In my opinion, we have a lot of fuzzy about our isms, and may be missing common use some contrasting isms that would be useful in the discussion. There are hundreds of flavors and dialects of capitalism.
Some alternate concepts that should apply to the question should include "laborism", "resourcism" and "marketism"
Not one of the common idea clusters of capitalism, but down in the roots is the the gains in results of capital investment into machinery and infrastructure and this still applies. Who owns and how returns are distributed is a major factor over that along with the displacements caused by scaled economies. Disagreements about distribution and displacement tend to be the political points, and starting point for "socialims", various flavors of " communism".
I think there are some issues about ownership, distribution concentrations, but also in the discussion needs to be the tax/redistribute aspects of economic systems. There are large differences in behaviors toward wealth, resources and money, "ants vs grasshoppers", "spenders vs savers", and "investors vs several other behaviors" The sometimes compounded and exaggerated feedback to savings and investment explains a medium portion of concentrations, which historically may be out performed by kleptocracy and corruption.

In answer to the first sub question, politically, it is dangerous to trust government or guild regulation to manage ownership and distrubution... it is a classic wolves and sheep, or who watches the watchers situation.

Getting only to the edge of the second part of your question, there are multiple reasons for shifts in economic and social returns, these include resource availability, labor costs, taxation and regulations aimed at what otherwise might be externalities of business operations. IMHO there is not a common direction or cause of changes to returns.

posted May 17, 2008

I don't believe that M&A or large corporations are necessarily bad. While WalMart is cited for how they have shipped jobs overseas, the same people that want to boycott them are the ones going in there for the low prices. This is an example of capitalism at work, with a few exceptions. I do believe there are things that need to be protected from capitalism gone wrong:

1. Monopolies: ISP's have been in the hot seat lately because of their skewed views of network neutrality. If the electric company operated on the same principles they are pushing, GE would pay a "bribe" to the electric company so only their bulbs were bright enough to read with at night. When a monopoly abuses their exclusive control of some resource (e.g. the last mile connection to your home) they should either be regulated or converted to a government entity, like your water company. Microsoft has been doing this for a long time, using their OS and Office monopolies to fund their attempts to eliminate competition on the internet and in developing markets (schools, foreign countries).

2. Environmental: The cost to individuals and companies for destroying the environment we live in is often $0. How much do you pay for your right to pump CO2 into the atmosphere? I'd guess that's about the same as we see paid by coal burning power plants. And this goes to all parts of the environment. Consider how much a fisherman pays to have old nets removed from the oceans they fish in. Nothing, if they are simply left at sea. If we believe in leaving the planet as good or better for the next generation, the cost of returning the world to it's unpolluted state should be a burden of the polluters, not of the next generation.

3. Violation of Human Rights and other Trade Issues: It's pointless to fix all of the issues caused by one country, raise our cost of living significantly, and then purchase our goods from another country that doesn't hold the same standards. If we want to fix the world, the tariff on importing from non-compliant countries should be the difference in costs for following our standards plus some penalty to make it no longer worthwhile. So if child labor is used at $1/hr and an adult wage is $11/hr, then the tariff is $10/hr*time to create the good + some penalty.

I'm sure there are other shortcomings of capitalism, but my point is that big isn't necessarily bad. Had the Exxon Valdez been owned by a small company, they would have simply gone out of business, and someone else with no experience shipping oil would have taken their place or an existing company that knew what they were doing would have grown a little larger.

- Brandon

posted May 17, 2008

Well, let's put it this way ... if not capitalism than what? Communism? No thanks! I'll take my opportunity to fail over none at all. As for the talented Mr. Smith ... the model doesn't scale (at all). Bare in mind I am not knocking his brilliance. It just doesn't scale.
Everything has its rhythms and fluctuations. We just have to tune into that and take advantage of it.
"It's a bull market somewhere"

posted May 17, 2008

"...we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist."
--Dwight D. Eisenhower, 1961

Eisenhower's words ring truer today than when he first delivered them, but while by 'industrial' he was referring only to defense contractors, today it can be expanded to mean all large and multinational corporations.

Multinational corporations are the new colonial powers. All of the greatest challenges to societal-returns are in the industrias dominated by a few large corporations. And we naively wait for those corporations to provide the solutions when doing so is counter to their economic interest?

posted May 17, 2008

From Adam Smith, "An Inquiry Into the Nature and Causes of the Wealth of Nations The Wealth of Nations" was written for the average educated individual of the 18th century rather than for specialists and mathematicians. At the time when book was written, societies were not clasified as socialist or capitalist.


