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March 21, 2011

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rosscoe

I agree, particuarly with regards to big buisness being in favour of more regulation, the directors of established firms know that it serves as a barrier of entry to stop smaller firms coming into a market and competing, whilst allowing the existing large firms carry on without having to constantly look over their shoulder for new competitors.

I'm not sure why you think most libertarians are unaware of this though? The link between big buisness and government is a huge theme in both libertarian and free market thinking. In fact the reason that so many argue that strong government is bad is not just because it allows the state to act against its people but because large corperations can and do subvert the apparatus of the state to forward their own goals.

The easisest way to prevent this, its suggested, is by enuring that the state has as little power as possible so that its not worth subverting in the first place.

gastro george

Interesting article, most of the arguments seem like a justification of MMT ...

@rosscoe. Big business competes pretty well by cornering markets and driving smaller competitors out of them. Better to reduce barriers of entry by preventing them from getting too large.

alastair harris

"Insofar as capitalism tends to generate inequality". Oh no it doesn't. Inequality is a natural state of affairs, a fact of life. Capitalism neither creates nor removes it.

Neil

Chris, your arguments are valid as long as you're defining "capitalism" in the limited sense pertaining to the structure of businesses, and so long as you're only looking at short- to medium-term term "benefits".

The trouble is, the defenders of "capitalism" tend to equate it with "free markets", and to talk in terms of the very long run - and apart from #3, none of your arguments really work in that context.

@alastair, I disagree. Free markets *do* generate inequality - the natural state of affairs is universal poverty, and free markets are what has allowed some (but not yet all) people to escape it.

Rosscoe

@gastro George, and who decides when the buisiness is to big? You just end up with a politician or civil servant making the choices on behalf of the consumers and it often ends up with the buisness either influencing the Politician or the politician running a vendetta against the business. If you look at the example of the recent bskyb/newscorp takeover you can see either (depending on your point of view) a politician threatening to abuse his position in a vendetta against an individuall (vince cable) or a politician screwing the consumer to further his own party interest and those of his backers (Jeremy hunt). If broadcasting wasn't so highly regulated it would be easier for new firms to enter the Market and "plurality" wouldn't be such an issue inthe first place

gastro george

@rosscoe Deregulation is so last year - worked well in the City didn't it.

Richard

"What I am saying is that the state grew in the 20th century in part because that is what capitalism required"

It would therefore make a nice change if the anti-statist Left could therefore make a comeback. If the state is assisting capitalism then call for the state to be weakened, not strengthened.

Stuart Moore

Surely its better to have people employeed earning money and paying taxes than to have people unemployeed and receiving benefits.

Neoliberal capitalism has at its core the policy to create a pool of around 2m unemployed people as this drives down wages and working conditions, it also helps make the country a shit place to live in for all of us, including the capitalist elite who live amoungst us.
Regardless of what Thatcher thought there is a thing called society and we all live in it.

I think that every government should make full employment its core policy.
People who are earning money, spend money, contribute to the state (taxes),commit less crime and have fewer health issues etc.

The Tory party who are in effect the political wing of the banking industry are driven by an ideological hatered of all things state owned and run, so they base their decision making on this hatered rather than of a common sense approach that would benefit society as a whole, this may well have something to do with the fact that they are a bunch of rich privileged ideologists who were elected by less than 25% of the British people or possibly the fact that the Tory party are funded by corporate UK who call the shots in their own narrow profit chasing interests.

Neil

@Stuart: You’ve put your thumb on the precise distinction between the economic left and right, although I don’t think you’ve quite understood the implications of each. The left wants policy directed towards maximised employment. The right wants policy directed towards maximised output.

Both sides agree that it’s better to have people employed, earning money. But the left, using Labour Theory of Value, say that doing any work *is* earning the salary you’re paid for it, whereas the right say that you can only ever *earn* what someone will willingly pay in exchange for your work.

Tories do indeed have an ideological hatred of things that are state owned and run – but not for the reasons you suggest. It’s because of a long experience of lefties in power saying “I think every government should make full employment its core policy”, and then following that policy to its logical conclusion. You know a fool-proof way to guarantee 100% employment? Create a gigantic circular production line, with 50% of the country employed assembling widgets and the other 50% employed disassembling them again. By your terms, this is the ideal policy: No unemployment, massive GDP (look at how many widgets we assembled this year!), high wages, great working conditions, and equality for all. And within weeks, we starve to death, because it turns out that although employment is a desirable thing, it is a *consequence* of prosperity, not its cause.

