We Should Preserve Our Capitalism
M. Orhan Tarhan
June 30, 2007
We have the best election system in the world, but we have degenerated it by allowing corporations to support the candidates and hence earn their loyalty. In real democracy, sovereignty must belong to the people. But in the U.S. sovereignty belongs to the corporations. Similarly, we have the best economic system in the world, called capitalism, but we are in the process of degenerating it too. I want to discuss here how we can prevent this degeneration and how we can preserve our capitalism. It appears to me, that this degeneration forms a class of wealthy people that govern the rest of the society to their own advantage, that is not necessarily to the advantage of the people of the United States.
A corporation has three responsibilities: (1) responsibilities to its share holders, (2) responsibilities to its employees, and (3) responsibilities to its customers, the public. In the American economic system, a corporation must keep an equilibrium among these three responsibilities. If this equilibrium is upset in any direction, it causes severe social problems. In a practical way, the pie that represents the corporation’s earnings must be judiciously divided in three parts.
The earnings of the corporation are not totally distributed to the share-holders. A part of it is reserved for further investments. The distribution to share-holders influences the stock market price of the share and the willingness of the public to buy those shares.
A corporation must pay good salaries and wages to keep the best possible human resources. In this it is in competition with other corporations.
A corporation must produce products of good quality at competitive prices. In this it is again competing with other corporations producing the same goods.
Of course, these three quantities are all interrelated.
The competition in shares in the stock market can be influenced by profit distribution. The competition in products depends on the quality of technology the corporation has, and of the quality of its engineers.
The competition for good employees is a little more complex. Labor wages are influenced by labor unions. Unions also insist in high wages, good retirement benefits, work place safety and the like. In the 1960’s and 70’s, governments were always on the side of the unions, and labor cost kept on increasing. Today, the Republican government is on the side of business and unions are slowly disappearing. The portion of the pie reserved for employees is again shared between management and rank and file employees. The determination of the Management’s share is practically in the hands of management itself and often unreasonably high salaries and benefits are distributed to top managers and CEOs. Although, these distributions are subject to share-holders’ approval at yearly meetings, in practice unhappy share-holders just sell their stocks and invest elsewhere in stead of fighting for reasonable management salaries. These unreasonably high management incomes are very demoralizing on regular employees, especially, in periods when the corporation does not make much profit and terminates some employees. There must be a logical way of limiting these terribly high CEO salaries. One possibility is to form share-holders’ associations that would control management salaries by voting in the yearly meetings.
So far everything seems all right. The problems arise, when the government becomes involved. The government becomes involved through the elections. The money the politicians need to be elected can be supplied by corporations and that assures them their allegiance. Thus, corporations get political muscle. We know how the corporations use this muscle.
The corporations have been upsetting the equilibrium between their three responsibilities. In order to lower the production labor cost, they move their plants, their production facilities, to low labor-cost countries, such as Mexico, or China. By lowering customs duties, the U.S. government made this thing profitable. Of course, many Americans loose their job, but the corporation makes higher profits and the management and the share-holders are happy. How come the government lowers the customs duties? Because the corporations tell them so.
A different way of upsetting the equilibrium, is to outsource certain jobs. Some expensive engineering jobs are sent to India, where engineers work at a fraction of what American engineers work for. American engineers loose their jobs, but the corporation makes higher profits. The electronic communications available today make such outsourcing possible.
Again managers and stock-holders are happy but highly educated American engineers are unemployed and suffer. If outsourcing is pushed to the ridiculous extreme, i.e., if all the jobs are outsourced, the corporation would profit a lot and would price its products much lower, but there would be no one left in the U.S. who can afford to buy them.
Finally, globalization is a wonderful thing for a poor country. Foreign corporations, such as American corporations, come and invest new plants in their country, provide for new employment, bring in new technologies and raise the standard of living in the country. While that happens, Americans lose employment. They become a market for the products of American corporations using foreign cheap labor. The standard of living of Americans drops steadily. Pushed to the ridiculous extreme, The U.S., Mexico, and China will have some day the same standard of living. Chinese will never reach our standard, but we will go down pretty close to theirs. But the standard of living of American corporation management will be the highest in the world.
