Somewhat off topic, but I have had a weird thought circulating in my head (triggered by reading Red Plenty) that I wanted to put out there:
What is the relationship between a centrally planned economy as for example Gosplan was trying to run in the USSR, and the presence of these huge market-like but centralized entities like Amazon and Wal-Mart inside a free-market economy? This becomes particularly interesting because Amazon apparently does not have any particular interest in turning a profit.
A central problem faced by Gosplan was the collection of high quality data about supply chains and the estimation of the utility function of consumers. I would say Amazon is in a pretty good position to do both right now.
Another question, somewhat related: At what point does it become profitable for Amazon to lobby for more redistributive taxation? This might sound paradoxical because you would assume that Amazon represents the interests of it's owners, who would probably suffer under such a taxation scheme. But shouldn't there be a point at which giving more disposable income to poor people will boost the overall income of an entity Amazon (since Amazon doesn't sells many flat-screen TVs but not as many mansions or yachts)?
The difference is the ability for new firms to compete.
With centralized planning, there's only one source. If that source is inefficient or corrupt, that inefficiency and corruption stays around. You can try to regulate, threaten, and police it, but nothing can really take it down.
By contrast, Walmart and Amazon might be very large, but they still have competition. Heck, Amazon started less than 25 years ago. Remember when Walmart was going to be the future of retail? Well, now people say it's Amazon. So, it's one generation for the crown to be passed? Apple was in such dire straits that Michael Dell thought they should close up shop and return cash to shareholders. Now look at Apple. Yahoo had the chance to buy both Google and Facebook. Heck, it wasn't really until the 90s that Walmart became what it is today: Sears and Kmart were the big stores.
The point is that, while companies might have large barriers to entry, competition sneaks in. Walmart looked like no one could compete with it. Today, I wouldn't say it's precarious, but it certainly doesn't look unstoppable. Sears was huge and today people make jokes about it.
Companies like Amazon and Walmart create barriers to entry by building up capital. It certainly does stop some competitors, but I don't think we've seen companies able to hold on for long.
It's also not necessarily about whether the company turns a profit. Government-owned, centrally-planned companies don't turn a profit, but they might be run incredibly inefficiently. It's not just Amazon's low-profit range, but it's efficiency that keeps it where it is. Plenty of companies are being run right now with low to negative profits, but also not being run super efficiently.
How many companies have been "the unstoppable juggernaut" for 50+ years? Can we name a few? AT&T isn't the AT&T from 30 years ago. Remember when AT&T had wireless and home TV and broadband and long distance was king? Well, that company thought long distance was the future, spun off its wireless division and sold AT&T broadband. SBC eventually bought what was left of AT&T on the cheap and renamed itself. Microsoft was the unstoppable juggernaut... and then Apple and Google came along. Walmart was that in the 90s and then Amazon came along, people started using other stores, etc. Heck, Verizon and AT&T seemed like no one could compete with them and then T-Mobile comes along and kicks of an era of amazing growth for them. That's an industry that relies on a limited amount of wireless spectrum that's insanely hard to compete in and T-Mobile started grabbing all the industry growth and forcing the big two to lower their prices and offer unlimited. American automotive companies were once kings and while they still exist, they're a lot smaller and have lost that powerful position. Office supply companies were big and everywhere and OfficeMax and OfficeDepot combined to survive and Staples doesn't seem to be anything powerful. I mean, Staples was started in the mid 80s and had a nice upward trajectory and seem to be on a graceful down-slope. Heck, Blockbuster Video. Talk about a staple of American life. Despite stores everywhere, huge brand awareness, etc. they got toppled by Netflix. Oh, Nokia! They were huge and worth nearly 6x what they're worth today a decade ago. They saw the iPhone and just stalled out. They saw Android and stalled. Finally, Windows Mobile, but it was too late/the wrong OS.
There are certain natural monopoly industries like utilities, but even in the cable TV/internet industry, they're looking less secure for the long run. Many people are cord-cutters for TV, opting for Netflix and other internet-delivered video. Many people watch on tablets which might use 4G rather than WiFi and that's likely to accelerate over the next decade as wireless networks get much faster with much more bandwidth. Tesla seems like it might want to compete with utilities over the long run with a combination of solar roofs and home battery packs.
