What's the alternative to capitalism? : Tue Jan 07, 2014 5:10 pm  

The following exchange occurred in another thread and was immediately lost. That seemed a shame as it's got potential for a serious discussion, so I've copied the relevant posts in here. Sal Paradise wrote: ... The world has tried socialising the profit and it didn't work. Without the incentive of profit countries struggle to generate wealth. China has only seen an economic boom since it introduced a significant element of capitalism. The banking crisis was unique - you had a group of people who could act with impunity - they knew whatever happened nobody was going to let them go bust. That is not the case for virtually every other business. In the socialist model if the industry generated deficits who picks up the bill? Capitalism is not perfect but what is the alternative? cod'ead wrote: The alternative is responsible capitalism. Where companies and individuals don't engage in shady deals, or move money glabally to avoid paying their share of tax. Especially when those same companies are benefitting from the products of other taxpayers' largesse. Look at the companies that make $bns from internet services (Google being just one example), how much did Google invest in starting up the world wide web? The state (in a global rather than domestic sense) is usually the major investor in proposed new technologies. Pioneering medical treatments, communications, alternative fuel technologies, even now-mundane things like colour LCDs (Hull University) were generally pioneered and developed by the state, most of them via the military. The funding for that came from taxation and we are now in the situation where private and publicly quoted companies feel it is somehow right to avoid putting anything back into the system. Have a look at some of the works of Mariana Mazzucato especially The Entrepreneurial State I accept that the so-called socialist states that we've seen so far have not been raging successes but unregulated capitalism can hardly be called anything like a success either. One thing is certain, rolling back the state will lead to a reduction in responsibility, we're already seeing that in the NHS, where the Secretary of State for Health (Hunt) is seeking to absolve himself of any responsibility for what happens in the NHS. That must not be allowed to continue. Back on the original topic, it's also interesting to read about Tower Colliery, a mine deemed uneconomic and earmarked for closure, yet the miners bought it and worked it for another 14 years. Mintball wrote: To add: why would anyone assume that the current model of capitalism that we're seeing is the only one – the only way in which capitalism can operate? We only need look at the UK to see that other models are more than possible: if you cannot have responsible capitalism, then businesses such as John Lewis or Richer Sounds should not be successful. On the Mazzucato book, it's worth quoting the review from the FT: "Conventional economics offers abstract models; conventional wisdom insists that the answer lies with private entrepreneurship. In this brilliant book, Mariana Mazzucato, a Sussex University professor of economics who specialises in science and technology, argues that the former is useless and the latter incomplete. "Yes, innovation depends on bold entrepreneurship. But the entity that takes the boldest risks and achieves the biggest breakthroughs is not the private sector; it is the much-maligned state. […] This book has a controversial thesis. But it is basically right. The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity."

The following exchange occurred in another thread and was immediately lost. That seemed a shame as it's got potential for a serious discussion, so I've copied the relevant posts in here. Sal Paradise wrote: ... The world has tried socialising the profit and it didn't work. Without the incentive of profit countries struggle to generate wealth. China has only seen an economic boom since it introduced a significant element of capitalism. The banking crisis was unique - you had a group of people who could act with impunity - they knew whatever happened nobody was going to let them go bust. That is not the case for virtually every other business. In the socialist model if the industry generated deficits who picks up the bill? Capitalism is not perfect but what is the alternative? cod'ead wrote: The alternative is responsible capitalism. Where companies and individuals don't engage in shady deals, or move money glabally to avoid paying their share of tax. Especially when those same companies are benefitting from the products of other taxpayers' largesse. Look at the companies that make $bns from internet services (Google being just one example), how much did Google invest in starting up the world wide web? The state (in a global rather than domestic sense) is usually the major investor in proposed new technologies. Pioneering medical treatments, communications, alternative fuel technologies, even now-mundane things like colour LCDs (Hull University) were generally pioneered and developed by the state, most of them via the military. The funding for that came from taxation and we are now in the situation where private and publicly quoted companies feel it is somehow right to avoid putting anything back into the system. Have a look at some of the works of Mariana Mazzucato especially The Entrepreneurial State I accept that the so-called socialist states that we've seen so far have not been raging successes but unregulated capitalism can hardly be called anything like a success either. One thing is certain, rolling back the state will lead to a reduction in responsibility, we're already seeing that in the NHS, where the Secretary of State for Health (Hunt) is seeking to absolve himself of any responsibility for what happens in the NHS. That must not be allowed to continue. Back on the original topic, it's also interesting to read about Tower Colliery, a mine deemed uneconomic and earmarked for closure, yet the miners bought it and worked it for another 14 years. Mintball wrote: To add: why would anyone assume that the current model of capitalism that we're seeing is the only one – the only way in which capitalism can operate? We only need look at the UK to see that other models are more than possible: if you cannot have responsible capitalism, then businesses such as John Lewis or Richer Sounds should not be successful. On the Mazzucato book, it's worth quoting the review from the FT: "Conventional economics offers abstract models; conventional wisdom insists that the answer lies with private entrepreneurship. In this brilliant book, Mariana Mazzucato, a Sussex University professor of economics who specialises in science and technology, argues that the former is useless and the latter incomplete. "Yes, innovation depends on bold entrepreneurship. But the entity that takes the boldest risks and achieves the biggest breakthroughs is not the private sector; it is the much-maligned state. […] This book has a controversial thesis. But it is basically right. The failure to recognise the role of the government in driving innovation may well be the greatest threat to rising prosperity."

