With the fall of communism in eastern Europe between 1989 and 1991, many hailed this as the victory of capitalism.
Even China, which is still governed by the Chinese Communist Party, has embraced the market and accepted growing levels of private ownership of capital. It is only one or two countries, such as North Korea and Cuba, that could be described as communist in the way the term was used to describe the centrally planned economies of eastern Europe before 1990.
But whilst market capitalism seemed to have emerged as the superior system in the 1990s, may are now questioning whether the market capitalism we have today is fit for the 21st century. Today much of the world’s capital in the hands of big business, with financial institutions holding a large proportion of shares in such companies. And the gap between rich and poor is ever widening
The market system of today, is very different from that of 100 years ago. In fact, as John Kay agues in his article “Let’s talk about the market economy” below, it would be wrong to describe it as ‘capitalism’ in the sense the term was used in the debates of the 19th and early 20th centuries. Nonetheless, the term is still used and generally refers to the market system we now have. And it is a market system that many see as failing and unfit for purpose. It is a system that coincided with the bubble of the 1990s and early 2000s, the credit crunch of 2007–9 and the recession of 2008/9, now seeming to return as a double-dip recession
With the political and business leaders of the world meeting at the World Economic Forum at Davos in Switzerland on 25–29 January 2012, a central theme of the forum has been the future of capitalism and whether it’s fit for the 21st century.
Is there a fairer and more compassionate capitalism that can be fostered? This has been a stated objective of all three political parties in the UK recently. Can we avoid another crisis of capitalism as seen in the late 2000s and which still continues today? What is the role of government in regulating the market system? Does the whole capitalist system need restructuring?
It’s becoming increasingly clear that we need to talk about capitalism. The following webcasts and articles do just that.
Webcasts and podcasts
Davos 2012 – TIME Davos Debate on Capitalism< World Economic Forum (25/01/12)
Can capitalism be ‘responsible’? BBC Newsnight, Paul Mason (19/01/12)
Capitalism ‘nothing to do with responsibility’ BBC Newsnight, Eric Hobsbawm (19/01/12)
Are there alternatives to capitalism? BBC Newsnight, Danny Finkelstein, Tristram Hunt and Julie Meyer (19/01/12)
America Beyond Capitalism The Real News on YouTube, Gar Alperovitz (27/12/11)
The future of capitalism CNBC, Warren Buffett and Bill Gates (12/11/09)
Capitalism Hits the Fan (excerpt) YouTube, Richard Wolff (2/1/12)
Panel Discussion “20 years after – Future of capitalism in CEE” Erste Group on YouTube, Andreas Treichl, Janusz Kulik, Jacques Chauvet, and media Adrian Sarbu (24/2/11)
The Future of Capitalism: Constructive Competition or Chaos? YouTube, Nathan Goetting, Tony Nelson, Craig Meurlin and Judd Bruce Bettinghaus (24/1/11)
Capitalism in Crisis Financial Times, Various videos (24/1/11)
Bill Gates: Capitalism a ‘phenomenal system’ BBC Today Programme, Bill Gates talks to Evan Davis (25/1/12)
Capitalism (See also) BBC The Bottom Line, Evan Davis and guests (28/1/12)
Articles
Meddle with the market at your peril Financial Times, Alan Greenspan (25/1/12)
The world’s hunger for public goods Financial Times, Martin Wolf (24/1/12)
When capitalism and corporate self-interest collide JohnKay.com, John Kay (25/1/12)
Let’s talk about the market economy JohnKay.com, John Kay (11/1/12)
A real market economy ensures that greed is good JohnKay.com, John Kay (18/1/12)
Seven ways to fix the system’s flaws Financial Times, Martin Wolf (22/1/12)
To the barricades, British defenders of open markets! The Economist, Bagehot’s Notebook (26/1/12)
Community reaction to doubts about capitalism in Davos CBC News (26/1/12)
Capitalism saw off USSR, now it needs to change or die The National (UAE), Frank Kane (26/1/12)
Words won’t change capitalism. So be daring and do something Observer, Will Hutton (22/1/12)
A political economy fit for purpose: what the UK could learn from Germany Our Kingdom, Alex Keynes (20/1/12)
Debate on State Capitalism The Economist (24/1/12)
Questions
- How has the nature of capitalism changed over recent decades?
- Can capitalism be made more ‘caring’ and, if so, how?
- What do you understand by the term a ‘fair allocation of resources’? Is capitalism fair? Can it be made fairer and, if so, what are the costs of making it so?
- Can greed ever be good?
- How does the ‘Anglo-Saxon’ model of capitalism differ from the European model?
- What do you understand by the term ‘crony capitalism’? Is crony capitalism on the increase?
- John Kay states that “Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital.” Explain what this means and what its implications are for making capitalism meet social goals.
- In what ways can governments control markets? Have these instruments and their effectiveness changed in effectiveness over time?
- What are the costs and benefits to society of the increasing globalisation of capital?
- To what extent was the financial crisis and credit crunch the result of a flawed capitalist system and to what extent was it a failure of government intervention?
