The Wiki Man

The real power of free markets: not efficiency, but innovation and dumb luck

Communism might be able to build a boring bridge, but it could never have created Red Bull

15 August 2015

9:00 AM

15 August 2015

9:00 AM

The greatest mistake made by conservatism was its overly close relationship with neo-classical economics. This was a marriage of convenience: finding themselves Johnny-no-mates in the academic world, the conservative establishment hastily bunked up with the only group of social scientists who were prepared to talk to them.

This cohabitation was not only unhealthy but boring. Economics is obsessed with a very narrow definition of efficiency, beyond which it can see no other virtues. It hence turns political rhetoric into a slightly Aspergic narrative about efficiency and growth — as though Churchill had urged us to fight the second world war ‘to regain access to key export markets’.

But this efficiency obsession also leads conservatives to defend free market capitalism on fallacious grounds. In truth free markets are not really efficient at all. Admiring capitalism for its efficiency is like admiring Bob Dylan for his mellifluous singing voice: it is to hold a healthy opinion for an entirely ridiculous reason.


The market mechanism is loosely efficient. But the idea that efficiency is the main virtue of free markets is wrong. Competition itself is highly inefficient. In my home town, I can buy food from about eight different places; I’m sure this system could be much more ‘efficient’ if Waitrose, M&S and Lidl were forcibly merged into one huge ‘Great Grocery Hall of The People No. 1306’. I am equally confident that after a few initial years of success, the shop would be terrible.

The missing metric here is semi-random variation. Truly free markets trade efficiency for a costly process of market-tested innovation heavily reliant on dumb luck. The reason this inefficient process is necessary is that, though we pretend otherwise, no one knows anything about anything: most of the achievements of consumer capitalism were never planned; they are explicable only in retrospect, if at all.

The reason to avoid communism is not because it is inefficient, but because it tries to be too intelligent. Communism might be able to build a boring bridge or lathe factory, but it could never have created Red Bull: no bureaucracy could ever muster the level of insanity necessary to try charging £2 for a slightly disgusting drink in a tiny can. Its popularity defies explanation: it is the duck-billed platypus of the carbonated drinks world.

It’s not just that we don’t know what we want: we don’t even know why we value the things we already have. Most people think they own a dishwasher to clean crockery. But perhaps the greatest value you get from owning a dishwasher is that it gives you somewhere to keep dirty dishes out of sight. (More controversial is my theory that cycling is an excuse for Lycra fetishists to appear in public.)

The fact that we don’t consciously know why we do what we do is crucial. Amazon’s stock-market valuation has just crept above Walmart’s, even though its sales are barely 15 per cent of its larger competitor’s. People who admire only efficiency (i.e. almost everyone in finance) cannot help but see Amazon as a more efficient alternative to Walmart, and invest on that premise. But their definition of retail efficiency may be dangerously narrow. People go shopping not only to buy things, but for the small social interactions afforded by leaving the house. The assumption that the ‘more efficient’ but impersonal online model will always triumph may be wrong.

The guarantee of a pleasant social interaction to anyone possessed of a £5 note may, in fact, be the single greatest defence of free markets. Put simply, capitalism pays people to be nice. A Chinese proverb sums it up perfectly: ‘If you find it difficult to smile, do not open a shop.’

Got something to add? Join the discussion and comment below.

Rory Sutherland is vice-chairman of Ogilvy Group UK.

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Show comments
  • tjamesjones

    Great piece.

    • Yvonne Stuart-Hargreaves

      Just flawed by incorrect “facts”.

  • Loggie

    Rory, another stimulating and enlightening article. Please start a sub-Economist magazine for people actually in – or interested in – business

    • Yvonne Stuart-Hargreaves

      Entertaining but fundamentally incorrect as Red Bull came from the 1930s Communist Siamese revolution. So not enlightening, just misleading.

  • Bonkim

    Business management is 50% logic and 100% guesswork.

  • Jonathan Tedd

    Rory please take over and edit the Economist. You are quite right: Keynsians think they can pull a few levers and control the economy – wrong!

    I think it’s the opposite we are criminally inefficient and it is costing the earth. Firms love wasteful and careless and greedy consumers!

    And yes humans love real (street) markets it’s part of living.

    I urge fellow readers to search for Tim Morgan’s surplus energy economics blog – his ideas on our energy and financial crunch are compelling. He advised maverick fund man Terry Smith (whose AGMs on youtube taught me more about pensions and investment than years of reading moneyweek).

    • Fraser Bailey

      A very good piece, as others have said. And of far more use than a ten year subscription to the Economist. The writer is correct to say that capitalism can be incredibly inefficient. Like him, I have spent all my working in life in advertising, and I often see the marketing departments of major companies wasting millions. There is nothing one can do about it and, as I often say, ‘The only thing worse than the public sector is the private sector’.

      On the other hand, having seen a number of student and anti-capitalist protests at first hand recently, I have been amused to see the way in which the students and anti-capitalists are addicted to their smartphones. As the writer points out, Communism would never have created the smartphone with all its apps etc.

      • sidor

        And what is the entire business of marketing if not a complete waste? Unnecessary overheads payed by consumers.

        • rorysutherland

          Au contraire. It creates variation in consumer taste and hence adds to the biodiversity of the system. I agree, however, that this variation is often highly arbitrary and inefficient, but it is I think valuable nonetheless.

          • sidor

            I wonder how you can measure efficiency of something entirely useless? Take as an example advertising some strange acoustic effects that are for incomprehensible reason called music. They can take anyone from the street and make him a star within months. And millions of mentally retarded teenagers will be buying the records. Biodiversity?

          • ArashUK

            why you think you can decide for everyone and you know better?

            It is the big difference between free market and your statist dystopia. In free market people are free to choose and no one thinks and decides for them. But you want to take control of everything, decide what is good and bad and then impose it on other. Exactly what we now see everywhere.

