CHAPTER 2

GLOBALCAPITALISM

MEET CAP

1. Capitalism (CAP) runs the world.

2. CAP is more powerful than any nation, government, corporation, institution, person, military, or social movement.

3. CAP can’t be controlled, only imperfectly managed.

4. CAP is based on self-interest within a system of mostly impersonal commercial transactions.

5.Corporations control most of the world’s commercial assets: technology, factories, intellectual property, etc.

6.Corporations create most of the world’s jobs & national exports.

7.Nations depend on corporations for their national economic growth and standard of living.

8.Corporations influence global political leaders more than any other source of power.

9.CAP is impersonal & amoral (values-neutral) because the marketplace is also.

10.CAP is based on consumerism, which is based on self-gratification, spending, & debt.

11.CAP is an interdependent, impersonal community where capitalist activity affects everyone & everything.

12.CAP is the driving power source for the world, economies, nations, corporations, institutions, & people.

13.CAP can be stabilized to a great extent by institutions but periodically becomes temporarily destabilized via recessions, inflation, social change, institutional incompetence & fraud, politics, & nationalistic conflicts.

14.CAP, not war, is the main form of nationalism in the 21st century.

15.CAP can quickly become exploitative without laws, regulations, institutional oversight, professional codes of ethics, & media exposes.

16.CAP is ideological, & hence controversial, because it is based on self interest, which must be justified & rationalized by a variety of often conflicting (ideological) systems.

17.CAP is the main source of self-identity in the industrialized world, since capitalism directly & indirectly generates most jobs/careers, which are the foundation of self-identity for most professionals.

18.CAP is the catalyst for most social change in the world, because capitalism thrives better in individualistic social structures than in extended family communities (which are the dominant social structure of the world).

19.CAP is the best economic system for the world because it is the least imperfect & the only one tied to human nature (self-interest).

THE BENEFITS

OF GLOBAL

BUSINESS

GENERAL BENEFITS OF CAPITALISM

1.Economic growth2.Jobs, careers & periods of full

employment3.Tax revenue for local

communities4.Technology development5.Investor income6.Marketing systems that deliver

a high standard of living

7. Companies can get lower interest rates on the international market than the domestic market (but then are subject to the demands of foreign creditors).

8. Trade enables consumers to buy cheaper products (but sometimes at the expense of sustainable worker incomes in developing nations).

9. Free trade opens the door for technology sharing (but this may drive weaker domestic companies out of business).

10. Free trade opens borders (but also increases the risk of short-term unemployment).

CAPITALISM AT WORK

1. Reducing poverty in developing nations: –Between 1978-1998, poverty was reduced in China from 28% to 9%.–Poverty in India fell from 78% to 26%–Poverty in Africa did not improve during this 20-year period because of lack on industrialization & institutional advances in democracy

2. The U.N.’s International Labor Org. estimates that 100-200M children under 15 work in the global workforce, 95% in poor nations. At least half of these children don’t go to school.3. Globalization is perhaps the main benign factor in reducing child labor, because the long-run presence of foreign companies raises the wages of parents, enabling children to stop working and start school.

4. “On average, developing countries protect their production much more than developed countries, even though their protection is much less widespread. This protection means less South-South trade, which is of vital importance for them to achieve more economic growth. Those who oppose globalization should be reminded that what is necessary for increasing growth and reducing poverty and inequality is a drastic reduction of trade barriers, that is, more and better globalization, not less.”

5. Research has shown that multinational companies normally pay at least 10% higher wages in developing nations, and often times 40-100% higher than existing wages.

6. The rights of women have also improved over the long-run in global business, because foreign firms who provide equal employment environments for women have such a large competitive advantage over local firms, that the local firms must improve treatment of women in order to stay in business.

HOURLY MANUFACTURING PAY COMPARISONS

• USA: $21.33• EU: $20.18• Japan: $18.83• S Korea: $9.16• Singapore: $7.27• Taiwan: $5.41• Brazil: $2.57• Mexico: $2.35• China: $0.69

MANAGED GROWTH (by Global Institutions) IS

BENIGN GROWTH1. Global growth is healthiest when it is

it is gradually introduced over several years (as opposed to instant “shock therapy”).

2. The better global growth is managed, the more its effects are benign rather than malign.

3. Multinational companies must avoid the quest for fast profits in developing nations to provide a healthy long-term operating environment.

% OF POPULATION WHO AGREE THAT FREE-MARKET CAPITALISM IS THE BEST ECONOMIC SYSTEM FOR THE FUTURE:

1. China: 74%2. USA: 73%3. India: 72%4. Britain: 70%5. Germany: 68%6. Italy: 60%7. Russia: 40%8. France: 36%

MERCANTILISM & PROTECTIONISM1. Mercantilism was an economic system

practiced by European nations from 1500-1750 in which nations strived to gain economically at the expense of their neighbors via: exporting more than importing; engaging in protectionist activities (primarily tariffs) against foreign imports; colonial exploitation of foreign colonies; hoarding precious metals (“bullion”) as a major source of national wealth.

2. 18th century economist Adam Smith developed early free trade theories that largely discredited the mercantilist “win-lose” system of trade.

BUSINESSEXTERNALITIES

Externalities = the positive & negative impacts of corporate profit-maximization on non-stakeholders.

