Readers' Guide: Introduction to Democratic Capitalism
# 1 Greatest Opportunity:
The ideal of peace and plenty as practical is the “greatest
opportunity” for our time. The Information Age demands the
democratic work culture; the wage earner is now the new
capitalist through pension savings; and the emerging economic
powers are motivated by economic common purpose not
imperialism. The last five centuries, dominated by European
colonization, have left the world with residual problems from
exploitation, but the post-colonial phase will displace
exploitation with interdependence.
# 2 What is Democratic Capitalism?
It is the capitalism that builds and distributes more wealth
by building on the worth and potential of each in an
environment of trust and cooperation. It thrives on the
freedoms in a democratic republic with turned-on people
empowered in a decentralized environment. Democratic
capitalism has grown on its inherent social and economic
logic, despite it being largely ignored by academia or the
popular media.
# 3 Carey Re-discovers democratic capitalism
When individual development and the instinct for social
cooperation are harmonized by team-oriented leadership, the
whole becomes greater than the sum of the parts. With this
mutual assistance performance improves in every human
association. This simple principle is common to religions,
humanism, and democratic capitalism, and should be in nations
and the world.
# 4 Adam Smith
Smith was a friend of the worker and a critic of irresponsible
corporations. Contrary to popular opinion, Smith was not an
apologist for greed. The present economic mess is due to lack
of understanding of Smith’s conditions for success of free
markets in which money is a simple medium of exchange and
speculators (prodigals and projectors as Smith called them)
have limits on borrowed money.
# 5 Immanuel Kant
An Enlightenment philosopher who pointed out that every level
of society trade some freedoms in return for structures to
protect lives and property. With the benefit of these
structures Kant was idealistic about world peace but the
required structure at the world level, the U. N., is not yet
functional.
# 6 Condorcet
A French philosopher, Condorcet integrated the knowledge of
the Enlightenment including Smith’s source of plenty and
Kant’s source of peace. Condorcet used the Enlightenment truth
seeking process, to specify the means, and validate the ideal
of continuous human progress.
# 7 Jefferson
The American Enlightenment philosophers, Jefferson chief among
them, aimed to structure a government whose policies would
reflect the wisdom of the people instead of the mistakes of
the ignorant and arrogant few in power.
# 8 Hamilton
Hamilton believed that the new republic needed the involvement
of the rich and powerful and as Secretary of Treasury
structured the country to give privileges to speculate with
borrowed money that has caused every recession from 1818 to
2008. The privileges corrupted capitalism and the resulting
concentration of wealth corrupted democracy.
# 9 Owen
Owen demonstrated that the capitalism that invests in its
people is more profitable than mercantilism, prevalent at that
time, that brutalizes and exploits them. Empirical
verification should be the final convincing step in
Enlightenment truth seeking but Owen’s verification of Smith’s
theories was not assimilated by the political establishment,
academia, or religion.
# 10 Marx
Marx’s visions were fundamental to democratic capitalism
including: the worth of the individual, the environment of
cooperation, the motivational benefits of ownership, and the
opportunity to unite the world in economic common purpose and
stop the violence. The Marxists were unable to put any of
these in place with their fatally flawed central government.
# 11 Mill
John Stuart Mill was, like Condorcet, an integrator of
knowledge. Having assimilated the same visions of Marx, he
identified the moral dimension and integrated the whole with
the motivational benefits of private property and the
monitoring function of competition.
# 12 The Failure of Education
Citizens cannot neutralize the lobby power of Wall Street
because they have not learned the interactive fundamentals of
democracy and capitalism from either their education or from
the media. These articles are intended to encourage education
to accept economic literacy as an educational responsibility.
# 13 ERISA
The greatest savings-investment opportunity in the history of
capitalism, the workers’ pension savings invested by mandate
was lost and instead led to the financialization of the
economy, a stock market that no longer moves savings into job
growth investment, corporate surplus used for deals and stock
buy backs instead of growth investment or returned to the
economy in dividends, and finally the present disaster.
# 14 Buffett
Warren Buffett and his partner Charlie Munger wrote in their
2003 annual report that they were purging derivatives from
their insurance company, calling them “ time bombs both for
the parties that deal in them and the economic system.” The
Wall Street Journal defended derivatives as “little miracles
of financial engineering.”
# 15 Liberators of Capital Markets
The American “liberators” not only deregulated the domestic
economy but also talked emerging economies to take down
cross-border controls. This action allowed “hot” or short-term
money to move in and out of an economy with a click of a
mouse. This lack of controls on short term “hot” money and
currency speculators with enormous leverage destroyed the
Indonesian economy.
# 16 Wall Street Lobby Power
Wall street’s awesome lobby power was demonstrated at the end
of the 20th century with the repeal of Glass Steagall that
allowed monster mergers, and a year later the Commodities
Futures Act that multiplied the leverage in speculation
#17 Free Markets Work
In error, Wall Street applied free
market theory to finance capitalism. On the contrary, Smith
warned that the success of free markets depended on limiting
borrowed money for speculation by the prodigals and
projectors. Free markets will be recession proof when the
government prevents asset inflation.
#18 America the Beautiful
America the Beautiful--A contrast of America as the world
leader that demonstrates how the right capitalism can
eliminate material scarcity while uniting people in economic
common purpose. At this point the standard of living goes up
and the violence goes down. Or the America that roams the
world using the CIA to change regimes backed up by military
power. Imperialism doesn't work but America has not yet
realized that it also does not have the money for such
adventures.
#19 End of Recessions
From the time of Hamilton the economic system has been
dominated by finance capitalism with the result that currency
and credit has not been directed to the general welfare but
rather to the speculators. Government has fought hard to
prevent price inflation but ignores asset inflation that
eventually does much greater damage.
#20 The New, Improved Capitalism
The New, Improved Capitalism includes the radical proposal
that the good capitalism is moral and can be a source of
morality to the contiguous community. The implications are
profound including an opportunity for the universities to find
a secular morality
#21 An Economically Motivated
Morality
An extraordinary time in human history when the secular value
system recommended by religion, and the ideal of humanism is
now the work culture in which wealth is maximized. Further the
trust and cooperation in the work place provides a benign
infection for the contiguous community.
#22 A World United in Economic
Common Purpose
Once the world unites in economic common purpose and the
standard of living is visibly rising then the U N can
encourage competition on how well countries are doing in
improving lives measured by the Human Development Index.
#23 A World United in Economic
Common Purpose
Once the world unites in economic common purpose and the
standard of living is visibly rising then the U N can
encourage competition on how well countries are doing in
improving lives measured by the Human Development index.
#24 Organizations
Case studies of companies with
ownership participation and a democratic capitalist work
culture are numerous and available from these organizations.
#25 Bibliography
Selected books to aid in student
education in democratic capitalism.
1.
The Greatest Opportunity in Human History
The economic crisis of
2008-09 devastated the lives of millions of people around the
world. It was an unnecessary disaster caused by the greed and
incompetence of Wall Street. Its immediate damage is clear, but
its long-term damage is the deferral of the greatest opportunity
in human history: After thousands of years of folly and
violence, the way to a world of peace and plenty was tested and
available.
Before the crisis, China
and India, took hundreds of millions out of poverty. These
formerly colonized and exploited countries have no economic
motivation to couple their rising economic power with rising
military power. They want to copy the European Union that, after
five centuries of local killing and colonization of the world,
is demonstrating how to displace violence with economic
cooperation.
The second force that
provides this opportunity is the economic system needed by
Information Age industries. The leading work culture of our time
depends on the cognitive power of their people based on the full
development of each in an environment of trust and cooperation.
This economically determined morality causes a dramatic change
in the work culture: Whereas the Industrial Revolution demeaned
the manual laborer; the Information Age celebrates the knowledge
worker.
Eighteenth-century
Enlightenment minds identified the way to peace and plenty and
expected that America would lead the world. Two impediments,
however, deferred the opportunity : 1) Persistent European wars
forced America into a military-industrial complex to survive. 2)
Educators failed to equip citizens with practical understanding
of economic matters, many even ridiculed “democratic capitalism”
as an oxymoron. Finance capitalism was free to dominate the
economy.
In response to this
educational need, the “Introduction to Democratic Capitalism” on
our web site www.democratic-capitalism.com makes available a
working knowledge of democratized capitalism. You will find
brief discussion of the thoughts of Smith, Kant, Marx, Mill, and
others. The full text of Democratic Capitalism: The Way to a
World of Peace and Plenty, other books, essays, and DVDs,
offer additional study opportunities. The educational community
is invited to improve this curriculum and pursue the research
that is the responsibility of those who educate citizens about
economic life.
The evidence is growing
that an ideal world is no longer a utopian dream but a pragmatic
opportunity. The movement of millions of people from desperate
poverty to freedom and comfort is evident in the comparative
results of three 20th century visionaries: Lee Kuan Yew, Deng
Xiaoping, and Mikhail Gorbachev. Beginning in 1965, Lee Kuan
Yew, by introducing economic freedom to his nation, led
Singapore from an average per-capita income of a few hundred
dollars a year to the world’s fourth-highest, $30,000. In China,
Deng Xiaoping in 1979 copied this economic freedom to produce an
economic growth rate of 9% over the next thirty years, and a
sevenfold improvement in average income. In contrast, after
Mikhail Gorbachev gave priority in 1990 to glasnot (a democratic
ideology), but not to perestroika ( structural changes needed to
support economic freedom), Russia suffered the worst asset
stripping in modern history, and the condition of ordinary
Russian citizens went backwards for a decade.
Both Deng in Beijing and
Gorbachev in Moscow had consulted with Lee about the Singapore
experience, but only Deng understood the management of change,
and the structural support needed from government. Deng rejected
ideology, commenting that he did not care whether the cat was
white or black as long as it could catch mice. Russia listened
to professors and too many American finance capitalists who had
little understanding of management of change; consequently,
their prescription of economic “shock therapy” resulted in too
much shock and not enough therapy.
After the inevitable
failure of centrally planned communism, America did not
recognize its new role in the world as the leader towards
economic common purpose. Instead, it ignored the end of
imperialism and used the military power left over from the Cold
War to try to impose democracy instead of encouraging economic
freedom. Democratic elections, however, do not provide food,
clothing, shelter, education, and good health care, but economic
freedom does.
At the same time that America was taking the wrong role in the
world, the ideologues of the liberalization of capital markets
were deregulating and eventually wrecking the economy. The
power-adoring Neocons did not realize that imperialism was over;
the ultra-capitalists ignored the inherent instabilities in
finance capitalism.
Realization of the ideal
depends on reform of the economic system, and America’s changing
its role in the world from imperialist to cooperative team
player. The world will then be positioned to move towards the
ideal for these special reasons:
The nations of Europe, exhausted by centuries of
killing, have united in economic common purpose.
China and India have demonstrated that economic
freedom works in both authoritarian and democratic
countries by taking 500 million people out of extreme
poverty in a decade.
These new economic powers understand that economic
common purpose, not imperialism, will improve the lives
of their people.
The spread of democratic capitalism is economically
motivated because Information Age industries succeed
only with a democratized work culture.
Investment capital through wage-earner pension
funding is now democratized. Labor and capital have
become one!
Information Age communication will facilitate the
education of young people in all cultures, and this will
move even oppressed nations from tyranny to freedom.
Democratic capitalism is based on the worth of each
individual in an environment of trust and cooperation,
principles common with many religions and humanism.
Morality now has an economic motivation
When enough citizens understand that economic freedom can
eliminate material scarcity, that economic common purpose can
unite people and stop the violence, and that the inherent
morality of democratic capitalism can elevate society, the ideal
will become reality.
2.
What Is Democratic Capitalism?
Democratic capitalism is
the economic-political system based on the worth and potential
of each in an environment of trust and cooperation. Performance
improves because profit sharing and ownership opportunities
motivate wage earners, while leadership harmonizes individual
development and the cooperative work culture. By contrast,
finance capitalism concentrates wealth and slows growth, and
collectivism redistributes wealth through government and impedes
growth.
For some “ employee
ownership” has a threatening connotation as though it is a new
form of socialism. It is rather the ownership by wage earners
though their retirement savings and stock purchase plans such as
the one I implemented at ADT (see Democratic Capitalism
pp. 39-47), in which the employees buy ownership through payroll
deductions. More direct forms of ownership include cooperatives,
and Employee Stock Option Plans (ESOPS).
China and India took 500
million out of extreme poverty in a decade demonstrating
democratic capitalism’s productive capacity to feed, clothe,
shelter, educate, and provide good health care and hope for the
world’s 6.4 billion humans, including more than 2 billion living
in misery on less that $2 a day. The European Union demonstrated
that people can unite in economic common purpose and reverse the
20th century’s barbaric retrogression in which 160 million
soldiers and citizens were killed by governments.
Democratic capitalism
needs little from government except peace and the control of
currency and credit for the general welfare. Violations of these
minimal conditions by policies lobbied by Wall Street, however,
have caused economic disasters from the Panic of 1818 to the
Panic of 2008. Out-of-control speculation with borrowed money in
the past decade inevitably climaxed, crashed, and did extreme
damage to ordinary people. The mistakes of Wall Street and
Washington, however, have been so egregious that angry citizens
are demanding a better alternative..
Companies like Costco,
Toyota, and Fortune’s “100 Best” share democratic capitalistic
features that include a morality broadly understood, customer
and employee loyalty, generous retirement benefits from pensions
and stock ownership, high levels of productivity and innovation,
job security, meritocracy, minimal and decentralized structure,
action orientation, and a fair compensation system.
