Since pervert, John Mace and msmith537 have done so well, I won’t rebut my post. I will say this, though:
Unregulated free competition, where it is winner take all, is not really true capitalism, but more like a post-anarchy society leading to dictatorship. True capitalism requires some form of regulation, to protect innovators from having someone peering over their shoulder and raping their ideas before they can see a return on investment. Thus, what Maeglin describes as monopolistic competition is actually true capitalism. In this system, everyone is allowed to innovate, and those who do are protected from exploitation by patent laws that allow them to protect their innovations so that they can see a financial return on their investment.
In this way, innovation is fomented by the desire to achieve wealth and stature (a natural human impulse), and the further desire to maintain that status by maintaining market share. Companies that innovate are rewarded by better sales, because so long as they recognize demand, the ones who do the best job of making people want their product will do better than the rest. This can be achieved by advertising, but mostly is done by providing a better product. This is capitalism at its heart, because everyone is free to provide something, and is free to design something, but those who actually make the effort are protected from exploitation.
As for the “spectacular” innovation of the former USSR, well, why aren’t we driving around in Ladas here, and drinking Russian pop, and watching Russian-made TVs? Why were they so desperate to by Western products, why was their black market so HUGE? Because their state-run economies couldn’t match the growth pace set by the innovative West and Japan.
I recommend a quick read of the history of military technology. Compare, for example, the decade of the 1930s with the 1940s. Which do you think was the more innovative of the two decades? Do you think the competition between the Allies and the Axis powers might explain the discrepancy? Or are you suggesting that the Japanese could have won the war in the Pacific by imitating the atom bomb? Think of the money they saved by not having a Manhattan Project of their own!
Or the history of the American automobile industry before the Japanese became large-scale competition, vs. afterwards.
I imagine you would use this paradigm to explain why North Korea is the technological dynamo it is, and why South Korea suffers recurrent famines.
It’s a basic property of growth economics. I wish I could take the credit for it. Take a look at Paul Romer’s 1986 article, “Increasing Returns to Long-Run Growth” and Robert Lucas’ “On the Mechanics of Economic Development.” The math is fairly brutal, but if you skip the proofs, you should be able to get the main idea. Both articles are in the Journal of Political Economy.
Perhaps I am still unclear, as I am suggesting no such thing.
First, there are several kinds of innovation. A “eureka” innovation that requires no further accumulation of capital stock is going to have a cost of zero. Innovations like this, few and far between, will pay off.
Think about it. You want to build a better, cheaper product. In other words, you want to be able to lower your marginal costs and maximize your marginal product. All of this costs money.
If you do all the work yourself, then you have to pass on the costs of your innovation. In other words, you can’t sell your goods as cheaply if you want to recoup your costs. If you want to sell your goods cheaper anyway, then your profit will be lower than if you hadn’t innovated in the first place.
How do innovators pass down the costs of their innovations onto consumers? Patents. Licenses. Intellectual property. Distortions of the competitive market. This is how building a better widget pays off.
Wow, where would you like me to begin?
The United States was terrified of the Soviet economy for twenty years. Here’s why. Economic growth in the western world was lagging seriously behind soviet-bloc growth. The letters of terror circulating around the US government at the time are now humorous, but in the 60s, they were deadly serious.
I seem to recall that the Soviets outpaced us with ballistic rocketry as well. Something about spaceflight comes to mind.
Soviet advances in biochemistry had also significantly outpaced those made in the west up until the 1980s.
Do not mistake my discussion of Soviet Russia as any kind of defense. It was a corrupt, backwards, inefficient, and ultimately stagnant institution. I mentioned it to demonstrate that there is nothing intrinsic about competition that spurs innovation. In the Soviet Union, there was often little incentive for anyone to institute innovative changes, as there was often little incentive to do much of anything aside from fear of physical violence. Nevertheless, innovation, and enormous economic growth, did occur.
That’s a fallacy of composition, scule. “One true capitalism” as opposed to “one true Scotsman.” Capitalism is nothing more than private (or corporate) ownership of goods invested freely by private decision in something of a free market. Is American capitalism truer than Canadian? English? Bangladeshi?
