Capitalism flawed?

Sramana Mitra gives a well thought out reason for why she feels Capitalism is flawed. I believe she's wrong.

Capitalism works. Free markets will hold in check the greed inherent in human nature. The greed we must fight is that of politicians and regulators to have control. Free markets cannot hold that in check, and once control of free markets is gained by the government they are no longer free. Wresting control from government is only done at great cost, e.g. Fascism, Nazism, Communism, and–I have to add–well-intentioned Socialism.

When the government gets involved there are always strings attached; too many strings. The banking industry has been controlled (regulated) by government for 70-plus years. What happens in the industry happens because regulators allow it to happen; including the greed we see now. If a free-market system had been allowed to develop over the past 70 years greed would still exist, but the system would never have allowed it to get to the point we see now under government control.

Sramana says there are some systemic problems with Capitalism, but what she is looking at in the U.S. is not a Capitalistic system. Seventy years or more ago we planted a seed called socialism. At first it was small and not very noticeable. Over the years it has grown large in stature, and it's roots and branches extend into every nook and cranny of our once Capitalistic system. Capitalism is a different tree.

Is Sramana right? Or, am I right?

Growth: the "Killer" App, Why Is It the Titans of Business Never Get It?

Eric Schonfeld of TechCrunch did a book review of "Googled: Schmidt Wants To Build A '$100 Billion Media Company.'" My question is: Why do business leaders always feel bigger is better?

Google has been one of the coolest companies to come along in decades, but trying to become a multi-media giant will ruin everything that makes Google, well...Google.

Growth doesn't mean just doing a lot more of what a company has been doing. Growth requires expanding and moving into other areas; areas where management may not have as much expertise.

Disney was once a really cool company, but as it continued to grow it was forced to focus more on growth and less on creativity. In the 1990s it tried to generate full-length animated feature films with a cookie cutter approach--the tried and true fairytale with three new "blockbuster" songs--and a new film every year. But the creativity was gone. They had to acquire Pixar to get animated features that were even close to original and creative. Slowly, creativity is being wrung out of Pixar too. Now they have consumed Marvel and will start the process of killing it.

Microsoft was once a fairly cool company with software that was--if not really cool and easy to use--at least better than other available options. But with its size, aggressive behavior, and software programs that are becoming more cumbersome to use, many of its customers feel a love-hate relationship with the company. As better software applications that meet specific needs come on-line people continue to use them.

To my mind, these are two companies that, at one point, had it together with bright futures. Growing to a position of dominance has made them targets for other smaller and creative companies who find lucrative niches. Google has been one of the companies with lucrative niches, but I fear is losing its way in the forest of business plans and growth.

Trying to be everything to everybody has never been a viable business model. It has more to do with the ego of company leaders than with providing really creative and useful products or services to your customers.

The Test of Time

You cannot build financial stability by spending.

Strength comes from a position of abundance. Spending will follow.

Letting someone else do these things for you is not stability or progress.

Willingly giving up the freedom to choose for your self is still bondage.

The price to get back freedom to choose is great and is not always attainable.

Freedom will go where it is appreciated. Fare thee well.

Lessig Says Dump the FCC, I Say Don't Stop There

Stanford Law School Professor and founder of Stanford's Center for Internet and Society had a article in Newsweek this week (see also). Some of his observations are profound and, in my opinion, right on target: "Economic growth requires innovation....Washington is practically designed to resist it."

In other ways he stops short of identifying the full problem. He wants to abolish the FCC, but he would replace it with another bureaucracy. It would only be a matter of time before the new bureaucracy was bogged down with the same problems the FCC faces. In addition, there are numerous other governmental bureaucracies that are fully as stifling in their spheres as the FCC is in its sphere.

Innovation is stifled by bureaucracy and regulations. Most regulation does not fulfill its intended result. Further, when elected officials and bureaucrats are given so much power it goes to their heads and they think they can actually protect us and the economy. Lessig says, "commissioners are meant to be "expert" and "independent," but they've never really been expert, and are now openly embracing the political role they play. Commissioners issue press releases touting their own personal policies."

