CHAPTER 10

The Way to a World of Peace and Plenty  

A program whose basic thesis is, not that the system of free enterprise for profit has failed in this generation, but that it has not yet been tried.                                                                                                                            Franklin D. Roosevelt, 1932[1] 

The way to a world of peace and plenty is democratic capitalism, the free enterprise system that can eliminate material scarcity, elevate spirits, unify people, and stop the violence.  Seventy years after President Roosevelt’s lament, the way was still blocked by concentrated wealth and by violence in the relations among people and nations.

Late in the twentieth century, the demise of Communism and the demonstrable superiority of economic freedom gave the world an unprecedented opportunity to move along the way towards a world of economic common purpose. This opportunity was lost, however, because the U.S. government was promoting ultra-capitalism instead of the economic system that maximizes and distributes wealth broadly.

From the beginning of the American republic, finance capitalists successfully lobbied special privileges and impeded economic and social progress through the concentration of wealth. During the last quarter of the twentieth century, however, this nexus of Wall Street and Washington combined government mistakes, financial deregulation, and suspension of market disciplines to escalate this traditional impediment into a dominant force. Ultra-capitalism—defined as a combination of mercantilism that treats workers as a cost commodity, together with finance capitalism that is dominant over, rather than subordinate to, the commercial process—has slowed the world’s economy and provoked social tensions that range from populist protest to terrible violence.

Reformers with the democratic power to remove the impediments to economic and social progress have lost the way for over two centuries because they failed to understand fiscal, monetary, and regulatory policies well enough to counter the sophistication and lobby power of finance capitalists. At the end of the twentieth century, the size, speed, and complexity of the world’s capital markets allowed ultra-capitalists to increase their domination and further confuse the reformers.

American citizens must come to understand the benefits of democratic capitalism in contrast to the corruptions of ultra-capitalism, and then refine capitalism and restructure government accordingly.  With a democratic capitalist agenda, America will again be positioned to lead the world in the direction that improves all lives. The democratic capitalist way to a world of peace and plenty has been defined in this book and is summarized in this chapter.  

My Experience  

My experience at running companies (see chapter 2) gave me confidence that I understood the circumstances required to release the enormous latent power of people to produce and innovate.  For many years, my job was to identify the full potential of companies, provide the circumstances conducive to realizing that potential, and neutralize the impediments.  From experience, I learned that full potential is reached through individual development in a harmonious whole because total performance is the sum of individual performance enhanced by the cooperative environment.  The governance template required to make this theory work includes the following four elements: integrity, a prerequisite to cooperation and trust; maximum freedom that motivates each individual to be involved and to contribute; minimum structure that provides the disciplines for freedom to function well; and competence accurately to relate task to resources and to execute effectively.

According to my understanding of these basics, I put this formula into practice.  I had learned early from team sports that each is responsible for individual conditioning and skill development but also for contributing to that rewarding sense of team spirit. Later I recognized that this principle is consistent with the human duality of individual ambition and the instinct for social cooperation in which each lends his or her strengths to compensate for the weaknesses of others, and each borrows strengths wherein he or she may be weak.  In this lending and borrowing process, I observed that each person both learns and teaches, and thus the whole becomes greater than the sum of its parts.  Why, I wondered, was this way of individual development in a harmonious whole not also applicable to families, to education, to companies, to governments, and to the world as the universal way for each and all to reach their full potential?

This paradigm of democratic, progressive human behavior provided me with the ideal; my job was then to find the means to reach the ideal.  I did not realize at the time that I was engaged in an interactive process of truth-seeking that would confirm the ideal by identifying, examining, and testing the means.

From experience, I learned that when individual ambition is properly coupled with social cooperation, the improvement of group performance is not slight but huge. Motivation and a positive attitude are the first priorities because people must want to be involved, to contribute, and to be trained.  Motivated people with a positive attitude and a sense of common purpose make implementation easier, whereas people with a negative attitude make execution difficult.

If motivation and a positive attitude are the first priorities to individual development in a harmonious whole, where do they come from, how are they put in place?  Further examination showed me that individual motivation and a positive attitude depend on individuals with a sense of freedom, dignity, self-respect, common purpose, and a fair share of the rewards.  How can these circumstances be provided?  Excellent education and training require a financial commitment and doing the job well; the sense of freedom, dignity, self-respect, fairness, and common purpose, however, are more complicated because they depend on the quality of  leadership and the culture of the organization.  Democratic capitalism offers the decentralized structure, but the requisite culture still depends on the right selection and training of leaders at all levels.

The final component to be integrated with high-quality leadership in the democratic capitalist culture is the sharing of financial rewards that have been generated by the improved performance.  This opportunity for individuals to make their contributions and reap their rewards was the mission of the profit-sharing and ownership plan that I designed and put into place while CEO of ADT, Inc. The contest to name the plan was won by a lady who said that her understanding of the proposed plan was that “the more people care, the more they will have to share”; hence, Care and Share. The lady was correct:  Whenever capitalism is properly democratized, individuals participate freely and think of themselves as owners, thus improving individual and group performance.  In this environment, peer pressure and leadership replace top-down, command-and-control management; the fun and satisfaction that arise from involvement and cooperation displace fear and mistrust.

Among hundreds of branches, I found a shortcut to identify those ADT locations held back by the wrong culture and weak management.  Because Care and Share was voluntary and required a financial sacrifice to participate, a low level of subscription in a particular branch was an early and accurate indicator of trouble.  In effect, non-participation was a vote of no confidence in local management by the associates in that branch, which demonstrates that business, like politics, is local.

Ever since Karl Marx (1818-1883), “worker ownership” has had a threatening sound. Those with wealth thought it meant: “We have it, and the masses are trying to take it away.” The worker ownership that I propose throughout this book is different from the Marxist revolutionary approach that spawned the fears of the wealthy. In democratic capitalism, no one takes anything away from anyone else; rather, the workers buy ownership with their own money, and they share in additional ownership accruing from the improved performance that they have helped to build.  How can workers with tight budgets buy ownership?  It is surprising how fast workers can build ownership from a modest weekly deduction from their pay, especially when the company adds more stock based on improved performance. From the beginning, workers feel and act like owners as long as the structure is decentralized and the culture is one of trust and cooperation.  During ten years of Care and Share, the associates at ADT purchased and earned ownership of 13% of the company through their payroll deductions and the profit-sharing plan. Their ownership percentage would have continued to climb, had ADT remained an independent company.

My experience included an education in the corruptions of capitalism, for I was running ADT during the time when ultra-capitalism was growing to dominate the economy. I observed that Wall Street during the 1970s was making a profound change from providing long-term advisory services to transactional, basing the price of their services on a percentage of the deals they negotiated. Inevitably the number of deals exploded and rained money on all involved. This change on Wall Street initiated the compensation feeding frenzy that eventually infected the whole system.

During this time, the rush of hundreds of billions of dollars from ERISA pension funding (see chapter 7) gave the stock market new power to reward or punish CEOs, based on small changes in the quarterly earnings of their companies. Many CEOs learned how to parlay stock options into fortunes, many others were reluctantly forced to abandon long-range plans (see chapter 8).  I was dismayed that the corporate mission to serve the broad constituency of stakeholders was ridiculed by many, including the financial press and Business Schools. The new mantra had become “shareholder value,” a focus that ignored the growing excesses that, in time, destroyed shareholder value. The “American Model” that was flaunted to the world as the new, improved economic paradigm included the philosophy that “greed is good.” This emergent ultra-capitalism was a contradiction of democratic capitalism, the management philosophy that I had learned and practiced from the time I was a young plant manager until I retired as a 62-year-old CEO.

In retrospect, I judge my management performance in terms of financial measurements to have been successful.  ADT had a total market value of $97 million at the beginning of my term; by the end of my term, shareholders had received about $1 billion in dividends and cash for their stock.  I judge the company’s overall performance, however, to have been well below its potential. The reason for this, besides my own limitations, is that changing any corporate culture is a long process. Most of the managers were educated in an environment that gave tacit approval of the command-and-control style and no attention to democratic capitalism as a coherent system.  Leaders have to be retrained away from the top-down management style, and away from the mercantilist philosophy that profits go up as wages and benefits go down, instead of profits going up as people are motivated to contribute.  I found that managers are quick to agree philosophically with democratic capitalism, but, under stress, some will revert to the traditional style.  Changing the organizational culture is a delicate process because months of slow progress can be wiped out quickly by the actions of a single supervisor who demeans people.

Many who have never had the experience of changing an environment to release the latent power of people, might think that the steps necessary are too obvious for comment, and the benefits exaggerated. More cynical observers would describe them as warm and fuzzy concepts with no place in the macho world of Social Darwinism, creative destruction, and downsizing.  Only from experience, it seems, can one appreciate the magnitude of the human power that is released under the right circumstances.  Rather than being anachronisms, these concepts have new currency in the Information Age because the release of the cognitive power upon which Information Age industries depend requires a democratic capitalist culture.

On retirement, I had a compelling curiosity to find out whether this system confirmed by my own experience and that of many others might well be the way to a world of peace and plenty.  I wanted to find out whether wise people throughout history had arrived at a similar conclusion, but if they had, why the world was still full of misery and violence.  

My Studies  

            I began my studies by reading through the 11 volumes of the Story of Civilization by Will and Ariel Durant. [2]  I found their prodigious work invaluable because it provided a context of people, places, and times useful in truth-searching.  The rest of my research was a matter of reading from my personal library and listening to educational cassettes and CDs.  I regularly read over a dozen professional periodicals and a half-dozen newspapers from the far left of the political spectrum to the far right.  Reading opinions from the far right and far left is an education in itself. Truth is not necessarily to be found by adding them together and dividing by two, but that is a good start.

Why is the world so full of misery and violence when an economic system is available that can eliminate both?  If humans seek to be free of want, fear, and oppression, why do they not adopt the system that has demonstrated its capacity to satisfy these needs? Why do humans not use their unique rational abilities to understand this opportunity for freedoms, and then use their democratic power to put it in place?  These hard questions led to the philosophers’ query of whether history has a direction.

Pondering these questions led me to this overview of history: Ever since humans moved from being hunter-gatherers to being farmers and city-builders, we have demonstrated that trust and cooperation improve performance and generate the good feelings that foster social cohesion. Division of labor in a cooperative, trusting way, and present effort for future benefits, became civilized habits.  Humans also found, however, that beyond the circle of rational social behavior, the violent have ever been ready to take away what human reason had produced.

Within the circle of trust and cooperation, people have knowledge of their neighbors and their circumstances; beyond the circle, relationships are dominated by a lack of knowledge that produces fear, suspicion, and frequently violence.  Outside the circle of common purpose, people grab at and hold all they can get, and they build up political structures and armies to protect the wealth they have amassed and to gain more.  From ancient empires, to the rise of the warrior state in the 16^th century, to the world of weapons of mass destruction in which we live today, violence on a more massive scale, with more technologically sophisticated fire power, has continued to limit the growth of the circle of trust and cooperation among people trying to be free of want, fear, and oppression.

In the outside circle, the predatory bands were comfortable with the use of force, intimidation, and violence.  They would regularly demonstrate quicker success, whether military or commercial, merely by taking what they wanted rather than by producing it.  For this reason, defectors from the circle of trust and cooperation would occasionally join the predators in pursuit of short-term results. This defection continues because the distinction between visible short-term gain and longer-term expectation of gain requires a high-quality reasoning process as well as patience and discipline.

At the beginning of the 21^st century, the revolutionary technology of the Information Age has moved us one giant step farther.  Now, either the circle of economic common purpose can expand to encompass the whole world or the predators can use our new powers to commit unprecedented folly and violence.  At this same time, various types of political societies—mature economies, emerging economies, democratic governments, and authoritarian regimes—have all demonstrated their ability to take advantage of the superior capacity of economic freedom to improve lives.  Reason might well expect, then, that the circle of trust and cooperation would become worldwide, and that the competing circles of folly and violence would recede.  It has not worked that way as yet, however; so my studies led me to dig deeper into history.  

Society Advances; Predators Attack  

Hammurabi (2123-2081 B.C.) was at first a successful warrior who brought order out of the incessant local warfare in lower Mesopotamia . He then drew up 285 laws and inscribed them in a public place for observance by all. When order had replaced violence, and society was based on justice under law, Hammurabi then addressed the general welfare by investing in the human and physical infrastructure.  He dug canals, stored grain against famines, lent money at no interest to stimulate commerce, and prevented exploitation of the weak by the strong. Broad wealth distribution and better education improved the standard of living and stimulated momentum in all branches of knowledge, including astronomy, medicine, mathematics, physics, and philosophy.

This advanced society, in what is now mainly Iraq , lasted only a short time. Eight years after Hammurabi’s death, Babylon was invaded and pillaged by the Kassites, a tribe of mountaineers from the northeast border. These predators, probably European immigrants, conquered and ruled in ethnic and political chaos for centuries.  Society had advanced quickly, but it was brought back to barbarism even more quickly.[3] 

About four thousand years later, the world’s largest Muslim nation, Indonesia , was attacked and left in economic and social chaos by foreign invaders. This time the weapons were hot money and currency speculation, the invaders were ideologues of the “liberalization of capital markets,” but the destructive effect was the same.

In another part of the world fifteen hundred years after Hammurabi’s civilization was destroyed, Confucius (552-479 B.C.), a Chinese humanist, manager, thinker, and teacher, spent his life analyzing the same question I was addressing: Why do so many live a life of misery and violence?  I found Confucius’s philosophy for the better organization of secular life to be consistent with the template of democratic capitalism. He included individual development in a harmonious whole, broad educational opportunities, moral discipline in the individual and within the family, civic order in the state, equal opportunity, meritocracy in the selection of leaders, broad wealth distribution, and an end to violence.

More than a century after Confucius, Aristotle (384-322 B.C.), the Greek philosopher of common sense, applied a scientific truth-seeking process to social organization. “Logic” was his term for this systemic method of seeking truth, and he used it to understand the nature of things, which he called “physics,” and to understand the principles of social association, which he called “ethics.” Aristotle likened the pursuit of individual virtue to learning how to play the flute because in both cases it takes practice, practice, practice.

The primary human elements that Aristotle emphasized are courage, temperance, justice, and wisdom. In each case, Aristotle urged the use of wisdom, close to the contemporary expression “street smarts,” as the key to moderating the extremes and finding the workable “Golden Mean.” Aristotle saw that all living things have certain common traits: nutrition, reproduction, and locomotion plus a distinguishing feature of each living being that he called its “essence.”  Aristotle believed that a living thing functions naturally because it arises from its essence—or, as the pop song goes, “Fish gotta swim, birds gotta fly.” The Aristotelian extension of that species essence is that “humans gotta reason.”  The record of human performance demonstrates that we humans need more practice in using our essential reason.

The Crusades opened the door to the Christian discovery of the Muslim culture, so that a larger collection of Aristotle’s writings became available in Europe .  Thomas Aquinas (1225-1274) undertook the daunting task of assimilating knowledge from Jewish, Greek, Muslim, and Christian philosophers whose literary works included science, medicine, humanities, philosophy, and religion. These were men of amazing intellectual range and practical accomplishment such as the Muslims, Avicenna (980-1037) and Averroës (1126-1198); and the Jewish philosopher, Maimonides (1135-1204).  Avicenna (Abu ali al-Hussein ibn Sina), for example, wrote over 100 books, including medical texts that were used in Europe for the next 500 years.

