Book Cover

Democratic
Capitalism,  The Way to a World of Peace and Plenty
by Ray Carey

Hard/Softcover/Kindle - 5 May, 2004, Available on Amazon.com

Ray Carey presents the theory and practice of democratic capitalism by coupling his experience with a synthesis of the thought of Adam Smith, Karl Marx, and John Stuart Mill.  The empirical evidence is clear: democratic capitalistic companies produce superior results, and nations that support economic freedom and keep money neutral improve the lives of their people.


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Course 4:31

Letters

Carey Center for Democratic Capitalism

March 13, 2007

Senator Barack Obama
713 Hart Senate Office Building
Washington, DC 20510

 

Dear Senator Obama:

Your agenda, along with all other candidates, lacks specific reforms of the economic system. By studying and assimilating my proposals you can present a comprehensive populist platform for economic reform and get elected. The people have a deep sense that the system is unfair, but they do not know what to do about it. Enormous latent democratic power is there to be activated. 

The political parties are now gridlocked between the Republicans who proclaim free-market benefits at the same time that they successfully lobby corruptions of capitalism and then use the money to corrupt democracy. The Democrats have a pathetic agenda that criticizes globalization and wealth concentration but only offers wealth redistribution by government. Your book Audacity of Hope presents a democratic philosophy and thematic agenda. You are missing, however, the most critical component for social progress: the economic system that can maximize wealth and distribute it broadly. I can help complete your agenda. I enclose copies of my books Democratic Capitalism, The Way to a World of Peace and Plenty for you and your staff.It sets forth the reforms that can harmonize capitalism and democracy.

Optimistic Americans are counting on democracy to produce new leaders in urgent times. I have studied your books and other material and have concluded that you are that potential leader. I quote from my book on page 442:

A hopeful solution, in these troubled times, is emergence of leaders with the intellect of Jefferson, the relentless determination of Washington, and the capacity of Franklin to get things done, people of statecraft who will draw on the will, wisdom, and votes of the majority to reform America and lead the world to peace and plenty.

You have the intellect, experience, openness to new ideas, and a lack of rigid, superficial ideology. You do not try to improve on the ideology of the Founders of this great democratic experiment. You do note, however, that organizations such as the U. N. must be fixed, not trashed. The enclosed check for $1,000 is a financial expression of my hope in your contribution to our future.

Please visit my website:www.democratic-capitalism.com where you can read my bio and find out about Carey Scholars. From your community experience in Chicago you might be interested in the announcement I received this week that Robert Rodriguez is the new Chairman of Community Board 11 in East Harlem. Robert was in the first class of Carey Scholars in 1993 from Cardinal Hayes High School in the Bronx, and is a graduate of Yale. Also at my website, you can sample various materials produced during my thirty years of experience running companies, and my twenty-year study of the world’s economic-political systems.

My experience included designing and implementing Care and Share, a profit-sharing and stock-ownership plan while CEO of ADT, Inc.-my contribution to ways to build worker ownership as the basis of the American economy.   

Social progress depends on movement to the superior economic system, but few  understand that demand. Although Marx pointed it out in the mid-19th century the intellectual community has persisted in their preoccupation with political solutions and the world has continued in folly and violence. Your stated agenda so far does not indicate an understanding of this economic priority or appreciation of what economic freedom really means. The reforms proposed here are original with me, but I was pleased to find them confirmed through my study of the 18th century Enlightenment, including Adam Smith and the American Founders, with later refinements by Marx and Mill.

Economic freedom-properly understood and implemented- at home, and economic common purpose abroad means a grasp of Adam Smith’s few conditions for the proper functioning of economic freedom. This includes peace; neutral money, that is, a simple medium of exchange without influence on the commercial process; and control of the speculators, “prodigals and projectors,” as Smith called them. The excessive liquidity and volatility that now dominates world commerce is a flagrant contradiction of Smith’s conditions. Trillions of dollars are traded daily in currency, a casino of speculation, that dwarfs all commercial transactions by many multiples.