Scargill was right! : Tue Jan 07, 2014 7:56 pm  

cod'ead wrote: The alternative is responsible capitalism. Where companies and individuals don't engage in shady deals, or move money glabally to avoid paying their share of tax. Especially when those same companies are benefitting from the products of other taxpayers' largesse. Look at the companies that make $bns from internet services (Google being just one example), how much did Google invest in starting up the world wide web? The state (in a global rather than domestic sense) is usually the major investor in proposed new technologies. Pioneering medical treatments, communications, alternative fuel technologies, even now-mundane things like colour LCDs (Hull University) were generally pioneered and developed by the state, most of them via the military. The funding for that came from taxation and we are now in the situation where private and publicly quoted companies feel it is somehow right to avoid putting anything back into the system. Have a look at some of the works of Mariana Mazzucato especially The Entrepreneurial State I accept that the so-called socialist states that we've seen so far have not been raging successes but unregulated capitalism can hardly be called anything like a success either. One thing is certain, rolling back the state will lead to a reduction in responsibility, we're already seeing that in the NHS, where the Secretary of State for Health (Hunt) is seeking to absolve himself of any responsibility for what happens in the NHS. That must not be allowed to continue. Back on the original topic, it's also interesting to read about Tower Colliery, a mine deemed uneconomic and earmarked for closure, yet the miners bought it and worked it for another 14 years. Some interesting points - I have read Mazzucato's book and it does indeed raise some interesting concepts/theories - I am not sure how practical many of them are. The idea that the state is the route of innovation is flawed for me. If you look at drug treatment virtually every advancement in drug care has come from the private sector. Developments in serious medical machines, MRI scanners etc, have all come from the private sector. Engine technology particularly internal combustion and jet engines are driven by private enterprise. Computer technology/communication technology is again private. Where the state helps is through universities where companies can fund blue sky research, it gives tax breaks for R&D and in organisations like NASA it does fund significant advances. Capitalism cannot survive on its own it needs to be the wealth generator in a mixed economy. The problem where there is no significant personal benefit to innovation it will stall. Entrepeneurs are a breed apart and are life blood of any thriving economy - take that spirit away and society will suffer.

