I'm developing a set of Mastermind lectures on economics, and the marketing has included video "shorts" from my interview with Lex Fridman. This one, on why socialist economies didn't innovate as fast as capitalist ones drew a lot of ire on Twitter.
Going out on a limb here, but maybe you’re both wrong – or I’m about to be.
Jo Schumpeter, right after the fun bit about creative destruction, describes how capitalism destroys itself, as monopolistic competition automatises innovation into giant corporate bureaucracies. We can see that playing out now with the likes of Apple and Amazon, who are simply extracting value from the properties they previously created. Their innovation is now focused on preventing competition, with proprietary standards and ecosystems that lock people in. They are protecting their patch.
The soviet system was similar but different. There may well have been plenty of capacity for innovation in the local collectives, but that was not the incentive that drove the central planners. If some upstart local manufacturer innovated in a way that made the central planners look slow or stupid, they would more likely be shut down than allowed to grow and accumulate their own power. The central planners are more concerned with protecting their patch. In both socialism and capitalism, it is the excessive concentration of power that changes the structure of incentives, so that innovation is redirected at retaining that power – at the expense of everyone else.
The concentration of capital is the concentration of power (from Nitzan & Bichler), which may be why China periodically lurches from promoting investment to cracking down on capital. This keeps the state-owned enterprises awake, and prevents accumulated capital from forming another centre of power (see Branko Milanovic). I wouldn’t suggest that Xi is not focused on retaining power, but even if he is not as smart as Deng, dispersing economic power would have the beneficial side effect of encouraging innovation. China is certainly innovating, to the extent that the western car industry might be about to face its own moment of Schumpeterian creative destruction.
Am I wrong? Does China itself eventually become too powerful and fall into the same value extraction trap as the west? Is the fact that capital accumulation is based on value extraction, not value creation, the real cause of this problem, as well as environmental destruction and social breakdown?
Yes, power is addictive and as Lord Acton said absolutely corrupting. The only business model that hasn't innovated in some constructive way (their derivatives debacle in the GFC doesn't count as constructive) is Finance. And think about it, Finance's monetary paradigm of Debt Only as the sole form and vehicle for the creation and distribution of new money hasn't changed for the entire course of human civilization no matter whether it was the Palace or the private banks that was in control.
We live and labor under Finance capitalism afterall. But rather than get into the ubiquitous (false) duality of capitalism vs socialism, which Finance is happy to see us expend all of our mental energies on, why not try finishing Hegel's dialectic with a true synthesis, that ups our analytic game from mere reform and theoretics to the level of the operant applied concept/paradighmatic level which is the core of the core economic problem. As Dr. Keen correctly said: "Neo-classical macro ignores money, debt and banks". I'd only add that its the monopolistic monetary paradigm of Debt Only wielded by the private banks that is what desparately needs changing...because it keeps our deepest economic problems in continual suspension and enables them to rise from the ashes of their own folly like in 2008.
We DO need to make competition and innovation not only alive but vibrant. Thats why in my book I suggest creating a new governmental department called The Department of Competition, Innovation, Boycotting and The Public's Bully Pulpit where weekly press conferences would point the finger at CEO's and corporations that try to game the new monetary paradigm, whose policies double everyone's purchasing power, potentially doubles the available demand for every enterprise's goods and service and ends price and asset inflation by of all things implementing beneficial deflation, and asks the question: Well Mr. John Q. Public, what are you going to do about these guys that are trying to undo the 100% increase in purchasing power the new paradigm just granted you, eh?
Yes, I might have got the specific details wrong. But the confidence Soviet leaders felt until Kruschev was based on the projections of Fel'dman's mathematics: just you wait, one day we'll overtake you.
The failure to do so was felt most at the bottom of course, but ultimately the realisation seeped up to the top.
Timing is always the hardest part of making predictions I suppose!
It's certainly interesting to reflect on these comments in the context of what we are seeing in today's geopolitical economy. The collective West's financialized, deindustrialized, resource poor (at least if you goal is imperial hegemony rather than co-operative co-existence) economies are mired in debt and demonstrably failing to serve the majority of their people (The Edelman Trust Barometer's report for 2023 is quite the eye opener). The notion of the sovereign state serving the people has been sold to the oligarchs.
Russia's economy, on the other hand, seems to be doing just fine and indeed they seem to have found a large number of politically stable, sovereign states to do business with. (Russian oligarchs, on the other hand, or at least those who are not prepared to put their capital to the service of the people, seem to be having a rather rough year...).
Going out on a limb here, but maybe you’re both wrong – or I’m about to be.
