Home > Economics - General > Mixed thinking about markets

Mixed thinking about markets

December 29th, 2013

I was enjoying my Xmas break too much to deal with the silliness of the Institute of Public Affairs. But Chris Berg was hard at work, writing a piece in which he claimed all the technological progress of the past two centuries as products of the “the market economy and consumer society”, and I guess I should respond.

Berg points to a comparison between a 19th century Xmas picnic in the outskirts of Melbourne, involving arduous and expensive travel, and costly communication, and the ease with which people in wealthy countries can travel, communicate and enjoy plentiful food today.

This would be a reasonable line of argument if Berg were defending the status quo. But of course he is not. He wants to argue that all the good things that have happened in the last two centuries are the product of the “market economy”, and that we should therefore scrap our existing social arrangements in favor of radical reforms in which market forces are given free rein.

In reality, modern society is characterized by a mixed economy, in which large components of economic activity take place outside the market, within households or through publicly funded and provided services. Even within the private business sector, the majority of activity takes place within corporations whose internal operations are characterized by central planning, not markets.

All of this reflects the fact that a pure market economy doesn’t work well. Rather than list all the problems which have led modern societies to constrain the role of markets (environmental pollution, inequality and so on), I’ll focus on the one discussed by Berg, that of technological innovation. Information is what economists call a public good: making it available to one person doesn’t reduce its usefulness to others. And while it’s possible to keep useful information secret for a while, it gets harder and harder over time. So, a pure market system often doesn’t provide much of a reward to people who come up with new ideas.

All sorts of solutions to the problem have been developed. They include patents (a temporary grant of government-enforced monopoly), prizes and awards, and publicly funded research institutions such as universities. These interventions played a crucial part in most of the innovations discussed by Berg. Most notably, the university sector developed the Internet, which makes debates such as this possible.

Berg’s argument is an example of a characteristic fallacy among advocates of market liberalism. Beginning with the fact that all modern societies are, in some sense, capitalist, they point to the successes of modern society to argue in favor of a particular version of capitalism (free markets, on the US model but taken even further) and against others that have been more successful in terms of human welfare (various forms of social democracy) or that might exist in the future.

I guess it’s possible to find symmetrical kinds of fallacies on the left, but I’ll leave that to commenters.

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  1. Megan
    December 30th, 2013 at 00:39 | #1

    I read that a US court has decided that “Sherlock Holmes” is free from copyright and now open for a free-for-all.

    I’ll bet anyone a billion bit-coins that some fascist Hollywood outfit, such as Disney, finds a way to re-copyright Sherlock Holmes to themselves.

  2. BilB
    December 30th, 2013 at 01:51 | #2

    I’m pleased you made the university connection as it is here that much seed technology is developed for exploitation by the market.

    Another massive “fail” of markets is in the News industry which has failed to find a successful market model to ensure its future. This industry has not directly earnt a cent from me in the last decade.

    Undoubtedley markets work and a vital component of our modern lives.But markets on their own have the fatal flaw in that their success ultimately leads to their terminal failure.

    Markets cannot prevent resource exhaustion, and this very specifically includes our global environment. Left to themselves markets forces will guarantee that humanity experiences its “last picnic” which will not include fish as they will be extinct well before.

  3. Hermit
    December 30th, 2013 at 06:48 | #3

    I’d argue that far from being ignored free market theory is ingrained into public opinion and politics. The attitude to resource depletion is that like slices taken from the Magic Pudding new resources will fill the gap. It ignores the fact that the replacement resource may be lower yielding or much more expensive. This seems likely to be put to the test within the term of the Abbott government with $2 petrol (our oil is now mostly imported) and howls of protest about east coast LNG exports. If the free marketeers were right quick replacements would be found for these commodities with any price rises just a minor inconvenience. We’ll see.

    Resource depletion hangs over us like the Sword of Damocles, at least to the extent that enables the lavish middle class lifestyle. After a period of belt tightening things must get much tougher yet we seem unconcerned. The market will save us so we think about other things instead.

  4. rog
    December 30th, 2013 at 07:03 | #4

    Chris Bergs obsession with the historical price of a BBQ blinds him to the cost, to the taxpayer, of roads, railways, electricity, planning and development by government of ciities and suburbs with their attendant services of police, schools, hospitals, parks…the problem with free market fundamentalists is that if there isn’t a price tag it doesn’t exist.

