THE ECONOMIC PHILOSOPHIES AT THE FOUNDATION of economic policy are losing their sheen. And it’s due mostly to improvements in Business Clarity and Business Efficiency.

There is irony in the fact that improvements in Business Clarity and Business Efficiency are slowing economic growth and hampering policy makers in their (alleged) attempts to bring about greater economic stability and (also allegedly) increased economic opportunity/equality.

At the root of the problem is the profit / loss cycle, shareholder / fund expectations and short term planning for immediate results, not being reconciled with realistic economic policy and rational social policy. And dont be fooled, just because we have tighter gun laws than the USA, it does not mean we can ignore social policy. Higher fences will not suffice.

 

Business Clarity and Business Efficiency.

THE VISION DESERVES TO BE ACKNOWLEDGED. The clarity of the vision admired. One could argue that the state in which we find ourselves is that of a well matured capitalist system. However, just like a well matured cheese, there is an essence (a tang and a smell) that is only for the initiated, advanced palate.

The vision to which I refer is the structural alterations made by Big Business. Businesses have become breathtakingly adept at removing money from the economy.

Listen!

ONCE UPON A TIME, money cycled through many businesses within a community before being drawn off as company profits. Commonly, company profits went to the families and individuals who privately owned companies and businesses. There were vested interest in a long term sustainable plan of continued long term growth, profit and economic health for both the business owners and the community. A symbiosis. A mutually beneficial system.

For the purpose of this discussion I am going to define ‘velocity of circulation‘ as: and the number of hands and the speed at which money entering a community is removed as company profits.

Therefore by this definition when I refer to ‘slow velocity of circulation’, it will be indicative of money entering a community and passing through many hands over a relatively lengthy period of time before being removed from the active economy as company profits (sometimes, some of it temporarily). ‘Fast velocity of circulation’ is when money entering a community is only active in the economy for a short period of time, and cycles through fewer hands before being sequestered as company profits – then, usually, to be distributed as shareholder dividends and bonus payments as per the policies / charter of the individual company

In the past, there have been a large number of small holdings primary producers workers making a living supplying a smaller (yet still great) number of either manufactures and/or wholesalers … who in turn supplied fewer (yet still a significant) number of retailers … made up of a mix of small businesses, privately owned companies and a few listed companies.

ALL ALONG THE WAY individuals and communities were employed – and that is what made this system work. The wage earners were the foundation of the economy insofar as they provided the necessary slowing of the flow of capital (their wages and payments). Locally earned wages and payments were spent on living in a community … food, fuel, shelter, clothing, footwear, entertainment … either produced locally, or supplied by local retailers who would in turn spend much of their income in the local economy. Extrapolated, this meant more local employment / production which in turn meant additional local spending, which in turn meant more local employment / production … and so on. There are incremental ‘leaks’ where good and services were imported / supplied by businesses outside the community which resulted in money slowly leaving the community economy, but the process was ordinarily gradual.

The velocity of currency in such situations is slow, and profits syphoned off by big business are slower to materialise. It makes sense if you think about it … locally owned small business supporting other local community businesses by spending their money locally – much of that on locally produced goods and services. Ultimately, the money will float to the top of the business food chain and become company / shareholder profits for the suppliers of banking services, fuel wholesalers, and large manufacturers / retailers (to name a few – for the purpose of illustrating this argument). However, the velocity of currency being slow – and local – resulting in a relatively stable local economy.

THIS IS THE CLEVER BIT. Business recognised an opportunity. That is what business is supposed to do. And that is what big business is great at. Whether this opportunity has ultimately been of benefit to the businesses is a moot point.

Big Business saw their next move with clarity. As early as the 1930’s (and perhaps earlier) corporations set about buying up the land on which generations of families of primary producers worked. Efficiency and technology were employed in place of manual labour. Yield grew, and so did profit. It’s a natural and justifiable position and arguably to the benefit of everyone. Who did not want cheaper food? The displaced primary producers and their hired labourers could find work in factories and in the new economy.

Fast forward to today and the stakes are higher – but the game plan pretty much the same. Big Business now commonly owns the means of production (and out-sources production to the lowest bidder in a world-wide marketplace). There are virtually no wholesalers. As Big Businesses – already controlling retail – bought out production. The concept of a middleman became a redundant. Local retailers were unable to compete with the prices and range (convenience) offered by the big retailers (eg. WalMart, Bunnings, Coles, Woolworths, Dan Murphy etc…). After all, they now control raw materials, transportation, production, packaging / branding, and retail. If someone outside these business structures wants to retail, they buy from these retailers and resell (eg. cans of soft drink are available at around 50c ea in boxes in a supermarket … retailers buy these boxes as they are more cost competative than buying from the CCA rep and resell them at a profit … no middleman, the big retailers are now also defacto wholesalers – from the same outlet as they retail. If you pay attention to the ‘specials’ in supermarkets, you will see more evidence of this trend. Small stores buy up bulk lots of supermarket specials and retail them to their customers. This is because the ‘special’ price in supermarkets is cheaper than small business can get from the reps. The cozy relationships between the upper echelon of Big Business brings about amazing efficiency).

Now the scheme gets even more brilliant.