For thousands of years, leaders and philosophers like Hammurabi, Confucius, Aristotle, Avicenna, Averroës, and Maimonides showed the way, but their social progress was reversed by predators who stole riches, and lands, and enslaved people.  Despite these setbacks, from the human urge toward freedom came new philosophers who rediscovered the way and new leaders who rebuilt the circle of reason, trust, and cooperation. By the end of the 18^th century, the acceleration of rational and technological progress was freeing the Western mind and facilitating improved industrial technology and more economic freedom, and this in turn was freeing more people from concern only with primitive needs. Was it possible that better educated, healthier people would use growing democratic power to widen the circle of reason and control the predators?  

The 18^th-Century Enlightenment: Freeing the Mind  

The Enlightenment thinkers of Europe , the British Isles , and America were optimists who believed that history must have a rational direction, a direction that ought to move towards the human achievement of our full potential.  The Enlightenment corollary to this rational hypothesis was that the means to attain the ideal could be found through a high-quality truth-seeking process. 

Freedom to think, write, and act was a new and fragile thing:  Galileo (1564-1642) had ended his days under house arrest; Descartes (1596-1626) was too fearful to allow publication of his best work until after his death; Bruno (1548-1600) paid the ultimate price for his insistence that the Copernican rearrangement of sun and earth was fact and not hypothesis. Even a century later, Montesquieu (1689-1755) Charles-Louis de Secondat, Baron de Montesquieu wrote cautiously of the French power structure only by putting his words of criticism in the mouths of Persian visitors.  Francois Marie Arouet (1694-1778) came to be known as “Voltaire” during his first stay in the Bastille in 1718, when he was imprisoned for saying and writing what he thought. The struggle to free the mind in the search for truth had been a long and bloody battle over many centuries against the church-and-state power structure backed by legalized violence. In this environment, the truth-searching process and the quality of knowledge still improved, but slowly.

The Enlightenment drew on centuries of experience from many cultures all over the world. Their examination, however, was not random but of that human rationality so prized by Aristotle, now exerting its influence in a dynamic, collaborative, and cumulative truth-searching process described in the work of Francis Bacon (1561-1626), and coupled with the scientific methods of Isaac Newton (1642-1727).  Adam Smith (1723-1790) interpreted the Enlightenment in terms of economics and presented his concept of a free market system that could eliminate material scarcity.  Immanuel Kant (1724-1804) pointed the way forward for nations to substitute law for violence.  The Marquis de Condorcet (1743-1794) summarized the direction for future human history based on the Enlightenment ideal and means (see chapter 3).

The Enlightenment also responded to John Locke’s  (1632-1704) challenge to find the best organization for human affairs:  “God who hath given the world to men in common, hath also given them reason to make use of it to the best advantage of life and convenience.”[4] Physician and philosopher, Locke was also a political thinker who specified that law should “have one rule for rich and poor, for the favorite at court, and the countryman at plough.”[5] 

  Locke returned to England after the Glorious Revolution of 1688, encouraged by the promise of new Constitutional freedoms, and continued his democratic advice by qualifying private property with sharing and limits: “What portion man carved to himself was easily seen, and it was useless, as well as dishonest, to carve himself too much, or to take more than he needed.”[6] The father of inalienable rights for all, government by the consent of the governed, and the application of reason in the search for the better life, Locke did not leave out of his list of priorities either the broad distribution of wealth or a warning against speculators who were clipping coins and debasing the currency (see chapter 7).

Thomas Hobbes (1588-1679) had suffered through the chaos of civil wars and the Cromwellian regime. Hobbes concluded, contrary to Locke’s later optimism, that humans are inherently murderous animals, and that only an all-powerful state, a Leviathan, could keep them in control.[7] Like Niccolò di Bernado Machiavelli (1469-1527) before him, Hobbes’s bleak view of people allowed little expectation that the world might become a better place.  Machiavelli, writing to impress the powerful Medici family in Florence , had proposed that “whoever organizes a state and establishes its laws must assume that all men are wicked and will act wickedly whenever they have the chance to do so.”[8]  Machiavelli, Hobbes, and others who believed evil to be inherent in human beings, offered a rationale for suppressing individual freedoms.  Unfortunately, the Machiavellis and Hobbeses, men of little accomplishment in their own time, have been elevated in the eyes of posterity to undeserved celebratory status by those in power seeking philosophical support for exploitation of the many by the few and the continued use of violence as a means to this goal.

Voltaire was one of the first in the West to study Confucius, and he developed great respect for the advanced Chinese culture. From his stay in England , Voltaire brought back an appreciation of English constitutional freedoms, Newton ’s scientific method in the examination of order in the universe, and Locke’s challenge to apply reason to the organization of human affairs.  As Locke had done before him, Voltaire advocated tolerance as the rational minimum on which basis social progress could be made.

The Enlightenment job of absorbing the wisdom of many cultures and ages was an impressive accomplishment, distilled from the thought of Arab, Jewish, Greek, and Chinese philosophers, as well as of European and American Christians, humanists, atheists, and deists.  The Enlightenment philosophers had come to the same conclusion that I had found in the factory. Performance can be maximized when one builds up from worth and great potential of each individual functioning in harmony with the group. Individual ambition is natural to humans, but concepts of the harmonious whole seem common in the thoughts of secular humanists such as Confucius’s “Reciprocity,” Kant’s “Categorical Imperative,” or what religion calls the “Golden Rule.”

By the end of the 18^th century, the struggle was continuing, but humans were winning their freedoms, and the way to a world of peace and plenty was well defined.  

The 18^th Century Enlightenment: Freeing Society from Material Scarcity  

The technology of the Industrial Revolution had raised the wealth-producing capacity of the economic system such that a properly organized society could produce more than enough for everyone.  Adam Smith in The Wealth of Nations [9] described an economic system that could free humans of material scarcity. Smith also wisely articulated the circumstances required and the impediments to be avoided. For the first time in human history, a system was available that could eliminate material scarcity, unify people in economic common purpose, and purge the violence that had been associated with the battle over scarce resources. The economic system that Smith envisioned was based on the theory that a free-market economy would self-correct and reach equilibrium with minimum governmental involvement. Smith published his seminal work in 1776, the same year that Thomas Jefferson (1751-1826) and others in America wrote their Declaration of Independence, presenting a political philosophy and structure that complemented Smith’s vision of economic freedom.

The American Founders expressed their idealism in the phrase “life, liberty, and the pursuit of happiness” for all. Jefferson, who had spent years in France , was acquainted with Smith and the Marquis de Condorcet, and he knew that these men of the Enlightenment were counting on the new American republic to lead the world to reach the ideal.  Condorcet expressed this view of America :  

One nation alone escapes the two-fold influence of tyranny and superstition. From that happy land where freedom had only recently kindled the torch of genius, the mind of man released from the leading strings of its infancy, advances with firm steps toward the truth.[10]   

The Enlightenment thinkers had undertaken their extraordinary examination in a Europe that had been dominated by violence and was heading for even more violence. They could see, nonetheless, that the American democratic experiment could demonstrate to the world that the ideal was attainable and that economic freedom was the means. The United States had then, as it still does now, a special opportunity with its people, resources, freedoms, and until recently, geographical isolation. With that opportunity came a continuing responsibility to confirm the ideal and refine the means for all of society.

Near the end of the eighteenth century, Condorcet summarized the work of the Enlightenment (see chapter 3) and penned a liberal manifesto that challenged society to free the mind, body, and spirit. Condorcet’s manifesto of liberalism advanced what Confucius had taught, and it included the new principles of Smith and Jefferson.  Condorcet’s manifesto remains as fresh in the 21^st century as it was revolutionary in the 18^th:   

Free trade, freedom of speech, freedom of press, the end of censorship, the end of slavery, the enfranchisement of women, universal free education, equality before the law, the separation of state and church, religious toleration, the adoption of a written constitution to insure the recognition of those rights, the establishment of a representative or parliamentary form of national government, and local self-government to encourage the independence and the participation of the peasants in government.[11]  

Condorcet was a remarkable man in his range of knowledge and his experience in science and government. I marveled more, however, at his optimism for a better life for future generations which he expressed while he was in hiding and then in prison waiting to die during the Reign of Terror.

The theoretical conclusions of the Enlightenment about the human response to better circumstances received practical confirmation early in the nineteenth century through the management of a spinning mill in Scotland by Robert Owen (1771-1858). Owen invested in the quality of life of his workers and their families, and his results experimentally verified that the form of capitalism that elevates people is more profitable than mercantilist capitalism that suppresses workers’ wages, benefits, and spirits to maximize owners’ profits. Owen felt that he had confirmed the system that was the way to a world of peace and plenty, so he took his discovery to the Church of England, to Parliament, and to European and American leaders assembled for a conference following the Napoleonic Wars. Few leaders listened and learned; consequently, the direction of history continued to be a struggle between the rational and the predatory.

The work of the Enlightenment answered the philosophical question about human violence and misery with a potentially positive reply:  Nothing reasonable accounts for human want, fear, or oppression; human reason argues for a natural human right to plenty, and for a right to many kinds of freedom, including freedom from fear and freedom from oppression.  The American experience inspired much of the world, but the coupling of democracy and capitalism proved too difficult for many nations, such as those in South America , to accomplish in face of the opposition from their traditional establishments. The freeing of the mind before and during the 18^th century had led to the economic-political system that freed some from the lack of necessities but left many still living unnecessarily in want, and most living in fear and oppression. 

The question for me then changed: Why has society not followed the Enlightenment way to peace and plenty during the two centuries following? The short answer is that too few people received the quality of knowledge from their education to be applied with growing democratic power to break the cycle of violence and exploitation. The long answer took me back to the study of the 19^th century.  

The 19^th Century: Freeing the Spirit!  

German Idealist G. W. F. Hegel (1770-1831) saw history’s direction as one of struggle and contradiction. Progress is energized by the human urge towards freedom, and reason is employed to reach this end, but reason can be  contradicted and progress opposed by countervailing predatory forces; consequently, human history is a three-steps-forward-and-two-steps-backward process.  

History was stumbling along this confused direction in the middle of the 19^th century when another German Idealist, Karl Marx, focused on Smith’s economic system with a capacity to eliminate material scarcity. Marx identified the reason that Smith’s system was functioning at only a fraction of potential: concentrated wealth. Marx then identified the solution: Change the mode of production, that is, the relationship between capital and labor in order to release the enormous productivity from involved workers. Genius lay in Marx’s tying progress in the human condition to the mode of production and the associated wealth-producing capabilities. Marx therefore proposed that history’s direction had been, and would be, based not on changes in culture or political structure but, rather, in movement towards a superior economic system.

Marx’s historical retrospection began with the limited wealth production that existed at the time of Aristotle when the mode of production was slavery.  Wealth had grown in limited ways, Marx realized, because the mode of production had changed slowly over many centuries from slavery to serfdom to the wage-slaves of his time.  Marx predicted that the productive evolutionary history of the human species was positioned for a great leap forward through individual development within a harmonious whole, though he worded it differently: “The free development of each is the condition for the free development of all.”[12] Marx’s equivalent to “the harmonious whole” was the “elimination of alienation.”  Marx was convinced that his evolutionary theory of workers who thought as owners, instead of as wage-slaves, would result in greater productivity and innovation and would supercede all prior theories about how to improve the human condition.  Marx’s way included “plenty” from the greater wealth production, and “peace” because the spreading wealth would unite people in economic common purpose and eventually reduce the power of the warrior state and eliminate violence.

Marx’s Idealism was similar to John Stuart Mill’s (1806-1873), for each foresaw an explosion of additional wealth coming through freeing the spirits of the workers.  Mill connected the dots among profits, spirits, and a moral environment in this way:  

It is scarcely possible to rate too highly this material benefit, which yet is nothing compared to the moral revolution in society that would accompany it; a new sense of security and independence in the laboring class; and the conversion of each human beings’ daily occupation into a school of the social sympathies and the practical intelligence.[13]  

Mill endorsed the benefits of worker ownership (see chapter 5), proposing that profits, quality of life, and a moral environment can be synergistically combined (see chapter 3). In the middle of the 19^th century, Mill’s proposal was radical because the economic system had not been reformed to provide neutral money, control of the speculators, broad distribution of wealth, and emancipation of the wage-slaves, all of which Smith had specified as prerequisites for the success of free markets.  In the early-21^st century, Mill’s proposal still seems radical because ultra-capitalism concentrates wealth in record amounts, and ultra-capitalists would continue to treat workers as wage-slaves.

Marx’s discovery coupled with Smith’s system refined by Mill’s insights might well have ended the conflict over resources because there was potentially more than enough for everybody. The end of exploitation and violence, however, required acknowledgement by those with power and authority of this better and broader way to wealth.  With the backing of government, religion, and learning, society could have followed the Enlightenment roadmap towards a new understanding of history’s rational direction. Smith provided the vehicle, Marx and Mill showed how to increase the power and speed. It did not happen that way, however.  

The 20th Century: The Lost Way  

At the end of the nineteenth century, optimism prevailed for further social progress during the twentieth century. America had demonstrated the benefits of economic freedom, and the Europeans had managed to limit the number of wars and even make wars more civilized by limiting the number of civilians included in the carnage. The twentieth century, however, instead of building on this positive momentum, became the most violent century in human history.  In economic maneuvers equivalent to this political and military devastation, finance capitalists managed to concentrate more wealth than ever before, while collectivists did not use growing democratic power to reform capitalism but rather used it to concentrate political power. Instead of a world uniting in economic common purpose, the nations reverted to barbarism and atrocity, including two world wars, ethnic cleansing of many peoples, the holocaust, the fire-bombing of cities, and the atomic bombs over Hiroshima and Nagasaki .

This human failure to move toward a world of peace and plenty during the twentieth century discouraged philosophers and forced many to conclude that humans were incapable of using reason to improve lives and eliminate the violence. Along with the millions of people killed by governments during the century, the ideal of a world free from want, fear, and oppression was itself a causality. In this vacuum of idealism, the world became dominated by those whose mission was to amass greater wealth, and by those comfortable with the use of violence for religious, ethnic, and nationalistic purposes.

Among the casualties in the death of idealism, for example, were two celebrity philosophers:  Isaiah Berlin (1904-1998) and John Rawls (1921-2002).  Both reacted to the century of record violence by declaring idealism an illusion and the Enlightenment search for truth useless.  Berlin used the failure of the “single solutions” of Hitler, Stalin, and Pol Pot as evidence that no solutions of any complexity are available. Rawls, who had contributed much to the examination of a just society, gave up on the effort to apply reason to find a better organization of human affairs:  

Whether there is or ever was such an Enlightenment project (finding a philosophical secular doctrine, one founded on reason and yet comprehensive), we need not consider it, for in any case, political liberalism, as I think of it, and justice and fairness as a form thereof, has no such ambitions.[14]  

Who killed idealism? Why did the great promise for society during the twentieth century turn so violent and bloody? Were Berlin and Rawls correct in abandoning idealism and the Enlightenment challenge?  Let us rather, I suggest, lay the blame where it belongs:  Reformers failed to realize the ideals of the Enlightenment because they failed to synthesize the means presented by Smith, Marx, and Mill, and consequently failed to modify the political structures in support of the superior economic system. Capricious leaders were still allowed to fumble their way into WWI followed by more failure of leadership that made WWII inevitable.  Subsequently, other untrained leaders continued to make mistakes in power politics resulting in violence. The process was imperfect, the quality of knowledge poor, and the tragic mistakes inevitable from this failure.

