Why the Way in Which Capitalism Creates Winners and Losers is Wrong

[icehorse]

Capitalism, by definition, places the maximum return on the minimum capital invested as the singular goal of the endeavor. And it thereby ignores and even opposes social values, all together, unless they increase the return on the capital invested. A such, capitalism is antithetical to socialism. It is money being used to capture more money by controlling how that money is being used. If we usurp that control in favor of social values, through representational governments, labor unions, and so on, we are no longer engaged in capitalism. We are engaged in socialism that allows for capital investment, but is not subjugated by it, as we are in a capitalist system.

But what if we toss in the need for the long-term health of the overall system? I've never heard that included in the definition of capitalism is a demand for short term ROI. Now it's become that over time, but I don't think that that's part of the definition.

So if we can say that capitalism seeks long term ROI, I think we can allow all sorts of seemingly socialistic ideas into the mix. We can start with "the commons", things like infrastructure and universal engineering standards. But we can also get to maintaining a healthy consumer class, because longterm ROI can't be achieved otherwise.

 

[dfnj]

One thing all sides to a debate on the merits of capitalism can on occasion agree to is that "capitalism creates (or at least sorts out) winners and losers".
Proponents and opponents typically cast that principle in different lights, but often agree on that much, if nothing else.
Under capitalism, proponents often argue, the hardest working members of society receive their just reward by achieving prosperity, etc, while those who fail to work as hard in turn get what they deserve -- relative poverty. Thus, it is concluded, capitalism is a fair and just system since it is a system under which people chose what they get.

The problem we have in this country is we have no free-markets. Everything is rigged through politics. Lobbyists force the politicians to pass laws creating cartels and monopolies in exchange for campaign financing. You know we have no free-markets because CEO pay keeps going through the roof. There is no mechanism in the market to wring out the inefficiencies of CEO pay. CEO pay does nothing but go up every year as the median worker's wage becomes a poverty wage. Company's also use analytics to set pricing and fix worker's wages. The result is we have the most extreme wealth inequality possible where our currency still has a shred of value:

At some point workers will just stop caring about the quality of the work because the pay doesn't make ends meet. And the all our goods and services will have the worst possible quality.

Marx has some very succinct criticisms of capitalism:

But do not worry my comrades. Marx said capitalism is always followed by communism. This is because unfettered greed would result in our government's currency collapsing to nothing in value. Once our currency collapses to nothing, people in the bread lines will demand MORE government not less! See you in the breadlines comrades!

 

[Sunstone]

@Sanzibir, as you might be aware, capitalist ideology in America and some other industrialized countries underwent a sea change of sorts in the early 80s. Prior to that change, it was typical of CEOs, boards of directors, and senior executives to see themselves as serving a handful of "constituencies".

These constituencies typically included their customers (often at least nominally placed first), their employees, their community, and their shareholders -- at a minimum. The extent to which they actually did balance the interest of all those communities is a matter of historical debate, but that was, prior to the early 80s, the prevailing ideal that had been in place at least since the end of WWII.

For various reasons, a new ideology that originated with two professors at Harvard Business School, began to replace the old ideal. This new ideology declared that "shareholder value" was either the predominant concern, or even the only legitimate concern of corporate management.

Now think about that for a moment because in today's world, there is almost not a single CEO left who will, at least publicly, not profess to making shareholder value his or her primary concern (And "shareholder value" is more or less the money someone owing shares in a corporation gets for those shares).

I would suggest that you have quite an uphill battle to wage if you want to demonstrate capitalism not narrowly based on maximizing shareholder value to the extent that all "virtues" become subordinate to that goal. In each and every example you gave in your post, you failed to mention that the value you represented as being promoted by capitalism would not be quickly discarded by capitalism if and when it came into conflict with shareholder value.

Or -- perhaps more crucially -- came into conflict with the need to the capitalist entity to compete in the market place with other capitalist entities. For - short of forming an illegal cartel -- how can a capitalist entity refuse to remain competitive and yet still survive in business?

