Capitalism and Socialism: The Good, The Bad and The Ugly

[Approaching Infinity]

I think there is some merit to the idea of "natural monopolies". If you look at England and what they did to the railway system, this becomes apparent: it's just insane to think many companies can compete on such a "market". It just leads to chaos. You simply have only one railway infrastructure, and building redundant infrastructure would be crazy. So they came up with the idea to separate the infrastructure from the companies - instant chaos followed.

Yep, it looks like it has been a real disaster in more way than one. Found this analysis "An illusion of success: The consequences of British rail privatisation":

An illusion of success: The consequences of British rail privatisation

This article accounts for the British experiment with rail privatisation and how it has worked out economically and politically. The focus is not simp…

www.sciencedirect.com

That made me wonder why the railroads were nationalized in the first place. Haven't found all the details, but this caught my eye:

A key reason this latest privatization push failed is vertical separation. This was controversial from the start. Before the railways were nationalized by Clement Attlee's Labour government in 1947, they were run by four major companies, each of which controlled its own infrastructure and operations. Rumor is that when the Conservative government won the 1992 general election and was deciding on how to privatize British Rail, the prime minister himself, John Major, was in favor of a return to this old "Big Four" structure.

There were multiple problems leading up to nationalization, which in turn created more problems (see: Britain's railways were nationalised 70 years ago – let's not do it again for example).

At the time, the network was in dire need of investment. The Railways Act 1921 had consolidated over 100 operators into “the big four” – Great Western; London, Midland & Scottish; London & North Eastern; and Southern Railways. They had been financially squeezed by rules that forced them to carry freight at rates that were often unprofitable, and competition from an emerging road sector that had been prioritised for public investment.
...
There is a strong sense that whatever the level of investment in trains and track, it will never be enough. But this endless quest for a modern efficient railway can only ever be pursued with the heavy support of public finances. Nationalisation is likely to have little impact because the state is so heavily committed already.
...
Nationalisation was no panacea in 1940s. It was driven more by circumstances and political ideology rather than any great strategic vision for a modern railway. The investment errors of the 1950s look like a classic example of the ills of public sector management: poorly defined objectives, loss of focus, little sense of realities at senior management level and wasteful extravagance.
...
The current model, on the other hand, exposes the private sector to excessive business risk and builds instability into the system. It also still depends heavily on state infrastructure investment or guarantees.

The best way forward is probably to optimise what we have: re-evaluate the rail franchising process and look at different ways to share business risk between the public and private sectors.

And it looks like the problem now is the same as it ever was: railroads are expensive. The only way for them to be affordable is to operate on a loss. From the first article:

Since the birth of the British railway network in the UK in the mid-19th century, matters of access, ownership, and standards have been a source of recurring controversy, but the underlying driver of periodic reform over the past 50 has been the issue of costs: how to meet the expense of a capital intensive industry which produces diffuse social and economic benefits, but cannot recover costs from passengers without pricing much of the population off the railways. The logic of nationalisation in 1945 was that British Rail, as with other strategic nationalised industries, would provide a cheap service for the rest of the productive economy, with operating losses tolerated because profit was not a privileged indicator of performance.

As long as people agree to the level of taxation that will provide the necessary subsidies, then all power to them, IMO. But at what point does it become simply propping up a dead industry? Are there any alternatives?

Filing this under read later: Murray Rothbard on railroad pricing, subsidies, and cartels: Books / Digital Text

That's what they say, but as human beings, is that what they do? Would they voluntarily help competitors, for example, just to avoid becoming a monopoly? Bill Gates did such a thing with Apple, but arguably only to avert the antitrust case brought against him.

That's really the central thing, I think: as human beings. We have to keep in mind what human nature is, our general shared features, as well as variations and deviations. (That reminds me, I still want to finish posting those Lobaczewski sections, then write up some of the implications I think they have.) I think in general, the majority of people aren't complete jerks. But neither will those people be total altruists. They will be primarily concerned with their families, and hopefully a wider, but still relatively small, community too. And the way they provide for their families is by doing something that serves the wider community in some way, and for which they get something in return. There is an energy/money exchange going on here, which will be imbalanced in various ways at various times, but which is constantly in flux.

