From Tech Crunch After Technology Destroys Capitalism
Technology, labor, and capitalism are inseparable. In a perfectly competitive free market capitalist system, technology is the result or byproduct of firms competing with each other to gain an edge, but the consequence is employees lose their jobs as their skills become obsolete, so they will need to learn to adapt to marketplace changes, much in the same way corporations must evolve. It’s easy to feel pity for the worker, but entire industries also die. Here’s an example: Company A develops a toothbrush made of wood. A competitor, Company B, also sells an identical toothbrush. Company A loses half of their business and needs to find a way to regain their edge, so they invent a toothbrush made of plastic. It’s a huge seller because people hate getting splinters in their gums and company B goes out of business. Structural unemployment results, but in exchange we get new technology. This is explained in more detail in the rock crushing example.
Wealth inequality rises because technology magnifies the economic contributions of industrialists. So with the toothbrush example, plastic toothbrushes are much cheaper to produce than wooden ones, so the firm can sell them to more people at a lower price while maintaining the same profit margins. Lower prices increases demand and sales surge. Additionally, let’s assume air freight is invested so now Company A can sell its plastic toothbrushes all over the world, increasing revenue, and consequentially the stock price. Shareholders become much richer than the consumers and, as a result, liberals complain about wealth inequality. Wealth inequality and structural unemployment are byproducts of the economic and technological evolution of society. Ultimately, even if real wages are flat for most people, living standards rise as your dollars can buy more advanced goods that provide more utility per dollar spent and happiness.
Taken literally, it’s hard to fathom how technology could destroy capitalism. Someone would have to invent a technology that would render all subsequent technology obsolete. Or under a state monopoly capitalist system, instead of the govt. suing Microsoft under the Sherman Act, they would become its conservator and shutdown any competitors by decree. Monopolies are Pareto inefficient because of deadweight loss. Furthermore, without competitors there is no incentive to innovate, so technology comes to a halt. From Wikipedia:
For example, consider a market for nails where the cost of each nail is 10 cents and the demand will decrease linearly from a high demand for free nails to zero demand for nails at $1.10. In a perfectly competitive market, producers would have to charge a price of 10 cents and every customer whose marginal benefit exceeds 10 cents would have a nail. However if there is one producer who has a monopoly on the product, then they will charge whatever price will yield the greatest profit. For this market, the producer would charge 60 cents and thus exclude every customer who had less than 60 cents of marginal benefit. The deadweight loss is then the economic benefit foregone by these customers due to the monopoly pricing
Even in the most extreme, dystopian scenario if consumers are removed from the equation or subsumed by multinationals, firms that do business with other firms would still compete with each other.
There are caveats though
We cannot guarantee structurally unemployed people will be sufficiency smart or determined to advance their skills to the necessary proficiency to regain gainful employment. That’s why we shouldn’t limit our labor options, even if that means increasing quotas for skilled immigrants. There is also no guarantee employers will want to hire these retrained workers if cheaper sources of labor exist like outsourcing.
Due to technology, competition, and mass production, certain goods like TVs, clothes, appliances and computers become cheap relative to inflation adjusted wages. The difference has to be made elsewhere for economic growth to not fall. We hypothesize this causes the price of intangible services to surge, resulting in the so-called bifurcated inflation, to counteract the deflation of falling prices of tangible goods. An example is why you can buy a new computer for $300 today instead of $3000 in 1984, but the internet subscription fees have not gotten cheaper on a real basis. If internet costs $50 a month you’ll pay roughly the same $3000 for the lifetime of the new computer. Another way to get around this is to make the new computers less reliable, if the new computer becomes obsolete faster than the old one, or the consumer substitutes computers for other goods . So instead of buying one $3000 computer, they may buy five $300 computers – one for each member of the family and one air $1500 hockey table. But if this does not happen, there will be a shortfall.