Today we are faced with a disrupted economy having sustained high unemployment numbers. Many of our leaders in industry and government have ideas on how to resolve the issues with wide spread opinions. Some believe in near revolutionary change and others believe in continuing the status quo. Some in leadership believe the government operates outside of business principles while others believe conventional business principles apply wholly to government. Regardless, real people are affected and the people are responsible to engender a solution for the common good. This an open discussion that looks at one interesting model and traditional thinking given the change imposed on the world around us. This is intended to be thought provoking by presenting views that often are overlooked or missed in the demogoguery. Whether there is merit and if what has been presented is good or not is for you to determine.
This post was originally posted in December 2010. I have updated the post to reflect the current circumstances as of April 2012 then again during April 2013.
This post was originally posted in December 2010. I have updated the post to reflect the current circumstances as of April 2012 then again during April 2013.
The Transitioning World
The world has made transitions from a theological pride to a secular nationalistic pride for over the course of 2000 years. History records the transition for Israel to secular governance during the time of David. Other transitions are occurring right up to modern times. For example, a 1950's mass movement demanded national self-determination for the Bengali people. The politician-preacher Maulana Abdul Hamid Khan Bhashani championed the demand for national self-determination and the demand that the state distance itself from Islam. Bhashani led the transition to secular politics in the decades that preceded the emergence of Bangladesh.
Today, the world is in transitioning once more. This time towards an economic pride as evidenced by regionalization efforts ongoing throughout the world such as the European Union, EU, and others in Africa (ECOWAS), South America (UNASUR), and the Western Pacific (APEC). Keeping in step, the region currently known as North America is undergoing several major transitions. The first major transition is a movement away from national sovereignty towards a regional center of economic influence under the auspices of the North American Free Trade Agreement, NAFTA. The second major transition is the form of governance that will be over newly formed NAFTA region. Some form of governance needs to emerge since all the participating national identities are consumed in the larger organization and newer identity. Will that be a Islamic Caliphate, a Progressive ideology, or will a constitutional form of Government prevail. The final major transition is the character of the economy within the NAFTA region. In this discussion, I want to focus a little on the regionalization effort and more on the character of the economy as well as on the character of business.
The movement towards a regional center of economic influence is evidenced by the NAFTA treaty coupled with the rapid infusion of foreign nationals effectively dissolving the international borders between the participating nations; Canada, The United States, and Mexico. NAFTA, as a treaty, originated from the Montreal Economic Treaty during the Reagan years in order to raise up the wage in Mexico. In 1992, U.S. political leadership converted NAFTA to a new political system in order to advance a regional center of economic influence. Henry Kissinger commented on the passage of NAFTA during 1992, as a regionalization effort, that “...is not a conventional trade agreement, but the architecture of a new international system [of goverment]" (Henry Kissinger Los Angeles Times, 1993). Since that time, the political leadership has been expediting this transition as anxious ideologues leap at the opportunity to advance their ideology that may have the effect of superceding the US Constitution. The construction of NAFTA superhighway, Figure 1, if not intended, has the effect of increasing the freedom of movement throughout the region for Mexican and Canadian nationals. Fannie Mae and Freddie Mac, if not intended, has had the effect to quickly stabilize immigrants in homes. Likewise, the ability to vote, obtain a driver license and healthcare are instruments that, if not intended, have the effect to stabilize U.S. immigrants more quickly than the traditional course of three generations. The passage of nationalized healthcare on March 21, 2010 brought the region closer to a regional healthcare system as Canada and Mexico are already on socialized healthcare.
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| Figure 1: NAFTA Superhighway Map. Source: NASCO |
The regional phenomenon extends beyond geo-political systems to other systems. For example, power companies have been consolidating and regionalizing power systems. The same has occurred with the phone companies, and now health care is consoldating under the nationalized healthcare system. We observe companies like Duke-Progressive Power consolidating control of the American SouthEast power distribution. Kaiser-Permamente has consolidated healthcare control of the American West. The phone companies have gained regional control such as Bell South. Even the grocery industry is regionalizing with Von's in the SouthWestern US and Publix in the SouthEastern US. These regionalized centers of supply point control cross state lines. Thus, states rights are challenged as power shifts to interstate trade and control of the federal government. This regionalization of supply points will continue to increase and dissolve state sovereignty.
Whether this regionalization is deliberate or natural course of a systematic pattern, the advancement an economic center of influence and dissolve national and state sovereignty is clearly emerging as an inevitable future for the North American region. Such regionalization has tremendous impacts on industry, commerce, and individual lives.
