Why we need capitalism

We’re as fond of co ops and voluntary associations and so on as the next parcel of think tankers. Probably more so in fact. But it is still useful to point out why capitalism is necessary as well:

Deliveroo’s main takeaway? Access to capital wins the delivery wars

Access to capital matters, d’ye see? Deliveroo has, apparently, raised $2.95 billion over the years.

In the end, access to capital determines who wins the delivery wars and who scales up.

Sure, sure, starting a food delivery service requires one Honda 50cc, a short print run of leaflets and some sweat equity. Building an actual large company apparently requires that $3 billion. A bunch of folk each with a Honda 50cc and willing to put in some sweat equity doesn’t work. The actual cash for advertising and so on is required. The sort of people whose economic assets are a Honda 50cc and a willingness to work do not have $3 billion. And if they did they shouldn’t invest it in such a risky manner anyway.

It’s necessary to gain that $3 billion from other peoples’ money. Which means we’re now in capitalism land. This being the very definition of the system. The capital owners are not the people who work in nor run the businesses that use their capital - the source of capital is external to the business that is.

This is true whatever that other source is. Private cash piles of other people, their pensions, mediated through private equity, mediated through the state and state ownership. All are variants of capitalism rather than socialism or cooperativism.

Capital from outside is required to build a new business. Thus, if we desire new businesses we require capitalism in this expansive definition.

Sorry everyone who wishes to overthrow etc but this all really is true. You need capital to be able to do something new. Therefore unless you’ve a system of moving other peoples’ savings into investments in the new stuff - that is, capitalism - you’re not going to get anything new. At least, nothing new at any scale.

Tim Worstall