  5. December 30th, 2013 at 07:25 | #5

    @BilB The decline of the news industry, in particular the fact that it doesn’t take any of your money, is a *win* for markets — if news was provided by the government, you would still be paying for it.

    Of course information also gets provided in good non-market ways — e.g. Wikipedia.

  6. rog
    December 30th, 2013 at 07:32 | #6

    @Tom Davies I think their is a clear distinction between news and News.

  7. December 30th, 2013 at 07:32 | #7

    I think the most widespread market-related fallacy, perhaps more prevalent on the left than the right, perhaps not, is that having identified a market failure you can design a regulatory solution and predict whether its net consequences, intended and unintended, will improve the situation.

    That’s not the symmetric fallacy, which might be to imply that because TCP/IP and HTTP were developed by publicly funded institutions, no private sector equivalent would have been produced.

  8. Ken Fabian
    December 30th, 2013 at 07:53 | #8

    Berg and the IPA crowd don’t want free markets, they want fixed markets that allow corporations to dodge externalised costs and load them onto the future community. They are the defenders of sleight of hand accounting that allow the full costs of products and services to be avoided in the near term with no consideration for the longer term when the bills come in. Actually to be held not responsible or liable for those real but difficult to quantify costs.

    My own obsession is the externalised environmental costs, especially climate, but in some ways the IPA ‘free’ market ideal seeks to extend this avoidance of costs external to businesses, like education and infrastructure. Expecting the market to fill the gaps is really just a way of letting the current business interests take advantage of having these services already in place but not have to pay for them for the next decade or so or until the consequences get so messy governments have to step in.

  9. Ikonoclast
    December 30th, 2013 at 08:15 | #9

    Whilst not advocating war or space races, it is worth pointing out that a lot of crucial technological developments came from government funded and (often government run) research in those arenas.

    The point is that markets are good at some things and not good at other things. Same with governments. Rather than being dogmatically in favour of free markets (like a neocon) or command economies (like an old Soviet Communist) we need to be more flexible in our thinking and pick our approaches based on case by case and category analysis.

    As an aside, it is clear that social-democratic, mixed economy, nation states have done the greatest good for the greatest number compared to any other system, at least within their own polity. The argument that these states did not go far enough in the social-democratic direction can be strongly inferred from the facts that;

    (1) reaction was able to set in (the neocon reaction from the mid 1970s);
    (2) inequality increased again as a result of this reaction; and
    (3) monumental and potentially catastrophic failures have occurred in relation to failure to plan for and avoid (in good time) major economic and even civilizational risks like global warming and limits to growth.

    Final note, I am glad JQ mentions the plain fact that big corporations central plan i.e. run on a command system. That gives the lie to simplistic thinking that central planning does not happen in a market economy.

  10. December 30th, 2013 at 08:21 | #10

    @Ikonoclast It’s also worth pointing out that failures of central planning at the corporate level result in the bankruptcy of a single corporation, while failures at the national level can become entrenched and result in long periods of poor performance followed by greater disruption in the end (e.g. the Soviet Union).

  11. Fran Barlow
    December 30th, 2013 at 09:20 | #11

    Nobody has mentioned the role of the state in developing the hardware and infrastructure around air travel yet …

    Presumably, Berg regards air travel as a very fine thing.

  12. Brett
    December 30th, 2013 at 09:44 | #12

    I’ve seen some voices against patents as a means of promoting innovation (particularly from groups like CEPR), but the alternatives just don’t seem as strong. The big advantage of patents is that they just generally encourage innovation without actively deciding which innovations are “valuable” and which aren’t. So, for example, if there are only prizes for better gas lamps and none for electric lights . . .

    It does work sometimes, when you have a specific objective in mind – like with the British navigation prizes.

    Government-funded basic research is important, but I wouldn’t over-estimate it. A lot of the “final mile” type of research – for example, the conversion of knowledge and potential targets for drugs into useful pharmaceuticals – isn’t done or funded by the government. It’s almost all done in the private or nonprofit sector.

    @Tom Davies

    It’s also worth pointing out that failures of central planning at the corporate level result in the bankruptcy of a single corporation, while failures at the national level can become entrenched and result in long periods of poor performance followed by greater disruption in the end (e.g. the Soviet Union).

    You see that in lesser degrees of economic planning as well, such as the Import Substitution Industrialization and Export-Led Industrialization planning. The versions that subjected the subsidized/supported firms to some form of real market discipline (such as the need to sell in an international market) tended to have the most gains, as with Japan, Taiwan, South Korea, Singapore, and now China. The ones that didn’t got some growth for a while, but it was much less than the ELI group – and it also tended to come with a lot more cronyism and people using the import restrictions to develop profitable “corners” to run.