The whole annual produce of the land and labour of every country, or what comes to the same thing, the whole price of that annual produce, naturally divides itself, it has already been observed, into three parts; the rent of land, the wages of labour, and the profits of stock; and constitutes a revenue to three different orders of people; to those who live by rent, to those who live by wages, and to those who live by profit. These are the three great, original and constituent orders of every civilized society, from whose revenue that of every other order is ultimately derived:
1) The interest of the proprietors of land is inseparably connected with the general interest of the society. The interest of the first of those three great orders, it appears from what has been just now said, is strictly and inseparably connected with the general interest of the society.
2)The interest of the second order, that of those who live by wages, is as strictly connected with the interest of the society as that of the first. The wages of the labourer, it has already been shewn, are never so high as when the demand for labour is continually rising, or when the quantity employed is every year increasing considerably. When this real wealth of the society becomes stationary, his wages are soon reduced to what is barely enough to enable him to bring up a family, or to continue the race of labourers. When the society declines, they fall even below this.
3)His employers constitute the third order, that of those who live by but the interest of those who live by profit has not the same connexion with the general interest of the society profit. It is the stock that is employed for the sake of profit, which puts into motion the greater part of the useful labour of every society. The plans and projects of the employers of stock regulate and direct all the most important operations of labour, and profit is the end proposed by all those plans and projects. But the rate of profit does not, like rent and wages, rise with the prosperity, and fall with the declension of the society. On the contrary, it is naturally low in rich, and high in poor countries, and it is always highest in the countries which are going fastest to ruin. The interest of this third order, therefore, has not the same connection with the general interest of the society as that of the other two.


If we look at American School of Economics the major points were;
1) Support industry: The advocacy of protectionism, and opposition to free trade - particularly for the protection of "infant industries" and those facing import competition from abroad.
2)Create physical infrastructure: Government finance of Internal improvements to speed commerce and develop industry. This involved the regulation of privately held infrastructure, to ensure that it meets the nation's needs.
3)A government sponsored National Bank to issue currency and encourage commerce. This involved the use of sovereign powers for the regulation of credit to encourage the development of the economy, and to deter speculation.

So, where did it go wrong since American School seems to be oriented towards middle class development rather than large corporations.

posted May 17, 2008

Hi

The universities are full of wonderful theoretical perspectives that we don’t ever hear about unless we are studying and if we do, sadly it can be ten years after the ‘thought’ was developed. Any 'ism' changes all the time and capitalism is no different. Since we have lived by its rules it has changed significantly and continues to do so. It's just that we haven't developed another name for it. That will happen, it just depends who does it and whether we as nations are willing to take that name up and use it.

Any system has its flaws and capitalism certainly has its problem areas, it also has its great successes. Compare it to what some other countries are going through and then decide which one we should have. The more I travel the more grateful I am to live in the society I am part of.

Cheers
Merydith Willoughby

Links:

• http://www.ibcoaching.com.au

posted May 17, 2008

Capital markets function most efficiently when there is little or no asymetry of information availability between buyers and sellers. The modern answer to mass valuation to enable growing volumes of trade has been commoditization. Grain, stone, vegetables, and now labor is all commoditizied to allow the aggregate consideration of trading large volumes of goods and labor.

But unfortunately, information is frequently not shared symetrically between producers and consumers. This can result in bad outcomes - take for example the mass rejection of the HMO model of healthcare in the USA. This attempt to commoditize medical care resulted in a discernable decline in level of care. Unfortunately, where HMO's failed, the combination of a strong pharmaceutical industry and simplistic insurance models has succeeded to a large degree in the commotidization of health care for many ailments.

Regulation (in capitalist economies) and socialism are responses to mitigating the effects of asymetries of information or power. Hence the role of state owned or regulated utilities, healthcare, etc. Where the regulation or socialistic control is a vehicle for mitigating asymetry of information, another path is now open: use technology to make information available in a usable form that enables informed (buying/selling) decisions.

We see this in small forms where producers of agricultural products are reaching consumers who are willing to pay a premium price for goods based on the mode of production. In many cases, regulators may play an interim role (e.g. - USDA certifications for "organic" production), but the ultimate solution is to make information available in a form that truly enables informed decisions by the consumer with regard to an individual producer. In this way, producers who are responsive to the needs/wants of consumers are rewarded, and those who are not cannot hide behind the commoditization of their goods.