            You always moaning about low quality product but what is offering in your beloved communist system? What state thinks good yeah? And you seem also jealous of the talented. Why you have not been one of those who became star overnight.

    • justejudexultionis

      So you would rather have monetarists take over the economy instead? Watch the public good and democratic choice disappear!

  • polistra24

    “The guarantee of a pleasant social interaction to anyone possessed of a
    £5 note may, in fact, be the single greatest defence of free markets.”

    Yes! Critically important.

    Oddly enough, Amazon’s initial success came because bookstores were violating this basic rule. Bookstores were typically run by harshly censorious feminists who made normal people feel unwanted. Buying books online wouldn’t have been advantageous if bookstores had been run by normal humans who could spare a smile for PAYING customers.

    Now Amazon has become the harshly censorious feminist, but because it owns everything there’s no room for smiling humans to compete.

    • ArashUK

      Amazon offers fantastic service, very good customer service with low costs. Why should I go to the normal book store, just waste plenty of time in looking for my book and pay more? I can sit on my sofa, browse books and order by matter of some clicks and then return free those I dont want.

      And if Amazon does not offer good service, very soon someone else comes up and takes over it. It happened many times.

  • Malcolm Stevas

    “The reason to avoid communism is not because it is inefficient, but because it tries to be too intelligent.”
    The reason to avoid communism is because it always was a mask for the imposition of vile tyranny by cabals of arrogant inhuman gangsters. It represents the death of all humanity. It is disgraceful, and hardly believable, that there remain too many people who claim to be adherents, and who cling to its coat-tails – such as Jeremy Corbyn and his ilk. The late and much missed Robert Conquest wrote usefully on the subject.
    Never mind Red Bull, a disgusting brew…

    • MacGuffin

      I think the reason to avoid communism is because there is never anything nice in the shops, and they start killing people when they object to this.

      • Damaris Tighe

        My experience of the Soviet Union in 1990 was, what shops?

      • Yvonne Stuart-Hargreaves

        The funniest thing is that Red Bull is a rip off of the Thai drink Krateng Deng invented in 1932 in Thailand, the year that Pridi Panomyong’s People’s Party ( Communists) overthrew the Chakri Siamese dynasty.
        The drink was plagiarisrised by a man born in Nazi Austria in the 1940s and sells best in Communist China.
        Red Bull was invented in a Communist country , adapted by a European for the largely Communist market.

        • rorysutherland

          I have Lipovitan’s origins as being Japanese. Or at least the Thais licensed it from Osotspa of Japan (which now also produces M-150 – which outsells the original Red Bull in Thailand). Go figure!

    • justejudexultionis

      I agree that communism/Marxist-Leninism in its practical manifestation is utterly vile and to be opposed. However, Marx made valid observations about the demoralising and immiserating effects of early capitalism in England, at least. For its penetrating, and statistically rigorous, analysis of the evils of industrial capitalism, communism still contains much that is useful and applicable to late capitalism. The equation of Marxist-Leninism with mere socialism is pure sophistry.

      • ArashUK

        Marx did not know anything about the economy and how market works. His only theory was to reject reason and deny the power of reason as he knew his ideas are full of nonsense and illogical. Communism does not have even a piece of logical idea. It is completely immoral and at the end leads to a full totalitarian system.

        Capitalism was at its height in US and England of 19th century. It is another lefties myth that portrayed that area as a dark one especially by the likes of Charles Dickens. Those poor children in the big and dark factories of those novels were all dying of a simple illness before the industrial revolution and capitalism. Life expectancy, standard of living and wages were much lower before capitalism of 19th century and it were the technological revolution, new innovation and more free competition that led to better working conditions for all.

        What marxist did was just making distortion in the market through strikes, violence and looting like what the unions do it today. It is not a real improvement, it is just an illusion.

        Wondering how someone even after the 70 years misery of Soviet Union still thinks there are good points in Communism.

        • sidor

          Could you please enlighten us on economics: what is capitalism?

          • ArashUK

            based on your previous comments it seems you confused capitalism with crony capitalism when state subsidizes some businesses and gives them undeserved right.

            “Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.” Ayn Rand

            I prefer to call it free market system.

          • sidor

            You don’t know what is capitalism. Your writings are thoroughly meaningless. Go and read the textbooks of political economy.

          • ArashUK

            hahaha, ok i dont know, Ayn Rand did not know, no one knows but you, Marx and Lenin know who even dont know what is monopoly. As von Mises once said lefties dont know anything about economy and pretend to know it.

            You are clearly surrounded by commuies myth and illusions. I dont have time to teach you the basics. Last point: you cannot change the facts by making an imaginary world of distorted concepts and definitions. No wonder you dont get my writings.

            Wish you luck 🙂

          • Yvonne Stuart-Hargreaves

            It is the concentration of wealth and power into the fewest hands. It is inevitable and cannot work without regulation. Capitalism is dysfunctional.

          • ArashUK

            yeah, I did not know that the likes of steve jobs were born as a billionaire and their wealth were handed over to them by birth. You are really and shockingly in denial.

          • Yvonne Stuart-Hargreaves

            Bill Gates was born a millionaire.

          • ArashUK

            hahahah you are like a kid. so what? It is a game to name more people who was born rich?

            There are plenty of people like Steve Jobs comrade, open your eyes and see there is no such devil system that you think. Instead of being jealous of the others, work hard and try and be sure that you could be one of those in your so-called inner circle.

            The only obstacle is not free market as in free market no one is in a safe haven, it is your beloved state and its regulations that make a safe haven for someone.

          • sidor

            Failed. Keep reading the textbook. Report your progress.

