Monday, October 24, 2011

Capitalism and the myth of job creators

So a small business owner says to me, "I took over a failing furniture store chain with 100 employees, and made it thrive again, saving 100 jobs." At which point, I say "Uhm, no."

See, here's the deal. Capitalism is all about matching supply and demand and when properly functioning, the fate of any specific business is of no relevance. If this guy's furniture chain had failed because of mismanagement and stocking furniture that people didn't like, some other furniture company would have arisen or expanded to provide the furniture that customers wanted. The 100 people would have gone to work for that other furniture company, because furniture doesn't sell and distribute itself, yo -- people would need to be hired to do it.

In short, capitalism, where it exists, basically insures that the furniture sector will have pretty much a constant number of employees because the number of people buying furniture in a given year is pretty much constant. In other words, it's the customers who created those jobs, and unless the number of customers somehow takes a dive -- like, say, in a depression -- the fate of any specific furniture company is irrelevant. A company fails, there is still demand for furniture, and in capitalism some other company will adapt or arise to fulfill that demand and will hire the people laid off by the failed company. In short, all that one company failing does, in a capitalist economy, is shift people around to some other company where they can best fulfill consumer demand. It's just a game of musical chairs in the end -- in a capitalist economy.

Of course, what we have here in America today isn't a capitalist economy, it's what's called "crony capitalism", where a small set of very wealthy businesses use various tactics such as regulatory capture and monopolistic practices to make sure they don't have to compete in a free market. But I'll discuss that in a further discourse on, "What is capitalism, and why don't we have it in America?"

-- Badtux the Capitalist Penguin


  1. I think this is a vitally important topic.

    The (at least quasi-)monopolistic practices have given us a situation where we have, instead of capitalism, corporatism, and what's even worse, transnational corporatism.

    The big impetus for M&A's has never been any of the hypothetical inefficiency benefits, etc. Those kinds of rational business targets are almost never met. Instead, the driver is eliminating competition by absorbing it. THAT works like a freaquing charm.

    This is a big part of why we don't have capitalism in this country.

    And, of course, why

  2. I like to quote Thom Hartmann on the current situation: It's the cancer stage of capitalism.
    Supply and demand are such basic economic concepts that I am continually amazed that those at the top pretend that they don't get it.
    -- The F Man


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