Private corporations acting in quasi-government ways is risky at best and terrifying at worst. While some of the checks & balances in civil+legal society have been broken, many are still there and there are repercussions when they're broken.
A corporation doesn't have the same mechanisms - public rules (aka laws), processes, appeals, accountability, etc, etc - built in and there's limited recourse when their definition of "right" and others' conflicts.
Based on this new assumed role, it's begging for more government regulation. And unfortunately, it makes sense for governments to say "as you take a more active role in society, you need more public oversight."
And once a corporation takes on the roles of government, it naturally needs to be protected from competition lest the essential government functions it provides get threatened.
We shouldn’t be demanding more from our corporations, we should be demanding less. Companies should produce goods and services at the highest quality for the lowest price, and let free citizens choose between them - and if the goods for sale are subpar - let the same free citizens start their own competitor.
History is a never ending see-saw, and we are now sawing back towards protectionism, big government, and less freedoms for the individual. At the very least it will once more teach painful lessons to a new generation that doesn’t remember the past.
>let the same free citizens start their own competitor.
Except that starting a competitor often requires far more capital than the incumbents needed to reach their position. I don't support protectionism, but "true free market" economics are an illusion used to prevent and tear down regulations.
SpaceX is mainly alive because NASA/government poured tons of money in it, so not exactly the best example:
"As a company, their total contracts are worth $12 billion including commercial satellite launches as well as NASA and U.S. government missions. Of that total, $5.5 billion is from government contracts from NASA and the Air Force."
Basically what could have been done (and was done, and reached the moon and built the space bus etc) on government money, is now paid to a private constructor to do (plus profits, minus the patents going to the state).
Indeed, SpaceX nearly went bankrupt in the early days because they couldn't get a contract until they successfully launched a rocket. That first contract after their first successful launch was from NASA.
NASA didn't do that out of the goodness of their hearts though. Pound-for-pound (which, to orbit is pretty pricey), SpaceX was cheaper.
Blue Origin, a different space corporation, was not even in consideration, but if they had something competitive, NASA would have considered their bid as well. (Tbc, Blue Origin isn't shooting for that market at all, so this is in no way a dig at them.)
>NASA didn't do that out of the goodness of their hearts though. Pound-for-pound (which, to orbit is pretty pricey), SpaceX was cheaper
Well, that's how you do it: you mismanage a state organization to make development costlier, and then you give the project + profits to private industry pals...
I knew that but I'm specifically asking about "starting a competitor often requires far more capital than the incumbents needed to reach their position", not where the money is coming from
>I'm specifically asking about "starting a competitor often requires far more capital than the incumbents needed to reach their position"
Well, isn't that self-evident? You can't beat Google or Amazon or Apple starting from the money Apple had at its times, or Amazon had when they started (adjust for inflation).
They have tons of billions of cash at hand to stomp on you, tons of special deals, economies of scale, can buy the best talent undercutting you, have friends in government and media, have huge network systems of third parties, and so on.
>And yet Apple beat IBM, DEC, HP, etc. which nobody anticipated.
In a totally different market. IBM wasn't making Apple I and II equivalents before, or Mac OS equivalents afterwards, and Apple wasn't making mainframes and workstations, and targeting enterprise (in fact, in the 90-96 period that it did try that, it almost tanked).
And the IBM PCs ended dominating the world (market share wise), IBM just didn't have exclusivity on building compatible devices.
But even all of those are beside the point: we're talking about now, not the 80s. At the time the home PC market didn't exist, companies started from scratch. And even enterprise computing (except for the big systems catered by IBM, DEC and co) was the Wild West.
It's like entering the search engine space in 1998 (when there were around 10 competing engines) vs today.
That's more about the poor performance of predictions. And a reminder that companies can and do fade.
Not really relevant as to whether a small company can beat an incumbent in their own game today. If Google fades eventually it wouldn't be because a new search company beat them at search, but because the industry changed and search is not longer as relevant, ad revenues are marginal, etc, for example.
> Not really relevant as to whether a small company can beat an incumbent in their own game today.
Except I've heard that argument for my entire life (I'm old). And it never pans out. Then there's a new crop of companies with "this time it's different". You can go back through a couple centuries of US companies and you'll find endless examples.