The circle of people united in trust and working in cooperation continued to build wealth and good feelings, demonstrated in the improvement in the lives of hundreds of millions in America and other countries that moved away from tyranny towards economic freedom.  Economic and social progress was constrained, however, as it always had been, by those motivated by greed and comfortable with exploitation and the use of violence.   

The 21^st Century: Another Chance to Find the Way  

Another new and promising opportunity for society seemed to arise in the 1990s when all could see that collectivism with its central planning and state control had failed to deliver on its social contract.  With the fall of the Berlin Wall and the collapse of the international Communist movement, the contrast between collectivism and economic freedom demonstrated again that freedom, not collectivism, is the way to improve the peoples’ lives. Besides this empirical evidence of what works and what does not work, other developments also put in a new light the understanding of Marx’s proposed changes in the relationship of capital and labor. The Information Age added enormous productivity to the economic system that could be attained only in the democratic capitalistic culture that eliminates the alienation between labor and capital. Equally dramatic, workers in the United States became a major source of new investment capital.  Class struggle between capital and labor must be at an end when the wage earners and the capitalists are one!

Reflecting these profound developments, new idealists were again proclaiming a world of economic common purpose that would lead to a world of peace and plenty for all. Francis Fukuyama, for example, gained recognition by affirming that the world was moving in the direction of liberal democracy and free markets, for, he reasoned, with the demise of Communism and the failure of collectivism, no other ideologies remained to compete.[15]  Fukuyama ’s End of History thesis was contrasted, however, with Samuel Huntington’s Clash of Civilizations, a proposal that a half-dozen major cultures would not converge but would remain fracture lines for global conflict.[16]  After the events of 9-11, Fukuyma’s critics reported that “history has returned from vacation.”[17]   Fukuyama defended his thesis, placing 9-11 in the context of fanatics in a shrinking world who had reacted to the inevitability of their young people’s demand for the freedoms and comforts that they could now view on television and visit on the internet. Fukuyama expressed it this way:  

The struggle we face is not the clash of several distinct and equal cultures like the great powers of nineteenth-century Europe . The clash consists of a series of rearguard actions from societies whose traditional existence is indeed threatened by modernization. The strength of the backlash reflects the severity of this threat.[18]  

Fukuyama and Huntington thus brought the historic dichotomy up-to-date:  Will society adopt the rational economic system that can eliminate material scarcity, elevate spirits, and unite people in economic common purpose, or will society continue to struggle in the grip of destructive emotion and violence? Fukuyama ’s argument had economic and social logic on its side; Huntington ’s had the human history of folly and violence.

Despite favorable circumstances at the turn of the millennium, the idealists were dashed again! The impediment of concentrated wealth had grown because ultra-capitalism dominated the world’s economy. The reformers still did not know how to synthesize Smith, Marx, and Mill in order to learn how to democratize capitalism. A large part of investment capital, most of it the workers’ money, went into speculation rather than being directed towards the job-growth economy. Corporate surplus was not being distributed in dividends to the wage earners but was being diverted to Wall Street priorities. The bubble economy of the 1990s rewarded the few in the up direction and hurt the many in the down, as it had done before in similar economic swings many times since the beginning of the American republic.

The same corruptions of ultra-capitalism that were damaging the domestic American economy were doing even worse damage on the international scene to emerging economies. Few recognized the connection between the reversal of strong economic growth in Indonesia and the attacks of terrorists on 9-11.  The connection was indirect, but after U.S.-led ultra-capitalism had destroyed the Indonesian economy (see chapter 7), social tensions and violence in this largest of Muslim nations displaced the sense of economic common purpose associated with a rising standard of living.  Terrorists then found a fertile environment for the recruiting and training of more terrorists.

Optimism at the end of the nineteenth century was destroyed by WWI. Optimism at the end of the twentieth century was destroyed even more quickly on a single day, September 11, 2001 .  Before this atrocity, America was regarded by many as an arrogant unilateralist with a cop-of-the-world attitude. After the tragedy, some American officials ignored the history of all empires, apparently convinced that the U.S. could run the world. Others recognized that terrorism is guerrilla warfare and particularly requires multilateral U.N. action, and, further, that the only thing that can break the cycle of reciprocal atrocities is a rising standard of living worldwide.  

The Crossroads in Human History  

By the middle of the 19^th century, the way to a world of peace and plenty had been made clear in theory, was available in principle, and was being validated in practice. Why, then was society still debating the attainability of the ideal at the beginning of a new millennium?  Why, then, had the impediments to that superior form of commerce that is the basis for social progress not been removed?  Why, then, were the folly and violence escalating?  I have written my answer to these questions in this book, now I summarize in these few lines:  

·        Before the Industrial Revolution:  Concentrated wealth among the elite, and violence among nations and people, dominated society because resources were in fact limited.  The miserable majority found idealism primarily in the spiritual realm.

·        Late-18^th century: The Enlightenment in Europe , the British Isles , and America proposed the secular ideal, the means to attain it, and the process to identify both.

·        Mid-19^th century: Marx and Mill confirmed that Adam Smith was correct: Material scarcity could be eliminated.  They proposed ways to increase wealth further and spread it broadly to eliminate the impediment of concentrated wealth.

·        20^th century: Reformers chose collectivism instead of the free-market principles of Smith and the worker-ownership proposed by Marx and Mill.  This choice caused the bloodiest century in human history.

·        Beginning of the 21^st century: A world of peace and plenty through economic freedom and economic common purpose has its best opportunity to succeed for these reasons: The Information Age requires the democratic capitalist culture; the Information Age has added multiples of productivity; the Information Age is itself a unifying influence; wage earners in America have become a major source of new capital; and the evidence of the benefits of economic freedom have been demonstrated not only in democratic but also authoritarian countries.

·        Beginning of the 21^st century: America should be leading the world to peace and plenty through economic freedom but is, instead, supporting ultra-capitalism that has slowed the world’s economy and reversed economic momentum in many countries. The world’s wealthiest nation is supporting a system that further concentrates wealth; the world’s most militarily powerful nation is being trapped in reciprocal atrocities by a relatively few fanatics.  

This crossroads in human history sets before us the choice whether to follow the way to peace and plenty or to take the well-troden way to more terrible folly and violence. At this intersection, I want to erect some guideposts, and so I propose the following hypotheses. They are arranged according to a sequential logic:  The validation of one hypothesis is necessary before moving on to the next. Assuming that the validation has successfully proceeded from #1 through #7, then hypotheses #8 and #9 suggest movement to required action. 

I find myself again in agreement with Karl Marx that only after the world is improving lives through a superior economic system will it be possible to stop the violence. Thus the ultimate success of the United Nations in substituting law for violence among nations, proposed in hypothesis #10, is predicated on the visible success of economic freedom worldwide, success that I believe will be attainable if we act according to these hypotheses.

I propose that Enlightenment II, an undertaking by teams of multi-disciplinary, multi-cultural truth-searchers in the universities, examine these hypotheses and develop a curriculum for the education of citizens and the training of leaders (see below, hypothesis #8). Institutional investors and other groups could from their own examination and by cooperation with the universities more quickly derive an action agenda to refine capitalism and restructure government (see below, hypothesis #9).  A hopeful solution in these troubled times is emergence of leaders with the intellect of Jefferson, the relentless determination of Washington, and the capacity of  Franklin to get things done, people of statecraft who will draw on the will, wisdom, and votes of the majority to reform America and lead the world to peace and plenty. I invite examination, challenge, debate, rejection, refinement, or validation of these hypotheses.  

Hypothesis #1—The Ideal: A world of plenty is attainable on the basis of a superior economic system supported by the culture and the political structure.  

            Economic freedom has demonstrated the capacity to eliminate material scarcity, elevate spirits, and unite people. The satisfaction of the basic needs for food, clothing, and shelter through economic freedom is naturally coupled with improvement in health and education; this, in turn, stimulates hope for further improvement in future generations. Changes in the culture and political structure, unless directed to improve the economic system, do not improve the lives of people and frequently make them worse.

            A world dominated by violence among nations and concentrated wealth does not improve lives; instead, it leaves a large part of the world living in misery, not free of want; a good part of the world living under tyranny, not free of oppression; and most of the people of the world fearful for the future.  During the twentieth century, 160 million people were killed by governments, and wealth was concentrated in record amounts.  This empirical evidence demonstrates that the direction of the world is under the control of those whose mission is to build and use nationalistic power, no matter how many innocent people are killed, and to concentrate wealth, no matter how badly they damage the world’s economy.  The most fundamental of all principles in human affairs, the worth of each individual, was obscenely violated throughout the century by the killing of so many innocent people. The obscenity was so pervasive and repetitive that many citizens were conditioned to accept it as the norm as they watched its repetition early in the 21^st century.

In prioritizing the support of the economic system by the culture and political structure, we begin with affirmation of the most basic tenet that all people can reach their potential only after satisfaction of their needs for adequate food, shelter, clothing, health, and education, and that only the economic system can satisfy these needs.  A superior economic system provides jobs, income, products, and services to fulfill these needs of society, and it also generates the tax revenues through which we can assist those not included in the benefits of the economic system.  The economic system, further, underwrites good education and health that elevate peoples’ spirits and foster an expanding sense of shared community.  On the first premise, that a superior economic system ought to be sustained by the culture and the political structures, the ideal of individual development for all in a harmonious whole is attainable.

As obvious as this may seem, the world has been managed another way because leaders have repetitively given priority not to the economic system but to the culture and political structure.  If the terms of this hypothesis are both obvious and ignored, then we must acknowledge the economic and social tragedies caused by failing to act according to them, and we must acknowledge that similar or worse tragedies are liable if we do not validate hypothesis #1 and act accordingly. For example, Woodrow Wilson tried to substitute fuzzy idealism for economic principles at the post-WWI conference with tragic consequences for the direction of history during the rest of the 20^th century. Wilson ’s biographer wrote the following:   

Wilson had little time to ponder deeply on the economic causes of war, from the beginning of the peace process he had relegated economic matters to subordinate places. Wilson ’s first love was politics, not economics.[19]  

The most powerful man at the post-WWI peace talks ignored the principles and implications of hypothesis #1 that social progress depends on movement to a superior economic system.  Others at the peace talks were appalled at Wilson ’s ignorance. John Maynard Keynes (1883-1946) left the British team to go home and write a book on the subject.[20]  

I propose that Marx’s priority for the superior economic solution can be applied in retrospect as the way to have avoided violent events in history.  At the time of the American Revolution, as another example, British Parliamentarian Edmund Burke warned King George III that British economic interests were being sacrificed in the effort to maintain political control of the Colonies.  George III did not listen.

The American Civil War killed 620,000 young Americans and added enormous economic cost to the national tragedy.  Most Americans, including many Southerners, had realized that slavery was an ideological contradiction to everything that America stood for, but slavery was also an economic problem that in the course of a generation could have had an economic solution. 

The Russian Bolsheviks stole the 1917 Revolution and made radical changes in the political structure that deflected attention from Marx’s intended rearrangement in the relationship between labor and capital. This priority for changes in the political structure, instead of economic reform, led to decades of violence and misery!

The Social Democrats in Germany in the 1920s were poorly trained in economics and could not overcome the problems left over from the faulty peace talks of 1919, Wilson ’s legacy. The resulting desperate economic circumstances in Germany destroyed social cohesion and set the stage for Hitler and his reign of evil.

The argument that the bloody 20^th century was the result of avoidable errors can be demonstrated both by analyzing the failures and by evidence of other leaders who gave the necessary priority to economic freedom. After WWII, the United States used its power and money to repair the ravages of war and set the world on the way to economic growth and better lives for many. The Marshall Plan was one of America ’s proudest moments because President Harry Truman and General George Marshall understood history and economics well enough to make the right moves. Any criticism that it was self-serving, and in time helped the U.S. economy, misses the point, for mutually beneficial results are the essence of economic common purpose.

The United States provided the money and encouragement, but free market-experts such as Ludwig Erhard, German Finance Minister and later Chancellor, made it work with an amazing 8% sustained national growth rate. The economic recovery in both Germany and Japan demonstrates what can be accomplished when the national mission is improving the lives of the people through economic freedom, not through war and geopolitics.

Each of these cases, I argue, supports hypothesis #1: When the priority is movement to the superior economic system, not changes in the culture or political structure, then the lives of the people can be improved. The ideal of plenty through economic freedom, as proposed by the Enlightenment, has never been reached because neither have conducive circumstances been put in place nor have the impediments been removed.  At the head of this chapter, I cite FDR’s observation:  The problem is not that free enterprise has failed; the problem is that free enterprise has never yet been tried on a sustained basis.

Validation of hypothesis #1 will serve as the first building block for the improved organization in human affairs. The examination can then proceed to a definition of the superior economic system, hypothesis #2.   

Hypothesis #2—The Means: The superior economic system is democratic capitalism based on economic freedom, private property, competition, neutral money, and protection from speculators. Democratic capitalism maximizes wealth because workers are motivated to produce and innovate in a trusting, cooperative environment in which they share in the surplus of improved performance.  Worldwide economic growth becomes stronger because of the workers’ motivation, and steadier as a result of the broader distribution of wealth.  

By the later part of the nineteenth century, economic freedom had been experimentally verified through improvement in the lives of millions of people, particularly in America . The great wealth that was produced by this system was then distributed to those whose purchases kept the economy growing and spreading through free trade.  This was the free market system summarized by Adam Smith in these words:  

Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.[21]  

The dynamic that Adam Smith proposed is an economic perpetual-motion machine. Leave it free and it will steadily reduce costs, add volume, and spread wealth around the world through free trade (see chapter 6). Economic freedom will not only eliminate material scarcity, the source of the traditional struggle, but also it will foster the harmony and trust that has been thwarted throughout human history.

Adam Smith was not an apologist for greed, as he has been frequently translated to be; he was, rather, a champion of the workers.  He was an enemy of mercantilism and the concentration of wealth, and he qualified the success of his system in terms of the availability of non-volatile, patient money, and the control of speculators. Smith warned that the “prodigals and projectors,” as he called them, would deflect money from the job-growth economy and waste it on speculation.  In Smith’s vision, strong and steady economic growth would spread wealth broadly if the wild and destructive swings in the economy were purged by directing currency and credit to the job-growth economy.      

Karl Marx and John Stuart Mill were inspired by Adam Smith’s description of a system that could actually eliminate material scarcity.  The message that Marx and Mill got from Smith was of economic freedom that combines the productivity and innovation of involved workers, the technology of the Industrial Revolution, the motivation of private property, the monitoring influence of competition, and a government that secures ample, low-cost, non-volatile, patient money.  Mill integrated all of these vital components, but Marx failed to assimilate the importance of private property and competition.

