The Vicious Cycle of Stupid Capitalism

“To live fully, we must learn to use things and love people, and not love things and use people.” 

John Powell 

Work. Earn. Buy. Work harder. Earn more. Buy more. Want more. Work even harder. Wages stagnate. Prices go up. Use credit. Want more. Use more credit. Buy even more. Prices rise. Wages stay stagnant. Start giving up essentials; use more credit to buy more stuff. Get deeper and deeper in debt. Repeat.

Therein lies the vicious cycle of the stupid, wasteful, excessive consumptive capitalism that we have become trapped in. One in which companies are driven purely by profiteering based on selling us more stuff; no longer innovating or solving real problems but simply updating existing products with more memory, larger screen sizes or higher definition. We in turn want to keep up with the Joneses and even though there is absolutely no reason to discard your iPhone 5, ROKU 1 or 2009 model 40” LG flat screen TV, we want the newest gadgets and products because everyone else has them.

Even if you try to resist the urge to constantly consume (like our family does), companies have started to ensure that we have no choice. Many now make products with shorter lifespans, that fall apart in a less than a couple of years. I still remember when all white goods and even clothes and furniture from my parents’ generation lasted for decades. My father’s shoes and shirts lasted him more than twenty years; mine last less than two. My mother’s fridge stayed with us for more than a decade; our last one broke in one year. My last laptop died two years after I bought it. I had to buy a new one after Lenovo told me that the cost of replacing the broken part would be more than I paid for the laptop. In fact, it has gotten so out of hand that leading up to the financial crisis people were buying and selling homes as regularly as people upgrade iPhones.

Today, it is as if companies exist purely for profit at all costs. Consumption and consumerism has reached a fever pitch and are now bordering on insanity. Amazon just introduced a DASH button that allows you to re-order household products the moment you start to run low (Source: TechCrunch article). God forbid we ever run out of paper towels or washing detergent, the world might end; toilet paper is another matter entirely.

Perhaps, it started with Wall Street’s introduction of quarterly earnings results which were presumably designed to gauge the health of public companies and create greater transparency. Somewhere along the way it became a measure of profits, with growth expected every quarter. Shareholders started to expect their piece of this pie via an always rising share price and dividends every quarter. 

The problem with this model is that companies realistically cannot grow at such a frenetic pace. Such rapid rate of growth is neither realistic nor feasible and leads to putting the kinds of pressure on management that always lead to ill-conceived and myopic decisions at best and totally dishonest, illegal and fraudulent ones at worst. Essentially, we have created a system where we reward short-term success, at any cost, and penalize long-term or strategic thinking, the type that leads to real and sustainable growth.

This is not a viable model of capitalism and more importantly it is based largely on false premises and unrealistic expectations. It is not the fundamentals of capitalist theory that are in question but the people applying them who seem to have become increasingly devoid of ethics, morals, principles and personal responsibility. We have created a system where winner takes all, at the expense of everyone else. If we continue down this path we are putting the wonderful system of capitalism on a path to failure and also creating conditions for major social unrest across the world.

It seems that all sins are permissible as long as companies continue to produce profits. And when senior leadership fails, they simply move on to the next job with a golden parachute, instead of into management oblivion or jail where they really belong. After Enron, every senior executive learned to never leave an email or paper trail; “when topics broached sensitive territory in e-mails, they would often write ‘LDL’—let’s discuss live.” (Source: New Yorker). It used to take generations to amass substantial wealth. Today, between Wall Street hedge funds and Silicon Valley startups Rockefeller and Vanderbilt-like wealth is being created in a matter of years, and is often based on valuations pulled out of blue sky or based on misleading small investors.

Even the world of academia has succumbed to this growing greed and worship of money. Colleges, whose critical role was to broaden minds beyond traditional spheres of influence and thinking and to encourage generations to discover, are busy peddling sophisticated financial models that help companies evaluate ‘risk.’ Professors have become advisers to large corporations, showing up on company boards and espousing ‘financial and economic’ expertise via regular columns in newspapers or appearances on television and basking under the bright lights of six and seven figure celebrity. 

