Industries don't invent any more. Even the innovators like Apple outsource manufacturing.

As you know, ora, I am not a big fan of crash course, as I have said in the past

I would also strongly disagree with John Green on his claim that China and India where on par with Europe in the 18th century. By that time Britian and successfully invaded India and they were way more advanced that China. It wasn't like China and Britain were on par technologically and the steam engine came out of nowhere.

I am going to give basic history as I know it.

The Dark Ages:
Everyone probably knows about the dark ages in Europe, that period following the fall of the Roman Empire where Europe was considered to be backwards and war arguably the poorest of the continents in the old world.

During that time period china would invent the printing press, the compass and gunpowder.

During that time India would invent the number 0.

During that time lots of great inventions happened in Arabia (all of which escape me), India and China, and if I told you rate the countries on this list from best to worst in terms of where you would want to live back then:
China
India
Some Caliphate
Some European Kingdom

I don't think there is any doubt that the European Kingdom would fall at the bottom of the list.

The point I want to emphasize was that 1000 years ago, Europe was rock bottom. So the question is what changed, to make Europe go from being poor and insignificant to being the richest of the rich.

This video seems to claim that the Industrial Revolution was what caused it but the colonial powers who managed to concentrate all the wealth of the americas and India into Europe kinda disproves that. Europe had the largest armies and wealth out of the continents right before the Industrial Revolution, so clearly Europes growth started prior to this. I mean per capita GDP Europes was double Chinas in 1800 (but China being larger had a larger GDP) so sure one could make the case the China was still richer, but if you include the European colonies as being part of Europe, the Britain beats out China for the #1 spot on GDP in both total GDP and GDP per capita. The point I am trying to make here is that Europe was better off then China or India prior to the Industrial Revolution, so we have to look further back in history to see when Europe overtook China and India to be on top of the world.

The next statistically significant date which people talk about was 1492, the start of the European colonization. But frankly I am not convinced. It certainly shows a contrast, many historians believe that China found the new world before Europe.

This does show a contrast between already 2 different cultures. Under the Ming China become a lot more isolationist and close minded. I would argue that this stunted economic and technological growth in China. Contrary to that Europe had just entered a new era of increased access to capital, trade and freedom. I guess what I am trying to say is that in 1492, yes China was still ahead of Europe, but Europe was still on the way up.

This leads me to where I find is most appropriate to stop rambling about history and show the date that I consider to be the single greatest moment in history for change.

1351:
In the aftermath of the black plague an already poor continent was hit harder (not saying that Europe was the only one effected, India and the MIddle East also had heavy losses) but the reaction in Europe was different.

Serfs started uprising and trade started to be encouraged to reflect the loss in manpower from the black plague.

The end of serfdom in Western Europe lead to a new golden age, it kick started the renaissance and started a massive economic and technological growth in Europe.

I've stated this in the past and I have yet to see good arguments against it. The black plague was the best thing that ever happened to Europe.

Ok, fasces, thanks for that diversion.

However, that doesn't address my question - Draug comes much closer.

But you're missing the point, if production was taxed then it would be harder to profit from the inventions which apple make. (of course the outsourcing means no single nation has the power to tax production - and inventive companies would entail moving to cheaper, ie more profitable, taxation regime) ...

It would depend on the nature of the tax. On the surface of it, though, I don't know what kind of tax could be levied that would encourage innovation. As a broad statement, taxation deprives the economy of funds that could be used for R&D.

I would argue no.

For starters corporate tax is on the profit a corporation makes, so it doesn't make making a profit harder, it just makes your profit smaller.

Then next thing to consider is the importance of access to capital. Companies need a lot of money and if taxed they will have less access to capital and would be less likely to invest in R&D. The investors want a return on their investment so if a company has to chose between cutting their R&D and cancelling a dividend, they will always chose the first.

Having high taxes also cut the competitiveness of the industry.

In a perfect competition if the companies in the market are making too much profit, then more people will set up and compete simply because they know it will be easy to make a profit in this industry. So if taxed, then costs go up and profit goes down.

