THE BLOG

The End of Capitalism

01/14/2014 05:57 am ET | Updated Mar 16, 2014

As they become richer, economies evolve. The early industrial stage, based on heavy industry and producer goods, paves the way for a more complex economy where consumer goods and personal services predominate. In the US and Northern Europe this shift became significant in the 1950s. It was reflected in rock music and the counterculture. By 2000, it was irreversibly established throughout the wealthy parts of the West.

Technology responds to demand. New technology makes products simpler - lighter, smaller, more flexible, and cheaper - but also more sophisticated: more ingenious, more appealing, and more personalized.

In the process, the economy is transformed. Value used to lie in raw materials and manufacturing - in natural resources and mass production factories. Value now resides in design, marketing, branding, software, delivery, and customization. These activities are not machine driven, labor intensive, or capital intensive. They are creative and personal.

Machines, and machine-like hierarchies in large organizations, can deliver efficiency. They cannot deliver fertile, ceaseless innovation. Variation and fresh thinking are human attributes requiring education, independence, and rebellion. Enthusiasm for the product becomes essential. Was IBM obsessed with its products, or its own prestige and sales force? Was Steve Jobs obsessed with his products? Obsession and enthusiasm are necessary for success.

The innovators require some capital, but it is readily available from a new breed of professional - venture capitalists. Managers used to be loyal subordinates carrying out orders from on high. Now they have to become innovators, experimenters, and risk-takers - or get replaced by outside innovators who found their own firms. There is one massively important but little noticed effect. There is a colossal transfer of actual or potential power from the corporation - its hierarchy and shareholders - to creative individuals. People such as Steve Jobs and Bill Gates had their own companies and they are quoted on the stock exchange, but the main people who got rich were themselves and other employees, and venture capitalists who backed them early on.

Going beyond industry necessarily means going beyond capitalism. Capitalism revolves around the need for capital accumulation - the scarce, most potent, and decisive factor of production. Capitalism thrives on industrialism, centralization, regimentation, standardization, and economies of scale that arise independent of imagination. It is a controlled system: stable, predictable, durable.

In the West, this set-up is going; it is dwindling fast. People who want to make serious money these days don't make their career within established large industrial corporations, as they did just sixty years ago. They become investment bankers, management consultants, headhunters, brokers, venture capitalist, sports stars, rock stars, movie stars, bestselling authors, and above all, entrepreneurs. In 1982 there were just 13 American billionaires. Now there are 442. Even after taking account of inflation, more Americans have become billionaires in the fourteen years of this century than managed that in the whole of the last century. Today, bright people with confidence, obsession, enthusiasm, the right idea, and some luck, can create millions or billions with little capital.

The location of creation has switched. Under industrial capitalism, machines operating centrally created riches. James Watt perfected his steam engine, but then the machines took on a life of their own - the machines themselves, and machine-like corporations built around them, churned out money. People danced around the edges, enlarging and improving the machines, putting them together in large mills or mines to turbo-charge productivity, adapting their pace of work to that of the machines. The machines and the capitalists were in charge.

Now it is not machines or their owners, but creative individuals who are center-stage. People not only invent new technology - they are the new technology. As sociologist Manuel Castells says, "For the first time in history, the human mind is a direct productive force ... Computers, communication systems, and genetic decoding and programming are all amplifiers and extensions of the human mind."
In the West, knowledge has become personalized. Open innovation requires it. The effect of open innovation is to transfer initiative and wealth from established corporations to new ones, and from shareholders to individuals. From thought to action, individuals are at the heart of creation, including wealth creation. Every element of the unique human personality takes part in creation - intellect, imagination, emotion, calculation, empathy, and the ability to evoke enthusiasm from other seriously talented people. Each person does it their way. Steve Jobs may not have been the nicest person in Silicon Valley, but he got amazingly talented people to distort reality and create previously unimaginable products. The individual is everything.

In all kinds of ways, therefore, we are moving away from capitalism, from an economy centered on capital and large, established, hierarchical corporations. But we are not moving from private hierarchy to public hierarchy, from capitalism to socialism or communism. Free enterprise is alive and well - arguably too alive and well. The new system is even more market-oriented than capitalism, and much more decentralized. It is as decentralized as any system can possibly be, because it is decentralized to individuals, and above all to a tiny minority of new superstar individuals. Welcome to the personalized economy.

In the long march of history, capitalism was an aberration. For 800 years, Europe, and later America, progressed through the expansion and energies of the rising urban middle classes, resulting in economic growth and advances in personal and political freedom. Industrialism tore this happy conjunction apart. Capitalism brought enormous economic advances, but it also marginalized the individual producer. It centralized the economy and society. It regimented workers, and it stifled the spirit of Organization Man.

But that was then, and now is now. The personalized economy reverts to the long-term trend of advancing wealth and freedom together. I cannot prove it, but I am sure that we would never have heard of Steve Jobs, Steve Wozniak, Michael Dell, Jeff Bezos, Mark Zuckerberg, and all the other new billionaires who have changed the world, if we had not first had James Dean, the Beatles, the Rolling Stones, Bob Dylan, David Bowie, Leonard Cohen, Andy Warhol, and Lou Reed. The counterculture made an indelible impression on the new billionaires, or else it set the style of iconoclastic free-thinking that is at the root of all mega-creation.

So the personalized economy is good because it increases freedom. It is also good because it is the sole hope of survival for our planet. It harnesses "weightlessness". In industrial economies, value means weight. All industrial progress from 1750 to 1950 involved building bigger and bigger industrial facilities. As economies grew, more and more heavy products such as steel, cement, iron, tractors, cars, tanks, and aircraft were produced.

Since 1950, however, progress means the proliferation of ever lighter and smaller products and services. The first computers were immensely heavy and as big as several football pitches. Now we can hold more computing power in our hands. The internet, too, magically annihilates weight and distance.

Thus, perhaps, the green nightmare recedes. The personalized economy is not capital-intensive, nor material-intensive, nor, to the same degree, energy-intensive.

But there are two huge problems with the personalized economy.

One is galloping inequality. This economy has no need for production workers, for the unskilled, or the barely competent. It has no need, not just for the underclass, but also for blue collar workers. It has no place for the uneducated or the uncreative. And the ethos of the personalized economy, though it is trendily insurgent, is also profoundly materialistic. This is not inevitable. The spiritual can coexist with the personalized economy rather well. But at the moment, the cult of money is winning hands down. And in the personalized economy, a very small proportion of the people make a very large percentage of income. Meritocracy is not as nice as it sounds.

The other problem with the personalized economy is that it only works for individualistic countries. It is not much use if the West reduces its plundering of the planet if the developing world and places such as China and India continue to ramp up their planet-plundering. There is still a workshop of the world, and it is going green far too slowly. The hard truth is that the powers that be in places such as China, North Korea, India, Russia, and most of the Middle East do not care about the planet, any more than they care about personal freedom (except their own). They care about their power now.

In spawning machine-based economies, the West may have led the world to the brink of ecological suicide. The only hope is the global replacement of industrial capitalism by the personalized economy. Currently this looks unlikely. The personalized economy can only exist with a high degree of personal freedom. To succeed in creating a personalized economy means adopting and embracing Western values. It means not just becoming like the West - it means becoming part of the West. And that is not going to happen soon, or perhaps at all.