In this essay, I aim to explore a few key points. First, the era of “bigger is more efficient” has long passed. Small, dynamic organizations are now far more efficient and practical.
Gatekeeping, a legacy of large corporations, is holding us back.
We need our governments to stop protecting assets from us and instead focus on opening up access. What we also need are equally enforced guidelines and checks for quality and integrity.
I also want to dispel a common misconception that has hindered humanity for some time: the belief that capitalism is synonymous with markets. While capitalism may use markets to establish itself, it is actually anti-market. Free-market capitalism is an oxymoron.
Big Organizations are Inefficient
Like many of us in these times of high inflation, I was thinking about the cost of groceries and lamenting how expensive the two largest supermarket chains, Coles and Woolworths, have become. My initial assumption was that they were simply ripping us off due to their duopoly. However, a recent Four Corners exposé revealed that they operate on a margin of 5-10%, and they are squeezing suppliers so much that some have stopped farming altogether. This scenario is not one of a duopoly exploiting everyone—5-10% is a slim margin. If they are squeezing fruit and vegetable suppliers, why are their prices higher than those at the Vic Market or even our local independent greengrocers? With all the advantages of scale—efficient supply and storage, a wide choice of suppliers, loss-leading strategies to attract more business, massive advertising campaigns, control over real estate in shopping centers, and self-service technology—big supermarket chains should be cheaper and have a fat margin. But they don’t.
The real story is that size is inefficient, especially when the “service” component of the cost is substantial. In large organizations, the “service” portion is bigger.
I observed this firsthand while working for the largest property settlement company in Australia. The settlement officers there earned much less than those working for smaller settlement companies, which charged lower fees. Some of these smaller outfits, ranging from family businesses to companies with as few as 15 employees, had minimal overheads—sometimes not even an office, just a phone and a computer. The $50 or so they charged per settlement was nearly all profit. In contrast, the company I worked for had expensive offices in the city center, extensive data management systems, middle management, a distant executive team, and a board, all of whom required substantial incomes, plus shareholders to satisfy.
Capitalists add costs because they demand their 5-10% or more of everything—like taxes, but not for the common good.
Another glaring inefficiency related to size is data management. Yes, the large settlement company had decent software and computers, even barcode scanners to track physical documents. Isolated managers and executives needed to know what was happening in the company, so we spent ages entering data into a system to track what went right or wrong and where something was or wasn’t. For the many staff to comply with centralized policies and procedures, countless emails were exchanged between officers, team leaders, managers of different teams, and so on, just to get approval to proceed with something that might not quite fit the procedure—or even just to spend $10 on a stapler. Emails would bounce back and forth, gathering more information or deflecting responsibility, followed by more reports on the decisions made and the reasons behind them. And if a senior executive wanted more information, everyone would start a frantic search for old emails and manifests.
Meanwhile, Ahmed, who ran a small settlement business, just made decisions and bought a stapler if needed.
In the past, it was believed that size made businesses more efficient because fixed costs—like land for a shop or factory, buildings, and machinery (the old-school capital)—could be spread over more units, thereby lowering costs and prices.
Today, the cost of building a factory can be less than one CEO’s salary.
Large, lumbering companies are slow to adapt and are burdened with legacy leeches. Their shareholders, middle managers, external service providers: law, accounting, PR, consulting firms all want their piece of the company’s revenue. Many others who may have helped their success or benefited from it will continue to want support such as politicians, clubs and industry associations, NGOs, sports clubs (sponsorships), arts and cultural groups.
There is much inertia for them to prevent change. Just look at the oil industry. They were among the first to realize that oil would cause climate change, and for a while, they appeared to be pivoting. But then they shifted to misinformation—cheaper and easier.
Many of the arguments used by pro-market advocates against big government also apply to big companies: they are inefficient, outdated, wasteful, and full of nepotism and bureaucratic waste.
What big companies do have, however, are the keys to the gates.
