The internet, in fact, is a good example of a free market. Perhaps it is our best example of how spontaneous order is created from the rules of the market, how it is self-regulating, and how it can function without government.
Think about it. The internet almost spontaneously generated itself after the first web browsers changed the critical mass of usability of the net. It has grown virtually without regulation of any kind. Is it chaos? Madness? Anarchy? Not at all. While there are wild and wooly parts of it, they are exactly what the market is asking for. There are lots of porn sites because porn is what people want.
And sure, there are problems. Spam, for example. Viruses. But by and large, the internet is very good at mutating into exactly what we want it to be. When we discovered that online shopping was useful, a whole infrastructure built up around it. Everything from Paypal to shopping cart software. Ratings systems for ranking web sites. There was a big boom, and a bust. And now sanity has kicked in and the internet is progressing steadily and carefully.
And while there are problems, there is also an explosion of creativity, productivity, and communication. Think of how fast it has evolved in a mere ten years. And it’s still going.
Now imagine if the internet were regulated the way we regulate the rest of the economy. Minimum charges, government approval for new hardware and software being connected to the net. Labor standards (no more bedroom web-site creators doing jobs for $100). Regulations on which products can be sold to which state. Sales tax collection for both ends of the transation. Equal-access laws that require web sites to have their designs approved for compliance with the Americans with Disabilities Act (this has actually been proposed). Federal control of IP addresses. New standards and technologies requiring approval of the federal government.
The internet might be a little less chaotic today. But it would be much smaller, more expensive, less useful, and rather dull.
I prefer it the way it is, warts and all. And I wish more of the economy would be freed from the shackles of government so that it could enjoy the same benefits.
You forget the other half of the equation. Power, once attained, is not easy to keep. And you can’t do it by oppressing the people, because they are free. By and large, if you want to become rich and powerful in a Capitalist country, you have to provide things that people want. Whether that be goods, services, or entertainment. And once you’re rich, you have to continue to use your money and talents wisely, or you will lose it all. “Shirtsleeves to shirtsleeves in two generations”. A rich person’s kids may be rich, but if they’re total screwups their kids will be poor. This is true of all but a handful of the ultra-rich.
This is why monopolies are almost impossible in a true free market. Or rather, ‘coercive monopolies’. There are plenty of instances of companies monopolizing a market simply because they were better than anyone else at providing what someone wants. IBM had a near monopoly on the mainframe market at one time. But it made a mistake - it failed to anticipate the minicomputer revolution. And its market share evaporated overnight to companies like Data General and DEC.
Microsoft is in a similar position. It has a near-monopoly on the operating systems market, but only because it has simply outcompeted its rivals. Say what you want about MS Windows, it has many advantages that UNIX and Linux adherents don’t like to admit. And MS Office just crushed the competition in terms of overall power, flexibility, and ease of use. Especially when bundled with the other office apps.
But nothing is forever. Linux is improving fast, and Microsoft has made a few errors lately that cost it significant share in the server markets. It’s close to a monopoly, but it doesn’t behave as one. It can’t. The market regulates its behavour far more thoroughly and rationally than does the government, short of breaking it up.
Monopolies just aren’t a big deal. They rarely happen. Feel free to leave the anti-trust laws on the books - they are rarely implemented anyway.
The real difference between the pro and anti market sides is that the anti market side refuses to see how powerful a regulating force the market really is. It is nothing more than the aggregate wishes of the people. Anyone who enters it and cannot use force against others has to play by their rules or fade away.
An example I used before was the Enron situation, which some have claimed was a failure of the market. It wasn’t. The market can’t promise that everyone will be honest. What it can promise is to adapt to such problems. So how did government respond? Tepidly, with few fines and a couple of short jail sentences. But more importantly, the government’s action had NO effect on other businesses not involved.
Now look at the market’s response. When the Enron scandal broke, its’ share price collapsed as investors fled a sinking ship. But more interestingly, similar businesses experienced share value drops as investors became more skeptical of large financial conglomerates. This forced them to open their books, change their auditing practices, or even divest themselves of questionable ties. This cost them all a lot of money, but they had no choice. The market regulated them far more thoroughly than the government did. The government punished a few people, but the market reconfigured itself. It adapted and learned and moved on. That’s what you get when hundreds of millions of intelligent beings communicate their desires to each other through a gigantic interconnected feedback system. That’s what the market is.
