As the new year, 2016, looms in our lives, we all wonder what will it bring? Clearly, there are some exceptionally interesting and beneficial trends in technology, including robotics and space innovation. However, there are also some very disturbing trends. A few are noted below.
“Jail time for the CEO of a peanut butter manufacturer, Volkswagen’s lies about diesel emissions and a 4100 percent increase in the cost of a drug for cancer patients,” was noted in a recent article entitled “The Price of Greed,” by Sandy Smith in the October 2015 issue of EHSToday magazine.
She continues:
“… makes me wonder how far some executives are willing to go.”
Sandy also notes the following:
“Facebook friends have been reposting several recent news stories, primarily the ones about Volkswagen lying about emissions from its diesel models, the former CEO of the Peanut Corp. of America distributing a product he knew was tainted with salmonella and a hedge fund manager whose company purchased Turing Pharmaceuticals in August raising the price of a medication used to treat cancer and AIDS patients from $18 to $750 per pill.”
Her response, which she notes is in contrast to her liberal friends who tended to blame capitalism, was:
“Don’t blame capitalism for this! Blame Greed.”
I understand where she is coming from, but I respectfully completely disagree. Capitalism is the real problem, but not as her liberal friends believe. Before I explain, first we need to define our terms. The definition of capitalism is:
“Capitalism is an economic system. In it the government plays a secondary role. People and companies make most of the decisions, and own most of the property. Goods are usually made by companies and sold for profit. The means of production are largely or entirely privately owned (by individuals or companies) and operated for profit.[1][2]” - Source: https://simple.wikipedia.org/wiki/Capitalism
Ludwick von Mises of the Mises Institute discussed capitalism in his book History of Capitalism:
“The inherent mark of capitalism is that it is mass production for mass consumption directed by the most energetic and far-sighted individuals, unflaggingly aiming at improvement. Its driving force is the profit motive, the instrumentality of which forces the businessman constantly to provide the consumers with more, better, and cheaper amenities. An excess of profits over losses can appear only in a progressing economy and only to the extent to which the masses' standard of living improves. Thus capitalism is the system under which the keenest and most agile minds are driven to promote to the best of their abilities the welfare of the laggard many.”. SOURCE - https://mises.org/library/history-capitalism
While I agree with both of these definitions of capitalism, there appears to be something very wrong with the “capitalism” in today’s world. Two questions show this change is for the worse.
How can the capitalism of von Mises be working with the top 1% acquiring and owning more than 50% of the global resources and wealth in the world today in a few short years? According to von Mises, as population expands, the middle class grows under a pure capitalistic system. For example, the expansion of the middle class, from the lower class, may have been true for the last 210 years of the United States but the last 40 years changed this model. Since the decline in power of my Dad’s generation (greatest generation), and the rise of the “Baby Boomer” generation, something seems to have changed this model. What happened?
During the years of the rise of the “baby boomers”, there was an exponential explosion in the growth in technology. This in itself heralded an incredible shift in life style. Relationships began to shift from “people to people” to “people to machines.” As much as I love technology and the benefits derived from it, there is very much a “down side” to it.
But, there was something else as well. Basic attitudes as to where the individual fits into society shifted. People started to see themselves as dependent on technology, not on relationships with other people.
Take for example the saga of Volkswagen.
“Volkswagen lying about emissions from its diesel models … Volkswagen mow acknowledges that as many as 11 million vehicles (many of them sold in Europe) contained software that allowed vehicles sold in the United States to circumvent U. S. Clean Air Standard requirements. These diesel cars were sold to consumers as a ‘cleaner’ alternative to Volkswagen’s regular cars. The company faces penalties in the United States alone of up to $18 billion, class-action lawsuits from outraged customers and dealers and scrutiny from other countries where it sells vehicles.”
Two comments in the Price of Greed article help us define this shift which is taking place globally.
“VW North American CEO Michael Horn at a launch event Sept. 21 in New York for the 2015 Passat told the audience: ‘We have totally screwed up,’ adding that the company’s actions did not line up with its core values.”