Say some companies run losses or breakeven, when then the owners of that company have an incentive to look elsewhere. So really taxes would reduce competition in a free market, not increase it.

Of course if you were centrally planning job markets but let the free market decide pricing then a case might be made.

If I am a CEO with a buisness not making profit in industry X but all the companies in Industry Y are making profit. I am going to close down X and switch over to producing Y because it is more profitable to do that.

Of course if there were laws against doing this then obviously I will have to be very competitive in producing X. But if I am a corporation and there is a law saying I can only be in one industry, then I am going to be very cautious and make sure the industry I get into will be the most profitable. It would heavily increase the risk of investors, so they would be less likely to loan money and you would see a decrease in industry. Now of course if there were laws about switching markets then entrepreneurs would be nonexistent.

Remember CEOs don't have to be CEOs, if their is a job that pays more then being a CEO out there, then they will simply not be one. High taxes on corporations would reduce the supply of CEOs and investors because they don't have to be investors and CEOs they believe its the most profitable industry to work in. That would change if they are over burdened with high taxes.

@fasces you said:'Having high taxes also cut the competitiveness of the industry.

In a perfect competition if the companies in the market are making too much profit, then more people will set up and compete simply because they know it will be easy to make a profit in this industry. So if taxed, then costs go up and profit goes down.'

This does assume that people have the opportunity to setup in competition.

If you wished to startup in competition with Intel or Microsoft you'd have a very hard time.

The expertise, patent protections, and massive initial investment would make this virtually impossible.

If you wanted to setup as a middle man then you could attempt to create a product which (say) microsoft currently produces but to do it better and sell it to microsoft; or convince them in the first place to outsource... but that is hardly competition.

Now, i'm not saying high tax on all industries - not such a broad attack on the economy - the example given was of one where the kind of mobility you talk speak of was not available. British manufacturers couldn't just up and go to India at the time. To profit they had to invent more less labour intensive alternatives in Britian to out-compete the indian producers.

That would be like your suggestion of limiting Businesses to a single industry. Though I wouldn't imagine doing away with your corporation can only be in one industry. Rather I would allow for investment in both but not withdrawal from one.

If you can sell off your business and invest in another industry then your business does still exist. Just preventing the shutdown of that production would be a huge burden on central planning (which i beleive is ineffective)

But i think you've highlighted the issue here. The option of mobility was not there, and if it is not; then taxation would be sufficient to crush industry OR force invention to increase profitability.

Seperately, I must point out that Companies cutting investment in R&D may not be such a bad thing if the extra taxation was spent on public R&D. Same amount of research being done, the public then has the opportunity to sell/license their new technology to corporations...

sorry, maybe that last bit should have been pointed at PE...

"The expertise, patent protections, and massive initial investment would make this virtually impossible."
Key word; Patent protections. I am against patents because it makes monopolies for 7 years.

If you make an invention and get a patent for it, you have a legal and forced monopoly now. I personally believe that patents stifle not encourage innovation.

I don't call for getting rid of patents entirely, I just think 7 years is too long. I would rather it be between 6 months and a year.

If microsoft for instance charges too much for something right now, they have patents so nobody can compete. But if I was allowed to start competing with them a year later, I could provide what they provide for a lower cost and still make profit. Patents create monopolies and in a competitive market i am not convinced that having long patents encourages investment. since in a competitive market anything you do to gain an edge on your opponents is worth it.

"Now, i'm not saying high tax on all industries "
Then as an invesetor I would stop investing in the high taxed industries and go elsewhere.

'To profit they had to invent more less labour intensive alternatives in Britian to out-compete the indian producers. "
Yes but I am not forced to go into manufacturing. If you taxed this market to heavily, I would maybe go into farming, or something else, I dunno. I am not forced to compete in a certain industry, and if it is too hard to make a profit, it wont increase my competitiveness, but decrease it because I can look elsewhere.

"If you can sell off your business and invest in another industry then your business does still exist. Just preventing the shutdown of that production would be a huge burden on central planning (which i beleive is ineffective)"
But if my buisness is barely breaking even then I will only be able to sell it for a fraction of the price that I bought it for.

