If a book author’s work was not protected (a pure competitive market) then if you come out with a book, I could just run my own copies of your work and sell it. I didn’t have to write it and so could sell it very cheap and make money. You, on the other hand, would make very little money even though you wrote the book.
By have the government stifle competition and give you a ‘monopoly’ over your work this gives you incentive to write the book. If you were not given this, why write a book? Wait until someone else wrote a book and copy his/her book. In such a society, very very few would be writing and everyone else waiting for someone else to write so they could take advantage of the book.
Ok, maybe not a perfect example but is it somewhat close to what you are saying?
I would hardly worry that Africa was going to suddenly leapfrog ahead of us.
Yes, in a perfectly competitive market with perfect price information there are zero economic profits. But remember that economic profits include things that accounting costs don’t, such as opportunity costs.
It’s also an idealized model. In real life, there are few to no truly competitive markets as defined by the typical Econ 101 textbook:
-Products indistinguishible from each other
-No barriers to entry or exit
-No one producer dominates the market in such a way that they can influence price
-Perfect market information
and so on
That’s another fallacy of composition. There is nothing inherent in the idea of capitalism that implies the protection of intellectual property. Just private/corporate ownership and a competitive market.
That’s all.
Be that as it may, I only interjected to address what I viewed as a serious error, that is to say, justifying capitalism on the grounds that it inherently produces innovation. Our particular configuration of capitalism, sure. But like I said, this is a property of the combination between private ownership, a relatively competitive market, and exogenous incentives.
Shodan, repeating the same examples again does not make them any better. If you are actually comparing competition in a competitive market to competition in war, then I believe we have nothing more to say.
If it is so obviously and blatantly wrong, tell me why we care about intellectual property.
Competition for monopolistic rents? Great. We love it. Competition in a more competitive market? Not so much. Amazing how little innovation takes place in markets substantially more competitive than ours.
The point is to begin with an abstraction and add increasing layers of complexity to address real phenomena.
Quite on the contrary. The fact that we do have such things as the protection of intellectual property because of the properties of the model I have discussed fits quite nicely. Like I said to Shodan, if not, why do we care? Who benefits?
Of course you can. Like I said before, not every country is as vigorous with respect to the protection of intellectual property rights. China, an emerging capitalist superpower, springs perfectly to mind.
Sort of. Pretend it took you a year to write the book. You weren’t working a day job, and you had to, say, borrow money from your parents and friends to make ends meet in order to finish writing. Let’s also pretend that you could actually set the price of your book. You know you need to pay back everyone you borrowed, so you set the price high enough that you could service your debts and still make a buck.
I, on the other hand, want to copy and sell your book. It takes me half an hour to copy it. No loans, no lost wages, no lost time. So I can sell it at a fraction of the price you can, and since it cost me nothing to make, everything I sell it for would be pure profit. Sucks for you, who spent a year working hard. Maybe you’d think twice about writing a book in the future.
No, but there are some people who are starting to get a little concerned about China.
Of course not. It was something of an illustrative side point. I don’t think even the most hardline free marketeer would want to live in an economy like this. No point in innovation, since the prices return to equilibrium quicker than boiled asparagus.
Please explain in what significant way they are different.
You keep trying to weasel out from addressing the multiple examples I cite of places where you are, simply and unambigously, wrong. Feel free to deal with any of them, and quit dismissing arguments without addressing them.
pervert already dealt with your false distinction between intellectual and property rights.
Having read through the thread thus far, I just wanted to barge in and throw some other perspectives out there to play devil’s advocate and that may illuminate the discussion and get some new ideas out there. I don’t necessarily agree with all of the following, but I think it makes for interesting areas of thought. Hope this helps.
Some people seem to be taking the idea that “capitalism stifles innovation” a bit too literally. I think perhaps it would be a lot clearer to rephrase it as “capitalism does not maximize innovation”. For instance, Shodan lists the US auto industry, computer industry, military technology, and the space race as innovations born from capitalism. For each of these industries, however, there have been multiple players all working at basically the same goal, such that a certain level of redundant work was performed and perhaps, overall, detrimentally so.
Here’s a comparison between a competitive and non-competitive environments to help illustrate. Let’s say that for a particular innovation it would take 1 man-year to discover in a competitive environment and there are 5 men competing to complete said innovation. In one year’s time, the 5 men have discovered the innovation. Now, for the non-competitive environment, let’s even posit that it is much less efficient (25%) than the competitive environment as many here believe; said innovation now takes 4 man-years to discover. Take the same 5 men working for a year and you will not only have the same innovation but an extra man-year as well.
Of course, there are a lot of ways to play with these numbers and other factors to consider both ways, but I think this gives you some idea that it’s perhaps not a completely crazy idea that, though each individual is performing less efficiently, the system can perform more efficiently.
