All Commentary
Saturday, October 1, 1983

Computers and Capitalism

It is an increasingly obvious fact of contemporary American life that the computer is having a pervasive influence on the way we work and live. What is not so obvious is that the computer is beginning to challenge some of the most widely held assumptions about the nature of our economic system. Specifically, the invention of the microprocessor has helped to make obsolete some of the most common objections which the free market system has faced during the last several generations.

“Capitalism leads to excessive market concentration.” This criticism is at least as old as Marx himself. Capitalism, it is said, inevitably leads to monopolistic concentrations in each industry which ruthlessly suppress the competition and which leave the consumer at the mercy of a few powerful producers.

A corollary of this criticism is that capitalism leads to social inequality as well: not only is production concentrated in fewer and fewer hands, but wealth itself, the fruit of production, is concentrated in fewer and fewer hands as well. “The rich get richer, and the poor get children.” An increasingly stratified society, with the poor at the mercy of the wealthy ruling classes, with little hope of upward social mobility—such is the popular image of the results of the free market.

It should be noted, of course, that the criticism of excessive concentration of the means of production boomerangs against the socialist critic. In a socialist system the state has a monopoly of the means of production, and society in effect becomes one large company store, with all the potential for abuse and inefficiency which that entails. A thoroughgoing socialistic system is in fact the prime example of monopolistic concentration in economic life. The Communist Party of the Soviet Union exerts far more power in economic life than Exxon or Gulf Oil could ever exert in the petroleum and energy industries. Exxon can not send its competition to prison; the Communist Party can.

The facts of recent American experience do not support the “excessive market concentration” criticism. Especially in .the rapidly growing fields of computers, data processing, and electronics, new firms are challenging the dominance of older firms such as IBM. New fortunes are being made almost on a daily basis, and a whole new generation of bright and energetic young entrepreneurs has appeared on the international scene to vindicate the wisdom and productivity of the classical free market.

The Computer-Based Economy

In the new “Information Age” economy created by the computer, creativity can be richly rewarded, age is no barrier to success, and entry into the marketplace has never been easier. In the new world of the computer-based economy, “breaking in” does not necessarily require vast amounts of steel and concrete and capital, but rather new ideas, a willingness to take risks, and imaginative insights into new applications of the burgeoning computer technology. A new insight, a knowledge of programming, and access to a computer terminal are all that is needed to launch a new software enterprise.

James Nitchals is now 21 years of age, runs his own computer software company, and expects to make his first million dollars before he is 25. Rob Fulop is only 25, but is already making more than $100,000 a year, drives an expensive BMW and owns his own town house near San Francisco. Nitchals and Fulop are examples of a successful new breed of young video and computer game designers that are leading the way in a new industry that already generates more than $1.2 billion in revenues annually.1

Steven Jobs, a college dropout, and his friend Stephen Wozniak started Apple Computer Incorporated in a garage with an initial investment of $1,300. Sales surged from $2.7 million in 1977 to $200 million in 1980. In 1981, Apple controlled 23 percent of the $2.2 billion world market in personal computers.2

The wealthiest man in New England is not a “Boston Brahmin,” but 62-year-old An Wang, who emigrated to the United States after World War II from Shanghai with personal assets on the order of $100. Wang went on to found Wang Laboratories, producing computers and other high-tech devices, and today Wang’s holdings are valued at $200 million. His wife Lorraine’s holdings are on the order of $120 million, and his children hold $300 million in stock.3

As journalist Alexander Taylor has noted, “Up to now, it seemed as if opportunities for making great fortunes like those of the Rockefellers and Carnegies had been cut off. It is heartening that people are taking chances and sometimes succeeding beyond their wildest dreams.”4

The success stories of Jobs, Wozniak, Wang and many others demonstrate that the doors of the free market are wide open today for those who have the energy, the initiative, and the imagination to walk through them. The new world being brought into existence by the computer chip is dispelling the myth of the closed economic society and the “monopolistic market concentrations” which shut out all competition.

The same principles of ready access to rapidly changing markets and the need for constant creativity and innovation hold true in the international arena. American computer firms can not assume that today’s successes and today’s profits assure an easy time in the economic battles of tomorrow. The Japanese now export more that $1 billion worth of semiconductor devices. In the strategic market for 64K Random Access Memory chips, the heart of the modern microcomputer, the Japanese have captured the lead even in the United States.5 “Excessive market concentrations” are neither inevitable nor permanent in the dynamic and rapidly changing world of computer technology.

Enemy of the Environment?

A second frequently raised criticism is that “capitalism destroys the environment.” Images of greedy corporate moguls turning the wilderness into vast strip mines, asphalt parking lots, shopping centers, and fast food chains come to mind. While there are certainly legitimate concerns for the safe disposal of toxic wastes and other environmental hazards, the general environmental picture presented in the mass media has tended to be one-sided.

