‘[tweetmeme source=”RoseA_smallbiz” only_single=false]’ Scott Shane shared about Managed versus Market Capitalism and his thoughts that a managed capitalism will work better than a free market.

I personally prefer a free market system but what has a government managed capitalism can do in our economy?  Let me give you a very simple comparison of both and it’s up for you decide which side you take on.

In a market capitalist system, capital and land are private property. Enterprises may be formed by individuals who can get access to land and equipment, either because they own it or can rent or borrow to get it, and who can hire labor or employ themselves. Enterprises organize and direct production, and they are operated for the private benefit of the person who organizes the enterprise. Private benefit is interpreted as profit, so we say that the enterprises maximize profits.

In ideal market capitalism, the equilibrium outputs are efficient. Efficiency is important, but there are some criticisms even of ideal capitalism. Even in ideal capitalism, the distribution of property and income could be very unequal. Ultimately, the benefits and costs reflect the subjective preferences of consumers who have money to spend. One might want to put more weight on the preferences of people who cannot spend, that is, on the welfare of the poor.

One response to these criticisms is that government can step in and correct the failure of the market to provide the desired and (in some cases) efficient outcome. Governments can subsidize the poor and can subsidize or provide the goods and services that ought to be, but are not demanded by consumers, and the government can finance this out of taxes, including taxes on those goods that consumers demand although they ought not. Monopoly can be regulated and to some extent prevented through antitrust legislation. Regulation, taxes, and subsidies can be used to promote efficient outcomes in cases of public goods and external costs and benefits. Deliberate government spending, tax reductions, and interest rate manipulation may move the market system toward market equilibrium if it falls short for the reasons Keynesian economics envisions.

 

But this is rather a long list of jobs for government, and if government does any large fraction of them, we no longer have market capitalism but government-managed capitalism. Free-market conservatives will point this out, and will point out that, however imperfect markets may be, government too is imperfect. Just as markets will sometimes fail to deliver the outcomes we want, government too often fails to do the jobs we set for it. What it means in this context is that some of these failings of real-world capitalism cannot be remedied without risking a greater evil in government failure, and some cannot be remedied at all. Real systems are not ideal but imperfect systems, and real capitalist systems will fall short of our hopes on at least several scores. And that has been no secret for a several hundred of years, IMO.