As I mentioned in a previous post, I'm not convinced monopolies as described are necessarily evil (i.e. if defined as having a large market share). And if they are behaving in a truly evil manner, social mores and laws should be in place to punish such behavior. But like you point out, people in general won't 'help their competitors' in certain ways. Should they? Why, how, and in what circumstances? Sometimes giving without the expectation of return is the right thing to do, but in most situations doing so would be naive and self-defeating (for self, family, perhaps even the larger community).

To use an example outside of economics: for the most part, academics don't write their colleagues' papers for them, and they shouldn't. And the discoverer of a major new breakthrough doesn't call up the other experts in her field to let them all share in the discovery. They may give advice, mentorship and feedback, like humans do in general. Even direct competitors do sometimes. They may even give an opportunity to join together in a mutually beneficial collaboration. But there's a line between what should be shared and what is the other person's responsibility. If there is a super successful biologist with hundreds of papers to his name, it's not his responsibility to his work with you, or share his prestige. It's your responsibility to produce - to think, criticize, come up with better ideas, etc. - if that's your calling. And if he's a decent person, he might even support you. But it would be unrealistic to EXPECT support. A similar dynamic applies when it comes to money/business, IMO. (The similarity only goes so far though...)

So for the self-described capitalists I made reference to, yeah, they'll say the believe in the free markets and competition. In practice they will not like competition to varying degrees: either because of the work that has to be put into it, or because they fail, or because they're incompetent. And some will be more selfish than others. But I still think the majority of people operate the way Lobaczewski described: they have a basic level of social intelligence and sense of fairness. They might cheat when the temptation is too great, but overall they will play by the rules. (And of course a minority will break all the rules, and that always has to be taken into account.) And they will rationalize when they are actually producing harm in addition to whatever good they're producing, which will require pushback to correct.

Translating my point to the academic example. Every ambitious biologist will want to produce original, groundbreaking work. They may even be resentful when others are more talented and successful (or more successful and less talented). But no matter how much they dislike the actual practice and existence of competition in their field, they will accept on some level that it is necessary for science even if inconvenient to them. It will be a rare biologist who tries to take out all the competition and create a totalitarian system of biology where they're the only one allowed to succeed (that's the government's job - j/k!). It's probably even a rare biologist who doesn't try to mentor young newbies and collaborate with colleagues. In other words, very few people are motivated SOLELY by naked ambition. Those who are are the ones to watch out for.

 

[Approaching Infinity]

Interestingly, the triumph of the secular religion coincided with the industrial revolution. It is the combination of those two revolutions (moral and industrial) that made capitalist behaviors systemic.

Indeed, the moral revolution made individual profit maximization acceptable if not desirable while the industrial revolution made it possible.

For centuries the production of goods was insured by small local groups of manual workers. Each good was produced individually and each good was different (no standardization as exemplified by blackmsithing).

Then came the metal lathe (invented by Vaucanson in 1750, witnessed by Thomas Jefferson during his visit in France a few years before the revolution, Jefferson introduced the concept in the U.S.)

The metal lathe enabled to produce series of identical parts, that's one of the necessary conditions for mass production. In addition the metal lathe, because of its accuracy, enabled the production of operational steam machines, with a small enough diameter difference between the piston and the cylinder allowing to contain steam pressure and transform it into mechanical force.

The combination of metal lathes and steam machines marked the birth of mass production, i.e. a high concentration of machinery, energy and workersgenerating very large production volumes. It was the birth of the modern factory.

Production was not limited by traditional local sources of energy (windmill and watermill) anymore. Also, before the production being insured solely by workers, there was no economy of scale. Producing 1 unit or 1000 unit led to the same cost per unit. The modern factory introduced the economy of scale, the larger and the more numerous the machines are, the lower the cost per units gets.

But, in order to reach very profitable economies of scale, the new factories required huge investments (acquisition of machinery, power-plants, buildings...). It was the birth of capital intensive industries and capitalistic barriers of entry.

That's where a fundamental shift in the balance between the capital and the labor occurred. For centuries, workers, through manual labor, were the main constituent of the production and sales process and therefore its main beneficiary. The quality of the manual labor provided by workers was the main competitive advantage.

