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America’s
leadership towards freedom is being destroyed by several pathologies: an economy
dominated by finance capitalism, a foreign policy based on a world Empire
through military power, and a government controlled by the few, not by the
people. Concentrated
wealth has concentrated political power and made it difficult for citizens to
reform their country. Universities are not educating citizens to understand the
government support needed by good capitalism. Money managers are wasting the
peoples’ pension money in support of bad capitalism. History
shows that every country that allows finance capitalism to dominate goes into
irreversible decline; [2]
that every country that aspires to Empire fails; [3]
and that countries that abandon their democratic roots slip into tyranny. Reform
depends on a new political agenda that relieves the economy of the domination of
finance capitalism, and changes foreign policy to leadership in economic common
purpose while abandoning Empire pretensions. The will, wisdom, and votes of most
people are available for such new leaders. Besides
the universities and institutional investors, other potential agents of change
united for reform include business groups representing the job-growth economy,
union pension funds, NGOs, religious groups, and civic groups. The
following ideas are presented for a reform agenda. Enlightenment II will begin
after these proposals, and others, are challenged, debated, tested, rejected,
refined, and codified as building blocks by the universities. The protocols of
truth seeking that have worked well in the sciences will, at last, be applied to
the best organization for human affairs. Communication opportunities in the
Information Age will expedite general agreement and political action. American
citizens must reform their economic system from ultra-capitalism that
demeans people and concentrates wealth to democratic capitalism that
maximizes the creation and distribution of wealth by releasing the latent
power of people in an environment of trust and cooperation.
1 Free Wage Earners’ Capital!
Wage earners have become capitalists from pension funding and 401(k)
savings, but are not receiving a return on their capital. Large dividends can
free this capital by adding a “capital wage” to the labor wage.
A company’s surplus should be reinvested and paid in dividends to grow
the economy. Instead, during the past quarter century, over a trillion dollars
was wasted on stock buy backs, that hype the stock price and CEOs’ options,
and acquisitions that make the deal-makers rich by cutting jobs. Combined with
exorbitant mutual fund fees, and quicker turnover of stock sales by commission
brokers, bad capitalism, the kind that traditionally exploited the workers’
labor, is now exploiting the workers’ capital. Led
by pension funds, companies should be pressured to maximize growth and
dividends, and the government should be pressured to make dividends tax-free for
wage earners. A secure double-digit return, balanced between annual income from
dividends and appreciation in a growing economy, will reward the working owners
of capital, not the handlers.
2 Stop Economic Cannibalism!
That capitalism, whose mission is making money on money, rather than job
growth, now dominates the American economy because of the stock market’s power
to richly reward or severely punish companies based on small changes in
quarterly earnings per share (e.p.s.). Enormous stock options are the coupling
device between the stock market and CEOs that results in a feeding frenzy in
compensation, sacrifice of profitable, long-term growth programs for short-term
earnings, and the “downsizing” of millions of workers, treated as disposable
cost commodities.
The solution to this economic cannibalism is deceptively simple. Wage
earners should demand that money managers change the way companies are measured
from short-term earnings per share to a three-year running average of sales
growth, profits, and cash flow, compared to managements’ predictions.
Accountability for sales shifts attention to long-term growth; and focus on cash
flow against predictions assures integrity in the numbers. For example, this
cash flow discipline would have identified the cancer at Enron early enough to
minimize the damage to jobs and pensions.
3 Speculate with your own money!
Speculators borrow billions of taxpayer insured dollars from
regulated banks to leverage risky bets. Currency and credit is controlled, not
for the general welfare, but for the speculators. The
Crash of ‘29 and the Great Depression, that nearly destroyed this greatest of
democratic experiments, contained all of the lessons that if learned would have
prevented subsequent economic damage including the Bubble of the 1990s, and the
present Housing Bubble. During
the 1920s, speculators quadrupled their borrowings to buy stock. AFTER the
inevitable Crash, government raised taxes, shrank the money supply, increased
bank reserves, and curtailed loans to buy stock.
If government used these same tools BEFORE the Crash it would not have
happened, but the government always lets the rich get richer before the poor get
poorer. Daily
speculation in currency alone is now over $2 TRILLION DOLLARS dwarfing all
commerce! The people, led by pension funds, must demand that their government
take these preventive actions BEFORE speculators destroy more jobs, pensions,
and world’s economy.