Because the business isn't bankrupt but just failing, I would therefore make a profit on selling all of the assets (or converting them to make product Y).

Your making the assumption that increasing the risks associated with the industry will increase competition. But some people will just not take the risks and no longer compete is what I am trying to emphasize.

Encouraging risk up to a certain point is worthwhile increasing risk is not.

but now watching the video till the end, rather then watching the first 5 minutes and developing bias about the movie I watched it till the end and saw where he brought up wages.

I think wages were high in Britain simply because British was the technological and economic power of the time.

Remember India, Canada, Australia etc. were British colonies. Anything that didn't require the heavy infrastructure in the UK and was easy to transport was done in either India or Canada. Since industries that didn't require infrastructure could be done elsewhere, there was a high demand to produce higher quality goods.

I would argue that the high wages in Britain didn't cause the industrial revolution but that it was technological advancements in Britain that lead to the industrial revolution that caused high wages.

Of course my knowledge of the causes and effects of wages in the UK during the 18th century is rather limited...

"Seperately, I must point out that Companies cutting investment in R&D may not be such a bad thing if the extra taxation was spent on public R&D. Same amount of research being done, the public then has the opportunity to sell/license their new technology to corporations..."
But companies generally generate a better bang for buck investment on R&D because of the profit motif.

"sorry, maybe that last bit should have been pointed at PE..."
no it shouldn't, I pointed out that taxes would discourage companies from investing in R&D.

Despite the annoyance of the narrator, I think this argument holds a lot of water.

This same thing is happening now in the semiconductor industry. Basically, SC devices are getting so small that factories need to be completely automated. Because you're no longer paying for labor (a robot charges just as much in the US as in China), you're seeing a *lot* of Foundries move back to the States so they can be closer to the design and test teams.

"Seperately, I must point out that Companies cutting investment in R&D may not be such a bad thing if the extra taxation was spent on public R&D. Same amount of research being done, the public then has the opportunity to sell/license their new technology to corporations..."

Depends. The cynic American in me says that a tax for this purpose is likely to end up subsidizing the bombing of children in Bumfuckistan or the expansion of Wal-Mart somewhere. Assuming government does put the revenue from this tax into R&D... complicated question. It would divert funding from areas that are profitable on a free market to areas that get the okay from various governmental budget committees.

It may be an improvement in some areas of R&D. There was a separate discussion recently on webDiplomacy, and for the life of me I can't recall where the information came from, but I remember seeing that while the private sector provides the majority of R&D funding in America, government subsidization was responsible for a lot of the "first step" research (more theoretical research that wouldn't turn a profit relatively quickly, if at all). Taxation there would likely help. If I were devising the tax policy, though, I would try to design it such that firms aren't incentivized to cut down their R&D as a consequence.

Thucy provided that link. 55% of basic research was government but 26% of developmental research was public.

"If I were devising the tax policy, though, I would try to design it such that firms aren't incentivized to cut down their R&D as a consequence."
but any tax would do just that. Corporations have one responsibility, and that is to provide a return on investment from their investors.

If taxes increase then corporations have to offset the new costs to keep their profits high, some of this will come buy raising prices, the rest of it will come from cutting spending. Any responsible company would cut their R&D spending to keep the rate of return on their stocks and bonds the same.

With such a negative view of the corporation that even a capitalist like me takes, their is little wonder as to why so many people are anti-free market.

I dunno that they'd necessarily cut R&D spending right off the top. I agree it would be near the top of the list, but if the policy offered deductions for maintaining R&D spending (or some other such device) then that would certainly not incentivize cutting R&D.

I'd need to think about it more to give something more precise, though. Interesting subject.

@orathaic: "If you wished to startup in competition with Intel or Microsoft you'd have a very hard time. The expertise, patent protections, and massive initial investment would make this virtually impossible"

What you've got there is one of the essential contradictions of Capitalism. Captialist competition collapses when one firm (or a small number of them) becomes so good at competing that they defeat all (or most) of their competitors and the market is therfore no longer elastic. When that happens, you either need to accept that situation, and resign yourself to the fact that in that market, Adam Smith's invisble hand will have little effect, or allow the state to take action to reset the market, which is an inherently anti-Capitalistic action.

