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Is the "soul of capitalism" changing?

This is from an interview with John Bogle by Bill Moyers. The transcript is a long read. I include some excerpts. A profile on Mr. Bogle is at:

http://www.pbs.org/moyers/journal/09282007/profile.html

In the first 15 years I was in this business, the average mutual fund held the average stock for seven years. Call that long term investing. Now, the average mutual fund holds the average stock for one year. That's short term speculation. So, if you're a speculator, you don't care much about ownership interest. You don't care so much about corporate governance. Why vote a proxy, for example, if you'll not even be holding a stock in three months?

These mutual fund companies-- these management companies are now owned largely by corporate America. Or international corporations ? Deutsche Bank ? AXA, big international companies who have bought their way into the US financial system, which is-- don't mean to demean that. But, they own these public corporations-- giant public corporations like insurance companies, big banks-- foreign insurance companies and banks own 41 of the 50 largest mutual fund managers.
Now, what is the job of a corporation when they buy into a mutual fund management company? It's to earn a return on the capital they invest in that company. It's not to earn a return on the capital of the investors who invested with that mutual fund. Now, in fairness, they want to earn as much money as they can for the fund shareholders. But, not at their own expense.

What we've done is have you know, what I call in the book, a pathological mutation of capitalism from that old traditional owners' capitalism to a new form of capitalism, which is manager's capitalism. The evidence is quite compelling that today corporations are run in a very important way to maximize the returns of its managers at the expense of its stockholders.

Its CEOs, well, the upper level of five or six top officers. And they get enormous amounts of pay for actually doing very little. I'm a businessman. Listen, we all-- we chief executives get an awful lot of credit that we don't deserve. Real work in companies is done by the people who are getting themselves together and doing the hard work of making companies grow--

They get laid off. And, of course, the ironic part of that is they often get laid off ? used to be called downsizing. But, of course, in today's America, it's called right sizing. They get laid off. That reduces expenses. That increases earnings and that means the CEO gets more.For an agricultural economy, 95 percent, 98 percent agricultural when this country came into existence. And even by 1850, half agricultural. Now it's about, they moved from agricultural economy, to a manufacturing economy, to a service economy. And now to a financial service economy.

Where agriculture and manufacturing and services, I mean, I'm perfectly willing to give a high value, for example, to art and poetry and literature. They add value to society. It may not be easy to measure it in a society that measures too much of what's not important. And not enough of what is important. As the sign in Einstein's office says-- "There are some things that count that can't be counted. And some things that can be counted that don't count."
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http://www.pbs.org/moyers/journal/09282007/transcript5.html

I found his comment that our economy moved from agricultural to manufacturing to service and now financial service.

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wow...hold me back...

In reply to: Is the "soul of capitalism" changing?

wow, I could probably rant a while on this...

If more Americans knew at least the basics of the big picture of financial dynamics/literacy/health, domestic/foreign market dynamics, the genius of creative-destruction for economic vibrance and renewal, and a bit about logic and logical fallacies - then more Americans would realize their vote, voice, perspective, and genius is worth something and we'd have actual leaders in government and business.

I'll probably write more later, but consider this - the option of the U.S. going back to being 1) the cheapest workforce in the world and 2) and agriculture based economy...it will depend on what the American people really want and how much we really care...
Yes, I'm short/mid-term pessimistic and maybe every generation has that, but with international economic/market dynamics growing faster, more sophisticated and varied than ever before...the tides are turning and different economies will have to adapt via the genius of creative-destruction - destroying the carbon spewing industries first and simultaneously creating a green tech industry may be the most effective thing to do...nothing is certain, but I think it's worth a shot.

Best,
Shalin

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He's half right, Angeline.

In reply to: Is the "soul of capitalism" changing?

The other half is the problem with the business schools -- they teach budding managers to focus on this quarter's (or at most this fiscal year's) bottom line, rather than the long-term growth of the company. Furthermore, many of the mutual fund managers get MBA degrees, so they're taught to use that same metric. That's why a company will miss earnings by a penny and lose 15% of its value, which leads to the frequent training that Bogle laments. The one factor that should help managers act in the best interest of the shareholders was options, but whereas they used to have a 2- to 5-year "lockup period," so the managers had a stake in building long-term stockholder value, now they're often exercised and sold on the same day Sad

-- Dave K, Speakeasy Moderator
click here to email semods4@yahoo.com

The opinions expressed above are my own,
and do not necessarily reflect those of CNET!

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personal (and common sensical) suggestion...