Positive externalities: • Job creation• Tax revenue• Productive use of technology

Negative externalities:•Pollution•Social outsourcing•Unemployment•“Sweat shop” operations•Political bribery (legal & illegal) & lobbying

CAPITALISM SYSTEMS

I. SYSTEMS THAT FEED ON CAPITALISM

CorporationsConsumersNon-ownership

workersPoliticiansNon-profit

organizations

II. SYSTEMS THAT CAPITALISM FEEDS ON

Consumers (primarily middle class)Under-developed nations (land & labor)Government nationalism

Monopolies & industry concentrationDeregulationPolitical lobbying & campaign contributionsTechnology

III. SYSTEMS THAT SEEK TO MANAGE CAPITALISM

IIIA. GovernmentsRegulatory agenciesTariffs & subsidiesInterest ratesTaxesKeynesian economics (deficit spending)

IIIB. Financial Institutions

Private & public banksStocks marketsCurrency exchangesBrokerage companies

IIIC. GGOs

WTO: Global trading policies & practices; Advocacy of PPMM capitalism: Private, Profit Maximization, Market-controlledIMF/WB: Using loans to establish PPMM capitalism in the developing world

IIID. NGOsEnvironmental Human rights

IIID. LABOR UNIONS

IV. CORPORATIONS THAT SEEK TO DOMINATE & CONTROL

CAPITALISMTransnational (non-nationalistic) corporations (“Fortune” 1000)

Controlling the VAC via business function dominanceOff-shoring & using labor as a commodity Influencing national & regional politics

SYSTEMS OF SELF-INTEREST

(right click on title)

THE CAPITALIST

PRISM (who wants what from capitalism)

NATIONALISTIC NATIONS•Capital account expansion•Military-industrial complex•“Turbo-capitalism”•Exporting of products & culture

TRANS-NATIONAL CORPORATIONS

Using the entire world as an operating arena via:•Controlling the VAC•Off-shoring (labor as an impersonal commodity)•“Social outsourcing”•Financial backing of politicians•Deregulation

GLOBAL INSTITUTIONAL INVESTORS

•Trans-national investing•Influencing global financial policy-making•Shifting investment risk via derivatives & creative accounting•Controlling major investments via majority share-holding

DOMESTIC CORPORATIONS•Minimizing business costs•Inventing & innovating (intellectual capital)•Building bulk via mergers•Debt leveraging•Seeking trade protectionism & govt. subsidies•Value-neutral corporate values

GGOS•Reinforcing neo-liberal global capitalism•Brokering regional free trade agreements•Accommodating the interests of global corporations

STOCKHOLDERS•Maximizing share price appreciation & capital gains•Maximizing dividend yields•Seeking inside financial information•Influencing corporate directors

TECHNO-CLASS•Resume-building•Opportunistic job-hopping•Dual-career marriages•Debt-based consumerism•Capital asset appreciation

SUSTAINABLE INCOME NATIONS & WORKERS

•Alteration of the VAC via “community capitalism”•Job security & family-provision•Illegal immigration•NGOs

NGOS•Opposition to global consumerism/materialism•Opposition to neo-liberal capitalism & GGOs•Business regulation•Sustainable income global standard

•Consumers•Debt industry•Corporate executives & stockholders•Middle class

•Individualism cultures•Unisex cultures•Oligopolies & monopolies•Nations high on the VAC•Social Darwinist cultures

WHO SERVE CAPITALISM

1. The Earth2. Corporate

employees3. Workers with non-

sustainable incomes

4. WTO & IMF

THE INVISIBLE HAND OF GLOBAL

CAPITALISM

Author Edward Luttwakcoined the term “turbo”-capitalism (commonly referred to as neo-liberal capitalism) to describe the highly aggressive global economic system that has “flattened” the world by its single-mined pursuit of profit maximization via free trade agreements, deregulation of industries, unencumbered flows of investment across borders, & Social Darwinism (only the largest, most dominant corporations survive & thrive.) According to Friedman, “In a flat world, you either compete successfully or get run over.”

“Turbo”-capitalism is embedded in invisible political, economic, & cultural SYSTEMS that shape the behavior of most people, organizations, & nations—even though many are only dimly aware of it. The “invisible hand” of capitalism is a dominant SYSTEM in the world because of its far-reaching influence on the subordinate SYSTEMS of politics, markets, industries, companies, consumers, & technology. These SYSTEMS in turn impact the wealth, status, & power of people, organizations, & nations. Everyone is part of the capitalist SYSTEM, but some are more in control of it than others and hence benefit from it more.

Living in an organizational/capitalistic society makes you dependent on a number of invisible SYSTEMS which influence your life & livelihood. The more dependent you are on a SYSTEM, the more it controls you. The more it controls you, the more you must conform to its (often invisible) machinations. To the extent that you voluntarily join a SYSTEM, conform to it, & personally benefit from it, the more accountable you are for any negative impacts it may have on others.

EXAMPLES OF SYSTEMS INVISIBILITY1. Corporations seek to maximize profits &

minimize costs through a complex & impersonal SYSTEM of financial, logistical, marketing, & human resource decisions revolving around self-interest.

2. The two leading economic global governmental organizations (the World Trade Organization & International Monetary Fund) mandate “neo-liberal” (profit-max/cost-min) policies for nations that parallel the Western economic SYSTEM.

3. The value of a nation’s currency SYSTEM directly impacts the success of its importing & exporting.

4. The vitality of most global industries is indelibly tied to the global price of gasoline.

5. Free trade SYSTEMS between nations set off a chain reaction of economic, political, & social reactions.

6. Even “domestic” companies are part of the global economy because in most cities they face foreign competitors & are also dependent on global supply chain logistical SYSTEMS.

7. Neo-liberal (profit-maximizing) structural change SYSTEMS mandated by the International Monetary Fund for many developing nations are likely to raise domestic unemployment, lower currency values, & empower foreign companies to buy out local competitors.

8. Off-shoring jobs often promotes long-run economic development in affluent nations by replacing low pay jobs with higher paid ones.