        • Yvonne Stuart-Hargreaves

          Wrong. The UK was capitalist and industrial by 1750 however life expectancy and living standards only began to rise from around 1900. Rising hugely after the 1945 Labour government.

          • ArashUK

            oh comrade we should all worship Labour for let us live! On what planet are you? Try to search more and look at the following chart:

            http://ourworldindata.org/VisualHistoryOf/Health.html#/life-expectancy-England-until-1800

            And you can see clearly that life expectancy increased dramatically from the middle of 19th century when technological advances and better living standards showed their results and then medical advances of 20th century fuelled it not your beloved Labour and corrupted NHS.

          • Yvonne Stuart-Hargreaves

            Thanks for the chart which shoes UK life expectancy at 40 in 1600, 42 in 1850 and only 44 by 1905. As I said it then takes off.
            Increasing from 67 in 1948 to 81 today.

          • ArashUK

            yes as the medical advances started to show their result from middle of 19th century comrade. Your beloved Labour did not have anything in that. And even based on your distorted calculation it increased by 52% between 1905 and 1948 (before your beloved Labour) and just 20% between 1948 and 1981 (after your beloved Labour).

            The point is that you cannot see the main reason for this trend and credit it to a government! It was not due to a Labour, Tory or Liberal government. It was exactly the free market, capital accumulation and technical progress that led to better standards in everything. Medical progress requires high investment in laboratories, better medicine and new diagnosis system and they take time. No one said Capitalism makes a heaven overnight. No, it takes time.

            Also read the following although I know you commies rarely read and think. It is from economist that is more lefty:

            http://www.economist.com/blogs/freeexchange/2013/09/economic-history-0

          • sidor

            Stop discussing capitalism before you learn what it is.

          • ArashUK

            I am not going to give you more credit by continuing this debate comrade. I already replied to your nonsense and you like all commies dont think and reject reason exactly like your beloved Marx.

            But as the last credit, first learn the alphabet of the economy especially what is Monopoly!

            Have a nice week comrade!

          • Yvonne Stuart-Hargreaves

            Did you learn economics from a Janet & John book or was that too complicated for you?

          • Yvonne Stuart-Hargreaves

            Reduced to clutching at straws. Only a gullible Tory could argue that the major advances for UK living standards were 1850 to 1900. The era of TB, rickets, cholera, scarlet fever ,whooping cough, outside loos, no fridges, no secondary education, no welfare,……
            It is not the free market that preserves the assets of the rich, it is our state funded legal system and our public property laws, backed up by state funded police and military.
            Without the rule of law a London falt would be worth diddly squat and the rich would be fair game for all criminals. That is what your childish liberty fantasy gives us, violence and anarchy.

          • ArashUK

            already replied to your lack of understanding. refer to the chart and use basic mathematics.

            Have a nice day and try to think more and use a bit of logic.

          • sidor

            Compulsive verbal diarrhea is a symptom of a serious disorder. Visit your GP.

          • Swami Cat

            This comment above is incorrect. Living standards were two to three times higher than worldwide average in Britain before the IR. During the first part of the IR (1780 to 1820) wages held flat despite huge increases in population (which normally forces wages down ala Malthus) and a never ending stream of British wars which lowered purchasing power. After 1820 population and wages increased dramatically. By the end of the century wages (which started amazingly high) were easily double. Lifespans increased too, despite the movement from the healthier farms to polluted cities.

          • Yvonne Stuart-Hargreaves

            Which bit is incorrect? I have not mentioned living standards compared to World averages. I simply said the UK was industrial by 1750. I also say life expectancy only rose from 1900, which you seem to agree saying lifespans increased at the end of the century.

          • Swami Cat

            You wrote: “The UK was capitalist and industrial by 1750 however life expectancy and living standards only began to rise from around 1900.”

            My response was that living standards started 2-3 times higher than the world and despite the Malthusian pressures which should have brought lifespans and incomes down with a tripling of population over the period. Instead lifespans and living standards continued to increase. The fact that lifespans increased AND the population became more urban accentuates the positive influence of industrialization.

      • Malcolm Stevas

        Well, you talk of practicality, and in practical terms Marxism-Leninism equates very closely with Socialism: those Leftists who try to deny it, and/or act as apologists for the horrors of Marxist-Leninist regimes, are guilty of sophistry of the worst kind.

        • ArashUK

          well said. As von Mises said there is no difference between Communism and so-called Democratic Socialists. One wants to achieve so-called equality by revolution and the other through elections. One through naked force and the other through soft force.

          • Yvonne Stuart-Hargreaves

            Why is it wrong to seek equality?

          • ArashUK

            by stealing from the others? it is looting. people are not equal in their abilities and efforts and there is no reason to be equal in their living standard.

          • Yvonne Stuart-Hargreaves

            I see. So obliging a millionaire to give up some money partly to protect his wealth and partly to help a disabled person is stealing something he should keep on merit.

          • ArashUK

            yes as you yourself said “OBLIGING” and so it is a theft. If you are so concerned about others you can pay all your money to them but you cannot force others. Helping others should be done by consent not by gun comrade!
            I am happy that you yourself admit it as a force.

          • Yvonne Stuart-Hargreaves

            What? Taxation in the UK is voluntary, not enforced by gun. By extension you think the rich should not have to contribute to road building or any of the infrastructure if civilisation.
            You are mistaken if you think the majority of government layouts are to the “lazy” who do not work. Welfare payments are only 17% of Government expenditure and neatly 80% of that goes to pensioners or the disabled. Another 5% is working tax credits. You sound like those daft libertarians who advocate flat taxes.

          • ArashUK

            really!!! it is voluntary??? oh comrade you are so funny. Ok dont pay your taxes from next years and see what happens. I dont know why you lefties make fool of yourself by posting these nonsenses?

            And all those expensive low quality infrastructures which for your information are just a tiny part of the whole state budget can be done much better with private funds.

