January 6, 2021

Short term thinking - Part 3 - Will Capitalism Destroy Itself?

Will capitalism as it has currently evolved into a very significant focus on short term thinking, be able to compete with communist China where they at least work with 5 year plans and with projects like the Belt and Road Initiative take a very long term view? 

Long term thinking beats short term thinking every time - in the long run of course. But Capitalism itself is not destined or mandated to work under a short term thinking model.  That's a product of it's current iteration.  That has not always been the case.

The purpose of capitalism is to provide anyone the opportunity to respond to market needs, in a competitive environment, to allow the development of solutions to serve those needs as quickly and efficiently as possible. Those that respond the best will be rewarded with success.  Those who do not respond effectively will fail.

The market will move quickly. Options will become available quickly.  That's the advantage of capitalism. Central planning mandates a specific solution that may not be the best one. It's the only one though. It might be fast too, but there's no guarantee the marketplace will resolve what works.  With capitalism, what survives longer term is generally the best option.  What emerges at first probably gets improved upon either by the innovator or else a shrewd and hungry competitor.

That's the inherent advantage of capitalism over communism, socialism, feudalism, or any other form of governance; it leaves the market (i.e. everyone) free to make up their own minds and whatever serves the general good best, evolves as the winner. Capitalism is always subject to change.

But that is capitalism in general.  Somehow it evolved into short term thinking - annual bonuses, quarterly reports, news releases designed to sway perception of value. Human nature is the problem; the quick win, the short cut to victory (cheating, get rich quick schemes, crony capitalism whereby business and government work together to keep each other enriched or in power, even  pyramid schemes and Enron).  These things are not capitalism, they are not even a byproduct of capitalism but rather the result of human nature. Other systems have their own inherent issues that result from human nature and those might take a different form.  Not always - socialism and communism and monarchies are all as susceptible to corruption as is capitalism.

At least with capitalism you are allowed to think about what needs correction. It's pretty much human nature. Dominic Barton discusses the need for long term thinking and how it can be fixed.

The long term lens is the correct lens.  But implementing it does not resolve human nature and the desire to take short cuts.  All capitalism can do is try to work it's way through the potential short cuts and try to prevent them.  But the human nature component will never disappear. Just as we find new ways to thwart money laundering, new ways to money launder get developed.  It's a cycle that will repeat forever. Dominic Barton correctly points out that business does not need government to impose a solution.  Yes, some regulation is necessary, but business governance should as much as possible be left to business, and the marketplace that govern it.  That's the inherent advantage of capitalism and it should be leveraged, not eschewed.

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