Capitalism: Early benefits, Late problems?

[The_Animus]

I've been thinking about capitalism a bit lately. It seems to me that initially it would have benefits. There would be competition, which would lead to better quality products, lower prices, and improved service. In order to get more customers a company would try to find ways to give better products at a lower price than their competitors and their competitors would do the same.

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?

It seems to me that at some point improving durability of a product would be bad for a businesses profits. If the product lasts 10+ years that means that people who buy that product will not have to buy another one for a very long time. I know that for some products there is no need to increase durability to this point because of the type of product. For example a computer. Most people will want to buy a new computer or at the very least upgrade essential parts before 10 years time, but I'm not talking about that type of product.

I know that companies have been found to be illegally meeting behind closed doors to set prices, though I don't know about other things such as durability. And when they are caught they are usually fined a small amount and nothing is really done to the company.

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?

I don't pretend to be an expert on the subject of economics. This is just something I was thinking about and so I'd appreciate the thoughts and opinions of those on this forum with greater economic knowledge.

 

[rjh01]

The real problem with capitalism is that it is the second worst system in the world. The worst? Every other system.

 

[Pope130]

I agree with rjh01 on this. It is a system that works badly. It should be replaced by a system that works better. Problem is we haven't found one yet.

For now I favor sticking with capitalism, controlled and monitored by appropriate laws and agencies. Sloppy, but it works.

Robert

 

[Rob Lister]

I've been thinking about capitalism a bit lately. It seems to me that initially it would have benefits. There would be competition, which would lead to better quality products, lower prices, and improved service. In order to get more customers a company would try to find ways to give better products at a lower price than their competitors and their competitors would do the same.

But what happens after this system has been in place for a long period of time and competition is no longer between small rival companies but a select few business giants? Does it not reach a point where it is better for businesses to maintain the appearance of competition to the public, but meet behind closed doors to set prices? Does it not reach a point where improving durability/quality of a product is not in the best interest of the major competing companies?

It seems to me that at some point improving durability of a product would be bad for a businesses profits. If the product lasts 10+ years that means that people who buy that product will not have to buy another one for a very long time. I know that for some products there is no need to increase durability to this point because of the type of product. For example a computer. Most people will want to buy a new computer or at the very least upgrade essential parts before 10 years time, but I'm not talking about that type of product.

I know that companies have been found to be illegally meeting behind closed doors to set prices, though I don't know about other things such as durability. And when they are caught they are usually fined a small amount and nothing is really done to the company.

To sum it all up I think that in the late game trying to out compete your rivals would earn less profits than meeting behind closed doors and setting prices and durability/quality.

To me it seems not a question of what would cause this to happen, but what would stop it from happening?

I don't pretend to be an expert on the subject of economics. This is just something I was thinking about and so I'd appreciate the thoughts and opinions of those on this forum with greater economic knowledge.

Seems to me all your arguments against capitalism are really arguments for it.

 

[Tony]

Frankly, I think its the opposite. Historically, capitalism seems to have early problems and late benefits.

 

[3point14]

I agree with rjh01 on this. It is a system that works badly. It should be replaced by a system that works better. Problem is we haven't found one yet.

For now I favor sticking with capitalism, controlled and monitored by appropriate laws and agencies. Sloppy, but it works.

Robert

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

 

[Rob Lister]

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.

eta: In the u.s. along with most other first-world countries, capitalism is greatly diluted by socialism; not necessarily a bad thing. Without capitalism, you lack revenue, without socialism, you lack support. In the end there is an ever-shifting balance.

 

[Tony]

double post

 

[Tony]

Propose all you want but without an example, your proposal is moot.

I suspect if a better system "came along" then the switch would be natural and not forced.

LOL

Tell that to citizens of North Korea and Cuba. A better system has been around for decades, and yet, those with vested interests are using their power to hinder the adoption of this better system.

 

[JoeEllison]

That, and the American system is hardly capitalism at all, thanks to the levels of parasites attached to it, in large part due to the stock market, and the predatory nature of those at the very top.

 

[Rob Lister]

LOL

Tell that to citizens of North Korea and Cuba. A better system has been around for decades, and yet, those with vested interests are using their power to hinder the adoption of this better system.

I'm impressed by the mind that can both make that statement and believe it at the same time, especially as an argument to my statement.