Yes that's exactly the point. The fiction under which corporations are granted their strange and powerful place in society, is that the invisible hand of the free market results in the best, floating to the top. Unfortunately, that invisible free hand is more imaginary than real, giving incumbents far more power than intended - assuming that you view pure competition as the ideal state, rather than a malignant state.
But they have to be different - that's how things improve. If they were exactly the same then what difference does it make for the consumer which product they buy? They're identical.
better, yes. the issue is that it has to be monumentally better in order to complete. Say I came up with a new algorithm for search, and an angel funded me at the same level that Google started off at. In order for MyNewSearchCo to be able to competitive, my algorithm needs to be 1,000% better; 10 or 50 or 100 percent isn't enough. Considering that I'd also have to build my own ad-network and crawl all of the Internet, I'm not sure it's even possible to compete at this point. Especially once Google sees me as a threat, the sheer amount of resources (and not just technical) they could bring to bear against a small dozen person start-up is ludicrous.
That is where the harm comes in - as a consumer, I'd love a 50% better search (insofar as thats readily quantifiable), but the current architecture of the market ends up preventing this from happening!
Most corporations aren't big and don't have a lot of power -- laundromats, machine tool manufacturers, and so many other businesses are formed as corporations (and not as sole proprietorships). How fictive is the invisible hand on that scale?
Lots of money confers lots of power, sure, though this is not anything peculiar to corporations. Corporations are a strange kind of ownership -- since shareholders "own" the corporation but have almost no control of it or any direct access to its assets -- but what is the "strange and powerful" place that corporations are granted?
Competing against price-cutting, product-dumping, employee-luring, FUD campaigns, bundling and tying, exclusive dealings arrangements, legislative lobbying, patent lawsuits, bribery, forced acquisitions (e.g., Luxottica & Oakley) and any of the numerous other tactics that are not "pure competition" but are and have been used against challengers, is exceedingly difficult.
Sneaking up under the radar, making a lateral move, or finding a patron or sweetheart deal as an entry into a market is frequently required. Microsoft's break was its exclusive, per-CPU licensing deal with IBM, later extended to other OEMs, and followed by bundling (Office) and tying/dumping (Internet Explorer). Government contracts (national, state, or local) can be a path. Emerging during a period of general economic panic works for others -- both Google and Facebook effectively emerged during financial squeezes (and legal impairments) on incumbents or potential spoilers (2001, 2007-8).
Bernhard J. Stern's "Resistances to the Adoption of Technological Innovations" (1935) details numerous instances and methods of such dirty tricks, and is rapidly becoming among my favourite references to these:
Google / Alphabet have prove unable to displace telco / cable monopolies.
Or, for that matter, Facebook's social networking monopoly, despite dumping billions into Google+.
Since the 1920s, it's been virtually impossible to start a new consumer automobile company in the US, with several notable flameouts (Tucker and DeLorean notably). Tesla is a remarkable exception, though they are innovating on energy storage and traction.
The aviation industry is similar.
Likewise, banking.
Despite ongoing consolidation and failures in Big N consulting firms, new entrants have not emerged in the space. What are now the Big Four had been the Big Eight as late as the 1990s.
There are occasional cases of disruption. The emergence of discount retailers (Dayton, Kresge, and Wal-Mart, today Target, Kmart, and Walmart) all expanded greatly in the 1960s. I was stunned though to learn a few years ago that the Hudson's Bay Company still exists, and is the parent of Lord & Taylor and Saks Fifth Avenue, among others.
It's also notable that some of the biggest names in technology are comparatively old: Apple was founded in 1976, Intel in 1968, and IBM formed in 1911 by companies dating to the 1880s. AT&T has at least persisted as a brand, if not an entirely continuous corporate legal structure, since 1885. (The current company operating under the name is a separate legal entity, though also an RBOC spin-off of the original company.)
I'd thought of adding a few cases in which disruption does or has happened.
Changing regulatory environments is one. Tobacco, freon, lead paint, asbestos, and numerous other concerns are lo longer with us, or are vastly diminished.
