Michael Kinsley tries to shine a light on capitalism.
So free-market capitalism has decreed three different values for this company. One is set by the stock market: the value of all the company’s outstanding shares, or “market capitalization.” One is what the private investors are offering — usually a bit more than the market cap. And one is what the private investors sell the company for a blink of an eye later — which is usually a lot more than the other two. Which of these numbers is the true capitalist price? Which one represents the most sublime interaction of supply and demand? Anyone? Anyone?
Defenders of this procedure say it’s not that the stockholders have been swindled. It’s that the company is actually far more valuable in private hands because managers — even the same managers as before — can manage far better without the constraints of public ownership, with its meddlesome stockholders and nettlesome regulations. Maybe so. But if these deals aren’t a swindle, then the stock market itself is a swindle. It does not maximize value for its working- and middle-class investors. The stock market leaves money on the table waiting for “private equity” to swoop down and pick it up. Furthermore, Milton Friedman was wrong and the other famous economist who died this year, John Kenneth Galbraith, was right: The free market in corporate shares doesn’t produce well-run companies.
There are those who say that a free, capitalistic market is the best way to manage the allocation of resources. They say that capitalism drops ideas that don’t work. They are giving capitalism too much credit.
Capitalism is an inevitable outcome of trade between people.
But one need look no further than the cell phone market to see that capitalism is not about delivering better products to the marketplace, generating best return on investment, or providing the best cost benefit to the consumer. Cell phone companies have built out four incompatible nationwide networks of cell towers, do not allow customers to use features built into phones unless the customer pays extra and put all of their efforts into building market share.
I remember a Far Side cartoon where there are some dogs stranded on a desert island, and one says “First, let’s eat all the food.” Capitalists are like that.
Capitalism rewards short term goal seeking; capitalism requires moderation.
Trying to moderate capitalism is like trying to feed tofu to an alligator by hand. Good luck with that.