I like to think that the results speak for themselves.

 

[The_Animus]

The real problem with capitalism is that it is the second worst system in the world. The worst? Every other system.

Granted. But that has nothing to do with my post. I'm not debating whether there is currently a better system. I'm just proposing flaws in the current one.

Seems to me all your arguments against capitalism are really arguments for it.

Then either you misread what I wrote or I was not clear enough. It has benefits initially. But there is a limit to which competition results in lower prices and higher quality products. There becomes a point where it is more profitable for major competing companies to meet behind doors to fix prices and quality than to continue to try to out compete each other. This kind of meeting would have major benefits to the businesses, but not the consumers. It would allow businesses to set and keep higher prices than if they continued to actually compete. It allows them to have lower quality products. It results in less urgency toward research and development of newer, lower cost, higher quality products.

As a result the customer is losing out on these things so that the businesses can make more profits.

At least it seems like that would be how it works, and businesses have been caught doing just that. Not just for things like gas, but even food and meat prices.

I suspect if a better system "came along" then the switch would be natural and not forced.

I suspect exactly the opposite based on the many examples history can give us. Look at the struggle to implement electric or hybrid cars. That didn't come naturally and easily. It was fought by the car companies because they wanted to keep the current much more profitable cars.

Slavery, Women's rights, becoming a Democracy, The earth is round and revolves around the sun, evolution. Even when things have great scientific backing and are proven again and again to be right or better than the current system there are people who fight change.

Why would a new and better economic form be different?

But in any case this isn't about whether there is a better system. It's about where the current form is heading. If this system stays in place I think the problem will only get worse. A greater range of product types will be dominated by a select few business giants. These companies will reach the point where full blown competition isn't the best option, and they will instead cooperate behind closed doors.

Also when companies reach this point, like walmart for department stores, or tyson for the meat industry, there is no room for a newcomer to have a chance at competing with these businesses.

 

[Rob Lister]

Yea, well, IBM will never get squashed by any newcomers like...

lol

 

[The_Animus]

http://www.counterpunch.org/food.html

The world's two largest grain companies are now one. The wave of mergers that has changed the face of the American economy in Clinton time is also engulfing the food industry. On July 9, 1999 Cargill Inc., the nation's largest privately held company, won approval from the Clinton administration to acquire the grain-trading operations of its primary rival, Continental Grain Inc. The approval came over the objections of attorney general offices from farm states, the Farmers Union, consumer and green groups, which charged that the union will create a near monopoly in the grain business. Combined, the two companies will control 94 per cent of the soybean and 53 per cent of the corn market. How can farmers get a fair price under these circumstances? Grain is not the only product where concentration is extreme. In the Midwest four companies control more than 40 per cent of the processing of each of the major farm commodities, lamb, beef, pork and chicken.

And that is a single company. Once you add up the top 3 or 4 companies for each market they own an awful lot. What percent of their market do you think Target and Walmart control?

http://www.smallbiztrends.com/2007/08/google-controls-the-fate-of-small-publishers.html

Google holds the fate of tens of thousands — probably hundreds of thousands — of Internet publishing businesses in its hands.
Being kicked out of Google’s search index for some infraction, real or suspected, can mean the difference between thriving, and struggling to stay alive. The bigger and more dominant Google becomes, the more that Internet publishers are dependent on Google — and the more this is an issue.

Recently Google acquired DoubleClick and now has more ad control than ever.

And these companies will only get bigger. When a company already controls such a huge % of its market it has tons of profit money. This money can then be used to buy out competitors and gain them an even larger portion. While the government has its anti-trust department, this only makes the acquisition go slower, not stop it.

 

[drkitten]

Yea, well, IBM will never get squashed by any newcomers like...

lol

Yes, but you'll notice how much longer IBM managed to hold back the computer industry than, say, Honeywell, AT&T, or DEC did.

I think the economic term that Animus is looking for is "barrier to entry." In Adam-Smith style idealized capitalism, there are no barriers to entry at all; if I want to start making shoes, I simply start making shoes and sell them. If my shoes even "as good" as the competition, I will be able to successfully compete and make my fair share of the market.

