The Capitalism Delta

... in which we discuss why "being rich is a reward for creating value" doesn't quite add up. Along with highway robbery.

... it is said that...

... creating wealth is not a zero-sum game, a "fixed pie", in which wealth can only accumulate by the rich taking away their fair due from the poor. Instead, wealth is being created by building things, organizing activity, inventing new, efficient ways to accomplish formerly hard goals, and helping people get what they actually want. So, if you consider, say, a billionaire, you shouldn't see unjust advantage: they must have benefited humanity greatly, and those billions are just a fraction of the value they ended up creating.

Which view is, admittedly, a great step forward, compared to the viewpoint stating that great prosperity would follow by just distributing everything equally. Not that wealth distribution isn't unequal; it's just that some of this inequality is a side effect of it being created at all, so by eliminating inequality, suddenly everyone is worse off. Or... that's what they say. Is this right though?

A perfect business model

Monetary transactions happen when both parties benefit from the transaction. Everyone ends up being happier. That's why free markets are great.

For example, imagine party A puts a gun to party B's head, offering a very appealing business proposal: "your money for your life". The continuation of your life is clearly of great value to you; by offering the victim an optional business transaction, the robber clearly adds tremendous value to society, given the expected price to be paid.

Of course, all kinds of counterarguments come up. This can hardly be categorized "voluntary", after all. Also, it's not exactly legal. However... it has a common property with all well-working business models:

The customer picks between two outcomes by paying or not paying. They'll pay if the difference between these outcomes is worth paying for. Conversely, a good business model consists of being able to make a difference in outcomes, based on customer payment or non-payment.

Now, one way of making a difference is by jumping in and making the world a better place to those who have paid. Another one is by not making it worse to them (... in the case of the robbery: "not being shot" is a whole lot better than the opposite). The point is... it is not a requirement that the existence of this "business" has a positive effect on the world overall: it will still be a profitable one as long as it can make the right difference to customers.

Some examples

Obviously, most physical goods make life better when one has control over them. You pay, I'll hand it over. You don't, I keep it. This is one of those cases where making more of them is good: if I come up with a way of making them cheaper, more people can have one of them, so everyone is happier.

Usually, work and services are fairly similar. You pay: I'll do something you want. You don't: I'll just stay at home, or work for someone else, etc. More work being done is good.

Common between these is that no one else is affected. Effects are tiny and neatly localized.

When this is not the case though... consider companies lobbying for complicated tax rules. They're providing a valuable service: if you pay, they'll make filing taxes easier. However, it so happens that many people wouldn't even need them if filing taxes was simpler. Overall, their existence makes their non-customers' life worse. In fact, they're also making the lives of some of their customers worse: instead of a simpler tax code, they now have a similarly simple workflow but they now also have to pay extra for it.

Similar "business models" exist in large quantities:

• protection money: you pay us for safety from threats that we also happen to conveniently provide.
• software patents: we charge you so that you can continue implementing the obvious idea you just had, even though we also had a similar idea before. (Otherwise we'll unleash some goverment violence on you.)
• we'll fix your tractor for you, for good money, eventually; you should be happy about this, because we're really good at threatening everyone else who could also fix it with copyright charges, so now we'll the only ones who can get it done for you (apart from Ukranian hackers, of course).
• likewise, providing COVID shots is obviously good. Producing too much of them, however, is not that great from a business model perspective: continuing to sell booster shots instead of letting the poorer half of the world make them, too, is a lot more lucrative.
• actually, corruption itself falls into this category, too: e.g. launching a new infrastructure project is great, especially for the company who gets the contract; it's less great for all the taxpayers who now have to pay 87 times more because we didn't quite end up selecting the best company for some reason.

Some of these are plain illegal. Paradoxically, making everything worse gets less and less illegal the more people you're affecting with it; people are less likely to notice, too. However, overall, it doesn't change the fact that the world would be better off if entities on the above list just didn't exist.

Counterexamples

The fact that business models are about differences also explains why it's really hard to charge for free software. (... "free" as in freedom, that is; the kind that companies also like to call "Open Source".) Being freely available and readily modifiable by everyone, the existence of these projects is obviously a good thing. However... as an author, you're already providing all the benefits to everyone, regardless of whether they'll pay you or not.

Meanwhile, by making your code objectively worse (by having it not work for non-payers and reserving the right to fix anything in it), you can now collect money and wind up being a lot richer.

But then how about billionaires?

Well, there is a good chance that their wealth originated from a great business at some point. A business that made a difference.

However... it's not really indifferent what this difference actually has been.

Take, for example, Elon Musk. He went against existing businesses mostly just by building something better. The existence of e.g. SpaceX and its reusable rockets didn't make life actively worse for most people; likewise, Tesla cars and their neat battery technology is generally good (you might start a debate about lithium mines, but... let's assume this for a while). By taxing him 90%-ish after he sold PayPal, we'd have one fewer billionaires, but also, likely no booster landings or actually attractive electric cars. In exchange for a tiny bit of extra money from his taxes, for everyone.

(Note that if they wind up being a monopoly in the future, this net effect might very well change; I do think they're still in the positive though.)

Meanwhile, take Larry Ellison and Oracle trying real hard to destroy interoperability and alternative implementations. Even if we decide afterwards to tax away his tiny boat and distribute the proceeds to non-beneficiaries of now-dead Free Software projects...

... this would not make up for the damage done.

... conclusions?

The existence of billionaires is not necessarily a good thing. Or a bad one. In fact, those billions are just a smallish part of their net effect on the world: the part where they could actually charge for, as a difference.

Which is why "high taxes" is not the entirety of the solution. If someone does $10 million damage per billion earned, we can't fix it by taxing away the one billion; likewise, we might just prevent the creation of next $10 billion of value if we tax the wrong person.

... how about fixing laws instead, to make "adding value" easier? (... and less illegal?)