Post 2 of 20: We Can Shrink Wealth and Power Gaps to Near Oblivion!
Target: Internalize elites' major wealth-making tactic: use of other people's skills, resources and money on large-scale basis!
How come the world has just a few thousand dollar billionaires and over 5 billion individuals who suffer poverty from 'genteel' to absolute levels? How come the mass of employees of the world's 199 countries (the 3rd & Developing Worlds) earn the equivalent of $50 to $300 monthly while those of just 31 1st World nations average $2,000 to $5,000 monthly, and their exceedingly few elites earn millions of dollars each month? World economic history and statistics reveal the major reasons: (1) Top 1st world corporations produce and sell at world scale, and most of their profits go to their few controlling capitalists. In early 2000s, 1.5 million Philippine businesses' yearly production averaged just $400 billion or so, equivalent to the sales of just 10 or so top US or Japanese companies. {Lesson: When 6 billion 3rd World people's production equals those of just a few 1st World corporations, mass poverty will expectantly reign among the former.} (2) Major Japanese corporate groups (keiretsu) comprise from 50-200 world-girdling joint venture companies, including a billion-dollar bank and billion-dollar State credit lines per group, all centrally managed by a holding or 'mother' company. {Lesson: World-scale corporate groups sharing resources as groups build super-elites}. (3) In 1980s, keiretsu groups largely created Japan's average $4 trillion gross domestic production (GDP) per year, making Japan's masses among the richest worldwide. Philippine GDP at the time averaged just 40 or so billion dollars yearly. {Lesson: National productivity, not God or Fate defines mass wealth or poverty.} (4) In 1960s, Japanese keiretsu groups pioneered joint venture partnerships with local companies in the Pacific Rim, with keiretsu partners providing technologies, long-term loans at low interest and even world markets. The joint ventures greatly helped in industrializing South Korea and built thousands of factories in Taiwan, Hong Kong, Thailand, and the Philippines. In 1980s, the 'joint venture fever' reached China, and it created a 600 million-strong Chinese middle class. {Lesson: If you lack technologies and financing, partner with those who have them}. (5) All leading 1st World companies sell to world markets. Conversely, 3rd World businesses fight tooth and nail over tiny local markets. Logical results for the 3rd World: productivity, employment, profits, salaries, mass wealth all at ultra-low levels, or in short: mass poverty). {Lesson: Tiny 3rd World companies must clump together to access world markets}. (6) From 1980s to present, leading 1st World companies copied the Japanese joint venture way in China, in the process enabling China to dominate world markets in industrial and consumer goods thru the country's low-cost labor, electrical power and factory inputs. The Philippines had a short joint venture industrialization sprint in 1970s-80s that built several thousand export-oriented factories and a rising middle class. Unfortunately, ever-rising world prices of imported oil (which bankrupted Philippine export markets & their local dependent companies) plus billion-dollar scale corruption at State reverted the rising middle class mass to old poverty. {Lesson: create corruption prevention systems to replace current post-crime legal remedies}. (7) In mid-1800s, Germany, the UK and USA pioneered corporate and university Research and Development (endless invention of products and technologies). By 1990s, their R&D activities created over 25 million patented inventions plus some 300,000 more applications per year. Major Western companies commercialized just 6% of the technologies and products and sold them worldwide thru dealerships, production licensing and joint ventures. In the process they created a 1st World of 99% middle and upper classes. Unfortunately for the 3rd World, nothing of the sort happened among its peoples. Institutionalized, well-funded R&D was either totally unknown to the 3rd World or considered too expensive by its leaders even up to the present. Result: 3rd World poverty as 'fate' with no end in sight. {Lesson for the Phils: Pass a law that channels 10% of all tax income and loan proceeds to corporate, State and university R&D}
Now for the clincher: all the world's corporations have something in common: heavily-skewed debt to equity ratios. In the Philippines, manufacturing companies' debts run at 70-80% of assets. Merchandising (buy/sell) companies maintain assets that are 80-90% borrowed, largely thru consignment terms. Banks are nose-deep in debt at 92% or so of liquid assets borrowed from the public, largely in the form of middle classes' savings and time deposits. Conclusion? Capitalists actually contribute a mere 8% to 30% of corporate assets used by employees and managers to create profit. The great majority of assets are borrowed. Thus, out of a company's say P10 billion in assets, capitalists contribute just P800 million to P3 billion, the rest borrowed from suppliers in the form of machinery, equipment, materials, inventory and services and other assets. Corporate goodwill or 'name' adds as an intangible but most valued asset. Who are responsible for acquiring all the borrowed assets plus customer goodwill that play the major part in creation of profits? Who paid all the loans over decades and thereby created ability to pay upon which high credit worthiness is based? It cannot be lifeless capital! Nor can it be capitalists who merely waited for profits to rain over! Only the company's concert of skills, efforts and time supplied by its employees and managers can create credit worthiness that become the basis for acquisition of borrowed assets. Yet all consequent profits invariably go to capitalists. Such profits take the form of acquired assets incident to loan repayments, cash or capital stock dividend issues, rises in value of the company's stock certificates in financial markets during good times, and goodwill that raises credit worthiness and general business due to positive corporate name. Throughout the free enterprise world, all such forms of wealth worth quadrillions of dollars go to capitalists alone, not an iota to the builders of high credit worthiness that brought in the borrowed tools used by such builders for generating profits. Something must be wrong here!