  13. Troy Prideaux
    December 30th, 2013 at 09:49 | #13

    rog :
    Chris Bergs obsession with the historical price of a BBQ blinds him to the cost, to the taxpayer, of roads, railways, electricity, planning and development by government of ciities and suburbs with their attendant services of police, schools, hospitals, parks…the problem with free market fundamentalists is that if there isn’t a price tag it doesn’t exist.

    Indeed and the picnic obviously didn’t take place in the Melbourne Airport Carpark…

  14. David
    December 30th, 2013 at 10:26 | #14

    I believe the main problems with Free Markets are greed and vested interests. I think the main problems with centralist planning are greed and vested interests.

    In this age of evil multinational entities corporatising the consumer world we still saw the worldwide child mortality rates decrease and the worldwide poverty rate decrease (well according to Bill Gates and the Murdoch press). Perhaps it could have decreased more if an elite few determined the rules that the rest of us abide by…. I agree unguided “free markets” do not always result in good for society as a whole, but feel that misguided socialist democracy (i.e. too much interference in the wrong places) can be just as detrimental.

    I dont quite understand the big corporations central planning meaning free markets are tainted statement. However, agree with the concept that there are not really any free markets in the world. I would like to hear more on this idea if anyone could oblige?

    Could climate change be addressed through market means if government deemed coal power to be illegal in 20 years time?

  15. Peter T
    December 30th, 2013 at 10:46 | #15

    Arguments about “free markets” or “market failure” tend to the simplistic, and the IPA exercise is no different. For whatever reason, market ideology is the default position hereabouts, so some notion of markets sets the frame, and will until it becomes only too painfully obvious that our current modes of social organisation are not actually addressing our main problems.

    Amusingly, one could plausibly make the case that the last two centuries have seen continued movement away from markets as a method of organising production and exchange. In the UK of 1830, contracts were sacred in law (equity is a notion of the 1850s), corporations few, governments small, regulations sparse and most people worked for themselves or directly for their employer. So, presumably, all the material success we have enjoyed since is due to our progressive limitation of the market.

  16. Collin Street
    December 30th, 2013 at 11:51 | #16

    It’s an interesting choice, to talk about private enterprise wrt transport to upper ferntree gully, because the first stage of the railway — to hawthorn — was constructed by private enterprise in 1861, and construction then stalled until the Melbourne and Hobson’s Bay United Railway company was taken over by the government in 1878, at which point there was an immediate burst of construction: hawthorn-lilydale by the end of ’82, and to upper ferntree gully by ’89.

    The M&HBURC was actually a bit of an urban-planning problem for the government: they weren’t hugely profitable, and their only real business model was playing dog-in-the-manger and waiting for go-away money from the government. This is why we have two main stations in melbourne [spencer was the government HQ, flinders the private] among other pointless duplications like the alamain line.

    So, yeah. Yay private enterprise.

  17. rog
    December 30th, 2013 at 12:39 | #17

    Left to their own devices the early Sydney colonists used their only source of fresh water, the Tank Stream, as a sewer. Outbreaks of water borne diseases such as cholera force the govt to intervene.

  18. Donald Oats
    December 30th, 2013 at 12:55 | #18

    Private enterprise brought us great innovations like the “Pet Rock” in the 70′s. Go, private enterprise :-)

    The argument fails on an evidence-based analysis in any case: plenty of recent research demonstrates the massive contribution of publicly funded research and innovations coming from that, flowing directly into the larger economy, specifically as gifts to otherwise currently moribund private sections of the market economy, while also setting up and doing the hard yards of bringing a piece of research to product suitable for sale in the market economy. Often enough, public research is the provoker and the spark that sets private enterprise into motion to enter a newer developing technology space—once publicly funded researchers have initiated and provided the confirmation that the area is ripe for successful innovation and profit making.

    It is precisely because although the goals are different, the research and innovation which occurs in both private and public spheres is done by people who are driven by their passion for the research and outcomes; no one has to stand behind them with a big stick to keep them working at the coalface.

    If the private and public spheres were chasing identical, profit-driven objectives, then although I’m sure the public research would give a good account of itself, there would be considerable latitude for arguing over whether public funding of such research should be at a given level, versus some other (presumably much lower) level. Remember though, universities and public research institutes tend to be the places where a scientist’s apprenticeship is done; it takes a great deal of investment to pay for that, and to date, private enterprise is a reluctant investor in directly training its own staff from high school level through to research scientist level (say, PhD equivalent in skills and knowledge, at the minimum).