Gatekeepers are Holding Us Back
Gates are primarily licenses enforced by governments and their police and armies. They are the literal and legal gates on land and resources—think of a mining license, a banking license, a license to grow opium, a license to enter a harbor, a license to audit accounts, a license to park your plane at an airport, a license to run an airport. You might think these licenses are granted to those most qualified, decent, and trustworthy, like doctors or engineers. Unfortunately, licenses usually go to companies that hire others to do the actual work.
Once you have your license, you can charge significant fees, and the government will protect that right. They may complain when voters demand it—about too much advertising at the airport or high electricity prices—but if people raid the mine, the police will arrive to hold them back, arrest them, and ensure proper complaint procedures are followed.
You might argue that society works better when the government sets rules everyone must follow. We all stop at red lights and drive on the same side of the road. Yes, if we are all treated equally, that’s fine, provided we voted for those rules. But with licenses, the government says everyone except the licensed must comply. When the licensed are a minority, it gives them the legal right to exploit the unlicensed, either through demanding money or restricting liberty. This should only be done in rare cases, not for things that could easily be run by democratic society as a whole.
Mines, telecommunications, sewage—all natural monopolies—should not be licensed to private companies but rather owned and run by the people who need them: the democratic state.
The licensing of professionals should always be as accessible as possible—free courses, zero membership fees, free continuing education, and independent reviews of practices and pricing.
This approach enables a true market.
Governments Should Give Us All Access and Guidelines
The role of government should now be to ensure that everyone has access through the gates—the gates being guidelines on how we should use the planet’s resources and the knowledge we have acquired. So the gate might be compliance with a bunch of building codes or knowledge of electronics, but the pass through the gate should be equal for all and made as simple as possible. That means it should be free, with all the required learning and tests available online at no cost.
The rules of the gate must be set democratically, not by “industry” or elites as sub-laws.
We may still have one or a few airport operators, but we should all be able to apply for that license. If there are many qualified applicants, we can choose one democratically or randomly (often far better than popular votes), or better yet, we could democratize the “natural monopoly” and run it through the democratic state for everyone’s benefit.
Love Markets, Hate Capitalism
Fernand Braudel, a French historian who passed away in 1985, disagreed with both Adam Smith and Karl Marx. He argued that capitalism didn’t create markets—it monopolized them. This was a validation I had been waiting 25 years to discover. Back in Year 11 economics, my friend and I realized that if communism and capitalism were allowed to reach their zenith, rather than being polar ends of a line from left to right, they would bend into a circle and look the same: centralized price fixing and supply controlled by hierarchical dictatorships.
I always had trouble understanding why supply and demand didn’t work in “market capitalism” and why everyone insisted that the market needed capitalism and vice versa.
Braudel saw the economic world in tiers: at the bottom was the household where we consume, next were markets where households traded surplus with each other. These markets are beneficial but not essential, and generally, there would be as many buyers and sellers as there are households. Everyone would be a “price seeker,” and the market would be the “price setter.”
On top of that, or perhaps a product of it, was capitalism. Here, large groups of individuals could use money and property rights enforced by governments or private armies to set prices and control supply.
You could argue that the problem social anarchists had with communism is the same problem free-marketeers should have with capitalism.
Maybe free-marketeers and social anarchists should join forces for common ownership of natural monopolies and small decentralized markets.
Now, I question whether capitalism even wants markets. I think it can use a market system to gain access to resources and labor. The West is realizing this as China has used markets to secure access to natural resources and internet media, and we are beginning to see that it’s an open door to servitude. Oddly, if a private equity firm registered in the US buys airports, that’s considered acceptable.
Once an oligopoly or monopoly is established, markets become the enemy because they allow competition and introduce different/better products and prices.
Investors (capitalists) also hate markets because they are uncertain. Prices fluctuate, returns go up and down, losses can occur, and planning becomes difficult.
Capital, control, and government are deeply intertwined. Most countries’ laws focus on protecting capital with armed police and armies. The whole system is perverse.