Jo Schumpeter, right after the fun bit about creative destruction, describes how capitalism destroys itself, as monopolistic competition automatises innovation into giant corporate bureaucracies. We can see that playing out now with the likes of Apple and Amazon, who are simply extracting value from the properties they previously created. Their innovation is now focused on preventing competition, with proprietary standards and ecosystems that lock people in. They are protecting their patch.
The soviet system was similar but different. There may well have been plenty of capacity for innovation in the local collectives, but that was not the incentive that drove the central planners. If some upstart local manufacturer innovated in a way that made the central planners look slow or stupid, they would more likely be shut down than allowed to grow and accumulate their own power. The central planners are more concerned with protecting their patch. In both socialism and capitalism, it is the excessive concentration of power that changes the structure of incentives, so that innovation is redirected at retaining that power – at the expense of everyone else.
The concentration of capital is the concentration of power (from Nitzan & Bichler), which may be why China periodically lurches from promoting investment to cracking down on capital. This keeps the state-owned enterprises awake, and prevents accumulated capital from forming another centre of power (see Branko Milanovic). I wouldn’t suggest that Xi is not focused on retaining power, but even if he is not as smart as Deng, dispersing economic power would have the beneficial side effect of encouraging innovation. China is certainly innovating, to the extent that the western car industry might be about to face its own moment of Schumpeterian creative destruction.
Am I wrong? Does China itself eventually become too powerful and fall into the same value extraction trap as the west? Is the fact that capital accumulation is based on value extraction, not value creation, the real cause of this problem, as well as environmental destruction and social breakdown?
Yes, power is addictive and as Lord Acton said absolutely corrupting. The only business model that hasn't innovated in some constructive way (their derivatives debacle in the GFC doesn't count as constructive) is Finance. And think about it, Finance's monetary paradigm of Debt Only as the sole form and vehicle for the creation and distribution of new money hasn't changed for the entire course of human civilization no matter whether it was the Palace or the private banks that was in control.
We live and labor under Finance capitalism afterall. But rather than get into the ubiquitous (false) duality of capitalism vs socialism, which Finance is happy to see us expend all of our mental energies on, why not try finishing Hegel's dialectic with a true synthesis, that ups our analytic game from mere reform and theoretics to the level of the operant applied concept/paradighmatic level which is the core of the core economic problem. As Dr. Keen correctly said: "Neo-classical macro ignores money, debt and banks". I'd only add that its the monopolistic monetary paradigm of Debt Only wielded by the private banks that is what desparately needs changing...because it keeps our deepest economic problems in continual suspension and enables them to rise from the ashes of their own folly like in 2008.
We DO need to make competition and innovation not only alive but vibrant. Thats why in my book I suggest creating a new governmental department called The Department of Competition, Innovation, Boycotting and The Public's Bully Pulpit where weekly press conferences would point the finger at CEO's and corporations that try to game the new monetary paradigm, whose policies double everyone's purchasing power, potentially doubles the available demand for every enterprise's goods and service and ends price and asset inflation by of all things implementing beneficial deflation, and asks the question: Well Mr. John Q. Public, what are you going to do about these guys that are trying to undo the 100% increase in purchasing power the new paradigm just granted you, eh?
A few alternative fact-checks/takes on the the meaning and context of Khrushchev's statement and the shoe banging...
https://www.reuters.com/article/uk-factcheck-khrushchev-1959-quote-idUSKBN22N25D
https://medium.com/exploring-history/we-will-bury-you-how-a-mistranslation-almost-started-ww3-4a285162e2b9
https://www.rbth.com/history/334638-we-will-bury-you-khrushchev
Yes, I might have got the specific details wrong. But the confidence Soviet leaders felt until Kruschev was based on the projections of Fel'dman's mathematics: just you wait, one day we'll overtake you.
The failure to do so was felt most at the bottom of course, but ultimately the realisation seeped up to the top.
Timing is always the hardest part of making predictions I suppose!
It's certainly interesting to reflect on these comments in the context of what we are seeing in today's geopolitical economy. The collective West's financialized, deindustrialized, resource poor (at least if you goal is imperial hegemony rather than co-operative co-existence) economies are mired in debt and demonstrably failing to serve the majority of their people (The Edelman Trust Barometer's report for 2023 is quite the eye opener). The notion of the sovereign state serving the people has been sold to the oligarchs.
Russia's economy, on the other hand, seems to be doing just fine and indeed they seem to have found a large number of politically stable, sovereign states to do business with. (Russian oligarchs, on the other hand, or at least those who are not prepared to put their capital to the service of the people, seem to be having a rather rough year...).