III - NEW SHAPE OF CORNUCOPIA
2. SANTA AFTER XMAS
A share in the gains resulting from somebody else's action is something of a risk, a gamble; gambling on others is better than complete passivity, and it will get the silent partner at least to root for his champion. What investors do, when they risk their money in a venture without even a claim at controlling its fate, is called portfolio investment. To start on the path to an entrepreneurial society, we will first try to promote "portfolio" entrepreneurship. We will multiply the profit centers and let more people become investors.
It will require no great coaxing to convince top-dogs to relinquish ownership of the industrial sector. Toy as you will with the structure, enhance motivation and productivity by an order of magnitude if you can, it still will not revitalize the demand for industrial goods. There will be windfalls, still, in sales of fads and gadgets, but except in the demand for "machines pegged to men", the industrial sector, from now on, will have to live with a replacement-level type of consumption. Corporations will have to move away from soft sectors which happen to be those of "hard" production, and into "growth areas", the latter meaning high-tech and brain work.
So-called smokestacks industries - like steel for instance - will not close down; production should remain about as high as ever and productivity increase tremendously... but we will politely escort the blue-collar workers out of these industries and into something more comfy, because our social purpose is not to have blue-collar American workers competing for cheap labour with the people of Taiwan or Sri Lanka, but to have our engineers compete with the engineers in Tokyo to build better and more efficient fusion reactors and the like.
When GIA is effective, the mass evacuation of the industrial sector should create no problem for workers; it might create a huge problem for managers and shareholders, though, and until the crisis is over wealth will be in jeopardy. The industrial production system will remain a basket case until it is trimmed down to replacement capacity, which cannot be done overnight. Meanwhile, Cornucopia is up for sale at a bargain price. January Sale conditions!
The situation being as it is, it would be socially convenient that more and more people be involved, and that preferably everyone become part-owner of the corporate wealth. It would prove loyalty to the system, justify financial assistance and, should anything occur to the Big Bum Cheque, it would make us all severally liable for the loss. Cornucopia is there for the buying. We will not nationalize industries - there are ways to do things, the unloading will be done properly... - but look for workers to take over the giant corporations, their Pension Funds buying into the common stock of their respective employers and becoming their major shareholders.
Even at a cut-rate price it is no bargain. But, given the well-ingrained habit of underdogs dealing with top-dogs to buy high and sell low, consider it done that we, the people, are going to end up soon as the proud new owners of the industrial production system. The first major move towards entrepreneurship will be to transfer property of the after-season corporate system to the workers. This deal is not negotiable. It is less than candid, but it will have its good points. It will be a positive step to increase profit participation, will multiply profit centers and turn a majority of workers, or all of them, into portfolio entrepreneurs. We do not know, though, whether there will be profit to be shared amongst the shareholders
We should see to it that there is. There is no reason the new majority should not come into its own without violence and Cornucopia should not assume its new shape painlessly. For this to happen, though, the old majority must move out quietly. It will, if we are smart enough to forgive old grievances and to protect wealth for the sake of peace and order.
It will, if the authority of wealth is not challenged, because then, for the old majority to take its leave will not mean that each top-dog individually is losing wealth or status. There will be no loss of wealth or status, for instance, for the managers - (who are the new "second order" effective majority within the majority)- but a reinforcement of their power as they join forces with other entrepreneurs. There will be no crushing blow worth launching a crusade for the capital-owners either, if we extend "nets" below wealth and, to begin with, a net below shareholders.
New "rules of the game" should increase vertical mobility, meaning the chances of everyone to come forward to take a bow in the Winners' Circle, but behind the trapeze act of managers and entrepreneurs, there should remain the reassuring presence of wealth-as-authority. In a no-loser approach - the only one that makes sense - the price of transformation must be supported by the whole collectivity; not only by these shareholders unlucky enough to be on the spot at the precise moment we finally decide to do something about the crisis. Shareholders, whoever they are when the music stops, should not stand to lose... for which we may have to lend a helping hand.
Dumping Cornucopia on the common folks will not make it profitable, but it will provide us with the second best alternative which is to make it appear perfectly decent to ask the State for help once again. Once a solid majority of American voters have been turned into shareholders, we can really get down to business and be cheered for spreading the net below. We will again call Santa Claus to the rescue. Not the Robin Hood Santa Claus that took from the rich and gave to the poor, filling the blanks in consumption to protect the system and slow the pace of change; that Santa already has his hands full making sure that there is money around for buying everything that is produced. We will call to the rescue a more mature, no-nonsense, "after Christmas", Santa Claus, whose rationale and behavior will be totally different, because his purpose will be to accelerate changes, to modify the system and to get rid of the inventory.
The new Santa Claus may well appear to give to the rich, because, when it comes to changing the structure itself, it is necessary to apply to top-dogs also the principles of positive reinforcement and to make change attractive to those who hold Authority and Power. Santa, under certain conditions, must give money to "rich" people, like shareholders; this will be easier done if everybody is a shareholder, notwithstanding the fact that some may be holding more shares than others.
We will give to shareholders, we are already doing it. To the best of my knowledge, the expression "Corporate Welfare Bums" was coined in Canada circa 10 B.C. (Before Chrysler), by David Lewis, then leader of the New Democratic Party, to describe these non profitable companies that came crying for government subsidies to keep them afloat, brandishing the threat of bankruptcy and mass unemployment. Whether we like or dislike corporate welfare bums, they had a point then... and they still have. We may give up bailing out of trouble those who could not foresee the obvious and plan a way out of their own predicament, we may begin to abide by the rule that a corporation will be helped through change, not encouraged to maintain a disaster course... but we will certainly go on giving money to shareholders, because it is the only way to achieve a smooth transition.