9. Technology eliminates some jobs but creates others.

THE VISIBLE HAND OF GLOBAL

CAPITALISM

Global capitalism is too powerful, pervasive,

and professional to be controlled. It can be

successfully managed only by proactive

community-minded government and business leaders.

But capitalism is also influenced by visible government economic policies, social activist non-governmental global organizations, & public opinion. “Governments still play a key role in managing globalization and socioeconomic outcomes. Thus we have contentious battles over free trade agreements, labor rights, ecological standards, immigration control, and socialized public sector programs.” Even the U.S. federal government (traditionally dominated by laissez faire, deregulated capitalism) engaged in socialism with its quasi-ownership interest in the banking and auto industries in 2008.

THE VISIBLE & INVISIBLE HANDS

OF SELF-INTEREST AT WORK IN THE 2008 GLOBAL

ECONOMIC CRISIS

1. A housing “bubble” (over-expansion of house construction based on cheap debt & deregulation of the financial service industry) was caused when the Federal Reserve (coordinator of the U.S. banking system) kept interest rates too low too long in order to artificially stimulate U.S. economic growth.

2. Low-rate variable (interest rates subject to future change) mortgages were sold in record numbers (sometimes unethically) to would-be home owners normally deemed unqualified for large, long-term loans. The price of their homes was normally inflated in the process.

3. Mortgage companies sold their sub-prime-rate mortgages to large, unregulated investment banks, who “bundled” huge numbers of mortgage IOUs into sellable investment packages (known as securitization of assets) sold to speculative investment institutions all over the world who became the ultimate home mortgage creditors.

4. By packaging mortgages into sellable bundles, the original mortgage holding financial institutions shifted their risk to the investors purchasing the bundles, who in turn felt secure because they were buying an assortment of mortgage assets, thus putting their “eggs” into many “baskets.”

5. In 2006-2008, interest rates began to rise in a belated effort to stop the subprime mortgage juggernaut. A growing number of home buyers began to default on the variable rate subprime mortgages they should never have been approved for in the first place.

6. Institutions all over the world holding securitized pooled mortgage assets (such as Lehman Brothers, Merrill Lynch) were soon driven into bankruptcy or reorganization because record numbers of mortgage holders were no longer able to afford their homes.

7. Wall Street suffered record losses as stockholders panicked and began unloading their holdings of companies potentially affected by the mortgage market collapse.

8. It is predicted that global losses stemming from the economic melt-down will reach $1.3 trillion & U.S. credit growth will slow.

9. The U.S. federal government has so far spent the equivalent of 7% of annual U.S. GDP in financing the bailout (twice the cost of the Iraqi war).

American capitalism reached a crossroads in the 2008 global economic crisis, when the subprime mortgage-manipulation scandal spawned twin crashes of investment banking & Wall Street. “Neo-liberal” capitalism & “Reaganomics” (with their extreme Laissez faire capitalism of deregulation, financial leverage, & single stakeholder profit-making) mutated into “mixed” capitalism with the ensuing government bailout packages & state intervention into private markets.

When neo-liberal capitalism (American laissez faire capitalism applied to the world economy via the International Monetary Fund & World Bank) infected most of the world economy with the exotic “sexually-transmitted disease” of mortgage debt-based “assets” (known as derivatives), both the developed & developing world were forced to protect their own economies via the “condom” of government stimulus.

Given that Asia & Europe have heavily financed America’s profligate lifestyle of debt-based economic growth, these regions now possess solid leverage over America’s future financial policies & will doubtlessly insist on a more responsible form of American capitalism. Imminent changes are likely to see the demise of Reaganomics & a revival of industry regulation; public & private debt-management; tax increases; & political multilateralism (policy consulting with key financial benefactors).

“The global currency and banking crises of the 1990s and the investment banking scandal of 2008-2009 demonstrated that the largest and most efficient international financial system in history had a downside: its very size and speed gave it the potential to destabilize the entire world economy.”

SYSTEMS EXPLOITATIO

N

• Institutions create systems to be exploited: commercial markets, stock markets, global trade, educational systems, corporations, political offices, etc. • Nations, organizations, and individuals play the “gain game” by exploiting systems for self gain.

• Capitalism is the world’s largest, most exploited, system because of it accessibility and unparalleled financial wealth. • Global business exploits capitalism to a greater degree than any other system on earth. • Professional success hinges on the capacity to exploit systems for career gain.

THE TW0-EDGED

SWORD OF GLOBAL

BUSINESS

“Corporations are more central players in 21st century global affairs than nations. We call them multinational, but they are more accurately understood as transnational, post-national, or anti-national. Their customers are not citizens of a particular nation; they belong to the universal tribe of consumers, defined by materialistic want and needs spurred by advertising.”

GLOBALIZATION IS A TWO-EDGED SWORD

1. Benign (constructive) globalization: “Win-win” mutually advantageous trade between nations; “raising the lake level for all the boats”

2. Malign (destructive) globalization:

“Beggar thy neighbor” trade; damage to cultures & political systems; exploitation of labor, etc.

THE TWO MAIN FORCES OF ECONOMIC GLOBALIZATION

1.Governmental “liberalization”: regional economic cooperation; free trade agreements; consulting with other nations on economic policy

2.Global penetration of revolutionary technology

DOES EVERYBODY WIN?

Wal-Mart expanding into Mexico:–W-M stockholders win? (yes)–W-M employees win? (yes, since no

American W-M employees lost their jobs & some Mexican workers gained new jobs)–Both nations involved win? (yes,

both get more taxes from W-M)–Competitors in both nations win?

