Friday, December 8, 2006

In Terms They Can Understand

Recently, there's some hubbub that the recent election's 35-0 skunking of the Republican party is somehow a mandate for "bipartisan, centrist" approaches to the problems that beset our nation. I'll leave it to others to discuss the ridiculousness of that meme. For my part, I'd like to actually explore what it might look like to reach across the national aisle, to translate liberal points into conservative terms. In that regard, I intend to make the case for a progressive approach to public policy, using the kind of pro-business language that Republicans claim to understand.

Many Republican primaries in the relatively recent past have put forth a host of "business conservatives" - those whose battle cry is "let's run this country like a business!" OK, let's. Let's actually take a close look at what sound business practices would look like when applied to America as a whole. Here are a handful of the arguments that could be made.

1. The R.O.I. of human capital

Let's say that your company (America, Inc.) has a significant number of employees (the poor), who, while granted that you're not paying them very much, aren't really getting very much work done - they aren't generating very much wealth for your company. Stockholders aren't happy with slim margins, but you can't fire anybody - "firing" someone from citizenship is nonsensical, and doesn't translate to this analogy. As such, common sense dictates that you should target precisely those employees for development, so that the investment in their earning power will produce enough ROI to widen those margins and improve your corporate profile.

Business language has a tendency to refer to weak points as "opportunities." Underemployment in America is just such an opportunity. There's more room for improvement in the amount of wealth that could be produced by the unemployed and working poor than in any other sector. Your small businesses and entrepeneurs are already doing the best they can (although some targeted assistance in these sectors probably wouldn't hurt). The growth of your large corporations is stagnant merely due to their vast bulk. In fact, our current method of focusing our resources on corporations has indeed left us with an overall economic growth rate widely characterized as "tepid." In order to do better, we need to focus on the "low hanging fruit" (to use another popular business term) which have the most potential for dramatic return on investment.

This isn't merely spending. It's an investment in underutilized human capital. By aggresively targeting those personnel resources which are underperforming, and developing their productivity to sustainable levels. After that, they will on average pay back that investment many times over. The goal should be to develop affluent citizens over time who will be able to simultaneously support the consumer economy and pay a greater return to tax revenues.

The current state of social welfare programs lie somewhere between inadequate support and attempts to merely move the beneficiary "off of welfare" as soon as possible, without regard to where they're moving to.

Confusing the issue, such programs actually count the number of people that they fail to serve as a success rate! It's not uncommon to hear "we've moved X people off of the welfare rolls this year, proving the program a success." To accurately measure the return on that program as an investment, its success should be determined by the actual economic condition of those who have gone through the program, rather than the sheer number of people merely kicked out of it into any job whatsoever. No program should count as success the number of people it refuses to serve.

However, continuing programs have historically failed to improve the real condition of their recipients as well. This is because they give an inadequate amount of blanket "support," keeping those recipients below the poverty line, with no attempt made to foster a permanent increase in their economic status. As a result, they have led to an unbreakable cycle of dependence on meager benefits. Such programs are correctly identified as throwing good money after bad, as they serve neither the best interest of the recipient nor that of the nation; half-measures often produce zero results. In addition, such programs deduct 100% of pre-tax earnings from benefits, and thus actually financially disincentive recipients from working!

An actually effective approach to the underdeveloped human capital problem would not be characterized as a "safety net" but rather as more of a "safety trampoline." A spending level heretofore unprecedented in social welfare programs (i.e. enough to actually do the job) could over time end up costing less than traditional programs, since recipients would only need to stay in the program for a limited time.

Such a program would employ focused, complete expenditures and services targeting specifically those barriers that stand between a given beneficiary and a significantly improved way of life. For example, a benefit package for a given recipient might include not only education expenses, but also targeted assistance with child care, transportation, housing and food assistance during the entire period. Counseling assistance should be integrated into this approach from beginning to end, in order to determine what reasonable package of benefits would best fit for a given recipient's life goals, and to help them stay on track. In addition, only 50% (or some negotiable portion) of pre-tax earnings should be deducted from benefits, in order to create a natural incentive to increase their earning power as they transition out of the program.

2. Effective economic management

One of the philosophical objections to proposals such as that sketched above is that a country which relies upon a thriving free market segment should seek to rely on the free market completely, and avoid any attempts to "meddle" or otherwise manipulate macroeconomic conditions. This philosophy is often based on a dogmatically held view that completely unfettered free markets will somehow naturally resolve all social ills whatsoever, rather than simply create supply to match demand.

