2. Today's Capitalism
Capitalism Pseudo Capitalism :
The Ideal Capitalism - • incomprehensible rules regarding mergers,
Free market economy : acquisitions, and stock sales
Deregulate business and • wage controls, price controls,
trade, restrict state protectionism, corporate subsidies,
intervention, and let the international management of trade
energies of
• foreign policy controlled by corporate
entrepreneurship and free-
interests and overseas investments
flowing capital generate
wealth for all of those who • centralized federal mismanagement of
participate in the economy. farming, education, medicine, insurance,
banking and welfare
Capitalism should not be condemned, since
we haven't had capitalism !
3. How it functions……
Structured monopolization of so
many systems has resulted in a set
of political arrangements. Economy
is run by compact elite that is able
to fuse the power of governments.
That enables them to offload their
risks on to us, also to determine
with complete freedom of who
wins, who loses & who pays.
capitalism needs imperialism in
order to survive. The unplanned
nature of capitalism, inevitably
overproduces commodities and
overuses resources, which leads it
to expand its markets and drain the
resources out of other, less-
developed nations. The wealthy
nations, must maintain cheap access
to third world natural resources and
unfree labour (by force if
necessary).
4. Paradox… • Capitalism succeeds precisely because free
exchange is mutually advantageous.
• It is “the source” of civilizations and human
progress. Capitalism has brought to the
masses products and services that were
once considered luxuries available only to
the rich. Capitalism is not only the best-
known source of upward economic mobility,
it "actually reduces income inequalities
within a nation.“
• In short, capitalism alleviates poverty, raises
living standards, expands economic
opportunity, and enables scores of millions
to live longer, healthier, and more peaceful
lives.
5. "If the government is to tell big businessmen
how to run their business, then don't you see
that big business men have to get closer to
the government even than they are now?
Don't you see that they must capture the
government, in order not to be restrained
too much by it? Must capture the
government? They have already captured
it." - Woodrow Wilson
Regulation / Capture Effect
•Interest groups and other political participants will use the regulatory and
coercive powers of government to shape laws and regulations in a way that is
beneficial to them.
•when regulators form expert bodies to examine policy, this will invariably feature
current or former industry members, or at the very least, individuals with contacts
in the industry.
6. Continued….
• Vested interests in an industry have the
greatest financial stake in regulatory activity.
• They are motivated to influence the regulatory
body than individual consumers.
• Not because they are large or because they are
corporations but because "many corporations
support dominant or anti capitalist policies like
trade protectionism or corporate welfare
because they hope to benefit from the policies
at everyone else's expense.“
Most businesspeople are not even capitalists !
“Behind ‘The Invisible Hand’ of markets, there is the
visible hand of politics, which establishes the rules &
conditions in which the market mechanism
operates.” - George Soros
7. Monopoly….Why it occurs
•Profits would attract
increased competition. In
the long run profits would
attract new firms to the
industry. This results in a
further increase in total
output and a fall in price.
ultimately to the point
where all greater than
normal returns are
eliminated.
•In the long run, profits are
likely to be "competed
away" as new firms enter
the market with similar
products and prices will
tend to fall.
Creative Destruction !
8. Criticism :
Monopoly power permits managers and workers to function at lower levels of
productivity than they would be required to achieve in a competitive environment.
Fact :
If managers and employees of firms resorted to such inefficient methods, the
profitability of such a firm would decline and the capital market would function in
such a way as to make it difficult for a firm to attract new investment or even to
retain what it had. Capital would tend to move from inefficient firms to those that
were are efficiently operated.
There is unfortunately no good solution for technical
monopoly. There is only a choice among three evils:
private unregulated monopoly, private monopoly
regulated by the state, and government operations.
—Milton Friedman
9. Criticism:
Monopolists controls the prices & misallocates the resources
associated with monopoly power.
Fact:
People running modern business are more concerned with other things. The last thing
they are interested in doing is competing through price. The way a modern business
succeeds or fails is not in cutting price, but coming up with a new product, or a new
technology, or a new source of supply, or by reorganizing (possibly becoming big by
grabbing more market share),
•As for government regulations designed to "preserve competition",
both are unproductive and unnecessary.
•In fact, he argued, the historical evidence shows that monopoly,
when it does arise, seldom persists. Attempts to penalize big
business amount to penalizing success, the very success which has
enabled capitalism to raise living standards for workers and capitalists
to unprecedented levels.
Joseph Schumpeter
10. Some ‘TECHNICAL’ benefits of Monopoly…..
•Eliminates wasteful competition and duplication of
production facilities.
•Firms can plan their activities, and ultimately might yield benefits to consumers in the
forms of secure supplies.
•Monopoly promotes research, development &more effective methods of production.
•It is technically possible that the monopolization of a previously competitive industry
could result in a lowering of costs. A large, well-financed organization might be able to
introduce new, more efficient methods of production Whether the benefits of such
cost reduction would be passed on to consumers or not is another question. The
monopolist is motivated (as is the competitive firm) to maximize profits, not minimize
price.
Perfect competition is an exception rather than the rule !
11. Natural Monopolies
•There may be no feasible alternative to a monopolistic structure of industry. Where
economies of scale are very large and the size of the market limited, it may not be
feasible to have more than a single producer.
•Electric power generating systems and other public utilities such as rapid transit
systems provide examples of situations where competition is simply not practical.
•In these circumstances various methods may be used to limit the negative social
impacts of monopoly power.
•Public ownership and rate regulation by some publicly appointed agency are familiar
examples in most countries.
12. Price Discriminating Monopoly
•Separate customers into different groups having different elasticities of demand for
the monopolist’s product.
•This type of discriminatory pricing is familiar to airline passengers.
13. Product Differentiation
•There may be quite a number of firms (as in perfect competition), but they produce
products which are somewhat different from one another. Such "product differentiation" is
familiar from everyday experience.
•Many people have a favourite brand of tooth paste or believe that their cars run better on
one brand of petrol than another.
•What is important in such cases is not whether there is any real difference among brands,
but whether consumers believe there is. This is an area where advertising, as well as other
considerations such as a seller’s location and the quality of service provided, enter into the
picture.
•A firm practicing product differentiation is trying to establish a "monopoly" of that particular
version of the product, and to the extent it succeeds, it will operate much like a monopoly in
making its output and pricing decisions.
14. Monopoly profits, are more like prizes. less important for what they confer on a few
lucky winners. But an incentive to encourage many to seek success and in the
process of increasing productivity and the well-being of all.