Mill studied socialism carefully and concluded that the Socialists had taken a wrong turn when they took competition and private property out of the economic equation.  Subsequent history proved Mill correct, for central planning not only is inefficient but also it destroys motivation at all levels.  The prospect of honest competition is the fuel that energizes Smith’s economic perpetual-motion machine, for competitors constantly raised the levels of productivity and excellence in product design, reduced the cost to produce, and improve their marketing skills. 

This economic system that offers to improve the quality of life in a moral environment can be rationalized in several ways. Mechanical engineers could explain the superiority of democratic capitalism on the principle of friction and force: More friction results in less force; less friction results in more force. The parallel in human relations is this: More alienation results in poorer performance; less alienation results in better performance.

         Social scientists could explain the superiority of democratic capitalism because it appeals to both sides of the human duality: individual ambition and the instinct for social cooperation. Democratic capitalism rejects the motivation of “greed is good” morality and the theory of Social Darwinism as one-dimensional and overly individualistic.  The self-centered approach ignores, and in fact contradicts, the more powerful benefits resulting from combining individual ambitions with cooperative efforts.

Statisticians could verify the superiority of democratic capitalism by referring to the large database of democratic capitalist companies that have demonstrated superior long-term performance in competition with those who treat workers as a cost commodity (see chapter 4).  This comparative record would be even more impressive if Business Schools presented democratic capitalism for student examination, thereby adding substantially to the pool of young managers inspired by the philosophy and trained in the protocols.  Instead, democratic capitalism has had to be reinvented through trial and error by successive generations of democratic managers.

Democratic capitalism is superior to other economic systems because it is freedom based and enhances the natural characteristics of humans. The human urge is to bond together in order to be free of want, fear, and oppression.  Nevertheless, humans throughout history have been forced to settle only for freedom from want in a commercial world that was run on the basis of fear and oppression.  Democratic capitalism, by contrast, is based on the natural human state in that it allows everyone to be free of want, but it accomplishes this in a working culture that frees people from both fear and oppression. 

The superiority of democratic capitalism can be tested and verified in many ways, but how universal can it become?  Is it a “Western” phenomenon only?  What political structures are required for its success?  In hypothesis #3, I propose that it can be a universal system.  

Hypothesis #3—The Universal Economic Solution:  Democratic capitalism can be universal because it has demonstrated the capacity to raise the standard of living and improve the quality of lives under both democratic and authoritarian governments.  

Economic freedom works best within a democratic structure because freedoms are complementary:  Economic freedom contributes to and enhances political and social freedoms; social and political freedoms contribute to and enhance economic freedom. Economic freedom has been demonstrated to work, nonetheless, under authoritarian governments so long as the government’s true mission is the welfare of the people. Economic freedom cannot work in a totalitarian structure, but in our increasingly interdependent world, people recognize the failure of totalitarian governments to improve lives; therefore, younger generations in most societies are applying long-term political pressure to move their governance towards economic freedom.

Both Adam Smith and the Marquis de Condorcet recognized that the new American republic would have the best chance for economic freedom to work because democracy and capitalism are inherently synergistic. Despite the impediments of concentrated wealth and collectivism, economic freedom in America did improve the lives of many millions, thus confirming Smith’s theory and Condorcet’s optimism.

In the late-twentieth century, Lee Kuan Yew demonstrated in Singapore that economic freedom can also improve lives under an authoritarian government.  Singapore ’s transition from being a third-world to a first-world economy was used as the title of Lee’s book.[22] Even more impressive was the improvement in the standard of living and quality of life in authoritarian Indonesia , the world’s largest Muslim country, with a total population of over 220 million people (see chapter 7). 

Authoritarian China is a work-in-progress, but it has already improved the lives of more people through the introduction of economic freedom than any other country in history has done. All of these efforts under authoritarian governments have included serious imperfections, as also do efforts at economic freedom in democratic cultures, but if the criterion of success is the improvement in the quality of millions of lives, then they succeeded. 

Many believe that economic freedom should be paralleled by political liberties, such as the freedoms of the press, assembly, religion, civil rights, due process, and democratic elections. This perception that economic freedom and democratic rights go hand-in-hand is correct in the long term.  Short-term, however, economic freedom is so powerful that it can work under conditions of limited political freedom; indeed, it becomes a compelling force towards greater political freedoms.  This assumption is based on the belief that once the freedom genie is out of the bottle, once people are more economically comfortable and better educated, then political freedoms will follow. Some political activists give priority to political freedoms over economic freedom, but it has been demonstrated that this sequence does not work well.  Many American politicians seek political gain by criticizing other country’s human-rights violations, but they fail to place the complex management of change from tyranny to economic freedom in the context of a long process that must begin with economic improvement. 

Jean-François Revel, a former editor of L’Express and winner of many European honors, proposed that “economic freedom sooner or later leads to political liberty.” Revel then made this distinction:  

What is needed is less state and more government. The democratic renewal stems from nothing so much as the practical necessity of diminishing statist omnipotence and impunity while enhancing governmental competence and responsibility—for humanity cannot persist in self-destruction.[23]  

This sensitive relationship between liberty and democracy, including the dangers in rushing to democratic elections before economic momentum has been gained, has been well examined by reporter Fareed

Zakaria in The Future of Freedom.[24] Zakaria points out that a rush toward democracy can be counterproductive unless a structure of law is in place.

The proposal that economic freedom will eventually lead to political freedoms is particularly convincing in the Information Age because the profile of the educated, independent-thinking employee is the same as the profile of the citizen who will demand political freedoms.

In the later part of the twentieth century, the universal system of economic freedom was improving lives throughout the world.  The American government, however, reversed this momentum by making mistakes that escalated the traditional impediment of concentrated wealth into destructive ultra-capitalism. Hypothesis #4 describes this impediment.  

Hypothesis #4—The Impediment of Ultra-Capitalism: At the beginning of the twenty-first century, the worldwide economic system is functioning at only a fraction of its potential because of U.S.-led ultra-capitalism which combines mercantilism, that treats the worker as a cost commodity, and finance capitalism, that dominates the economy instead of supporting it.  

During the last quarter of the twentieth century, the combined effect of the demise of Communism and of the demonstrated ability of economic freedom to improve lives, presented the world with an unprecedented opportunity to unite in economic common purpose.  Tragically, the United States government responded to Wall Street lobbying with mistakes and bad policies that wasted this wonderful opportunity.  The U.S. led the world consequently into ultra-capitalism that slowed the world’s total economy, reversed the economy of many countries trying to move toward economic freedom, and provoked populist protest and new forms of violence.

These mistakes and bad policies included Nixon’s floating of the dollar in the early 1970s without an alternative stabilizing mechanism in the international monetary system, thus causing volatility that made the speculators more powerful than central bankers. This volatility mistake was followed by ERISA, the liquidity mistake, that took active capital used in growing companies and gave most of it to the stock market where it caused the bubble economy, little of that capital going back to the job-growth economy.  During this period, finance capitalism was deregulated at the same time that market disciplines were abrogated. The suspension of market disciplines began in the late-1970s with the dramatic expansion of bank deposit insurance in multiple locations that contributed to the S&L scandal, followed in 1984 by the bailout of the Continental Illinois Bank.  Short-term “hot” money, easy credit, and speculation with extraordinary leverage then combined with the pressure on the emerging economies by U.S. officials to take down cross-border capital controls.  Easy credit was further expanded by “structured finance,” a euphemism for new ways to avoid disclosure, fool the people, avoid regulation, and make more money on money (see chapter 9). The total effect resulted in severe economic and social damage in a number of developing nations and another boom/bust cycle in the mature economies.

The human tragedy lies in that those who control wealth have yet to recognize the system that does provide more for everybody, and could provide still more for the whole world. The financial elite still lobby policies that concentrate wealth because they presume that wealth is finite and must be battled over. Human tragedy lies also in the failure of those whose mission it is to improve the human condition but who have yet to reform the prevalent system in a way that would improve the human condition. For these reasons, Adam Smith’s vision of eliminating material scarcity has not been realized. For these reasons, Marx’s and Mill’s visions of improving the world by releasing the latent power of motivated workers has not been realized. For these reasons, the broad wealth distribution anticipated by Smith, Marx, and Mill, upon which free trade depends, has not been realized.

I find it paradoxical and tragic that the country with the greatest record of improving lives through economic freedom was, at the turn of the millennium, leading in the wrong direction and becoming known as an economic imperialist with a cop-of-the-world attitude.  The traditional weakness of capitalism, concentrated wealth, was escalating to new record levels under ultra-capitalism. The worldwide benefits of free trade could not be realized in emerging economies because that same concentration of wealth was limiting the spendable income that free trade depends upon.  Sadly, the reality of “globalization”—with its potential to bring material comforts, education, and improved health to the worlds’ people—was corrupted to such an extent that the word “globalization” became, instead, a rallying cry for populist protest.

The superficial success of the U. S. economy in the latter part of the twentieth century resulted in many bragging about the “American Model.”   Others saw more clearly that unchecked individual greed was taking America down a dangerous path.  In 1993, Michel Albert, a French executive, captured this threat in Capitalism vs. Capitalism and warned in his subtitle: How America ’s Obsession with Individual Achievement and Short-Team Profits, Has Led It to the Brink of Collapse. [25] Albert was prescient in his examination, but it took another eight years for the damage to become public and blatant.

During this time, I watched with concern the exploitation of South American countries and Mexico by U.S.-sponsored ultra-capitalists who put forward the theory of “free capital roaming the world seeking its most efficient investment.”  The reality was short-term and speculative capital, protected by the U.S. government, searching the world for quick profits. For centuries, strong countries had exploited weaker countries, but this time it seemed to be different.  People in these emerging economies were beginning to earn a better life, when, suddenly, it was snatched away.

My concern changed to shock when Southeast Asian countries were devastated in 1998.  The ideal of economic common purpose gradually improving lives and purging the violence, went right down the drain in several countries, most notably Indonesia, a showcase of the benefits of economic freedom.  Suddenly, their economy was destroyed by a lack of control of hot money and by speculators driving the Indonesian currency down by as much as 70% of its earlier value.  No country, and few businesses in the country, could absorb an economic shock of this magnitude. The fragile political structure went down with the currency, jobs, and wages.  Inevitably, ethnic and religious tensions surfaced and provoked violence. The IMF, dominated by the United States , then made matters worse with bankers’ policies that slowed growth even further.  The myopia of U. S. Treasury officials and the IMF was so great that they found ways to blame the victims, even while opening up new markets for Wall Street firms (see chapter 7).

I almost cried!  The world was so close in the early 1990s to building irreversible momentum towards peace and plenty, then to have the momentum reversed in a way that was quick, ugly, and unnecessary.  Economic exploitation is not admirable, but it is at least understandable. The 1998 reversal of economic and social momentum, however, was not old-fashioned imperialist exploitation but, rather, mistakes in government policies in response to Wall Street lobbying.

The events in Southeast Asia were too remote and complicated to arouse popular concern in America , particularly since most of the popular press did not grasp the meaning of these events as opportunities to inform citizens about the corruptions of ultra-capitalism. Instead, they turned the economic disaster in Indonesia into a political event, much easier to describe than are complicated economic realities. Suharto, president for 32 years at that time, was an easier target than were the speculators and hot money bankers. Suharto’s positive record in having reduced the percentage of his people under the poverty line from 40% to 10% was rarely mentioned. 

The economic collapse was accompanied by a moral collapse in commerce:  In 2003, an executive doing business in Indonesia reported that whereas “he never had to bribe local officials during the Suharto days, [he] now pays off scores of them.”[26]  Suharto had greedy kids and allowed “crony capitalism,” but his civic order controlled broad-scale bribery along with everything else.

In my studies, I learned that society has been warned throughout history about the harm to economic growth and social cohesion from concentrated wealth. Confucius understood the necessity for diffused economic power two and one-half millennia ago:  

The centralization of wealth is the way to scatter the people, and letting it be scattered among them is the way to collect the people. They produce wealth, but do not keep it for their own gratification. Disliking idleness, they labor but not alone with a view to their own advantage. In this way, selfish schemes are repressed and find no way to arise; robbers, filchers, and rebellious traitors do not exist.[27]  

The 18^th-century European Enlightenment added their wisdom to that of Confucius. Claude Adrien Helvétius (1715-1771), a wealthy man, wrote with special authority on the persistent impediment of concentrated wealth and its negative effect on social cohesion:  

The almost universal unhappiness of men and nations arises from the imperfections of their laws, and the too unequal partition of their riches. There are in most kingdoms only two classes of citizens, one of which wants necessaries, while the other riots in superfluities. If the corruption of the people in power is never more manifest than in the ages of the greatest luxury, it is because in those ages the riches of a nation are collected into the smallest number of hands.[28]  

Benjamin Franklin (1706-1790), that Enlightenment man of America , actually proposed legal limits to concentrated wealth:  

That an enormous Proportion of Property vested in a few Individuals is dangerous to the Rights, and destructive of the Common Happiness, of Mankind; and therefore every free State hath a Right by its Laws to discourage the Possession of such Property. [29]  

Condorcet denounced special privileges from the government to the few as the root cause of the concentration of wealth:   

Wealth has a natural tendency to equality if the administration of the country did not afford some men ways of making their fortune that were closed to other citizens.[30] We shall reveal other methods of ensuring equality, either by seeing that credit is no longer the exclusive privilege of great wealth or by making industrial progress and commercial activity more independent of the existence of great capitalists.[31]  

Condorcet correctly identified non-democratic privileges lobbied by, and given to, the few as the source of concentrated wealth, but his vision of broad wealth distribution was only a utopian ideal in the eighteenth At the beginning of the twenty-first century, however, the U.S. economy had begun to fulfill Condorcet’s prophecy:  Wage earners had supplanted the “great capitalists” as a source of investment money. Unfortunately, this watershed event has yet to change the pattern of government privileges for the few to make more money on money.  While the source of capital has been democratized, the rewards from capitalism have not yet been democratized.

By 2001, ultra-capitalism began to unravel in America in a spectacular fashion as big company after big company failed when their corruption was exposed.  This public failure of ultra-capitalism, the drop in the stock market, and the sight of corrupt CEOs being led away in handcuffs, all became media and political events. Many of the politicians in Congress who rushed to reform capitalism had been the same politicians who earlier had been responsible for passing the laws that gave ultra-capitalists the privileges that caused these problems in the first place (see chapter 9).  CEOs had become easy targets, but it was the government structure itself that provided Wall Street such power to reward and punish

CEOs based on how thoroughly they adopted ultra-capitalism or not.  For every corrupt CEO, hundreds more were forced victims of ultra-capitalism (see chapter 8).

The fundamental conflict between finance capitalism and democratic capitalism in America goes back to the beginning of the republic when non-democratic privileges to make money on money flowed from many government officials who could be influenced or bribed. Since then, the neutral money needed for free markets to work well has been displaced by easy credit for speculators, and wild swings in the economy have been the result.  Removal of this impediment is the intent of hypothesis #5.  

Hypothesis #5—The Bad Banking Impediment: From the beginning, the banking system in the United States has limited the capacity of economic freedom to spread wealth and improve lives. Under ultra-capitalism, this impediment has escalated to a force that threatens the world’s economy.              

