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Crony capitalism may be cannibalizing productive capitalism in the U.S.

245 points by wowtip 9y ago

frgtpsswrdlame 9y ago
Just to kick off some discussion. Do you guys think that the shift from on-prem to SaaS is indicative of a move towards rent extraction?
- jacquesm 9y ago
  You see this in the weirdest places (government data processing, for instance) and I suspect this will continue to grow until there are some high profile data leaks at such SaaS providers. Way too many important eggs in single and often badly secured baskets.
  - edoceo 9y ago
    Like when MJ Freeway had a breach in Jan affecting Nevada Marijuana enforcement? A SaaS the State purchased?
- deathhand 9y ago
  Not necessarily as overhead operational costs are lowered with the SaaS model and that's not true 'rent'. Licensing fees would be considered 'rent' but obviously necessary as a motivator for production.
  - ben_jones 9y ago
    Isn't that a case of "get everyone hooked then raise the prices"? How much is pricing currently subsidized by VC and early access promotions (like GCP, AWS, Uber) which will go away over the next ~10 years.
    - pm90 9y ago
      AWS is currently minting money. Amazon and Google don't offer no subsidies, Amazon at least, invests all its profits back into the business, which is def not a subsidy in any sense of the term. As the competition heats up and providers become more efficient, I actually expect prices to go down even further.
  - kem 9y ago
    I agree with the "not necessarily" part, but one thing that concerns me is in seeing large, critical institutions, like large hospitals and universities, outsourcing critical infrastructure off-premises. If you look at operational costs per se, and licensing fees in a scenario like that, you're missing a huge proportion of the most threatening costs. Consider hospitals, for example, and recent problems with ransoming electronic health system data. What concerns me with SaaS is that the biggest costs are very catastrophic or serious risks (like lock-in dependencies, or hacking due to monocultures--by the way, is that a formal, modeled concept in computer security, like it is in agriculture? The vulnerability of a market to "infection" due to monocultures?) that are maybe high probability over a very long-term period, but very low over a short-term period, and hidden.
- s73ver 9y ago
  No more than paying for any other software.
- Analemma_ 9y ago
  No. SaaS is a pricing model, rent extraction is a business model. You can have rent extraction on-prem and competitive business with SaaS.
- ViViDboarder 9y ago
  By default, I'd guess, no. But I feel it can and, often enough, is. Many SaaS companies will raise prices year over year without providing any additional value. That increase seems to fit the definition here.
- nikkwong 9y ago
  Can someone care to enlighten me on how SaaS can qualify as rent extraction? I'm sure there is a lot of fudge, but the US is a "capitalist" society—in that I mean you're not required to continue paying for a SaaS product if you deem it's not worth the money. How is this 'rent extraction'?
  - e12e 9y ago
    Assume for a moment you have 10 000 employees and 10 years worth of business correspondence in Gmail, Outook.com or similar. Now for email, there is usually at least one or two open apis for getting that data (pop/imap) - but even so, migration is a costly affair. You could move all new correspondence to a new (eg: on premises) system - but you'd have to keep paying to retain the same access to your business history. Take any of the many business/crm-apps, where there's no clear migration path (you'd want both history and business process rules) - and it's easy to see how SaaS might easily facilitate "rent extraction"? As others have mentioned the problem isn't unique to SaaS - but with an on premise solution, you might be able to move some terabytes of data by simply moving some physical drives - or at least have local access via you SAN. With a cloud provider, many businesses would struggle to get at the data at a higher rate than 100mbps even with the help of the SaaS provider. And there's often no option to keep access to "old" system/data without paying rent, unlike some on premise solution (keep the old system, on it's own network segment, ticking along for historical records (or: in a VM).
  - gwbas1c 9y ago
    Because if you have significant amounts of data in a SaaS product you just can't leave. You have to continue to pay as long as you need that data.
- jackcosgrove 9y ago
  No because on-premise software has not been regulated by SaaS providers. Customers are choosing SaaS. SaaS is indicative of greater concentration and the possibility of oligopoly, though. I think it's only a matter of time before the cloud platforms begin coordinating price rises beyond the value they provide. If they try to regulate on-premise software then it's time to break the glass.
  - jbooth 9y ago
    It doesn't have to be regulated to be rent extraction. You just need to make the switching costs really high, no help needed from the legal system. Look at Oracle.
    - pm90 9y ago
      You're making good points but the nice thing about capitalism is that if a business finds switching costs too high, then another business will come up with a cheaper technology and kick the older businesses' ass. What we really need is to ensure that in these scenarios, the older business doesn't use its power and resources to stifle the upstart. That is one purpose of AntiTrust laws, I believe.
      - svachalek 9y ago
        That's an effect of competition, not capitalism. As mentioned in the feature article, capitalism itself has a tendency to create monopolies and extract rents since that produces a much higher ROI than engaging in competition to produce useful goods.
- GlennS 9y ago
  Only when vendor lock-in and inaccessible data silos comes into play. And that's not a problem specific to SAAS.
  - e12e 9y ago
    True, but bandwidth and lack of "raw" access (eg: b/w limited api) might make some types of migrations extra hard with SaaS. Good luck getting 1-10 Gpbs data transfer from most public SaaS to your own datacenter without having to pay over and above your current fee for Internet access (eg: have a look at what it costs to get just a TB data out of S3 -- on any budget (or prime) dedicated provider, 10-50 TB of data would be included - per month.
- friedman23 9y ago
  It depends if they are actually increasing the value of the product.
- fragmede 9y ago
  Maybe if you're an economist. If you're an accountant, categorizing Saas as OpEx (vs CapEx) certainly also make it seem that way. However, as a software developer, calling it rent-extraction glosses over architectural differences and value derived from not having servers tucked away in an office closet. Flexibility and capacity on the server-end, as well as huge benefits of software distribution over web-browser reducing support costs. I derive a ton of value in never having to drive to a data-center and paying EC2 by hours-used seems reasonable since there is actually a server (albeit virtual) running for my money. However, it's certainly rent-extraction when the only thing thats going on via the Internet is a licensing check. Adobe Photoshop switched to the cloud model, so graphic designers now pay 30-$70/month for the entirety of their career. Yeah it's always an up to date version, but before the shift to a SaaS model, it was some $600 but it would keep working for years if you couldn't scrape together the cash for the latest version.
  - petra 9y ago
    Well, non-rent model would be you buy the software(forever, if you want you can pay for updates), and in a click of a button you get hosting+backups etc, with some very cheap monthly rent(which is a more realistic representation of that part of the work). And you own that bundle of software + data.
- pm90 9y ago
  Hardly. I mean it does look that way at first, but as long as there are good competitors around, the price of SaaS products won't be exorbitant. Besides, technology seems to have a very cyclical progression: we went from time sharing computing on big vendors' computers, to personal computing, and now back to hosting with big vendors, via cloud. I'm gonna go out on a limb and say that future progress would once again make having one's data with oneself more attractive.
  - kem 9y ago
    "as long as there are good competitors around"--that's the key, and not something I necessarily trust to be the case. Net neutrality, for example, would be a non-issue if there were good competition, but there's not.
metalliqaz 9y ago
> Crony capitalists seek to generate profits without producing anything of value. If they are generating profits, then they are doing something valuable. Are they sucking cash out of the government? Maybe, but it's valuable to somebody. You want to fix it? Don't try to fix the entrepreneurs, fix the goddamn government. Most of these Comcast-type rent-seekers are complete and total assholes, I agree, but I'm not about to hold my breath waiting for them to stop going where the money is.
- TheOtherHobbes 9y ago
  Of course it's valuable to someone. That isn't the point. The point is whether it grows useful economic activity, or whether it actively slows useful economic activity.
- hn_throwaway_99 9y ago
  > Don't try to fix the entrepreneurs, fix the goddamn government Did you read the article, because that's its point. Last sentence: Let's hope legislators can put aside the rancor of this hyperpartisan age and work to end the favoritism that gives well-connected businesses an unwarranted advantage.
- CryptoFascist 9y ago
  "If they are generating profits, then they are doing something valuable." Starting out with a completely unsupported assertion, eh? Bold strategy!
- leggomylibro 9y ago
  Kind of reminds me of that episode of Always Sunny in Philadelphia where Danny DeVito's character comes out of retirement to save his former company. "So what do we make here, Frank?" "What d'you mean? We make money." "Right, yes, but what do we actually create?" "We create wealth." "Okay, but like, what do we produce, what do we manufacture, what do we design?" "Manufacture? Leave that to the c&$%^s, we produce profit!" Incidentally, starting to order parts a few hundred at a time from places like Taobao for various projects, I'm noticing that there are a lot of companies who just do that and slap a 500% markup on Amazon. Want a 6-pack of $0.15 mini-breadboards or a few dozen $0.05 jumper wires? Sure, $5.99 with prime shipping. What a steal!
dreamdu5t 9y ago
You can't get $10k to start a hot dog stand but you can get billions of dollars with literally no plan for profit if you're already rich or seeking VC. But want to start a normal business? No capital for you! And your taxes will pay for the banks and VCs when they screw up.
- balls187 9y ago
  I get that this is hyperbole, but: 1. There are plenty of US Government (i.e. tax payer funded) programs to help people get "normal" ideas off the ground. From grants, to loans, the money is there. It's hard to imagine someone destined for success being stopped by not being able to raise $10k. $10k in credit card debt is nothing for the average american. 2. Success breeds success. If you're rich, you may already have your own skin in the game, or you may have proven yourself capable of using capital effectively.
  - xiaoma 9y ago
    Since you seem knowledgeable about this, what is the amount of credit card debt available to the median American above what they already carry?
    - balls187 9y ago
      Above what they carry is irrelevant. American's can get themselves on average up to 5-7k of debt[1], it's reasonable assumption that if one was determined, they could get $10k in credit. https://www.valuepenguin.com/average-credit-card-debt https://www.valuepenguin.com/average-credit-card-debt
      - xiaoma 9y ago
        I can say from first-hand experience a few years ago that your assumption—which you presented as fact—is false.
  - xenadu02 9y ago