We have the computing resources to enable intelligent supply chains, but do we have the (human) intelligence and drive to make it so?

posted May 19, 2008

Hi

Any attempt to control or regulate capitalism will fail for the obvious reason that the capitalists with the most power are the ones who have least to gain and they will make sure it doesn't happen. What is likely to change the nature of capitalism is the tendency towards change which is normal. There is also the act that if all wealth is concentrated in the hands of one person or company, there won't be any customers! My reasons for saying this are as follows.

In another answer, I wrote that, IMHO, capitalism was in fact not a serious political philosophy at all because
a. There was no documentation defining or stating he rules of capitalism
b. It appears to have existed as long as history has been written.

I have no reason to change my opinion. Capitalism is the law of the jungle written on the economic stage and as long as humans are breathing and still running the show, there will be capitalists.

I can only imagine that capitalism could disappear when money is no longer the way we keep score in the game of life.

Up to the early Victorian era, the 'score' came in the form of how much land you owned. After that it started to change to how much money you had in the bank. Ultimately, i think this is a much healthier development than the previous, because armies and heavy weapons are not needed to fight over the ownership of shares and money in electronic bank accounts, so many fewer people get hurt/killed. No we have reached the point when we are starting to realise that the destructive power of global war would be bad for business. EG Stalin made it clear he was ready to unleash the RedArmy on Europe on more than one occasion. If Medvedev/Putin did the same, who would buy their gas and oil?

There have always been big players in history on the world's stage while most of us played very small bit parts. The big players today still need their millions of customers and their thoudand if not millions of employees, just as Alexander the Great needed his thousands of soldiers and millions of taxpaying citizens. These giants also come and go as they did then. 50 years ago, whoever heard of Gazprom or Microsoft? Where have Pan-Am and ICI gone?

Technology changes, fashions and ideas change but people remain the same. I am pretty sure that capitalism in some form or another will continue.

Best wishes

Liam

posted May 25, 2008

One of the strongest premises of market economies is that they self-correct. A little government regulation may be okay, but most industries get along just fine without it. As for 'very large corporations' and the dangers of M&A, I say bring it on. Large companies create bureaucracies which are by definition inefficient. Smaller players jump in to fill a niche and suddenly start to grow. One example - Follow the AT&T saga from breakup to today - the government imposed breakup of a monopoly is pretty universally considered a good thing. 30 years out and the entire telco industry is completely different. Many of the changes would have come along anyway, but the innovation inspired by 7 baby bells and other startup telcos in the wake of the breakup contributed mightily. Today, I get phone service from my cable company - which would have sounded like crazy talk in 1975.

posted May 25, 2008

If we talk strictly about improving american style capitalism, I say that the best thing to do is to better regulate the way the state spend the taxes, maybe corelated with a diferentiated taxation sistem. That way, there might existe ways to diminish the gap between the poor people and the rich ones.

posted June 4, 2008

Flavius,

You are correct in suggesting that we are harvesting the 'rotten fruit' of economic concentration from large corporations. The economies of scale actually begin to work against them (i.e., the curve is convex) and they eventually become too big to respond. As others have noted (Pan AM, ICI) and many more are no longer around with their "central planning" and "business forecasting" that probably wasn't too different than what bureaucrats in the old USSR did. Very few of the companies that were in the S&P 500 30 years ago are still in business.

I don't think we need regulation to break up these large organizations. Customers (the essence of capitalism) will always look for a better deal...and entrepreneurs with better deals are always looking for customers. In theory, it's beautiful.

Where we do run into trouble is when public policy supports one company at the expense of others. Instances of "eminent domain" being used to parcel together land for commercial development are a particularly egregious example of this.

Equality of opportunity, rule of law and shareholder activisim are the principles which will achieve the end of limiting the amount of 'rotten fruit'.

posted June 9, 2008

A growing number of countries--among them, Thailand, Indonesia, Malaysia, South Korea, and Russia--are in a state of financial turmoil. They are all suffering from the effects of currency devaluation, widespread bankruptcies and insolvencies, actual or impending bank failures, collapsing stock markets, and mounting unemployment. Venezuela, Mexico, China, Brazil, and Argentina may soon join the list.

