Thursday, August 27, 2015

Economic systems and how they've changed us

Today, I just found out our dishwasher motor/pump (all one assembly that can't be repaired - only replaced) has failed.  Since the price to replace it is a significant fraction of the cost of a new dishwasher, we would probably be better off buying a whole new one.  A similar thing happened to our clothes washer a while back.  Manufacturers now sell insurance on appliances: they call it an "extended warranty" where we customers are betting they didn't sell us a piece of junk that will fail prematurely.  Their knowledge of their products' failure rates are built into the cost of the extended warranty, so they still make a profit on the average when their products (or services) fail. What's their incentive to make a quality product? Pride in their product? Hah!! It's all about the almighty profit motive.  The bottom line is more important than quality, nowadays.

Things didn't used to be that way.  Many manufacturers took some pride in the quality of their product (or service) and backed it up with support for the customer when problems arose.  Things weren't manufactured to stifle maintenance back then.  Rather, the products could be repaired for relatively low costs most of the time, until the product just plain wore out from long use.  The clothes washer we replaced recently was bought when we lived in Kansas City, underwent a few reasonably-priced repairs, and eventually gave up the ghost after 37 years of use!  Repair is becoming an obsolete concept. We buy some product, it craps out, we throw it away, and buy a new one. That's where corporate America has gone, and we're forced to ride along.  Similar issues arise for service businesses.  Who likes their choices in the Internet/phone/television provider business?  Most people I know hate their service providers but have no real choice because none of them produce quality service!

The way the big corporations can sell us affordable products is to design them to fail in such a way that we can't afford to fix them.  They've outsourced the actual manufacturing facilities in many cases, so they pay low wages to foreign workers who are so poor they have to accept low wages.  Even "Communist" China has followed this path, not permitting workers to form trade unions and keeping wages artificially low.  Workers have little incentive to do a good job, since they're often paid piece work wages, not by the hour.  The shoddy products are shipped to the US, the corporations push extended warrantees on the customers, who feel the need to be protected from catastrophic premature product failure.  It's become something of a scam.  And the river of money flows up the corporate ladders.

As "free market" capitalism developed, it became clear that an unbridled profit motive puts a lot of pressure on companies having pride in their products and concern for their employees.  Mega-corporations like Wal-Mart squeeze out the smaller businesses that try to make a decent product and stand behind it.  Once they've crushed the small fry, then they're free to plunder their customers, and they wrap themselves in the flag in the process.  Capitalism at work, right?  Ignore their takeover of government by buying off the politicians, convincing us that the way to paradise is through the "free market" even as the corporations tap the government teat for tax breaks and subsidies to pad their profits.  And they're huge, rich proponents of de-regulation.  Guess where that has lead us!  Remember that housing bubble that burst in 2007 and its subsequent fallout?  It was the removal of most restraints on the "too big to fail" lending institutions that created it.

Teddy Roosevelt took on the corporations in what was called "trust busting" that established some regulatory control over big corporate "trusts" (monopolies), which had grown fat and rapacious.  As it stands, we're in desperate need of some trust-busting in today's world.  The big companies have created a "plunder economy" whereby the public is robbed for the benefit of corporate management.  Not much trickles down to the workers in this kleptocracy, and virtually nothing for the customers.

Conservatives like to describe capitalism as a sacred part of the American way, a path that has inexorably leads to prosperity for all.  Properly regulated capitalism has in fact been successful in building a reasonably high standard of living - but the US is no longer at the pinnacle of living standards.  The profits we've created for the military-industrial complex through nearly constant warfare have left us bereft of surplus cash, even as corporate management salaries soar to incredible levels.  It's capitalism that has exploited the public, even as conservatives scare the public with the bogeyman of socialism.  Socialism has become a frightening word to many conservatives, laden with negative associations.  Anything that might cause the corporate profits to decline is buried in an avalanche of cries of "socialism" and "interference in the free marketplace".  This conveniently ignores that the marketplace is no longer "free" - but the big companies get most of the welfare, not the disadvantaged.