    > 1. There are plenty of US Government (i.e. tax payer funded) programs to help people get "normal" ideas off the ground. From grants, to loans, the money is there. It's hard to imagine someone destined for success being stopped by not being able to raise $10k. $10k in credit card debt is nothing for the average american. You've obviously never tried this. It would be a full-time job for a year to even have a shot at these supposed grants. The money is absolutely not there the way you claim. The younger you are the less credit history you have which makes getting loans almost impossible unless you already have collateral to pledge against the loan. Oh and $10k is often not nearly enough capital to start a business since you need to pay your own bills while you bootstrap the business. We get away with it in tech often because we have the luxury of working after-hours as a side-project to start with. A customer-facing business can't do that.
bogomipz 9y ago
From the article: >"Because it’s just a transfer from one person to another, rent doesn’t necessarily make an economy less efficient -- it’s just often unfair. " I would argue that "rent" does make the market more inefficient. The more rent these companies can extract from consumers the larger their lobbying budget and the more campaign donations they can make at all level of government. Political lobbying is the biggest and most effective tool used by crony capitalists.
- mars4rp 9y ago
  problem is with political system, lobbying and campaign contributions!
  - ue_ 9y ago
    Although privileges granted by the State to "crony capitalists" excarberates issues, I do not consider it the root of issues, and to me, capitalism would have the same issues even without a government, or with minimal government. I think we're fixing the wrong part of the bottleneck by arguing for a completely free market.
    - mars4rp 9y ago
      we don't have capitalism in US we have corporationism. free market would have been a good thing before automation and AI, but it won't work for the future. but you can't convince people to go toward socialism in this country. but left and right agree that problem is crony capitalism ! let's start from there and do something!!!
      - bogomipz 9y ago
        >"free market would have been a good thing before automation and AI, but it won't work for the future." Can you elaborate on this? I am curious to hear why those two things - a free market and AI are mutually exclusive.
        9y ago
ithinkinstereo 9y ago
Most rent-seekers are at least operating within the boundaries of law and physics, if not ethics. Compare that to scam-preneurs behind startups like Theranos or uBeam, or vc-hustle-preneurs behind is-this-satire startups like Juicero, June, etc.
- sharemywin 9y ago
  That's like saying it's ok to rob you because at least I didn't kill you like the other guy wanted to.
- wu-ikkyu 9y ago
  Is it ethical to have ~23 empty homes for every homeless person in the US? https://skeptics.stackexchange.com/questions/22335/are-there-24-empty-houses-available-per-homeless-person-in-the-usa#22336 https://skeptics.stackexchange.com/questions/22335/are-there...
projectramo 9y ago
There is a theory that all above market profits are generated by government granted monopolies. So, for instance, software is protected by patents, oil and gas is protected by mineral rights, drugs are protected by patent law, entertainment is protected by IP rights, and so on. In so far as there is competition, it often arises when the rent-seeking motivates people to disrupt the government protection by making it useless. In software, people have lived with that since the beginning because it moves so fast. But even in slow moving fields like energy, we see new tech rendering the old protections less important. I am not saying society has not paid a steep price for rent seeking behavior but that it has been part and parcel of all capitalism forever, and not unique to the American experience.
- devoply 9y ago
  Lots of innovation in tech happened despite patents because of ideologues like Stallman and the gpl/open source movement which left lots of software which could be used to disrupt monopoly. Not because it moves fast. If people were playing that game companies like Google would not exist or at least be much much slower in growth and what they have been able to accomplish.
- jbooth 9y ago
  That theory falls under the Econ 101 fallacy -- assuming perfect information dispersal, instant job-switching, instant production ramping.. "First, let's assume the cow is a sphere".
  - arcanus 9y ago
    > "First, let's assume the cow is a sphere". It is worse than that, because at least physics is validated by experimental data. Much of (macro in particular) Economics is a set of axioms that are seldom predictive.
    - pm90 9y ago
      And yet, people swear by them as though they have the same validity as physics. I never really understood that mentality.
jackcosgrove 9y ago
The only way this will end is limits on campaign contributions and other kinds of bribery. The returns on lobbying are astronomical compared to the returns on productivity improvements.
- pascalxus 9y ago
  >>>The returns on lobbying are astronomical compared to the returns on productivity improvements. You Hit the nail right on the head. I believe, this is the root of all the problems mentioned in this thread.
- Terr_ 9y ago
  I think the linchpin is actually our voting system. It strongly encourages the existence of only two parties that are always trying to split the difference, and that's the scenario which is very friendly to institutional bribery and regulatory capture.
  - Paul-ish 9y ago
    Countries with a system that allows for many parties still end up forming coalitions though. It isn't clear that the problem goes away.
balls187 9y ago
I read the opening paragraph, them skimmed through the rest of the article looking for concrete examples of "Wrong Kind" of Entrepreneurs. I have a hard time imagining tech entreprenuers are the "wrong kind." They may disrupt by circumventing the law, but I don't buy the argument that they're not producing something of value in return.
- pascalxus 9y ago
  mostly, they're not talking about tech entrepreneurs. they're talking about established industries like: ISPs, pharamecuticals, patent trolls and patents in general and various other monopolies.
- bertjk 9y ago
  If someone has to violate the law to produce value, then it is likely that they haven't really "produced" any value. More likely they are simply stealing from the commons.
  - surfaceTensi0n 9y ago
    That's a really great framing of this issue. Thanks!
  - balls187 9y ago
    > If someone has to violate the law to produce value, then it is likely that they haven't really "produced" any value. Imagine you created an app that allowed Gay and Lesbian couples plan their wedding, and you operated in states that haven't legalized same-sex marriage. Are you stealing from the commons? Just because a law exists on the books, doesn't mean it's a just law.
subverter 9y ago
"Crony" is so often followed by "capitalism", but it's really just cronyism that's the issue. You can find it in capitalism and you can find it in government. But they go best hand-in-hand. I'd argue that most crony capitalism is made possible only because they can leverage the monopolistic power of their crony allies in government for mutual gain.
- RobertoG 9y ago
  I hear frequently the argument that crony capitalism is not really capitalism. And how "real capitalism" would work wonderfully. That always remember me, how, when you argue with a communist, frequently those examples that you bring to the conversation are never "real communism".
  - deleted 9y ago
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dv_dt 9y ago
Does it seem to anyone else that the finance industry is increasingly distracted from actually matching up capital to fundamentally productive companies, especially new companies? Looking at the stock market, there are few IPOs, and after IPO, being public only provides access to limited access vis issuance of new stock... Some capital flows to VCs, but it seems the more capital flows to large VC funds, the more the criteria becomes look for a sure thing and filter more for large scale opportunities - all while small scale fundamental development receives poor access to the vast amount of capital sloshing around (and settling in places like unused real estate...). To me it seems that investment in direct development of productive tech and/or process is competing against profitability of short term financial manipulation - and causing a drop in overall delivery of new productivity improvements to the general economy. But even further, the very financial industry isn't really creating or maintaining a channel for money to open opportunities to develop that kind of company - certainly not a large scale needed or possible today.
- mowenz 9y ago
  >Does it seem to anyone else that the finance industry is increasingly distracted from actually matching up capital to fundamentally productive companies, especially new companies? This is somewhat controversial to posit, but I believe the corruption in the financial industry is extraordinarily entrenched because of the Fed. Before you call me a lunatic, smart and good people from Aaron Schwartz to Sanders have said things like this: that it should be eliminated, or that it is nothing more than socialism for the rich while hurting the poor. The most obvious problem with it is that it creates astronomical moral hazard by protecting and guaranteeing the big banks. After the Fin Crisis Krugman was talking a lot about making banking boring again, and run like utility companies. You can still have VCs, hedge funds, or whatever you want--but it's not funded by and guaranteed with anything other than the money you put in it, and it's separated from vanilla banking, ie Glass Steagall. But then we had Dodd Frank and sometime after Krugman never went back to talking about that again. Unfortunately, the dogma about the Fed is so entrenched in mainstream economics--so much so that speaking against it is immediately written-off. Nearly 1.5 centuries ago, all the banks were actually betting against Lincoln to lose his war. So he used the constitutionally-granted right to print the nation's own currency, and won the war with it. The point is, there's no reason we can't do this if we really wanted to (and if you care about poor and working class, and eliminating cronyism from the world, you should want to).
TimPC 9y ago
Lawsuits aren't always rent seeking sometimes they are necessary economic activities. Economic models can be poor when they (implicitly) define redress for illegal actions as rent-seeking behaviour, and cutting a competitors cables as valid economic activity -- for example the lawsuit against Comcast that alleges driving a competitor out of business with malicious construction.
danesparza 9y ago
It's interesting to me that the word "wrong" is used in the title. This is assigning a moral code to capitalism and I think that is misplaced. It's fine to have a moral code. It's fine to be a capitalist. Just don't expect capitalism to always fit in a moral code. I think the article's main unspoken gripe is about bad actors (folks acting in a non-altruistic way) in human society in general.
saas_sam 9y ago
It's interesting to me how this article frames crony capitalism as a use or abuse of government by corporations, almost as if the government is a victim. But it's the government that has all of the power in this context. There's something to be said for corporate money influencing elections, but even there it's elected officials who are deciding on policies after getting there, and if they are making decisions based on how to most easily keep their job (ex. take corporate money for reelection campaign), that's their unethical doing, not the corporations.
- bjl 9y ago
  Knowingly providing incentives for people to do something unethical is itself unethical. The corporations aren't blameless here.
  - mtberatwork 9y ago
    Indeed, this is even outlined in the infamous Powell memo: "Business must learn the lesson ... that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination—without embarrassment and without the reluctance which has been so characteristic of American business." [1] [1] http://billmoyers.com/content/the-powell-memo-a-call-to-arms-for-corporations/ http://billmoyers.com/content/the-powell-memo-a-call-to-arms...
- RobertoG 9y ago
  I think that the lesson to learn here is: nevertheless the system, government or not, capitalism or not, the powerful always take all they can. It's the duty of the less powerful to fight for more of the pie for the majority.
- candiodari 9y ago
