Capitalism is ruining video games. So says game producer Lorne Lanning, creator of the Oddworld series, who recently sparked controversy by blasting economic developments in the gaming industry.

Lanning blames “capitalism” for gaming’s recent financial and artistic troubles, especially its emphasis on commercial success over artistic creativity. His basic claim is the same one levied against the film industry: major studios have been squeezing out their smaller competitors, taking advantage of market dominance to produce an endless stream of big-budget, artistically uninspiring sequels and spin-off franchises.

It’s unclear what Lanning (or anyone, really) means by capitalism, but he seems to be condemning the largely corporate world of game design and marketing. For instance, he mentions bureaucratic corporate structure, the quest for constant growth, and the need to appeal to mass markets as problems undermining the industry.

Several criticisms have been raised against Lanning’s claims.

First, he mainly seems upset about declining demand for the kinds of games he likes, so his arguments may be little more than sour grapes.

Second, markets produce to satisfy consumer wants, so if the artistic quality of games is low, isn’t that the fault of consumers’ tastes, rather than the market itself?

Third, without markets, there wouldn’t be a gaming industry. Markets increase productivity and make leisure possible, which in turn allows for the production of leisure goods like video games.

While there’s some truth to these criticisms, it’s important not to dismiss Lanning’s views as run-of-the-mill anti-market bias. In particular, we shouldn’t assume the game industry is a poster child for consumer sovereignty and healthy economic competition. In fact, what Lanning objects to sounds more like corporatism in the game industry than unregulated commerce; if so, it’s misguided to respond by defending game developers as heroic entrepreneurs or appealing to the wonders of the free market.

Lanning’s complaints may be justified, though he has misdiagnosed their cause: it’s actually regulation and a lack of markets that are hurting the game industry.

As it happens, major game studios have developed in ways we expect from firms artificially protected from competition: they’ve become less innovative, more risk-averse, and more focused on short-term gains. As Lanning puts it, in the gaming world, it’s not personalities and it’s not companies. It’s capitalism. So you get that [large] scale and now it gets more ruthless. These are public companies. This is Wall Street.

The analogy to Wall Street is telling, because the finance industry is at the heart of our heavily regulated and monopoly-privileged economy, and is probably the best example of what happens when government helps to eliminate market competition.

But what kind of intervention could be hampering competition in the gaming world?

One culprit is intellectual property (IP) law, which produces exactly the kind of problems Lanning is complaining about. Major studios spend a lot of money developing their IP, which they often license jealously. A case in point: Nintendo takes 40 percent of the ad revenue from YouTube videos featuring its games, a tactic that drives some creators away from their content.

Without noticing the irony, Lanning mentions several times the importance of retaining and nursing his own IP, all while protesting the sad state of small and medium-sized developers.

He may even have fallen prey to the anti-innovation incentive provided by IP, given that his recent projects have involved re-releasing classic titles rather than working on more ambitious (and uncertain!) projects. While IP law tends to favor the largest competitors, smaller firms can rely on it as well.

Ultimately, if developers want to pursue more artistic projects that appeal to smaller audiences, they need to take a step away from the one-size-fits-all corporate development supported by government regulation and toward genuine entrepreneurship and innovation.

If Lanning thought more about free exchange, he’d realize that markets produce exactly the kind of high-quality product he wants:

As craftsmen, our opportunity lies in finding the niches where we know our audience, we focus on it, we listen to it, we respect it, we treat it with some grace and … if you can keep mobilizing that audience, keep informing that audience, then how much is that worth?

It’s worth a lot. Yet, it’s markets that cater most effectively to diverse needs and niches, and it’s entrepreneurs who nurture value for consumers. Their success depends on it. We’re all better off when we turn our controllers over to the invisible hand.

Matthew McCaffrey

Matthew McCaffrey is assistant professor of enterprise at the University of Manchester and editor of Libertarian Papers.