"Free market" competition is great until someone *wins* the competition.

but thats the thing Jamie. In the case of microsoft, apple and google. noone is competing with them. They have near monopolies. Yet they are innovating faster then anyone else.

Monopolistic competition works.

And if they stop providing what the consumer wants then people can open up to compete.

"The investors want a return on their investment so if a company has to chose between cutting their R&D and cancelling a dividend, they will always chose the first."

source? this isn't remotely true. you keep making these statements and trying to pass them off as facts, when they clearly arent. many companies with massive r&d budgets have never even paid a dividend and investors seem ok with it (apple from '95 to 2012 for example)...please stop saying things that aren't true.

@fasces: in what sector is apple a near monopoly? thanks in advance.

They are the only one who produces iPhones and comupters with the Mac Os software.

That is monopolistic competition. For a self proclaimed Econ major you should know what has been taught in Econ 101.

Lol "self proclaimed econ major"

anyway, i disagreed with your statement that apple is a "near monopoly" with "noone is competing with them"....i agree with you that the smartphone market is one of monopolistic competition.

Um...How is smartphones a monopoly?

http://www.linuxfordevices.com/images/stories/nielsen_smartphone_os_april2011.jpg

"They are the only one who produces iPhones and comupters with the Mac Os software. "

What? That's like saying Ford has a monopoly on Ford Engines...

Right, exactly. It is monopolistic competition, same as basically any other market with brands. But it is a very very very competitive market, nowhere remotely close to a monopoly. Fasces is wrong. I think he needs to read more before posting so authoritatively.

(1) Fasces, you should probably read up on monopolistic competition, and not call grad students in economics "self-proclaimed econ majors" as some kind of pejorative.

(2) Jamiet, what you're describing is the formation of a monopoly. Monopolies in a free market (i.e. with little/no barriers to entry) are unsustainable over the long run. They're almost always preserved *by* state action artificially increasing the costs of entering the market. There are very few industries that lend themselves to monopolies absent some kind of interference in the market (these are natural monopolies - typically limited to things like utilities); it's certainly not inevitable that capitalism leads to a bunch of corporate monoliths everywhere. (It happens under fascist systems, which explicitly call on state interference, however. Since the US has a disturbingly high number of characteristics reflected in most descriptions of fascism, and is also probably the most ardent self-proclaimed defender of a "free market" in the West, it's an easy thing to confuse.)

To clarify the question, monopolistic competition does see "excess" profits (relative to perfect competition), but those disappear in the long run (for the same reason that they do in a monopoly). Monopolistic competition is also characterized by intense inter-firm competition, though, so it's probably not the best descriptor of the various markets in which Microsoft, Apple and Google compete. In my opinion, those markets are oligopolies.

Well in the windows PC front Micro$oft has a monopoly, but they don't in the PC OS front any more than Apple does. It's like saying in the Corvette front, Chevy has a monopoly. But there are competitors to thr Corvette and there are competitors to Windows both on other platforms (iOS on Mac) and on the Windows based PC front as they can aslo run Linux.

Likewise Apple.has competition in Micro$oft and in Google Android and Google.has competition in Apple's iPhone amd iPad and for Chrome in Microsoft.

Parkin and Bade Microeconomics 8th edition. Chapter 14 Page 326:
Monopolistic competition is a market structure in which:
-a large number of firms compete
-each firm produces a differentiated product
-firms compete on product quality, price and marketing
-firms are free to enter and exit the industry

lets compare apple with a monopolistic competition:
-Large number of competing firms (well Dell, Samsung, Sony, Microsoft, Amazon etc.)
-Each firm produces a differentiated product (indisputable)
-Firms compete on product quality, price and marketing (indisputable)
-Firms are free to enter and exit (a case might be made for this one, but over all I would argue that yes it does, or at least as close as possible to it)

So please tell me where I am wrong in thinking that Apple is part of a monopolistic competition. Am I reading the copy and paste wrong? (I copy and pasted the quote from the book) Is Parkin and Bade wrong? If so I would like to know why.

