A Lego Model of Capitalist Central Planning
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As to why a company is a single large integrated organization rather than a cloud of independent organizations or individuals bound by contracts: see Coase Theory Of The Firm. It's to do with information flow.
The critical difference between corporate central planning and Communist central planning is that corporate still has prices, mostly from outside the organization, which also represent a flow of information. But that 30% of intra-corporate trade often does not have anything close to a real price on it, instead it will have a number chosen for tax optimization purposes. See Apple Ireland, for example.
This is ahistorical. I present to you the Dutch East India Company [1]:
> The Dutch government formed the VOC in 1602. At its peak, the Company had 57,000 employees, 150 merchant ships, and a private military force with 40 warships and 10,000 soldiers
Standard Oil also springs to mind as being absolutely massive, particularly in terms of percent of GDP.
That being said, I agree with the general point that the idea of "free markets" in a noeliberal dystopia are kind of ridiculous. But the alternative doesn't necessitate central planning either.
The US in particular is a country of contradictions. Capitalism is popular although most people can't define it. Socialism is rejected although almost nobody can define it. The US Military is venerated despite being one of the most socialist institutions in the country.
Think about it. In the military all your basic needs are met. Housing, food, medicare care, education. You pick a job you're qualified for (based on the ASVAB and line scores). The military trains you do that job. You get paid while doing all this. Then you do that job.
Yet Americans, despite lauding the military, will soundly reject every American having their needs met in the same basic way that the military does.
[1]: https://www.curationist.org/editorial-features/article/the-d...
Feudalism was an economic system borne from the Divine Right of Kings [1]. But this was really just an excuse, much like every religious war isn't really about relilgion. Religion is just an excuse to seize land.
Anyway, under feudalism, a King controlled some portion of land. That King would typically have vassals who control part of it. Depending on the size, those vassals may themselves have vassals.
At the bottom of this totem pole was the serf. A noble would control all the land but would grant a serf the ability to use the land to grow a harvest and feed his family. Often the serf would live on that land. In exchange for this the serf would give a portion of his harvest to his lord. The serf may also owe the lord military service in times of war.
By late feudalism, instead of giving crops, the serf would sell their harvest at markets and pay the lord money. This led to the rise of the merchant class and ultimately paved the way for capitalism.
So what's going on here? In feudalism, the lord owns the means of production (being the land). The serf, through his labor, creates value by sowing and harvesting a crop. There is no value to the land without labor. So one can say the the lord is extracting the surplus value of the serf's labor. This framing and understanding was really formalized by Karl Marx later but the origin of the Labor Theory of Value [2] goes back to Ancient Greece and probably beyond.
So what is capitalism? Capitalism simply replaces the noble lord with a capital owner. That's literally it.
As the world industrialized the means of production expanded beyond farms and mines to factories. But everything else applies. A factory extracts the surplus value of the workers' labor to enrichen the factory's owner.
Instead of kings, we have Elon Musk, Jeff Bezos and the like.
So what Marx talked about was the workers' relationship to the means of production. Socialism in this context simply means the workers own the means of production.
So if you look at your local town or city, Walmart represents capitalism. The value of that labor and from that community is extracted to distant owners. If your town has a local family-owned restaurant, well that's socialism. The restaurant is the means of production here. The family who works there owns it.
A Monsanto-owned agribusiness? Capitalism. Family-owned farm? Socialism.
The crazy thing is that people like boutique hotels, farmers markets, family-owned farms, locally-grown produce and so on.
Some theory wonks migh tyell at me about syndaclism, Marxism, Marxist-Leninism or Mao third-worldism. Don't get lost in the weeds however.
The key part of this is that capitalism has almost nothing to do with markets (let alone "free markets", which is an oxymoron). Markets existed for thousands of years before capitalism did. Markets exist in non-capitalist countries.
In Capitalism, anyone(*) with sufficient capital can become a king in a specific fief, and there are often many overlapping ‘kings’ in a given fief, competing.
Even labor.
It happens all the time, albeit is not ‘that easy’, either.