(not the Mexican retailers put out of business by W-M)

EXAMPLES OF INTENTIONAL vs. UNINTENTIONAL OUTCOMES

1. An American sporting goods manufacturer intentionally relocates to China to reap more profit by saving on labor costs (thus unintentionally permitting some Chinese workers to move out of “hand to mouth” agricultural jobs & unintentionally hurting its former American employees, local community, & labor union)

2. Thus, the American company unintentionally hurt its own nation & unintentionally helped a “foreign” nation—all because of the (powerful) profit motive

IDEALISM vs. PRAGMATISM1. There are 2 basic human motives: self-interest

vs. idealism (commitment to something bigger than ourselves: humanitarianism, fairness, community, health, etc.)

2. Acting out of self-interest leads to pragmatism: “Do it if it gets you what you want” (even if it means compromising some ideals).

3. Global business is the most pragmatic profession of all, because so many non-idealistic obstacles have to be overcome in the pursuit of profit and competitiveness. Hence, global business is a rough and tumble pursuit based on Social Darwinism (do whatever it takes economically & politically to survive).

The profit-generating pragmatism of global business impacts a number of human ideals in both positive & negative ways:

1. Hiring people vs. laying them off2. Cutting the price of products by

paying marginal wages to employees

3. Opening new plants or business locations by putting competitors out of business

4. Creating material wealth while degrading or consuming environmental wealth

“The 3 scariest words in today’s global economy are: What’s China’s price?” Over the past decade, China has set off a wage “race to the bottom” in the global economy by paying workers less than anywhere else in the world, including the poorest of other developing nations. Economic statistics indicate that wages have indeed fallen, even in highly developed economies such as the USA, where wages have stagnated or declined since 1973. In Europe, wages didn’t fall due to socialistic government protection, but significantly fewer jobs were created.

FREE (BORDERLESS) MARKETS ARE NOT NECESSARILY FAIR MARKETS

“For the majority of Americans, income growth has all but disappeared in recent years. And it’s not just that low-skilled who are getting slammed. Inflation-adjusted earnings have fallen in every educational category. The share of Americans who gain from free trade is rapidly shrinking. The gap between the rich and poor is growing much wider, feeding resentment & political & social unrest.”

“Eventually up to 40 million service jobs in the U.S. could face competition from workers in India and other low-wage nations. Many of the newly vulnerable will be in skilled fields, such as accounting and research—jobs U.S. companies will be able to move offshore in ever greater numbers. The question of whether spreading globalization and information technology is strengthening or hollowing out the American middle class is the dominant economic issue of our time .”

GLOBAL TENSIONS

SPAWNED BY PRIVATE

CAPITALISM

1. The impersonal, institutionalized approach of private capitalism does not smoothly integrate into communal cultures based on small, family businesses & quality of life over quantity of life.

2. “Neo-capitalism” is a form of nationalism in which the largest developed economies (the “Godzillas”) compete for global influence/power via their flotilla of large global corporations which export Western culture and lifestyles into non-westernized areas of the world.

3. Private capitalism has spawned “patriotic” consumerism (induced via mass media advertising/PR & enabled by efficient global supply chains) in which living beyond one’s means (both individuals and institutions) via a universal credit lifestyle has become the chief engine of nationalistic economic growth.

4. Media advertising & entertainment have created the false reality that consumption is the purpose of life, not merely a means to a comfortable life. External realities that challenge the consumerist ethic (global warming, indebtedness, mass commercialism, etc.) are either ignored or wished away.

5. Corporate marketing has gone beyond its traditional role of trying to create/stimulate new consumer wants to convincing consumers that their wants are actual needs (necessities of life). This has further heightened American indebtedness & further increased dependence on foreign capital. “In a society where everything is a commodity that can be bought or sold, people are alienated from community. Commodities, media, and technologies provide a universe of illusion and fantasy where individuals become overpowered by consumerism, media ideologies, and fleeting celebrity role models.”

6. The recent near-economic collapse of America’s (unwisely deregulated) financial markets and its global economic shockwaves clearly demonstrates how unstable the globally-interconnected economy really is. Neo-liberal capitalism is such an invasive & pervasive system that no one is in secure control—not governments or institutions. Less exploitable private market regimes (such as community capitalism) may well be necessary for the future economic stability.

Globalization is the emergence of an integrated world economy & a universal

culture.

CAP 4

#1 “Libertarian” capitalism (commonly

called “neo-liberal” capitalism)

1. Profit-maximization2. 1 stakeholder (fin.

owners)3. Free-market, deregulated

impersonal markets4. Social Darwinism

competition

#2 Protectionist capitalism

Nationalistic use of various free trade barriers: tariffs, subsidies, quotas, dumping, etc.

#3 Mixed capitalism

Nationalistic mix of capitalism & socialism (govt. ownership of

businesses, subsidies, social welfare benefits)

#4 Community capitalism

Small businesses that serve multiple stakeholders vital to small communities of extended families

LIBERTARIANCAPITALISM

vs.COMMUNITYCAPITALISM

1.Libertarian capitalism (LIBCAP) is the ideology of most Western nations (especially the USA). Its bedrock principles include the importance of private enterprise, free (borderless) trade, minimum government encroachment on the “invisible hand” (impersonal marketplace) of capitalism, & the profit maximization ethic.

Libertarian capitalism is often called “neo-liberal” capitalism by economists. “Liberal” refers to liberalizing (maximizing) the role of government in promoting unregulated private enterprise & borderless trade. “Neo” refers to applying this capitalist ideology in a new way: not just to corporations, but also to nations & global government orgs.—to the whole unregulated global economy.

WHAT LIBERTARIAN CAPITALISM VALUES1. Minimum government; maximum business.

