MR. CAPITALISM THE DOCTOR MAY SEE YOU NOW

 Bi-polar disorder of the free market economy  

By Melvin J. Howard

THE RIGHT SIDE OF MY BRAIN TALKING

Since the global financial meltdown I have been reading a lot lately that capitalism is dead since then both sides of my brain have been in this serious discussion about capitalism both the pro’s and con’s the following is that discussion. When a plane crashes or luxury cruise ship sinks we don’t say well lets go back to the horse and buggy days because it did not work. Up until a few centuries ago, the main sources of wealth were mines, slaves and serfs, land, and cattle, and the only ways to acquire these rapidly were by inheritance, marriage, conquest, or confiscation. Naturally wealth had a bad reputation. Two things changed the first was the rule of law. For most of the world's history, if you did somehow accumulate a fortune, the ruler or his henchmen would find a way to steal it. But in medieval Europe something new happened. A new class of merchants and manufacturers began to sprout up. Together they were able to withstand the pressure from the local king or Mayor. So for the first time in history, the bullies stopped stealing the merchant and manufacturers wares and goods. This was naturally a great incentive, and possibly indeed the main cause of the second big change, industrialization. The Industrial Revolution was born part of the success of that era was. Conditions were made that people who made fortunes be able to enjoy them in peace. One piece of evidence is what happened to countries that tried to return to the old model, like the Soviet Union, and to a lesser extent Britain under the labor governments of the 1960s and early 1970s.

Since it became possible to get rich by creating wealth, everyone who has done it has used essentially the same recipe: measurement and leverage, where measurement comes from working with a small group, and leverage from developing new techniques. The recipe was the same in Florence in 1200 as it is today. Understanding this may help to answer an important question: why Europe grew so powerful back then. Was it something about the geography of Europe? Was it that Europeans are somehow racially superior no, was it their religion no. The answer may be that the Europeans came upon a powerful new idea: allowing those who made a lot of money to keep it! Wow what a concept who would have thought. Once you're allowed to do that, people who want to get rich can do it by generating wealth instead of stealing it. The resulting technological growth translates not only into wealth but into military power.

Take away the incentive of wealth, and technical innovation grinds to a halt. Starting your own company is, economically: a way of saying, I want to work faster, smarter and harder. Instead of accumulating money slowly by being paid a regular wage for fifty years, I want to get it over with as soon as possible. So governments that forbid you to accumulate wealth and tax you toward the heavy side are in effect decreeing that you work slowly. They're willing to let you earn $3 million over fifty years, but they're not willing to let you work so hard that you can do it in two. They are like the corporate boss that you can't go to and say, I want to work ten times as hard, so please pay me ten times a much. Except this is not a boss you can escape by starting your own company. America is one of the leading technological countries in the world. Microsoft, Oracle, Apple well you get the jist. The problem with working slowly is not just that technical innovation happens slowly. It's that it tends not to happen at all. It's only when you're deliberately looking for hard problems, as a way to use speed to the greatest advantage, which you take on this kind of project. Developing new technology is a long drawn out process. It is, as Edison said, one percent inspiration and ninety-nine percent perspiration. Without the incentive of wealth, no one wants to do it.

The theory that led to the stealth plane was developed by a Soviet mathematician. But because the Soviet Union didn't have a computer industry, it remained for them a theory; they didn't have hardware capable of executing the calculations fast enough to design an actual airplane. In that respect the Cold War teaches the same lesson as World War II and, for that matter, most wars in recent history. The same recipe that makes individuals rich makes countries powerful. Let the founders of companies and the nerds that create new technology keep their lunch money, and you rule the world. A company will be maximally profitable when each employee is paid in proportion to the wealth they generate. It is probably no accident that the middle class first appeared in northern Italy and the low countries, where there were no strong central governments. These two regions were the richest of their time and became the twin centers from which the Renaissance civilization shined. If they no longer play that role, it is because other places, like the United States, have been truer to the principles they discovered CAPATILAISM.

