Tuesday, March 15, 2011

Economics: Defining the language

In the three earlier articles of this series, I discussed the variety of impact on the economy by people who receive different amounts of income. The conclusion, supported by research, is that people who earn the highest salaries return a lower percentage of their earnings than lower-paid workers to the economic machine that keeps businesses and governments running smoothly.

Unfortunately, too many people who exercise the greatest control over policy believe otherwise. They reward wealthy people with even more political and economic privilege than anyone could ever earn. This is usually done by denying people at the lowest economic levels access to many of their most basic needs.

In fact, some people believe perpetuating a poverty class is vital to the economy. They believe it would actually be dangerous to implement policies to end poverty and allow everyone to earn enough money to purchase all the basic goods and services they need to enjoy a dignified existence.

These policy makers claim the only way to solve economic problems is to depend solely on capitalism, at least the way they define it. They warn that Americans should completely eschew any hint of socialism. They believe businesses must be free to operate without restrictions, and government should have only a minor role, if any at all, in the way American businesses are run.

The trouble is, their definition of capitalism leaves a lot to be desired. Especially when you consider the fact that over the years, their form of capitalism has cost millions of people their jobs, their health, and their lives. If they continue to have their way, things can only get worse for all of us as we face a very dismal future.

Understanding Effective Capitalism

That brings us to the real definition of “capitalism.” These days, economists, politicians, and even the people who compile dictionaries focus on the wealth-building aspect of capitalism. To put it another way, they see capitalism as the tool by which a few people become very wealthy through business enterprises that control the lives and well-being of millions of people.

Certainly, private ownership was always an important part of effective business practice. But capitalism began as a very different model than the one that’s in use today.

Capitalism first appeared early in human history. The turning point came with the introduction of basic technology into agriculture, which was the first human industry. When the plow first came into use, farming advanced from mere subsistence, the production of just enough crops to feed, house, and clothe family members, to the point that families were able to produce more crops than they needed for their own survival. With time to do more work than was necessary for basic survival, people also began to produce extra clothing, craft items, and even art.

From the beginning, basic capitalism was based on production, service, and sales. It began when people started to exchange and sell excess agricultural products and items they produced first in homes and later in small shops that gradually developed as many people prospered. Technology spawned not only an agricultural boom but social and economic revolutions.

At first, products and services were exchanged for other products and services in a crude bartering system. Eventually, volume demanded something to symbolize the value of sales, and currency was invented, using such items as rocks, salt, metals, and eventually paper. Over time, successful communities developed sophisticated economic models. Even while trading with neighboring groups and travelers from far away, people still understood that their economy was based on the model of production, service, and sales, using both barter and different types of currency.

As businesses grew, so did the employer-employee model. Workers provided labor to help owners run their businesses in exchange for wages. Employees used these wages to purchase goods and services from other businesses. Eventually both owners and workers paid some of their earnings to governments. That tax money was also used to pay workers and purchase goods and services, just like businesses, owners, and workers.

For businesses, communities, and governments, success depends on a fluid economic model. As long as money keeps moving around the community from one person to another, one institution to another, everyone enjoys a measure of success. That’s the basic nature of capitalism.

Along the way, the goal of making a few people rich slithered into the picture. But the original purpose was to develop creative ways for people to move away from mere subsistence up to gleaning profit from the extra product and time they gained from improved farming techniques. It began with a positive step in human progress but soon warped into a twisted model that now threatens to destroy us all.

The Role of Socialism

Socialism was a basic part of the community economic model even before capitalism appeared. Humans survived in their earliest years on the planet by congregating into small groups so they could share responsibilities and resources. As their numbers grew, they gathered together as families, then communities, but sharing resources remained a significant tool for the survival of the tribe and eventually the village. As societies began to develop into larger communities, the practice of group sharing and providing for people who were weaker or needed extra help to survive waxed and waned, usually guided by the philosophy and religious practices prevalent in each society.

Perhaps the first and best-known American socialist was Benjamin Franklin. His printing business was the basis for one of the earliest American rags-to-riches stories. As a capitalist owner, he began making other entrepreneurs successful by franchising his printing empire. He also invited local businessmen in Philadelphia to join a social networking group so they could exchange creative ideas to enhance the success of their businesses and their community.

Franklin’s networking group became the intellectual and financial incubator for the first municipal fire department, lending library, and other public service projects in the American colonies. Today, almost every community of any size uses tax money to provide various services based on Franklin’s socialistic model of using public money to pay for fire and police departments, libraries, roads, clinics, and other basic services to residents.

According to Benjamin Franklin’s model, well planned socialism is an effective tool for enhancing the quality of life for citizens of any community and is certainly not antithetical to the success of capitalism. In fact, successful communities manage to balance responsible capitalism with basic social services in a way that guarantees residents will have the best opportunity to enjoy productive lifestyles.

Welfare and Unemployment: Payment for no labor

The tradition of welfare and unemployment benefit payments have come and gone throughout history, finally gaining a measure of consistency over the last century. These payments fall into the “good news, bad news” category. They’re supposed to be stopgap measures to help people through temporary economic downturns. Sadly, political circumstances have turned welfare into a multi-generational anchor that prevents entire classes of people from escaping the prison of poverty. And now that we’re well into the worst recession since the 1930s, unemployment payments are literally smashing all previous records in both numbers of recipients and lengths of time people receive those benefits.

Certainly there’s an immediate economic benefit to providing people with the means to meet their most basic needs, especially when virtually all the money that’s handed to them goes right back into the economy. On the other hand, 100% of these payments are provided with no reciprocal exchange of labor contributed to the economy. Unlike the standard work-salary model, social benefits like welfare, unemployment, and other public and private grants cannot be considered a positive benefit to the economy.

What’s more, as I explained in my book, The World I Imagine: A creative manual for ending poverty and building peace, it would be possible for truly creative leaders to turn these problems around and fulfill the goal of the book’s title to end poverty, which would help to eventually end armed conflict as the most expensive political policy of human endeavor. There is simply no reason governments should have to pay people not to work when so many community needs continue to go unmet.

I offer this friendly challenge to everyone to read the chapter in my book on “Universal Employment.” After you’ve had a chance to ponder some of the ideas I’ve collected from many sources, I’d love to hear your creative ideas for solving the education and employment crises that have become the permanent anchors that prevent most members of society from enjoying dependable and long-lasting economic success.

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