- Why is it important for the success of capitalism that companies should be allowed to fail? Consider whether this should also apply to banks. How is the concept of moral hazard relevant to your answer?
Is Google’s Android catching up with Apple’s iOS in the market for apps? With Android tablets and smartphones taking an ever larger proportion of the market, you would expect so. In the third quarter of 2011, 53% of smartphone shipments used Google’s Android system, compared with only 15% with iOS.
However, Apple is still ahead of Google in the share of apps downloads. To date, there have been 18 billion downloads from the iOS App Store for iPhone, iPad and iPod Touchs compared with 10 billion downloads of Android apps. But Android downloads are growing faster and are set to overtake those of iOS apps in the coming months. This should be boosted with the new Ice Cream Sandwich Android operating system.
But what about revenues earned from downloads? Here the picture is very different. Android Marketplace has earned around $330 million gross revenue for paid apps. Apple’s App Store, by contrast, has earned over 15 times as much: nearly $5000 million. The reason is that 99% of Android apps are free; the figure for App Store apps is 86%. But why is this so and how can Android earn revenues from its apps? And how can app developers earn revenues from the Android market? The following articles look at the economics of apps.
Android Vs. iPhone: The Economics Of Apps Financial Edge, Manish Sahajwani (6/1/12)
Google has an Amazon problem MSN Money, Jim J. Jubak (25/1/12)
Android and the economics of apps BBC News, Rory Cellan-Jones (7/12/11)
Apple Getting Best Of The Android Vs. iPhone Economics Forbes, Manish Sahajwani (6/1/12)
Fragmentation Is Not The End of Android cek.log, Charlie Kindel (14/1/12)
Questions
- Why are most Android apps free to download?
- What is the business model for (a) developing and (b) offering Android apps?
- How can money be made from free apps?
- What are the long-term strengths and weaknesses in Apple’s apps business model?
- Assess Amazon’s business model for apps for Kindle users.
Every firm has been hit by the recession and for most, it’s been bad news. However, the latest firm to file for bankruptcy is an interesting case, as the causes extend well beyond a weak economy. The company in question? Eastman Kodak. Renowned for inventing the hand-held camera and being the market leader, selling 90% of photographic film and 85% of all cameras in the USA in 1976, the company has since seen a large change in its fortunes.
Massive competition has emerged from all over the globe and the company has seemed to lag behind the digital revolution. Arguably, unwilling to take risks and making some strategic errors, Kodak saw its stock tumble from $94 in 1997 to under $1 per share in 2012. Since 2004, Kodak has only seen one profitable year. With massive competitors in the world of digital photography, the market has become a highly competitive one. As Rupert Goodwins, the editor of technology website ZDNet said:Kodak made all its money from selling film, then the digital camera came along and now no-one’s buying film. It’s not like they didn’t see it coming. Kodak hesitated because they didn’t want to eviscerate their business.
By filing for bankruptcy, Kodak is protected and its operations will continue for the time being, perhaps giving the company time to have a rethink and a reorganization. Eastman Kodak has previously tried to take a new direction and has been moving away from film and towards its printer, software and packing businesses. The problem is that these markets already have some very strong competitors: Hewlett Packard, Canon and Epson. It’s a difficult job to break into this market and gain market share.
The future of the company is very much in the balance and as reorganization of its operations looks inevitable, so does a loss of jobs. Thank goodness it only employs some 19,000 workers and not the 145,000 it did back in its day. Bankruptcy will certainly keep the creditors at bay for the time being, but it is by no means a long term solution to the company’s ailing profits. The following articles consider this ‘Kodak moment’.
Eastman Kodak files for bankruptcy protection BBC News (19/1/12)
Eastman Kodak files for bankruptcy The Christian Science Monitor, Ben Dobbin (19/1/12)
Kodak: From Brownie and roll film to digital disaster BBC News, James Cowling (19/1/12)
Kodak files for bankruptcy CNN Money, Aaron Smith and Hibah Yousuf (19/1/12)
Photography pioneer Kodak files for bankruptcy Reuters, Jonathan Stempel (19/1/12)
Kodak: 30 fascinating facts The Telegraph, Matthew Sparkes (19/1/12)
Kodak: why the moment has oassed Guardian, Simon Waldman (19/1/12)
Questions
- Using the product life cycle, explain where Kodak currently lies.
- To what extent are Kodak’s current problems related to the obsolescence of their products and not the recession?
- What strategic errors have Kodak made?
- What has caused Kodak’s collapse in share prices and profitability?
- Why is Eastman Kodak finding it difficult to gain market share in other markets, such as printing?
- What options are open to Kodak for the future if it is to become profitable once more?
In many parts of the UK, bus services are run by a single operator. In other parts, it is little different, with the main operator facing competition on only a very limited number of routes. Over the whole of England, Scotland and Wales there are 1245 bus operators, but the ‘big five’ (Arriva, FirstGroup, Go-Ahead, National Express and Stagecoach) carry some 70% of passengers. Generally these five companies do not compete with each other, but, instead, operate as monopolies, or near monopolies, in their own specific areas. On average, the largest operator in an urban area runs 69% of local bus services.
