The Theodore Newsletter

July 1, 2016

 I.  Reviewing the Inequity Problem

 For the past 40 years (WOW!), our family regularly vacations for a week in or around the Easter break at the fabulous Sandcastle Hotel in Sarasota.  During this period, I always make time to visit with my fraternity brother and fellow Cooper Union graduate (chemical engineering) Dick Graven.  Dick had a long and successful career at Mobil, ultimately rising to become Head of all engineering.  Last year, Dick, a prolific writer, penned an article titled “A Cure for Inequity.”

Dick has provided me with permission to use part or all of his article, and after some deliberation, I have decided to provide the readers with an edited 2-part series for the AS I SEE IT Newsletter.   The edited versions are titled “Reviewing the Inequity Problem” and “Providing a Cure for Income Inequity.” This article addresses the first topic.

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The magic formula for a society to escape poverty is when money flowing from a successful business in the form of profits and employee wages finds its way to start or expand other businesses which also become successful.  In other words, businesses that are profitable create capital for investment.  Profit is the engine that energizes the process.  Profit is like a good virus.  It spreads far and wide to industrialize a society so that it generates jobs, salaries and more profits.  That is what happened in the United States since its founding and it is why it is such an industrial powerhouse.

Communism was once the ultimate political system to accomplish wealth transfer.  It proposed to do this through government control of all the means of producing goods.  Private ownership was eliminated.  All land and all businesses would become the property of government.  All of industry and farming would be controlled by a centralized government through collectives and strict conformity.  Wages would be uniform based upon the communist principle of “each according to his ability, each according to his need”.  This meant that there was no reward for merit or hard work.  Dissent was not tolerated and was punished because “the end justifies the means”.  In others words troublemakers would be eliminated by death or internment because the cause of communism was so noble that any means to eliminate dissent was justified.  Profit was eliminated as a criteria for running any enterprise.  Production quotas were the substitute for the concept of profits.

Propaganda and control of information is an essential weapon of communism.  This political system takes every opportunity to demean free enterprise societies and the concept of profits and/or the wise use of capital.  It is particularly adept at infiltrating education systems to corrupt young minds toward radicalism and class warfare.  Lying and twisting the truth is a common weapon, once again, because “the end justifies the means”.  Sadly, once a communistic society is established, it is almost impossible to return to a free society.  Those in control have a secret police, an army, and a sophisticated propaganda system.  Whenever insurrection brews, it is put down forcibly and life returns to a government controlled environment.  Since capital is always in short supply there is little priority for “doing things right” or improving the environment, preserving the planet, or conserving energy.  The shortage of capital is aggravated by the need to inflate the monetary system to pay off debt.  That, of course, hurts anyone who relies on savings.

It took 75 years before the available capital of the Soviet Union was used up.  The country went bankrupt in 1991.  Russia is the biggest remnant of the Soviet Union and it survives as a police state and a capitalist oligarch.  Profit is still an unappreciated term there and worker productivity and product quality is very poor.  There is no significant competition to give the customer a choice and insure the wise use of capital.  Capital growth and domestic product growth are also very poor.  However, the leaders and the elite of a communist state live very well indeed, even when their people are starving.

A word about China.  The first 40 years of this country under strict communism were a disaster for the people of China.  Tens of millions died due to starvation or persecution.  Now China is more enlightened.  It does permit some private ownership and some free enterprise industries.  Also, the Chinese are hardworking and many are very well educated and skilled.  Still, it is a police state controlled by a privileged elite that often spends capital recklessly and unwisely.  They could face very severe economic problems in the future.

