The Challenges For Capitalism

Copyright © 2003 Dorian Scott Cole

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• Awesome power, awesome responsibility
• Toward answers
• Strategy
• Responsibility and leadership
• The need for advocacy
• Focus on what we are about

Awesome power, awesome responsibility

Capitalism has awesome power. When it blossoms in a geographical area, it transforms environments into vibrant communities in which people gain tremendous power over their welfare and destinies. What results is the enrichment of our world by prolonging life, curing disease, educating, putting tools in the hands of people, building communities and culture.

On balance, I would characterize Capitalism as a dynamic, ever-changing system, that keeps us reinventing our world, provides new opportunity, and ever improves our lives.

All of the unrestricted power of capitalism isn't beneficial. When sources of personal income leave an area, such as when an industry closes, downsizes, or moves to reduce costs, people lose their future, and can no longer afford to maintain what they have. The enormity of the impact seems to weigh less and less on the conscience of business leaders as they cope with the relentless battle and investor pressure to reduce costs to stay profitable. Personal income vanishes, and poverty often returns.

Capitalism's overwhelming negative powers aren't felt only when business leaves an area. Just entering an area often creates chaos. In third world countries or communities that exist near subsistence level, many lose their existing livelihoods to capitalisms efficient manufacturing, distribution, and sales, and they haven't the ability to compete. This results in huge and obvious disparities between the "haves and have nots." This situation breeds discontent and leads to hatred and world troubles.

This loss isn't restricted to third world countries. When some marts enter an area, other businesses are unable to compete. Businesses close, people lose their jobs, and the jobs that those marts bring in don't pay enough to support families. The overall economy is not necessarily helped by very low prices (less money flows locally, helping fewer people), and while the marts bring some variety of goods, they focus on high moving (competitive) items so that the variety carried by stores that went out of business is no longer available.

Businesses in capitalism are continuously in a race for the "bottom line," with a single-minded focus on the goal of making money. The result of "winning" is survival. Other considerations are not part of the game. Such considerations as unemployment, safeguarding the environment, employee benefits and fair wages - all may be brushed aside, or sacrificed, for the bottom line.

While competition is supposed to be the spur to productivity and consumer benefit, this easily swings into intense competition. For example, "gas wars" of the 1960s put many gas stations out of business. Companies experience intense competition may cut costs so dramatically that economic deflation results, harming individuals or entire segments of the population, or even harming the entire economy of a country.

Less money going into the economy through the company, as a result of lower prices, lower pay, and lower costs, means that less money is circulated through this route. This is deflation. In its wake is usually lost jobs, lost benefits, lower wages, and less for the community.

In reality, companies typically avoid head to head competition, if they can. Companies look for a market niche to dominate as a single player, or find ways to manipulate the market so that they are less subject to losing their market.

Competition can be healthy, but without control can lead to intense competition and disastrous results. Free trade is supposed to be the mechanism for spreading capitalism. The prerequisite is a level playing field in which companies have neither advantages nor disadvantages, except their own resources. The playing field is anything but level when companies can take unfair advantage of third world countries that have very low wages. Products made in those countries have very unfair advantages, which puts US companies out of business.

The US, and some other countries, have the advantage of intellectual capital. The promise is that this strength will keep the US competitive. Yet this advantage is steadily eroding as others attain the same levels of knowledge and experience.

Competitive advantage is a slippery slope. Advantages disappear, leaving companies and economies in the lurch. In about 20 years, the world population growth will show dramatic signs of stabilizing. It already has in some Western nations. This means that this market growth advantage will end. Intellectual capital advantages will also disappear because technological advantages are diminishing, and with them the increase in productivity and new products.

In this era, 60% of US corporations pay no tax on profits, to compete with foreign corporations which pay no taxes, leveling the playing field. Obviously corporate taxes, which currently contribute only 7% of tax revenue, are leaving the tax arena. In many ways, corporations are proving unreliable as a source of employee benefits, if they provide benefits at all. Intense competition is the driving force that is removing business as a source of social well-being.

As world competition intensifies, companies will face the inevitable choice of cutting off their own limbs to survive at all, and the spiral will continue downward - deflation -. One fact is inescapable. Business - trade - is the economic engine on which the entire world depends for our well-being, and it is exposed to enormous strains.

This has vast implications for old ways of thinking. Union and Democratic Party models have long hitched wage, and health and retirement benefits, to companies. This model no longer works, and it never worked for employees of the 80% of our economy, small businesses that often couldn't afford to pay for benefits. The Republican extreme right is ideologically opposed to helping anyone through government taxes or programs. They seem to be clueless about the state of affairs among average people. More appropriate and consistent funding has to be found for necessary social programs.

The bottom line is, we have to learn how to control capitalism to make it work for us.