  What is more worrying is that all the suggestions in this article are that either government needs to grow, or "just needs to change". More tax. And generally more. More tax, of course, will worsen this problem as government spending on large companies only is exactly the problem.
zackmorris 9y ago
I think the great problem of our time is that the challenges get easier to solve every day but we mostly spend our time making rent. And not the kind of rent mentioned in the article - just plain old fashioned too-much-month-not-enough-money kind of rent. When we’re desperate, we grovel and do whatever work we need to to survive. This is akin to how researchers spend inordinate amounts of time applying for grants rather than, you know, saving the world and all that. This is because any free capital in the economy gets vacuumed up by a few large players who only divvy it out through "sanctioned" channels that most people no longer have access to. In the olden days, the main force balancing this was taxation. Even if you look at it as a purely zero-sum game, any money paid by the very wealthy had to go somewhere, and that somewhere was the masses. This didn't sit right with the very wealthy and they rigged the system to such a degree that I've never seen an appreciable tax increase in my lifetime, even in the face of trillion dollar deficits and the loss of the middle class in the US. Mathematically, trickle-down economics has given us just exactly the system it was designed to. I mourn for the millions (billions) of people left out, but for whatever reason a lot of people don’t even see them. Maybe the great problem of our time is ignorance..
- rm_-rf_slash 9y ago
  Or simply, our means of production have become so efficient that it didn't matter whether you were right or wrong, things would still hum along and the profits would continue. In the agricultural age, if you fucked up a harvest, you and your family could starve. Before agriculture, if you fucked up a hunt, your whole kin-clan could starve. Nowadays, if you fuck up the housing market, and millions of people go bankrupt, nothing gets broken enough to turn a concern into a crisis, so we never fix anything, and nothing ever changes.
  - api 9y ago
    Many people have proposed variations of this as the reason civilizations collapse. They are destroyed by their success. They gain so much surplus that it completely isolates them from any kind of feedback mechanism, over time causing them to completely rot from within. Eventually the core becomes so rotten that the whole system falls apart. This can be sudden. I think an intuitive grasp of this is why so many conservatives have a natural disdain for welfare. But I think their disdain for welfare at the individual level is misplaced. The isolation of the most powerful and largest scale systems from consequences at the macro level is a far larger problem than the isolation of individuals from consequences at the micro level. Welfare can indeed become addictive and lead to a "welfare class," but these are largely powerless and relatively poor people who may be somewhat of a burden on society but do little damage otherwise. The real danger is a rich powerful professional welfare class that makes big ugly mistakes and is isolated from the consequences of these by power and abundance.
bostonscott 9y ago
The concept of "crony capitalism" is a misnomer. "Crony" is not a type of capitalism, it's the antithesis of capitalism. It's enabled by giving too much power to government. For example. When insurance companies jack-up rates or impose customer "unfriendly" terms, they are not acting within the "free market." They are exploiting "crony'esque" rules that limit competition by restricting insurance companies from competing across state-lines.
- bjl 9y ago
  Crony capitalism is not a misnomer, its the endgame of all capitalists. When people have the resources to buy a regulatory advantage, of course they are going to do so; that's just capitalism at its 'finest'.
  - deleted 9y ago
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  - bostonscott 9y ago
    It's not the endgame of all capitalists. Actual capitalists, limited in number as they are, prefer free markets (e.g. no cronyism) because they'll make more money that way over time. Opportunists are the ones who thrive when things are rigged. They can't survive on their own. But yes, many capitalists (and non-capitalists alike) "buy" regulatory advantages. Some leverage their dollars (buying) Some leverage their numbers (voting) These groups enable eachother. Motives range from "defense" (virtuous) to "offense" (sinister). You will find no practical solution to this problem other than starving the beast (decentralizing power away from government).
    - bjl 9y ago
      > You will find no practical solution to this problem other than starving the beast (decentralizing power away from government) All this will lead to is dictatorship by the wealthy. I much prefer our current system, as flawed as it is, to corporate fascism.
deleted 9y ago
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dudul 9y ago
Not native english speaker here. My comment is probably of very limited value, but mostly for my personal improvement :). When I read "the wrong kind of entrepreneurs flourish in America" it surprises me to not see: "the wrong kind of entrepreneurs flourishes in America". I understand that "kind" should be the subject of the sentence, not the entrepreneurs. I have seen this construct several times (e.g. "this type of errors are very common", etc) and I'm wondering if it's correct, or simply one of these errors that are so common that they become the de facto rule.
- eric_h 9y ago
  You are correct, "kind" is the subject of the sentence and the right conjugation would be "flourishes". You are also correct that it's a very common error that has generally just become acceptable.
  - TimPC 9y ago
    "The wrong kind of entrepreneur flourishes in America" would probably be the better title. The article describes a single kind of behaviour. "The wrong kinds of entrepreneur flourish in America" would better describe an article where multiple kinds/distinct groups of behaviors were present.
- clamprecht 9y ago
  I think you're right. To me, the sentence should either be "the wrong kinds of entrepreneurs flourish..." or "the wrong kind of entrepreneur flourishes..." But this is a common error, and most people probably don't notice it. A related thing I've noticed is that in British English, they refer to companies as plural. For example: "Google are going to acquire company X", whereas in American English, you usually see: "Google is going to acquire company X."
- deleted 9y ago
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- germinalphrase 9y ago
  You're correct. It would be better to say "entrepreneurs of the wrong kind flourish in America" - but that might sound odd or overly formal to everyday speakers. It's similar to the rule about ending your sentence in a preposition. It's incorrect, but it also sounds more natural in many instances.
kevmo 9y ago
Many of our regulatory bodies have been utterly captured by biggest companies that they are supposed to regulate, and they are tamping down innovation (which creates jobs), increasing prices, and decreasing quality. Both the Democrats and Republicans have been engaging too heavily in crony capitalism for decades, and this is the result. How it works: Regulations that are supposed to protect the public end up being a cudgel with which to beat down small companies that can't afford to deal with an onslaught of often unjustified demands for regulatory compliance. When the only companies who can afford to comply are the big ones, it squeezes out new market entrants. This decreases competition. It's bad for all but a handful of people. How it should work: Generally (not always), there should be a direct relationship between company size and the amount of regulations which apply (i.e. more regulations as you get bigger, fewer if you're small). We need a heavy injection of honesty into our regulatory agencies. Restoring balance to the system would unleash a wave of economic growth. When I was shilling for Senator Sanders in 2015 and 2016, I often said that I was equally excited for both his policies and the fact that he would make a lot of good appointments, which would clean a lot of crap out the rent-seeking regulatory system, which would be great for the economy. Unfortunately, we're going to have to wait. But I hope this gets on more people's radars as one of the reasons why the middle class has been shrinking and real incomes going down for four straight decades.
- kem 9y ago
  Regulatory capture, advertently or inadvertently, is one of the elephants in the healthcare room. I'm tired of all the discussion (on both sides) totally ignoring this issue.
  - ntsplnkv2 9y ago
    Healthcare is a vehicle to serve another agenda. That is the problem. It doesn't matter if insurance is private or public if the costs of healthcare are too high. I don't see why there is no compromise. It's very bad for the future of this country.
- vkou 9y ago
  > and they are tamping down innovation (which creates jobs) If you're going to go from the jobs angle - let me pose a question: Today - in 2017 - not 100 years ago, not 40 years ago, but today - now. Does unregulated innovation create more, better jobs then it destroys? Do you draw a distinction between regulatory 'innovation' (Miscategorizing employees, breaking laws to increase your margins, skirting training or safety requirements, introducing conflicts of interest), and actual innovation (We can make more, or better stuff)? Do you think they are equally valuable? What is the ratio in market cap between these two kinds of innovations?
jondubois 9y ago
I think that these issues are getting a lot of attention recently. A lot of people feel that their jobs are not meaningful anymore and that they cannot find any meaningful work that pays well. Most of the jobs that pay well are zero-sum games. Finance, tech, law. Even medicine and pharmaceuticals are becoming zero-sum games (e.g companies boosting drug prices because it's easier than inventing new ones). People have become cynical and distrustful towards each other and the system. We have lost touch with our old values. I'm surprised that society can continue to function under these conditions. In this zero-sum economy, we are all enemies of each other.
- rtx 9y ago
  Thats why we need space colonization. We as a species are programmed to expand. We have become stagnant in the last 100 years.
  - AndrewKemendo 9y ago
    Sounds like bacteria or a virus.
  - nickthemagicman 9y ago
    Lol. I love how it's so hopeless that the best solution is to move to another planet.
  - jondubois 9y ago
    Based on how humanity is evolving I can extrapolate that if aliens do exist, they are probably malevolent.
  - deleted 9y ago
    [deleted]
  - vkou 9y ago
    90% of our planet is currently uninhabited. If you want to expand, it's far closer, more hospitable, and economically useful then Mars.
  - refurb 9y ago
shmerl 9y ago
TL;DR: Parasitic tendencies are growing. It requires some serious reform to fix this, but current level of legalized corruption makes it very hard.
Animats 9y ago
Good idea. Weak article. The HBR article cited [1] is an obituary for William Baumol. Baumol is associated more with the "cost disease" problem - high productivity industries shrink over time, as their market saturates. Agriculture and manufacturing in the US have great productivity, and are constantly shrinking employment while increasing output. US manufacturing output is at an all-time high, but is down to 8.1% of the labor force. Agriculture is at 1.4%.[2] So business growth has to be in low-productivity sectors, with low wages. That's cost disease. If you want to read about rent seeking, read Peter Theil's "Zero to One". It's a manual on rent-seeking. It's all about how to create a monopoly. Changing Government policy to reduce rent-seeking is very tough politically. Successful rent-seekers are the biggest political contributors. They pay to not have their income stream cut off. [1] https://hbr.org/2017/06/is-america-encouraging-the-wrong-kind-of-entrepreneurship https://hbr.org/2017/06/is-america-encouraging-the-wrong-kin... [2] https://www.bls.gov/emp/ep_table_201.htm https://www.bls.gov/emp/ep_table_201.htm
- tomjen3 9y ago
