

How to fix capitalism - smokinn
http://pietersz.co.uk/2009/11/fix-capitalism

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csuper
Well I didn't really understand that article, but I know how to fix
capitalism. Though you're going have to pay me to find out.

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ZachPruckowski
Article in one sentence: You can fix capitalism by moving the real world
closer to the theoretical capitalism of micro-econ textbooks.

One of the frustrations I have with politics and economics is the absolute
refusal of many people to actually look at how our economic system diverges
from capitalism. We hear so often about how theoretical capitalism's
mechanisms fix things, but no one ever takes into consideration how well
theoretical capitalism is implemented in the real world.

~~~
camccann
I suspect what you're thinking is a "perfect market", i.e., an optimally
competitive market with several (implausible) characteristics, such as no
barriers to entry, all participants being fully informed,

A good rule of thumb to keep in mind is that, from a "competition is the
ideal" perspective, _profit margins represent market inefficiency_. In a
maximally efficient market, no one can make more money than the absolute
minimum required to make participating worth their time, because otherwise
someone else will come in and undercut them.

A simple, relatively free market is sometimes a passable approximation of a
perfect market, but not always.

~~~
smokinn
I don't believe that profit margins represent market efficiencies. In a
perfect market, profit margins represent value perceived.

If your product will save me 10$ but costs you 2$ to produce, charging 5$ is
beneficial to both of us.

The problem we have now is that the current large companies believe that
they're entitled to receiving the same profits they've had in the past without
innovating or even adapting to the future.

If your value proposition is only worth 2$ to me in the future, why should the
government come in and tax all companies in my industry because I don't think
you're worth paying anymore?

I suppose that's a simplistic view but then again I've always abhorred working
at large companies because of the huge number of people I'd see around me
contributing very little. I think small companies will very often beat big
ones on both quality AND cost because of the lack of bureaucratic overhead.
The overhead though is exactly how the incumbents protect themselves from the
newer entrants, entrapping government to create barriers to protect
themselves.

~~~
camccann
_I don't believe that profit margins represent market efficiencies. In a
perfect market, profit margins represent value perceived.

If your product will save me 10$ but costs you 2$ to produce, charging 5$ is
beneficial to both of us._

Except that in a maximally competitive market, someone else would quickly come
along and offer to sell you an equivalent product for $4, and then someone
else comes along, etc. Competition always pushes prices towards the cost of
production.

Of course, cost of production varies as well. In an idealized sense, the cost
to produce a product is proportional to the amount produced (due to scarcity),
whereas everyone in the market has some price limit below which they would
want to buy the product. At a given price point, if the cost of producing an
additional unit is below the highest price limit among people who wouldn't buy
the product otherwise, it's a net gain for me to make the product and sell it
to the person with that limit. Of course, at any price point, there's some
people who want the product but not enough to pay that price, and some people
who would happily pay more; but that's just the system working as intended.

The end result (in theory) is that every product eventually settles at a price
point reflecting optimal resource allocation to production, plus some small
profit margin to make the time spent on the transaction worthwhile.

In practice, it's... a bit more complicated.

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smokinn
I submitted this article because there are lots of issues pointed out that I
feel very strongly in favor of. (For example, the patent system being, sum
total, a net harm). The only problem with it that I have is that it feels kind
of half baked. There are so many ideas expressed that it almost seems like it
should've been explained in an entire book rather than a blog post.

The reason I submitted it is because I thought and hoped it would generate
some very interesting discussion here.

~~~
mattmaroon
It's very naive. There's no telling what breaking up any company that achieves
5% to 10% market share would do to capitalism, but it probably wouldn't be
good. Would you bother trying to build the next Google if you knew it was just
going to be split into 15 pieces if you succeeded? I would not.

It also says nothing two of the biggest problems our brand of capitalism
faces, which are perverse incentives and lack of transparency, both of which
were leading causes of the recent meltdown and our current health care woes.

~~~
baguasquirrel
And good luck fighting network effects. How many Facebooks and LinkedIns do we
need? While we could use different social tools, what value is there in more
Facebook look-alikes resulting from a breakup? The value of these social tools
derives from their network effects.

~~~
m_eiman
For the specific example of Facebook, it'd quite feasible to have a lot of
different services that shared data as needed. It's not the name of the front
end that people want, it's the social interaction.

~~~
baguasquirrel
That's like saying that we should all share capital. Data _is_ the new
capital, and businesses will live and die by how they manage their data and
extract value from it.

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tkahn6
"An exception should be made for natural monopolies, but the price of that
should be _tight regulation_ , _nationalisation_ , or (best of all)
mutualisation."

Tight regulation and nationalization are rewards for growing a "natural"
monopoly? This doesn't make any sense. That's not capitalism, it's fascism.

Capitalists would argue that complete lack of government regulation is how you
"fix" capitalism.

Almost every point made in this blog post is, at a fundamental level,
diametrically opposed to what capitalism is as an economic theory and
ideology. The author had drafted a manifesto for an aggressively mixed economy
which is ideologically identical to what we have in America today.

~~~
dtf
The author is British, and I think some of these points make sense in the
context of the UK. You should see how screwed our privatized rail industry is
- itself a kind of "natural monopoly". True capitalism would have the
government stop subsidizing them; but then we wouldn't have any trains, and
good people wouldn't be able to get to work. Too big to fail again, I'm
afraid...

~~~
tkahn6
I interpreted the word "natural" to mean the monopoly was achieved and exists
_without_ government subsidy or special privileged. Capitalism says that the
only time monopolies are ever "destructive" or have a "snowball" effect where
they can't be stopped, is when the government gives them special privileges
(i.e. no one else can build a railroad, no one else can set up a telecom
company).

If the government puts up road blocks for new companies to enter a line of
business, the market isn't truly free and the mega corporations are free to
charge whatever they want and do whatever they want. It would be impossible
for there to be a "startup" telecom company or "startup" railroad company.

Interestingly enough, the the railroad companies are the most often cited
example what happens when the government messes with the free market. The idea
is that because the government has already messed up the railroad market it
has to continually subsidize the railroad companies or, you're right, "good
people wouldn't be able to get to work". Regulation and subsidies beget more
regulation and subsidies.

~~~
alan-crowe
"natural monopoly" is economist's jargon. It is basic jargon. Every
undergraduate economics text book covers it. Mankiw's Principles of Economics
discusses it on page 306. Economics by Parkin and King cover it on page 296.
Beardshaw sees to have something against the term, talking instead about "The
flat bottomed average cost curve" on page 266. Alchian and Allen discuss
natural monopoly on page 290 of Exchange and Production. Google it.