In globalization we have international corporations who have practically no nationality. They have no other concern than to make profits. That would be all right if the U.S. had laws that protect its citizens against corporations.
We have seen in the foregoing, how the corporations can manipulate the equilibrium, to maximize their profits, mostly by cutting down labor costs. They do that without concern for what that does to life in the United States. A corporation that is built by citizens for the benefit of citizens, can acquire a sort of personality, that is so highly centered on profits, that, with the connivance of the government, can start acting against the interests of the citizens. Actually, a good (I should say “a terrible”) example is the drug companies. They price their drugs very high in United States, and sell them much cheaper abroad. And when AARP attempted to import from Canada drugs at much lower price, they got the government to forbid it. This shows who is the boss in this country. Certainly not we, the citizens, and not the government, but the Corporations who can command the government to forbid cheap drug imports.
I would like to mention another example, that also touched me personally. Bethlehem Steel Corporation, that once was World’s second biggest steel producer, was badly mismanaged and finally was bankrupt. Another company wanted to buy Bethlehem’s physical facilities, but bulked at Bethlehem’s obligations to a large number of retirees. Pensions could be taken over by the government according to “Erisa” , but health insurance and life insurance could not. The government permitted Bethlehem Steel Corporation not to keep its promise of providing its retirees health and life insurance, and without these obligations, Bethlehem Steel corporation could be sold . Actually our government should be expected to force Bethlehem to keep its promise to old retirees. But the government again helped the corporations at the expense of its citizens. I though that was a shame.
All the above problems can be resolved by simply severing the relations of the corporations with the government. That we can do by instituting public funding of elections. We will pay for the elections and we should forbid the corporations to contribute even a penny. Then we can start to make laws that will be, not in the interest of the corporations alone, but in the interest of all us citizens who vote for the politicians. Finally Sovereignty will belong unconditionally to the people and America will be a real democracy.
All this will not eliminate lobbying from American politics. Lobbyists still will explain their viewpoints to congressmen and senators, but they will no longer be able to buy them.
A corporation has three responsibilities: (1) responsibilities to its share holders, (2) responsibilities to its employees, and (3) responsibilities to its customers, the public. In the American economic system, a corporation must keep an equilibrium among these three responsibilities. If this equilibrium is upset in any direction, it causes severe social problems. In a practical way, the pie that represents the corporation’s earnings must be judiciously divided in three parts.
The earnings of the corporation are not totally distributed to the share-holders. A part of it is reserved for further investments. The distribution to share-holders influences the stock market price of the share and the willingness of the public to buy those shares.
A corporation must pay good salaries and wages to keep the best possible human resources. In this it is in competition with other corporations.
A corporation must produce products of good quality at competitive prices. In this it is again competing with other corporations producing the same goods.
Of course, these three quantities are all interrelated.
The competition in shares in the stock market can be influenced by profit distribution. The competition in products depends on the quality of technology the corporation has, and of the quality of its engineers.
The competition for good employees is a little more complex. Labor wages are influenced by labor unions. Unions also insist in high wages, good retirement benefits, work place safety and the like. In the 1960’s and 70’s, governments were always on the side of the unions, and labor cost kept on increasing. Today, the Republican government is on the side of business and unions are slowly disappearing. The portion of the pie reserved for employees is again shared between management and rank and file employees. The determination of the Management’s share is practically in the hands of management itself and often unreasonably high salaries and benefits are distributed to top managers and CEOs. Although, these distributions are subject to share-holders’ approval at yearly meetings, in practice unhappy share-holders just sell their stocks and invest elsewhere in stead of fighting for reasonable management salaries. These unreasonably high management incomes are very demoralizing on regular employees, especially, in periods when the corporation does not make much profit and terminates some employees. There must be a logical way of limiting these terribly high CEO salaries. One possibility is to form share-holders’ associations that would control management salaries by voting in the yearly meetings.
