In support of true capitalism

January 24th, 2014 at 10:00 am by David Farrar

Allister Heath at the Daily Telegraph writes:

It is a real tragedy that so many of the great and the good who are meeting in Davos this week don’t really understand the difference between genuine free-markets and crony capitalism. If they did, they wouldn’t be talking so much muddled nonsense about inequality, one of the key themes at this year’s World Economic Forum.

Real business people, who make their money in open, competitive markets, are entitled to their vast wealth but crony capitalists, who rely on state privileges, don’t deserve our support. The Left and the Right have both got it wrong here: the former wrongly attack all inequality; the latter wrongly defend all of it.

The blunt reality is that all societies are highly unequal, even supposedly communist ones. What really matters is the source of the inequality: are the wealthy rich because they looted everybody else, as was inevitably the case in feudal, pre-commercial societies, or are they prosperous because they profited from serving the needs of others in a competitive market? Is a society open to new talent and ideas, and encouraging of social mobility, or is it controlled by a small economic and political aristocracy that doesn’t let anybody else climb to the top?

This is so on the mark.

There are two ways businesses and investors can make money legally.

The first is by providing goods and services that people want, by working out correctly what assets will be in most demand or by investing capital in successful projects, all activities that boost economic growth, increase employment, help develop poor economies and lift living standards.

This is what the likes of Sir Richard Branson, Facebook’s Mark Zuckerberg or the financier Warren Buffett have achieved and their vast wealth is their just reward. We need more of these kinds of people and we must incentivise them to be as successful as possible.

Sir Richard is a great example of that. The world is a far better place for his entrepreneurial efforts.

The second way that businesses and investors can make money is by getting the government to rig markets in their favour – by erecting barriers to entry to restrict competition, by providing them with cheap credit or by allowing them to use their political connections to grab contracts and other privileges. These gains are not the fruit of value-adding economic activity. Rather than helping to grow the economy, they often merely redistribute wealth.

The more controlled the economy, the more you get this sort.

Britain made a temporary break from crony capitalism during Margaret Thatcher’s time in office, when state-owned industries were sold off, subsidies slashed and competition increased. To survive, old businesses had to reinvent themselves; their future was no longer determined by the cosiness of their relationship with politicians or by the hold of their unionised workforces on MPs in marginal seats. 

Same in NZ in the 1980s and 1990s.

Higher minimum wages were originally welcomed by some large retailers because they knew they would hurt small rivals. Big companies find it easier to hire the compliance officers needed to deal with red tape; in finance, large banks are more easily able to afford the vast amounts of capital now required, freezing out challengers, and lawyers and accountants will have even more fun.

There is a simple answer to all of this and it doesn’t involve punitive taxation, demonising the rich or fuelling jealously. The solution is to promote competition, tear up barriers to entry, unleash consumer choice, eliminate subsidies and soft loans and make sure that the only way an entrepreneur, a CEO, a banker or an investor can make money is by serving customers, discovering new opportunities or allocating capital more efficiently.

If the denizens of Davos are serious about making the world a fairer place, they need to reject crony capitalism and embrace the real thing.

Hear, hear.

Tags:

50 Responses to “In support of true capitalism”

  1. Jack5 (4,906 comments) says:

    Wonder which of the two environments the NZ film industry falls into.

    Vote: Thumb up 4 Thumb down 3 You need to be logged in to vote
  2. kowtow (7,955 comments) says:

    “…..all societies are highly unequal…..”

    The controlled economy is so very wrong but legislated control of nature is very good.

    Think gender and marriage equality.

    Can’t have it both ways.

    But having it both ways is progressive,innit?

    Vote: Thumb up 5 Thumb down 10 You need to be logged in to vote
  3. queenstfarmer (755 comments) says:

    This is all true. But socialists do not care about this. They know that their route to power is to create and exploit emotional responses of envy and disaffection and promise to use the power of the state to forcibly redistribute (not create or grow) wealth.

    “If you elect me, I will take that rich man’s money and give it to you.”

    Vote: Thumb up 13 Thumb down 1 You need to be logged in to vote
  4. hj (6,747 comments) says:

    Lobbying (and getting) no stop immigration is crony capitalism.