There are numerous reports of how talk of becoming a doctor, public servant, poet or teacher has long disappeared from the modern day dorm rooms. Today, it is all about how kids can make their first million dollars before starting their sophomore year in college. 

We have moved away from the notion of steady, honest hard work as the key recipes for success to a model that supports fast, easy, reality-TV-type do-nothing success. Everything is about an exit and not about building companies that span generations. Bluster wins the day while substance, it seems, is considered old-fashioned and outdated.

With this approach to success we have washed away the fundamental human values and principles that used to govern our inner consciences. We are looking out for ourselves (in much larger numbers than generations before us) and worried less about improving the lives of our employees, communities and children.

So we can blame our politicians, the business elites, media and everyone else for our woes and push for stricter laws and more stringent regulation, but I don’t believe this will solve the deeper underlying problem we are facing; we have made money our new God. It is this greed that we need to tackle; one that forgoes ethics, principles and decency in a bid to get ahead. 

Until we remember that each of us has a greater responsibility to society and to the generations that follow, we will remain plagued by this imbalance in our lives and in our little global village.

Open Letter to Indra Nooyi, Chairman and CEO of PepsiCo

“This above all, to thine own self be true.”

William Shakespeare

Dear Ms. Nooyi,

Among corporate leaders today, I believe you are among only a handful that have had the courage to stand up to both shareholders and Wall Street. Rather than bow to quarterly results pressures you have orchestrated a corporate strategy that embraces a long-term vision for your company. One that will no doubt help Pepsi become a more responsible corporate citizen as it re-balances its products and portfolio to have a greater focus on health. Rather than push for short-term profits, you have taken the harder road and the one less travelled. For this I have a great deal of respect for you and it is in large part the reason I am sending this open letter to you.

I believe integrity, honour and doing the right things are important to you, and that these are values you hold more dearly than those of simply pursuing and delivering bottom-line results, at all costs. Under your stewardship, PepsiCo’s corporate philosophy seems to be more than words on your website: “we believe acting ethically and responsibly is not only the right thing to do, but also the right thing to do for our business.” 

PepsiCo recently became the main sponsor of the Indian Premier League (IPL), reportedly signing a Rupees 396.8 crore deal for a five year sponsorship of the IPL (source: Wikipedia). The IPL and its owners, the Board of Control for Cricket in India (BCCI) are currently engulfed in a massive illegal betting and match fixing scandal that has tainted this tournament, the sport and distressed its loyal fan base. Worse than the unfolding scandal has been the spineless response to the crisis from its governing body, the BCCI. The President has refused to resign unconditionally, even though his son-in-law (CEO of one of the main IPL teams) has been directly implicated. The farce that is currently being orchestrated is not only shameful but blatantly unethical. And it is now clear that there will be no “real” attempt made by the BCCI to get to the bottom of the scandal or cleanse this great sport. Instead, they seem to believe that by trying to pull the wool over our eyes they will be able to keep their purse strings intact and continue to fill their coffers. This without any consideration for the reputation of the sport they are charged with stewarding or any shred of respect for the fans that fill those coffers.

This is why I am reaching out to you, to implore you to do the right thing and disassociate your company and this great brand and sever all ties with Indian cricket. PepsiCo should terminate its IPL sponsorship immediately and unconditionally; until such time as there is has been an unbiased, fully transparent and ethically conducted investigation into the improprieties and an effort made to rid the sport of this cancer. Show us that PepsiCo is willing to stand by its stated corporate values, ethics, and integrity and do the socially responsible thing in India. Show us that even when the financial stakes are high for the company that you will follow your own guiding principle that states: “Speak with truth and candor: We tell the whole story, not just what's convenient to our individual goals.” 

