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 5:4

Hypothesis #4—The Impediment of Ultra-Capitalism: At the beginning of the twenty-first century, the worldwide economic system is functioning at only a fraction of its potential because of U.S.-led ultra-capitalism which combines mercantilism, that treats the worker as a cost commodity, and finance capitalism, that dominates the economy instead of supporting it.  


During the last quarter of the twentieth century, the combined effect of the demise of Communism and of the demonstrated ability of economic freedom to improve lives, presented the world with an unprecedented opportunity to unite in economic common purpose.  Tragically, the United States government responded to Wall Street lobbying with mistakes and bad policies that wasted this wonderful opportunity.  The U.S. led the world consequently into ultra-capitalism that slowed the world’s total economy, reversed the economy of many countries trying to move toward economic freedom, and provoked populist protest and new forms of violence.

These mistakes and bad policies included Nixon’s floating of the dollar in the early 1970s without an alternative stabilizing mechanism in the international monetary system, thus causing volatility that made the speculators more powerful than central bankers. This volatility mistake was followed by ERISA, the liquidity mistake, that took active capital used in growing companies and gave most of it to the stock market where it caused the bubble economy, little of that capital going back to the job-growth economy.  During this period, finance capitalism was deregulated at the same time that market disciplines were abrogated. The suspension of market disciplines began in the late-1970s with the dramatic expansion of bank deposit insurance in multiple locations that contributed to the S&L scandal, followed in 1984 by the bailout of the Continental Illinois Bank.  Short-term “hot” money, easy credit, and speculation with extraordinary leverage then combined with the pressure on the emerging economies by U.S. officials to take down cross-border capital controls.  Easy credit was further expanded by “structured finance,” a euphemism for new ways to avoid disclosure, fool the people, avoid regulation, and make more money on money (see chapter 9). The total effect resulted in severe economic and social damage in a number of developing nations and another boom/bust cycle in the mature economies.

The human tragedy lies in that those who control wealth have yet to recognize the system that does provide more for everybody, and could provide still more for the whole world. The financial elite still lobby policies that concentrate wealth because they presume that wealth is finite and must be battled over. Human tragedy lies also in the failure of those whose mission it is to improve the human condition but who have yet to reform the prevalent system in a way that would improve the human condition. For these reasons, Adam Smith’s vision of eliminating material scarcity has not been realized.

For these reasons, Marx’s and Mill’s visions of improving the world by releasing the latent power of motivated workers has not been realized. For these reasons, the broad wealth distribution anticipated by Smith, Marx, and Mill, upon which free trade depends, has not been realized.

I find it paradoxical and tragic that the country with the greatest record of improving lives through economic freedom was, at the turn of the millennium, leading in the wrong direction and becoming known as an economic imperialist with a cop-of-the-world attitude.  The traditional weakness of capitalism, concentrated wealth, was escalating to new record levels under ultra-capitalism. The worldwide benefits of free trade could not be realized in emerging economies because that same concentration of wealth was limiting the spendable income that free trade depends upon.  Sadly, the reality of “globalization”—with its potential to bring material comforts, education, and improved health to the worlds’ people—was corrupted to such an extent that the word “globalization” became, instead, a rallying cry for populist protest.

The superficial success of the U. S. economy in the latter part of the twentieth century resulted in many bragging about the “American Model.”   Others saw more clearly that unchecked individual greed was taking America down a dangerous path.  In 1993, Michel Albert, a French executive, captured this threat in Capitalism vs. Capitalism and warned in his subtitle: How America ’s Obsession with Individual Achievement and Short-Team Profits, Has Led It to the Brink of Collapse.  Albert was prescient in his examination, but it took another eight years for the damage to become public and blatant.

During this time, I watched with concern the exploitation of South American countries and Mexico by U.S.-sponsored ultra-capitalists who put forward the theory of “free capital roaming the world seeking its most efficient investment.”  The reality was short-term and speculative capital, protected by the U.S. government, searching the world for quick profits. For centuries, strong countries had exploited weaker countries, but this time it seemed to be different.  People in these emerging economies were beginning to earn a better life, when, suddenly, it was snatched away.

My concern changed to shock when Southeast Asian countries were devastated in 1998.  The ideal of economic common purpose gradually improving lives and purging the violence, went right down the drain in several countries, most notably Indonesia, a showcase of the benefits of economic freedom.  Suddenly, their economy was destroyed by a lack of control of hot money and by speculators driving the Indonesian currency down by as much as 70% of its earlier value.  No country, and few businesses in the country, could absorb an economic shock of this magnitude. The fragile political structure went down with the currency, jobs, and wages. Inevitably, ethnic and religious tensions surfaced and provoked violence. The IMF, dominated by the United States , then made matters worse with bankers’ policies that slowed growth even further.  The myopia of U. S. Treasury officials and the IMF was so great that they found ways to blame the victims, even while opening up new markets for Wall Street firms (see chapter 7, DC, Vol I).

I almost cried!  The world was so close in the early 1990s to building irreversible momentum towards peace and plenty, then to have the momentum reversed in a way that was quick, ugly, and unnecessary.  Economic exploitation is not admirable, but it is at least understandable. The 1998 reversal of economic and social momentum, however, was not old-fashioned imperialist exploitation but, rather, mistakes in government policies in response to Wall Street lobbying.