Socialism (depending on brand), means of production are usually controlled by the state, and that type of ‘inversion of control’ is rarely allowed. In most implementations, most of the economy is in those state owned/controlled entities.
Benefits (and costs) to the population then flow down from there.
* barring monopolies, which is why it’s so popular to stomp on them.
Yes and no. Land changed hands. As recently as the 19th century, a distant relative of mine fled Eastern Europe from an area where he could be conscripted by either the Prussians or the Russians.
> In Capitalism, anyone(*) with sufficient capital can become a king in a specific fief
We're talking about social mobility here, basically. This existed in feudal times too. A Viking called Rollo became the first ruler of Normandy and didn't seem to come from noble beginnings. A direct descendant of his became the King of England by conquest. In fact every European monarch today is a descedant of Rollo.
The land here is simply the means of production, just like Amazon is. Amazon has many owners but is it that different really?
Social mobility in modern times is more limited than you might expect. ZIP codes tend to be strong predictors of your economic outcomes. This is exacerbated by our existence being laden with debt. Student, medical, housing, etc. It's why a lot of people use terms like "neofeudalism" as all this debt makes is increasingly indistinguishable from brick kiln workers in Bangladesh, Pakistan and India. This is by design because a debt-laden worker is a compliant worker.
> Socialism (depending on brand), means of production are usually controlled by the state
That's more communism. Even so, the state is comprised of and answerable to the workers. Even then I'd rather have the state capture "profit" to build roads and schools rather than some guy buying another mega-yacht.
A lot of people, myself included, focus on the workers owning the means of production because this can be done incrementally and we'd all be substantially better off if our megacorps were instead collectives.
Do you have a preferred approach, or is the big thing just getting workers to own at least part of the means of production?
At an earlier point in my life I used to believe in this, what some people will call things like "shareholder democracy". I've changed my tune on this. I now think it's incredibly destructive to society in the same way that private property is destructive because the majority of people are homeowners.
Why? Because it fools people to think they're beneficiaries of the system when they're really not. If you own a house, it serves a basic need. If you buy your house for $200k and it goes up to $500k, you haven't really gained anything if every house has increased in value similarly. You still need one unit of housing to live in.
Compare that to someone owning 1000 houses. Well they've just made a huge profit. So the entire housing prices always going up thing is just theft from the next generation. It's creating massive personal wealth at the expensive of a lifetime of debt for many.
401ks have the same effect on the stockmarket. You might think of yourself as a capital owner because you own a few shares of Amazon but you're not. A capital owner, by definition, derives wealth from their capital. A worker derives wealth from their labor. Note that someone like LeBron James is a worker in this scenario. Another myth is that socialism is a poverty cult. It is not.
Anyway, so we have a government that become sinvested in keeping the stockmarket going up. This benefits a few capital owners disproportionately and creates lots of negative externalities as we allow capital owners to skirt safety, steal from workers, steal from the government and so on all because governments become afraid that the stockmarket might go down. Doubling your Amazon shares from $100k to $200k doesn't substantially change your life. Bezos going from $100 billion to $200 billion creates massive problems.
> Employers granting shares to employees.
This is a little different and depends on the scale. As tech workers, getting RSUs in Amaazon or Google has the same (negative) effects as a 401k and allows Larry Page and Sergey Brin to accumulate $100B+ for really no reason.
But if the share is more substantial and/or the ownership is mostly or wholly worker-owned then you've arrived at the workers owning the means of production.
This can happen at scale. Consider Mondragon Corporation in Spain [1].
> Do you have a preferred approach
It's a difficult question because the money from the wealthy corrupts every facet of government and life. Consider something as simple as giving people Internet access. The best solution, and it's not even close, is municipal broadband. Yet we have national ISPs that have successfully lobbied to make this illegal in many states.
Likewise, we have a government that tends to bail out failing businesses rather than doing what they should do and simply nationalizing them. Imagine where we'd be if, after the 2008 GFC, the banks who had created this problem were nationalized and instead re-organized as community owned and operated banks.