But as far I am concerned, I will trust 2 people with PhDs in economics who wrote a textbook related to economics over people on the internet claiming that I am wrong.

@Frank:
"Right, exactly. It is monopolistic competition, same as basically any other market with brands. But it is a very very very competitive market, nowhere remotely close to a monopoly. Fasces is wrong. I think he needs to read more before posting so authoritatively."
Ok maybe I didn't explain myself properly.

Microsoft, Google, Apple, amazon and Facebook are all going through antitrust cases right now on the basis that they have drowned out competition by price fixing and asserting near monopolies over their prospective regions, Google in search engines, facebook in social networking, Microsoft in personal computing, amazon in ebooks.

Yes they are kind of competing but not really, google plus never caught on, neither did bing. Microsoft still controls 85% of the PC market etc.
Both Amazon and Apple have been accused of price fixing on ebooks.

My point is they are kind of competing but they kind of aren't but this is monopolistic competition (which is what I originally said and now you suddenly agree with me), but really what I am trying to get at is that the industry has mixes of Oligopoly, Monopoly and Monoposolistic competition. but overall it doesn't matter. They are still innovating and doing a fine job (although this patent war and the US government starting to propose legislation against them might ruin this).

So by all means can someone please point to where I was wrong. Because neither me, nor my economic textbooks support your claim.

Interesting definition of monopolistic competition - Chrome OS, Google+, and Andriod vs Bing, ??, Windows phone


'But companies generally generate a better bang for
buck investment on R&D because of the profit
motif.'

That is a questionable ascertian. First most eventual products depends on an initial government investment; in two things, first education of the masses to give them an opportunity to shine and earn scholarships, and second investment in basic research which does not come with a short-term return on investment.

Seperately there is a question of the value added to society - there is no profit to be made for treating diseases of the poor. Now government has an interest in all industries (because it's profit comes from taxation across industries, of course this isn't the case where governments depend on foreign aid, but i digress) so they have a vested interest in improving the ability of the poor to buy products - ie growing the markets. Two simple reasons - increasing personal power 101, and a decrease in the rich-poor gap leads to less social unrest, and one of the costs government faces ie crime prevention.

So while corporations have only small short-term investments to worry about , government has (or should have, if not for the endless election cycle) different priorities.

It is possoble to see individuals like Bill Gates, who is spending a huge amount of his personal fortune on combating poverty, as cynical attemps to increase their long-term profits - the only way to really increase market share when you have a monopoly is to raise people out of poverty so they can buy your products... But i've drifted again off point.

The government investment in R&D should produce monopolies, which are specifically enforced to prevent corporate competition. And then sold off once their market is established. This would allow 'socially beneficial' development.

So a malaria or cheap HIV vaccine instead of producing a female version of viagra or a cure for male pattern baldness...

I'd like to show an example related to the computing industry (though i think big pharma also compete in a monopolistic way, with differentiated products) but i can't think of a good one...

Oh, another assumption of your model is that the assumption you give is there is SOME altwrnative which is more profitable.

In the absence of any alternative - where for example commodities are held at fixed prices, or taxed based on capital gains for any increase in value above inflation.

If all industries are capped at some level of profit (lets say 8%) with massive taxation above that level... Then the only definite way to gain a huge return on investment is to invent a alternative to current market goods - take the risk and try to steal current markets...

"Interesting definition of monopolistic competition"
Its the defintion according to a micronecomics textbook. I will trust it over anything someone here says.

"That is a questionable ascertian. First most eventual products depends on an initial government investment; in two things, first education of the masses to give them an opportunity to shine and earn scholarships, and second investment in basic research which does not come with a short-term return on investment."
Education is one of the few areas that I support government intervention in for this very reason.

"Seperately there is a question of the value added to society - there is no profit to be made for treating diseases of the poor."
I would disagree. For starts prior to Obamacare a majority of Americans were on employers health insurance plans. There is an incentive for companies to keep their employees healthy.