cod'ead wrote: The alternative is responsible capitalism. Where companies and individuals don't engage in shady deals, or move money glabally to avoid paying their share of tax. Especially when those same companies are benefitting from the products of other taxpayers' largesse. Look at the companies that make $bns from internet services (Google being just one example), how much did Google invest in starting up the world wide web? The state (in a global rather than domestic sense) is usually the major investor in proposed new technologies. Pioneering medical treatments, communications, alternative fuel technologies, even now-mundane things like colour LCDs (Hull University) were generally pioneered and developed by the state, most of them via the military. The funding for that came from taxation and we are now in the situation where private and publicly quoted companies feel it is somehow right to avoid putting anything back into the system. Have a look at some of the works of Mariana Mazzucato especially The Entrepreneurial State I accept that the so-called socialist states that we've seen so far have not been raging successes but unregulated capitalism can hardly be called anything like a success either. One thing is certain, rolling back the state will lead to a reduction in responsibility, we're already seeing that in the NHS, where the Secretary of State for Health (Hunt) is seeking to absolve himself of any responsibility for what happens in the NHS. That must not be allowed to continue. Back on the original topic, it's also interesting to read about Tower Colliery, a mine deemed uneconomic and earmarked for closure, yet the miners bought it and worked it for another 14 years. Some interesting points - I have read Mazzucato's book and it does indeed raise some interesting concepts/theories - I am not sure how practical many of them are. The idea that the state is the route of innovation is flawed for me. If you look at drug treatment virtually every advancement in drug care has come from the private sector. Developments in serious medical machines, MRI scanners etc, have all come from the private sector. Engine technology particularly internal combustion and jet engines are driven by private enterprise. Computer technology/communication technology is again private. Where the state helps is through universities where companies can fund blue sky research, it gives tax breaks for R&D and in organisations like NASA it does fund significant advances. Capitalism cannot survive on its own it needs to be the wealth generator in a mixed economy. The problem where there is no significant personal benefit to innovation it will stall. Entrepeneurs are a breed apart and are life blood of any thriving economy - take that spirit away and society will suffer.

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 1:05 am  

For me the big problem with capitalism is that free market economics has become an ideological cover for something which isn't really about improving markets. Its a bit like how right wingers always identify 'socialism' with the Soviet/Chinese/Eastern European model whereas people that identify themselves as socialists mean something very different.

Nowadays the term 'free market economics' has come to mean right wingers that argue for vested interests like big business, argue against government interventions in social policy areas like welfare, health, education, but are in favour of big government in terms of defence and law and order. But this isn't the economics of the free market.

The economics of the free market means removing barriers to entry so big businesses don't hold market power and aren't able to earn supernormal profits at the expense of consumers. It also means removing market power of employers so workers' wages settle at the level of the workers' productivity: they get the value they create, because they have alternatives and options of switching employer. The whole Marxist critique of capitalism where firms exploit workers by paying them less than the value they create is based on a position where employers have market power.

Also free market economics would involve government intervening to correct market failures: where there is a market failure such as information problems that prevent the market providing healthcare efficiently, then government can step in. Where there is an external cost that isn't taken in to account in market prices (eg pollution) then government comes in to correct it or where there is an external benefit that isn't taken in to account in market prices (eg the spillover benefit of research and development) then government can play a role in provision too.

The theory of the market system shows how when markets work properly society uses its resources efficiently and it also allows for the concept of redistribution of wealth (through lump sum transfers if you want to be efficient): thats what the first and second rules of welfare economics are about.

In practice the right wing Republicans and Conservatives that proclaim a liking for free market economics generally balk at the concept of competitive markets because they lead to "zero long run economic profits": in the end you get to a point where prices are driven down to the level where everyone breaks even and doesn't make profits at the expense of another party. Also it tends to be those types that argue for market distortions like tariffs or restrictions on immigration (movement of labour) in order to benefit certain groups, rather than allowing the market to work properly.

[DaveO]

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 2:13 am  

sally cinnamon wrote:

Nowadays the term 'free market economics' has come to mean right wingers that argue for vested interests like big business, argue against government interventions in social policy areas like welfare, health, education, but are in favour of big government in terms of defence and law and order. But this isn't the economics of the free market.

<snip>

The whole Marxist critique of capitalism where firms exploit workers by paying them less than the value they create is based on a position where employers have market power.

Is this not exactly where we are at the moment?

(Excellent post by the way)

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 6:10 am  

lower case.


I saw a poster on facebook that said:-

"Good things come to those who work their arsés off and never give up"


As it originated in the US, I suggested they stick the poster in the staff room of a Walmart in the US and see their response.

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 7:43 am  

sally cinnamon wrote:

For me the big problem with capitalism is that free market economics has become an ideological cover for something which isn't really about improving markets. Its a bit like how right wingers always identify 'socialism' with the Soviet/Chinese/Eastern European model whereas people that identify themselves as socialists mean something very different.