  But cost disease can, at most, account for growth in prices that follows the growth in salary paid to the most productive professions, no? Because if so the price increase of health care and college (which is the two big expenditures) _cannot_ be explained by cost-disease alone, as they have both grown much higher than salaries.
dkarapetyan 9y ago
I find the juxtaposition of productive and capitalism odd. The entire point of capitalism is to slush money around. That is the definition of productivity in capitalism but somehow some people got the money part mixed up with "value" and now they need fancy mental gymnastics to explain how the system working as intended is in fact not working. Basic system theory 101 says if you work with and optimize a proxy instead of the true metric then you will always deviate from your true and intended path. Money is only a proxy for value and some people did not get the memo. You need some second and third order correction terms if you use proxies.
a3n 9y ago
> Sometimes the government allows companies to get a certain amount of rent -- for example, the royalties from patents, which we protect in an attempt to encourage innovation. This is the classic, maybe the reason given to justify patents. The implication being that no one would bother innovating if patents didn't grant them rent for a time. But I wonder if the reality is merely that different people, and different kinds of people, would innovate in a patent-free world.
- digi_owl 9y ago
  The problem is not the concept, but the current application. And that is not even a construct of the law as written, but the courts application of said law. Patents started out as a 20 year protection on mechanical mechanisms or chemical processes as long as what was protected was publicly documented in full. Thus once the patent had run out, anyone could replicate it from the patent document. But then the chemical process side used to argue for a quasi-software patent in court, because the patent described a computer monitored mixing process. And thus the ball got rolling. Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete. On top of that we have gotten a mass of patents that are so generic in terminology, that even if they describe something mechanical they can potentially be applied to something done in software. Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out. Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out.
  - jb613 9y ago
    > Patents started out as a 20 year protection on mechanical mechanisms or chemical processes as long as what was protected was publicly documented in full. 1) Patents are not an American invention. England had them before, and the Romans before that. 2) I'll assume you implied U.S. patents. The Founders regarded patents so highly that they wrote them into the U.S. Constitution. It was written generically and not limited or fixed to only "mechanical or chemical" but rather "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries". > Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete. RSA patent expired nearly 20 years ago yet RSA is still used today. For example, the public key used to secure https://news.ycombinator.com https://news.ycombinator.com is RSA. > Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out. > > Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out. The myth is that patents block innovation. The reality is that blocking someone from doing something incentives them to find another way to do it. Afterall, if all you want to do is copy then how is that "blocking innovation"?
digi_owl 9y ago
and we keep finding that outside of the labor theory of value (and he may not even have been wrong as much as overstating the importance of labor) ol' Marx was right on the money...
BFatts 9y ago
This just read like a bunch of "I think" and "it might" instead of "I know" and "it will." So, stating that crony capitalism is hurting regular capitalism doesn't do anything except make people attack an idea instead of facts. And focusing on the financial industry might make you feel good because it's easy to say "wall street..." and everyone joins in on the bitch fest. It's a ton of conjecture and hypothesizing as to why business is failing, but to make it sound like one industry is just banking cash while providing nothing, is a disservice to all the people that work in that industry.
jorblumesea 9y ago
The natural choice for anyone is going to be "how do I get the most money with little effort". Corruption needs to be made difficult, but sadly the people who write the laws benefit the most from this corruption and are unwilling to surrender political control. If things are going to change don't count on the 1% to do anything about it. They are comfortable in their nested bubble of kickbacks, slush funds and stock. If the average person wants change, they need to confront the wealthy interests that control almost everything and fight for their place at the table. I think the biggest mistake of the last 30 years was putting any kind of trust in the ruling class to do anything but enrich their own.
Allower 9y ago
So what the fuck are YOU going to do about it?
notadoc 9y ago
Sounds about right. Until you remove all money and related influence from politics, it will only continue.
joshuaheard 9y ago
This article is a great argument for a more limited government.
Stryder 9y ago
I was 20, naively unaware of the ways of the real world, and nearly overnight, I lost everything and everyone I cherished in my life. Over the next 6 months, it slowly dawned on me that those who survive and thrive are those willing to screw other people over for their own benefit without as much as blinking an eye, as long as it suits them. "This is the way of the world", I thought to myself. Over the next decade, I focused, and worked my ass off. On my way up, I encountered countless more rich, successful and morally bankrupt individuals, and the higher I go, the more sophisticated the moral bankruptcy gets. To be fair, it's not the fault of a lot of these individuals. Some of them genuinely do not comprehend the consequences of their actions - it just doesn't cross their mind. Instead, the fault lies with a system that not only enables but promotes this kind of behavior to the very top, without an effective counter-balancing weight on the other end. And we are the custodians of the system, we are the ones who shape it on a daily basis, by the actions that we take, the investments that we make, and the kind of relationships that we build.
- xxSparkleSxx 9y ago
  I agree, but can we honestly put all the blame on those at the top. Many of of us in the middle and at the bottom are just as complicit. We go to work for companies we know make the world a worse place, we work under horrible people and hand them part of the value we create every week. Those in the middle and below do not have as much power as those on the top as an individual, but as a collective we have much more power. We can sit down and choose not to work, we can choose not to contribute to certain companies or to certain individuals. We can say "NO!" But most do not because money. The same reason those at the top do immoral/awful things are the same reasons those in the middle and below do immoral/awful things (those at the top just have a bigger impact). And some of those in the middle that just accept the status quo because "I've got a mortgage! I've gotta eat! I made these crappy kids and now I have to do awful things so they can eat!" will go on to be those at the top who continue the same behavior.
- NTDF9 9y ago
  I want to know more. As a late 20s person, I am experiencing everything you described.
rrivers 9y ago
This article speaks to a larger problem with the U.S., and really global system of finance. Right now we live in a world where finance dictates production, rather than production dictating finance. Combine that with the massive concentration of wealth on a global scale and we can observe a very real problem that will continue to hinder global progress until it is addressed. So often we as a collective naturalize the institution as if it was not an economic technology that we have created. Over time all technologies need updating, and our economic models are no different. As Harvard's Roberto Unger often says, "Finance has become a bad master, instead of a good servant."
a_c 9y ago
What the article says is true - banking, patents, regulations, corporate subsidies all contribute to rent-seeking behaviour. But one cannot strike a balance between rent-seeking and value-producing behaviour without investigating the motivation behind. Is it greed and laziness working in tandem? Or something else? I honestly have no answer
hasbroslasher 9y ago
The choice of title is interesting, if a bit misleading, so I'm gonna run with this. It's often suggested that there are two types of capitalism: one productive, competitive and free -- the other gripped with cronyism, protectionism, and exploitation. I don't buy that. There is just one type of capitalism, and while at times it may look more like one or the other of these poles, it always tends toward the latter: monopolistic, state-sanctioned "crony capitalism" that puts allows business owners to prioritize their own profits over the collective good. That's not to say that the sky is always falling: Scandinavian countries enjoy healthy markets and don't have absurd corporate welfare, for instance, it's just that the incentives for "good capitalists" to become cronyists are always present. The problem with the "two types" thinking is that it is always in a person's a person's best interest to get something for free. Ironically, this rhetoric is often used by capitalists, fearful that leftism might become effective, by claiming their opponents are the ones who want free stuff. There are lots of ways to get things for free. For instance, you can steal your workers time and fail to compensate them (common in fast food), you can coerce a government into cooperation ("We'll move to India if you don't give us the tax breaks") or you can campaign to get your friends into the government. The fallacy of libertarianism is a belief that capitalists don't want a state mechanism with the power to tax and regulate. That is exactly what capitalists want. They're given state protection via a police or military force, state welfare through tax write-offs and incentives, power and influence in crafting legislation that fits your worldview, and less turbulent markets due to stifling of demand. The alternative is Hobbes' "short, nasty, brutish" life - duking it out eternally trying to achieve efficiency instead of excess, competing endlessly, only to profit in the slightest. It's often said that "it's in our nature to be competitive" but it's also in our nature to be cooperative, and corporations display this fact amazingly well- they use collective influence and power in numbers to achieve ends that small businesses never could. Until people outside of that system learn to cooperate well enough to bargain for their own interests (e.g. Labor movements), it's going to be smooth sailing for the "crony" capitalists.
emodendroket 9y ago
> Regulation could be a big drag as well. Eager both to shield workers from obsolescence and to appease corporate lobbyists, many U.S. states have enacted laws to protect established industries from new market entrants. Some states forbid car companies from selling directly to buyers, while others protect credit-card companies by banning retailers from passing on swipe fees. Though one study has cast doubt on federal regulation’s role in reduced entrepreneurial dynamism, state regulation could be a much bigger deal. I'd contend the opposite seems more likely; we've deregulated a lot of stuff, including, perhaps significantly, getting really lax on antitrust legislation. Consolidation and subsequent rent-seeking is the typical result of unregulated market economies.
- JamesBarney 9y ago
  Which large corporations are involved in rent seeking, and you think would have been broken up under previous regulatory reigmes?
ThomPete 9y ago
Why is this title changed? The correct title is "The Wrong Kind of Entrepreneurs Flourish in America" which was also up in the beginning.
wowtip 9y ago
Hm, why was the headline changed for my post?
draw_down 9y ago
Hmm, I'm pretty sure this is just how capitalism works. Sorry :(
deleted 9y ago
[deleted]
Anarchonaut 9y ago
The crony capitalism you describe is actually 'corporatism'.

