How to fix Capitalism.

http://pietersz.co.uk/2009/11/fix-capitalism

Comments are below in the article.

How to fix capitalism
Posted by Graeme in Economics, Politics at 11:40 am on Friday, 20 November 2009

The recession and the crisis and banking are the least of the reasons for thinking that we need reforms. the crisis of capitalism goes much deeper: the influence big business has on governments (and the warped policies this leads to), increasing central control of the economy and the general move away from free markets.. I have some modest proposals on how to fix capitalism.
Break up monopolies and oligopolies

Under existing competition (anti-trust in American) laws, it is necessary to prove abuse of the monopoly. This allows a business to avoid competition, because it has not been proved to have used particular practices. Competition may be locked out (for example, by network effects) and consumers may suffer from a lack of innovation or product quality, but none of that is illegal.

The solution is to assume that monopolies are harmful and should be broken up. Either this should be an invariable rule, or it should be up to the monopolist to prove that the monopoly is somehow beneficial. An exception should be made for natural monopolies, but the price of that should be tight regulation, nationalisation, or (best of all) mutualisation.

That still leaves the problem of olgopolies. The answer is simple: break up any company with enough market share to have a noticeable influence on prices — say more than 5% nationally or 10% at a city/county level. Again, they would need to make the case of exceptions.

Doing this would also mean that there would be no “too big to fail” banks, so a financial crisis would be easier to solve: let them go bust and nationalise the assets and liabilities.
Remove barriers to entry

* Abolish patents. They have not been proven to speed progress: the evidence seems to be to the contrary. They definitely increase costs, are an inefficient way of funding R & D and allow oligopolists to block competition.
* Reduce the copyright term to the optimal length suggested by research of about 15 years. It ought to be obvious that works produced in the reign of Queen Victoria should not be in copyright in the 21st century.
* Exclude works distributed with DRM from copyright to ensure that copyright works do fall into the public domain when the copyright expires.
* Reduce the copyright term on computer software to two years, and make copyright contingent on disclosing source code (so others can alter the software when it comes out of copyright).
* Abolish region of origin rules. It should be legal to describe a Cava (when selling it) as having been made in the same way as Champagne.
* Abolish unnecessarily restrictive licensing. Many US states require people to be licensed to work as interior designers or hairdressers. I can understand requiring doctors or auditors to be licensed, but these are just barriers to entry.

Reduce bureaucracy

The best example of the problem (or opportunity from his point of view) that I have heard, is something Ted Tuppen, the founder and CEO of the huge British pub chain Enterprise Inns, said. I may not have got the wording exactly right, but, as I remember it, it was:

There will always be pubs available to buy because owners of free houses are driven out of the business by the amount of bureaucracy.

Small businesses cannot cope with tight regulation. Big businesses can hire teams of lawyers and paper-pushers. This is one of the many problems with patents. The government, far from discouraging oligopolies, is actually encouraging their formation.
Stop being “business friendly”

People seem to be thinking much less clearly about this now than they did in the 18th century. Back then, the business friendly ideology was called “mercantilism”, and it was this was the primary source of opposition to free markets. Now, governments profess to be in favour of free markets and “business friendly”.

Of course, businesses sometimes want free markets, for example they do not want to regulated. On the other hand they also want to minimise competition, reduce costs, receive subsidies and form cartels. Businesses are usually in favour of free markets in general, but not in the specific case of their own industry.

The new mercantilism is the root cause of the problems most of my other proposals seek to solve. It has also lead to a failure to regulate properly. The obvious examples are the clear failures in the regulation of banks (such as allowing deposit takers to have high risk investment banking operations), but there are others: the US broke up Standard Oil and AT & T, but failed to break up Microsoft, reflecting the general trend towards letting businesses do as they like.

New mercantilism has dropped the one aspect of the 18th century form that I find has some redeeming features: economic nationalism. Democracy is compromised by the economic pressure tyrants can bring in a globalised economy. I also find it extremely odd that governments will minutely examine an applicant for a holiday visa, but allow a dubious foreign tycoon to gain great influence within their country by buying influential businesses.

New mercantilism is dishonest. It does not openly oppose free markets. Instead it relies on conflating free markets with capitalism.
Financially penalise large businesses

This idea is simple. Tax big companies more. This will discourage mergers except where there are clear gains. British tax law already has lower rates for small companies, but this does not go far enough. The rates should keep increasing as companies get larger (at the moment there are no further increases on companies with profits greater than £1.5m: I would suggest bands at say £15m, £150m and £1.5bn as well). Obviously, we would need similar systems in all major economies.

