Transcript business.baylor.edu

CHAPTER 2
GLOBAL
CAPITALISM
MEET
CAP
1. Capitalism (CAP) runs the world.
2. CAP is more powerful than any
nation, government, corporation,
institution, person, military, or
social movement.
3. CAP can’t be controlled, only
imperfectly managed.
4. CAP is based on self-interest
within a system of mostly
impersonal commercial
transactions.
5. Corporations control most of the
world’s commercial assets:
technology, factories, intellectual
property, etc.
6. Corporations create most of the
world’s jobs & national exports.
7. Nations depend on corporations for
their national economic growth and
standard of living.
8. Corporations influence global political
leaders more than any other source of
power.
9. CAP is impersonal & amoral (valuesneutral) because the marketplace is
also.
10.CAP is based on consumerism, which
is based on self-gratification,
spending, & debt.
11.CAP is an interdependent, impersonal
community where capitalist activity
affects everyone & everything.
12.CAP is the driving power source for
the world, economies, nations,
corporations, institutions, & people.
13.CAP can be stabilized to a great
extent by institutions but periodically
becomes temporarily destabilized via
recessions, inflation, social change,
institutional incompetence & fraud,
politics, & nationalistic conflicts.
14.CAP, not war, is the main form of
nationalism in the 21st century.
15.CAP can quickly become exploitative
without laws, regulations, institutional
oversight, professional codes of ethics,
& media exposes.
16.CAP is ideological, & hence controversial, because it
is based on self interest, which must be justified &
rationalized by a variety of often conflicting
(ideological) systems.
17.CAP is the main source of self-identity in the
industrialized world, since capitalism directly &
indirectly generates most jobs/careers, which are
the foundation of self-identity for most
professionals.
18.CAP is the catalyst for most social change in the
world, because capitalism thrives better in
individualistic social structures than in extended
family communities (which are the dominant social
structure of the world).
19.CAP is the best economic system for the world
because it is the least imperfect & the only one tied
to human nature (self-interest).
THE
BENEFITS
OF GLOBAL
BUSINESS
GENERAL BENEFITS OF CAPITALISM
1.Economic growth
2.Jobs, careers & periods of full
employment
3.Tax revenue for local
communities
4.Technology development
5.Investor income
6.Marketing systems that deliver
a high standard of living
7. Companies can get lower interest rates on
the international market than the domestic
market (but then are subject to the
demands of foreign creditors).
8. Trade enables consumers to buy cheaper
products (but sometimes at the expense of
sustainable worker incomes in developing
nations).
9. Free trade opens the door for technology
sharing (but this may drive weaker domestic
companies out of business).
10. Free trade opens borders (but also
increases the risk of short-term
unemployment).
CAPITALISM AT WORK
1. Reducing
poverty in developing
nations:
– Between 1978-1998, poverty was
reduced in China from 28% to 9%.
– Poverty in India fell from 78% to
26%
– Poverty in Africa did not improve
during this 20-year period because of
lack on industrialization &
institutional advances in democracy
2. The U.N.’s International Labor Org.
estimates that 100-200M children
under 15 work in the global
workforce, 95% in poor nations. At
least half of these children don’t go to
school.
3. Globalization is perhaps the main
benign factor in reducing child labor,
because the long-run presence of
foreign companies raises the wages of
parents, enabling children to stop
working and start school.
4. “On average, developing countries
protect their production much more than
developed countries, even though their
protection is much less widespread. This
protection means less South-South trade,
which is of vital importance for them to
achieve more economic growth. Those
who oppose globalization should be
reminded that what is necessary for
increasing growth and reducing poverty
and inequality is a drastic reduction of
trade barriers, that is, more and better
globalization, not less.”
5. Research has shown that multinational
companies normally pay at least 10%
higher wages in developing nations, and
often times 40-100% higher than
existing wages.
6. The rights of women have also improved
over the long-run in global business,
because foreign firms who provide equal
employment environments for women
have such a large competitive advantage
over local firms, that the local firms must
improve treatment of women in order to
stay in business.
HOURLY MANUFACTURING
PAY COMPARISONS
•
•
•
•
•
•
•
•
•
USA: $21.33
EU: $20.18
Japan: $18.83
S Korea: $9.16
Singapore: $7.27
Taiwan: $5.41
Brazil: $2.57
Mexico: $2.35
China: $0.69
MANAGED GROWTH (by Global Institutions) IS
BENIGN GROWTH
1. Global growth is healthiest when it is it is
gradually introduced over several years
(as opposed to instant “shock therapy”).
2. The better global growth is managed, the
more its effects are benign rather than
malign.
3. Multinational companies must avoid the
quest for fast profits in developing
nations to provide a healthy long-term
operating environment.
% OF POPULATION WHO AGREE THAT FREEMARKET CAPITALISM IS THE BEST
ECONOMIC SYSTEM FOR THE FUTURE:
1.
2.
3.
4.
5.
6.
7.
8.
China: 74%
USA: 73%
India: 72%
Britain: 70%
Germany: 68%
Italy: 60%
Russia: 40%
France: 36%
MERCANTILISM & PROTECTIONISM
1. Mercantilism was an economic system
practiced by European nations from 15001750 in which nations strived to gain
economically at the expense of their
neighbors via: exporting more than importing;
engaging in protectionist activities (primarily
tariffs) against foreign imports; colonial
exploitation of foreign colonies; hoarding
precious metals (“bullion”) as a major source
of national wealth.
2. 18th century economist Adam Smith developed
early free trade theories that largely
discredited the mercantilist “win-lose”
system of trade.
BUSINESS
EXTERNALITIES
Externalities = the positive &
negative impacts of corporate
profit-maximization on nonstakeholders.