Given this lack of competition and potential abuse of monopoly power, the Office of Fair Trading referred local bus services in Great Briatin (excluding London) to the Competition Commission (CC) in January 2010. The CC has just published its final report. Paragraph 5 of the summary to the report states:
We concluded that there were four features of local bus markets which mean that effective head-to-head competition is uncommon and which limit the effectiveness of potential competition and new entry. These features are the existence of: high levels of concentration; barriers to entry and expansion; customer conduct in deciding which bus to catch; and operator conduct by which operators avoid competing with other operators in ‘Core Territories’ (certain parts of an operator’s network which it regards as its ‘own’ territory) leading to geographic market segregation.
And paragraph 8 states:
We decided on a package of remedies with three main elements to address the AECs [adverse effects on competition] that we found. First, the remedies include market-opening measures to reduce barriers to entry and expansion, thereby reducing market concentration and providing an environment in which competition is likely to be sustained. By reducing barriers to entry and expansion, we also expect it to become harder for operators to sustain a coordinated outcome. Second, the remedies include measures to promote competition in relation to the tendering of contracts for supported services. Third, we made recommendations about the wider policy and regulatory environment, including emphasizing compliance with and effective enforcement of competition law.
The following articles look at the findings of the report and at the potential for improving the service to passengers, in terms of quality, frequency and price.
Articles
Competition regulator outlines bus market shake-up The Telegraph (20/12/11)
Bus market not competitive, Competition Commission says BBC News (20/12/11)
Passengers ‘need more bus rivalry’ Press Association (20/12/11)
Competition Commission publications
CC sets out Future Destination for Bus Market Competition Commission News Release (20/12/11)
Bus Market Inquiry: Final Report, Case Studies and Appendices Competition Commission (20/12/11)
Local Bus Services: Accompanying Documents Competition Commission (20/12/11)
Questions
- What are the barriers to entry in the market for local bus services?
- In what circumstances are local bus services a natural monopoly? Is this generally the case?
- In a non-regulated bus market, how could established operators use predatory pricing to drive out new entrants?
- How may offering reductions for return tickets reduce competition on routes where there is a large operator and one or more smaller ones?
- What practices can established large operators use to drive out smaller competitors?
- Go through the four reasons given by the CC why head-to-head competition in local bus markets is uncommon and in each case consider what remedies could be adopted by the regulator or by local authorities.
- Which of the remedies proposed by the CC involve encouraging more competition and which involve tighter regulation?
When people shop in supermarkets they often look for what’s on special offer. After all, everyone likes a bargain. About 35–37% of supermarket items are on special offer at any one time and around 50% of the money spent by customers is on such items.
But things aren’t always as they seem. Supermarkets use clever marketing to persuade people that they’re getting a good deal, while sometimes it’s nothing of the sort. Examples include putting up prices for a while and then reducing them again saying “huge reduction”; or promoting an offer of, say, “three for £2”, when you could buy an individual item for 60p; or using the word “now” £2.50 to imply that the previous price was higher, when in fact it wasn’t; or selling a double-sized “value pack” for more than double the price of the regular size. These tricks are commonplace in supermarkets.
Sometimes the wary consumer will be able to find out which offers are genuine, but it’s not always that easy. And even if you do buy something at a genuine discount, is it something you really want? Or have you been persuaded to buy it simply because it’s on offer? Supermarkets study consumers’ psychology. They find clever ways of promoting products to make us feel that we have done well in getting a bargain.
The following programme in the BBC’s Panorama series looks at the big four supermarkets in the UK – Tesco, Asda, Sainsbury’s and Morrisons – which between then have 68% of supermarket sales. It gives examples of some of the not so special offers and how consumers are being hoodwinked.
Webcast
Revealed: The truth about supermarket ‘bargains’ BBC Panorama (clip), Sophie Raworth (5/12/11)
The Truth About Supermarket Price Wars BBC Panorama (full programme), Sophie Raworth (5/12/11)
Articles
What you need to know about the supermarket price wars Totally Money (7/12/11)
Supermarkets accused of misleading consumers The Telegraph, Nick Collins (5/12/11)
Supermarket price war: Can they all be cheapest? BBC News, Anthony Reuben (9/12/11)
Are Our Retailers Criminals? International Supermarket News, Laura Elliott (6/12/11)
Supermarket deals “not what they seem” warns expert Retail Gazette, Gemma Taylor (6/12/11)
Questions
- What types of misleading offers are identified in the Panorama report?
- For what reasons are consumers “taken in” by such offers? Does this imply that consumers are irrational?
- Does intense oligopolistic competition between the big four supermarkets lead to lower prices?
- How is it possible for two supermarkets to claim that they are cheaper than the other? How would you decide which supermarket was generally cheaper?
- Why might it be difficult for an independent agency to do a comparison of prices of different supermarket chains?