Like most Indians, cricket has been a religion for me also. Ever since I could walk I have adored the game, revered its players and most of all admired the gentlemanly values that the game embodies. Today, I ask you to help me save this game from the powerful few who have hijacked it and turned it into a corrupt racket. To save it from those who believe they can run it like a personal fiefdom with scant regard for the sport or for the one billion people who cherish it.

You have the power to send a message to the BCCI and IPL in the only way that will matter to them. Today, I ask you to help us take the first step in giving cricket back to the people of India and the world.

Sincerely,

Mr. Vaish 

NOTE: Here is the text of the response I got from PepsiCo. Sadly, it feels like standard form letter. However, I am still hopeful we will see some action by their senior management.

Dear Mr. Vaish,

Thank you for taking the time to contact us at PepsiCo. Your letter to Ms. Nooyi was shared with me for response.

We appreciate the time you took to share your sincere feelings regarding this topic and for the constructive spirit in which they were offered.

Please know that I've shared your concerns with our senior management team to be sure that they fully understand your position.

Sincerely,

Consumer Relations Associate Supervisor 
  

JOIN CAMPAIGN TO BOYCOTT PEPSI IPL 2014!

September 11 - Ten Years Later (Part 2)

Read: September 11 - Ten Years Later (Part 1)

If Oscar Wilde were around he might say “To start one war, Mr. Bush, was a necessity but to start two seems like recklessness”. 

As we continue to examine the impact of the decisions made by our government in the months and years after 9/11, it is important to look back at some of missed warning signs and lost opportunity costs for America that were a result of the course the Bush administration chose to set America on.

On 2^nd December 2001 one of the world’s largest energy companies, named “America’s Most Innovative Company” for six consecutive years by Fortune magazine, with 22,000 employees and global revenues over $100 billion, filed for bankruptcy. Enron’s entire financial reporting had been based on institutionalized fraud. Their demise also led to the dissolution of an old and reputable accounting firm, Arthur Anderson, the firm responsible for auditing Enron’s books. Close on the heels of Enron a number of other companies fell to similar accounting scandals. These included ImClone and Global Crossing, followed in the summer of 2002 by WorldCom and Adelphia. This brought into question the accounting practices of virtually every corporation in America. It became clear that there were serious discrepancies between the financial pictures companies were presenting to Wall Street, publicly, and the actual state of their internal balance sheets – the vast majority of Corporations were obfuscating their financials using contemporary accounting rules. All this was unfolding against a backdrop of a darkening economic picture based on the stock market bubble which burst in the first quarter of 2001. The economic excesses that had accompanied the heady growth and profitability of the 1990’s were gone. Too many firms, especially those in the technology and telecommunications, had made poor decisions and investments in in the wrong type of assets. However, even as growth slowed there was one startling difference from all post war recessions. Most recessions have been driven by sharp decreases in consumption spending, particularly related to durables and housing. However, during the early 2000’s consumption spending had actually been increasing year on year. This recession was being driven by plunging business investment (source: Joint Economic Committee Reports 2003). There is no doubt that seeds of this economic slowdown were sowed in the Clinton years, and are not directly related to the Bush administration’s policies but it is abundantly clear is that the signs of America’s impending financial meltdown, including the underlying factors that caused it, had started to become apparent early on during Bush’s first term in office.

