capitalism and diversity
February 17th, 2007 by 
bkmarcus
The enemies of capitalism, either Marxist or (what's far more common now, whether they realize it or not) Marxist influenced, tend to associate capitalism with monopoly. Even some who claim to be more for than against capitalism, believe the natural tendency of free competition is toward consolidation and cartels.
I was a fan of diversity before I was a fan of free-market capitalism. I never bought into the statist, coercive, and politically correct uses of the D-word. My appreciation for diversity came from evolutionary science and systems theory. Decentralization and diversity go together. Centralization is the enemy of diversity. So is egalitarianism.
It is more than passing curious that those in the university community who are most heavily addicted to diversity cannot tolerate it when it comes to divergence of opinions, conclusions, public policy prescriptions, etc.
– Walter Block, "Social Justice"
The fact that I was so slow to embrace economic capitalism, long after I'd embraced libertarianism and free-market ethics, is because my thinking was still so strongly influenced by my Marxoid upbringing and education. It can take a long time and concerted effort to overcome decades-old connotations.
The penultimate chapter of How the West Grew Rich is called "Diversity of Enterprise." It is about, among other things, the disastrous confusion of anti-capitalists on the relationship between capitalism and diversity.
Here's a passage from early in the chapter:
The Role of New, and Small, Enterprises in Change
Economies growing at the rate to which the West has become accustomed duplicate themselves every quarter-century, give or take five years. Because change is continuously producing obsolescence in older lines of business, the new economic activity required to achieve a net duplication considerably exceeds the activity being duplicated. The new activity arises in part from the expansion of some older enterprises (others are static or die), in part from the conversion of old enterprises to new lines of activity, and in part from the formation of new enterprises.
While all three sources of new activity are important, the formation of new enterprises plays a particularly important part in growth by innovation. New enterprises are useful devices for experimenting with innovation, because they can be established on a small, experimental scale at relatively low cost and therefore in large numbers, and their efforts can be intensely focused on a single target. The experimental aspect of new enterprises is reflected in the facts that they usually start small, their number is large, and, as with other kinds of experiment, most of them fail. But those that succeed have been an important source of Western innovation, and the amount of growth attributable directly to new enterprises is large in its own right.
The easy formation of new enterprises also acts as a disciplinary device for older enterprises, in both cases opposing the forces that produce change and growth. But in Western economic sectors the forces of change can express themselves in the formation of new enterprises, thereby circumventing bureaucratic rigidity and supplying older enterprises with an incentive — self-preservation — for taking internal measures to avoid the habits and practices that eventually lead to rigidity.
The practice of forming new enterprises for novel ventures is no doubt as old as the prudent merchant's desire to limit the amount at risk on unfamiliar transactions. In the West, a prominent feature of the Industrial Revolution was the formation of new enterprises to establish factories, almost always initially small. It was their growth in numbers and size that displaced artisan manufacturing and greatly increased the total production of goods. The diffusion of the Industrial Revolution from England to the Continent, to the United States, and eventually to Japan and other countries was effected far more by the formation of new enterprises than by the establishment of branches of old enterprises. The decay of the American trust movement of the 1880s and 1890s was attributable partly, and probably principally, to the inability of the trusts to check the formation of new enterprises. New enterprises, specializing in new technologies, were instrumental in the introduction of electricity, the internal-combustion engine, automobiles, aircraft, electronics, aluminum, petroleum, plastic materials and many other advances. This is not to say that older companies played no part; on the contrary, some of them kept abreast of the times very well indeed. It is to say that the part played by new enterprise formation was indispensable to the total result, both directly and because of its effect on incentives in older companies.
Some economists and publicists have stressed the importance of large enterprises in Western economies to the point of arguing that the giants are all that matters in the modern West. Such arguments greatly understate the importance of smaller enterprises in a modern Western economy. The mistake is endemic among Marxists who see monopoly capitalism as a stage of development leading to nationalization of the monopolies and so to monopoly socialism. The effects of the mistake have been tragic, insofar as it has misled socialist and Third World countries into seeking growth by imitating the largest mature Western enterprises rather than by imitating the Western practice of growth through experiment with a wide variety of initially small enterprises. It is a mistake of a type that, ironically, Marx often attributed to his critics — a failure to distinguish being from process.
