The Problem Is Capitalism, Not Market Failures

Capitalism - We Work for All; We Feed AllI just read an interview over at PorMarket, The Exercise of Market Power Probably Contributes to Economy-Wide Inequality. It’s with Jonathan B Baker and discusses how effectively having a monopoly tends to increase inequality. If this sounds a little obvious, well, that’s because it is. This is why monopolies are technically illegal. But the issue really isn’t specific market failures. The issue is (or should be) capitalism itself.

The first question starts, “The discourse on concentration, market power, and bigness in many US industries has increased dramatically in the last year.” Really?! Like so many things that economists were thinking a lot about over a century ago, economists are again thinking about them. It’s sad because this really isn’t about finding a better way to arrange our economy. This is instead a big effort at capitalism apologetics. It’s a faith-based belief that capitalism is the right system. These economists (and they are mostly “liberal” economists) are trying to tinker with the system to save it. No thought is given as to whether capitalism is worth saving — much less if it can be saved.

Problems of Capitalism

A question later on in the article starts, “The five largest internet and tech companies — Apple, Google, Amazon, Facebook, and Microsoft — have outstanding market share in their markets.” It then goes on to ask about anti-trust. That’s an issue with Apple, Google, and Microsoft.

For example, I think Google is the biggest search engine because it is the best. The truth is that a company could come in and destroy Google. Certainly Microsoft could have, but it never thought it necessary to create anything but Google with more images on the front page. Now it is true that Google might be immune to competition because at this point it is “good enough.” Any better search engines might be welcomed by people who have to do research seriously, but for 99 percent of the people Google is good enough. Even still, I can see Google losing out.

Facebook

I leave Amazon alone, because it is kind of a hybrid of these companies on one hand and Facebook on the other.

Facebook is different a bird altogether. It is successful because it is successful. You could create a Facebook that is ten times better, yet it wouldn’t matter because what makes Facebook useful is that everyone is on it. So Facebook is a huge financial success due to nothing but the luck of timing (and having rich friends whose dads could back you — again: luck).

Last night, I heard on the news that someone was rushed to Zuckerberg San Francisco General Hospital and Trauma Center. Oh. That was the first I had heard of that. It appears that the boy no-wonder gave SF General $75 million. With a net worth of $58 billion, that is roughly equivalent to me giving SF General the contents of the wallet — and I carry very little cash on me. Yet in addition to being given ridiculous sums of money for being in the right dorm room at the right time, he’s given hugh societal pats on the back for what is the equivalent of me giving spare change to beggars.

Why Don’t Economists Talk About Capitalism Itself?

My point is not to beat up on Zuckerberg, however. I don’t find him particularly more evil than any other high tech billionaire. But the question is why is it, “The discourse on concentration, market power, and bigness in many US industries has increased dramatically in the last year”? And why isn’t it, “The discourse on the random and immoral natural of capitalism has increased dramatically in the last year”?

I know the answers to these. Regardless of all the pretense to economics being a science, it isn’t. And the people who practice it are trapped by their faith-based beliefs.

The Unstated Assumptions

Whenever I talk about this kind of stuff, I know there are tech people out there who scoff at me. When I worked more directly in high tech, I used to talk about this stuff. I got lots of scoffs. But the responses I got were always the same old stuff. First: communism! Somehow, the fact the USSR under communism didn’t work as well as the US under capitalism is taken to mean something, despite the fact the US had a huge advantage to start with and then the lack of a world war decimating it.

Second: innovation! If it weren’t for capitalism, there would be no innovation and we would all still be farmers. But this is so clearly not the case. And there are other ways of encouraging innovation than making it like a lottery. What’s more, capitalism encourages people to game the system. Look at how litigious Apple and Microsoft have been.

When I look at innovation, what is normally the case is that people working at universities and national labs come up with new ideas, and then private companies come in and monetize them. Well, there’s no reason why the government and non-profits and worker collectives couldn’t do the same thing. (Note: in the old days, many corporations also innovated; but those days are long gone.)

I’m Still Searching for Answers

Note that both of these reasons for why we absolutely must stick with capitalism are not based on evidence. They are just taken as given in our society. I’m not saying that I’m right. And I certainly don’t have all the answers. But I know that whether capitalism is the right system for us is a question, not a given. It doesn’t matter how well you think, if you can’t see the important questions, all the thinking in the world will take you nowhere. And we are getting there. Fast.