            About the lazy people also check your premises and dont fool yourself by disabled as most of the hand outs are going to lazy people. I think you dont know anything of Pension system in the UK. The pension system is a total mess. It is not related to how much you worked and how much you have paid. At the end, everyone will be paid the same! Exactly the equality you are supporting. So, the pension payment are also a handout to a majority of lazy people who contributed nothing and get the same at the end.

            Really comrade, try to think and study harder.

          • Yvonne Stuart-Hargreaves

            You are either cynical and seeking to lie or stupid and misunderstading. HMRC collect £510 billion of the £760 billion spent by the UK public services. The useless Tories borrow another £110 billion and the Councils collect the rest. HMRC do not produce reliable stats on Public spending. The ONS and Treasury do.
            For 2014 we spent £760 billion. That was £111 billion on welfare or 14.5% (not 25%), £150 billion on pensions ,which is 20% on the 11 million elderly you cite as lazy. £138 billion on the NHS, is 18% and £88 billion on education is less than 12%. Defence took £45 billion or 6%.
            Where would your rich be without schools to educate their workforce, hospitals to cure their customers? Would private industry have built the network of roads the UK has and maintain them? But keep spewing your tripe here some of the casual observers may even believe you.

          • ArashUK

            already replied. the figures are ones HMRC sent to all taxpayers. sorry that I reply to you again, you have basic issues in economy and I dont have time to teach you. so best ignored!

          • Yvonne Stuart-Hargreaves

            You have no idea about tax and only a tenuous grasp of reality. You should read a few books on economis and how to interpret ststisticsststistics. Also get an abacus to save you from counting out loud on with your fingers.

          • Ideanation

            Perfect economic equality will never be practical. A certain amount of inequality is necessary for economies to grow. But it does not follow that if a little inequality is good, then a lot is better. Once you get passed a certain point, then the real growth stops, and you eventually end up with a revolution, and perhaps permanent and costly damage to the economy and society. If it takes some “looting” from the rich in order to prevent this, then so be it. By the way, it would likely be returned to them anyway if we ever manage to grow our middle class again. Everyone would win.

          • ArashUK

            no one set a fixed threshold for inequality. I talked about justice and morality. In those views, no one should be forced to pay for others living no matter how little is that. In a truly liberal society all transactions are done by mutually agreed contracts.

            About the second part, it is the virus of communism and socialism that have made revolutions. When all children are grown up with the propagandas like “riches are bad”, “down to big businesses” you cannot expect them to understand how a good economic system works.

            Also, why you all talk about riches? Sorry mate, in this welfare state of UK we all are suffering. A person with £50K a year income which is not too much and a very modest income, has to pay about 30% of income just as income taxes and NI, yet alone the VAT and all other kind of taxes. The burden of society on middle class is much worse than on riches. And as the welfare state expands, more people are dragged to this wealthy circle. At the end we all become equal in poverty.

            Moreover, when people knows that the state is not there to take all responsibility, they should decide and plan for themselves and they should work hard and be innovative, you will not face millions of angry protesters who want to loot the riches. It is in state controlled economies that you can see millions of angry people as they think there is no future, everyone is vulnerable (you know in France they want to make it illegal to call someone POOR!), and there is no room for personal achievements. Was there any uprising in 19th century USA and UK? or now in Hong Kong or Singapore?

            Finally, when you relax a system a bit to avoid your so-called social uprising, it will extend itself to a complete totalitarian system. UK government had a tiny share of economy before WWI and now it is a main player. I agree that what is it in theory cannot be implemented easily and overnight. But it does not make me believe in wrong ideas. It is like the case that we say because we cannot eliminate all illness from earth and achieve full universal health, then we should believe that a degree of illness is good for human being!

          • Yvonne Stuart-Hargreaves

            £50,000 pa puts you in the richest 1% on this planet. How is it not much?
            Plus someone on £50,000 paying 8% to a pension pays £10,880 in tax and NICs which is less than 22%. Stop telling lies.

          • Yvonne Stuart-Hargreaves

            I said move towards not achieve equality. Today we see the FTSE bosses are remunerated at 183 times average pay. Up from 140 times in 2011 and 65 times in 2000. A 20% increase last year alone. Nothing can justify this beyond the snout/trough interface.

        • Yvonne Stuart-Hargreaves

          Jesus was a socialist.

          • Malcolm Stevas

            I’m sure you and he are very close – or with luck, you soon will be…

          • Yvonne Stuart-Hargreaves

            No I am an anti-theist , one of my heroes is Chris Hitchens.

    • Yvonne Stuart-Hargreaves

      In what way does Jeremy claim to adhere to Communism? He is a democratically elected MP.

      • ArashUK

        it is their mindset that is the problem not the way they were elected. Also, they still do not have the required majority to establish their beloved regime. matter of time,

      • Malcolm Stevas

        New specs needed? See “cling to its coat tails…”

        • Yvonne Stuart-Hargreaves

          Need to learn English. You therefore meant to so “or” cling to its coat tails to distinguish from those who do adhere. You said “adhere and…..” which is your usual ranty nonsense.

  • Damaris Tighe

    As others have said, great piece. As you imply, in trying to be too intelligent, communism misses the ‘soft’ choices that consumers make, which have little to do with efficiency. No state apparatchik can take on board the invisible & often unpredictable emotional factors behind choice.

    The same applies to modern democratic western governments. As bean counters they put the (questionable) economic arguments for mass immigration & ignore the moral/cultural factors that can’t be monetised. A nation isn’t simply units of labour. Capital is social as well as financial.

  • ohforheavensake

    Ian- what is a truly free market?

    • justejudexultionis

      It is a capitalist fantasy. It has never existed, nor could it.