Mess with it at your peril. Sometimes it may be necessary to interfere. There will always be bad actors or extreme situations. The government has a role, but its focus should always be on only enacting regulations that help the market function smoothly. Other than that, leave it alone and let people make their own choices over where they will work, for whom, and for how much. Let them decide what they will sell, and to whom. Resist the temptation to meddle to ‘improve’ it. Every time the government meddles in the market it distorts prices and the information they carry, and introduces inefficiency.
pervert: * Social Security is not exactly the same thing as a retirment investment plan. It is far closer to a welfare program for the elderly.*
Actually, the level of redistribution from SS over workers’ lifetimes isn’t very high, so I don’t think it’s accurate to put it in the category of “welfare programs” whose only purpose is to redistribute income.
According to this source, the progressivity of SS (i.e., how much it redistributes contributions from the richer to the poorer—a totally non-progressive system, with no redistribution, would have a progressivity of 1) is only about 1.05, evaluated over workers’ total lifetime contributions and benefits. (In fact, the article claims that when further adjusted for things like voluntary unemployment and varying life expectancies, SS is actually slightly regressive, with a progressivity of 0.998.)
In other words, the ratio of what people put into Social Security to what they get out of it, over their entire lifetimes, isn’t that different for rich and poor people. So I think that lumping SS in with welfare programs is a pretty drastic mischaracterization.
Sam Stone: *. When the Enron scandal broke, its’ share price collapsed as investors fled a sinking ship. But more interestingly, similar businesses experienced share value drops as investors became more skeptical of large financial conglomerates. This forced them to open their books, change their auditing practices, or even divest themselves of questionable ties. This cost them all a lot of money, but they had no choice. The market regulated them far more thoroughly than the government did. The government punished a few people, but the market reconfigured itself. It adapted and learned and moved on. *
I think everybody understands that the market has this type of partial self-correction built into it. The problem, though, is that self-correction generally comes too late for those who get hammered by dishonest practices. The fact that current investors benefit from greater transparency and honesty forced onto businesses by the Enron scandal doesn’t repair the damage suffered by the previous investors who lost huge amounts. The corrective effects of market disasters do have some benefit, but sometimes an ounce of regulatory prevention is worth a pound of post-disaster cure.
Indeed! And at the same time it is, in fact, a good example of Communism. (Or is that Socialism? Ah, let’s skip that for now.)
Think about it. All of the essential technology of the Internet was created by people who were not looking for any profit whatsoever on their work. Instead they were interested in freely exchanging the fruits of their labours and continuously critiquing and improving each other’s efforts. This led to an unbelievable wealth of high-quality products in a very short time.
Now imagine if the internet had been built by commercial companies. You pay through the nose for some product that doesn’t do what you want, can’t adapt to future needs, and in fact even doesn’t do what the company advertised. And the company having already taken your money, is sure not going to spend much effort to support you or fix their product. Customer service? Forget it, we need to cut costs.
Numerous companies tried and failed miserably to create equivalent products on a commercial basis. (The illusion ofvendor support) I wish I had time to write this up, I must know of 100’s of them, many out of personal experience. (A very small number of companies did much better than the others.)
There are in fact many competing philosophies of software development, Free Software, Open Source software (radically distinct from the former), Shareware, etc. Plus, most of those “Communists” working on those things had day jobs on the side. To me, the movement illustrates how there are circumstances where profit motive results in the opposite of the outcome its proponents think - less innovation, poor products, poor service. And that lack of profit does not mean lack of incentive at all.
I do not in fact disagree with Sam Stone. I just think that his is just far from the whole story. And it left out the most important drivers of progress in the Internet phenomenon.
Here’s another one, just saw it today: article about the Wikipedia
I apologise for taking the discussion rather off-track - which exact game most closely models capitalism is a thread in itself.