245 points by wowtip 9y ago

Just to kick off some discussion. Do you guys think that the shift from on-prem to SaaS is indicative of a move towards rent extraction?

jacquesm 9y ago
You see this in the weirdest places (government data processing, for instance) and I suspect this will continue to grow until there are some high profile data leaks at such SaaS providers. Way too many important eggs in single and often badly secured baskets.
- edoceo 9y ago
  Like when MJ Freeway had a breach in Jan affecting Nevada Marijuana enforcement? A SaaS the State purchased?
deathhand 9y ago
Not necessarily as overhead operational costs are lowered with the SaaS model and that's not true 'rent'. Licensing fees would be considered 'rent' but obviously necessary as a motivator for production.
- ben_jones 9y ago
  Isn't that a case of "get everyone hooked then raise the prices"? How much is pricing currently subsidized by VC and early access promotions (like GCP, AWS, Uber) which will go away over the next ~10 years.
  - pm90 9y ago
    AWS is currently minting money. Amazon and Google don't offer no subsidies, Amazon at least, invests all its profits back into the business, which is def not a subsidy in any sense of the term. As the competition heats up and providers become more efficient, I actually expect prices to go down even further.
- kem 9y ago
  I agree with the "not necessarily" part, but one thing that concerns me is in seeing large, critical institutions, like large hospitals and universities, outsourcing critical infrastructure off-premises. If you look at operational costs per se, and licensing fees in a scenario like that, you're missing a huge proportion of the most threatening costs. Consider hospitals, for example, and recent problems with ransoming electronic health system data. What concerns me with SaaS is that the biggest costs are very catastrophic or serious risks (like lock-in dependencies, or hacking due to monocultures--by the way, is that a formal, modeled concept in computer security, like it is in agriculture? The vulnerability of a market to "infection" due to monocultures?) that are maybe high probability over a very long-term period, but very low over a short-term period, and hidden.
s73ver 9y ago
No more than paying for any other software.
Analemma_ 9y ago
No. SaaS is a pricing model, rent extraction is a business model. You can have rent extraction on-prem and competitive business with SaaS.
ViViDboarder 9y ago
By default, I'd guess, no. But I feel it can and, often enough, is. Many SaaS companies will raise prices year over year without providing any additional value. That increase seems to fit the definition here.
nikkwong 9y ago
Can someone care to enlighten me on how SaaS can qualify as rent extraction? I'm sure there is a lot of fudge, but the US is a "capitalist" society—in that I mean you're not required to continue paying for a SaaS product if you deem it's not worth the money. How is this 'rent extraction'?
- e12e 9y ago
  Assume for a moment you have 10 000 employees and 10 years worth of business correspondence in Gmail, Outook.com or similar. Now for email, there is usually at least one or two open apis for getting that data (pop/imap) - but even so, migration is a costly affair. You could move all new correspondence to a new (eg: on premises) system - but you'd have to keep paying to retain the same access to your business history. Take any of the many business/crm-apps, where there's no clear migration path (you'd want both history and business process rules) - and it's easy to see how SaaS might easily facilitate "rent extraction"? As others have mentioned the problem isn't unique to SaaS - but with an on premise solution, you might be able to move some terabytes of data by simply moving some physical drives - or at least have local access via you SAN. With a cloud provider, many businesses would struggle to get at the data at a higher rate than 100mbps even with the help of the SaaS provider. And there's often no option to keep access to "old" system/data without paying rent, unlike some on premise solution (keep the old system, on it's own network segment, ticking along for historical records (or: in a VM).
- gwbas1c 9y ago
  Because if you have significant amounts of data in a SaaS product you just can't leave. You have to continue to pay as long as you need that data.
jackcosgrove 9y ago
No because on-premise software has not been regulated by SaaS providers. Customers are choosing SaaS. SaaS is indicative of greater concentration and the possibility of oligopoly, though. I think it's only a matter of time before the cloud platforms begin coordinating price rises beyond the value they provide. If they try to regulate on-premise software then it's time to break the glass.
- jbooth 9y ago
  It doesn't have to be regulated to be rent extraction. You just need to make the switching costs really high, no help needed from the legal system. Look at Oracle.
  - pm90 9y ago
    You're making good points but the nice thing about capitalism is that if a business finds switching costs too high, then another business will come up with a cheaper technology and kick the older businesses' ass. What we really need is to ensure that in these scenarios, the older business doesn't use its power and resources to stifle the upstart. That is one purpose of AntiTrust laws, I believe.
    - svachalek 9y ago
      That's an effect of competition, not capitalism. As mentioned in the feature article, capitalism itself has a tendency to create monopolies and extract rents since that produces a much higher ROI than engaging in competition to produce useful goods.
GlennS 9y ago
Only when vendor lock-in and inaccessible data silos comes into play. And that's not a problem specific to SAAS.
- e12e 9y ago
  True, but bandwidth and lack of "raw" access (eg: b/w limited api) might make some types of migrations extra hard with SaaS. Good luck getting 1-10 Gpbs data transfer from most public SaaS to your own datacenter without having to pay over and above your current fee for Internet access (eg: have a look at what it costs to get just a TB data out of S3 -- on any budget (or prime) dedicated provider, 10-50 TB of data would be included - per month.
friedman23 9y ago
It depends if they are actually increasing the value of the product.
fragmede 9y ago
Maybe if you're an economist. If you're an accountant, categorizing Saas as OpEx (vs CapEx) certainly also make it seem that way. However, as a software developer, calling it rent-extraction glosses over architectural differences and value derived from not having servers tucked away in an office closet. Flexibility and capacity on the server-end, as well as huge benefits of software distribution over web-browser reducing support costs. I derive a ton of value in never having to drive to a data-center and paying EC2 by hours-used seems reasonable since there is actually a server (albeit virtual) running for my money. However, it's certainly rent-extraction when the only thing thats going on via the Internet is a licensing check. Adobe Photoshop switched to the cloud model, so graphic designers now pay 30-$70/month for the entirety of their career. Yeah it's always an up to date version, but before the shift to a SaaS model, it was some $600 but it would keep working for years if you couldn't scrape together the cash for the latest version.
- petra 9y ago
  Well, non-rent model would be you buy the software(forever, if you want you can pay for updates), and in a click of a button you get hosting+backups etc, with some very cheap monthly rent(which is a more realistic representation of that part of the work). And you own that bundle of software + data.
pm90 9y ago
Hardly. I mean it does look that way at first, but as long as there are good competitors around, the price of SaaS products won't be exorbitant. Besides, technology seems to have a very cyclical progression: we went from time sharing computing on big vendors' computers, to personal computing, and now back to hosting with big vendors, via cloud. I'm gonna go out on a limb and say that future progress would once again make having one's data with oneself more attractive.
- kem 9y ago
  "as long as there are good competitors around"--that's the key, and not something I necessarily trust to be the case. Net neutrality, for example, would be a non-issue if there were good competition, but there's not.

metalliqaz 9y ago

> Crony capitalists seek to generate profits without producing anything of value. If they are generating profits, then they are doing something valuable. Are they sucking cash out of the government? Maybe, but it's valuable to somebody. You want to fix it? Don't try to fix the entrepreneurs, fix the goddamn government. Most of these Comcast-type rent-seekers are complete and total assholes, I agree, but I'm not about to hold my breath waiting for them to stop going where the money is.

TheOtherHobbes 9y ago
Of course it's valuable to someone. That isn't the point. The point is whether it grows useful economic activity, or whether it actively slows useful economic activity.
hn_throwaway_99 9y ago
> Don't try to fix the entrepreneurs, fix the goddamn government Did you read the article, because that's its point. Last sentence: Let's hope legislators can put aside the rancor of this hyperpartisan age and work to end the favoritism that gives well-connected businesses an unwarranted advantage.
CryptoFascist 9y ago
"If they are generating profits, then they are doing something valuable." Starting out with a completely unsupported assertion, eh? Bold strategy!
leggomylibro 9y ago
Kind of reminds me of that episode of Always Sunny in Philadelphia where Danny DeVito's character comes out of retirement to save his former company. "So what do we make here, Frank?" "What d'you mean? We make money." "Right, yes, but what do we actually create?" "We create wealth." "Okay, but like, what do we produce, what do we manufacture, what do we design?" "Manufacture? Leave that to the c&$%^s, we produce profit!" Incidentally, starting to order parts a few hundred at a time from places like Taobao for various projects, I'm noticing that there are a lot of companies who just do that and slap a 500% markup on Amazon. Want a 6-pack of $0.15 mini-breadboards or a few dozen $0.05 jumper wires? Sure, $5.99 with prime shipping. What a steal!

dreamdu5t 9y ago

You can't get $10k to start a hot dog stand but you can get billions of dollars with literally no plan for profit if you're already rich or seeking VC. But want to start a normal business? No capital for you! And your taxes will pay for the banks and VCs when they screw up.

balls187 9y ago
I get that this is hyperbole, but: 1. There are plenty of US Government (i.e. tax payer funded) programs to help people get "normal" ideas off the ground. From grants, to loans, the money is there. It's hard to imagine someone destined for success being stopped by not being able to raise $10k. $10k in credit card debt is nothing for the average american. 2. Success breeds success. If you're rich, you may already have your own skin in the game, or you may have proven yourself capable of using capital effectively.
- xiaoma 9y ago
  Since you seem knowledgeable about this, what is the amount of credit card debt available to the median American above what they already carry?
  - balls187 9y ago
    Above what they carry is irrelevant. American's can get themselves on average up to 5-7k of debt[1], it's reasonable assumption that if one was determined, they could get $10k in credit. https://www.valuepenguin.com/average-credit-card-debt https://www.valuepenguin.com/average-credit-card-debt
    - xiaoma 9y ago
      I can say from first-hand experience a few years ago that your assumption—which you presented as fact—is false.
- xenadu02 9y ago
  > 1. There are plenty of US Government (i.e. tax payer funded) programs to help people get "normal" ideas off the ground. From grants, to loans, the money is there. It's hard to imagine someone destined for success being stopped by not being able to raise $10k. $10k in credit card debt is nothing for the average american. You've obviously never tried this. It would be a full-time job for a year to even have a shot at these supposed grants. The money is absolutely not there the way you claim. The younger you are the less credit history you have which makes getting loans almost impossible unless you already have collateral to pledge against the loan. Oh and $10k is often not nearly enough capital to start a business since you need to pay your own bills while you bootstrap the business. We get away with it in tech often because we have the luxury of working after-hours as a side-project to start with. A customer-facing business can't do that.

