Worked tho' didn't it?

Back in 1908, a device was created that was so revolutionary that few existing regulations covered it.

At that point, there were essentially no regulations and no direct competitors.

How did free market capitalism deal with it?

Well, the Wright Brothers were able to patent their invention so it could not be ripped off. Then they were free to licence it or develop it themselves. Having managed to convince some wealthy individuals to absorb the risk of lending them the capital that was needed to develop their idea, they formed the Wright Company and went to work.

At first, people were not keen to risk their lives travelling in such a new and inherently dangerous device, and the tickets were sold cheap. Some brave souls considered the risk worth the reward, and could be convinced to part with a dollar for a short flight. As the aircraft design was tweaked and improved, it got safer and safer, and passengers who lived to tell the tale of these early flights were soon passing along stories of their adventure – word of mouth began to spread.

Soon, the aircraft became so safe and the journeys so advantageous, that ticket prices were able to rise – people started to be willing to part with two dollars, and then five. A viable business model emerged and for the first time, the early investors began to believe their investment may have been a wise one. The risks they had taken with their capital were about to pay off.

Soon, competitors emerged and downward pressure on prices began, even as innovations proliferated. Aircraft began criss-crossing the skies, transporting huge numbers of people and freight all over the world more and more cheaply – the benefits of aircraft began to be felt in every corner of the globe. Tourists were able to visit parts of the world previously out of their reach, taking their dollars to be spent in the developing worlds – wealth began to be distributed to the poorer nations.

We know the rest – modern aircraft have flown to the edge of space, travelled five times the speed of sound, crossed from one side of the globe to other without refuelling and now carry millions of tonnes of people, produce and equipment ever day.

So that’s free market capitalism.

Now let’s look at how crony capitalism might have dealt with it.

The Wright Brothers’ invention would immediately have been identified as a threat by the existing business owners in competing industries – primarily rail and shipping. These wealthy and influential Crony Capitalists would have immediately written to their political contacts and asked to meet over lunch.

During lunch, it would have been made clear to the politician that if the shipping/rail business was harmed by the new invention, their dining companion might find himself unable to donate to the next political campaign. Times would be tough, and costs would need to be cut to compete with the upstart flight industry. Especially as shipping was heavily-regulated and flight would not be, conferring an unfair advantage upon the new industry.

The politician might have hurried away from lunch and consulted with colleagues over the matter, and having investigated flying machines they would have been appalled, appalled at the risks being taken with passengers lives. They would have decided to intervene very firmly in order “to keep the public safe”.

Over the next year or so, a raft of stringent regulations would have been crafted by legal advisers with an understanding of the challenges facing similar industries. The lawyers for the shipping industry thus find themselves writing the legislation that will govern flight. As shipping is an industry with lots and lots of rules, the lawyers are under pressure to ensure the new industry is just as tightly-regulated, to ensure a level playing field and to keep the public safe.

Soon, the Wright Brothers find themselves spending less and less of their investors money on innovation and more and more on compliance and lawyers. The investors start wondering if the invention will ever get off the ground, so to speak. The new heavily-regulated industry has to recover the costs somehow, and is forced to make the tickets five dollars, and then ten. Understandably this changes the number of passengers willing or able to try out the new travelling opportunities afforded by aircraft, and the industry grows much more slowly.

Now the crony capitalists have lunch with their friends in the media and start telling them about this new innovation, which they worry is poorly-regulated and may actually be dangerous – the safety of the public must be paramount of course. “Stalwart journalists” determined to keep the public safe start keeping an eye on the new industry, and soon a crash is reported, with pictures showing unfortunate aircraft passengers sprawled in death.
The politicians decide that this new industry is inherently unsafe and decide that until such time as air travel can be made completely safe, it will be banned.

The Wright Brothers ask their investors whether they would be willing to invest another few million to get on top of all the new rules and regulations, but the wealthy investors can see which way the wind is blowing and are fearful of being portrayed as monsters looking to make money from the deaths of gullible members of the public – their appetites wane and they decide their money is better invested in safer forms of travel.

Like…………….shipping.

The Wright Brothers retire defeated and go back to work repairing bicycles, and air travel remains a forgotten dream – the extra investments made in shipping result in ever-bigger and more luxurious passenger vessels, and the technology driving them improves until such time as these titanic vessels become practically unsinkable.

Despite the occasional chastening experience with icebergs, passenger ships become the primary means of moving people and freight around the world, and today you can get from London to New York in less than a week.

So there you have it – crony capitalism.

Progress undeniably, but progress denied.

A final question for us all – which form of capitalism do we have right now?

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15 COMMENTS

  1. Another, little known, lesson is that the Wright brothers succeeded where America’s greatest minds at the time and $50k of tax payers finest failed:

    It was the early 20th century. America was in a race with the powers of the world to invent the first airplane. Much was at stake. Our leaders feared that the Germans, the British, and, if you can suspend your disbelief, the French might beat us to the punch, giving the winning country a huge advantage militarily and economically.