            Commercial banks have a simple mission: make high-quality loans in support of the job-growth economy.  Government policies, instead, now allow banks at various times and in various ways to provide easy credit to fund excessively speculative and high-risk ventures, to trade in futures, to slow growth during a credit crunch, and to hide total debt through structured finance and securitization. Government policies then insure, subsidize, and bail out the banks, assuring a continuation of bad loans. In a down market, bank policies then deprive credit-worthy businesses of critical funds because the bankers are trying to fix their loan reserve ratios that they screwed up with their bad loans.

            Adam Smith predicted that free markets would spread wealth and improve lives through “the natural course of events” and the “invisible hand,” if money were low-cost, ample, non-volatile, and patient. Smith warned particularly that the system could be compromised by the “prodigals and projectors” who would deflect money from the job-growth economy, waste it, and destroy free-market benefits.

In this hypothesis, I affirm that the U.S. government has failed to protect the system from the “prodigals and projectors”; it has, rather, encouraged, funded, insured, subsidized, and bailed them out. Extreme examples of this corruption of free-market principles include LTCM (see chapter 7) and Enron (see chapter 9), but many other cases could be cited.  This contradiction of Smith’s free-market philosophy has slowed economic and social progress for two centuries, and the privileges and corruptions have now escalated to a level that deprives the world’s economy of its best opportunity. The global economy cannot function if the speculators on borrowed money have more power than do central bankers, a power that the speculators demonstrated many times during the last quarter of the twentieth century. Leveraged speculation would be purged from the system in a heartbeat if citizens understood the corruption.  The way to a world of peace and plenty lies before us, but we cannot follow it until the economic system implements a 21^st-century version of the free-market principles proclaimed by Adam Smith and refined by Marx and Mill so long ago.

             While Adam Smith and the classical economists believed that the free markets could do most of the job without assistance, that belief was qualified by the expectation that government exercise its responsibility to assure that money remain a neutral medium of exchange, and that capital for investment be patient. The government can fulfill this responsibility either through free banking that is monitored by market disciplines or through government regulation.

The banking system in the United States is the worst of both possible worlds because it has deregulated at the same time that it was suspending the disciplines that free markets depend upon. The result is a banking system that privatizes the profits for the few and nationalizes the losses to the taxpayer. Instead of allowing the market to seek equilibrium, the U.S. government’s policies cause large swings in the economy that are economically and socially damaging.   

            Since the beginning of the American government, the politicians have experimented with national banks, State banks, private banks, and the present system of half-public/half-private banking.  None of these efforts has succeeded in serving the general welfare.

            The present banking system in the United States has limited the power of economic freedom to improve lives because it has been cobbled together in pieces, and designed under the influence of Wall Street lobbyists whose mission is to make money on money.  No integrated banking policy; no long-term government plan for currency and credit control; and no thoroughly articulated responsibility for fiscal, monetary, and regulatory practice is in place.  What does exist is spread among so many governmental agencies that the overlap, confusion, and turf squabbles cause a policy vacuum that is filled by Wall Street lobbying. This approach has limited growth, concentrated wealth for the privileged, slowed the world’s economy, and prevented improvement in the lives of billions of people. 

            The more recent policies lobbied by the special interests of ultra-capitalism generated the excessive liquidity that funded the bubble economy, lately popped. From one extreme to the other, the policies then switch to a credit crunch just when the economy needs stimulation to regain momentum. Similar policies have been applied around the world by the U.S. dominated IMF with the same boom/bust economic damage, over-funding in the up direction, under-funding in the down.

Adam Smith’s qualification that free markets function only when capital is not deflected to the speculators, has not only been ignored by the American government but has been denied at the highest level. When Chairman Greenspan famously described the “excessive exuberance” in the stock market in the mid-1990s, he not only did not reduce the percentage of money that could be borrowed for speculative purposes but also he advised Congress that no relationship exists between the money available for speculation and the rise in the stock market (see chapter7).  In a later speech, Greenspan reviewed the 1990s bubble economy and concluded that if high interest could not prick the bubble, then the Fed had no other tools to do the job.  In other words, Greenspan was acknowledging the government’s powerlessness to prevent the boom-and-bust pattern that has caused such enormous social damage over the past two centuries. Greenspan commented:  

If low-cost, incremental policy tightening appears incapable of deflating bubbles, do other options exist that can at least effectively limit the size of bubbles without doing substantial damage in the process? To date, we have not been able to identify such policies.[32]  

This view is not only unacceptable and dangerous but also incorrect. Many options are available to a government willing to follow its Constitutional mandate to control currency and credit for the general welfare, and these options await only an aroused citizenry that will demand their implementation. This, however, is the same chairman that helped repeal the Glass-Steagall Act and helped prevent regulation of derivatives, and, oversight of hedge funds like LTCM and Enron. This type of powerful support from top government officials has led to a fundamental error in government economic policy, namely the deregulation of finance capitalism, with a claim that unregulated finance capitalism constitutes the “free market”. This wrong turn was taken at the same time that the market disciplines that could have kept the market free were being suspended.

Many tools are available to prevent the boom/bust cycle. For example, if bank examiners can come in after the bubble has burst and make matters worse by tightening credit, then why can they not come in earlier and raise reserves, limit the availability, and raise the cost of money for speculation that causes asset inflation in the stock market and real estate in the first place? Reserves must be increased when the stock market rises beyond improvement in corporate earnings, and reserves must be increased when real-estate values grow at a rate faster than inflation. Following this protocol will require determined democratic support because reserves are increased only by a reduction of profits, which affects the price of the bank’s stock and the value of bankers’ stock options.

Whether the problem is the over-funding of Enron or Southeast Asian countries, another control tool is the reintroduction of the debt-to-equity ratio discipline. The relationship of short-term hot money and other debt to long–term patient capital, whether in a company or a country, must be subject to regulation. When hot money becomes disproportionate to long-term equity, the risk goes up; therefore, the availability of money should go down, and the cost of money should go up. An accurate debt/equity comparison, however, depends on full disclosure of all off-balance-sheet debt, but disclosure has been so corrupted under ultra-capitalism that both the lenders’ and borrowers’ balance sheets are works of fiction.  International bankers chasing profits through hot money need to be disciplined simply by requiring that a portion of their money invested in emerging economies be in the form of long-term debt or equity, or, in a crisis, a requirement that hot money be cooled by automatic conversion to long-term debt or equity.

The mission of commercial bankers ought to be to make good loans to help the economy grow. Ultra-capitalist bankers, however, are motivated and rewarded based on deal-making, short-term earnings, and stock options that are incongruent with the mission of making good loans. Bankers’ compensation over a period of years should be penalized by write-offs for bad debts. The all-important sensitivity to making good loans will come back only after the insurance, subsidies, and bailouts are eliminated.  Deposit insurance, for example, must be returned to the original intention of protecting the small depositor in a single banking location.

William Isaac, former chair of the FDIC (Federal Deposit Insurance Corporation), warned about the potential damage to the economy from the “too big to fail” policy (see chapter 7). He pointed out that bankers would be convinced by a bailout that they could make stupid loans for short-term gain and be protected from punishment. Fed Chairman Volcker ignored Isaac’s warning in 1984 and bailed out the Continental Illinois Bank.  In 1991, the Bank of New England, the third largest bank-holding company in the Northeast, failed. The FDIC, under new leadership, then demonstrated how far it had gone in protecting bad loans by paying off not only the insured deposits, the limit of which had been raised from $40,000 to $100,000 in the 1982 S&L bailout law, but also all depositors. As the abrogation of market disciplines became steadily worse, so also did the quality of bankers’ loans.

How could this Constitutional contradiction persist while democratic power was growing in a country “of the people, by the people, and for the people?”  The answer to this question is that the people’s elected representatives have not been reflecting the will and wisdom of the people; instead, the politicians have been influenced by the lobby power of Wall Street and the banking interests.  Liberal Democrats have also ignored the will and wisdom of the majority, and instead of reforming ultra-capitalism, they have concentrated political power to micromanage commerce and redistribute wealth. Hypothesis #6 is about the resulting political gridlock that impedes appropriate reforms.  

Hypothesis #6—Gridlock: America is in an intellectual and political gridlock between those who support ultra-capitalism and those who are trying to use government to redistribute wealth.   This gridlock prevents urgently needed reform of monetary, fiscal, and regulatory policies.  

Since the beginning of the American republic, the financial oligarchy has held both economic and political power. During the twentieth century, the Liberal Democrats (collectivists) challenged this concentration of wealth and influence with growing democratic power promoting a poorly designed agenda to help people through a more equitable distribution of wealth.  In this process, the American collectivists raised the percentage of the nation’s annual production (GDP) taken in all taxes during the century from 3% to over 30%. They did not, however, reform the economic system, they did not prevent ultra-capitalism from dominating, and they wasted much of the money.

In addition to the impediments from ultra-capitalism described in hypotheses #4 and #5, the free market has been impeded, then, both by “liberal” collectivists as by “conservative” ultra-capitalists. Ultra-capitalism impedes the building of wealth by concentrating it; collectivism impedes the building of wealth in these three ways: Central planning is inefficient; neither the workers nor the recipients of government assistance are motivated; and taxes take wealth from investment in economic growth and waste it in poorly designed government programs. Finance capitalists and the new breed of ultra-capitalists are good at lobbying privileges to make more money on money, whereas the collectivists, pursuing noble goals but limited in their grasp of economics, have not been effective at achieving what they hoped to achieve.

The Liberal Democrats failed to examine and validate hypothesis #1, that social progress depends on movement to a superior economic system; as a consequence, they failed to reform capitalism; instead, they moved towards a collectivist imitation of Socialism and state solutions.  The failure of Communism and Socialism, in contrast to the evident success of free markets, has left the collectivists without an agenda, whereas the financial capitalists have the feeling that they have won both more political influence as well as the intellectual argument. The polarized extremes sustain support of their followers by attacking the errors of their opposite, meanwhile leaving true reform unaccomplished in the resulting vacuum.

The present gridlock is a philosophical and political impasse between those who believe, on the one hand, in Social Darwinism and the prerogatives of the rich and powerful to govern the confused masses, and, on the other hand, well-meaning collectivists whose mission is to pass laws to help people and muzzle what they consider to be the animal instincts of generic capitalists. The middle class and the general welfare are ignored in this gridlock between the well-focused supporters of ultra-capitalism, mainly Republicans, and the poorly focused collectivists, mainly Democrats.

This gridlock goes back to the beginning of the Republic when Alexander Hamilton (1757-1804), the first Secretary of the Treasury, won the battle with Thomas Jefferson, the first Secretary of State, over the type of government that the nation was to have. Believing that the elite would know how to govern the masses better than the people could govern themselves, Hamilton favored a strong central government with privileges for the financial establishment. 

Jefferson, James Madison (1751-1836), and other Founders had crafted a structure of governance that would give democratic power to many, protect minorities from the tyranny of the majority, and diffuse political power among the legislative, executive, and judicial branches of government.  Jefferson ’s governmental structure was intended to diffuse both political and economic power, whereas Hamilton ’s structure was intended to concentrate both. Although Jefferson ’s design for government was a huge leap forward in the human quest for freedom, his political structure, nevertheless, did not prevent the accumulation of non-democratic special privileges for finance capitalists, and his skill as an economic theorist fell behind his capacities as a political thinker.  Because Jefferson was weak where Hamilton was strong, Hamilton carried the day on the financial front with President George Washington (1732-1799), whose extraordinary abilities and leadership, like Jefferson ’s, did not include depth in economics and finance.

The core of the debate between Jefferson and Hamilton is their respective perceptions of ordinary people: Hamilton did not trust them to govern themselves, whereas Jefferson did.  That is not to say that Jefferson was unaware of the dangers of mob rule, and that is why the government was structured with protection for minorities.  Neither did Jefferson believe that the people would necessarily get it right the first time, but he did believe that with universal education, and with leadership by those he called the “aristocracy of talent and virtue,” the people would get it right in the long run.   This belief in the extraordinary potential of people, given the proper circumstances, is one that I share with a passion.  It is also the humanistic core of the democratic capitalist philosophy.

Despite Jefferson’s and Madison’s intentions, the Hamiltonian financial establishment ever since has dominated the U.S. government’s fiscal and monetary policies, with the result that wealth has been, and continues to be, concentrated.  Presidents Jefferson, Madison, Jackson, Lincoln, Johnson, Theodore Roosevelt, Wilson, and Franklin D. Roosevelt all made proclamations about getting control of the “money changers,” and they all failed (see chapter 7).

They failed sometimes because their need to finance a war deflected their reforms, often because they and their advisors lacked financial sophistication adequate to reform the large inventory of special privileges lobbied by finance capitalists, and almost always because the peoples’elected representatives in Congress were well treated by Wall Street. Special privileges were the result of  “crony capitalism,” American style, according to which some finance capitalists lobbied public figures outright and others served their time in senior government positions before, during, and after which they could directly determine legislation and policies that resulted in a constant flow of special privileges. It has been that way for over 200 years, and it is still that way.  Congress, the Executive Branch, the Supreme Court, State legislatures, and the federal and state court systems have all promoted, passed, and interpreted laws that concentrate wealth.  In the early nineteenth century, laws upheld by local judges included jail time for labor organizers and strikers.

Aristotle long ago warned of governments controlled by the extremes of the rich and the poor. He proposed, instead, that the middle class was best qualified to structure government for the general welfare. Aristotle’s theory has been confirmed many times, but the middle class in the United States is now underrepresented, over-taxed, and overwhelmed by the lobby power of special interests. The paradox is that the group with the greatest voting power has the least political influence; the shame is that they are neither doing sufficient homework on these critical problems nor using their democratic power for reform.

Friedrich Hayek, who shared the 1974 Nobel Prize in Economics and was the recipient of the 1991 American Medal of Freedom, was both a market fundamentalist and a liberal in the original sense of the word.   A twentieth-century idealist in the tradition of the Enlightenment, Hayek had a clear view of this double impediment to social progress:  concentrated wealth of the conservatives and concentrated political power of the collectivists. His book, The Road to Serfdom (1946), had shocked many in the intellectual community who were, at that time, convinced that the wave of the future, the inevitable replacement for capitalism, was collectivism. Hayek, to the contrary, advocated the benefits of free markets and pointed out that collectivism led to totalitarian government and loss of freedoms. 

He described the collectivist and conservative extremes that polarized and gridlocked the political process—then as now—as follows:  

Socialists increasingly recognized the incurable economic inefficiency of central planning; collectivists then simply discovered that redistribution through taxation and aimed financial benefits was an easier and quicker method of achieving their aims.[33]  

Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies, it is often closer to socialism than true liberalism, and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place.[34]  

Although Hayek is often celebrated as a conservative economist, he understood the pathologies of both collectivism and conservatism, and he pointed the way to the system that combines the freedoms of the original liberal philosophy with the economic capabilities of free markets, conditioned by a finance capitalism that is subordinate to the commercial process, and money that is neutral. Hayek added:  

A conservative movement, by its very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege. The essence of the liberal position, however, is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others.[35]  

Guru of conservative economics to both the American President, Ronald Reagan, and to Great Britain ’s Prime Minister, Margaret Thatcher, Hayek nevertheless qualified the effective coupling of the free-market economic system with the liberal mission of improving lives.  Hayek repeated Adam Smith’s advice that money must be neutral, that is, without influence on the process. Unfortunately, as the triumph of ultra-capitalism demonstrates, both the conservatives and collectivists ignored that part of the economic principles of both Hayek and Smith.