It was in 2001 that Bush administration became aware of the problems in the overheating US housing market. At the center of the problem were two Government sponsored enterprises (GSE) called Fannie Mae and Freddie Mac, whose government mandated mission was to keep mortgage interest rates low, so more Americans could afford to buy homes. By now it was well-known in Washington political circles that both institutions were so highly leveraged that a minor decline in housing values, as little as 1.3% to 2%, could wipe out both companies. And that their failure would have major repercussions on financial markets and US economic activity across the board. Bush was shot down by Democrats in Congress when he tried to bring additional oversight over these GSE’s in 2002. By early 2003 the signs had grown alarming; by this time these two mortgage lenders had more than $1.5 trillion in outstanding debt issued on their balance sheets.  In July, of the same year, a report by independent investigators concluded that “Freddie Mac manipulated its accounting to mislead investors, and critics said Fannie Mae does not adequately hedge against rising interest rates” (source: New York Times). However, with stiff resistance from Democrats, and the administration distracted by two wars, Bush chose to relinquish this battle and focus on what he clearly believed was far more important for securing America’s future: getting rid of Saddam Hussein. By the time Freddie and Fannie finally collapsed at the end of 2008, housing values had dropped 12.8%, since 2006. By now things were pretty dire and it became necessary for government to intervene in every part of the economy as Bush put it, “to prevent the crisis on Wall Street from becoming a crisis in communities across our country." Finding themselves in the midst of yet another crisis this administration decided once more to use fear to push through a $700 billion bailout plan for banks. Giving sweeping powers to the government to dispense gigantic sums of taxpayer dollars in a program that was sheltered from court review. TARP was a three page bill that did not specify which institutions would qualify or what criteria would be used, if any, or what taxpayers would get in return for the unprecedented infusion. It was designed to save companies that had brought this Armageddon upon themselves, and by an administration that had neglected to pay attention to many years of warnings. By all accounts, what would likely have been a minor economic downturn had it been handled when the warning signs first emerged resulted instead in a US and global financial catastrophe.

Another aspect of economic growth is immigration, which early on Bush showed he realized the importance and benefits to the US economy. He saw a need to reform the stagnant US immigration policy. He called for a new and large-scale guest worker program, paths to legalization for existing illegals, and had five meetings with Vincente Fox, the Mexican President, all in his first nine months in office. However, when it became known that all of the 9/11 hijackers had entered the US with legal visas, and that some has stayed after expiration, it changed the complexion of the debate on immigration along with his administration’s healthy stance on it. The administration decided to view the issue of immigration through the lens of ‘homeland security’. One accompanied with rhetoric that heightened fear and focused on detection of terrorists along with greater powers for law enforcement. America went from taking pride in being a nation of immigrants to being afraid of them. In the two years after 9/11 legal immigration fell by 34%, naturalization decreased 19% and employment based immigration also declined, as percentage of overall legal immigration, while absolute numbers dropped by 53% (source: Migration Policy Institute, 2004). To give you one example of the effect of the Bush policies on immigration, pre-9/11 it would have taken an Indian student who came to attend college in America about 18 months to become a permanent resident, and five years to become eligible for citizenship. Today, the same Indian student would have to wait 70 years for a permanent resident visa (source: National Foundation for American Policy). There is no dispute among economists about the importance of immigration, and that it is fundamental to the success of the American economy. Immigrants have founded 52% of Silicon Valley’s companies, creating millions of American jobs (source: Foreign Born Entrepreneurs: An Underestimated American Resource). This is not just true of higher income, better educated immigrants but also uneducated, low skilled workers. Without immigrants “the pace of recent U.S. economic growth would have been impossible. Since 1990, immigrants have contributed to job growth in three main ways: they fill an increasing share of jobs overall, they take jobs in labor-scarce regions, and they fill the types of jobs native workers often shun.” (source: Federal Reserve Bank of Dallas). Instead of using the opportunity to rally Congress to fix loopholes, and sensibly and securely reform what was without a doubt an antiquated and outdated visa system, the Bush administration followed through on a knee-jerk path, deciding to clamp down with archaic rules that made it much more difficult to get any type of US visa and effectively encouraged, if not forced, the smartest minds from around the world to return home after receiving an American college degree.