THE LEFT SIDE OF MY BRAIN TALKING

Not everything in America has to be judged by profits. It used to be not so long ago that there were some services and institutions that were so important to our nation that they were exempt from market forces. Some things we just didn't do for money. The United States has been defined recently as extreme capitalism on steroids. But this does not have to define us. War profiteering use to be a bad thing now it is corporate warfare literally. War zones are dominated by private contractors as well as Health and Human Servies who work for corporations. There were more private contractors in Iraq than American troops. War is not supposed to turn a profit. Prisons were a non-profit business, but now prisons are big business they are even traded on big stock exchanges. Is this why America has the world’s largest prison population ­ the question has to be asked would rehabilitating people have a negative impact on the bottom line?

Hospitals have become big business; they're run by accountants in big corporate complexes. In the U.S. today, three giant for-profit conglomerates own close to 900 hospitals and other health care facilities. That’s a not hospital that’s Wal-Mart. The more people who get sick and need medicine, the higher the profit margins.

Because medicine is now for-profit you have things like "recision," where insurance companies hire people to figure out ways to deny coverage when you get sick, even though you've been paying into your plan for years. Surprise that’s not covered in your plan DENIED! Universal health care is not socialized medicine!

If Taiwan and Switzerland can do it why not the United States. Both are avidly “free-market,” business-friendly and entrepreneurial countries. The higher costs for service 22/23 medical services (pdf) and the burden for businesses of financing health insurance for employees makes it even more destructive (we are the only country in the world that leaves this to the employer), and determining on a national basis what medical services are appropriately covered by insurance. 

David Rothkopf  in a Time Magazine, article called In Viewpoint, Fixing capitalism means taking power back from business. He argues our biggest companies have financial resources and political reach that rival all but a few dozen states. Outcomes tend to serve the most powerful, because markets neither have a conscience nor do they ensure opportunity these challenges my analytic view of free markets.

Healthcare is the largest category of business in the U.S., representing 18 percent of the Gross Domestic Product (GDP). More of healthcare is moving into for-profit ventures. For-profit healthcare is merging and acquiring, insurers buying hospitals and physician practices and multinational. If the natural course of these events continue in an unfettered free market. There will be only a few multinationals to control a large portion of healthcare?  

Is it the right thing to do? Could theses corporations ultimately provide higher quality, less costly healthcare for all our communities? Or could this cause perhaps wide spread corruption like the Libor scandal. For some of the world’s leading banks to try to manipulate one of the most important interest rates in finance is clearly egregious. But is that worse than packaging billions of dollars worth of dubious mortgages into a bond and having it stamped with a Triple-A rating to sell to some dupe down the road while betting against it? Or how about forging documents on an industrial scale to foreclose fraudulently on countless homeowners?

How do we realize the benefits of market capitalism while restraining the powerful impulses to cut corners, cheat, and commit fraud? This is an ageless question that has polarized this political season. GlaxoSmithKline (GSK), the huge UK pharmaceutical firm, agreed to plead guilty to federal crimes and pay approximately $1 billion in fines because it promoted two prescription drugs for unapproved uses and failed to report safety data to the FDA about a third. In addition, GSK agreed to pay an additional $2 billion to resolve civil claims brought by both federal and state authorities alleging, among other things, that the company paid kickbacks to physicians to prescribe drugs, made false and misleading statements about drug safety, and committed fraud under a Medicaid drug rebate program. The $3 billion total payment "is the largest health care fraud settlement in U.S. history," said Justice Department, "and the largest payment ever by a drug company," eclipsing other settlements on similar charges with Pfizer ($2.3 billion), Eli Lilly ($1.4 billion) and Johnson & Johnson ($1 billion in process of being completed).

Corporations large and small apply relentless internal pressure on their people to hit basic financial goals for net income, cash flow, and stock price. Other commercial targets, too, may be critically important: achieving specific returns on investment, equity or assets; hitting sales or service goals; meeting product development or product launch schedules; and attaining productivity increases. Companies, especially those in the global economy, also face external pressures such as endemic corruption, weak rule of law, pervasive conflicts of interest, and demands from government officials.

Personal incentives are driven, in important part, by "making the numbers." There are ubiquitous temptations and pressures to behave badly. Employees at all levels may feel that their salaries, bonuses, promotions and even their job security depend on falsifying accounts, cutting corners, colluding with rivals, and generally ignoring law and ethics. So how do we as nation fix this problem of the bi-polarization of capitalism without destroying the very people that it is suppose to help? 

Capitalism cannot function without trust. As the Nobel laureate Kenneth Arrow observed, “Virtually every commercial transaction has within itself an element of trust.”