Forum Post: Democratic Utilitarian Economics: Is This The Answer?
Posted 13 years ago on Oct. 22, 2011, 3:36 a.m. EST by Zteacher
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The plan is a government backed multilayered incentive directed at corporate leaders that will force them to weigh profits equally with job retention, job creation, and other social initiatives. The first segment of this new plan would be an employment bonus for all small, medium and large businesses that will be allocated depending on how many domestic jobs are created and maintained by that business. Since it is also important that these jobs provide a living wage for employees, it would be advisable to tie salaries to something similar to the federal wage rates for specific job classifications. This would help to ensure that employers would not undercut salaries as a means to inflate the number of employees by hiring larger numbers of employees at lower salary rates. The system that I have derived, takes this factor into account.
The system will be based upon point values. Each job title will have a point value allocated to it depending on the jobs value to the company and its pay scale. An example, though certainly not set in stone, is as follows. Unskilled and skilled workers will be worth one to four points within the system, based on seniority and their skill set. Pilots and information technology specialist will be worth four to six points. Financial analysts and bankers will be worth 5 to 7 points. Doctors, scientists, and engineers will be worth seven to ten points. Of course, not all job titles are represented within this example.
Examples regarding how employment bonuses can be distributed are as follows. A small business having a total employee point value of 20 will result in a small business earning an extra $14,000 per month. A total point value of 1,200 will earn a small medium sized business $378,000 per month, 28,000 points will earn a company $778,000 thousand per month, 358,000 points will earn a company about $50 million per month. A key factor for such a plan is how to pay for and sustain these financial incentives. Government regulations would be required to address the remaining elements of the plan.
The second part of the plan would be to incorporate federal regulations that would determine how much profit a business must achieve in order to qualify for the employment bonus. This profit target will vary from 50% of the employment bonus to 100% of the bonus value. For example, if a small business has an employee value of 20 points, they would qualify for a $14,000 per month employment bonus. A small business of that scale would have to at least make 50% of the bonus’s total worth in order to attain it. Therefore that business would have to make at least $7,000 per month to qualify for the whole bonus, or there would be a deduction to the bonus. Small businesses would have target goals from 50% to 60% of the bonus. Medium sized businesses to relatively large businesses will have goals from 70% to 90%. Of course, the major banks and corporations will have to make 100% of the bonus’s value. This type of system will be very helpful for start up businesses, since these kinds of bonuses could dramatically increase their profits and growth potential.
The final segment of the plan is designed to force leaders of major banks and corporations to weigh profit equally with social initiatives. Small and medium sized businesses would be exempt from this profit regulation, the concern being growth rather then social initiative. In this plan, a major corporation cannot keep earned profit that goes beyond the employment bonus by a multiple of three or six, depending on size of the business. Keep in mind that this taxed profit will only be implemented after the corporation’s expenses have been calculated. As an example, if a major corporation has an employment point value of 358,000, their bonus would equal approximately $50.6 million per month (see table). A business of this size could keep a profit equal to three times its employee bonus which would equate to over a $150 million. When added to the employee bonus, they make over $200 million in total monthly profit. So if a business is now making a billion per month, it would essentially be taxed $800 million of its profit.
If this plan was adopted globally, corporate executives could still increase profits through this system, keeping investors interested in supporting such companies. In the last example, the company had a point value of 358,000. The only way that the company could raise profits would be to find a way to employ more people. The more people they employ, the more profits they can keep. A corporate executive will look at their monthly profits and determine how much profit they will loose through the tax regulations. They will have two options. They can either use the excess profit to create jobs which will result in more profit or they can allow the government to take the entire amount.
We need a plan which has these characteristics, social benefits tied in with corporation growth. The future economies need to be smarter and built to survive global growth and a growing disparity amongst it's populations.
That’s essentially what this plan is all about. If the Middle Class disappears, how would be the U.S. economy survive? The answer, it cant.
In the face of globalization, corporations and banks need a lot of political breathing room to garner a competitive advantage over their global competitors. Our government has accepted this to such an extent, that they have aligned themselves very closely with major corporations and banks. This alliance comes with the guarantee of unfettered support in exchange for lower prices of goods and services, a sharing of technological innovation and acquiring much needed natural and financial resources that the United States will need to maintain its dominant position. The bank bailouts clearly illustrated that alliance for all to see. Not everyone in government feels that they are taking the moral high ground, but they do believe that it would be an even greater disaster for our country to lose its position as the global financial leader. This line of thinking needs to change.
The fact that the middle class is continuing to decay is a critical problem that bares special attention. It is estimated that consumer spending accounts for two-thirds of the U.S. economy. The world makes everything, and we buy it. However, if the middle class keeps dwindling, then who’s going to do drive the spending? If Americans run out of money to spend, the result will be the collapse of our existing economy. This cannot be allowed to happen. Not only would this end American prosperity, but it would also have serious implications on the entire global economy since the United States is the world’s leading consumer nation.
