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Sunday, September 30, 2012

The Face of Capitalism (Part Two)

(This is the second segment in a three part series. The first segment traced the economic system of capitalism to its birth during the administration of President George Washington and through the winding course of US history.)


The 2012 Republican presidential nominee, Mitt Romney, projects the face of capitalism. As such, his face has become a lightning rod. It's not personal. It's strictly business...

What is it that ordinary citizens rather like about Mitt Romney’s face, the smiling face of capitalism? What is it that we do not like about his face, when it frowns, or the smile seems more unfriendly, or contrived? It depends on how we value certain matters of importance, how we set and follow our priorities.

Based on ample historical precedent, the sometimes questionable business practices behind the face of capitalism may be assumed. But will that same face still seem so very desirable behind a mahogany desk as the chief executive officer of the land?

The US brand of capitalism is particularly unique, the individual path to success extraordinarily difficult to navigate. Although America is a land of opportunity, there is masked peril seemingly behind every rock. One must be a maestro on several dimensional planes. It is not enough merely to master a particular business niche or technological innovation. History is replete with examples of brilliant inventors who were business failures. More is required. One must adopt the changing form of a chameleon: “Who do you want me to be?”

Today the face of capitalism uses a variety of economic tools at its disposal. First and foremost, the face takes advantage of a system where there is one set of rules for the moneyed class, and another set of rules for those who are not moneyed. With the playing field tilted, fairness and equal protection, the kind the constitution is supposed to guarantee, are put into serious question. Is that what Thomas Jefferson seemed to be complaining about way back when?

Financial gain is privatized, while loss is socialized.  Reward is doled out to individuals privately.  But risk is spread out socially among the masses. The corruptive influence of money naturally extends to its influence over lawmakers.

Let’s return to the example of candidate Romney. The goal of his successful company was to buy stakes in undervalued companies and then in his own words “harvest them at a significant profit” years later. American jobs were eliminated en masse and outsourced to foreign shores.

Certainly this is legal – and beneficial. And it hardly breaks new ground. The idea that a country should outsource a particular service or commodity to another country which does the job cheaper and better traces to Scottish economist, Adam Smith, and his iconic book, The Wealth of Nations, published in 1776. This is how business efficiencies are created, and out-of-whack balances restored.

The face of capitalism takes rightful advantage of the law of contracts, the US legal system and its global military strength, to earn individual profit and then protect it from plundering. But then the face uses the US tax code which has been favorably tweaked by the unnatural alliance (of politics and corporations to enthrone privilege) to shelter its fully ingested meal from taxation.

Some is placed in Swiss bank accounts, some in places like the Cayman Islands, neither within the reach of American law. Through use of generation skipping trusts, the face avoids gift and estate taxation altogether as it passes the money safely down through the generations, controlling wealth from beyond the grave. The digestion process is complete. With a full belly, the face can now settle in for a good long nap on the couch.

The face of capitalism recently released its 2011 tax return, which reflected $20 million in “unearned income on investments” with a taxable rate of about 14%. This is a lower effective rate than an ordinary citizen earning a pedestrian salary of $50,000 per year. Does the face pay a fair share? Or is it just effectively writing off 47% of ordinary Americans as dependents?  Theodore Roosevelt, a Republican in another time, would have recognized a textbook case in successful dishonesty and undertaken appropriate remedial measures.  But T.R. no longer commands Republicans.

Since at least the time of President Reagan, the face has argued that lower taxes on high individual wage earners is “fair” as a driver of additional investment and job creation. But the facts as revealed in the monthly employment numbers consistently fail to support the argument. The one important factor which these so called pro-business policies do bear out decisively is a growing disparity in wealth between the rich and poor. Society’s unrest naturally follows.

(The third and final segment ventures from the shared success of Henry Ford with his assembly line worker to the dark side of outsourcing and the Walmart model of individual economic dependency for displaced American labor.)


-Michael D'Angelo

Sunday, September 23, 2012

The Face of Capitalism (Part One)

(Note: This is the first segment in a three part series.)


A certain group of citizens tends to confuse and disregard the basic principle that capitalism is an economic system.  It is not a form of government.

