Download 11. USA Government and Free Market Capitalism

USA Government and Free Market Capitalism (Another Adam Smith ideas)
America is a relatively young country which is found on some noble ideas:
1. All men are equal.
2. Freedom to pursue happiness.
3. The Constitution of USA is sacred.
The founding fathers of America know that it is not too hard for a populist to gain control of the White
House and turn around to become a dictator. To prevent that from happening, the founding fathers
created three separate branch of government: 1. White House, the executive branch, 2. Congress and
Senate – the law maker branch, and 3. Court Justice branch – to review all law. With this checking
mechanism, the President of USA cannot rush any proposal without getting it checked by the Congress
and Senate. Law passed by Congress and Senate can also be vetoed by the President or strike down by
the Supreme Court. Although the system is not without problems, it can be locked down by fighting
between Republican and Democrat, this system has been able to preserve USA democracy since its
birth. This is a very significant human achievement since 300 million plus people, consist of all race can
live in a democratic country.
USA democracy works because only upright elites are elected to run the government. During the
election year, the President candidates are subjected to close scrutiny of the Press and need to answer
hundred of questions from the people on how they would govern. True Americans demand that the
President, Congressman, Senators, Judges must be a qualify elite with an upright virtual.
Almost all true Americans know that upright virtual is a crucial requirement to run the government
because without it, rampant corruption will happen on all level of the government. We have all
observed the corruptions in the foreign governments all over the world because an upright virtual is not
a requirement for those elites who hold power. For example, in China:
1. No general election to select leaders, instead a committee will do. (This is a short cut to save
time and money)
2. To get rich is glorious, why worry about the environment and villagers. (This is a short cut too)
3. Anyone criticize the state is arrested and jailed, why brother to fix what is working (Another
short cut to preserve the status quote)
4. If negotiation cannot be made with the state satisfactory, use force to eliminate any opponents.
(Another short cut)
5. Winning is everything and the end justify the mean. (Another short cut that make sure strong
hand on anyone or any country is justified)
A country that always take all these short cuts definitely is a country that is run by corrupted elites.
It is interesting to note that while true American demand their government to be free of corruption,
many of them turn a blind eye to how public companies and private companies are run. When asked
about such fact, most of them will say that this is a free market capitalistic country and government
should stay out of the private market business.
Majority Americans believe that in a free capitalistic country, competition in the private sector will
increase productivity and company’s fitness. It will create new ideas and drives the economy forward.
Under this free market capitalistic framework, anyone who is talented, or wealthy, or well connected
would be able to start and run companies, or own controlling share of a public corporation. This seems
to be a win-win situation since the economy will expand and more people will be employed. In the stock
market, companies share price will reflect the companies well being.
However, large sectors of US economy are flourishing under US government control and help. Some of
them are: agriculture, professional sport and Hollywood film making.
The agriculture sector:
The agriculture sector is an exception to the free market capitalistic rule since it is protected and
subsided by the government. It is because US government sees that:
1. The farmers have to invest a huge sum of money in planting. They have no control over the weather
or on the commodities price. It is really a very risky business.
2. The small size farmers, medium size farmers will not able to survive or maintain their independent
when compete against national and global player.
Given the support of the US Government, America farms are the highest productivity and efficiency in
the world.
Professional Sports:
US Professional sports are also a very competitive and profitable. Different cities sponsor their own
teams to play against each other. Players are paid for their performance. Fans pay to see and TV
sponsors pay to broadcast the matches. The professional sport is self supporting. Yet US government
definitely involves in financing the building of the stadiums and provides security and logistic support for
all the games. Given help by USA government, USA Professional sports are alive and thriving. They are
watched all over the world.
Hollywood:
Hollywood movies making is a very risky business. Even with very talent director, script writer, famous
actors, and dedicate technical support groups, many movies may not able to break even if they are not a
block buster. In order to cut down the risk, the movies producer will move the filming to city with tax
rebate or other incentives to lower the cost of filming. Government is always asked to provide such
incentives to the movies maker. Because of the incentive such as tax rebate and lower exchange rate
from other countries, a lot of Hollywood movies are filmed outside US now. Hollywood natives are
constantly lobbying the Government to provide incentives so filming can be brought back to California.
Thus support of the government is crucial to Hollywood movies making.