My point was that advantage-facilitating-consolidation towards monopoly is a feature of almost all of them. And when I say towards monopoly, I appreciate that literal monopoly is rather difficult to acheive. However, one need not achieve a literal monopoly to achieve a vastly disproportionate influence, to the extent that economic coercion of millions of small fry (who, after all, have to live) is absurdly easy.
Free market capitalism can be as tyrannical as any government, if big fish are allowed to become as influential as the market will bear.
I think your sadly deluded as to the state microsoft is in. Linux is a rather unique example precisely because it wasn’t created by market forces, it follows it’s own unique economic model and analysis so can’t really be applied to conventional monopoly situations. But your charecterisation that even monopolies need to behave under regular market rules is absurd. All of a companies software is designed to run on MS windows and all their files are designed for MS word. Even if it does prove to be more profitable to run a rival OS, the cost of switching might be something like $1 million. This means that even if MS is $900,000 worse than rival OS, it can still compete so the incentive to innovate is far less. In addition, MS can and does use dirty tricks to make switching as hard as possible. Fortunately MS does not own the dominant web publishing software but, even without that, it manages to make a number of machine generated webpages that appear subtly wrong in more standards compliant browsers. Should the average person care in an ideal free market situation? yes, of course. Do they, obviously not. The fundamental problem is that even though overall users might benifit from switching to an OSS browser en masse, taken as individual decisions, the costs of switching over are far, far greater than the miniscule benifit. All MS has to do is make a merely adequate browser and they can compete with other companies making superb browsers.
On a more concrete not Sam Stone, tell me how this would work in a free market system:
Microsoft decided to release a new virus scanner system. They produce an adequate scanner and sell it for $19.95. At the same time, the MS windows team and the MS Virus scanner team get together and block certain key API calls unless the software possesses a special certified encrypted key which only the MS Virus scanner has. This has the effect of rendering every single other virus scanner on the market unable to function with MS Windows.
Now, in the current economic model, such behaviour would be forbidden under anti-trust laws. Presumably, such laws do not exist in free market land. Do you expect everyone to migrate to linux? Do you expect people to boycott MS and not use computers at all? What about businesses? Given the choice of spending $20 for a virus scanner or $1 million to switch to linux, which should they choose? Do you agree that this is an example of market failure or is this a feature in your proposed free market system?
Not exactly. The Internet was originally created as a defense department initiative to share data between certain specific colleges and other research centers, and to keep communications open by having multiple pathways in case of war and damage to our infrastructure…i.e. the vendors involved were PAID for the work (albiet by the government). These folks weren’t exactly working ‘selflessly’ on this thing.
The main reason companies/people didn’t cash in at the time is the same reason DEC didn’t cash in on the original GUI…because they didn’t see the profit potential of things like TCP/IP or an interconnected network accessable world wide by pretty much anyone with a computer and a phone line. You are reading WAY too much alturism into this thing on the part of the original engineers of the Internet (or ARPANET/BITNET I should say). Besides profit a lot of these guys did it just because it was frigging FUN to do…and they were being paid to play. I should know…I’m one of those kind of guys (though I wasn’t around in the early 70’s of course…I didn’t get started on building the internet until the mid 80’s :)).
Well, I could certainly see MS doing something like that…and I wouldn’t even consider it a ‘dirty trick’ necessarily, though probably short sighted and stupid. Part of the beauty of MS was that the platform was relatively ‘open’ (compared to its original rival Apple and its GUI OS anyway)…which meant that multiple vendors could and did write to the OS, increasing the amount of programs available to users. In addition, MS divorced itself from the hardware (again, unlike Apple) so that multiple vendors could and did produce compatable hardware usable by the OS.