    Vote: Thumb up 3 Thumb down 3 You need to be logged in to vote
  5. hj (6,747 comments) says:

    Econon 101: Rigidities (land supply myth), assymetric(?) Information.

    Vote: Thumb up 0 Thumb down 3 You need to be logged in to vote
  6. hj (6,747 comments) says:

    Tax working group, Savings Working Group (indeoendant think tanks ) ignored. NZ Initiative etc listened too.

    Vote: Thumb up 0 Thumb down 2 You need to be logged in to vote
  7. Jack5 (4,906 comments) says:

    The article says:

    The second way that businesses and investors can make money is by getting the government to rig markets in their favour – by erecting barriers to entry to restrict competition, by providing them with cheap credit or by allowing them to use their political connections to grab contracts and other privileges.

    That surely should include subsidies via special tax concessions.

    Vote: Thumb up 5 Thumb down 0 You need to be logged in to vote
  8. wikiriwhis business (3,883 comments) says:

    True capitalism pffff

    New food bill in New Zealand takes away human right to grow food

    new Food Bill is being brought in here in New Zealand. The new bill will make it a privilege and not a right to grow food.
    Read more at http://investmentwatchblog.com/new-food-bill-in-new-zealand-takes-away-human-right-to-grow-food/#CYQL2HPUiHmoa5HC.99

    This is what we can expect from teh Nat/Lab coalition . Extreme fascism. The conspiracy continues …TPP . giving our sovereignty to US corporations.

    Vote: Thumb up 0 Thumb down 12 You need to be logged in to vote
  9. Kimbo (747 comments) says:

    “Lobbying (and getting) no stop immigration is crony capitalism”.

    “Econon 101: Rigidities (land supply myth), assymetric(?) Information”.

    “Tax working group, Savings Working Group (indeoendant think tanks ) ignored. NZ Initiative etc listened too”.

    In the same way that nature alerts creatures of danger through the colours red and yellow (bees, wasps, snakes), are disparate thoughts and bad grammar the blogosphere’s way of warning us all of tin foil hat wearers?

    Vote: Thumb up 3 Thumb down 0 You need to be logged in to vote
  10. NK (1,138 comments) says:

    I read this and thought Jamie Whyte was the author. You could be mistaken for thinking that – he says the exact same things.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Reid (16,111 comments) says:

    In Biblical times as well as the seven-year debt forgiveness cycle they also used to have every fifty years what they called a jubilee year in which all wealth was re-distributed equally and everyone reset.

    Capitalism is fine as a pricing and distribution mechanism but it’s become distorted by applying usurous principles to money itself and trading it as if it were a commodity on its own.

    This is quite a good article pointing out the obvious fact that the middle class are the real job-creators, for without them there would be no market to sell into. And for those who’ve been watching the world-best practice capitalist model in the US, you can see what’s been happening to the middle-class there, and it’s only going to get worse.

    http://www.declineoftheempire.com/2012/05/the-rich-are-the-jobs-creators.html

    Vote: Thumb up 3 Thumb down 4 You need to be logged in to vote
  12. Fentex (909 comments) says:

    I’m all for doing away with crony-ism, and are pleased that NZ has as little corruption as it has contributing to it.

    By the way, do people pleased with this post who may have argued in support of the government actions regarding SkyCity’s convention centre now withdraw their support for that obvious crony-ism?

    I ask because I can’t help noticing how advocates of removing government favouritism and largesse often start with complaining and removing things that benefit the poor and un-influential where their argument would carry more weight if it was used against the wealthy and powerful first.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. unaha-closp (1,141 comments) says:

    The second way that businesses and investors can make money is by getting the government to rig markets in their favour – by erecting barriers to entry to restrict competition, by providing them with cheap credit or by allowing them to use their political connections to grab contracts and other privileges.

    Which is why SkyCity shares went up when we banned all competition for the next 35 years.

    Vote: Thumb up 3 Thumb down 0 You need to be logged in to vote
  14. mister nui (1,012 comments) says:

    I say this regularly;

    The left despise big business, but love big government, which loves making rules and regulations that hurt small business and further the cause of big business.