    Research into rare diseases and afflictions is another area where the private market place is sullenly silent: after all, what possible return on investment is there? The sums just don’t add up. Publicly funded research into the basic science behind rare diseases and afflictions is generally all that we have. Time after time though, publicly funded research breaks open an entire field, setting the foundations for private enterprise to innovate (as opposed to conducting the initial, too expensive, phase of research which would make innovation possible in the first place).

    There is little advantage for a private firm to be the first mover in basic research on a new field, or an entirely new technology, unless the timeframes, likelihood of success and strong profits outweighs the risk of significant failure. Even being the first mover and the first to develop a new kind of product is no guarantee of success, for other mimics can saturate the market space once someone else has proven the new technology for them. This “after you, no—after you” problem as to who goes first in trying to develop a new technology will only be much worse in a totally free and unregulated “Bergian” market.

    I can’t wait to see how art and humanities such as English, Philosophy, etc, stand up against a completely free and unfettered market place. Undergraduate teaching may well survive, but research work is another thing entirely.

    Finally, how dumb do the Abbottians think we really are? A copayment on doctor and hospital ER visits? Sweet Jesus wept!

  19. may
    December 30th, 2013 at 13:49 | #19

    singing sixteen tons and what do you get
    another day older and deeper in debt

    debt bondage for workers is corporate hog heaven.

    when “the heiress”said $2 a day is a good wage,people thought it was a joke—-

    she wasn’t kidding.

    drown govenment in a bathtub.

    so now we have profit sniffers taking profit from the public purse for providing ,ostensibly more efficiently,services that are normally by public service personnel.

    serco in the west trying, in 2013 to use prisoners from their private prison to work at gardening in their private contract for public hospitals.
    the same co has been found inefficient in UK for a private contract for public services.

    the Dept of Immigration that used to handle refugee intake extremely well with longstanding expertise and sensitivity,without fuss
    ,has been pushed aside so profit takers can dip into the biggest money pot aside from super in the country.

    we have the current campaign by the commercial broadcasting industry howling about the ABC.

    but what they seem to be bitching about is the fact that a publically funded body can beat any private body hollow when the standard is high and kept high.
    better than standard proffessional.

    and there’s the rub.

    when the govt in power has an ideological aversion to public funding or an interest in the failure of the model,we see things like the current state of the public railway here in the west at the moment.
    the lifts break down,strange fires, rattling doors,late service and so on.
    so in the interest of political expedience, conservative money management looks good.

    conservative and badly run private businesses Do Not Do Proper Maintainance.

    finding that sweet spot between corporate consumer hell (notice how familiar things seem to be disappearing from the big grocery store shelves?)and communist state run hell(they don’t manage to have very much on the shelves at all), looks to be the C21 economic goal.
    that’s if other things don’t get in the way.

  20. may
  21. may
    December 30th, 2013 at 14:09 | #21

    yay,it works.

  22. Ikonoclast
    December 30th, 2013 at 22:39 | #22

    @Tom Davies

    Indeed. That is why I wrote:

    “Rather than being dogmatically in favour of free markets (like a neocon) or command economies (like an old Soviet Communist) we need to be more flexible in our thinking and pick our approaches based on case by case and category analysis.”

    The comment about corporations is part of the thinking that sees dangers in excessive corporate power, oligarchs and private monopolies.

    I was in Russia in 1991 (and happened to leave Moscow for Finland just 9 days before the August Coup Attempt). My general impression was of an economy in a bad mess though there were some things that worked reasonably well, like the Moscow Metro.

    In allocating causes for the state of the Russian economy in 1991, or the state of any given nation’s economy in any given year or decade, we have to careful of over-simplifying and saying it’s because of a single cause, e.g. “they didn’t have a market economy”. Greece has a market economy (and arguably a less welfarist one than the Scandinavian economies), yet Greece’s economy is a still mess. There is more than one way to make a mess of an economy and there is not one simple way to make a good economy.

  23. Ikonoclast
    December 30th, 2013 at 22:57 | #23

    @Donald Oats

    My simplistic three part formula is;

    (1) If it is a luxury (like ice cream, car races or tourism) then let private enterprise provide it or not provide it as the market determines.