America has become very anti-labor. Again this was by design. Union membership sits around 10-11% IIRC. We have a society that celebrates hyper-individualism when collectivism would benefit everybody. People delude themselves into thinking they can individually negotiate with trillion dollar companies and come out ahead. Even if you're in a high-demand field like tech, that power you may think you have is fleeting. Big Tech is doing everything they can do undermine labor and suppress wages, including the current trend for permanent layoffs (ie constantly laying off ~5% of their workforce).
[1]: https://www.newyorker.com/business/currency/how-mondragon-be...
For a more western example, look at Corbyn's loss in the 2019 UK elections. Part of his platform was actually a plan to get closer to workplace democracy, by offering collectives of employees a first option when a company gets sold (or something to that effect). Exactly the kind of incremental step I imagine you're talking about. I cannot help but think his loss was inevitable due to who owns the media (the owning class).
It seems to me that any small step we take will be fruitless if there's this big behemoth looming in the background.
I appreciate you putting your thoughts to paper. More than my one line question deserved.
[footnote] Actually local minimum implies that things aren't getting worse, while they are. E.g. neoliberal European governments are systematically underfunding all sorts of public institutions, which will eventually lead to them being privatized, because the free market would do a much better job than the government, which has been making a mess of it for years. Starving the beast has us barreling towards a minimum, but we're not there yet.
I do not know for certain, but I strongly suspect that Iran's oil industry wasn't owned (even incrementally) by the workers. Its nationalization was not a claw back by the owning class, but a claw back from the owning class (to the government, which may be essentially the same thing).
Iran’s oil company was mostly owned by foreign interests (eventually just the British Gov’t) and the Shah (king). [https://en.m.wikipedia.org/wiki/Anglo-Persian_Oil_Company]
It was never meaningfully privately owned while it was producing, and the British (and Russians!) eventually just forced a coup - before being overthrown by a democratic government, which was then overthrown by the Shah (with the help of the CIA), which was then overthrown by the Ayatollahs in turn.
Because foreign interests were taking almost all the profits and abusing their position.
At no point, including today, were the common people of Iran meaningfully in control of the oil or had anything resembling a meaningful ownership stake.
Though there is significant socialized benefits under most modern regimes, where oil and energy costs are dramatically subsidized, and revenues get pushed into the economy in various make work type schemes.
This is similar to Kuwait, Saudi Arabia, UAE, etc. though with varying flavors of current socio/religious ruling framework.
It’s essentially buying population compliance through bribes of cheap energy and easy jobs, and it’s not just the Middle East that does it. The vast majority of oil producing nations do it.
Though notably, Russia is pretty bad at actually delivering to the population, despite being a major exporter.
Also Notably? That oil company became what is now known as British Petroleum, or BP.
https://en.m.wikipedia.org/wiki/Nationalization_of_the_Irani...
Which the article you linked to doesn’t dispute. It also provides no examples of any other private owners, interestingly.
Can you provide any?
The talking point of ‘theft! Theft!’ was one justification the CIA used to overthrow the democracy. Which hey, usually most nationalizations are. And this one basically was.
But in context, it was kicking out abusive control. Which, for anyone familiar with abusers, is the worst thing someone can do. And so, the expected outcome occurred.
Then, when it got bad again, the Ayatollahs came in and counter-reacted. But have managed to keep control, albeit with some messy incidents.
And everyone has been angry since, with Iran working to sabotage US and British interests, and US and British interests working to sabotage the Iranians.
Also, taking back your natural resources from former colonizers is theft as much as me getting my stolen bike back is.
“Shortly before World War I, Anglo-Persian managed to find a new backer - and good customer.
After lengthy negotiations, the oilmen promised Winston Churchill, then First Lord of the Admiralty, secure supplies of oil.
In exchange the British government injected £2m of new capital into the company, acquired a controlling interest and became de-facto the hidden power behind the oil company.”
Anglo-Persian was no more a private company at the time than In-Q-Tel [https://en.m.wikipedia.org/wiki/In-Q-Tel].
