Western capitalism alllows infinite wealth accumulation to a single person. Has that ever been beneficial to society? I am talking about personal, individual-owned wealth, not market capital etc. Are there examples (other than charity/nonprofit) of very rich (Forbes richest list scale) people who risked really big amounts of money on ventures? Is it right to accept infinite accumulation of wealth by an individual if she isn't willing to put it at risk for the benefit of society?
There are no such cases. When you have exorbitant wealth accumulation in an individual, something has gone terribly wrong, because it means people are not able to compete with this individual for some reason. Lack of competition makes for inefficiency and complacency, and it is the opposite of innovation. It is a crappy stability.
The cases where individuals become very wealthy are cases where state-level capitalization of a large chunk of the economy is somehow converted into personal assets. This happens in several ways, all of which are detrimental to the economy:
One way, the most common way, for an individual to amass great wealth is to go to business school, become a top manager at a corporation, and then get a pay package that includes an enormous amount of equity in the firm. Then just do a competent enough job to raise the price (or an incompetent job which is hidden at the point of maturation of the options), and then cash out. The result is a transfer of a small percentage of the capitalization of the firm into the hands of an individual, and this individual got this reward simply for doing nothing particularly productive. This is how you acquire great wealth.
This is absolutely disasterous for a market economy, because these individuals are not entrepreneurs, they are not innovators, they are simply middle managers who are particularly cutthroat, and have a little bit of an edge in politics. The dynamics of the competition is the same dynamic as in communist countries, individuals squabbling to get to the top politically, and it makes the top layers of management of most enormous corporations completely useless. Often these people kick out any actual entrepreneurs at the first chance they get.
Another way, the most celebrated way, is to start a company which becomes a state-level institution. The way you do this is you grow in relative small size, innovate and innovate, making some millions, then, after your innovative phase is done, there are a few competitors in your niche. At this point, you go to an IPO battle, and exactly ONE of the competing firms is chosen at IPO time to become enormous, through a bet made by the investors that this firm will acquire a monopoly. The bet is usually a self-fulfilling prophecy, the bet is automatically successful if enough investors agree, the investors are rewarded with a rising stock price, and the company is made enormous, and the early investors make a killing.
Thisis also disasterous for a market economy, because it means investors are not looking to capitalize a hundred firms in a given sector, they are looking to dump their money in the single winner. The winner is determined by politics, so it has to be a conservative company that doesn't take chances, at least, not past the initial phase where it was growing from zero to ten-million capitalization. The winner-takes-all property means you kill the market diversity at the exact same instant that the thing breaks out into the wider consciousness, and you have the first IPOs.
This is a property of the capitalization system, which is selecting for large monopolies over many small competent competitors. This type of thing doesn't completely squash the smaller folks, but it makes one company enormous at the expense of all others.
So at each superstar making IPO, you kill a healthy ecosystem of competors by picking a final winner. This early winner then goes on an acquisition spree, bringing all the smaller firms under it's control, and gobbling up all the productivity in the sector, bringing it under a unified management. The chaotic creativity of a market is replaced by a staid managed beaurocracy. This is what happened in Google, in Apple, in Microsoft, in all the big firms. The oligarchy produced an artificial monopoly quickly, and the monopolist protected the position.
This is in the narrow self-interest of the investors, as they make a killing, but it is not in the best interest of a healthy market. A single firm removes the ability of a market to innovate, as the ideas of other capable people are shut out.
You see the same effect in artificial media monopolies. For example, when you want to make a rock-and-roll band enormous. You take one band with promise, and you give them a record deal. You then advertize them like crazy in a winner-take-all media environment, and the one winner is rewarded enormously, while all the other players are kicked out. You have made a media figure. It is a notorious pattern among such folks that their early years are innovative, and the later years are simply formulaic and market-chasing. It's the same pattern, because it's the same situation--- you choose a single winner from a thriving marketplace, and your choice makes a monopoly.
Market equilbrium consists of many small players who are kept by competition from getting too big. The owners of these firms are at best millionaires, not billionaires, they are kept in check by competition from each other, and their activity consists not of managing the top levels of an enormous bureaucracy, but in managing the company itself, making low-level decisions on what to purchase, and who to hire, and what to do. This is productive activity, and I don't think anyone is upset when such people acquire wealth. They are creating more wealth than they take home.
The issue is in the enormous concentrations of wealth that appear when state-level media and financial entities take it on themselves to pick a single winner, and then ensure the success of these winners by their sheer size. This creates horrific market distortions, and makes it that we live in an extremely inefficient caricature of a free market.