Toward answers

The questions raised by capitalism leave the world wondering if it is a system driven by greed. At times capitalism tantalizes us with what can be. At times it rubs our nose in the unfairness and excesses of the system. It often mocks us by locking itself into anticompetitive situations. It also enables us to cannibalize ourselves, as consumers demanding the most product for the least money while as providers, demanding the most money for the least product, so that we squeeze ourselves out of jobs.

We unfairly demonize capitalism by not understanding it, and not harnessing it so that it works for us instead of against us. No single element in the system is necessarily "bad." Capitalism is neither a good system nor a bad system. It is a system, and it is what we make of it. Either we control it, or it will control us.

The question is, do you intervene to make it work, and at what point in a system do you intervene? For example, where in a giant medical system do you intervene to get it under control so that it serves more people, not less? Where in the economy do you intervene to prevent self-destruction by people who demand low prices but pay for them by giving up their jobs?

As an illustration of a systemic problem, consider a simple system such as automatically controlling the speed of a car. The cruise control knows very little about the car. It doesn't know the engine RPM. It doesn't know when you are going uphill, downhill, or that you have a strong headwind. It doesn't know about gas mileage. What it does know is that the speed of the car slows down, so it corrects this by giving the motor more gasoline.

To control an economy, you have to know what to control. The Fed basically does this by giving the economy more "gas." Controlling interest rates controls the amount of money going to business for expansion.

What is it about the economy that we want to control? The Fed has many measures, including the Gross Domestic Product (GDP), productivity, job growth, and unemployment. What is really important? Productivity is not directly important, but it is a reflection of business's ability to compete. But focusing on productivity is not healthy since it encourages intense competitiveness. GDP is also a less important measure - it simply provides an indication that production is growing. "Real income" may rise because of an increase in GDP, however if prices increase, "nominal income" is less, so your buying power may actually decrease. The sheer number of jobs, or job growth is not very important if the jobs created don't pay a wage that people can support themselves on, and many people remain unemployed.

What really is important is sustained jobs and the sustained growth of jobs that pay enough to support people. If people aren't working, they aren't buying. If people don't make enough to support themselves, they buy very little. What has to happen in an economy is the growth of good paying jobs, and financial growth so that people buy. These are the real measures of economic success. So far this hasn't become a popular measure in political circles.

With that in mind, and with the other figures, you can then look at an economic system and determine if it is healthy, or if it requires intervention, and where.

Money is the fuel that economies run on. Products, services, and good paying jobs are the output. Controlling the output is all about controlling the money. Business gets its money from several sources. These include investors, sales revenue, and borrowing. The best source is sales revenue - that doesn't have to be paid back.

The indirect source of money is through controlling costs. As I mentioned in article one, business can't save its way to prosperity. Controlling costs, although wise, not only won't sustain company profit, it puts the focus on reducing costs, which often means eliminating jobs. This is not what the economy needs, and often gets rid of experienced people. Sometimes reducing jobs and other expenses is necessary, but it should not be the primary focus of business.

Reducing expenses is the last place that business should look to improve productivity, and then only for survival. Going back to the car analogy, reducing expenses is like saying, "OK, let's transport fewer people, and also throw out excess weight: the radio, heater, and air conditioner." At some point, you realize that further reductions make you fail your task and make life miserable. Unless you can trim fat, trimming expenses is a pointless exercise.

So what has to happen, when output and job growth slows or jobs decrease, is for money that is available to business to increase, "fueling" business. Providing more money for lower interest or through investors can help business expansion, but it does very little for falling sales. So, primarily, sales have to remain steady or increase. Sales are steady or increase when people have jobs that pay well, and they need the products. These two things are very closely linked and essential to the survival of both business and jobs.

Back to the car analogy, one crude speed control is the Lurchamatic. After the speed falls off twenty miles an hour, the Lurchamatic takes note, and sends gobs of gas to the engine. The engine races ahead, and the car goes twenty miles over the set speed. The cruise control backs off, and the speed falls again to twenty miles under the set speed. Like the Lurchamatic cruise control, the Fed tries not to intervene in the economy until it is absolutely necessary. When the wrong set of circumstances sets in, the Fed's corrections are too little, too late. Too many jobs have already gone down the drain, so there is a backlash in that people stop spending.

The better form of control is to make sure that the economy is properly fueled for growth, and for jobs at wages that support people, and to take action when these figures begin to drop.

The Fed can't create businesses. When one economic sector slows down or fails, there needs to be other sectors that can pick up. Jobs have to come from somewhere, and to control the economy and keep people working, we need better mechanisms for job creation. The worst thing that could happen is for the government to start creating factories and jobs - this would put the government in competition with business.

The problem of economic growth and stability is especially critical for many countries who are risks for capital, so they have a much more difficult time obtaining capital at reasonable rates. A mechanism for good job creation is even more important for them.