As Professor Julian Simon of the University of Illinois has pointed out in a detailed article in Science, between the years 1920 and 1974 the total acreage in the United States devoted to wildlife preserves and to state and national parks increased from 8 to 73 million acres. It is still the case that all the land in the United States used for urban areas and roads amounts to less than three percent of the total surface area of the country. Lake Erie, which was pronounced ecologically dead some years ago by Barry Commoner, has improved significantly, and the fish catch is actually increasing.6

More fundamentally, the thesis that “capitalism destroys the environment” overlooks the fact that the computer is leading the way from an economy based on heavy industry and manufacturing to one increasingly based on the creation, processing and distribution of information. We are now in fact already living in the “Information Age.” Today more than 60 percent of the American labor force works with information as programmers, teachers, clerks, secretaries, accountants, managers, brokers, insurance people, attorneys, bankers, and technicians. Only about 13 percent of the labor force is actually engaged in manufacturing operations. Almost 90 percent of the 20 million new jobs created during the 1970s were in the areas of information, knowledge, and service jobs.7

In the new Information Age created by the computer, the creation of new wealth is not exclusively or even primarily dependent on digging physical resources from the ground—with the environmental problems which may be entailed—but rather, depends on intangibles: new ideas, new processes, and new ways of organizing people and providing services. A new computer software program for businesses or a new video game can create an enormous amount of new wealth and human employment without destroying the environment. Human creativity has taken ordinary sand, a physical resource for which there is virtually an inexhaustible supply, and by turning it into a silicon chip, has created an almost boundless cornucopia of income, employment, and opportunities for human development.

Videotex and Fiber Optics

The relatively new videotex market, which provides online information to computer terminals in businesses, government, and private homes, already represents a $250 million a year business. Industry analysts expect that the videotex industry, together with its associated hardware and software components, will be approaching a $7 billion dollar market by 1987—a projected annual compound growth rate in excess of 93 percent.8

The transmission of data between computer-controlled systems is being revolutionized by new developments in fiber optics technology. New glass fibers now being developed in the laboratory are only one-tenth the diameter of a human hair, and yet are so efficient in the transmission of information in bursts of light that the full contents of 16 Bibles could be transmitted across the country in a single second. Already some 37,000 miles of the new fibers have replaced copper wires in the telephone system, and by the end of the decade, the U.S. market in fiber optics technology is expected to reach $1.2 billion.9

Videotex and fiber optics technology—powerful new generators of wealth that hardly existed a decade ago—are only two examples among many in the new computer age which make the older environmentalist criticisms of the free market system largely obsolete. No longer must society face the apparent dilemma of new jobs versus clean air: with careful planning and creativity, society can enjoy both.

During the age of industrial capitalism, the forces of the market tended to concentrate resources and manpower in the large urban areas. The need for such concentration no longer exists in the new computer-based economy.

In the small town of Peterbor-ough, New Hampshire there are no traffic jams and many of the town’s 5,000 residents are on a first-name basis. This tiny town in the southwestern part of the state, some 80 miles from Boston, is the hub of some rapidly growing publishing and mail order businesses. More than 20 periodicals and countless books, catalogs, and newsletters are being published within a ten-mile radius of this small New Hampshire town. Titles such as Byte, Microcomputing, and Robotics Age herald the new information-based economy which has come to town.10

When ideas rather than physical resources have become the coin of the realm, there is no need to crowd all successful enterprises into already overcrowded urban areas, and the environmental advantages can be considerable. When the “commodity” being produced is information, deliveries can be made easily and rapidly over a telephone line, and the producer can be located almost anywhere.

Third World Oppression?

Yet another charge levelled against the free market system is that capitalism inevitably oppresses the poor peoples of Third World nations. According to Third World revolutionary Frantz Fanon, “The question which is looming on the horizon is the need for a redistribution of wealth. Humanity must reply to this question, or be shaken to pieces by it.”11

Criticisms such as Fanon’s are not really new, but derive from the thesis of Lenin that capitalistic economies are inherently oppressive and imperialistic, ever seeking to expand markets, seeking cheap raw materials from the poor nations and then selling finished goods to those same poor countries at exorbitant prices. As has been the case with the great social mythologies of history, there has been just enough of an element of truth in the Lenin thesis to make it persuasive in the minds of countless millions of people in the twentieth century. Recent experience, however, indicates that Lenin was never entirely correct, and that his analysis is rapidly becoming out of touch with reality in today’s international high-tech economy.

It is no longer the case that developing nations are condemned forever to be merely the suppliers of raw materials for the factories and heavy industries of the West. Hard work, initiative, and technical know-how are enabling many of these once impoverished nations to leapfrog ahead in the world economy.

