28 April 2014

Free Market vs Capitalism (Government Intervention)

[Part 9 of 10, Free Market VS Capitalism essay series.  Part 1 here]

There is something that investment property, corporations, and intellectual property all have in common besides for being instruments of wealth inequality.
None of them could exist without state intervention.
Which is a bit ironic, when you think about the stated ideals of many conservatives and libertarians.

Owning the land on which you live is natural.  It is not universal - nomadic humans most likely never had any concept of land ownership - however the concept predates humanity.  Lots of non-human species have land ownership (we just use a different term, "territory", for some reason), especially large predatory mammals.
There will occasionally be border disputes, and if negotiation fails, it may be solved with violence, but once borders are established, other individuals of the same specie will respect them.

But no bear owns two separate non-adjacent plots of land. No cat owns the land that a different cat lives on.
No other specie attempts to force others to pay them tribute for the privilege of living in their designated territory, many miles away from where they actually live.
Ownership of territory is for the purpose of living in it and using it.

Clearly simple ownership of property of land is not dependant on any form of state power, as no other specie has formal large-scale government.  Humans could own as much land as they could personally defend without government.
But it is government that issues deeds.  Government steps in and volunteers to defend property you claim, even if it's in another city, state, or even country from where you actually live.  They will physically remove a squatter or tenant who is behind on rent from your property, at no charge to you, by force if necessary, and you don't even have to be physically present.

Of course, one major advantage of civilization is written laws and monopolized legal violence (police, military) dramatically decreases overall violence.  That is a good thing.  But police intervention in a neighbor conflict could be an extension of protection of life and limb of the citizen, while the citizen is protecting their own property.  Police protection of the home you live in, even while you aren't home, could still be seen as an extension of protection of your person, as protection from the elements is a basic necessity.
But its hard to justify protecting an investment property as protection of life or limb.  That is government intervention used to encourage capitalism.

There is trade without government.  Barter is the purest possible type of free-market exchange.  Currency greatly increases the efficiency of trade by allowing you to trade with someone who doesn't actually have anything you need, reducing a Catch-22 style series of complicated trades to a single transaction.  Currency can exist without a central state government too  - in the past individual states, or even counties and cities produced their own currency. In fact every video arcade and self-car-wash which uses tokens has minted it's own currency. Having a single large scale currency is certainly more efficient and practical, but it isn't a prerequisite for the system to work.
A stock market, however, is far too removed, far too complex, to exist without a large-scale state backing it up.  Without government to back up contracts, there would be nothing stopping a start-up from taking all the cash from their initial public offering, and simply absconding with it.  Given that risk, no one would invest in a company if they weren't personally in contact with the founders and managers.  There could still be investment, even pooled resources in the form of partnerships, but the stock market, as we know it, would collapse without government enforcement.  As we saw recently, even with enforcement of contracts, it would likely collapse without the government occasionally pumping huge amounts of money directly into it!

It is government that grants corporate charters in the first place.  Government grants individuals license to have limited liability.  No matter how many owners a company has, it is still some number of individual people.  A "corporation", no matter how it is legally defined, is obviously not an actual person itself.  It is a collection of people.  People who, as individuals, are held responsible for their actions.  But, by government decree, when they are in a group, they are no longer accountable for their choices.  We, collectively, accept this as just the way it is, but why should we, as a society, tolerate such non-sense?  If an individual driver kills someone through gross negligence, they are charged with a crime, but if an auto manufacturer cuts corners and a dozen people die as a result, no one is held accountable.  At best the "corporation" itself may face fines.  But imagine how much more responsible corporations would act if every single share holder was held legally responsible for its actions!
If the government did not grant corporate charters, there would be no corporations.  Nothing about them arises from natural market forces.  Suggesting that corporations should exist, but be unregulated except by the free market is inherently contradictory - the charter itself is a government intervention.  Without corporations there is no stock market, and it's accompanying unearned income; and the snowball of compound interest melts under the heat of a genuinely free market.

Technology moved like syrup on a winter's morning when the cutting edge was made of stone.  It's hard to imagine by today's standards, but the time frame for innovation was once measured in generations, maybe even entire civilizations, not in months and years as it is today.
Given that, along with how slowly information traveled when it had to be done by foot and speech, how much further back would all of human civilization and technology be set back today if the first person to figure out how to deliberately start a fire was given a 20 year monopoly on the secret.  Then on top of that, each new innovation in the process was given 20 years to benefit one single human.  Imagine if the wheel had been patented, then later the axle.  The road, stone tools, metallurgy, the thousands of individual components to agriculture, moveable type.  Those sets of 20 years would collectively have set back humanity thousands of years, while enriching whichever individual happened to be lucky enough to be the first to stumble on something new.

Throughout history, many great innovators have made a point of not patenting (or releasing the patent immediately), even though they could - because their primary motivation wasn't money.  The polio vaccine, penicilline, the three-point seatbelt, insulin therapy, the touchscreen, hypertext transfer protocol (http), estrogen therapy, hydraulic fracking, vitamin D enhancement in food, the non-surgical pacemaker - the inventors of each chose to give their technology to humanity rather than become rich from them.  They made the world a better place - and they undermine the claim that no one would innovate without profit motive.
Scientists discover because they are fascinated by how the world works.  Inventors invent because an idea gets into their head, and they have to see it come to life.  Artists create paintings and music and books because they are creative people.  There is a word for people who create art just for the money: hacks.
Their work is never as good as that which was created for love of the creation.

It is true that a decent portion of modern creation is driven by profit seeking.  And without the government intervention of intellectual property rights, that would slow down dramatically.
Is that necessarily a bad thing?

Just like with all the other forms of snowball income generation, it can enhance the rate of economic growth. Encouraging investment, innovation, and productivity help an economy grow faster.
But what is our goal?  Is it to become infinitely large?  For one thing, that is impossible.  For another, why would we want to even if we could?

We have far past the point of diminishing marginal returns.  We aren't getting any happier.  Our lives aren't getting any better.  We are far better off than people living in the developing world, but we aren't doing any better than those in the developed world but with smaller and more slowly growing economies than our own. We aren't doing any better than we were a few decades ago.  We have reached the peak of the benefit that growth can bring. The primary reason given to encourage growth is employment, but that's circular - we justify policies that reduce employment (outsourcing, corporate consolidation, the 40 hour work week) on the grounds that it helps corporations be competitive and grows the economy - which is a good thing because it provides jobs!?  It would be much simpler and more effective to create conditions that require more employment in the first place.  Restrict outsourcing, encourage competition and disallow mergers, and adjust the point at which overtime hours begin regularly in proportion to increases in productivity due to technology.  If we did those things, we could keep full employment, raise average wages, and do both without any further growth to the economy.  We could exchange never-ending growth for sustainability.

[Next up: So how do we fix it?]

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