Nowadays the term 'free market economics' has come to mean right wingers that argue for vested interests like big business, argue against government interventions in social policy areas like welfare, health, education, but are in favour of big government in terms of defence and law and order. But this isn't the economics of the free market.

The economics of the free market means removing barriers to entry so big businesses don't hold market power and aren't able to earn supernormal profits at the expense of consumers. It also means removing market power of employers so workers' wages settle at the level of the workers' productivity: they get the value they create, because they have alternatives and options of switching employer. The whole Marxist critique of capitalism where firms exploit workers by paying them less than the value they create is based on a position where employers have market power.

Also free market economics would involve government intervening to correct market failures: where there is a market failure such as information problems that prevent the market providing healthcare efficiently, then government can step in. Where there is an external cost that isn't taken in to account in market prices (eg pollution) then government comes in to correct it or where there is an external benefit that isn't taken in to account in market prices (eg the spillover benefit of research and development) then government can play a role in provision too.

The theory of the market system shows how when markets work properly society uses its resources efficiently and it also allows for the concept of redistribution of wealth (through lump sum transfers if you want to be efficient): thats what the first and second rules of welfare economics are about.

In practice the right wing Republicans and Conservatives that proclaim a liking for free market economics generally balk at the concept of competitive markets because they lead to "zero long run economic profits": in the end you get to a point where prices are driven down to the level where everyone breaks even and doesn't make profits at the expense of another party. Also it tends to be those types that argue for market distortions like tariffs or restrictions on immigration (movement of labour) in order to benefit certain groups, rather than allowing the market to work properly.

An excellent - if the firms pay the labour the value it creates then would profit not disappear?

Firms need to make surplus to repay the investors, repay interest charges on borrowed capital, hopefully pay taxation - a means of moving monies from surplus sources to deficit sources. Most importantly of all - if you believe Keynes was correct - invest in capital projects.

Free markets by their very nature will start off as an oligopoly that will gradually saturate as others see the profit opportunities. Increased competition will drive prices down which forces companies to look elsewhere for better opportunities which drives innovation. If you look at periods of huge growth/technological advancement the absence of state involvement is noticeable - the industrial revolution, the growth of American industry, industrial growth in the Far East. China has only moved forward since the relaxation of the communist ideal.

Could this atmosphere of development happen where the state exerts greater market control?

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 9:42 am  

Rooster Booster wrote:

lower case.


I saw a poster on facebook that said:-

"Good things come to those who work their arsés off and never give up"


As it originated in the US, I suggested they stick the poster in the staff room of a Walmart in the US and see their response.

Or the Presidents office in The Whitehouse, or the California Governors office, or the exec offices of Microsoft, or Google.

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 9:49 am  

Richie wrote:

Or the ... California Governors office ...

In the days of Big Arnie, one might have mentioned Dianabol as having an influence.

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 10:36 am  

Mintball wrote:

In the days of Big Arnie, one might have mentioned Dianabol as having an influence.

or Joe Weider, who realised the help Arnie could provide his business. But there's someone else who followed the "Good things come to those who work their arsés off and never give up" ideal.

[DaveO]

Re: What's the alternative to capitalism? : Wed Jan 08, 2014 10:39 am  

Sal Paradise wrote:

An excellent - if the firms pay the labour the value it creates then would profit not disappear?

No. You missed the point about companies making super-normal profits. Paying workers based on the value that they create doesn't mean distributing all the profit back to them. It means an equitable distribution of profit based on what the company can realise by selling what the labour force creates for a profit, not selling for a profit and at the same time driving wages down regardless of how much profit is made.

It's been interesting to see calls from the CBI and even the odd Tory MP recently that firms should ensure they reward their workers appropriately so they are part of any recovery. If you wanted any indication they are not, then this has to be it.

By the way, I don't think they are being altruistic here but realise Labour have a point that whatever the economic figures say polling shows few believe that they are benefiting and unless that changes it could hurt Tory election hopes.

I also noticed that despite the CBI boss telling his members to pay the workers more this was short lived in that as soon as Ed M says he's going to ensure agency workers (on permanent contracts) aren't ripped off and are paid the same as directly employed permanent staff doing the same job, they oppose it.