Obviously, to the extent that people believe that capitalism is responsible for depressions and mass unemployment and the large-scale, protracted human suffering that goes with them and, at the same time, believe that their fate would be materially better if they were to establish or re-establish some form of government dictatorship over the economic system, then the result is, indeed, very likely to be a pronounced movement away from capitalism and toward such dictatorship.

Nowhere in the world does the capitalist economic system exist in its logically consistent form. This is true even of the United States, which can be called the world's freest and most capitalistic country only in a comparative sense.

posted June 13, 2008

I have to disagree about the idea that there are "flavors" of Capitalism.

When there is a complete, 100% separation of State and economics - that is Capitalism. Otherwise, the proper definition is a "Mixed Economy".

Disallow lobbyists, don't hand out government favors, special privileges, etc. etc. and release all of the laws that attempt to control business...things will be just fine.

The problems started when Government started subsidizing and giving out special favors. I don't think it was the fault of Capitalism. It was the fault of Government intervention (whether they thought they were being helpful or not).

If you pay very careful attention, Monopolies only occur when Government grants special favors or passes laws protecting business from competition.

On the free market, it is difficult to hold onto marketshare forever, and if you do, you have to offer reasonable prices or someone comes in and beats you. Even with cut-throat pricing, you run the risk (as a business) of going bankrupt when you eventually have to raise your prices to cover your losses.

Same with collusion-pricing. You can't fix a price on the market without opening up the opportunity for someone to come in and take away your marketshare...unless you force the issue through Government regulation...and then we are back to the State being involved in commerce (where I don't think they belong).

>>>No, in capitalism regulation is not desirable, but then how to proceed when the government is called in to spend public money to save the capitalists from the capitalism's excesses?

Here are few angles to consider: 1) Bear Stearns. 2) Had it not been for the break-up of AT&T, could we have had $.2/min phone calls? 3) 75% of the world's refined oil comes from 8 companies.<<<

What "excesses"?

1) Bear Sterns was run into the ground by Bear Sterns. Bad company management and the fact that we operate in an economy where the Federal Reserve and Banking and SEC laws control how institutions operate...that's a hard case to make that Bear Sterns is an example of Capitalism's faults - the mortgage mess couldn't have happened without Government intervention and manipulation of interest rates.

2) Yes. Had Michael Milken not been cut down in his prime, we would have had much more than that today.

3) Is the energy industry heavily regulated by the Government?


Capitalism is what lifted up America...Socialism is why everything is so expensive and gloomy today. My theory, anyway.

Links:

• http://www.twintierfinancial.com

posted June 13, 2008

I think there are quite a few things that Adam Smith "got right" (or strong points in his favor) that have shown endurance over the last few centuries. But during that time, I think there are plenty of examples to cause significant doubt that laissez-faire economics is truly possible.

We have yet to see completely unfettered capitalism be completely successful. We need checks and balances beyond rational self-interest. Adam Smith also seems to have made an assumption about the moral fabric of society that may have been just a little too optimistic.

I hold a strong belief in the innate good within humanity. But there are boundaries that are necessary in any society, and unbridled self-interest within the complexities of current human existence does not always lead to a perfect balance between self-interest and the common good.

There are aspects of capitalism worth saving, but it needs to be tempered. It is worth have mechanisms to prevent complete monopolies. The other "isms" have their merits. And every nation, society, and economy needs its own mix (balance of ideas and mechanisms) - and it won't be the same. That is, one size doesn't always fit all.

The same holds for forms of government. History has taught us (or should have) that things change. And while people like Francis Fukuyama run around predicting that one form of government is the best there could be ("The End of History"), historians know better. Expecting every society to pursue one form of government or one economic model is as foolish as the assertion that we have reached some sort of pinnacle of perfection (U.S., liberal democracy, form of government).

To conclude, Adam Smith's ideas probably made more sense and were better suited for his time period. Today, there is value in retaining some of his ideas, but capitalism should be "saved" to the extent that it is tempered with adequate checks and balances.

posted June 14, 2008

Capitalism is a national economic concept. In theory, it is defined as nothing more than placing the means of production (capital) in the hands of the general population. Two things have corrupted that basic model: 1) The corporation is primarily an international unit in a global economy--no longer national, within one country's economy; 2) The corporation has become the boss of government, it's natural regulator.

We have allowed multinational corporations, with no loyalty to the U.S., to employ our elected officials, at every level, through campaign contributions, outright bribes and other corruptions, getting them to pass legislation that favors the corporation, against the best interests of the country's citizens. The Bush-Cheney Oil Government is the ultimate example.

