Sunday, June 10, 2012

The End of an Era

The world is facing the end of the era of massive corporate production of goods and services. It is not really the fault of the corporations because they too are victims of the progress they made possible in the first place. There is a cyclic dependency of businesses needing to contain costs that feed into the reduction of the need for labor and therefore making it difficult for people to afford what the businesses provide. Unfortunately this reduction of the need for labor creates a cyclic dependency that results in much larger profits for the businesses. So while people are displaced from the means of personal wealth creation, the capital providers (Those Evil Capitalists) do better as the result.

There is a natural process of system aging that is referred to in environmental circles as eutrophication. While there is a precise chemical process associated with the aging process where excess nutrients are loaded into an aquatic environment causing algal blooms and degradation, there is an observational component too. A pond that starts out with clear clean water will ultimately fill in on its own with plant and animal detritus and slowly become a swamp or bog, then a meadow and finally a forest. Humans have accelerated the process in many places but it remains a natural system aging process.

Social, political and economic systems experience their own characteristic eutrophication process. Take for example the soft ice cream stand that was a ubiquitous part of the highway and byway landscape from the early days of inter-city automobile travel. Mr. Yost and his wife bought the manufacturing equipment, bought a cheap parcel of land out beyond the City Limits and built his little store. Motorists stopped by on hot summer afternoons with the kids fussing in the back seat. A cool cone and a hotdog settled them down. The Yosts made a good living off that place for 32 years. In that time he mostly only needed food supplies and electricity. The milk came from a local farmer and he could slice his own potato fries. His costs were low and all the profits were his annual income.

Then along came the Coca Cola regional sales representative. He convinced Mr. Yost to put in a red and white fountain and sell Cokes in cups with ice. He saw the benefits of this action posted on every billboard from City Limits to City Limits. He needed an ice machine now and some more space. All of these items were gladly provided by that Atlanta, Georgia corporation for a price. A bit of the Yost business revenue left the community. He took out a business loan from his local Savings and Loan, or Farmers and Mechanics Bank and expanded to include other menu items and accommodate the larger volume of weekend traffic that he came to rely upon. Business was good and he made more gross revenues even as the cost of doing business continued to rise and his net annual earnings remained flat.

Then along came the state highway department with a plan to build a town bypass to alleviate the traffic volumes in the town. The townies supported the plan but Mr. Yost was going to get bypassed too. With the inevitability of the construction, Yost used his savings to relocate out beyond the bypass. He now had to sell 60% more product at higher prices just to equal the money he used to make in his old location of 32 years. The land price was far higher than the first place along the old highway. The cost of construction was higher and there were new requirements for safe and hygienic operations. The now old Mr. Yost decided that he had had enough of the soft ice cream/burger and fries business. He put the business up for sale.

Mr. Yost needed to get enough money from the sale to retire on. After all he had sunk his saving into the relocation. The new buyer figured that he would buy the place, hire local kids to run it and have a pretty good investment on which to live. He borrowed the purchase capital from the Big Bank, NA and hired the kids. Now a huge interest principle was paid to a distant bank and that money left the community each month. The "kids" were from a town 20 miles away, because all the local kids were now too old to work for such low wages as this new Entrepreneur was willing to pay. All his supplies were shipped in from distant locations and that purchase money left the community.

Because everyone else was making their annual revenues off of Yost's Ice Cream Stand, the location had to sell 300% more product each year at higher prices than old Mr. Yost had to do in all his years of business. The new owner could not make a living on the location because all those other people and businesses were getting their share of the revenues. This business underwent the natural aging process that is akin to eutrophication.

Towns die when they age in this manner. The wealth creation that used to be present is removed to a distant place and the remaining people send all their income, pensions and savings to those places instead of keeping it local and sustaining their community. When the town was young, the corn came from a field the children walked past to get to school. Their peas and beans did not come in a can. The chicken parts did not arrive frozen from Alabama.

More people worked providing labor to produce things, and supportive occupations like accountant, lawyer, storekeeper, doctor, barber, service station attendant. Many of those people have aged and retired allowing someone else to take the reins. They did not go away. Mostly, they are still in the community collecting Social Security, pensions and annuities. Those funds increase the collective wealth of the community, but all their money leaves the community not to return.

The doctor is part of the health plan in an urban center, miles away, when he used to be the neighbor. Pharmaceuticals come from billion dollar multi-national corporations. Phone service is global with not one person employed to operate the system in any town. The money paid for telecom, internet and television content all leaves the community and ends up in the accounts of huge telecommunication corporations. Hint: TV used to be free.

While this aging process is a natural one, humans are accelerating it. Too many companies are depending on getting a percentage of every dollar of commerce, instead of their people doing something physical to increase the value of what they do. There are too few opportunities for an individual person to provide his labors for compensation that will allow him (her) and family to buy the necessary things of life that are priced by the companies who are getting their share of the dollar. Too much of business and commerce is funded with borrowed capital. This borrowing level makes everything more expensive. Mr. Yost originally could make a good living in half a year at his original location just outside the City Limits, doing much of the work himself. But when the investors and the banking system got involved the whole business when out of balance and ultimately failed. It's not really anyone fault, it's a natural aging process. The problem it we don't have a way to stop it or reverse it, yet.