A Rational Revision of Capitalism

Synopsis:

America relies on our judicial system to disincentivize unsafe products. This approach requires that an injury occur before an enterprise can be held accountable. I propose the creation of a new type of market incentive which would encourage enterprises to proactively prevent or significantly mitigate any potential societal harm caused by their products, before the harm occurs.

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American capitalism has led to unprecedented innovations which have eliminated and mitigated many diseases, extended longevity, and improved living standards around the world.

Unfortunately, some of these innovations have also resulted in avoidable societal-wide adverse consequences.

Consider the fossil fuel, automotive, tobacco, and social media companies.

The fossil fuel industry was aware that their products would lead to global warming as far back as the 1950s-1960s but continued to deny the science until recently. (Science)

The automotive industry was aware that their products would lead to global warming as far back as the 1970s but resisted creating more efficient vehicles until recently. (Science)

The tobacco industry was aware that their products would lead to lung cancer as far back as the 1940s-1950s but nevertheless repeatedly told “consumers that their cigarettes were safe.”  (British Medical Journal)

The social media company Meta (formerly Facebook) was aware, since at least 2019, that Instagram (owned by Meta) was “harmful for a large proportion (of its users), and particularly teenage girls … (but nevertheless) ..have consistently downplayed its negative impact on teenagers.” (The Guardian)

In each of the aforementioned examples, the company knew their product was causing harm on a very large scale and yet they chose to keep the information secret so they could maximize their profit. 

While the tobacco companies were subsequently forced to make recompense, the damage had already been done and the legal victory was of little consolation to those who died from lung cancer.

If We Do Nothing, Artificial Intelligence Will…

The next major industrial, technical, and societal revolution will arise from the deployment of artificial intelligence into virtually every segment of society.

Although AI’s full impact on society is speculative, it is possible – even likely – that the AI executives will eventually learn that AI could cause a  societal wide catastrophe.

Should this happen, I do not expect the AI executives to voluntarily and prospectively share that information with the Federal government or society at large. They are under no legal obligation to do so and their financial incentives may encourage them to ignore these issues.

Rather than wait until after the damage has occurred, America should proactively address the potential downside of AI  and use this opportunity to broadly protect society from the harmful effects of future innovations.

Fortunately there is a better way.

A Potential Solution: A Rational Revision of Capitalism

Is there a way to incentivize innovators so that it is in their best interest to:

    • factor in the long-term societal costs of their product early in the product development cycle and
    • begin revising their product as soon as they become aware of a societal-wide adverse consequence

without stifling American innovation?

If this could be accomplished it would:

    • reduce or eliminate societal damage which would have occurred otherwise and
    • it would obviate the inevitable protracted legal and/or political battles during which time the societal damage continues unabated and the victims remain uncompensated.

I believe this could be accomplished if the Federal Government enacted the following legislation: 

Condition 1: 

If an enterprise learns that their product is responsible for a societal-wide adverse consequence then:

Clause 1: 

The enterprise should immediately notify an appropriate regulatory authority e.g. The Consumer Product Safety Commission

Clause 2:

The enterprise should immediately redesign their product to ensure it will not cause, or no longer continue to cause, the Condition 1 societal-wide adverse consequence. 

The Carrot:

If an enterprise meets Condition 1 and fully complies with Clause 1 and Clause 2,

and should the enterprise subsequently incur court awarded damages as a result of Condition 1,

then the enterprise would be entitled to a federal tax credit that is 50% of the court’s damage award.

The Stick:

If an enterprise meets Condition 1 and fails to fully comply with Clause 1 and Clause 2

and should the enterprise subsequently incur court awarded damages as a result of Condition 1,

then the enterprise would incur a federal tax liability that is equivalent to 50% of the court’s damage award.

My proposal is not entirely a novel idea as the Federal Government already mandates that pharmaceutical, medical device, and the nuclear power industries abide by some variation of Condition 1 and Clause 1, as those industries are required to collect data and report identified side effects, defects, and problems (i.e. Condition 1) to the appropriate regulatory agency.

The Unintended Consequences of “A Rational Revision of Capitalism”

Unintended Consequence: Stifle Innovation?

Some will argue that this proposal will stifle innovation. This proposal creates incentives for the development of societally beneficial innovations while it may cause malevolent entrepreneurs to think twice before they choose to bring dangerous products to the market, a goal which is indeed laudable. 

Unintended Consequence: Increase the Cost of Product Development?

This proposal would not increase the cost of doing business as it does not obligate companies to take any specific action; both Clause 1 and Clause 2 are optional, not mandated requirements.

If an enterprise is required to pay court-awarded damages for harm caused by their product, yet was genuinely unaware of their product’s risks, then this proposal would not apply.

Unintended Consequence: Engender More Dangerous Products?

Some may argue that enterprises will studiously avoid looking for the “adverse consequences” of their product so that Condition 1 never applies to them and this will lead to more dangerous products on the market. 

I believe this is an unlikely scenario as our legal system, despite its imperfections, is already a deterrent against the introduction of harmful products to the market and this proposal aligns with that objective.

In summary, this proposal will:

    • Incentivize and noncoercively encourage entrepreneurs to make safer products,
    • Not stifle societally beneficial innovation,
    • Not increase the cost of bringing a product to market,
    • Not require companies to alter their product development strategies.

Politicians and “A Rational Revision of Capitalism”

Imagine how much societal harm could have been avoided if this proposal had existed in 1950.

So many lung cancer patients would still be alive today.

If the fossil fuel industry and automakers had been incentivized to disclose the societal-wide adverse consequences 60-70 years ago, they would have likely redesigned their product to mitigate a harm they knew was coming, but instead we can now expect to see global geopolitical instability as a result of climate change.

Enacting any type of regulatory reform is bound to spark a lengthy and complex political battle. I leave it to the politicians to figure out how to enact this rational revision of American capitalism. If our politicians succeed, our society, and all future generations will thank them.

Or we can continue with the status quo and expect that there will be many more unnecessary American deaths in the future.

Hayward Zwerling

12 December 2023

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