However, basing practices on dogma is not necessarily realistic, and therefore constitutes poor business management practice. A historical comparison of economies would serve as data to realistically demonstrate which macroeconomic techniques actually serve our goals.

History demonstrates repeatedly that the inevitable end-product of absolute laissez-faire capitalism closely resembles the common image of the third-world "Banana Republic:" there is a small handful of extremely wealthy individuals, an eroded middle class, and the vast majority of people live in abject poverty, whereas the government consists of little more than its military arm. This scenario has occurred in a great many nations where unfettered capitalism has held sway over a long period, particularly in South America.

Such a situation can hardly be described as thriving capitalism; it would be more aptly described as nothing more than "economic anarchy." And while the handful of rich people in such environments may do well relative to the local median income (which is negligible), it could easily be argued that even those same people would do better operating within an environment with a dynamic and productive majority middle class.

In contrast, the United States itself did not achieve its economic dominance as a world power until the need to recover from the Depression forced it to apply reasonable rules and regulations to encourage sustainable business practices. At the same time, it invested in human and other infrastructure in order to foster an economic climate within which business could thrive. Worldwide, the existence of such rules and programs at a reasonably moderate level consistently coincides with those countries/periods which we count as "prosperous."

The alternative to pure economic chaos is not only absolute totalitarian communism, and to believe so is indicative of extremely childish thinking.

Intelligent and cautious regulation, investment and intervention is necessary to the development of a thriving, sustainable, economic climate. Such an economic climate fosters, rather than inhibits free enterprise.

So let's go back to our analogy. Although it is widely recognized as foolishness for business leaders to attempt to micromanage every aspect of their companies, it would be no less foolish to fail to perform any management at all, to allow the company to run adrift with zero guidance or control over its destiny. But such a situation is precisely analogous to the dogmatic stance of laissez-faire economics.

It is not the business of any one business to manage the economic climate within which they exist. But it is necessary. As such, it is the proper role of government to do so.

3. Globalization as sustainable practice

Many liberals currently decry free trade entirely. However, economic globalization, like technological advancement, is an inevitable worldwide process. As such, merely complaining about its negative consequences fails to produce the kind of discussion which can lead to its intelligent management. However, these issues related to free trade which liberals complain about are in fact not merely questions of justice but are, in the long term, actually self-destructive economic practices.

As mentioned previously, American history has demonstrated that the careful establishment of regulations and economic programs to manage its economy has coincided directly with the rise of America as an economic as well as political superpower. A comparison to disparate societies shows further that precisely such an environment is in fact necessary to allow unlimited economic growth in the long term. Therefore, it should be taken as an alarming development that as free trade expands globally, corporations are using this opportunity to shift production into other regions specifically to avoid those very same regulations and economic programs.

The current model of corporate globalization is little changed from the great mercantile empires of the 18th and 19th centuries. Appearances to the contrary, it is at heart quite a simple process:

  1. Divide a portion of the world into (underdeveloped) producer nations and (developed) consumer nations

  2. Create a flow of resources or goods from the producer nation to the consumer nation

  3. Tap the reverse flow of money from the consumer nation to the producer nation

  4. Use a portion of the proceeds to induce the political bodies in both nations to support the arrangement, including the use of force if necessary

It would not be out of line to characterize such an arrangement as "exploitative." While demonstrably lucrative, such arrangements have been proven time and again to be unsustainable over the long term. For one thing, relying on political bodies or military advantage to sustain a business practice puts control over its support up to chance. For another this typically leads to the long-term destabilization of the producer society once the arrangement finally fails, thus sacrificing the opportunity to maintain alternative economic arrangements. Nearly all of the regions of the world where it is extremely difficult to do business due to political antipathy or instability have become so due to prior use of exactly this sort of "slash and burn" arrangement.

To go back to our analogy of running the country like a business, any business leader who sacrificed significant long-term opportunities in order to "cash in" in the short term would be considered to be doing poorly, and that judgement would be reflected harshly in that company's stock rating. Any company could easily outperform all competitors in a single quarter by selling off all of their assets and laying off all of their employees. But it would be utterly nonsensical to do such a thing. It would in fact, consitute a refusal to do business. Sustainability is a necessary comoponent to any economic enterprise.