      • ArashUK

        seems you dont like freedom and like state slavery.

        the big difference is that libertarians are not fantasising, they accept people nature and wants them free to think and choose. But you comrade, you are the ones who fantasising about a classless society, equality in everything and state intervention to correct thing and at the end you make everyone equal in poverty and misery. Even the semi-capitalism systems of 19th and early 20th century contributed too much to human history than all of your perfect statist systems.

  • ohforheavensake

    & capitalism pays people to be nice? Really? Doesn’t that suggest that your view of human nature is a bit negative? D’you think we’re only pleasant to each other when there’s money involved?

    • rorysutherland

      Of course my view of human nature is non-idealistic. That is the basic foundation-stone of conservatism. But I don’t rule out non-financial incentives for niceness. That said, this can erode. Russians aren’t exactly loved worldwide for their charm and good manners!

      • sidor

        The Russians who can afford to go abroad are not the best part of the Russian society. You cannot expect nice manners from thieves.

        • Yvonne Stuart-Hargreaves

          Russians cannot be trusted. Societies with no trust fail.

          • sidor

            Trusted for what? Marriage?

          • Yvonne Stuart-Hargreaves

            Russians don’t even trust their own family?

          • sidor

            Do you have any reason to be concerned about that?

          • Yvonne Stuart-Hargreaves

            If they apply to join the EU or get more belligerently defensive about their country , yes we all do.

          • sidor

            You shouldn’t be worried about the first point: they are not that crazy as to think about EU membership. And anyone is defensive about one’s country. Therefore, the border between Russia and Europe which was a subject of numerous wars should be carefully negotiated. And that will bring peace and happiness to everyone. Unless a new Napoleon will appear.

      • Yvonne Stuart-Hargreaves

        Perhaps the Russians cultural proclivity to distrust and dishonesty explains why Communism failed so miserably there.

  • ohforheavensake

    So- as far as I can see, the argument here is this. Markets are best if they’re truly free (although there’s never been any such thing as a truly free market- and nor could there be); Markets are good because they sell us stuff we might not need in a way that isn’t efficient (which kind of undermines the argument for markets); and markets make us nice (which ignores the fact that we’re social beings, and most of us are nice to each other anyway; if we need money to make us pleasant, how would you explain Donald Trump?)

    • sidor

      A free market is something like a lady who is a bit pregnant: it is a transitory state. The final state of evolution of any (unregulated) market is monopoly. This is a trivial result of games theory. Therefore, to keep a market (to some extent) free one needs a regular interference from the government.

      • justejudexultionis

        Well said. Government intervention (i.e. socialism) is a paradoxical necessity for keeping the free market genuinely free.

        • rorysutherland

          Regular randomness from shifting consumer tastes is also effective in this…… if anything, government over-favours large companies – regulatory capture, etc. Or only large housebuilders or supermarket chains, say, can cope with a complex bureaucracy necessary to gain permission build or open stores. It isn’t very visible, but Tesco for all its efficiency is being stiffed not only by Lidl and Aldi but also by farmers’ markets.

        • Angkor

          Government intervention does not equal socialism. Government intervention is a necessary part of capitalism, most specifically to enforce contacts through the courts, which are instruments of government.

      • Yvonne Stuart-Hargreaves

        Most markets are most efficient with four or five main players and some regulation.

  • sidor

    Stanislaw Ulam, a famous mathematician, once challenged Paul Samuelson to name one theory in all of the social sciences which is both true and nontrivial. Several years later, Samuelson responded with David Ricardo’s theory of comparative advantage.

    Interestingly, the only non-trivial economic theory Samuelson could recall was in conflict with the traditionally protectionist policy of the US government. Due to that policy, the US became the greatest power overrunning Britain which strictly followed the principles of free trade including the one mentioned by Samuelson.

    So, the question posed by Ulam remains: what kind of conceivable use can one expect from these theories?

    • rorysutherland

      There are quite a few problems with Ricardo’s theory of comparative advantage – illuminating though it is. One problem is that if demand for bicycles (say) falls off a cliff, everyone on island B starves to death.

      • sidor

        The main problem is that it is useless. The advantage he is talking about is of order of 5%. It doesn’t affect the economy of a particular country, nor the global economy. The only reason for GDP growth is new technology. Economic theories are irrelevant.

    • justejudexultionis

      Since when is the purpose of the social sciences to produce ‘theories’. Social sciences, like the natural sciences, are explanatory, not prescriptive. Questions of purpose, meaning, binding and general theories etc. are best left to philosophers and theologians.

      • sidor

        Mechanics, since Newton, is able to predict planetary positions at any time. Einstein was able to predict bending of a ray of light. Maxwell’s equations produced radio. I wonder what kind of observable effect did philosophy manage to predict?

        • Weaver

          Evo psych and economics occasionally land useful predictions….

          • Yvonne Stuart-Hargreaves

            A stopped clock is right twice a day.

        • Yvonne Stuart-Hargreaves

          Or economics. The failed pseudo-science.

  • ohforheavensake

    Y’see, Ian- I’ve just read this. It’s what contemporary capitalism is like on the inside; and it reminds me of nothing so much as the inner workings of the Stalinist Soviet Union-

    http://www.nytimes.com/2015/08/16/technology/inside-amazon-wrestling-big-ideas-in-a-bruising-workplace.html?_r=0

    • justejudexultionis

      And the corporations are taking over government; TTIP will merely be the consummation of their desire to finally destroy democratically-constituted authority.

      • ArashUK

        oh democracy. I see, people votes to do anything. But mate there is something more important than people votes: individual freedom and most importantly property rights. Businesses and innovators never destroyed democracies and they have made improvements in human lives.

        But your beloved democratic institutions made great destructions in history. Dont forget, Hitler gained over 90% in referendums. These illiberal democracies you are advocating end in most totalitarian systems.

