How the economic and political stresses and strains
are a prelude to more fundamental changes to come
Part One
By
Thomas Schinkel
January 25, 2010
That there are stresses and strains on American society is clear for anyone to see. These stresses and strains are the result of changes that include the country’s demographic composition, but more importantly, fundamental changes in the way value has been created during the last decade and a half.
As these changes are now making their impact felt, many thinking people struggle with the question of what will happen to American capitalism. My own take on it is driven by a simple distinction that I find helpful in trying to understand what is going on. That distinction is between “Culture” and “Structure.” For example, the American business culture has always been and continues to be informed by a spirit of innovation and entrepreneurship, and a willingness to take a chance.
The structure of our present model of capitalism is another story. There is no doubt in my mind that a large part of today’s societal frictions is the result of the fact that several important industries have morphed into what can be labeled as “Oligopolies”. An oligopoly is a market system dominated by three or four major players and in which everyone else operates on the periphery. Today, we find this condition in such sectors as, financial services, automotive (the domestic portion, anyway), the health insurance industry and pharmaceuticals. One of the more salient characteristics of an oligopoly is that the leading participants try to avoid competing on price in as many ways possible.
At the same time, you will find that large corporations, including those operating under conditions of oligopoly, are not exactly stellar creators of jobs. To the contrary, it is a well-established fact that job creation occurs mostly at the bottom of the pyramid, where the millions of smaller and medium-sized companies reside. Those players operate under conditions of “Free Enterprise”, where many players compete vigorously on price and all other ingredients of the competitive landscape. Free enterprise of course, is merely a different shade of grey within the entire spectrum of capitalism’s organizing principles.
Culture over Structure
So here’s my take on the tug of war taking place within American capitalism as we begin the second decade of the 21st century. Ultimately, I think “Culture” will win out over “Structure. It will take a while, but the oligopolies will either be broken up, severely restrained or forced to modify their behavior in some other way. If some of the brands at the pinnacle of the Corporate pyramid must disappear, so be it. But the culture that represents the heart and soul of American capitalism – independence, entrepreneurship and a spirit of innovation – will prevail.
I see this playing out already in numerous small ways among friends, colleagues and clients. It will take a few years to get our bearings straight, as we move away from the delusional mantra of America being the “consumer of last resort”.
Homeless in America
Speaking of independents, the Massachusetts electorate’s rebellious and successful attempt to put a Republican candidate in what many thought was Kennedy’s seat in the Senate lays bare an interesting phenomenon and that is that half the State’s population appears to be homeless. Not physically, but homeless in the sense that they think of themselves as Independents, not as Republicans or Democrats. The red-blue divide means nothing to them. And the political duopoly that the Democrats and Republicans have become leaves them homeless and powerless to make their voices hears. This phenomenon of “rebellious independents” is not limited to Massachusetts. It exists throughout the country. If this group of independents continues to grow, and my take on the situation is that it will, there is even a chance that within five years we will officially have a third political party, fully registered and participating with seats somewhere in between both sides of the aisle.
From Caterpillar to Butterfly
There’s no question that this struggle will cause and is already causing hardship while the transformation is taking place. Allow me to liken this transformation that is taking place in the realm of economic, social and cultural dimensions to a unique one observed in nature, the process through which a caterpillar changes into a butterfly.
The changes that will need to come about, either by default or by design (the latter being the preferred method to be sure), will encompass an overhaul of American society in the most profound way. These changes will come about, in some cases by borrowing from the European and Asian models of capitalism, but mostly by arriving at our own conclusions.
Specifically, as the voice of the independents gains strength, over time we may witness real reforms being made in such areas as re-regulation of the financial industry, fiscal policy, energy and international trade.
Stimulus Plan Phase II
And the next Stimulus Plan, if and when it comes, will look very different from the one passed in 2009. Above all, it will need to include a gameplan for “new value creation”, a gameplan that gets us away from the delusion that the financialization of the business sector was an effective way to create wealth among the population at large.
All along, the top bankers had wanted us to believe that their booming industry was driven by innovation.
But listen to what Paul volcker, former Chairman of the Federal Reserve has to say on the very subject at a recent conference in London:
“The only innovation that has taken place
over the last twenty years in the
financial services industry is the Cash Machine!
Paul Volcker.
Wow! Needless to say, for business leaders in all walks of life, monitoring and anticipating the transformation of our economy and society is extremely important, because the impact on the business environment will be profound In my next article in this series, I’ll discuss how in America we can kill three birds with one stone by embracing a method of taxation that has found its way into all major economies of the world, except ours. As always, thank you for your interest in my writings and regardless of whether you agree or disagree, feel free to share your thoughts by e-mailing me at thomas.schinkel@gmail.com.
Thomas Schinkel
