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The Market

The Market

by Mike Masnick


Filed Under:
capitalism, free markets, morality



Free Market Capitalism, Moral Character And Doing Good All Work Hand In Hand

from the can-we-get-over-this-already? dept

I've never quite understood the complaints of some that free market capitalism somehow goes against morality or good deeds. As we've discussed in the past, moral questions shouldn't even come up at all in scenarios where everyone is better off. Moral questions only arise in scenarios where some are worse off and some are better off, and a decision needs to be made about who is worse off and who is better off. The nice thing about free market capitalism is that it tends to increase the overall pie, allowing a much larger number of people to be better off, and tends to do so in a more efficient manner than other systems.

Yet, then we have odd stories about people complaining about for-profit charitable organizations even when those charitable organization end up raising significantly more money for charities than their non-profit "competitors." There's nothing inherently evil about profit -- and if you look at much of the important charitable giving out there today, it was created because of profit. The Bill and Melinda Gates Foundation -- which is based on this very idea of doing good through capitalism is built off of the vast profits earned by Gates and Warren Buffet. Google's charitable wing, Google.org, is also designed as a for-profit enterprise, recognizing that if it can make everyone better off while making itself better off, there's no moral dilemma at all.

But, still, there are some who suddenly question whether or not the free market takes away a moral backbone -- but the only situations in which that would clearly be true are in cases of either outright fraud, or where you're dealing with a zero-sum game. In an economy that has the potential for growth, then one should encourage more growth to increase opportunities for everyone. There may be additional moral questions later concerning overall allocation, but increasing the wider opportunity, which is exactly what free market capitalism does, seems ridiculous to question.

In the end, it seems that some have this odd guilt associated with money -- as if because one person has made a lot of it that it somehow takes away from others. That's simply not true. Adam Smith, who wrote the original book on free market capitalism, The Wealth of Nations, only did so after first writing a book on morality, called The Theory of Moral Sentiment. Free market economics and morality go hand in hand. To think that they're mutually exclusive shows both a misunderstanding of morality and economics.

30 Comments | Leave a Comment..

 
Say That Again

Say That Again

by Mike Masnick


Filed Under:
capitalism, digital content, economics, free markets, socialism



Free Is Not Socialism

from the this-again dept

I've had a browser open with a two part series from the site "e-consultancy" for the better part of a month, debating whether or not it's even worth going through this battle again -- but it seems worth it to clear up some serious misconceptions. The first article decries "digital socialism" and the second part goes after the "tyranny of the consumer." This, by itself, seems contradictory. The capitalist free market works thanks to the tyranny of the consumer. That is, the entire reason why the free market works is because consumers have power to move to a competitor -- and that keeps producers in-line. Complaining about consumers getting their way is a rejection of capitalism and the free market, not support for it.

The complaint about "socialism" is even more confusing. The writer confuses the fact that anyone can own a copy of a non-rivalrous, non-excludable good with "collective ownership." That's quite wrong. Socialism is, indeed, about collective ownership of a single good -- with multiple folks sharing ownership of a single scarce good. What people are talking about when they discuss digital content going free is not collective ownership, but how supply is infinite such that everyone can own their own copy. It's the opposite of socialism or collective ownership. It's very much about allowing personal property to thrive. The article also makes the odd (and incorrect) claim that those supporting such freeing up of digital content are, like "socialists" asking for government interference in the market. Amusingly, just a few paragraphs after making this claim, the writer goes through the history of intellectual property in the US, detailing exactly how intellectual property is government interference in the market.

It never ceases to amaze me that people claim that the free market economics we describe is somehow "socialist," when the system they support is a system of government-granted monopolies managed through a centralized government body. How is that possibly more capitalist than actually letting the free market come up with reasonable business models that don't rely on governments defining the winning business model?

103 Comments | Leave a Comment..

 
Overhype

Overhype

by Mike Masnick


Filed Under:
anti-american, business, capitalism, long-term view, maximizing profit

Companies:
habbo hotel



Maximizing Profits Doesn't Mean Screwing Your Customers

from the rinse,-lather,-repeat dept

A few years back, we wrote a post debunking the ridiculous notion spread by some that Craigslist was somehow "anti-capitalist" or not "maximizing profits" because it actually offered most of its services for free. As we noted, much of Craigslist's long-term success was because of these decisions -- which in all likelihood did increase overall profits for the company in the long run by building up further trust in the company. It may not have maximized profits for this quarter, but it most likely was doing a pretty good job in generating profits for the long haul by keeping customers happy, rather than trying to squeeze them for every immediate dime (and who was just saying that Silicon Valley doesn't have a long term view?)