Protected from the competitive market, you mean. There is nothing exploitive about imitation. We only design it as such to protect the monopolistic rents of innovators.
Because the Russian economy stinks, most of its products are garbage, and because its economy is currently the size of Belgium’s. What does that have to do with any of the above?
Let me try to lay out my premises one more time.
Innovation is good. We like it.
The competitive market provides no incentive for innovation.
Command economies also produce innovation.
Therefore, innovation is not exclusively a property of competition.
If command economies, like competitive economies, do not provide ample incentives to implement innovations, their economies are going to go down the crapper.
Therefore, we have devised market distortions in order to provide such incentives.
As a side note, the Soviet Union never devised such incentives untill Gorbachev. At that point, well, most of the world thinks it was too little, too late.
Shodan, that’s probably the lamest comparison I have heard yet. You’re welcome to come back and talk when you have something substantive to say. Spurious analogies to war and vague allusions to the South Korean economy don’t count.
If you want to talk about reasons for endogenous growth in South Korea, believe me, I would be happy to oblige you.
This “theory” is idiotic and completely divorced from reality as anyone with two cents worth of power of observation can attest. My theory is that exactly the opposity is true. My theory has the added advantage of being true and jibing with the real world.
This of a capitalist country and a communist country. Let’s say the USA and the Soviet Union. The USA has a competitive market and it has higher innovation. I can further provide dozens of similar examples with other countries.
Maeglin, please provide a few examples in support of “not your theory”.
They are quite free. In most of these countries they have a choice between several lifestyles, and they chose the one that best suits their needs. For their work they are well paid compared to many farm workers and so forth. Its their choice, and many of them are grateful for the hard currency.
Its true that they were able to
(A) Inspire economic growth by eliminating feudal institutions and investing in heavy industry. However, whioe this worked for a little while, we saw in our lifetimes the outcome, as well as how well those creations worked for the average Dmitry on the street.
(B) Foster technical advances in a very few fields. However, allow me to point out that there was no serious competition in these fields for some time. In Rocketry, for example, the American achievements occurred after we took note and began developing those systems. In any event, however, Rocketry has little bearing on this case because its, well, not an economic actvity.
Fact is, most of the Russian advances came in those few fields where there is no money to be made, anyway. And even when they did advance in certain areas, they were crippled by a lack of research into others. They deveolped biochemistry, for example, through highly unethical experiments and so forth, but lacked for a very long time accurate research into genetics and other areas.
It is possible for a command economy to produce innovation. However, it is not a natural property of such systems to innovate in as many or as as wide a range of areas as Capitalist systems. You are comparing two areas of comparable activity (i.e., government expenditure). Take note that in any area that the USSR’s Party did not consider a priority had no advances. In other words, only things the government liked advanced.
Now, this is quite a bit different from the American model. The US government invested in technologies it wanted. However, most consumer innovations were created not by the government, but by private organizations who risked money to make new things.
Good god, debating here really makes me wonder if people actually read what they reply to.
Let’s take a look at, say, the music industry. As everyone well knows, the RIAA has attempted to repress all forms of digital duplication and dissemination of recorded music. Why? Because .mp3s are better than CDs, because .mp3s are cheaper than CDs, and because the data transfer innovation is 100% imitative.
Musicians and recording labels complain that the distribution of .mp3s hurts the industry, for if it is not going to be remunerated for its efforts, there will be no incentive to create new music. Why? Because musicians and recording labels will not be remunerated for their marginal product.
Let me say this again.
And again.
If you are not going to be remunerated for your marginal product, you will have no incentive to produce.
Sorry, RIAA, that’s the competitive market for you. Someone invents a better, cheaper product, and you suffer. I am not personally responsible for musicians’ incentives.
We collectively found this situation undesirable, though the debate is obviously still raging with respect to the RIAA. Hence we have chosen to distort the competitive market by introducing the concept of intellectual property. This ensures that an innovator will continue to earn his marginal product for the length of his patent, copyright, whatever.