    Big business loves big government.

    You only have to look to one of the biggest companies in the world, GE, and their apparatchik type support of the Democrats. Jeff Immelt, CEO of GE, is so far up Obama’s ass, the only thing hanging out, are his shoelaces. Reason, they know that all the subsidies the Dems handout is hugely beneficial to their bottom line.

    As a small business owner, the left and their rules, regulations and bureaucratic bollocks hurt me on a daily basis.

    Vote: Thumb up 7 Thumb down 0 You need to be logged in to vote
  15. mister nui (1,012 comments) says:

    By the way, do people pleased with this post who may have argued in support of the government actions regarding SkyCity’s convention centre now withdraw their support for that obvious crony-ism?

    Yes, 100% do not support any government actions/support behind Sky City building the Convention Centre. But at the same time, I do not support any restrictions on Sky City building their business as big as they want, if they have a need to have more gambling tables etc. who the fuck are you and the government to tell them they can’t?

    Whilst building their business as big as they wanted, they could quite likely have seen the need for a Convention Centre and funded it entirely from their own pocket, doing all of their own research etc. Requiring zero government/taxpayer/ratepayer input.

    Vote: Thumb up 3 Thumb down 0 You need to be logged in to vote
  16. Jack5 (4,906 comments) says:

    Mister nui (11.25 post), time for a bit of light grammar debate.

    “Whilst” (as in your: “…Whilst building their business as big as they wanted…”)

    Is this word an anachronism? Is the suggestion that it can be used only mid-clause accurate or just the rule of pedants? Can you pronounce it if you can’t whistle?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. F E Smith (3,315 comments) says:

    It is a real tragedy that so many of the great and the good who are meeting in Davos this week don’t really understand the difference between genuine free-markets and crony capitalism.

    A huge mistake that is, sadly, a core value on the Left.  As far as those on the Left are concerned the crony capitalism they engage in is an example of the free market,  when it is anything but that.  Which allows them, in their mind, to decry free market ideas when in fact they have never tried them.

    Vote: Thumb up 4 Thumb down 0 You need to be logged in to vote
  18. Kimbo (747 comments) says:

    “By the way, do people pleased with this post who may have argued in support of the government actions regarding SkyCity’s convention centre now withdraw their support for that obvious crony-ism?”

    Hmm.

    So which is it?

    Unfettered hand-off capitalism that enshrines the ‘market’ as God is ideological extremism?

    Or…

    When the capitalists decide to act pragmatically for a short to medium-term benefit it is crony-ism?

    BTW – I find that when people use unnecessary qualifiers like “obvious” (as in “crony-ism”) they do so because they are trying to bluster, and it is anything but “obvious”.

    For the record – in a perfect (and even in an imperfect world, for that matter) the free market is the most efficient and sustainable means of delivering positive outcomes for all. To ensure that, monopolies must be severely dealt with.

    However, as life is not perfect

    1. it is a continual on-going de-lousing project, because human nature is to skew arrangements to one’s own advantage.

    2. Sometimes it is of short-term benefit to act pragmatically when others are doing the ‘skewing’.

    From a puritanical Friedmanite point of view, Key offended against the ‘god’ of the market. It may actually cost New Zealand in the long run, just as investing capital in the NZ Railways for years cost the country dearly. And is doing so again!

    However, as other bigger countries do not play fair, Key pragmatically and wisely arranged what cards he had at his disposal, to create a lot of jobs to benefit the (to quote you) “poor and un-influential”. The immediate cost is not borne by the Government. That’s a win. Also, there is no significant increase in the number of gaming machines. That’s a win.

    Should “profit” be made from gaming? Too late – that decision was made 20 years ago when Sky City was built. You can’t be half-pregnant. Are Labour and the Greens campaigning on the policy of abolishing casinos? Thought not.

    Instead, it is about managing the situation of exploitation of gamblers for the best benefit, and minimistation of harm. On that score, Key wins again – IMHO.

    Same with the Warners/Hobbit deal.

    Or aren’t jobs of benefit to the “poor and un-influential”?

