Wednesday, October 15, 2008

Capitalism/Financial crisis tutorial Part 14

I need to point out, at this time, two errors that have not only crept into modern understanding of capitalism, but have become so predominant that they have contributed to the warping and destroying of genuine capitalism and replacing it with a capitalism that is "in name" only, and not in principle.

The first error is to think that capitalism means the same thing as "competition." It most certainly does not. Competition is a valid concept of capitalism that applies to the obtaining of the best price for the sales of one's surplus. For example, going back to my foundational definition of capitalism, a farmer that grows enough corn for his family and then sells the rest in the market is of course entitled to try to get the best price that he can for his corn. If his corn is better than his neighbor's corn, or gets to a market where there is no demand, that is "competition."

Competition is not, however, "negative" in true capitalism. Using that example, the sole objective of one farmer should not be to do a "beat down" of the other farmer's corn. In true capitalism the quality and demand of the product "speaks for itself." In other words, while cunning marketing and vigorous competition is of course valid and desirable, one farmer should not structure his entire corn crop in order to focus only on competing with an "enemy" competitor rather than letting the market work naturally to either reward or penalize his product. I've seen this from the inside of corporations. When corporations focus on "smashing" or "beating" the competition to the exclusion of normal product offering and development, they stop being capitalists who are both prudent and visionary and instead, use their products (and the buying and selling public at large) as protagonists in an ego and greed based "competition." So imagine that two farmers with surplus corn to sell become "enemy competitors" rather than genuine capitalists. If they are focused on each other's success or failure, they forget not only the market but their own families and the health of the economy as a whole. So suppose they are so busy trying to "beat" each other that they no longer notice that let's say a new disease has developed that threatens their corn production. They are so busy competing and manipulating market share that they do not invest in a new corn, one that may not get the "best price" in the market at first, but one that resists the threat of the new disease.

When capitalists "fight," treating their worlds as video game fiefdoms, where they are "battling" in the so called "healthy competition," they are no longer actually being competitive in a natural market. They are skewing the market to accommodate their battlefield, not to build genuine capitalism. So remember, when you hear about "competition," that refers to angling for obtaining the very best price and market share for your product, but is ultimately self destructive if competition is the be all and the end all of one's purpose. You can see this in the financial crisis. Banks started "inventing" financial products and instruments not with the healthy of the consumer, their company, their community or their country, but with the sole purpose of grabbing more money that is "out there in the market." That is like if one of the farmers decides he can make even more money by selling tainted corn. Suppose the farmer does a marketing blitz to convince the public that buying corn that is one tenth rotten is the coolest and smartest thing to do. So that farmer "beats" his rival who continues to sell corn that is one hundred percent wholesome. And then, over time, the farmer that sells 10 percent rotten corn, "grabs" a bigger and bigger share and "beats" his competitor, because he has convinced the public that buying and eating partially rotten corn is "OK." That is what much of the American "capitalist" economy has become, in analogy, in the name of "competition."

The second error that I want to point out in this edition of our ongoing tutorial is related to this first error of misunderstood and misconducted "competition," that is done for antagonistic and greed purposes, rather than balancing keeping one's focus on wholesome products AND ethics. This second error is the actual "creation" of "products" to gain money that is based totally on looting and exploitation. Trial lawyers are the example I wish to offer up here.

Lawyers offer a "service" for money. Thus they are capitalists even using our farm definition because in theory, a lawyer provides his service to his family and all surplus of his "profession" is then offered in the marketplace for cash. So I have nothing against lawyers and indeed, I even taught a little environmental law seminar in college while I was a student, and took the law boards exam when I considered career options. Further, the idea of lawyers "specializing" had well taken root when I was a student, and I considered becoming an environmental lawyer as my "specialty" (which was a totally new area at that time). So again, I have no problem with "trial lawyers" per se nor with those who narrowly specialize, such as in "product liability."

However, these "specialties" have become monstrous destroyers of capitalism, and have taken on a robotic greed of their own that is appalling and having destroyed much of genuine capitalism. Here is an example of why.

People, in general, over the centuries, do the best that they can. They do not mean to be evil and cruel, in general, so long as they are raised to be normal and loving, within a secure context of family, faith and community. Thus, people are constantly "inventing" or "discovering" things that attempt to improve the quality of life, and if that didn't happen, most humans would not be alive today. How about the first people who realized that some weird mold, for example, would be the basis for discovering the first antibiotic penicillin? I'm going to give you first a silly example, and then a deadly serious example. Suppose that trial lawyers "discovered" that some nut in a laboratory was testing "making people eat mold" and therefore sued to get that laboratory closed down? I wish I was joking but I'm not, really. Fortunately, people back in the 1930's and 1940's were not totally greedy and demented (yet). "Progress" was something that did not need explaining because it was a shared value... millions of people died from infections each year around the world because at that time there was no cure for infections. So people of course through self interest and global humanitarian interest researched medicine in order to serve the greater good, and rarely received great financial renumeration other than their paychecks. But people who make money ONLY through "conflict" (trial lawyers), would have seen the development of "eating mold" as an opportunity for some juicy suing in court, questioning whether that was "healthy" or not. So rather than being part of the community that silently praises and endorses the world, trial lawyers "look for" money making opportunities in the creation of conflict. So that is my "silly" example, but one that I think modern people can understand. Thank God product liability trial lawyers did not exist when penicillin was being developed!