This distorts the competitive market.
Am I making myself perfectly clear?
If you still don’t believe me, how do you (or anyone) explain the miserably poor standard of life and pace of innovation in the vast majority of the world’s capitalist countries? Whose markets are less restricted than ours is?
Whose negotiators complain in worldwide forums how we support our own uncompetitive industries at their expense?
The USA’s market is, in my opinion, moderately competitive at best. Japan’s market is considerably less so. There are a myriad of market distortions that affect nearly all levels of economic interaction. To call the US system “capitalism” or “true capitalism” is both selective and fallacious. It’s our system, and it works for a variety of reasons, mostly having to do with our initial allocation of resources rather than any system that we have selected rationally.
What is most competitive about the US political economy is that there are, in most states, few restrictions about who can enter and leave the market. However, if you have ever had to incorporate in a more restrictive state, you would swiftly realize that this freedom is hardly complete.
This is certainly very true. However, my contention that competition is necessary for neither innovation nor growth is unaffected by the ultimate demise of the Soviet Union no more than capitalism is undermined by the failures of the Third Reich.
I would reply in the same vein to all of your other observations, smiling bandit. I don’t disagree with anything you have said.
But this.
This I disagree with. It just so happens that in the United States, capitalism coincides with a lot of really strong incentives to innovate. But it is perfectly conceivable that:
A) A capitalist society can exist without such incentives;
B) A command economy can exist with such incentives.
For example, if the United States were not vigorous about protecting intellectual property and enforcing patents and the Soviet Union had been able to create incentives for progress before its most serious decline, I contend that the world political economy would be substantially different.
I tried to paste quotes, but found that it makes this larger than necessary. Just refer to the previous posts by Maeglin.
Your post does not seem to be logically consistant. You say that the Soviet economy was some sort of Dynomo in the 50s and 60s. Yet it did not have any incentives for inovation until Gorbachev in the 80s. Are you saying that economic growth is not related to inovation?
There were many reasons why Americans were afraid of the Soviets in the 50s and 60s. As it turns out much of the fear was baseless. But how does our fear equate to “spectacular inovations”?
The biochemistry sentence also betrays a slight illogic. If they had no incentive for inovation until the 80s, how did the biochemical lead stop at the same time?
But your conditional premise suggests that you may be talking about the difference between implemented inovations and un implemented inovations. Do you mean to note a distinction between scientific or pure research inovations/discoveries as opposed to productive or economic inovations?
The spaceflight reference requires special mention. I would propose that niether the American nor the Soviet space programs were a product of their economies. They were both government programs begun and run for political reasons. As such, I’m not sure they qualify as economic inovations in the context of this thread.
Unless, you are simply saying that even in command economies people have new ideas? That sort of postulate I think I can agree with. New ideas occur all the time. It is a part of human nature to see new patterns in old phenomena.
Ah…I think I understand what you are trying to say and it isn’t as “crackpot” as it originally sounded.
If I understand correctly, let’s say you have two identical Widget companies. Company A and Company B. Company A invests a significant amount of labor and capital to create New Improved Widget[sup]TM[/sup]. What’s to stop Company B from picking up As research and reaping the benefits without incuring the costs?
Such a theory would explain the explosive growth of Asian countries after WWII. As these countries transitioned from primarily agrarian economies, they have the advantage of being able to purchase existing industrial technology as opposed to inventing it from scratch over several hundred years.
In the real world, companies protect their research. That’s why you hear so much about “intellectual property rights” and such. Ideally A would be able to utilize it’s advantage and drive B out of business. In the short term, I suppose that society would have to compensate for the fact that employees from B are now out of work.
I don’t want to hijack this thread or anything, but we seem to be laboring under different concepts of what capitalism is. Even a brief exploration in the dictionary leads to the proposition that capitalism is characterized by private ownership and free markets.
Now, I have been working under the idea that the nature of free markets is, among other things, a powerful incentive for inovation. If I am free to own my labor (intellectual as well as physical) and profit from it by taking it into the market, I am MUCH more likely to expend effort at creating new products or services. As well, I will be more likely to want to improve my ability to produce such products or services.
