JimPinto.com - Connections for Growth & Success™
No. 195 : 6 November 2005

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

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Pinto editorial comments

I wrote about Poverty in my last eNews (25 October 2005) and received a considerable amount of insightful commentary which stimulated further thinking. Three of the most thought-provoking eFeedbacks are included. Bear with me here, while I think these thoughts through on my hot keyboard.

Sorry, although I had prepared a few items, I couldn't include any other automation or technology items in this edition of eNews. They simply didn't seem appropriate. We'll continue our usual format later this week.

Poverty - Capitalism's blind-spot

Let me say at the outset that I'm an ardent and passionate capitalist. I believe in free enterprise and enlightened self-interest as defined by the American Constitution. Indeed, this is exactly why I'm reviewing the failings of Capitalism as practiced in the US today.

Every system thrives on its sustained advantages, and fails with its fatal flaws. This was true over the course of history, going back to Alexander the Great, the Turkish and Roman empires, the more recent century when 'Brittania ruled the waves'. There are lessons to learn. But perhaps inevitably linked with the human condition, history keeps repeating itself.

Greed - the Achilles Heel

The American Constitution believes in "enlightened" self-interest, not just narrow self-enrichment. Karl Marx predicted the fall of Capitalism through "greed'. This was clearly demonstrated by executives of Enron, Tyco, Worldcomm and other major capitalistic enterprises.

Make no mistake, these were not just isolated incidents now solved by vigilant watchdog committees and hastily imposed government regulations. The symptoms still persist. Just as computer hackers seek system flaws to create new viruses, so hoards of lawyers and accountants seek out legal loopholes and tax dodges to exploit for corporate enrichment. Just as soon as plodding Congress and Judicial systems generate safeguards, business experts seek out yet more new ways to avoid laws for personal and corporate gain.

Common practice - tax & legal loopholes

When I was CEO of Action Instruments, I refused to participate in tax schemes that I felt were unfair ways to line my own pockets. I remember the surprise of the people proposing the legal loopholes, "But, Jim! Everybody does it!"

It's a game that's played in executive suites by capitalistic enterprises large and small. Hire better accountants to find new ways to reduce taxes, better lawyers to find new ways to bend the rules with impunity. Our Capitalistic culture values the adjectives 'clever', 'bright', 'smart', 'ambitious', all of which were used in glowing business articles about Koslowski of Tyco, Ebbers of Worldcomm and others just a short time before they were caught.

Sit back with this perspective and read any issue of Business Week, Forbes and Fortune. Inordinately high profit margins are lauded with respect. Bankrupt companies avoid bankruptcy by ditching their pension plans, and the executives walk away with big bonuses. Much admired Jack Welch of GE was understandably expecting to borrow the corporate jets and penthouse when he retired. Failed executives often receive exit packages of $25 - $100 million and even more after just a few years on the job. It's "common practice".

Executives who are grossly out of line get bad press, but only after they've fallen. Just recently, a CEO was in the news for having spent $250,000 at a strip club in Chicago; do you really think that was just an isolated incident? How much do regular patrons spend with impunity at that same establishment? Who's actually paying the bills? And what's really stopping others from spending similar amounts?

Self-perpetuating system

The system is self-perpetuating. The board appoints a CEO who's attracted by a big base salary, options and perks. The compensation committee reviews "comparable" companies to set the scale. The CEO quickly appoints new board cronies to rubber-stamp pay increases.

Small wonder then that the system produces an executive pay scale that generates an American CEO-to-worker pay-ratio that is several times more than anywhere else in the world. Small wonder that Exxon-Mobil, Chevron-Texaco and all the other oil companies made windfall profits in the wake of Katrina and "expected" oil-shortages. And, of course, they "earned" their big bonuses.

Pill proliferation

Another blatant chicanery: Pharmaceutical companies justify their high prices by claiming that their research is very expensive. They promote that claim with expensive prime-time media advertising. And their pills proliferate. Take a look at how many TV ads there are for medications, compared with any other category. They promote the concept of magic pills: take this pill and your problems will be solved instantly. TV advertising rushes through the warnings that there "may be abdominal bleeding, cramps and sexual side-effects" while the patients continue to cavort and dance around happily. Everyone knows these are just actors, but no one complains.

Magazine ads for pills are usually two pages. The facing page promotes pill potency. The reverse side lists - in fine print - all the warnings and side-effects. One must presume that the fine-print satisfies legal obligations. How many people actually read the fine print? And yet all this is common practice and legal. Indeed, this past week, a judgment was handed down that Merck had adequately warned Vioxx users about the dangers of heart-attacks.

The result of this sham is that America has the highest drug prices in the world. And import of comparable inexpensive drugs from Canada and Mexico is banned, with high-level FDA support and legislation.

Poverty - the Blind-spot

Clearly the flaws in any system are the bad side-effects. The antithesis of the wealth produced by Capitalism is Poverty. Perhaps Katrina served America well by the stark contrast of the poor and the black. Warnings to evacuate were heeded by those who had the means. But the poor had no transportation and nowhere to go.