Positive externalities:
• Job creation
• Tax revenue
• Productive use of technology
Negative externalities:
• Pollution
• Social outsourcing
• Unemployment
• “Sweat shop” operations
• Political bribery (legal &
illegal) & lobbying
CAPITALISM
SYSTEMS
I. SYSTEMS THAT FEED ON
CAPITALISM
Corporations
Consumers
Non-ownership workers
Politicians
Non-profit organizations
II. SYSTEMS THAT CAPITALISM
FEEDS ON
Consumers (primarily
middle class)
Under-developed
nations (land & labor)
Government nationalism
Monopolies & industry
concentration
Deregulation
Political lobbying &
campaign contributions
Technology
III. SYSTEMS THAT SEEK TO
MANAGE CAPITALISM
IIIA. Governments
Regulatory agencies
Tariffs & subsidies
Interest rates
Taxes
Keynesian economics (deficit
spending)
IIIB. Financial Institutions
Private & public banks
Stocks markets
Currency exchanges
Brokerage companies
IIIC. GGOs
WTO: Global trading policies &
practices; Advocacy of PPMM
capitalism: Private, Profit
Maximization, Marketcontrolled
IMF/WB: Using loans to
establish PPMM capitalism in
the developing world
IIID. NGOs
Environmental
Human rights
IIID. LABOR UNIONS
IV. CORPORATIONS THAT SEEK TO
DOMINATE & CONTROL CAPITALISM
Transnational (non-nationalistic)
corporations (“Fortune” 1000)
Controlling the VAC via business
function dominance
Off-shoring & using labor as a
commodity
Influencing national & regional
politics
SYSTEMS OF SELF-INTEREST
(right click on title)
THE CAPITALIST
PRISM
(who wants what
from capitalism)
NATIONALISTIC NATIONS
•Capital account expansion
•Military-industrial
complex
•“Turbo-capitalism”
•Exporting of products &
culture
TRANS-NATIONAL
CORPORATIONS
Using the entire world as an
operating arena via:
•Controlling the VAC
•Off-shoring (labor as an
impersonal commodity)
•“Social outsourcing”
•Financial backing of politicians
•Deregulation
GLOBAL INSTITUTIONAL
INVESTORS
•Trans-national investing
•Influencing global financial
policy-making
•Shifting investment risk via
derivatives & creative accounting
•Controlling major investments
via majority share-holding
DOMESTIC CORPORATIONS
•Minimizing business costs
•Inventing & innovating
(intellectual capital)
•Building bulk via mergers
•Debt leveraging
•Seeking trade protectionism &
govt. subsidies
•Value-neutral corporate values
GGOS
•Reinforcing neo-liberal
global capitalism
•Brokering regional free
trade agreements
•Accommodating the
interests of global
corporations
STOCKHOLDERS
•Maximizing share price
appreciation & capital gains
•Maximizing dividend yields
•Seeking inside financial
information
•Influencing corporate
directors
TECHNO-CLASS
•Resume-building
•Opportunistic jobhopping
•Dual-career marriages
•Debt-based consumerism
•Capital asset appreciation
SUSTAINABLE INCOME
NATIONS & WORKERS
•Alteration of the VAC via
“community capitalism”
•Job security & familyprovision
•Illegal immigration
•NGOs
NGOS
•Opposition to global
consumerism/materialism
•Opposition to neo-liberal
capitalism & GGOs
•Business regulation
•Sustainable income global
standard
•Consumers
•Debt industry
•Corporate
executives &
stockholders
•Middle class
•Individualism cultures
•Unisex cultures
•Oligopolies &
monopolies
•Nations high on the VAC
•Social Darwinist
cultures
WHO SERVE CAPITALISM
1. The Earth
2. Corporate employees
3. Workers with nonsustainable incomes
4. WTO & IMF
THE INVISIBLE
HAND OF
GLOBAL
CAPITALISM
Author Edward Luttwakcoined the term
“turbo”-capitalism (commonly referred to
as neo-liberal capitalism) to describe the
highly aggressive global economic system
that has “flattened” the world by its singlemined pursuit of profit maximization via
free trade agreements, deregulation of
industries, unencumbered flows of
investment across borders, & Social
Darwinism (only the largest, most dominant
corporations survive & thrive.) According to
Friedman, “In a flat world, you either
compete successfully or get run over.”
“Turbo”-capitalism is embedded in invisible
political, economic, & cultural SYSTEMS that
shape the behavior of most people,
organizations, & nations—even though many
are only dimly aware of it. The “invisible
hand” of capitalism is a dominant SYSTEM in
the world because of its far-reaching
influence on the subordinate SYSTEMS of
politics, markets, industries, companies,
consumers, & technology. These SYSTEMS in
turn impact the wealth, status, & power of
people, organizations, & nations. Everyone is
part of the capitalist SYSTEM, but some are
more in control of it than others and hence
benefit from it more.
Living in an organizational/capitalistic
society makes you dependent on a
number of invisible SYSTEMS which
influence your life & livelihood. The more
dependent you are on a SYSTEM, the
more it controls you. The more it
controls you, the more you must conform
to its (often invisible) machinations. To
the extent that you voluntarily join a
SYSTEM, conform to it, & personally
benefit from it, the more accountable
you are for any negative impacts it may
have on others.
EXAMPLES OF SYSTEMS INVISIBILITY
1. Corporations seek to maximize profits
& minimize costs through a complex &
impersonal SYSTEM of financial,
logistical, marketing, & human resource
decisions revolving around selfinterest.
2. The two leading economic global
governmental organizations (the World
Trade Organization & International
Monetary Fund) mandate “neo-liberal”
(profit-max/cost-min) policies for
nations that parallel the Western
economic SYSTEM.
3. The value of a nation’s currency SYSTEM
directly impacts the success of its importing
& exporting.
4. The vitality of most global industries is
indelibly tied to the global price of gasoline.
5. Free trade SYSTEMS between nations set
off a chain reaction of economic, political, &
social reactions.
6. Even “domestic” companies are part of the
global economy because in most cities they
face foreign competitors & are also
dependent on global supply chain logistical
SYSTEMS.
7. Neo-liberal (profit-maximizing) structural
change SYSTEMS mandated by the
International Monetary Fund for many
developing nations are likely to raise
domestic unemployment, lower currency
values, & empower foreign companies to
buy out local competitors.
8. Off-shoring jobs often promotes long-run
economic development in affluent nations
by replacing low pay jobs with higher paid
ones.