What the government seems to do well is work with private agencies for the public benefit. So what we need is private international, national, state, and local economic development commissions to monitor business trends; understand when an area is approaching a time of economic upheaval or needs job growth; and work with investors, private businesses, and research centers to create new industries based on new products. This is the incubator approach, and it works so well that it lowers the risk to acceptable levels. These businesses should have employee majority ownership with outside investment.

Some formulas have worked well for many years. One is research, design, and build. I worked for many years for one of the oldest and largest companies in the US. Its philosophy was never to lay off employees, and it succeeded at that until the 1980s when competition began growing too intense. This company had a major research division that created new products, and then it manufactured the new product and took it to market. A major problem for most companies is that they really can't afford to fund major research - especially in this competitive market.

Another lesson is that if companies stick to their area of expertise, they create excellent products, and can leverage these into other new products - this is the best form of diversification. Broad diversification is something that belongs to a geographical area, for economic security.

This is where the incubator approach excels. Incubators are typically connected to universities, and provide an economic opportunity for the fruits of university research and faculty talents. University basic research, and business school expertise, and training expertise can be targeted toward the economic development of the geographical area in which it is in, and feed the needs of economic development commissions to enable economic growth and diversity. With that system in place, local economies would be much less hard hit by changing market conditions.

Financially the economic development commissions would be private agencies that collect government, investor, private, and local funding, and use that to finance growth industries, while garnering the necessary research and resources (such as university help). Commission action would be triggered by the need for job creation, and the need for supporting business infrastructure.

Strategy

The current government strategy seems to be crisis management as we leap from crisis to crisis, and ideologists with different persuasions argue about how to finance social programs, or even whether to have social programs. If nothing else, these arguments provide fuel for political candidates, who can talk about who might cut Social Security, Social Security funding being in a crisis, and who would throw away your tax money on limitless welfare entitlement programs. These are all worthy topics, but chances are that without a strategy to guide them, we will continue to leap from crisis to crisis, until we blindly make the final Quantum Leap, ending in a very loud, "Oh, boy!" as we discover that we're in the ultimate mess.

What kind of a world do we want to live in? Some industrial practices, like those of one mart, resemble the practices of the industrial tycoons of past ages, who paid unfair wages, placed people in hazardous situations, and in general in their pursuit of wealth, acted like psychopaths in their treatment of employees. Companies like this one will be the cornerstones of world-wide deflation as less money is put into communities, people can afford less, and prices continue to fall. This is a company that Wall Street admires. As competition intensifies, we can all expect to be working for similar companies soon.

On the other hand, if we prevent competition, regulate too much, and interfere too much in the markets, the beautiful things about capitalism, such as progress, greater buying power, continuous product improvement, lifestyle and cultural improvement, and economic growth, will be paralyzed.

On one hand is a free wheeling capitalism spinning out of control and destroying us, and on the other, a choked off capitalism unable to help anyone. How do we make capitalism work for us? How do we keep it within safe margins?

The crucial step in developing an effective strategy is to dismiss ideologies about how capitalism "should" work. Capitalism doesn't come with a divine roadmap attached. It is up to us to decide how it will work, being informed by experience. The ideologies that everything should be free and unregulated, and that corporations should be harnessed to benefits, should be abandoned. If it weren't for government mandate, we would still be driving 1960s weight cars of 3000+ pounds, and getting 8 to 12 miles to the gallon, since the automotive industry had no incentive to change. (Well, some are driving 8 to 12 mile per gallon SUVs with almost as much room as a minivan and the bouncy ride of a big truck, but OPEC may soon squash that at $75.00 a fill up.) Ideologies never worked well, and today are not realistic.

Capitalism is currently promoted by zealots who know only one song: competition. We need to re-examine this doctrine that competition is the cure for everything. Competition that lures the majority of companies into positions that compromise the welfare of the people is destructive. Many industries that serve the people, such as essential services like utilities, probably should never hear the word competition, and should be regulated.

Criticizing without offering solutions is typically unwelcome. So, realizing that these questions are too complex for simple answers and that much debate is required, I offer a strategy and a few recommendations.

The mission guiding the strategy is to promote world-wide capitalism while bringing full stable employment to everyone under capitalism, and to make capitalism work for us all by bringing improved social benefits through the strength of collective action, such as progress, buying power, education, and medical benefits. Localization of jobs is a long-term goal, by making the playing field more level, and competitive costs more driven by distribution costs.

Taxes

The first step is to realize that in reality, neither business nor government ever pay a dime toward any social program. They never have, and they never will. Neither do the wealthy foot the bill. Every penny comes from us. One way or another, it comes out of our pockets through some form of taxes. But collectively, through government, we have tremendous strength to fund whatever programs we want. It is up to us to devise realistic taxing structures to do the funding. The more money that we can keep flowing through the system, spurred by higher wages and higher productivity, the more likely it is that we can fund programs easily. Normal market influences (competition) will likely let this happen. The more we tighten the screws on the economic system, through intense competition, lower prices, and lower wages, the less we will be able to afford as a society.

