Capitalism and coordination problems

We all know that the world’s problems can be solved if “all of us can come together and act as one….” you’ve probably dozed off by now. Of course this is true. And of course this never happens. But why not? What is the single most important reason that we cannot get together as a single planet and solve all our problems in an hour?

The reason is simple- working in a group is a complex coordination problem. A large group of people, with no personal ties or friendships, have to come together under a common umbrella, and try to solve a problem together. No individual should shirk their share of the work, and everyone should contribute equally (or at least equitably). As anyone who has worked in a group project can surely testify, this never happens because some members shirk their responsibilities, hoping that others would pick up the slack. The hard working ones work hard for some time, and then realize that they’ve been given an unfair deal. Soon, they stop working as well. Sometimes, they keep working hard, but claim that they deserve “more” than what the slackers are getting- maybe they want more credit, or complete control of the project, etc. Soon, the group disintegrates, and the final outcome is substandard.

Coordination problems are responsible for not enough donations to politics (less than the amount of money that Americans spend on almonds each year, as explained in the linked article), not enough donations to Wikipedia (despite Jimmy’s constant threats and emails), our screwed up education systems, garbage on the roads, etc. Why donations, you may ask? How is that a coordination problem? Let me give a simple example. I want to stop poverty. I really do. When a see a Facebook ad for a project in Africa that is saving children, I feel the pang of conscience, and want to donate an amount. I hear crazy statistics like if enough people in the world donated $20, we would end global hunger in a day. Of course I can donate $20, no problem at all. However, most times I don’t end up donating. Why? Because I know that very few other people will donate. And my $20 will not make a difference at all. That is why most people don’t vote (their puny vote will not make a difference at all). What if I was convinced that most other people in the world will donate if I do? Will I donate then? Of course I will! But for that, a miracle would have to happen. The world really would have to come together to accomplish one purpose. Our greatest coordination problem will have to have been solved. Clearly, this is unlikely to happen in the near future. And because we are not able to get the world together and make everyone donate a small sum, we let hundreds of thousands of innocent children die everyday.

In the book “The Precipice”, the author Toby Ord writes that the reason why the world is headed towards annihilation is that saving the world is a complex coordination problem. In other to stop climate change, reduce pollution, reduce the threat of nuclear winter, etc, all countries have to come together and make sacrifices. However, some countries keep polluting and manufacturing weapons of mass destruction. Why is that? Because the benefits of saving the world will be reaped by all countries, including the errant countries. However, the benefits of misbehaving will only be reaped by the misbehaving countries. If Indian industries keep polluting while the rest of the world reduces its emissions, India will benefit by having a higher manufacturing output than others, and will also benefit due to the cleaner air that has been achieved through the sacrifices of others. Hence, slacking is often a win-win tactic- slackers win short term, because they don’t have to play by the rules, and also hopefully long term, because other more responsible parties will have to pick up the slack and fulfill the objective, providing benefits for all. How does one reduce slacking in a group? How does one solve this omnipresent coordination problem?

Capitalism is the most successful idea in human history. It brought the world world together, and almost singlehandedly improved quality and duration of life for almost everyone around the world. This happened because the whole world did indeed come together and work as one. How did Capitalism solve the coordination problem that killed most other ideas like Communism? It did so by providing an incentive for each party in the world to do their job. If you do your job, you get money and power. If you don’t, you get nothing. Hence, if you’ve slacked off, you’ll be left behind by others who work hard and make money. This is something that you don’t generally get to see in group projects, or in things like Communism.

So how can we solve our great coordination problems? How can we really end poverty and hunger and climate change once and for all? I don’t know. But I think the trick will be to find a way to give an incentive to each individual person in the whole world. Does this incentive have to be money? Should the government be paying people to clean up beaches or repair their overly polluting vehicle? Possibly. But this might not be the whole story. Clearly, many governments will be constrained by limited coffers that they cannot add a further burden to. In its place, maybe they could share success stories of people cleaning up their neighborhoods on social media. Maybe they could offer to name benches on public parks after particularly generous donors to orphanages, etc. Finding the right incentives for a non-homogeneous population is often a difficult talk. But perhaps the main point of writing this essay is that finding incentives is the most important thing that we can do to solve complex coordination problems. And it is only through solving these problems that we can solve major global issues, and perhaps hope to re-create the phenomenal success of Capitalism.

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Graduate student

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