Wherever you see high compensation, you see a lack of competition. This is a hard rule. It is important to ensure that the competitive system is ferocious enough to prevent this kind of monopolization. Then if a single individual manages to slowly grow a firm to enormous size, always checked by competition, and always winning, nobody can say that this is a market distortion. Someone like Walt Disney, for instance. This is very rare, the markets don't reward entrepreneurship and innovation very well, they squelch it.
This comment has been deleted October 17, 2013
I hope they do! It means I am not preaching to the choir. Also, it makes my ego get big when I know something other people don't. But it usually doesn't happen, other people are usually smart.
I'm sure you know this is not communism, at least not as people understand the term. It is attempting to realize the potential of the idealized equilibrium of capitalism that everyone pretends to love, but has never been seen for real. I think it just might be possible to make it happen, by melting all monopoly producing entities, and if you do, I think it will blow anything anyone has ever seen out of the water in terms of efficiency and growth, because it is completely free and allows complete innovation, with no constraints on new activities, neither from the public sector, nor from the private sector. Under "nonbureaucratic socialism" (pick whatever term you want), you should be free to try your best to sell your idea, make a competitive firm, and live or die according to the market merits, with open pre-specified contracts you either fulfil or fail to fulfil, not according to the whim of some fat-cats with a ton of money.
You might make millions, but you won't make billions, somebody will underbid you if you do. Also, nobody should have to go with an unfair compensation, because free-market equilbrium produces enough for everyone.
I suspect that some of the folks who jumped ship from communism to capitalism in the 1980s (there were several big names), jumped because they understood that capitalist equilibrium is indistinguishable from idealized socialism, and requires no government omniscience. The problem is that the thing people call "capitalism" today doesn't bear much resemblance to the ideal economic equilibrium, with lots of small players who are free to innovate. Frankly, the large corporate oligarchy resembles communism a lot more than it resembles an ideal efficient market equilibrium you read about in books.
I think the closest model is Roosevelt and Eisenhower, the first Keynsians, who really understood that to make an efficient market, you need a good tax code that ensures it, by redistributing.
This comment has been deleted October 17, 2013
Ok, of course I agree, but I prefer to use the term which makes my position sound as unreasonable as possible, because I enjoy being downvoted (so long as I'm not actually wrong). It makes you more honest to use terms which are loaded against you.
This comment has been deleted July 28, 2014
Competition is sometimes about innovation, and sometimes about profit without innovation. The goal is to make the market work optimally, so that it naturally makes small stable companies that innovate to stay competitive.
This happens in many industries which are competitive. Small manufacturers are forced to innovate to stay competitive, small businesses are too. It's only enormous businesses that waste money on ridiculous burdensome omipresent ad campaigns that serve the purpose of crushing others through propaganda, the ad-campaigns of small businesses are usually just necessary to alert consumers to their existence.
The markets by themselves don't do it as they are structured today, but this is only because market size gives you extra clout, so there is a natural tendency to monopoly. All you need to do is add some incentives to reverse this tendency.
The first thing I think you need is a progressive income tax on corporate profits, gradually rising, depending on the number of employees. So small firms pay no tax (or perhaps get a small supplement on their profits, like the earned income tax credit), while large firms are taxed at higher rates.
This gives large firms an incentive to split, and prevents mergers automatically, just because they would be unprofitable.
But this is not enough, as a collusion of ostensibly independent small firms linked by single-vendor contracts is equivalent to a large firm. So you need to requiring transparent plug-and-play programmable supply contract interfaces, so that you know exactly how the firms are communicating. You can legislate this for publically traded corporations, for privately held firms, you really can't tell them what to do, but you can encourage them to go public (and split up when they get too big) by structuring the tax incentives appropriately.
Then if a competitor wants to enter the market, all they have to do is agree to meet the pre-specified contractual terms of the suppliers, and make it's own transparent contracts with it's own suppliers and contractors. Then it is in the interest of each of the small firms to buy from the lowest bidder, and you will get ferocious competition.
Under these conditions, I think a firm wouldn't be able to waste $10m on push-advertizing, or $10 mn on bonuses and salaries, it will be out-competed by another firm that doesn't have this expense and can make the same product.
The principle can be applied uniformly at all levels. Perhaps people can be allowed to make bids for replacing others in individual positions, but maybe that's taking competition too far.