If MS ever DID start to do such things (regularly) to cut out competative software vendors and try and corner the market on ALL software that is usable on their OS, my guess is we’d see history repeat itself…basically the reason Windows is so popular today was because Apple tried to do exactly what you are suggesting when THEY had the market cornered on GUI OS’s. Apple has since been able to recover (somewhat) but MS is not the king of the OS market. If MS ever tried to do the same thing someone else would make a better mouse trap…there are several OS’s out there that COULD rival MS if the other software vendors and users ever became sufficiently fed up with Windows. Myself I use LINUX, but I’m a poweruser. But you can bet that if MS decided to attempt to corner the market and cut out (or buy up) all the other software vendors currently writing code for Windows, or if enough users of Windows ever became disillusioned enough with MS that they’d switch to another product that had comparable capabilities of ease of use/installation, AND had a broad base of software vendors committed to write to it, MS would fold…or change. Either way its good for us, the end users.
Do you remember a server OS called Novell Netware by any chance? In the early 90’s they had something like 80+% of the market share in the micro-server market. I was around in the industry when the exudus from Netware started taking place Shalmanese…companies dumped Netware AND their investment in the OS for Windows NT pretty much on mass. They spent MILLIONS of dollars switching over to NT, even though at the time they were pretty much comparable…because the software vendors were supporting NT over Netware and people saw the writing on the wall. Sams characterization was far from ‘absurd’…I’ve SEEN it happen out in the real world.
If a vendor ever gets too high and mighty that they think they can screw over their customers, eventually they get bit, right squarely on the ass. Someone will see the situation and the oppurtunity and will take it. Right now no one is bothering because, though MS occationally does use what you call ‘dirty tricks’, over all the platform is supported by myriad software vendors giving people a huge choice of possible applications for any given need. They are also REASONABLY responsive to bugs in their code, and security problems and such…at least enough that its merely an annoyance to MOST people (who aren’t power users). And their software is pretty convient too boot. If some or all of those things change then someone will develop a new OS and spank MS…just like MS spanked Novell and Apple in their turn…just like Novell spanked Banyan and other OS rivals, and Apple spanked…well, you get the point I’m sure.
Just a note that I am not reading any altruism or selflessness whatsoever into those guys’ motivations. A not uncommon misconception though (I do note of course that you don’t hold it either).
Your FUN comment, on the other hand, is right on the mark.
I guess you know about suits and hackers? Who do you think deserves more credit for the Internet? (Feel free to not respond)
[QUOTE=xtisme]
How do you figure this? Why do rich guys have to give to poor guys for the economy to function? Wouldn’t people buy things with, well, wages? You know, from those job things? Or are you speculating that with a free market economy and wage scales based on the market there would be less people working…or no people working??
[quote]
Profit is when a business gives out less money than it takes in. The profit ultimately gets handed over to rich guys. Companies that don’t operate at a profit die. Thus in a free market, wealth will concentrate over time. Wealth accumulation among a small elite removes the incentive for a diverse market place, for mass production, for the employment levels that an industrial economy provide.
Interesting strawman.
It’s not quasi-governmental. It’s just isolated from direct control by electees. The same is true of most of the judiciary, but that doesn’t make them non-governmental. The rulings of the Fed are carried out through government infrastructure and with governmental authority.
A) That’s what people in power do. Government regulation just provides a counterbalancing power in the hands of the public. If government regulation becomes over-stringent, you tend to see the same stranglehold put on business.
B) You should have done a little Googling. The situation I described was normal before unionization, anti-trust legislation, and consumer protection. It’s common now in areas without those horrible socialist ideas. In the absence of a counterbalance, someone will always fill the power vacuum.
People only have the options the market provides. The free market doesn’t change that. You think you have absolute freedom, go try out a career as a nose hummer and see how long you can pay rent.
The fact that labor is valued based on the market is exactly why laborers AREN’T free. They are confined by demand and by accepted market conditions. If companies get together and demand people work unpaid overtime, get used to working unpaid overtime. The free market is always a race to the bottom.
Er…where was the straw exactly? I dinna think that word means what you think it means…
What exactly do you suppose ‘quasi-governmental’ means exactly? You are playing word games here. My assertion stands that the Fed would most likely be kept in tact if a completely free market economy ever took place. Or did you want to argue THAT?