    (2) If it is a necessity (like growing a full range of good foods for a healthy diet) that is not a natural monopoly then let private enterprise provide it.

    (3) If it is a natural monopoly or deemed strategically necessary in the economic, cultural, social or military senses by the polity then let the government provide it.

    It’s a matter of assigning cases to categories i.e. category analysis. The proper functioning of point 3 assumes that the government is responsive to the popular will rather than bought and suborned by corporate money and power as is currently the case in the Anglophone West.

  24. faust
    December 31st, 2013 at 06:19 | #24

    Some of the more outlandish claims on this site is that because government funds education and some of the R&D therefore a mixed economy (read: social democratic built on the principles of socialism) is far superior to this “free market” malarkey…

    Naturally that is a simplistic and ridiculous notion.

    The free markets allow people to achieve commercial success above and beyond what they could achieve in a fixed, centrally regulated economy like that seen in many socially democratic nations. This spurs creativity and investment each reinforcing the other in a mutually positive cycle. Some would point out socially democratic societies like the Nordics and say “a-ha! Look faust you fiend! They are advanced societies without the horrors of the US system” conveniently forgetting that the Nordics embody that fierce “Protestant Work Ethic” and that their companies are run just as capitalistic as elsewhere.

    Allowing people to achieve their dreams without the crushing burdens of regulation and taxation is one reason why so many people emigrate to the United States, Australia and Singapore each year. It is why China is enjoying the startling successes of economic liberalism. It is one reason why Australia is so wealthy today.

  25. Fran Barlow
    December 31st, 2013 at 07:11 | #25

    @faust

    I’d say that your characterisation of the discussion above was far more simplistic than most of what has been advanced above.

    Your challenges were non-falsifiable handwaving and strawman-like. “Because Protestant work ethic” is not a formal objection. In what senses if at all can one say that economic liberalism has succeeded? That surely was a key question posed by PrQ that you simply assert here. I also wonder why you regard them (whatever they are) as “startling”. Surely they must be what any reasonably analytic and informed person would expect. Given also that few systems if any come without costs, what have been the costs, if any, of “economic liberalism”? Answering this question might have helped us grasp what you see as described by the term in an absolute sense.

    I’m calling your post a Poe.

  26. December 31st, 2013 at 08:22 | #26

    I don’t think faust’s post is a Poe, Fran – he really means it.

  27. sunshine
    December 31st, 2013 at 08:33 | #27

    There is no market free of rules -they can have more or less rules but not none. The IPA wants the level of rules set where it enriches their mates the most. These free market extremists do seem to love police ,jails ,surveillance, and the military.

    T Davies ; Most companies are run like dictatorships (FIFO -Fit In Or F*#* Off), many are bigger than many countries .When such companies fail they dont always disappear .For example Murdochs News has been failing us for a long time but isnt going out of business .Depends what you mean by fail.

    China has converted from pathetic command economy to undemocratic pathetic mixed economy over the last 30 years . I think if you take that out of the calculation world poverty rates havent changed much. Lets see what happens to Chinese poverty rates in the long run from here if it goes down the IPA road.

    In Melbourne Govt debt built the city rail loop (in the 70′s I think) .Apart from that, the Regional Rail link (currently Australias biggest infrastructure project) will be the first train line built here since the 1800′s. There always seem to be untold billions available for roads tho.

    D Oats ; The Humanities have been slowly crushed for several neo-lib culture war decades now ,this looks likely to continue as there is little support for free market extremists there. Never mind that Western civilisation would not have been possible without this sector now deemed unprofitable .

  28. Megan
    December 31st, 2013 at 09:23 | #28

    @may

    G4S and Serco fleeced UK taxpayers for at least 70 million pounds and probably somewhere in the billions.

    Gillard liked Serco so much that she doubled the amount we pay them to run our concentration camps.

    Only a zealot could argue that this version of a “free market” is somehow a good thing.

    By the way, Serco’s ‘punishment’ appears to be that some other private company will complete their contract.

  29. faust
    December 31st, 2013 at 09:25 | #29

    Firstly, Fran, the idea that culture does not affect how economies are structured or companies work is simply and shockingly wrong. Even Francis Fukuyama wrote about the importance of culture in economic systems and Max Weber’s “Protestant Work Ethic and the Spirit of Capitalism” was written to try and understand the cultural and sociological reasons behind the industrialisation of the Protestant and Roman Catholic nations in Europe. Also from personal experience having done numerous deals in the Nordics involving both corporates and private equity firms I can more than assure you that this broad sweeping generalisation is backed by more than personal anecdote.