Changing fundamental technologies. Vacuum tube to transistor, transistor to IC. This is a classic Christensian Innovator's Dilemma: do I cannibalise my own existing product base, or wait for someone else to come along and do it for me? To an extent, RCA lost out as television and radio became electronic and flat.
Labour outsourcing is another major driver, especially in labour-intensive activities. So long as the product can be moved, odds are good that the manufacture of it will be as well. Textiles, appliance manufacturing, auto manufacturing, electronics manufacturing (RCA again), and more.
Patent expiry. RCA was itself formed as or in conjunction with a government-mandated patent pooling, one of several such instances.
Reaching the end-run of some fundamental technological capability. Steelmaking, xerography, film-based imaging, instant film-based imaging, telegraphy, various other chemical-based processes, a whole slew of 1960s "-onics" and "-tron" firms, etc., have their day in the sun and then fade. Finding some service or capability and continuing to serve that by some ongoing set of means seems to be more durable.
Long and slow carve-outs from underneath. Television and Internet are finishing the eviceration of print news which began in the 1950s. Television and radio are themselves being undermined by packet-switched, on-demand, streaming, and App-based alternatives. Lower cost and greater flexibility or ease of use (even for a manifestly worse product or experience) very often (though not always) wins. Getting hung up on quality is generally a Bad Move.
Social, economic, political, and cultural changes can drive major shifts. Wars have been known to markedly delimit "before" and "after" phases, likewise economic turmoil. That the two not infrequently go hand in hand doesn't soften the impact but amplifies it.
By mention in Google's Ngram database, RCA hit its peak about 1982. That corresponds to a few of the trends I've described: the 1980s recession, the Reagan Revolution, the beginning of mass-consumer microchip-based electronics (if not computers), a switch from broadcast to cable as a predominant television transmission mode, and the growing dominance of Japan, with lower labour costs and higher quality reputations, especially from Sony, JVC, Panasonic, and other brands, which were competing on their own home turf and with the benefit of the Japanese focus on a active and deliberate government roles in economic and business policy and activity.
I didn't even realise that the company went defunct (acquired by GE) in 1986.
There are tons of examples of this. Basically any company with a real competitive advantage is very expensive to unseat once established. Try to unseat Amazon, Google, Facebook, or Apple with the capital that launched those companies.
Google unseated Altavista and Yahoo, Facebook unseated MySpace and Friendster, each with less capital than its predecessor had available.
It might seem inconceivable today that these giants could fall, but they absolutely can.
Even if these giants don't fall, they can't just act as they wish, just because they have a dominant market position.
They're kept in check by the fact that their products are easily replaced if they raise prices well beyond cost of replacement. As a result, they don't raise prices and the potential competition never emerges - which in terms of the social outcome is just about as good as active competition.
There's an exception to this which the article mentions: Companies that sell themselves as "too big to fail" or "socially important" to gullible or corrupt politicians. The market can't fix this, only politics can.
Isn’t it different though? A lot of people are reading your comment on an OS developed by Google, and mostly everyone they know is a user of Facebook, a company working on creating its own currency. Altavista, MySpace, and Friendster were never so powerful. They felt less like companies and more just like websites, if you know what I mean.
> Altavista, MySpace, and Friendster were never so powerful.
They weren't that "powerful" because the web wasn't used as much. It took a while for us to adopt the digital lifestyle. Ultimately, they're just platforms though. Of course they have a lot of inertia, but user habits can change. Younger users in particular aren't engaging with Facebook that much anymore:
> They felt less like companies and more just like websites, if you know what I mean.
Google certainly has moved beyond being a website by creating many products. However, I feel that a lot of these products are rather crappy and wouldn't be competitive if they weren't given away. How dominant of a player can you really be, if you must give your product away for free?
Most companies aren't in the business of giving away free stuff, so in that sense it is hard to compete. That's not necessarily a bad thing for the consumer though, they get all the free stuff after all.
Those companies, and Google and Facebook themselves were all miniscule compare to what Google and Facebook are now. Once you get that big, no scrappy startup is going to take you down. It would take dozens of smaller companies chipping away for years or decades. And plenty of times they would just get purchased by the big huys. Just Like what happened with IBM, and even then IBM is both still around, very big, and very entrenched within some areas of industry and Enterprise. And generally not because they out compete with better products.