Seeking the system that combines the best of the political left and the right is confused even by the terms:  Collectivists have stolen the good word liberal for their purposes, even though most of their programs are not based on individual freedom. Conservatives and market fundamentalists have stolen the good phrase free markets, for they pretend to free the world’s capital markets while they, at the same time, contradict economic freedom through their reliance on federal insurance, subsidies, and bailouts.  The suspension of market disciplines is also confused by being termed a moral hazard, a deliberately vague expression.

            Resolution of this gridlock between ultra-capitalists, the so-called “market fundamentalists,” and the collectivists, the so-called “liberals,” will determine the direction of history in the twenty-first century.  Shall Americans take further strides in history’s greatest democratic experiment and learn how to democratize capitalism, or shall we drift towards economic collapse and more violence?  If we are going to be able to take the path to progress, then our venturing forth awaits an epiphany by collectivists in which they discover that their mission of improving the human condition is best accomplished through the material and spiritual benefits of democratic capitalism.  The conservatives and market fundamentalists also await an epiphany to discover that the best way to maximize profits is through democratic capitalism, holding finance capitalism subordinate.

A bridge between the collectivists and conservatives will not be built on political theory; it will be built by collaborators who examine and validate hypothesis #1, that is, by people who accept Marx’s axiom that social progress depends on movement to a superior economic system.  Once this intellectual hurdle is passed, the examination can proceed to hypothesis #2, identification of the superior economic system in our time, and agreement that this system can eliminate material scarcity. The collaboration must continue with examination of the original social ethic of liberalism, in which progress is made toward full human potential by encouraging individual development in an environment of trust and cooperation. This liberalism was the philosophy of the eighteenth-century Enlightenment that informed both Adam Smith’s economic system and the political wisdom of the American Founders.  Although impeded, this

economic-political-social-philosophical system has demonstrated in practice over two centuries that it is the means to improve lives around the world.

If the truth-seeking process is of high quality, then the collaboration between the political left and political right that leads to social progress should not be difficult because most components of liberalism are common to both sides, and they include the following elements:  

·        Integrity

·        Economic freedom

·        Political freedom

·        Religious freedom

·        Freedom of expression

·        Freedom of assembly

·        Individual responsibility

·        Rule of law

·        Tolerance

·        Representative government

·        Cost efficiency in government

·        Equal opportunity

·        No non-democratic privileges

·        Diffusion of economic power

·        Diffusion of political power

·        Universal education

·        Due process  

This examination of the political gridlock raises yet more troubling questions: Why have reformers failed who had the democratic power to restructure government for the general welfare?  Why has this failure gone on for so long?  Why is this failure so profound that many have lost hope in the democratic process?  The answer is that whereas the Enlightenment grounded the ideal and the means on the proper truth-seeking process, successive generations of thinkers and managers have failed because they abandoned the process that is the focus of hypothesis #7.  

Hypothesis #7—The Process: The ideal of a world of peace and plenty achieved through the means of democratic capitalism has not been reached because of failure in the truth-seeking process.  

The inability of reformers to connect social progress with the superior economic system led me to an analysis of truth-seeking.  If the economic system that could eliminate material scarcity, elevate spirits, and unify people had been so well defined by Smith, Jefferson, Condorcet, and others, and if the key impediment of concentrated wealth had further been identified and resolved in theory by Marx and Mill, why does the bottom one-third of the people of the world still live in misery. Why is so much of the world still so violent?  Why have so many brilliant philosophers abandoned idealism when the opportunities seem so great?  I have concluded that the reason is an egregious, persistent failure in the truth-seeking process.  This failure itself seemed inexplicable because the process had been tested by the Enlightenment and has been available for use for 200 years.  The culture, particularly the universities, I concluded either have not done their job or did it poorly.

 Thousands of idealists for thousands of years have grappled with the question of how to seek knowledge to improve the human condition.  In my studies, I found that coupling the philosophy and protocols of Aristotle and Francis Bacon provides the best process for that mission. Aristotle used his training as a biologist to determine the growth potential of all living things, and then he addressed the conducive circumstances required and the impediments to be removed. This seems to me to be a straightforward way to find what the fullest growth potential of the human species might be. Aristotle’s process seems familiar because it is how most managers seek excellence:  “What’s the best we can do if we do everything right?  Which tools do we need to do it?  What obstructions do we need to get out of the way?”

Most of the Enlightenment thinkers were inspired by the work of Francis Bacon who was Lord Chancellor of England before being driven out of office by his political enemies. He then dedicated his life to examining the correct process to ascertain truth.  One of the stars of the French Enlightenment, Jean Le Rone d’Alembert (1717-1783), praised Bacon in these words:  “At the head of these illustrious personages should be placed the immortal Chancellor of England, Francis Bacon, whose works, so justly esteemed, deserve our study even more than our praise.”[36]

Bacon was convinced that the curriculum in the universities neither equipped students for leadership in business or government nor did it teach them to think clearly.  Bacon attacked the resulting superficiality in the thought process:  

The primary notions of things, which the mind readily and passively imbibes, stores up and accumulates, are false, confused, and over-hastily abstracted from the facts. Whence it follows that the entire fabric of human reason, which we employ in the inquisition of nature, is badly put together and built up like some magnificent structure without any foundation.[37]  

Bacon had to attack the Aristotelian curriculum of his time as it was being interpreted by 17^th century Scholastics, and he did this in part by calling for a return to a more authentically Aristotelian investigation of things in the search for their essences, study of their growth potential, discovery of the favorable circumstances required, and identification of impediments to be removed.

Bacon espoused learning from experience, testing the resulting generalizations, and then moving onto higher levels of generalization in a process that is dynamic, collaborative, and cumulative:  

·        The process is dynamic because it is a reiterative process that is modified by improved knowledge and experimental verification assimilated through a feed-back system.  

·        The process is collaborative because multicultural and multi- disciplinary participation neutralizes narrow cultural conditioning.  

·        The process is cumulative because it is based on adding verified blocks of knowledge to the structure of understanding upon which to lay new, further blocks of knowledge.  

Drawing upon Aristotelian examination and Baconian process, the 18^th-century Enlightenment made available to successive generations as their legacy an attainable ideal, a workable means, and the process to identify both. 

In the latter part of the 19^th century, despite availability and clarity, the culture and the political community failed to follow the path because they failed to follow the process.  Instead of reforming the economic system as the way forward, ideologues and politicos took a wrong turn: Contradicting hypothesis #1, they tried to reform society by changing the political structure. This process failure resulted in the misdirection of reform energies into political structure rather than into greater wealth creation and broader wealth distribution.  The terrible result of this process failure was a twentieth century in which millions of innocents were killed and hundreds of millions lived in misery.  By the end of that century, the leaders of culture and the elected politicians, instead of viewing the damage and correcting the errors, were continuing to make the same mistakes with the same threatening economic and social consequences.

Mistakes by American leaders during the 20^th century violated Bacon’s process because the truth-seeking was inadequately dynamic, collaborative, and cumulative. Among the examples of these process errors that contributed to the folly and violence, one may include President Wilson’s fuzzy idealism and disinterest in economics that contributed to the flawed peace talks in 1919, and the failure to get American participation in the League of Nations; President Hoover’s three egregious errors that exported the stock market correction into the Great Depression (see chapter 7); and the misreading of the nationalistic motives of Ho Chi Minh and Vietnamese leaders that caused the war in that country. In the last quarter of the 20^th century, successive Presidents made mistakes in economic principles that caused excessive volatility and liquidity; these, combined with deregulation and the suspension of market disciplines, launched ultra-capitalism on an unsuspecting world. Both the ideologues of the “liberalization of capital markets” and the proponents of a worldwide manifest destiny for America in which we unilaterally determine which governments should survive, violate Bacon’s process in every respect. They are not sufficiently reiterative; they fail badly on the diversity of disciplines and cultures and they are not cumulative in their assimilation of historical evidence.

The process failure in all of these examples manifested the usual errors of imperial-minded formalists applying old answers to old questions, for the process has been secretive and static instead of dynamic and reiterative.  The process has been authoritarian and punitive rather than collegial and collaborative, for it lacked representation by various disciplines and the multiple perspectives of different cultures.  The process perpetuated ideological concerns even after the evidence of error became obvious. Finally, no unifying intelligence collected and codified their knowledge which would have added  validated building blocks to the edifice for the organization of human affairs.

At the turn of the millennium, the world was making the same mistakes it had made a century before.  Not only were our leaders failing to seize the opportunity to unite in economic common purpose but also they were going backwards economically and backwards to new forms of violence. The sad record of the 20^th century validates hypothesis #7, that global social progress has been retarded by persistent and egregious mistakes that should have been avoided by the correct truth-seeking process. The common denominators in all of these errors were ignorance and arrogance in the otherwise bright minds of sincere people who nevertheless lacked understanding of economics, the management of change, and the structure needed before freedoms can become functional.  Among the first agents of change to employ the correct truth-seeking process in order to reconfirm the ideal and specify the means ought to be the universities; this is hypothesis #8.  

Hypothesis #8—Agents of Change: American culture, led by the universities, must train leaders and educate citizens in the functional requirements of economic freedom. Citizens with this knowledge can develop an agenda for structural reform of both industry and government.  

The world is whirling in a vicious cycle: The failure to follow an efficacious truth-seeking process to harness knowledge for human betterment has resulted in grievous mistakes by nations’ leaders, causing enormous economic and social damage and bloodshed, in turn causing many intellectuals to abandon idealism, which, in turn, saps the energy that might be directed to true reform. To break this cycle, the universities and the intellectual community must initiate a determined effort at Enlightenment II by assimilating the wisdom of the first Enlightenment, and then by following the process that will reaffirm the ideal and specify the contemporary means.

Enlightenment II is an opportunity for the universities to regain the lost mission of unifying and elevating society. Citizens of Enlightenment II, engaging in an improved, cooperative truth-seeking process among many disciplines and many cultures, will examine the hypothesis that democratic capitalism is the way to peace and plenty and an end to violence. In this process, the humanists will sensitize the economists, the economists will educate the humanists in the superior economic system, and the whole will be greater than the sum of the parts. Most will eventually recognize that Marx was right: Social progress does depend on movement towards a superior economic system.

Enlightenment II will have a difficult responsibility in analyzing the lessons of the twentieth century. Will the demonstrable capacity of economic freedom to improve lives be copied and spread worldwide, or will the violence of governments and terrorists be repeated?  Many twentieth-century philosophers viewed the horrors of their time and abandoned idealism; others, such as Peter Drucker, saw the dawning Information Age as a new opportunity, if only a new synthesis could be developed.  This synthesis could finally bridge the “thinkers” and the “managers,” along with scientists, humanists, economists, and the religious, that is, combining cultures and disciplines into teams cooperatively engaged in Enlightenment II. Drucker believed that “to transcend this dichotomy in a new synthesis will be a central philosophical and educational challenge for the post-capitalist society.”[38]

Case studies are available, such as Enron (see chapter 9), for a provocative curriculum that will contrast the fundamentals of democratic capitalism with the corruptions of ultra-capitalism.  When this curriculum becomes available for courses in Adult Education, it will educate and stimulate business groups, civic groups, religious groups, unions, and others, availing the voting public with the economic literacy they require to elect leaders who will structure government in support of free-market principles.

All parts of universities and colleges have the obligation to educate citizens in order for economic freedom to work, but Business Schools and Law Schools have a more particular responsibility to train leaders. Many Business Schools, infected by ultra-capitalism, have joined in celebrating the “American Model,” that is, the economic system that is individualistic, greedy, and devoid of any social contract. In hypothesis #2, I propose that democratic capitalism, not ultra-capitalism, is the system that can maximize long-term wealth, the result that is presumably the mission of business and, therefore, the mission of those who teach Business Administration.  As the economic and social damage from ultra-capitalism increases, the obligation of Business Schools becomes more urgent to present their students with the theory and practice of democratic capitalism.

Young people coming into Business Schools are roughly divided into those determined to become millionaires by the time they are thirty, and those with a still vague desire for a contributory career, the wish to “make a difference.” As long as the Business Schools fail to present democratic capitalism, those potential moral leaders default to ultra-capitalism. Conversely, when the Business Schools do present democratic capitalism as a coherent and integral system for student examination, those with a conscious moral instinct will grab democratic capitalism and run

with it. Those on the margin, partly conditioned to the idea that morality and the profit motive are mutually exclusive, will recognize instead the synergy, and become enthusiasts for democratic capitalism.

Law Schools are the breeding ground for many politicians; therefore, they have a responsibility analogous to the Business Schools to train leaders in those matters that will generate social progress. Law students with a tilt to the political left will gain from Enlightenment II by an understanding of the pathologies of collectivism, and the enormous opportunities for the state to do more for people at a fraction of the cost simply by applying to governance the philosophy and protocols of democratic capitalism. Those with a tilt to the political right will recognize the opportunity to reduce the role of government by supporting the economic system that produces strong and steady growth, thus allowing many families now needing government assistance to become part of the positive economic momentum. New leaders, thus educated and inspired, will, in time, break the gridlock.

Another college at the university that needs to become fully engaged in the exploration of democratic capitalism by way of Enlightenment II is the School of Education . One outcome of Enlightenment II will be a curriculum for citizen education, pre-K through graduate school, including Adult Education. A curriculum in democratic capitalism will inevitably stimulate a new democratic political agenda.

Citizens will examine the proposition that democratic capitalism solves the persistent problem of the maldistribution of wealth. Citizens should examine the proposition that as the standard of living in the world rises through economic common purpose, so the violence will go down. Citizens will learn to structure fiscal and monetary policies to support economic freedom, assist those inadequately prepared to participate in the economy, and engage in cooperative U.N. actions to stop the violence.

Long before any of these good things can happen, school children, starting in pre-K, must be educated for their dual participation in individual development and social cooperation. National educational standards are useful points of reference, but they remind us of massive failure without addressing root causes. Top-down application of remote standards do little to educate the kids, and they burden teachers and principals with another time-consuming distraction. Only integration of the philosophy and protocols of democratic governance can free education from the bottom up, and release the latent power of principals, teachers, and students. Only then, and in time, will there be a chance for all schools to meet national standards. 

Multi-disciplinary truth-seeking for the improved curriculum for citizen education and training of leaders is neither a precise science nor need it be, as Aristotle cautioned:  

It is the mark of an educated man to look for precision in each class of things just so far as the nature of the subject admits; it is evidently equally foolish to accept probable reasoning from a mathematician and to demand from a rhetorician scientific proofs.[39]  

Human history is not about small misses; it is about large, persistent mistakes and violence.  No great precision is required for humans to determine what is required to stop killing hundreds of millions of our own species. Similarly, no great precision is required to adopt the commercial system that has demonstrated its capacity to eliminate material scarcity, and elevate and unite people.