The size criteria should not be based on profit. It should be based on value added: so a big company that has a bad year would not see its tax rate reduce (obviously taxes paid would do down in proportion to profit).
Give shareholders control

Shareholders are supposed to the owners of a company, but in the case of large listed companies this control is limited. This does lead to problems:

* Shareholders have to resort to expensive and disruptive means such as accepting hostile takeover bids to replace incompetent management — this also tends to encourage consolidation where there is no real economic benefit.
* Management have an incentive to focus on the short term. They can take their bonuses and leave, while accumulating problems for the future.
* Management tend to overpay themselves. As J.K. Galbraith said: “The high salary of the chief executive of a large corporation is not a market reward for achievement. It is frequently in the nature of a warm personal gesture from an individual to himself.”
* Management indulge their egos, buy engaging in exciting takeovers, and risky businesses, rather than getting on with the humdrum but reliably profitable. It is impossible to prove what people were thinking, but it is hard not to believe that this contributed to the destruction of GEC/Marconi

Reject the corrosive “greed is good” ideology

Adam Smith never intended that the idea of the “invisible hand” should be interpreted as meaning that people should pursue their own interests, and that this would lead to an optimum outcome. He wrote extensively on morality.

The reason for those troublesome bonus schemes for directors is that it is assumed that they would not run the company as well as they could unless they were “incentivised” with payments for success. This contradicts management theory: Herzberg classifies pay as a “hygine factor”, a poor motivator compared to, for example, job satisfaction.

What is even worse is that by telling people that they are expected to be selfish, they become more selfish. Economics students become more selfish because they are repeatedly taught to expect that people are rational and selfish: the association between the two can only strengthen the effect.

Society is permeated, especially in business, politics and economics, with the idea that is people pursue their own interests, this will automatically lead to the best outcome, and that, therefore, people should be selfish. This cannot be fixed by endless incentives to align interests: life and business is too complex for that to work. A free market is not a substitute for integrity.
Break the loop

What matters most is the rejection of the new mercantilism, which will at least stop things getting worse, but we still need to undo the legislation and the structures that have been put into place at the behest of the mercantilists. The two go together: the rise of the new mercantilism is partly the result of the lobbying power of large corporations. Break them up and reduce their power and they lose their influence.

Education is also important. Most people cannot, at the moment, distinguish between capitalism and free markets, or see the parallels between the original and the new mercantilism.

Edit 23 Nov 2009: I have fixed some typos and written a follow-up that addresses some of the points that have come up in discussion.

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I don't really have time to comment on this, as it's a day with family, but I'll give my thoughts on this piece soon.

:tu

get rid of market intervention from the govt...

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Originally Posted by TDMVPDPOY

get rid of market intervention from the govt...

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Soooooooooooooooo tired of this.


It. DOES NOT. WORK.

WHY do people think that a completely free market is going to work in a country where corporations can pay for slave labor overseas?

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Originally Posted by TDMVPDPOY

get rid of market intervention from the govt...

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I don't think you've been paying attention recently.

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Originally Posted by Cry Havoc

Soooooooooooooooo tired of this.


It. DOES NOT. WORK.

WHY do people think that a completely free market is going to work in a country where corporations can pay for slave labor overseas?

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Ethics is different from Central Planning. Plus, paying low wages overseas did not cause the economic collapse.

It's sad you posted a good article yet, you're still lacking in what the article was all about.

Less Rufus Wainwright, MacBook, Scarf and more studying economics. thanks.

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Originally Posted by TheProfessor

I don't think you've been paying attention recently.

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Getting rid of an ethics law to spur Markets by the govt.. and loosening regulations was "Market intervention.", just like having artificially low interest rates.

Haven't you been paying attention?

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Originally Posted by TDMVPDPOY

get rid of market intervention from the govt...

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Most of it.

There are some areas that need to be controlled, like breaking up monopolies. We need to keep most environmental regulations as well. Then if there really is such a thing as "too big to fail," then never let them get that big. Split them up into two independent entities.

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Originally Posted by Ignignokt

Ethics is different from Central Planning. Plus, paying low wages overseas did not cause the economic collapse.

It's sad you posted a good article yet, you're still lacking in what the article was all about.

Less Rufus Wainwright, MacBook, Scarf and more studying economics. thanks.

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Mmkay.

nobody wants to hear this cause it would be true even though its nuts and cruel but drop a nuke on china

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Originally Posted by iggypop123

nobody wants to hear this cause it would be true even though its nuts and cruel but drop a nuke on china

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:downspin:

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Originally Posted by Ignignokt

Getting rid of an ethics law to spur Markets by the govt.. and loosening regulations was "Market intervention.", just like having artificially low interest rates.

Haven't you been paying attention?

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You're better off just insulting people than pretending you have any idea what you're talking about.

Get rid of copyright and patents. The end.

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Originally Posted by Cry Havoc

The new mercantilism is the root cause of the problems most of my other proposals seek to solve. It has also lead to a failure to regulate properly. The obvious examples are the clear failures in the regulation of banks (such as allowing deposit takers to have high risk investment banking operations), but there are others: the US broke up Standard Oil and AT & T, but failed to break up Microsoft, reflecting the general trend towards letting businesses do as they like.

...