My example is of course an absurd exaggeration, but the difference between it and any real-life government jobs programme is a matter of degree. We don’t do circular production lines; we put people to work building wind turbines that nobody will buy at the price it costs to produce them, and then use money taken from taxpayers to pay a subsidy to bring down the price. Since you mention Thatcher, we *used* to pay people to go down mines to bring up coal which couldn’t be sold at the price it cost us to dig it up. These policies create employment but destroy wealth, and in the long run they do more harm than good.

rosscoe

@ Gastro George, the city was regulated to very high extent, this didn't overly bother the bankers who thought that they had found fool proof ways through the rules, and the rhetoric about light touch regulation suited the government who wanted to appear "business friendly".

As a consequence we had bankers making up dodgy products and processes that got round the regulations, but were so fiendishly complicated that lots of people, including the bankers, but most importantly the board members, shareholders and regulators, didn't really understand them or the risks they posed, and so failed to provide any oversight. This wasn't helped by the fact that as the banks were all acting within the regulation it was assumed (naively) that what they were doing was safe as well as legal.

The banks are an excellent example of what happens when the state get involved in business and we're all paying for that now.

gastro george

@rosscoe. So your conclusion is that the City should be less regulated, then everything would have been OK? Words defeat me.

rosscoe

@gastro george, I didn't say that everything would have been ok, but I'm not sure how it could have been worse than "the worst financial crisis ever" and billions of pounds spent bailing the banks out.

The proper people to regulate banks are their shareholders and possibly their depositors and if they fail to do that then they rightly lose their investments. the State has shown itself to be incompetent at regulating and if your suggestion is that "regulation failed so lets have more" then words also defeat me...

Stuart Moore

Rosscoe, you're an idiot.
The banks failed big time because they used their fiscal muscle to lobby government to de-regulate the banking industry so they could maximise profit regardless of the final outcome.
If the state failed, it's because it didn't regulate enough. However this would have been hard to do when the media is controlled by a right wing ideologist called Rupert Murdock who would have know doubt turned the full hatred of his media empire on to any polititcian who dared rain the banks in.
And while we're having this debate about the state vs capitalism, who had to come to the banks rescue, the state, which is a case of socialism bailing out a failed capitalism.
(Incidently Nick Clegg used to be a lobbyist for RBS)

Tom P

"The proper people to regulate banks are their shareholders and possibly their depositors and if they fail to do that then they rightly lose their investments."

I think that shareholder oversight is going to achieve little in a market where ownership is atomised.

The big shareholders were even worse at monitoring than regulators in this crisis. This is probably a mixture of a) them not investing their own money so not feeling the cost of mistakes b) diversification (they hold 100s of stocks so can't monitor any effectively) c) conflicts of interest (ie asset managers owned by banks).

rosscoe

Stuart you're rude.

If you read the earlier comments you'll see that the interrelationship between the state and business is the point that we were discussing. I was merely questioning Chris's suggestion that libertarians would be surprised by this when its actually a common theme in libertarian thought.

You admit that politicians and business have an incestuous relationship, you give the same two industries as examples as I 've given in an earlier comment to demonstrate this but, despite the fact that it you're aware that there is a revolving door between our politicians, civil servants and corporate interests you kid yourself that if we keep doing the same (but maybe a bit harder)somehow human nature will change and eventually we'll get the right person doing all the regulating and everything will be alright. I think you're naive but I don’t know you personally so won't comment on your level of idiocy.

Neil

Stuart, the inimitable P.J. O'Rourke said it best: "When buying and selling are controlled by legislation, the first things to be bought and sold are legislators."

It's not The State vs Capitalism; it's Free Markets vs Coercive Power.

Roscoe is right, you are witheringly naive to think that the problem of state corruption by the rich can be solved by giving ever more power to the state.

gastro george

@rosscoe

I didn't say that everything would have been ok, but I'm not sure how it could have been worse than "the worst financial crisis ever" and billions of pounds spent bailing the banks out.

In which case I'm not sure what you're trying to say, as before you were blaming CDSs, etc. on over-regulation. Which is plainly bonkers.

