Capitalism is Not Pro-Business

Always searching for the real thing
Living like it's far away
Just leave all the madness in yesterday
You're holding the key when you believe it
--Michael McDonald

Nice video on whether capitalism is 'pro-business.' In unhampered markets void of force and fraud, producers are free to produce what they want and charge what they want. However, they must please consumers. Producers that do so are likely to make a profit.

Not only do they provide incentive, but profits also signal value, and encourage producers to improve quality and reduce prices to the market.

Producers unable to turn a profit are by definition destroying value (output value < input value), an undesirable thing in a world of scarcity. Unprofitable firms cannot persist in unhampered markets. Instead, unprofitable firms must cede productive resources to operators who may do better.

This is all good for society. Consumers get more of what they want and producers are rewarded for doing so. Those rewards motivate productivity improvements so that more abundance is produced in the future. Moreover, incompetent producers cannot waste scarce resources for prolonged periods, which further improves standard of living prospects.

But today's markets are far from the unhampered ideal. Whether they are labeled hampered, mixed, managed, controlled, etc, today's markets are subject to forceful interference by government. Bailouts, subsidies, and regulations are some of the forms that such government interference take.

Ironcially, while they are often done in the name of the consumer, government interventions are prone to do just the opposite. Competition goes down and inefficiency is institutionalized among producers. Special interests, such as certain big businesses or union groups, benefit from government intervention at the expense of others.

The presenter in the video offers the example of Wal-Mart (WMT), a company that came out in favor of higher minimum wages a few years ago. While nicking WMT, higher minimum wages hammer cost structure of small competitors in a disproportionate fashion. Minimum wage laws put mom-and-pop shops at a competitive disadvantage. Moreover, wage laws raise entry barriers to entrepreneurs thinking about getting into the sector. Consumer welfare suffers.

Big business backing of Social Security in the 1930s provides another example of the phenomenon.

Supporters of capitalism are not pro-business, particularly big business. Supporters of capitalism are are pro-people--i.e., people voluntarily engaging in production and trade without force or fraud.

no positions