Please correct me if I am wrong, I don’t want to misinterpret you, but you seem to be saying that intellectual property has no place in a free market. But your position seems to be more complicated than that. Judging by your Third Reich comment, I cannot grasp what you think a capitalist system is. Can you expound briefly on this?
I’m afraid not. I still don’t understand how protecting property rights is a “distortion” of competitive or free markets? Are you saying that I have no rights to my intellectual efforts?
Under your characterization of capitalism:
If I invent a machine which allows me to make widgets cheaper what rights do I have regarding the invention? None?
If you have every right to copy the machine, or steal it, how does your characterization differ from anarchy?
I will try to cram a few things in this post and keep it short. Wish me luck.
Only if you quantify my statements selectively. Let me make myself clear.
On the whole, the Soviet Union failed to provide incentives, etc., taking into account its entire history.
The Soviet Union provided strong incentives during the 60s which became it became unable to sustain.
Even though the Soviet Union failed to provide incentives in general, occasionally it managed to get something done, perhaps despite itself.
Bingo. It’s why everyone in Africa has a cheap cell phone when Africans have to wait on average seven or eight years to get a land line installed. It’s called leapfrogging. Great for society, sucks rocks for the original producer. We are having great fun with the Chinese software industry over such issues right now.
pervert, I don’t think the dictionary really goes into much detail about the nuances of markets. But I’d be happy to talk definitions.
Somewhere out there in the ether is the economist’s “competitive market.” Economists like it because it has all sorts of interesting mathematical properties that can be explored. Economists can use these properties to model what actually happens in the real world. It is a market of perfect, pure, unrestricted competition.
And it really sucks. It can never sustain long-term growth (according to certain very influential models). It stifles innovation. It yields some serious social inequality. It has great properties to study, but I don’t think too many people want it to exist.
What we have is something of a compromise. Some countries compromise a little more, some a little less. Our market is more competitive than Cuba’s, but certainly less competitive than, perhaps, Andorra’s or Yemen’s.
Those are two very big ifs. Just because a market is competitive does not imply that it has clearly-defined and regularly enforced property rights. As a result, there is no guarantee that even if your innovation is successful that you will see a penny of profit.
Hell, in a perfect competitive market at equilibrium in which all labor markets clear, there is no profit whatsoever. Try to wrap your mind around that one.
Nope. Intellectual property’s a great thing, and it is one of the incentives for innovation that the US government has so graciously provided. It has a definite place in our market.
Capitalism is a nice continuum on two perpendicular axes. On one axis is a measure of relative market competitiveness, the other is a measure of relative private ownership. That’s all, really. Some countries don’t protect ownership and don’t regulate the market, others do the reverse. They are all still “capitalist.”
Thankspervert, that is the essential point of my above post. Capitalism without patent protection is tantamount to anarchy, and just because some third world countries operate that way, doesn’t make it capitalism. Patent protection, property rights, etc, are paramount in a capitalist society.
The essence of this thread, in any event, is to question whether a single corporation could do the job better or as well as a multitude (as we have today) or corporations, and if we could get by working less hours. I think the answer is no, for the simple reason that every attempt at doing so through history has been a failure. I am talking about market commodities, like clothing, electronics, food, etc. It has been pointed out that government agencies provide water, power, and health care. These things are deemed necessities, and their provision is regulated to protect the public from gouging, but they are not necessarily better delivered or more innovative than if they were deregulated.
In Canada, our health care system is in trouble (ever need an MRI done - find out what the wait time is here and then check the wait time in the US, big difference). In Saskatchewan, for example, numerous areas have very poor water. And I think we all remember about a month ago in Ontario and the Northeastern US when the power went out because demand spiked and the poorly run systems couldn’t keep up (yes, I know there were private power companies involved, but the public power system just was not able to deliver the requisite power and had to borrow from the US, which should not have happened in the first place). The point is that single, government-run agencies rarely create anything new, froma consumer point of view, and are usually too bloated and bureaucratic to be efficient (I assure, you, I work for the federal government; you haven’t seen bureaucracy until you’ve been in here).