Who in the economy is most capable of stroking and schmoozing politicians? Big business. Competition is tough and the outcome is never certain, even for established corporations with long histories. In fact, established corporations with their own bureaucracies can be a disadvantage. That is why big business seeks favors and favoritism from big government. Because government has the power to control and has already taken billions of dollars from us it is really the only entity in a position to grant favors. Again, Lessig says, bureaucrats develop "an almost irresistible urge to protect the most powerful."

The combination of big business and big government scratching each others' backs is reprehensible and destructive to competition.

I understand that competition means there will be winners and loosers. We are watching some big loosers, the American car makers, grovelling before congress even now. If these entities end up on the bone pile there will be many innocent employees who will be out of work and a few big wigs that will walk away with great post-employment packages. This is more the doing of government favoritism than a failure of the free enterprise system. Adam Smith's invisible hand will never be able to quickly sort through these problems and we will always move forward haltingly, because hundreds of different solutions will be tried and not all of them will work, but this is also the greatest benefit of free enterprise. The solutions that work will be better and stronger.

Many say that people are greedy and will not help their fellow man, but I say that is patently untrue. People are uncommonly good and generous. It's only when they feel they have already been bled dry through taxes that people tend to hold back and even then when the need is real people still give generously.

John Lennon said, "All we are saying is give peace a chance." All I am saying is give people and freedom a chance.

We're Going the Wrong Way

This past year we bought a Wii for the family. We've had so much fun playing the games. It took a while, but finally we were able to snatch a Wii Fit board before a new shipment vanished from the store shelves. Exercising with the board has been fun and healthful. We are all much more active now.

Our most recent game purchase was MarioKart, which lets you race against others on a bunch of different race courses. It's been a lot of fun, but a little frustrating too since I'm not very good at it and I somehow frequently end up turned around a going the wrong way.

Which brings me to the point of this blog entry.

How has the United States moved so far from the principles of morality and personal freedom which were so insturmental in the development of the country in the first place? How have we gotten so turned around and not only going the wrong way, but wanting more of it?

More government control, more government protection from anything that might be painful. As I pointed out in my post Free to Fail these things might not always be pleasant, but they are absolutely essential to our development of character and ability to make choices that will keep us strong as individuals, as families and as a country.

Government can never supplant personal growth and integrity with government programs and regulations.

Here are two other observations on this problem. Douglas French and Star Parker

Free To Grow

In my post Free To Fail my point is we learn and become stronger by the experiences we have. What we learn helps us better understand how to deal with new situations we are confronted with. When someone shields us from those experiences they do a disservice. When we are shielded from important experiences over a very long period of time the results can be disastrous.

Clayton Christensen in his book Seeing What's Next: Using the Theories of Innovation to Predict Industry Change, in referring to the process of hiring people, articulates it this way:

Most of what managers have learned results from wrestling with problems. Overcoming these challenges or problems leads to the development of competencies that people can use in similar situations in the future. While the right-stuff thinking castigates failure, failing can actually be beneficial as long as one can learn to identify the root cause of the failure so as to prevent it in the future.

How people, managers, have overcome difficulties is often as important or more important than the management skills they have learned.

Free to Fail

Of all the freedoms we enjoy the one most overlooked is freedom to fail. Fail?! That's not, really a freedom is it? We don’t like to talk about it and, truth be known, we really wish it wasn’t there.

Still, this little backwater freedom is under major attack by government officials with encouragement from every side: liberals and conservatives, Republicans and Democrats, economists, journalists, businesspeople and citizens at large. Heck, we’d give away the freedom to fail in a heartbeat—if anyone would take it. Who wants to fail? Not me!

What we learn from our failures though—our mistakes—is often more meaningful than what we learn from our successes. Part of human nature is making mistakes. Humanity is full of emotions. We push things to extremes: up and down. Small failures help us learn to avoid big failures. We become more cautious, more observant. We back away from ideas that don’t work and pursue ideas that do work.