    Who better to win the race for us, thought our leaders, than the best and brightest minds the government could buy? They chose Samuel Langley. You don’t know him, but in his day, Langley was a big deal. He had a big brain and lots of credentials. A renowned scientist and a professor of astronomy, he wrote books about aviation and was the head of the Smithsonian.

    It was the kind of decision that well-intentioned bureaucrats would make throughout the century — and still make today. Give taxpayer money to the smartest guys in the room, the ones with lots of degrees. They’ll innovate and do good for us.

    The crowds lined up, as did the press. As the aircraft accelerated and reached full speed, it was hurtled along a catapult toward a launch. A few scant seconds of sudden acceleration were followed by a sudden and shocking plunge into river. “It fell like a ton of mortar,” a reporter wrote.

    The War Department, in its final report on the Langley project, concluded: “We are still far from the ultimate goal, and it would seem as if years of constant work and study by experts, together with the expenditure of thousands of dollars, would still be necessary before we can hope to produce an apparatus of practical utility on these lines.” Isn’t that just the kind of arrogance you’d expect from government bureaucrats? If their best minds can’t do it with our money, no one can.

    On December 17, 1903, only nine days after Langley’s second failed experiment, two Ohio men did what the War Department, Langley, the Smithsonian, and all of that government investment could not. With $2,000 of their own money and little fanfare, the Wright brothers launched the first powered heavier-than-air machine to achieve controlled, sustained flight with a pilot aboard. From dunes four miles south of Kitty Hawk, N.C., the Wrights’ Flyer flew for 59 seconds, traveled 852 feet, and ushered in the era of modern aviation.
    https://www.nationalreview.com/2013/04/tale-government-investment-lee-habeeb-mike-leven/

    The whole thing is a good read.

  2. I don’t know if we ever have one type or another.

    I can think of things like the corn laws, cinema laws to protect british film companies in the 1930s, how cinema and alcohol licensing protected the trade of the Church of England, people who lobbied against pets crossing the channel to protect their lucrative kennel businesses.

    The main thing seems to be existing industries spotting a threat early enough and having a convincing story. The newspaper and media companies never saw the threat of the likes of blogs and YouTube. By the time they realised it was eating their lunch, it was too late.

    Uber did the smart thing of getting out there, even to the point of breaking the law. Get people in Ubers, dispel the fears and have them counter-lobbying the politicians.

    • Sam think happened with M-Pesa in Kenya. By the time the banks realised it was a threat and turned tompoliticians and the regulator to get it shut down it was so popular that it would have been political suicide if they had.

  3. The Wright brothers, on the back of their patents, spent the rest of their lives as patent trolls. After Wilbur died and Orville retired, the company that they founded spent it’s time aggressively enforcing IP rights, charging licensing fees upon anyone who tried to manufacture aircraft in the US and even overseas.

    The result was the United States did not contribute a single aircraft to the first world war, they flew French manufactured SPADs, and both S.F. Cody and Santos Dumont in England and France were on the receiving end of their lawyers’ demands for royalties upon “wing warping,” a control method for aircraft, in spite of the fact that neither of them was based in the US.

    S.F. Cody, in no uncertain terms, sent them pictures of his old designs to confirm he had invented the aileron – A wing warping device – long before them when he was building unpowered gliders.

    The Wrights, between them, probably set back aviation in America by nearly fifteen years, because they behaved like complete arseholes on the back of their achievements, to the point where even the public stopping admiring them.

    “Vested interests” and crony capitalists in the shipping and rail industry did nothing as they were perfectly good at fouling up their own industry by themselves.

    • We have observed that letting people like the Wrights keep most of the fruits of their labor encourages labor and general prosperity, even if some insist on putting keeping-the-fruits ahead of advancing aviation. You can’t have it both ways; renege after innovators have innovated, on the basis that they are behaving like complete arseholes, and the next innovator doesn’t even put $2000 at risk. Thus Congress’s power “to secur[e]…to…inventors…the exclusive right to their…discoveries…for limited times.”

    • “The Wright brothers, on the back of their patents, spent the rest of their lives as patent trolls. After Wilbur died and Orville retired, the company that they founded spent it’s time aggressively enforcing IP rights,”

      Umm, something may have gone wrong with that paragraph. What the firm do before Wilbur died and Orville retired?

  4. We might note that the development of the airplane greatly accelerated during WW1. In 1914 the aircraft still looked like a Wright Brothers’ plane or a Bleriot. By 1918 there were formations of multiengine bombers. I once watched a Bristol Fighter in flight almost 70 years after WW1. It still looked formidable.

    There was also, of course, the wonderful effect of competition. Curtiss came along and basically passed the Wrights.