        • Yvonne Stuart-Hargreaves

          How do we uphold property rights without a state apparatus, legal system or taxation?

  • sidor

    The funny part.

    The concept of capitalism as a special form of economical system was introduced by Marx who comprehensively described its distinctive features in his studies of political economy.

    Therefore, all the numerous admirers of capitalism are using the Marxist terminology and follow the Marxist view of political economy. A great triumph for the guy.

    • Tamerlane

      So what.

  • lakelander

    But perhaps the greatest value you get from owning a dishwasher is that it gives you somewhere to keep dirty dishes out of sight. (More controversial is my theory that cycling is an excuse for Lycra fetishists to appear in public.)
    And the greatest value the consumers of Red Bull seem to enjoy is to wantonly litter the roads and countryside with the horrible little blue, red and silver cans. As an occasional litter picker my bin bag fills with a disproportionately large quantity of this unwelcome artefact.

  • Tamerlane

    But could Red Bull create Communism?

    PS – ‘no bureaucracy could ever muster the level of insanity necessary to try charging £2 for a slightly disgusting drink in a tiny can’ You not drunk Cockta in Yugoslavia then?

  • ArashUK

    your article is disorganized and it seems you dont know what you wanted to say as all human efforts have been based on imagination, risk taking and innovation. If we had known everything, there would not have been progress.

    But you are completely right on one point: you should not defend free market due to its efficiency despite it has been the most efficient system in the history. The main reason to defend free market as Ayn Rand truly said is that it is moral and just.

    PS: About Great Gregory Hall, be sure, it wont last couple of months yet alone years.

    • justejudexultionis

      If the so-called ‘free market’ is so ‘moral and just’ why does it tend to favour political autocracy over democratic socialism and create monopolies which destroy freedom of consumer choice?

      • rorysutherland

        It also destroys the monopolies. At least when looked at over a longer time horizon.

        • sidor

          Apparently, the characteristic time needed for that destruction exceeds the US history horizon. Unless one monopoly is swallowed by another one.

          • ArashUK

            Sorry mate it happened many times in matter of years. I think US history is about more than 200 years. But wait, government bodies with their gun backed monopolies usually last forever

          • sidor

            Could you suggest any examples of destroyed monopolies? Like Ford or GM? When do you expect the attempts of the Federal government to end the MS monopoly succeed?

          • ArashUK

            could you please say since when Ford or GM have had any monopoly? Do you know what is monopoly? There are plenty of players in the field that offering products with different versions and prices and we dont have anything even close to Monopoly in car industry. For your information, US car manufacturers have lost big chunk of market share in the last decades due to cheaper and better products by Japanese and Korean car manufacturer and now Korea is a threat to Japanese car industry.

            And then what happened to Nokia with once over 40% of world market share, Kodak and even Microsoft?

            But in state controlled system I can show you plenty of monopolies with limited choice, low quality and high prices.

            And here:
            http://www.economist.com/node/13782942

          • sidor

            Kodak disappeared together with the market it controlled. Any other example of a disappeared American monopoly?

          • ArashUK

            I told you comrade. you have issues in the concept of monopoly. none of what you said is even close to monopoly when there are plenty of other players with their services. When you think GM or Ford are examples of monopoly you should check your understanding of this concept.

            And you again pointed to another fruit of free markets. Old fashioned way should be gone alongside their players. Due to free competition new ideas are offered and the old one are becoming obsolete. So Kodak disappeared with its old fashioned way of doing things. But in controlled market like London Underground we still have to pay huge salaries to lazy drivers as we cannot make the trains fully automated, why? Because there is a government monopoly, It is the real monopoly mate.

            I also gave you Nokia and Microsoft and also US car manufacturers. I remind you of them again.

      • ArashUK

        when free market created monopoly? It is exactly statism and so-called social democracy that created crony capitalism and monopolies. It is government regulations that prevent free competition.

        In fact, free market tends to benefit all and no business irrespective of its size is safe in a free market. You can see rise and fall of big businesses in free market. You recall once Nokia had 40% of the world market share? where is it now? what happened to Kodak? Was IBM able to prevent Microsoft from entering the market and again was Microsoft successful in doing the same about Google? Now, what is Uber doing? Destroying the monopoly of the likes of Black Cabs with government support.

        In a free market everyone can enter the market. Big businesses have advantages like economy of scale but they are much less innovative. There are plenty of examples when a person with new ideas could beat big business and due to this fierce competition standard of living has been increased and consumers are enjoying better services.

        Now look at heavily regulated industries like financial service. How many new banks in the last decades? How much innovation? Any significant difference among them in terms of services? No, as the state regulations prevent anybody from entering and a free competition.

        Your social democracies which are in sharp fall are unjust and immoral. By government regulations, winners and losers are being created artificially in the market and there are distortions in supply and demand. State takes money from the more talented by force and then pays it to the undeserved and so it is not just and not moral. Making rules through legislation and vote does not make them moral and just.

        it is a myth that capitalism and free market creates big businesses and forced monopolies. It is exactly state regulations and crony capitalism that do it. Most of the time people are confused about these two completely different systems

        • Pacificweather

          Which is why the Mergers and Monopolies Commission was such a sinecure for its members.

  • grumpyoldrockape

    John Reid, David Triesman, Peter Mandelson, Charlie Whelan to name a few
    – belonged to the Communist Party of Great Britain” Observer article
    August 2002

    The decision to give Gordon Brown his first and only safe seat,
    Dunfermline East, was made by two T&G officials: Hugh Wyper, the
    regional boss and a Communist Party member , Deputy Director of the TUC
    and KGB agent, Alec Kitson.

    The aims of Socialism is Communism – Lenin.

    Jeremy Corbyn who wants to cozy up to Russia,will make Labour unelectable.

