While capitalism is quite successful, it has shortcomings. These should be addressed by the society as a whole, and the State is THE organization that is participated in by the whole society. Major categories of capitalism faults:
- It does not guard against negative externalities: pollution, long term degrading employee health and safety, value extraction with no value creation (think stealing and other crimes). Here, laws and police/justice are needed to guarantee an even playing field.
- It does not guard against value capture by monopoly, be it natural or artificial monopoly. Here, state companies and anti-monopoly regulation are needed.
- It does not invest in positive externalities (think fundamental investigation in generic areas like math). Here, government funding of investigation is a good target.
- It does not guarantee its own persistence, when attacked by a different ideology (think national security). This is what justifies having the military.
Having the State intervene in the market to reduce these shortcomings should never be viewed as anti-capitalist, much to the contrary: it is essential to preserve capitalism.
For a very vivid example: large banks are capturing an exceedingly large added value from the market, and are creating negative externalities through risky behaviour. We have done nothing to contain this problem. Worse, we are generally failing to take the long view in planning government intervention in the areas government must operate, and are having the government act in areas where it shouldn't.
All of these are the result of unregulated and unrestrained capitalism. I'm confused that the majority has somehow been convinced that it is a good thing that corporations are socipathic entities that will parasitically consume its host (society) if allowed.
I was going to point out the opposite, that most of these traits are attributable generally to "crony capitalism". First, his example is about banks that have had the worst of it. Second, the government protects individuals and entities from negative externalities in a way not originally contemplated by the founders. Essentially cronyism protected railroads from being sued for negative externalities, and that presented today's regime. It is not a "natural" component of capitalism.
While these are some textbook examples of claimed shortcomings of Capitalism, but in reality, it is not that straightforward.
- Soviet Russia and Communist China had massive men-made environmental disasters.
- Most monopolies are created by the state sanctioned environment. Not all monopolies are bad. If anything that remotely resemble monopoly arise in relatively free market, it is because it serves the needs of the customers so well that it has out-competed all the other companies.
- If you dump hundreds of billions of dollars in something, sure, you might get some good out of it, but no one can quite measure if it was done efficiently or not. There's no good reason to assume to that such things would be have been only funded by government.
The fact that other society models are worse isn't relevant to my analysis. Capitalism is so far the best societal model, but that does not imply perfection.
Monopolies arising naturally do not imply that, for the society, the monopolistic status is the most efficient. It is the most efficient for the monopolist. Think of it as a local maximum. This is microeconomics 101.
If an investment in investigation produces mostly positive externalities, then the investor will not recoup his investment, even if the end result is better for the society as a whole. As such, these investments will not occur in free form capitalism, even though they would be positive for the society as a whole. I'm purposely removing risk from the analysis, as it does not affect the conclusion.
- It does not guard against negative externalities: pollution, long term degrading employee health and safety, value extraction with no value creation (think stealing and other crimes). Here, laws and police/justice are needed to guarantee an even playing field.
- It does not guard against value capture by monopoly, be it natural or artificial monopoly. Here, state companies and anti-monopoly regulation are needed.
- It does not invest in positive externalities (think fundamental investigation in generic areas like math). Here, government funding of investigation is a good target.
- It does not guarantee its own persistence, when attacked by a different ideology (think national security). This is what justifies having the military.
Having the State intervene in the market to reduce these shortcomings should never be viewed as anti-capitalist, much to the contrary: it is essential to preserve capitalism.
For a very vivid example: large banks are capturing an exceedingly large added value from the market, and are creating negative externalities through risky behaviour. We have done nothing to contain this problem. Worse, we are generally failing to take the long view in planning government intervention in the areas government must operate, and are having the government act in areas where it shouldn't.