Educators: Real Reform Depends on You!
During the past quarter-century, making money on money became the American priority. Finance capitalism dominated the job-growth economy as their profits skyrocketed from 4% to 40% of total corporate profits. According to Kevin Phillips in Boiling Point (Random House, 1993), financialization of the economy has historically put other nations into terminal decline. Can America avoid this fate?
Citizens could use their pension shareholdings to reform corporations, and their votes to shift government support from bad to good capitalism, from finance capitalism to democratic capitalism. Unless educators present students with knowledge about these alternatives, however, democratic capitalism will still lack visibility and the American economy will continue to be dominated by finance capitalism.
“Good capitalism” is contrary to the academic contempt for commerce that goes back to Plato who wrote in The Laws that “trade should be made over to a class of people whose corruption will not harm the state.” Ever since, this mind set has discouraged recognition of democratic capitalism.
Karl Marx, however, challenged the world with his evolving mode of production based mainly on the fundamentals of democratic capitalism. An understanding of Marx’s visions could provide educators and students with the knowledge needed for reform.
- Human progress begins by movement to a superior economic system. The function of the intellectual community is to identify the superior system; the function of government is to support it.
- The superior system is built up from the worth and potential of each: “The free development of each, is the condition for the free development of all” ( Communist Manifesto,1848).
- After the work culture is changed from alienation to cooperation, greater wealth will result because the whole is greater than the sum of the parts.
- Ownership, which now ranges from ESOPs to 401 (k) accounts, should motivate wage earners to innovate and produce.
- Wealth distributed by way of worker ownership benefits further growth.Spreading wealth from this superior system will unite people in economic common purpose, and the warrior state will become irrelevant.
- Government needs only to prevent speculators from deflecting capital away from the job-growth economy.
John Stuart Mill integrated these visions with competition and private property. Mill also recognized the synergy between material production and the moral environment in which the great increase in wealth from worker ownership “is nothing compared to the moral revolution in society that would accompany it; a new sense of security and independence in the laboring class.” (Principles of Political Economy, 1848)
Marx was wrong in his prediction that downward pressure on wages would provoke a proletarian revolution. During the following century, the number of hours worked went down and wages went up. Capitalism, however, still functioned at a fraction of its potential because most capitalists were top-down autocrats whose employees worked in a culture of fear and intimidation. Wealth, however, came to be distributed more broadly based on business judgments, not economic theory. In 1915, Henry Ford realized that his workers could not buy the model T’s they built unless he raised their wages to $5 a day.
During this time, thousands of companies discovered the benefits of a democratized work culture and the sharing of profits. A few far-sighted politicians, such as Senator Russell Long in the 1970s, urged passage of supportive tax laws.
Marx’s theories have been confirmed many times in practice, but unfortunately, the intellectual community has yet to discover democratic capitalism, and real reform will not happen until they do. The economic disaster of 2008-2010 was unnecessary and tragic; it will be even more tragic if the superior economic system does not now gain visibility, and the government and corporate sector do not support it with these reforms:
- Distribution of corporate surplus through reinvestment in growth and dividends, not stock buy backs and deals.
- Prevention of future asset inflation and recessions by using taxes and reserves to control speculation with borrowed money.
- Change the measurement of corporate performance from quarterly profits and stock price to a three-year running average of sales, profits, and cash flow measured against management’s predictions.
- Shift pension savings from the stock-market to infrastructure bonds and index funds.
- Make dividends tax-free for wage earners.
When Business students are presented with democratic capitalism, they will be excited by the opportunity both to do good and to do well. A new generation of managers will end the compensation feeding frenzy because they will understand the destructive effect of excessive compensation on team spirit.
The moral dimension within democratic capitalism, identified by Mill, will combine with the economic logic that improves lives in all cultures. Democratic capitalism will become the universal economic system finally reaching its potential to eliminate material scarcity, unite people in economic common purpose, and stop the violence.