The following benefits of
economic freedom, promulgated by Information Age communication,
will stimulate young people in all cultures to move from tyranny
to freedom:
A method to invest savings in the job-growth economy
for the long term (as advocated by Warren Buffett)
A release of the cognitive power of people in
Information Age industries (as described by Peter
Drucker in The Post-Capitalist Society)
A cooperative culture in which the Japanese build
better cars at lower cost than America’s worker-
management alienated relationship (as taught by W.
Edwards Deming)
Improves lives in both democratic and authoritarian
countries (as demonstrated by Singapore and China)
Investment in wage earners as the most important
asset in contrast to finance capitalism’s treatment of
workers as a disposable cost commodity
Distributes a “capital wage” in dividends that
benefits economic growth and employees’ retirement
instead of hundreds of billions of dollars of pension
savings wasted on stock buy backs
Regulation of financial services because of inherent
instabilities, not the “liberation of capital markets”
that ignored the instabilities (as warned by George
Soros)
A democratization of the work place that simplifies
the organization (as described by Gary Hamel in The
Future of Management)
Democratic capitalism has functioned at a fraction of its
potential because its capacity to eliminate material scarcity
and unite in economic common purpose has never been assimilated
by the intellectual community and translated into government
support. My examination of this superior alternative in the
“Introduction to Democratic Capitalism.” articles on
www.democratic-capitalism.com.
According to Adam Smith, economic freedom functions
best when workers are well-paid participants, and
speculators can’t deflect capital from the job-growth
economy (see # 4)
Robert Owen demonstrated that investment in the
people, not exploitation of them in brutal working
conditions, produced greater profits (see # 9)
Karl Marx theorized about the “free development of
each” in an environment of cooperation (see # 10)
Marx theorized that this system would unite the
world in economic common purpose and render the Warrior
State irrelevant (see # 11)
J.S. Mill integrated Marx’s vision with private
property and competition in a manifesto that combined
material and spiritual benefits
The 18th-century
Enlightenment issued a challenge to apply scientific
truth-seeking methods, validated in the natural sciences, to
improve the organization of human affairs. The intellectual
community has, however, failed to respond to this challenge for
reasons described in article # 12. As a result, human folly and
violence continue. Now, however, angry citizens can collaborate
in reforms that shift support to democratic capitalism.
As president of my high-school class and co-captain of the
football team, I learned that human associations work better
when based on individual development in an environment of
cooperation and trust. In team sports, each player is
responsible for skills training and conditioning, but each is
also responsible for contributing to the team spirit that makes
the whole larger than the sum of its parts. This combination of
individual responsibility and group support later seemed obvious
in business as it seemed natural in Gardner, Mass.
My subsequent education
at Holy Cross College certainly confirmed the worth of each
individual in an environment of mutual love, but Liberal Arts
education did not then—and does not now—relate these values to
the potential economic system. Later, at Harvard Business
School, no one proposed examination of a management theory that
would harmonize individual ambitions within a cooperative
whole.
When in 1955 I became
plant manager, and later president, of the Electro Dynamic
Division (ED) of General Dynamics, I knew that my job was to
invest in the people and build team spirit. The company was very
old, unprofitable; housed in dirty, dark buildings full of
sullen people. Investments in training, lighting, painting,
safety, health care, and an open house for the families changed
this persistent loser into a successful leader in a high-tech
part of the electric motor industry. The same people still
worked there, but now they were listened to and respected.
After six years of
success at ED, the whole operation burned down one night, all
fourteen buildings, equipment, and drawings. Corporate officials
saw it as the end of this complex business, but the ED people
united to rebuild the company in a matter of months. This
experience gave me a unique appreciation of what people can
accomplish when they are united in common purpose.
In 1970, when I became
CEO of ADT, Inc., I knew that my job was the same: provide the
circumstances for the people to reach their full potential and
build an environment of trust and cooperation. Lessons learned
in Gardner and confirmed at ED were repeated at ADT. My new
associates responded naturally and changed a stagnant company
into the industry leader.
After a few years of
reorganization, building technological momentum, and changing
the work culture from top-down to cooperation, it was time for
ADT associates to share in the improvements. Our new
profit-sharing and ownership plan was called Care and Share,
named by a woman in a contest who said: “The more people care,
the more they will have to share.” Thousands joined the
voluntary plan, and within a decade, 13% of the company was
owned by the workers. Twenty years later, I still get cards
signed Care and Share from ADT associates living well in
their retirement!
The management template
at ADT comprised four elements: integrity fundamental to
the culture; maximum freedom for people to participate;
minimum but sophisticated structure to discipline the
freedom; and competence and intensity to execute well. Intensity is
emphasized because team spirit is not enough unless people have
the drive to make things happen.
How does a large company
with branches all over the world assure integrity? That value
must be merchandised relentlessly in all company meetings: It is
a simple matter of right and wrong; the source of long-term
better profits; the ethic that feels good from the CEO to the
most recently hired; plus, it is easy to remember. Minimum structure
includes policy and execution. For example, at ADT the head of
the internal audit, who was responsible for monitoring company
integrity, reported directly to the CEO and to the chair of the
Board audit committee. This function, previously part of the
finance department, was strengthened by this reporting
relationship because immediate access to the CEO meant that
reports would result in quick action.
Shortly after joining ADT,
I was at lunch with local managers, and we were interrupted by a
caller from Texas who described a large order that would come to
ADT if we would give a hunting rifle to the purchasing agent.
Was this a test? Without hesitation I told him that we did not
do business that way and that “we would not even give him a
peashooter.” This exchange reverberated throughout the company.
.
After running ADT for 18
years, I began my study of why the simple principles that had
changed ED from a loser into a winner, and made ADT the industry
leader, were not equally applicable in all human associations:
companies, schools, nations, the world. I found that The Way
to a World of Peace and Plenty had long before been well
defined by Adam Smith, Karl Marx, and J.S.Mill. This discovery
changed my personal mission: If the way was so clear, then why
was it not being followed?
4. Adam Smith: A World of Plenty
Young students can begin to understand the meaning of “free
markets” and Adam Smith’s conditions for their success. They
will learn that he was a friend of the worker, not an apologist
for greed, and that he warned that speculators would divert
capital and corporations would ignore the public trust.
Adam Smith (1723-1790)
was born in Kirkaldy, Scotland. He studied at Oxford and then
lectured in Edinburgh until he was appointed professor of Moral
Philosophy at the University of Glasgow. Smith spent the first
part of his life studying and writing about the human instinct
for trust and cooperation, reflected in his book The Theory
of Moral Sentiments:
How selfish man may be supposed, there
are evidently some principles in his nature, which
interest him in the fortune of others, and renders their
happiness necessary to him, though he derives nothing from
it, except the pleasure of seeing it.
Smith then spent the
second part of his life studying and writing about how economic
freedom could improve all lives if money were a simple medium of
exchange, and speculators (“prodigals and projectors,” as Smith
called them) had limits on borrowed money.
On a tour of the
Continent in the 1760s, Smith met with the leaders of the French
Enlightenment, including the laissez-faire physiocrats, Turgot,
who had written on wealth creation and distribution; and
Voltaire, who had brought back from his banishment to England
the contributions of Bacon, Newton, and Locke.
Smith returned to
Scotland to spend ten years writing The Wealth of Nations, in
which he theorized about an economic system that could provide
adequate food, shelter, clothing, education, and good health
care for all.
Smith described an
economic perpetual-motion machine in which motivated workers
would be coupled with the technology of the Industrial
Revolution to reduce costs; competition would drive prices down
to a level affordable by new consumers; increased demand would
generate more jobs; wages of additional workers would add to
demand for products; and the rising volume would produce another
iteration of cost reduction through economies of scale. Thus the
wealth-spreading cycle would continue:
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.
Smith’s dynamic depended
on wages high enough to motivate workers and sufficient for
purchases beyond mere subsistence.
Where wages are high we shall always find
the workman more active, diligent and expeditious, than
when they are low.
Smith knew that the
privileged would write rules for personal gain at the expense of
the public good:
The proposal of any new law from this
order ought to be listened to with great precaution. It
comes from an order of men, who have generally an interest
to deceive and even oppress the public.
Smith pointed out that
the masters by law could combine to suppress wages but the
workers could not combine to raise them. Smith concluded:
No society can surely be flourishing and
happy of which the far greater part of the members are
poor and miserable. It is equity besides that they who
feed, cloath and lodge the people should have a share of
the produce of their own labor.
Smith was honored for his
book, but his theory of free markets with its conditions was not
assimilated by governments and corporations, neither was it
offered by the universities for student examination. Such
examination could have stimulated democratic action and changed
the public policy to support democratic capitalism. Instead,
finance capitalism continued to dominate.
The optimism of the
Enlightenment for social progress was conditioned on high-
quality education. Smith, however, targeted the universities
with strong criticism:
The discipline of the universities is not
for the benefit of the students but for the ease of the
master. Professors are likely to make common cause to be
very indulgent to one another and to consent that his
neighbor may neglect his duty, provided he is allowed to
neglect his own. In Oxford the greater part of the
professors have given up altogether even the pretense of
teaching.
The challenge of the
Enlightenment was to apply the scientific truth-seeking
protocols effective in the natural sciences to find the best
social organization. The universities should be the place where
ideas about human progress are debated, tested, refined, vetted,
and codified like the natural sciences, but they were not then,
and are not now. Smith’s criticism of the universities at the
end of the 18th century echoed Bacon’s criticism at the
beginning of the 17th and anticipated the present critique.
Because of American
citizens’ lack of education about Smith’s conditions, the
government has allowed speculation with borrowed money to
concentrate wealth, cause asset inflation, trigger recessions,
and prevent democratized capitalism from uniting the world in
economic common purpose.
5. Immanuel Kant: A
World of Peace
Immanuel Kant (1724-1804) was born in Königsberg, Prussia. His
father was a harness maker, his grandfather had emigrated from
Scotland. Kant was five feet tall, stooped, famous for
punctuality, witty, and popular. His early schooling had started
at 5:30 a.m. to give enough time for prayers. Kant entered the
University of Königsberg at age sixteen and stayed there for the
rest of his life as student, tutor, and professor. Study of
Newton, mathematics, physics, and astronomy allowed him to
sharpen his scientific truth-seeking methods
Smith showed that the way
to plenty is economic freedom with people united in economic
common purpose. Kant showed that the way to peace during the
transition to common purpose requires an international
organization to contain the violence:
Experience forced the states to the same
decision that savage man was reluctantly forced to take,
namely, to give up brutish freedom and to seek security in
lawful constitutions.
Kant was not utopian
about the international structure:
Organizing a state can be solved even for
a race of devils, if only they are intelligent.
Kant, however, offered
this Enlightenment view:
Nature forces humans to make at first
tentative attempts; finally after devastations,
revolutions, and even complete exhaustion, she brings them
to that which reason could have told them at the beginning
and with far less sad experience, to wit, to step from the
lawless condition of savages into a league of nations.
Kant knew, however, that
the achievement of international peace would take generations:
To bring the seeds of enlightenment to
that degree of development which is suitable to Nature’s
purpose.
Kant had an epiphany in
his late thirties in which he learned that academic
responsibility was not for fragmented and specialized knowledge,
but rather for integration of knowledge to improve the human
condition. With high-quality education, Kant believed, that
ordinary citizens would then have the “courage to use their own
reason” and “hit the mark as well as philosophers can” with
wisdom necessary for the republican form of self-government.
Enlightened people favor a republic that
by its nature must be inclined to perpetual peace. That
country could be a fulcrum to secure freedom under the law
of nations.
Citizens of the republic,
would be inclined towards peace. Kant believed:
If the consent of the citizens is
required to declare war, nothing is more natural than that
they would be very cautious in commencing all the
calamities.
Wars would be ended if
citizens’ agreement were required and if it were to be paid for
by an immediate increase in taxes.
Kant’s principles were
consistent with those of the American Founders, democratic
capitalism, religions, and humanism, that is, the worth and
potential of each in an environment of trust and cooperation.
The harmonization of these human impulses improves all
performance according to a practical morality fundamental to
government:
True politics can never take a step
without rendering homage to morality. Though politics by
itself is a difficult art, its union with morality is no
art at all, for this union cuts the knot which politics
could not untie. The rights of humans must be held sacred,
however much sacrifice it may cost the ruling power. All
politics must bend its knee before the right.
Kant understood why
Smith’s first condition for the success of economic freedom must
be peace:
Through wasting the powers of the
commonwealth in armaments to be used against each other,
through the devastation brought on by war, and by the
necessity of holding themselves in constant readiness for
war, they stunt the full development of human nature.
Kant’s proposed League of
Nations would have a narrow mission:
One would think that civilized people
would hasten to escape the brutish degradation of humanity
in ceaseless combat. But, instead each state places its
majesty in being subject to no external juridical
restraint, and the splendor of its sovereign consists in
many thousands ready to sacrifice themselves for something
that does not concern them. The League does not tend to
any dominion over the power of the state but only to the
maintenance and security of the freedom of the state
itself and of other states in league with it, without
there being any need for them to submit to civil laws and
their coercion.
Militaristic,
nationalistic, imperialistic power-adoring, theorists see
threats to sovereignty from any world order. One advocate,
Robert Kagan, presumed to speak for the people in a 2003 book:
“Americans do not believe that we are as close to the Kantian
dream as do Europeans.” How does he know that?
In contrast, Kant saw
civilization as moving “naturally” towards perpetual peace:
The guarantee of perpetual peace is
nothing less than that great artist, Nature. We see that
her aim is to produce a harmony among humans.
