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Capitalism is becoming less competitive (economist.com)
58 points by doener 5 months ago | hide | past | web | favorite | 56 comments

Two words: Regulatory capture.

I can't turn my hobby/side gig into a small business without navigating a bunch of bureaucracy to obtain 9001 permits, some of which are inevitable "may issue". Assuming I made it through that I'd be subject to all sorts of government oversight to the point where I either have to sink all the resources I would spend growing my business on compliance or just not think about it and hope that by the time anyone notices my business is big enough to afford the cost of compliance. For programmers, lawyers and other occupations that don't deal with physical things the issue isn't as big but for blue collar businesses this is a big deal. You literally cannot hope to comply with everything when you're in the boostrap phase and that dissuades a lot of people from striking out on their own.

The fundamental problem here is that laws and regulations written to deter some mega-corp from systemically being sleazy to make a buck apply equally to small businesses. turns out it's only the mega-corps that have the economics of scale to make compliance possible while still making a profit.

> I can't turn my hobby/side gig into a small business without navigating a bunch of bureaucracy to obtain 9001 permits

Have you experienced this first hand? In my experience, this gets overstated by those who think any regulation is burdensome. Even the crazy regulatory environments I've been in (like the CO marijuana industry requires separate, complete audit trails of each individual plant "from seed to sale"), the regulations really aren't that bad to comply with. The same people who were complaining about the regs were also complaining about how they had to have benefits for full time employees and the like. There's a very vocal "society shouldn't stop me from making a buck" crowd.

And on top of that, I'm afraid that these people will remove a lot of the good regulation we've built up over the past century as new ways to screw over the public have been discovered.

On the other hand, small business owners shouldnt be allowed to be sleazy either.

Maybe to stimulate small businesses, the government could advise business owners how to navigate these regs, something like a social worker for a business?

The classic example would be food companies requiring the use of a commercial kitchen for selling food to the general public. There are a lot of fledgling businesses that have been shut down immediately because they cannot build capital while they are still in their cottage stage. While it is perfectly fine to invite my neighbors over and cook for them, it immediately crosses the line when I want to sell to them. I think it would be smarter to have progressive laws based on the number of servings instead of immediate high barriers to entry. So you still need to use a commercial kitchen, but only once you serve more than say 5,000 customers per annum. I think most people would believe that this is reasonable. There are countless industries that I think should have similar cottage exceptions.

I'm not sure why you even need to accept the premise. Why is using a non-commercial kitchen sleazy? Such a regulation doesn't make much sense to me for either small or large businesses.

The regulation exists to keep people safe. Poorly handled foods kill people.

Now, if there are high capital requirements for starting a restaurant, it sounds like there is a market opportunity for someone to make a low-capital way to try out restaurant concepts. That's sort of what has happened with food trucks. In Austin, many storefront restaurants existed as food trucks first. Presumably, they got to see that they were a hit without having to spend a ton up front.

I'm still not following. Is it harder to mishandle food in a commercial kitchen? Why is the regulation against non-commercial kitchens, and not just against mishandling of food, if that's the issue?

>Is it harder to mishandle food in a commercial kitchen

Not really. The main difference is that everything you use is better designed to be easy to clean and hard to break by someone putting in less than minimum effort. For a small business that isn't being lazy to the point of negligence there's really no difference. The same standard of cleanliness is indeed possible in a noncommercial kitchen but beyond a certain scale it's not cost effective. Also, it's not a binary thing. You have tons of hole in the wall restaurants that use a mix of commercial and noncommercial facilities and equipment. Somewhere that serves ice cream will probably have commercial style freezers and mid-high end consumer grade stuff for everything else. You don't need stainless counters to prepare ice cream and you don't need a three bay sink or a commercial dishwasher to clean ice cream scoops. Bars in places where they're forced to serve food by law often only have consumer grade equipment for the preparation of said food.

Stimulate is the wrong word here. To avoid harming small businesses regulations usually need to exclude them completely or at least don't put the same regulatory burden on them. But with all that lobbying and regulatory capture harming small businesses is the whole point of regulations.

>The fundamental problem here is that laws and regulations written to deter some megacorp from systemically being sleazy to make a buck apply equally to small businesses.

I don't think that's the _fundamental_ problem, because there are problems leading to that. Capitalism strongly incentivizes against respecting externalities, and regulations are the only effective tool we've found to stop us from (more aggressively) killing ourselves for profit.

That regulations have a cost and this strangles smaller businesses is a serious problem, but the regulations are usually solving an even more serious problem. A more fundamental issue is simply that capitalism left unchecked incentivizes behaviours which are crippling, while checking capitalism to prevent this causes powerful inefficiencies to form.

I don't know if there's a good answer here. Having regulations not apply to small businesses doesn't work, because small businesses are not intrinsically more likely to act against their own financial interests in order to respect externalities than large businesses are.

Then you will have big players like Uber that abuse subcontractors who are small businesses.

Perhaps the model of "run a business" is wrong altogether? Or maybe a simple check... Margin cap. Capping margins is liable to not harm efficiency at all but might instead freeze out some sectors from the market... Hard choices.

