The Simple Accountant

Is Capitalism in Its Death Throes?

Well, certainly anything like the "ideal" or "pure" form of capitalism likely to be put forward by most people, would be a kind of entrepreneurial capitalism consisting mainly of small proprietors. The problem of an advanced industrial society is a structural one, because a world of small proprietor capitalism can't achieve the scale required to innovate and produce the goods and services required. So, something like the Pareto principle (a.k.a. the 80/20 rule) holds, where a small number of large firms utterly dominate the much larger number of small firms.

The downside of this is that large institutions are required, and that creates a massive agency problem. Poor governance and managerial self-serving at the expense of shareholders, in a broad sense, explain much of what we have seen as recurring problems of capitalism over that past decades. In a sense, the agency problems appear in a similar form in representative government, where elected officials look after their own interests before those of their constituents. Therefore ownership, the basis of capitalism and democracy in theory, is weaker than management, which produces all sorts of distortions.