6. The Marquis de
Condorcet: The Integrator of Enlightenment Knowledge
Nicolas de Caritat, the Marquis de Condorcet, (1743-1794) was
born in Picardy, France, of an ancient family, and educated by
the Jesuits. He was elected to the Académie des Sciences,
contributed to the Encyclopédie, and was welcome in the
salons of Paris where his benevolence was as respected as his
intelligence.
Condorcet was elected to
the Legislative Assembly and became chair of the Committee of
Public Instruction. Napoleon later used Condorcet’s plan for
free and universal education for both sexes when he reorganized
French education. Condorcet also drafted a national
constitution, but his anonymous pamphlet opposing the Jacobin
constitution led to his arrest and eventual death.
While in hiding during
the Reign of Terror, Condorcet wrote his Sketch for the
History of the Progress of the Human Mind, his version of
human progress. After Condorcet’s death, the government
distributed thousands of copies of the Sketch. Condorcet also
wrote an admiring biography of Turgot. If Louis XVI had followed
Turgot’s reforms, he might have kept both his crown and head.
Condorcet expanded on
Smith’s way to plenty:
Wealth has a natural tendency to
equality, and excessive disproportion could not exist if
civil laws did not provide artificial ways of perpetuating
fortunes; if free trade were allowed to remove the
advantages that accrued wealth derives from fiscal
privilege; if the administration of the country did not
afford some men ways of making their fortune that were
closed to other citizens.
Condorcet expanded on Kant’s way to peace:
Once people are enlightened they will
gradually learn to regard war as the most terrible of
crimes. Nations will learn that they cannot conquer other
nations without losing their own liberty; that permanent
confederations are their only means of preserving their
independence; and that they should seek not power but
security. Gradually a false sense of commercial interest
will lose the fearful power it once had of drenching the
earth in blood and of ruining nations under pretext of
enriching them. 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 men enjoy then all the causes that
produce national animosities and poison nation’s relations
will disappear, and nothing will remain to arouse the fury
of war. Organizations intelligently conceived will hasten
the progress of the brotherhood of nations, and wars
between countries will rank as freakish atrocities, vile
in the eyes of nature, and staining with indelible
opprobrium the country whose annals record them.
Condorcet on equality:
These various causes of equality do not
act in isolation; they unite, combine, and support each
other, and so their cumulative effects are stronger,
surer, and more constant. With greater equality of
education there will be greater equality in industry and
in wealth; equality in wealth necessarily leads to
equality in education, and equality between the nations
and equality within a single nation are mutually
dependent.
Condorcet on women’s rights:
Annihilate the prejudices that have
brought about an inequality between the sexes that has its
origin solely in an abuse of strength!
Condorcet on developing nations:
Raise respect for the independence of
weak states and sympathy for ignorance and misery to the
rank of political principle. The progress of these peoples
is likely to be more rapid and certain because they can
receive from us everything that we have had to find out
for ourselves, only after long error. When mutual needs
have brought all men together, and the great powers have
established equality among societies as well as among
individuals, will it then be possible that there are still
places in the world inaccessible to enlightenment, or that
despotism can raise barriers against truth that are
insurmountable for long?
The universities-- the
proper place to study, assimilate, organize, integrate, and
promulgate knowledge--did not take up Condorcet’s Enlightenment
challenge, either then or now. Many educators still do not even
try to integrate knowledge to improve the human condition. The
ugly events of the 20th century caused them to abandon
Condorcet’s vision of gradual progress from barbarism to
civilization, an optimism supported by a rising standard of
living with more people, including women, who have become
educated and enabled:
To absorb truths which at first could be
grasped only by those capable of profound thought, soon
carried further by methods that are no longer beyond the
reach of ordinary intelligence.
From this process
citizens will understand rational government and will elect
representatives that meet the Founders’ “ aristocracy of talent
and virtue.” Condorcet counted heavily on America to show the
way to a “time when the sun will shine only on free men who know
no master but their reason.”
Condorcet summarized the
18th century Enlightenment with this classical liberal
manifesto:
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 with a written declaration of the rights of
people, the establishment of a representative or
parliamentary form on national government, and local
self-government to encourage participation.
7. Thomas Jefferson: Listen to the People
Thomas Jefferson (1743-1826) was born in Virginia, son of an
independent thinking, industrious farmer with an extensive
plantation. Thomas was the oldest child, tall, strong, studious,
a violin player, and expert horseman.
Jefferson went to William
and Mary College. Later he and James Madison, as members of the
Virginia Assembly, worked against concentration of wealth
through inheritance, for the separation of church and state, and
in support of education. Jefferson was governor during the
Revolution.
Jefferson’s wife Martha
died, aged 34, in childbirth, after which, in 1784, he joined
Benjamin Franklin in France, not returning for five years.
Franklin had successfully kept France providing money, troops,
and naval support without which the Revolution could not have
been won.
When Jefferson returned,
George Washington, the first President, asked him to become the
first Secretary of State. Alexander Hamilton was the first
Secretary of Treasury, and it was the battle between Jefferson
and Hamilton that produced the unintended two-party political
system. Jefferson believed in a government responsive to the
people; Hamilton was responsive to the wealthy and powerful.
Jefferson understood Smith’s economic freedom but limited it to
independent farmers while rejecting the wage slaves of
manufacturing as not fit to be participating citizens.
Jefferson got tired of
losing arguments with Hamilton and went home to Monticello to
farm. He returned as Vice President in John Adam’s one term and
then in 1801 became the third president, ironically needing
Hamilton’s assistance to break an electoral-college tie with
Hamilton’s enemy Aaron Burr.
In 1776, at the
Constitutional Convention, Jefferson helped draft this
Declaration of Independence:
We hold these truths to be self-evident,
that all men are created equal, that they are endowed by
their Creator with certain inalienable Rights, that among
these are Life, Liberty, and the pursuit of Happiness. To
secure these Rights, Governments are instituted among men,
deriving their just Powers from the consent of the
governed.
In this Declaration, our
Founders affirmed the principles of the worth of each
individual, the environment of mutual support, and government
policies directed by the people. Jefferson, however, never broke
out of his cultural conditioning as a Virginia planter and did
not include the slaves in his beliefs in equality. From his
early time in the Virginia Assembly, however, he tried to end
slavery as a protected institution.
This new Republic was the
first time when a government was designed by studious people,
not by force or accident. The Founders had studied John Locke’s
(1632-1704) theory of inalienable rights for all, and the
diffusion of power in a “mixed” republic as proposed by
Montesquieu (1689-1753). They believed that the collective
wisdom of the people could displace the violence and misery
caused by the incompetence of monarchs. Their confidence was
based on high-quality, universal education of citizens whose
“will and wisdom” would then be filtered through their elected
representatives, an “aristocracy of talent and virtue.”
The Founders were
initially optimistic that they could avoid foreign
entanglements, and would not need a navy or standing army. They
wrote the 2nd Amendment to the Constitution to endorse an armed
militia as the only protection.
The original plan was for a small government, decentralized,
with single political party, and a unified agenda. The president
would be selected for ability to maintain consensus, and steer a
steady course.
Condorcet expressed the
Enlightenment view that the new Republic would confirm the
benefits of freedom:
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.
Some of the Founders’
design made it into practice but much of it did not because the
world was dominated politically by the European warrior states,
and economically by mercantilism. This condition continued for
another two centuries.
Early in the 21st
century, the not-so-new Republic, America, is still not
reflecting Jefferson’s and most of the Founders’ philosophy.
Wealth is concentrated in record amounts and then used to lobby
politicians thus displacing the “will and wisdom” of the people.
It was this collective wisdom that was supposed to eliminate the
terrible mistakes made by a few arrogant and ignorant men. The
results of this compromised democracy are terrible mistakes by a
new generation of arrogant and ignorant men. The question in
2009 is will the people take back their country and correct the
terrible mistakes?
8. Alexander Hamilton: Listen to the Wealthy and Powerful
Alexander Hamilton (1757-1804) was born in Nevis in the British
West Indies. His mother had two sons with James Hamilton without
a divorce from her first husband. The family moved to St Croix,
where 22,000 African slaves harvested the sugar crop while 2,000
whites tried to keep order. This experience conditioned Hamilton
to a society in which the few controlled the many.
An orphan at 11,
Hamilton’s prodigious reading, hard work, and published letters
encouraged two sponsors to fund his college education at
Columbia. He joined the Revolutionary army, took part in the
evacuation of New York, and crossed the Delaware with
Washington, who promoted Hamilton to lieutenant colonel at age
19. After the war, Hamilton published articles, took a law
degree, and married into a prominent New York family.
As New York delegate to
both the Continental Congress in 1782, and the Constitutional
Congress in 1787, Hamilton favored a strong central government
and opposed States Rights. He wanted either a monarch or
president-for-life and a structure of tax revenues and friendly
bankers to fund an army and navy. He rejected democracy,
stating:
Government requires the deliberate wisdom
of a select assembly and cannot be safely lodged with the
people at large.
Secretary of Treasury
during Washington’s administration, Hamilton’s policies resulted
in a standing army and a navy of 54 warships. Hamilton’s
theories of government were contrary to democracy but they were
“realistic” policies that protected the fledging country from
the warrior states of Europe. Although James Madison did not
agree with Hamilton’s anti-democratic theories, he nevertheless
joined him in writing the Federalist Papers in order to
get the Constitution ratified by the States.
The contrast between
Jefferson and Hamilton, the two most contentious members of
President Washington’s cabinet, could hardly have been more
striking. Hamilton, the first Secretary of the Treasury was
five-foot-seven while Jefferson, the first Secretary of State,
towered at six-foot-two. Hamilton was intense, argumentative,
ambitious, determined to grow manufacturing. His background
never left him, however, John Adams referred to him as “that
bastard son of a Scottish peddler.” Jefferson having the manner
of the Virginia gentry was a patriotic agrarian whose vision of
America was a nation of hard working, independent-thinking
farmers.
The financial capitalists
helped Hamilton fund the army and navy and he helped them make
money by not limiting borrowed money for speculation. To serve
the general welfare the government could have prevented cycles
and recessions but Washington and Jefferson did not understand
these matters. They did know that their democratic experiment
depended on quality education but did not include understanding
of the economy, nor the choice between finance capitalism and
democratic capitalism in a failure of education that is still
with us.
Hamilton modeled his
policies on the British:
He knew that European powers raised
foreign loans in wartime and this inextricable linkage
between military and financial strength informed all of
his subsequent thinking.
He established credit by
assuming the colonies’ debts including his payment in full of
the Continental script, the soldiers’ pay. Speculators sent
carriages and boats out with literally bags of money, mostly
borrowed, to buy up this script. Most veterans sold for less
than 25% of full value believing that it “was not worth a
continental.” The fairness argument raged in Congress, but the
speculators won.
Hamilton’s next mission
was a national bank but contrary to the Bank of England the
government would provide one-fifth of the capital with the rest
privately subscribed. Madison fought the plan on Constitutional
grounds, Jefferson whined that Hamilton’s policies would “enrich
swindlers at the expense of the honest and industrious.” When
Jefferson became president in 1801, he instructed his own
Secretary of Treasury to get control of Wall Street:
It is the greatest duty we owe to the
safety of our Constitution to bring this powerful enemy to
a perfect subordination.
Hamilton’s policies that
allowed speculation with borrowed money resulted in the post-war
boon in real estate and stocks followed by the panic of 1818: A
half-million urban workers were thrown out of work; farmers were
devastated by low prices; and thousands were jailed for small
debts. Since then, this unnecessary damage to ordinary people
has been repeated a dozen times, including the ’08-;09 recession
caused by an out-of-control Wall Street.
The American democratic
experiment worked: It improved the lives of millions, and led
the world towards freedom. It, however, functioned at a fraction
of potential because finance capitalism dominated the economy
and the government. The goal of the Founders to substitute the
“will and wisdom” of the people, for the devastating mistakes by
monarchs was replaced by mistakes by ignorant and arrogant men
who usurped the power of the people.
Five centuries of
colonization by European warrior states is now over, and the new
economic powers lack economic motivation for imperialism, now
knowing that economic common purpose works better than violence.
Americans, consequently, have a new opportunity to examine the
nature of their government, including a review of the original
intentions of the Founders. The
military-industrial-financial-complex fashioned by Hamilton over
two centuries ago is no longer required. The world is ready to
be led by America to a world of plenty, in ways outlined by
Smith, and a world of peace, in ways outlined by Kant.
9. Robert Owen: "Good" versus "Bad" Capitalism
Robert Owen (1771-1858) was born in Wales, left home at age ten,
learned how to spin thread, and then became the manager of a
factory. By age 28, Owen had become managing partner of a
concern that bought New Lanark, a large spinning mill near
Glasgow.
Owen’s years of
experience interacting with workers on the factory floor gave
him great respect for the potential of ordinary people:
If due care of your inanimate machines
can produce beneficial results, what may not be expected
if you devote equal attention to your vital machines,
which are far more wonderfully constructed. Your time and
money so applied would return you not five, ten, or
fifteen percent, but often fifty and in many cases a
hundred per cent.
Owen had learned two
principles necessary to release the enormous productivity and
innovation of turned-on people: the worth and potential of each,
and an environment of trust and cooperation. Owen took action to
provide free education, training, clean housing, health care,
job security, and encouraging sobriety. Young children learned
to relate to each other with trust and cooperation. Over a
twelve-year period, out of 3,000 students in Owen’s school, not
a single criminal action occurred. Owen was criticized for these
uncommon investments but he made greater profits than the “ bad”
capitalism that tried to maximize profits by suppressing wages
and benefits.
