Goodbye Capitalism, Hello 'Technofeudalism'
A new word 'Technofeudalism' is all the chatter in economic think tanks this week. Before we can talk about what it means, we probably need to understand what Capitalism is (and what it isn't).
"If I asked you to describe Capitalism in one word, could you?"
That one word is growth.
Scrolling through pages of internet definitions, I am disheartened to see that free enterprise and capitalism are often described as the same thing. Economists will tell you that free enterprise has been around far longer than capitalism and both systems can exist within a communist society as well as a democratic society.
Whaaaat?
Perhaps the best way to understand all of these terms is through an example.
Let's say you work in your family's pizza shop. Your parents have owned and operated this pizza shop for more than two decades and have a regular following. They make enough money to support the family and over time have employed a few workers. When prices go up, they put the price of their pizzas up enough to cover the increased costs and their profits have basically stayed the same, indexed for inflation, for twenty years. There are two other pizza shops in town. They all operate the same way, making a modest profit year in, year out. This is free enterprise. You see examples of it every day in Australia.
The time comes for you to take over the business. You have big plans.
All the time you are looking for new ways to increase profits.
You borrow money and purchase a machine that makes it quicker and cheaper to make the dough than doing it by hand. This means that you can make many more pizzas cheaper and faster. You find ways to make the toppings on the pizza look impressive without costing as much money and you train your staff how to do this so that even a small child could do the job. You find ways to legally decrease the wages you pay your staff. You have an accountant that also looks for ways to legally cut the amount of taxes you pay more aggressively than your parent's accountant did.
This is not yet capitalism. It is what happens next that makes your pizza business a form of capitalism.
You are now in the position to sell your pizzas for much less than the other pizza shops in town. This makes it harder for them to compete.
Within a few years you buy them out and put your pizza systems in place at each store. So now you own three pizza shops. Because there are no other pizza shops in this town, you have established a form of monopoly.
Capitalism is about growth. So as an owner of capital (the pizza shops), you continue to look for new ways to grow. In other words, new ways to increase your profits. Your intention is to make more money this year than last year and more money next year than this year.
Perhaps you start investing in Fish and Chip shops and then other fast-food businesses. Or perhaps you invest in totally different business ideas. It doesn't matter. You are looking for the most profitable businesses to grow your wealth and then making each of them as profitable as possible, increasing their profit each year that you hold onto them.
Who can blame you? Wouldn't many of us do the same? There is nothing wrong with ambition. In fact, as a child of the 1980s we were told that greed is good. Your ambition to continue to grow your wealth employs more people, increases the taxes you pay, and everyone is better off.
Capitalism differs from free enterprise because there is a continual ambition for growth. Getting there might mean selling shares so that you can get more money to grow. Or it might remain a family-owned empire. You will not always achieve this exponential growth every year, but it continues to be the main goal.
You might, as you get richer, decide to spend money on fixing up a local waterway that has become heavily polluted - even put some of your wealth into a new wing at the local hospital. You are rich enough now to do these things.
Being a capitalist doesn't require you to be a bad person.
It just requires that you use your capital with an intention of continually increasing profit. Capitalism is always prepared to make changes. It can be a very efficient economic system while there is plenty of competitors, but it is also predatory. Removing your competitors is a really good way to improve your profits. Once they are gone you might not be as keen to make the business more efficient - you can simply pass on the higher costs to your customers - they don't have anywhere else to go. This encourages inflation.
Okay, so what is this new economic term, 'technofeudalism?'
The time comes for your children to take over. They have even bigger plans for the family business empire than you did.
They set up an online platform to sell pizzas. Their 'app' is soon downloaded by everyone in town because you can get even cheaper pizzas this way and it is so convenient.
After a few years they are selling all kinds of food products through this online app. Then non-food products, even services like hairdressers that come to your home and dog minding services.
The app has tens of thousands of followers and then hundreds of thousands across many towns and cities. Then countries. Your family empire doesn't own all these businesses, just some of them.
Your children have realised that there is more money to be made and faster by letting other companies, all sorts of companies, have a space in the online app and charging them a percentage of each sale. They take as much as 40% of each sale made.
Even this is not yet technofeudalism. It is just renting 'cloud space'.
Technofeudalism occurs when they invest in AI systems that decide what each buyer gets to see. They can 'hide' the businesses which are less profitable for them, highlight the businesses they own or have an association with; and decide based on the data they have on each customer what the advertised price will be and what the customer sees advertised. This means that the shopping experience for every person using the app can be different from the person next to them. They might see different prices on offer, even different products for sale.
This is technofeudalism. Some economists believe that it is where we are headed providing examples of Facebook, Amazon, Microsoft, Apple and Google. Others think not.
As the major supermarket companies in Australia move increasingly towards online apps for selling groceries, are we likely to see this become a new form of technofeudalism?
For that to occur we would need to see, at the very least, some items for sale 'hidden' in favour of other items that increase the supermarket's profit.
While putting together a shopping list online this week I noticed that initially I could only find the supermarket brands of nuts. You know - the 'home brand' peanuts, 'home brand cashew nuts' etc. Other major nut companies, such as Nobby's nuts, were not listed. There were only the generic supermarket brands advertised for me to purchase.
I wondered if this was all they had for sale or if it was because the artificial intelligence behind these apps knew that I always went the lowest cost items in the past, so that was all I was going to see.
Perhaps more sinister, it could be because there was more profit in 'hiding' the Nobby's nuts.
Eventually through different search methods I was able to expand the range of nuts the supermarket had for sale to include lots of other nut companies.
It is way too soon to call this one-off example a sign of technofeudalism emerging, but as shoppers, we all need to be wary of any attempt to shrink the choices we have available when we're using online supermarket apps.
For more info on this post:
FinancialFalconet: Free Enterprise vs Capitalism differences
New York Magazine: What is technofeudalism
YouTube: Yanis Varoufakis, Welcome to the age of technofeudalism
Credits:
Cover Photo: Ivan Tsurov Unsplash.com
Pizza: Benu Marinescu, Unsplash.com
Neon Pizza Sign: Henrique Hanemann Unsplash.com
Go Up And Never Stop: Fab Lentz, Unsplash.com
AI Chip: Igor Omilaev, Unsplash.com