Many are predicting an economic upset of significant magnitude during the next two years. If you integrate democratic capitalism into your agenda, you will be positioned to respond to this crisis. None of your competitors from either party has the sophistication either to understand the problems or provide solutions. Do not expect help from the Hamilton Project; finance capitalism is a large part of the problem, not the solution.       

The reforms proposed in my book address the impediments to be removed, but they also outline why this is a special time for democratic capitalism to flourish. Peter Drucker described in The Post-Capitalist Society how every few hundred years there are transformative events that redirect human history: The founding of our great country was the last of those events. As described in Federalist Papers # 1, we were the first country organized by educated, studious people engaged in reflection and choice instead of force and accident.  Now, the post-capitalist age should be another transformative event that opens the whole world to the benefits of freedom enjoyed by Americans. Economic freedom has demonstrated that it can feed, clothe, shelter, educate, provide health care and hope to the two billion humans struggling to live on $2 a day. Economic common purpose has demonstrated that it can unite people and gradually stop the violence. Satisfaction of this universal human yearning to be free and live well is now a pragmatic opportunity.

This opportunity includes the reality that wage earners are now a major source of capital and that Information Age industries demand the democratic work culture to release the cognitive power of their people. The capacity of economic common purpose to displace the violence has been demonstrated by the European Union when they stopped centuries of killing millions of their young men in stupid wars. China and India have demonstrated the power of economic freedom by releasing 500 million people from desperate poverty in a decade. Democratic capitalism is so powerful that it works not only in free societies but also under authoritarian regimes, if the mission is improving the lives of the people. China understands economic common purpose and is going around the world making commercial partnerships with the message “Let’s get rich together!”  China has increased both imports and exports with Africa from a few billion dollars to almost $30 billion in only a few years. In contrast, as you well know, America is going around the world with the message: “Do it our way, or else!” while devastating the economic base of millions of innocent people.  
     
The democratic part of democratic capitalism is ownership participation that motivates wage earners to innovate and produce more wealth that, then, becomes automatically and broadly distributed. At present, there are 25 million wage earners benefiting from direct types of ownership, and all wage earners are owners through their pension plan and 401(k) savings. The “ownership society” has arrived, but the wage earner has yet to enjoy the rewards because corrupted capitalism, which previously exploited their labor, has now learned how to exploit their capital, an intolerable contradiction that must not be allowed to continue.
Chapter 5 in my book “Worker Ownership, The Democratization of Capitalism,” confirms that worker ownership has enormous appeal to the whole political spectrum as the long-sought third way. Please read in my book the enthusiastic testimonies to Jeff Gates’ Ownership Solution. My favorite is Coretta Scott King who commented:

Somewhere in between unbridled capitalism and the welfare state, there has to be a more just and equitable economic system, which provides genuine opportunities for all citizens, while preserving incentives for investment.

Democratic capitalism continues to grow and demonstrate its superior capacity to build and distribute wealth, but it has been limited by a lack of assimilation by the intellectual community, by lack of support from political parties, by lack of institutional investors’ honoring their long-term fiduciary responsibility, by lack of advocacy in education, and by lack of appropriate visibility in the popular media. It is offered neither to Liberal Arts students as the way to improve the human condition nor to Business School students as the way to manage for superior performance. It is the core of the post-capitalist society, a potentially unifying force of great power. It is available for you to integrate it into your agenda.

The problem, however, is not just greedy people who make obscene amounts of money on money,  but, rather it is bad government policies that are theproduct of the lobbying by these ultra-capitalists.For example, Congress had the greatest opportunity in the history of capitalism with ERISA in 1974, when they mandated full funding of future pension needs. As much a $100 billion a year was available for investment in the job-growth economy as well as in educational, environmental, and infrastructural needs. But Congress made a colossal mistake in assuming that the stock market would effectively convert these savings into job-growth investment. Instead, the money became the monster that converted the economy into short-term and greedy, and this initiated a quarter-century of sacrificing future growth for present earnings. Institutional investors’ results were measured quarterly and annually, and they passed this short-term measurement onto companies. Enormous rewards or punishments for a few cents per share in quarterly earnings conditioned the CEOs like Pavlov’s dog: They learned quickly how to avoid the electric shock of corporate takeover to snap at the stock-option bone.