Cater to corporations.2. Business with an “invisible hand”

(business activities occur at the unseen, unregulated grass roots level)

3. Single stakeholder (company owners) + single goal (profit maximization)

4. Social Darwinism: Only the strongest, most competitive nations & corporations survive marketplace competition over the long haul.

5. Institutional safety net for other stakeholders (employee unemployment insurance, supplier contracts, collateralized bank loans, etc.)

HOW PROFIT IS MAXIMIZED1.Deregulation2.Max cost efficiency via

employee & wage minimization (especially through off-shoring manufacturing) & technology maximization

3.Social Darwinism competition via large corporations, oligopolies, & value-added chain control

4.Borderless operations

THE SOCIAL SAFETY NET REQUIRED FOR LIBCAP

1. Unemployment benefits

2. Dual breadwinner families (to reduce dependency on a single income)

3. Plentiful & affordable educational opportunities (so employees can upgrade their marketability)

4. A low unemployment job market for employees (in the event they are laid off)

5. Keynesian economics (govt. stimulates economies as needed via spending borrowed money on private or public programs)

THE UNIQUE BENEFITS OF LIBCAP

1.Enhances a nation’s materialistic life

2.Stimulates local, national, regional, & global economic growth & innovation

3.Nationalistic capitalism provides a less violent way for nations to compete than military engagement.

4.Capitalist careers are the primary means by which most 21st century people derive personal identity in life.

LIBCAP was designed for Western individualistic where the needs of corporations take precedence over family needs (which are met in large part through institutions). As more and more non-Western, community cultures are pressed to stimulate and expand their 21st century economies via LIBCAP, they will inevitably experience more cultural individualism and erosion of community. One their greatest challenges will be providing the social safety net required by LIBCAP.

COMMUNITY CAPITALISM (pursued in extended family-cultures)

1. Multiple stakeholder interests (employees, suppliers, neighborhoods, customers, & investors)

2. Satisfactory profit over the long-run (to enable the company to continue meeting the needs of its internal & external communities)

3. Operations efficiency balanced with human considerations (to minimize disturbing the community's economic harmony)

4. Regulated resource flows (incoming FDI & foreign currencies) & defensive protectionism (to deter foreign predatory competition)

MAJOR DIFFERENCES BETWEEN COMMUNITY vs. INDIVIDUALIST CULTURES

1. Interdependence vs. interdependency

2. Power based on relationships vs. institutions

3. Personalized business practices vs. impersonal

4. Jobs vs. careers5. Free things of life vs. consumerism6. Family & community first vs.

organizations first7. Stress on economic needs vs. wants

8.Secure jobs vs. job hopping9.Corporate service to the local

community vs. service to stockholders

10.Paternalistic working environment vs. competitive

11.Cooperation vs. competition12.Sustainable profit vs. profit

maximization13.People vs. technology14.Reacting & adapting to change

vs. proacting & mastering

WHAT COMMUNITY CAPITALISM VALUES

1.Employee (family) economic (job) security

2.Profit reinvested into lives within the community (rather than investor individual wealth)

3.Personal bond between company & customers

4.Smaller companies & lower investor expectations

5.Focus on economic needs > wants

 

SUSTAINABLE INCOME & A LIVING WAGE

Economically developing communities require a sustainable income for its members that ensures that they not only make enough money to subsist on (a living wage), but also enough to invest back into the community’s productive assets (both physical and human) and to preserve the environment for future generations. Wages are most sustainable only when superfluous middlemen are replaced by grass roots small business that develop thier own distribution system.

“Foreign companies established in both developed and developing countries tend to pay higher wages than domestic companies and the working conditions they offer tend to be better than the general working conditions in the host country. Additionally, they tend to provide their employees with more training and knowledge as well as better retirement conditions than the domestic companies.”

WESTERN BUSINESS ISN’T EQUIPPED FOR COMMUNITY CAPITALISM

Western competitive strategy (libertarian capitalism) generally won’t work well in the community capitalism environment of developing nations. Western capitalism depends on mass marketing for high profit efficiency, while developing nations require pinpoint local marketing to fit the diverse needs of numerous sociological groups. Western business is impersonal, while community capitalism business must be highly personalized at the grass roots level. Most Western products are designed to cater to lifestyle and status differences, while developing nation products must normally be highly functional and practical.

Western marketing managers are ill-equipped for business in the community capitalism environments found in developing nations. They are like West Point military cadets in post-Civil War America who weren’t prepared for fighting the indigenous Indian tribes of the Southwest. Western business schools don’t prepare students for doing business in the bonanza markets of emerging nations which use other forms of capitalism.

WHEN COMMUNITY CAPITALISM WORKS BEST

Community capitalism works best: (1) For privately owned, smaller companies, with a limited number of stockholders; (2) When the company is not in a heavily competitive industry, which greatly increases the importance of cutthroat short-term profitability; (3) In developing nations where job security is essential (4) When a personal (rather than institutional) bond of service and ethical accountability exists between company and customer

COMMUNITY CAPITALISM AT WORK

1. High job security of employees because of the scarcity of jobs in developing nations

2. Fewer workers replaced by technology

3. Partial or total government ownership of corporations (to provide financial stability)

4. Limited foreign ownership of domestic company stock

5. Small family companies play a lager role in the nation’s economy than large corporations

EXAMPLES OF HOW LIBERTARIAN CAPITALISM DOESN’T FIT WELL

INTO COMMUNITY CULTURES (CCs)

1. Eight-to-five workday: People in CCs have family necessities that often require them to be at home some during the day. Most CCs don’t have enough institutions to assume these essential family functions.

2. Geographic job hopping: The extended family substitutes for most institutions in CCs, so family members are tied to their local communities. Geographic job transfers or new jobs compromise the capacity of families to care for children & the elderly on their own; to share home assets (rent, tools, phones, etc.)

