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What would the father of capitalism say about the digital economy?

by David Norton  |  October 28, 2016  |  Comments Off on What would the father of capitalism say about the digital economy?

It is 240 years since Adam Smith, often considered the father of capitalism,  wrote his seminal work “The Wealth Of Nations”.  Not even a man of his brilliance and foresight could have imagined a global economy of the scale we see today and the many diverse and emerging business models.

However the wisdom laid down by Adam Smith is as relevant today as it was in 1776, I would go further and say it is even more important in these turbulent times.

One particular paragraph in book IV stands out for its simplicity and elegance of defining the heart of capitalism.

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”

Businesses exist for the interest of those who own and control them and not altruism and a desire to serve humanity without reward.  Many have said this was Adams Smith’s warning to the world on the darker side of capitalism – it does not serve you because of humanity, it serves you because of your value.

Regardless of political doctrine ultimately the individual, the corporation, and even the state are driven by necessity – the necessity to survive and provide.

It is the last two words of the paragraph that are the most important “their advantages” because they do not just relate to the advantage of trade and commerce, Smith was including the advantage a employer may gain over the employee.

Throughout history, there have been times when the workers felt that the employers have pushed “to their advantage” too far and had sought to redress the balance either politically, legally and in some cases forcefully.

The English peasant revolt 1381 following the Black Death was the attempt by the population to have a fairer distribution of wealth and for workers’ rights. The Factory Act of 1833 was the first legislation to protect children from exploitation in the workplace (even though by today standards they still were).

Following World War I the League of Nations in 1919 enshrined basic workers’ rights for equal pay for equal work, leisure time, and most importantly “remuneration ensuring for himself and his family an existence worthy of human dignity”

Last week a UK employment tribunal announced a ruling that is going to have far-reaching implications for the digital economy and workers rights. The tribunal ruled Uber is an employer; as such the individuals who brought the case are entitled to minimum wage, paid holiday and other statutory benefits. It’s a test case, and Uber are likely to appeal. Nonetheless, the implications are profound even if the decision is reversed later. See http://www.bbc.co.uk/news/business-37802386

Some see this is history repeating itself with the Luddites trying to halt progress by throwing metaphorical “sabots” (clogs) into the digital machine. Others see it as a battle for workers’ rights in a world of zero-hour contracts and gig economy – a world where the “advantage” has become unfair and exploitive.

Uber may be the poster child for the gig economy but we should be careful not to cast them in the role of the villain.  What they are is an example of a business model challenging both society and government as to what is fair, and what is exploitation in the digital world.

I turn again to Adam Smith.

“What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

This is the task that faces as all. Governments must balance the need for innovation with the need for equality.  Entrepreneurs and innovators must consider the impact their technology and business model will have on society.  And we the buying public must acknowledge we have a choice whether to seek mutual benefit or exploit, and it is our behaviour – to buy or not to buy – that dictates a successful business model.

Last word to Smith

“To feel much for others and little for ourselves; to restrain our selfishness and exercise our benevolent affections, constitute the perfection of human nature.”

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David Norton
Research Director
7 years at Gartner
25 years IT industry

In his role as research director with Gartner's application development and architecture team, David Norton supports clients by developing and delivering quality and timely research. Read Full Bio




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