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Thursday, January 4, 2007

Innovation and the market

Wealth, poverty reduction and utility are all derived from the market and from innovation.

by StFerdIII

A recent news feed invaded my Google desktop with the message ‘end users help develop Google products’. The news summary stated that all of Google’s products have discussion groups where users give suggestions on product improvement and improving the end-user experience. Google embodies all that is good about the market. Marxists beware: never in the history of man has government replicated an efficient and moral market development.

Consider the interesting interaction of supply and demand. Google did not create the browser or its search function, but it certainly improved the algorithms to sort through the mass of information sitting on internet sites and servers. Once made users are now helping Google maintain its technology lead. So it goes with efficient markets and innovation. Advances in all areas of life stem from the right environment; stable economics; and the natural interaction of supply and demand price points including supplier-user interaction.

Price points are critical to the functioning of a progressive, fair and moral market system. Once government gets involved with subsidies, tariffs, and affirmative action programs the market becomes distorted and society in aggregate will lose. Consider oil. Prices for black gold may move up or down – and the market will adjudicate on winners and losers. If prices go up consumers pay more but firms in supply and distribution should make more profit which they will reinvest – perhaps in more production and refining which will lower future prices.

Imagine if oil prices go up and governments intervene and mail people rebates to offset the increase. It buys votes but deranges the market. There is now no incentive to restrict demand and thereby decrease the retail price. Prices in the long term will remain higher than they would in a naturally functioning market and society in total will be worse off. This is what is now occurring with commodities. Slackening demand has now led to a fall in oil prices. If governments had intervened with oil company sur-taxation or mailed rebates to buy votes the distorted market would have reacted in such a way that the long term welfare of society is worse not better-off.

Google and the technology revolution are harbingers of a radical new business era. Governments will have to adapt. No longer are business processes captive to one state, nor can they be threatened or intimated by governments. Entrepreneurs and firms can utilize the internet including ‘open source’ software from Google and other firms to build truly dynamic and dispersed business processes covering the entire supply chain of production.

Live in an over-taxed jurisdiction beholden to cheap populism and nonsensical Marxism? Distribute your production methods offshore and use various tools to manage them. Annihilate your payroll; lower your overheads and get busy making profit. Make government more accountable and force them to justify their cultural Marxist tendency to over-spend; over-react and mis-govern.

It is no mystery why Google and the tech revolution occurred. For the past 20 years in the US especially tax rates on capital, investments and dividends have been cut. US corporate and personal rates are still far too high – but US marginal rates are lower than in feminized Europe or Canada. Ergo capital accumulation in the Excited States is higher and innovation more plentiful. E-Bay alone has 40.000 developers working for it – Google about the same. IBM has 20.000 India based employees, Microsoft even more. The decentralized firm is alive and well.

Business has no business justifying government extortion or eco-fascist regulatory over-kill. It exists to provide a return to shareholders. As Brian Westbury a noted economist stated, “It is true that corporate profits have climbed to a record share of GDP. And it is also true that income gaps have widened. But these can be positive signs, not negative ones. An economy without profits is a stagnant economy. And income gaps have widened in every period of rapid technological advancement going back to the invention of the wheel -- the first to use a new technology, and the entrepreneurs who push it to fruition, benefit the most, even as the new technology lifts living standards for all.”

How true – but such sentiments and observations are unreported in the media. Living standards have doubled in the past few years – along with crime. We are wealthier but still ignorant of the temporal nature of recent wealth creation and in some cases, how to use it. The media and educational establishment are to blame for this. Marxism, redistribution, demand side management, political interference, ‘national champions’, even the vague and obnoxious ‘national values’ – all these and more conspire against innovation.

Let’s at least recognize from where and how the Google’s of the world have sprung. Google represents the best and the most dynamic aspects of a market system.