WITH LOWER WAGES and higher rates of unemployment (due to the velocity of money increasing and local businesses and communities being more tightly squeezed), consumers no longer have as much spending power with which to exercise a choice / preference for locally owned small businesses (who cannot compete with those who own the means of production and have no wholesalers taking their cut on the way through). So consumers, now more keenly attuned to price, spend a greater proportion of their disposable income with Big Business and the velocity of currency increases yet again.

But that’s not all. The set of steak knives in the deal (sharp enough to cut a thong, then an aluminium can, and still sharp enough to cut a hunk of cooked cow) is this … ultimately (and we’re almost there), with contraction of the wage earning ability due to limited opportunity for small business (which happens to be a MAJOR factor in domestic economic stability), these Big Businesses will start to diminish their own profitability.

You see, money that was previously recycled through local and community economies is now extracted as company profits as shareholder dividends and bonuses. Arguably deserved, but not sustainable because with the majority of shareholdings being those of Superannuation Funds, corporate enterprises (often shareholder owned or controlled by rich individuals) and small stake shareholders (domestic and international), the velocity of money has reached break-neck speed. The moment a dollar hits the street, most of it is sped off to a corporate entity. Wages are under fire from bizarre quarters because compulsory Superannuation means that we all cheer for stock market rises. This ultimately returns even less to the local / community economy. As a result, the velocity of currency has increased to resemble that of the economic equivalent of a Category 5 cyclone. And just like life imitating art, if man made climate change is a correct assumption, our weather patterns are likely to copy those of the economy. To a big fan of irony, it’s almost LOL funny. Almost.

REGARDLESS OF YOUR PERSONAL POLITICS, you have to concede that the engagement of this particular opportunity is a natural extension of the system we have adopted, nurtured, justified and protected. And as with most adoptees, special consideration, extra patience and the turning of several blind eyes (just while everyone is settled in) is the norm. Perhaps at our peril.

 

SO IS THERE AS SOLUTION?

As unpopular as it sounds, increased taxation is a foregone conclusion (when presented with the choice of civil unrest and increased tax, I’ll vote for increased tax every time).

Socialism is the new Capitalism … or will be in the near-ish future – and here is why.

Big Business has become too efficient at extracting the $ from the economy and accelerating the velocity of currency … and I mean that in both a complimentary and accusing sense. The compliment is that Big Business has shown great clarity in identification of areas in which efficiency gains may be made, and has executed the plan magnificently … so well that their actions support the many arguments about business being a better operator than governments etc … you’ve all heard it (and some of you probably espouse it).

However, with this increased efficiency, business has inadvertently grabbed it’s own gonads, and squeezed – hard.

What has happened with business efficiency gains is that money leaves the day to day economy more rapidly. What used to cycle through communities and eventually make its way up to big business profit / loss statements is now on an express-way. The small business owner / operators and all the employees (and their families) and structures supporting these people within communities (you can think of them as ‘pieces in the economic structure’ if you dont want to think of them as people … whatever floats your boat) are either missing out on their turn with the money, or have only fast track big business options for spending their money. That in turn slows consumption and increases the velocity of currency – which is causing economic contraction, and puts more people in the position where they rely on government benefits (which requires more tax dollars) … which costs more and lowers production.

Joseph Heller would call it a Catch 22 situation. Nobody can blame business for the improvements in efficiency. In fact we would all applaud it except for the fact that it is very sharp double-edged sword – with no hilt. What to grab onto?

With big business moving into owning production and skipping the wholesalers between the factory / farm and the consumer, layers of the economic Sarah Lee are missing. The people still exist, so we had best come up with a few more tax dollars or add some razor wire to the higher walls we had built.

My suggestion (at the risk of being branded a socialist – for the record, i am not a card carrying anything-ist), is that we make companies pay their share of tax. No more hiding in tropical havens and leaving it to the sheeple. Be the proud patriots you ask us to be (Australian Owned / Australian Made … all that convenient spin) and pay your share. Sure, it might mean slightly lower share prices and slightly lower record profits, but when you consider the alternatives, it’s by far the most preferable and civilised path.

Increased tax revenues will bring about more spending by governments (on benefits and potentially public works ) and hopefully with the benefit of insight (because it’s not yet hindsight – this is happening NOW) we can revive some locally owned and sourced small businesses and we can start to put a few thin layers back in the economic cake. This will take wisdom and specific investment of tax revenues by governments. Something that revitalises communities and encourages growth and stability in local community economies. Start with regional and rural Australia. It would appear as though the yoke of our city cousins is more securely harnessed to the ox of complicity. Once again, the practical pragmatists in the country will show the way.

If we come to a point where the economy is relying on government dollars (the recycling of business profits – aka tax – as spending money – aka benefits – which in turn become business profits), then that would be an example of ‘Socialism as the new Capitalism’ (see menu for blog post by that name).

 

Post Script:

I am unsure whether I have enough faith in our elected ‘representatives’ (and I use the term grudgingly – they seem to represent themselves and their corporate masters more than they do their constituents) to do anything other than follow the money trail that saw them elected in the first place. You sell-outs in Canberra – and every state capital city – should be ashamed of yourselves (with a few exceptions). You have betrayed your country. Is that the stench of treason? Or is it a Roquefort?