The Free Market Capitalism and Business
The character of the economy in the emerging regional center of economic influence is an underpinning of the governmental form. Briefly, socialized and Marxist's governance is reliant upon the notion of social justice or the use of governmental methods to redistribute wealth to those deemed less fortunate by the aristocracy. A competitive model is Ayn Rand's worldview detailed in her works "Atlas Shrugged". This model is a separation between economics and government similar to the separation of Church and State. Rand's model is ultimately a Godless society focused on economic pride or gain. The character of the economy in a Democracy is free market capitalism. In the free market economy industry and business redistribute wealth based on value-added or created value. The free market is considered natural because when freed of all regulations and other constraints such as taxation the free market character persists. While this discussion uses the term free market most societies impose some degree of controls and constraints on the market. Thus, a free market, in practical terms, is considered one with minimal controls and constraints. The free markets existed long before modern complex economies emerged out of feudal Europe. Unregulated markets operated over 2000 years ago throughout the Middle East, Greek, and Roman Empires. The largest Roman seaport and marketplace was locate in Pozzuoli, Italy called the Serapeum, Image 1. (note: The term Serapeum is actually a religious temple. The Italian Government officially recognizes the site as such. Scholars and the locals acknowledge the site as an ancient marketplace.)
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| Image 1: The Serapeum Ruins, Pozzuoli, Italy |
The efficiencies in a free market are also considered to be natural as opposed to human induced efficiency efforts when an inefficiency is perceived by the aristocracy and/or government in a command economy. For example, anti-trust lawsuits and regulations have often been touted as supportive of competition and the free market. However, the application of anti-trust lawsuits has typically emerged out of power struggles between Governmental enforcement of regulations and industry compliance. During the 1970's the U.S. Congress was instituting many environmental and labor laws that dramatically affected industry. Industry reacted sternly using economic influences to apply pressure to Governmental leadership in efforts to change the direction of the legislation. Governmental leadership fearing industry had become too powerful sought to marginalize the influence by breaking up large corporations using anti-trust lawsuits. Some analyst tout that the computer revolution was actually delayed until 1985 because of anti-trust lawsuits during the 1970's. Henry Novell of Novell Systems was employed at Bell labs when the anti-trust lawsuits stopped AT&T from entering the computer networking market during the 1970's and forced the breakup of Bell Systems forming Lucent in place of Bell Labs. Novell left and formed Novell Systems networking computers about 7 years later. "Antitrust policy over the last 25 years can claim substantial achievements. First, the stated terms of the debate have shifted to consumer welfare and efficiency, and away from vague and easily misused goals such as dispersion of political and economic power," (Bittlingmayer 2002, p 52). Regardless, of the reasons or outcomes the point is that, in this case, governmental efforts at improving competitive efficiencies was tainted with political bias and may have never achieved the efficiencies sought. The efficiencies were observed later as an outcome of deregulation efforts during the 1980's in a return to more free markets. Such deregulation lead to competitive forces in the airline industry, telecommunications, and other industries.
One Business Model to Consider
Counter to popular thought, the free market model of business, Figure 2, is not one of a bottom line but instead one that is a zero sum in the long term for business. The bottom line, Profit = Revenue - Cost from the income statement and resulting business ratios, has its place metering efficiencies during the short term. Businesses are usually started and operated in order to support a lifestyle for the owner and their family based on the value-created in the business. In the end, the business is sold putting cash in the pockets of humans upon sale or liquidation. Thus again, the business is a vehicle to put purchasing power into the pockets of people in order to give levity to their lives. The business is a zero sum in the long term and redistributes wealth based on created value. That being said, free market business is actually all about the well being of people and is based on their productivity or ability to do good.
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| Figure 2: Free Market Business Model |
There is an ole adage that circulated on the state of our lives remarking that at least we got jobs and can put bread on the table. When we made more we were willing on our own accord to be charitable, to give from the heart. In a Democracy and free market, individuals are compelled through a social conscience as opposed to a social justice to be charitable with excess. Charity is usually driven by one's worldview. However, America has been struggling with its identity as the forces of multi-culturism are reflected in the society.
I want to reflect on the classic movie, "Its a Wonderful Life". Jimmy Stewart had a social conscience helping people not only get by but also achieve their dreams. In time, that same charity flowed back to Jimmy Stewart after, through misfortune, his bank came up short on its receipts. In the recent biographical story of James Braddock, "Cinderella Man", Braddock sought to put bread and butter on the table during the 1930's remarking that he returned to boxing, his job, to fight for his family endearing the hearts of millions. In both these instances, it was a social conscience and productive work that overcame adversity in peoples lives.
Reference:
Bittlingmayer, G. (2002). The antitrust emperor’s clothes. Regulation.Resourced fromhttp://www.cato.org/pubs/regulation/regv25n3/v25n3-11.pdf