No scrappy startup is going to take them down at every level of their business at once, but they can still create competition, even if they're just out there to be acquired.
For instance, Facebook is losing engagement to Snapchat, Snapchat is losing engagement to TikTok, and so on. As a result, there is constant pressure to evolve.
IBM may still be around, but it's a totally different company now. Nobody uses "IBM PCs" anymore. Remember, back in the day those were very expensive, relatively speaking. IBM was as big as it ever was, relatively speaking. Yet, cheap clones by smaller companies drove down profits to make IBM give up on the market.
Also, IBM may still be a big company, but you'd be hard pressed to find a segment where they are absolutely dominating, unlike back in the day. I never said small guys will bankrupt and annihilate the giants, I'm saying competitive pressure from below is there at all times, no matter how big you are.
not "at every level of their business all at once" This is pretty much exactly what I said in saying it would take many companies a very long time to chip away.
And sure, competitive pressure is there, but it can be at such a low level as to be nominally meaningless. Whether or not IBM dominates any segment, they are still around, despite being in many products and use cases, not at all the best option. That says to me the idea that competition will results in the best products at the lowest price points (the great-great etc comment that started this) is simply not the case except in a sort of platonic idealization of capitalistic competition that only imperfectly, when at all, plays out in reality.
I'm not even saying we should ditch that model of capitalist competition, though I clearly think it should be subject to regulation & oversight that a pure free-market libertarian wouldn't like. I don't know that there's a better alternative than a hybrid competition-with-oversight model. I just think we should keep our eyes open. We shouldn't blindly act from a position of philosophical assumptions that such competition will solve all problems. Or when it might solve them, that it will do so in an acceptable time frame, e.g., more than a century of industrial pollution without a competitive solution until the (less than perfect, better than nothing) implementation of the EPA.
Heck the entire concept of path dependency in economics exists to help explain why inferior choices may persist despite the possibility of better alternatives in a way that defies the "competition will provide" mantra. [0]
> Whether or not IBM dominates any segment, they are still around, despite being in many products and use cases, not at all the best option. That says to me the idea that competition will results in the best products at the lowest price points (the great-great etc comment that started this) is simply not the case except in a sort of platonic idealization of capitalistic competition that only imperfectly, when at all, plays out in reality.
I think you have trouble with the distinction between "the best" and "good". In market terms, "the best" is that which the market chooses. If the market decides that cheap junk shall succeed, so it will. Quality and cost are at odds, obviously. In some cases the market will even choose expensive junk, that's generally the success of effective marketing.
To understand why this mechanism is nevertheless desirable, we need to look at the alternative: A planned economy and design by committee. Those mechanisms tend to result in products that are neither good nor cheap. The real argument for capitalism isn't that market economies are great (though they are), but that none of the alternatives have ever worked out any better.
Perhaps a technological revolution can usher in a better system at some point, but whoever advocates for that had better done an elaborate computer simulation first.
> I'm not even saying we should ditch that model of capitalist competition, though I clearly think it should be subject to regulation & oversight that a pure free-market libertarian wouldn't like.
The first thing to note is that regulation rarely fulfills its purpose without unintended consequences that require further regulation later on. Furthermore, regulation usually benefits the big guys, who can afford to deal with it.
That's not to say you shouldn't have any regulation. Market externalities can not be dealt within from within a market framework alone. It is to say that regulation should be a last resort.
I'm not having any trouble distinguishing anything here. I understand the market allows for gradients in quality. But I'm arguing against the premise that started this thread. It was that a free market would result in the highest quality goods at the lowest price. The mere presence of cheap junk does itself undermine that argument. The free market isn't especially efficient if massive resources are used to produce short-lived items when they might instead be used to produce more durable ones. The incentives of the free market tend to align to choose near-term benefit whether or not it might result in long term harm, or simply greater cost.
Anyway, your comments on the potential for a better system and market externalities show we're probably not too far away from each other on the general issue. Somehow we just ended up on opposite sides of this particular thread. There's not much of a better alternative on the table. I agree regulation shouldn't be the first course of action to any issue that might reasonably be solved by the market within a reasonable amount of time. What is "reasonable" being dependent on any particular issue's circumstances. (as examples, the market might be left to resolve issues of consumer inconvenience, but ones of public safety should get much closer scrutiny). The pendulum between the excesses of capitalism and those of regulation will swing back and forth, hopefully better approximating the ideal balance with each pass. And maybe at some point we'll be able to do better than this messy method.