I was just typing this out...

Big Corporations helped introduce/fuel more Rules & Regulations to impede smaller rivals who could less afford them.

The Government comes out with some new Rules and Regulations that become Law and will cost you a substantial amount of money year after year creating a more difficult business environment and directly affecting your profitability. In most cases Big Corp will actually support and help implement these new Rules and Regulations knowing full well they can shoulder the additional expense and you can't. Eventually driving you out of the market. This happens with a lot of small businesses. The cost of entry is prohibitive.

How competitive is capitalsim anyway? What's the best measure for it?

When I look out in the economy I see massive industries that are being protected by their governments for various reasons: some of it political, some of it effective lobbying.

In many sectors private companies are building off of a platform that their government has provided for them. For instance, the NIH is a major contributor to pharmaceutical research, yet once a new drug comes to market, the profits all go to the private company and the tax payer is essentially charged twice for access to the drug (cost of research and cost to buy the drug).

I had one idea of what a free market was growing up, but as I've learned more about the global economy it seems like the idea of a free market was just a clever ruse.

"How competitive is capitalsim anyway? What's the best measure for it?"

I look at stuff like this among a group of suppliers:

1. What suppliers offer in terms of product, capabilities, etc should be going up.

2. If comparing two versions of something in No 1 overtime, then...

  2.1. Quality/reliability/security should go up over time.

  2.2. Price should go down.
3. Customer service should improve over time given it's an easy differentiator.

4. Convenience of any aspect of the business should go up over time. Low-hassle in general.

You'll find in monopolies or cartelized oligopolies that these are all bad or move super slowly in a way that keeps everyone high margin. In highly competitive industries, things move fast with many players having low margin.

Profit margins.

In general the lower, the more competitive. Historical average in US is 8.5%, 9-10% more recently. This is pretty competitive! Although a bit less recently because profit margins went up ~1.5%.

This is also, generally, why different industries have different profit margins. Here, its even more obvious.

Technology is playing a role. So it size.

Google/Amazon/Facebook/Netflix/Microsoft can drop a few million bucks on a team of developers trying to squeeze some lemon for an additional drop of juice. I've been on teams before where a 1% increase in success of our software would pay for the team twice over. There were dozens of teams beside us all doing the same thing.

A small business competing in the same market cannot do that, and so they find themselves fighting a far more efficient giant.

Better title: Corporatism was never competitive

Interesting article. I wonder if anything major happened in the world around the early 90's that could help explain why the big winners around the world were suddenly able to use their economies of scale to grow even larger over the next three decades...

Globalism, essentially.

internet? or more than that?

End of communism in Europe, open China, various free trade agreements...

The Fall of Communism too.

At its best, regulatory capture is a mean to achieve basic quality assurance; at its worst, it is a fence to protect the richest. Our mileage may vary, we see the world through our own experience and rightly so.

Why is this post flagged ?

I'm guessing "off-topic"[1]

1 - https://news.ycombinator.com/newsguidelines.html

Some people's core ideological beliefs are structured around the idea that free market capitalism is the best economic system, and they perhaps find it uncomfortable when those beliefs are challenged.

How much of a role does secret government intervention play?

That is, we know the US government interferes in markets in secret. There have been lots of revelations in the past few years about how the CIA boosted jazz and modern art during the 50s to appear new and modern relative to communist countries of the day. The NSA advised the creators of DES about how to make it better. There have almost certainly been other secret and larger interventions.

Has the CIA/NSA/whatever intervened to an extent that the resulting markets are inefficient?

We'll probably never know, but my guess would be that at least secret interventions have favored certain companies to the detriment of others in the same market.

One thing that people seem to skip in Capitalism is the idea that you can't have a tone of regulations. It appears the U.S. version of capitalism is continuously granting the "winners" in sectors with such strong regulations that it's limiting newcomers -- making it less competitive.

The current fashionable thing seems to be claiming that we need to become more socialistic. Which IMO is just an attempt to fix over regulation with more regulation... so down the rabbit hole we go.

It seems like it's not more regulation vs less regulation but rgulation in the interests of society vs regulation in the interests of the powerful. America has very lax rules on political donations from corporations, allowing almost unlimited lobbying. Plus a two-party system and the ration of population=>votes being very uneven.

regulations seem insanely hard to design well. It's very easy to claim you're regulating for the good of society, but have said regulation have a completely different effect. They're far from a panacea.

The way I think about it: you have lots of problems in society which are prisoners dilemma in nature.

The only way for the prisoners to escape their fate is to have some external authority fix the incentives and that's basically the law.

Three ways to use the law: Regulation Sueing people for damages Complex contracts

There are situations where some of these work better than others and we just need to pick.

It's really hard to imagine sueing for damages working precisely for something like preventing air pollution, the chain of causation is too long. You have no choice other than regulation.

There's this libertatian politics common on HN but I've never seen a convincing argument of how you solve air pollution using 2. or 3. Imo you will always need regulation.

