What the hell are you talking about? Companies which do not innovate go under in no time because the business goes to their competitors. This is obvious to anyone.
The thing about a free market is that we all have the freedom to decide what we want to do. Freedom. If you want my money or my car you have to make me happy, you have to offer me something in exchange which will make me happy to do the exchange. it is done freely by the both of us and we are both happy. I am always allowed to refuse any deal which does not satisfy me. Freedom. That is what it is all about.
The alternative is Cuba where the government plans and commands and where there is no freedom for anything.
Some lively discussion on this. I respect everyones opinion however, I’d like a chance for some rebuttal…
Regarding a few arguments:
Re: The Widgets produced at $1 : Neurotik suggested at cost, I propose at cost plus a reasonable profit of x%. You are wondering how this could ever be enforced - I’ll make two suggestions: 1. dedicate an Auditor to this task. 2. (and this is more to see what reaction I’ll get) open the financial records of crown corporation to the public.
Re: The Workweek issue: Maybe I am not clear here.
I don’t think there is any argument that one corporation, working at optimal efficiency, doing the work of 5 competing corporations will produce a considerable cost savings. Assume we merge all 5 corporations but layoff no one. To ensure the total output produced is the same (i.e. meets demand), we may only actually need 2/5 of the total workforce, so, we reduce the individual employees work time to 2/5 the original amount and rotate shifts. So instead of a 35 hour work week they each have a 14 hour workweek at the same pay as a 35 hour workweek. For the corporation, the inputs are the same and our outputs are the same yet we are working much less.
Re: Motivation of managing officers of these corporation. How can you claim fear of a monopoly when so many succesful enterprises are monopolies. Lets not forget that crown corporations (in Canada) are monopolies. Power, Water Purification, Healthcare (OHIP) - these are not luxuries yet they are either government agencies or heavily regulated monopolies. In fact most of the essential goods/services are of one of these two types - why? Because it cannot be afforded to have them fail to meet our requirements. There are then proven and effective ways to implement control over the activities and prices of a business. In fact it seems when push comes to shove - we feel we must have one regulated monopoly to provide this service.
Re: Theory v.s. Reality
The truth is capatilism works in theory but in reality. Neurotik mentioned the Achilles heel of the IH theory. Consumers don’t have perfect knowledge. I liken this whole counter argument to the statement “If I can’t see how it’s done - it can’t be done”, something obviously premature and false.
Re: Motivated by competition
Sorry this is the least sensible argument I’ve read. In your AMD point Scule, look deeper into the situation. The development of a faster CPU was done by engineers at AMD, not the senior management. What was his/her the motivation for this? Money. Fame. Striving to provide the best. Mastery of his craft. Does Intel taking more market share bother him? No. Senior management worries about this - and they have no other influence on their product development team than to motivate them. Offer a cool million if one of their developers can double the speed of the latest production CPU - and your motivation is right there. It is not competition that is directly responsible for the improvements. See Maeglin’s post regarding this - he does a much better job than I in explaining this point.
sailor –
Suppose that in a closed capitalistic(free) economy there are two people - A and B. A owns all the food, and agrees to feed B on the condition that B agrees to become A’s slave. B is free to refuse, however, he’ll starve if he does, since A owns all the food, and won’t give it to B unless B’s his slave.
It’s capitalism all right, but is it freedom?
Now, I’m not saying that this is the ordinary scenarion, but to say that capitalism and freedom are one and the same is unreasonable.
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One alternative to laissez faire capitalism is Cuba, another is the United States of America. Still another is the (now non-existent) Kibbutz, where no money was circulated. Cuba/laissez faire capitalism is a false dichotomy.
John Mace –
Are you suggesting that the USSR lost the cold war because it didn’t innovate enough?
Wouldn’t it be fair to compare the US and Western Europe in 1917 and the USSR in 1917 and see which had an initial advantage over the other?
I am having some difficulty understanding your analysis. You seem to be saying that producing goods at a lower cost is expensive? Doesn’t it seem obvious that if production methods are improved so that the cost of producing something is decreased, then the company will reap profits in the form of a greater difference between the cost and price of the goods in question? And this leaves aside the possibility of expanding the market for the goods by lowering the price.
