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Friday, September 24, 2010

End of Capitalism?

What do you do when a crazed lunatic says something that you actually find merit in? Do you take him off your list of crazed lunatics? Can we pick and choose amongst what rogue leaders of the universe do and say --- condemning most but salvaging some pearls of wisdom?

I'm talking about Mahmoud Ahmadinejad, the saber-rattling president of Iran. You know, he took the place of Saddam Hussein - whom the U.S. govt. toppled and had executed by his own people - as the Middle East's thorn in the side of the west.

In the last couple of years at least, he has emerged as the latest Middle East threat to free world leaders who worry about Iran's nuclear capabilities. Of course, Ahmadinejad insists his country is merely using nuclear capacity for peaceful (energy) purposes. But many world leaders wonder if they can trust him. But I digress. Let me get back to the point.

Mr. Ahmadenejad was in New York this week for meetings at the United Nations. In one of his speeches, he declared that "the discriminatory order of capitalism and the hegemonic approaches are facing defeat and are getting close to their end." Huh?

The global media reacted to his speech in such a way that one might conclude they've missed at least this aspect of his point. One international news source simply slipped this quote into a story that seemed to be more about the political and economic troubles of his country, Iran. ( Perhaps in their zeal to continue painting him as a lunatic, they overlooked the fact that some of what he said may actually have merit.

Don't get me wrong, I'm a capitalist, Republican through and through. I realize that in the past couple hundred years, capitalism has accomplished so very much. But like all things meant for good, I see that capitalism's virtue can be perverted and have very negative consequences. There's no doubt in my mind that we are clearly on the path of that trajectory now.

While we can certainly extol the accomplishments of capitalism over the past few generations, anyone would be hard pressed to extol its virtues. The issue at hand is what capitalism costs us. Yes, you read that right. I think capitalism extracts a very high cost from society. I can point to at least three areas where capitalism is proving to be a very expensive proposition for society in general.

Overall Compensation

For starters, capitalism has a very polarizing impact on the financial demographics of society. Simply put, it's a transfer of wealth from the middle class to the rich. As a result, the rich get richer, and more get to be poor. Consider CEO compensation. In 1965, CEO pay was 26 times that of the average worker (in the same company). In 1980, it has climbed to 40 times. By 1989, CEO pay was 72 times that of the average worker. By 1999 it had mushroomed to 310 times. By 2004, CEO pay had absolutely exploded to more than 500 times what the average worker in the same company made! (Source: Towers Perrin)

Really? Is it possible that CEO's in a capitalistic society are worth more than 500 times what anyone else is worth? Did anyone else get raises like that? Put in real money terms, the median pay for an American CEO was almost $2.5 million in 1989. But 2000, the median pay for an American CEO was over $10.7 million. So in 11 years, corporate boards raised the annual salary of their CEO by more than 342%. How many of us have received, on average, an annual raise of over 31% year after year?

Now I don't begrudge anyone their wealth. What I have to take issue with though is wealth at the expense of others. Similar statistics on the average worker bee during the same periods of time are more than disappointing. They're downright frightening. More people are living on less. Standards of living are dropping. More and more people are unemployed or underemployed. And capitalism marches on. How long can we continue to pay the rich more and the middle or lower class less?


Both public and private debt are spiraling higher and higher and have been for years. It has been more than 40 years, for instance, since the U.S. federal government had any reduction in its debt. The national debt continues to climb at an increasing pace. Already today, the U.S. government debt is more than any other debt in the history of the world. Not only are we not making even the smallest dent in retiring that debt, but we're having an increasingly difficult time paying the interest on it. And we're having to borrow more and more.

It is estimated that at least one third of Americans have filed for bankruptcy at least once in their lifetime. And some of capitalism's biggest companies have filed for bankruptcy as well. Some more than once! And what happens, for example, when a corporation files bankruptcy? Today's newspaper features a business story on the fact that Blockbuster Videos is filing for bankruptcy, "slashing nearly $1 billion in debt." How exactly does it get slashed? Well, honest working people like you and me take it in the shorts! Seriously, our pension funds, mutual funds, and other investments lose big time. Blockbuster stores are closed and staff laid off. The CEO of Blockbuster? He gets a raise and bonus!

There's another insidious issue with corporate bankruptcies. In addition to sticking the middle class with the bad debts of these companies, the U.S. federal government often gets screwed in the process. I'm talking about unfunded pension liabilities. In corporate bankruptcies, the company walks on its obligations to its pension plan. The U.S. federal government, which insures those plans, is stuck paying the tab. (And the CEO of the company gets, on average, a raise of at least 32% that year.) Are you liking this yet?

Lay Offs

Now I'll be the first to admit that capitalism creates jobs. At least in its early stages of a new era. When the U.S. moved from an agricultural economy to an industrial economy, millions of jobs were created. When the U.S. moved from an industrial economy to an information economy, again jobs were created. While we mourned the loss of manufacturing jobs, those workers were re-skilled (trained) and probably ended up with better jobs than they had before.

However, when the U.S. started moving from an information (IT) economy to a services economy, it was like fingernails on a chalk board. Good paying IT jobs were lost. Replacing them? Low paying, often part-time jobs in big box stores. For the first time in several generations, the evolution of capitalism resulted in a massive loss of earning power.

Add to this dilemma the fact that capitalism's CEOs have become enamored with offshoring. They send their jobs overseas to third world countries where workers can be skilled enough to do the job, but will do it for a fraction of what the American worker was getting paid. And when the CEO moves these jobs offshore, two things happen.

First, his company's profitability improves (at least in the short term) - so the CEO gets a raise and/or bonus. Secondly, the laid off workers become a burden to society. They start collecting unemployment and welfare. They can't pay their bills. Capable, educated and skilled people are now no longer able to even support themselves. All in the name of capitalism.

So here's the thing. I'll be the first to recognize that Iran's president Mahmoud Ahmadinejad comes off looking like some sort of a buffoon most of the time. His ranting and raving are obviously tilted to his own warped agenda and myopic perspective. But when he says that capitalism has already seen its finest hour, I'm not so quick to dismiss him.

I am not an enemy of capitalism. I don't want to see capitalism defeated either. But I would be less than sincere if I didn't admit that I see capitalism, coupled with democracy, racing toward what seems like it will be a tragic end. Said differently, I don't know how this duo of capitalism and democracy can survive in their present state. They tend to live outside of reality, and the people who have to live inside of reality become their victims.

So maybe in the spirit of diversity we should at least consider reforming this bad boy that we call Capitalism. And while we're at it, could we teach his sister, Democracy, some manners?

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