I’m not entirely convinced that profit motive drives innovation as much as some would like to think; that is, some seem to be saying that without a profit motive, innovators just won’t innovate, but profit seems to have been at least secondary to any innovators I’ve known behind just making their lives easier or they just enjoy solving problems. Of course, it’s good if they can earn enough to live comfortably and obtain the resources they need to innovate, but beyond that they seem to continue innovating regardless. While there has been a technological explosion correlating with the rise of capitalism and capitalism no doubt has been something of a factor in that timeframe, it may have more to do with how wealth has increased such that an ever larger percentage of the population combined with a population explosion has led to an incredibly higher number of innovators.
This is a lot of speculation on my part, so take with huge grains of salt, but one possible example I would like to point out is the thousands of people contributing to open source software these days, the vast majority of which are volunteers with little hope of making big money off their work but just trying to make their jobs easier.
Someone mentioned the innovations of the Axis and Allies driven by World War II. As already pointed out, these innovations weren’t driven by a free market so much as the desire not to see your countrymen killed, but I think there’s a further point to be made how governments abandon the free market to increase efficiency in times of crisis. When war is raging (especially for as long as WWII), isn’t it common for the government to gather all the best minds together and say, “Look, we need a better tank now, build it” than let a bunch of independent operators all come up with designs and wait to see what the arms market decides is the best tank? Wasn’t this more or less the way the atomic bomb came about? This also helps standardize production lines and maximize output so you can outgun the opposition. Not that it always worked, sometimes things got made that shouldn’t have, but the situation seems to be as much a counter-example as example.
Anyway, I think there were some other things I wanted to address, but I’ve written a lot already. Hopefully there’s some food for thought in there.
No actually I can’t. All other things being equal there will almost certainly be a reduced cost to produce each item (I am sure this is obvious). Unless I am employing 500 children in a sweaty basement to handmake widgets, increasing the output of my widget making plant by 500% will not require a 500% increase in labour. I estimated a 500% increase in output would cost a 200% increase in labour. So if my total worker hours per week was 17,500 (100 workers x 5 corporations x 35 hour workweek) previously, my total hours needed will only increase to 200% of what one corporation was doing before (100 workers x 35 hours x 200%) which is 7,000 hours. Divide that by the combined number of employee’s (7000/500) comes to 14 hour workweeks. So we’ve reduced the number of days from 5 to 2.
It is not obvious. What exactly is going to be different about the new widgets that they require so drastically fewer man hours to produce?
old system
20 workers X 35 hours/week x 5 companies= 125 widgets.
New system
100 workers x Z hours/week x 1 company = 125 widgets
Z has to be 35
What new variable do we have to introduce to make Z come out to 14?
Oh, wait, I see it now, you assume a company which produces 100 widgets a month, but has the capacity to produce 250 widgets a month with no extra effort. The OP assumes that somehow the other 4 corporations are preventing you from this level of productivity?
I have to ask again. If you can produce 250 widgets a month with 20 workers on a 35 hour week, why would you not do that? And if you cannot do that, how does adding workers increase their productivity? In many industries increasing the number of workers Decreases total productivity by increasing overhead. While a company with 20 workers might do fine with 1 HR person, the new company might need 5? And this might require a vice president of HR a position which was not needed under the old system. These are the sort of fixed costs associated with workers which have nothing to do with how many hours they work.
Meanwhile, under your new corporation, all of the profits are to be passed down to the workers. Are they to assume any of the risks? If a new technology replaces widgets will they simply stop asking for paychecks? Each month that widget sales slump, will they ask for less money per hour?
BTW, I just took your 500% increase in output with 200% effort in hours and divided it in half. That is with the same effort as last month I should be able to produce 250% more widgets simply by your assumption.
I don’t see how improvements in efficiency are automatic, either. While it may be obvious that there might be improvements from economies of scale, it’s just as obvious that there is a risk of bloated inefficiency.
So if you merge five companies of 100 people into one, are you going to build (at some expense) a larger factory for them to work in? As it stands, your five existing companies might be just the right size for 100 employees each. Are these existing factories to be abandoned? Who pays for that?
Your magical example proves nothing except your own wishful thinking.
The problem is, without the competition, you may not have anyone even start work on said random innovation, or it may take far longer since none of them are under any pressure to succeed. In any event, you assume that its simply a matter of raw man-years, which I disagree with. Modern design and research teams probably will not become much more time-efficient by adding more staff.
No, innovations born from competition. And, since you go to say:
this should be clear.
Keep in mind that the effort is not necessarily redundant. People do not always know ahead of time what will work out, and so different organizations will be doing R&D on different areas.