Recommendation: Simplify the tax structures so that they are not harmful to either individuals or corporations. Corporations would be more competitive if there was no tax on revenue. Since 60% currently pay no taxes, they contribute only 7% of current tax revenue, so their loss will hardly be missed.

Individual income taxes are difficult for people to pay. In April of every year, people end up spending either time or money filing lengthy tax returns, often getting the amount owed wrong, and often unexpectedly owing money - surprise! If you don't pay right away, the government then threatens to take away your business and your home. Beautiful system.

Probably the only fair and reasonable system is to tax consumer sales. This means that the tax bite would come out in small chunks, and affect everyone equally. If people legitimately should be taxed less (like those with poverty level income), they could be given discount cards to lower their tax, and possibly to get a discount price on some products, including medical services and products under other social programs. The Federal and State IRSs would simply go away.

Obviously prices would take a leap because of the tax. The income taxes normally collected by employer organizations would have to immediately be given directly to employees as wages. (A three to five year stepped transition would probably moderate the negative effects.) Prices would have to reflect the price total including tax. People would likely prefer seeing the actual total price on products. I remember that Indiana, for a while, didn't require including taxes in the price on gasoline - it was ridiculous. You filled your tank, and then the amount you paid to the clerk was five dollars higher. Prices should reflect taxes, but they don't for competitive reasons.

Economic stabilization

The basic nature of progress, and of competitive activity, are that new and more efficient ways will be found of doing things. Therefore, some products go out of business and jobs are lost. While it would help if industries were discouraged, through social contracts, from abandoning communities just to cut costs, it is going to happen as a natural consequence of progress. The onus really should be on communities to find solutions before the problem strikes.

Pension funds and 401K investments are the major source of capital for US industry. Employees collectively own most US businesses. Unfortunately directors of these funds often vote against investor interests, favoring the opinions of corporate boards. CEOs and directors get paid obscene salaries to cut the throats of the people who pay their salaries, the employee owners.

Recommendation: As I mentioned in Article 1 of this series, and in paragraphs above, Federal, State, and community economic development commissions should be formed and charged with the responsibility of new business development to continuously promote economic growth and economic recovery due to job displacement and community growth. Together with local colleges, business incubators, and employee groups, they would search for and develop new business opportunities. They would help fund these through Federal, State, community, and investor groups. They would provide educational services to bring employees up to speed. They basically would form businesses that would be locally owned and controlled, which would eliminate indifference to local needs, and moderate investor influence.

I would set a new model before these economic development commissions: Community based businesses that are majority employee owned, with informed leadership, planned diversity of products leveraging their expertise, and permitting investment below 50%.

Third world countries are often the ones hardest hit by the introduction of capitalism. People in agrarian related economies, typically working at subsistence level, have no way to join the capitalist system, yet lose their jobs when free market opportunities arrive. They can neither work, nor buy the new products. This creates a very discontented population that is ripe for picking by hate groups that are the enemies of capitalism and Western civilization.

Recommendation: This is another area in which economic development commissions can lend a hand by studying the impact of free trade, and working with businesses and government to control the impact and find ways to bring all of the affected people into the system within a reasonable period, and mediate expectations. Trade organizations should insist this be done, with an influence on local trade.

Another thought that I have is using a Sister city/region concept. Towns and locales would help a sister city in another part of the world to create public works projects, create jobs, and raise the overall standard of living. This type of activity must be advised and controlled because it will cause demographic changes and create a venue for corruption. It would need a task force in each place to get the program started by public speaking to organizations and individuals, handle funds, and maintain contact. This will help cities handle capitalism, which will raise their survivability in the real world of disease, famine, and poverty.

One related influential organization is the World Economic Forum, which, according to Accenture, "is an independent, impartial, not-for-profit foundation that serves as a platform for discussion and action on the key issues on the global agenda, and is supported by 1,000 of the foremost international companies.

Strategic Partners are select member companies who strongly support the Forum's commitment to improving the state of the world. They are actively involved in the Forum's endeavors at the global, regional and industry levels, and contribute their expertise and resources in order to advance worldwide economic and social progress."

Another group active in improving world economics and the plight of the impoverished is the World Bank.

"We need to focus on the causes of conflicts and the causes of instability and one of the principal causes of all this is education and opportunity."
- James Wolfensohn, World Bank President, as reported by CNN

The spring 2004 World Bank and International Monetary Fund (IMF) meeting focused on the disparity between the haves and have nots. "In our world of 6 billion people, one billion own 80 percent of global GDP, while another billion struggle to survive on less than a dollar a day," Wolfensohn said. "This is a world out of balance."

