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The Fundamental Flaw

July 28, 2005

I don’t think anyone would argue that the United States, Democracy, and Capitalism have been one of the more successful systems for governing people on a large scale. Though to be fair, one must consider communism, China, and its ability to govern over 1 Billion People as not too far behind.

That being said, we must still be prepared and able to admit the flaws our current government and system of capitalism contain. The problem is, these flaws are not quantifiable and are highly subjective. Nevertheless, I will try to define what I feel the flaws of capitalism and our current government are.

First and foremost I think it is necessary for us to separate in our minds the ideas of capitalism versus free markets.

Capitalism as defined by dictionary.com is:

An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

While free markets are defined by dictionary.com as:

An economic market in which supply and demand are not regulated or are regulated with only minor restrictions.

Free markets are intuitively considered the basis of capitalism. Adam Smith is credited for putting forth the idea that “the invisible hand”, based on supply and demand, guides free markets; the concept that there is an inherent law in nature that governs free markets.

The outcome at least according to Adam Smith was to be that humans would intuitively want to use Natural Resources in the most efficient and profitable way as dictated by supply and demand. The end result of this was supposed to benefit the general public at large. To a certain degree one may be able to put forth a convincing argument that this is true. All we have to do is look at the basic standard of living for human beings, average life span, and the number of people dying from what used to be considered fatal diseases. In all of these areas over the past 2000 years humans have made tremendous advancements. Humans are living longer and longer, we survive diseases that at one time were considered fatal, and most of us have a higher standard of living than our ancestors.

But there is a fundamental flaw underlying our system of Capitalism and Government. And to me that flaw is this concept that Capitalists and Government are naturally going to want to do what is best for the benefit of the General Public at large. Greed is naturally the largest motivating factor that pushes the corporations to continually attempt to beat their quarterly reports.

This greed is not necessarily driven by the Corporation as it is by the shareholders in that Corporation who continually demand higher profits, higher stock prices, and boards of directors who are rewarded with lucrative bonuses for delivering these results. The end result has not been to the benefit of the General Public. Instead the end result is turning out to be quite damaging not only to our economy but to our society as well.

In order to keep delivering promised profits to shareholders corporations must cut expenses. After all has been streamlined in the business; after everything has been horizontally and vertically integrated there are only a few places to turn.

1) Cut benefits to employees and raid pension funds.
2) Pay employees less.
3) Move the business overseas where labor and resources are much cheaper.

As you can, see none of the above benefits our economy and society here in the United States. I suppose some staunch capitalists would argue they are helping humanity at a “global” scale rather than a local scale (local now being the United States).

So what is this underlying fundamental flaw in our system? It is something that cannot be legislated nor regulated. It has to do with character, honesty, and a desire to do what is best for America. With these highly subjective qualities we could see how businessmen and corporations would consider it their responsibility to conduct business honestly and in such a way that benefits the American Worker.

Indeed some wealthy people do have it in their character to provide jobs and better our economy. They realize that by employing American workers, the American workers will then have disposable income to buy their goods and services. For some, making money is not the goal; its accomplishing something greater than themselves that truly does benefit our society.

But these qualities are something that cannot be legislated. They can be taught in business schools but they cannot be enforced. So what choice to do we have? As a society we need to demand honesty and integrity from our Government and Corporations. We need to demand some loyalty to the United States. After all, it’s our tax money they spend and waste.

The problem lies deeply hidden within the nooks and crannies of government. Behind every Politician lies a lobbyist. And behind every lobbyist is a deep pocketed Corporation trying to push laws through Congress that is to their benefit, not the Publics’.

The levels of Corporate and Government corruption have grown to unacceptable levels. Whether its Enron, Tyco, Haliburton, Global Crossing, World Com, or United Airlines, we simply cannot tolerate this behavior any longer. If we are to survive as a Nation we need to clean up the corruption in the corporate world and within our Government.

The obvious question is how we accomplish this. I think for one as a society we need to teach our children honesty and integrity as some of the highest values we should have. Next, I think we need to instill in our future generations the importance of giving back to society whether it be through volunteer work or by running a business responsibly. Finally, we need to let our politicians know with our votes that we are not longer going to tolerate this corruption and disloyalty to The People of These United States.

The Ideal Money Flow

1) Coporations employ people
2) People pay taxes to fund the Government
3) People spend their money on goods and services
4) Corporations profit from the money spent on goods and services
5) Corporations pay taxes to the Government
6) Government watches corporations to make sure they are serving the interest of The People.

The Real Money Flow

1) Corporations employ less and less Americans as jobs move over seas, pay lower wages, and less benefits.
2) The Government takes in less tax revenue
3) People have less money to spend on goods and services forcing corporations to increase their profit margins by going overseas.
4) Corporations profit from moving business operations overseas. That money does not come back to the United States.
5) In reality most coporations pay no or very little taxes to the United States. The average corporation after write offs, tax shelters, and deductions pays around 6% in tax to the government.
6) Government accepts lobbying money from Corporations to make sure the best interest of the Corporations is served, not the people.

In this last panel I have added one more key player:

7) The shareholders and board of directors in these Corporations. Many of our largest corporations are multinational now and have lots of foreign investment. The result is a dwindling loyalty to the United States. As the demand for profits increases they care less and less about the American Worker and American Economy. Many corporations at the behest of their shareholders and foreign investors have simply given up on the American Worker and the American Economy.

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