ECONOMIC ESSAY #1
BY JAMES H. DAYLEY
In spite of the unity and togetherness shown in our country over the past few months since September 11th, I’ve become quite disturbed as I’ve read and listened to the sometimes-caustic banter between people speaking for “The Poor” and those deemed to be speaking for “The Rich.” The situations seem to be heated arguments over who gets the bigger share of the government’s budget pie.
The fundamental flaw on both sides of the arguments about “proper” budget priorities is that if one side wins, the other side loses – what mathematicians call a zero sum game.
What both sides would probably agree upon would be my following economic assertion:
THE SYSTEM IS
BROKEN AND NEEDS TO BE CHANGED!
But what SYSTEM am I talking about? I define the present economic environment as a
WAGE-SLAVE/CLOSED-CAPITAL SYSTEM.
What the heck is that, you ask? Well, what I’m talking about is our present, yet flawed, capitalistic system! You know, the one where the rich just keep getting richer and the poor continue to get poorer with little if any chance, seemingly, of changing the situation.
I’ve spent a number of years as a business advisor in the field of entrepreneurial funding and consulting, so let’s examine my basic premise from its closed-capital aspect. As an example of what I’m talking about, suppose that we follow a fictitious potential client of mine for a while. He’s a resourceful worker who figures out how to make a new “widget” that he feels will have a potentially large market. First, he builds a working model and it seems to do the job he thought it would. Second, he scrounges together a small amount of money from his meager savings as well as some cash from a couple of credit card advances to pay for making several prototype models. Next, he shows those models to some potential customers after he gets them to agree, in writing, that they will not steal his product. Several of them really like the product and give him some initial orders. With those orders in hand, he decides to go to the local bank he has used for many years in order to get a loan so he can quit his job and start his own business. He’s worked out a budget and a simple business plan for his presentation that he feels will put him on the way to starting a successful business operation.
Well, here’s what typically happens at an entrepreneur’s first meeting with his bank. He is greeted cordially and ushered in to see a junior executive. When our budding entrepreneur sits down in front of this person, he is asked how the bank can help him. He replies that he wants to obtain a loan so that he can start a business making a product he has developed. He states that he has some initial orders for his product with more to come if he can start to deliver them as soon as possible.
“How much do you need?” is the banker’s next question.
“About $250,000,” is the entrepreneur’s firm and confident reply.
Now comes the kicker! “What collateral do you have to cover and guarantee a loan for that amount?” asks the banker.
Trying not to let his jaw drop too far open, our budding businessman comes face-to-face with what he had only heard about before but now confronts directly: “You can only get a loan if you can prove that you don’t need the money!”
This sort of thing happens all the time because of what various Catholic Popes have, since early on in the industrial revolution, lamented that the workers are, in fact, wage slaves with little chance to save enough money to really have sufficient capital to start an enterprise.
The following story contains some folklore but it servers as a case in point from the not too distant past:
Ken Olson, the founder of a company he decided to call Digital Equipment Company, was looking for money to get started. He had the idea that he could build a smaller version of a computer – he called it a mini-computer – that would compete with the likes of IBM’s mainframes. His efforts to get money from the banks in Boston proved fruitless. He was finally able to start what eventually became a major international enterprise with a $50,000 investment from an already rich investor but it cost him most of the ownership of his company to do so.
So what’s the point? Providing a way for the poor to become rich! Having your own business, according to authors and Ph.D researchers Thomas J. Stanley and William D. Danko in their best selling book, The Millionaire Next Door, is the most common factor in gaining economic wealth. Yet despite the recent flurry of dot.com Internet nerds obtaining millions of dollars from frenzied venture capitalists not wanting to miss out on the latest “hot deal,” capital formation is a very difficult process.
But don’t despair! Help is on the way! The process of making workers the recipients of capital rewards over and above their market-rate wages as recognition for their contributions to the success of companies was conceived and developed by Louis Kelso in the late 50’s and early 60’s. His missionary-like zeal in promoting his ideas eventually came to the attention of Senator Russell Long of Louisiana. Senator Long’s tireless efforts resulted in many new laws being enacted and many old laws being changed in order to put into effect a process for enabling workers to become “stockholders” of the enterprise for which they were working. They thereby would have a chance to obtain some of that elusive commodity called capital. The basic legal mechanism through which this action could be accomplished is called an Employee Stock Ownership Plan or ESOP.
ESOP implementations slowly percolated up through the small company fringes of the nations economy via the efforts of Kelso and his associates. In recent years ESOPs have been adopted by larger and larger companies due to the tireless promotion of the basic principles of fairness and justice espoused by Kelso and the Catholic Popes before him. In the forefront of that effort have been organizations such as The National Center for Employee Ownership and The Center for Economic and Social Justice.
But wait a minute!! Didn’t the present prime target for citing what’s wrong with “The System,” ENRON CORPORATION, have an ESOP? Yes, it did! However, please don’t make the mistake of blaming the tool itself for its inappropriate use. A hammer used in a brutal murder is not at fault for what happened. Rather, it was the vile and despicable actions of the user that was the problem. So it is with ENRON.
But aren’t the demonstrations by protestors at events such as the various World Trade Conferences really an expression of the “Rich – vs – Poor” phenomenon cited above? Absolutely!
I’ve had the opportunity to travel to most of the world, both rich and poor, and have felt deep urges to help in some way. Giving money to beggars on the streets might have provided me with some momentary good feelings, but doing so always frustrated me. I always thought of the statement, “Give a man a fish and he eats for a day. Teach a man how to fish and he eats for a lifetime.”
In support of such thinking there are now over 7000 organizations around the world that are involved in efforts to implement the admonition cited above. They do so through what are called micro-loans to help the poor of the world start their own cottage businesses. The recipients, primarily women, are taught and nurtured by the lending organizations with some, but not total, success. Nevertheless, the effort is worth it because the grass roots people are being assisted and taught correct principles. It prevents them from being wards of the states that dole out food and other benefits from donations from the “so-called rich” countries. Charity is wonderful and desperately needed in genuine disaster and crisis situations. However, past such emergencies, people should – to paraphrase the Popes again – be rewarded not by their “needs” but for their individual “contributions.”
What about applying Kelso’s ESOP principles to the Third World? Would it work at the upper levels while the micro-loan programs work at the bottom? Yes, it would and in fact it already has in a limited way. For example, an ESOP was part of the creation of The Alexandria Tire Company in Egypt in the mid-70’s and it is doing well today.
But let’s get back to the challenges at home! The cry of President Bush for “JOBS” is fine, but only if the wage-slave environment can begin to change. My personal feelings are that the best environment to promote such a change in basic attitudes is in small companies. Specifically, in ones that are nurtured and mentored with dedicated capital in an atmosphere where proper and just principles prevail. Those are:
This is what I want to help accomplish when I grow up!
So, whether it’s in this country or in the whole world, the problem of Curing World Poverty (The title of a book compiled and edited by Fr. John Miller) should not center around an “Us – vs – Them” fight over who gets the biggest piece of the economic pie. Rather, our mission should be to all work together to build ever-increasingly bigger pies. As a supporting compliment to the numerous admonitions from the Catholic Popes cited in the book above, I respectfully add the following verse from the scriptures of The Church of Jesus Christ of Latter-Day Saints.
“For the earth is full, and there is enough and to spare: yea, I prepared all things, and have given unto the children of men to be agents unto themselves.”
(Doctrine and Covenants, Section 104, Verse 17)
Mr. Dayley is a retired U.S. Air Force officer/engineer who now works as a business consultant and freelance author.