So far everything seems all right. The problems arise, when the government becomes involved. The government becomes involved through the elections. The money the politicians need to be elected can be supplied by corporations and that assures them their allegiance. Thus, corporations get political muscle. We know how the corporations use this muscle.
The corporations have been upsetting the equilibrium between their three responsibilities. In order to lower the production labor cost, they move their plants, their production facilities, to low labor-cost countries, such as Mexico, or China. By lowering customs duties, the U.S. government made this thing profitable. Of course, many Americans loose their job, but the corporation makes higher profits and the management and the share-holders are happy. How come the government lowers the customs duties? Because the corporations tell them so.
A different way of upsetting the equilibrium, is to outsource certain jobs. Some expensive engineering jobs are sent to India, where engineers work at a fraction of what American engineers work for. American engineers loose their jobs, but the corporation makes higher profits. The electronic communications available today make such outsourcing possible.
Again managers and stock-holders are happy but highly educated American engineers are unemployed and suffer. If outsourcing is pushed to the ridiculous extreme, i.e., if all the jobs are outsourced, the corporation would profit a lot and would price its products much lower, but there would be no one left in the U.S. who can afford to buy them.
Finally, globalization is a wonderful thing for a poor country. Foreign corporations, such as American corporations, come and invest new plants in their country, provide for new employment, bring in new technologies and raise the standard of living in the country. While that happens, Americans lose employment. They become a market for the products of American corporations using foreign cheap labor. The standard of living of Americans drops steadily. Pushed to the ridiculous extreme, The U.S., Mexico, and China will have some day the same standard of living. Chinese will never reach our standard, but we will go down pretty close to theirs. But the standard of living of American corporation management will be the highest in the world.
In globalization we have international corporations who have practically no nationality. They have no other concern than to make profits. That would be all right if the U.S. had laws that protect its citizens against corporations.
We have seen in the foregoing, how the corporations can manipulate the equilibrium, to maximize their profits, mostly by cutting down labor costs. They do that without concern for what that does to life in the United States. A corporation that is built by citizens for the benefit of citizens, can acquire a sort of personality, that is so highly centered on profits, that, with the connivance of the government, can start acting against the interests of the citizens. Actually, a good (I should say “a terrible”) example is the drug companies. They price their drugs very high in United States, and sell them much cheaper abroad. And when AARP attempted to import from Canada drugs at much lower price, they got the government to forbid it. This shows who is the boss in this country. Certainly not we, the citizens, and not the government, but the Corporations who can command the government to forbid cheap drug imports.
I would like to mention another example, that also touched me personally. Bethlehem Steel Corporation, that once was World’s second biggest steel producer, was badly mismanaged and finally was bankrupt. Another company wanted to buy Bethlehem’s physical facilities, but bulked at Bethlehem’s obligations to a large number of retirees. Pensions could be taken over by the government according to “Erisa” , but health insurance and life insurance could not. The government permitted Bethlehem Steel Corporation not to keep its promise of providing its retirees health and life insurance, and without these obligations, Bethlehem Steel corporation could be sold . Actually our government should be expected to force Bethlehem to keep its promise to old retirees. But the government again helped the corporations at the expense of its citizens. I though that was a shame.
All the above problems can be resolved by simply severing the relations of the corporations with the government. That we can do by instituting public funding of elections. We will pay for the elections and we should forbid the corporations to contribute even a penny. Then we can start to make laws that will be, not in the interest of the corporations alone, but in the interest of all us citizens who vote for the politicians. Finally Sovereignty will belong unconditionally to the people and America will be a real democracy.
All this will not eliminate lobbying from American politics. Lobbyists still will explain their viewpoints to congressmen and senators, but they will no longer be able to buy them.
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