"Over the next 25 years, 50 million people will be added to the population of the rich countries. About one and a half billion people will be added to the poor countries. Many will experience poverty, unemployment, and disillusion with what they will see as an inequitable global system."

The Spring meeting, Saturday, April 24, in Washington DC, was told of the need for an urgent increase in efforts to eradicate poverty in all its forms by their target year of 2015.

A third way in which areas are impacted negatively by business is when consumer marts move into an area, especially the more aggressive ones, which forces local businesses to close, and a few jobs are created at much lower wages. This encourages consumer spending without bringing money to an area.

Recommendation: Local governments should insist that such businesses have the approval of local economic development commissions. That approval should be based on reasonable wages being paid.

Not all jobs should necessarily pay wages that support families. Some people only need a little extra income for the family to make it financially. Some people, like students, need wages that support their needs that go beyond supplied housing and food. Jobs could be rated, class a, b, c for different levels of wages, reflecting levels of support, and economic development commissions would then press for certain levels of jobs to be created. Too many class c jobs would not make an economy, or provide enough support for families.

Social contracts

Implicit in the concept of a social contract is the idea that businesses that break the social contract get reported to a public place (Web site) that all can see. Business would immediately be financially affected, which is a big motivator for business. Such Web sites already exist, but many more are needed. The Better Business Bureau is one such type of organization that effectively encourages businesses to deliver on what they promise. Television news hot lines and investigative reporters are another. The Internet makes this concept ubiquitous, and timely in affect.

Best practice standards set by trade organizations, and ISO type standards, also need to be established for medicine and other industry communities. This would help eliminate the stupid mistakes that hospitals and physicians do, and break the lack of responsibility and accountability in that community, and other industry communities. Trade organizations creating best practices should be recognized as part of the social contract.

By stressing social contracts, public and financial pressure is put on those who provide products and services. This should lessen the need for litigation. This should also put respect and trust back in seller and consumer relations in a world in which everyone now expects some level of dishonesty from business.

Social programs

It seems very warped that the country recognized around the world as the wealthiest and economically strongest has so many people that can't afford basic medical services. This is a sure sign that capitalism requires some control to make it work. I have already mentioned, in this article, about the way to reform tax structures to make funding work.

The healthcare supplier triangle, which includes physicians, hospitals and pharmaceutical companies, and insurers, are a system that ignores those outside of the system. Patients have little voice. The uninsured have no influence at all - their interests are ignored. Healthcare prices rise at an annual double-digit rate.

In the healthcare system, each provider is part of a negotiating structure in which each participant fights for its own interests (money), while basically acknowledging the monetary needs of the other participants. All that can happen is price increases. This is like the double-digit price and wage inflationary spiral of the 1970s. Neither manufacturers and retailers, nor unions, wanted to stop first. Rising hospitalization prices reflect the rising prices of buying imported equipment, pharmaceuticals, and other medical devices.

The medical community is dominated by several very powerful organizations, and consumer costs are skyrocketing. There is no single point that should be controlled - it is a systemic problem. Pharmaceutical costs are an exception. The pharmaceutical industry is the most profitable industry in the nation, and rails at any attempt to make prices more affordable. The conduct of pharmaceutical companies in a compassionate field, taunts regulation. Medicine is a compassionate industry, and profit is not an appropriate primary motive in a compassionate industry.

Insurance companies have been saddled with the responsibility of keeping medical prices down. Their attempts no longer work in the patient's favor and they are out of control. HMO physicians don't give adequate time to their patients, to keep up with their quota. No further efficiencies are expected from HMOs by insurance pressure. Physicians are unable to prescribe many needed medications because they are not on an insurance companies list of approved (read "low cost") drugs, which makes the price of unapproved drugs even higher due to low volume. Competition doesn't exist. Patients and physicians are unable to select hospitals with the right specializations because insurance companies don't permit the choice of hospital services outside of their network. Physicians can no longer refer their patients to specialists - the patient has to get the referral from his insurance company.

Insurance companies often will pay for drugs that are not on their approved list, but here is what happens. The drug has a higher copay, which the companies know the patient won't like. And then, as soon as the insurance company sees the charge for that medication, they call the physician and ask him to change it to their approved medication. Doctors don't have time for all of these phone calls, so they just don't prescribe the medication. Insurance companies are now playing doctor.

Insurance companies for health and life insurance have ceased to sell insurance. Instead they sell risk categories. Insurance is a simple idea. We can protect ourselves from loss by contributing to a huge pile of money. Everyone won't have a loss, so this pile of money successfully protects everyone. Insurance companies have gotten greedy and instead "picked the plumbs," that is, they insure only those people who are less risky and therefore they make more money.