    • sidor

      Have you read any news the last 24 years? Russia is ruled by Abramovich and his friends oligarchs. Try to discuss socialism with them.

    • justejudexultionis

      You should be happy then. By the way, don’t get too smug because as Matthew Parris points out, an unelectable Labour Party might cause the Tory party to split since the various wings of the conservative party only remain united out of fear of the common (socialist) enemy.

    • Pacificweather

      Cosying up to Putin will give us the gas and oil to be cosy in winter which is why the electorate will vote for Mr. Corbyn.

  • jim

    “Communism might be able to build a boring bridge, but it could never have created Red Bull”

    It’s not all that great at building bridges either.Good article though.

    • Yvonne Stuart-Hargreaves

      Anyone seen the creaking infrastructure in the USA?

  • Jules Wright

    “Communism might be able to build a boring bridge …” You forgot the necessary addendum “from which millions of its subjects are then thrown”.

    • justejudexultionis

      Capitalism is just as pernicious, but more subtle in its methods…

      • ArashUK

        honestly suggest you to read and think for a while. you are shockingly denying millions of clear signs and proofs and cannot see all improvements.

        why not emigrating to beloved North Korea or Cuba or even more socialist France, Belgium or Sweden?

        Sorry mate, best ignored then.

        • Yvonne Stuart-Hargreaves

          Why not learning speaky Inglish before holding forth with half formed idiocy.

          • tjamesjones

            Why is Rory wrong? The global success of Red Bull is a triumph of marketing over taste, which includes a south Asian creation myth and association with kick boxing et al. Do you also think Superdry is Japanese?

          • Yvonne Stuart-Hargreaves

            He is wrong because he said Communism could never have created Red Bull. It is no myth. Red Bull was created in 1932 in Communist Thailand. Dietrich Mateschitz pinched the recipe and marketed it to the Communist Chinese, its biggest customer. The Communists had a huge role in the making of Red. Bull.

          • LeShann

            I thought Krating Daeng was invented in the 70s (1976 market introduction). I don’t know of any relationship between its inventor, Mr Chaleo, with communist Thailand. There was a communist group called the Krating Daeng, but it was not related to the drink. I’m happy to learn more about it though!

          • Yvonne Stuart-Hargreaves

            Krateng is based on another This derivative of gaur ( taurine from bulls bile) called Lipovitan, developed in 1930s Communist Thailand for truck drivers and marketed as a health drink by 1960.

          • tjamesjones

            can you stop saying Thailand was communist in 1930s? It’s embarrassing. Thailand in the 30s stumbled through a series of military coups, justified by various ideologies, none of which amounted to communism in theory, let alone in practice. To the extent that the Thai economy in the 1930s had any particular characteristic, it was as laissez faire and deregulated as high Victorian England.

          • tjamesjones

            No, Yvonne, you are quite wrong. The reason you or I have come across Red Bull is that a man operating under the relative freedom of Western Capitalism built a company to market and distribute the product. It could well be that the source of that product was a variation on a Thai recipe, but, so what? And what on earth has that got to do with Communism? At what point in history has communism produced international global consumer brands – where exactly does a state controlled economy decide that is a priority rather than, say, tractors?

  • justejudexultionis

    Red Bull, Coca Cola, MacDonalds – if that is the best the productivist capitalists can come up with then let’s go back to feudalism!

    LIVE FREE OR DIE

    • ArashUK

      then please die as there is nothing is free and no one should pay for your laziness and incompetencies.

      And what is wrong with those brands? They are offering good services. Why you are jealous of them? Why you blame others for your mistakes?

  • sidor

    We know one clear case when a famous economist had an opportunity to realise all his theoretical ideas in practice: activity of Milton Friedman in Chile under the Pinochet regime. The result was a depression which continued for years. Conclusion: the theoretical economists are reasonably harmless as long as they are kept away from the real economy.

    • ArashUK

      it seems you are living on another planet. Chile was an economic miracle. It was great and now it is being destroyed by your red comrades. Then, what about the Soviet Union? We know many cases when your statist system destroyed generation to achieve fantasy of equality and fairness.

      I am shockingly surprised by these people who still supporting state systems with all miseries they brought to people of their countries.

      • sidor

        Let’s se the facts:

        https://en.wikipedia.org/wiki/Economy_of_Chile#/media/File:GDP_per_capita_LA-Chile.png

        Is it what you call miracle? In normal terms of economics the GDP drop is called depression.

        • ArashUK

          sorry mate but your graph is proof of what I told. Economic reforms are not done overnight and as you can see Chile enjoyed much faster growth thanks to the free market of Pinochet. It will enter decline phase very soon thanks to your red friends’ policies. Your commuies want everything is done quick and very fast. No mate, economy does not work like that. You cannot change the system foundation in even couple of years.

          Also, see the following:

          http://www.forbes.com/sites/realspin/2013/10/28/is-this-the-end-of-the-chilean-economic-miracle/

          • sidor

            You confuse what you see with what you think. What you see is a clear economic depression. What you think is that this depression was very positive for the economy. I discuss facts; the cognitive problems related to misperception of reality should be discussed with the respective medical practitioner.

          • ArashUK

            i already replied mate. Chilean economy was in complete mess during your beloved communist government and then thanks to free market reforms it showed a much stronger performance which you can see from your own link and the link I sent to you. You dont want to accept that economic reforms take time to show their result. You want them happened overnight but the market does not work like that. I am not confused comrade. Your mindset is the problem here.

            In 10-20 years due to the current socialist policies in Chile, you can see the whole destruction and return to pre-pinochet era.

          • sidor

            I regret to say that am not your mate, and I avoid discussing my love preferences with a person of the same sex.

            I note that you consider depression as a good economic development. Quite interesting. The next question: how deep should the depression be (in % of GDP) to produce the positive effect you have in mind?

