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: 21st century Capitalism - a new start

Fixing Capitali$m
Dan Schneider
True capitalism would provide endless opportunities for ideas and entrepeneurship - regardless of ethnicity- ok, it would still take some work, but it’s a step in the right direction

People think too dualistically. There are people who feel that any good things said about capitalism are evidence of a cold Simon Legreevian heart, while there are those that bristle over the pointing out of capitalism’s manifest failures. The truth is that capitalism, as a system, has failed so convincingly that there really & truly are no capitalistic states in the world. And by that I don’t mean the sort of social-capitalism that most of Europe embraces. The fact is that there is no such thing as a ‘free market’. The idea that there is an invisible hand controlling things for the betterment of all is such specious reasoning as to be laughable.
Nostrums like ‘A rising tide lifts all ships.’ are hard to say with a straight face to the millions of middle class Americans who have seen their real buying power slip since its peak in the early 1970s- not to mention the pockets of near-eternal poverty that line inner urban areas, Appalachia, the fields of rural migrancy, and growing pockets of smaller Midwestern towns.

The problem, which is complex, can be boiled down not to the standard complaint that more government programs are needed, nor the knowingly suspect cries of ‘class warfare’ from the rich whenever manifest inequities are pointed out, nor even the seemingly sane - but wholly disingenuous - calls for ‘bootstrapping’ that echo through the vacuous halls of power whenever the plights of American serfdom rear their heads. Instead, a simpler and far more fair way to truly bring out the best theoretical points of capitalism is to have a government devoted to leveling the playing field for all participants, and enforcing the rules vigorously.

Although she will probably get off, prosecuting the arrogant Martha Stewarts' of the world for insider trading, is a small step in the right direction, although we all know were she just another unknown ‘grey suit’ the case against her would never have been brought or quickly settled with a penalty and probation. This is an example of the government doing the right thing for the wrong reason. But, imagine if the government truly did care about enforcing the rules of ‘the game’ of capitalism.

By this I mean to assert that being anti-corporate is in no way equivalent to being anti-capitalistic. Who amongst us would begrudge a Thomas Edison or Walt Disney from becoming rich? These men contributed ideas and things that most would agree have profited all. The problem comes in with the Andrew Carnegies or Bill Gates' of the world- people who contributed nothing of lasting value, merely took off with others’ ideas, then began ruthless campaigns to bully and terrorize their ways to monopolies- only to later assuage their guilt by excessive largesses.

True capitalism would provide endless opportunities for ideas and entrepeneurship - regardless of ethnicity- ok, it would still take some work, but it’s a step in the right direction. False capitalism, as is currently practiced in the USA, rewards the Robber Baron mindset which feeds oppression by ceding monopoly or oligopoly status to a precious few who have succeeded through illegal tactics, inside information, or just having the right connections with people in power - you got it, the monied WASP powerbrokers of yore and now. Everyone, regardless of background or outlook, knows that this is the current state of affairs, yet calls for its demolition are routinely and easily rebuffed, mainly because the voiced opposition to the current crooked system are usually extremist neo-communists and/or anarchists whose own views are so callow and downright silly that they are easily marginalized by the monied junta.

What I am suggesting is that a leveled playing field that will reward the best ideas in a meritocratic fashion is best for all in this society, and globally. History is littered with great ideas that were never executed, or smothered in the crib, simply because a small few felt their secluded world threatened if others were to profit as they or - more likely - some dusty predecessor of theirs did.

So, how to achieve this?
Step 1 would entail the Federal government severely curtailing corporate power by establishing percent limits on how much of a market can be controlled by one company. When Microsoft, as example, hits say 20%, time to break it up. Write it into law - no ifs, ands, or buts. Instead of this strategy the exact opposite has occurred in telecommunications, television, radio, and many other industries. The result - especially evident in radio - is a homogenization of thought and voices. Does anyone really believe that knee-jerk conservatism is really the default state for 90% of Americans, as portrayed on talk radio?

Ok, so I’ve told you step 1. It's never gonna happen without a violent revolution; the rich will toss a few bones and the masses bellies will fill with submissive silence. Let me propose a way to achieve this that seems counterintuitive but makes sense. American politics is moved not by ideas, but emotions. People will vote against unfairness not by logically deducing it - but by feeling it through direct suffering or empathy.