3. Career women: Child-rearing, especially in large families, must normally be handled by mothers, grandmothers, & sisters. Day care centers, nannies, & all day public schools systems are rare & unaffordable. Also, in most CCs, women derive most of their self-esteem from nurturing rather than pro. Work.

4. Living your personal life around corporate demands: Institutional jobs, & especially careers, require long hours of uninterrupted work & significant time away from home & family (as well as 4+ years of full-time college, commuting to work, dual career marriages, & sometimes 24/7 projects).

5. Govt. budget deficits to institutionalize community functions: Individualism cultures require high taxes & socialized community services to pay for duties performed at low or no cost that would otherwise be the responsibility of families. The govts. of most CCs lack the financing to pay for institutionalizing basic social functions.

THE 21ST CENTURY ‘S 2 BIGGEST CULTURAL CHALLENGES

1. How ready & willing are community cultures to give up their indigenous cultural way of life in order to be better served by individualistic capitalism?

2. How ready & willing are individualistic cultures to build community into their form of capitalism?

SOCIAL DARWINISM IN GLOBAL TRADESurvival of the fittest (Social Darwinism) is

what international trade is all about. Nations & their corporations use sophisticated strategies to compete for financial, marketing, & technological dominance in world markets using competitive strategies that sometime result in win-win outcomes and sometimes win-lose. In win-win trade, both the rich and poor become better off. In win-lose trade, the rich get richer while the poor get poorer. Over time only the strongest nations continue to prosper from global trade and only the dominant corporations survive.

FREE TRADE MEANS LOTS OF THINGS TO LOTS OF PEOPLE:

1. The right to import & export without barriers & restraints

2. The right to engage in profit-seeking business activity across the world

3. The right for nations to do business with one other in a competitive & cooperative manner

4. The right to develop a globalized economy in which nations & companies are interdependent

FREE TRADE RAISES TOUGH QUESTIONS

1. To what extent is free trade mutually beneficial for all parties involved (nations, companies, workers, etc.)?

2. Should nations have the right to protect themselves against what they perceive as damaging competition from other nations?

3. Is trade better regulated by governments or by the “invisible hand” of capitalism?

FREE TRADE IS A LOT LIKE A MALL1. Lots of stores, customers, & employees

benefit from the ideal shopping circumstances, but they don’t all benefit equally.

2. Sometimes large stores, such as Penney's or Sears, put smaller mall stores out of business.

3. Stores & customers usually get along cooperatively, but conflicts do sometimes arise.

4. Not all people are rich enough to regularly shop at malls, & some cities aren’t large enough to have one or more plush malls.

5. Rules & regulations help malls to conduct business efficiently & effectively.

THE COMPETITIVE WEAPONS OF NATIONS

1. Military or economic colonialism (partial or complete control of another nation’s assets)

2. High currency trading value3. WTO “green room” informal

trading deals with key trading partners

4. Loaning money to the World Bank/IMF (which gives the loaning nation considerable influence over terms of the loan)

5.Membership in free trade agreements

6.Exporting products other nations are dependent on (oil, computer hardware, food, digital technology, etc.)

7.Tariffs to protect key domestic industries against foreign competition

8.Government subsidies paid to domestic agricultural & manufacturing organizations to boost their global competitiveness

CORPORATE COMPETITVE WEAPONS

1.Innovative technology (intellectual property)

2.Monopolistic or oligopolistic industry structure

3.Acquisition of competitors4.Lobbying & political campaign

contributions5.Off-shoring of operations

6. Global supply chains7. Cheap domestic illegal

immigrant labor

ANTI-COMMUNITY PROFITMAX PRICING STRUCTURE

The invisible hand marketplace of free trade fosters profit maximization through minimizing costs and hence prices. Price minimization, however, can damage community over the log-run by its failure to provide for “externalities”: negative byproducts of profitmax competition, such as pollution, unemployment, & unsustainable worker incomes.

The absence of sustainable worker incomes in many developing nations (as well as poverty pockets in developed economies) is often directly attributable to price minimization. “Fair trade” agricultural co-ops in many developing nations don’t practice price-minimization in order to capture essential community costs in the price of their products. These costs include sustainable income and ecologically-conscious land management, costs often left unfunded by many free trade corporations.

THE POWER & WEALTH

DRAMA OF WESTERN

LIBCAP CULTURE

Business success in individualism Western cultures requires the accumulation of economic & social power on 4 levels: nationalistic, industry, corporate, worker.

#1.National power:1. Globally-dispersed military

bases (enabling military or economic colonialism)

2. Large, industry-dominant global corporations

3. Provision of subsidies & tariff protection to domestic industries & corporations

4. Trade surpluses5. Low international debt

6. Low domestic debt (both government & consumer)

7. Prosperous middle class markets

8. Strong, innovative entrepreneurial sector

9. Adequate business regulation to protect against monopolies, predatory corporate behavior, & lack of executive ethical accountability

10.A healthy distribution of national income

#2. Industry power:1. Oligopolistic industry

structure 2. Value-added chain

dominance3. Nationalistic backing in the

pursuit of global markets4. Product/service that creates

its own demand (lifestyle-catering, health-enhancing, etc.)