Cooperation. Obviously capitalism selects for this. Anti-trust laws would surely be unneeded if cooperation was not beneficial under the capitalist system, correct?? We wouldn't need laws to address the risks of big businesses cooperating if cooperation was devalued in the system. Additionally, the stereotypical image of a corporation is a board of individuals cooperating, not a single salesman dominating a whole industry alone.

Obviously, capitalism promotes a sort of tribalism in which the corporation is one tribe and its competitors are other tribes. If you do not see that, then how is it possible to justify capitalism on the grounds that capitalist businesses ever seek to compete by producing better and better goods and services at lower and lower prices? By what mechanism would they be market driven if they did not need to compete?

Consideration for the well-being of others.

Which of the following two does better: A business that considers the needs of the customer, or the business that tries to sell something no-one wants?? Thus consideration must a necessary trait for business. I guess you could argue that "the desires of others" might not line up with "the well-being of others", but in general, you have to have consideration for others if you want to sell anything.

You are using "consideration" here in a limited case scenario. Where is the "consideration" when an unregulated or poorly regulated capitalist business discoverers it can reduced costs by dumping industrial waste into a nearby river relied on by hundreds of thousands of people downstream of it for their drinking water?

Where is the "consideration" when a capitalist business discovers it can increase shareholder value by offshoring legions of jobs to China?

Compassion, kindness.

Sorta the same thing so I'll tackle the two at once. Imagine two restaurants. One has polite, respectful, kind, and compassionate staff members. Their motto is "thank you, have a nice day". The other restaurant has surly, disgruntled staff members that end every sentence with "and f*** you". Which business succeeds?? So kindness seems necessary for business.

Among other things (see above), I would hardly call a conscious attempt to build one's customer base through a bit of insincere solicitude to be evidence of genuine compassion and/or kindness. This "example" strikes me as laughable. "Have a nice day!" "Oh, thank you so much for your compassion and kindness! We thought no one cared!"

Community-mindedness.

One business sells things the community wants and needs. Another sells something no one needs. Which one succeeds??

This is hardly community-mindedness in most people's books.

Again, see above. What corporation, for instance, is going to go out of business rather than ship jobs out of a community and to a foreign country if their finances require it?

Generosity.

Probably the most counter-intuitive, but here's a try for the sake of Devil's Advocacy: One business sells their product at four times the cost of production, the other sells the same product at 1.4 times the cost of production, which business gets more customers?? The person who people offers more for less wins the larger share of the market. Now I suppose this could be said to be not generosity, since the reason the business is acting "generous" is to make more money. So their generosity is actually greed, which is why I rank this one lowest on the list here.

To add to that, what business if faced with a competitor that can produce their goods at a quarter of their cost by shipping jobs to China does not at least seriously consider shipping their own jobs to China? And is even seriously considering such a thing "generosity"?

 

[Nakosis]

Pics of kittens? Brief, but poignant accounts of loves lost? Tearful and/or mouth frothing denials that there's even a little truth to the OP? Legitimate questions and/or comments?

I think what you're saying is that capitalism has no inherent provision for the cultivation of compassion or morality. My question is what economic system does?

Hard work is no guarantee of winning in capitalism, neither is starting out with wealthy parents. What capitalism cultivates is innovation. Creating solutions that others want. Being wealthy IMO really cuts down on that drive to innovate. Being poor/needy actually increases the need to innovate.

The real problem I think is the cost of education. A capitalistic system IMO needs to support equality of education for everyone.

It's not going to make everyone equal because lets face it, not everyone is wired the same. Some people are just naturally going to be more inventive than others.

However when innovation happens, we all benefit. It really increases the quality of life for everyone.

The printing press, internet, smart-phones, supply chain solutions like Amazon etc...

 

[PureX]

But what if we toss in the need for the long-term health of the overall system? I've never heard that included in the definition of capitalism is a demand for short term ROI. Now it's become that over time, but I don't think that that's part of the definition.