    Oh, no. I forgot. The Socialist/Marxist playbook – they are being ‘exploited’.

    Vote: Thumb up 6 Thumb down 1 You need to be logged in to vote
  19. hj (6,747 comments) says:

    The role of rigidities, assymetric information and free markets etc are not imaginings of tin hat wearers. Believing that someting will always turn up (innovation) when the price is right, is.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. Kimbo (747 comments) says:

    Furthermore, Fentex, I’ll call you on your bluff (appropriate, seeing you introduced Sky City).

    If what Key did was “obvious crony-sim”, kindly tell us the “obvious” monetary benefit he gained by doing the deal with Sky City.

    I assume you are talking specific payments. You know – “obvious” transactions. That is what “crony-ism” means.

    Amounts and dates, please.

    Vote: Thumb up 2 Thumb down 1 You need to be logged in to vote
  21. queenstfarmer (755 comments) says:

    do people pleased with this post who may have argued in support of the government actions regarding SkyCity’s convention centre now withdraw their support for that obvious crony-ism?

    If there was not such tight regulation of (a) gambling, and to a lesser extent (b) construction & hospitality etc, then probably yes.

    However that is not the case. The Sky City deal is a good one for taxpayers. The fact that it is expected to have benefits for Sky City too is ancilliary, and doesn’t mean that we shouldn’t take the advantages to us (a win-win).

    Vote: Thumb up 4 Thumb down 0 You need to be logged in to vote
  22. Kimbo (747 comments) says:

    “Believing that someting will always turn up (innovation) when the price is right, is.”

    At the risk of feeding the troll…

    as opposed to the wisdom of a centralised planning committee?

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  23. mister nui (1,012 comments) says:

    Ha, Jack5, yes that sentence does certainly read as though Sky city no longer exists.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. hj (6,747 comments) says:

    In NZ the Houston model of development is touted as the most economically efficient. It ignores state highway building subsidies and down plays geography. Also the proponents tend not to believe we live in a resource contained world or that climate change will affect our ability to survive into the future.
    I wont say that’s tinfiol hat stuff just interest clouding reason.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. Fletch (6,151 comments) says:

    Bill Gates, on raising the minimum wage –

    “Well, jobs are a great thing. You have to be a bit careful: If you raise the minimum wage, you’re encouraging labor substitution and you’re going to go buy machines and automate things — or cause jobs to appear outside of that jurisdiction. And so within certain limits, you know, it does cause job destruction. If you really start pushing it, then you’re just making a huge trade-off.”

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  26. Kimbo (747 comments) says:

    Yeah, ok.

    I’ll leave aside your straw men arguments, “proponents tend not to believe we live in a resource contained world or that climate change will affect our ability to survive into the future”.

    Instead, I’ll call you out for failing to answer my question. I’ll even modify it, so it is not a simplistic either/or choice:

    So which is preferable, and which should play the MAJOR role in economic decision-making?

    True capitalism

    or

    the wisdom of a centralised planning committee?

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  27. gump (1,553 comments) says:

    @Kimbo

    “So which is preferable, and which should play the major role in economic decision-making?”

    —————————

    Neither is preferable.

    You’re presenting a false dichotomy. The most preferable option (for a modern industrialised economy like ours) is somewhere in-between.

    Vote: Thumb up 2 Thumb down 2 You need to be logged in to vote
  28. Kimbo (747 comments) says:

    ….and I’ll make it even more specific, seeing as you think capitalism stifles “innovation”:

    Can you give examples of innovations produced by centralised planning committees that were superior to those produced by capitalism responding to needs, desires, and circumstances?

    Specifics, please…

    Vote: Thumb up 4 Thumb down 1 You need to be logged in to vote
  29. Reid (16,111 comments) says:

    True capitalism

    As exemplified where?

    Unfettered doesn’t work, the GFC was a result of Bush 43 removing the regs, at the behest of corporate donors.

    We still haven’t got it right here either, what with the finance coy failures we’ve seen recently.

    Have we. It’s not eliminating, it’s right-sizing the regs that’s always been lacking. And while you have a system where the reg makers are beholden to deep pockets, it never will work.