In reply to: He's half right, Angeline.

I think that executive's "golden parachute" should be directly proportional to how much the stock price went up during their leadership or some similar metric...but wait, that might make too much sense...sheesh!...

I totally agree about the short sightedness - I've had to explain to several people that their "long-term" hold of a stock for ~1 (one) year was rather short term and in doing so, especially not investing in a "put your money where your mouth/insight is" manner, they are screwing up the system that accurately values the company. ...or maybe the majority of individual investors don't care about the long term (sustainable markets, etc. - I think they want the quick firecracker-rocket rise up, but don't realize that it'll explode shortly after) and in that way we are accurately valuing everything downward similar to our professional optimism...

I've heard that former labor secretary Robert Reich mention two items for the economy that I found very insightful as a return to strong health: 1) If a corporation is using a foreign tax havens - say bye-bye to their American constitutional rights (How to Reduce the Use of Off-Shore Tax Havens, http://robertreich.blogspot.com/2007_05_01_archive.html) and 2) instead of all these nutty "innovative" financial products (derivatives of derivatives, etc.), the American economy needs more product innovation than financial innovation ( Financial Entrepreneurship Versus Product Entrepreneurship, http://robertreich.blogspot.com/2007_06_01_archive.html).

I think that 1 (kinda odd) good thing that the hyper-consumer driven U.S. economy has propping it up is that China's Yuan is nearly pegged to the U.S. dollar - so as our dollar devalues, so does the Chinese Yuan and their goods will still be inexpensive...but this is a whole other conversation...

Best,
Shalin

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"they teach budding managers to focus on this quarter's

In reply to: He's half right, Angeline.

bottom line"

I'm guessing they still teach all the important aspects of running a business, including the market's focus on short-term gains. IOW, the student may learn to write a five-year plan, but will be warned also that most of his future employers will let him go if the first two quarters don't go well. (Or even if they do!)

You're not exaggerating about the value of a penny shortfall. One of the saddest things I see these days is the market's positive response to a stock when the company announces layoffs. I thought we weren't supposed to be happy at others' misfortunes. Sad

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I don't suppose you can back that up with actual links, or

In reply to: He's half right, Angeline.

tell us which business schools you are talking about.

I also suspect you won't put medical schools in a similar category. That's where your bread is buttered.

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I'm not particularly critical of medical schools, KP,

but the post-graduate medical education ("residency")is quite another story. I think the traditional 36 hour shifts are intentionally designed to burn the idealism out of young doctors, so after the horrific experience they think "I went through hell in training, and I deserve every penny I can get." There's a vast difference in what appears to be a true altruism ("I want to be a doctor to help people") in medical students vs. the attitude of the young doctor. Of course, the horrific debt they have to take on for their medical education doesn't help either -- but in most cases that's set by University Administrators who aren't really part of the medical establishment.

-- Dave K, Speakeasy Moderator
click here to email semods4@yahoo.com

The opinions expressed above are my own,
and do not necessarily reflect those of CNET!

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I don't know WHY that post was "NT," as it's not MT!

Methinks there's a new forum software bug Sad

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btw...

In reply to: Is the "soul of capitalism" changing?

the last few lines are particularly profound and important...
*****
Where agriculture and manufacturing and services, I mean, I'm perfectly willing to give a high value, for example, to art and poetry and literature. They add value to society. It may not be easy to measure it in a society that measures too much of what's not important. And not enough of what is important. As the sign in Einstein's office says-- "There are some things that count that can't be counted. And some things that can be counted that don't count." ?
*****

makes you think of the question then pres. candidate Reagan asked, "Are you better off than you were 4 years ago?"

Even though I'm an engineer and happy doing it - I love art, I find it refreshes my mind and critical thinking abilities and lets my imagination really step out of the box. I wish there was more kinetic art to display...I think that is an undervalued art, and I'd put my money where my mouth is on that...

Best,
Shalin

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Go figure

In reply to: Is the "soul of capitalism" changing?

I learned a long time ago that "big business" is not about making a product or service a valuable item but rather any way to get money out of your pocket providing a supposed service or product. If Enron can't explain what they offer, then who can as many trying to figure what they're doing seems so much a forest of BS, than one of trees(a polite way of saying it). Its also not about getting that service or product to the customer but keeping costs by pillage the company in all possible forms but yet still seem viable. Many think that's the way it is, but once it becomes clear, a lost of customers always follows. Trust is a product that's not made but one build on time honor delivery of a well provided service or product. I can't understand how some companies offer so many products not worth the time to be stocked. I refuse to use machine gears "made in China" because they flat out don't last and seem to break down too quickly. In others, it may do the job but no where near the reliability I come to trust. Get a cheap hand tool and quickly discover its not up to task or worse breaks when you need it(not my tools). -----Willy

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The guy makes sense, and his figures on

In reply to: Is the "soul of capitalism" changing?

corporate ownership sound logical (and can be checked by those with an interest). Has an air of inexorableness about it, IMO.