Once we have agreed to protect shareholders (politically, the more of
them, the easier) and to extend a net below "wealth as fixed capital",
we will have to do it with some flair. It is certainly in the general interest
and all for the common good, but it is not "easy as GIA" to guarantee
a profit and ensure the capital of investors through measures that will
be politically acceptable...
A net below shareholders
Should we try to guess the method that our financial advisers will use to guarantee investors during transition? Consider the following hypothesis. The State might put up a standing offer to buy the shares of corporations in designated "sectors in transition", at a price that would mean full compensation for the decline in each of these sectors in relation to the Stock Market global performance. Let's take an example.
Suppose we assign the global fictitious value "1000" to all the shares on the Stock Market. When the sector "Steel", for instance, is declared "in transition", we may determine that, by the same criteria, the shares of all corporations listed in this sector "Steel" are worth "70", "114"... or what not, meaning 7%, 11.4%... , of all the shares on the Market. To simplify the calculation, let's say that they are worth 10% that is "100". Amongst the producers of this sector, let's now identify one - call it "Nazareth Steel" - and say its shares are worth "10", that is 10% of all the shares of the sector .
To spread a net below shareholders during transition, the State could put a standing offer to buy at anytime the shares of any producer of the "Steel" sector, after the sector "Steel" has been declared "in transition", at a price that would be corrected in relation to market price to reflect the performance of this sector. Suppose "Steel" is down to "80" from "100" while the Stock Market is up to "1200" from "1000", then the correction factor applying to the price at which the State' standing offer would be transacted would be 1200 ÷ 80 = 1.5, and should the shares of Nazareth have followed the trend of the sector and be down to 8, the State would buy these shares at 8 x l.5 = 12, on the assumption that it is transition and the phasing out panic in the Steel Industry that have prevented the shares of Nazareth, a steel producer, from moving up with the global market, a phenomenon for which Nazareth and its shareholders should not be penalized.
At first, it seems that a simple "rule of three" puts a solid concrete floor beneath Nazareth, and that the game becomes either to win or to win more. Not so, since although the approach eliminates competition amongst the various sectors in transition, it leaves the door open for competition on equal terms amongst all producers of a sector. Why bet Nazareth, if "Galilee Steel", for instance, has the same handicap and seems a better horse? Why use the standing buying offer to get 12, for a nominal 8 with a loser, if you can get 18 for a nominal 12 on a sound investment?
Galilee and other steel producers that look healthy will draw the crowd away from unimpressive Nazareth, and may send it down to a nominal 6, selling then, even to the State, for a money losing 9 compared to its initial value of 10. Enough investors, impressed by Galilee and others, may also turn this "80" for the Steel sector back into "100", or even have it maintain its share of the market at "120", turning then into a heartbreaking real 6 (since no compensation would apply), the price the State would pay for the nominal 6 of those who had thought some good might come from Nazareth. Even with the "net below", shareholders in a nincompoop company would still lose; the way they should, if a free enterprise system is to have any meaning at all.
Of course, the illustrative figures above could never become a reality. Investors - particularly institutional investors who will manage the funds of Johnny Worker turned shareholder - will have their computers discount, within milliseconds, the cumulative impact of trends and of the State's compensation. Global value of the shares of the sectors in transition will keep within infinitesimal distance of their initial referential value: "Steel" as a sector, with the State's guarantee, will be glued to the average Stock Market mark, in relation to which Nazareth, Galilee and all the others will fluctuate according to their performances, although they will, as a group, show resistance to downward trends.
A net below shareholders is absolutely essential, even to-day, because as the huge institutional investors rather than individual investors have come to run the show, the impact on the market has been the equivalent of replacing a couple of hundred pigs by a dozen smart elephants on a small boat precariously balanced. Weight may be the same, but we face vastly increased hazards that the wise but curious beasts may all run together to take a look at the landscape on starboard and topple the craft.
With a standing order to buy shares, are we not going to end up owning collectively most of the shares, and thus achieve indirectly the State-ownership of industries that we want to avoid? Not a chance! Once the net is in place, there are no more possibilities for panic in the industries in transition than in any others , much less as a matter of fact. Why should the investors sell in a rush out of fields of production in which, globally, things simply cannot go wrong?
Participation in a stable market is quite advantageous to the shareholders. So much, that the State will have to make sure that it remains stable and that transition does not become the greatest bull market of them all. It will reach this somewhat anticlimactic result, with a policy to sell back its shares, on the open market, the minute they reach the price the State has paid for them. This will put a practical ceiling also on Santa's generosity and on capital gains in these sectors, leaving aside of course the eventual technological breakthrough that will be the future equivalent of striking gold or winning a modest sweepstake.
When the message gets through to speculators that there is actually little risk of losing money on the market by playing the industrial sectors in transition, but little chance of making a killing either... then, they will leave industrial production to Johnny Worker turned shareholder and to his so clever investment managers, and they will go speculate on something else. This decision will reflect the reality of industrial production. It will have turned into an elegant middle-age lady with white gloves, still loveable, but hardly the woman with whom to get involved for heart-pounding experiences. It is Johnny himself, from this moment on, who will have to care for the gentle lady's happiness.
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