Amazon is certainly powerful, but so was Walmart as Walmart scurries to stay in the game. It's hard to come up with companies that have really been that juggernaut for long. Walmart was a relatively new entrant against entrenched retailers like Sears. Amazon was a new entrant against Walmart. It's certainly not easy to unseat a powerful company, but it also seems difficult to stay at the top. Whether it's inefficiency, inability to pivot to new ways of doing things, or just markets that dry up as they're replaced by something else, companies have a hard time staying in such powerful positions in our society for long.
And that's the difference between a market with powerful companies and central planning. Central planning would have said that Netflix isn't a worthwhile attempt. We already have all these stores, what will we do with the employees, isn't it a waste to shutter so much investment and capital we've built up in the old way of doing things, the new model doesn't look as good economically (yet), etc. In fact, that's basically what companies do. Shipping DVDs? Ridiculous. You're maybe paying $1 for the round-trip on the DVD (including labor) and charging $10/mo for two out at a time? Seems like it would never work. Shipping books? People want to browse at their bookstore, people want goods immediately, and shipping eats into profits. Ridiculous! Better search? Nah, people want portal sites and Yahoo is the biggest! The iPhone? It doesn't even have a keyboard which is an essential part of devices like Windows Mobile. Wireless and cable? We think the future of AT&T is our long distance service which currently has better margins and lower investment cost than that newer technology.
When you have so much invested in one way of doing something, it can be hard to pivot as the world changes. You become hesitant to kill your cash cows and might not try new things aggressively. In a centrally planned economy, no one challenges that. In a market economy, companies come along and do challenge that. Even when offered their competitor, they often shrug them off! Blockbuster was offered Netflix for $50M. It wasn't profitable at the time and seemed niche - PASS. Yahoo was offered both Google and Facebook and thought the prices were too high. Apple announced its iPhone 6-months in advance and most competitors just thought it was dumb. Luckily, people can pursue these endeavors outside of one, centrally planned company.
> How many companies have been "the unstoppable juggernaut" for 50+ years? AT&T isn't the AT&T from 30 years ago. [...] Microsoft was the unstoppable juggernaut... and then Apple and Google came along.
These are very good examples. However in both cases the decisive action was taken by federal antitrust enforcement. The Bell System was broken up by a consent decree [1] and Microsoft only dropped its aggressive Browser Wars tactics (e.g. giving IE special API access) after a major antitrust case [2]. It makes for a nice story, but in practice big companies are rarely (if ever) defeated by scrappy competitors / market forces.
AT&T was broken up 35 years ago, so the evolution of the company in the last 30 years from long distance provider to wireless should be looked at separately from the monopoly days (which were government granted in the first place).
>It's certainly not easy to unseat a powerful company, but it also seems difficult to stay at the top. Whether it's inefficiency, inability to pivot to new ways of doing things, or just markets that dry up as they're replaced by something else, companies have a hard time staying in such powerful positions in our society for long.
Geoffrey West makes a compelling argument that it's due to the scaling laws around growth itself. The capitalist system demands exponential growth, but companies eventually reach a size where all their resources are devoted to maintaining existing "biomass." The exact scaling depends on the scaling properties of the networks that "feed" each "cell" of the system — circulatory/respiratory networks for animals, infrastructural networks for civilizations, social network for companies/cities.
Quite frankly most of the articles on Geoffrey West's work are hand-wavey bullshit, but he outlines it in this talk (including addressing this very question). https://www.youtube.com/watch?v=DFFVSvAr7Wc
The major difference is that if Amazon stop running well then someone else will come along and replace them. Whereas government is a monopoly, so if it runs badly then it doesn't automatically get replaced.
Now, democracy is supposed to fix this, by allowing you to vote for a different supplier of government every few years. But because of the voting system in some countries (like the US and the UK) it's actually really hard to do this, because everything gets turned into a black/white struggle between opposing forces, rather than lots of options being available for you make a choice between.
It would be enormously, impossibly wasteful for anything to come around and replace Amazon. It'd be like replacing Google. You're basically talking market chaos and massive supply chain disruption, probably to the point of extensive loss of life: you'd be surprised how much depends on these giant, government-like systems.