    Vote: Thumb up 1 Thumb down 2 You need to be logged in to vote
  30. Viking2 (11,283 comments) says:

    The more controlled the economy, the more you get this sort.

    Ah, we have that problem at the Reserve Bank. They believe they can control interest rates, money supply and inflation.

    Never works without creating an opposite reaction..

    All actions have an equal opposite reaction.
    Unintended consequences.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  31. Kimbo (747 comments) says:

    Indeed, gump.

    Bear in mind I was responding to the preposterous claim that it is madness to “Believ(e) that someting will always turn up (innovation) when the price is right, is.”

    Which is why I modified the question.

    Towards which end of the spectrum does the “somewhere” that produces “innovations” lie?

    Vote: Thumb up 2 Thumb down 0 You need to be logged in to vote
  32. Scott Chris (5,981 comments) says:

    Wonder which of the two environments the NZ film industry falls into.

    More of a case of free market competition amongst regulatory environments I’d have thought, in which governments act as market players rather than market facilitators. (kinda like Pharmac in some ways)

    Hopefully we haven’t won the race to the bottom but. Perhaps treasury should have the last say on that kind of thing to circumvent political opportunism.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. unaha-closp (1,141 comments) says:

    Reid,

    Under true capitalism big companies that do stupid things go bust.

    Its a feature not a bug. It is almost the defining feature.

    Bush did not cause the GFC, selling mortgages to people who could never pay them back was a really bad investment.

    No “right-sizing” of the regs should prevent the failure of idiotic business ventures, run by morons.

    Vote: Thumb up 4 Thumb down 1 You need to be logged in to vote
  34. stephieboy (2,540 comments) says:

    unaha-closp,

    err, um both Alan Greenspan and GWB would actually disagree with you there.

    http://www.nytimes.com/2008/10/24/business/economy/24panel.html?_r=0

    Your evidently a victim of simplistic Libertarianism and like the Soviet Union of old grossly underestimate the fact and power of human greed.!

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  35. Psycho Milt (2,368 comments) says:

    Britain made a temporary break from crony capitalism during Margaret Thatcher’s time in office…

    Ha ha ha ha ha ha ha ha ha ha ha ha! This guy is hilarious!

    Vote: Thumb up 4 Thumb down 1 You need to be logged in to vote
  36. Fentex (909 comments) says:

    I assume you are talking specific payments.

    No, that would be a bribe; A crony is a friend or fellow traveller and providing for them (that is crony-ism) may be favouritism shown to people one likes and prefers without direct personal benefit.

    I find that when people use unnecessary qualifiers like “obvious” (as in “crony-ism”) they do so because they are trying to bluster, and it is anything but “obvious”.

    ‘obvious’ was an unnecessary qualifier in my comment, and I agree that writing is better without such. If I spent more time editing my comments I would have removed it. I am happy to agree referring to that crony-ism had no need of redundantly proclaiming it obvious.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  37. unaha-closp (1,141 comments) says:

    Stephieboy,

    Oh 2008, seriously that was years ago.

    Since then there has been massive intervening regulation and banks are now officially/unofficially too big to fail. The Americans and the EU and the Japanese have kicked $trillions into providing lots of liquidity. Their banks are saved, their share markets are booming – all the cronies have been regulated right up into the stratosphere.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  38. F E Smith (3,315 comments) says:

    Unfettered doesn’t work, the GFC was a result of Bush 43 removing the regs, at the behest of corporate donors.

    Rubbish.

    And stephieboy, that article doesn’t make your point.  But it is a prime example of the left that they think that regulating can solve everything.

    Apparently the world cannot function without some bureaucrat benignly guiding it.

    Vote: Thumb up 4 Thumb down 1 You need to be logged in to vote
  39. Kimbo (747 comments) says:

    “No, that would be a bribe; A crony is a friend or fellow traveller and providing for them (that is crony-ism) may be favouritism shown to people one likes and prefers without direct personal benefit.”

    OK. Thanks for clarifying, Fentex. You seem like a reasonable person, even though we obviously disagree.

    Seems like a circular argument that because Sky City got the deal, they must be Key’s friends.