Picking the plumbs is done in a number of ways. If people have a known medical condition, then they may be denied health or life insurance, or may have to pay more money for it. If you file a claim, you may lose your policy. Some insurers run what amounts to a scam by selling in a state until they start having claims, and then they pull out of the state. They get their money and run. Often they return under a different name and do the same thing.

Social Security needs to be put on solid ground so that it is dependable for those who rely on it, and stop it from being a recurrent political campaign issue.

Recommendations: I list ten things in Article 2 which can be done to stop the medical field from continuing to spin out of control. First, get the medical community again focused on compassion, as part of the social contract, and return profit to a secondary motivation. Corporate profit margins above 5%, after taxes, in the medical industry should be heavily scrutinized. Second, get the insurance industry and medical fields under government funding, in cooperation with private industry insurance groups to administer the plans, which is a pattern that the government does well.

Insurance plans need much tighter regulation than provided by state insurance commissioners. If they are going to issue insurance in a state, then they must be willing to stay for the lifetime of the insured, and insure everyone at the same price (unless their increased risk was intentional). If insurance coverage was permanent, there would be much less incentive for dropping people and companies, and for picking the plumbs. It is all just a financial game to many of them, and the public is the big loser.

Make insurance coverage permanent so that if an employee loses his job, he doesn't lose his insurance eligibility, which may make it impossible for him to get insurance. Change COBRA, if it is still needed, so that people remain insured while jobless. Most jobless people can't afford insurance payments. Insurance and all other social programs have to become unattached from business, which is not a reliable source of coverage.

For Social Security, which runs into periodic funding difficulties, President Bush has flirted with the idea of allowing contributors to invest in the stock market. During this economic downturn, millions lost a lot of money in the stock market. But that doesn't mean that the stock market has to be treacherous for investors. What I recommend is that certain segments be categorized as safe for Social Security investors, and investment only in those areas be permitted. For example, utilities and medicine are sound investments, and they should have tighter government regulation to make sure that they focus on providing long-term necessary services, and not focus exclusively on profits.

Most benefits that are tied to jobs should become fully portable. Job loss should not mean the end of individual and family well-being.

Profit isn't a bad thing, but denying the benefits of research and medication to the world is bad. If I were in Iran, Africa, or South America, and my child was dying because US and other Western drug manufacturers couldn't make enough profit on necessary drugs, I would be very angry at the US and other Western countries. I would question their legitimate role in the world. Their voices about improving the world would have a very hollow ring to it. Improve the world by displacing compassion with profit? Somehow things have become very twisted by capitalist ideologists who can't see past the bottom line.

According to an association of cancer organizations, of the 250,000 young people who contract cancer in poor countries each year, 80% die because more effective medicines are not available, chiefly because of cost. In Western countries, 80% live.^*1 In the pharmaceutical industry most of the employees who research, create, and make the drugs probably would make the drugs available. For the remainder in business and investing it seems to be mostly about profit. (Not to take away from the fact that pharmaceutical companies do make substantial contributions to nonprofit cancer organizations.)

Localization

One downside of capitalism is that it keeps many people, at all economic and intelligence levels and of varying interests and purposes, hunting and foraging for money like cavemen just trying to survive. Making money becomes their main occupation and preoccupation, and they have no time or other resources left for other pursuits. Capitalistic influences selectively support only channels of interest that promote the production of more wealth and mass demand. People must work most of their lives to provide goods and services that other people want, or they find themselves unable to support themselves.

Everything else becomes a hobby, or goes by the wayside. For example, only the best painters, sculptors, musicians, actors, dancers, writers, philosophers, and inventors make living wages. Others in many other jobs are required to improve their skills and move up to be valuable to business to make a living wage. Most people won't make it on a bank teller's wages, or in fast food, delivering papers, in retail sales, and many other common jobs available in the world. Capitalism simply doesn't value these jobs, even though they are necessary. Even essential professions like nursing have difficulty making a living wage, despite double-digit inflation in health care costs.

From the Staying Strong newsletter: Take Back Your Time Day. By the last week of October, the average American has put in as many hours on the job as most Europeans do all year. Organizers of the first "Take Back Your Time Day" are urging people to skip work on Friday, October 24, as a way to challenge this overwork and over scheduling. To find out about the teach-ins, fairs, and other public events planned for that day, visit Take Back Your Time.

In general, society places little value on some professions regardless of how much any of them help or entertain people. Books get published by the publishing industry only if you seem continuously bankable as a promising best seller. The merit of the book has little to do with it - merit is less important to capitalism, sales are important. Actors may have excellent talents, however, there are only so many actors needed by the movie business, and only those who can flood the box office in film after film are truly sought and rewarded. It's a business. Musicians get rewarded if they consistently get in the top ten most popular tunes, and mass distribution eliminates the need for regional stars. Most of the rest live on pauper's wages.