BTW, one sign that an "MLM" is really a Ponzi scheme is that no actual product is being offered. If he's right, then these managers of, say, an iron works are spending their time managing the $ assets in the market, not selling iron. And it's all perfectly natural ...

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Re: corporate owndership

In reply to: The guy makes sense, and his figures on

In the first part of the transcript, the difficulty of determining ownership is addressed by Mr. Bogle.

Ownership can be too complex to sift through.

Angeline
Speakeasy Moderator

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In an interview by Bill Moyers, did you expect a different

In reply to: Is the "soul of capitalism" changing?

result? It's not exactly an unbiased source.

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Spin doctoring

In reply to: In an interview by Bill Moyers, did you expect a different

It usually left to Bill Moyer's to provide even another source. I haven't yet found a source that wasn't biased or be so labeled as so. More often that not, you can take the same numbers and produce diffrent results. -----Willy

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Does capitalism have a soul?

In reply to: Is the "soul of capitalism" changing?

Does capitalism have a soul?
I haven't found a compelling reason to think so...

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It must have a soul...

In reply to: Does capitalism have a soul?

....... because it exists in most of the world in varying degrees. Even in communist China. What can define it's "soul" could depend on what is done with it.

Our early Moguls in railroads and industry gained enormous personal wealth, yet their efforts help build this country. The fact that some was built on very cheap labor should not diminish what they accomplished. Steps were taken in time to help prevent over exploitation of the workers. We were still a new country, and learned by experience.

In an African country some person came up with a plan to lend at very low interest seed money to women to start a small business. The last I heard, this was working well, and the default rate was next to nil.

In too many countries that have a wealth of natural resources , the fruits of those remain with the rulers. (Sadam's rule is an example. He and his lived in splendor while the infrastructure crumbled.) There was some capitalism in that there were some privately owned businesses, including small ones. I suspect that those could exist as long as the owners didn't offend Sadam.

Where do the oil profits in Mexico go? If it is the same as for past rulers there, that is where it goes. Apparently little is spent to improve the lives of it's citizens, as it seems to be preferred to let the other North American countries handle that problem for them. Yet, capitalism is there.

IMO, there have been some mistakes, and some unfair advantages being taken. Like with the breakup of AT&T years ago via anti-trust laws. That resulted in my area of some other phone companies changing people to their service without their knowledge. I never heard of any punishment of that, except to not do it any more. What I don't understand is why recently one person was allowed to gain control of too much media. That seems to violate the antitrust laws to me. I find it scary to have as much of that media held by one person.

Personally, I think we have done a good job of nurturing the "soul of capitalism" in the US. And of adjusting to the bases of our economies from agriculture to now. And there are corporations which operate in that spirit.

The question as I see it now is how we adjust to this fiduciary economy. There might have been a wake-up call now that the granting of high-risk mortgages has come home to roost. Hedge funds can be risky after all.

Angeline
Speakeasy Moderator

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hmmm...important to clarify terms (semantics)...

In reply to: It must have a soul...

hmmm...important to clarify terms (semantics)...

I think what you are describing is not the concept or promise or capitalism (capitalism of which is an economic "style" or "flavor"), but rather the vehicles that can support and/or promote capitalism: markets and whatever nurtures the markets. Capitalism can be selected as a device (among many others) for economic health and prosperity.

Honestly, I think it would be interesting to see how the definition of capitalism has changed over the last 400 years or so (http://dictionary.reference.com/browse/capitalism). But also, I think it's a little dangerous to claim it has a soul...instead, I think the soul is composed of the prevailing principles by which an economic system (local, national, international, etc.) operates.

What do you think of that? It can surely be argued that the U.S. has given capitalism a good name - at least in the view of most educated persons. But I find the idea of the "soul of capitalism" very odd...you can describe examples of capitalism, but...well, how do you define a "soul"?...

Best,
Shalin

p.s. - Oh, also you mentioned that "Hedge funds *can* be risky..." - I agree. However, I believe that hedge funds are by *definition* high-risk, speculative ventures (http://dictionary.reference.com/browse/hedge%20fund).