    Where is the evidence Key’s regarded them as “a friend or fellow traveller”, rather than simply those best able to deliver what Key considered the best deal for New Zealand Inc?

    After all, as you’ve already implied, Key received no “direct personal benefit”…

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  40. wat dabney (3,724 comments) says:

    hj,

    Lobbying (and getting) no stop immigration is crony capitalism.

    As has been pointed out to you before, it is the imposition of restrictions on free movement which involves government action and which, of the two positions, is the only one which could by definition amount to cronyism.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote
  41. Kimbo (747 comments) says:

    …and where is the evidence that BECAUSE he “like(d) and prefer(red)” Sy City, that was the reason he considered them “a friend or fellow traveller”?

    Or vice versa?

    And how is it any different from Clark and Cullen bailing out Air New Zealand, or buying back New Zealand Rail for the benefit of their private owners?

    Or Clark and Cullen introducing WFF, and interest-free student loans to benefit “their natural constituency” at tax-payers expense?

    Or is it only “crony-ism” when a former merchant banker exercises his judgement, and democratically-won Executive power?

    And where is the evidence Key’s motivation was NOT for what he considered to be in the best interests of the country?

    Seems this is the sort of judgement that caused folks to chose Key and his Government the last two terms, and why I’ll be voting for him again in 2014.

    Vote: Thumb up 1 Thumb down 1 You need to be logged in to vote
  42. stephieboy (2,540 comments) says:

    F E Smith.

    You are deluded if you think a dose of Libertarian styled unfettered deregulation will provide the cure. John Key and Bill English understand that perfectly which is why e.g Liberatiannz will likely remain at 0.200 % as per 2011 election.
    Less I would think.
    Kimbo decsions made like bailing out Air NZ or Kiwi Rail are political decisions.Key or Clark have an electorate to consider . We don’t.Ideology as always needs to give way to realism and pragmatism

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  43. itstricky (1,701 comments) says:

    What a load of trot. The ideal absolute free market above only exists until someone gets greedy. That is the same reason that crony capitalism exists and the same reason communism is a failure. Did that guy spend five minutes thinking about his speil and then putting a lot of work into emotive “you can do it, you rule the world, be happy with your lot and thankful CEOs get paid 50x your salary” brainwash speak? Specifically crafted for DPF and his like to gush overby the looks? People are so predictable.

    Vote: Thumb up 0 Thumb down 1 You need to be logged in to vote
  44. Fentex (909 comments) says:

    the evidence Key’s regarded them as “a friend or fellow traveller”, rather than simply those best able to deliver what Key considered the best deal for New Zealand Inc?

    What makes that deal cronyism is the way is was obtained and the concessions made by the government, it is no argument in it’s favour that the government thinks such a deal is a good way to do business. No doubt people favouring their friends and in more extreme cases taking bribes think it’s just a swell way to do business.

    To avoid the undermining of confidence, creation of corrupt incentives, and inferior results by biased personal choices, government ambitions are generally met by tendered or contracted providers in open competition with each other attempting to provide well defined services and chosen by theoretical dispassionate judgement by disinterested committees.

    People who think they’re being clever and mature hard headed economic operators should not be willing to accept favouritism and predetermined deals by public servants because the very logic of incentives that are thought to underlie competitive economics mean crony-ism will breed corruption and cancerous destruction of the public interest.

    If you believe in free markets and the power of competition you must support free and open competition rather than quiet predetermined deals by people.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  45. Tom Jackson (2,532 comments) says:

    Real business people, who make their money in open, competitive markets, are entitled to their vast wealth.

    I notice that he never gave an argument for this weird claim.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  46. Tom Jackson (2,532 comments) says:

    For the record – in a perfect (and even in an imperfect world, for that matter) the free market is the most efficient and sustainable means of delivering positive outcomes for all.

    That is incorrect on a number of levels.

    According to orthodox economics, that a perfectly free market is perfectly efficient (even if it can only exist hypothetically) is a logical truth – a guy won the Nobel Prize for proving that IIRC. But it does not follow from that that an almost perfectly free market is perfectly efficient (such an inference is fallacious), and so it follows that making any real world market freer does not necessarily make it more efficient (that was also proven about the same time).