The events in Southeast Asia were too remote and complicated to arouse popular concern in America , particularly since most of the popular press did not grasp the meaning of these events as opportunities to inform citizens about the corruptions of ultra-capitalism. Instead, they turned the economic disaster in Indonesia into a political event, much easier to describe than are complicated economic realities. Suharto, president for 32 years at that time, was an easier target than were the speculators and hot money bankers. Suharto’s positive record in having reduced the percentage of his people under the poverty line from 40% to 10% was rarely mentioned. 

The economic collapse was accompanied by a moral collapse in commerce:  In 2003, an executive doing business in Indonesia reported that whereas “he never had to bribe local officials during the Suharto days, [he] now pays off scores of them.”  Suharto had greedy kids and allowed “crony capitalism,” but his civic order controlled broad-scale bribery along with everything else.
In my studies, I learned that society has been warned throughout history about the harm to economic growth and social cohesion from concentrated wealth. Confucius understood the necessity for diffused economic power two and one-half millennia ago:

 
The centralization of wealth is the way to scatter the people, and letting it be scattered among them is the way to collect the people. They produce wealth, but do not keep it for their own gratification. Disliking idleness, they labor but not alone with a view to their own advantage. In this way, selfish schemes are repressed and find no way to arise; robbers, filchers, and rebellious traitors do not exist.

 
The 18th-century European Enlightenment added their wisdom to that of Confucius. Claude Adrien Helvétius (1715-1771), a wealthy man, wrote with special authority on the persistent impediment of concentrated wealth and its negative effect on social cohesion:

 
The almost universal unhappiness of men and nations arises from the imperfections of their laws, and the too unequal partition of their riches. There are in most kingdoms only two classes of citizens, one of which wants necessaries, while the other riots in superfluities. If the corruption of the people in power is never more manifest than in the ages of the greatest luxury, it is because in those ages the riches of a nation are collected into the smallest number of hands. 


Benjamin Franklin (1706-1790), that Enlightenment man of America , actually proposed legal limits to concentrated wealth:  


That an enormous Proportion of Property vested in a few Individuals is dangerous to the Rights, and destructive of the Common Happiness, of Mankind; and therefore every free State hath a Right by its Laws to discourage the Possession of such Property.

  
Condorcet denounced special privileges from the government to the few as the root cause of the concentration of wealth:   


Wealth has a natural tendency to equality if the administration of the country did not afford some men ways of making their fortune that were closed to other citizens. We shall reveal other methods of ensuring equality, either by seeing that credit is no longer the exclusive privilege of great wealth or by making industrial progress and commercial activity more independent of the existence of great capitalists. 


Condorcet correctly identified non-democratic privileges lobbied by, and given to, the few as the source of concentrated wealth, but his vision of broad wealth distribution was only a utopian ideal in the eighteenth At the beginning of the twenty-first century, however, the U.S. economy had begun to fulfill Condorcet’s prophecy:  Wage earners had supplanted the “great capitalists” as a source of investment money. Unfortunately, this watershed event has yet to change the pattern of government privileges for the few to make more money on money.  While the source of capital has been democratized, the rewards from capitalism have not yet been democratized.

By 2001, ultra-capitalism began to unravel in America in a spectacular fashion as big company after big company failed when their corruption was exposed.  This public failure of ultra-capitalism, the drop in the stock market, and the sight of corrupt CEOs being led away in handcuffs, all became media and political events. Many of the politicians in Congress who rushed to reform capitalism had been the same politicians who earlier had been responsible for passing the laws that gave ultra-capitalists the privileges that caused these problems in the first place (see chapter 9).  CEOs had become easy targets, but it was the government structure itself that provided Wall Street such power to reward and punish
CEOs based on how thoroughly they adopted ultra-capitalism or not.  For every corrupt CEO, hundreds more were forced victims of ultra-capitalism (see chapter 8, DC, Vol I).

The fundamental conflict between finance capitalism and democratic capitalism in America goes back to the beginning of the republic when non-democratic privileges to make money on money flowed from many government officials who could be influenced or bribed. Since then, the neutral money needed for free markets to work well has been displaced by easy credit for speculators, and wild swings in the economy have been the result.  Removal of this impediment is the intent of hypothesis #5.

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.


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

Capitalism produces wealth from market freedom and competition, democratic capitalism maximizes wealth from worker participation. Their sharing in the improvement sustains motivation and adds consumer income that increases economic growth. The value system is trust and co-operation, the impediments are mal-distribution of wealth and violence among nations and people.

Surplus wealth was built by firing workers engaged in growth programs and by not increasing wages for productivity gains. Corporations avoiding taxes left $6 trillion of this surplus sitting in foreign accounts. The distribution of this surplus depends on a critical Board decision. It should be returned to the workers in wages, dividends, and profit sharing that add to economic growth, but managers influence Boards to repurchase shares to hype the value of options while hurting economic growth.

The workers are now capitalists through their pension funding, but they are not yet organized to influence policy. Finance capitalism continues to dominate the economy and influence politicians. Reformers who should correct this capitalist perversion do not understand wealth production from democratic capitalism; instead they concentrate on the political structure that distributes wealth.

CCDC June 27, 2017

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