Across the board this administration seemed to believe it could have its cake and eat it. In late 2002, Cheney summoned Bush’s economic team to his office to push for another round of tax cuts to stimulate the slowing economy. Paul O’Neill, then the Treasury Secretary, and the entire White House economic team had become convinced that the country was careening toward a fiscal crisis, and they pleaded with Cheney to start reining in government spending. Instead, Cheney used Reagan’s words that “deficits don’t matter,” to completely shut down Paul H. O’Neill and the economic team. This was just a few months before the Iraq invasion began. Apart from the two rounds of tax cuts, which added roughly $1 trillion to the deficit over ten years, Bush also created a Medicare drug entitle­ment that will cost an estimated $800 billion in its first decade, he increased federal education spending 58 percent faster than inflation. He became the first President in US history to spend 3 percent of GDP on federal antipoverty programs. He also spent billions bailing out the Detroit auto industry and ended his final term with the $700 billion toxic asset recovery program. It is worth noting that during his two terms the income disparity grew, the poverty rate increased, unemployment rose to reach 7.8% in January, 2009 (the highest level in more than 15 years). When President Bush took office, the national debt stood at $5.727 trillion and when he left office it was more than $9.849 trillion (source: CBS News). That is an increase of a staggering 71.9 percent on Bush's watch. There were a total of seven debt ceiling increases, almost one for every year Bush spent in office. Interestingly, most of Bush’s spending was financed by issuing US treasury bonds (about 40 – 45 percent bought by foreign powers). When Bush took office in February 2001, the mainland Chinese owned a paltry $63.7 billion in U.S. debt. When Bush left office at the end of January 2009 the mainland Chinese owned $739.6 billion in US debt (source: Treasury.gov).

There is no doubt that these were extenuating circumstances, and 9/11 changed America forever; no argument there. The issue has more to do with the priorities and focus of this administration for the many years after 9/11, and their fixation with a hurriedly planned and poorly executed War on Terror. As a result the vast majority of domestic and foreign policy decisions seem to be devoid of short-term priorities and long-term thinking. It was as if this administration decided that the 9/11 attacks gave them cart blanche and zero accountability for all their actions. That it also did not matter how America would pay for its out-of-control spending, as long as it was done in the name of ‘national security’. It seems this administration was perfectly content kicking the can down the road. This at a time when America was clearly in alarming decline with corporate innovation dying, the education system in shambles, entitlement programs going bust and the country heading towards insurmountable debt. Without the distractions of a spiraling situation in Iraq, a war that deeply divided the country and created an acrimonious stalemate in Washington, Congress would also have been much more focused domestically and compelled to act. And had Bush not been completely consumed by his war on terror it is certain he would have also paid greater attention to the many warning signs of US economic decline. All this coupled with a complete lack of diplomacy in his first-term resulted in alienating long-term US allies, weakening its moral authority and having the mighty US military power humbled by a bunch of rag-tag rebels, in both Iraq and Afghanistan. Consider that Bush’s global war on terror will continue to cost US taxpayers for at least another generation, and has almost single-handedly been responsible for tilting the balance of global economic power squarely into the hands of China. In the end, we must ourselves this one question - was all this worth it just to get rid of Saddam Hussein?

Capitalism RIP…

(Image: Henley Design Studio via Unsplash)
 

"The point is, ladies and gentleman, that greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit."
Gordon Gekko

Don’t get me wrong, I am as much of a jingoistic money grubbing capitalist pig as the best of them, and believe me when I say that I don’t intend on ‘sharing my wealth’ anytime soon (well, what little is left of it, anyway!); but I am saying that American Capitalism, the ideology that has been the essence and core of the global capitalist engine, is dead. 

The one that has for the last thirty or so years been filling up on spurious petrol to keep it revving; and much like Detroit, it is too late for an overhaul or an oil change to keep this baby purring – it will need to be replaced with a new and more generationally friendly one.

My conclusion is based on a simple premise. It is not one steeped in financial foresight or wizardry or even based on an innate understanding of derivatives, credit default swaps or the global financial systems’ intricacies or lack of regulatory structure. To my simple and poorly read financial mind there were (and remain) a couple of warning signs that our system of Capitalism was on a path to failure. And I want to clarify that it is not the fundamentals of Capitalist theory, but the people applying them, that have failed; the end result, however, remains the same.