Another criticism would be that companies will raise the prices of their goods and services to increase profits. It is quite possible that this could happen to a limited extent, but Utilitarian Economics is designed to prevent companies from excessively driving up prices. The largest of corporations can only retain a profit that exceeds the employment bonus by a multiple of three. Utilizing the earlier example, a company that has a point value of 358,000 receives an employment bonus of $50 million per month, keeping $150 million of its business profit after expenses, totaling $200 million dollars of monthly profit once the bonus is taken into consideration. It would not benefit a company to raise prices, since increasing revenue will not change their employment point value. However, if the company were to raise prices and then use the extra money to create jobs, this would increase their profit retention. Perhaps Americans would be willing to pay higher prices for goods and services if they knew that the money would be put to good use at home.
What if a company is not based on manufacturing and has a limited number of employees, but makes a huge profit? Examples could include small investment banks, or small tech/software companies that employ only a few hundred people, but make millions in monthly profits. It’s important to keep in mind that because of the point value system, those companies’ bonuses will be higher then their total employment numbers may indicate. Furthermore, the argument from a Utilitarian Economic perspective would be that they would have plenty of flexibly in being able to create jobs within or outside of their business to raise their profit retention ability. Remember, within this plan, profit is weighed equally with social benefits provided by the company through additional job creation.
How would the government pay for this new bonus system? This is important given the high existing budget deficit in the United States. Utilitarian Economics can address that concern. One of two scenarios can occur. One involves the major corporations not playing along, sacrificing huge amounts of money to the new regulations. The taxes raised by these regulations would at the very least raise government revenues beyond what is required for the employment bonuses for small and medium sized businesses. In addition, it will also provide additional revenues for saving programs such as Social Security, Medicare, reduce the national debt and completing critical government infrastructure projects. Next, for those companies who endorse this plan, they can use their extra capital to increase jobs and complete social initiatives. That’s a system that pays for itself. The average citizen could even see lower taxes since these projects are paid for by the corporate sector.
It has been said many times that it’s not the responsibly of the government to create jobs. Historically, the free market has been the primary producer of jobs in the United States. Utilitarian economics doesn’t change this idea, but in fact will enhance it many times over. Just imagine corporations paying for infrastructure projects such as roads, hospitals, schools, etc. This could lead to government downsizing and lessening the tax burden on the poor and middle class. With such a massive infusion of living wage jobs, the middle class would not only be saved, but will expand. With more money in the hands of the middle class, our consumer based economy will continue to thrive.
How would Utilitarian economics impact investors and venture capitalists? Wouldn’t investors who are attracted to unlimited profits just move their capital to other markets, especially if the United States was the only nation following this new plan? If this would occur, who will become the new investors for businesses? Why not the very people who are benefitting from the companies that create jobs and support social initiatives? If Americans truly feel that these companies are looking out for their best interests, then Americans should not allow them to fail. With more Americans at work, there will certainly be more domestic capital available for investment purposes. Furthermore, although profits will decrease, businesses will still be able to make a great deal of profit. Investors looking for a stable long term investment will find solace with companies that are part of the Utilitarian economic system.
It has been said many times that it’s not the responsibly of the government to create jobs. Historically, the free market has been the primary producer of jobs in the United States. Utilitarian economics doesn’t change this idea, but in fact will enhance it many times over. Just imagine corporations paying for infrastructure projects such as roads, hospitals, schools, etc. This could lead to government downsizing and lessening the tax burden on the poor and middle class. With such a massive infusion of living wage jobs, the middle class would not only be saved, but will expand. With more money in the hands of the middle class, our consumer based economy will continue to thrive.
This system will help keep the government and the corporations in check. Even if a corporation uses it resources to create as many jobs as possible, it will eventually reach a saturation point in which its growth potential will become very limited. Within the United States, it’s been generally agreed upon that its’ not in the country’s best interest for government to get too big. This is essentially a correct statement. Even though government within a democratic system should be answerable to the people, often times the bureaucracy is typically overwhelming and too restrictive. Take for example Greece. It has a big government that has failed due to overspending. When applying the same principle to big corporations, the consumer should share the power since they choose the products and services to buy. However, this is not the case when you consider that some of these companies have become virtual monopolies. In even more cases, a limited number of corporations form an oligopoly, holding all the power within certain important industries. It’s not in the consumer’s best interest to have a few dominant corporations that in effect establish price controls. The Utilitarian economic system essentially downsizes the federal government by delegating some of its traditional services to the private sector while government regulations will prevent a single or a small group of corporations from gaining too much power in one industry. This is essentially a Ying vs. Yang equilibrium that will greatly benefit society.
If this trend continues, the outcome will solidify a society where one percent of the population controls 99 percent of the wealth, the middle class will be greatly diminished and we will have an expansive lower class. Furthermore, unemployment rates will continue to increase and most jobs would be low wage in nature and would not be able to support an acceptable standard of living. People are not going accept such desperate circumstances. History has shown that such a social disconnect is inherently unstable. The people that make up the broader society will do what they must to protect their self interests. That doesn’t just apply to Americans but the rest of the world’s population as well. Perhaps everyone needs to consider that Utilitarian Economics is far better than a non-capitalistic alternative if these social demands are not addressed.