Mirrored from Reddit, not my work. Source: https://teddit.net/r/InformedTankie/comments/hg2qu4/why_even_a_free_market_is_doomed_to_fail/
"its not capitalism! its Corporatism." "its not the market, its regulation." we hear these 2 sayings all the time, but lets see what would happen using history and raw data to see what will happen if conservatives and libertarians got there dream of laissez-faire. i will give my case on why the "free market" would fail.
Business will do anything, i mean anything to get out of head to head competition. with a super competitive market, whatever you sell so does your competition, that means lower and lower profits. Why do you think branding exists?
Natural Monopoly:
Merging and simple competition:
Firstly i hope many people know why monopoly is bad, at least capitalist monopolies. Many people like to claim there would not be any monopoly in a free market but this is demonstrably false:
After the Airline Deregulation Act of 1978 politicians were excited to see many new competitors and thus improving the airline industry. the opposite happened, although competition did flourish and many new competitors hit the market it was a matter of time till the companies started merging, thus eliminating competition and the rest ended up going bankrupt. And there was even more Airline companies before deregulation. Many people don't realize, companies don't want competition and will do anything to assure competition is eliminated, whether this be buying competitors, merging, out performing them based on scale (smaller companies give better quality the richer company can easily temporarily do better) and even other forms of sabotage. this is very general and simple, but competition has winners.
Utility monopoly:
this one is simple for several companies to run sewer systems, power lines, etc is simply inefficient resulting in a very common and natural monopoly.
Resource monopoly:
A resource monopoly occurs when a company has control of a scarce or location specific resource.
Yes, not as widespread but still very possible for example: ALCOA—the Aluminum Company of America controlled almost all the supply of Bauxite. No other companies could produce enough Aluminum to compete.
Another example is DeBeers who had control over the production of diamond in most of the 20th century.
taken from socialisci:
Intimidation and barriers to entry:
Businesses have developed a number of schemes for creating barriers to entry by deterring potential competitors from entering the market. One method is known as predatory pricing, in which a firm uses the threat of sharp price cuts to discourage competition. Predatory pricing is a violation of U.S. antitrust law, but it is difficult to prove. Now imagine no law against it.
Consider a large airline that provides most of the flights between two particular cities. A new, small start-up airline decides to offer service between these two cities. The large airline immediately slashes prices on this route to the bone, so that the new entrant cannot make any money. After the new entrant has gone out of business, the incumbent firm can raise prices again.
After this pattern is repeated once or twice, potential new entrants may decide that it is not wise to try to compete. Small airlines often accuse larger airlines of predatory pricing: in the early 2000s, for example, ValuJet accused Delta of predatory pricing, Frontier accused United, and Reno Air accused Northwest. In 2015, the Justice Department ruled against American Express and Mastercard for imposing restrictions on retailers who encouraged customers to use lower swipe fees on credit transactions.
In some cases, large advertising budgets can also act as a way of discouraging the competition. If the only way to launch a successful new national cola drink is to spend more than the promotional budgets of Coca-Cola and Pepsi Cola, not too many companies will try. A firmly established brand name can be difficult to dislodge.
Violent cycles:
Instability would be a plague of Free market advocates whilst the USSR had no recessions besides maybe a downturn during the war, the USA had 50 recessions, let me say that again, 50 recessions. This is some proper stability my friends. i mean ffs free market policies caused the 2008 financial crisis.
the whole idea of competition is instability, tons of new competitors and tons of businesses going out of business. a super packed industry is ideal for quality and lowering of prices (as i've shown there's many problems with this) but this creates violent cycles of job instability, job loss, etc.
Resource allocation:
Yes the usual market forces will be there but so will the crushing poverty worldwide. but without any real government aid to other nations we should expect things to be much worse. It is not profitable to sell food to 3rd world nations, but they are good cheap labour so under a worldwide libertarian type system expect some crazy inequality and unequal exchange.
principles needed to have a "Free market":
(credit to Reddish_vp)
- Rational agents;
- Monoatomic enterprises;
- Homogenuos products;
- No barriers to entry or exit the market;
All of those items are purely theoretical and each have a whole world of problems of their own.
Profit and Waste
its quite simple, a company runs on profits, capitalism runs on profits and if you do not keep coming back to buy there product there not making any money thus fail. this practice which is called planned obsolescence is very common, wasteful and exploitative.
The made to break motive started mainly in the 1930s with the pheobus cartel at a time when the average light bulb could last up to 25,000 hours! but then all companies were commanded to only allow a max of 1,000 hours of life to increase demand. this is a prime example of the wastefulness caused by capitalism. if this is not fixed this wasteful and disgusting trait of capitalism will worsen the lives of many as life grows more unsustainable. these are not just numbers, these are finite resources that with proper allocation and correct production could better the lives of everyone whilst keeping world sustainability.
Excerpt from TBS: "advertisements each and every day whose sole purpose is to convince us to keep on shopping under the promise that doing so will make our lives better. Through advertising, companies have managed to make us confuse our needs with our wants, thus making us desire to acquire things that we don’t truly need, so that we can fill in their pockets by emptying our own." this quote will remain crucial to the following points and crucial to this whole post in general.
Not too long ago apple was fined for deliberately slowing older phones so people buy the new ones.
W: another example, inkjet printer manufacturers employ smart chips in their ink cartridges to prevent them from being used after a certain threshold (number of pages, time, etc.), even though the cartridge may still contain usable ink or could be refilled (with ink toners, up to 50 percent of the toner cartridge is often still full). This constitutes "programmed obsolescence", in that there is no random component contributing to the decline in function.
other examples/ways items are made to break:
Nylons: not nearly as quality as they use to be.
Consumer Electronics: the case of apple deliberately slowing older phones and as shown below the tricks like placing the most sensitive part next to the hottest part on the circuit.
Cars: Vehicles that mere made before world war 2 were still being driven in the 60s. but this is not profitable, so companies created plans.
- “routinely discontinue parts that could otherwise be made available for repairs.”
- ” confirm to a strict yearly cycle of model releases, often introducing purely cosmetic changes from one year to the next.”
- “retire popular models and bring out something new every few years, making it harder to fix older vehicles.” (instead of “sticking with hits and standardizing them over time, which would better support a repair aftermarket”)
Cars today, for many, are seen as a fashion accessory and statement. It has become common for people to buy the new model of a car, even if the one they own is in great shape, and still has years to live.