“When 11 million cars are emitting nitrogen oxide at a rate 40 times what’s allowed because software installed in the cars detects when testing is being conducted and prompts the car to compensate for it, that’s not a screw up. That’s systemic corporate failure to be honest and obey the law, and Volkswagen’s top leaders are responsible. The fish, as they say, rots from the head.”
Clearly, the owners of VW were willing and able to sacrifice the relationship with their customers, for the sole quest of increased sales (and profits). This action benefited nobody except the VW bottom line and, in fact, created distrust between the company and customers and potential customers. They , the owners, with one decision, effectively changed the relationship of trust between the company and customer to a relationship of “I want your dollars, regardless of the consequences to you.”
Another example, in the high flying technology sector, is shown by the following comment in an article entitled “Apple Partners Speak Out On Channel Conflict’” by Steven Burke, CRN – October 2015.
“As far as Apple’s investment in the enterprise channel, 37 percent of partners rated Apple as poor or fair. ‘Apple feels in their heart they don’t need resellers,’ said the SP500 CEO. ‘Instead of embracing the channel to help them grow the enterprise business and raise the customer satisfaction bar, they are only interested in moving product as fast and as cheap as they can, making as much money as they can by not having to pay a third-party solution provider.”
Traditionally, mega corporations have used smaller local and regional “partners” (companies and individuals) to help sell products and provide complementary solutions and services to customers. This has been a great way to help customers and provide needed jobs inside the industry. Microsoft is famous for this model through its “partners program.” This last comment about Apple Computer’s reseller channel by one of its channel partners really goes to the core of this global shift. It is apparently all about “profit” not about building relationships between seller and buyer.
In the October 2105 issue of Institutional Investor magazine, an article entitled Water Pressure by Katie Gilbert notes:
“Steven Heim, director of environmental, social and governance research and shareholder engagement at Boston Common Asset Management, had been talking since 2005 to portfolio companies involved in fracking.
“In the beginning the whole industry approach was ‘More is better’: more chemicals, more water, more pressure, more fracking stages,” recalls Heim, whose Boston-headquartered firm manages $2.2 billion. ‘Now, with oil prices down, they really have to think, ‘Do we need to put in a new well every 250 feet? Do we have to use all these chemicals? And water is expensive!”
In the same Institutional Investor article, the following shows a total disregard for regional concerns, if not worse.
“The first report [CERES, 2014 water scarcity report] found that between January 2011 and May 2013 fracking operations in the U.S. used 97 billion gallons of water and 55 percent of the wells they drew from were in areas suffering from drought.”
Note that with respect to the fracking industry, it seems that only the recent radical drop in oil prices seems to have brought that industry to some semblance of rational thinking. In my opinion, this new thinking is merely a survival mechanism, not real caring for anything beyond staying in business.
I project this will happen to Apple as well. As sales drop, the company’s quest for third-party sales and help with the enterprise will increase dramatically.
Volkswagen will try to impress customers and potential customers and dealers that it is much more “transparent and forthcoming” with respect to its automobiles. It will vow to be a “model” mega-corporation and put its customers first.
However, once the trust (relationship) is lost, it becomes very difficult to get it back. This can be seen in my bog entitled “Lenovo, Cyberattacks and the Global Economy,” (March 2, 2015).
This “more than just greed” phenomenon can be seen dramatically during the years 2008 to 2015. One good example is the “mega-banks.” The more they were bailed out using “global” tax-payer’s dollars, the larger and more speculative they became. In essence, they treated the fiat currencies as commodities and their depositor’s as “cash cows” (the same thing). This same philosophy can be seen in the fracking companies call for “more” (chemicals, water and wells) solely for the the pursuit of “profit.” It is also the same concept which prompt the tactics of Apple and Volkswagen. It can be seen in the many daily articles about the mega-pharmaceutical companies and “exorbitant” drug prices.