A generation earlier,
Adam Smith had written that material scarcity in the world could
be eliminated. Owen spent his early life on the factory floor
observing peoples’ response to opportunities. Smith was a
philosopher seeking truth, Owen was a factory manager seeking a
better product, who also provided experimental verification of
Smith’s theories, the final convincing step in the Enlightenment
truth-seeking process.
Owen commented as follows
on the potential for democratic capitalism:
The period is arrived, when the means are
obvious by which without force or fraud of any kind,
riches may be created in such abundance, that the wants
and desires of every human being may be more than
satisfied. In consequence, the dominion of wealth and the
evils arising from the desire to acquire and accumulate
riches, are on the point of terminating.
When Owen toured other
mills he found, instead of his work culture of human
development, one of brutal exploitation. Owen’s son, Robert Dale
Owen, reported:
Greed of gain had impelled the
mill-owners to greater extremes of inhumanity, utterly
disgraceful to a civilized nation. Their mills were run
fifteen hours a day with a single set of hands, and they
did not scruple to employ children of both sexes from the
age of eight. Overseers carried stout leather thongs, and
we frequently saw even the youngest children severely
beaten. In some large factories one-fifth of the children
were either cripples of otherwise deformed by excessive
toil or brutal abuse
Owen petitioned
Parliament to limit hours for workers under 18 to 10 ½, to
prohibit children younger than 10 from factory work, and older
children from working on the night shift. Owen also visited
authorities in the Church of England thinking that they would be
excited about supporting an economic system with inherent
morality, and would be impressed with the results of his
educational program.
The universities, with
the mission to investigate and illuminate, unify and elevate,
might have recognized this coherent workable system and
presented it for student consideration. The churches, concerned
to feed the hungry, clothe the naked, and house the homeless
might have blessed Owen’s discovery. Governments, dedicated to
promoting the general welfare might have supported Owen’s
capitalism as the best economic opportunity, the prerequisite to
benefiting from other freedoms.
It did not work out that
way. Both Parliament and the Church rejected the proposals of
this evangelist with his low-class Welsh accent. The other
capitalism, however, was so vile that reformers, and later
Victorian writers such as Dickens, became enraged and attacked
the problem by passing laws, instead of examining and reforming
the system.
Most of society failed to
recognize that democratic capitalism was the way to peace and
plenty. This myopia continues to the present but with a
difference: Now the work culture demonstrated by Owen is
required in Information Age industries with substantially
greater participation by the workers. Because the “good”
capitalism produces greater profits now, as it did then for
Owen, it is growing on its own economic and social logic. The
“bad” capitalism, however, has been given a new life by
ultra-capitalism that treats the wage earner as a disposable
commodity and in which finance capitalism is dominant.
When people finally
realize that it was “bad” capitalism that caused such damage to
so many in ’08-’09, then the “good “capitalism will prevail. The
time it takes to move from the “bad” to the “good “ capitalism
will be determined by how long it takes for universities,
religions, school-teachers, political reformers, and the media
to discover democratic capitalism.
10. Karl Marx: Almost a Democratic Capitalist
Karl Marx (1818-1883) was born in Trier, Germany, of a Jewish
family that had converted to Christianity. After university,
Marx got in trouble with the Prussian government over his
revolutionary writings so he moved to Paris where he met his
life-long collaborator, Friedrich Engels. They co-published
The Communist Manifesto in 1848. Marx, with his wife and
children, spent the rest of his life in London, studying and
writing in the British Museum where he produced his most famous
work, Das Kapital.
Marx’s basic insight was
that adequate food, clothing, shelter, education, and good
health depend on the economic system.
The writers of history have so far paid
little attention to the development of material
production, which is the basis of all social life, and
therefore of all real history.
This basic premise that only the economic system, not the
political structure, can feed people seems obvious. Marx’s
insight was, however, radical because reformers, politicians,
philosophers, and other ideologists sought progress through
political solutions, not economic reform, and still do!
Marx’s related insights
defined a work culture that would maximize the building and
distribution of wealth:
“The free development of each is the condition for
the free development of all,” This Marxian principle is
common with most religions, humanism, and democratic
capitalism.
Performance improves when the work culture is
changed from alienation to trust and cooperation,
another principle common with religion, humanism, and
democratic capitalism.
Workers motivated by profit-sharing and ownership
opportunities will innovate and produce to maximize
total wealth
This incremental income adds to workers’ purchasing
power, distributes wealth broadly, and keeps Adam
Smith’s dynamic spreading
Smith had believed that economic freedom could end the battle
over scarce resources, but Marx’s vision goes further: Marx
foresaw a world uniting in economic common purpose in which the
standard of living will go up, the violence will go down, and
the Warrior State will become irrelevant. This was Marx’s
radical vision that, contrary to history, war was not
inevitable, and humans could unite in freedom.
Marx, the visionary
intellectual, was, however, also an angry radical with the
bitter view that capitalism needs to be destroyed, not improved:
It degraded the laborer to the level of
an appendage of a machine, and dragged his wife and child
beneath the wheels of the juggernaut of capital
Engels shared Marx’s anger:
When the cry echoes throughout the
country: War to the mansion, peace to the cottage! then it
will be too late for the wealthy to save their skins.
This anger precluded
evolutionary improvements; it resulted in faulty central-
planning structures, erected by communists and socialists, that
de-motivated the individual and could not assimilate complex,
fast-changing information. Marx’s visions would have freed
individuals, but his Marxist followers built structures that
tyrannized them. Governments after Marx, thus became grid locked
by two power structures: The traditional one in which nations
exploited colonies, and capitalists exploited workers, and the
new one in which reformers tried to use government to
redistribute wealth.
In Capital, Marx
had traced the mode of production from slavery in ancient
Greece, to the serfs of the Middle Ages, to the wage slaves of
the Industrial Revolution, to Marx’s new mode intended to
displace exploitive capitalism. Late in the 20th century, trends
emerged to make a new mode more probable. Technology continued
to add to the humans’ capacity to produce and achieve comfort,
but now Information Age industries also needed the democratic
work culture to release the cognitive power of their people.
Profits were now maximized through the development and
motivation of the individual, and the wage earner, through
pension savings and ownership plans, have now become
“capitalists.” A new more productive, cooperative mode seemed
inevitable as “labor” and “capital” were joined.
Despite these positive
factors, Smith and Marx’s precepts have been violated as never
before. Money is not being kept a simple medium of exchange,
wealth is concentrated in record amounts, speculators are
allowed to make bets with borrowed money more than fifty times
their own capital. Finance capitalists pay themselves enormous
amounts while the workers’ capital is funding speculation and
not being used to invest in long-term growth. The capitalism
that had previously exploited the workers’ labor has now learned
how to exploit their capital, an intolerable contradiction that
produced the economic crisis.
Marx’s visions, however,
have been confirmed in practice. China and India have used
economic freedom to take 500 million humans out of extreme
poverty in a decade. The European Union has unified people in
economic common purpose and stopped killing millions of young
soldiers and civilians in stupid wars.
Despite the quality of
Smith and Marx’s examination, confirmed by empirical evidence,
most educators have institutionalized criticism of generic
capitalism, and have yet to examine democratic capitalism. As a
consequence, citizens are not educated in democratic capitalism,
government is not structured in its support, and the economy
that has functioned at a fraction of potential is now in a
recession.
Educators of the world
unite! You have nothing to lose but your bias against economic
solutions!
11. John Stuart Mill Connects the Dots
John Stuart Mill (1806-1873) was born to a Scottish family
living in London. Home-schooled by his father, Mill was studying
Greek at age three, Latin at eight, and economics and social
theory at twelve with economist David Ricardo and utilitarian
philosopher Jeremy Bentham. Mill worked at the East India
Company, wrote six books, and served in Parliament from 1865 to
1868 where he promoted women’s rights.
Millaccepted this Enlightenment mission:
To determine how the laws of science can
form similar doctrine in moral and political science.To cement together fragments and harmonize discordant
theories by the links of thought necessary to connect
them.
Mill then integrated the components in this democratic
capitalist manifesto:
The other mode in which cooperation tends
to increase the productiveness of labor, consists in the
vast stimulus given to productive energies, by placing the
laborers in a relation to their work to make it their
principleinterest—at present it is not—to do the utmost,in exchange for their remuneration.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; and the conversion ofhuman’s daily occupation into a school of the
social sympathies and the practical intelligence.
By integrating private property and competition with the
motivation from profit- sharing and ownership, Mill completed
the definition of democratic capitalism, including the moral
dimension. It needed government support, but reformers favored
political solutions, and those who held the power would not give
it up. Mill knew it would be a slow process:
The great intellectual achievement of the
next three generations of thinkers would be clearing up
the means by which truth can be attained.
We’re still waiting. Capitalism continues to be dominated by
concentrated wealth, currency and credit continue to be abused
by speculators, and American foreign policy has failed to copy
the European Union to unite people in economic common purpose.
Reformers failed to synthesize the ideal and means presented by
Smith, Marx, and Mill, and consequently failed to modify the
political structure.
Mill offered these dots
for future Enlightenment connection:
Oppression by government has a more baneful effect on
prosperity than any excess of freedom
A commercial crisis is caused when traders apprehend a
recoil of prices after they have been raised by
speculation
All privileged classes use their power for their own
selfishness
The future depends on citizens improved by education
Industrial occupations must be opened freely to both
sexes
Justice and equality are nurtured by association, not
isolation of interests
Those who do the work should share in improved profits
Cornwall miners’ profit-sharing produced intelligence,
independence, and moral elevation in their character
Contrary to
Socialist thinking, competition is indispensable to
progress
The root of iniquities is not competition, but the
subjection of labour to capital, and the enormous share
that possessors of industry take
Impatient reformers stretch government too far because
they think it easier to get possession of government
than of the intellect
A few generations of government without limit to
arbitrary exactions never fails to extinguish industry
and wealth
The events of the past have a meaning in the gradual
evolution of humanity and have afforded the only means
of predicting and guiding the future
Laws that allow inequalities in wealth between rich and
poor have a disastrous effect on the moral sentiments of
the people
Instead of issuing a command and enforcing it by
penalties, non-authoritative government
gives advice and promulgates information
Mill had a pragmatic view of government including the limits of
laissez-faire. He believed that government must do more
in the earlier stages of a country’s development to educate, to
create jobs, and then free the people to be increasingly
responsible. He also knew that a truly democratic-capitalist
government could do more for less through decentralization,
meritocracy, and an organization based onresults, not rules.
Mill’s intellectual development was broadened from his dialogue
with Frenchman Auguste Comte (1798-1857) about his scientific
sociology. Comte in turn had studied and benefited from
Condorcet’s Sketch for the History of the Progress of the
Human Mind.
The economic and industrial analysis of
society cannot be positively accomplished, if one leaves
out all intellectual, moral, and political analysis.
Two great thinkers of the 19th century thus
emphasized the danger of isolating economics from other
disciplines, an emphasis that is now lost in higher education
where the Humanities are intellectually, and frequently
physically, remote from Economics and Business.
Mill added this final challenge:
Make government reduce the wretched
waste, to turn the energies now spent in injuring one
another, to the legitimate employment of the human
faculties, that of subordinating the powers of nature to
physical and moral good.
Thus Smith, Kant, Marx, and Mill all believed that the “natural”
human tendency would be towards peace and cooperation in
opposition to that mother of all lies that violence and war are
part of human “nature.” Those with little understanding of the
power of democratic capitalism and economic common purpose still
give tacit support to that ugly concept that war is inevitable.
12. Educators' Persistent Failure to Examine
Democratic Capitalism
The 18th-century Enlightenment presented economic freedom in a
plan for human progress. America built the political structure
intended to support this freedom. Success was conditioned on
education of the citizens.
Educators failed in that
responsibility, however, and the world is still full of folly
and violence. Educators have not examined Adam Smith’s economic
system of participation and high wages, did not accept Karl
Marx’s advice to begin sociology with the economic system, and
failed to follow the Enlightenment in the integration of
knowledge. Despite sufficient freedom to improve lives, the
system has functioned well below its potential for over 200
years.
Democratic capitalism can
be the engine that drives the world to peace and plenty, but it
needs the colleges and universities to research public policy,
train leaders, and educate citizens. A new generation can learn
that ownership participation will build and distribute more
wealth, and that violence can be displaced by economic common
purpose. The vision of the American founders of a government
based on the “will and wisdom” of educated citizens, filtered by
an “aristocracy of talent and virtue,” can become reality. Young
people in all cultures will choose freedom and comfort as the
alternative to tyranny. While democratic capitalism needs
support from the university, the university needs democratic
capitalism to regain purpose and fill its moral vacuum.
Most universities left
their moral base from religious associations in the 19th-century
and have yet to find a secular alternative. Political
correctness, relativism, and abandonment of idealism have
provoked criticism from professors, college presidents, and
deans about a fundamental confusion of purpose:
Derek Bok, former president of Harvard University,
lamented that in twenty years of faculty meetings he had
never heard any discussion of how to educate students to
become better citizens. He concluded that “the results
of that neglect are all too visible.”
Stanley Fish, former dean of Liberal Arts at the
University of Chicago, disagreed. The task of educating
students to be better citizens, he argued, would replace
the true task of academic work, the presentation of
knowledge and training students to think.
Harvard professor John Rawls rejected the
Enlightenment: “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, has no such ambitions.”