20 replies on “The Problem Is Capitalism, Not Market Failures”

  1. Dave L says:

    This, to be blunt, is a school of thought w/ which I admit I am unfamiliar. So I have some questions.

    Capitalism supposedly supplies motivation to keep the “wheels of commerce” moving. How do we do that successfully otherwise?

    Capitalism relies on greed, not altruism, not even enlightened self-interest, but basic greed, to function. “The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” Can any other motivation work nearly as well? Threats and punishments can motivate, of course, but is that really a good solution?

    I believe you support a “universal basic income”. I had always thought people need money to be truly incentivized, although numerous artists, writers, poets, bloggers, and other creators prove otherwise. I myself am writing a long comment w/out hope of monetary reward.

    I do wonder, though, how do we get the crap jobs done? The jobs no one wants to do. Garbage pick-up, cashier, janitorial, fruit picker, assembly-line factory worker… the jobs that are usually minimum wage, and frequently performed by minorities and immigrants (legal or illegal). I ask this as someone who has worked at these types of jobs all my life.

    Also, w/out money as a yardstick, aren’t governments and non-profits and worker collectives less efficient? Isn’t there less of an incentive to avoid waste?

    Then there is the “big nail” problem. An old Russian cartoon (or maybe an American cartoon about Russia) had a giant house nail, several stories high. The caption had an official saying “I don’t know what it can be used for, but it fills our quota for the next five years.” Isn’t capitalism better at finding and filling the actual needs of the people?

    And then there is the “American Dream.” The hope that you can make a better life for your children. The hope that anybody could strike it rich. Is that possible w/out capitalism?

    I apologize if these questions seem rather basic, or even naive, but I am reconsidering basic assumptions, as I believe is what you intended.

    • James Fillmore says:

      There have been economic systems where (for example) government does not enforce debt collection. So lenders have a proprietary interest in making sure their borrowers do so well, they have more than enough money to repay the loan. These were very successful in discovering new trading routes. Capitalism was born at the same time as colonialism and the slave industry; not a coincidence, I think.

      We could reassert the original concept of capitalism; the corporate charter. You want to build a bridge, everyone thinks it’s a dumb place to put a bridge. You get a corporate charter from the government, allowing you to raise money from investors for one purpose and one purpose only, building the bridge. If it’s a dumb idea, you and your investors go broke. If it’s a smart idea, you all make oodles of money — for a set period only. And if you want to branch out into more businesses, you need to apply for a new charter. You can’t make a mint in bridge-building and then decide to corner the carrot-growing industry.

      My point is that corporate capitalism as we know it is inherently anti-democratic. Are there ways to modify it, to make it more socially productive? I don’t know, but it’d be interesting to try.

  2. Elizabeth says:

    For once I think I have an answer. It comes down to this: without a profit motive, there is little reason for government workers or university people to monetize their inventions. Sure they would love to get it out there but without someone who wants to get rich, there is really no hustle to get it out there.

    It is like how until the first business program was written for a desktop computer it wasn’t anything more than a very expensive toy for kids and grown ups based on the history books I have read. Now I don’t remember much from the start up of the internet but as soon as people realised you could make money off of putting porn on it, I think it really helped develop the web.

    So I do think that is where capitalism, properly trained and restrained capitalism, helps.

    • James Fillmore says:

      William Greider made an analogy I like to use. Let’s say there’s a zoo that houses some exotic new animal. It thrills visitors, it makes a bundle of money. Unfortunately, this animal is quite clever. Every cage you build for it, it keeps figuring out how to escape and eat zoogoers. (At this point, I think of “Jurassic Park.”)

      At what point do you put the animal down?

      • Elizabeth says:

        Never because I like animals and I will be endlessly irrational about it.

        • James Fillmore says:

          Perfectly sane. Do keep in mind, this is an analogy, and Greider is describing imaginary horrid animals like reanimated velociraptors, not perfectly decent existing animals like lions or tigers.

  3. RJ says:

    The two replies so far do more to affirm than to question the theses of the OP. Mr. L’s critique replies heavily on assumptions, some implicit, treated as self-evidently true even though they are false or at least highly questionable. Ms. Rogers’ contribution relies on a mythical history of the Internet and computers.