How to invoke empathy?
Step 2 - I think by scrapping Federal laws against capping election campaign contributions.
WHAT? That will only make the system more unfair than it is! You would be correct if my proposal stopped there. Along with letting anyone contribute any amount they want make it a Federal law that ALL campaign contributions must be disclosed to the IRS, as well as posted on the home page of each candidate’s website. Listed information must include the amount of the contribution, the date it was made, the name of the contributor and any organization they work for or with, and the number of times and dates that those contributors have been allowed extended meetings with the candidate. This way all candidates will de facto be walking advertisements for their potential masters. Instead of Joe Smith vs. Alan Wilson the voters will know that they have to choose between the servant of an eccentric anti-abortion activist and a pro-Fundamentalist religious PAC and a serf of Wal-Mart, Enron, and Filipino bankers.

How will this help? It will allow 3rd and 4th parties to develop, because your average American voter will fundamentally see how unfair the system stacks up against their wishes. This will be a vivid and visceral way to outrage the majority of voters who are currently blissfully unaware of the futility of the current system. This will allow 3rd party candidates to legitimately point to their lack of endebtedness to interests that serve the public ill. Also, the other side of that coin will mean that politics will become less of a millionaires club- especially on the Federal level. Smaller party and independent candidates will be more easily able to get backing on the strength of their ideas, especially once a ‘name brand’ candidate’s leashes are known.

This will mean meritocracy in ideas will replace financial connectedness as the core reason someone wins an election. As currently constituted only the privately wealthy are able to opt out of the campaign finance restrictions imposed when a candidate- usually the poorer funded one- needs to go on the public dole to run their race. Full disclosure, enforced with zeal, is the best way to level the playing field, spread the millions wasted out to smarter candidates, and - as an additional bonus- stop the taxpayers from financing the cult of the lie, as practiced by politicians. Only eliminating the NEA might be a more cost-effective way of curtailing public waste on bad ideas.

Of course, the key to making step 2 work is to have zealous enforcement of full disclosure. This is the hardest part. As proof, I cite the cutback in IRS auditors over the last 20 years. Before Reagan the rich- individuals and corporations- had to be far more scrupulous in their reportage of income, because there were upwards of 20,000 auditors devoted to checking tax returns- usually of the more affluent. Now, with a larger population- in general and with wealth- there are only about half as many tax auditors. This has been a deliberate act as Republicans have spent the years chipping away at the IRS’s power. Furthermore, in the 1990s, the IRS was further handcuffed by the introduction of a government policy to dismiss IRS auditors who violated the civil rights of citizens. Of course, this was a bonanza for the rich. Even the slightest intimation of delving deeper than a standard tax form would result in a call from a lawyer threatening a civil rights suit against the IRS. The result? Predictably, the IRS has focused its audits on the middle class- whenever it audits at all - because they are less likely to know of this ‘civil rights’ option, nor have the means to carry through a lawsuit.

Ok, step 1 is breaking up monopolies and cartels. Step 2 is how to achieve that by full and enforced disclosure of campaign contributions while removing limits on contributions. Both of these ideas will allow people with good ideas, but little capital, to succeed where currently the corporate monsters can bully and harass dissenters to silence.

Step 3 will have to follow steps 1 and 2, because it will be unachievable until the unfairness of corporate power is exposed, curtailed, and public sentiment has turned. This step would be to put caps on the amount of write-offs companies are allowed.

For example, a company that may have made $10 million in profits last year knows that it will have to pay taxes on that profit. What to do? Of course, being a good citizen is not an option because corporations are just mythical entities, anyway. The solution is to give out $1 million bonuses to the 12 board members. Since this constitutes compensation to an employee, guess what? Now the company has LOST $2 million this year, and can write off its loss. You and I cannot do that, but it’s perfectly legal. No need to even call in an auditor who will be cowed, anyway.