> I'm not having any trouble distinguishing anything here. I understand the market allows for gradients in quality.
I haven't made myself clear enough then: "The best" can still be awful, it's just better than whatever the next best alternative is, from a market perspective.
The market, at the end of the day, is people. If people reward short-lasting and cheap products over long-lasting and more expensive products, those are the "best products" in terms of adaptation to market demand.
They're never the best products in terms of resource usage or the environment or some other externality. That is unless that's what the market rewards, which it does to some degree, see "green advertising".
> The free market isn't especially efficient if massive resources are used to produce short-lived items when they might instead be used to produce more durable ones.
Nevertheless, market economies tend to be more efficient than non-market economies at allocating resources to where they are needed. This is because of local information advantage.
As I said, perhaps some future technology can be even more efficient at allocating resources than a market made out of people.
> But I'm arguing against the premise that started this thread. It was that a free market would result in the highest quality goods at the lowest price.
You didn't read that right. The OP started out by saying what companies should do: Produce the best products at the lowest prices. It's a prescription, not a prediction.
Of course what companies actually would like to do is sell the worst products at the highest prices. It's just that the market won't let them get away with it, unless they have really good sales and marketing, which is a big cost in and of itself.
In effect, the tendency with mass market products is to lower prices towards marginal cost and improve (or reduce) quality to acceptable levels, but not beyond. In the niches, for those people who really care and are ready to pay the price, there's still room for excellent products, maybe with a "lifetime warranty"
History is a never ending see-saw, and we are now sawing back towards protectionism, big government, and less freedoms for the individual.
The reason we are moving back toward regulation is that we forgot how irresponsible and destructive corporations can be when they are underregulated. The notion that as long as people can express their preference by buying stuff no regulation is necessary is a libertarian fantasy, completely unsupported by the historical record. The reality is that as corporate power and reach increase, corporations cause more and more destruction when left to short-term profit motive as their only control system. Corporations are all publicly chartered, and their continued existence should always be conditional on a broader conception of the public good than can be captured in a balance sheet.
Its a perfectly reasonable question. HN is so harsh on people who question capitalism. And corporate capitalism in particular is well deserving of criticism.
For all its issues, that’s one thing the U.S. got pretty right: the states are essentially competing small governments (and why we should work to minimize the federal government).
Voting with your feet always beats voting with your hands!
This is always my argument when I explain to people why I'm so rabidly against a large federal government responsible for ever more aspects of our lives. With 50 states, you have 50 different experiments and if one of them finds success, the other 49 are free to copy those successes. With the federal government, any failed experiment eventually becomes a fact of life that is impossible to unseat and replace with something better. Federal government is essentially a local maxima that we get stuck in.
Except in a market with competition consumers will have the power to make choices.
I don't have the power to easily move to other cities or states. It costs thousands of dollars and takes a ton of time and stress. It separates me from my family. And if I struggled to find a job might not be able to move at all.
This kinda makes it sound like the ultimate outcome of corporate growth is socialism. At some point, many of these functions fulfilled by corporations are essential, might as well nationalize it and have it function for the public good right? Then maybe you won't have stuff like the despicable state of the printer industry
> might as well nationalize it and have it function for the public good right?
No. If I don't like the "socialism" from one company, I'm free to defect and join another company to get the better "socialism" from some other company. If you nationalize it, I no longer have anywhere near the same degree of freedom to pick the "socialism" that works for me. The only option I have is fleeing to another country and starting anew.
Also, with a company, I'm specifically associating with others who are productively contributing to that socialism in a way that is comparable to my contributions. If you nationalize it, the freerider problem becomes far more of an issue. It's not like there aren't people who can get away with freeriding in a company, but it is a lot easier to avoid any kind of accountability to contribute if things are nationalized.
All "socialism" should start small and local among those that can hold one another accountable to the greater good and then if their flavor of socialism works and scales, it will. If you have to force it upon people from above, it's almost certainly the wrong solution.
