How do externalities turn communist revolutions into authoritarian regimes?
This is an incredibly complex topic and depends somewhat on your exact setup of revolution and regime.
Let me give another example of negative externalities to at least vaguely illustrate: corruption. It’s the exact same mechanism. The person receiving a bribe benefits from the bribe, but the cost (harm) is usually paid by their employer or society.
For a news agency, a negative externality may be to intentionally spread incorrect information and propaganda. So as an exercise, try to think of the incentives of a news organization in capitalism when it is privately owned and anyone with money can start a competing news agency and in communism, where some kind of political organ (elected or named by elected officials) decides the news agencies funding and if resources are allocated to create a competitor.
Economic and political systems are about incentives. The more the incentives of individual people are aligned with the incentives of society as a whole, the better the system.
Wouldn’t workers owning the factors of production reduce negative externalities by introducing democratic voting into the decision-making process? When there’s no voting, and simply one guy owning the business, then he’s got every incentive to push his costs onto everyone else. If he’s bribed to act against our interests, then there’s no mechanism to remove him from power.
Have there been any successful examples of markets solving externalities on their own? Like coasian solutions in the wild? The best examples I can think of are banning leaded gasoline and CFCs. And the worst examples of things that aren’t happening (like climate targets) are because the people actually in charge don’t care if billions of poors die.
Depends on your definition of solve. There is no mechanism directly within capitalism to solve negative externalities that appear in capitalism once they appear. You need government regulations via democracy or another external force to step in and resolve them. That is why the increasing influence of corporations on politics is so harmful.
But capitalism allows fewer negative externalities to appear. Let me give you an example for the worker owned factory. The elected leaders incentive is not to lead a productive factory. It is to be popular and win elections. So what happens when a role becomes obsolete. Perhaps you no longer need a person to stand in an elevator and operate it for people, since it can be automated. But firing people or retraining them for different role is unpopular, so the boss is incentivised to keep elevator operators. This means these people are not allowed to find jobs that are actually productive in improving the standards of living for everyone. People don’t like being fired when their position becomes obsolete but it is necessary to develop economies and advance civilization.
Another example is investment. When the factory has surplus profit, should he increase the wages of the employees immediately or invest the money into improving the productivity by buying better equipment or building another factory site? What about maintenance? Should he increase wages and delay the maintenance until it is someone else’s problem? Which will be more popular? By the way, this delayed maintenance issue is why public infrastructure is crumbling almost everywhere, since that is overseen by democratically elected leaders.
Capitalism prevents these issues from happening in the first place, since the owner gets a share of the factory output. He is incentivised to make the factory productive. And everyone below the owner is incentivised to help the owner increase productivity since the owner ultimately decides if they are fired or get raises and bonuses. This tends to fall apart when you have short term investors or reintroduce elections of CEO via shareholders. This is why privately owned companies like steam, costco, etc. are usually so much better and rarely get enshitified compared to corporations.
You’re describing the doorman fallacy and it’s part of why cooperatives outlast traditional businesses. That elevator operator understood the whole company and was willing to gradually shift to new responsibilities.
In the past generation we’ve seen productivity skyrocket while compensation hasn’t.
So there’s little to no incentive to increase productivity. You’ll get paid more by switching jobs every few years than you will by putting in hard work for the company. We’re “alienated” from the results of our labor - someone else gets the gains while our slice keeps getting thinner. The whole point of socialism is to address that.
You are reversing cause and effect. Productivity is rarely affected by bottom level employees to a significant extent these days. That is why there is no pressure for wages to keep up. Your own graph proves productivity is going up despite your claim of unmotivated employees.
everyone below the owner is incentivised to help the owner increase productivity since the owner ultimately decides if they are fired or get raises and bonuses
I’m addressing this claim here. If increased productivity doesn’t increase compensation, then there’s no incentive to help the owner increase productivity. This year in particular we saw a lot of layoffs by profitable businesses! The productivity increases we have seen can be more easily attributed to technological advancement than increasingly motivated employees.
Imagine how much more productive we’d be if everyone actually had any reason to give a shit about their company. Because most of us certainly do not.
Imagine how much more productive we’d be if everyone actually had any reason to give a shit about their company.
First of all, this is very questionable, since data from companies that overpaid/indulged their employees like Google and other tech companies in the past did not really see much increase in productivity as far as I can tell.
Second of all, pressure on wages is different. Hence my referral to minimal wages etc. In a sense, a boss is indeed not incentivised to increase productivity if all the gains go to employees anyway, but this is one special edge case. As you say, a majority of productivity gains come from automation improvements and other kinds of innovation and process optimization, where the incentives do apply.