Esoteric financialisation in the City was the result of an unregulated attempt to extract profits today from an under-performing economy. Squeezing of personal incomes meant lower profits, so the only way of maintaining and extending profit was by punting debt to everybody. Then they found a way to "hide" the debt that made more profits. Until it surfaced again ...

How this can be blamed on over-regulation, when successive governments did almost anything that was asked of them by the City, is laughable.

gastro george

That first para's a quote, BTW.

rosscoe

@gastro george

There is certainly enough material published to suggest that regulation may have had something to do with the financial crisis and that over regulation may have been a cause. It certainly not settled and it’s not proved (people will be mulling over all the causes of that mess for years) but I don't think that it's entirely bonkers either.

Neil summed the point I’ve been trying to make better than me in his last comment, when he said that it's "naive to think that the problem of state corruption by the rich can be solved by giving ever more power to the state."

Neil

@gastro, rosscoe,

As to whether it was over-regulation or insufficient regulation that caused the problem, this is one area where you could both be right simultaneously - a good analogy is alcohol Prohibition: Regulation intended to prevent irresponsible and damaging behaviour was ineffective in eliminating the behaviour, instead driving it underground and leading to the corruption of the officials in charge of enforcing the regulations.

So the question is, did alcohol cause Capone, or did Prohibition? Did unregulated markets cause the crash, or was it the regulation itself which led to bankers going to great lengths to disguise the nature of the deals they were making?

As with Prohibition, there are two policy options - either repeal the regulations or double-down on enforcement. Which one you opt for depends to a large extent on how benign you see an unregulated marketplace to be.

gastro george

My flabber is ghasted.

Will Davies

Regulationist Marxists would say - well, yes, obviously. But there is a difference between serving the interests of capitalism and serving the interests of individual capitalists, or specific 'capitals' (as Marx put it).

The Keynesian-Fordist era was the most successful era of capitalISM the world has ever witnessed, if judged in terms of growth and rising living standards. But it was evidently not about maximising the interests of individual capitalists. State theorists believe that the very function of the capitalist state is to protect capitalism from its more self-destructive tendencies, which are rooted in inter-capitalist competition.

Glenn

Who says that unfettered free markets and capitalism are really the best thing for us? this book is very interesting in this regard: 23 Things they didn't tell you about capitalism... http://www.guardian.co.uk/books/2010/aug/29/ha-joon-chang-23-things

Its a thought provoking book. My main thoughts about state vs market is that the state has underpinned capitalist development everywhere - whether through law, finance, regulation or intervention. Its a question of how not why (as Dani Rodrik says). Sometimes we get the how wrong.

Keith

Is there an example of Capitalism without the state? Except in a Libertarian wet dream?

Lotus 51

The debate around this topic is utterly futile and meaningless until we recognise the difference between capitalism and corporatism.

Most of the criticisms of capitalism are actually criticisms of corporatism.

Paradoxically the statist/left answer to the corrupt nature of corporatism is to advocate more of the policies (greater regulation and state intervention) that lead to the corruption and priveledged elites in the first place. The end-game is state capitalism.

The rational is that "free markets are unfair and need regulating". The is no such thing as an unregulated free market, since a truly free market is regulated by its customers. Monopolies are rarely attained without the connivance of government. Big corporate interests love regulation as it creates barriers to entry by smaller companies into their "markets" which of course are no longer markets

The difference between corporatism and socialism is that with socialism the boot stamping on your face has the national flag and with corporatism the boot stamping on your face has a company logo.

In a free market there are no boots.

david

The problem is one of pies, the government, and virtually every government I have lived under, like to have their fingers in the pies. The pie in this instance being the city and the money it does generate. Regulation Vs deregulation arguement can go round and round. Those two things are basically opposite sides of the same coin. Its neither regulation nor regulators that should determine the outcome, but TRUE market forces. If a company gets it wrong then it should be allowed to fail, no matter how large that company is. Governments have no place funding private enterprise, and private enterprise has no business interfering with government. Until we are able to seperate those two forces and keep them apart then corruption and disaster will always follow.

If I know that no matter how big a mistake I make I will get bailed out then where is my incentive not to make mistakes ?

We will never have full employment unless you stop all social funding, believe it or not some people actually dont want to work. But stopping all social funding would be a disaster and create massive crime statistics.

Big government and big business must be seperated and allowed to function independantly of each other, there should be serious and enforced consequences of MP's taking payment from buisness, before during or after their terms of office.

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