9. Technology eliminates some jobs but
creates others.
THE VISIBLE
HAND OF
GLOBAL
CAPITALISM
Global capitalism is too
powerful, pervasive, and
professional to be
controlled. It can be
successfully managed
only by proactive
community-minded
government and business
leaders.
But capitalism is also influenced by visible
government economic policies, social activist
non-governmental global organizations, &
public opinion. “Governments still play a key
role in managing globalization and
socioeconomic outcomes. Thus we have
contentious battles over free trade
agreements, labor rights, ecological
standards, immigration control, and
socialized public sector programs.” Even the
U.S. federal government (traditionally
dominated by laissez faire, deregulated
capitalism) engaged in socialism with its
quasi-ownership interest in the banking and
auto industries in 2008.
THE VISIBLE &
INVISIBLE HANDS
OF SELF-INTEREST
AT WORK IN THE
2008 GLOBAL
ECONOMIC CRISIS
1. A housing “bubble” (over-expansion of house
construction based on cheap debt &
deregulation of the financial service
industry) was caused when the Federal
Reserve (coordinator of the U.S. banking
system) kept interest rates too low too long
in order to artificially stimulate U.S.
economic growth.
2. Low-rate variable (interest rates subject to
future change) mortgages were sold in
record numbers (sometimes unethically) to
would-be home owners normally deemed
unqualified for large, long-term loans. The
price of their homes was normally inflated in
the process.
3. Mortgage companies sold their sub-prime-rate
mortgages to large, unregulated investment
banks, who “bundled” huge numbers of
mortgage IOUs into sellable investment
packages (known as securitization of assets)
sold to speculative investment institutions all
over the world who became the ultimate home
mortgage creditors.
4. By packaging mortgages into sellable bundles,
the original mortgage holding financial
institutions shifted their risk to the investors
purchasing the bundles, who in turn felt secure
because they were buying an assortment of
mortgage assets, thus putting their “eggs” into
many “baskets.”
5. In 2006-2008, interest rates began to rise
in a belated effort to stop the subprime
mortgage juggernaut. A growing number
of home buyers began to default on the
variable rate subprime mortgages they
should never have been approved for in
the first place.
6. Institutions all over the world holding
securitized pooled mortgage assets (such
as Lehman Brothers, Merrill Lynch) were
soon driven into bankruptcy or
reorganization because record numbers of
mortgage holders were no longer able to
afford their homes.
7. Wall Street suffered record losses as
stockholders panicked and began
unloading their holdings of companies
potentially affected by the mortgage
market collapse.
8. It is predicted that global losses
stemming from the economic melt-down
will reach $1.3 trillion & U.S. credit
growth will slow.
9. The U.S. federal government has so far
spent the equivalent of 7% of annual
U.S. GDP in financing the bailout (twice
the cost of the Iraqi war).
American capitalism reached a crossroads
in the 2008 global economic crisis, when
the subprime mortgage-manipulation
scandal spawned twin crashes of
investment banking & Wall Street. “Neoliberal” capitalism & “Reaganomics”
(with their extreme Laissez faire
capitalism of deregulation, financial
leverage, & single stakeholder profitmaking) mutated into “mixed” capitalism
with the ensuing government bailout
packages & state intervention into
private markets.
When neo-liberal capitalism (American
laissez faire capitalism applied to the
world economy via the International
Monetary Fund & World Bank)
infected most of the world economy
with the exotic “sexually-transmitted
disease” of mortgage debt-based
“assets” (known as derivatives), both
the developed & developing world
were forced to protect their own
economies via the “condom” of
government stimulus.
Given that Asia & Europe have heavily
financed America’s profligate lifestyle of
debt-based economic growth, these
regions now possess solid leverage over
America’s future financial policies & will
doubtlessly insist on a more responsible
form of American capitalism. Imminent
changes are likely to see the demise of
Reaganomics & a revival of industry
regulation; public & private debtmanagement; tax increases; & political
multilateralism (policy consulting with
key financial benefactors).
“The global currency and banking
crises of the 1990s and the
investment banking scandal of
2008-2009 demonstrated that
the largest and most efficient
international financial system in
history had a downside: its very
size and speed gave it the
potential to destabilize the
entire world economy.”
SYSTEMS
EXPLOITATION
• Institutions create systems to be
exploited: commercial markets,
stock markets, global trade,
educational systems,
corporations, political offices,
etc.
• Nations, organizations, and
individuals play the “gain game”
by exploiting systems for self
gain.
• Capitalism is the world’s largest,
most exploited, system because
of it accessibility and
unparalleled financial wealth.
• Global business exploits
capitalism to a greater degree
than any other system on earth.
• Professional success hinges on
the capacity to exploit systems
for career gain.
THE TW0EDGED
SWORD OF
GLOBAL
BUSINESS
“Corporations are more central
players in 21st century global
affairs than nations. We call them
multinational, but they are more
accurately understood as
transnational, post-national, or
anti-national. Their customers are
not citizens of a particular nation;
they belong to the universal tribe
of consumers, defined by
materialistic want and needs
spurred by advertising.”
GLOBALIZATION IS A
TWO-EDGED SWORD
1. Benign (constructive)
globalization: “Win-win” mutually
advantageous trade between
nations; “raising the lake level for
all the boats”
2. Malign (destructive) globalization:
“Beggar thy neighbor” trade;
damage to cultures & political
systems; exploitation of labor, etc.
THE TWO MAIN FORCES OF
ECONOMIC GLOBALIZATION
1. Governmental “liberalization”:
regional economic
cooperation; free trade
agreements; consulting with
other nations on economic
policy
2. Global penetration of
revolutionary technology
DOES EVERYBODY WIN?
Wal-Mart expanding into Mexico:
– W-M stockholders win? (yes)
– W-M employees win? (yes, since no
American W-M employees lost their
jobs & some Mexican workers gained
new jobs)
– Both nations involved win? (yes, both
get more taxes from W-M)
– Competitors in both nations win? (not
the Mexican retailers put out of
business by W-M)
EXAMPLES OF INTENTIONAL vs.