bogomipz 9y ago

From the article: >"Because it’s just a transfer from one person to another, rent doesn’t necessarily make an economy less efficient -- it’s just often unfair. " I would argue that "rent" does make the market more inefficient. The more rent these companies can extract from consumers the larger their lobbying budget and the more campaign donations they can make at all level of government. Political lobbying is the biggest and most effective tool used by crony capitalists.

mars4rp 9y ago
problem is with political system, lobbying and campaign contributions!
- ue_ 9y ago
  Although privileges granted by the State to "crony capitalists" excarberates issues, I do not consider it the root of issues, and to me, capitalism would have the same issues even without a government, or with minimal government. I think we're fixing the wrong part of the bottleneck by arguing for a completely free market.
  - mars4rp 9y ago
    we don't have capitalism in US we have corporationism. free market would have been a good thing before automation and AI, but it won't work for the future. but you can't convince people to go toward socialism in this country. but left and right agree that problem is crony capitalism ! let's start from there and do something!!!
    - bogomipz 9y ago
      >"free market would have been a good thing before automation and AI, but it won't work for the future." Can you elaborate on this? I am curious to hear why those two things - a free market and AI are mutually exclusive.
      - 9y ago

ithinkinstereo 9y ago

Most rent-seekers are at least operating within the boundaries of law and physics, if not ethics. Compare that to scam-preneurs behind startups like Theranos or uBeam, or vc-hustle-preneurs behind is-this-satire startups like Juicero, June, etc.

sharemywin 9y ago
That's like saying it's ok to rob you because at least I didn't kill you like the other guy wanted to.
wu-ikkyu 9y ago
Is it ethical to have ~23 empty homes for every homeless person in the US? https://skeptics.stackexchange.com/questions/22335/are-there-24-empty-houses-available-per-homeless-person-in-the-usa#22336 https://skeptics.stackexchange.com/questions/22335/are-there...

projectramo 9y ago

There is a theory that all above market profits are generated by government granted monopolies. So, for instance, software is protected by patents, oil and gas is protected by mineral rights, drugs are protected by patent law, entertainment is protected by IP rights, and so on. In so far as there is competition, it often arises when the rent-seeking motivates people to disrupt the government protection by making it useless. In software, people have lived with that since the beginning because it moves so fast. But even in slow moving fields like energy, we see new tech rendering the old protections less important. I am not saying society has not paid a steep price for rent seeking behavior but that it has been part and parcel of all capitalism forever, and not unique to the American experience.

devoply 9y ago
Lots of innovation in tech happened despite patents because of ideologues like Stallman and the gpl/open source movement which left lots of software which could be used to disrupt monopoly. Not because it moves fast. If people were playing that game companies like Google would not exist or at least be much much slower in growth and what they have been able to accomplish.
jbooth 9y ago
That theory falls under the Econ 101 fallacy -- assuming perfect information dispersal, instant job-switching, instant production ramping.. "First, let's assume the cow is a sphere".
- arcanus 9y ago
  > "First, let's assume the cow is a sphere". It is worse than that, because at least physics is validated by experimental data. Much of (macro in particular) Economics is a set of axioms that are seldom predictive.
  - pm90 9y ago
    And yet, people swear by them as though they have the same validity as physics. I never really understood that mentality.

jackcosgrove 9y ago

The only way this will end is limits on campaign contributions and other kinds of bribery. The returns on lobbying are astronomical compared to the returns on productivity improvements.

pascalxus 9y ago
>>>The returns on lobbying are astronomical compared to the returns on productivity improvements. You Hit the nail right on the head. I believe, this is the root of all the problems mentioned in this thread.
Terr_ 9y ago
I think the linchpin is actually our voting system. It strongly encourages the existence of only two parties that are always trying to split the difference, and that's the scenario which is very friendly to institutional bribery and regulatory capture.
- Paul-ish 9y ago
  Countries with a system that allows for many parties still end up forming coalitions though. It isn't clear that the problem goes away.

balls187 9y ago

I read the opening paragraph, them skimmed through the rest of the article looking for concrete examples of "Wrong Kind" of Entrepreneurs. I have a hard time imagining tech entreprenuers are the "wrong kind." They may disrupt by circumventing the law, but I don't buy the argument that they're not producing something of value in return.

pascalxus 9y ago
mostly, they're not talking about tech entrepreneurs. they're talking about established industries like: ISPs, pharamecuticals, patent trolls and patents in general and various other monopolies.
bertjk 9y ago
If someone has to violate the law to produce value, then it is likely that they haven't really "produced" any value. More likely they are simply stealing from the commons.
- surfaceTensi0n 9y ago
  That's a really great framing of this issue. Thanks!
- balls187 9y ago
  > If someone has to violate the law to produce value, then it is likely that they haven't really "produced" any value. Imagine you created an app that allowed Gay and Lesbian couples plan their wedding, and you operated in states that haven't legalized same-sex marriage. Are you stealing from the commons? Just because a law exists on the books, doesn't mean it's a just law.

subverter 9y ago

"Crony" is so often followed by "capitalism", but it's really just cronyism that's the issue. You can find it in capitalism and you can find it in government. But they go best hand-in-hand. I'd argue that most crony capitalism is made possible only because they can leverage the monopolistic power of their crony allies in government for mutual gain.

RobertoG 9y ago
I hear frequently the argument that crony capitalism is not really capitalism. And how "real capitalism" would work wonderfully. That always remember me, how, when you argue with a communist, frequently those examples that you bring to the conversation are never "real communism".
- deleted 9y ago
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dv_dt 9y ago

Does it seem to anyone else that the finance industry is increasingly distracted from actually matching up capital to fundamentally productive companies, especially new companies? Looking at the stock market, there are few IPOs, and after IPO, being public only provides access to limited access vis issuance of new stock... Some capital flows to VCs, but it seems the more capital flows to large VC funds, the more the criteria becomes look for a sure thing and filter more for large scale opportunities - all while small scale fundamental development receives poor access to the vast amount of capital sloshing around (and settling in places like unused real estate...). To me it seems that investment in direct development of productive tech and/or process is competing against profitability of short term financial manipulation - and causing a drop in overall delivery of new productivity improvements to the general economy. But even further, the very financial industry isn't really creating or maintaining a channel for money to open opportunities to develop that kind of company - certainly not a large scale needed or possible today.

mowenz 9y ago
>Does it seem to anyone else that the finance industry is increasingly distracted from actually matching up capital to fundamentally productive companies, especially new companies? This is somewhat controversial to posit, but I believe the corruption in the financial industry is extraordinarily entrenched because of the Fed. Before you call me a lunatic, smart and good people from Aaron Schwartz to Sanders have said things like this: that it should be eliminated, or that it is nothing more than socialism for the rich while hurting the poor. The most obvious problem with it is that it creates astronomical moral hazard by protecting and guaranteeing the big banks. After the Fin Crisis Krugman was talking a lot about making banking boring again, and run like utility companies. You can still have VCs, hedge funds, or whatever you want--but it's not funded by and guaranteed with anything other than the money you put in it, and it's separated from vanilla banking, ie Glass Steagall. But then we had Dodd Frank and sometime after Krugman never went back to talking about that again. Unfortunately, the dogma about the Fed is so entrenched in mainstream economics--so much so that speaking against it is immediately written-off. Nearly 1.5 centuries ago, all the banks were actually betting against Lincoln to lose his war. So he used the constitutionally-granted right to print the nation's own currency, and won the war with it. The point is, there's no reason we can't do this if we really wanted to (and if you care about poor and working class, and eliminating cronyism from the world, you should want to).

TimPC 9y ago

Lawsuits aren't always rent seeking sometimes they are necessary economic activities. Economic models can be poor when they (implicitly) define redress for illegal actions as rent-seeking behaviour, and cutting a competitors cables as valid economic activity -- for example the lawsuit against Comcast that alleges driving a competitor out of business with malicious construction.

danesparza 9y ago

It's interesting to me that the word "wrong" is used in the title. This is assigning a moral code to capitalism and I think that is misplaced. It's fine to have a moral code. It's fine to be a capitalist. Just don't expect capitalism to always fit in a moral code. I think the article's main unspoken gripe is about bad actors (folks acting in a non-altruistic way) in human society in general.

saas_sam 9y ago

It's interesting to me how this article frames crony capitalism as a use or abuse of government by corporations, almost as if the government is a victim. But it's the government that has all of the power in this context. There's something to be said for corporate money influencing elections, but even there it's elected officials who are deciding on policies after getting there, and if they are making decisions based on how to most easily keep their job (ex. take corporate money for reelection campaign), that's their unethical doing, not the corporations.

bjl 9y ago
Knowingly providing incentives for people to do something unethical is itself unethical. The corporations aren't blameless here.
- mtberatwork 9y ago
  Indeed, this is even outlined in the infamous Powell memo: "Business must learn the lesson ... that political power is necessary; that such power must be assiduously cultivated; and that when necessary, it must be used aggressively and with determination—without embarrassment and without the reluctance which has been so characteristic of American business." [1] [1] http://billmoyers.com/content/the-powell-memo-a-call-to-arms-for-corporations/ http://billmoyers.com/content/the-powell-memo-a-call-to-arms...
RobertoG 9y ago
I think that the lesson to learn here is: nevertheless the system, government or not, capitalism or not, the powerful always take all they can. It's the duty of the less powerful to fight for more of the pie for the majority.
candiodari 9y ago
What is more worrying is that all the suggestions in this article are that either government needs to grow, or "just needs to change". More tax. And generally more. More tax, of course, will worsen this problem as government spending on large companies only is exactly the problem.