    Secondly, while you may think that I have been simplistic so too has Professor Quiggin and yourself in forgetting that the very reason why blogs like this exist is because of the free market taking the education and gov’t R&D and converting it into goods and services that people actually want to use. Do you honestly believe that if we had consistently restrictive economic practices a la 1973 that we would have nearly the technology and multiplicity of uses that we have today? It is one reason why the R&D spend in the US on NASA for instance drove more patents and future technological innovation than that spent in the former Soviet Union.

    When people say that the IPA wants the free markets because it “enriches their mates” that is exactly the type of statist capitalism that Professor Quiggin wants. The free market is by nature disruptive whereas Statist/Corporatist capitalism wants existing companies to benefit from government largesse. If you want today’s fat cats to go out of business then the best route is to allow disruptive companies the opportunity to expand and grow and not strangle them at birth.

  30. NathanA
    December 31st, 2013 at 10:16 | #30

    @Brett

    I don’t think that is a fair characterisation of the pharmaceutical industry. The “final mile” isn’t necessarily the innovative part of the process, it’s the expensive clinical trial process. Pharma companies have a great deal more experience in solving potential issues in the clinical trial process, which is why they’re so much better at completing the final mile over academia.

    Also, I would argue that we make a decision to set up Pharma in that manner, not because it Pharmaceutical companies are more innovative. The history of CSL, in my opinion, demonstrates that in the pharmaceutical industry a Government entity can most certainly be as innovative as any private company.

    Then again, if we break down pharma into different fields, we are likely to draw very different conclusions. In the case of antibiotics or cancer, big pharma has done extremely well for public health. In the case of anxiolytics, big pharma has traditionally done very well for itself, but much more mixed for public health. In the case of obesity, big pharma has pissed up so much money up a wall for nothing it might as well have ceased to exist. That doesn’t mean pharma isn’t innovative, it’s that biology is the problem here. For obesity, Government planning, education and regulation is likely to be more influential than the actions of big pharma for a long time to come.

    Anyway, all I’m really saying is you could use the pharmaceutical industry to back up whatever argument that you wanted in the free-market context.

  31. December 31st, 2013 at 10:37 | #31

    Pr Q said:


    In reality, modern society is characterized by a mixed economy, in which large components of economic activity take place outside the market, within households or through publicly funded and provided services. Even within the private business sector, the majority of activity takes place within corporations whose internal operations are characterized by central planning, not markets.

    Of course, most major modern human achievements are due to the dialectic of individual autonomies (liberalism) and institutional authority (what I have dubbed “corporalism”). But we are in the fanatic and degenerate post-modern liberal phase of human evolution where individualistic narcissists want to take all the credit and say to hell to the team.

    In fact most of the bad stuff that is happening is down to individual actors doing their own thing and taking a free-ride on the group (global warming, commercial copywriter lock, terrorism, LBOs, rogue traders, rogue states, people smuggling, “multiculturalism” pre-emptive wars, obesity, drug addiction, divorce, etc are all forms of individual self-indulgence).

    The answer is to roll-back post-modern liberalism to a more reasonable compromise between the institutional authority and individual autonomy. But po-mo liberals are not interested in reasonable compromise. Having hit on a disastrous strategy and finding that it is failing they do what any fanatic does and re-double their efforts whilst losing sight of the goal (human well-being).

  32. David
    December 31st, 2013 at 10:38 | #32

    @Ikonoclast
    I like your blend of “not-so-free market” and socialiast democtratic government provision by category. Although I cant express it as well! A balance between the 2 seems ideal, although I am still in favour of less rather than more government intervention. Perhaps my own personal bias.

    I also think it is inevitable that the powerful few will always manipulate to hold power and privilege, typically at the expense of those who do not have power. I am sure there are many examples of this in socialist, socialist democratic and capitalist states (and everything in between). This seems too deeply ingrained in human nature for any government / lawmakers to change. Which is the more inequitable is more fitting question.

    Faust, it is always refreshing to read a different point of view (from the norm on this blog) expressed far more eloquently than I could. However, being a blog with a socialst democratic perspective it is only natural that the group-think here is left leaning, and not about to be changed. Much like the right leaning comments elsewhere, no better, no worse. If anyone changes there argument based on the comments of others here it would be quite incredible.