UNINTENTIONAL OUTCOMES
1. An American sporting goods manufacturer
intentionally relocates to China to reap more
profit by saving on labor costs (thus
unintentionally permitting some Chinese
workers to move out of “hand to mouth”
agricultural jobs & unintentionally hurting its
former American employees, local community,
& labor union)
2. Thus, the American company unintentionally
hurt its own nation & unintentionally helped a
“foreign” nation—all because of the
(powerful) profit motive
IDEALISM vs. PRAGMATISM
1. There are 2 basic human motives: selfinterest vs. idealism (commitment to
something bigger than ourselves:
humanitarianism, fairness, community,
health, etc.)
2. Acting out of self-interest leads to
pragmatism: “Do it if it gets you what you
want” (even if it means compromising
some ideals).
3. Global business is the most pragmatic
profession of all, because so many nonidealistic obstacles have to be overcome in
the pursuit of profit and competitiveness.
Hence, global business is a rough and
tumble pursuit based on Social Darwinism
(do whatever it takes economically &
politically to survive).
The profit-generating pragmatism of
global business impacts a number of
human ideals in both positive & negative
ways:
1. Hiring people vs. laying them off
2. Cutting the price of products by paying
marginal wages to employees
3. Opening new plants or business
locations by putting competitors out of
business
4. Creating material wealth while
degrading or consuming environmental
wealth
“The 3 scariest words in today’s global
economy are: What’s China’s price?” Over
the past decade, China has set off a wage
“race to the bottom” in the global economy
by paying workers less than anywhere else
in the world, including the poorest of other
developing nations. Economic statistics
indicate that wages have indeed fallen,
even in highly developed economies such
as the USA, where wages have stagnated
or declined since 1973. In Europe, wages
didn’t fall due to socialistic government
protection, but significantly fewer jobs
were created.
FREE (BORDERLESS) MARKETS ARE NOT
NECESSARILY FAIR MARKETS
“For the majority of Americans, income
growth has all but disappeared in recent
years. And it’s not just that low-skilled
who are getting slammed. Inflationadjusted earnings have fallen in every
educational category. The share of
Americans who gain from free trade is
rapidly shrinking. The gap between the
rich and poor is growing much wider,
feeding resentment & political & social
unrest.”
“Eventually up to 40 million service jobs in
the U.S. could face competition from
workers in India and other low-wage
nations. Many of the newly vulnerable
will be in skilled fields, such as
accounting and research—jobs U.S.
companies will be able to move offshore
in ever greater numbers. The question of
whether spreading globalization and
information technology is strengthening
or hollowing out the American middle
class is the dominant economic issue of
our time .”
GLOBAL
TENSIONS
SPAWNED BY
PRIVATE
CAPITALISM
1. The impersonal, institutionalized
approach of private capitalism does not
smoothly integrate into communal
cultures based on small, family
businesses & quality of life over quantity
of life.
2. “Neo-capitalism” is a form of nationalism
in which the largest developed economies
(the “Godzillas”) compete for global
influence/power via their flotilla of large
global corporations which export Western
culture and lifestyles into nonwesternized areas of the world.
3. Private capitalism has spawned “patriotic”
consumerism (induced via mass media
advertising/PR & enabled by efficient global
supply chains) in which living beyond one’s
means (both individuals and institutions) via a
universal credit lifestyle has become the chief
engine of nationalistic economic growth.
4. Media advertising & entertainment have
created the false reality that consumption is
the purpose of life, not merely a means to a
comfortable life. External realities that
challenge the consumerist ethic (global
warming, indebtedness, mass
commercialism, etc.) are either ignored or
wished away.
5. Corporate marketing has gone beyond its
traditional role of trying to create/stimulate
new consumer wants to convincing
consumers that their wants are actual needs
(necessities of life). This has further
heightened American indebtedness & further
increased dependence on foreign capital. “In
a society where everything is a commodity
that can be bought or sold, people are
alienated from community. Commodities,
media, and technologies provide a universe of
illusion and fantasy where individuals become
overpowered by consumerism, media
ideologies, and fleeting celebrity role models.”
6. The recent near-economic collapse of
America’s (unwisely deregulated)
financial markets and its global economic
shockwaves clearly demonstrates how
unstable the globally-interconnected
economy really is. Neo-liberal capitalism
is such an invasive & pervasive system
that no one is in secure control—not
governments or institutions. Less
exploitable private market regimes (such
as community capitalism) may well be
necessary for the future economic
stability.
Globalization is the
emergence of an
integrated world
economy & a
universal culture.
#1 “Libertarian” capitalism
1.
2.
3.
4.
(commonly called “neoliberal” capitalism)
Profit-maximization
1 stakeholder (fin. owners)
Free-market, deregulated
impersonal markets
Social Darwinism
competition
#2 Protectionist
capitalism
Nationalistic use of
various free trade
barriers: tariffs,
subsidies, quotas,
dumping, etc.
#3 Mixed
capitalism
Nationalistic mix of
capitalism & socialism
(govt. ownership of
businesses, subsidies,
social welfare benefits)
#4 Community
capitalism
Small businesses that
serve multiple
stakeholders vital to
small communities of
extended families
LIBERTARIAN
CAPITALISM
vs.
COMMUNITY
CAPITALISM
1. Libertarian capitalism (LIBCAP)
is the ideology of most Western
nations (especially the USA).
Its bedrock principles include
the importance of private
enterprise, free (borderless)
trade, minimum government
encroachment on the “invisible
hand” (impersonal marketplace)
of capitalism, & the profit
maximization ethic.
Libertarian capitalism is often called
“neo-liberal” capitalism by
economists. “Liberal” refers to
liberalizing (maximizing) the role of
government in promoting
unregulated private enterprise &
borderless trade. “Neo” refers to
applying this capitalist ideology in a
new way: not just to corporations,
but also to nations & global
government orgs.—to the whole
unregulated global economy.
WHAT LIBERTARIAN CAPITALISM VALUES
1. Minimum government; maximum business.
Cater to corporations.