I do support some government intervention in healthcare, but I would rather a system closer to Singapore's then Britain's. (Singapore is a wet dream for every right wing pro-free market anti-democracy guy in the world. Including me.
http://www.theglobeandmail.com/report-on-business/rob-commentary/in-singapore-its-save-and-be-saved/article4203660/)

"It is possoble to see individuals like Bill Gates, who is spending a huge amount of his personal fortune on combating poverty, as cynical attemps to increase their long-term profits - the only way to really increase market share when you have a monopoly is to raise people out of poverty so they can buy your products... But i've drifted again off point."
I've never actually considered that, lol

"The government investment in R&D should produce monopolies, which are specifically enforced to prevent corporate competition. And then sold off once their market is established. This would allow 'socially beneficial' development."
Why prevent corporate competition? Normally whatever the government can build the private sector, given the same resources, can build better.

"So a malaria or cheap HIV vaccine instead of producing a female version of viagra or a cure for male pattern baldness..."
Malaria already has a cure, its just relatively expensive and has some nasty side effects (blindness). I am a primary source as in 2002 a member of my family contracted malaria while we were living in Tanzania. The medication she was treated with made her go blind but cured her. Her blindness was the driving factor in us moving back to Canada. Granted this is, as said, 10 years old and I don't have any information regarding development of cures for malaria since then.

As for HIV, iirc we have some sort of vaccine thats to expensive to administer to the general public. But I could be mistaken.

However the patent system has ruined big pharma. When one pharma company find a cure for something, they are entitled to be the only provided for that for the next 7 years.

If I invested a cure for cancer and patented it. I could list the drug for $200,000 knowing many people would be prepared to sell their house to get access to it. After all your life is more valuable then your property. Since I have patented it nobody can open up and compete. My solution to what your calling a problem in free markets is more free markets since prices of pharmaceuticals would go down.

I think the best argument I have seen for private healthcare:
http://www.youtube.com/watch?v=ZFWTCBjtZa0
(I am a big fan of lee doren, though I doubt there are few here)

"Oh, another assumption of your model is that the assumption you give is there is SOME altwrnative which is more profitable."
Corporations are doing the best thing to maximize its profit and social benefit is what I am assuming. If THEY AREN'T then someone else will come along with the alternative. I'm not assuming there is an alternative, but if there is no alternative then we don't need to interfere. Why fix what isn't broken?

"If all industries are capped at some level of profit (lets say 8%) with massive taxation above that level... Then the only definite way to gain a huge return on investment is to invent a alternative to current market goods - take the risk and try to steal current markets..."
8% of what? In anycase I think that is a terrible terrible idea. I have every incentive to not maximize my profits.

If I am better off being in 2 industries at 8% then 1 industry at 16% then I will go into 2.

What then happens is every corporation will invest in everything since that is the way to maximize profit.

With no specialization you would prevent technological growth in the private sector not encourage it.

In a perfect monopolistic competition or perfect perfect competition any gain you make in market share will either be from a decrease in demand by consumers resulting in one of your competitors going bankrupt or it will be temporary.

The reason why it will be temporary is because if you find a new way to make profit that works, your competitors will eventually start to copy you.

Take the iPad for example. It was launched in 2010 and 6 months after being launced it controlled 83.9% of the tablet market share. Now it is down to 53.8% because Samsung, Amazon etc. saw the potential of the tablet market and released their own versions.

And if your profit is currently higher then your 8% you have no incentive to expand since it will be too higher taxed. And I don't give a shit what warren buffet has to say on whether or not taxation effects investment.
http://www.fundmasteryblog.com/wp-content/uploads/2008/04/wsj-capital-gains-tax-rates-ed-ah376_1capga_20080417205212.gif
Whenever taxes on capital gains has gone up, revenue has fallen dramatically, whenever the rate has gone down revenue has increased dramatically. Even right now many us companies are announcing dividends because currently the tax on dividends in 15% and starting in January it will be 39% (assuming fiscal cliff).

Knowing taxes are about to go up every investor is trying to maximize the capital gains and dividends being taxed right now knowing full well that starting next month, their profits will be 20% lower.

Last thing I want to mention is that profits aren't bad. When a corporation is making a profit it means they are able to provide a service that is more valuable to the consumer then the costs associated with making it.