Now we've got another similar story, as the LA Times is positively amazed that the popular virtual world Habbo Hotel limits its users to spending no more than $35/month, on the theory that many of its users are teenagers, who could get sucked into spending on stuff, which could lead to eventual backlash. Its CEO made this clear in a recent interview, saying: "We didn't want a situation where teens were raiding their parents' credit cards to be able to play.... We really don't want teenagers to spend more than the price of two movie tickets a month on Habbo."

So, how does the LA Times describe this decision? It points out, partly in jest, that "turning down money seems un-American." Again, even if this wasn't meant as a serious comment, it's similar to the silly claims about Craigslist. Habbo Hotel has simply made a strategic long-term decision on ways to best maximize its success for the long haul. And, part of that probably included the calculation that Habbo would have been in quite some trouble if news stories started showing up about kids bankrupting themselves buying virtual trinkets for their Habbo Hotel world. Limiting how much people can spend isn't anti-American or anti-capitalist or even anti-profit maximization. It's just taking a much longer term view of the best way to maximize profits over the long run.

59 Comments | Leave a Comment..

 
Predictions

Predictions

by Mike Masnick


Filed Under:
benevelent dictators, capitalism, culture, economics, entrepreneurship, growth, silicon valley



Keeping The Benevolent Dictators Of Silicon Valley Honest

from the is-that-any-way-to-build-an-internet? dept

I don't think I've ever had more people send me a single blog post than a blog post from earlier this week by Rebecca MacKinnon discussing her worries about "Silicon Valley's benevolent dictators." It's an interesting read that brings up some excellent points. It starts off pointing out the rather insular view many folks have in Silicon Valley about "the rest of the world" and the sort of hubris that comes out of the Valley on a regular basis. That, of course, is nothing new, and is a criticism that has been leveled at Valley inhabitants for many, many years. And, indeed, there is a "clubby" nature to Silicon Valley at times, that has both good and bad sides to it.

MacKinnon points out, correctly, that Silicon Valley-ites also tend to put blind faith into the idea that technology = freedom, and freedom = good, in a rather libertarian sense. Again, that's been said before. But then she points out something of a contradiction in all of this libertarianism, by noting that in fighting against any government regulation while putting all our faith in technology, we actually end up with a system of "benevolent dictators" made up of the folks who control the technology we put our faith in. That is, she worries that in rejecting government regulation, we've approved a defacto dictatorship in the form of the companies we put our trust in. In some sense, this is channelling Jonathan Zittrain's pessimism about what happens when those benevolent dictators turn away from benevolence.

Basically, what both MacKinnon and Zittrain are pointing out is that technology is just a tool. It can be used for good or for bad purposes, and it's part of Silicon Valley's hubris to assume that good will automatically win out in the end. That is, we've been mostly blessed, because the people putting such tools into practice are doing it for good (benevolent) reasons, but there's always a risk that someone else will do something much worse with it. It's a fantastic point, and one well worth thinking about, but I think the assumptions are a little bit wrong.

It's not necessarily a blind faith that "technology" and "capitalism" are flat out "good," but more a recognition that an expanding market tends to open more opportunities for everyone, and the end result of that expansion is good at a macro level. Capitalism tends to remove the barriers for growth, while technology (or, more specifically following Paul Romer's thesis, "ideas") are what then creates that growth. Capitalism is about removing the barriers, and technology and ideas are about enabling that growth. That doesn't mean that there aren't downsides to both -- but the net gain does appear. And, one thing that has become incredibly clear throughout history is that it's nearly impossible to take away that net gain once it appears. And, conversely, asking the government to create those net gains instead almost always fails, due to the difficulty in accurately regulating a market.