In my opinion, the reason this goes beyond just greed, which is bad enough, is that these mega global companies, via their top management, believe that as long as they are making profits, their world is fine. This is in total disregard to how the “middle and lower’ classes are doing, or how their policies are impacting the global society in general. What they fail to realize is that they would prosper much more and have a far more stable business world with a strong and growing middle and lower class (true von Mises capitalism).
What is driving this trend toward “commoditizing” people and currencies? According to an Internet Retailer magazine entitled A Luxe Life on the Web by John Frank, November 2015:
“Online luxury sales globally increased 20% in 2013 compared to overall luxury sales rising only 2% that year, according to a 2014 McKinsey & Co. report. Today, online sales represent 6% of the luxury market and that percentage is expected to climb to 18% by 2025, says Nathalie Remy, a partner in McKinsey’s Paris office. Further, 44% of luxury goods buyers research online before buying, according to McKinsey research.”
Another good example is noted in the same Internet Retailer magazine., “twenty-three of China’s population is middle class or more affluent”. These people (consumers) in China are viewed as “cash-cows” for the top 1% around the world to increase their power and wealth.
How is this mind shift actually being accomplished? Clearly, as an increasing number of people have access to online goods and services via smart phones, tablets and computers, on a global basis, they naturally want to take part in the “consumer” revolution. This is an incredible opportunity for those controlling the largest purveyors of goods and services globally, for example Amazon. There is effectively very little relationship between Amazon and its customers. The model generally seems to be “send me money, and I will send you goods.”
I will point out that in the name of disclosure I sell my e-books and hardcover books on Amazon. Also, Amazon has kept some semblance of its (buyer – seller) relationship with with a reasonable “return policy.”
Still the problem is a new form of “capitalism” has replaced von Mises capitalism. If “just greed by a few” was the problem, then there would still be a growing economy and broad based stable business climate globally. The result von Mises predicted of, “An excess of profits over losses can appear only in a progressing economy and only to the extent to which the masses' standard of living improves”, would be reflected in the period of 2008 to 2015. But, this clearly is not reflected in the global economy today.
The top global companies, governments and their owners (the top 1%) have effectively created a system in which the middle and lower classes of the global society are the source of capital to fund the global excesses of the top 1%. While this has always been the case to one degree or another, the von Mises model has, in the past, still prevailed and a far more stable business climate is the result.
However, the problem today is at an extreme. When people become only a source of backing for fiat currency or a source of endless consumerism (i.e. treated as commodities), this eclipses “pure greed.” This is the reason for the change from the capitalism as defined by von Mises to what we have today, as well as the significant global decline over the last 9 years.
As stated previously (and it is worth repeating), it should be noted and is very evident that the top 1% gained ground in the “wealth and power race.” Correspondingly, the standard of living of the middle and lower class dramatically decreased between 2008 and 2015, especially in advanced countries. As we have seen, that is totally contrary to von Mises prediction of true capitalism. Clearly, something has drastically changed.
Capitalism as defined and practiced by von Mises is probably the best economic system known to man. It fosters a true one buyer, one seller relationship between two people and is very powerful. But, in reality, this kind of capitalism is more about relationships (attitudes) between the seller and the buyer. It has very little to do with “increasing sales just to increase the power and wealth of a few.” The bottom line does not necessarily enter into the transaction in a real way. The middle and lower classes, as well as the top 1%, cannot help but expand and flourish under such a system.
As we go forward into 2016, I hope and pray that the current attitude of “people as a commodity” changes radically. Only in societies where all people regardless of religious, social or economic status, are treated as people, with basic respect, honor and trust, can that society, and the resulting government/business structure, grow and flourish. We need to get back to the trust, honor and respect between people in our individual lives, economic dealings and businesses. Only then will people stop being commodities in an “out of control” global economic and political system.
That being said, I wish all of those reading this blog much love and the very best in this New Year – 2016.
Sincerely,
H. Court Young
Author, publisher, speaker and geologist
Promoting awareness through the written word
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