The current capitalist model needs reform

[sasguru]

Generally like all sensible people, I support a primarily capitalist economy.
However with the rise of the mega-corporation, what we are seeing now is not capitalism because there is no relationship between risk and reward.
To become CEO of a quasi-monopoly mega-corp requires little entrepreneurial nous.
Rather it requires political skill.
And the other issue is once there, the CEO can rake it in regardless of what he does in the job. Failure is rewarded as well as success. Examples are many and varied including Applegarth of Northern Rock.

Of course I have the highest regard for such as DA with genuine small businesses.

[DiscoStu]

*Waits with baited breath for AtW's analysis*

[Diver]

However with the rise of the mega-corporation, what we are seeing now is not capitalism because there is no relationship between risk and reward.

More akin to Imperialism

[HairyArsedBloke]

It is not the system, but the people in it. I read a description of the problem as being a faulty eco-system that selects in favour of the lucky reckless and against the prudent. To get ever increasing returns, ever riskier activities have to be undertaken. Those that take a more prudent line are disposed of as they are ‘under performing’. However, every ones luck runs out sometime and the fall out from reckless activities has netted a return that is far lower than that of the under performing prudes.

This does not only apply to idiotic schemes such as the sub-prime loans and the securitisation that has spread the problem world wide, but also applies to ill-thought out cost cutting such as the outsourcing of business functions to dodgy parts of the world that is beginning to turn bad now.

[Spacecadet]

It is not the system, but the people in it. I read a description of the problem as being a faulty eco-system that selects in favour of the lucky reckless and against the prudent. To get ever increasing returns, ever riskier activities have to be undertaken. Those that take a more prudent line are disposed of as they are ‘under performing’. However, every ones luck runs out sometime and the fall out from reckless activities has netted a return that is far lower than that of the under performing prudes.

Try reading Fooled By Randomness... there are some brilliant explanations and workings on this principle

[HairyArsedBloke]

I've got a copy of Taleb's book here somewhere. One thing and another has stopped me from getting around to reading it.

[DodgyAgent]

Generally like all sensible people, I support a primarily capitalist economy.
However with the rise of the mega-corporation, what we are seeing now is not capitalism because there is no relationship between risk and reward.
To become CEO of a quasi-monopoly mega-corp requires little entrepreneurial nous.
Rather it requires political skill.
And the other issue is once there, the CEO can rake it in regardless of what he does in the job. Failure is rewarded as well as success. Examples are many and varied including Applegarth of Northern Rock.

Of course I have the highest regard for such as DA with genuine small businesses.

[DodgyAgent]

Generally like all sensible people, I support a primarily capitalist economy.
However with the rise of the mega-corporation, what we are seeing now is not capitalism because there is no relationship between risk and reward.
To become CEO of a quasi-monopoly mega-corp requires little entrepreneurial nous.
Rather it requires political skill.
And the other issue is once there, the CEO can rake it in regardless of what he does in the job. Failure is rewarded as well as success. Examples are many and varied including Applegarth of Northern Rock.

Of course I have the highest regard for such as DA with genuine small businesses.

I do not think that this is a problem unless these big corporations are controlling a monopoly/duopoly etc. Provided that there is plenty of scope for competition then if people employ bad directors its their problem.

However as governments are making it too difficult with red tape for new competitors to enter established markets ( DA bank would not get off the ground because of laws) they are effectively collaborating to create these monopolies.

The recruitment industry is a great example of how capitalism works very effectively and efficiently. No one agency has or could ever dominate the recruitment market. The link between performance and reward is so easy to measure and it is so easy to change supplier that anyone can do it. There are few entry level costs for a start, and as recruitment is such a personal and service based discipline as opposed to being process driven, there are as many disadvantages to dealing with a big agency (In my view more) as advantages.

[Spacecadet]

I've got a copy of Taleb's book here somewhere. One thing and another has stopped me from getting around to reading it.

its a good read
I've got black swan as well but not got round to reading that one yet

[beaker]

This does not only apply to idiotic schemes such as the sub-prime loans and the securitisation that has spread the problem world wide, but also applies to ill-thought out cost cutting such as the outsourcing of business functions to dodgy parts of the world that is beginning to turn bad now.

I think you've wrongfully contradicted yourself in your second paragraph. Securitisation of mortgages has been around for a while and in principle is a safe and stable investment. What happened is banks kept taking on more and more risky loans with a high chance of default to chase larger profits. Other banks who bought these securitised loans either did not assess or ignored the additional risk of the loans. So as you say, those who took bigger risk got larger profits (for a while), until the risks were realised and it all came crashing down. And those with less risky, more stable investments are probably ahead again now. Until the next bubble...