    The crux of the argument for me is that I prefer that the will of many (sometimes reflected in an almost free market sometimes best provided for by government) shapes things better than the will of the ruling elite who know what is best for all of us. Which ruling elite do we prefer?

  33. Donald Oats
    December 31st, 2013 at 10:41 | #33

    And where did Mosaic come from? Publicly funded research work gave Marc Anderseen the opportunity to create this browser for NCSA, while he was an undergraduate. Many of us adopted Mosaic, and from within the academic system came the very first of the web pages with inline graphics and text displayed in Mosaic. It was quite some time before commercial groups woke up to the new reality. Netscape and Internet Explorer were both born of Mosaic, just as Mosaic had as its starting point the excellent work of Tim Berners-Lee (and others, of course), who created the WorldWideWeb browser in 1990, while working for CERN, a publicly funded research facility for particle physics.

    Innovators like google came out of the academic environment by way of start-up funding, and the rest is history.

    Point is, the academic community recognised not just the need, but the potential of these new tools for exploring and exploiting the IP networking technology, and in so doing brought a population of ready-prepared websites and webpages of useful stuff, giving innovators something to get their teeth into. Without the webpages put up out of the sheer excitement of this new freedom to share, more or less for free, I doubt start-ups like google would have had much of a chance. BTW, google was not the first page finding search system, not by a long shot; their extension to existing search engines was the realisation that a good page-ranking algorithm could be based upon user behaviour itself, thus reflecting what users actually want to see in the results section of a search. A small, but very significant observation, and one that re-shaped the entire search engine tech space.

    Arguments that private does it better than public, in all situations, are just plain delusional; the evidence in front of your eyes demonstrates that. If anything, the interplay between the public and private spheres is a synergistic one. The careers of people like Tim Berners-Less certainly demonstrate that, especially the way in which knowledge gained in one sphere can bring about greater opportunities and potential in the other sphere. To claim that is not so is more about planting a flag for ideology rather than about the acceptance of reality.

  34. NathanA
    December 31st, 2013 at 10:45 | #34

    @Donald Oats

    “If anything, the interplay between the public and private spheres is a synergistic one” is a very eloquent way of explaining what happens in the pharmaceutical industry.

  35. Julie Thomas
    December 31st, 2013 at 10:53 | #35

    @faust

    “the idea that culture does not affect how economies are structured or companies work is simply and shockingly wrong. ”

    I agree and so can you explain what Margaret Thatcher meant when she said “there is no society”?

    AFAICT neo-liberals and libertarians don’t have anything to say about how culture and society develop. It is all about economics is it not?

  36. John Quiggin
    December 31st, 2013 at 10:56 | #36

    the very reason why blogs like this exist is because of the free market taking the education and gov’t R&D and converting it into goods and services that people actually want to use

    Would you care to spell this out? I’m using open-source blog software to access the open-source Internet, using a telecomm network that was built by the public sector, then privatised and left to stagnate by its new owners. It’s true that I’m using a commercially produced computer (derived originally from govt R&D, as you say), but that’s a relatively minor part of the process.

  37. December 31st, 2013 at 11:45 | #37

    Pr Q said:


    All sorts of solutions to the problem have been developed. They include patents (a temporary grant of government-enforced monopoly), prizes and awards, and publicly funded research institutions such as universities. These interventions played a crucial part in most of the innovations discussed by Berg. Most notably, the university sector developed the Internet, which makes debates such as this possible.

    The false statement that “academics created the internet” has been endlessly retailed, particularly by Pr Q on this site, despite being endlessly refuted, particularly by me on this site. For the umpteenth time, the internet, indeed pretty much most of the modern IT industry, was pioneered by the military-industrial complex. The greatest boost to research & development came when Ike sponsored a sci-tech revolution after the Sputnik hit the fan.

    The first industrial scale computers were sponsored by the British MoD at Bletchley Park where Alan Turing deciphered Nazi enigma codes. The nuclear industry was sponsored by Pentagon at Los Alamos where physicists developed nuclear weapons against the Axis powers. The first digital computer was knocked together by von Neumann, the model for Dr Strangelove. International rockers were developed by Hitler to throw war-heads at London. ICBM rockets were developed to throw warheads at Soviet Russia. Space satellites were designed to spy on Soviet Russia.

