Copyright: Public Domain / Used With Permission

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?