How to solve this? Well, with public opinion now on the side of reform, use the ‘fairness club’ with zeal and expose these ways corporations avoid their fair share. You can put a cap on management compensation. Forget tying it to a company’s performance since numbers can be whores. Instead, allow a CEO to be totally compensated (meaning all bonuses, stock options, salaries and other income for tax purposes- and be able to write off) a salary that is no more than 10 times the wage of their lowest full time worker, or six times the median or average salary- whichever is higher. If the lowest paid worker makes $15,000 a year and the median or average non-management employee makes $30,000 a year this would allow the CEO to write off either $150,000 of their salary or $180,000- according to this formula. Similar scales can be determined for lower ranking management people and board members. If the CEO wants to write off more, he has to raise the wages of his employees. Of course, the management can still gift themselves with huge bonuses, as in the above example - the difference would be that they would still have to pay taxes on the $10 million profit, as well.

Perhaps the most egregious and flagrant violations of this attempt to avoid taxes comes from the CEOs of the corporations themselves. Recently the CEO of United Airlines, Glen Tilton, violated the terms of a retirement package he signed off on, to get older higher waged employees to retire earlier, to help UAL out of a bankruptcy caused by mismanagement. This produced a media backlash when it was revealed that none of the pain of the bankruptcy was shared by Tilton. Instead, his compensation kept coming- most of it in Executive Deferred Compensation. What’s that? Say a CEO, or any lower executive, has a choice to receive $100,000 immediately or defer it for a year, with 10% pre-tax interest credited on the deferral. Say he’s paying a top tax rate of 35%. Now, if the CEO chooses the deferral, the $110,000 payment at the end of the year will equal $71,500 after taxes vs. the $65,000 he’d’ve gotten without deferral. Even an ungodly return rate of 10% for a year’s investment would only even out the compensation to $71,500- but that’s before taxes on the interest. Even investing his own money will likely not generate the same amount of cash that deferral does. Of course, that’s assuming that the deferred compensation is credited to a U.S. bank. If the CEO chooses a bank in Switzerland or the Bahamas- guess what? All he has to pay are incidental bank custodial fees. The deferral is totally tax free cash - lump sum and interest! Now, not that the corporations do not elide their fair share of taxes in myriad other ways, but the company will turn around and say - hey, we lost $100,000 in tax deductions, therefore we have to pay more in taxes. Guess where they will turn to make up ‘the loss’ crated by the CEO deferral? You got it - employee wages, pensions, or medical care. In a very real sense the lowest people on the corporate totem pole finance the deferred already grotesque compensations of their bosses, who often don’t pat a penny of that back in taxes.

This was the case at United, which wrung over $2.5 billion in union concessions to ‘help’ the company through bankruptcy. The management at United only suffered through ‘cosmetic’ pains during the bankruptcy. CEO Tilton, for instance, last year received undisclosed amounts of deferred pay, a $3 million annual bonus, $4.5 million in pension benefits, 1,150,000 shares of stock options, but he did agree to ‘share the pain’ by cutting his million dollar a year ‘base salary’ to just under $900k. What a trooper!
Just go Googling and you will see that Tilton was not just typical of the pigs at the CEO trough, but was in fact one of the slimmer swine. In 2000, AT&T CEO Mike Armstrong received almost $15 million in total compensation - excluding undisclosed deferred payments. What had he done to receive this largess? He boasted that AT&T paid nearly $4 billion in taxes nationwide, yet was sheepish when revealing that the company received $4.9 billion in US taxpayer ‘aid’ to help AT&T ‘compete’ in the Far East telecom market. In effect, you and I financed the largest American telecom company by nearly $900 million. The result for taxpayer’s ‘investment’? Did AT&T expand its US workforce? No, the company bought up Asian cable companies whose equipment was outdated. The money poured into updating those systems floored AT&T’s stock price, forcing the company to be split into four separate companies, which were gobbled up by assorted other companies, leaving the original company shrunken, vulnerable, with large portions of its work now outsourced to make up for mismanagement, and an announcement recently that they would cut another 4600 jobs from their payroll. This was all put in to play on Armstrong’s watch. the disaster netted him his compensation plus the CEO’s chair at the combined AT&T-Comcast cable company. The taxpayers were left with nothing for their massive ‘aid’ but a smaller taxpayer base, and larger share of the burden of the aid and unemployment payouts, due to the thousands of unemployed workers AT&T left in its taxpayer funded implosion.

