Capitalism or Socialism?

Thanks to Sahar Massachi and Jess Sattell for edits

A followup on

Company A has an idea. They design a solution, they execute, and there is demand for the good (service/product). Others recognize the potential of the opportunity and enter the market. Some company A' (which could be A) wins in producing the most compelling solution. It is some combination of better marketed and market penetration, more sustainable business model (e.g. Amazon, Walmart riding margins), more cheaply produced, higher quality, more defensible intellectual property, and or has better distribution logistics and partnerships. Some of the strategies employed by A' are specific to the industry. Competitors may adopt it and take market share. Other of their techniques will shape the ecosystem more generally and cause shifts in paradigm (e.g. e-commerce websites v. brick and mortar). Eventually, A' or a competitor, let's call this A'', will reach escape velocity, e.g. Walmart (dominant for ~35 years: 1997 - 1962), Amazon (~20 years and counting: 1997-present), wherein no player is able to compete at that scale. Again A'' won't be able to do everything well, so you'll have niche marketplaces emerge, like B' (e.g. Etsy) for speciality goods like hand-made crafts. Many of these services may even operate on top the infrastructure of A''.

But no company will have the sweeping leverage A'' has. And thus, A'' is in a position to informally dictate or direct policy with their actions. Except A'' won't be the most efficient across the board; we can only expect they will be in the ways that count most, financially. For instance, A'' may enjoy such competitive advantages from having low prices and volume that no competitor can successfully compete by improving other facets of business, such as by improving distribution automation. This can lead to a unique class of externalities -- inefficiencies within business which won't be solved because an industry leader has no incentive to solve them. Granted, A'' probably will solve them, as they explore low hanging fruit to increase their revenue. Unless these externalities have value to us but not to them. For instance, Amazon's distribution centers pumping emissions into our atmosphere. In many cases like these, the company is not incentivized to address the externality until it either cannibalizes their sales (in the form of protests/boycotts, the externality decreasing the supply or demand for the product -- e.g. the externality impacting talent acquisition in Shenzhen as a result of people relocating due to unhealthy levels of pollution). Ocassionally for-profits, especially insurance providers who make money by buffering customers against risk, will rise up and attack these inefficiencies when the risks against which they insure increase to a degree which threatens their margins and exceeds the cost of addressing the problem. They may apply pressure to or construct a deal with organizations such as A'' to change their policies, or may lobby politicians the impose policies to keep externalities in check. A'' may reach a deal with the insurance company (which is essentially a subsidy), or may choose to pay-off / counter-lobby politicians, or may find a creative way to receive subsidies from the government to patch the externality. If the risk is not enough such that the monetary pressure of insurance companies and the public can compell A'' to change, then the inefficiency will persist. Perhaps at this point the externality will be partly mitigated by non-profits, with varying degrees of effectiveness, by who wish to exercise (vote with) their capital and organizations united by a strong sense of moral imperative and urgency.

In the story above, A'' is likely happy to let other organizations clean up after them. Internet Service Providers are happy to be subsidized to increase their access to more customers. Oil and gas companies are happy to receive subsidies for pursuing cleaner technologies which will also save them money. Some may see it as unfortunate and inequitable that corporations may cannibalize resources the public relies on, and then make it such that the public has to make the decision to bail them out and cover these expenses. This parasitic relationship becomes even more tenuous when the continuance of such an externality benefits the corporation (e.g. if an externality is an advantage for A'' because it harms their competitors).

Some may argue that exacting corporate tax -- in a Pigovian sense -- is important because it makes organizations accountable for their negative externalities. In another lens (h/t Sahar Massachi) tax is also a mechanism for addressing inefficiencies in wealth distribution. See: Alternative Minimum Tax (AMT).

In this setup, capitalism views the concept of the commons as indistinguishable from any unclaimed resource which may be consumed and monopolized. Within the context of capitalism, oil, rare minerals, land, are all goods which belong to whomever can defensibly claim them fastest. Socialism believe there are some things -- clean air or fresh water, for instance -- which should be exempt from capital influence. These are some of the most important resources because, on both sides of the equation, they are often the resources people ostensibly can't live without. This makes them all the more valuable to capitalists and to socialists. This distinction of the commons is a key difference between capitalism and socialism.