Sorry, I still find this assertion too ridiculous for words. You’ll have to SHOW me how companies could wield such powers TODAY…why workers would be slaves and not be able to simply walk away or go elsewhere. Certainly there were instances in the past where certain very vertical industries (like mining) got away with such things…basically because they were the only game in a very small town (or they created the towns themselves). I see no reason at all to think that if the economy was converted to a complete free market that we’d revert back to such a beast…and you haven’t made a very compelling case with ‘someone will always fill the power vacuum’.
Huh? You can do anything you want to do…if you can make a profit at it, that is. If you can make a profit as a ‘nose hummer’ you will. You seem to think the market is some kind of fixed plan. Its not. If you come up with something that someone else will pay you for, you can do it all you like…and profit by it. By the same token, if you want to do something but no one wants to pay you for it, exactly why SHOULD you be able to just do it? Just because you want too??? Why?
Horseshit. Thats exactly why they ARE free! You can do anything you want…as long as someone is willing to pay you for it. Want to be a ‘nose hummer’? Fine. Get enough people interested in watching you ‘nose hum’ and you are in. Again, exactly why SHOULD society pay you to do something that no one wants? Just because YOU want it? How is that freedom? I’d say its reverse extortion…you want to take MY money so that you can ‘nose hum’ simply because YOU WANT IT.
As to ‘the free market is always a race to the bottom’…thats simply ridiculous. Its a race to the top. COMMUNISM is a race to the bottom, because there are no incentives for me to do the best I can, to strive to succeed. There simply is no success to be had.
Actually, I think Microsofts town is just outside Seattle.
It’s actually easy to do. Just move your headquarters to someplace remote and build a nice planned community around it. Of course, is there an advantage for a company to do this? Not only does the company have to incur the cost of building such towns, they have to pay additional incentives for workers and their families to uproot and live out there.
I have to say that basic economic theory is one of the topics that I find consistantly lacking on this board, with a few exceptions. A completely free market would not make all the workers serfs or make housing costs spiral out of control. It may reduce some of the barriers to entry that we want - medical or law certifications for example. It might also allow more monopolies as well.
Oc course, what do we mean by “free market”? Do we mean total laissez faire capitalism or will the government still enforce anti-trust legislation to keep the markets as free as possible? How does monetary policy fall into the equation?
Ok…I got side tracked. Yes, a company could still have a ‘company town’. My point was that people wouldn’t be some kind of serfs or slaves held at the whim of said company (which was the original assertion). If I don’t like ‘Microsoft town’, if I think the company is screwing me over some how, I’m free to leave and go and work somewhere else.
Government would still be there, reguardless. There are just things that only the government can do. The court system would pretty much be intact, so anti-trust legislation would still be around. What I meant was a vastly de-regulated government that basically gives the market pretty much free reign…only stepping in when something goes badly wrong.
Your assuming the whole consumer-as-activist type of model which I pointed out isn’t neccesarily valid. Sure, big companies might take the time and effort to investigate these options fairly thoroughly some of the time but I certainly don’t think the average consumer can afford to make a rational decision. If they did, IE wouldn’t have replaced netscape or WMP wouldn’t have replaced winamp as de-facto standards. Those things dominated because they were bundled with Windows, not due to any technical brilliance on their own part.
And what would happen if MS changed core parts of the OS so that it became inoperable with every other OS? Any machine it communicates with must run via MS’s proprietry network stack. So the only two real alternatives are a world running 100% MS OS’s or 0% MS OS’s. If the first occured, how would you propose we ever switch to the second?
And not all monopolies have to be due to dirty tricks, some natural markets are just naturally ogliopolistic due to high barriers of entry. Lets have a look at the CPU market, at present, there are exactly 3 companies capable of producing >1.0Ghz, general purpose CPU’s, Intel, AMD & IBM. How exactly do you propose a new player entering the market? To make a 1Ghz CPU, you need to first make a 500Mhz CPU and to make a 500Mhz CPU, you need to first make a 200Mhz CPU and so on… Making a 500Mhz CPU when you don’t know how requires lots and lots of research and huge expenditure. How do you fund it? by selling lots of 200Mhz CPU’s. An existing player doesn’t have that luxury since a 200Mhz CPU is now worthless. So say if Intel knocked the other two players out of the market, how exactly do you propose to break this monopoly?