Harvard professor Edward Wilson disagreed: “I
believe that the Enlightenment thinkers of the 17th and
18th centuries got it mostly right the first time. The
assumption they made of a lawful material world, the
intrinsic unity of knowledge, and the potential of
indefinite human progress are the ones we still take
most readily to our hearts.”
Rawls was a philosopher
looking for political solutions; Wilson, a scientist like the
18th-century thinkers, used the truth-seeking protocols of the
hard sciences. Bok organized hundreds of college presidents in
support of his position; Fish taunted educators in his 2008
book, Save the World, On Your Own Time!
A study of economic
alternatives depends on an epiphany among educators who will
then present the following tenets for student examination:
Democratic capitalism combines the best of
capitalism and socialism
Because of its inherent moral environment,
democratic capitalism builds more wealth and distributes
it more broadly
Government support of democratic capitalism, instead
of finance capitalism, will prevent economic disasters
Enlightened scientific truth-seeking methods can
find a better organization of human affairs
These truth-seeking methods will neutralize the
impediments of fallible senses, culturally conditioned
minds, ambiguous language, and inaccurate history
The barbaric events of the 20th century could have
been avoided in a world united by economic common
purpose
Idealism was a 20th-century victim along with 160
million soldiers and citizens killed by governments
The cultural conditioning of academia holds commerce
in contempt, treats “capitalism” as a dirty word; and
“democratic capitalism” as an oxymoron.
Liberal Arts educators need to accept Marx’s advice
to start social theory by seeking the best economic
alternative to free humans to reach full potential
Students cannot learn how to think, to “connect the
dots,” if the economic “dot” is missing
Fragmented and overly specialized knowledge must be
integrated so that a second Enlightenment can restate
the plan for human progress.
When educators discover democratic capitalism, they will become
excited by its capacity to eliminate material scarcity, break
the political gridlock, end the culture wars, and unite the
world. They will find that the principles of democratic
capitalism affirm the worth of each individual in an environment
of trust and cooperation, a secular morality consistent with
most religions and humanism. When educators unleash democratic
capitalism, this powerful force will improve lives and displace
violence with economic common purpose.
The financialization of an economy is an insidious thing:
Manufacturing shrinks, financial services expand, and capital
shifts to speculation. Kevin Phillips traced this in Boiling
Point (1994) from Spain in the 16th century, to the Netherlands
in the 18th, to Great Britain in the 20th. These countries went
out with a whimper; America in 2008-2009 had a bang big enough
to make citizens mad and demand real reform.
This financialization of
the American economy began after a large auto company went broke
and left many without pensions. Congress then passed the
Employee Retirement Insurance Security Act (ERISA) of 1974,
requiring companies to put cash into investments that would
assure wage earners of money to live on in retirement.
ERISA could have been the
greatest savings-investment opportunity in the history of
capitalism, had most of the trillions of dollars had been
invested in new stock for company growth, bonds to fix bridges
and build schools, educational loans, and responses to
environmental needs. The wage earners’ nest egg could have grown
from these investments, along with a “capital wage” of 5%
dividends which the new capitalists could either have saved or
spent, further benefiting economic growth. ERISA, however, was
not designed that way.
Congress did not
anticipate that this enormous amount of new funds would change
the dynamics of finance capitalism so dramatically and
ultimately so tragically away from the traditional function of
moving savings into investment. Congress did not take due notice
of where ERISA money would go and how much it would cost to get
there.
Most of the money stayed
in Wall Street to be recycled by money managers. Finance
capitalism was able to dominate the economy and concentrate
wealth, the process that culminated in the unnecessary economic
disaster of 2008-09. ERISA money was used to increase the
profits of financial services from 4% to 40% of total corporate
profits; to drive dividend income down from 6% to under 2 %; to
inflate money managers’ fees to ten times the amount charged by
index funds; to build commissions by trading stocks once a year
instead of every six years; to bankroll deals in which all
engaged in a compensation feeding frenzy; for hundreds of
billions of dollars annually for stock buy backs instead of
dividends returned to the economy; to fund high-risk hedge
funds; and to fund private equity companies for their buy it,
strip it, flip it acquisitions.
How did this happen? CEOs
and Directors were concerned about this new responsibility to
invest ERISA money, and passed the responsibility to outside
money managers. These managers were called on the carpet every
quarter and fired if their short-term performance was not
competitive. Stock analysts quickly applied a quarterly
earnings-per-share to corporate performance, encouraging
companies to sacrifice long-range plans for the benefit of
short-term earnings. The price of the stock became an obsession
not only because of the benefits of stock options for top
executives but also because a high P/E, (the relationship of
stock price to earnings), could help companies expand by
acquisition. Conversely, a low P/E made companies vulnerable to
takeover. Corporate America had fallen into a short-term trap of
their making.
Many of the plans were later shifted from “defined benefit” (a
fixed amount to be paid on retirement) to “defined contribution”
(a fixed amount invested for the wage earner). The laws,
however, locked the money in as taxes were deferred until
retirement, and there were penalties for early withdrawal. The
wage earners could decide the mix of stocks and bonds but had no
further influence on investment decisions. They were now
capitalists but finance capitalism that had traditionally
exploited the wage earners’ labor now learned how to exploit
their capital.
ERISA, by law, limited risky investments of this money, but
persistent lobbying by Wall Street eventually pressed Congress
to allow money managers to invest pension money in high-risk
hedge funds. Retirees will be shocked when they find out that
the “toxic waste” they read about ended up losing over $ 2
trillion of their pension savings. The government also took the
interest rate down to nearly zero, causing the housing bubble
while cutting the pensioners’ bond income.
Wall Street had an excess of cash to do all of these things in
contradiction to the principles of economic freedom. Adam Smith
had warned that money must be kept a simple medium of exchange,
not itself a commodity to be traded. Smith called for constraint
of “prodigals and projectors” who must be prevented from
deflecting capital from job growth to speculation. The
ideologues of the “liberation of capital markets” led by Fed
chairman Greenspan and Treasury Secretary Rubin lobbied further
deregulation while resisting efforts to get control of
derivatives. They made a monster error in misapplying to
financial services the classical free-market theory of seeking
equilibrium.
The 2008-09 economic disaster demonstrated once again what
happens when the government does not prevent asset inflation in
stocks and real estate. Every boom-and-bust business cycle in
American economic history has followed the same pattern: No
controls in the up direction and then a cutting back of loans in
the down direction, just when the loans are most needed. As the
bubble expands, the higher values collateralize more borrowing.
After the crash the banks try to repair their ratio of loans to
reserves by cutting credit for even good companies. The solution
would be for the government to prevent asset inflation in the up
part of the cycle by limiting borrowed money for speculation in
a coordinated use of interest rates, money supply, margin
requirements, bank reserve requirements, bank regulation
extended to all source of credit, and various taxes.
After the present damage is controlled, the need will remain to
reform ERISA in order to fulfill the original mission: Protect
pensions and maximize the money available when workers retire.
The pensioners will have to use their democratic power to
instruct their money managers in these reforms:
• The money managers’ short-term focus
must be changed to long term by changing the measurement
of corporate performance to a three-year average of sales
growth, profits, and cash flow against managements’
predictions
• Democratic pressure must be placed on money managers and
then on corporations to give priority in the distribution
of surplus to growth investment and dividends, not to
stock buy backs and deals
• Dividends must again represent one-half of the return
from capitalism. Tax laws must be changed to make
dividends tax-free for low-and middle-income wage earners
• New long-term bonds should move pension money directly
into infrastructure investment with its income rebuilding
the wage earners’ savings and helping the economy.
• Existing corporate surplus, such as the $80 billion in
cash that Exxon and IBM are sitting on, should be paid out
in special dividends to rebuild the wage earners’ pension
accounts and as an economic stimulant.
• All incentive compensation in finance capitalism must be
congruent with the long-term benefit of the
worker-capitalist.
Ultra-capitalism
concentrates wealth and causes recessions; democratic capitalism
through economic freedom can eliminate material scarcity, and
through economic common purpose can eliminate the violence. The
choice is obvious.
14. Warren Buffett Warns about an Unnecessary
Economic Disaster
Warren Buffet is the
world’s best-known investor. Thousands of shareholders make the
trip to Omaha for his Berkshire-Hathaway annual meetings which
have more the good feeling of a family picnic than the typical
annual meetings. Buffet served on the SEC Advisory Board, and
then “got serious,” about unambiguous communication and with
Carol Loomis, wrote Buffet’s 2002 annual report. Loomis, a
senior Fortune writer, also wrote a 1997 article on
derivatives, titled “Alligators in the Swamp.”
Buffet began with his
usual straight talk, saying that he and his partner, Charlie
Munger, “are of one mind in how we feel about derivatives and
the trading activities that go with them. We view them as time
bombs, both for the parties that deal in them and the economic
system.” Buffet explained that they were shutting down
derivatives in their insurance company. Buffet’s letter was
released on March 8, 2003, and published in Fortune on
March 17. On March 11, the feature editorialist of The Wall
Street Journal attacked Buffet’s argument in a reaction by
the defenders of Wall Street that was quick and insulting. WSJ described
Buffet as “grumpy” and featured in bold print: “Every great
investor makes an occasional mistake.” The article calls
attention to a decline in the value of Buffet’s stock from
$80,000 to $60,000, it does not mention, however, that the stock
had been at about $40,000 a year earlier. The article concluded
that Buffet “is not only shooting the messenger, he’s also
blaming the gun.” Instead of a critical examination of the
macroeconomic effects of derivatives raised by Buffet, the
WSJ article was patronizing and superficial.
The WSJ called
derivatives “little miracles of financial engineering,” and made
the following points:
Derivatives allow investors to shift and manage
risk.
Through this risk management, derivatives add to
liquidity.
By spreading risk, derivatives reduce the
possibility of failure at one or more major
institutions.
These standard derivative
defenses are used by ultra-capitalists, including former Fed
Chairman Greenspan, to beat back efforts to get government
regulation of derivatives-even after disasters such as LTCM. In
a puzzling way, however, The WSJ editorial then proceeded
to contradict itself and agree with some of Buffet’s most
important points:
“Investors can’t get a clear picture of potential
dangers because disclosure remains inadequate”
“Accounting for derivatives is a mug’s game. Valuing
derivatives on a mark-to-market basis can be an exercise
in fantasy. The result is inflated earnings”
“Limited and fanciful disclosure can also mask the
possibility that risk, rather than being widely
dispersed, has actually migrated to one or two
sectors-insurance and pension funds come to mind”
If one were to read these
points, and not the cheap shots, one could conclude that The
WSJ agreed that a marauding monster was out there and we’d
better get control of it. The WSJ describes the need for
“scrutiny,” scrutiny by whom, and for what purpose?
This difference between
Buffet and Wall Street, was an opportunity to examine the
conflict between democratic capitalism and ultra-capitalism when
the disaster could have been avoided. Ultra-capitalism was
determined to deregulate financial services and oppose
regulation of new instruments like derivatives. This fundamental
error shaped government policy, but it contradicts economic
freedom as described by Adam Smith and classical economics. As
famous speculator George Soros has emphasized, finance
capitalism will not find equilibrium on its own, like commerce,
and needs monetary and fiscal controls. Ultra-capitalism,
however, has such lobby power, and reformers are so limited in
their understanding that Wall Street continued to lobby
destructive policies until they caused the disaster. Citizens
are now aroused but are they sufficiently educated to neutralize
Wall Street?
Derivatives barely
existed before 1987. Measured by the value of the underlying
asset on which they are based, derivatives grew to about $10
trillion in 1994, an grew to $450 trillion in 2008, before the
crash. This astronomical number dwarfs the total market value of
all stocks and bonds. A Business Week article in 2002
questioned, “Are Derivatives Dangerous?” and then answered with
the subtitle: “Without adequate collateral, one big default
could set off a chain reaction imperiling the whole financial
system.” Few were listening, and fewer were comprehending.
Investor Buffett, and
speculator Soros, warned that instabilities in financial
capitalism seriously threatened the world’s economy. Throw in
the examples of LTCM and Enron, and then how much wisdom and how
many clear examples did we need for the democratic will to
combat the lobby power of Wall Street? We ignored these
warnings, or did not understand them, and reforms did not
happen. As predicted, bad things did happen and, as usual,
ordinary people who believed that their pensions and insurance
money were being protected by their government were badly hurt.
The hurt is so deep and
broad this time that people will persist to find the knowledge
for reform. This Introduction to Democratic Capitalism can help.
15. The "Liberators of Capital Markets" Destroy
the Indonesian Economy
After the demise of the
U. S. S. R., economic freedom was spreading around the world
improving lives, and economic common purpose was reducing the
violence. Indonesia was a poster child of this improvement,
according to Paul Blustein:
Indonesia’s per capita income
in 1970 had been two-thirds that of India and Nigeria, but
by 1996 it had risen to $1,080, four and a half times that
of Nigeria and triple that of India. Life expectancy at
birth in Indonesia was sixty-five by the middle 1990s,
compared with forty-nine a quarter-century earlier; the
adult illiteracy rate had fallen to 16 percent from 43
percent; the infant mortality rate had shrunk to 49 per
1,000 live births from 114.
This extraordinary
performance in the world’s largest Muslim nation had begun in
1966, when Suharto, President for many years, delegated economic
planning to Widjojo Nitisastro, a Ph. D. graduate of the
University of California who understood the fundamentals of
economic freedom. He quelled triple-digit inflation by
restraints on government spending, opened the economy to foreign
investment and trade, and reduced government regulation. The
result was an average annual growth of 7 percent from 1979 to
1996, and stable prices. Millions of people became better
educated, enjoyed better health, and lived with greater freedom.