    It’s also empirically false to say that the free market is the most efficient way of delivering positive outcomes. All the societies in the actual world that produce the best outcomes for all their citizens all have mixed economies where market failures are corrected for by state regulation of markets and in some cases state provision of goods. Every single developed society follows some variation of this model, including New Zealand. To even get a market going you need an extensive government apparatus to enforce the rules and to keep track of who owns what.

    Libertarianism was abandoned in the 20th century just as communism was. No society follows that model because it doesn’t work.

    Vote: Thumb up 1 Thumb down 0 You need to be logged in to vote
  47. Tom Jackson (2,532 comments) says:

    Can you give examples of innovations produced by centralised planning committees that were superior to those produced by capitalism responding to needs, desires, and circumstances?

    Virtually everything required to win World War II including the Manhattan Project.

    When things really need to get done, and there is broad agreement on those things, the free market is more or less immediately abandoned. The very idea of trying to fight a war on capitalist principles is hilarious.

    There are also more mundane examples, like the census. No private company would do that because they wouldn’t be able to recoup their costs, yet a census is a very valuable thing.

    Thanks for playing.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  48. Tom Jackson (2,532 comments) says:

    So which is preferable, and which should play the MAJOR role in economic decision-making?

    True capitalism

    or

    the wisdom of a centralised planning committee?

    Since one of the main functions of the state in a modern economy is to work out what should be provided by the private market and what should be provided by the state, the state obviously plays the most important role because it (hopefully) establishes the division based on the best available knowledge of what works. Even in a society where most things end up being provided by private markets, the shots are still ultimately called by a non-market mechanism.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  49. Fentex (909 comments) says:

    …the census. No private company would do that because they wouldn’t be able to recoup their costs

    I think this assertion begs the question of what is meant by free market capitalism. A person might argue that if the collators of a census had full ownership of their product they could charge public and private agencies for using it.

    They also might argue that in a world of freely competing markets a census would not be required as efficient markets, rather than plans drawn from census information, would function well without it (indeed those people who argue statistical polling is more accurate than actual census’ would believe private paid for polling would do anything a census would).

    However no private census could ever be taken because sans state insistence and legislation the public isn’t likely to answer such questions for any affordable cost, and as to the question of owning the information, well, if you like perfectly free markets how do you countenance government regulation of what people can do with their copiers?

    Sure everything can be sold under contract, but one day someone will pick up a discarded copy of data without signing a contract…

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  50. Kimbo (747 comments) says:

    @ Fentex

    “To avoid the undermining of confidence, creation of corrupt incentives, and inferior results by biased personal choices, government ambitions are generally met by tendered or contracted providers in open competition with each other attempting to provide well defined services and chosen by theoretical dispassionate judgement by disinterested committees”.

    Which is how the Sky City deal was done.

    Or is it crony-ism to mention to a particular potential candidate, for what you consider the good of the country, that you would like to see them in the race?

    When you don’t make the decision on who wins the tender?!

    Nah – I don’t buy it.

    @ Tom Jackson

    I’d counter that the Manhattan Project was an example of something that had to be done, NO MATTER WHAT THE COST. Interesting example. Due to the secrecy requirement, there was obviously no possibility of tendering.

    I also think you’ll find that the Americans allocated their war production effort out to the corporations – who made a killing.

    Some did an outstanding job, whereas others, such as Ford, earned a poor reputation.

    The Apollo Project was the result of tendering out the work I seem to recall.

    That would support your pragmatic argument that in reality we have a mixed economy, and that is what gets the job done. Of course it does.

    Although you haven’t advised towards which end of the spectrum is the optimum.

    Hardly surprising, though, when you introduce the straw man, “Since one of the main functions of the state in a modern economy is to work out what should be provided by the private market…”

    Really?! John Key sits in the Beehive determining how much loo paper and canned tomatoes Countdown, New World, and Pak N Save should be allocated?!

    I think you have the wrong country….

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote

Leave a Reply

You must be logged in to post a comment.