2. Business with an “invisible hand” (business
activities occur at the unseen, unregulated
grass roots level)
3. Single stakeholder (company owners) + single
goal (profit maximization)
4. Social Darwinism: Only the strongest, most
competitive nations & corporations survive
marketplace competition over the long haul.
5. Institutional safety net for other stakeholders
(employee unemployment insurance, supplier
contracts, collateralized bank loans, etc.)
HOW PROFIT IS MAXIMIZED
1. Deregulation
2. Max cost efficiency via employee &
wage minimization (especially
through off-shoring manufacturing)
& technology maximization
3. Social Darwinism competition via
large corporations, oligopolies, &
value-added chain control
4. Borderless operations
THE SOCIAL SAFETY NET REQUIRED FOR LIBCAP
1. Unemployment benefits
2. Dual breadwinner families (to reduce
dependency on a single income)
3. Plentiful & affordable educational
opportunities (so employees can upgrade
their marketability)
4. A low unemployment job market for
employees (in the event they are laid off)
5. Keynesian economics (govt. stimulates
economies as needed via spending
borrowed money on private or public
programs)
THE UNIQUE BENEFITS OF LIBCAP
1. Enhances a nation’s materialistic life
2. Stimulates local, national, regional,
& global economic growth &
innovation
3. Nationalistic capitalism provides a
less violent way for nations to
compete than military engagement.
4. Capitalist careers are the primary
means by which most 21st century
people derive personal identity in life.
LIBCAP was designed for Western
individualistic where the needs of
corporations take precedence over family
needs (which are met in large part
through institutions). As more and more
non-Western, community cultures are
pressed to stimulate and expand their
21st century economies via LIBCAP, they
will inevitably experience more cultural
individualism and erosion of community.
One their greatest challenges will be
providing the social safety net required
by LIBCAP.
1.
2.
3.
4.
COMMUNITY CAPITALISM
(pursued in extended family-cultures)
Multiple stakeholder interests (employees,
suppliers, neighborhoods, customers, &
investors)
Satisfactory profit over the long-run (to
enable the company to continue meeting the
needs of its internal & external communities)
Operations efficiency balanced with human
considerations (to minimize disturbing the
community's economic harmony)
Regulated resource flows (incoming FDI &
foreign currencies) & defensive protectionism
(to deter foreign predatory competition)
MAJOR DIFFERENCES BETWEEN COMMUNITY vs.
INDIVIDUALIST CULTURES
1. Interdependence vs. interdependency
2. Power based on relationships vs.
institutions
3. Personalized business practices vs.
impersonal
4. Jobs vs. careers
5. Free things of life vs. consumerism
6. Family & community first vs.
organizations first
7. Stress on economic needs vs. wants
8. Secure jobs vs. job hopping
9. Corporate service to the local
community vs. service to stockholders
10.Paternalistic working environment vs.
competitive
11.Cooperation vs. competition
12.Sustainable profit vs. profit
maximization
13.People vs. technology
14.Reacting & adapting to change vs.
proacting & mastering
WHAT COMMUNITY CAPITALISM VALUES
1. Employee (family) economic (job)
security
2. Profit reinvested into lives within the
community (rather than investor
individual wealth)
3. Personal bond between company &
customers
4. Smaller companies & lower investor
expectations
5. Focus on economic needs > wants
SUSTAINABLE INCOME & A LIVING WAGE
Economically developing communities require
a sustainable income for its members that
ensures that they not only make enough
money to subsist on (a living wage), but also
enough to invest back into the community’s
productive assets (both physical and
human) and to preserve the environment for
future generations. Wages are most
sustainable only when superfluous
middlemen are replaced by grass roots small
business that develop thier own distribution
system.
“Foreign companies established in
both developed and developing
countries tend to pay higher wages
than domestic companies and the
working conditions they offer tend to
be better than the general working
conditions in the host country.
Additionally, they tend to provide
their employees with more training
and knowledge as well as better
retirement conditions than the
domestic companies.”
WESTERN BUSINESS ISN’T EQUIPPED FOR
COMMUNITY CAPITALISM
Western competitive strategy (libertarian
capitalism) generally won’t work well in the
community capitalism environment of developing
nations. Western capitalism depends on mass
marketing for high profit efficiency, while
developing nations require pinpoint local
marketing to fit the diverse needs of numerous
sociological groups. Western business is
impersonal, while community capitalism business
must be highly personalized at the grass roots
level. Most Western products are designed to
cater to lifestyle and status differences, while
developing nation products must normally be
highly functional and practical.
Western marketing managers are illequipped for business in the community
capitalism environments found in
developing nations. They are like West
Point military cadets in post-Civil War
America who weren’t prepared for
fighting the indigenous Indian tribes of
the Southwest. Western business
schools don’t prepare students for
doing business in the bonanza markets
of emerging nations which use other
forms of capitalism.
WHEN COMMUNITY CAPITALISM WORKS BEST
Community capitalism works best: (1) For
privately owned, smaller companies, with
a limited number of stockholders; (2)
When the company is not in a heavily
competitive industry, which greatly
increases the importance of cutthroat
short-term profitability; (3) In developing
nations where job security is essential (4)
When a personal (rather than
institutional) bond of service and ethical
accountability exists between company
and customer
COMMUNITY CAPITALISM AT WORK
1. High job security of employees because
of the scarcity of jobs in developing
nations
2. Fewer workers replaced by technology
3. Partial or total government ownership
of corporations (to provide financial
stability)
4. Limited foreign ownership of domestic
company stock
5. Small family companies play a lager role
in the nation’s economy than large
corporations
EXAMPLES OF HOW LIBERTARIAN
CAPITALISM DOESN’T FIT WELL INTO
COMMUNITY CULTURES (CCs)
1. Eight-to-five workday: People
in CCs have family necessities
that often require them to be
at home some during the day.
Most CCs don’t have enough
institutions to assume these
essential family functions.
2. Geographic
job hopping: The
extended family substitutes for
most institutions in CCs, so
family members are tied to
their local communities.