If you don't select a profession with high demand, then your skills are largely unvalued. The message is, "Make ball bearings, or distribute movies, or some common profession supporting mass appeal, or starve." Capitalism supports systems and channels of wealth, not individual talent. A very high percentage of all new businesses fail within the first year. Those entrepreneurs who do tough it out and make a success, typically work long, hard hours, and live on a shoestring for a very long time.

Capitalism, as it is now applied, squeezes out individuality in favor of mass appeal and large profit. The upside of this is that the public is the actual barometer of value - if no one likes the product or service, or it is too inefficient, perhaps the venture should die. But while capitalism is supposed to support variety, the overall result of price competition is to steadily narrow the consumer market to only a few cheap products. Or it uses channels to narrow business to products to a few high priced products.

Recommendation: Localize. Products don't need to come from the other side of the world. It is better to keep jobs here. Promote local entertainment. There are many local people in most communities that are gifted storytellers, musicians, actors, etc. Give them a local outlet for their talents. Local audiences are often more fun than Hollywood professional movies in which there can be only one star.

Responsibility and leadership

The modern world brings with it various responsibilities. When people are lifted above agrarian lifestyles into the modern world, they aren't capable of living and functioning in the modern world without appropriate supports. People aren't here just to allow profit to be harvested by business for as long as it is convenient for the business.

You will rarely find any accords to people in corporate mission statements. Typically you find the statement, "to make money for investors." Investors, who typically have some control over business, have no responsibility at all. Corporate CEOs have their attention glued to one thing: the bottom line. Money, by itself, should never be the objective. What money can accomplish should be the objective.

Look at the leadership training and strategy literature, and you will see that leaders are encouraged to look at a very narrow tunnel. "What are our interests, those interests being, the business interests?" They look at such things as promotions, improving competitive strategy, eliminating workplace problems... things that make the business successful. Courses in ethics are always a part of business school from local business schools to Harvard. But in real life, leaders are not asked to look out the window at the rest of the world except when someone forces it to their attention.

So individual leaders are unlikely to turn their attention to larger issues. They simply don't have the time, nor the impetus. It isn't in their tunnel vision, and addressing issues outside the tunnel can put them at a competitive disadvantage and destroy the company. Even another effective leader is unlikely to turn their attention to larger issues - outside issues can't be placed in the tunnel.

Some attempts have been made to appeal to classical ethical standards, such as the following article. Principled leadership and business diplomacy: a practical, values-based direction for management development by Manuel London at http://pippo.emeraldinsight.com/pdfs/200364.pdf. While articles like these hold up a high standard, I don't believe that they are that effective.

We need to do two things to bring business interests in line with those who are dependent on them. First, we need to assert the social contract that companies have a responsibility to their employees, communities, and the world. This social contract is enforceable through reporting to feedback sites (as I already mentioned under social contract), which will make companies pay attention to this. But there is no way to induce companies to accept all of their responsibilities if the leadership doesn't. It is our culture that must change. Second, we need to use economic development commissions to start new businesses that are largely under employee ownership, as already mentioned.

One simple legislative act that would help all of these situations is to require any business borrowing money from the Fed to 1) have employee majority ownership, and 2) have over 90% of jobs in the US with no history of outsourcing overseas. Otherwise, the business must borrow at a much higher interest rate, or be unable to borrow at all. I don't know of any reason for the Fed to fund job creation beyond US boundaries.

There is great hope if we realize that we can make capitalism work well for us through leadership, recognition of our common values and goals, production flexibility, and exerting control when necessary. The challenges are large, but so are the American people.

Henry Kissinger, who is not an economist, but a highly respected senior statesman who deals with the implications of a global economy, in his book, Does America Need a Foreign Policy, mentioned two situations that challenge us all.

"The American model presupposes that capital is relatively cheap and labor is relatively expensive, so that competitive success in the end depends on improvements in productivity sustained by constant technological progress."
- Henry Kissinger

The model unfortunately doesn't apply to the global economy, much less to the US economy. In the US, capital is cheap. Labor is expensive, however, competitive pressures are forcing business to find less and less expensive labor, through hiring inexperienced people at less salary, combining jobs, outsourcing, and outsourcing to cheap foreign labor. Globally, in other than Western countries, labor is cheap, keeping the global system unbalanced. The "expensive labor" part of the system is crumbling.

Further, "sustained improvements in productivity by constant technological progress," has reached its apex in many industries. Others will catch up to our technology, and often surpass us - and that is a reasonable expectation. Productivity is not going to improve much more except through suicidal labor cuts or by the manipulative methods mentioned in Article 6.

