responsibility to the country seriously was a mechanism for adjusting laws when problems became evident. Partisanship has replaced compromise today for some in Congress, but we can hope the electorate will eventually correct this problem.

The tax system can be one of the most flexible means of directing the economy. It can be used to add a cost or benefit to a certain behavior without requiring that behavior. The tax deduction for mortgages, for example, is theoretically designed to encourage home ownership, but individuals take many other factors into account when deciding whether to own or rent. In The Software Society, this flexibility led me to suggest an “automation tax” as one approach to making it more attractive to create jobs rather than eliminating them through automation.

We are facing some tough economic times. The US (and eventually the world) has a shortage of jobs relative to the number of people seeking them, and the mismatch is growing due to the replacement of jobs by automation and a much larger number of people competing for those jobs worldwide. The income of a majority of the US population has been declining for a long time, with pain postponed as households spent by piling up debt.

The issue isn’t whether capitalism requires management. The issue is whether we can find a consensus to find the appropriate management methods to address urgent and deep problems. We must avoid addressing problems with slogans rather than thought.

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