When promoters of human
and civil rights study Indonesia, they can learn that economic
freedom can improve lives despite imperfections in the political
structure. Suharto’s government was far from democratic, and at
times, it was repressive; however; when he let the freedom genie
out of the bottle in the economic sphere, other freedoms
followed. A basic premise of democratic capitalism is that when
a culture moves to economic freedom, political and civil rights
freedoms follow naturally in time.
What, then, caused the
Asian crisis of 1997? Joseph E. Stiglitz, former Chair of
Clinton’s Economic Council, former Chief Economist of the World
Bank, and a Nobel Prize winner, offered this clear and sharp
opinion:
The countries in East Asia had no need
for additional capital, given their high savings rate, but
still capital liberalization was pushed on these
countries. I believe that capital account liberalization
was the single most important factor leading to the
crisis.
Both President Clinton
and Treasury Secretary Rubin exhorted the emerging economies to
take down all cross-border capital controls. They failed to
recognize that no there was no structure in place to discipline
the rush of short-term speculative money that overheated the
Asian economies. The consequent economic weakness might have
been corrected by a modest tightening, however, short-term hot
money fled the country with the click of a mouse; currency went
into free fall, dropping 70%; and economic progress was
reversed. Previously successful businesses suddenly had their
dollar denominated debts multiplied by four and went out of
business. The unifying force of a rising standard of living was
displaced by unemployment, falling wages, higher prices, and
social, ethnic, and religious tensions. .
Not only were controls
lacking on the amount and type of money coming in but also no
mechanism was in place to stop its outward flow. The downward
spiral could have been stopped by a conversion of short-term
money to long-term debt, but this approach was opposed by the
IMF and the U. S. government, calling it “an infringement on
economic freedom.” Hot money and currency speculation are the
corruptions in ultra-capitalism that regularly destroy the
benefits of economic freedom, and yet the constituted
authorities nonetheless defended them on the faulty basis of
their being “free capital roaming the world.”
The IMF and the U.S.
Treasury Department seemed determined to change the politics and
culture and helped in removing Suharto, and agitated for
democratic elections. Despite his record of improving lives, the
ideologues of the “liberalization of capital markets” ignored
the record and applied the wrong solutions. Their common
denominator was promotion of foreign markets for Wall Street
services.
Malaysian Muslim Prime
Minister Mahathir called currency speculation “unnecessary,
unproductive, and immoral,” and proceeded to put back capital
controls, ignored IMF advice, and had a faster recovery than the
other nations.
Many in the popular media
of the West are economically illiterate. According to their
disinformation the Asian countries would become more short-term
profit oriented and lay off more workers, an emphasis on
cost-cutting rather than growth. A crisis caused by
ultra-capitalism would be corrected by more ultra-capitalism, if
you believe the media.
The apologists for
ultra-capitalism argue that a currency attack by speculators is
a useful discipline. Mature economies, led by the United States,
have let the international monetary system go so out of control
that the final insult to the injured victims is to describe the
extraordinarily leveraged speculators as providing a
“discipline.” Real discipline will come only from purging the
excessive volatility and excessive liquidity from the system.
How can these crises be
avoided: Government international agreement to prevent asset
inflation, the root cause of the business cycle and recessions.
The American government fights price inflation aggressively but
ignores asset inflation for the simple reason that Wall Street
loses money through price inflation but makes money with asset
inflation. In the up direction of the business cycle the rich
get richer and then get out in time for the poor to get poorer
in the down direction. Former Fed Chairman Greenspan, even told
Congress that the Fed could not prevent asset inflation. Other
disagree: The BIS (Bank for International Settlement), the
central bankers’ club in Switzerland, published in April 2006,
paper No. 205 by William White titled “Is Price Stability
Enough?” In May, 2008, libertarian think tank CATO issued
Briefing Paper No. 103 by Gerald P. O’Driscoll, Jr. titled
“Asset Bubbles and Their Consequences.” O’Driscoll, a former
vice president of the Federal Reserve Bank of Dallas, followed
with an article in the WSJ on November 17, 2008 titled “To
Prevent Bubbles, Restrain the Fed”
This seems like strong
momentum towards the elimination of speculative bubbles that
devastate people but, as usual, the logic will have to have
sufficient democratic support to withstand the lobby power of
Wall Street that, so far, has a perfect record of protecting
their money tree.
Other reforms in the
interdependent global market must include agreement about the
following:
Agreements and protocols with the BIS to prevent
short-term “hot money” from rushing in and out by
coupling it with long-term investment or by converting
it to long-term in a crisis.
Taxes that discourage short-term speculation must be
increased by agreement by the G-7 nations.
Investment for long-term growth must be rewarded by
further reduction in capital gains taxes, again on an
international basis.
Risk must be more accurately reflected in bank
reserves and all sources of credit must have the same
conservative relationships of loans to capital as
regulated banks
The cost of money must have a risk premium that goes
up with any asset inflation
The rising value of artificial assets must not be
used to collateralize easy credit. This control of asset
inflation can be done by an integrated use of taxes,
reserves, margin requirements, adequate risk premiums in
the cost of money,
16. Wall Street Lobbies Deregulation and
Destroys the Economy
In 1999, Wall Street’s
protectors in Washington, Greenspan, Chair of the Fed, and
Rubin, Secretary of Treasury, beat back reformers’ efforts to
exercise reasonable control of derivatives, and they convinced
Congress to repeal the Glass-Steagall Act. This Act had been
passed in 1933 to eliminate a conflict of interest by separating
commercial banking and investment banking.
Soon after the repeal,
Citigroup demonstrated why the act had been a necessary part of
government structure to regulate banking. Citigroup, acting as
commercial bankers, provided Enron with billions of dollars of
loans so that Citigroup, acting as investment bankers, could get
the billions of dollars of deals that Citigroup helped Enron
negotiate. In time, the loans turned into bad loans and many of
the deals into bad deals. The financial motivation to ignore the
quality of the loans in order to obtain the profitable deals
resulted in the easy credit that allowed Enron to happen. Easy
credit, which had caused economic disasters since the beginning
of the republic, was now coupled with derivatives that added new
ways to bet, new ways to borrow, and new ways to duck
regulations.
Disturbed by the collapse
of hedge fund LTCM, Brooksley Born, chair of the Commodities
Futures Trading Commission (CFTC), recommended that Congress
consider regulation of derivatives. On November 9, 1999, the
President’s “Working Group on Financial Markets” issued its
report recommending to Congress that it bar the CFTC from
regulating derivatives. Besides Greenspan and Rubin, the
committee included the head of the Securities and Exchange
Commission, and the new head of CFTC. Born’s lonely democratic
voice was silent, since she had resigned. This event also
illustrates that responsibility is spread among so many agencies
that it is not possible for government to have a unified policy
to control leveraged speculation.
Derivatives are bets on
the direction that underlying financial instruments will go.
Apologists argue that derivatives are a way for companies to
hedge their business, for example, a farmer could buy a “future”
to insure that the price of soybeans when delivered was no lower
than when planted. This defense is weak because it diverts
attention from the fact that use of derivatives for speculation
dwarfs their use as a business hedge.
Representative John
Dingell (D., Michigan), the ranking Democrat on the House
Commerce Committee, commented in 1999: “After six months of
study, the working group has basically concluded that we should
get rid of almost all regulation of these products and let the
good times roll.” Disagreeing with the committee, however,
Dingell added: “Proposals for the creation of totally
unregulated institutional markets are dangerous follies.”
Democrats frequently
issue such warnings after another triumph of the Wall Street
lobby, but the warnings have never become serious efforts at
comprehensive reform and the domination by finance capitalism
only grows stronger. Confidence in the lobby power was so great
that the Citigroup merger was already a fait accompli when
President Clinton signed the Bill. Little or no discussion took
place in Congress about adding hundreds of billions of dollars
of potential obligations onto the taxpayers to bail out the
enormous financial services corporations that this Bill
encouraged, nor the effect on bankers to ignore the quality of
loans. The repeal of Glass-Steagall made the “too big to fail”
rule; into the “the really too big to fail” rule that grabbed
hundreds of billions of taxpayers’ bail-out dollars a decade
later when these actions resulted in an economic disaster.
By 2002, Citigroup had
hired both Robert Rubin and Stanley Fisher, prime movers behind
the “liberalization of capital markets” while Rubin had been
Secretary of the Treasury and Fisher was the top American at the
International Monetary fund ( IMF). Rubin became chair of
Citigroup’s Executive Committee, and Fisher vice-chair of the
Board. Rubin “earned” about $16 million in 2001 plus options,
the year in which Citigroup was a major source of the easy
credit for Enron, and Citi’s Smith Barney was successfully sued
for misleading small investors.
Rubin retired from
government just weeks before Glass-Steagall was repealed. His
move to Citi provoked a letter from a coalition including the
Center for Community Change, The Association of Community
Organizations for Reform Now, The Greenlining Institute, The New
York Public Interest Research Group, and Ralph Nader. The letter
to the Office for Government Ethics objected to Rubin’s move as
“turnstile behavior with an undeniable appearance of
impropriety.” The coalition had fired its pop-gun; the Wall
Street lobby remained nuclear armed.
In 2000,
ultra-capitalism capped its amazing political performance by
successfully passing the Commodities Futures Act. Not satisfied
with merely avoiding control of derivatives, this act, with
heavy lobbying by Enron, effectively allowed speculators to buy
stock futures for 10 cents on the dollar. In 1933, the SEC had
reduced the amount that speculators could borrow from brokerage
firms from 90% to 50%. The 2000 act brings leverage
opportunities back to 90%!
By the beginning of the
new millennium, Wall Street’s mission to deregulate finance
capitalism was nearly complete with currency and credit
controlled for the benefit of the speculators, not the general
welfare. The “liberators of capital markets” had made their
monster error of assuming that free market forces that brought
commerce back to equilibrium also applied to finance capitalism.
These corruptions fed on themselves until they exploded in the
financial disaster of 2007-2009.
17. Free
Markets Work
The economic disaster
of ’08-‘09 is being blamed on free markets. Wrong conclusion!
Blame it on Wall Street’s “Liberators of Capital Markets” who
ignored Adam Smith’s conditions for the success of free
markets and lobbied government to deregulate finance
capitalism. Smith specified control of the speculators,
“prodigals and projectors,” as he called them, who would use
easy credit to drive up the asset value of stocks or real
estate to an inevitable climax and crash. This is the same
mistake that caused the Crash of ’29 and the Great Depression,
and this time we had better get it right.
Two centuries after
Smith, John Maynard Keynes summarized the problem:
Speculators may do no harm on a steady
stream of enterprise. But the position is serious when
enterprise becomes the bubble on a whirlpool of
speculation.
Boy, was he right!
The “business cycle” has
very little to do with everyday commerce, it is caused by
financial speculators with easy credit. Cycles began with the
Panic of 1818 when thousands were thrown out of work and
hundreds put in prison for small debts. The latest cycle,
however, has been so extreme that the economy has become
financialized, that is, finance capitalism dominates the
job-growth economy instead of supporting it. Kevin Phillips
pointed to this phenomena in Boiling Point (1994), that caused
the decline of great nations: Spain in the 16th century,
Netherlands in the 18th, Great Britain in the 20th. Can we
prevent it becoming America in the 21st?
The solution is for the
government to fight asset inflation with the same vigor that
they fight price inflation it has the tools and only lacks the
determination. Sounds simple, except that Wall Street loses
money on price inflation and makes money on asset inflation,
so it organizes its powerful lobbying on that basis. This is
why students and citizens need a working knowledge of
democratic capitalism, without which Wall Street eagerly fills
the policy vacuum with their own rules.
The free-market dynamic
described by Smith is based on the self-correcting interaction
of prices, volume, and costs monitored by competition. As
volume increases, costs go down, and more volume keeps the
dynamic going and wealth spreading. The company’s effort to
produce better products at lower costs adds volume, while
poorer products and higher costs reduce volume and can ruin a
company.
Finance capitalism shares
in none of this dynamic. The flow of money from mandated
pension funding and China’s purchase of U. S. Treasury notes
has allowed prices that were whatever the market would bear.
Money managers charged fees ten times the rate charged by
index funds for similar performance. Wall Street brokers
abandoned their advisory role and based compensation on a
percentage of the deal, while CEOs were seduced with enormous
stock options. Naturally, the number of deals exploded and
compensation became a feeding frenzy.
Few have recognized that
the prime stock market mission of moving savings into
investment in the job growth economy has been displaced by the
mission of recycling money in the market in deals and stock
buy backs. Exxon, for example, uses its surplus mainly for
stock buy backs, meanwhile sitting on around $60 billion in
cash that could be returned in special dividends to wage
earner shareholders to rebuild retirement accounts or to be
spent to the benefit of the economy. Exxon spent almost $100
billion from ’06 to ’09 on stock buy backs at an average price
of about $80. By the end of April ’09 they had lost over $18
billion on that stock.
During the last quarter
of the 20th century, the Wall Street lobby pushed the
government from being the regulator to being the protector of
finance capitalism. Free-market principles were violated
beginning with the bailout of Continental Illinois in 1984.
With the repeal of Glass-Stegall in 1999, the “too big to
fail” contradiction became the “ really too big to
fail” for monster financial companies like Citigroup. Record
leverage of 30:1 was not enough, the Commodities Futures Act
of 2000, with heavy lobbying by Enron, tripled leverage
opportunities, and Wall Street went out of control.