After the industrial revolution the main competitive advantage was the investment capacity. The richer one is able to buy the largest plant which generates the lowest cost per unit i.e. produces the cheapest goods, that gain market shares and leads to substantial profits.

Thus, the capital became the centerpiece of the production process while the worker became a cost deemed to be minimized.

Thanks for laying out this history, Pierre. I read it, though, and I can't help but concluding: the results are mixed. There are negatives and positives. There is a lot I despise about our modern world, and a lot that I am very thankful for, including the metal lathe, not to mention the ability to mass produce books, the internet, modern vehicles, electricity, and all the innovations that made them possible. Plus what the development of technology has done for the advancement in science over the generations, the discovery of DNA, the exploration of the cosmos, etc. etc.

 

[Pierre]

and a lot that I am very thankful for, including the metal lathe,

I'm thankful for the metal lathe too! And many other technological achievements.

As mentioned in my previous post, mass production, enabled by innovations like the metal lathe and the steam engine, paved the way for the systemic application of capitalism that had been 'theorized' by the enlightenment.

One should notice that, while innovation enabled capitalism, capitalism did not enable innovation. Indeed, maximizing shareholders' profit is a short term goal quite antinomic with R&D efforts which are long term costs.

That is the reason why most innovations are made by small innovators (the icon of the Silicon Valley garage) and not large corporations that tend to externalize R&D.

For example, the big pharma's focus their activities around their core competency (validation, production and sale of therapeutic molecules) while most innovations are sustained by biotech start-up stemming from public research labs (mostly funded by taxpayers money).

The most promising start-ups are acquired by the big pharmas in dis-balanced deals because most start-up do not have any other choice. They do not possess enough financial resources (about $100 million to get a molecule FDA approved) to ever reach the market and therefore reach financial sustainability.

 

[Woodsman]

The question of housing and rent-seeking has always occupied a significant portion of my thinking when I consider different economic models.

I've yet to come to any conclusions other than to recognize the nagging feeling that "Something is going on here".

Look at China; the new mega-economy appears to have built into it a strange imbalance in available housing and people able to afford the prices, resulting in, according to this mini-doc, 64 million empty units while in urban centers people barely scrape by and even share beds in cramped quarters.

I was surprised to learn this; I'd always considered that the intensely greed-motivated over-priced housing market was a peculiarity of the West, where populations are literally captive markets; you can't simply decide to be homeless, moving is difficult and expensive, so the standard free market solution has resulted in a sort of collective, price-fixed monopoly of a small number of property owners holding all the cards.

I recently was priced out of an apartment; the rent nearly doubled after a new owner took over, and while discussing it with the property manager, he shrugged apologetically at the simple reality of supply and demand. "Your unit was snapped up within minutes. We could have charged 20% more easily and still have moved it instantly." -But that doesn't mean the people moving in weren't going to be spending nearly all of their income just maintaining the place.

It's one of the areas where I can see government regulation being necessary, and after hearing that Chinese man talking about polarization in China over the issue, and even using the word, "Revolution", makes me wonder if, like the Culture War irritant, that this isn't another means of fomenting an environment where people cry out for Socialism and UBI style solutions.

 

[Woodsman]

I was looking more at the housing situation; collecting data.

In places with lenient laws and warm climates, people who fall off the bottom rung of society are finding themselves living outside in huge numbers. (I don't know what the figures are for places with colder climates; that might be an interesting statistic. Property values in LA are insane; with tiny, tiny lots no larger than an outdoor garage going for hundreds of thousands of dollars, and in one case I looked at on a property sales guide, close to a million!)

Anyway, I ran across this story which illustrates a corner of this issue; In 2015, a private citizen started soliciting donations to build movable small shelters, "Tiny Houses" and giving them to homeless people.

The initiative was gaining popularity and alarming property owners, and so the next year the city pushed back by closing legal loopholes, evicting people and even seizing some of the little shelters, slating them for destruction.