2. Paraphrasing from Kissinger's sixth chapter, progress is not an overnight thing, and the harsh sacrifices required are commonly followed by decades long delay in economic rewards. This constantly incites those on the lower side of the haves and have nots divide by rubbing prosperity in the face of those sinking lower into poverty. It is often political suicide to institute a free market. It can lead to an economic and social crisis around the world, adding fuel to popular radical movements. "The challenge of humanizing the process is, therefore, unprecedented."^*2

Patience, slow growth, and "humanizing the process" are not the chant of Wall Street and other international investment centers. "Productivity and quarterly growth" are the prime directives heard in corporate boardrooms. Every quarter's profits are expected to exceed the one before, or heads will roll. The pressure is always intense.

Recommendation: We need barriers between investors and companies, so that companies can keep their minds on the responsibly of running a business. Or, put responsibility and accountability on the plate of investors. These barriers should be legal.

The need for advocacy

Capitalism treats certain people well, while trodding on others. Those who are connected with channels of substantial money flow get treated well. Capitalism ignores those who are out of the channels. Individuals connected with very small businesses, communities that are isolated from wealthier areas, and those without medical benefits, find it very difficult to find financial support.

Channels of substantial money flow occur when competition is held at bay, and the market is manipulated through advocates, such as marketing and lobbyists, or through sales agreements, artificial supply control, buyouts, "cost plus" and other sleight of hand agreements. Otherwise competition causes many businesses to fight to the death, and to go out of business as costs exceed revenue.

Small business, which makes up the bulk of US business, struggles without strong advocacy or having other channels of connection. Small business typically lives in the volatile world of competition and the threat of extinction, typically paying small wages for long hours to those who work for them. It isn't typical for small business to be lucrative.

Some type of connections help, including advocacy. The danger of connections is that they can become corrupt or anticompetitive. For example, Japan has (this is changing) a banking system in which different banking networks worked closely with businesses. As businesses failed in the 1990s, it nearly destroyed some of these banking systems. Ties had to be cut to assure survival and encourage competition.

Making connections is not easy. In the US, individual farmers are an endangered species. Fiercely independent, they have mostly refused to support advocacy groups and channels which could have brought strength to their individual enterprises. Today's destructive counterpart in the business community is the mart. If small business is to survive at all, it will need collective advocacy and buying channels to stem the tide of chain stores that duplicate their products and services at rock bottom pricing, while removing customer service.

Similarly, if individuals are to survive the economic tyranny of big business competition, individuals will need to understand the value of connecting with strong economic channels, and of collective advocacy (I'm not talking about unions, which tend to create counterproductive "us against them" relations, although they are sometimes a good route). For example, the AARP organization lobbies strongly for senior citizens, and AARP membership brings attractive discount channels.

Focus on what we are about

Protectionism raises barriers to trade to protect specific industries. Perhaps it is necessary at times, considering the unfair and deceptive practices that some companies use to gain a competitive advantage and drive entire industries out of business. But I am more in favor of the concept of "locales," described in this article and series, in which communities try to stimulate trade within the local, or within trade groups such as the EU, and only go outside when products and services can't be obtained within. I think that it is a workable concept that unites regions in trade and security, doesn't raise animosity between countries, and prevents unfair and intense competition.

As a nation, the US lacks perspective on money. Some wealthy families do great things. For example, the Waltons - the USA's richest family - have become top philanthropists in education reform, donating at least $701 million to educational charities since 1998. The Bill & Melinda Gates Foundation has given $1.05 billion to education.^*3 The late Joan Kroc, the widow of Ray Kroc, founder of McDonalds Corporation, gave National Public Radio (NPR) $200 million.^*4

But for much of business, financial currency has become the purpose of all activity. If communications were given the same importance, we would all spend all of our time talking, with no purpose. If transportation were given the same importance, we would all spend all of our time traveling with no destination. Perhaps in the hodgepodge of cultures, the US has lost any sense of grounding. We have mistaken being an economic engine for a sense of purpose.

Currency is a medium of exchange. It implies that something of purpose is exchanged for something else of purpose. We get hung up on the medium. Money has no intrinsic value of its own. Money has no purpose other than as a temporary holding vessel until we secure something of value. One of the big challenges of capitalism is to get the focus onto what we are about, instead of focusing on the roadway itself that takes us from one thing to another. The focus should be on what money can do... for employees, for investors, for the community, for the world.

Article 7 footnotes, references, bibliography

1. Treatment denied to cancer children. (http://news.bbc.co.uk/1/hi/health/1759312.stm). (February 14, 2004, BBC News.)

2. Kissinger, Henry. Does America Need A Foreign Policy?: toward a diplomacy for the 21st. Century. (Simon & Schuster, 2001.) p217.

3. Hopkins, Jim. Wal-Mart heirs pour riches into education reform. (http://www.usatoday.com/money/companies/2004-03-11-waltons_x.htm) (April 11, 2004, USA TODAY.)

4. National Public Radio (http://www.fact-index.com/n/na/national_public_radio.html)

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