Socialism is a less militant form of Communism.  This political system now recognizes that government run businesses are not a solution to create prosperity so instead it relies on massive government and massive control of free market businesses.  Socialist governments are very large and very inefficient.  They consume a great deal of the wealth of a country.  As per Greece, and to lesser extent in the United States, government workers are seldom fired for incompetency and it is difficult to reward merit.  There is little accountability for misspending, projects that go awry, and gross inefficiency.  Pensions and benefits are very generous.  As a result, taxes are very high.  The goal of socialism is to maximize social benefits to its citizens while giving power and benefits to its elite and its bureaucracy.  Helping businesses to be profitable or using capital wisely is not a priority of socialism.  Instead, tax rates on businesses and individuals are often so high as to be confiscatory, and raising taxes further makes the economy falter and does not generate additional government revenue.  The expansion of social benefits can become so great that socialistic societies often must borrow vast sums of money because government revenues from taxation are insufficient.  This created debt eventually leads to bankruptcy, currency devaluation, and poverty for its people.

Communism and socialism fail because they do not appreciate the importance of capital and the essential need to use it wisely.  Most people today are unaware of this fact.  A society that wastes too much of its capital with no way to replenish it will eventually fail.  Borrowing money may keep it going for a while but eventually debt will get so high that the day of reckoning comes and the country goes bankrupt.  Where is there proof of this statement that wasting capital leads to the demise of a society?  The proof is all around us.  It is demonstrated by the failure of societies which have taken available capital and spent it as if it were free money with no consequences as to how it is spent.  Consider the poverty of Cuba, North Korea, Venezuela and other heavily socialistic countries.  Capital in these countries is just something to be squandered.  Greece has done the same thing and its people are now facing unpleasant remedies and difficult times.

Communist and excessively socialistic countries demonize free societies that are concerned about sustaining capital and profits.  They do so because societies that do appreciate the importance of capital and profit, such as South Korea and Singapore, make communistic and socialistic societies look very bad by contrast.

In the United States we have been conditioned by the media and leftist propagandists to react to the words capital and profit as something bad.  The media often needs a bad guy in their stories so who can they choose?  It is not politically correct to choose a nationality or a race or a country or a religion or an “ism”.  So why not make business people into the bad guys who want to destroy the world.  How many business people do you know that actually have tried to destroy the world? None that I can think of.  However, I know of many dictators and nations that have tried to conquer others.  I know of many businesses that were destroyed by governments but I know of no governments that were destroyed by businesses.  The idea that all businessmen are just greedy souls trying to make outrageous profits is absolutely wrong.  Any successful business knows that it must act in the interests of its customers first – otherwise, it soon will not have customers.  This not true of government.  Government is a monopoly.  They don’t have to be nice to customers because their customers have nowhere else to go.  It is true that businesses can also misuse and divert capital and profit.  But this abuse can be and should be controlled.  The big problem is that governments are the major misusers of the capital derived from profits.  Meanwhile, the media keeps condemning businesses as the source of the problem.

There are many other things that are needed for success.  Here is one of the most important things that people must realize is that no society can elevate itself from poverty unless capital for investment is treasured, valued and used wisely.  It is only investing capital wisely that a society can create the products and services that are vital for creating a civilized, high standard of living society.  Obviously, just having capital available to start or expand a business is not all that is needed to make a business profitable.  There are so many other things that are needed for success.  Here are some of the most important:

• There must be adequate numbers of people willing to work and they must have skills and knowledge that are useful and appropriate.
• There must be law and order, plus honesty and truth.
• Money must have a stable value.
• There must be an incentive to work rather than not to work.
• Innovation, creativity and efficiency must be encouraged.
• Government must not stifle business through excessive taxation and/or regulations, or siphon off business capital funds by intimidation, bribery or confiscation.
• Government must provide or allow adequate infrastructure so businesses can function efficiently.

These attributes of a society do not occur by chance.  Society must be made aware that these items are important if inequity is to be addressed.  It is up to parents, schools, government, religions, media and all leaders to teach that these are the attributes that create a successful society.

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NEXT POSTINGS:  (tentative):

AUGUST 1:                Providing a Cure for Income Inequity II

SEPTEMBER 1:         On the Nesmith Basketball Hall of Fame

OCTOBER 1:             On the OHI Day IV

NOVEMBER 1:         On “THE” Election

DECEMBER 1:          On the 2016-17 Hofstra Basketball Season

JANUARY 1:             One Purely Chaste, Pristine and Random Thoughts XXIV