I'm no fan of unfettered socialism, either.  Socialism has inherent disadvantages that inevitably show up over the long haul.  The Chinese understood those disadvantages well enough to "relax" their form of socialism in a way that looks remarkably similar to the American kleptocracy.  The only entity that has the clout to rein in the greed of the corporations is the government.  Responsible regulation of any economic system can produce a workable environment for the majority of people - the only difference is that the regulations would need to be adjusted to fit the existing economic system.  Socialism requires different interference that capitalism. 

Several years ago, I read a great book called In Search of Excellence -its main thesis was that the most successful, long-lasting businesses were those that did two things:  (1) treated all their employees well and included them in the profit-sharing when the company made a profit, and (2) treated their customers well by making a quality product (or service) and dealing fairly with the customers when something went wrong.  This is very far from what I believe we're seeing in most big corporations today.  Evidently, excellence is no longer felt to be an important corporate benchmark.

I'm no economist, but down here at the customer level, it sure seems as if we're being victimized by an old enemy:  corporate greed at the expense of the public.  When corporate profit and huge management salaries are the primary goals of business management, then anything goes, it seems.  A plunder economy is not what made America great, but it can cause the whole thing to come crashing down.  The recent stock market crash could be a harbinger of worse to come.


Anonymous said...

In addition to your points Dr. I believe that this so called Global economy has done nothing to help the US. Only hurt it. One reform that we need is to counter the slave labor that is undercutting us. I think that tariffs are needed on imports from any country that employs what is essentially slave labor. This would be mainly China but probably a lot of other countries although probably not the first world countries in Western Europe. I believe our government, both democraps and republicraps have failed us in this regard. It should not be possible for another country to produce so many things so much cheaper than we can over here. Something is wrong. Slave labor on their part and our taxes, income tax, and other taxes on businesses may be too high. They can reduce those taxes and make up the money in import tariffs.
We also need reform with regard to corporations. As I see it, the corporation's purpose is to provide jobs, make a product or products and also make money to increase the business. Reform is needed along those lines. I believe over in Germany the unions generally have a seat on the board of directors. Unions can cause a lot of problems and put a company out of business but if run in cooperation with the corporation and working to provide the best wages that the company can afford, unions can be a good thing.
I would say Dr. that it comes back to eliminating extremism and moving towards the center and finding a win-win solution.
Uncontrolled capitalism is like anything else uncontrolled, it can be really bad for the masses and really good for a select few. That's not what we want.
I read a book on dealing and negotiating and it said to "always leave something for the other guy."
Since we can't control things beyond our borders, we really need to level the playing field with tariffs. Basically, if a country want to use slave labor, fine, but we're going to make sure the price of the item in the US is the same as if they were using American labor.
I see it as corporate greed that has gotten us into this mess and starting when our manufacturing starting going over to Japan. We should have nipped it in the budd right then and there with tariffs and lowering taxes.
Lisa MacArthur
Riverisde RI

Anonymous said...

Part of the problem with repairs is the labor. The government seems to have made it so expensive via taxes to hire people or to be in your own business that it simply makes no economic sense to fix some things. The other problem is that the boards have gotten so small and cheap to produce that it really does make sense to replace the board than to work on surface mount components that are very tiny and difficult to work on.

The government has got to ease up on taxes and make it more economical to hire people full time, pay them a living wage, and benefits.

The trend now is towards robots and automation for everything. That puts a lot of people out of work.

As I said, I'm in favor of tariffs from the slave countries. Other first world countries, particularly Western Europe wouldn't require tariffs.

We should not allow slavery to exist in the world and we are doing everything we can to encourage slavery by importing so much from the slave labor countries. At the same time, we're putting ourselves out of business.

We need reform.

Lisa MacArthur
Riverside RI