In the real world, that doesn't work as well. A company can create "barriers to entry" that will artificially raise the costs of entering the market, which in turn will artificially decrease competitor's profit margins and make them less competitive. Sometimes these barriers to entry are natural -- if I happen to own the only decent grape-growing land for miles around, no one else will be able to grow grapes (and I have an effective monopoly). Sometimes these are artificial legal barriers -- if I have a patent on a particular technology, no one else can use that technology without my permission. Sometimes they're extra-legal barriers that I have created through cross-licencing or marketing or something like that.

A good example of this kind of "barrier to entry" comes from the Betamax/VHS wars, back in the day. Betamax was actually a superior technology, but the VHS people managed to get more of their players out there, so the "market" never had a chance to evaluate the technical merits. Betamax was facing an artificial "barrier to entry" in that its product was incompatible with the emerging standard. Today, a new product would have a similar problem trying to break into the DVD market. The DVD standards are created by a consortium of the current major players, and a new technology that threatens their hegemony will be rejected by the consortium.

So imagine the plight of a small player. He's got a hypothetical video storage technology that is substantially better than a DVD, but he is unwilling to surrender control to the consortium. But he also can't turn around and sell it without a huge influx of money; he'd basically need to create one company to create the storage devices, another company to create players for those devices, and a third to publish material on it. If the consortium gets snippy (for example, with exclusive licence arrangements), he may have to create a fourth production company to produce material to publish as well.

That's a lot of startup capital.

You can see the problem in the video game industry, too. Le'ts say I want to create the drkittenbox370. Unless I can get people to write games for me, no one will buy my box. But unless people will buy my box, no one will write games for me. The only solution is to be someone like Microsoft, with deep enough pockets that I can just buy both sides of the equation at once (and even Microsoft had to give xboxes away at less than cost initially to establish the necessary critical mass). Where does Adam Smith suggest that I should come up with that kind of capital?

 

[Pope130]

But just say that a better system presented itself, is there any way in the world that we could switch to it without major problems (riot, war, civil commotion, as the insurance policies have it).

I would propose that if a better system presented itself, then those with a vested interest in the status quo, who would have it in their power to try to implement such a system, wouldn't.

I would further propose, human nature being what it is, that those with a vested interest in the current system would actively discourage anything that might lead to the development or implementation of any superior system.

As ever, I could be wrong.

Well, nobody said change was easy. A new system certainly might impose itself by force (as communism did) or succeed on it's own and spread (my preferred method). If someone has a better economic system they should propose it.

Robert

 

[Tony]

I'm impressed by the mind that can both make that statement and believe it at the same time, especially as an argument to my statement.

I like to think that the results speak for themselves.

I've been gone for months and you still act like a child when you've shown to be wrong. Its nice to know some things never change.

 

[Tony]

You can see the problem in the video game industry, too. Le'ts say I want to create the drkittenbox370. Unless I can get people to write games for me, no one will buy my box. But unless people will buy my box, no one will write games for me. The only solution is to be someone like Microsoft, with deep enough pockets that I can just buy both sides of the equation at once (and even Microsoft had to give xboxes away at less than cost initially to establish the necessary critical mass). Where does Adam Smith suggest that I should come up with that kind of capital?

And Microsoft still hasn't made a profit on the xbox after being in the console bis 7 years. It's obvious Rob doesn't know what he's talking about.

 

[The_Animus]

Thanks drkitten. That was a detailed and articulate explanation of part of the problem I was trying to express.

The problem with coming up with any new system is that all systems require honesty and integrity from those who run the businesses. Without that any system can fall apart because of corruption and greed.

 

[The_Animus]

http://www.techspot.com/news/23612-microsoft-makes-tiny-profit-on-xbox-360-hardware.html

Through reduction in manufacturing costs, Microsoft has managed to bring the cost of the Xbox 360 to a zero loss, if not a slight profit. With a reduction in manufacturing costs by nearly 40% since the console's release and perhaps streamlining of the process and bulkier orders, a $399 pricetag now nets Microsoft $75.70 – before the unit has been shipped however. While Microsoft themselves haven't announced whether or not they plan a price drop, this will definitely give them leverage in the console wars if they wish to make the console cheaper.

While they can't beat the Wii on price, they have a huge price advantage over Sony, which may be a key factor in determining supply and customer cost.

So it seems they are making a profit since this article was from 2006. Even so it did take even a giant like microsoft much time and money to squeeze into the console market.