This idea is simple. Tax big companies more. This will discourage mergers except where there are clear gains. British tax law already has lower rates for small companies, but this does not go far enough. The rates should keep increasing as companies get larger (at the moment there are no further increases on companies with profits greater than £1.5m: I would suggest bands at say £15m, £150m and £1.5bn as well). Obviously, we would need similar systems in all major economies.

The size criteria should not be based on profit. It should be based on value added: so a big company that has a bad year would not see its tax rate reduce (obviously taxes paid would do down in proportion to profit).
Give shareholders control

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A big part of his argument toward monopolies is the assumption that if someone gains a large portion of their market, there is no ability for other companies to come in and try and take more.
Thomas Sowell argues that, even if a superior business drives out a competitor, it does not follow that competition has ended:
In short, the financial demise of a competitor is not the same as getting rid of competition. The courts have long paid lip service to the distinction that economists make between competition—a set of economic conditions—and existing competitors, though it is hard to see how much difference that has made in judicial decisions. Too often, it seems, if you have hurt competitors, then you have hurt competition, as far as the judges are concerned.
http://www.forbes.com/forbes/1999/0503/6309089a.html
I think the Microsoft is a bad example since they are losing their market share by competition from built from scratch companies.
Penalizing companies for becoming too successful is immoral and not in our best interests as a country. However, if instead of having laws against monopolies, you have fines for a certain percent. That sounds like a better idea. Also there is nothing wrong with companies becoming large corporations. Mr. Gillette came up with the idea to sell disposable razors. He then built a sound company that is a low risk into investing into because they have credibility to not only make a profit, but to stay in business. Heinz is the first person to have a see through ketchup bottle, that way people knew they were buying something good. For all the good intentions of intervention, it never truly helps and almost always stiffles innovative thinking. The economist, Schumpeter, says that innovation is the prime reason why our economy has grown like it has.

Great article though.

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Originally Posted by iggypop123

nobody wants to hear this cause it would be true even though its nuts and cruel but drop a nuke on china

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Don't you think a nuke is not enough?

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Originally Posted by iggypop123

nobody wants to hear this cause it would be true even though its nuts and cruel but drop a nuke on china

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I know this is sarcasm. But man, would you really go to war against China? They have something like 1000000000000000000000000000000000 potential soldiers! :lol
I suggest you don´t do it. :toast

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Originally Posted by MB20

I know this is sarcasm. But man, would you really go to war against China? They have something like 1000000000000000000000000000000000 potential soldiers! :lol
I suggest you don´t do it. :toast

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We have a Navy that could blockade their ports. With the mountains to the West, and the majority of their population 400 miles off coast, they wouldn't be able to do much. Match that with our huge amount of missiles to theirs, we would be able to destroy every strategic target and control the skies. As for their foot soldiers. They do not have a real army. With it communism, the armies real job is to work the docks and dig ditches(from a "Next 100 Years"). America has the greatest fighting force, not only in the world but in the history of the world (first hand experience makes me wonder how jacked up everyone else is for us to be that good).

With all that said, China is needed of our money that we are of their debt holdings. Their baby boomer problem is far worse, than Europe or America. Their currency is manipulated and has to be corrected sooner or later. Inflation, lack of a real infrastructure are also some problems.

Why would we attack China for our spending problems?

A lot of problems stem from the corporate charter. It is time to redefine what a corporation is and place limits on the ability of corporations to behave as if they are individuals. Also, in cases where corporations blatently broke laws the corporate officers that either approved the behavior or failed to stop should be more exposed to criminal prosecution.

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Originally Posted by byrontx

a lot of problems stem from the corporate charter. It is time to redefine what a corporation is and place limits on the ability of corporations to behave as if they are individuals. Also, in cases where corporations blatently broke laws the corporate officers that either approved the behavior or failed to stop should be more exposed to criminal prosecution.

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+1

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Originally Posted by byrontx

A lot of problems stem from the corporate charter. It is time to redefine what a corporation is and place limits on the ability of corporations to behave as if they are individuals. Also, in cases where corporations blatently broke laws the corporate officers that either approved the behavior or failed to stop should be more exposed to criminal prosecution.

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! Fascism! Socialism! Some other ism that I'm unaware of the meaning of! You can't regulate companies -- that goes against the free market!

capitalism has made it this way
old fashion facism will take it away

confusing capitalism with corporatism much?

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Originally Posted by Viva Las Espuelas

confusing capitalism with corporatism much?

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In the USA? Yes we do. To the point where the two are practically synonymous.

A completely free market will completely and freely fuck over consumers whenever they can to increase their profits.

I have no problem with this, unless we are talking about conflicts of interest, such as health care. Completely free market has no place in CoI's like health care.

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Originally Posted by MiamiHeat

A completely free market will completely and freely fuck over consumers whenever they can to increase their profits.

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Good ole fashioned American ingenuity and gumption.

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Originally Posted by Winehole23

Good ole fashioned American ingenuity and gumption.

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It definitely wasn't intervention and regulation that keeps our economy growing higher and more dependable than any other large GDP country.

It was definitely non-intervention and deregulation that fucked up the world's financial system (OVER and OVER and OVER).