    1. Notice that Mr. L needed scarequotes around “wheels of commerce”, suggesting that there really is no coherent thesis there. Then there was a long quote attributed to nobody. The conclusion drawn relies on the deeply questionable assumption that the only alternative to ‘capitalism’ is a system based in threats and punishment, deeply dubious. Also unstated is the meaning of ‘work as well’, which hides the meaning; ‘work’ how to do what how? The assumption, undefended, is that capitalism is working to meet the needs of people at large.

    Note that Frank on numerous occasions has pointed out that ‘capitalism’ is not the same thing as the existence of markets. So have other authors.

    2. Given the ability of the U.S.A. to institute a military draft requiring young Americans to shoot strangers in foreign countries, the ‘undesirable’ jobs are far less problematic than is commonly thought. They also don’t have to be minimum wage. We could pay garbage collectors more than professors. Speaking of which, we already know that large numbers of professors could make much more money doing something else if they had made different choices earlier in life. Not threat or punishment here.

    3. There is no evidence that firms are more efficient and less wasteful than is government. It is commonly assumed, but I’ve really never seen any evidence that passes the giggle test. My personal, anecdotal evidence is just the opposite.

    4. The ‘nail’ problem already was answered in the OP. Soviet Communism is not the only alternative to capitalism.

    5. There is reason to think that the “American Dream” (again with the scarequotes!) arises from insecurity. If people had credible reasons to think their children had an opportunity to be happy and secure, they might in large numbers be quite happy to forgo the possibility of their children getting rich. The whole thing is rather fatuous given the current inability of large numbers of smart, hard-working people to just get by.

    6. The Internet was developed by people in universities and technological corporations, largely without asking for payment. Facebook, Microsoft, Apple don’t deserve any credit for the usability of the Internet; it is not their product. In fact, if they had to compensate the nonprofit educational sector for their free technological infrastructure (‘free stuff’), all of these companies would go bankrupt immediately.

    7. Desktop computers are more toy-like, less useful than they were before the tech boom. In fact, private sector-developed software is usually inferior to low-cost or free university-developed software. Certainly, Microsoft software is inferior to what they put out 20 years ago, by a wide margin. The contrary usually is assumed without evidence.

    8. More generally, this critique relied on the dubious assumption that monetizing inventions is a good thing, and that ‘getting it out there’ is a good thing. Monetization did nothing to ‘develop’ the web; see #7.

    9. The implied history is false. There were business programs long before there were desktop computers. What history books have you been reading? I was there; those books of which you speak are saying things that did not happen.

  4. Dave L says:

    The quote was Gordon Gekko from the movie Wall Street (1987). I had thought it so well known as not to need attribution.

    I admitted I have numerous assumptions here. As I stated, this is a new point of view for me.

    >Given the ability of the U.S.A. to institute a military draft requiring young Americans to shoot strangers in foreign countries, the ‘undesirable’ jobs are far less problematic than is commonly thought.

    Are you advocating drafting people to work assembly lines or cash registers, or did I misunderstand? Admittedly, if a universal basic income led to greater general prosperity, then many jobs could be much more than minimum wage.

    • James Fillmore says:

      I think it’s a new point of view for most people. Nothing wrong with that! Being willing to examine different points of view, even if you don’t agree with them, is a good thing.

      To take some of our friend RJ’s passionately stated points, and be a little more Vulcan (although there’s nothing wrong with passion, either!), there is a tendency to attribute economic developments we like to capitalism while absolving it of its flaws. Because we tend to assume there is no other way.

      In much the same fashion we assume politics is a thing done by elected others, not a process we have a duty to participate in ourselves. Elizabeth sets us straight on this matter all the time, and twice on Sundays.

      What aspects of our social system do we take for granted? Which ones would be possible to change — maybe for the better — if we didn’t take them for granted?

      The far right wants to do this with the very notion of functioning government; they believe it’s high time we destroyed it. I think it’s more worthwhile to wonder if there aren’t assumptions on the left we might question; systems and standards badly in need of reassessment. Capitalism as we know it could be one of those assumptions.

      Naturally, as leftists, we would proceed through argument and advocacy; not obtaining power and mandating our will. We are not Steve Bannons!

      • RJ says:

        Interesting that my points were seen by someone as passionate; I was kind of seeing my writing there as as argumentative-analytical, ‘Vulcan-like’. I don’t know whether it’s a good thing or a bad.

        I’m not entirely in agreement that argument and advocacy are the only legitimate routes to better government. There’s always going to be powerful forces in opposition, and I really think that a quickly-implemented socialist program would require confiscation of property and at least temporary detention of certain people. This is a scary thing that I would not want to do, but history shows that if you do not, you get the Chilean coup (with more confiscation of property and more imprisonment).

