The conflict between capitalism and communism that dominated the last century was a conflict between Rule 1 and Rule 2. In capitalism, competitive value (Rule 1) was taken as primary while in communism Rule 2 was taken to be primary. The conflict between communism and capitalism was based on the premise that these two opposites are the only alternatives. The debate only continues because the advocates of Rule 1 or Rule 2 cherry-pick cases to support their doctrinal position, e.g. some now say that capitalism “won” but America is not, nor has ever been, purely capitalist. What won was the combination of communism and capitalism.
In the social environment model, Rule 2 is just Rule 1 applied to the social environment instead of the larger world environment. Since both environments exist, the model predicts that the best option is to apply both rules, and this has happened. China today is no more purely communist than America is purely capitalist. People are seeing that a society that produces a lot and shares it unequally is hardly better than one that produces not much and shares it equally. Capitalism focuses on individual productivity via markets but still needs fair laws, while communism focuses on community sharing but still needs individual growth. Framing the choice as between the unequal distribution of wealth or the equal distribution of poverty, between individual productivity and community synergy, is a mistake. This model advocates both high personal productivity and high community synergy.
Adam Smith linked individual to public good by suggesting the “invisible hand” of the market (Smith, 1776/1986), as the harder people work for themselves the more value they generate for the community. Yet Smith’s argument for competition was not an argument against cooperation, nor did he present it as such. He assumed a social context of common good rules. For exampled sport is competitive but referees are needed to penalize illegal acts. Likewise “free” markets don’t work when there are no common good rules, e.g. against insider trading. As sociologists argue, individual economics only works when it is embedded in a larger social context outside any competitive framework (Granovetter, 1985). Playing fields and competitive environments work best when level.
The social environment model supports Smith’s link but also lets it work the other way, i.e. just as competition can support public good, so public good can support competition. To contrast the two is like arguing that mother is better than father or father is better than mother, when really both together are best. If capitalist models had recognized synergy, businesses like Microsoft would not have found Berners-Lee’s World Wide Web “uneconomic”.
Rule 3 combines the capitalism of a society of self-interested competitors and the communism of a society of ant-like cooperatives. That citizens help both themselves and society is neither pure capitalism (Rule 1) nor pure communism (Rule 2). If pure communist societies have lower productivity and pure capitalist societies lower socialization, a hybrid will perform better than either alone. This predicts that communist countries will move to acquire a business face and capitalist countries will move to increase public good, which is what has happened. Both these apparent opposites have met in the middle to be indistinguishable, so now there is not much difference between “communist” China and “capitalist” America. The myth that some are entitled to perpetually skim a percentage of the labor of others is seen as just as false as the myth that everyone is entitled to do nothing and be supported by others. In this model, the invisible hand of market competition works best with the visible hand of public good.