There is no evidence whatever that the long term health of the system is of any concern to the capitalist ideal. If time plays any role at all in the capitalist agenda, it would be to gain the maximum return on the minimum investment as soon as possible, so that money could be used, again, to gain even more profit. There is nothing about the capitalist agenda of gaining a maximum return from a minimum investment that would suggest any concern whatever for the long-term health of the endeavor. And certainly, as capitalism is being practiced in our current culture and country, there is no discernible expression of this goal.

So if we can say that capitalism seeks long term ROI, I think we can allow all sorts of seemingly socialistic ideas into the mix. We can start with "the commons", things like infrastructure and universal engineering standards. But we can also get to maintaining a healthy consumer class, because longterm ROI can't be achieved otherwise.

But of course, none of this is evident to us because it's just not part of the capitalist agenda. The infrastructure, environment, and general social well-being under capitalism will be considered and addressed only when it becomes necessary to maximize profits, and can be done for the minimum investment.

 

[icehorse]

There is no evidence whatever that the long term health of the system is of any concern to the capitalist ideal. If time plays any role at all in the capitalist agenda, it would be to gain the maximum return on the minimum investment as soon as possible, so that money could be used, again, to gain even more profit. There is nothing about the capitalist agenda of gaining a maximum return from a minimum investment that would suggest any concern whatever for the long-term health of the endeavor. And certainly, as capitalism is being practiced in our current culture and country, there is no discernible expression of this goal.
But of course, none of this is evident to us because it's just not part of the capitalist agenda. The infrastructure, environment, and general social well-being under capitalism will be considered and addressed only when it becomes necessary to maximize profits, and can be done for the minimum investment.

So here's a thought-experiment / tweak. What if shareholders only got benefits after holding a stock for 10 years, or 20? Or some such formula that rewards steady, long-term ROI?

If capitalism is agnostic on the question of timeframe, why not tweak the system to reward long-term, reliable ROI?

Again, all of these systems are inventions - why shouldn't we revise and refine them? Why do we have to be hidebound to pure, academic definitions?

 

[exchemist]

One thing all sides to a debate on the merits of capitalism can on occasion agree to is that "capitalism creates (or at least sorts out) winners and losers".

Proponents and opponents typically cast that principle in different lights, but often agree on that much, if nothing else.

Under capitalism, proponents often argue, the hardest working members of society receive their just reward by achieving prosperity, etc, while those who fail to work as hard in turn get what they deserve -- relative poverty. Thus, it is concluded, capitalism is a fair and just system since it is a system under which people chose what they get.

Now, as anyone who really studies these things knows, that argument is often attacked on the grounds that it is naively based on idealism and ideology, rather than on empirical science, because empirical science tells us that in a capitalist system, the predominant factor in determining where you end up is often enough how wealthy your parents were. And that is especially true in America these days. Any more, hard work doesn't even come close to determining where you end up as does how rich your parents were. That's a common enough criticism of capitalism, but it is NOT the criticism I wish to examine here today.

What I wish to point out is that, even if the proponents of capitalism were correct in assuming that it is a "system under which people chose what they get", pure unregulated and unrestricted capitalism would not be the optimal system for human well-being because it selects "winners and losers" on much too narrow of a basis.

Put as briefly as possible, capitalism does not select for many human traits that most us who are not psychopaths might find it valuable for a social/economic system to promote. Traits such as compassion, kindness, cooperation, generosity, community-mindedness, consideration for the well-being of others, etc.

At best, I think, it is arguable that capitalism does not actually prevent anyone from being those things, or from cultivating those things in themselves. But even there, I think one is on thin ice. For example, the corporation that lays off three thousand workers by offshoring their jobs to a nation with much lower wages and fewer environmental and work regulations is certainly displaying none of those traits -- and yet it is to be praised, by the logic of capitalism, for increasing its economic efficiency by reducing costs and thus increasing its value to shareholders in the form of profits -- to say nothing of the praise it might also deserve for increasing its competitiveness.

