Skip to main content

The Failure of Capitalism

Warning: This post is meant for a rational audience who likes to wrestle with controversial points of view. If you are not amongst the rational category, please stop reading immediately. The author is not responsible for any results/consequences of reading this blog.


The free market economy is touted as perhaps the best thing that happened to mankind since the invention of the wheel. The market is the place where we trade, where we can exchange goods and services for those which we cannot produce or are outside our skill sets. Money is just a way to facilitate trade, and is not an actual commodity. Or is it? Apparently, we can put a price on money.

But it's not just about money. The free market is said to offer us ultimate choice; a scenario where the consumer is king; the ultimate in stable equilibria; and an invisible hand that always promotes the good of mankind.

However, capitalism, like other systems is an idealistic model, and the systems which we have in place are a poor approximation of the ideal situation.

To begin with, the free market, which serves as the basis for capitalism assumes an infinite number of buyers and sellers, as well as an infinite number of goods/services. This way, the buyers have choices, not just between goods, but also between the sellers selling the goods. This situation can occur only on paper. In fact, we have a limited number of sellers, a large number of buyers, and a number of goods/services. How close is the situation as compared to the ideal?

Not very, apparently. Economies of scale dictate that it is better to mass-produce. This means that we no longer can have the infinitely many small sellers, but they collude and form bigger organisations. These big organisations eventually get extremely powerful and start controlling the market. Intellectual property and patent protection laws often help them dictate terms and control competition. Look at the pharmaceutical industry. With millions of dollars spent in R&D, the pharma companies often charge premium on drugs, many of which are life-saving and essential. The high prices place many of these drugs out of the reach of people who cannot afford them, condemning people to a slow and painful death, while patents prevent other (relatively more) philanthropic players from entering the market to save countless lives. Can't see any benefit to mankind here.

On the other hand, look around whenever you want to buy any equipment, say a computer or a mobile phone. Do you really have a choice? I don't think so. The only choice you have is one of N products, where N may be sufficiently large. None of us has ultimate choice in the marketplace, and yet we think that we are spoilt for choice. In fact, the market structure for most electronic goods is not even an oligopolistic structure, but a monopolistic competition.

Sometimes, I'm amazed by people. They claim that they want choice, and then choose the option where they have minimum choices possible. Anyone buy Apple products? One phone, one music player and one laptop. That's the choice Apple offers, and yet people flock to its stores. The only customisations they get are the stickers that they put on the phone.

Two conditions critical for the free market, which is the basis of capitalism don't exist in the real world. What we have in the real world is a market controlled by few producers, who are powerful enough, and consumers whose awareness is lesser than the poverty line in India. It raises serious doubts about the success of capitalism as a paradigm for the market.

In fact, capitalism has its own share of problems. Profit maximisation has lead to "pollution havens" which are countries with poor environmental standards. These countries are generally poor, and would welcome industry even if it posed risks. These pollution havens are often abused, and products made in these countries are sold in countries with relatively higher environmental standards. In the ideal scenario, goods would be produced locally, and people would resent any harm caused to the local environment due to the production of these goods, which would reflect in poor sales of the product, causing the producer to change his/her method of production. When production (and subsequent pollution) is being done on the other end of the globe, people generally would not care about the harm caused by using something.

Further, big corporations generally prefer big govenments. They lobby for more government control, and in the process create barriers to entry, which prevents smaller fry from getting in. Right now, the cost of a medallion required to run a taxicab in New York is a million dollars, which ensures that only big companies can afford to run taxicab services, and that passengers receive "good" treatment.

So, is capitalism another system that looks good only "on paper"? If so, why has the system survived the test of time. Is it just because we could not find a better, alternate system? Or will time tell? Do the "Occupy" protests signify something? Interesting questions to which I have no answers.

Comments

Popular posts from this blog

On Harry Potter and why I dislike the series

There could not be a better time for this post. There could not have been a worse time for this post. Now that the penultimate movie of the series is out, and my facebook wall filled with people who loved the movie. But this is something I really wanted to say, and I shall say it anyway. Harry Potter is pathetic literature. Now, you must be wondering why I say that. There are many reasons. Firstly, the storyline itself is flawed. When a writer sits down to write anything, he/she must set up some essential rules about what is happening. These rules must remain constant irrespective of how many times he/she changes his/her mind. This is so that the readers are allowed to have some sensibility in what they are reading. In the fourth book, Rowling goes ahead and kills Cedric. Then, at the end of the book, the horseless carriages are there again. Nothing special. We all knew that they are horseless. But then comes the fifth book, and BAM, the horses are actually winged beasts that only thos...

On the Dvorak Simplified Keyboard

This is a post that I have been meaning to write from quite some time. Long hours spent typing code on my computer left my hands fatigued, and left me with a lot of pain in my wrists and fingers. That is when I decided to use the Dvorak. But I have got the same bad habit as Dr. Watson, to tell a story backwards. Of course, you must be wondering what the Dvorak is. The story of keyboards starts with the invention of the typewriter. Christopher Sholes, the inventor of the typewriter, tried with a two row piano style keyboard. But then, he got into many difficulties with the design. Then he finally settled for a four row design. This was similar to the QWERTY layout that most computers and typewriters today possess. The engineers at Remington, to whom Sholes had presented his design modified the layout a little further, and then the QWERTY was born. As typewriters became popular, people got used to the layout, and started practising touch typing, i.e. typing without looking at the keys...

The paradox of government

I'm fascinated by the concept of government, and the paradoxes it presents. On one hand, governments grant us a certain set of rights or liberties. On the other hand, they work to strip us of the very liberties they promise. Now, I don't mean that all governments strip people of liberties, but there are liberal regimes, and there are sufficiently restrictive and dictatorial ones. Both models may have results to show, it does not mean that people in a restrictive regime are unhappy (refer to Dan Dennett's TED talk , where he states that ideas or memes can be dangerous when taken from one part of the world, where they are widespread, and, using the virus analogy, where people are immune to the memes; to a part of the world where they are foreign, where people may not be immune to the memes and where people may get infected). History has shown that people were sufficiently satisfied with autocratic governments with a benevolent dictator, and that people in other parts of the ...