Abraham Lincoln warned: âA house divided against itself cannot standâ (Smith 2012). The âAmerican dreamâ at the time of writing has become an American nightmare. This is partially because the leadership of the country is desperately divided.
The stock market is breaking records, the business sector is enjoying record profits, but are these indications of real growth? Without increasing real productivity, these are impressive facades indicating not the generation of real income, but more redistribution of real income. Furthermore, this income distribution is from bottom to top, which means it is against 99 % of the society and in favor of 1 % of the society.
In order to understand why the current situation in our economy is so negative, we must explore the essence of wealth generation in the society. Although there have been earlier versions, Exhibit
1.1 is the most advanced version of a wealth-generation model which needs to be explored. It is proposed that the model presented in Exhibit
1.1 provides certain avenues a progressive society may follow.
Wealth generation begins with, and depends on, having a progressive environment. Different cultures or societies have different orientations. In some cases, these orientations are very progressive and in some they are not. After centuries of stagnation, today China has a remarkably progressive environment, whereas our environment in the USA, at the point of writing, is not at all progressive. It is bogged down with day-to-day struggles for survival on the part of the majority. The business sector is totally in its comfort zone without any intention to change. That is not a progressive environment which is thriving for advancement and a better quality of life for all. It is simply catering to 1 % of the population, allowing it to get wealthier while the rest is stagnating.
It is not a progressive environment because there is hardly any upward mobility.
It is not a progressive environment since the middle class is dissipating.
It is not a progressive environment since workers are not receiving compensation adequate for their toil.
It is not a progressive environment when the majority of the population is categorized below the poverty line.
These are but a few items on which to ponder.
The progressive environment must coexist with a functional infrastructure. Without an infrastructure that would facilitate sound production capabilities, resource utilization, and people mobility, there cannot be satisfactory progress (Samli, 2011). High-quality education across the nation is also a permanent and critical prerequisite of a progressive environment. Without a certain level of education it is not logical to expect that the society will show a progressive performance leading primarily in the direction of entrepreneurship. Fair and progressive laws must always be present. Without fair and progressive laws, society cannot perform a forward-moving economic activity which will benefit all, not just a privileged few.
Perhaps no real growth can be experienced without having a productive atmosphere which will encourage generating value by producing products and services that would enhance the economic well-being of the whole society. Progressive behavior is a must.
Of course, the workforce must be healthy to work at full capacity and produce for all. That means having a healthcare system that is not only exceptionally good but also accessible to everyone in the society. Good health care is a necessity.
One area which is particularly important is the population boom. Clearly we are currently facing a condition of too many people and too few jobs. There have to be efforts to increase jobs and also to slow down the population increase.
The society will experience progress if there is opportunity for individuals throughout the society to generate and act upon new ideas. These new ideas may create major breakthrough innovations in technology and science that will benefit all.
Of course, the breakthrough innovations may cannibalize existing products and services. The society must be ready for that and the cannibalization process should not block progress.
One of the most important activities in a progressive society is making sure that workers will receive compensation according to their contribution to economic progress so that the benefits of economic progress will not concentrate in the hands of the privileged few. The benefits of economic progress must be shared by all.
Finally, as wealth is created, it should be distributed among all, efficiently, gently, and equitably, but how this can be accomplished is a major problem. Without such specific conditions being identified and taken care of, the economic growth becomes just income redistribution and not true economic growth (Exhibit 1.1).
Even though not fully functioning, these conditions existed in the US market economy until almost the end of the 1970s. Starting in the late 1970s and early 1980s, through deregulation and tax cuts, the conditions started changing in the direction of the current problematic conditions indicating that the dynamic society was being run by a regressive leadership.
A Market System Left Totally Alone Does Not Function Well
Markets, if left alone, will lead to high levels of inequality, which is unfair (Stiglitz, 2014). This inequality became so bad that Reich (2010) responded to the question âwhat and who is the economy for?â by saying âfor only a privileged few.â Our economy moved from being a market economy to being a finance economy (Samli, 2013). This trend accelerated further, the greed factor giving more economic benefit to the one percenters became an accepted pattern. While, originally, the American market economy functioned on the basis of ambition to create economic well-being, which was reasonably successful until the 1980s, the greed factor generated not enough real wealth creation to be shared by all, but redistribution of wealth in favor of the one percenters. This meant not utilizing the countryâs human resources fully, and generating and distributing wealth to all, in proportion to their contributions, but simply bidding for what was already built and available. Thus, instead of higher wages and quality of life for all, the economy allowed one percenters to bid for what was available. The stock market, as a result, reached record levels, whereas wages and salaries of the majority moved upward at a pace which may be considered pitiful.
The unregulated market is like the forest where only the strong, or in this case, the financial giants, would survive. The law of the jungle is hardly compatible with a progressive and modern society. The modern jungle is run by what this author calls âsurvival of the fattest.â
The Critical Factors for a Market Economy
As pointed out in Exhibit 1.1, the market economy which is geared to generating real income is based on a few key tenets which must be in a positive functional order. A brief consideration of each is presented below.