Many (but certainly not all) externalities are process waste and an often an opportunity for margins improvement if you can figure out how to eliminate that waste.
Now, if you can take those externalities that are not process waste but are still bad for the environment and you can put a price on them that needs to be paid, competition is going to drive businesses to figure out how to reduce the externalities. This is the premise behind buying carbon credits/offsets.
The problem is that we don't yet have good ways to price in all externalities into the final cost of goods sold. That should be the problem we tackle.
Well as much as I am a advocate for converting to a cooperative economy, I do understand that logic. Our corporate capitalism today relies heavily on monopoly like power especially with things like intellectual property and businesses like ISPs. If Comcast was forced to provide commodity access to its network as well as interconnects with other line providers, then the monopoly like power Comcast has over internet access would be dramatically reduced. More competition would enter the market and theoretically lower prices. Or if intellectual property law was significantly weakened then we would see more competition as well.
I think you might have misunderstood my comment. I'm arguing that more competition may be good for consumers, it's not doing any favours to the environment. Cheaper stuff means people consume more, more consumption means more environmental damage. Any effort to restructure our society and economies that doesn't put environmental impact first, is the wrong change.
IMO if companies were structured more democratically (co-ops) you wouldn't need as much regulation (long view taken by workers more often than short term profit), and therefore smaller government.
I agree with this. I wonder what prevents there from being more co-ops in diverse industries? Capital requirements? In banking there are credit unions. I wonder what the tech equivalent of credit unions look like.
Lack of support infrastructure. Traditional startups being so common have a large market of services, grants, financing, lawyers geared towards them. More of an uphill battle for a co-op. I think even licensing can be an issue in some areas.
Also, there's a significant tax advantage for shareholders (long-term capital gains) vs. income you receive as a worker.
Or change the structure of corporations in practice to many more cooperatively owned and democratically operated businesses. In this way, the actions of the corporations will much more reflect the needs of the people instead of reflecting the needs of an elite board of directors. And in that world, the government only needs to do things like provide legal support for new cooperatives, laws that allow/require employees to purchase the company via right of first refusal laws, etc. Obviously moving control from elite company owners to government bureaucrats is not going to be much better for society.
And who funds these cooperatives? They'll still get some money, but probably not though to run many of them. I'm certainly not going to be as free investing in cooperatives. Most probably won't be run well and die off.
This would probably lead to single large companies as very few could run themselves efficiently.
The same people who invest most of the money -- big funds that invest in a diverse portfolio instead of one or another company's specific strategy per se. Investors are always happy when they hit a Whole Foods or an Amazon but you can't invest a whole pension in companies like that.
The check on corporations is competition. Don't like what they do, take your business elsewhere.
The huge problem is that this check isn't really working, because the FTC is asleep at the wheel. We have anti-monopoly laws on the books; they exist to ensure that consumers have adequate degrees of choice and companies have a check on blatantly abusive behavior. It's time to start enforcing them.
Break up giant corporations and prevent them from gaining a stranglehold on the market and much of the need for government regulation goes away.
Corporations (or really, their staff) end up policing things because nobody else wants to do the work. You don't see governments volunteering to handle all the flagged posts on Facebook.
One of the checks and balances that we have worsened since 911 is the division of powers. No group had a monopoly on many aspects of your life and so you could “shop around” if things got bad.
And this is why you need antitrust laws. I need an option to use another provider if this one is treating me unfairly for dystopian or other reasons.
Existing Govts around the world have allowed global monopoly's to grow as part of the New World Order, its a wonder how the major political parties continue to be elected, doesn't matter if you look at the US, UK or EU, all are guilty of pandering to the global elites who continue to get richer off our backs.
Private corporations acting in quasi-government ways is risky at best and terrifying at worst. While some of the checks & balances in civil+legal society have been broken, many are still there and there are repercussions when they're broken.
A corporation doesn't have the same mechanisms - public rules (aka laws), processes, appeals, accountability, etc, etc - built in and there's limited recourse when their definition of "right" and others' conflicts.
Based on this new assumed role, it's begging for more government regulation. And unfortunately, it makes sense for governments to say "as you take a more active role in society, you need more public oversight."