In sum, I think the commonsense question to ask whenever some proponent of capitalism claims it is an especially moral system because it picks winners and losers who should or ought to be winners or losers -- the commonsense question to ask is "Moral for whom?"

Pics of kittens? Brief, but poignant accounts of loves lost? Tearful and/or mouth frothing denials that there's even a little truth to the OP? Legitimate questions and/or comments?




______________
Sadly Necessary Footnote: None of the above should be taken as proof that I am anti-capitalist. I am not. I am just anti-unregulated, unrestricted capitalism, such as we seem to have increasingly turned to over the past 40 or more years in America.

Perhaps like you, I find it hard to imagine anybody could be so silly as to claim that a totally unregulated free market economic system could be beneficial. Even in the USA, there are a myriad regulations to control the market. These range from product and workplace safety and environmental regulation to anti-monopoly (antitrust) laws. Even the most swivel-eyed free market ideologue must recognise these exist for a reason, I should have thought.

I have always seen market competition (or capitalism) as like a nuclear reaction. It can generate tremendous energy (because it harness individual self-interest to provide good things for society's benefit), but it needs to be controlled so it doesn't go wrong and harm everyone. Most political argument is about what degree of control and with what priorities, not with the principle of control itself.

I also do not think a free market system is fundamentally about "creating winners and losers". Surely the vast majority of small and medium businesses are not in the business of ensuring they "win" while their competitors "lose". They want to earn a decent return on the money they have risked, that's all. The average baker, or plumber, or even a publicly listed chemical company, is not some slavering monster that will not rest until it has crushed all competitors - even if antitrust law were to allow this.

But I do agree that capitalism on the large scale, in which there are numerous investors that are not connected with the business, does encourage this mindset, because it is the way the mechanism works. Depersonalised investment money tends to chase blindly the bigger returns, which puts pressure on business execs to grow constantly.

On the"moral" question, it seems to me that those who regulate capitalism need a kind of special "market morality" to guide their actions. One does not want to distort the market to make it unfair to some players, or to unwittingly drive undesirable behaviours. But this has nothing to do with personal morality and has little to do with social morality. For those, we look to the law and to regulators.

 

[Shadow Wolf]

So they don't have to meet in back rooms to price-fix (which is illegal), to exploit the buyers.

Nope. They just buy up all the competition until there are only a few major ones left sitting on top, with some companies enjoying what is effectively a regional monopoly on goods/services provided, leaving the oligarchy to do as they please because the consumer has no where else to turn. Local news is barely local anymore, AT&T and Comcast don't have a reason or incentive to innovate, Disney has turned into a media Goliath, and your options are very limited when booking a flight.

 

[PureX]

Nope. They just buy up all the competition until there are only a few major ones left sitting on top, with some companies enjoying what is effectively a regional monopoly on goods/services provided, leaving the oligarchy to do as they please because the consumer has no where else to turn. Local news is barely local anymore, AT&T and Comcast don't have a reason or incentive to innovate, Disney has turned into a media Goliath, and your options are very limited when booking a flight.

Sure, or bribe the necessary lawmakers to simply have the competition banned. And while they're at it, they can even buy laws making us buy their products, at excessive costs!

 

[Revoltingest]

I know of no Little Rascal or Scottish Ground Keeper that ever said anything close to what you just made up.

Inventing a straw man makes it easier to win an argument....if one
cares more about winning than about honesty & insight into an issue.
There are many interesting ways to manage capitalism to our advantage.
But a rage thread isn't the place to discuss them.

 

[dfnj]

Perhaps like you, I find it hard to imagine anybody could be so silly as to claim that a totally unregulated free market economic system could be beneficial. Even in the USA, there are a myriad regulations to control the market.

The problem is regulations are precisely the mechanisms used to create cartels and monopolies by stifling competition through legislation.