Maeglin, I think that does clarify your position, and so it seems to me that our arguments are really at right angles to each other rather than opposites. Either way, the original post is begging to be addessed again.
And I would say in return that this is one of the lamest dismissals of a couple of counter-examples that you apparently don’t know how to refute that I have heard on the SDMB.
You have claimed that, in a free economy, the innovators are at a disadvantage, because everyone else can simply steal from those who don’t subscribe to the Maeglin theory of competitive disadvantage.
All the same factors applied to WWII. There was competition for “market share”, which stimulated innovation. One side (the Allies) came up with a major innovation. As a result of its deployment, that side put the other side out of business. The Axis powers started a competition, and lost, because of innovations that would not have been developed, absent the competition.
I used to work for a company that no longer exists. Why? Because the products they created and sold have been driven from the marketplace. Other companies, in direct competition with my former firm, came up with a better mousetrap, and they won, and we lost. And we went out of business. Entirely because of competition-driven innovation.
The idea that competition stifles innovation is so obviously and blatantly wrong that it is difficult to discuss without giggling. The list of innovation driven by competition includes practically every technology on the face of the planet.
Just off the top of my head -
[ul][li]The US automobile industry (I notice you skipped over that earlier)[/li][li]The computer industry[/li][li]All military technology[/li][li]The space race[/li][li]The forward pass in American rules football[/li][li]Darwinian evolution[/ul][/li]And on, almost ad infinitum.
And your whole example of Soviet “innovation” is false. The Soviet economy was in competition throughout its existence - with the West, and its capitalist economies. And they lost. Because they could not compete in any area - not in agriculture, not in high-tech, not in the production and marketing of consumer goods, not in pharmaceuticals, not in aeronautics, not in computers and data-processing, not no way, not no how.
Give it up. Your position is not simply untenable - it is laughable.
The distinction you draw between “pure unregulated” markets and actual markets seem overly simplified. That is it seems to be a property of the model and not, perhaps, a property of the phenomena being modeled.
Of course, given the complexity of the subject, I would expect that any economic model have some bizare properties
But meanwhile, some of the principles that you seem to be transfering from the model to the real world don’t seem to fit.
What does it mean to live in a system where I have no property rights, but a perfect right to exchange that property in the “free” market? What does private ownership mean without them? And besides that, what does it mean to participate in a market freely with products or property which is not yours?
I guess what I am saying is that even though you can seperate degrees of property rights, inovation, freedom and any other aspect of a real economy within a mathematical model, does not mean that you can do so in the real world.
Since the Third Reich was not Capitalist, and its failure was not due to economic reasons, I think that’s hardly a fair comparison.
As for the US v USSR:
Remember though - although there was not economic competition, there was political, social, and military competition! It was simply not intra-society competition. But there is no reason it has to be.
I don’t believe the answer here is that a command economy will by neccessity be less innovative than any capitlist one, but that that for a given society, competition, best illustrated via capitalism, produces the most innovation and brings that innovation to the consumer. Ideally, a situation wherein a technology or idea is nursed by private wealth, in competition with other private organizations, creates the most competition and ensures maximum innovation.
And remember Maeglin, when the west (mostly the US) started to get interested in rocketry and so forth, they easily outstripped the USSR. Competition led to improvement, and we outcompeted the Soviets.
I wanted to say something about that earlier but got cought in other thoughts.
As I recall part of the original question was that if you took all of the employees from 5 corporations and made a single corporation, could you achieve a better work week.
How about a few numbers. 5 corporations with 20 workers each. They each produce 100 widgets a month. So we want to create 1 corporation with 100 workers producing 500 widgets a month. Even if we leave aside the philosophical arguments, can you see why the workers will still have to work 5 day weeks?
Capitalism without patent protection is tantamount to anarchy, and just because some third world countries operate that way, doesn’t make it capitalism. Patent protection, property rights, etc, are paramount in a capitalist society.