So your ‘stealing back my bicycle’ analogy is even more apt than you’re giving it credit for, IMO.
Is it perfect and pure ownership of capital by the workers? No. But it most definitely is a step in that direction, and it was taken back by force almost immediately. The reason I bring it up is as a historical example of the incremental approach not working.
In a feudal government, the laws are created by the wealthy landowners with complete control over how the people should live. The peasants have little say in how things should be run, and few options to leave.
In a capitalist society, corporations are owned and operated by the wealthy, and they have complete control over the people at their jobs (and often outside it, too). The workers have little say in how things should be run, and cannot leave without fear of losing necessities like healthcare.
Democracy gives the people a say in how their government should be run. Socialism gives the workers a say in how their company should be run. We've managed to no longer be exploited by our government (but not completely), but we still have to live with being exploited by the wealthy.
VOC was literally an entire economy. They had exclusive ownership and control over all Dutch colonies in "the east" and represented the entire economy of the former "Dutch East Indies" (largely Indonesia and Malaysia today).
That is because even many libertarians (i.e. not just capitalists, socialists, communists) understand that national defense, internal security, justice, and diplomacy are functions that the state should take care of.
There are very few who believe we should live in total anarchy.
Now unlike most other political currents, some believe that the aforementioned roles are the only role a government should serve (in french those roles are called the "Fonctions regaliennes de l'etat", literally "Roles kingly of the state").
It's really strange to use the army as an example of "socialism" when it's one of the really rare thing nearly everybody agree is a role belonging the state.
It's absolutely not the only way that a military could be run, and many haven't, but is, presumably, the way that the military organisers consider it to be most effective.
Military equipment, in contrast, is not generally run in quite such a socialistic fashion though it's a long way from a capitalistic free market.
Consider the Roman military [1] (emphasis added):
> From c100 BCE, Roman legions were reorganised into 10 cohorts of 400–500 heavy infantry, each with six centuries of about 80 men. These continued to provide their own weapons and armour until the first permanent and entirely professional Roman army with a central command and logistics structure was formed in 31 BCE.
In fact, one's position in the Roman army was largely determined by what one was wealthy enough to provide. Consider the cavalry (equites) [2]:
> From the beginning of the 4th century bc, non-senators were enlisted in the cavalry; they provided their own horses (equites equo privato). By the 1st century bc, foreign cavalry tended to replace them in the field and thus to restrict the equestrian order to posts as officers or members of the general’s staff
A military doesn't have to provide equipment. It doesn't have to fulfil basic needs. It doesn't even have to be voluntary. Or paid. But modern militaries in developed countries do basically all of those things.
[1]: https://jmvh.org/article/roman-warfare-ships-and-medicine/
The innovation is that you aren’t born into a given regime and you can switch regimes.
This made the system capable of any number of regimes from the freelancer to coops to communes to partnerships to private corporations to public corporations to crown corporations to charities to not-for-profit trade associations to your kids lemonade stand to nonincorporated affiliated entities to manage the local block yard sale to Uber to open source projects to family trusts to whatever and so on.
However to manage a market function to extract petroleum cost effectively, it seems a corporation at the scale of BP, as a hierarchical corporation is the system so far shown to be most efficient? I presume anyway.
I assume you mean financial efficient. I personally suspect that getting resources out of the ground and to consumers would be a different usage of the word efficient.
Financial efficiency isn’t the same as being efficient in resource utilisation.
The capitalistic systems produces much waste in terms of resources and little or no waste in terms of capital.
Otherwise the market is just a heuristic for obtaining one type of workable solution and then refining it into a local optimum.
Business thought heartily embraces this when talking about how to make a profit - profit itself is an indicator of non-optimality, and nowhere near a small epsilon for most businesses. But then when criticizing instances where the heuristic has failed and created solutions/structures that look quite non-optimal, so many people want to brush this aside this reality and invoke the efficient market fallacy.
Buying the cheapest car would be the most resource efficient and most reliable car?
The implication being that cheap is best, which it most certainly isn’t. In your case cheap = fewest resources used.
