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Capitalism, shareholder or otherwise, is a mechanism to optimize production, not a grand model for entire society. This statement does not imply socialism or ot

Capitalism, shareholder or otherwise, is a mechanism to optimize production, not a grand model for entire society. This statement does not imply socialism or other forms of heavy central government intervention. Rather, at the start of industrial revolution, and in poorest parts of the world today, having a full stomach and some clothes on your back is the most important thing. But as society becomes more prosperous, priorities other than optimizing production can be addressed, and public companies dedicated to only optimizing shareholder value are not the best tool to address these. Can be for profit and non profit organizations with charter than explicitly ranks different priorities. Can be services by local government, where everyone can easy move if they don't like tax/benefit balance. And so on.

andrewpolidori 3y ago
I often wonder what certain industries could be if intensely focussed on "improvement" over profit taking. But then again the most "important" problems/industries are so capital intense without the profit motive I'm not sure who would sign up to fund such an endeavour.
PaulDavisThe1st 3y ago
> Capitalism, shareholder or otherwise, is a mechanism to optimize production This has nothing whatsoever to do with capitalism. Capitalism is an economic system in which those who invest capital rather than labor or ideas are considered to be entitled to the bulk of the profit from the endeavor. This is defended by the claim that the capital-ists are also exposed to more of the risk, and hence deserve more of the reward. There are strong counter-arguments to this position.
- nradov 3y ago
  You are arguing against a strawman. Capitalism has little to do with entitlement. Capitalism is actually the only practical system which we have found for efficiently allocating resources at scale over extended periods of time in a way that improves living standards. The counter arguments to this position are entirely theoretical and have never been proven to work in the real world. Perhaps there is some non-capitalist economic system out there waiting to be invented which could deliver superior results without eventually devolving into an authoritarian dystopia, but I doubt it.
  - deleted 3y ago
    [deleted]
  - PaulDavisThe1st 3y ago
    Allocation of resources in capitalism is not a system beyond saying "let the capitalists decide". And how do we let them decide? Because we preferentially allow them to collect profits (over labor and ideas), creating an incentive (though not necessarily a requirement) on their part to maximise profit. So, capitalists will want to see the ventures they invest in generate profit, and the most obvious way to do this is to have the venture make things or provide services that others want to pay for. However, just as there's no ironclad rule that an enterprise in a capitalist system must seek to maximise profits, there's also no ironclad rule that the best or only way to see profits is to do things that other people want to pay for. Increasingly, the financialization of the US (and other) economies means that substantial profits can be obtained by extracting value from transactions, rather than creating value to society. Mariana Mazzucato has discussed this at length in her excellent book "The Value of Everything: Making & Taking in the Global Economy Economics" The point is that capitalism only works well for allocating resources when it happens to follow the goal of producing value for others, and in that sense any economic system that somehow prioritized this would have the same benefits as capitalism. Note that it also needs to take externalities into account, otherwise the short term benefits of value production-driven economic activity become a long term net negative. Capitalism has not proven itself in this regard so far. The thing that is different about capitalism is that beyond (generally) favoring value production, it also favors the owners of capital as the beneficiaries of generated profit. This in turn makes the owners of capital have deeply vested interests in ensuring that this asymmetrical distribution of profit does not change (they will almost certainly lose if it does). That is what defines capitalism, not free markets, not value creation, not entrepeneurial activity.
    - nradov 3y ago
      You haven't actually proposed any viable alternative that would produce superior results.
      - 3y ago
droopyEyelids 3y ago
I disagree with the idea that capitalism is a mechanism to optimize production. In early days, capitalism did contribute to increased production- for example, the role it played in removing the crown's ability to grant monopolies in different fields to favorable subjects, and allowing private ownership at all. Early monopolies and their place-men held back economic development, and allowing anyone who sees a new need to start a business definitely increased production, but Capitalism is governance by the owners of capital. At this point, that is again holding back production, as capital owners (like the place men before them) incentives' are to increase their personal wealth even at the expense of production. We see capitalism inhibiting production most clearly in the way private equity consumes and destroys productive enterprises by loading them with debt, using the money to issue enormous dividends payable to the special class of shares held by the firm, and then selling the scraps of the company that remain after bankruptcy. This is also visible in the way that banks no longer offer loans to new businesses unless they have collateral to borrow against, and the flaws in how venture/angel investment works. When optimizing for production, governments turn to policies that are considered socialist in order to remove these obstacles. One category of this is stuff like social housing and free education/healthcare which reduce the cost of living for workers, increasing the size of a country's workforce and allowing cheap production of goods & services. Unemployment benefits and support for non-workers (like children and the disabled) also fall into this category, as that allows workers to change employers with less friction. Other ways are limiting what owners of capital are allowed to do with their property- a prohibition on the Private Equity model of destroying companies would fall into this category, or subsidizing immature industry. There is a balance between capitalist policies and state-controlled policies, where either side can inhibit production once it has power without responsibility to the citizens it operates on.

andrewpolidori 3y ago

I often wonder what certain industries could be if intensely focussed on "improvement" over profit taking. But then again the most "important" problems/industries are so capital intense without the profit motive I'm not sure who would sign up to fund such an endeavour.