5. Industry deregulation

#3. Corporate power:1. Corporate political lobbying &

campaign donations 2. Intellectual property assets +

legal protection3. Strong invention & innovation

corporate competencies4. Off-shoring: labor & pollution5. “Turbo-capitalism”: using the

assets of foreign nations

6. Re-engineering jobs so that one worker does the work previously done by 2 or more workers

7. Bribes in nations with corrupt governments & weak institutions

8. Receiving subsidies from the corporation’s own government

9. Tariff protection at home10.Dumping exports below cost in

foreign markets to build market share (illegally)

11.Using government military contracting as a profitable “gravy train”

12.Advertising & public relations to attract consumers & “spin” the corporation’s image

13.Employee layoffs & downsizing in economic downturns

14.“Going public,” when a private company sells stock to outside investors

15.High stock trading price, stock splits & buy-backs

16.Price wars & selling below cost (market “dumping”)

17.Corporate consumer financing/credit & making money off late & penalty fees

18.Using “loss leaders” sales items, coupons, contests, etc. to woo customers

19.Avoiding overtime work & employee benefits via a workweek of no more than 39 hours

#4. Worker (career) power:1. Degrees, licensing,

certifications2. Resume breadth & depth3. Networking with successful

companies & investors4. Geographical mobility 5. Dual-career marriages 6. Access to child care

Career capitalism can be depicted as a series of power rings arranged like a target from the inner-most “bulls eye” (those personally benefited most by capitalism) to the tangential outer rings (those benefiting least).

(1) “Systems designers” (primarily politicians, federal bankers, & International Monetary Fund & World Trade Organization executives) exert the greatest influence over shaping how global capitalist functions. Those in this same inner bulls-eye” who typically stand to profit most from capitalism are the (2) “system profiteers” (executives of large corporations, major stockholders, highly inventive entrepreneurs etc.)

Here is a rough ordering of the remaining major rings of capitalist beneficiaries in descending order of potential personal benefits:

3. System professionals: Licensed professionals (lawyers, accountants, brokers, consultants, etc., who help corporations max profits)

4. High value-adding technicians: Engineers, MBA managers, financial analysts, creative marketers, etc.

5. White-collar, full-time corporate staff: department heads, MIS developers, etc.)

6. Eight-to-five wage earners7. Part-time & temp wage earners in

minimum wage economies9. Unemployed experienced workers

living on unemployment insurance while job-hunting

10. Low-compensation off-shored workers in developing nations

11. Those not directly benefitted by capitalism are the permanently unemployable (homeless, incarcerated, handicapped) & those in non-capitalistic parts of the world.

THE LIMITATIONS OF WESTERN LIBERTARIAN CAPITALISM

LIBERTARIAN CAPITALISM CAN’T SERVE NATIONS OR REGIONS WELL WHEN:

1. There are few middle class consumers2. Women have a traditional family

nurturing role3. The majority of businesses are small &

family-owned4. Few capitalist institutions exist:

democratic government, private banks, stock markets, business professionals, etc.)

5. Most of the nation’s exports are low on the value-added curve (how much money the nation receives for the part of the export it produces).

6. Most people place family concerns ahead of careers

7. Power is centralized in the hands of government or elites rather than disbursed throughout society

8. The nation/region has significant international debt

9. The nation was under colonial rule or influence in the past 50 years

10.The nation/region is not very industrialized

MANAGING CAPITALISM

SYSTEMS THAT SEEK TO MANAGE CAPITALISM

Governments1. Regulatory

agencies2. Tariffs &

subsidies3. Interest rates4. Taxes

5. Protectionism (tariffs & subsidies)

6. Govt. regulation & deregulation

7. IMF structural adjustments

8. Consumer legislation & credit

9. Currency policy

Financial Institutions

•Private & public banks•Stocks markets•Currency exchanges•Brokerage companies

GLOBAL GOVERNMENT ORGANIZATIONS (GGOs)

World Trade Organization : Global trading policies & practices; advocacy of libertarian capitalismInternational Monetary Fund: Using loans to establish libertarian-individualism capitalism in the developing world

TURBO-CAPITALISM

In his book, Turbo-Capitalism, Edward Luttwak refers to the recent (post- 1980s) American brand of capitalism that takes corporate power & profit to the extremes of “neo-liberalism” (minimization of outside governmental or regulatory influence on the “free market”). “Turbo-cap” maintains that everyone benefits from a strict “MAXI-MIN” “neo-liberal” capitalism ideology:

1. Maximum privatization (conversion of all public sector economic enterprises) to corporate ownership & control + minimum government involvement in business.

2. Max industry deregulation + max corporate oversight of industry competitive practices

3. Max off-shoring of labor to minimize manufacturing costs

4. Min permanent employees, & fixed assets & max temp employees

5. Min government business subsidies & protectionism (mainly tariffs)

6. Max spread of neo-liberal capitalism as practiced by individualism cultures to all nations & global government organizations

Author Luttwak comments, “(Turbo-capitalism) offers but a single set of rules for every country in the world, ignoring all differences of society, cultures, and temperament. The accelerated structural change (of) turbo-capitalism is the worldwide abandonment of public ownership, central planning, administrative direction and most forms of regulatory control. The once sheltered markets of puddles, ponds, lakes and seas (small nations & companies) are exposed to the tidal waves of change of global trade, and of yet more volatile global finance with its massive flows and backflows of capital.”

These specific “externalities” (societal damage) of turbo-capitalism include:

1. De-capitalization of public sector institutions due to the hyper-flow of capital to the maximized private sector

2. Deeply-embedded social problems (single-parent families; crime triggered by unemployment & poverty; non-living wages) triggered by employment destabilization via off-shoring labor; reliance on temp & outsourced contract workers; global mergers & acquisitions; & recurrent business ethics scandals stemming from lack of regulatory constraints on profit-making activity.

“The same rapid pace of change that increases global prosperity, that allows poorer nations & regions to catch up. While offering opportunities to enterprising people everywhere, also brutally exceeds the adaptive limits of individuals, families, & communities. The greatest shortcoming of turbo-capitalism is, while it imposes its disruptions on all in perfect equality, its rewards are disproportionally given to the few. Controlled capitalism, in all its variants, functioned very differently, bring societies by lifting the poor and semi-poor into the middle class, while depressing incomes only at the very top.”