Asset inflation, the
cause of business cycles and recessions, can be eliminated by
a coordinated use of interest, money supply, taxes, margin and
bank reserve requirements. It wont be done by five different
agencies, but rather by one--whether the Treasury Department
or the Federal Reserve. And it wont get done if
representatives of Wall Street, like Greenspan, the former Fed
Chairman, continue to convince Congress that government lacks
the tools to do the job.
When a business cycle
begins to overheat, the government must mandate a higher risk
premium in the cost of money, higher reserves against bad
loans by all sources of credit, limits on broker loans, for
example, 75% of the purchase price of stocks instead of 50%,
and finally higher taxes on short-term speculation. These
regulations can be applied in a progressive way when real
estate values increase greater than inflation, and when stock
prices increase beyond traditional price/earnings ratios. If
the market average goes from a P/E of 15 to 20, for example,
then brakes must be gradually applied.
None of these good things
will happen unless citizens improve their understanding of
economic alternatives and neutralize the lobby power of Wall
Street. To that end the Carey Center for Democratic Capitalism
has announced an “Introduction to Democratic Capitalism” on
its web site www.democratic-capitalism.com. It can provide
students of all ages with a working knowledge of the
alternative.
18. America the Beautiful Or The Ugly?
Late in the 20th
century, the world was moving towards peace and plenty. China
and India demonstrated the power of economic freedom by taking
500 million humans out of extreme poverty in a decade. The
European Union demonstrated that economic common purpose could
stop the violence. This unique momentum was reversed, however,
by American mistakes.
Both political parties
used military power to dominate the world and allowed finance
capitalism to dominate the economy. The result was the killing
and maiming of thousands of young Americans in three
un-winnable wars, the 9/11attack, and the worst depression
since 1932. In a few decades, America had gone from the
greatest creditor nation with most of the money, to the
greatest debtor nation on the way to bankruptcy; from the
“light on the hill” to the most-hated nation; and now it is
breaking its proudest tradition to pass on a better life to
the next generation.
Since 2007, 6.7 million
Americans have lost their jobs, and 30 million have no jobs,
part time jobs, or have stopped trying to find a job. On Wall
Street, a few miles from young people without jobs or hope,
Goldman Sachs was dividing $18 billion in bonuses among its
28,000 employees, an average of over $600,000 apiece.
In 1974, Congress made
the wage earner a capitalist with mandated pension savings.
Congress forgot, however, to ask where the money would go and
how much it would cost to get there. This greatest
savings-investment opportunity in the history of capitalism
was blown when the money went to Wall Street and stayed there,
doubling their wages, increasing their percentage of total
profits from 4% to 42%, paying money managers ten times index
funds for similar performance, trading stocks once a year
instead of every six, using surplus corporate cash for stock
buy backs and deals instead of growth investment and
dividends, and funding the dot com, housing, and credit
bubbles.
Wall Street dominated the
economy because it dominated Washington. Beginning with the
fundamental error of assuming that free-market equilibrium
forces apply to finance capitalism, Congress was successfully
lobbied for more leverage and less regulation. Companies
considered to be “too big to fail” in contradiction to free
market forces became even bigger.
The bursting of the
housing bubble exposed a credit bubble with enormous debt on
the banks’ books in instruments that no one knew how to price.
Collateral demands drove prices into free fall, devaluing the
rest of the banks’ loans in a solvency crisis. Fear displaced
greed, and everyone on Wall Street headed for the exits;
credit was frozen for even good companies; and American
consumers stopped spending.
No one had listened to
the wisdom of the Enlightenment: Adam Smith had showed the way
to plenty from economic freedom if the speculators, “prodigals
and projectors” as he called them, were under control.
Immanuel Kant had showed the way to peace with structures that
traded some freedom for protection of life and property and
economic cooperation. Smith and Kant’s ways have yet to be
tried to contain the speculators and predators. For five
centuries, the worst predators were the European nations
colonizing the world, followed by a half-century of bi-polar
world of Russia and the U.S. After the demise of communism,
only American leadership was needed to unite the world in
economic common purpose and strengthen the United Nations.
Instead Washington and
Wall Street messed up Smith’s dynamic for economic freedom and
destroyed the world’s economy, while a few militaristic,
nationalistic, power-adoring men with imperial ambitions
trashed the U. N. and messed up Kant’s plan for perpetual
peace.
Is there anything that
ordinary citizens can do about this bleak picture? Yes!
Examine the alternative and learn how to harmonize democracy
and capitalism for the benefit of citizens. This democratic
capitalism needs these features:
• More wealth produced by participation
and team spirit
• Wealth broadly distributed through profit sharing and
worker-ownership
• Corporate surplus reinvested in job growth and paid in
large dividends
• Billions of available dollars distributed in special
dividends
• Government fights asset inflation as aggressively as
price inflation
• Make dividends tax-free for wage earners
• Invest pension savings partly in infrastructure repair
• Shift measurement of companies from short term to long
term
• Cut military expenses and eliminate nuclear weapons
• Support the U. N.
With the help of the
universities, citizens and young people in all cultures can
modify their governments in support of the capitalism that is
innately moral, eliminates material scarcity, unites people in
economic common purpose, and stops the violence.
Please read Ray Carey, Democratic Capitalism, The Way To Peace
and Plenty, (Indianapolis: AuthorHouse, 2004) and
“Introduction to Democratic Capitalism” on
www.democratic-capitalism.com.
19.
No More Recessions
Speculators may do no harm as bubbles on a steady
stream of enterprise. But the position is serious when
enterprise becomes the bubble on a whirlpool of speculation.
John Maynard Keynes
The functions of
government include protecting life and property and providing
whatever currency and credit is needed to support economic
freedom. Adam Smith proposed that this money should be a
simple medium of exchange and kept from the speculators,
“prodigals and projectors” as he called them. In the 2007-2009
recession, tens of millions of jobs have been lost, and the
living conditions of wage-earning families have been severely
damaged by extreme violations of this free-market theory.
The government’s mistake
began in 1974 with the Employees Retirement Insurance Act (ERISA)
when they did not direct trillions of dollars of mandated
pension savings towards the job-growth economy. Lacking
direction, money will always go to speculative ventures that
have the appearance of quicker gain. This government failure
to distinguish between investment in economic growth or
speculation resulted in funding the dot-com bubble, and then
the real-estate and credit bubbles.
The function of bankers
is to make judgments on the quality of their loans. But the
bankers were no better than the government in distinguishing
between investment in economic growth or speculation.
Deregulation and the introduction of derivatives piled on more
liquidity. While the quality of loans was going down,
incredibly, bankers did not know what the instruments were
worth and instead of starving the speculators they fed the
frenzy while neglecting to reflect increasing risk in the cost
and supply of money or the size of their reserves.
Alexander Hamilton, the
first Secretary of the Treasury, gave easy-credit privileges
to the establishment in exchange for their participation and
financial support. When Jefferson became president, he
promised to “bring this powerful enemy to a perfect
subordination,” but Hamilton’s structure was already in place,
and Jefferson did not know how to reform it.
The next president, James
Madison, allowed greater dominance by finance capitalism
because the bankrupt government needed their help to fund the
War of 1812. After the war, pent-up demand accelerated
economic growth that then surged into asset inflation of
stocks and real estate. This first business cycle climaxed and
crashed in the first recession caused by speculators using
borrowed money. During the Panic of 1818, a half-million urban
workers lost their jobs, and thousands were jailed for debts
less than $20.
The battle went on
between the few protecting their privilege to speculate versus
those angry over the repetitive damage done to ordinary
people. The first Populist president, Andrew Jackson, won a
battle by vetoing the National Bank, but he lost the war when
the State banks he favored provided easy credit for
speculators and caused the recession of 1837. Easy credit
caused recessions again in 1857, 1873, and 1893. In 1913, the
Federal Reserve Board was founded, but reflecting the
priorities of Wall Street, its mission was to fight price
inflation that erodes the wealth of the few but not asset
inflation in stocks and real estate that causes recessions and
damages the many.
Many who favor a
collectivist type of centrally planned government were quick
to identify the Crash of ’29 and the following Great
Depression as evidence of fatal flaws in capitalism. The flaw
was, instead, a failure of government and banks to limit easy
credit for speculation during the 1920s, followed by further
government blunders: raising taxes to 63% retroactively,
shrinking the money supply over 30% in two years, and
legislating protectionist tariffs. The government did not use
available tools to restrain the business cycle, and then it
belatedly used the same tools after the crash by raising
interest rates and by cutting credit even for good companies.
Finance capitalism has
dominated the system but never to the extent of the last
quarter century. ERISA mandated pension funding added as much
as $100 billion a year for investment, but Wall Street
lobbying has resulted in its benefiting the handlers of the
money. During this time, wage-earner capitalists have sat
there passively while Wall Street handlers charged exorbitant
fees for investing in bubbles that eventually caused the
unnecessary recession. Wage earners, in effect, have funded
much of the devastation of their own retirement accounts.
The reforms under way in
late 2009 are damage control that will only put the Wall
Street Humpty-Dumpty back together again. The “reformers”
neither address how to fight asset inflation to prevent future
recessions nor how to identify and support the new, improved
capitalism.
This article is # 19 in the series, “Introduction to
Democratic Capitalism” to be found on our website
www.democratic-capitalism.com. These articles describe how to
fight asset inflation, democratize capitalism, produce more
wealth, and distribute it broadly.
20. A New, Improved Capitalism
You never change the existing reality by fighting it.
Instead, create a new model that makes the old one obsolete.
Buckminster Fuller
The Information Age
brought new opportunities for the people of the world to
communicate and find common purpose. Included is the
motivation for a democratic work culture needed to release the
cognitive power of Information Age workers. The value system
built on respect for the individual and an environment of
trust and cooperation was now not only the ideal of religion
and humanism but also one of competitive necessity in
industry. The hypothesis that morality in the work place is
economically determined, and that a concentration of companies
with this work culture raises the moral level of the
contiguous community, has enormous implications, and would, I
propose, become even clearer through academic challenge and
debate.
This evolution to the
superior mode of production is exciting in itself but another
powerful force is also at work democratizing capitalism. The
Employees Retirement Insurance Security Act (ERISA) of 1974
mandated retirement savings. This vast sum of
money--trillions-- became a major source of new investment
capital and turned workers into the new capitalists. With the
expected rewards from capitalism, wage earners could now live
better from both the wages of their labor and a capital wage.
The combined benefits of a democratic work culture and
financial motivation of ownership participation seemed ready
to bring a golden age of capitalism to citizens in America and
the world.
It did not work out that
way, however. Congress failed to direct this new source of
capital into investment in the job-growth economy. Instead,
the money stopped in Wall Street and helped fund the various
speculative misadventures that have caused the current
recession. Wage earners are again being treated as a
disposable cost commodity and then forced to watch their life
savings shrink dramatically. Instead of being paid a capital
wage, wage earners have lost jobs and income.
That, however, is
history. The question now is how the American majority can
cause government to “promote the general welfare” through
support of democratic capitalism. Congress failed to do this
in 1974, and the reforms now underway will reset the system
back to pre- recession business as usual, an economy dominated
by Wall Street.
A better model is
available, a superior system that maximizes the building and
distribution of wealth in a moral environment. Implementing
the following citizens’ agenda will help shift government’s
support away from domination by finance capitalism:
Limit speculation with borrowed money to minimize
wealth concentration, asset inflation, and recessions
by a coordinated use of reserves, taxes, and risk
premiums added to the cost of money
Reward with tax advantages the distribution of
corporate surplus through reinvestment in growth and
payment of dividends; tax stock buy backs and deals
Make dividends tax-free for low- and middle-income
wage earners
Stimulate the economy and rebuild retirement
accounts by distributing special dividends of hundreds
of billions of dollars now in companies’ surpluses
Create jobs and provide wage earners a risk-free
investment opportunity, a 5% tax-free government bond
for $2 trillion of overdue infrastructure repair
Citizens must tell the managers of their retirement funds to
shift measurement of corporate performance from short-term to
long-term:
Instead of quarterly earnings per share, use a
metric that combines a running average of sales
growth, profits, and cash flow against managements’
predictions. This cash-flow protocol would have
prevented most of the Enron damage. (see article # 13)
Citizens must ask the
colleges and universities to offer students a study of
alternatives in capitalism. The curriculum now offered by the
Carey Center for Democratic Capitalism can be used and
improved. It includes the following:
“Introduction to Democratic Capitalism” (See the
Carey Center for Democratic Capitalism website
www.democratic-capitalism.com)
Ray Carey, Democratic Capitalism: The Way to a
World of Peace and Plenty (Indianapolis: AuthorHouse,
2004). (Available on the website and from Amazon)
Democratic capitalism found in a synthesis of the
thought of Adam Smith, Karl Marx, and John Stuart Mill
(See articles # 4, 10, 11 in “Introduction”)
Democratic capitalism’s superiority confirmed in
practice by hundreds of companies (See article # 24,
Organizations that Promote Democratic Capitalism)
.
The evolution of modes of
production has moved from capital investment in things to
investment in people, from demeaning the worker during the
Industrial Revolution, to celebrating the worker in the
Information Age. The work culture built on the worth and
potential of each in an environment of trust and cooperation
is innately moral and can unite people in economic common
purpose, raise the standard of living, and stop the
violence--the pragmatic results of a new, improved capitalism!
