Capitalism is predicated on the production of goods and services. The difference between the cost of producing these goods and services and the revenue they generate is called profit, which is delivered back to shareholders. In order to increase profit, owners of capital try to innovate so that the same amount of goods and services can be created with fewer and fewer workers.
However, if there are fewer and fewer workers, there is less cash in the economy for the purchase of goods and services. This is what Marx called an inherent contradiction of capitalism — a contradiction that would one day lead to its replacement by socialism.
I’d like to explain how software contributes to this process and how I came to the conclusion that software is not only eating the world, as Marc Andreessen said, but it is also eating capitalism itself — from the inside out.
The Divorce of Productivity and Labor
It’s been said that our children and grandchildren will look back on our lives with both amazement and disgust that we were forced to work for our livings, as peasants once had to work for theirs. Our grandchildren will see a natural delineation from slavery to serfdom, from serfdom to wage-slavery and from wage-slavery to liberation.
This may seem far-fetched, but you don’t have to look that hard to find evidence that this could happen. I live in Amsterdam, the Netherlands, where hardly anyone works a forty hour week — and if they do, it’s by choice and not necessity. As well as people choosing not to work, there are millions of people in the developed world who are unemployed or underemployed. This, of course, doesn’t mean they have meaningful lives — some do, some don’t — but it does mean that it’s not hard to find evidence that people are working less and less.
What these observations really mean is that labour is no longer connected to productivity. Because of innovations in the production process, fewer and fewer people are creating all the products and services that we need. For a software engineer this is really intuitive: our job is to build systems that are resilient, functional and that include the absolute minimum number of human beings.
Of the 2007 recession, Mark J. Perry noted, “The great recession stimulated huge productivity and efficiency gains as companies shed marginal workers and learned how to do ‘more with less (fewer workers).’”
Karl Marx predicted this, calling it a “contradiction of capitalism.” Marx said such contradictions would lead capitalism to one day destroy itself. How it would destroy itself is as follows:
The capitalist is driven to make as much profit as possible. One way to do that is by driving down the cost of labour, either directly with low wages or indirectly with automation. However, once fewer and fewer workers are needed, once everything is automated, we’ll have mass under and unemployment, which we are now witnessing, and therefore we’ll be left with nobody who can afford the capitalist’s goods and services.
Software contributes to this process. Which is why I say it’s eating capitalism.
Something New from Something Old
Software may have just eaten capitalism. It has, however, also just given birth to what may come next: a post-capitalist society based on sharing and value-adding activities that bypass rent seekers. In his book “The Zero Marginal Cost Society” Jeremy Rifkin says:
The first European windmill was erected in Yorkshire, England, in 1185. Windmills quickly spread across the plains of northern Europe. Because wind was everywhere — not bound to royal lands — and free, the power source could be erected anywhere. Towns and cities rushed headlong into the new energy regime, with a source of power at hand that allowed them to even the playing fields with local lords.
Before the windmill came along, people were bound to use water mills. Water was connected to land, and the land was the property of the local lord, for which the lord, of course, sought rent. This is why the windmill was a great democratizer of power.
The Modern Rent Seekers
The old landlords, hoarding their water, are like modern day software vendors. Software vendors control a precious resource that they basically blackmail everyone else to use. They do not have the incentive to improve this resource or partake in other value-adding activities. They just collect the rents and sit back.
Some vendors would argue they deserve their rent for all the innovation they did. This is a nonsense argument — the state typically carries the risk for most new innovations, but the private sector carries the reward. The list of examples is too long to quote in full, but it includes the Internet, the Web, voice recognition software and GPS.
Unfortunately for these vendors, open source software — just like wind — is free, not bound to vendors, and because of this, small, medium-sized — hell, all-sized companies — are rushing headlong into this new development regime. Just like the ancient lords, then, the vendors are scrambling to stay relevant. Most are doing this by acquiescing and actually contributing to open source projects. Some are still fighting. They will fall.
Back in the 11th century, once the citizens had wind power, they used raw material and their new, cheap energy to create products for their fellow villagers. This is exactly what small companies like mine are doing: using open source tools to create products for our fellow (global) villagers. The small businesses win, as do the consumers, with the rent-seeking vendors losing big, just as the landlords lost big back in Yorkshire.
What Does This Mean for Capitalism? Is Software Eating It?
The problem for the big vendors are that people — many people — are building things and giving them away for free. (This means that abundance, and not scarcity, is the key characteristic of open source software.) These “things,” these components, are wonderful raw materials for increasingly sophisticated systems — which are also free. It’s because of this I can say, with some confidence, that my team at Container Solutions can do now, what the whole of a large organization couldn’t do ten years ago. This means that small business profits go up; it means consumers get more value for money; but it also means that the large companies’ profits will go down.