They weren't seizing tents, I notice. I suspect that it's not the idea of homelessness which created the reaction, but rather squatting; the idea of people building and owning houses which they don't have to take out a mortgage on or pay rent to any land owner to occupy. What an outrage! Comparing this story to the Chinese version in my previous post, (discussing how China had built on government instruction, 64 million empty units which remain priced far beyond reach of the peasantry living in cramped, nearly squalid conditions), it looks as though some force within the equation seems to want to stay exactly as it is.

Is that a Matrix dictate to maintain a sustained misery and fear level? Is it a move to create conditions for a new kind of authority to assume power with the blessings of the populace? Or is it just a natural, even healthy competitive reality, one which provides the motivation to engage in positive growth by allowing Rock Bottom to exist?

I'm still largely at a loss as to what to make of all this, and I've been thinking on and off about it for years. I'd like to get it unpacked to the point where I can explain what the hell is going on here in sociological terms, and perhaps offer some kind of recommendation.

Right now I'm just confused, disgusted and angry, (when I allow myself the emotional indulgence).

 

[Woodsman]

According to the Daily Wire, the problem isn't economic. It's drugs, and given the way opoids seem to lead quickly to heroin addiction, is a problem which can probably be laid at the feet of big pharma.

However, I don't know if drugs are truly the primary cause; they don't seem to be relevant to the Chinese housing situation; the people in the video link above seemed to all be healthy and working, just overcrowded and uncomfortable.

When I look at the Chinese situation, I find myself noting that overcrowding isn't the same as homeless. I also wonder why people should feel deserving of a high rise apartment to live in anyway? I'm not sure there really is a genuine problem in China, so much as a perception of unfairness.

Why shouldn't a property owner try to get the most for their product? According to the Capitalist model, that is a perfectly fair question.

The problem has been identified long before me, and it is one of renting space v selling an actual product or productive labor. Essentially renting a parcel of space carries with it the whiff of a financial con which has a different quality to it than one of selling a different sort of product. Beyond maintenance costs, it is the selling of the same thing over and over again without doing any additional work. And since all the space in a desirable location is already owned, tenants are stuck in a no-win situation and must concede to pay rent. The tenant can't choose to simply not take up space. -In much the same way as people cannot reasonably choose to simply not eat. -Except that food is not self-renewing and perpetually extant the way space is; food must be continually worked for in order to be provided. It is reasonable to expect to be paid more than once for providing more than one meal. One can see that rent seeking on space creates a unique problem in the economic system.

The more I think on this, the more I find the idea of some form of authoritarian rent control attractive. Not necessarily something like placing a fixed "maximum wage" on property owners, but rather treating the situation as a monopoly and applying problem solving from that perspective.

I wonder what guys like Stephan Molyneux might have to say on the subject?

 

[Approaching Infinity]

Just watched this one from Sargon of Akkad:

It's his commentary on how he actually agrees with something AOC says about capitalism being irredeemable. He just doesn't think it's capitalism per se, but more neoliberalism/corporatism. But regardless of definitions, he agrees with her point, that the freedom of giant corporations to do whatever they want is a moral wrong, and governments should actually be the ones to hold corporations in check, not to sell themselves out to said corporations.

 

[Woodsman]

Just watched this one from Sargon of Akkad:
It's his commentary on how he actually agrees with something AOC says about capitalism being irredeemable. He just doesn't think it's capitalism per se, but more neoliberalism/corporatism. But regardless of definitions, he agrees with her point, that the freedom of giant corporations to do whatever they want is a moral wrong, and governments should actually be the ones to hold corporations in check, not to sell themselves out to said corporations.

Huh. And if mega corporations can just move their wealth to whatever country has the lowest taxes, (and where they own the government), well.., there is a particularly obvious solution just begging the question to be asked...

A Global One World Government could solve this whole mess in a jiffy!

Unless Amazon can move its assets off-planet, then, boy, they'll be paying taxes! And everybody will get a slice of that pie and a tiny home and a little feed pipe serving green paste for free, doncha know!