But cheap could also be achieved by tax breaks, financial trickery (shifting debt around shell companies), producing products in cheap labour countries and then shipping it around the world as opposed to producing locally with less resources required for transportation.
> In the same hour came forth fingers of a man's hand, and wrote over ... upon the plaister of the wall...
On the other side, we have Baum Ch.XV inspiring "pay no attention to that man behind the curtain"
> ...they saw, standing in just the spot the screen had hidden, a little old man, with a bald head and a wrinkled face, who seemed to be as much surprised as they were.
They are moving towards what i had in mind for Bluestein/gvicino
Sorry, need to dig out Society of Mind, i thought i had a annotated copy somewhere but its been awhile..
No, seriously: Hopefully, I’m not replying to an credentialed expert here, but empirico-historical (=archaelogical?)methods seem underrated for advancing institutional (meso-)economics. Don’t know if this is as recognized a subfield as “organizational cybernetics” yet — I’m thinking of figures like Veblen and Lord Skidelsky, but how about more quantitative folks I have no idea of?
Anyways, would you argue with me, the question is how to use price-setting mechanisms to allocate resources/experts at the inter/intra-organizational level. You don’t want openAI to concentrate all the world’s RLHF researchers, but you also don’t want to spread the experts out so thin that they can’t run into each other outside of Silicon Valley.
There’s a tightrope to walk between centralization and decentralization, I like that this blog series is exploring related issues, and I’m thrilled that some of us here are interested in engaging on the topic:
Since nothing is new under the sun, yes, we should study how firms have managed to converge to a rather precise 30-70 split, instead of (only)what Coaseans have been pontificating all along :)
[Market design and transaction-cost reductions seem to be generally more sensible for optimizing information flow than manipulation of legal frameworks around hiring practices (see the eternal fiasco over NDAs/noncompetes)]
The other more peripheral thing related to Minsky is that the study of expertise at the individual level could also be interesting, GP and I have an ongoing discussion about that; i think its relevant but GP seems to differ?*
The concrete question we are thinking of, is how do experts split their attention between central and peripheral issues, hopefully this can be answered more sophisticatedly [i.e. quantitatively] than just handwaving the exploitation-exploration trade-off? Well experiments migggghhht just be possible in this model ;)
Btw another topic GP and I have been wrestling with, is of the clash of values within Chinese-run firms in Sweden. Maybe you can help us locate sources ;)
*Footnote for GP with regards to “his” small-minds/wide-world dichotomy.
Thorstein Veblen's instinct-oriented dichotomy between technology on the one side and the "ceremonial" [including social media — insertion mine] sphere of society on the other.
The plateau at 30% (assuming it is a plateau) seems reasonable. Unless goods are counted twice, a stable upper limit is clearly 50%, as firms output something eventually, and presumably the value of the goods never decrease in the value chain.
Some of them are longstanding family businesses (monarchies), perhaps they have delegated or divested some of their ownership to a board or to the public to some degree (spectrum of semi-democratic monarchies).
Some are private companies with a single leading founder (different kinds of revolutionary/military dictatorships). Some act like large enterprises, that may be democratic or meritocratic to some degree internally, but closed to the public (single-party regimes).
It's interesting to think that we spend the majority of our time (work) quite happily within such power structures.
I guess the rather obvious trick is that it works as long as a company does not get a monopoly on violence. That's the difference.
Problems are deflected from one bureaucratic hell to another, with nothing ever getting solved. And the employees are gaslit into thinking everything is very good and normal.
https://youtube.com/watch?v=V9XeyBd_IuA&t=25s&pp=ygUUbmV0d29...
I would also like to point out that, although private companies do not have a monopoly on violence, governments in liberal democracy protect the private property of said private companies using their monopoly on violence.
Yes, they are predatory organizations by nature - in fact a closer operational model would be mafias. This was developed further by Murray Rothbard in his book "Anatomy of the State": https://cdn.mises.org/anatomy-of-the-state.pdf
Probably Lego is a good way to represent this joke of a field of study