Let’s look at an example. ElasticSearch is an open source project. It’s fault-tolerant, distributed, resilient and works in real time. It’s fantastic. And it’s free. The company behind ElasticSearch sells a few products that run on top of Elastic — these are value-adding products and people are willing to pay for them. There are, however, other value-adding products that are open sourced and free to download, like our ElasticSearch framework for Mesos.
The ElasticSearch framework provides a small set of functions for monitoring the cluster — for some users this would be enough to get them started, i.e., they would not need a commercial product to satisfy their needs. On top of this, the framework enables vertical, horizontal and auto-scaling, making sure that resources are used properly — these are features of Mesos, but will be interesting for all ElasticSearch deployments.
Ideas Have Sex
The other thing about open source software is that it’s not just linear; blocks not only build on each other, but they also “meet and mate.” In his Ted talk, author Matt Ridley explains how human progress is based on “ideas having sex.” Obviously, the more ideas that are out there, and the more promiscuous they are encouraged to be — and let’s face it, the Internet is the greatest pimp of ideas the world has ever known — the more ideas are going to have sex.
Our ElasticSearch framework is a child of both Elastic and Mesos, which are both children of other ideas or systems, such as Lucene and the master/slave architecture that is used extensively in the software engineering world.
With all this in mind, we can say there are three reasons why open source software is helping to eat capitalism:
- Lots and lots of software is free and can be recombined to make new, value-adding products. This is good for small businesses and consumers, but bad for rent-seeking vendors.
- Ideas have always met and mated, but this process is now accelerating because:
- The Internet encourages ideas to be promiscuous.
- There are more people than ever working on code they give away for free. This is partially to do with our improved educational systems and partially to do with the fact that, using online resources, many people have taught themselves how to program.
- Because of both reasons above, there are more ideas having sex than ever before.
- Unlike physical goods, software costs nothing to reproduce and distribute. Once it’s built, it is free for everyone forever after, which is exactly the point of open source.
The last point above is important. Imagine a factory that systematically reduces the size of its workforce by replacing people with robots. This large investment means that capital now replaces labor. Capital — the money for those robots — is paid up front. Once paid, profits are decided by the cost of the product, let’s say a car, minus the marginal costs.
The marginal cost is the cost it takes to produce one more item, in this case a car. Obviously, as more and more things are automated, the profit increases because the marginal costs goes down. In the case of a new car, the marginal costs are made up of the materials, the electricity bill, etc.
What are the marginal costs for producing one more unit of software? What does it cost you to download our ElasticSearch Framework? Or Mesos itself? Absolutely nothing. But I just said that profit is a function of the difference between marginal costs and the cost of the product. In the case of our framework, that’s zero minus zero. Which is, of course, zero.
Thus, the fundamental relationships that capitalism is built on are eroded, or utterly bypassed, when people give things away for free.
My colleague here at Container Solutions, Anthony, is a designer (and a keen cycler). A piece of his dad’s mud guard broke off. The shop told him that to replace the broken piece the whole mudguard would need replacing. Anthony took the spare part, modelled it, printed it out on his 3-D printer and fixed his dad’s bike. He just cost the supplier of that mudguard 25 pounds. But it gets worse for the supplier — Anthony shared his model on the Internet, and now anyone with a 3-D printer can reproduce this part for zero marginal cost.
Anthony told his father what he did and how he did it. His dad said, “Anthony, we can make some money with this!” To which Anthony replied, “Oh shut up, Dad, that’s not the point.”
Anthony’s story is important because it points to the real cause of capitalism’s malaise. It’s not just that software is eating the world, it’s that its creators want it to eat the world. The generation that came before ours, the last remnants of the industrial age, have given way to a generation that likes to share, collaborate and who have given up on industrial notions of ownership.
The new masters of the universe are smart, connected people who have traded childish notions of ownership with notions of sharing and community. These masters have not only created software that ate the world, but they have encouraged it to do so.
Fused with the modern mindset, we have the most powerful communications network ever created that allows ideas to meet and mate. This proliferation of ideas contributes to increased productivity. This means the trend of fewer and fewer people creating all products and services seems set to continue.
Finally, software is unique because the marginal cost to produce one more unit is zero. Lots of software is also free. Capitalism is predicated on price, costs and a connection between labor and productivity. Software that wants to be free is directly undermining these essential relationships of capitalism.
This is how software is not only eating the world, but capitalism itself. At the end of the Matrix, Neo reminds us we are out there, reminds us that we are afraid, but he asks us to imagine a world without rules and controls, without limits, a world where anything is possible. He finally tells us that he doesn’t know what’s coming next — that’s a choice that is left to us.
Let’s choose wisely.
Acknowledgements: I recently read Paul Mason’s Post-capitalism. Shortly after I read Jeremy Rifkin’s The Zero Marginal Cost Society. I am indebted to these books for how they helped shape my thoughts. Additionally, I am grateful to Paul Mason for his generous advice and feedback. Any mistakes in this article are mine and mine alone.