Misguided by Higher Education

0/28/11 Paris, France – When the financial crisis of 2008 hit, we saw how state-managed capitalism works. Favored companies are allowed to make as much money as they can. But they are protected from going broke.

Certain firms are deemed “too big to fail,” by virtue of the key role they play in the economy, or at least by the role they play in a politician’s plans for re-election or future employment. But state-managed capitalism is very different from the real thing. It is capitalism in a degenerate form.

Real capitalism progresses in fits and starts, described by Josef Schumpeter as “creative destruction.” It is like a jungle…not like a zoo. It cannot be managed. You cannot take out the predators or feed selected species without upsetting the balance of nature. Take out the destruction, and you block the creative process too.

Since the beginning of the Industrial Revolution, most real wealth has come from real capitalism. Not from “playing the market.” Not from getting a good job. Not by trying to cadge favors from the government.

So, what is real capitalism? It is what we’ve seen in the computer/Internet industry over the last 20 years. This was a new industry. It had not yet been tamed by the government. Regulations were few. There were no large, entrenched companies to block start-ups. There were no lobbyists to curry favor from the politicians. There were no subsidies…and no barriers. It was young, dynamic, chaotic…and very prone to blow-ups.

The whole industry blew up in January 2000. Mistakes were not bailed out. They were corrected. Money moved from weak hands to strong ones. Many companies failed. The companies that survived, and prospered…went on to glory. Amazon. Google. Microsoft. Apple.

And who was behind these new companies? College drop-outs, computer nerds, products of teenage mothers and broken marriages. They did not enter the ranks of existing technology companies, work their way up to senior management and then create new product lines. It is almost as if they succeeded not because of advanced American capitalism, but in spite of it. They created an entirely new industry…with new companies nobody had ever heard of. And then, they destroyed some of the biggest businesses in America.

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via Misguided by Higher Education.

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