We are in the middle stages of a financialization of our economy in which people are again treated as disposable cost commodities, and finance capitalism dominates rather than supports the job-growth economy. In this perversion of the post-capitalist society, taxes are shifted from capital to the middle class, the revenues and profits of financial services explode, the manufacturing base shrinks, and wealth becomes even more concentrated. In my book, I discuss the effect of this financialization that has put other  great nations into irreversible decline during the past few centuries. Please visit my web site and read the CATO letter in the “letters” section.

“Private equity” is an example of the financialization of our economy that some have called  “21st century capitalism.”  It is a buy it, strip it, flip it game played by celebrities of politics and industry.  In most cases, they follow mercantile philosophy by suppressing wages and benefits. “Acquire and fire” has been the technique for a quarter century, now enhanced by more aggressive cuts in pensions and health care. One of the rationales for going private is to relieve public companies of the ERISA induced short-term pressure. It would be a lot simpler if the institutional investors would change measurement of companies to one based on long-term performance.

For example, in 2002, Goldman Sachs and Bain Capital acquired Burger King. The strip it included $22.4 million in “professional fees,” quarterly management fees of $29 million,a $367 million special dividend financed by borrowed money, and finally $30 million in management fees to terminate the agreement. They then flipped it by taking it public again which “earned” them $1.8 billion, more than triple their original investment. 

The demeaning of dividends is another manifestation of the financialization of the economy. Before the last quarter of the 20th century, 5- 6 % dividends represented one-half of the return from capitalism; the rest was a modest, secure annual appreciation in stock value. Under pressure by finance capitalists, however, dividends shrunk to under 1% and have not recovered to more than 2%. Why?  Because Wall Street does not make money on dividends and would prefer that the money be kept in the companies either to attract a deal, finance a deal, or be used to buy back stock. 

For example, Exxon Mobil, the world’s most profitable company, recently demonstrated the financial capitalist’s preferred distribution of surplus: $20 billion for capital improvements; $30 billion to buy back stock; and  $7 billion returned to the economy in dividends. Was there a public debate on this distribution of corporate surplus? Certainly not! But this is where the profit motive and public policy intersect. Presumably, the distribution of surplus by public corporations should maximize public benefit as well as the private benefit of the wage earner capitalist. None of this happened because distribution of surplus is dominated by finance capitalists with most of it going into their favorite toy, stock buy-backs.

For another example, Motorola plans to spend $2 billion a year on stock buy-backs, five times the dividends returned to the economy. Corporate raider Carl Icahn however, has bought 1.4% of the stock to force them to increase the stock buy-back. Motorola is sitting on $11 billion in cash, and they produce about $3 billion a year in new cash. The stock went up on Icahn’s move, probably including purchases by the institutional investors supporting, as always, the short-term effect, while ignoring the long-term benefit for their constituency.

Few are pointing out the broad economic benefits of returning surplus cash to the owners of the capital. Instead, it has become the source of record riches for the handlers of the peoples’ capital. In the last quarter century, over a trillion dollars has been wasted on stock buy-backs and non-strategic acquisitions. In the post-capitalist economy, this money should have been returned to the people as a “capital wage,” a large return on their pension and savings capital to be spent or saved, both of which uses would have benefited economic growth.

Defenders of stock buy-backs argue that they enhance the value of the wage earners’ stock, which it may do for the short time it takes for the speculators to make more money. The long-term value of retirement money will be more affected, and negatively so,  by a quarter-century of sacrificing future growth for present earnings, and by the baby boomers selling stock to live on in retirement instead of buying stock for their pension funds.