Geographic job transfers or
new jobs compromise the
capacity of families to care for
children & the elderly on their
own; to share home assets
(rent, tools, phones, etc.)
3. Career
women: Child-rearing,
especially in large families,
must normally be handled by
mothers, grandmothers, &
sisters. Day care centers,
nannies, & all day public
schools systems are rare &
unaffordable. Also, in most CCs,
women derive most of their
self-esteem from nurturing
rather than pro. Work.
4. Living
your personal life around
corporate demands:
Institutional jobs, & especially
careers, require long hours of
uninterrupted work &
significant time away from
home & family (as well as 4+
years of full-time college,
commuting to work, dual career
marriages, & sometimes 24/7
projects).
5. Govt. budget deficits to
institutionalize community
functions: Individualism cultures
require high taxes & socialized
community services to pay for
duties performed at low or no cost
that would otherwise be the
responsibility of families. The
govts. of most CCs lack the
financing to pay for
institutionalizing basic social
functions.
THE 21ST CENTURY ‘S 2 BIGGEST
CULTURAL CHALLENGES
1. How ready & willing are community
cultures to give up their
indigenous cultural way of life in
order to be better served by
individualistic capitalism?
2. How ready & willing are
individualistic cultures to build
community into their form of
capitalism?
SOCIAL DARWINISM IN GLOBAL TRADE
Survival of the fittest (Social Darwinism) is
what international trade is all about. Nations
& their corporations use sophisticated
strategies to compete for financial, marketing,
& technological dominance in world markets
using competitive strategies that sometime
result in win-win outcomes and sometimes
win-lose. In win-win trade, both the rich and
poor become better off. In win-lose trade, the
rich get richer while the poor get poorer.
Over time only the strongest nations continue
to prosper from global trade and only the
dominant corporations survive.
FREE TRADE MEANS LOTS OF
THINGS TO LOTS OF PEOPLE:
1. The right to import & export without
barriers & restraints
2. The right to engage in profit-seeking
business activity across the world
3. The right for nations to do business with
one other in a competitive & cooperative
manner
4. The right to develop a globalized
economy in which nations & companies
are interdependent
FREE TRADE RAISES TOUGH QUESTIONS
1. To what extent is free trade mutually
beneficial for all parties involved
(nations, companies, workers, etc.)?
2. Should nations have the right to
protect themselves against what they
perceive as damaging competition
from other nations?
3. Is trade better regulated by
governments or by the “invisible
hand” of capitalism?
FREE TRADE IS A LOT LIKE A MALL
1. Lots of stores, customers, & employees
benefit from the ideal shopping
circumstances, but they don’t all benefit
equally.
2. Sometimes large stores, such as Penney's or
Sears, put smaller mall stores out of business.
3. Stores & customers usually get along
cooperatively, but conflicts do sometimes
arise.
4. Not all people are rich enough to regularly
shop at malls, & some cities aren’t large
enough to have one or more plush malls.
5. Rules & regulations help malls to conduct
business efficiently & effectively.
THE COMPETITIVE WEAPONS OF NATIONS
1. Military or economic colonialism
(partial or complete control of
another nation’s assets)
2. High currency trading value
3. WTO “green room” informal trading
deals with key trading partners
4. Loaning money to the World
Bank/IMF (which gives the loaning
nation considerable influence over
terms of the loan)
5. Membership in free trade agreements
6. Exporting products other nations are
dependent on (oil, computer
hardware, food, digital technology,
etc.)
7. Tariffs to protect key domestic
industries against foreign
competition
8. Government subsidies paid to
domestic agricultural &
manufacturing organizations to boost
their global competitiveness
CORPORATE COMPETITVE WEAPONS
1. Innovative technology (intellectual
property)
2. Monopolistic or oligopolistic industry
structure
3. Acquisition of competitors
4. Lobbying & political campaign
contributions
5. Off-shoring of operations
6. Global supply chains
7. Cheap domestic illegal immigrant
labor
ANTI-COMMUNITY PROFITMAX
PRICING STRUCTURE
The invisible hand marketplace of free
trade fosters profit maximization
through minimizing costs and hence
prices. Price minimization, however,
can damage community over the logrun by its failure to provide for
“externalities”: negative byproducts of
profitmax competition, such as
pollution, unemployment, &
unsustainable worker incomes.
The absence of sustainable worker incomes
in many developing nations (as well as
poverty pockets in developed economies)
is often directly attributable to price
minimization. “Fair trade” agricultural
co-ops in many developing nations don’t
practice price-minimization in order to
capture essential community costs in the
price of their products. These costs
include sustainable income and
ecologically-conscious land management,
costs often left unfunded by many free
trade corporations.
THE POWER &
WEALTH DRAMA
OF WESTERN
LIBCAP
CULTURE
Business success in
individualism Western
cultures requires the
accumulation of
economic & social power
on 4 levels: nationalistic,
industry, corporate,
worker.
#1.National power:
1. Globally-dispersed military bases
(enabling military or economic
colonialism)
2. Large, industry-dominant global
corporations
3. Provision of subsidies & tariff
protection to domestic industries &
corporations
4. Trade surpluses
5. Low international debt
6. Low domestic debt (both
government & consumer)
7. Prosperous middle class markets
8. Strong, innovative entrepreneurial
sector
9. Adequate business regulation to
protect against monopolies,
predatory corporate behavior, & lack
of executive ethical accountability
10.A healthy distribution of national
income
#2. Industry power:
1. Oligopolistic industry structure
2. Value-added chain dominance
3. Nationalistic backing in the
pursuit of global markets
4. Product/service that creates its
own demand (lifestyle-catering,
health-enhancing, etc.)