Environment: The current state of the US infrastructure is rather questionable (2011). The infrastructure, which is critically needed for economic well-being and global competitiveness, is certainly ignored and is totally below par. The levels of national education are much less than what it can be in the USA and should be in the world. It is fractured and not supported adequately. The current education system is not catering to educating young people to contribute to the economic well-being of the society and to making it more progressive. It is not cultivating entrepreneurial capabilities. The education system must facilitate economic progress with new ideas and new orientation.
The divided national management presented by the US Congress is causing almost total stagnation. There is hardly any progressive activity by the national leadership. It appears that the 1 % of the population which has the power is not interested in the progressiveness of the society. This power group does not want to change and is not allowing any progressive activity to become a reality. As a result of the critically disruptive forces, the US society is experiencing a nonproductive atmosphere which is not creating progress.
Health Care: The USA is the only industrialized country that does not provide healthcare for the whole population. This certainly limits the capability of the workforce to be optimally productive. A healthy workforce is a more productive workforce (Samli, 2013).
Population Management: If and when the population increase is close to or greater than the increase (if any) in GDP, then the society is having difficulties. This is one of the big problems in the third world countries. In addition, excessive population increase challenges clean air, clean water, clean soil, and other scarce national resource supplies which are essential for progress. The USA is not necessarily overpopulated yet, but small growth in GDP, almost outstripped by the population increase, is not exactly helping.
Opportunity Availability: A dynamic society must have opportunities accessible to all members of the society, not only to a privileged few. It must have not only an opportunity to get a good education, but the opportunity to have access to good jobs, the opportunity to receive pay commensurate to the contribution their toil has made, and the opportunity to advance, in other words to create an entrepreneurial zeal for progress. But currently these and other opportunities are nonexistent; the upward mobility which has been a basic tenet of our society is simply not present. In fact, shockingly, the current picture of our potentially very dynamic society resembles what was written in 1944. It was stated that the society is going through a ârevolution of the rich against the poor. The lords and nobles are upsetting the social orderâ (Polanyi, 1944, p. 33). If all citizens do not have equal access to opportunities, then one percenters, as opposed to 99 percenters, are winning and the society is becoming more and more divided.
Breakthrough Generation: A society makes real progress by developing and sharing breakthrough products and services. If one group is doing very well, which is the case of the one percenters, and if that group has the resources to explore new and radical innovations which may make the whole society better off, would that group put emphasis on risky, costly, and demanding explorations that would make a great contribution in the future? Certainly not! The group that has resources is not motivated to reach out and explore unknowns for the future. The group with resources is already in its comfort zone and has no interest in moving in the direction of identifying and capitalizing on tomorrowâs mega-opportunities by sacrificing todayâs comfort. Thus, unless an innovative culture is developed, the society suffers from not having progress.
Innovative Production: As discussed in the previous paragraph, lack of breakthrough generation certainly curtails producing radically different and better products and services. A society or an organization that does not generate radical innovations cannot make much progress because it will have to depend on others for its basic scientific knowledge and, in time, will be in a weaker competitive position (Kao, 2007).
Managing Cannibalism: Radical innovations, by definition, would make some of the existing products or services outdated. But this cannibalism should not stop the radial innovation activity. As I posited earlier, my killing of my own existing products is much better than my competition cannibalizing them. That means I am ahead of the competition (Samli, 2007). At this point of writing, many companies are doing well and, hence, they are not exploring radical innovations. They do not feel the need to do so. Perhaps one of the reasons for this is that there is not enough competition, and hence, they do not want to cannibalize their current products, which are quite profitable as they are.
Earning According to Contributions: By the time sophisticated products and services reach the market, many layers of efforts have made a contribution to their development. But these efforts are not appreciated and rewarded. Whereas one percenters are currently trying and succeeding in keeping wages low, they are also exporting higher-paying jobs to countries where pay scales are lower than ours. This certainly is not contributing to the generation of real wealth. It is certainly possible to determine, at each level of labor, how much contribution is made, and the market value of that contribution can be determined on the basis of the selling price of the product or service. If middle-class people were paid accordingly, this would improve real wealth creation and strengthen the middle class by better distribution of wealth.
Utilizing Human Resources: A countryâs real strength is its labor force. If that labor force is not productive, or is not totally utilized, then that society is losing. Unfortunately, at the time of writing, too many people are working part-time and many are so discouraged that they are not even looking for a job. Certainly we are all losing.
Distribution of Wealth: Everybody is entitled to receive the worth of the toil which went into their work to produce goods and services. Here those who are producing wealth should not be deprived of having a fair share of it. This situation requires proper wage and salary administration as well as a reasonably progressive tax structure.
This brief additional discussion of the conditions indicated in Exhibit 1.1 shows that our economy is not doing nearly as well as it could. Certainly, conditions should be totally suitable for creating real wealth. But, left alone, the current market system, which is being run by financiers, is not likely to generate real wealth for all.
The more the financiers leave the economy unchecked, in other words if regulations are eliminated, the more the market works for financiers. While the stock market is breaking records and the business sector, that is, industrial giants, is showing record profits the wages of the...