Here is the serious example. Infections were a huge threat to humanity (and remain so, as cleanliness decreases and potency of infections increase), but the invention of penicillin, and its successors saved millions of lives per year. Humans at that time faced another great threat through history and that was fire. Throughout history entire cities have burned, and every community had a constant fire threat. Heat and light were both provided through the use of open flames. And so humans thought they had discovered a wonderful development when they developed use of asbestos as a fire proofing material in homes and buildings. Be assured that many lives were saved through the use of asbestos. It was one of the theoretical "human advances" when humans focused on how to figure out how to have a less fire vulnerable home, school or place of business. For decades people thought they had discovered a remarkable thing, and they had. But two problems developed over time. One was that people discovered that it was a dangerous material to work with, and that it could become a dangerous material to live with. People did not know better back then. Workers had no way of knowing, nor did their bosses and company owners, that they were breathing fibers that would later harm their health and even kill them. However, I am in complete agreement that once the medical threat was determined that everyone should have acted promptly and responsibly to mitigate and prevent it. But people are not born to be geniuses who have full knowledge of right and wrong in a flash. That's just ain't humans, folks, in case you have not noticed. Thus, there was no reason to totally demonize people who thought they were doing the right thing before the danger was discovered. But trial lawyers are experts in "revisionist history." In order to create the marketplace in which they make money (conflict), they label entire segments of well meaning society as "bad guys" who exploit "victims."

Think about it. Who can speak up for the decades of people who lived in safe housing because of asbestos? No one, obviously, because most of human history is lived, not recorded in paperwork. We don't know how many tenements in slums did not burn because they were protected in some part due to asbestos. We don't know how many factories were safer because they had asbestos. We only know that science and medicine revealed the hidden dangers of asbestos once humans had advanced to a certain point.

But modern "capitalists" no longer think in terms of this balance, because they have splintered life itself into kind of gladiator arenas in which they can make money. And so asbestos trial lawyers discovered (and created) a new arena in which they can make money, by declaring "evil doers" (asbestos providers) and "victims" (workers, genuine illness victims, and theoretical 'future' victims). Now, I'm not talking out of my hat, and I'm not pig ignorant. I had to have asbestos removed from my own home (and fell for contractors who were unlicensed and who probably did a lot of harm in their removal procedures). However, I'm all grown up and a good person and so I figure that asbestos is yet another chapter in human history where people discovered and developed a good thing, for good purposes, but as they grew up they learned of side effects that were unacceptable. That's human evolution, folks. Think of the people who first bit into the bad mold before discovering the good mold from which cheese and eventually penicillin came from. People who tried to find cures and good things for human development were not "evil" just because later research and experience shows a bad consequence for what they did. Likewise, asbestos users never set out to destroy anyone or hurt anyone; in their day they thought they were saving lives (and they did, as many potential fires were prevented).

However, I do agree that ethics dictate that once a worker becomes ill because of improper exposure, all should be done to protect him or her or their family. Companies who refused to do so without litigation are part of the problem, and thus put blood in the water that attracts trial lawyer sharks. In true capitalism a company owner who learns their product causes harm (asbestos) has to "man up" and view their product development as a dead end, and pay the financial consequences. (That's one reason why real insurance policies exist; not to "make a killing by marketing freak derivatives.") In real capitalism insurance policies exist so in case their is a huge "oh oh" and product liability, they are protected as a company from being destroyed, and the victims receive compensation.

But some trial lawyers went into the "find the asbestos and loot da money" business. All they do is sniff out use of asbestos and like truffle pigs, point out a place to litigate and sue, so they can loot money out of the situation (and even call themselves "heroes"), whether damage was actually done or not. And so we have had an unbelievable wounding of American capitalism through trial lawyers who seek up, stir up and even create conflict, in order to loot wealth out of the "crisis," whether real or contrived. And insurance companies have become part of the problem by no longer partnering with their customers to anticipate and proactively deal with inevitable product liabilities and dead ends. The whole asbestos litigation industry has been a debacle that I cannot over emphasize as a case study of where moral and prudent genuine capitalism has been totally derailed, all for the purpose of enriching the few, and victimizing the genuine victims twice. So many people have been enriched due to the "asbestos mitigation and litigation" industry that has derailed what should have been a prompt and reasonable approach to the crisis.

In a genuine, moral capitalist economy all the safeguards for bad or defunct "free market" product development would have been in place and activated. Insurance policies would have been written to do what they are supposed to do, insure, duh, not avoid helping pay out their clients when a tough situation arises. Also, a genuine capitalist company owner would promptly recognize his or her responsibility toward asbestos workers, acted swiftly and morally, AND had the security of the appropriate insurance in place, rather than put blood in the water by fighting and denying. Also, in a genuine capitalist economy, opportunities would have arisen for, yes, asbestos remediation companies (those who take the stuff out) and also for mediators and other advisers. But here is the problem. Trial lawyers should have been a last resort minority in this crisis. Instead, they "led the charge" for sheer monetary reasons. They drive, for example, the wealth of remediation companies. In true capitalism companies that alleviate asbestos should thrive because they offer a great and needed service, not because companies are held essentially at the point of a gun because of fear of the asbestos trial lawyers being sicked on them. Trial lawyers should be a "court of last resort," using their "speciality," and not the emperors of that entire segment of the economy.

I hope you have found this helpful, especially the young people, who have to rely on hearing about saner times, since they were born into these times when the "norms" are very abnormal.

Please excuse any typos or misspellings. Often I "cannot contact the server" when I try to spell check.