Disciplined by the correct process, the model produced by many minds assimilating knowledge from different cultures would have a tremendous benefit for the education of citizens. The model could serve as a template for all international agencies, most importantly the United Nations, to provide consistent advice to nations trying to improve the lives of their people.  The new model could show the conservatives how actually to attain the reality contained in the slogan “compassionate conservative,” and it could give the collectivists a new identity not as bureaucrats and micromanagers but as true liberals.  Further, it could give true liberals on both sides of the ideological aisle an effectual political agenda to improve the human condition. The potential political power of this agenda is vast because it provides focus for the feelings of most citizens.

What is the benefit of an excellent Liberal Arts education if it sensitizes many wonderful young people to the desire to improve the human condition, but it also sensitizes them to a contempt for capitalism, and provides them no education in the fiscal and monetary matters upon which improvement in the human condition depends. I do not suggest that everyone needs to major in Economics and minor in Accounting; rather, I am suggesting that the college curriculum include a basic understanding of socio-economic principles and issues, and raise broad questions of policy and social implications.  For example, ought not every citizen know about “easy credit,” “leveraged speculation,” and in general the history of the government’s failure to control currency and credit for the general welfare?  Ought not a future citizen know that Adam Smith warned about the “prodigals and projectors” who, uncontrolled, would deflect capital from the job-growth economy to speculation? Ought not every citizen know how free markets depend on “neutral money,” and understand the government’s responsibility to assure that money be not “volatile and impatient?” Ought not future tax-payers legitimately expect their college professors to teach them why bank subsidies, bailouts, and deposit insurance are abrogations of the disciplines needed for the free market to work properly?

A democratic republic depends for success on educated citizens; the universities in an open society are responsible for the education of those citizens. The job is not now being done, and that is the root cause for a society that is blundering along the well-worn path of folly and violence.

Enlightenment II is the long-term movement to peace and plenty that will gain positive momentum with each generation of students and citizens. Other agents of change, people who can press for reform more rapidly, are to be found among institutional investors, the concern of hypothesis #9.   

Hypothesis #9—Agents of Change: Institutional investors have the fiduciary responsibility and the democratic power to democratize capitalism by reforming company practices and government policies.  

Institutional investors could move the American economy towards democratic capitalism in a surprisingly short time by using means that already exist, namely by influencing the policies of companies that are largely owned by working people, and by bringing to bear both on companies and the government the democratic voting power that this ownership of shares represents.

During the last quarter of the twentieth century, a new wage-earner capitalism emerged, called either “pension fund socialism” or “employee capitalism” by Peter Drucker,[40] but I prefer to call it “democratic capitalism.”  This new capitalism is a realization of Marx and Mill’s visions of a synergistic relationship between labor and capital, a development that has come about not through radical restructure or political revolution but through evolutionary means.

This new relationship between capital and labor was expedited by ERISA, a new federal law passed in 1974, that mandated the funding of future pension benefits out of current corporate earnings.  The flow of funds started by this law increased with the 401(k) law that encouraged savings from pre-tax dollars. As a result of these new laws, the ownership of American public companies has shifted towards wage earners.  Pension funds, mutual funds, insurance companies, banks, foundations, and university endowments increased the amount of money to be managed from under a half-billion in 1970, to $8.5 trillion by 2001. Ownership of public companies by wage earners grew from under 15% to over 50%.[41]  

The explosive growth of wage-earner capitalism should have diffused economic and political power.  Instead of diffusion, however, wealth and political influence became more concentrated.  Instead of becoming more accountable for the long-term financial and social benefits of their majority owners, most of the wage earners’ money managers supported ultra-capitalism, attracted by its presumed better short-term results. Ultra-capitalism came to dominate the economy because the enormous flow of new cash into the stock market gave new power to reward or punish CEOs based on how closely they follow Wall Street dictates (see chapter 8).  If this observation sounds like a lament by an ex-CEO, consider the words of an ex-banker, David A. Hartman:  

Corporate CEOs got the message.  Forecast 20% growth and 20% return—or fake it. Does this provide any clue as to why the fictitious earnings of Enron, WorldCom and the like have become so widespread? Either CEOs and auditors play ball, or Wall Street has them replaced with more “performance oriented” players.[42]  

Wall Street’s new power came from an extraordinary contradiction in which more democratic ownership resulted in more concentration of wealth and a less socially sensitive capitalism. This contradiction can be traced to the egregious government mistakes that caused the excessive volatility and liquidity that launched ultra-capitalism (see chapter 7 and hypothesis #4). Instead of using the growing democratic power to counteract the lobby power of ultra-capitalism, institutional investors in most cases supported ultra-capitalism.

The Congressional designers of ERISA failed to analyze alternative uses of this new flow of democratic capital. In the early 1970s, when ERISA was being designed, Senator Russell Long (D., Louisiana) and his committee proposed, and Congress passed, new tax laws that encouraged employee ownership through ESOPs (Employee Stock Ownership Plans). A magic opportunity was missed to design new financial instruments to invest tax-favored ERISA funds in the job-growth economy, which would have resulted in large dividends, long-term appreciation, and security. The government, instead of responding to the needs of the people and recycling the capital into economic growth, responded to the Wall Street lobbyists and sent the money to the stock market where it pushed stock prices to artificially high levels in the bubble economy. A new chapter in the book of making money from special government privileges was being written: Since the beginning of the Industrial Revolution, finance capitalism had exploited the workers’ labor; now, in the early stages of the Information Age revolution, ultra-capitalism was learning how to exploit the workers’ capital!

We need to listen to, and act upon, the insight of Peter F. Drucker, who skewered ultra-capitalism in these words:  

What emerged from this frantic decade [hostile takeovers, leveraged buy-outs, downsizing, et al.] was a redefinition of the purpose and rationale of big business and the function of management. Instead of being managed in the best balanced interests of stakeholders, corporations were now to be managed exclusively to “maximize shareholder value.”  This will not work, either. It forces the corporation to be managed for the shortest term, but that means damaging, if not destroying, the wealth-producing capacity of the business. It means decline and finally swift decline. Long-term results cannot be achieved by piling short-term results on short-term results. They should be achieved by balancing short-term and long-term needs and objectives. Furthermore, managing a business exclusively for the shareholders alienates the very people on whose motivation and dedication the modern business depends: The knowledge workers.  An engineer will not be motivated to work to make a speculator rich.[43]  

The alienation that Marx identified as the impediment to greater and more widely distributed wealth, should have disappeared with the advent of the Information Age and wage-earner capitalism. An industrial environment that releases the cognitive power of people is mutually exclusive with alienation because the working class (“labor”) is now also the owner class (“capitalists”), as well as the bosses (“management”).  As Drucker pointed out, however, the alienation will persist as long as ultra-capitalism prevails.

I argue, therefore, that institutional investors ought to examine and accept the hypothesis that democratic capitalism maximizes long-term shareholder value because the system that maximizes the innovation and productivity of each will add up to the maximum profits to be shared by all. Exclusive concentration on short-term profits is eventually self-defeating because it destroys the motivation upon which the long-term success of any enterprise depends.  Drucker made this point many years before the 2002 crash of ultra-capitalism, and so did I!

The first priority of the institutional investors should be to put pressure on companies to invest capital surplus in more growth and to pay the stockholders large dividends, rather than wasting surplus on non-strategic acquisitions and stock buy-backs. At the same time, institutional investors can become the antidote to Wall Street lobby power by lobbying changes in the tax laws for tax-free dividends and tax-free capital gains for low- and middle-income shareholders. This simple change will have the benefit of recycling surplus into stronger economic growth, and it will also build momentum towards greater worker-ownership plans and the full benefits of democratic capitalism.  Most wage earners will be pleased to put their money into a plan that provides not only secure long-term appreciation but also large annual dividends that can be spent or reinvested in more equity, both stimulants to still greater economic growth.

Another change that institutional investors could implement is to measure corporations by making them accountable for management’s predictions for sales growth, cash flow, and profits over a three-year period.  Adoption of this measurement and accountability—combined with large, tax-free dividends, with no capital-gains tax for the wage earner; control of the feeding frenzy in executive compensation; and a change of auditors every five years (see chapter 9)—would move the economy towards the stronger, steadier growth of democratic capitalism, and away from the boom/bust cycle of ultra-capitalism that has done such unnecessary economic and social damage.

After ultra-capitalism is purged from the system in part by the voting power of institutional investors, and after democratic capitalism receives support from the American culture and political structure, it will spread wealth throughout the world and unite people in economic common purpose. The visible improvement in the lives of hundreds of millions of people will then set the stage for a steady reduction and eventual elimination of violence among people and nations. The United States is positioned to lead towards this economic common purpose and its promise of global social progress.  That ideal prospect, including cooperation with the United Nations in its mission to substitute law for violence, is the focus of hypothesis #10.   

Hypothesis #10—The Ideal of World Peace:  Democratic capitalism will result in a rising standard of living and a growing sense of economic common purpose worldwide, which will provide the environment for the United Nations, backed by the United States of America in a cooperative role, to displace violence with law in the relations among nations.  

The ideal of a world of plenty through the means of economic common purpose is placed as hypothesis #1 because democratic capitalism must be demonstrably spreading wealth worldwide before the ideal of a world of peace, hypothesis #10, can become attainable and perceived as attainable. The repositioning of American foreign policy to be a strong team player within the United Nations must be supported by a clear demonstration that America is leading the world towards the benefits of economic freedom.

The full capacity of capitalism to provide basic comforts to the people of the world has never been realized.  The opportunity for nations to substitute law for violence has never been accomplished. Underlying these two persistent failures is the perception of inherent tension between capitalism and democracy. Democratic capitalism that draws its strength from an inherent synergy between capitalism and democracy has been obscured because most have believed that commerce is inherently immoral, or amoral at best.  Lacking a unifying ideal, many have concluded that idealism is dead and violence inevitable.

One might argue that stopping the violence could have a quicker effect on improving the condition of the world, but the cycle of violence is so institutionalized in human affairs that the cycle will be broken and the reciprocal atrocities will cease only when the standard of living is steadily going up throughout the world.

In my studies, I found a correlation among many of the great thinkers regarding the enormous potential of people in a world free of want and violence. Many of these great thinkers over many centuries emphasized the same virtues that I had learned from experience, the direct correlation between improved performance and trust and cooperation.  These great thinkers also observed the interconnected impediments to social progress: the concentration of wealth and violence among nations and people.

Confucius, for example, knew that a world of law, not violence, begins with trained and virtuous leaders, though he was realistic in his awareness that the elimination of violence would be a long process:  

When the great principle prevails, when the world becomes a republic, they elect men of talents, virtue, and ability; they talk of sincere agreement and cultivate universal peace. After a state has been ruled for a hundred years by good men, it is possible to get the better of cruelty and do away with the killing.[44]  

Mencius (371-289 B.C.), one of Confucius’s interpreters and a teacher of universal love, denounced war as a crime against humanity:  “There are men who say ‘I am skillful at marshalling troops, I am skillful at completing a battle.’ They are great criminals, there never has been a good war.” Mencius marveled that a thief who steals a pig is condemned and punished, whereas an emperor who invades and appropriates a kingdom and enslaves its citizens is called a hero and is held up as a model for posterity.[45]

Young Edmund Burke (1729-1797), before he became a famous British Parliamentarian, pondered the human failure to stop the violence. He asked these questions:  Why has every human effort to structure society for peace and plenty been a failure?  Why does the only animal capable of reason kill more of its own species than does any other animal? Burke included in his litany of civil society’s failures the exploitation of the poor by the rich, and then, after viewing them in their demeaned condition, the conclusion by the rich and powerful that ordinary people are incapable of participating in their own governance.[46]

German philosopher Immanuel Kant, later in the eighteenth century, searched for the perfect constitution that would allow humans to reach their full potential.  Kant’s “Eighth Thesis” was his elaboration upon “a perfectly constituted state as the only condition in which the capacities of mankind can be fully developed, and also bring forth that external relation among states which is perfectly adequate to this end.”[47] Kant, in his seventies, took a dim view of the quality of truth-seeking then being practiced in international relations:  

[Kant expressed] …a certain indignation when one sees men’s actions on the great world stage and finds, besides the wisdom that appears here and there among individuals, everything in the large woven together from folly, childish vanity, even from childish malice, and destructiveness.[48]   

Condorcet in his summary of the work of the Enlightenment did not miss this vital subject.   Buoyed by his optimism about improving the condition of humankind through universal education and rising affluence, he foresaw the establishment of organizations like the United Nations, “more intelligently conceived than those projects of eternal peace which have filled and consoled the hearts of certain philosophers,” and he believed that these would “hasten the progress of the brotherhood of nations.”  Condorcet expressed his hope that when war departed and peace arrived, “Wars between countries will rank with assassinations as freakish atrocities, humiliating and vile in the eyes of nature and staining with indelible opprobrium the country or the age whose annals record them.”  Condorcet saw a moral society founded on economic principle:  

When at last the nations come to agree on the principles of politics and morality, when in their own better interests they invite foreigners to share equally in all the benefits people enjoy either through the bounty of nature or by their own industry, then all the causes that produce and perpetuate national animosities and poison nations’ relations will disappear one by one, and nothing will remain to encourage or even to arouse the fury of war.[49]  

Condorcet thus placed economic common purpose as the prerequisite to stopping the violence. A little over a half-century later, Marx arrived at the same conclusion. Marx first emphasized that social progress depends on movement to a superior economic system, and then he concluded that, with the elimination of material scarcity through this superior economic system, the warrior state would lose power.

Early in the twenty-first century, the United States was confused about the kind of capitalism to support and the nation’s proper role in the world.  Was America an example of democratic principles in action, one person, one vote? Or was it a new imperial nation with the responsibility to run the world, one nation, all of the votes? Enormous military might and economic strength was affording the United States all the hard power it needed to be imperialistic, and it so chose in the invasion of Iraq .

At the same time, America also had great soft power through its traditions of American freedoms, comfort for most, work ethic, inventiveness, and rule of law.  Early in the new century, both types of hard power, both economic and military, were securely in place, but America was losing its soft power at the same time that soft power was gaining in importance in our more interconnected world.

            Joseph S. Nye, Jr., Dean of the Kennedy School of Government and former Assistant Secretary of Defense, reasoned in his examination of hard and soft power that while America is likely to continue to be number one in hard power, in a world where soft power is more important, America cannot go it alone:  

In this global information age, number one ain’t gonna be what it used to be. To succeed in such a world, America must not only maintain its hard power but also must understand its soft power and how to combine the two in the pursuit of national and global interests.[50]  

The United States has the hard economic power to lead the world towards democratic capitalism, but it has, unfortunately, used that power to push the world toward ultra-capitalism.  The economic and social damage done by ultra-capitalism has fed anti-American sentiments to such an extent that the U.S. has had to use its military hard power both to fight terrorists and to threaten other countries.

The more the United States tries to “go it alone,” the more other governments such as China , India , Russia , France , and Germany feel pressured to build a hard-power coalition to challenge what most of the world views as America ’s arrogance of power.  China can surpass the United States in economic power during the 21^st century.  Their high economic growth rate can benefit the American people in a world united by economic common purpose, but if China is forced to divert growing economic power to build up military hard power, not only will China have squandered its national wealth but also the sense of global economic common purpose will devolve into mutual suspicion. Nye commented on this choice:  

Global governance requires a large state to take the lead. But how much and what kind of inequality of power is necessary—or tolerable—and for how long? If the leading country possesses soft power and behaves in a manner that benefits others, effective counter-coalitions may be slow to arise. If on the other hand, the leading country defines its interests narrowly and uses its weight arrogantly, it increases the incentives for others to coordinate to escape its hegemony.[51]  

Nye offered this wisdom a year before the Iraq War.  