I’m not sure what your definition of patents etc. is. Obviously, an unlimited patent, or an exclusive license to produce a certain good would be un competitive. I think that the OP was suggesting that a system like that could work. However, I’m not sure how you see these things as “entrenched” in capitalism?
Currently all of the tools you mentioned which protect Intellectual property are instituted with limits. These limits are designed to stimulate inovation. It seems odd that the laws you suggest are the cause of inovation have to be limited to stimulate it?
And as we go down this road, are you suggesting that a state run economy where opening a business requires a special consesion from the state would by necessity have more inovation?
The point, however is made by you analysis of the story. Without competition, where does the million dollar bonus come from? Take away the competition and why would your senior managers even have development teams?
What do you mean by a “closed capitalistic(free) economy”? In your example why would B not be free to make his own food? How did A get all of the food in the first place?
I’m not trying to nit pick. But if you place 2 people in a prison cell and give all of the food to only one of them, you cannot claim this is a good model of capitalism. You certainly cannot claim it is a good model of free interactions.
Refined example: A and B are the only survivors of a shipwreck on an island with no vegetation or wildlife. A found a case of food.
Of course this is not a good model for capitalism - my point was that it is not necessary that in any scenario capitalism implies freedom in a meaningful sense.
Your analogy is flawed. If freedom exists, then B is free to observe how A gets the food, and B can then use similar (or possibly even more efficient) means to get his own food.
If you were postulating an island where A owns all the arable land, then B has to find something he can offer A in exchange for food. This can be labour (though I disagree that this makes B a “slave”, since the exchange of labour for food is voluntary) or anything else B produces. Fact is, if B is completely useless and has no skills whatsoever that A can use (or that B can use to grow his own food), then why is A responsible for B’s survival? A may decide to give B some food so B doesn’t kill A in the middle of the night, but that’s another matter.
You’ve created a very unlikely scenario that is just barely capitalism in order to refute capitalism. Maybe B can subsist by eating straw, man.
I’m not sure you are refering to my argument, but just in case…
My point was that it does not matter how you enforce the price charged. Let’s say you assign 3 auditors for every employee of the Crown corporation. Assume they are all honest. It will still not affect the “VALUE” of the widgets. This will vary from region to region. It will vary from season to season. It will vary from customer to customer. And even if no one else is allowed to produce widgets, the customers still have to budget their money for widgets against their money for food, travel etc.etc.etc. That is you still have to deal with competition.
Trying to control the production of widgets can only lead to excessive shortages some times and crippling surplusses at other times. No mater how you regulate the prices, you are not controlling the important variables. And expanding your control of bussiness to the materials used to make widgets, and the uses to which they are put doesn’t address the problem either. Each of the goods or services in the entire life cycle of widgets has the same properties of differing value to different members of the society.
The bottom line is that the laws of economics are just as imutable as the laws of physics. They are more complex. And as complex as they are, they are even harder to measure. But the essential priciple of supply and demand has been in effect since the first homonid offered one kind of nut for a particular kind of fruit.
:)Controlling the economy of any sizeable group is like controlling the weather. It doesn’t matter how many fans you use. Some silly butterfly can still mess it up
I just thougt of another analogy for the mathematically minded. If I have a line defined by the equation y=x+7, how can I change this line by modifying the variable Z?
Why is it so certain that this million dollars can only be offered because of competition?
The short answer - because that is how it is done now and people are not accustomed to thinking outside the box.
The long answer - it’s not. Motivation is motivation. A business case can be made that an innovation that will increase demand for a product will increase sales and the willingness of consumers to purchase the product. An innovation that will increase sales and reduces cost may have a net effect of +$2,000,000 - so to offer a million as reward makes business sense - with no mention of competition.
An innovation resulting in reducing the cost of project (whether or not it is passed on to the consumer) is still a viable goal even for a monoploy. If the concern is that the corporation will keep the savings as profit then that is what we will be audited for.
There is no conflict in having operational excellence and a non-competitive industry.
That was the point I thought you were trying to make. I just don’t understand it.