Personally, I think the poster suggesting that Amazon may start lobbying for basically welfare, is onto something. What if they lobbied for a massive redistribution scheme where half the excess/arbitrageous profits made by the 0.001% are redistributed to the 99.999% in the form of Amazon store credit and only Amazon store credit?
Since that is either already, or will inevitably be, the single most efficient distribution network by which you could get goods and resources to the populace in a market system?
> It'd be like replacing Google. You're basically talking market chaos and massive supply chain disruption, probably to the point of extensive loss of life
What? Granted an overnight transition could cause disruption, but in a few months, what couldn't be replaced?
Gmail? GMaps? Android? Youtube? Search+Adwords+GAnalytics? GCE? their CDN could be the worst, maybe? they all already have big competitors, and since Google's quality is minimal, it wouldn't be that hard to switch over. But you need a motivated company, i.e. just a little more effort than OpenStreetMaps or FastMail.
Hmm, as I remember the socialist governments were replaced (not easily, but they were). Have we even seen a conglomerate of AMZN size replaced in living memory?
IBM, Sears (far more dominant in retail in its day than Amazon is today), General Motors (hi Toyota), US Steel (hi foreign steel), Pan-Am (hyper powerful at its peak), Alcoa (anti-trust + foreign competition), and a dozen others that were every bit as powerful as Amazon at their peak.
Oh and Walmart is slowly being replaced by Amazon. Walmart is/was the most dominant retailer in world history.
The rise and fall of major corporations isn't necessarily the result of the inexorable application of market forces. Alcoa's grasp on the market was broken as much by the aftermath of 'war socialism' as anything else, for example. Companies compete with each other on legal, regulatory, and social planes as well as in the marketplace.
I think it's difficult to find any single X that makes "if a company is bad at X, it will be replaced by competitors" a consistently true statement, without X being essentially synonymous with "succeeding".
Amazon's not fake. Enron was basically fake: Uber is a closer match to Enron than Amazon will ever be. Amazon is no hype-supported tech unicorn. They are basically a supply network to the Nth power, run by dedicated maniacs willing to destroy themselves to prevail, and executed by a combination of incredible capital utilization (in the form of physical warehouses, robots, automation, systems design) and human exploitation (what jobs can't be automated yet are handled by that more sophisticated robot, the desperate peak-performance human).
>if Amazon stop running well then someone else will come along and replace them
Is this really true though? Over the past few decades we've seen that if a company is big enough, and it fails, the government will step in and prop it up with a bailout.
IIRC most of the companies in the S&P 500 didn't exist 30 years ago. I think the DJIA is mostly companies that are younger than I am. The US has an unusually dynamic economy. Bailing out companies is reserved for politically important ones (GM, Ford) or politically and financially important ones.
It's weird to me to see "if that's the case" followed by an explanation of a possible bad outcome, written as if nobody has said this and it needs an explanation. It's a quite old idea. I have for many years heard the political left decry: we get socialism for the rich and capitalism for the poor. The Wikipedia page on "corporate welfare" says Ralph Nader used the term in 1956 -- which is much older than I thought having only been exposed to it ~20 years ago.
Which is why we need instant-runoff voting in the US, so we can vote for third party candidates but still choose between the top two candidates if our preferred candidate loses.
There is no doubt that IRV would be superior to what we use today, plurality voting.
However, if we achieve the momentum necessary to reform voting in the United States, it would be a shame to squander that momentum to receive IRV rather than an easier and better model such as Score voting or Approval voting.
instant-runoff is sold on false premises. Advocates suggest that you can honestly vote and not see spoiler effects. But instant-runoff eliminates a candidate in each round, and when your 2nd choice gets eliminated before your 1st choice, your 2nd choice never gets counted. This results in a wide range of messed up results that spoil elections and can fall back to strategic voting.