Another key difference is the unit of power. The unit of capitalism is trade, measured in currencies. The premise is that a trade occurs because it makes both parties better off. Considering the story of A'', very few agents of the corporation have leverage to enact change, especially not those changes which may contradict the goals of A''. Workers are empowered to make decisions which further A'', and perhaps increase their capital leverage in the process, but the vast majority of individuals will be in no position to battle the agendas of a profitable corporation. And those corporations with philanthropic goals may only be able to achieve their agendas if run by one of these select few, or if it is otherwise made a profitable venture. But doing (i.e. having enough money to combat A'') seems to violate and contradict the exact process and circumstances by which A'' rose to power.

In socialism, the unit of power is a vote. The reason you get a vote in socialism is, "because you're a person" (h/t Sahar). Why is this distinction important?

We establihed above that, absent of protections, for-profit corporations are incentivized to exploit commons as a resource. This means for-profits are competing for these non-renewable limited resources (e.g. mining gold). We established also, that for A'' to win / reach escape velocity, this must preclude other players from being able to compete at the same level, on the same dimension; at least until new leverage is discovered which A'' isn't sufficiently positioned to capitalize. An exception being if A'' is resource-bound to a specific area, in which case multiple winners may concurrently monopolize their respective domains. Still, within these domains, there is likely little room for competition. And even if there are competitors, they're not feasible or affordible options until they are. And this is especially true in areas or industries where the startup costs are prohibitively expensive. Imagine how compelling your ideas would need to be in order to fund a new ISP and reach escape velocity. That's $80,000 per mile * 3.98M miles = $303.76B where only a single wire is run in each square mile. The best you could hope to do is focus on a metropolitan area, and they are likely not the underserved area. It's a similar story for pharmaceutical + chemical companies, Internet Service Providers, and water + electric companies. All the groups in this list receive subsidies from the government in order to extend their services beyond metropolitan areas. Some of them have been deemed and are regulated as utilities -- i.e. classes of organizations responsible for maintaining and providing infrastructure for public services.

Things are often classified as public utilities for a few reasons. First, similar to how insurance works (an organization which pools resources to buffer and mitigate risk), there are some resources which people depend on that are critical to survival and needed (but may be prohibitively expensive to deploy) at a national scale. If left to their own devices, organizations would likely only provide these solutions in metropolitan areas and/or at locations where the most value could be extracted. Perhaps people in remove areas would recentralize around metropolitan areas (causing new, perhaps not insurrmountable, challenges for industries like agriculture which currently require a lot of space). The interesting quality about public utilities is, they're run as if their utility is in unlimited supply. Or at least an effort is made to ensure their resources are distributed equitably such that the resource seems unlimited at a certain bandwidth. Except capitalists see these as areas of unparalleled profit which they want to control. More than anything, these are the resources capitalists want to acquire and control with their capital. Because they know others who need them will do anything for them.

This fine line -- protecting public welfare and interest -- is an important distinction between capitalism and socialism. What happens as insurance companies become more advanced and only insure the lowest risk customers? Some might argue for social policy to prevent this, some may claim only those who have sufficient money or low risk (e.g. those who take care of themselves) are entitled to insurance. What happens if you get sick and only one pharmaceutical company carries the drug you need? Should there be a ceiling on the price they can charge?

Often times people dogmatically fight for Capitalism or Socialism. As if one is right and one is wrong. It's important to realize both that Capitalism and Socialism are not mutually exclusive and, though, that they are in many ways diametrically opposed. Socialism aims to prevent a corporation or individual from "winning by any means", i.e. the destruction of the "commons" (which may be generalized to general welfare). Capitalism allows organizations and those who run them to get ahead. Rather than being for one or the other, I encourage you to evaluate and determine where we are on the spectrum. See: Kicking the Bucket