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
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,
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 16th 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 21st 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
This
advanced society, in what is now mainly
About
four thousand years later, the world’s largest Muslim nation,
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
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 18th 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
18th-Century Enlightenment: Freeing the Mind
The
Enlightenment thinkers of
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
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
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 18th 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
18th 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
The
American Founders expressed their idealism in the phrase “life, liberty, and
the pursuit of happiness” for all. Jefferson, who had spent years in
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
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 21st century as it was
revolutionary in the 18th:
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
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
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 19th
century.
The
19th 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 19th
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 19th
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-21st 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.
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
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
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
The
21st 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
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]
The
struggle we face is not the clash of several distinct and equal cultures like
the great powers of nineteenth-century
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
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,
The
Crossroads in Human History
By
the middle of the 19th 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-18th century: The Enlightenment in
·
Mid-19th 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.
·
20th 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 21st 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 21st century:
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 21st 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 20th century.
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
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
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
The
argument that the bloody 20th 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
The
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
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
In the late-twentieth century, Lee Kuan Yew demonstrated in
Authoritarian
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