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semantics...

In reply to: hmmm...important to clarify terms (semantics)...

I guess I'm trying to figure out what you mean my the "soul of capitalism" by several analogies and other descriptions...

analogy:
Mt. Everest is to the U.S. Economy (strictly speaking of size)
as
Mountaineering is to Capitalism

other descriptions: capitalism's soul vs. focus vs. aim vs. purpose vs.

also, would it be fair to say that a soul can be stubborn or generous or fair or dark.... ya know what I mean?

--Shalin

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correction on my interpretation...

In reply to: hmmm...important to clarify terms (semantics)...

not this:
"
I think what you are describing is not the concept or promise or capitalism (capitalism of which is an economic "style" or "flavor"), but rather the vehicles that can support and/or promote capitalism: markets and whatever nurtures the markets."

rather this:
"
I think what you are describing is not the concept or promise or capitalism (capitalism of which is an economic "style" or "flavor"), but rather the vehicles that can support and/or promote capitalism: freely allowing non-governmental wealth ownership and whatever nurtures the non-governmental markets."

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Try this:

In reply to: correction on my interpretation...

Borrowing from the fact that a "corporation" is an symbolic human for business purposes, why not refer to the "personality" of capitalism?

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My best answer....

In reply to: hmmm...important to clarify terms (semantics)...

...... as a non-economist. I realize my perception is over-simplistic.

The desire to survive is a strong component of human nature. Basic requirements like food and shelter must b met. Man also needs protection from enemies and disease. After those, the quest for what makes life better takes off.

We know that even the most basic needs are a struggle in some parts of the world. In general, this is in countries that have despots and tyrants for leaders, and natural and human resources go to the benefit of them.

Apparently there has long burned in so many a desire to have a better chance at a way of life, hence the immigration into North America. They then have had an opportunity of earning a piece of the pie "with little or no government interference". They either avail themselves of work available from businesses , production companies, and services in place, or become entrepreneurs.

IMO, there was and is a desire in them to live in a capitalistic society. The "soul" is in the definition you provided. People do invest in the stock market. But others invest their time, skills, ideas, and energies.

Quoting Mr. Bogle" The rewards of the growth in our economy comes from corporate, largely - from corporations who are a very important measure, from corporations that are providing goods and services at a fair price innovating and bringing in new technology ? providing a higher quality of life for our society and they make money doing it. I mean, and the returns in business in the long run are 100 percent the dividends a corporation pays and the rate at which its earnings grow." He goes on to say that there are still such corporations.

I think what I underlined is what he meant by "soul". Rather like a core of belief, and the ethics thereof.

Forbes listed China's wealthiest men.

http://members.forbes.com/global/1999/1115/0223059s2_print.html

I found the first one especially interesting.The family busineses were handed over to the government. The others were able to build their wealth later. The sign of the late realization of that suppressive government that private businesses weren't such a bad thing. Happy

Angeline
Speakeasy Moderator

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One person owning media...

In reply to: It must have a soul...

You said, "What I don't understand is why recently one person was allowed to gain control of too much media. That seems to violate the antitrust laws to me.". Can one person form a trust with himself? If it was an attempt at a one person operation, say a monopoly, what do you think he was trying to do that would call into play the government, something like price fixing or restraint of trade?

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Apparently, nothing he did "called in the governemnt".

In reply to: One person owning media...

But AT&T was broken up because of being a monopoly, thus stifling competition. Through competition, prices wold drop.

Of course, his holdings are not a monopoly in the sense AT&T was.

But his holdings are in print media , television broadcasting and Dish reception, radio broadcasting , internet sites, and Dow-Jones (and the Wall Street Journal). His media "empire" is in several countries. IMO, these are sources of information. Of course, I don't know if he intends to influence the flow of information. (I understand there is a family trust,) I also don't know if or how much this impacts on competition.

Angeline
Speakeasy Moderator

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BTW, Angeline...

In reply to: Is the "soul of capitalism" changing?

Have you heard that Michael Douglas is set to reprise his role as Gordon gekko in a sequel to "Wall Street?" I've often wondered if Geiko's choice of the cute little gekko as their symbol/spokecritter is entirely based on the name similarity, or might be a subtle comparison between Gekko and Warren Buffett, whose behavior (and long-term investing style) are about as far from Gekko's as you could imagine.

-- Dave K, Speakeasy Moderator
click here to email semods4@yahoo.com

The opinions expressed above are my own,
and do not necessarily reflect those of CNET!

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