zackmorris 9y ago

I think the great problem of our time is that the challenges get easier to solve every day but we mostly spend our time making rent. And not the kind of rent mentioned in the article - just plain old fashioned too-much-month-not-enough-money kind of rent. When we’re desperate, we grovel and do whatever work we need to to survive. This is akin to how researchers spend inordinate amounts of time applying for grants rather than, you know, saving the world and all that. This is because any free capital in the economy gets vacuumed up by a few large players who only divvy it out through "sanctioned" channels that most people no longer have access to. In the olden days, the main force balancing this was taxation. Even if you look at it as a purely zero-sum game, any money paid by the very wealthy had to go somewhere, and that somewhere was the masses. This didn't sit right with the very wealthy and they rigged the system to such a degree that I've never seen an appreciable tax increase in my lifetime, even in the face of trillion dollar deficits and the loss of the middle class in the US. Mathematically, trickle-down economics has given us just exactly the system it was designed to. I mourn for the millions (billions) of people left out, but for whatever reason a lot of people don’t even see them. Maybe the great problem of our time is ignorance..

rm_-rf_slash 9y ago
Or simply, our means of production have become so efficient that it didn't matter whether you were right or wrong, things would still hum along and the profits would continue. In the agricultural age, if you fucked up a harvest, you and your family could starve. Before agriculture, if you fucked up a hunt, your whole kin-clan could starve. Nowadays, if you fuck up the housing market, and millions of people go bankrupt, nothing gets broken enough to turn a concern into a crisis, so we never fix anything, and nothing ever changes.
- api 9y ago
  Many people have proposed variations of this as the reason civilizations collapse. They are destroyed by their success. They gain so much surplus that it completely isolates them from any kind of feedback mechanism, over time causing them to completely rot from within. Eventually the core becomes so rotten that the whole system falls apart. This can be sudden. I think an intuitive grasp of this is why so many conservatives have a natural disdain for welfare. But I think their disdain for welfare at the individual level is misplaced. The isolation of the most powerful and largest scale systems from consequences at the macro level is a far larger problem than the isolation of individuals from consequences at the micro level. Welfare can indeed become addictive and lead to a "welfare class," but these are largely powerless and relatively poor people who may be somewhat of a burden on society but do little damage otherwise. The real danger is a rich powerful professional welfare class that makes big ugly mistakes and is isolated from the consequences of these by power and abundance.

bostonscott 9y ago

The concept of "crony capitalism" is a misnomer. "Crony" is not a type of capitalism, it's the antithesis of capitalism. It's enabled by giving too much power to government. For example. When insurance companies jack-up rates or impose customer "unfriendly" terms, they are not acting within the "free market." They are exploiting "crony'esque" rules that limit competition by restricting insurance companies from competing across state-lines.

bjl 9y ago
Crony capitalism is not a misnomer, its the endgame of all capitalists. When people have the resources to buy a regulatory advantage, of course they are going to do so; that's just capitalism at its 'finest'.
- deleted 9y ago
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- bostonscott 9y ago
  It's not the endgame of all capitalists. Actual capitalists, limited in number as they are, prefer free markets (e.g. no cronyism) because they'll make more money that way over time. Opportunists are the ones who thrive when things are rigged. They can't survive on their own. But yes, many capitalists (and non-capitalists alike) "buy" regulatory advantages. Some leverage their dollars (buying) Some leverage their numbers (voting) These groups enable eachother. Motives range from "defense" (virtuous) to "offense" (sinister). You will find no practical solution to this problem other than starving the beast (decentralizing power away from government).
  - bjl 9y ago
    > You will find no practical solution to this problem other than starving the beast (decentralizing power away from government) All this will lead to is dictatorship by the wealthy. I much prefer our current system, as flawed as it is, to corporate fascism.

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dudul 9y ago

Not native english speaker here. My comment is probably of very limited value, but mostly for my personal improvement :). When I read "the wrong kind of entrepreneurs flourish in America" it surprises me to not see: "the wrong kind of entrepreneurs flourishes in America". I understand that "kind" should be the subject of the sentence, not the entrepreneurs. I have seen this construct several times (e.g. "this type of errors are very common", etc) and I'm wondering if it's correct, or simply one of these errors that are so common that they become the de facto rule.

eric_h 9y ago
You are correct, "kind" is the subject of the sentence and the right conjugation would be "flourishes". You are also correct that it's a very common error that has generally just become acceptable.
- TimPC 9y ago
  "The wrong kind of entrepreneur flourishes in America" would probably be the better title. The article describes a single kind of behaviour. "The wrong kinds of entrepreneur flourish in America" would better describe an article where multiple kinds/distinct groups of behaviors were present.
clamprecht 9y ago
I think you're right. To me, the sentence should either be "the wrong kinds of entrepreneurs flourish..." or "the wrong kind of entrepreneur flourishes..." But this is a common error, and most people probably don't notice it. A related thing I've noticed is that in British English, they refer to companies as plural. For example: "Google are going to acquire company X", whereas in American English, you usually see: "Google is going to acquire company X."
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germinalphrase 9y ago
You're correct. It would be better to say "entrepreneurs of the wrong kind flourish in America" - but that might sound odd or overly formal to everyday speakers. It's similar to the rule about ending your sentence in a preposition. It's incorrect, but it also sounds more natural in many instances.

kevmo 9y ago

Many of our regulatory bodies have been utterly captured by biggest companies that they are supposed to regulate, and they are tamping down innovation (which creates jobs), increasing prices, and decreasing quality. Both the Democrats and Republicans have been engaging too heavily in crony capitalism for decades, and this is the result. How it works: Regulations that are supposed to protect the public end up being a cudgel with which to beat down small companies that can't afford to deal with an onslaught of often unjustified demands for regulatory compliance. When the only companies who can afford to comply are the big ones, it squeezes out new market entrants. This decreases competition. It's bad for all but a handful of people. How it should work: Generally (not always), there should be a direct relationship between company size and the amount of regulations which apply (i.e. more regulations as you get bigger, fewer if you're small). We need a heavy injection of honesty into our regulatory agencies. Restoring balance to the system would unleash a wave of economic growth. When I was shilling for Senator Sanders in 2015 and 2016, I often said that I was equally excited for both his policies and the fact that he would make a lot of good appointments, which would clean a lot of crap out the rent-seeking regulatory system, which would be great for the economy. Unfortunately, we're going to have to wait. But I hope this gets on more people's radars as one of the reasons why the middle class has been shrinking and real incomes going down for four straight decades.

kem 9y ago
Regulatory capture, advertently or inadvertently, is one of the elephants in the healthcare room. I'm tired of all the discussion (on both sides) totally ignoring this issue.
- ntsplnkv2 9y ago
  Healthcare is a vehicle to serve another agenda. That is the problem. It doesn't matter if insurance is private or public if the costs of healthcare are too high. I don't see why there is no compromise. It's very bad for the future of this country.
vkou 9y ago
> and they are tamping down innovation (which creates jobs) If you're going to go from the jobs angle - let me pose a question: Today - in 2017 - not 100 years ago, not 40 years ago, but today - now. Does unregulated innovation create more, better jobs then it destroys? Do you draw a distinction between regulatory 'innovation' (Miscategorizing employees, breaking laws to increase your margins, skirting training or safety requirements, introducing conflicts of interest), and actual innovation (We can make more, or better stuff)? Do you think they are equally valuable? What is the ratio in market cap between these two kinds of innovations?

jondubois 9y ago

I think that these issues are getting a lot of attention recently. A lot of people feel that their jobs are not meaningful anymore and that they cannot find any meaningful work that pays well. Most of the jobs that pay well are zero-sum games. Finance, tech, law. Even medicine and pharmaceuticals are becoming zero-sum games (e.g companies boosting drug prices because it's easier than inventing new ones). People have become cynical and distrustful towards each other and the system. We have lost touch with our old values. I'm surprised that society can continue to function under these conditions. In this zero-sum economy, we are all enemies of each other.

rtx 9y ago
Thats why we need space colonization. We as a species are programmed to expand. We have become stagnant in the last 100 years.
- AndrewKemendo 9y ago
  Sounds like bacteria or a virus.
- nickthemagicman 9y ago
  Lol. I love how it's so hopeless that the best solution is to move to another planet.
- jondubois 9y ago
  Based on how humanity is evolving I can extrapolate that if aliens do exist, they are probably malevolent.
- deleted 9y ago
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- vkou 9y ago
  90% of our planet is currently uninhabited. If you want to expand, it's far closer, more hospitable, and economically useful then Mars.
- refurb 9y ago

shmerl 9y ago

TL;DR: Parasitic tendencies are growing. It requires some serious reform to fix this, but current level of legalized corruption makes it very hard.