Is it still Capitalism when the government prevents the "fair market" from operating by issuing all sorts of subsidies, and allows all sorts of exemptions to let specific employers avoid having to pay certain taxes, giving them a competitive advantage over companies that don't get those exemptions?

How Government Creates Inequality - David Cay Johnston


That's the strange thing about governments - no matter what you do, you find there's always a government somewhere.

Is it still Capitalism when private companies lobby governements to implement subsidies ?

that exactly johnston's point, in case you misunderstood political intent

Saying that regulatory captured capitalism has failed is like putting Michael Phelps in chains, throwing him into the sea and claiming that swimming has failed.

Marxists would counter that capitalism will lead to a oligarchic elite, or at the very least powerful industries which will seek to influence and capture the political and regulatory system using the excess value taken from labor. So, it's like timing Phelps in the rapids leading to a waterfall and blaming the waterfall only for the rapid plunge.

Also a Marxist would claim that life is a zero-sum game. In the 21st century is extremely easy even for a small kid to see how this is obviously wrong.

With it being a fundamental statement in their philosophy, I don't quite know what to say.

Life being a zero sum game is not a fundamental part of Marxism.

Really, then why nowhere in this philosophy creating new value or new means of production is considered?

It is class struggle and for someone to have something they must take it from someone else. It is disgusting how pure evil like this is masqueraded as philosophy/ideology.

> Really, then why nowhere in this philosophy creating new value or new means of production is considered?

Uhhh, it is. It's just that those who create new value are the wrokers making that happen, not the holders of capital.

Not to mention that his/her comment does not represent a rebuttal to the Marxist critique, only a critique of marxism itself.

Well. Is that a problem of capitalism? Or the inadequacy of political systems?

Political systems depend on power exercised by people to enforce law. When the real power transfers to the wealthy, which in peacetime happens as surely as large masses draw objects into orbit through gravity, they will use that power to draw in even more power and wealth. The only protection is politicians, and other democratic counterbalances like the justice system and the media, acting in good faith. History has shown repeatedly that that cannot be depended on. All it takes is for one generation's politicians to defect for personal gain and the avalanche of corruption starts. Wealth is power, capitalism amasses wealth, and wealth will blindly hoard itself to death. If one wealthy entity abstains, other wealthy entities will grab that power instead, because that power will insulate them from any consequences of doing so. Believing that politicians will ever extricate themselves from the influence of wealth and power by their own volition is ridiculously utopic.

I have a question. Why are the justice system and media expected to act in good faith, but industry leaders are expected to be crooks? Nowadays with all the statistics available it holds true for almost every country that politicians, lawyers and journalists are in fact the least trusted people. I think it is for a good reason and it is called inherent hypocrisy.

Also, how could two entities be counter-weights to each other if both aim for the same thing - wealth.

The only solution I see is to strip all the societal roles, who claim to be driven by good faith, of all property and relationships. But this is even more ridiculous than what we have right now.

Is it still Capitalism when there is regulatory capture?

I think it's more appropriate to call it Corporatism now.

Capitalism, as distinct from just a market (let alone a free market) economy, is based on the idea that ownership creates value thus entitling the owners of capital to some fraction of it's production and to a lesser extent the idea that anyone-can/everyone-should be an owner (as opposed to a feudal system with hard line serf-lord/owner-renter separation)

Regulations, regulatory capture, corruption, market failures; that's all broadly orthogonal.

Yes, because any system that allows corporate entities to amass significant wealth will see those entities using that power to create and capture regulation for their own benefit. Unless a counter mechanism to mass media and bribing politicians can be created, the general public and their governmental power will inevitably be neutered by wealthy interests. Regulatory capture and monopolies are features of capitalism, not bugs.

Yes. Just like socialism is still socialism when there's corruption. See also: https://en.wikipedia.org/wiki/No_true_Scotsman

We need to accept that capitalism seems to be prone to problems relating to regulatory capture and find a solution that resolves these issues. The idea of a perfect and pure "capitalism" is a myth.

True. There's never has, and never will be, any "pure," utopian socialism nor libertarian anarchism, just messy reality with varying levels of gotchas, power concentrations, totalitarianism and corruption. The best people can do is diffuse power and install individuals whom are fair, reasonable and put society / greater good before personal gain... without many of these sorts of people, the crooks win and tear civil society down.

To the extent that regulatory capture is itself an inevitable outcome of capitalism, maybe.

This is the same as suggesting that organized crime is an inevitable outcome of human ambition. So sad.

You can't have regulatory capture without regulations!

That is mostly tongue in cheek of course, but it does really bring up a point in that if there were stringent controls on regulation it could help minimize the issue. And if nothing else there's some beautiful irony in regulation being in need of regulation.

Automatic, mandatory scheduled review for regulations and mandatory sunset provisions for laws would be a damn good start. It would solve a lot of social issue too.

> if there were stringent controls on regulation it could help minimize the issue

It would just shift attention to the organs of government controlling said regulation. The insight of democracy is it seeks to balance, not suppress, human nature. Capitalism and democracy healthily co-exist because the former produces the private property rights that keep state power in check. Keeping that checking function itself balanced is the crisis–and opportunity–of our modern era.

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