US Financial sector
US Financial sector is another story. There is very little regulation enforced on this sector. It is truly a
free market play. All type of Financial Instruments (derivatives) were invented or engineered to exploit
the stock and mortgage market. It does not take much imagination that all those private sector elites
who are also global player, with no regulation, will try to rack in and gamble to make as much profit as
possible. When Housing bubble busted in 2008, it caused quite a few major banks and institutions to
collapse. Credit was frozen around the world that led to the 2008 Financial Meltdown, which wiped out
thousands of people savings globally. This was one of the worst break down of free market capitalist
system.
When the dust settled down, US government decided not to prosecute any Wall Street elites because of
the fear that total banking sectors collapse is possible if there is a bank run. We see that the absent of
elites with upright virtues (to resist the temptation of quick profit and money) in the financial sector and
a free market policy, US Financial system will continue creating chaos for the world. Eventually, other
financial centers around the world will be able to catch up with US and most of those global elites will
just move their capital elsewhere.
High Tech:
In high tech information industry, there is no guidance from the government too since it is a free market
play. The only significant regulation is the US anti-monopoly law. The high tech industry has grown so
fast and so large that most people cannot see what is going to happen in the next 10 year. Here are a
few examples of what happening in High Tech in the last 10 year.
a. Ten years ago, Microsoft and Intel dominate the PC industry.
b. Today, Apple and Google dominate the mobile world. PC sale is going downhill and
Microsoft, Intel is struggling to catch up.
c. Yesterday giants such as Kodak, Digital Equipment, SUN, HP, Sony, Blackberry either went
out of business or become just a shadow of itself.
In such highly volatile high tech environment, we need visionary to become the driving force. US do not
lack visionaries. Plenty of future vision are created in films such as Star Trek, Star War, Total Recall and
many others. The US government has not been keen in pursuing such vision. Therefore no effort has
been make to ease the cut throat competition and to promote cooperation among high tech companies.
With little co-operation, a lot of effort, resources are wasted in re-inventing the wheel. Everyone should
remember that Blackberry was the number one smartphone just 4 years ago. Today it is on the verge of
total collapse because it has lost most of its market shares to Apple and Google. Thousands of engineers
have lost their job already and thousands of man year software work may become useless. Why should
anyone care about what happen to Blackberry? Here are my reasons:
1. Survival of the fitness (Darwin principle) is applicable to the animal kingdom. Anyone who has
simple mathematical background could see that this principle will create wild swing in
populations of the prey and predicator. If such principle is applied to Hi Tech companies, then
one can see that every Hi Tech CEO will strive for total dominancy of the Hi Tech market. Thus
the Hi Tech landscape will be monopolized and it has very little diversity.
2. If every engineer job is totally insecure (Blackberry lost everything in just 4 years), how can a
country like USA and Canada tell their young man to study and find a job in Engineering. From
my own data, I know that most of my friends do not want their son to follow the footstep of
their father (most of my friends are engineers). That is the reason why USA and Canada has to
import engineers from China and India.
3. Another 5 to 10 years, there will be very little diversity in USA Hi Tech industry. A lot of
Engineers from India and China will travel back to their countries to start their companies.
In 21 centuries US will not be able to lead the world in high tech (China definitely will be in the lead)
because there is no co-operation or any driving force among key companies. Most US high Tech
companies are still fighting for the top spot of leadership and total market share (which will be limited to
USA as China market is controlled by Chinese).
Conclusion:
Finally, I hope that many American should realize that USA economy is really not a free-market system.
Farming, Professional Spot and Film production all received guidance and financial assistance from the
US government.
In Financial sector, free market system brought the 2008 Financial Melt Down which USA is still trying to
recover.
In High Tech, free market system produce cut-throat competition and absolutely no co-operation among
companies. US government does not have vision to guild the High Tech Industries. US is in danger losing
the High Tech leadership soon. US government needs to recruit qualify elites who are really visionary
with upright virtues, use such elites to promote cooperation among key companies.
Other countries around the world, especially China, has elites guiding their high tech industry for a while
already. Such Chinese elites always follow or form alliance with US high tech companies while promoting
harmonious relationship among their high tech companies. Whenever any US high tech company lost
out in the fierce competition globally, China can just acquire the asset of such company at fraction of the
original cost. One can see what they have accomplished: China was able to send astronauts to orbit the
Earth and reached the moon with its land rover already.
I hope US will soon understand that free market capitalistic system just will not work in many sectors of
the economy because it is really based on Adam Smith economic ideas.
God Bless America and God Bless True Canadian
Frank L K Wan (www.dfa-college.org)
Jan 26, 2014
Vancouver, BC