That’s just your bias speaking. IE replaced Netscape because, since verson 4.0 IE was a better browser. It also matters that it was more integrated with the operating system, and that there were more of them out there. The techie geeks sneer at advantages like this, but for the average person, they matter.
But you’ll note that Firefox is starting to creep up on Microsoft. Microsoft knows that it has to continue providing a better product, or the competition will eat its lunch.
As for consumers not having the time to research, well, that’s what the myriad magazines, web sites, consumer organizations, and other intermediaries are for.
As for the CPU example - people used to say that when it was just Intel and Motorola. AMD came along and stole a huge chunk of the market share because Intel made a few mistakes. The same thing can happen again.
You’ve deliberately ignored my point. So, since firefox is, by most objective observers, far more superiour to IE6 than IE4 was to Netscape4.8, it should be taking away market share at least as equally fast as IE did… right?
As for the AMD example, AMD started in the industry making 386 clones where there was far, far lower barriers to entry, as evidenced by the dozens of chip makers at that point, almost none of which you would recognize today. Now, the barriers of entry are absurdly high and all the main players are at least 20 years old. Just building a fab plant costs over $1 billion. How do you propose the “bright inventor in a basement” enter such a market?
Also, on a completely unrelated note, how would universeties work under a free market system? Would there still be an undergrad teaching mill? How is this going to be funded? What about research? Is this going to be government funded? industry funded? student funded?
And yet, consumers switched from predominantly Apple to Windows in a fairly short time because of all the hassles and limitations Apple and its OS put on them. Software vendors also switched and began writing predominantly to Windows instead of Apple (where it had been the other way around before). People don’t have to be ‘activist’…they merely have to do what they always do. Choose a product that gets them the best bang for the buck, that meets their needs and doesn’t unduly hassle them. I’m pretty confident that if MS started playing fast and loose with its OS like you are implying (operability is key today…they’d be cutting their own throat) you’d see a flurry of OS’s released to compete with it. If people thought they could cut into MS’s market share they WOULD…and if MS tried what you are saying they’d open the door to them.
As to IE replacing Netscape, its debatable which product was/is better…however IE was free and bundled with the OS, and it wasn’t markedly a worse product. And you still have the choice to use Netscape if you want to load it…in fact one of my partners uses Windows XP (for gods know what reason) and he is using Netscape on it just fine.
When you say inoperable with every other OS I’m not sure what you mean exactly. Are you saying MS would go away from TCP/IP? If so, then it would be the beginning of the end of MS Windows as a dominant OS, because communications are vital between server systems. If you are saying MS changed its ‘core parts’ so that APPLICATIONS from other OS’s wouldn’t run on Windows, then again I don’t get what you mean…they already don’t (in most cases). Application vendors have to write different code in order to make their products work on various OS’s. If you are saying that MS would change its ‘core parts’ so that other application vendors (say rival word processors or spreadsheet manufacturers) could no longer run on Windows, again, this would mark the beginning of the end of MS Windows as a dominant OS. And if ANY of these occurred, yes, we’d see an exodus from Windows to some new (and more open and interoperable) OS. Hell, the other software vendors themselves would pretty much dictate it, as they would start writing code to take advantage of any new emerging OS rival to Windows immediately…for their own protection. And they’d dump or at least curtail writing any new code to Windows. This is exactly what happened to Apple (and Netware too).
Exactly. It’s called venture capital. If I had a radically new idea for a processor (or even a new processor that had comparable capabilities but I could manufacture cheaper than any of the current crop of processor manufacturers) I could easily find the capital to start up. You don’t need to build older technology first to build stuff current to today…why would you think that Shalmanese? Look at your own example…AMD. That’s not how they got started, and they have come up quite nicely (hell, I use their processors myself for my game machine :)). Yet, when they got started Intel and Motorola had pretty much a lock on the microprocessor market, and people were even saying then that there was a partial monopoly of the system, and that no one would ever be able to compete. Yet along came AMD and they were able to build comparable (and compatible…well, to Intel anyway) processors and make them cheaper. And thus break into the market and capture market share.