A cruel example of the domination by finance capitalism is the seduction during the past five years of the least credit-worthy home-buyers, wooing them from fixed-rate mortgages to floating rates. The terms offered were irresistible: for example, no principle repayment for over a year. The packaging of these loans into mortgage-backed securities with the credit risk passed along like a hot potato has become a big industry in finance capitalism and provides an estimated 15% of the industry’s fixed-income revenue. Credit derivative contracts have gone up to $26 trillion, $9 trillion more than early 2006 and seven times as much as in 2003. Respected Wall Street economist Henry Kaufman observed: “The real surge of these instruments is not just about reducing risk; it is fueling speculation.”  (WSJ 8/24/06)  Like victims out of a Dickens novel, the weakest will lose  their homes. But the worst is yet to come: Mortgage delinquencies have doubled in the last two years. The loans are too far removed from the source, and there are too many layers of handlers of money in the process. Our economy has no relative experience of this phenomenon. No one knows its true make-up, and it is unclear who is actually holding the risk. In the meantime, speculators are using derivatives to “short” foreclosures, that is, they expect to make money betting that more people will lose their homes. 

The above are examples of the damage to the people from corruptions of the economic system at home, all products of the “ideologues of the liberalization of capital markets.” In foreign policy, the “ideologues of the liberalization of capital markets” joined forces with the “ideologues of the American Empire” to stop the momentum towards a beautiful world of economic common purpose and thereby caused terrible economic damage and war. I offer studies of three disasters of lasting consequence in my book: the CIA’s dumping of the democratically elected leader of Iran in 1953; fundamental errors of policy in Vietnam caused by a small group sharing a narrow cultural conditioning; and the devastation of the Indonesian economy-a country that you know well-by the combination of hot money and currency speculation followed by IMF actions that made the problem worse.

All of these disasters could have been avoided if America’s priority were economic common purpose and if America had purged the corruptions in our own economic system. With your leadership, America’s image can change quickly because democratic capitalism can not only eliminate material scarcity in the world, but also do it in a moral way that will make it easier to unite people. This economic system that we can present to the world is one that we will be proud of and one we know will have universal appeal.

The priority is to reform the economic system at home first, and then help unite the world in economic common purpose, the only way to stop the violence. It will take hard study and hard work however, because finance capitalism has successfully lobbied  government policy since the beginning and their domination has become even greater during the last quarter century. Reformers must write rules for the economic system that truly have the mission of “controlling currency and credit for the general welfare.” The following policies would be essential in such a reform:

These policy changes in the domestic economy will finally control currency and credit for the general welfare and organize government support to make democratic capitalism the universal system. The following are changes in the international monetary system, needing American support to spread economic freedom and economic common purpose globally:

It is a long and complicated list, but the policy vacuum has been filled for a long time by the handlers of money. There is no question but that democratic power is there for reform; the question is whether enough reform-minded people will do their homework?  Please let me know if you or your associates wish to examine these proposed reforms further. I believe that they can be pivotal in the 2008 election, and this means that they will be pivotal in the direction of our nation and the world in the 21st century. With American leadership, it can be a world of plenty from economic freedom, and a world of peace from economic common purpose.
Good luck!

Sincerely,  

Ray Carey

Ray CareyRay Carey

Ray Carey learned through managing companies for 33 years how to change the work culture to provide employees with their best opportunities to develop and contribute. This experience began as a 28 year old plant manager and later president of an electric motor company, and concluded with eighteen years as president , chairman, and CEO of ADT, Inc.

See Carey's autobiography of his work career in chapter two of his first book,

Democratic Capitalism, The Way to a World of Peace and Plenty.

For more information about Ray Carey and his advocacy of democratic capitalism, visit the pages of this website.


Most Recent Post

Democratic Capitalism: The Way to a World of Peace and Plenty

Updated on Jan 11, 2017

For some time there has been a general feeling that there is something wrong with the American economy. There is: the domination by finance capitalism slows growth and keeps millions from good jobs.

The solution: Democratic Capitalism, was described in my book but it was rejected by publishers and received no reviews. I published and distributed it at my expense but in time the following leaders of industry and education confirmed the solution. 

Click here for the full post