The problem is that not only is it a kind of check-mate, disallowing a smart player any alternative move, but it's also so simple and easy a concept to grasp and illustrate in a six word Instagram meme that all the NPC bunnies will immediately understand and want to mob shout it into unholy existence. Heck, then maybe the Climate Crisis can be effectively solved as well. And, it goes without saying, (must in fact go without saying) that all the pretty, happy and competent people will finally be punished for the heinous crime of being pretty, happy and competent!

I'm sure they'll elevate some Stalin or Mao to the post of Leader Supreme and absolutely refuse to take a lick of responsibility when the whole thing collapses into horror and 7 billion people find themselves arrested for sedition and face crime.

Seems it might be a good idea to work out some other kind of economic solution before that happens.

I'm leaning toward crowd funding, mini-corporatism as being part of some new element of that solution.

 

[goyacobol]

Huh. And if mega corporations can just move their wealth to whatever country has the lowest taxes, (and where they own the government), well.., there is a particularly obvious solution just begging the question to be asked...

A Global One World Government could solve this whole mess in a jiffy!

Woodsman, I didn't see the speaker in the video endorsing that as a proposal. I think it is already in the "mess" you are talking about. I thought he had some really good arguments about curbing corporate power to benefit each country rather than allow free rein globally to corporations.

And, he talked about open borders being detrimental to the receiving countries economies in most cases. If we all lived in thriving countries economically then moving around would not be a problem but in reality it is because of the inequities faced by poorer countries that there is a desire for some to move and better themselves.

The corporations are taking advantage of those poorer countries for labor costs and resources. And on top of that they are paying less taxes or no taxes in some cases.

On a smaller scale or at least starting out by supporting a nationalist approach each country could begin to address and repair their economies and social structures.

The idea that all countries must have the same ideologies is in my view not going to work.

Seems it might be a good idea to work out some other kind of economic solution before that happens.

I'm leaning toward crowd funding, mini-corporatism as being part of some new element of that solution.

Those ideas sound reasonable as long as the countries/regions (whatever is left) allow them to work.

 

[Woodsman]

Woodsman, I didn't see the speaker in the video endorsing that as a proposal. I think it is already in the "mess" you are talking about. I thought he had some really good arguments about curbing corporate power to benefit each country rather than allow free rein globally to corporations.

I didn't either.

My observation wasn't meant to be critical of Carl Benjamin or his points. It's just an observation of the state of the game board as it stands.

 

[goyacobol]

I didn't either.

My observation wasn't meant to be critical of Carl Benjamin or his points. It's just an observation of the state of the game board as it stands.

I don't like the game board as it stands either so that makes at least 2 of us.

 

[herondancer]

The corporations are taking advantage of those poorer countries for labor costs and resources. And on top of that they are paying less taxes or no taxes in some cases.

Imo part of the problem is that corporations come into a country for those cost savings, then use their clout to maintain and reinforce those conditions. They come with promises of helping raise the standard of living of the target country but don't come through. And because of the tax concessions the country's government may give to attract the corporation, the country doesn't have the money to look after the people themselves. The coporation may say that the revenue will be made up through taxing the workers, but that won't work unless the workers are paid enough for it to happen. Evil system. But not capitalism. It used to be that countries competed against each other, and that was bad enough. It drove colonialism, as each dominant nation tried to snap up resources. Now it's corporations, with the whole world as the game board, borders be damned.

 

[goyacobol]

Imo part of the problem is that corporations come into a country for those cost savings, then use their clout to maintain and reinforce those conditions. They come with promises of helping raise the standard of living of the target country but don't come through. And because of the tax concessions the country's government may give to attract the corporation, the country doesn't have the money to look after the people themselves. The coporation may say that the revenue will be made up through taxing the workers, but that won't work unless the workers are paid enough for it to happen. Evil system. But not capitalism. It used to be that countries competed against each other, and that was bad enough. It drove colonialism, as each dominant nation tried to snap up resources. Now it's corporations, with the whole world as the game board, borders be damned.

Yes, it is more like a multi-faceted "Evil System". The same thing happens with loans to the poorer countries through the World Bank that knows very well those countries can never repay the loans. That allows all those multi-national corporations to gobble up more resources and practically own those countries. A sad reality I think.