In other words, by removing the barriers and enabling the potential, you've almost guaranteed that when someone tries to use the tools for less-than-benevolent reasons, it only opens up strong demand for someone else to provide the equivalent (or better) in a benevolent way again. And, at the same time, in asking the gov't to manage the benevolence, you almost guarantee less opportunities to actually provide good tools, because you've added hurdles they need to jump through. Yes, there can be bumps in the road -- and, no, it's not always a fun process along the way. But enabling for growth is not blind faith. And, there are plenty of checks and balances in place that should these "benevolent dictators" turn authoritarian instead, the end result (or "revolt" as the case may be) can often be strong enough to deal with it.

So, yes, there may be some benevolent dictators in Silicon Valley -- but they'd be hard pressed to successfully ditch that benevolence without paying a huge price.

Related to this, I've recently been doing a presentation for various corporate execs (almost all from outside the US) on "What Makes Silicon Valley Silicon Valley." It's probably my favorite presentation, because it's fun and it usually challenges a lot of the assumptions many people have about why Silicon Valley has been so successful for so long -- that is, while it discusses some of the "common" reasons, it focuses more attention on the hidden, unexpected and accidental reasons for why Silicon Valley became what it did.

The last time I gave it, I ended up getting into a huge discussion with some European execs who pointed out that many of the explanations seem to run almost entirely counter to what many countries who try to set up their "own" Silicon Valley think. That is, many folks look at Silicon Valley and try to replicate the outward manifestations (a good university, some venture capitalists) and miss the underlying details that create the real culture of Silicon Valley, because they almost seem counterintuitive. And the most basic element of this is enabling the free exchange of ideas (that engine for growth). Instead of doing that, most focus on protecting ideas and limiting that free exchange, falsely believing that hoarding information beats sharing information (even with competitors).

So, what happens is that other countries set up their own Silicon Valleys by focusing on protectionism (greater intellectual property rules, non-competes, hugely funded labs), and ignore the power of the cross pollination of ideas and people throughout Silicon Valley, which make it that much more difficult for any single company to abuse the trust of the people they serve. Should any company turn away from benevolence, that openness almost guarantees a more open competitor shows up in return (sometimes with the same employees from the older company). That openness drives innovation, but also keeps these benevolent dictators honest.

30 Comments | Leave a Comment..

 
News You Could Do Without

News You Could Do Without

by Mike Masnick


Filed Under:
capitalism, doing good, philanthropy



Capitalism And Doing Good Are Not Mutually Exclusive

from the tie-them-together dept

Over the last few years, it's been great to see more people realize that capitalism and philanthropy are not mutually exclusive concepts. When Google launched its philanthropic foundation, the biggest news was the fact that it was designed as a for profit entity, rather than the typical non-profit. The NY Times is now writing about this trend for new philanthropic organizations to also be for-profit organizations, recognizing that many of them have found they can do much more "good" by also focusing on a way to make a profit. As we pointed out when Bill Gates called for "kinder capitalism," a full understanding of capitalism would suggest that there's plenty of kindness baked in. There is benefit in doing good, and just because there's a profit motive behind some things, that doesn't mean it's at odds with doing good. It's great to see that more philanthropic organizations are recognizing that as well.

30 Comments | Leave a Comment..

 
Say That Again

Say That Again

by Mike Masnick


Filed Under:
bill gates, capitalism, economics



Bill Gates Isn't Calling For Kinder Capitalism -- He's Calling For Better Understanding Of Capitalism

from the it's-not-all-about-greed dept

Many people seem to think that capitalism is only about money. It leads to bizarre and incorrect claims suggesting that behavior that doesn't maximize dollars isn't "rational," as neoclassical economists would suggest. But, that's generally a misunderstanding of economics -- where it isn't money that's the driving force but the utility or the benefit that a person receives from any given action. Quite often, that benefit is in the form of money, but it certainly doesn't mean that it always needs to be. As we all know (but sometimes need to be reminded about), money does not equal happiness (utility). So, while it's a good thing to hear Bill Gates is giving a talk in Davos about embracing capitalist principles in urging companies to take up issues dealing with the world's poor, it's hardly a "different" capitalism or a "kinder" capitalism, as implied by the Wall Street Journal. It's actually just a more accurate understanding of capitalism -- where it's about decisions based on actual benefits, which include both monetary and non-monetary benefits.

35 Comments | Leave a Comment..

 
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