How do corporations acquire borrowings that run in millions and billions of dollars? Fundamentally, the grant of loans is based upon capital, collateral, character, and capacity to pay. Collateral is limited by volume and value of capital, its loan proceeds usually at 50% to 80% of market value. But in the case of banks and merchandising companies where capital is just 8% to 10% of assets, the basis for loans in great part are character and capacity, or the ability of the bank's concert of employees and managers to make enough profits that will repay loans and issue dividends to shareholders usually over decades of operations. By virtue of merit, loans above collateral value that are hence unsecured or 'clean' should be considered as employees' and managers' quantified investments. Indeed capital investments being inanimate simply cannot develop character, which arises from capacity to create profits and repay loans. Unfortunately, centuries-old corporate laws & traditions totally ignore labor's role in credit-worthiness and awards all wealth created out of unsecured loans to capitalists alone, as if they were responsible for existence of all borrowed assets.
What is the major result of the described injustice? It's no less than the maintenance of stratospheric wealth gaps between relatively few billionaires and billions of ordinary employees & the unemployed. The consequence is enduring mass poverty as the billionaires corner trillions in capital that should have been used to create innumerable businesses that create jobs for bottom poor. Said trillions are instead used to finance said billionaires' luxurious ways or invested in more businesses to create ever larger mountains of wealth for themselves. In other words, elites' tactic of using other people's skills, resources and money in gargantuan scale for their sole benefit is a principal cause of mass poverty in all the capitalist 'worlds': 3rd, Developing and 1st. It's the same for communist societies where the State instead of capitalists gets 90% of wealth which a few leaders of a single dictatorial party control and enjoy 'in the name of the people'.
In most cases, capitalist elites thru their managers use their companies' accumulated wealth to borrow more funds towards setup of more and more companies. Thus we become familiar with a questionable reality worldwide: very few families each owning or majority controlling 40 to 400 companies that together routinely cough out hundred-million dollar profit dividends monthly. As elites' employees repay their companies' billion-dollar loans, more fortunes pile up under the controllers' names. Furthermore during favorable business periods, said controllers' capital share titles rise in stock market values to the roof, enabling such companies to more easily raise enormous sums using such paper values as 'collateral'. The elite controller (owner of majority stock) then uses the resultant billion-dollar loans partly to set up another company, or to buy another, and partly to finance said elite's royal-class lifestyle.
Tragically, the employees and managers who were responsible for ability to pay (thru profitable work) receive no proportionate benefit despite their decades of work and borrowing and repayment cycles to expand their company and its credit worthiness. Many may even lose their jobs if their company gets sold to a corporate raider (buyer of majority capital shares) intent on building a corporate group by 'rationalizing operations' which means getting rid of the victim company's supposed 'expensive baggage'. In such case, most of the billion-dollar assets the victim company's employees built up over decades thru borrowings become the raider's properties. The injustice compounds!
Such traditional corporate practices is the major reason why less than a hundred Philippine families earn several billion pesos monthly out of corporate groups that number 80-200 companies while majority of said conglomerates' hard-working employees earn just P15k to P30k monthly and nothing else. All Philippine corporations in effect become wealth gap-creating machines just as in other capitalist countries.