“Allowing turbo-capitalism to advance unresisted disintegrates societies into a small elite of winners, a mass of losers of varying affluence or poverty, and rebellious law-breaking rebels. But to resist turbo-capitalism & its destructive efficiencies in a competitive world economy can result only in a progressive relative impoverishment for the nation as a whole. Under turbo-capitalism, when all capital is allocated efficiently to whatever entities earn the highest returns, there is none to spare for institutions that do unprofitable things because of moral obligations.”

CORPORATE & CONSUMERIST EXTERNALITIE

S

In their profit-making activities,corporations sometimesunintentionally damage or createproblems for others (especially localcommunities & employees) which thecompany does not take responsibilityfor. Ideally externalities should becompensated for either by corporatestockholders or by the consumers whopurchase the product. Too oftencorporations ignore the “messes” theycreate, so either nothing is done aboutthem or the affected innocent parties must

cleanthem up themselves.

THE 3 LARGESTCAPITALISTIC EXTERNALITIES

1.Employee layoffs 2.Non-sustainable

wages for full-time employees

3.Pollution damage or clean-up

CONSUMERISM AS AN EXTERNALITYConsumers are normally unaware of

the externalities generated by the products & services they consume, especially for foreign-made merchandise. They assume the price they pay is a “fair” one to those involved in bringing the product to the marketplace. When the price is too low to compensate those affected by externalities, consumerism itself becomes an externality: consumers contribute to the unintentional social problems of capitalism without even knowing it.

3 CONSUMERIST QUESTIONS

Is the price of the product high enough to

pay for:1. A living wage for workers & their

families?2. Clean-up of corporate pollution?3. Unfair trade practices of certain

corporations, such as receipt of government subsidies; “dumping” the product in the marketplace below cost; & use of child labor?

SOLDIER OF FORTUNE GLOBAL

CORPORATIONS

Companies aren’t intentionally patriotic—they operate wherever labor costs are lowest. To do otherwise means corporate failure sooner or later. The global market place IS that competitive today. Sometimes companies are unintentionally patriotic, because when they seek greater profits by operating aboard, they unintentionally boost their nation’s global economic power by owning foreign assets. And sometimes off-shoring corporations influence the politics of nations they provide jobs & technology to.

“The total number of countries has risen since the mid-twentieth century from 46 to almost 200. Recent experience has provided numerous cases of countries of varying sizes showing their superiority over multinationals whenever there has been a conflict between them.”

THE BIGGEST KID ON THE BLOCK

1. If Wal-Mart were a nation, it would be one of the world’s top 20 economies. It employs 1 of every 115 workers in America—more than GM, Ford, & IBM combined.

2. Yet due to WM’s restriction on the number of employees allowed to work 40 hours a week , the average WM worker makes only $14,000 annually (65% below what most of WM’s direct competitors pay) & half of all their employees receive no health insurance. Hundreds of thousands of WM employees require benefit benefits such as food stamps & housing assistance.

CROSS-BORDER MANUFACTURING & JOB SHUFFLING

1. OFF-SHORING (also called outsourcing, or partial or complete outward foreign investment): All or part of a product is manufactured in a lower-cost foreign nation. The U.S. does 2/3 of global of-off-shoring.

2. TRADE DISPLACEMENT: Foreign companies operating in your nation gradually drive some or all of domestic competitors out of business.

1. Between 2004-2015, America is likely to lose approx. 3.3M jobs to offshoring & trade displacement, especially in the service sector (277,000 computer science jobs, 162,000 in business operations, 83,000 in architecture).

2. “CREATIVE DESTRUCTION” of jobs: Low-value-adding, low-skill, low-pay jobs are the ones most likely to be off-shored, but technology-creating nations replace them with higher value-adding, higher skill, higher-pay new jobs.

Godzilla Transnational Corporations

The largest trans-national corporations dominate global competition, just as Wal-Mart dominated the ma & pa retailers of yesteryear.

Godzilla corporations are often powerful enough to bend, shape, & sometimes control global industries & politics.

GODZILLA, Inc.

• Wal-Mart• Disney• Microsoft• Halliburton• Toyota• Big-4

(international)CPA firms

WHAT PRODUCES GIANT CORPORATIONS

1. Oligopolies (industries dominated by Godzillas)

2. Global operations platform

3. Nationalistic alliances (govt. deficit financing of business)

4. Deregulation & assetconcentration

6. Legal bribes in politics

POTENTIAL ECONOMICBENEFITS OF GODZILLA

1. Global profits for stockholders

2. Price efficiency for some products

3. Strong exporting lanes

POTENTIAL DRAWBACKS OF GODZILLAS

1. Short-term unemployment

2. Social Darwinism in community cultures

3. Can be used for nationalistic & political meddling

4.“Sweat-shop” manufacturing

5.Ethical corner-cutting

6.Domination of suppliers & competitors

GLOBAL CAPITALISM CAN BE EXPLOITATIVE WHERE:

1. Foreign companies operating in a nation hire a large numbers of locals

2. Foreign-provided jobs are of the sweatshop variety

3. A nation borrows sig $$ from the International Monetary Fund/World Bank

4. The nation exports low value-added products

5. Jobs are more important than a clean environment

6. Nation does not have the lowest wages in the region/world

7. Labor is treated as a commodity controlled by global supply/demand

8. Women must fend for themselves economically

9. The nation has a rich neighbor

10.Capital is limited11.The nation has

weak, corrupt institutions

12.The nation has a community culture