Re: Will the free market solve everything?
Sun, 23 Feb 1997 01:37:24 +0000

> I manufacture 99% of the worlds widgets, you make 1% . I want to
> drive you out of business, so I figure I'll lower my price until you
> go broke and then I can jack them up to anything I want. So now you
> louse money on each widget you sell, the trouble is I do too. I have
> 99 times as much money as you do, but I'm lousing it 99 times
> faster. Even worse, because the price is very low the demand for
> widgets is huge, and if prices are to remain low I must build more
> factories and increase production. I'm lousing money faster and
> faster, meanwhile you just temporally halt production in your small
> factory and wait for me to go broke. It won't be a long wait.

Let's try another scenario. I manufacture x% of the world's widgets,
and you manufacture y% (the numbers are irrelevant). Your widget is
better. It is better designed, more reliable, and manufactured with
fewer defects. In addition, thanks to your company's superior
management and manufacturing capability, your widget is produced at
lower cost which allows you to price it more competively than mine.
Your market share is growing while mine is shrinking. In a perfect
world in which no one would ever play dirty, you would win dominance
in the widget market and I would be forced to either perform better
or find some other niche. But I have another option. You are a
successful but still small start up with only a single product on
which you are completely dependent. I am a giant corporation with
hundreds of profitable products and vast resources. I could give
widgets away free of charge for years without any significant
suffering. So I capture the widget market the same way I captured
some of the others. I lower my prices to levels you can't compete
with, and I increase my marketing efforts to levels that you can't
afford. Soon, I have most of the market share and you are out of
business. I return my pricing to profitable levels and scale back the
marketing and ride on my already established name recognition. The
coming years of dominating the widget market will easily compensate
for my losses while driving you out of business. I, with my
inferior product, inferior management, and inefficient production,
have won.

This is survival of the richest. Not survival of the fittest.

The standard Libertarian (and Republican) belief is that free market
economies inherently favor the smartest, hardest working
entrepreneurs and best products. This is true. But they also hold
a belief that this principle causes free market economies to be
inherently stable and fair. This is not true. There are other
forces than can operate within such an economy that can defeat the
built-in self-correcting mechanisms. When you begin with a scenario
in which wealth is distributed fairly evenly, then a free market
economy will work very well and will result in high productivity,
with clear benefits for those who produce and denial of those
benefits for those who do not. This is the kind of thriving middle
class economy that the U.S. has benefitted from for many decades. But
as such an economy becomes increasingly polarized (meaning a smaller
part of the population controlling a greater part of the wealth,
shrinking middle class, etc.) a free market economy will begin to
self destruct if it does not have some external compensating force.
Those who control great wealth can win even when market dynamics
should have made it otherwise. Likewise, those who control little
wealth will often not see rewards that reflect their level of
prodictivity, thus diminishing the incentive to be productive.

There is capitalism the economic principle, which has both benefits
and problems. Then there is capitalism the religious belief which,
according to it's proponents, is self-correcting and will always
result in optimization if left entirely to it's own devices. I find
it strange that Extropians with their affinity for reason and
distaste for irrational belief would exhibit so much more faith than
reason when it comes to economics. It is for this reason that I
cannot consider myself an Extropian even though I share their sense
of optimism and agree with nearly all of their transhumanistic goals.

Capitalism is good, but it is not perfect. We can address the
imperfections and create an economy that works, or we can deny the
imperfections and create one that does not.

Don't get too enamoured with labels. Not everything that falls under
the definition of "capitalism" is good. Not everything that falls
under the definition of "socialism" is bad. The first can generates
high productivity but is unstable. The second can create stability
but kills productivity. Neither system works well in it's purest
form. Any realistic solution will either involve elements of both,
or will be something so completely different that it bears little
resemblence to either.

Consider that with the potential offered by automation,
self-replicating machines, nanotechnology, quantum computers,
transhumans/posthumans, exploitation of off-planet resources etc.,
the ability to supply products and services will likely become
vastly greater than it is now. Both capitalism and socialism are
attempts to address scarcity. Neither can adequately deal with a
world of plenty. This inadequacy is already apparent even with
existing production capabilities. With the automation technology
that is available today, standards of living should be much higher
than what they are. But existing economic systems cannot adequately
deal with these newly acquired abilities.

William Kitchen

The future is ours to create.