Friday, 24 August 2012

Free market myths no. 4: capitalism is dynamic and innovative

I was talking to a friend the other day who was telling me about someone in his family who is a businessman. "What is his business" I said, "property" came the reply. This exchange set me thinking about how capitalism works. For sure, it wouldn't work without 'property', because the concept of private ownership of property is crucial, and without it capitalism couldn't function. When the Soviet Union collapsed and the 'free' market vultures moved in to feast on the corpse, one of their first priorities was to introduce new laws enshrining property rights so that the 'oligarchs' could get their hands on the loot - otherwise known as the common property and resources of the people of the Soviet Union.

So property is a crucial part of capitalism because from property comes rents and the commodification of land, which leads to capitalists cashing in on the exploitation of natural resources such as oil, which ought to be held in common. All these activities which rely on the holding of property can be used to generate great profits but none of them are in any way dynamic or innovative. Much of capitalism is about getting an easy ride like rent-seeking, asset stripping, corporate welfarism and cannibalising the public sector. Far from being innovative capitalists will seek to squeeze every drop of profit from existing commodities and plant and machinery before they bother to think of trying to do something new or different. There are countless examples of this, one recent example being the iPad 3 which differed from its predecessor largely only in having a higher definition screen. And, you can easily see how conservative capitalism is if you go to your local supermarket where you will see the same old detergents wrapped up in packets labelled "new" and "improved" .

Its much easier to make money from what you know. If you have a good product you flog it to death before thinking about a new one. This makes corporations resist change and become conservative rather than innovative, and that, as I've pointed out before on the blog is the reason why capitalists aren't using new, resource efficient methods which would make them more competitive and be much better for the environment - see here. What capitalism tends to be good at is adaptation to changing circumstances and finding a way around the crises it creates. But its the public sector which often leads the way in innovation. Many of the greatest breakthroughs we have seen in medicine, engineering and computing, like the mouse you are using with your PC, come from publicly funded activities. However, for the 'free' market fundamentalists its essential to maintain the myth that the public sector is slow and bureaucratic, whilst the private sector is dynamic and innovative. The problem is this just isn't true.


Martin said...

Free Market Myths, make a good GL pamphlet that.

Howard Thorp said...

There are more where they came from!