The current globalization arrangements sacrifice the opportunity to develop a truly larger pool of consumer markets in addition to mere productive capacity. They seek to maximize their accessible cash flow by maximizing the economic differentiation between producer and consumer nations, not only in terms of monetary power and wages, but also in terms of environmental and worker protections. In addition, good corporate citizenship to promote democracy, human and civil rights is at odds with the policy of supporting the kinds of governments which make the those economic arrangement their first priority. Although engaging in such practices would reduce the short-term cash flow available through free trade arrangements, they would in the long term develop a host of newly developed economic environments which could produce not only resource extraction and goods production, but also thriving services and consumer markets.

Imagine the financial benefit to any company of multiplying its available consumer base by a factor of 100 or more. That's the opportunity that we discard by failing to intelligently manage the process of globalization.

Ideally, each nation should recieve a rating from an independent international body which takes into account that nation's human and civil rights practices, its commitment to democratic institutions, and its legislated protections for such factors as worker conditions, safety, environmental protections and both human and physical infrastrucure development. Trade barriers or tariffs would then be indexed to this rating. This would allow for underdeveloped nations to have a direct economic incentive to improve their profile towards one which fosters a thriving local economic climate, rather than being both economically and politically disincentived to do so.

Again: the Depression and the history of many other nations over many other periods have proven the ultimate failure of economics as exploitation. No business can expect to thrive independently of the health of the economic environment within which it operates. As more and more businesses step into a global environment, it is to their benefit to consider the long-term health of the global economy. In order for globalization to succeed in the long term, we have to manage it in such a way as to develop, rather than exploit, the world. The necessary management techniques to do this have already been demonstrated as effective in developed nations. We refer to these as "rights." All we need do is incrementally export them.

4. Corporations are not the most effective economic entities

At the center of laissez-faire economic dogma is the argument that thriving free markets are produced by incentive, and that therefore all forms of incentive should be maximized. Regulations and infrastructure investment programs admittedly limit incentive to at least some degree. Heretofore, I have only argued for targeted, intelligent restrictions which have been proven to lead to a significant improvement in economic climate.

Although there is certainly a place for large corporations in any viable free market model, the current practice of focusing economic management towards the benefit of corporations is one which inevitably fails to produce the best return for the nation as a whole.

As discussed previously, the bulk of any large company itself prevents it from responding dramatically to policies intended to benefit it, in terms of economic growth or wealth production. The stock of large corporations are called "blue chip" for a reason - they are effectively a large pool of stagnant money, a good place to "park" an investment safely while waiting for a good growth opportunity.

This is because a corporation is not an individual. As such, a corporation's growth does not necessarily equate to incentive for any group of persons.

To illustrate this point more clearly, consider what happens when a corporation is "broken up" into two new entities. Although the capitalization for each is half of that of the whole, the workers within each company face quite the same structure of advancement and pay grade than they had previously - in many cases, better. The stockholders of the corporation also benefit by the split, now holding one share in each of the new entities, which now benefit over the long term from working in a more competitive environment. At no point is the benefit reduced for any individual class of persons when that of the corporation is.

On the one hand, providing tax cuts or other benefits to large corporations or wealthy individuals may produce a noticeable short-term increase in a given economic indicator, such as investment or employment, due to the sheer size of the few entities involved. However, such benefits would produce a much greater return in overall economic growth if they targeted small or enterprise-class businesses or middle class individuals, as those sectors are proven to be much more dynamic in terms of cash flow, productivity, wealth generation and the creation of new markets. They're more nimble, and therefore respond more dramatically to changes.

Incentive, opportunity, and overall macroeconomic R.O.I. are to be found in individual and small-group enterprise. In large corporations, opportunity and potential has largely been exhausted, and the margin of return on investment in that sector is correspondingly minimal.

This point is not intended to demonize corporations, or to characterize them as merely "bad." Merely assigning blame is one of the greatest management blunders known, yet it has been inexplicably integral to public policy discussions for a long time now. Rather, the above point merely intentds to say that government resource allocation intended to benefit the economy is better focused on other sectors than corporate.


The above is a partial list, a starting point. There are surely many other issues that liberals and conservatives seem to disagree on, but when explained in the correct terms are merely a question of effective and intelligent practice. I do believe that for every apparently intransigent issue, there is an approach whereby the ethical thing to do and the effective thing to do agree perfectly. It's usually just a question of analyzing the problem in politically neutral terms.

This just goes to underscore the basic point that all politics is communication. Whether they consider themselves liberal or conservative, all decent people have the same values, all reasonable people work towards the same ends, and all intelligent people can find effective means to achieve them. Therefore, all partisanship and controversy is nothing more than obfuscation coming from those politicians and pundits whose own self interest lies in keeping the rest of us divided from one another, in leading our common interest to fail.



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