          • ArashUK

            ok comrade, dont be angry. you cummies are making everything personal. Comrade is a better title for you.

            I already replied to you. read them again. You seem even did not read the very link you sent to me and did not see the graphs yet alone my comments and links. Then, you may get why they called that Chilean Miracle and graphs, statistics and figures show it clearly that free market saved Chile from becoming another destroyed communist Cuba.

          • sidor

            OK. Depression is a miracle. Thanks for clarifying your point.

          • ArashUK

            already replied comrade. at least read what you yourself sent and get stuck in this depression. why you commuies like this?? have a good evening.

  • Pacificweather

    You missed out socialism Mr. Sutherland. The efficiency between the innovation and dumb luck.

  • notme3

    There has been many comparisons with the free market and the biological process of evolution. You certainly hit on one, ‘dumb luck’, evolution is literally the accumulation of ‘dumb luck’ over and over and over. A longer tail is not planned, a shorter beak is not designed, they just happened by dumb luck and presented the holder of this dumb luck a competitive advantage in successfully reproducing and passing down this new genetic change.

  • hj

    I think you are looking at it in the wrong way. Free markets arent efficient but market forces drive efficiency. This is because if you’re competing then you need to make your product better or cheaper. If you did create ‘Great Grocery Hall of The People No. 1306’ then that may seem like a more efficient system yet over time it gets fat and lazy.

  • Blether

    Conservative-tries-to-make-a-virtue-out-of-not-knowing-anything shock.

  • JSC

    Although I partially agree with the article author, that luck plays its part; they seem to give the impression that free-markets are inefficient, which they’re not. It’s true that they’re not optimally efficient, but then nothing is, but they are relatively efficient – given a constantly changing market. A planned or communist system may temporarily be more efficient at producing some good than a capitalist one, but the problem is that it is not responsive. If (or more accurately, when) the market changes then it will quickly lose its efficiency edge and fall off a cliff into gross inefficiency and potential collapse. Free-market capitalism attempts to predict where the market is going and adjusts its operation to where it is currently; doing so inevitably introduces ongoing inefficiencies, but it produces a more robust system that approaches optimal efficiency, even if it never succeeds in actually reaching it.

  • smspf

    communism doesn’t exist

  • evad666

    Brilliant piece!

  • Esmee Phillips

    Mr Sutherland admires capitalism for being more adept at conning people (Red Bull), whereas communism creates useful public goods (bridges).

    He might like to reconsider the implications of his flippancy, especially since the generalisation is so vacuous on both sides. The piece does get better after that.

  • “Communism might be able to build a boring bridge, but it could never have created Red Bull”

    Firstly, there’s no such thing as communism, and Marxists even say that communism DEVELOPS out of ADVANCED capitalism…

    “Marx sharply stresses the bad sides of capitalist production, but with equal emphasis clearly proves that this social form was necessary to develop the productive forces of society to a level which will make possible an equal development worthy of human beings for ALL members of society. All earlier forms of society were too poor for this.” — Friedrich Engels, “Marx’s Capital,” Karl Marx and Friedrich Engels, Selected Works, Volume I, pp. 468-469.

    https://www.marxists.org/archive/marx/works/1867/reviews-capital/dwochenblatt.htm

    What existed in the USSR was capitalism–state capitalism, and the USSR used the pricing system of the West to calculate its pricing system. Without a pricing system, there’s chaos regardless of what one calls one’s economic system.

    Secondly, any economic system can create impressive industrial projects. That’s not the question. The question is: Is the economic system placing its economic resources towards their highest utilities? Well, there’s only one way to know this, and it’s called profit. Profit informs us whether economic resources are being wasted or being utilized where they’re needed most.

  • Ruggerbunny

    “I’m sure this system could be much more ‘efficient’ if Waitrose, M&S and Lidl were forcibly merged into one huge ‘Great Grocery Hall of The People No. 1306’. I am equally confident that after a few initial years of success, the shop would be terrible.”
    But this undermines your entire point. Free markets are the most efficient market available to date. Yes your stores would be more efficient short term, but as you kindly point out, over time that efficiency disappears and the performance become worse than a free market.
    So while you may be correct that efficiency is not a free market’s best skill, it is still a more efficient system than every other system currently available.

  • Karen from Toronto

    nice article!

  • Adam Stein

    Sorry, but command economies are inefficient, too.

    https://i.imgur.com/bBrpWAM.png

  • Luis

    A free market is an innovation contests that’s always running, has the fairest judgement and is sponsored by everyone in the world. It’s efficient in generating innovation, and innovation is often about increasing efficiency.

    The reason poverty is declining is because we’re all constantly working toward reducing marginal costs (inefficiency), thus producing more value for less energy wasted. In the middle ages everyone (men, women and kids) worked from the time they got up to the time they went asleep. Now most people work 40 hours a week, some study, some are retired, some stay at home, yet we have more and produce more than they ever did, because we waste less energy and create more value.

  • the article makes a good point, but humans are not evolved mentally to fit a market environment. We want things we that are not in our best interest like unhealthy food quantities or cigarettes.

  • bdross

    Author confuses the concept of economic efficiency with some unstated personal notions.

  • Anthony B Pugh

    I’m sorry but this has got to be one of the dumbest things I’ve read in a very long time. A drooling crack addict could have written a more intelligent article than this.

    The reality is the exact opposite of what this blithering idiot wrote. Capitalism, for all its faults, is the most efficient economic system out there for the simple reason that it has a pricing mechanism. It allows billions of people to coordinate their activities to produce value to other people. It can do this without centralized planning of some bureaucrat who usually makes decisions based on politics. Capitalism produces what people wants and stops producing what people don’t. Communism on the other hand had people waiting in long lines waiting for bread or toilet paper while they’d be spending all their resources on bombers and tanks.

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