The wealth gaps are even much worse in the 1st World, where elites' investment companies operating in stock markets control almost $100 trillion in stock market assets contributed by millions of companies (especially insurance and pension funds) and billions of individuals worldwide. Even a tiny portion of said assets (capital stock shares, bonds, currencies, titles to metal hoards and commodities, etc.) can finance millions of industries and create billions of jobs worldwide especially in the 3rd World. Unfortunately, some 99% of said assets end up in billion-dollar computerized 'gambling' plays, or the buying and selling of said assets to acquire quick profits (or suffer quick losses). International computer-quick currency trading alone is estimated at $7 trillion per day. Less than $2 trillion out of the $100 trillion or so in investment company assets get invested in new companies yearly. Some 80% of such investments go to startups in just 24 or so 1st World countries. The pitiful $400 billion that remain get to finance startup and mostly portfolio (quick exit) capital or loans in over a hundred developing and 3rd World countries. Such tiny rates of investment plays create pitifully small production volumes for a 3rd World of some five billion poor. Instead, titles to trillions in capital and loan funds that can potentially address 3rd World poverty simply transfer from losers to winners in perpetual stock market trades. No wonder the world's wealth is so skewed in favor of 1st World peoples!
Why does the poverty-creating culture endure? The reason is the inability of the world's skilled masses (employees and managers) to set up their own corporate groups (mega co-ops) that grant above-market profit dividends. If able to set up 'conglomerates of the masses' in the elite fashion of setting up corporate groups, mega co-ops will surely attract trillions of dollars in investments by maintaining above-market dividend rates over the years. Success will ensure that in due time, majority of the 1st World financial elites' $100 trillion in stock market 'gambling' funds will circulate among world masses' corporate groups! Instead of investing in stock markets, world companies, States, banks, insurance & pension funds, & billions of middle class individuals will directly buy capital stock in mega co-op companies, conglomerates & joint ventures, in the process re-channeling endless quadrillions among investing masses & creating billions of jobs for 3rd World bottom poor until world poverty withers away.
Can the current skilled masses kickstart & maintain such redemption habit? They certainly can, for employees and managers are the very skills that largely set up and run elite corporate groups! If skilled masses can pump up elite wealth by using their talents to generate credit worthiness and profits for elite companies, so may they enrich themselves by creating their own corporate groups! The 'side effect' can only be creation of hundreds of millions of jobs each year for the world's poor, who will then afford education for job promotions & acquire the capability to join the redemption process as additional investors in geometric manner. Such is the only way by which people who lament the world's massive societal wealth gaps may form mega co-op movements that will re-channel the world's stock market trillions towards investments in companies that enrich the masses, not the usual elite few!
What then should a Philippine Mega Co-op Movement do to address the described poverty-maintaining traditions? Said movement must convert the country's skilled masses (employees & managers) into capitalists by creating mega co-ops that each sets up scores of joint venture companies the elite way. As mega co-op shareholders, said masses shall then reap their deserved quadrillion level profits incident to their roles in creation of credit worthiness that became bases for massive loans which they then used to create profits & rises in value of their companies' capital shares. Concurrently, mega co-op consortia setting up employees' banks that expand operations worldwide should channel endless floods of lending funds to all mega co-op corporate groups, all resultant profits again going to the entrepreneurial masses. And just as the Philippine political elites prospered thru State aid and government-guaranteed foreign loans, the Mega Co-op Movement must do exactly the same. Such schemes and more will channel trillions of dollars in investments, loans, salaries and benefits, dividends, rises in asset values as loans get paid, and risen stock market values of mega co-op capital share certificates, all to enrich the masses on routine & endless manner. In other words, the Philippine masses must end poverty not by seizing elite properties for 'redistribution' and questionable management by a dominant political party but by simply copying elites' tested wealth-making tactics. The big difference is that the people's conglomerates will naturally employ democratic principles (mega co-op systems, anti-poverty laws, etc.) that ensure endless floods of wealth flowing among the masses, not all over the usual elite few. And now for the grand surprise: this blog shows exactly how!
Read next post which presents the mega co-op way out of mass poverty derived out of common logic! (For Android cellphones, swipe screen up & down, tap arrow at left of title, and tap Post 3: The Basic Mega Co-op Movement Anti-poverty Thesis)
For Question & Answer procedure, tap Post 19: Time to Act! Help Promote Our Mega Co-op Movt!
For comments: email fermin4megacoops@gmail.com