4
Lead To Economic Common Purpose!
Late in the 20th century, countries were improving the
lives of their people through economic freedom, the world was uniting in
economic common purpose, and violence
was going down. The world then took a wrong turn that reversed economic momentum
and caused social tensions and unprecedented violence. What went wrong?
America abandoned economic leadership for military might to run the world
in a spectacular failure of leadership. At
home, bad capitalism lobbied laws that resulted in a short-term economy with
record concentration of wealth. Abroad,
emerging economies were devastated by uncontrolled hot money and currency
speculation causing Muslim leaders to criticize America as an economic
imperialist. The
people, led by pension funds, must lobby for laws that support economic growth
and broad wealth distribution at home, and leadership towards economic common
purpose abroad, including a capital wage in large tax-free dividends, a change
in measurement of corporate performance from short to long term, limitations on
borrowed money for speculation, and international monetary rules that balance
hot money with long-term investment.
Democratic capitalism
maximizes the creation of wealth by releasing the innovation and productivity of
people, and maximizes the distribution of wealth through profit sharing and
employee ownership. Congress should legislate favorable tax treatment for
democratic capitalist companies paid for by reductions in corporate welfare.
With this encouragement, good capitalism will displace the bad capitalism
that treats workers as disposable, sacrifices job growth for short-term
earnings, and has concentrated wealth in record amounts.
Qualification for this tax advantage includes: demonstrable integrity and
meritocracy, profit-sharing and stock ownership plans for all, attrition and
retraining instead of lay-offs, CEO base salary less then 35 times the lowest
wage, stock grants instead of options with tax consequences for company and
recipient, executive bonuses in company stock, no stock sales by executives or
directors, reinvestment in growth and payment of large dividends instead of
stock buy backs and non-strategic acquisitions, and financial reporting on long
term sales, profits, and cash flow instead of quarterly earnings per share.
Workers’ jobs security, wages, and pensions would benefit greatly from
this policy.
6
Break the Political Gridlock!
FDR observed that there was nothing wrong with the free enterprise system
except that we had not tried it yet. Unfortunately,
we have yet to try it because of political
gridlock. Market fundamentalists,
generally Republicans, loudly oppose government involvement while lobbying for
government privileges to speculate with borrowed money and concentrate wealth.
Collectivists, generally Democrats, angered by this wealth concentration, lobby
government to redistribute it in benefits. Each group sustains support by
pointing out errors of their opposite. Neither
group focuses on eliminating impediments that prevent capitalism from generating
more wealth and distributing it broadly, such as limiting easy bank credit for
speculation that caused loss of jobs, wages, and pensions in disasters like
Enron; activating the workers’ pension and 401 (k) savings by large tax-free
dividends; and changing corporate accountability from short-term earnings to
long-term growth. Citizens
can apply their democratic power to reform these government fiscal and monetary
policies, and to assure that their money managers’ mission is not personal
gain but, rather, maximum return for the workers. 7
Listen to
Henry!
Capitalism succeeds when DEMAND from higher wages for low and
middle-income workers matches SUPPLY. Purchases
at this income level add volume, reduce cost and price, and spread wealth- an
economic dynamic not matched by more wealth for the wealthy. Henry
Ford, watching his Model T cars rolling off the assembly line in 1915, figured
out that unless he raised his workers’ wages way up to
$5 a day, they could not afford to buy the cars because DEMAND could not
match SUPPLY and sales would drop.
Globalization can unite the world in economic common purpose, but has
become a dirty word because most managers of global companies aren’t as smart
as Henry. They try to maximize short-term profits by suppressing wages and
benefits, not by motivating workers
to long-term superior performance with higher wages.
Globalization will be a source of friction until global companies pay
enough, including incentives, so that workers can both cover basic needs and
have money left over to buy products from other countries. 8
They’re Feasting on Your Pension!
Federal law in 1974 required companies to put money away to pay pensions.
Based on stock market history, you had a right to expect a 10% total return from
5% dividends, and 5% increase in value of stocks held on average for 6 years.