The best answer is Star voting (Score Then Auto-Runoff), which just does one instant runoff between top scoring candidates, thus counting everyone's scores equally. See http://www.equal.vote for details
No, STAR is not the best answer; it has the same problem as all scoring (instead of ranking) based methods—there's no clear mapping between actual subjective preferences (which can be consistently reduced to ordinal, but not interval, measures) and ballot markings, with the result that the same preferences by different voters produce different ballot markings. This is especially problematic in multicultural jurisdictions, because score ratings aren't distributed among the space of markings consistent with a set of preferences consistently, but instead show clear cultural differences. (This is a well-documented, though rarely-addressed, problem with star ratings in general; one example of a difference on this axis is that with the same degree of satisfaction measured vy other means, Americans of European ancestry give significantly higher ratings than Asian-Americans on fixed-rate scales.
This problem (the inconsistency in general, not the cultural variation though that underlined the problem) makes STAR and other score-based methods utterly unsuitable for most public elections.
If you want to fix the problems caused by loser elimination in IRV, just drop loser elimination and accept as winner the candidate who gets past the bare-majority threshold first as you check first all first preference votes, then total of first and second preference votes, and so on.
> no clear mapping between actual subjective preferences (which can be consistently reduced to ordinal, but not interval, measures) and ballot markings, with the result that the same preferences by different voters produce different ballot markings
No, you completely misunderstand. There's no universal reference for what scores "mean". You can give candidates from, say 0-5 stars in terms of how much support you want to give them in the race. That's it. 5 = most support, 0 = no support. It's ONLY relative to the actual pool of candidates in the election. People can just learn to understand this clear fact, and ballots can be marked as such as "least support" to "full support". And educating people about this is easier than educating them about IRV and all it's weirdness (and more honest than making false claims about IRV). There are NO cultural issues or biases or problems here in terms of what a score "means".
> If you want to fix the problems caused by loser elimination in IRV…
I don't know what you mean here, but it isn't IRV, it's some other rank system. Tons have been proposed, none are perfect, all are far harder to calculate and understand than Star voting. Ranked Pairs is actually pretty good, probably the best way to handle ranked ballots. I'm not sure what you're proposing.
The observation was made in "Theory of the Firm" a long time ago that companies tended to be command economies internally, rather than having internal markets; and the hypothesis supported that this is due to informational costs.
WRT redistribution, I suspect the shareholders would jump on that.
The Theory of the Firm claimed that those information limitations were the limiting factor on firm size, bit a motivation. (Motivation for large firms being to avoid transaction costs.)
Some very large companies, like Google/Alphabet and Samsung, are more focused on concentration of wealth (ie functioning as holding companies) than on avoiding transaction costs, and hence have internal market economies.
Hence oddities such as Samsung's semiconductors division selling screens and memory, often custom-designed, to the competitors of Samsung's cellphone division - they act as separate companies reach pursuing their own profit.
In that sense, conglomerates are sometimes not "firms" in the traditional economic sense.
You mean like Alcoa, IBM, Standard Oil, the Pennsylvania Railroad, American Tobacco, AT&T, Sears, General Motors, Ford, Kodak, Pan-Am, US Steel, etc?
I'd suggest studying US economic history, as there isn't a single example of a juggernaut corporation that sustained said dominance very long-term (either due to competition / changing technology or government anti-trust actions).
I'm not suggesting Amazon will never fail, I was rather talking about that they seem to be essentially solving the socialist planning problem, for a limited but ever-expanding section of the economy.
This. I think there's much value to be had in using a thing like Amazon for what it's good at: an efficient distribution network, and to some extent a captive market that controls its own terms, inputs and outputs and optimizes for that efficiency.
Apart from labor abuses (and some are entered into willingly: see higher level Amazon true believers putting in 90 hours a week to provide half a cent cheaper toilet paper), what Amazon is, is not the problem.
The problem is the idea that all such toilet paper consumers must work to get paid the money to buy that toilet paper, in an Amazon-ified world. And that all the providers of goods feeding the Amazon supply chain must earn their own profits to survive so that they can keep feeding Amazon, on Amazon's terms.
And most of all the problem is that the penalty for failing to earn these wages/supplier profits is death, because there's no alternate system pumping capital down to where consumers do their choosing. Amazon is TOO efficient and a world based on that ethos can't maintain a consumer class at all. The solution isn't necessarily to make Amazon inefficient so it can provide 'jobs', the solution is to decouple job wages from continued existence as a human.