Animats 9y ago

Good idea. Weak article. The HBR article cited [1] is an obituary for William Baumol. Baumol is associated more with the "cost disease" problem - high productivity industries shrink over time, as their market saturates. Agriculture and manufacturing in the US have great productivity, and are constantly shrinking employment while increasing output. US manufacturing output is at an all-time high, but is down to 8.1% of the labor force. Agriculture is at 1.4%.[2] So business growth has to be in low-productivity sectors, with low wages. That's cost disease. If you want to read about rent seeking, read Peter Theil's "Zero to One". It's a manual on rent-seeking. It's all about how to create a monopoly. Changing Government policy to reduce rent-seeking is very tough politically. Successful rent-seekers are the biggest political contributors. They pay to not have their income stream cut off. [1] https://hbr.org/2017/06/is-america-encouraging-the-wrong-kind-of-entrepreneurship https://hbr.org/2017/06/is-america-encouraging-the-wrong-kin... [2] https://www.bls.gov/emp/ep_table_201.htm https://www.bls.gov/emp/ep_table_201.htm

tomjen3 9y ago
But cost disease can, at most, account for growth in prices that follows the growth in salary paid to the most productive professions, no? Because if so the price increase of health care and college (which is the two big expenditures) _cannot_ be explained by cost-disease alone, as they have both grown much higher than salaries.

dkarapetyan 9y ago

I find the juxtaposition of productive and capitalism odd. The entire point of capitalism is to slush money around. That is the definition of productivity in capitalism but somehow some people got the money part mixed up with "value" and now they need fancy mental gymnastics to explain how the system working as intended is in fact not working. Basic system theory 101 says if you work with and optimize a proxy instead of the true metric then you will always deviate from your true and intended path. Money is only a proxy for value and some people did not get the memo. You need some second and third order correction terms if you use proxies.

a3n 9y ago

> Sometimes the government allows companies to get a certain amount of rent -- for example, the royalties from patents, which we protect in an attempt to encourage innovation. This is the classic, maybe the reason given to justify patents. The implication being that no one would bother innovating if patents didn't grant them rent for a time. But I wonder if the reality is merely that different people, and different kinds of people, would innovate in a patent-free world.

digi_owl 9y ago
The problem is not the concept, but the current application. And that is not even a construct of the law as written, but the courts application of said law. Patents started out as a 20 year protection on mechanical mechanisms or chemical processes as long as what was protected was publicly documented in full. Thus once the patent had run out, anyone could replicate it from the patent document. But then the chemical process side used to argue for a quasi-software patent in court, because the patent described a computer monitored mixing process. And thus the ball got rolling. Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete. On top of that we have gotten a mass of patents that are so generic in terminology, that even if they describe something mechanical they can potentially be applied to something done in software. Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out. Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out.
- jb613 9y ago
  > Patents started out as a 20 year protection on mechanical mechanisms or chemical processes as long as what was protected was publicly documented in full. 1) Patents are not an American invention. England had them before, and the Romans before that. 2) I'll assume you implied U.S. patents. The Founders regarded patents so highly that they wrote them into the U.S. Constitution. It was written generically and not limited or fixed to only "mechanical or chemical" but rather "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries". > Thing is though that 20 years is a very long time when we are talking software. By the time the RSA patent ran out, the algorithm described was largely obsolete. RSA patent expired nearly 20 years ago yet RSA is still used today. For example, the public key used to secure https://news.ycombinator.com https://news.ycombinator.com is RSA. > Not that patents have not been a problem even before computers. Serious refinements of the steam engine for example didn't happen until after the initial patent ran out. > > Similarly Smith and Weston sat on their refinements for the Colt revolver until the patent ran out. The myth is that patents block innovation. The reality is that blocking someone from doing something incentives them to find another way to do it. Afterall, if all you want to do is copy then how is that "blocking innovation"?

digi_owl 9y ago

and we keep finding that outside of the labor theory of value (and he may not even have been wrong as much as overstating the importance of labor) ol' Marx was right on the money...

BFatts 9y ago

This just read like a bunch of "I think" and "it might" instead of "I know" and "it will." So, stating that crony capitalism is hurting regular capitalism doesn't do anything except make people attack an idea instead of facts. And focusing on the financial industry might make you feel good because it's easy to say "wall street..." and everyone joins in on the bitch fest. It's a ton of conjecture and hypothesizing as to why business is failing, but to make it sound like one industry is just banking cash while providing nothing, is a disservice to all the people that work in that industry.

jorblumesea 9y ago

The natural choice for anyone is going to be "how do I get the most money with little effort". Corruption needs to be made difficult, but sadly the people who write the laws benefit the most from this corruption and are unwilling to surrender political control. If things are going to change don't count on the 1% to do anything about it. They are comfortable in their nested bubble of kickbacks, slush funds and stock. If the average person wants change, they need to confront the wealthy interests that control almost everything and fight for their place at the table. I think the biggest mistake of the last 30 years was putting any kind of trust in the ruling class to do anything but enrich their own.

Allower 9y ago

So what the fuck are YOU going to do about it?

notadoc 9y ago

Sounds about right. Until you remove all money and related influence from politics, it will only continue.

joshuaheard 9y ago

This article is a great argument for a more limited government.

Stryder 9y ago

I was 20, naively unaware of the ways of the real world, and nearly overnight, I lost everything and everyone I cherished in my life. Over the next 6 months, it slowly dawned on me that those who survive and thrive are those willing to screw other people over for their own benefit without as much as blinking an eye, as long as it suits them. "This is the way of the world", I thought to myself. Over the next decade, I focused, and worked my ass off. On my way up, I encountered countless more rich, successful and morally bankrupt individuals, and the higher I go, the more sophisticated the moral bankruptcy gets. To be fair, it's not the fault of a lot of these individuals. Some of them genuinely do not comprehend the consequences of their actions - it just doesn't cross their mind. Instead, the fault lies with a system that not only enables but promotes this kind of behavior to the very top, without an effective counter-balancing weight on the other end. And we are the custodians of the system, we are the ones who shape it on a daily basis, by the actions that we take, the investments that we make, and the kind of relationships that we build.

xxSparkleSxx 9y ago
I agree, but can we honestly put all the blame on those at the top. Many of of us in the middle and at the bottom are just as complicit. We go to work for companies we know make the world a worse place, we work under horrible people and hand them part of the value we create every week. Those in the middle and below do not have as much power as those on the top as an individual, but as a collective we have much more power. We can sit down and choose not to work, we can choose not to contribute to certain companies or to certain individuals. We can say "NO!" But most do not because money. The same reason those at the top do immoral/awful things are the same reasons those in the middle and below do immoral/awful things (those at the top just have a bigger impact). And some of those in the middle that just accept the status quo because "I've got a mortgage! I've gotta eat! I made these crappy kids and now I have to do awful things so they can eat!" will go on to be those at the top who continue the same behavior.
NTDF9 9y ago
I want to know more. As a late 20s person, I am experiencing everything you described.

rrivers 9y ago

This article speaks to a larger problem with the U.S., and really global system of finance. Right now we live in a world where finance dictates production, rather than production dictating finance. Combine that with the massive concentration of wealth on a global scale and we can observe a very real problem that will continue to hinder global progress until it is addressed. So often we as a collective naturalize the institution as if it was not an economic technology that we have created. Over time all technologies need updating, and our economic models are no different. As Harvard's Roberto Unger often says, "Finance has become a bad master, instead of a good servant."

a_c 9y ago

What the article says is true - banking, patents, regulations, corporate subsidies all contribute to rent-seeking behaviour. But one cannot strike a balance between rent-seeking and value-producing behaviour without investigating the motivation behind. Is it greed and laziness working in tandem? Or something else? I honestly have no answer

hasbroslasher 9y ago

The choice of title is interesting, if a bit misleading, so I'm gonna run with this. It's often suggested that there are two types of capitalism: one productive, competitive and free -- the other gripped with cronyism, protectionism, and exploitation. I don't buy that. There is just one type of capitalism, and while at times it may look more like one or the other of these poles, it always tends toward the latter: monopolistic, state-sanctioned "crony capitalism" that puts allows business owners to prioritize their own profits over the collective good. That's not to say that the sky is always falling: Scandinavian countries enjoy healthy markets and don't have absurd corporate welfare, for instance, it's just that the incentives for "good capitalists" to become cronyists are always present. The problem with the "two types" thinking is that it is always in a person's a person's best interest to get something for free. Ironically, this rhetoric is often used by capitalists, fearful that leftism might become effective, by claiming their opponents are the ones who want free stuff. There are lots of ways to get things for free. For instance, you can steal your workers time and fail to compensate them (common in fast food), you can coerce a government into cooperation ("We'll move to India if you don't give us the tax breaks") or you can campaign to get your friends into the government. The fallacy of libertarianism is a belief that capitalists don't want a state mechanism with the power to tax and regulate. That is exactly what capitalists want. They're given state protection via a police or military force, state welfare through tax write-offs and incentives, power and influence in crafting legislation that fits your worldview, and less turbulent markets due to stifling of demand. The alternative is Hobbes' "short, nasty, brutish" life - duking it out eternally trying to achieve efficiency instead of excess, competing endlessly, only to profit in the slightest. It's often said that "it's in our nature to be competitive" but it's also in our nature to be cooperative, and corporations display this fact amazingly well- they use collective influence and power in numbers to achieve ends that small businesses never could. Until people outside of that system learn to cooperate well enough to bargain for their own interests (e.g. Labor movements), it's going to be smooth sailing for the "crony" capitalists.

emodendroket 9y ago

> Regulation could be a big drag as well. Eager both to shield workers from obsolescence and to appease corporate lobbyists, many U.S. states have enacted laws to protect established industries from new market entrants. Some states forbid car companies from selling directly to buyers, while others protect credit-card companies by banning retailers from passing on swipe fees. Though one study has cast doubt on federal regulation’s role in reduced entrepreneurial dynamism, state regulation could be a much bigger deal. I'd contend the opposite seems more likely; we've deregulated a lot of stuff, including, perhaps significantly, getting really lax on antitrust legislation. Consolidation and subsequent rent-seeking is the typical result of unregulated market economies.

JamesBarney 9y ago
Which large corporations are involved in rent seeking, and you think would have been broken up under previous regulatory reigmes?

ThomPete 9y ago

Why is this title changed? The correct title is "The Wrong Kind of Entrepreneurs Flourish in America" which was also up in the beginning.

wowtip 9y ago

Hm, why was the headline changed for my post?

draw_down 9y ago

Hmm, I'm pretty sure this is just how capitalism works. Sorry :(

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Anarchonaut 9y ago

The crony capitalism you describe is actually 'corporatism'.