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Social Innovation, Capitalism and Free Markets

Author: Vern Hughes
Published Date: 23 December 2011

I would like to share the following reflections on Innovation, Capitalism and Free Markets which I foundvery interesting and insightful. It iswritten by Kevin Carson from the United States.

"I generally distinguish the free market from capitalism. A system based on free exchange, free contract and free price formation is the free market. It becomes capitalistic to the extent that it diverges from the free market -- that is, to the extent that the state intervenes in the market to promote the interests of capitalists and landlords by enforcing artificial scarcities, artificial property rights and entry barriers, and enabling the propertied classes to live off the rents on them.

Historic capitalism, as a politco-economic system that succeeded feudalism, has never even remotely approached a free market. Indeed... in the U.S. the present structure of our corporate economy results from 150 years of corporatist collusion between big government and big business, going back to the "Great Barbecue" of the Gilded Age.

So I would say that, to the extent that the successor system has lower rates of artificial scarcity rent and lower rates of monopoly, and the power of the giant corporations is broken, it will be less capitalistic -- even if it has more of a genuine free market character.

One thing I will say about a "new capitalism": The Green, or Cognitive, or Progressive Capitalist models being pushed by people like Bill Gates, Bono, Warren Buffett, Paul Romer, etc., are very much indeed capitalistic. They all depend on enclosing new green technologies as a source of rents, and making them the basis for a new Kondratiev long-wave of investment. I don't believe such a system will be tenable. The future lies very much in technical innovation -- micromanufacturing, network organization, distributed collaborative platforms, etc. -- but they can't serve as the basis for a new capitalism. The reason is that the "intellectual property" rights needed to enclose such innovation as a source of rents are rapidly becoming unenforceable.

So the future economy lies with innovations that will create exponential improvements in efficiency and quality of life -- like open-source, homebrew hardware hackers, the open-source and free culture movements, relocalized permaculture operations, local currency systems, etc. But they will actually destroy GDP and drive down profit, through market competition, the same way Wikipedia destroyed the Encarta business model and caused a severe contraction in the total revenue stream of the legacy encyclopedia market.

The traditional corporate economy, its internal GAAP accounting system and its GDP metric all operate on a cost-plus markup basis. The expenditure of inputs, by definition, is the creation of "value." To the extent that innovation improves quality of life through an implosion of the labor and capital outlays required for a given unit of output, it will cause a radical deflation in GDP, as major areas of life simply disappear from the cash nexus."

So it may be possible to say that the end goal of social innovation is a society in which "major areas of life disappear from the cash nexus". This would leave a world of social relationships and interactions as the goal of innovation, the 'end' of history. I like this idea.

Vern Hughes