“Conference on Inclusive Capitalism” May 27th, 2014
Introduction (Two Minute Talk)
It is generally represented that both Adam Smith and Milton Freidman argued that you could leave capitalism to look after itself and all would be well. In Adam Smith’s body of work however there are many indications that he knew that in the real world companies need a watchdog government. Recent history re-enforces this view. Capitalism does indeed do a thousand difficult things spectacularly and seductively well: it clears millions of different input costs and market opinions into a single price. It does only a few things badly. Unfortunately this handful of failures—that include social injustice and Long-Term externalities—may bring our system down and ruin the agreeable planet we enjoy today. With capitalism in its current form we are reaching levels of inequality that may lead to extreme social instability. Much worse, on our current path we will erode our soils, poison our planet’s air and water and cook our collective goose.
The cure is, of course, enlightened government. Given the limitations of homo-sapiens in action we will not approach perfection but perhaps we can aspire in the U.S. and U.K. to the average level of collective wisdom of the four Scandinavian countries. Somehow they deal with a voting democracy like ours and yet they lead in foreign aid, have substantially more equitable divisions of income and capital and above all can make much more forward looking and responsible environmental decisions. They are also measurably happier.
Surely we can do as well? But to do so, the U.S. in particular must reform its political system, which has produced such an extreme dysfunctionality that it facilitates our country’s many other ills.
Exclusive Capitalism and other Deficiencies in the U.S. Model (Seven Minute Talk)
1. The U.S. is becoming increasingly unequal. At current rates by 2030 the richest 10% will have 60% of all income, the poorest half 15%: the most extreme division in modern times. Anywhere.
2. How is this possible with universal suffrage?
3. The answer is propaganda. The political right has successfully bamboozled a substantial fraction of the poor to vote for them.
4. With help from a bizarrely right wing Supreme Court majority, politics in America has become legalized bribery. The net result is that money is balancing the natural voting majority of the poor
In the 60’s income from wealth paid a premium tax rate now it receives a substantial discount.
The right still fights the Inheritance Tax and this is already a propaganda success for a tax paid by only 2% of U.S. families is opposed by 68%!
Since 1965 top CEO’s have gone from 50x the average worker to over 300x a level easy to regard as obscene. The 85 richest people in the world—that could squeeze onto a London double-decker—have more wealth than the world’s poorest half: 3.5 billion people!
5. Other previous stakeholders have been neglected or ignored
Defined Benefit Pension funds that used to be the crown jewel of employee care are being abandoned as unaffordable and this at a time when U.S. profit margins are unarguably at an all-time peak
Multi-nationals owe little loyalty even at the country level
We have entered what Andrew Smithers describes as the stock option culture: decreased capital spending and increased stock buy backs.
This is great for stockholders and even better for management but bad for jobs, growth and income inequality and income inequality reduces breadth of consumption and further reduces growth.
A U.S. corporation may be increasingly treated in law as an individual but we humans are actually hard wired to be co-operative, to be tribal:
Companies in comparison are almost sociopathic:
Ethical good behavior will only occur if:
a) There is a strong regulation and enforcement OR
b) If companies believe that a good image buys them a commercial advantage, particularly in hiring OR
c) If dragged by exceptional individuals—but the good players are mostly in retailing and consumer brands. We need the oil and mining bosses.
Water problems will soon lead to wars unless we are lucky
Soil erosion globally runs close to one percent a year in large scale agriculture including the U.S. mostly in very heavy storms, which are increasing rapidly with climate instability. In the U.K. a recent study warns of a fourfold increase in very heavy downpours.
The U.S.D.A. which is considerably under the influence of ‘Big Ag’ encourages only monoculture, heavy resource input, increased production at any cost—with little or no regard for long-term sustainability. This is unnecessarily dangerous for society in the long-term but is very profitable for many ag-oriented companies in the short-term.
We will have either fixed this problem in the next 50 years or we will collectively have begun to starve
Air
All countries are pledged to try and keep global temperatures from rising above 4 degrees F
We know though that fossil fuel companies must leave over two thirds of the carbon they already have in their proven reserves in the ground
Yet we collectively spend 650 billion dollars a year to find new oil that we absolutely cannot burn without going dangerously beyond the limit.
There are no effective national leaders dealing with this impasse
The implications of climate change are brilliantly obfuscated by the propaganda of oil and coal interests, who have a dangerously large influence over the U.S. government.
(In England, the Loony Lords of climate denial, Lawsen, Ridley and the boys are also regrettably influential)
The cynicism is remarkable. Exxon has prepared for years to drill in the arctic, which requires the ice to melt, while simultaneously funding deniers of the melting process itself.
What we desperately need is of course, enlightened government and most importantly enlightened leadership by the U.S.
We need some good new regulations to limit U.S. campaign contributions and ideally all political spending and to make the giving transparent. In the case of corporations we need to require shareholder approval (it is after all our money)
If we can’t do better collectively, as a society, our grandchildren will pay a very high price.
It is generally represented that both Adam Smith and Milton Freidman argued that you could leave capitalism to look after itself and all would be well. In Adam Smith’s body of work however there are many indications that he knew that in the real world companies need a watchdog government. Recent history re-enforces this view. Capitalism does indeed do a thousand difficult things spectacularly and seductively well: it clears millions of different input costs and market opinions into a single price. It does only a few things badly. Unfortunately this handful of failures—that include social injustice and Long-Term externalities—may bring our system down and ruin the agreeable planet we enjoy today. With capitalism in its current form we are reaching levels of inequality that may lead to extreme social instability. Much worse, on our current path we will erode our soils, poison our planet’s air and water and cook our collective goose.