Senator Robert Byrd (D., West Virginia) warned the Senate on February 12, 2003 , that they were standing by, passively mute, while the nation was lurching toward war, “the most horrible of human experience.” Senator Byrd placed the impending attack on Iraq in this context:  

This coming battle, if it materializes, represents a turning point in U.S. foreign policy and possibly a turning point in the recent history of the world. This nation is about to embark upon the first test of a revolutionary doctrine applied in an extraordinary way at an unfortunate time. The doctrine is preemption—the idea that the United States, or any other nation, can legitimately attack a nation that is not immediately threatening but may be threatening in the future—a radical new twist on the traditional idea of self-defense.[52]   

Senator Byrd went on to describe the destabilizing effect that this new policy and action would have as nations would now have to judge whether to attack or whether they were about to be attacked. Byrd regretted that these destabilizing actions were under consideration in a world “where globalism has tied the vital economic and security interests of many nations so closely together.” Byrd understood that 9-11 had changed the world, but he commented:  

Calling heads of state “pygmies,” labeling whole countries as “evil,” denigrating powerful European allies as irrelevant—these types of crude insensitivities can do our great nation no good. We may have massive military might, but we cannot fight a global war on terrorism alone.[53]   

Shortly after the Senator’s speech, America and a few allies invaded and conquered Iraq contrary to the wishes of most of the world.

                        The theory that any nation has the preemptive right to invade another country entails extraordinary implications, for it leads the world in a direction in which each nation would feel responsible for adding to its military capability either to be an attacker or a defender against another’s attack. At the same time the U.S. chooses to arm selected nations, including tyrannical ones, America also decides which other nations are not allowed to be similarly armed, and which ones are to be attacked because they think that they have the same prerogatives for military preparation as the U.S. and its allies. 

The demilitarization of all nations, not just the ones targeted by American patriots, is an urgent and overdue event that should be managed by the United Nations and led by the United States . Demilitarization of selected parts of the world while adding to one’s own and one’s allies military strength, however, is not only hypocritical but also impossible.  All citizens should be concerned with American hypocrisy in the elimination of weapons of mass destruction. For example, thousands of nuclear-armed missiles in America and Russia are still in the ready position, aimed at each other. With a desperately poor Russia trying to be friends with the United States , why are those weapons still there?

            Those weapons would not be there if Soviet leader Gorbachev and American President Reagan, when they met in Reykjavik , Iceland , had concluded their agreement for a sweeping nuclear weapons ban.  According to The Nation:  

That was the 1986 summit where only the panicked intervention of several presidential aides--some of whom advise the current U.S. administration (George W. Bush)--pulled Ronald Reagan back from the brink of agreement.[54]

In 1988, Gorbachev tried again in his December U.N. address, a vision of: deep unilateral arms cuts; rejection of ideology in international relations; and a call for a new world order of cooperation in solving such global problems as poverty, pollution, crime, and terrorism.[55] (Emphasis added)  

President Bush, the senior, was well known for his disinterest in    “the vision thing,” and the Cold War warriors in his Administration had not assimilated the opportunities for a world relieved of that bipolar confrontation.  The leaders of Russia , the country destroyed by that confrontation, had the vision; the leaders of America , the country with the power to put the vision into practice, continued, instead, on its path to more folly and violence.

In a world of reason and vision, preemption might have a place in a long-term U.N. plan to demilitarize the world. Force would be occasionally necessary, but the need would diminish rapidly as the world witnessed a coordinated, determined plan to convert the trillions of dollars wasted on military expenses to education, good health, and economic development.  Those few madmen who opposed this movement would provoke the moral and military might of the rest of the world.

Where did this extraordinary new policy of preemption come from?  With its enormous ramifications for the direction of history in the 21^st century, it must have been the product of high-quality truth-seeking by people of different disciplines and cultures.  Not at all!  Preemption came out of the minds of a few conservative ideologues. Their new mission began in 1998 when a new, small Washington think tank, the “Project for the New American Century,” wrote President Clinton to urge the elimination of Saddam Hussein’s weapons of mass destruction and, in time, the elimination of Hussein himself. Eighteen concerned people signed that letter, one-half of whom ended up in senior positions in the George W. Bush Administration.[56]

In September 2002, these ideologues now with political power, produced The National Security Strategy of the United States in which foreign policy emanated from the existence of great military power that was left over from the bipolar confrontation between the U.S. and the U.S.S.R., now improved with hi-tech developments.  The policy conclusion is that America has the power and is obliged to use it to run the world.

Robert Kagan’s essay on this subject caused a stir that encouraged him to restate it in a small book in which he concluded as follows:  

The United States remains mired in history, exercising power in an anarchic Hobbesian world where international laws and rules are unreliable, and where true security and the defense and promotion of a liberal order still depend on the possession and use of military might.[57]  

Kagan did not reference the success of the European Union in substituting cooperation and law for centuries of killing a large percentage of their people in wars. That example would have supplied experimental verification that such a transition could be made at the world level, if America would put its power behind the U.N.  Kagan called the U.N. “a pale approximation of a genuine multilateral order,”[58] but he did not address how thoroughly the U.N. had been undermined by the U.S. or how badly it needed structural reforms that would come about only with American support.  Instead, Kagan presumed to interpret the level of American idealism this way:  

One of the things that most clearly divides Europeans and Americans today is a philosophical, even metaphysical disagreement over where exactly mankind stands on the continuum between the laws of the jungle and the laws of reason. Americans do not believe we are as close to the realization of the Kantian dream as do Europeans.[59]  

A few hawkish, power-adoring ideologues are trying to preempt traditional American idealism. If their view prevails, America will turn even worse folly and violence in the 21^st century into a self-fulfilling prophecy. The United Nations will continue to be emasculated by the United States , and the world powers will be forced to build a coalition to challenge America in the worst arms race in human history, and that will include nuclear capability, chemical, biological, and all other weapons of mass destruction.

The policy of these ideologues of military power expressed in the National Security Strategy must become a matter of exhaustive public debate. This madness must be fully examined by the American people.  Give the citizens a clear choice, and they will vote their idealism!

The hawks in the United States need perceived enemies to sustain their enormous military budget. China had become the designated enemy for them since the demise of the U.S.S.R. until Iraq or North Korea—or whoever is next—would become a more inviting target.  Military preparation can become a self-fulfilling prophecy, too.  Thucydides (471-399 B.C.), the Greek historian warned at the time of the Peloponnesian War between Sparta and Athens that a belief in the inevitability of war can be a major cause of war’s taking place.[60] 

The group that determined the Iraq agenda violated the same part of Bacon’s truth-seeking process that former Secretary of Defense Robert McNamara identified as the fatal flaw in the team deliberations over American involvement in Vietnam .  McNamara, a pivotal figure in the Vietnam decisions, described what he had learned from that searing experience: “We are not practicing in an international context what we preach, and what we practice domestically—which is democratic decision making. We are not omniscient.”[61]

In both the Vietnam and Iraq wars, the teams responsible for American policy were not sufficiently collaborative, that is they did not have the multi-disciplinary and multicultural participation necessary to neutralize mistakes by those joined by the same narrow cultural conditioning. The Iraq war was another government policy founded on a desirable mission in the abstract but with threatening and unintended consequences for the rest of the century. Massive military expenditures around the world; balance-of-power geopolitics that target one group of nations differently from how other nations are treated; increasing violence, this time to include wide-spread and suicidal terrorism that will bring the battle to North America; and a further denigration of the power and prestige of the United Nations, the only available forum of international dialogue—all of these last-gasp behaviors of a warrior state are now out-moded by the inherent morality and effective promise of democratic capitalism. The new policy of preemption re-ignites the Cold War competition for weapons of mass destruction in a world where eight nations already have 32,000 nuclear weapons.  These nuclear-armed nations include India and Pakistan , contiguous countries consumed by religious and nationalistic passions engaged in war more often than not. Preemption practiced by either of those densely populated nations would result in a human catastrophe beyond measure. 

The Iraq War can have positive effects: American troops can be taken out of Saudi Arabia , oil profits can be directed to the Iraqi people, Israel can get security, and the Palestinians a state. Even if all of these good things happen, these ends did not justify that means, and the residual effects will still be catastrophic.  

The Alternative  

What will it take for the United States to reassume its historic role as a leader nation to bring about a rising standard of living, a growing sense of economic common purpose, and peace to the world?  The 21^st century presents an extraordinary opportunity for the United States to exercise its soft power and spread the benefits of democratic capitalism, to teach by word and example the only economic system that combines elimination of material scarcity and broad wealth distribution with the enduring values of freedom, trust, and cooperation.

During the transition to peace, the U.S. must be an enthusiastic supporter of the United Nations as the only agency available to displace violence with the rule of law in the relations among nations. This does not mean abrogation of the national sovereignty of any country, but it does mean that all nations—including the U.S. —must be held accountable to the high standards for international behavior set by the charter and other declarations of the U.N. The U.N. must be the starting place for the occasional use of force against nations that refuse to abide by the rule of law.  Military coalitions and even unilateral actions will continue to be necessary, and they can be acceptable, but only with U.N. approval.  The delicate problem of supporting a multilateral approach to the use of military force without compromising sovereignty, broadly defined, will be solved for the simple reason that the world cannot afford the alternatives. 

For example, the war on terrorism ought not to be fought unilaterally by the United States but be coordinated by the U.N.  Immediately after 9-11, the U.N. Security Council passed a resolution in support of the U.S. , pointing out that the U.N. had the infrastructure in place to conduct the long fight throughout the world against terrorism. President Bush, however, never mentioned the U.N. in his address to Congress following 9-11.

The U.N. is an imperfect organization needing both reform and further development. But why would one expect the United Nations to be anything other than imperfect when one considers how many officials in the world’s most powerful nation have treated it with contempt?  For years, the U.S. refused to pay our U.N. dues, and in January 2000, Senator Jesse Helms (R., North Carolina ) even appeared before the Security Council and told them that they had to do it “our way” or America would quit![62] 

The necessary reforms depend on steady support by the United States for a strong U.N. and renewed American leadership of the world in economic common purpose.  The standard of living will then go up, and the violence will go down, when global corporations work with governments to help the poor countries. As costly as this undertaking shall be, global corporations will do this work for two reasons: A moral obligation and good business.  Each country that joins the world’s free markets adds to total growth, and as long as the wealth is broadly distributed, all countries will benefit from free trade.

Many of the politicians who undermine American support of the U.N. are the same people who keep America ’s contribution to foreign aid at one of the lowest percentages of GDP of any mature economy.  Foreign aid has often been poorly managed, but similar to attitudes about the United Nation, the American focus needs to be on fixing what is amiss, not using the failures as an excuse to abandon its obligations. Weak U.S. foreign aid, the contradiction of free trade implicit in agricultural subsidies, and other unilateralist policies, as well as the corruptions of ultra-capitalism, now combine to portray to the world the image of an arrogant, greedy, self-centered America, nothing like the “light on the hill” that inspired the world two centuries ago.  The spirit of ordinary Americans has not changed, I believe, but the quality of the leadership has; the quality of leadership, however, is ultimately the responsibility of the people.

Those Muslim nations suffering from the tyranny that results when religion and state are coupled, will either have to move towards economic freedom or explain to their people why they are being systematically deprived of the good things in life that can be viewed on television or read about over the internet.  Once America espouses the system that not only

can eliminate material scarcity but does so in a moral way, then the enemies of freedom and their repressive ideologies will lose credibility as morally superior among their followers.

After the ultra-capitalist dragon has been slain, and wealth is more broadly distributed in each country and around the world, then people can unite in economic common purpose. Better education and a rising standard of living go together, and once the building momentum becomes visible, the violence will recede and the U.N. can begin to foster positive competition that will come to mean a contest of nations vying with one another to improve the lives of their people.

Instead of geopolitical power struggles and wars, the international community will, for the first time, concentrate on measurement and accountability in improving lives. This new positive focus can be based on the existing U.N. Human Development Index that is a composite assessment of a nation’s GDP that measures productive growth, life expectancy that measures efforts to improve health, and literacy that measures how well countries are educating their people.

People naturally like to compete and keep score.  After the U.N. Human Development Index comes into broader use, people will become interested in which countries are in the top positions, and which are toward the bottom. The U.N can then add to the Development Index predictions made by countries’ leaders based on three-year average improvement targets. Competition can then expand from absolute standings to how well countries are doing in comparison to their own plans.

Some may think that such measurement and accountability is game-playing, simplistic, or naïve in a violent world, but perhaps they have not had the experience in how quickly and powerfully people respond to a positive message. The positive message is that we can do better, and that we can do better in competition with those countries just ahead of us in the standings.

When rich nations and powerful global corporations join together with emerging economies, performance will improve as it always does with trust and cooperation, except the improved performance will now benefit all of the world’s citizens. Great benefit will accrue when rich countries are measured not only in terms of their own performance but also in terms of their sponsorship of emerging economies.  When global corporations are added to this roster of international commercial coaches, the competition will become even greater and more productive of progress. Instead of begrudged foreign aid, conceived as international welfare and dominated by bankers with limited experience in the management of change, competitive managers, experienced in training, motivation, and resource application, will compete to parlay funds from the mature economies into profitable long-term programs among the emerging economies. These experienced team managers will not predetermine failure by under-funding and inadequate training.

In this scenario, dramatic improvement in the lives of people in various countries will put economic freedom on display as the universal solution, and best practices will spread under the monitoring influence of competition. Those countries stuck at the bottom of the list in absolute terms, or in terms of meeting their improvement targets, will be subject to pressure from their own citizens to restructure governmentally for better support of economic freedom. Over time, the benefits of economic freedom will lead to political and social freedoms.  Democracy will grow naturally throughout the world, not from a political campaign for human rights but, rather, because of recognition that political freedoms enhance the capacity of economic freedom to get the job of improving lives done better.

Aristotle, the philosopher of common sense, laid out the plan almost two and one-half millennia ago, but the system of production at that time did not have the capacity to feed, clothe, shelter, educate, and provide good health and hope for all the people. Now that the productive system has demonstrated its capacity to do all of these things, Aristotle’s eudaimonia, life lived to its full potential, is no longer limited to the fortunate few but has become available for all.  This is the same promise of the American Founders: “life, liberty, and the pursuit of happiness” for all; it is the vision of the French Enlightenment: “liberty, equality, and fraternity;” and it is the challenge of Marx’s manifesto:  “The full development of all is the sum of the full development of each.”

When the impediments are removed, and the conducive circumstances are in place, momentum towards a world of peace and plenty will be enormous and irreversible.  The momentum will be irreversible because rising affluence and better education will equip more and more people to accelerate the progress and passionately oppose its reversal.  The progress will be irreversible because the U.N.’s Human Development Index will shine a bright light on any nation that is not improving lives, and an even brighter light of stardom on every nation that is leading the way.  Future generations will benefit from this self-perpetuating momentum toward the realization of full human potential, but they will wonder why it took so long because it will all seem so essentially human, so reasonable!