#21
An Economically Motivated Morality
Performance improves in
every human association that provides the opportunity for each
to reach full potential in an environment of trust and
cooperation. Cooperation makes the whole greater than the sum
of the parts as individuals loan strengths to others and
borrow to compensate for weaknesses. This harmony between
individual ambitions and social cooperation has always been
the secular advice from religion, the ideal of humanism, and
is now the core values of democratic capitalism. The economic
system based on these values can feed, clothe, shelter, and
educate the 6.5 billion persons in the world, including the 2
billion trying to live on less than $2 a day. Democratic
capitalism can also unite people in economic common purpose
and reduce the violence.
This power of economic
freedom has been demonstrated by China and India taking 500
million persons out of extreme poverty in a decade. Economic
common purpose has been demonstrated by the European Union
substituting economic cooperation for repetitively drenching
their soil with the blood of millions of young men in stupid
wars.
Despite empirical
validation of the superiority of democratic capitalism it is
not yet presented in academia and supported by government. The
present economic disaster, however, should encourage the
Humanities in American universities to examine the system that
improves the human condition, and the Business Schools to
examine the system that maximizes wealth.
In democratic capitalist
companies integrity is the foundation for maximum freedom and
minimum structure. The organization is decentralized, workers
are empowered, they are secure in their jobs, meritocracy is
the rule, and ownership participation motivates associates to
high levels of productivity and innovation. Low turnover of
loyal employees, suppliers, and customers is also a source of
significant profit improvement.
Ultra-capitalism treats
the wage earner as a disposable cost commodity and dominates
the job-growth economy. It is top-down, command-and-control,
hierarchal, in an environment of intimidation and job
insecurity. The result is concentrated wealth that impedes
future growth. The wage slaves of the Industrial Revolution
evolved from slavery and serfdom and in all of these modes
exploitation of the many by the few was consistent with the
treatment of colonies by European nations. Wages and benefits
gradually improved but not in a cooperative way.
Moral philosopher Adam
Smith began with a cooperative view of “humans interested in
the fortune of others, though they derive nothing from it,
except the pleasure of seeing it. (See # 4). Smith later
defined economic freedom as a system motivated by
self-interest. Critics of capitalism assumed that this meant
“greed” not understanding that for many “self-interest” meant
maximizing profits in a cooperative culture.
Robert Owen, early in the
19th century in his spinning mill near Glasgow, provided
empirical evidence that investment in people, instead of
exploiting them, is more profitable. Owen took this exciting
discovery to Parliament, the Church of England, and American
and European leaders but his discoveries were rejected and
Ultra-capitalism continued to dominate. (See # 9).
In mid-19th century, Karl
Marx saw the benefits of building on the worth of each, and
changing the work culture from alienation to cooperation. Marx
theorized that economic common purpose would make the Warrior
State irrelevant. Marx had no idea, however, of the structure
needed. (See # 10) John Stuart Mill integrated Smith and
Marx’s theories with private property and competition and
added the moral dimension in which enormous improvement in
building wealth “ is nothing compared to the moral revolution
in society that would accompany it.” Mill thus completed the
definition of democratic capitalism but education did not
assimilate it and consequently citizens did not know how to
modify government in its support. (See # 11).
There is no longer a
choice of capitalist alternatives because the cognitive power
of people in the Information Age is released only in a
democratic work culture. Morality now has this economic
motivation but, in addition, Professor Putnam of Harvard
demonstrated that trust and cooperation are not left at the
company door. He found a significant reduction in the crime
rate and cost of protection in a community contiguous to a
concentration of cooperatives in Northern Italy.
An increasingly moral
society emanating from the work place is now a practical goal
but only if education equips citizens with enough
understanding to neutralize the lobby power of Wall Street.
Reform also depends on many in the intellectual community
shedding their contempt for commerce when they learn of an
economic system that can eliminate material scarcity, raise
the moral level, and show the way to peace and plenty!
Lack of a democratic
capitalist curriculum in education is the reason I wrote
Democratic Capitalism and the “Introduction to Democratic
Capitalism” available on website www.democratic-capitalism.com
They can be used and improved to provide a working knowledge.
This article is # 21 in that series.
#22 A World United: Nations Improving the Lives of their
People
The 21st century presents
an extraordinary opportunity for America to exercise its soft
power and spread the benefits of democratic capitalism. We can
teach by word and example the only economic system that
combines the elimination of material scarcity, broad wealth
distribution, and the enduring values of freedom, trust, and
cooperation. The 21st century can be a transformative time for
the reason presented in the first of these articles.
The U.S. must be an
enthusiastic supporter of the United Nations in order to
displace violence with the rule of law. The U.N. is an
imperfect organization needing reform, but treating it with
contempt is not the way to reform it. In January 2000, Senator
Jesse Helms (R., North Carolina) told the Security Council
either do it “our way” or else America would quit. On the
contrary, the necessary reforms depend on support by the
United States for a strong U.N. and renewed American
leadership of the world in economic common purpose. When
wealth is being broadly distributed all countries will benefit
from free trade. The standard of living will go up, and the
violence will go down, when corporations and governments help
the poor countries as both a moral obligation and good
business
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 an
arrogant, greedy, self-centered America, nothing like the
“light on the hill” that inspired the world two centuries
ago.
Once America espouses the
system that not only can eliminate material scarcity but does
so in a moral way, then repressive ideologies will lose
credibility. Muslim nations suffering from the tyranny that
results when religion and state are coupled, will move towards
economic freedom or explain to their young people why they are
being deprived of the good things in life that can be viewed
on television and the internet.
After the
ultra-capitalist dragon has been slain, and wealth is more
broadly distributed, then people will naturally unite in
economic common purpose. Better education and a rising
standard of living go together, and once the improvement
momentum becomes visible, the violence will recede and the
U.N. can initiate a new form of international competition, a
contest of nations vying with one another to improve the lives
of their people. The contest can be based on the U.N. Human
Development Index that measures a nation’s GDP, their
productive growth, life expectancy that reflects the efforts
to improve health, and literacy rates that tell how well the
countries are educating their people.
When rich nations and
powerful global corporations collaborate with emerging
economies, performance will improve as it always does in an
environment of trust and cooperation. Foreign aid has been
viewed as international welfare and dominated by bankers with
limited experience in the management of change. Instead,
managers, experienced in training, motivation, and resource
application, will compete to parlay funds from the mature
economies into profitable long-term programs.
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
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, or a military incursion, but, rather,
because economic freedom gets the job done better when
enhanced by political freedoms.
The time has come for
America to lead the world with the promise of our Founders:
“life, liberty, and the pursuit of happiness” for all. That
promise was echoed in the call by the French Enlightenment for
“liberty, equality, and fraternity, and the principles are the
same as Marx’s manifesto: “The free development of each is the
condition for the free development of all.”
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. Rising affluence and better education will
equip more and more people to accelerate the progress and
passionately oppose its reversal. The U.N.’s Human Development
Index will shine a bright light on any nation that is not
improving lives, and a brighter light 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!
Organizations that Promote Democratic Capitalism
Democratic capitalist organizations involved in democratizing
the workplace and employee ownership plans:
Beyster Institute
Rady School of Management/UCSD
1241 Cave St.
La Jolla, CA 92037
858-826-1680
www.beyster.org
David Binns
Assoc Director
Beyster Institute
1919 Pennsylvania Avenue, suite 650
Washington, DC 2006
dbinns@beyster.org
Carey Center for Democratic Capitalism
www.democratic-capitalism.com
Ray Carey, Director
The Center for Public Integrity
Bill Buzenberg, Executive Director
910 17th St. NW Suite 700
Washington, DC 20006202-466-1300 www.publicintegrity.org
Center for the Study of Islam and Democracy
Radwan A. Amsmoudi, President
10612-D Providence Road, Suite 704
Charlotte, NC 28277
The
Democracy Foundation
1505 Gwynedd View Rd.
North Wales, PA 19454
215-774-1122
Bring the people – American voters – into a decision-making role
in government as citizen-lawmakers in partnership with their
elected representatives. The National Initiative for Democracy,
(NI4D), a legislative proposal that amends the Constitution and
provides legislative procedures in a Federal Statute, does just
that: empowers citizens (you and I) to be able to vote on the
public policies that affect our lives – empowers citizens (us)
as lawmakers.
EFES, European Federation of Employee Share Ownership
Marc Mathieu, Secretary General
Avenue Voltaire 135,
B-1030 Brussels
efes@efesonline.org
www.efesonline.org
EFES objective is to act as the umbrella organization of
employee owners, companies, and all persons, trade unions,
researchers, and institutions looking to promote ownership and
participation in Europe.
Great Place to Work Institute
Robert Levering, Co-founder
Author of Fortune magazine’s annual list:“100 Best Companies to
Work For In America.”
NCEO The National Center for Employee Owenrship
Corey Rosen, President
crosen@nceo.org
1736 Franklin St. 8th Floor
Oakland, CA 94612-3423
510-893-9510
www.nceo.org
Offers information on ESOPs, equity compensation plans, and
ownership culture.
Ohio Employee Ownership Center
Worker Ownership Institute
John Logue, Director
Kent State University
113 McGilvrey Hall
Kent, OH 44242
313-331-2567
Social Venture Network
Deborah Nelson, Executive Director
P.O. Box 29221
San Francisco, CA 94129
415-561-6501 www.svn.org larso@svn.org
United for a Fair Economy
Chuck Collins
37 Temple Place, 2nd Floor
Boston, MA 02111
617-423-2148
info@fairEconomy.org
www.FairEconomy.org
WorldBlu
Traci Fenton, Founder and CEO
traci@worldblu.com
6607 Brodie Lane, # 738
Austin, TX 78745
512-686-0489
www.worldblu.com
Founded in 2003 for the design and development of democratizing
capitalism. Publishes annually a list of “Most Democratic Work
Places” proposed by the employees.
Bibliography
Books helpful in democratizing the work place and promoting
employee ownership:
Aguago, Rafael,. Dr. Deming. New York: Lyle Stuart,
1990.
Deming is a famous proponent of quality control with the
emphasis that the culture must be democratic and empowered.
Ahmed, Liaquat,
Lords of Finance: The Bankers Who Broke the World. Penguin
Press, 2009.
Ahner, Gene, Business Ethics:Making a Life, Not Just a Living. Maryknoll, New
York: Orbis Books, 2007.
Albert,Michel, Capitalism vs.
Capitalism:How
America’s Obsession with Individual Achievement and Short-term
Profits Had Led to the Brink of Collapse.
Introduction by Felix Rohatyn,
New York: Four Walls Eight Windows, 1993.
French businessman Albert’s
early identification of America’s malaise.
Annunzio, Susan L.,Contagious Success, Spreading High Performance
Through Your Organization. New
York: Penguin Group,
2004.
Badaracco, Joseph and L. Richard
Ellsworth, Leadership and the Quest for Integrity,
Boston: Harvard Business School
Press, 1989.
Beattie, Alan, False Economy, A Surprising Economic History of
the World, New York, Riverhead Books, 2009.
Berger, Peter L. and Richard J.
Neuhaus, To Empower People.
Washington, D. C. American
Enterprise Institute, 1977.
Blasi, Joseph R. and Douglas
Kruse, and Aaron Bernstein, In The Company of Owners, The
Truth About Stock Options, and why every employee should have
them. New York, Basic
Books 2003.
Blasi, Joseph R. and Douglas
Kruse, The New Owners: The Mass Emergence of Employee
Ownership in Public Companies and What It Means to American
Business. New York: Harper
Business, 1991.
Blustein, Paul, The Chastening: Inside the Crisis that Rocked
the Global Financial System and Humbled the IMF.New York
:Public Affairs,
2001.
Byham, William C., Zapp!
How to Improve Quality, Productivity, and Employee Satisfaction.
New York: Fawcett Columbine,
1988.
Cantoni, Craig, J.,
Corporate Dandelions, How the Weed of Bureaucracy Is Choking
American Companies and What You Can Do to Uproot It .New York:
Amacom, 1993.
Ray Carey, Democratic
Capitalism: The Way to a World of Peace and Plenty.Indianapolis: AuthorHouse, 2004.
Full text available on line at
www.democratic-capitalism.com See index for references to
Smith, Kant, Condorcet, Marx, and Mill.
Cloke, Kenneth, and Joan
Goldsmtih, The End of Management and the Rise of
Organizational Democrac.San Francisco: Jossey-Bass,
2002.
How to create “collaborative,
democratic, self-managing organizations.”
Cohen, Stephen, Failed Crusade
Collins, Chuck, and Mary Wright,
The Moral Measure of the Economy,Maryknoll, New York,
Orbis Books, 2007.
Collins, James C. and Jerry I.
Porras, Built To Last: Successful Habits of Visionary
Companies, New York: Harper
Business, 1994.
Condorcet, Sketch for a Historical Picture of the Progress of
the Human Mind
Conger, Jay A., Lawler III, Edward E. and Finegold, David L.,
Corporate Bonds, New Strategies for Adding Value at the Top, San
Francisco: Josey-Bass, 2001
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Required reading for anyone
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bi-partisan support from various Congressmen.
Idem,Democracy At
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A prolific writer and editor at Nation
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Hamel’s vision of 21st
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The previous entry and this one
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processing. To be effective, however, they need the democratized
work culture. The two movements will both gain strength by being
coupled.
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Hayek, Friedrich, Road to Serfdom
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Johnson, Chalmers, Blowback
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Kelso is the visionary who encouraged Senator Long to pass 15 bills
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time.
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Mark Zandi, Chief Economics and
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Zimmerman, Bob, The American Challenge, Twenty-One Winning
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