The cure is, of course, enlightened government. Given the limitations of homo-sapiens in action we will not approach perfection but perhaps we can aspire in the U.S. and U.K. to the average level of collective wisdom of the four Scandinavian countries. Somehow they deal with a voting democracy like ours and yet they lead in foreign aid, have substantially more equitable divisions of income and capital and above all can make much more forward looking and responsible environmental decisions. They are also measurably happier.
Surely we can do as well? But to do so, the U.S. in particular must reform its political system, which has produced such an extreme dysfunctionality that it facilitates our country’s many other ills.
Exclusive Capitalism and other Deficiencies in the U.S. Model (Seven Minute Talk)
1. The U.S. is becoming increasingly unequal. At current rates by 2030 the richest 10% will have 60% of all income, the poorest half 15%: the most extreme division in modern times. Anywhere.
2. How is this possible with universal suffrage?
3. The answer is propaganda. The political right has successfully bamboozled a substantial fraction of the poor to vote for them.
- They have been at it intensively for 30 years
- They have immense money
- It has been done with great even enviable skill
4. With help from a bizarrely right wing Supreme Court majority, politics in America has become legalized bribery. The net result is that money is balancing the natural voting majority of the poor
- With about 50% of the time in government the right has used changes in tax not to balance rapidly increasing wealth and income concentration but to exaggerate it
In the 60’s income from wealth paid a premium tax rate now it receives a substantial discount.
The right still fights the Inheritance Tax and this is already a propaganda success for a tax paid by only 2% of U.S. families is opposed by 68%!
Since 1965 top CEO’s have gone from 50x the average worker to over 300x a level easy to regard as obscene. The 85 richest people in the world—that could squeeze onto a London double-decker—have more wealth than the world’s poorest half: 3.5 billion people!
5. Other previous stakeholders have been neglected or ignored
- Labor is often treated as a necessary evil. They have received zero percent of the rewards from the considerable increase in productivity since 1980. Prior to that their wages rose equally
Defined Benefit Pension funds that used to be the crown jewel of employee care are being abandoned as unaffordable and this at a time when U.S. profit margins are unarguably at an all-time peak
- The locality. Far from receiving corporate taxes they now engage in subsidy competition to entice them.
Multi-nationals owe little loyalty even at the country level
- Even stockholders now lose share to management
We have entered what Andrew Smithers describes as the stock option culture: decreased capital spending and increased stock buy backs.
This is great for stockholders and even better for management but bad for jobs, growth and income inequality and income inequality reduces breadth of consumption and further reduces growth.
- But the most dangerous stakeholders loss is society and the environment
A U.S. corporation may be increasingly treated in law as an individual but we humans are actually hard wired to be co-operative, to be tribal:
Companies in comparison are almost sociopathic:
Ethical good behavior will only occur if:
a) There is a strong regulation and enforcement OR
b) If companies believe that a good image buys them a commercial advantage, particularly in hiring OR
c) If dragged by exceptional individuals—but the good players are mostly in retailing and consumer brands. We need the oil and mining bosses.
- The biggest risk though to all of us, is in ignoring nature, ignoring the damage to water, soil and air in particular. On two of these—soil and air—our very existence in any favorable shape might depend.
Water problems will soon lead to wars unless we are lucky
Soil erosion globally runs close to one percent a year in large scale agriculture including the U.S. mostly in very heavy storms, which are increasing rapidly with climate instability. In the U.K. a recent study warns of a fourfold increase in very heavy downpours.
The U.S.D.A. which is considerably under the influence of ‘Big Ag’ encourages only monoculture, heavy resource input, increased production at any cost—with little or no regard for long-term sustainability. This is unnecessarily dangerous for society in the long-term but is very profitable for many ag-oriented companies in the short-term.
We will have either fixed this problem in the next 50 years or we will collectively have begun to starve
Air
All countries are pledged to try and keep global temperatures from rising above 4 degrees F
We know though that fossil fuel companies must leave over two thirds of the carbon they already have in their proven reserves in the ground
Yet we collectively spend 650 billion dollars a year to find new oil that we absolutely cannot burn without going dangerously beyond the limit.
There are no effective national leaders dealing with this impasse
The implications of climate change are brilliantly obfuscated by the propaganda of oil and coal interests, who have a dangerously large influence over the U.S. government.
(In England, the Loony Lords of climate denial, Lawsen, Ridley and the boys are also regrettably influential)
The cynicism is remarkable. Exxon has prepared for years to drill in the arctic, which requires the ice to melt, while simultaneously funding deniers of the melting process itself.
What we desperately need is of course, enlightened government and most importantly enlightened leadership by the U.S.
We need some good new regulations to limit U.S. campaign contributions and ideally all political spending and to make the giving transparent. In the case of corporations we need to require shareholder approval (it is after all our money)
- We need a carbon tax with full equal rebate to individuals. It could just pass
- We need more income and wealth equality, not less, therefore steeper taxes on dividends and capital gains, and we need stock option reform. Steeper income taxes at the very high-end. Above all retention and increases in the inheritance tax. (how much more un-American could it be, than to create dynasties?)
- We need Board reform, with fewer management crony’s and we need a complete review of how competitive salaries for top management are estimated
- We need more ethical corporate leaders, who will also think about our world’s long-term well-being
- We need a full energy policy: we are running out of cheap oil—and other cheap resources.
- Oil prices are six times that of 15 years ago despite a weak economy yet there is no recognition of resource scarcity in economic theory or by current governments. It is an extremely dangerous myopia.
- We need stronger and braver expositions of climate science by senior scientists.
- We are threatened socially, economically and most of all environmentally
If we can’t do better collectively, as a society, our grandchildren will pay a very high price.
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