    The first protocols for the internet was commissioned by the Pentagon: DARPA stands for Defence Advance Research Project Agency. Undoubtedly academics and entrepreneurs were critical parts of the team. But the initiative and financing came from the military. Wikipedia reports:


    The Internet protocol suite is the networking model and a set of communications protocols used for the Internet and similar networks. It is commonly known as TCP/IP, because its most important protocols, the Transmission Control Protocol (TCP) and the Internet Protocol (IP), were the first networking protocols defined in this standard. It is occasionally known as the DoD model, because the development of the networking model was funded by DARPA, an agency of the United States Department of Defense.

    And of course AI was originally designed to deal with the management of fighter planes (heads up display) which operate at speeds much greater than human action.

    I know that Pr Q, a pacifist academic, would rather die than give intellectual credit to the M-I complex. But there alot of branches of human thought that are a bit hard to stomach. He shall just have to be brave about that.

  38. Fran Barlow
    December 31st, 2013 at 12:34 | #38

    International rockers were developed by Hitler to throw war-heads at London. ICBM rockets were developed to throw warheads at Soviet Union.

    Wow. I didn’t know acts like the Rolling Stones were around that early. ;-)

    It does explain Sympathy for the Devil of course.

  39. Fran Barlow
    December 31st, 2013 at 12:37 | #39

    @faust

    So you were serious? How disappointing! Your follow-up was no better, merely adding to your error.

  40. Tim Macknay
    December 31st, 2013 at 13:19 | #40

    And of course AI was originally designed to deal with the management of fighter planes (heads up display) which operate at speeds much greater than human action.

    Heads up displays are not AI, Jack. AI originated as a fantasy of the boffins who developed digital computers, and its use in military aviation is relatively recent.
    Despite having a growing number of practical applications, AI is still highly influenced by the boffins’ fantasy perspective even today.

    That said, I agree with your point that many major technological advances of the 20th century were driven by government-funded military research.

    I don’t see the point as opposed to what Prof Quiggin is saying though (and you acknowledge yourself that much of the relevant research took place in universities). It’s just a difference in emphasis.

  41. Tim Macknay
    December 31st, 2013 at 16:24 | #41

    Darnit – messed up the emphasis tags. If only there was an AI that could anticipate which words and phrases I want to italicise and do it for me. Get on with it, Kurzweil! I was expecting this stuff decades ago. Also, where’s my flying car?

  42. Patrickb
    January 1st, 2014 at 17:03 | #42

    Who released the Strocchi monster?

  43. January 1st, 2014 at 18:51 | #43

    Patrickb @ #46 said:


    Who released the Strocchi monster?

    Pr Q, Tim Macknay and anyone else who makes elementary howlers about the history, current status and plausible prospects of digital technology.

  44. John Quiggin
    January 1st, 2014 at 20:30 | #44

    Jack, this kind of gigantic screed absolutely belongs in sandpits, and nowhere else. I am deleting the lot – hope you remembered to save it.

  45. January 1st, 2014 at 21:07 | #45

    Fair enough. I have re-published a stripped down version of this comment in the Sandpit. But can I suggest that the subject of the economics of AI, which I have published on, is now worth some more attention.

  46. January 1st, 2014 at 23:17 | #46

    The defence of free markets begins with the name. I mean “free” must be good, mustn’t it?

    “Free” sounds like some absolute set of values, as if “free markets” are fully defined by the name. Ordained by God, none the less.

    Yet in practice what people call free markets just refers to one particular type of regulation. And of course the “free marketeers” don’t have to define to clearly exactly what they mean by free markets. For example, should property rights be extended to cover the atmosphere and the sea? Is it obvious that patents should exist? Or how long should copyright last for (if at all)?

    So if Chris Berg wants to be taken seriously, he might point out exactly what sort of regulated market economy he believes is best at creating better picnics. Its not likely to be precisely the sort found in 19th century Victoria.

  47. Tim Macknay
    January 2nd, 2014 at 14:15 | #47

    Apologies to all and sundry for my role in the (deleted) thread derail. But I must insist that any “elementary howlers” were external to my own remarks. ;)

  48. January 3rd, 2014 at 09:50 | #48

    I think the most widespread market-related fallacy, perhaps more prevalent on the left than the right, perhaps not, is that having identified a market failure you can design a regulatory solution and predict whether its net consequences, intended and unintended, will improve the situation.

    That all stems from the rather flawed assumption that people behave ‘rationally’. Once you have any sort of error in the base units of a chaotic model, any predictions from such a model will be substantially flawed. If you accept that empirical observations are far more useful than theoretical models then its obvious that experimentation and refinement would be a better method for developing regulation/policy than attempting an ideologically based design.

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