It was the blind-spot that suddenly came sharply into focus, highlighted by sensation-seeking media. The exaggerations were quickly pointed out by the guilty, to mollify their guilt. But weeks later, the media have moved on to other headlines, while the Katrina displaced are reduced to incidental back page bylines.

Think on this: When was the last time that YOU confronted Poverty? Perhaps occasionally, when you drive downtown and a homeless person stumbles by. Or, at a traffic light in a big city, when a "Homeless Veteran" asks for help. You excuse yourself from giving him some change because he is "probably drunk". And you ask yourself, "Why doesn't he just go get a job?" The point is that it's a "blind-spot". You just can't see it. You know what, next time just give that person some money for reminding you that he's there.

Federal Reserve Chairman Alan Greenspan, champion of the free market, said succinctly in recent public testimony:

    "The income gap between the rich and the rest of the US population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself."
Who is heeding that warning?

Click Rich-poor gap gaining attention

Click Newsweek - The Other America

Click Understanding Poverty in America

Click Statistics on poverty & food wastage in America

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Rich Merritt [merritt@cedar-rapids.net] on how the recent bankruptcy legistlation contributes to American Poverty:
    "Sadly, the motto in our country is: "When a man's down, kick him." The poor get poorer, in part because the credit industry does everything it can to get them in debt, keep them in debt, and bleed them of every nickel the can with high interest rates and penalties. The poor actually represent tremendous profit to loan sharks, car dealers, mobile home dealers, payday loan companies, sub-prime lenders, banks, credit card companies. There's lots of money out there for those who who exploit the poor.

    A few examples:

    • When a poor person retires, credit card companies increase their interest rate. If a person misses a payment, credit card companies kick the interest rate up, plus tell all the other credit card companies, so they ALL raise their rates.
    • For those who have trouble making it from paycheck to paycheck, Payday-loan sharks provide advances at 400% interest-rates.
    • Banks offer "upside down" loans for those who want to buy houses or cars they can't afford ((more than it's worth). They know that the client can't get out of such a loan without going into bankruptcy. And that is taken care of with new legislation.

    "The new Bankruptcy Bill, just passed, is designed to make it very difficult, expensive and time consuming for anyone to file bankruptcy. And it drives attorneys out of the bankruptcy practice.

    "The banks and credit card companies wrote the Bill and contributed $400 million in campaign contributions to Congress who passed the Bill, and GW Bush signed it. It was opposed by virtually everyone, from labor unions to judges, from women's organizations to consumer groups. But none of them had enough money to stop it. It's the most vicious, nasty piece of legislation ever to come out of Congress, purchased for $400 million.

    "For those who have a medical emergency, lose their job, or suffer any other kind of financial emergency, the protection of bankruptcy is gone. The economic vultures this world are waiting to prey on them.

    "One really good way to help the poor people of America would be to pass usury laws that limit the cost of credit to a more reasonable amount, say 5% over prime. The next would be to go back to the old bankruptcy law - the one that actually helped people, but didn't benefit financial companies. In both cases, that would mean going up against banks and credit card companies, and we don't have enough money to buy that kind of legislation."

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Reese Horton [rhortonj@msn.com] from Atlanta recognizes the widening gap between the haves and have-nots:

    "Your comments hit home for me. My feeling is that the American middle class is shrinking and we are becoming a nation of haves and have-nots. There are low talent jobs out there, but because some feel they can't pay their bills with them, they don't work. As a result immigrants, legal and illegal, are doing these jobs.

    "In Atlanta, I see extravagant shows of wealth and really scary scenes of poverty and no hope. Maybe if we don't help our poor people they will revolt and kill us and we won't be able to take any of our wealth to the grave.

    "In the recent bankruptcy of Delphi, there was a threat by management to do away with pensions and turn them over to the government, whose program is all but bankrupt anyway.

    "The management at Delta Airlines and others, who reward themselves handsomely when they haven't covered their pension and healthcare plans, should be forced to give the money back and go to jail because they aren't directing their companies well."

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Dave Cutter [dave@villageebike.com] on why the statistics show that the US economy is booming while poverty increases:

    "America's economy is booming - but the personal economies of most Americans are in the ditch, with their incomes not even keeping up with inflation. This is not by accident. Yes, the economy under reported to be creating jobs, but those jobs don't pay diddly. Yes, taxes were slashed , but the gains went to the richest people and failed to stimulate the prosperity that was promised for all.

    "For the first time on record, our household incomes have failed to increase for five straight years. Yes, people are working, but last year alone the median pay of full-time workers dropped by some 2%. Meanwhile, more than 1 million Americans were added to the poverty rolls last year. As you pointed out, 37 million Americans now live in poverty, an increase of six million during this current administration's tenure.

    "But wait, there are statistics showing that "overall employee compensation is up!" Yes, but the trick played is to lump wage-workers with the CEOs. And the CEOs get fat salaries, bonuses, and stock options. The average looks good, but it hides the fact that 80% of the US population are getting little or nothing, while the millionaire class has advanced significantly.

    "It's a sad day for the poor man in America!"

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