We begin by straightening out some facts and establishing some definitions.  In 1776 we declared our independence from Great Britain and established a large scale experiment in republican democracy.  We are a nation of laws by elected representatives.  By 1789, with the experiment at serious risk of failure and to preserve internal political stability, we held a constitutional convention.  With a perfect record of attendance by the founding fathers, we ditched our first constitution in favor of our second and present one.  It was a significant but bloodless revolution.

The form of government having been decided, George Washington was elected our first president.  This was at a happier time pre-dating politicians, partisanship and political parties.  President Washington had many important decisions to make, precedents to set, not the least of which was to decide upon a preferred economic system.  His troubles started with the knowledge that the new constitution did not espouse a particular economic theory.  In fact, the constitution said nothing at all about an economic system nor mentioned the word "bank."

To help get things moving, Alexander Hamilton, the Secretary of the Treasury, proposed a system of capitalism based on the highly successful model of the British mother country.  But Thomas Jefferson, the Secretary of State, objected.  He was sure that Hamilton’s proposed system flowed from principles adverse to liberty.  By creating an influence of his department over members of the legislature, Hamilton’s system was calculated by Jefferson to undermine and demolish the republic.  This was a most serious charge, a difference of opinion which also pointed to the birth of political parties.

President Washington sided with Hamilton, reasoning soundly that his plan would provide the greatest good for the greatest number.  Following the Civil War, the forces of capitalism coupled with the onset of the Industrial Revolution enabled our economy to take off.  By the time 1900 rolled around, our manufacturing capacity enabled us to become the #1 economic power in the world.  The rest, as they say, is history.

Capitalism puts money to work for specific, profit oriented ventures.  Through use of corporations, money can be amassed and concentrated quickly and efficiently under one roof.  Typically, investors’ downside is limited to the amount of their investment.

The early capitalists of that era featured names like Rockefeller in the oil business, Morgan in banking, Carnegie in steel, and Vanderbilt in railroads.  They were firm believers in a free, unregulated market promoted by competition.  A new consumer class was created and became a thriving force in the industrial economy.  Its name was the middle class, a new term in the vocabulary of ordinary citizens.

With the incentive to reap great profits, the leading men consolidated operations, streamlined the various systems of production, eliminated redundancies and maximized efficiencies.  While consolidation permitted them to control their industries, a primary goal was still to give the customer the best product at the lowest price.

While capitalists were champions of competition, ironically, their goal was to eliminate competition.  Specifically, they sought to accomplish this by creating and then maintaining a hierarchy with themselves at the top.  This highlighted one of capitalism’s main criticisms.  If left to its own devices, capitalism will by definition concentrate wealth into the hands of a very few.

Many had arrived at the top through superior intellect or other legitimate means.  But some used questionable or even illegal business practices.  Bribes, kickbacks and other monopolistic trade practices were all utilized to destroy competitors.  Human labor was exploited as no more than an expense item on an income statement. Stewardship of the environmental was disregarded. Short term gain trumped any long term considerations.  For this reason these early capitalists were sometimes referred to disparagingly as robber barons.

They used their vast financial resources in an unnatural alliance with the elected representatives of government to cement their place at the top.  In a final assault on equality of opportunity for all citizens, they enthroned their privilege through favorable manipulation of the laws of taxation and inheritance.  And the rout was on over the ensuing generations.

Theodore Roosevelt tried his hand at reforming this growing wealth disparity through various innovations of government.  But it wasn’t until after the 1929 Great Depression and the 1932 election of his distant cousin, Franklin D. Roosevelt, that we learned the hard lesson that capitalism needed meaningful  regulation by the government of its creation.

That government was not simply to be about condoning an economic system of capitalism and the gamesmanship that went along.  It was also about helping its citizens, especially in time of need.  In providing a social safety net, it was about restoring our faith in capitalism by making it seem more humane.

Since those dark economic times, we have ebbed and flowed, debated both in theory and practice through our national political parties the extent to which capitalism should be regulated.

In the aftermath of the Great Recession of 2008, Democrats under President Barack Obama favor sensible regulation as the last defense against unbridled individual greed.  Republicans favor less regulation as the most efficient means of achieving the American Dream.  Democrats see government and business working in partnership for the common good.  Republicans see government, especially more government, as the enemy of business and individual initiative.

(Next week’s second segment discusses how the face of capitalism goes about the business of amassing wealth in present day America.)


-Michael D'Angelo