 

[Ursus Minor]

The richest evade taxes because the system is designed for them to evade it. The map of Europe is covered with micro states that incidentally are also tax heavens. Why in a continent that is marked by wars and invasions, were those militarily insignificant states systematically spared?

Monaco, Liechtenstein, Luxembourg, Switzerland, Andorra, Jersey are the result of deliberate political choices. But the entry ticket is quite high, so while the richest evade tax, others (especially the dying middle class, working class, independant workers and small business owners) have to pay full blown taxation.

XINHUANET
reports...

Xi holds talks with Prince Albert II on strengthening China-Monaco ties

On their way back from Rome the Chinese delegation, led by President Xi Jinping has made a stopover ("state visit") at the Principality of Monaco, on March 24, 2019 . They actually couldn't quite fly into Monaco though (for want of an airport there) so Xi's 747 had to touch down at Nice airport in France.

So what's drawing President Xi to this seemingly insignificant micro state?

Quoting Xinhua:

Noting the affinity between the two peoples, Xi said that since China and Monaco established diplomatic relations more than 20 years ago, the two sides have always treated each other as equals with sincerity and friendship.

Has anyone among the humongous population of China really ever heard of Monaco (pop. 39,047)?
(I apologize to the twenty or thirty professionals in China who actually have)

Xi said China and Monaco have set a fine example of friendly exchanges between countries that are different in size and have different historical and cultural backgrounds and social systems.

The Chinese president said the exchange of visits between him and Prince Albert II in about half a year demonstrated the high level of China-Monaco ties.

He called on the two sides to firmly grasp the correct direction of bilateral relations, constantly consolidate traditional friendship and political mutual trust [...]

Both sides should adhere to openness and cooperation and pursue more win-win results, Xi said, adding that China welcomes Monaco to actively participate in the joint development of the Belt and Road.

Calling on the two sides to elevate cooperation on environmental protection, Xi said the Prince Albert II of Monaco Foundation is welcome to conduct public-service activities in China aimed at environmental protection, so as to continuously enrich cultural and people-to-people exchanges.

The Prince Albert II of Monaco Foundation?

Describing Xi's visit as a "historic" one, Prince Albert II said Monaco is willing to expand cooperation with China in such fields as science and technology, innovation, ecological and environmental protection, wildlife conservation, and renewable energy.

Wildlife conservation? How much wildlife is there to preserve in a city state like Monaco?

The prince said Monaco highly appreciates China's role in international affairs such as climate change and stands ready to support China in hosting the 15th meeting of the Conference of the Parties to the Convention on Biological Diversity next year. He also wished the 2022 Beijing Winter Olympics success.

Before the talks, Prince Albert II held a grand welcome ceremony for Xi.

Monaco is the second leg of Xi's three-nation Europe visit. He has concluded a state visit to Italy and will pay a state visit to France.

The Chinese are probably not only attracted by the principality's mild climate, attractive scenery, and gambling facilities. Monaco has a history of belonging to the old trading empire of Genoa which leads us to the hidden reality of the powerful nobility in Europe...

There are rumors that Monaco could be the secret headquarters of a powerful masonic lodge such as P2, or Propaganda Due...
...which would reinforce the idea of "both sides treating each other as equals".

 

[goyacobol]

Well the Monaco and China connection seems kind of like a Capitalist/Socialist connection that is odd I think.

Wildlife conservation? How much wildlife is there to preserve in a city state like Monaco?

Prince Albert II of Monaco Foundation

In 1906, Prince Albert I, a pioneer in oceanography who paved the way as far as environment protection is concerned, explored the unknown regions of Spitsbergen. In harsh weather conditions, the Prince and scientists aboard his vessel made an inventory of marine life and took meteorological readings and photographs in order to study the movements of the sea ice and glaciers. In 2006, Prince Albert II of Monaco, in the footsteps of his great-great-grandfather, visited the Arctic, reaching the North Pole on 16 April so that he could assess the effects of global warming on the weakening ice. Following this expedition, the Prince decided to create a foundation dedicated to environmental protection.

I have to say the Masonic influences are not easily verifiable since after all they are basically "secret" as are secret governments and deep states.

Some of us looked into those financial connections in Who controls the BIS? There were many unanswered questions for sure.