Corporations should be stripped of their legal status as "persons" and must be subject to (only) reasonable regulation. Capitalism, as defined in the last 150 years of hisatory is already gone.

posted June 20, 2008

The REGULATORS?? You mean should government intervene in the capitalist system and convert it to something other than a capitalist system.

We go through cycles of consolidation, dispersion, rise and fall of technologies, goods and services. Applying your question to the railroads, should they have been broken up or did they live a normal business course and morph into what they are today. Did not the "Regulators" decide that AT&T stifled competition? "They" broke it up. Now the majority of it is back together and providing many of the same services as before while working to acquire more.

What would you like to break up this time? Who gets to decide when big is big enough? The bureaucrat? The legislative branch? The judiciary? Let the normal flow take its course.

You mentioned Wal-Mart, you may not remember when Sears or Montgomery Ward had the lions share of the matket. Now they are either relegated to obscurity or gone all together. Woolworth's had the market on low priced consumer goods. Now we have Family Dollar and Dollar General stores. Natural business progression driven by market forces.

Socialism has not place at the table. The theory of "equality" for all economically should apply to their access to education and opportunity. People have to recognize the opportunity and have the will, strength and courage to take advantage of it.

posted May 19, 2008

Here are some thoughts I put together...hope to clarify your question...
Capitalism to me is more an observation on how humans best utilize their resources then a structure or ideology. Capitalism happened naturally through human action, just that humans were more efficient, hence a system was built. In my estimation, the big problem is government pretending it is a business. It is easy to relate Socialism/Communism to Capitalism in that the former is a system of controls where as Capitalism moves on individual working separate but in a group setting (see Hayek, Road to Serfdom).

To state that capitalism is not working you must put a few caveats/variables in the mix:
-Government is controlling how money is lent/spent
-Government controls taxation therefore altering conditions for capitalists to use and forecast capital
-Democratic Capitalist countries rarely have war, therefore, unstable, non capitalistic countries are causing democratic, capitalistic countries to build up arms, diverting money to business. (see Von Mises-Human Action).

The United States is currently in a Welfare State, Welfare Statism if we need an ism. Europe has already adopted this form along with some Socialist institutions.

So to say that capitalism is or isn't working is probably the wrong question. What is stoping capitalism from moving ahead-that may be a question.

If you think about it, once capitalism came about, there were millions saved from hunger, people were clothed, and housed for the first time in the history of civilization. There are still pockets which are not, but before, everyone was in this condition.

To conclude, in sociology classes all over the country, capitalism is taught as evil, but in essence, if an employer has two scenarios:

A. Has 1 million dollars in his pocket
B. Has 100,000 dollars in his pocket

What option will give him an incentive to reinvest in his business, hire more employees, etc? It is obvious that B is the answer (see writings of Milton Friedman). To blame Wal Mart or any large company, if they did not exist, who would provide those jobs? When Government involves itself by taking away profits, it muddies the definition of if capitalism is broken, as it has been broken on the outside, and it must readjust itself to overregulation and taxation.

posted May 22, 2008

I don't see millions of people striving to reach Scandanavia for an opportunity at the "Scandanavian Dream". Capitalism works, plain and simple. Communism and socialism doesn't work (as compared to capitalism). Even a cursory read of history and economics proves this without question. The only place socialism can still exist as a success is in the minds of academics who operate in a theoretical world with no consequences, and with Europeans who simply don't know anything different than 70% tax brackets, high unemployment, cradle-to-grave entitlements, and short work weeks.

posted May 24, 2008

fCH,

Starting from the premise that you’re going to have the slightest clue what I’m talking about, Capitalism should be allowed to function without any interference from the government.

Jamie

posted May 25, 2008

Interesting that you mention oil, banking, automotive, media and transportation as examples of sectors that would perhaps require more breaking up and regulation as these sectors are already heavily regulated and/or disturbed by government intervention. In my humble opinion it would therefore make more sense to have less regulation and government interference (i.e. just a few rules or self regulation by the sector to establish a level playing field with proper accountability and low entrance barriers). After all, the problems that today's 'capitalism' (if we can even call it like that since the heavy involvement of governments would probably make 'statism' a much more accurate description) faces can be largely traced back to wrongful and harmful government intervention and rules that favour large companies.

posted June 20, 2008