Singapore, with hardly any natural resources, and a land area hardly larger than Memphis, Tennessee, has won 25 percent of the global backlog of orders for oil rigs, second only to the United States. South Korea is now the world’s largest producer of black and white television sets. These new high-tech giants of Asia are now offering stiff competition to Japan in the international market.12

Atari has decided to move a significant portion of its computer assembly operations offshore to Taiwan, in order to take advantage of favorable tax structures and the energetic and more economical Tai-wanese labor force. Rather than being “oppressed,” the Taiwanese have found themselves to be the beneficiaries of economic dynamics in the computer age where societies that are labor and knowledge intensive can compete very effectively with the older industrial societies.

Enemy of the Family?

Perhaps one of the most serious charges to be laid at the feet of the free market system is that the capitalistic system is inherently destructive of such critical human values as marriage, strong family ties, and community stability. Is it really the case that capitalism has sacrificed some of civilization’s most treasured values at the altar of greed and economic gain? The relentless search for profits, the promotion of a mercenary frame of mind, the weakening of ties with the soil, the family and the town, the constant corporate moves and the transient style of life: such is the litany of accusations made against the free market system.

These charges are to be taken seriously, and historical honesty requires that they not be dismissed out of hand. It is indeed the case that fathers under the age of 40 in America move on an average of every three years.13 The American family is experiencing tremendous stress, and it is undeniable that economic factors have contributed to the crisis.

Any economic system or theory which neglects the role of the family runs the risk of killing the goose which is helping to lay the golden eggs. As George Gilder has pointed out, the creation of wealth arises out of a matrix of values and character traits which are learned in healthy families. “If work effort is the first principle of overcoming poverty, marriage is the prime source of upwardly mobile work . . . work, family, and faith . . . are the pillars of a free economy and a prosperous society.”14

One of the most encouraging dimensions of the computer revolution is that it has great potential for reducing this tension between home and work. In his best-selling book, The Third Wave, Alvin Toffler has even ventured to predict the advent of the “home centered society” in which an increasing number of Americans will be operating out of their homes as the centers of their business, educational, and personal lives. Instead of being forced to move to a different town in order to change jobs, many will be able to simply “plug into a different computer.” The “Home Centered Society” of the Information Age will mean less forced mobility, fewer transient relationships, and greater participation in community life.15

William H. Bowman of Belmont, Massachusetts is a good example of the new breed of cottage-industry entrepreneurs..Bowman and his friend David Seuss formed Spinnaker Software Corporation in May of 1982. Bowman, whose firm markets learning games written for microcomputers by freelancing programmers, expects to earn $3 million in revenues in 1983, and as much as $50 million within five years. The “testing laboratory” for the computer games has been Bowman’s Belmont home, where his six children and their friends play the new games for hours on end.16

The computer revolution has brought earning and play and family and work together in an entirely new way virtually unparalleled in the experience of mankind. This is not to say, of course, that the Information Age is without its own hazards, but the new economic realities of the computer revolution make some of the most common criticisms of the free market obsolete and openup exciting new vistas for human creativity and the well-being of mankind as a whole.

1.   Tom Nicholson, et al., “The Hottest Game in Town,” Newsweek, August 16, 1982, p.55.
2.   Alexander Taylor, “The Seeds of Success,” Time, February 15, 1982, pp. 40,41.
3.   Stephen Bailey, “Plenty of Green in New England,” Boston Globe, August 28, 1982, p.12.
4.   Alexander Taylor, in “A Letter From the Publisher,” Time, February 15, 1982, p. 1.
5.   Douglas Ramsey, et al., “Japan’s High-Tech Challenge,” Newsweek, August 9, 1982, p.51.
6.   Julian Simon, Science, June 27, 1980, pp. 1431-37.
7.   The foregoing figures are from John Nais-bitt, Megatrends (New York: Warner Books, 1982), pp. 14,21.
8.   “Videotex Market Predicted to Hit $7 Billion by 1987,” Communications News, March, 1983, p.25.
9.   Richard A. Shaffer, “A Faster Kind of Optical Fiber May Capture Much of Market,” Wall Street Journal, July 23, 1982, p.19.
10.   Wendy L. Wall, “A Small, Remote New Hampshire Town turns Into Sophisticated Pub lishing Hub,” Wall Street Journal, September 2, 1982, p.19.
11.   Cited by Jim Wallis, “Of Rich and Poor,” Post American, February/March 1974, p.l.
12.   Louis Kraar, “Make Way for the New Japans,” Fortune, August 10, 1981, p. 176.
13.   Jay Kesler, “Family Portrait—1982,” speech at National Association of Evangelicals Convention, March 2-4, 1982.
14.   George Gilder, Wealth and Poverty (New York: Basic Books, 1981), pp. 70, 74.
15.   Alvin Toffler, The Third Wave (New York: Morrow, 1980), p. 220.
16.   Ronald Rosenberg, “New Home Videos Provide an Educational Adventure,” Boston Globe, August 17, 1982, pp. 41, 54.

  • Dr. Davis is Associate Professor of Theology at Gordon-Conwell Theological Seminary, South Hamilton, Massachusetts.