When government steps in and saves us from economic turmoil it adds to a feeling of euphoria, a feeling that government really can control things and make life better through economic planning and social programs. However, even when done with the best of intentions, government programs such as loosening financial standards, creating too much money, and acting quickly to keep the economy from experiencing its normal ups and downs delay, but do not eliminate economic corrections.

My biggest fear is that those who want to run the government are too willing to take control and solve our problems. Just sit back and relax. They won't let anything bad happen to us. Poof, our freedoms are squandered along the road to a better society.

You say I'm paranoid and overreacting to the situation? In the last year, we have witnessed many government seizures of control I never dreamed could happen in my lifetime. In some cases the profligate business people begged for government help.

Free markets are made up of millions of people acting on their own behalf; economic engineering and social programs deny us of lessons we as individuals must learn to ensure sound economic growth and development. If we don't learn from our small mistakes as we go, then the let down when it comes is worse, sometimes catastrophic.

Our current situation has grown out of many years of government engineering of the economy and the money supply. The lessons we haven’t learned put us further out on the limb than is reasonable or prudent. We will never know what our economy might have been like if we had grown stronger by learning from our mistakes.

Billion dollar bailouts are a last ditch effort to save us from the harmful and often wrong decisions of economic planners over the past 30 years. Lessons we should have learned in those years have been postponed, but not avoided.

Unfortunately, the price we pay to avoid the pain is more than monetary. We give up the chance to take care of ourselves and do things in better ways, in ways that are more personal. We give up the freedom to choose.

Solving our problems won't be easy. A space ship off course by only half a degree will miss its target by thousands of miles. Because of government meddling our economy has been moving off course for many years. Then when government officials decide to embark on a plan to save us, and throw billions of dollars at it in the process who can stop them?

To be sure, there are other factors contributing to our being off course: greed and big business seeking and receiving favors from government are two, but the lessons we haven’t learned apply here also. And the culprit is also the same: Government granting favors to select groups and encouraging reckless actions on the part of individuals in the name of accomplishing some social program.

Those who would run the government believe we are not capable of taking care of ourselves. They don't have faith in us. They earnestly believe only they can provide the solutions to our misery and woe.

However, people like to do things for themselves. We are capable of figuring out solutions to challenging situations; even situations that are unpleasant and thrust upon us. We have the energy and enthusiasm to meet challenging tasks and overcome them. Our history is full of examples. Our energy and enthusiasm grow when we take care of ourselves.

Relying on government to solve our problems—or worse, wanting government to do so is a recipe for loss of freedom, and I believe for failure on a large scale. We may be learning that unnecessary lesson right now.

There is no substitute to taking responsibility for our own well-being.

I Just Keep Swimming Uphill

Charles Darwin made a name for himself and shaped the thinking of the world with his theory of evolution by natural selection. I believe in evolution, but not to the extreme that Darwin and many in modern science believe.

Through our own experience we see evolution on a small scale: we create new strains of plants and see that genetic code can be altered by cross breeding. I can even accept that over long periods of time cross breeding could result in improvements to the genetic code itself, but I still sense the work of a higher being, God, in the world and the universe.

My point here isn't which is right: creationism or evolution. No, its a different subject entirely--society and government.

For those that so adamantly endorse evolution the idea of a managed society should be heresy. The evolution of the world and its vast array of biodiversity is the result of natural selection not central planning. Even natural selection with just a little help from those that believe they are truly bright enough to enhance the whole process would still be tinkering. For those that believe in a higher being, central planning is still wrong because it means control of the many by the few. Life, liberty and the pursuit of happiness by very definition mean freedom of the individual to choose.

Information is increasing at an incredible rate. Not all information is available to all people; it's impossible to collect all information into one repository, and even if it were possible it's impossible for one individual or even a small group of individuals--no matter how smart--to process that information in a timely manner. Even the gifted and talented cannot know more than a fraction of the information needed to effectively "run" the economy. That is especially true as we become a global economy and move further into the age of information.

Collectively though, all available information is known and is processed by someone. Millions of people acting independently and in their own best interest are able to more rapidly sift through information and put it to use. Some will choose wisely and others won't and it doesn't matter. Millions of decisions will be made and of those decisions the best, the most practical will produce positive results and rise to the top.