The first warning was a growing lack of accountability coupled with a management culture where captains of industry were no longer being chastised, but routinely rewarded, for failure. And we, society, were saying it was fine that these men take no responsibility for their actions as long as they did not screw us personally. Of course, it also seemed like looking the other way had become easy because we were all in some way feeling a part of the greater wealth creation, by pushing our credit limits beyond our means and deluding ourselves into believing that our first million was probably also just around the next corner.

It seemed that as long as these CEO’s had not broken any laws, all their sins were permissible and they could move to their next big job with a slap on the wrist and a golden parachute, instead of into management oblivion as should have been the case each time and with no exception.

Add to this Wall Street financial firms, hedge funds and Silicon Valley unicorns, creating generational wealth in a year and yet few were creating products or innovating, financial or otherwise (last time I checked CDO’s were not products). They were generating huge profits on a quarterly basis, which often turns out were based on false premises, grossly overstated sales figures or simply hiding big losses. These people were not only building the most dangerous and flimsy house of cards in the history of the world, but gambling recklessly and profiting from it and here’s the kicker – they were using your retirement money and mine to do it.

The second sign was one that was brewing in the world of academia. Colleges, whose critical role is to broaden minds beyond traditional spheres of influence and thinking, and to encourage future generations to discover and pursue dreams they never knew they had, were busy peddling sophisticated and fail proof financial models that would help companies evaluate ‘risk.’

You suddenly had professors everywhere becoming advisers to large corporations, showing up on company boards, and espousing ‘financial and economic’ expertise via regular columns in newspapers or appearances on television and basking under the bright lights of six and seven figure celebrity.

Something is astray in academia when the line between classroom and boardroom starts to disappear in such a relaxed and yet alarming way. There were numerous reports of how talk of becoming a doctor, public servant or teacher had long disappeared from the modern day dorm room. It was now all about how one could make his first million dollars before turning thirty. Dreams consisted of amassing Astor or Rockefeller-like wealth not over a few generations, but through a few bonuses.

The third is what I deem the deterioration in the moral fiber of society; big words, I know, but simple when thought about in the context of the lack of meaningful action in the world of business and life, today.

It is as if the fundamental human values and principles (not written laws or government regulation) that used to govern our inner consciences were being washed away in a tsunami of wealth creation.

It felt like people only cared about creating personal wealth and were no longer willing to give back in real and consequential ways, in terms of donating their time and energy to bettering future generations. As long as everyone was making money, everyone seemed happy. Average people were buying their dream homes, and even less average ones were managing to buy second and third homes, politicians were filling their campaign coffers to the point where some actually stopped accepting any more contributions and we were filling our shopping carts with the latest flat screen televisions and Blue Ray players with money we did not have, and of course India and China were growing at 10% a year; nobody bothered about serious accountability and most of us did not stop and think about personal responsibility.

We were happy to keep looking the other way as long as we and our own felt better off from one year to the next. And it is not altruism that I speak off. My mother always said it was easy to open your cheque book to appease your conscience, but it’s much harder to give up your Saturday to mentor new recruits or give up the tee time to take your children to an all day camp - the issue that I believe lies at the heart of our problems and the failure of Capitalism.

We were looking out for ourselves (in much, much larger numbers than in generations before us) and worried less and less about improving the future of our employees, companies, communities and our world.

So we can simply blame the Bernie Madoffs, the Dick S. Fulds, the Mark Zuckerbergs for all our woes and push for stricter laws, more stringent financial regulation and more transparent regulators, but I don’t believe this will solve the deeper underlying problem for the far future.

I am all for bringing to book the leaders who misled companies, abused public office, refused to accept responsibility and engaged in criminal wrongdoing (and even have their bonuses and campaign contributions revoked) but I also believe that there is one more thing that we should all think about: ensuring that we set the example and bring up better people, in the generations that follow.