What you got, instead, was a bubble market, companies without money to
pay pensions, and 1% dividends. The handlers of your money, meanwhile, increased
their personal wealth through revenues multiplying from $27 billion to $270
billion. Brokers collected commissions on stocks held on average less than a
year; fees for “managing” money went way up; and your money was used to
acquire companies and fire workers.
Fix this rip off by demanding that the financial motivations of the
handlers of your money be aligned with your retirement needs! Instead of
commissions and annual fees, pay for 5-year performance compared to a 5 % annual
increase in stock value and 5% dividends. This change will also move the stock
market from short-term greed to long-term growth. 9 Federal Reserve
Board’s Mission
Pension plans are $1.3 trillion short of money because government
failed to prevent the bubble economy, failed to protect dividend income,
stimulated the housing bubble with zero cost money, and allowed companies to use
fictitious stock prices instead of putting real money away to pay future
pensions.
The Fed fights price inflation aggressively to protect the wealthy, but
denies responsibility for asset inflation in stocks or real estate that hurts
ordinary people. The Fed pumps borrowed money into speculation, not job growth;
deregulates finance but bails out bankers after dumb loans; and stands by while
companies walk away from pension obligations!
This Fed must change its mission from protecting Wall Street to helping
Main Street. The present mission is destroying the savings of the same people
whose taxes will have to pay future pensions. Democratic action must challenge
the Fed to use available tools of taxes, bank reserves, and stock margin limits
to control currency and credit for the general welfare.
10 American
Leaders, Please Stand Up!
Improvement in the human condition depends on an economic system that
maximizes wealth by releasing the innovation and productivity of wage earners,
and distributes wealth to the greatest number of people through profit sharing
and ownership opportunities. Strong, steady economic growth can then provide
government revenues for educational, health, and environmental needs.
The system is democratic capitalism that raises profits by elevating the
quality of life, unites people in economic common purpose, and can stop the
violence.
This superior performance of democratic capitalism has been validated in
companies and countries but is not yet universal because of the impediments of
concentrated wealth and violence among nations and cultures.
Movement towards the superior system awaits rejection by Americans of
short-term and greedy capitalism, and an understanding of why other nations
reject America’s imperialistic effort to run the world.
This is the agenda at home and abroad that most Americans desire.
Political leaders who understand this can be elected and will receive
enthusiastic support in the reform of capitalism and foreign policy. 11
Mother of All Lies!
People are propagandized to believe that war is a part of human
existence rather than an obscene contradiction to reason. The
160 million people killed by governments during the 20th century
was not historical inevitability but rather mistakes by a few men.
Prussian Field Marshall Moltke pushed the Austrians into attacking the
Serbs, starting WW I, and American President Woodrow Wilson’s ignorance of
economics at the 1919 “peace” talks led to Hitler and WW II.
American hawks need to make an enemy out of China to rationalize 1/2 of
the world’s military expenditures. Fighting terrorists does not require
nuclear subs. If the hawks prevail in this new mistake, Americans will lose
legs, arms, and lives in a contrived crisis to “protect” Taiwan as a matter
of “national honor.”
China is doing well in its mission to improve the lives of their people
though economic freedom.( while loaning America the money to fund our deficit).
America’s mission should be to lead the world in economic common purpose, not
dominate the world with military might. Citizens must demand this economic
priority. 12
Repeal the Repeal !
Was anyone watching in 1999 when Glass Steagall was repealed? This law
has was passed during the Great Depression because bankers were giving companies
easy credit to do dumb things in order for their investment bankers to get deals
with big fees. Monster
financial services company Citi demonstrated Wall Street’s lobby power when it
was put together in anticipation of the repeal and with other big banks
immediately gave Enron easy credit to do dumb things in order for their
investment bankers to get deals with big fees.
Enron, the hedge fund on top of a gas line, was free to quadruple debt in
five years to $13.6 billion. Alan Greenspan, head of the Fed, meanwhile, told
Congress, that hedge funds did not need regulation because they got money from
regulated banks-and he wasn’t kidding.