        There can be no left-wing Steve Bannon, for a number of reasons. [Main one: the grievances he addresses are mostly laments for loss of privilege; not morally legitimate.] But while I am definitely anti-Bolshevik, I live in the real world too.

        • James Fillmore says:

          I misread people’s intended tone on the internet all the time. It’s my superpower. Along with coming off crankier than I intended.

          I wouldn’t be opposed to some confiscation of property. After all, this is done by government all the time via “eminent domain.” It usually involves forcing poor people or farmers to sell, to build a new highway or industrial park. Bush II helped greedheads in Texas get farmland for a new ballpark; his reward was the governor’s chair, and that’s how he started his rise.

          Why not force every McMansion owner to sell? Make those castles into multi family public housing. They usually have a pool and gymnasium, too, so kids could exercise there.

          I’ve long had a dream punishment for white-collar criminals (not that we go after many of those, anymore). Force them to work menial jobs. Retail, food service, that kind of thing. Make them pee in a cup and meet with a “job parole” officer” who goes over their employee review on a regular basis. Let them experience the joys of being yelled at by rich, rude customers. Mandate that they live in cheap apartments during the term of their sentences. And if they don’t like it, they can serve their time in prison, instead.

          • paintedjaguar says:

            James, I suspect that I also commonly come off as crankier than I intended, however the truth is that I’m really even crankier than I come off. Like Bruce Banner, aka The Hulk, my secret is that I’m pretty much angry all the time.

            • James Fillmore says:

              What on Earth is there to be angry about? (Just kidding.)

              As a child, I learned that an old curse said, “may you live in interesting times.” I didn’t understand it then. Now I do.

          • RJ says:

            Forgetting the content and just looking at tone: the emotional affect of a piece is the actual effect is has on the reader, not what is intended. If my writing is more passionate than I think it is, then in some ways that’s a good thing. I’m really a science guy, and often find it difficult to understand how people take things emotionally.

            Let’s get rid of ‘pee in a cup’ altogether, and legalize drugs, m’ok?

            • James Fillmore says:

              M’ok. Some years ago I was at a minor-league ballgame here, and it was Silly Mascot Night, and there was an actual pee-cup mascot. I swear to God. A person in a costume of a cup, the bottom of which was yellow. I thought it was supposed to be mayonnaise until I saw the printed name “Something Something Testing Clinics” or whatever the sponsoring company was called.

              Sure. When I rule the world, and I get to make the Trump types work menial jobs, I’ll let ’em smoke weed on breaks. I’m merely vengeful, not cruel.

    • RJ says:

      Not advocating a draft; however, it would not be such a bad thing if young people were conscripted to do dirty work for 2 or 3 years instead of the present system of birth-lottery. There are many possibilities aside from what we are doing now. The main point is that it is not, as many people think, really problematic.

  5. Frank Moraes says:

    Interesting, lively discussion. Most of you seem to think that capitalism = profits = markets. Capitalism only means that one has the right to make money simply because they own something. If you got rid of capitalism, you would still have the profit motive and you would still have markets. Marxism, for example, is the idea that workers of a factory “own” it in the sense that none of the profit it makes is siphoned off to pay the capitalist owner who gets paid just because he owns it.

    Anyway, this is the issue of the fish not seeing the water. Americans don’t think about capitalism because they swim in it from birth. Economics doesn’t disappear when capitalism is gone. Economics existed before capitalism and it will exist after it.

    RJ: I’m not against making all citizens have to do things as part of the gift of citizenship. That’s something we’ve lost in the country. Citizenship is seen as this gift, and it is! But it is also a responsibility. “A republic. If you can keep it.”

    • Elizabeth says:

      *looks at her history books* Well, we could give feudalism another go.

    • paintedjaguar says:

      “Capitalism only means that one has the right to make money simply because they own something.”

      Just so. Capitalism is about the accumulation of various rents. And just as Capitalism is not equivalent to Markets, it is also not equivalent to Enterprise, despite all the mostly mindless blather about “Free Enterprise”.

    • paintedjaguar says:

      “Capitalism only means that one has the right to make money simply because they own something.”

      Just so. Capitalism is about the accumulation of various rents. And just as Capitalism is not equivalent to Markets, it is also not equivalent to Enterprise, in spite of all the mostly mindless blather about “Free Enterprise”.

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