 

[dfnj]

Sure, or bribe the necessary lawmakers to simply have the competition banned. And while they're at it, they can even buy laws making us buy their products, at excessive costs!

This is what political leaders call "Freedom".

 

[dfnj]

Nope. They just buy up all the competition until there are only a few major ones left sitting on top, with some companies enjoying what is effectively a regional monopoly on goods/services provided, leaving the oligarchy to do as they please because the consumer has no where else to turn. Local news is barely local anymore, AT&T and Comcast don't have a reason or incentive to innovate, Disney has turned into a media Goliath, and your options are very limited when booking a flight.

Companies are how flush with cash by depressing wages so they can buy up any competition for the next 100 years.

 

[Shadow Wolf]

The problem is regulations are precisely the mechanisms used to create cartels and monopolies by stifling competition through legislation.

We have anti-trust laws, and if they were enforced better and more consistently it would benefit the consumer having real competition and options in the market. People widely admonish AT&T and Comcast, but for huge swaths of the nation people have no other options than than either AT&T or Comcast, and often they can't even chose between those two because of effective regional monopolies. And they know this, and despite reputations of poor service quality and customer service they don't have to put any effort into improving things because the consumer has no other options available.

 

[exchemist]

The problem is regulations are precisely the mechanisms used to create cartels and monopolies by stifling competition through legislation.

How do these regulations create monopolies when anti-trust law exists to prevent them? Give an example.

 

[dfnj]

How do these regulations create monopolies when anti-trust law exists to prevent them? Give an example.

Lol!!!! You are so funny. I'm pretty old. The only time I've ever seen anti-trust laws ever used was back in the early 80s with the telephone company. It's so rare these laws are used. Besides it's not the monopoly that causes the most problems. It's the cartel. Cartels raise the cost of entry into any market impossible to any small company.

 

[dfnj]

We have anti-trust laws, and if they were enforced better and more consistently it would benefit the consumer having real competition and options in the market. People widely admonish AT&T and Comcast, but for huge swaths of the nation people have no other options than than either AT&T or Comcast, and often they can't even chose between those two because of effective regional monopolies. And they know this, and despite reputations of poor service quality and customer service they don't have to put any effort into improving things because the consumer has no other options available.

Anti-trust laws are used so infrequently they might as well not exist. Cartels are a bigger problem than monopolies. As I've said, you know there are no free markets because there is no mechanism to wring out the inefficiencies of exorbitant CEO pay.

 

[metis]

No country today is entirely capitalistic as it would be a system of dog-eat-dog with literally no safety net. Every country in the world today uses a form of "mixed economy" where there are varying degrees of capitalism and socialism mixed together.

 

[dfnj]

How do these regulations create monopolies when anti-trust law exists to prevent them? Give an example.

Air bags. India produces a car that would sell for around $3000.00 here in the US. But it doesn't have Air Bags.

Another great example is patent law. Patent law creates monopolies. Here's a really good article on how it works:

The Patented Solution for Paying Off the National Debt

 

[sun rise]

But really, where is the logic in making such assumptions? A person can work hard in the fields for 8-10 hours a day in the hot sun and still not be any better off than they were. Then there are others who can sit at a desk and make a few phone calls to their stockbroker and become a million dollars richer.

That's true. Hard work has nothing to do with success. If it did, those working in the fields would be millionaires .

most of the rest of the world can only dream about (or condemn)

The rest of the world is catching up to us very quickly especially China.

The problem we have in this country is we have no free-markets. Everything is rigged through politics. Lobbyists force the politicians to pass laws creating cartels and monopolies in exchange for campaign financing.

Restrictions on competition are a feature of the current system. Techdirt. is a great site for following the manipulation of the legal system and government by gigantic industries and the wealthy

There is no evidence whatever that the long term health of the system is of any concern to the capitalist ideal.

Capitalism is all about profit and short term profit as well as has been noted. Stockholders punish executives who dare to think long term and for the health of the whole. "Tragedy of the commons" is real and the commons is the overall health of the nation.