This is typical of the ravages of deferred compensation, where workers are basically asked to finance their way to the poorhouse when the management begins raiding pension plans and demanding workers pay more and more for their medical insurance.

How to fix things?
1: total disclosure of total management compensation (including deferrals) to shareholders by requiring each company’s website to gave an easily referenced page with this information, and that of costs for employee pensions and health care expenses. Now companies roll in the costs of executive deferrals with their employee pension costs - which makes companies seem more devoted to their workers’ future than they are, while hiding the ‘true cost’ to shareholders, employees, and taxpayers of executive deferrals.
2: putting all executive compensation up to a vote by all the company’s shareholders, not just an elite board of executives. This would increase fairness, eliminate waste, and lead to better decision making all around.
3: diversify board members by allowing people to sit on only one other board than their own company’s. This would also allow new ideas to be heard. I will pick up this point for another reason in a bit. There should also be tax penalties assessed for companies that outsource work to exploitative conditions on foreign soil. All companies should then be, by law, and like their political cronies, be forced to- on their companies’ home pages- list all of the offices and companies that they still outsource to, assuming the tax penalties are not enough to dissuade them to stop that vile practice. For those who would argue that outsourcing is ultimately good, one need only point to the NAFTA disaster. Ever notice why those who backed its passage a decade ago NEVER speak of it nowadays? Others argue that outsourcing gets rid of dead end jobs and that newer high end jobs will be better. But, if my steps are followed, by step 3 the unleashing of ideas in the free market and the political arena will have created more opportunities anyway, so those people who are in ‘dead end’ jobs now will flock to the better jobs and those dead end jobs will now be able to go to the most impoverished and unemployed Americans, not foreign labor.

Step 4 is really a continuation of step 3 and the 3rd point about execurive deferred compensation. Limit the number of corporate boards a person can sit on to just one, outside of their employer. Why? Because not only will this allow a closer scrutiny of executive deferrals, but tit will also allow excluded potential board members access to decisions that affect their lives. It’s called democracy. This would include members of minority groups, women, and organized labor. The cry will be - 'but there are not enough qualified decision makers'. Utter elitist nonsense. The poor decisions of the last 20 years have been made by the greed and stupidity of college educated CEOs and boards. Anyone flipping a coin could have steered most corporations better than these elitists who preyed upon and ruined many a company due to their own myopia and greed. I guarantee you I could take any housewife, or unemployed 25 year old black man, give them that coin, and they would fare better than most corporations.
By limiting corporate board participation the excluded majority of Americans would have a true seat at the grown ups table.

None of what I’ve proposed is revolutionary- but evolutionary. It also is achievable by appealing to the common American ethic of fairness, and using visceral emotion- not cold logic- to affect change.
As things are now, much of what I am saying would be denied by corporations- for they have no pressure to reveal the truth, but 20 years with the sharks and I know I am correct.

Real world communism is a fundamentally flawed idea because it appeals to human sloth. The old Soviet canard was, ‘They pretend to pay us and we pretend to work.’ Real world capitalism is fundamentally flawed because it appeals to human greed. But both have potential good points in their theoretical modes. Communism can promote altruism and the greater good while capitalism can promote meritocracy. Most Americans, and humans, want to be treated fairly and see others treated fairly. There is a visceral reaction against basic unfairness that extends back to our primate ancestors. An example of that in modern society is the misinterpreted notion that people do not like paying their taxes. That’s untrue as most people like getting the services government provides. The rub is that people like fairness in their taxes - not only in what they (and others) pay but how and what their taxes are spent on - and how effectively. If people feel they are getting a fair return they are far more willing to pay high taxes.

To end, these proposals all intend to do one thing, fix what ails capitalism with its own professed medicine. There need be no bloodshed, nor continued unfairness. One can be pro-capitalism without being anti-worker, and one can be anti-corporate without being anti-capitalistic. Anyone who tells you differently is a dualistic dullard, has something to hide, or both.

© Dan Schneider March 1st 2004
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