5. Industry deregulation
#3. Corporate power:
1. Corporate political lobbying &
campaign donations
2. Intellectual property assets + legal
protection
3. Strong invention & innovation
corporate competencies
4. Off-shoring: labor & pollution
5. “Turbo-capitalism”: using the
assets of foreign nations
6. Re-engineering jobs so that one worker
does the work previously done by 2 or
more workers
7. Bribes in nations with corrupt
governments & weak institutions
8. Receiving subsidies from the
corporation’s own government
9. Tariff protection at home
10. Dumping exports below cost in foreign
markets to build market share
(illegally)
11. Using government military contracting
as a profitable “gravy train”
12. Advertising & public relations to
attract consumers & “spin” the
corporation’s image
13. Employee layoffs & downsizing in
economic downturns
14. “Going public,” when a private
company sells stock to outside
investors
15. High stock trading price, stock splits
& buy-backs
16. Price wars & selling below cost
(market “dumping”)
17.Corporate consumer
financing/credit & making
money off late & penalty fees
18.Using “loss leaders” sales
items, coupons, contests, etc.
to woo customers
19.Avoiding overtime work &
employee benefits via a
workweek of no more than 39
hours
#4. Worker (career) power:
1. Degrees, licensing,
certifications
2. Resume breadth & depth
3. Networking with successful
companies & investors
4. Geographical mobility
5. Dual-career marriages
6. Access to child care
Career capitalism can be
depicted as a series of
power rings arranged like a
target from the inner-most
“bulls eye” (those
personally benefited most
by capitalism) to the
tangential outer rings
(those benefiting least).
(1) “Systems designers” (primarily
politicians, federal bankers, &
International Monetary Fund & World
Trade Organization executives) exert
the greatest influence over shaping
how global capitalist functions. Those
in this same inner bulls-eye” who
typically stand to profit most from
capitalism are the (2) “system
profiteers” (executives of large
corporations, major stockholders,
highly inventive entrepreneurs etc.)
Here is a rough ordering of the remaining
major rings of capitalist beneficiaries in
descending order of potential personal
benefits:
3. System professionals: Licensed
professionals (lawyers, accountants,
brokers, consultants, etc., who help
corporations max profits)
4. High value-adding technicians: Engineers,
MBA managers, financial analysts, creative
marketers, etc.
5. White-collar, full-time corporate staff:
department heads, MIS developers, etc.)
6. Eight-to-five wage earners
7. Part-time & temp wage earners in
minimum wage economies
9. Unemployed experienced workers living
on unemployment insurance while jobhunting
10. Low-compensation off-shored workers
in developing nations
11. Those not directly benefitted by
capitalism are the permanently
unemployable (homeless, incarcerated,
handicapped) & those in non-capitalistic
parts of the world.
THE
LIMITATIONS OF
WESTERN
LIBERTARIAN
CAPITALISM
LIBERTARIAN CAPITALISM CAN’T SERVE
NATIONS OR REGIONS WELL WHEN:
1. There are few middle class consumers
2. Women have a traditional family
nurturing role
3. The majority of businesses are small
& family-owned
4. Few capitalist institutions exist:
democratic government, private
banks, stock markets, business
professionals, etc.)
5. Most of the nation’s exports are low
on the value-added curve (how much
money the nation receives for the part
of the export it produces).
6. Most people place family
concerns ahead of careers
7. Power is centralized in the hands
of government or elites rather
than disbursed throughout
society
8. The nation/region has significant
international debt
9. The nation was under colonial
rule or influence in the past 50
years
10.The nation/region is not very
industrialized
MANAGING
CAPITALISM
SYSTEMS THAT SEEK TO
MANAGE CAPITALISM
1.
2.
3.
4.
Governments
Regulatory agencies
Tariffs & subsidies
Interest rates
Taxes
5. Protectionism (tariffs &
subsidies)
6. Govt. regulation &
deregulation
7. IMF structural adjustments
8. Consumer legislation &
credit
9. Currency policy
Financial Institutions
•Private & public
banks
•Stocks markets
•Currency exchanges
•Brokerage companies
GLOBAL GOVERNMENT
ORGANIZATIONS (GGOs)
World Trade Organization : Global
trading policies & practices;
advocacy of libertarian capitalism
International Monetary Fund:
Using loans to establish
libertarian-individualism
capitalism in the developing
world
TURBOCAPITALISM
In his book, Turbo-Capitalism,
Edward Luttwak refers to the
recent (post- 1980s) American
brand of capitalism that takes
corporate power & profit to the
extremes of “neo-liberalism”
(minimization of outside
governmental or regulatory
influence on the “free market”).
“Turbo-cap” maintains that
everyone benefits from a strict
“MAXI-MIN” “neo-liberal”
capitalism ideology:
1. Maximum privatization
(conversion of all public sector
economic enterprises) to
corporate ownership & control +
minimum government
involvement in business.
2. Max industry deregulation +
max corporate oversight of
industry competitive practices
3. Max off-shoring of labor to
minimize manufacturing costs
4. Min permanent employees, &
fixed assets & max temp
employees
5. Min government business
subsidies & protectionism
(mainly tariffs)
6. Max spread of neo-liberal
capitalism as practiced by
individualism cultures to all
nations & global government
organizations
Author Luttwak comments, “(Turbocapitalism) offers but a single set of rules
for every country in the world, ignoring
all differences of society, cultures, and
temperament. The accelerated structural
change (of) turbo-capitalism is the
worldwide abandonment of public
ownership, central planning,
administrative direction and most forms
of regulatory control. The once sheltered
markets of puddles, ponds, lakes and
seas (small nations & companies) are
exposed to the tidal waves of change of
global trade, and of yet more volatile
global finance with its massive flows and
backflows of capital.”
These specific “externalities” (societal
damage) of turbo-capitalism include:
1. De-capitalization of public sector
institutions due to the hyper-flow of
capital to the maximized private sector
2. Deeply-embedded social problems (singleparent families; crime triggered by
unemployment & poverty; non-living
wages) triggered by employment
destabilization via off-shoring labor;
reliance on temp & outsourced contract
workers; global mergers & acquisitions; &
recurrent business ethics scandals
stemming from lack of regulatory
constraints on profit-making activity.