The limitation of studying history is that 2 people can look at the same event and make 2 diametrically opposed conclusions about it.
Where someone sees juggernaut corporations being broken up and outmaneuvered by nimble competitors, someone else will see a temporary effect that eventually leads to re-consolidation, regulatory capture, and settling back into an oligopolistic market without any innovation.
To your first statement, is this even true of Amazon?
In the US, Amazon Prime has something like 80% penetration into households making >= $100k/year. This move into Whole Foods reaffirms this focus on high-income households, where convenience is often as large a factor as costs.
My hunch is that Amazon has been a massive positive in aggregate, but poor households have been negatively impacted by Amazon, taking into account loss of jobs, lowering of wages, and some positive lower costs for goods.
>but poor households have been negatively impacted by Amazon
Households where money is tight are sharing prime memberships among them and using that to undercut the cost of buying consumer goods locally. You can go into your local $typeofstore and get ripped off for a set of $releventproduct or you could buy something that came out of the same overseas factory with a different brand label on it and wait 50hr for a third of the price.
For this gigantic assumption of a comment to have any merit whatsoever you would have to show that:
1/ Poor people actually shop at amazon in a significant way
2/ The massive job and wage losses Amazon causes in the poor community are insignificant compared to the "wage gains" #1 would imply.
I suspect both assumptions are false. This sounds like a comment from someone in a bubble like SF where lots of people have the disposable income to buy everything online. People in the rest of the country live very differently.
I don't think that's the right metaphor. Amazon is still selling to match demand and doing an incredible job. The USSR dictated what and how much to supply of things and people just had to make do.
Amazon is becoming like a chaebol/zaibatsu. The problem I see is them controlling businesses across to wide of a spectrum. They're in retail, computer infrastructure, media, now food. Bezos himself owns a newspaper and a spaceship.
> What is the relationship between a centrally planned economy as for example Gosplan was trying to run in the USSR, and the presence of these huge market-like but centralized entities like Amazon and Wal-Mart inside a free-market economy?
Amazon may not be trying to turn a profit short term, but they still pay huge amounts of attention to price signals. Prices are composable flows of information about demand and difficulty of production.
Amazon obviously has an interest in turning a profit. The main different is incentives.
A private company is generally structured better to remain competitive and efficient as things change.
Think Amazon is getting too big to remain agile? They basically aren't making a profit (they are continually reinvesting instead), as you say. Reinvesting in new strategies is probably the best evidence that a company IS competitive.
It's somewhat dated, but Galbraith's _The New Industrial State_ has a lot of interesting insight into the role of large corporations in economic planning. People sometimes criticize the book because the large corporations (GM, GE, etc.) the book talks about are less central to the economy now, but I don't think that contradicts the book's message at all.
Read Coase's book on the theory of the firm. The short answer is yes, firms are just like gosplan. We put up with them because they reduced transaction costs.
>"A central problem faced by Gosplan was the collection of high quality data about supply chains and the estimation of the utility function of consumers."
It is a book at the intersection of fiction and non-fiction. Every chapter is followed by a section explaining quite precisely what was dramatised and what was real.
I don't think large monopolies really point to everyone moving toward a planned economy; they're the natural tendency of capitalism and the opposite is only maintained by vigorous regulation and intervention.
What is the relationship between a centrally planned economy as for example Gosplan was trying to run in the USSR, and the presence of these huge market-like but centralized entities like Amazon and Wal-Mart inside a free-market economy? This becomes particularly interesting because Amazon apparently does not have any particular interest in turning a profit.
A central problem faced by Gosplan was the collection of high quality data about supply chains and the estimation of the utility function of consumers. I would say Amazon is in a pretty good position to do both right now.
Another question, somewhat related: At what point does it become profitable for Amazon to lobby for more redistributive taxation? This might sound paradoxical because you would assume that Amazon represents the interests of it's owners, who would probably suffer under such a taxation scheme. But shouldn't there be a point at which giving more disposable income to poor people will boost the overall income of an entity Amazon (since Amazon doesn't sells many flat-screen TVs but not as many mansions or yachts)?