Thousands of Enron’s employees lost their jobs and pensions and many
others lost pension savings. Where is the democratic demand to repeal the
repeal? Citizens should, at least,
demand that their government regulate hedge funds before more jobs and pensions
are destroyed. 13
A Nuclear Holocaust? President
Ronald Reagan and Russian leader Mikhail Gorbachev in Reykjavik, 1986, almost
agreed on the elimination of all nuclear weapons. Disagreement on
Reagan’s “Star Wars” destroyed the opportunity. Pakistan
exploded the first “Muslim” bomb in 1998, and along with Israel, India, and
North Korea joined the original nuclear club of U. S., Russia, China, France,
and England. Other nations continue to develop nuclear capability to gain
leverage in a world dominated by military power. For example, America ignored
India’s rejection of the Nuclear Non-Proliferation Treaty in order to get her
participation in power politics to encircle China. Society
can either get rid of all bombs; or stand by while nuclear capability spreads to
more nations with weaker controls and stronger passions, making a nuclear
holocaust inevitable. America must lead in economic common purpose in which the
standard of living goes up and the bombs go away.
America, however, continues to make enemies with its priority for
military might. Citizens are pivotal to this choice and must make the political
agenda economic cooperation and demilitarization. 14
Root Problem
Solved!
Economic freedom can satisfy basic needs of people, and unite nations and
cultures in economic common purpose. To accomplish this, money must be merely a
medium of exchange, and speculators under tight control. When these conditions
are in place, wealth and political power will be widely distributed, and
capitalism and democracy will be in harmony.
Conversely, when money is a profit making commodity, and speculators
deflect borrowed money away from job growth, then wealth and political power
will continue to be concentrated, over 2 billion people will try to live on less
than $2 a day, capitalism and democracy will be in tension, and the world will
still be full of violence.
Citizens fail to understand either the function of money or the need to
control speculators because educators, at all levels, cannot teach what they
have not studied: the interaction between capitalism and democracy.
Once educators learn and teach the essentials of economic freedom, then
citizens will know how to reform public policy to allow economic freedom to
function- for the first time- at full potential. 15
Fix Education-Bottom-Up!
American education in general is falling behind other nations. More
African-American young men are in prison and in the criminal process than in
college!
The top-down structure is wrong! National standards are another
distraction for principals; charter schools and vouchers dodge the problem;
blaming lack of money or the teachers’ union solves nothing. Freedom
works! Free principals, teachers, students, and parents from bureaucratic
micromanagement, release their latent power, and their teamwork will fix
education. Begin with an agreed curriculum and goals; collaborate on a
three-year plan for which the team is accountable; use class and school
composite performance for measurement and bonuses; team outstanding teachers at
a higher base pay with inexperienced teachers; team best students with younger
students; motivate former bullies to help keep order; pay teachers more for
urban assignments; and make full use of computer technology.
With education structured bottom-up, then teachers and principals will
enjoy the fun and satisfaction they deserve, and students will receive the
education they need.
16 Reaffirm Idealism!
A world of plenty is attainable in both democratic and authoritarian
governments through economic freedom. When people live better, violence goes
down, other freedoms follow, and the ideal of a world of peace is attainable.
Improvement in the lives of people and their children is the only ideal common
to all nations and cultures, consequently, economic common purpose is the only
way to unite people.
This ideal is more attainable in the 21st century because the
Information Age adds new levels of productivity, new communication technology
making the world a global village; and is itself a unifying influence. The world
is ready to free the body of material needs, and free the spirit to reach full
potential, once the impediments of concentrated wealth and violence are
eliminated. Citizens
must vote for candidates who reaffirm the ideal that peace and plenty are
attainable, that economic freedom is the means, and that economic common purpose
is the way to unite people and stop violence. 17
Job Growth or Casino?
Capitalism is based on converting savings into investment. Since 1974
federally mandated pension funding provided an enormous savings-investment
opportunity with as much as $100 billion a year looking either for investment in
equity capital for growth companies, or bonds for infrastructure needs.
Most of the money, instead,
went to the stock market, inflating prices, causing a feeding frenzy in
executive compensation while beating managers into one-trick ponies: Fire! Fire!
Over a trillion dollars was wasted in a quarter century on stock buy-backs and
acquire-and-fire deals shrinking the supply of stock for the benefit of
short-term earnings instead of adding stock by new equity investment.