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Recently, I noticed that with the high inflation in the UK, Australia, and the US, the causes were supposedly well understood. Oil and gas prices spiked, partly due to the war in Ukraine and sanctions on Russian oil and gas, and partly due to lingering supply chain issues post-COVID. In Australia, the supply of fruit and vegetables was also affected by floods.
The proposed solution was to control money supply and demand by raising interest rates, effectively taking money from the poor and giving it to the rich.
The first issue is that oil supply didn’t actually decrease; Russia continued producing oil, which was then bought by India and China, while the US and Europe pivoted to Saudi oil and Qatari gas. But when the “market” believes in supply and demand, it can justify jacking up prices across the board. Since the “market” is largely a futures market, it reacts immediately, while actual supply changes take months to materialize, with those increased prices passed on to consumers and reflected in CPI statistics.
The logistical problems during and after COVID were real, but prices weirdly went up after COVID. Some supplies became so scarce during the pandemic that they ran out, but there was a strong aversion to price gouging at that time—charging $5 for a roll of hoarded toilet paper was considered wrong.
The so-called magical forces of supply and demand seemed to depend more on belief than on actual supply and demand.
Once it didn’t feel wrong anymore, prices rose, and the forces of supply and demand were blamed.
We all know that supply and demand require open markets, where people have full information, many buyers and sellers interact, and one can easily switch between them without dealing with survival pressures.
The only example I can think of that fits this ideal is a trash-and-treasure market from childhood or early eBay. Essentially, that market exists only in the minds of economists and their textbooks. Unfortunately the belief in it is pervasive and destructive; raising interest rates to control inflation is harmful to the most vulnerable in society, hoarding food and housing to raise prices can leave real people without food and shelter.
The true market would be a modern version of Bruedels second tier where households trade with each other. They grow their own food, build their own homes and tools, and trade for what they want—food, tools, minerals, or skills they don’t have. In this gathering of many households, an equilibrium price is likely found.
And then they go home.
How Can We Create True Markets?
We all want markets that truly find an equilibrium price and provide the most goods and services to the most people. But how do we create such markets?
First, people should not be forced into markets; they must have access to money and resources for survival. If they need to buy necessities, it cannot be through a market where profiteering can occur. Instead, the price should be set to prevent exploitation of people’s basic needs.
Could there still be a need for finance, or would that always distort and capitalize the market? A house, for example, is needed now, and you would owe builders, the previous landowner, and others for materials. Finance seems to serve a purpose here. Money should be created by the money supplier—whether the state or a decentralized ledger—and destroyed as it is paid back. In this scenario, interest serves no purpose. There should be guidelines on who can borrow and how much, all of which should be transparent and decided by the people through direct democracy.
No one should be able to charge for creating the market, whether it’s a physical marketplace for fruit and vegetables or an online platform. These should be owned by everyone, for the benefit of all, with rules set by democracy. Should other markets be outlawed? I don’t see why; it’s better to offer a free market to discourage predatory or speculative markets.
Everyone needs easy access to resources and information. How would a supply chain work for something complex like getting a TV? In many ways, it would operate the same as today. People contribute to one market that adds value and sells to another, and so on. People can still collaborate on big projects and create wonderful new things. Adam Smith’s invisible hand starts working as individuals or groups want to create something and need what others have made or could make, and people start trading to improve their lives. Remember, people are still trading something they have in excess for something that benefits them—this is real profit.
Many people would likely use excess money to invest in groups working on big projects, sharing in the benefits of those trades. And yes, sometimes you will pick winners and sometimes losers, but you will always have enough to survive, so the risks are not as great.
The simple way to start this now is for the democracy to create money and give it to everyone, ensuring access to resources. The democracy would then create free markets, whether physical spaces with facilities or online platforms, and provide non-interest loans.
Over time, this will lead to the democratisation of resources and real capital (bridges, factories, computers, etc.), and we will achieve truly open markets.