And competition is what forces innovation, and therefore cannot be detrimental overall.
Because war does not take place in a competitive market. The costs of losing the war are not merely the sunk costs of engaging in it plus the marginal costs of production of war material times the time of production. You cannot enter the “war market,” as it were, freely, nor leave freely.
Because none of them are relevant. My statements have been clear and unambiguous. I am not talking about “competitition,” as it were, but properties of the “competitive market.” I do not understand how you could consistently fail to see this distinction. No one else seems to have a problem with it.
Hardly. Let’s take a look at what he says.
No it doesn’t. All it means is that all property is not collective, that is, owned by the state. This is in no way contingent on any configuration of property rights. It simply means that you are free to do whatever you want with your resources, and in many capitalism systems, anyone off the street (including the government) can attempt to take such resources away by force or deception.
It sure is. One of the biggest textile producers in Bangladesh got his start by imitating Daewoo. He is now one of the richest men in the country. Call Bangladesh whatever you like, but its economy is absolutely capitalist.
Because we, as a society, think such things are useful. They create terrific incentives for innovation. But in no way are they intrinsic to capitalism. Once again, defining capitalism by private ownership of capital and competitive markets, you can look all over the world to capitalist economies that do not protect property rights nearly as much as the US does. Are they poorer? Sure are. But are they capitalist? Absolutely. To fall back on the old saw “they aren’t really capitalist” is once again committing the fallacy of composition.
If you want to make a claim that rigorous protection of individual rights is “really for the better,” then I am in complete agreement. Is our version of capitalism really for the better? I think it is still too hard to tell. The United States began with a wonderful configuration of resources that contributed significantly to our development. Other countries starting out do not have the same configurations, and they are flailing miserably. As much as I do love capitalism, I think the jury’s still out.
That’s not the point. You may think you own them all you like. But unless your society has the necessary legal restrictions in place and adequate state machinery to implement them, you can get ripped off. It’s all competitive and capitalistic.
Expropriation of industrial technology from Korea, expropriation of software technology from the United States, manufacture of generic drugs in India…need I go on? These create powerful disincentives to innovate.
Are you familiar with the concept of ‘diminishing returns’?
ie
100 workers produce 100 widgets and hour (1 wG/worker/hr)
200 workers produce 300 widgets an hour (1.5 wG/worker/hr)
but after than, efficiency is maxed out. Employess start getting in each others way or they stand around idle because there isn’t enough machines or equipment.
300 workers produce 350 widgets an hour (1.16 wG/worker/hr)
400 workers produce 375 widgets an hour (.93 wG/worker/hr)
1 - Competition is not static - Companies have to constantly innovate and improve BECAUSE someone will eventually be able to duplicate their processes or discover better ones on their own. You can’t simply throw up your hands and say “what’s the point of innovating, other people will just take our ideas.” If you don’t think of those new ideas, someone else will and you will be the one out of business.
2 - Improvements are not limited to products - Competition forces operational and organizational improvements as well. It encourages companies to minimize the amount of material and labor they use. It provides pressure to do more with less.
It’s mind boggling to me that people think that freedom is protected or innovation is encouraged by taking away choice and options and replacing it with some monolitic entity with central control.
In reality it’s not a simple one to one relationship. There are other avenues for remaining competitive besides simply innovating or building the best product or service on the market. You can bribe legislators, buyout competitors, saturate the market with advertising, employ fraudulent accounting tactics, etc. What’s more not all executives are actually concerned with the competitiveness of the company itself. Executives at Enron basically decided to cannibalize their firm and just f–king steal from their employee’s pensions.
Efficiency and quality aren’t the only possible side effects of capitalism.
Simply because one cannot enter or leave does not mean it isn’t a competitive market. Each nation is trying to outcompete the other: the field may be military rather than business, but the principal of growth fostered by competition remains. Your statement does not in any way address the point that competition brings innovation.
That capitalism is the best way of acheiving this, is more efficient, and allows more individual choice is our contention.
That’s what the OP said. To create such an industry would stifle alternatives by creating “some monolitic entity with central control”.
I am arguing that there is a big distinction between competition for monopolistic rents and the competitive market. Competition for survival in war or for monopolistic rents in a relatively competitive market is wonderful and causes all sorts of innovation. I believe I have repeated this several times.
What I have argued is that capitalism does not necessarily bring these good things about. Capitalism’s numerous worldwide disasters give this myth the lie. My point is that private ownership and competitive markets may be necessary conditions for innovation, but they are certainly not sufficient. There must also be incentives to innovate, and none of these incentives are necessarily given in a capitalist economy.
The meaning of “competitive market” is quite clear and precise. All of the semantic redefining and sophistry in the world will not make war a competitive market.
