Capitalism: Survival of the Fittest or First-Mover Advantage

Harjo Winoto, LKYSPP

Survival of the fittest

• Survival of the fittest-- "better adapted for immediate, local environment", not the common a modern meaning of "in the best physical shape”

First-mover advantage

In marketing, first-mover advantage or FMA is the advantage gained by the initial (“first-moving”) significant occupant of a market segment. This advantage may stem from the fact the first entrant can gain control of resources that followers may not be able to match

What are the basic claims of capitalism making it the survival

of the fittest?

The rising tide lifts all boats

“As this State's income rises, so does the income of Michigan. As the income of Michigan rises, so does the income of the United States. A rising tide lifts all the boats and as Arkansas becomes more prosperous so does the United States and as this section declines so does the United States” --- John F Kennedy

Raises all boats?

• Growth failure has been particularly noticeable in Latin America and Africa. During the 1990s, per capita incomes grew at 1.7% (half the rate). Between 2000 and 2005, the growth is only at 0.6% per year.

• For Africa, income per capita grew relatively slowly in 1960s-1970s (1-2%) per year. Since 1980s, the region has seen a fall in living standards. Most African economies have been practically run by IMF and World Bank for the past 25 years.

Bigger pie means everyone gets a bigger slice?

Making the rich people richer makes the rest of us richer?

• Between 1990 and 2000, of the 20 advanced economies income inequality rose in 16 countries, with only Switzerland among the remaining four experiencing a significant fall.

• Income inequality in the US, already by far the highest in the rich world, rose to a level comparable to that of Uruguay and Venezuela

The World of Work 2008, International Labour Organization

• Between 1979 and 2006, the top 1% earners in the US more than doubled their share of national income, from 10% to 22.9%.

• The top 0.1% did even better, increasing their share by more than 3 times, from 3.5% in 1979 to 11.6% in 2006. This is mainly due that the astronomical increase in executive pay in the country.

Economic Policy Institute

• Of the 65 developing and former socialist countries covered in the ILO study, income inequality rose in 41 countries during the same period. Many of these countries already had very high inequality

• Making the rich people richer does not make the rest of us richer

• Even if it does, capitalist economies do not have mechanism to make rich people turn their money into investment (unlike a centralized economy, such as Stalin’s central planning authority).

• In fact, investment ratio of national output has fallen in all G7 economies

Self-interest individuals led by the invisible hand promotes the social welfare

The Peacock’s Tail

Darwin’s classic example of how intraspecies competition can easily lead to an overall reduction in fitness with respect to the environment

Peacock 2

Peacock 1 Short tail Long tail

Short tail (5,5) (0,6)

Long tail (6,0) (3,3)

Prisoner’s Dilemma

Prisoner 2

Prisoner 1 Confess Don’t confess

Confess (5,5) years (0,15) years

Don’t confess (15,0) years (2,2) years

People are rational

Markets need to be free to make the economic pie larger

Does free market exist?

• In 1819, new legislation to regulate child labour, the Cotton Factories Regulation Act, was tabled in the British Parliament. It would ban the employment of young children (under the age of 9). Older children (10 to 16) are allowed to work but working hours are restricted to 12 hours per day.

• Today, even the most ardent free-market proponents in Britain or other rich countries would not think of bringing child labour back as part of the market liberalization

If market is truly free, what is the problem with child labour? The children want (and need) to work, and the factory owners want to employ them?

• When environmental regulations appeared a few decades ago, they were opposed by many as serious infringements on our freedom to choose.

• Today, most people accept these regulations as “necessary” and “natural”. They believe that actions that harm others, however unintentionally need to be restricted

If people want to drive in more polluting cars or if factories find more polluting production methods more profitable, why should the government prevent them from making such choices?

• How about ban on selling human beings (slave trade)?

• How about ban on narcotic drugs or human organs?

• Electoral votes, government jobs and legal decisions that are not for sale? At least not openly?

So when free-market economists say that a certainr regulation should not be introduced, is it

because of economy?

• No! Trade is essentially about expression of a political opinion. Their ideological cloak is to pretend that their politics is not really political, but rather an objective economic truth, while other people’s politics is political.

• When Bush poured $700 billion bailout, he argued that rather being a socialist country like France, the plan was simply a continuation of American system of free enterprise. Government interferes only when it is necessary

• The problem? He nationalized a huge chunk of the financial sector! Typical example of double face!

How does capitalism enjoy the first-mover advantage?

The Way Things Operate

So, when you say that a policy works, it is because there is a combination of these factors. It does not necessarily mean an alternate solution would not have worked (equally or even better).

Reality (Capitalism) – Alternate Reality (?)

It is not who is the best (or most efficient), it is who starts first?

Conclusion• Capitalism survives because of first-mover

advantage.

• There is no inherent trait in capitalism that allows it to triumph as survival of the fittest. Capitalism ‘rising tide’ does not raise all boats. It raises ‘certain’ boats

• Self-interest individuals lead to overall reduction in the population

• Free market is an illusion

• Making the rich people rich does not make the rest of us any richer

• Even if it does, survival of the fittest is defeating the basic tenet capitalist economics preaches