“The same rapid pace of change that increases
global prosperity, that allows poorer
nations & regions to catch up. While
offering opportunities to enterprising
people everywhere, also brutally exceeds
the adaptive limits of individuals,
families, & communities. The greatest
shortcoming of turbo-capitalism is, while
it imposes its disruptions on all in perfect
equality, its rewards are disproportionally
given to the few. Controlled capitalism, in
all its variants, functioned very
differently, bring societies by lifting the
poor and semi-poor into the middle class,
while depressing incomes only at the very
top.”
“Allowing turbo-capitalism to advance
unresisted disintegrates societies into a
small elite of winners, a mass of losers
of varying affluence or poverty, and
rebellious law-breaking rebels. But to
resist turbo-capitalism & its destructive
efficiencies in a competitive world
economy can result only in a
progressive relative impoverishment for
the nation as a whole. Under turbocapitalism, when all capital is allocated
efficiently to whatever entities earn the
highest returns, there is none to spare
for institutions that do unprofitable
things because of moral obligations.”
CORPORATE &
CONSUMERIST
EXTERNALITIES
In their profit-making activities,
corporations sometimes
unintentionally damage or create
problems for others (especially local
communities & employees) which the
company does not take responsibility
for. Ideally externalities should be
compensated for either by corporate
stockholders or by the consumers who
purchase the product. Too often
corporations ignore the “messes” they
create, so either nothing is done about
them or the affected innocent parties must clean
them up themselves.
THE 3 LARGEST
CAPITALISTIC EXTERNALITIES
1. Employee layoffs
2. Non-sustainable wages
for full-time employees
3. Pollution damage or
clean-up
CONSUMERISM AS AN EXTERNALITY
Consumers are normally unaware of the
externalities generated by the
products & services they consume,
especially for foreign-made
merchandise. They assume the price
they pay is a “fair” one to those
involved in bringing the product to the
marketplace. When the price is too low
to compensate those affected by
externalities, consumerism itself
becomes an externality: consumers
contribute to the unintentional social
problems of capitalism without even
knowing it.
3 CONSUMERIST QUESTIONS
Is the price of the product high enough to
pay for:
1. A living wage for workers & their
families?
2. Clean-up of corporate pollution?
3. Unfair trade practices of certain
corporations, such as receipt of
government subsidies; “dumping” the
product in the marketplace below
cost; & use of child labor?
SOLDIER OF
FORTUNE
GLOBAL
CORPORATIONS
Companies aren’t intentionally patriotic—
they operate wherever labor costs are
lowest. To do otherwise means corporate
failure sooner or later. The global market
place IS that competitive today.
Sometimes companies are unintentionally
patriotic, because when they seek greater
profits by operating aboard, they
unintentionally boost their nation’s global
economic power by owning foreign
assets. And sometimes off-shoring
corporations influence the politics of
nations they provide jobs & technology
to.
“The total number of countries
has risen since the midtwentieth century from 46 to
almost 200. Recent experience
has provided numerous cases of
countries of varying sizes
showing their superiority over
multinationals whenever there
has been a conflict between
them.”
THE BIGGEST KID ON THE BLOCK
1. If Wal-Mart were a nation, it would be one of
the world’s top 20 economies. It employs 1 of
every 115 workers in America—more than GM,
Ford, & IBM combined.
2. Yet due to WM’s restriction on the number of
employees allowed to work 40 hours a week ,
the average WM worker makes only $14,000
annually (65% below what most of WM’s
direct competitors pay) & half of all their
employees receive no health insurance.
Hundreds of thousands of WM employees
require benefit benefits such as food stamps &
housing assistance.
CROSS-BORDER MANUFACTURING &
JOB SHUFFLING
1. OFF-SHORING (also called outsourcing,
or partial or complete outward foreign
investment): All or part of a product is
manufactured in a lower-cost foreign
nation. The U.S. does 2/3 of global ofoff-shoring.
2. TRADE DISPLACEMENT: Foreign
companies operating in your nation
gradually drive some or all of domestic
competitors out of business.
1. Between 2004-2015, America is likely to
lose approx. 3.3M jobs to offshoring &
trade displacement, especially in the
service sector (277,000 computer
science jobs, 162,000 in business
operations, 83,000 in architecture).
2. “CREATIVE DESTRUCTION” of jobs: Lowvalue-adding, low-skill, low-pay jobs are
the ones most likely to be off-shored,
but technology-creating nations replace
them with higher value-adding, higher
skill, higher-pay new jobs.
Godzilla Transnational
Corporations
The largest trans-national
corporations dominate
global competition, just as
Wal-Mart dominated the ma
& pa retailers of yesteryear.
Godzilla corporations are often
powerful enough to bend,
shape, & sometimes control
global industries & politics.
GODZILLA, Inc.
•
•
•
•
•
•
Wal-Mart
Disney
Microsoft
Halliburton
Toyota
Big-4 (international)CPA
firms
WHAT PRODUCES GIANT CORPORATIONS
1. Oligopolies (industries
dominated by Godzillas)
2. Global operations platform
3. Nationalistic alliances (govt.
deficit financing of
business)
4. Deregulation & asset
concentration
6. Legal bribes in politics
POTENTIAL ECONOMIC
BENEFITS OF GODZILLA
1. Global profits for
stockholders
2. Price efficiency for
some products
3. Strong exporting
lanes
POTENTIAL DRAWBACKS OF GODZILLAS
1. Short-term
unemployment
2. Social Darwinism in
community cultures
3. Can be used for
nationalistic &
political meddling
4. “Sweat-shop”
manufacturing
5. Ethical cornercutting
6. Domination of
suppliers &
competitors
GLOBAL CAPITALISM CAN BE
EXPLOITATIVE WHERE:
1. Foreign companies
operating in a nation hire a
large numbers of locals
2. Foreign-provided jobs are of
the sweatshop variety
3. A nation borrows sig $$
from the International
Monetary Fund/World Bank
4. The nation exports low
value-added products
5. Jobs are more important
than a clean environment
6. Nation does not have the
lowest wages in the
region/world
7. Labor is treated as a
commodity controlled by
global supply/demand
8. Women must fend for
themselves economically
9. The nation has a rich
neighbor
10.Capital is limited
11.The nation has weak,
corrupt institutions
12.The nation has a
community culture