What is Capitalism?
Contents
19.1. What is Capitalism?#
Why do social media platforms make decisions that harm users? And why do social media platforms sometimes go down paths of self-destruction and alienating their users? Sometimes these questions can be answered by looking at the economic forces that drive decision-making on social media platforms, in particular with capitalism.
So let’s start by defining capitalism.
19.1.1. Definition of Capitalism:#
Capitalism is:
“an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market”
In other words, capitalism is a system where:
Individuals or corporations own businesses
These business owners make what they want and set their own prices. They compete with other businesses to convince customers to buy their products.
These business owners then hire wage laborers at predetermined rates for their work, while the owners get the excess business profits or losses.
19.1.3. Accountability in Capitalism and other systems#
Let’s look at who the leaders of businesses (or services) are accountable for in capitalism and other systems.
Capitalism#
In capitalism, business decisions are accountable to the people who own the business. In a publicly traded business, that is the shareholders. The more money someone has invested in a company, the more say they have. And generally in a capitalist system, the rich have the most say in what happens (both as business owners and customers), and the poor have very little say in what happens.
When shareholders buy stocks in a company, they are owed a percentage of the profits. Therefore it is the company leaders’ fiduciary duty to maximize the profits of the company (called the Friedman Doctrine). If the leader of the company (the CEO) intentionally makes a decision that they know will reduce the company’s profits, then they are cheating the shareholders out of money the shareholders could have had. CEOs mistakenly do things that lose money all the time, but doing so on purpose is a violation of fiduciary duty.
There are many ways a CEO might intentionally lower profits unfairly, such as by having their company pay more than necessary when buying something from the CEO’s friend’s company. But even if a CEO decides to reduce profits for a good reason (e.g., it may be unethical to overwork the employees), then they are still violating their fiduciary duty, and the board of directors might fire them or pressure them into prioritizing profits above all else.
For example, the actor Stellan Skarsgård complained that in the film industry, it didn’t matter if a company was making good movies at a decent profit. If there is an opportunity for even more profit by making worse movies, then that is what business leaders are obligated to do:
“When raw market forces come in, [movie] studios start being run by companies that don’t care if they’re dealing in films or toothpaste so long as they get their 10% [return]. When AT&T took over Time Warner, it immediately told HBO to become lighter and more commercial. They were always making money. But not enough for an investor.”
Or as another example, if the richest man in the world offers to buy out a social media site for more than it’s worth, then it is the fiduciary duty of the leaders of the social media site to accept that offer. It doesn’t matter if it is clear that this rich man doesn’t know what he is doing and is likely to destroy the social media site, and potentially cause harm to society at large; the fiduciary duty of the company leaders is to get as much money as possible to their shareholders, and they can’t beat being overpaid by the richest man in the world. Rejecting that deal would be cheating the stockholders out of money.
CEOs of social media companies, under pressure from the board of directors, might also make decisions that prioritize short-term profits for the shareholders over long-term benefits, leading to what author Corey Doctorow calls the “Enshittification” of platforms (See his article: The ‘Enshittification’ of TikTok: Or how, exactly, platforms die., also archived here).
Privately owned businesses or organizations are a little different in that the owner (or owners) have full say on what happens, and are free to make it as unprofitable or profitable as they want. Though, if the private ownership of the business was purchased with loans, then they have some responsibilities to the lenders.
Other Accountability Models#
Besides the privately owned and publicly traded businesses in capitalism, and government services in socialism, there are other accountability models as well. For example:
In a publicly funded organization, non-profit organization, or crowd-funded project (e.g., Wikipedia, NPR, Kickstarter projects, Patreon creators, charities), the investors (or donors) are not investing in profits from the organization, but instead are investing in the product or work the organization does. Therefore the responsibility to investors is not to make profits but to do the work investors are paying for. In this model, the more money someone invests or donates, the more say they have over what the organization does (like capitalism and unlike democratic socialism). For example, when buying groceries, you might let the grocery store take an extra $5 from you to give to a charity that gives food to the needy. Then the grocery store corporation will give $5 to the charity, but the corporation also gets $5 more say in how the charity operates (and they can pressure the charity to not do anything that hurts the corporation’s profits, and thus look charitable without violating their fiduciary duty).
In a consumer co-operative businesses and organizations, the customers of the business have a say in how the business is run, and therefore the leaders are accountable to the customers. So if the customers want the business to do something that can only be done by treating the employees poorly, then the business leaders are obligated to follow the customer’s demands. If the company makes excess profits, that money is sent out to the customers. An example of a consumer co-operative is the outdoor recreation gear store REI.
In a worker co-operative businesses and organizations, the employees at the company are the people who have a say in how the business is run, and therefore the leaders are accountable to the employees (rather than vice-versa). Since the business leaders are controlled by the workers, this is a system where the workers control the means of production (e.g., they control the factories, offices or other business resources). If the business makes excess profits, that money is sent out to the employees.
19.1.4. Reflection Questions#
In what ways do you see capitalism, socialism, and other funding models show up in the country you are from or are living in?
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Advocates for socialism are often referring to democratic socialism. This is different than “National Socialists” which is shortened to “Nazi,” and is a form of Fascism. While Nazis do have government leaders deciding on what gets made and who gets it, that is because it is a totalitarian dictatorship run by one person (e.g., Adolf Hitler), who is accountable to no one. Nazis historically have been very opposed to socialism, and have a mixed relationship with capitalism. What Nazis are primarily concerned with is “cleansing” their nation from people who aren’t part of the “true people.” So their goal is to identify all the “undesirable” people (e.g., Jewish people, Roma people, queer people, disabled people, etc.), and take their stuff, and then deport or murder them in a genocide. From an ethics perspective, we’d like to state that Nazis (and other Fascists) are very bad.
19.1.2. Socialism#
Let’s contrast capitalism with socialism:
Socialism, in contrast is a system where:
A government owns the businesses (sometimes called “government services”)
A government decides what to make and what the price is
the price might be free, like with public schools, public streets and highways, public playgrounds, etc.
A government then may hire wage laborers at predetermined rates for their work, and the excess business profits or losses are handled by the government
For example, losses are covered by taxes, and excess may pay for other government services or go directly to the people (e.g., Alaska uses its oil profits to pay people to live there).
As an example, there is one Seattle City Sewer system, which is run by the Seattle government. Having many competing sewer systems could actually make a big mess of the underground pipe system.