PaulDavisThe1st 3y ago

> Capitalism, shareholder or otherwise, is a mechanism to optimize production This has nothing whatsoever to do with capitalism. Capitalism is an economic system in which those who invest capital rather than labor or ideas are considered to be entitled to the bulk of the profit from the endeavor. This is defended by the claim that the capital-ists are also exposed to more of the risk, and hence deserve more of the reward. There are strong counter-arguments to this position.

nradov 3y ago
You are arguing against a strawman. Capitalism has little to do with entitlement. Capitalism is actually the only practical system which we have found for efficiently allocating resources at scale over extended periods of time in a way that improves living standards. The counter arguments to this position are entirely theoretical and have never been proven to work in the real world. Perhaps there is some non-capitalist economic system out there waiting to be invented which could deliver superior results without eventually devolving into an authoritarian dystopia, but I doubt it.
- deleted 3y ago
  [deleted]
- PaulDavisThe1st 3y ago
  Allocation of resources in capitalism is not a system beyond saying "let the capitalists decide". And how do we let them decide? Because we preferentially allow them to collect profits (over labor and ideas), creating an incentive (though not necessarily a requirement) on their part to maximise profit. So, capitalists will want to see the ventures they invest in generate profit, and the most obvious way to do this is to have the venture make things or provide services that others want to pay for. However, just as there's no ironclad rule that an enterprise in a capitalist system must seek to maximise profits, there's also no ironclad rule that the best or only way to see profits is to do things that other people want to pay for. Increasingly, the financialization of the US (and other) economies means that substantial profits can be obtained by extracting value from transactions, rather than creating value to society. Mariana Mazzucato has discussed this at length in her excellent book "The Value of Everything: Making & Taking in the Global Economy Economics" The point is that capitalism only works well for allocating resources when it happens to follow the goal of producing value for others, and in that sense any economic system that somehow prioritized this would have the same benefits as capitalism. Note that it also needs to take externalities into account, otherwise the short term benefits of value production-driven economic activity become a long term net negative. Capitalism has not proven itself in this regard so far. The thing that is different about capitalism is that beyond (generally) favoring value production, it also favors the owners of capital as the beneficiaries of generated profit. This in turn makes the owners of capital have deeply vested interests in ensuring that this asymmetrical distribution of profit does not change (they will almost certainly lose if it does). That is what defines capitalism, not free markets, not value creation, not entrepeneurial activity.
  - nradov 3y ago
    You haven't actually proposed any viable alternative that would produce superior results.
    - 3y ago

droopyEyelids 3y ago

I disagree with the idea that capitalism is a mechanism to optimize production. In early days, capitalism did contribute to increased production- for example, the role it played in removing the crown's ability to grant monopolies in different fields to favorable subjects, and allowing private ownership at all. Early monopolies and their place-men held back economic development, and allowing anyone who sees a new need to start a business definitely increased production, but Capitalism is governance by the owners of capital. At this point, that is again holding back production, as capital owners (like the place men before them) incentives' are to increase their personal wealth even at the expense of production. We see capitalism inhibiting production most clearly in the way private equity consumes and destroys productive enterprises by loading them with debt, using the money to issue enormous dividends payable to the special class of shares held by the firm, and then selling the scraps of the company that remain after bankruptcy. This is also visible in the way that banks no longer offer loans to new businesses unless they have collateral to borrow against, and the flaws in how venture/angel investment works. When optimizing for production, governments turn to policies that are considered socialist in order to remove these obstacles. One category of this is stuff like social housing and free education/healthcare which reduce the cost of living for workers, increasing the size of a country's workforce and allowing cheap production of goods & services. Unemployment benefits and support for non-workers (like children and the disabled) also fall into this category, as that allows workers to change employers with less friction. Other ways are limiting what owners of capital are allowed to do with their property- a prohibition on the Private Equity model of destroying companies would fall into this category, or subsidizing immature industry. There is a balance between capitalist policies and state-controlled policies, where either side can inhibit production once it has power without responsibility to the citizens it operates on.