How do externalities turn communist revolutions into authoritarian regimes?
This is an incredibly complex topic and depends somewhat on your exact setup of revolution and regime.
Let me give another example of negative externalities to at least vaguely illustrate: corruption. It’s the exact same mechanism. The person receiving a bribe benefits from the bribe, but the cost (harm) is usually paid by their employer or society.
For a news agency, a negative externality may be to intentionally spread incorrect information and propaganda. So as an exercise, try to think of the incentives of a news organization in capitalism when it is privately owned and anyone with money can start a competing news agency and in communism, where some kind of political organ (elected or named by elected officials) decides the news agencies funding and if resources are allocated to create a competitor.
Economic and political systems are about incentives. The more the incentives of individual people are aligned with the incentives of society as a whole, the better the system.
Wouldn’t workers owning the factors of production reduce negative externalities by introducing democratic voting into the decision-making process? When there’s no voting, and simply one guy owning the business, then he’s got every incentive to push his costs onto everyone else. If he’s bribed to act against our interests, then there’s no mechanism to remove him from power.
Have there been any successful examples of markets solving externalities on their own? Like coasian solutions in the wild? The best examples I can think of are banning leaded gasoline and CFCs. And the worst examples of things that aren’t happening (like climate targets) are because the people actually in charge don’t care if billions of poors die.
Depends on your definition of solve. There is no mechanism directly within capitalism to solve negative externalities that appear in capitalism once they appear. You need government regulations via democracy or another external force to step in and resolve them. That is why the increasing influence of corporations on politics is so harmful.
But capitalism allows fewer negative externalities to appear. Let me give you an example for the worker owned factory. The elected leaders incentive is not to lead a productive factory. It is to be popular and win elections. So what happens when a role becomes obsolete. Perhaps you no longer need a person to stand in an elevator and operate it for people, since it can be automated. But firing people or retraining them for different role is unpopular, so the boss is incentivised to keep elevator operators. This means these people are not allowed to find jobs that are actually productive in improving the standards of living for everyone. People don’t like being fired when their position becomes obsolete but it is necessary to develop economies and advance civilization.
Another example is investment. When the factory has surplus profit, should he increase the wages of the employees immediately or invest the money into improving the productivity by buying better equipment or building another factory site? What about maintenance? Should he increase wages and delay the maintenance until it is someone else’s problem? Which will be more popular? By the way, this delayed maintenance issue is why public infrastructure is crumbling almost everywhere, since that is overseen by democratically elected leaders.
Capitalism prevents these issues from happening in the first place, since the owner gets a share of the factory output. He is incentivised to make the factory productive. And everyone below the owner is incentivised to help the owner increase productivity since the owner ultimately decides if they are fired or get raises and bonuses. This tends to fall apart when you have short term investors or reintroduce elections of CEO via shareholders. This is why privately owned companies like steam, costco, etc. are usually so much better and rarely get enshitified compared to corporations.
You’re describing the doorman fallacy and it’s part of why cooperatives outlast traditional businesses. That elevator operator understood the whole company and was willing to gradually shift to new responsibilities.
In the past generation we’ve seen productivity skyrocket while compensation hasn’t.
So there’s little to no incentive to increase productivity. You’ll get paid more by switching jobs every few years than you will by putting in hard work for the company. We’re “alienated” from the results of our labor - someone else gets the gains while our slice keeps getting thinner. The whole point of socialism is to address that.
You are reversing cause and effect. Productivity is rarely affected by bottom level employees to a significant extent these days. That is why there is no pressure for wages to keep up. Your own graph proves productivity is going up despite your claim of unmotivated employees.
I’m addressing this claim here. If increased productivity doesn’t increase compensation, then there’s no incentive to help the owner increase productivity. This year in particular we saw a lot of layoffs by profitable businesses! The productivity increases we have seen can be more easily attributed to technological advancement than increasingly motivated employees.
Imagine how much more productive we’d be if everyone actually had any reason to give a shit about their company. Because most of us certainly do not.
First of all, this is very questionable, since data from companies that overpaid/indulged their employees like Google and other tech companies in the past did not really see much increase in productivity as far as I can tell.
Second of all, pressure on wages is different. Hence my referral to minimal wages etc. In a sense, a boss is indeed not incentivised to increase productivity if all the gains go to employees anyway, but this is one special edge case. As you say, a majority of productivity gains come from automation improvements and other kinds of innovation and process optimization, where the incentives do apply.