An Effective Altruist Course for Capitalism

by kbog 5mo24th May 20194 comments

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This post gives a basic outline for improving capitalism in an industrialized country. The question at stake here is, assuming that we are continuing with capitalism, how might things be improved?

Of course, there is still another important question of whether capitalism is appropriate in the first place. The fact that I am strictly answering the further question about the specific type of capitalism should not be construed as endorsement of a milquetoast pluralist sort of Effective Altruism where one’s prior convictions are to be uncritically accepted; such a view is not philosophically tenable (Berg 2018). But creating new plans to replace other people’s inferior or nonexistent ones is productive nonetheless. Some readers may have already identified good reasons to expect that capitalism is a beneficial system. And judging the desirability of future forms of capitalism is itself difficult because of the lack of particular coherent plans; having a good-but-feasible plan to chew on is necessary to solve this chicken-egg dilemma.

This post doesn’t attempt to specify an optimal capitalist system. This would almost certainly be politically unfeasible. Governments and economic systems have always been suboptimal in many ways, and the preferences of the electorate within a country frequently clash against the preferences of foreigners, animals and future generations. For instance, an optimal system in an industrialized country might involve total economic mobilization to solve global poverty, but such a plan would not be politically acceptable. Therefore, we must compromise by making a plan that is favorable to domestic people.

Still, it should be remembered that other capitalist plans are likely to be inferior to this one. Even if we consider the idea here to be superior to alternatives like socialism, that doesn’t necessarily mean that we should generically promote the idea of capitalism, which may come in other forms. The realities of capitalist plans and policies are key indicators of whether the system merits support in a broad political sense.

Anyway, here are the elements that capitalism should have:

Democracy

Democratic government is widely beneficial. Details of representation and voting may ­vary considerably. A populist move towards direct democracy or parpolity is one possibility; alternatively, the electorate might be constrained along the lines of epistocracy or sortition. Futarchy and quadratic voting are other features that might be included. None of these proposals is particularly popular, so standard representative democracy is a reasonable assumption. Regardless, the government must be structured with robust incentives to follow the interests of the people. Not only is this locally beneficial, but democracy also reduces the risk of warfare with other democratic states (Reiter 2017).

The integrity of democracy should be protected with strong campaign finance laws.

Well Corrected Markets

The government should regulate markets and apply Pigovian taxes and subsidies when necessary to correct their behavior.

One important kind of market correction (broadly construed) is progressive taxation to reduce consumption inequality, improving the incentives for firms to produce goods and services for the people who need them most.

Another case for government intervention is to promote the idea of shared capitalism. Basically, capitalism can be improved if more firms are owned and managed by their employees. Pérotin (2012, 2015) summarizes research to show that such cooperatives have broadly positive impacts. As for firms which are merely owned by employees, Kruse (2016) summarized existing research to show that worker ownership is positive for both firm performance and employee welfare, though a study by Monteiro and Straume (2018) found inconclusive and potentially negative impacts on firm efficiency in Portugal.

Overall, the government should use some legal and taxative mechanisms to encourage a greater number of cooperatives. This is necessary to correct for inertia and selfishness among capital owners, and to capture the non-economic benefits of meaningful employee participation in company affairs. Companies which don’t adopt employee management can still be encouraged to adopt employee ownership. The strength of these incentives can be decided by voters in the individual nation, though a basic level of freedom to pursue any route should remain.

Avoid State Enterprises

Private enterprises should compose the bulk of the economy, due to research indicating that private enterprises are superior to state enterprises (Megginson and Netter 2001, Shirley and Walsh 2001). Even public banking has historically had bad results (Megginson 2003).

However, some services should be performed by the government and distributed for free, for economic or political reasons which don’t apply to most industries. This can include policing, firefighting, infrastructure, social security, and health insurance. These would be government agencies, not state enterprises. They should be balanced with the goal economic growth, because large governments generally slow down the economy (Berg and Henrekson 2011).

Liberal Radicalism

The government should implement Capital-constrained Liberal Radical mechanisms for funding public goods. Citizens will make contributions through government agencies for projects such as parks and journalism pursued by free worker cooperatives, which will then be subsidized with a calculably optimal amount of tax money. The government will use its powers to suppress fraud and collusion. See Buterin et al (2018) for details and defense.

Due to the practical difficulties and uncertainties with liberal radicalism, it should start with a small budget and then be refined, expanded, or disbanded based on the results. Ideally it will supplant most government spending, thus causing public programs to be more efficient and beneficial.

Reducing Global Poverty

The benefits of capitalism should be shared with needier people across the world. Trade already uplifts the poor, but not quickly or reliably enough. It is more important than ever for capitalism to pay a greater global dividend.

However, strong policies against global poverty are politically unfeasible. Instead, the polity should take more modest actions, spending more but not vastly more than is typical. In doing so, the government will gain additional moral credibility while still retaining sufficient benefits to reward its own people. But the details of these actions should be left to the discretion of the electorate. They should pick an agreeable combination of the following actions (or possibly others) to constitute their contribution to fixing global poverty.

Foreign aid

The government can distribute a substantial amount of economic and healthcare assistance to troubled regions. These efforts should be guided by the best available information on robustly beneficial aid programs, with care taken to ensure positive long-run impacts on foreign institutions. Aid can follow in the footsteps of effective initiatives like GiveWell and PEPFAR.

Import policy

The government can remove tariffs and subsidies that unfairly privilege domestic companies in international trade. It can further promote the purchase of goods and services from the developing world. It can also support advanced training and education for domestic workers to move on to new industries where they are no longer competing with poorer laborers overseas.

Immigration

Inviting foreigners to enter the country will extend the benefits of capitalism to more people. The government can significantly increase acceptance of immigrants coming from situations of extreme poverty or other crises. For an extended summary of evidence on the issue, see the immigration policy position in the Candidate Scoring System (most recent version here).

Research and development

The government can sponsor globally beneficial R&D. For instance, it may offer subsidies to pharmaceutical companies in exchange for drug manufacturing rights or preferential pricing being granted to needier foreign countries. Or it may develop technologies like renewable energy that reduce global pollution, and share the results broadly. Most economists already believe that R&D should be favored by the tax code (IGM survey), but it is doubly important when looking at research that is particularly useful for creating public goods or helping people in poverty.

Security partnerships

The military can assist fragile states that face threats of insurgency from radical groups, and can take an active role in UN peacekeeping missions. See this post by Roland Paris for a compilation of research on the value of peacekeeping.

Global Liberal Radicalism

The government can create an institution that uses the Liberal Radical funding mechanism to fund projects that are supported by the residents of poorer countries.

Openness to Experimentation

Our plans could probably be improved, and there is a large number of capitalist countries in the world. They should be open to alterations of the standard capitalist framework, because there is substantial value of information in discovering new ways to improve our economies and societies. If someone has a radical plan for changing the economy or government of a single state or country, it should be greeted with an open mind, so that the results can be observed and used to inform future policies in many countries all over the world.

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