The media loves to report on this casino and report every few minutes
with silly reasons for market
movement, including futures, when the real reason is more gamblers buying than
selling, or the opposite. Wage
earners must ask their money managers two questions: How much pension money is
actually invested in the job-growth economy, and how much did “managers,”
brokers, and specialists take off the top pushing your money around? 18
An Enron Protector
After Enron and other scandals, Congress passed Sarbanes-Oxley a typical
“catch a crook” law that adds cost and solves little. Government’s own
failure to control currency and credit for the general welfare allowed these
disasters to happen. Only by limiting easy credit can they be prevented. This
has been the cause for every business cycle because your government treats money
needed for job growth the same as money used for speculation. Why? Concentrated
wealth concentrates political power; the former corrupts capitalism, the latter
corrupts democracy with rules written by the few for the few.
When government’s mission is truly the protection of jobs and pensions
it will use bank regulation to encourage job growth and limit risky speculation.
When companies are required to project cash requirements for three years, lack
of control of speculation will
be apparent and the brakes applied by increasing the cost of money and bank
reserves.
Wage earners should demand that their elected representatives and money
managers limit easy credit to protect jobs and pensions. 19
Warning, Bad Storm Coming!
The American economy is in a financialization similar to a condition that
ruined countries such as 16th century Spain, 18th century
Netherlands, and 20th century Great Britain.
The manifestations include shifting taxes from capital to the middle
class, treating wage earners as disposable cost commodities, and finance
capitalism that is dominant, not supportive For
example, since 2000, premium, floating-rate housing loans have grown seven fold
to $450 billion for those whose who do not qualify for a conventional loan. If
the Fed raises their rate to 5% most borrowers will not be able to pay the $250
a month average addition to their mortgage payments. The banks say “Why
worry?” because they have used credit derivatives to duck the risk, a market
that tripled in 2004 to $8.5 trillion. Hedge funds are betting on increased
foreclosures, your pension funds are betting that things will not be that bad.
Wage earners must demand that their elected representatives regulate
hedge funds and derivatives before they destroy more pensions. 20
Trust the People!
This great American democratic experiment was founded on the theory
that the will and wisdom of the people would provide better direction for the
country than the views of a few privileged elite. Human
history supports this theory because it is a sad tale of mistakes of the few
leading to war and misery. For example, Louis XVI of France rejected the reforms
of Turgot and later tried to leave the country in disguise. The French
Revolution turned violent and ugly. For
another example, President Wilson after WW I, promoted political not economic
solutions and made WW II inevitable. More
recently nationalistic, imperialistic, militaristic, power-adoring officials
took this country into Vietnam and then a generation later demonstrated that we
learn nothing from our history by taking this country into Iraq. America
proclaims democracy at the same time that it contradicts it by ignoring the
people. The people must take their country back by instructing their elected
officials that no country can run the world and that America must learn how to
become a team player. 21
Better Governance
Corporate governance tends to “gotcha” type intended to catch
somebody. Here are three positive
ways to improve corporate governance:
Distribution of surplus: Outside Directors of public companies
should determine the distribution of surplus among growth, dividends, stock
buy-backs, and non-strategic acquisitions. The first two should be favored
because they help the job growth economy. The latter two waste the surplus but
are favored by CEOs under pressure to hype short-term earnings. Moving this
responsibility away from the CEO to outside Directors can add a longer-term
balance to corporate planning and neutralize the short-term pressure.
Compensation: Compensation Committees composed of outside
directors should be responsible for the compensation practices of all employees
in order to assure an internal logic and encourage performance bonuses and
ownership opportunities. At present, most Committees respond only to
consultants’ recommendations for additions to executive smorgasbord that feed
the compensation frenzy and alienate the people. Internal
audit: Company integrity is monitored by an Internal Audit department
reporting to both the CEO and the Audit Committee of outside directors.
The CEO should provide quick and visible action in response to any
violation of company ethics; the Audit Committee must guarantee internal audit
unrestricted access to all operations. [1] Democratic Capitalism,
The Way to a World of Peace and Plenty, Ray Carey, (Indianapolis,
IN: AuthorHouse, 2004) [2] Boiling Point,
Republicans, Democrats, and Decline of Middle-Class Prosperity, Kevin
Phillips, (New York: Random House, 1993)
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