Are you saying that B given the choice between slavery and starvation is not free? Or are you saying that his freedom is false? If so, can you explain how difficult choices negates freedom?
Ah, but the long answer assumes some form of competition in every sentence. The excess demand that you propose taking advantage of, assumes that you are competing for that demand with someone or something else. I’m afraid the box may be that you are only considering corporations which produce nearly identical widgets. If you look outside, you’ll notice that every interaction (assuming freedom between the actors) is a form of competition.
As I have said, the concern is not that the corporation will keep its inovations profits, I am in favor of that. My concern is that the coporation will not be allowed to keep these profits which it creates through inovations. And the destruction of these profits is exactly what the OP proposes by removing competition.
Demand for water is met, is it not?
Demand for healthcare is met, is it not?
Demand for power is met, is it not?
Has demand for Parkers latest recommended French Bordeaux always been met?
Was demand for tamagotchi’s always met?
Has demand for products in the open captialist market always been met?
There is no correlation to meeting demand and competition. Demand is demand, let production sit at a point where the demand is met and charge the appropriate price to cover costs and earn a reasonable profit. Simple.
In fact correct me if I am wrong but competition does not factor into supply and demand at all - assuming the ability to produce sufficient quantities of said product - ?? All competition does is act as a mechanism to prevent price from being set arbitrarily high. Something that we have discussed there are alternatives to.
I’m not sure where you are talking about. But no. Demand is not always met.
I’m not eve sure what you mean by “Demand is Demand”. That’s like saying rain is rain. While it may be true in a detached sort of conceptual way, it is certainly not true to say the the amount of rain falling in a given area is always the same. Realizing that, the rest of that pargraph is meaningless.
OK, I will correct you
Competition between producers and competition between consumers of any good or service is the essence of that goods supply and its demand. They are linked in the same way that Mass and gravity are linked. They are properties of the same phenomena.
As far as competition being the mechanism to prevent run away prices; while it may serve that function that is not its purpose. Any more than gravities “purpose” is to keep us from flying.
I’m saying that as far as B is concerned, it doesn’t make any difference whether he’s living under an oppressive feudalistic regime, or in the most free society possible. If the end result is the same, no matter what B does, how can it be said that he’s free in the latter but not free in the former?
Are you claiming that B, having become a slave, is still free?
If you claim that B is free, isn’t everybody free, everywhere, since B’s alternative, death, is about as bad as a choice can get, and a choice that is always available?
I was demonstrating that monopolies and crown corporations can effectively meet demand, and that enterprise in a competitive industry doesn’t always.
Competitive markets are not privy to a magical demand fortune ball. At a fixed price (my suggestion of cost + reasonable profit) the demand for a product is independent of the competitiveness in the market. It does not factor in.
‘Demand is demand’ was meant to have you consider what demand really is - the consumer want of a product/service - not the price setting force of competition.
I’m sorry, I don’t follow your analogies - neither the rain nor the gravity ones seem to be appropriate…
Well, in a feudal system, B would be stuck in whatever social caste he was born into, while in a free system, B could toddle off and grow his own damn food. Your analogy makes no sense.
Nope, becuase the distinction is that A isn’t saying “work for me or I’ll kill you”, which is typical of repressive regimes the world over. A is simply saying “if you don’t work for me, I won’t feed you” which is hugely different, but if you want to keep claiming they’re the same, more power to you.
You misunderstand how capitalism works, especially here in Silicon Valley. You better believe the engineers care about market share and profits. The engineers work for salary, but also for stock. Usually lots of stock. Senior engineers can easily make more off their stock than they do from straight salary. I’m speaking from personal experience.
But don’t discount “senior management” either. Without someone who originally took the risk of forming the company, the engineers wouldn’t be working there and they wouldn’t be making any innovations at all.
If your main concern is long working hours, you’re actually in luck in this country. I have a number of friends who work pretty sporadically, and devote most of their time to other, non-work related pursuits. They don’t live like kings, but their lifestyle is probably better than 75% of the people in the rest of the world. It’s very possible to simplify your life and spend more time with family or hobbies or whatever. But you have to be creative-- that lifestyle is not going to be bestowed up you by some benevolent person (unless you happen to have rich relatives who leave you some money).
