A Rational Revision of Capitalism (long)

America’s form of 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 resulted in avoidable adverse consequences that have either disproportionately impacted a particular demographic or the whole of humanity.

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

Fossil Fuel and Global Warming

“(I)nternal company memos indicating that Exxon oil company has known since the late 1970s that its fossil fuel products could lead to global warming with “dramatic environmental effects before the year 2050.

Additional documents … (demonstrated)…that the US oil and gas industry’s largest trade association had likewise known since at least the 1950s, as had the coal industry since at least the 1960s, and electric utilities … since at least the 1970s.”  Science

Tobacco Industry and Lung Cancer

“… senior scientists and executives within the cigarette industry knew about the cancer risks of smoking as early as the 1940s and were aware that smoking could cause lung cancer by the mid 1950s.”

Nevertheless, the tobacco manufacturers subsequently ran an advertisement that “questioned research findings implicating smoking as a cause of cancer, promised consumers that their cigarettes were safe, and pledged to support impartial research to investigate allegations that smoking was harmful to human health” while they continued to promote their cancer inducing product vigorously. British Medical Journal

Facebook and the Adverse Impact on Teenage Girls

“Since at least 2019, staff at …(Instagram, owned by Facebook, now Meta) have been studying the impact of their product on its younger users’ states of mind. Their research has repeatedly found it is harmful for a large proportion, and particularly teenage girls … (but the company) … kept internal research secret for two years…Instagram research shows … how aware the company is of its product’s impact on the mental health of teenagers. And yet, in public, executives at Facebook, which has owned Instagram since 2012, have consistently downplayed its negative impact on teenagers…” The Guardian

In each of the above examples the company responsible for the innovation learned early in the product’s development cycle that their product had an adverse consequence. As there were no legal mandates forcing them to revise their products or disclose the information to the public, they chose to keep this information private in order to maximize their short-term profits.

If We Do Nothing, Artificial Intelligence Will…

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

Pundits have speculated that the impact of artificial intelligence will range from:

  • the creation of a world controlled by a few spectacularly rich individuals and mass unemployment to
  • the creation of a utopian Star Trek-like world which is better for all.

Although AI’s full impact on society is speculative, it is possible – even likely – that the AI executives will eventually learn that some demographic is harmed by their new technology.

Should this happen, I do not expect the AI executives to voluntarily share this 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; as Meta (Facebook) has done, and continues to do, as discussed above.

Given the likelihood of this scenario, America should proactively address AI issues before any harm is inflicted 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 American Capitalism

Is there a rational version of capitalism which incentivizes innovators and entrepreneurs to create new products while disincentivizing products that adversely impact society?

Could we accomplish this by tweaking market incentives so that it becomes in the best interest of innovators and entrepreneurs to factor in the long-term societal costs during the early phases of their product development cycle?

If this could be done, the market would continue to richly reward American innovators and entrepreneurs and society would benefit from having better, safer products.

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

Condition 1: If an enterprise learns of an “adverse consequence” of their product then they should:

Clause 1. Notify an appropriate regulatory authority e.g. The Consumer Product Safety Commission 

Clause 2. Redesign their product to ensure their innovation does not have The Condition 1 adverse consequence.

If an enterprise meets Condition 1 and fully complies with Clause 1 and Clause 2, then the enterprise will be potentially eligible for a significant benefit. Specifically, if the enterprise incurs court awarded damages as a result of an ‘adverse consequence’ as reported in Clause 1, then the enterprise would be entitled to a tax credit that is 50% of the court’s damage award.

If an enterprise meets Condition 1 and fails to comply with Clause 1 and Clause 2, then any future court awarded fiscal damages arising from an “adverse consequence” as identified in Condition 1, will be trebled with the incremental fee above court awarded damages being paid to Federal Government and allocated for the promotion of responsible innovation.

A variation of this proposed legislation already exists as the Federal Government mandates that the pharmaceutical, medical device, and nuclear power industries must report newly identified side effects, defects, and problems to the appropriate regulatory agency, i.e. “Condition 1.”

The Unintended Consequences of “A Rational Revision of American Capitalism”

Unintended Consequence: Stifle Innovation?

Some may argue that this proposal will stifle innovation. I believe that this proposal will simultaneously encourage the development of societally beneficial innovations and it may hinder the creation of societally harmful innovations, 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.

If the company never knew of a product defect and subsequently lose a court care, the proposed legislation would have no impact on the company’s payments.

However, the financial repercussions for a company who are aware of a product defect will vary depending on its response to this knowledge. Specifically, if a company proactively addresses a known defect and is later subject to court-awarded financial penalties, it will see a reduction in these penalties. Conversely, companies that neglected to address known product defects by failing to complying with Clause 1 and 2 will face increased financial liability if and only if a court rules that they are subject to financial penalties.

Unintended Consequence: Engender More Dangerous Products?

Others 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.

This is an unlikely scenario as our legal system, despite its imperfections, already is a deterrent against the introduction of harmful products to the market.

In addition, enterprises will learn of the “adverse consequences” of their products directly from their users and via social media.

Finally, it is unlikely enterprises will choose to ignore Clauses 1 and 2, as they would be then be foregoing potentially lucrative tax incentives.

In summary, this proposal will not stifle innovation, will not increase the cost of bringing a product to market, will not require companies to change their product development strategies, and will ensure safer products are available in the market.

In summary, this proposal will:

      • not stifle innovation
      • not increase the cost of bringing a product to market
      • not mandate that companies change the way they develop products
      • ensure safer products on the market.

Politicians and “A Rational Revision of American Capitalism”

Imagine how much societal harm could have been avoided if this proposal had existed in 1950, and America’s innovators and entrepreneurs were then incentivized to create safer and healthier products. So many lung cancer patients would still be alive today. Climate change would be so much less severe, or maybe it would not have occurred at all.

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.

Hayward Zwerling

9 December 2023

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