SMT007 Magazine

SMT-Oct2016

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22 SMT Magazine • October 2016 This column will set the scene and take a first cut across these issues. Subsequent col- umns will drill down and discuss the details of each. As I am fond of saying: el diablo está en los detalles. ("The devil is in the details.") First, let's clear the decks and make sure we have a common grasp of some very basic tenets of economics, and an understanding of the or- ganizational business structure that companies in our industry have worked out of for decades. Private Ownership vs. Government Ownership A free-market system based on private own- ership continues to be the source of incredible wealth generation, middle-class growth, and the rise in the standard of living of the masses. At the same time, left unchecked, wealth can lead to significant inequities in individual in- comes. Even Karl Marx recognized capitalism as a wealth-generating machine and thought it necessary to prime his communist pump— a required step in his application of Friedrich Hegel's dialectical materialism. Hegel developed his theory of dialectical materialism (thesis, antithesis and synthesis). Marx applied it to economic class struggle. Marx saw private property as the source of econom- ic class creation and conflict. Capitalism accel- erated the creation of wealth by a small group of bourgeois shop or business owners who ex- ploited the large working class (proletariat) for their own selfish benefit. This would evolve into communism—the synthesis. The commu- nist government would abolish private proper- ty and divide it among the people [1] . Once up and running the government would take over the means of production and distribute its out- put based on need. From each according to his ability, to each according to his need [2] . In the fi- nal phase, the government would not be need- ed and social ownership and management of the means of production would be done by a cooperative (common ownership). So, the the- sis (bourgeois) creates the antithesis (proletari- at) and a clash between to two causes the syn- thesis (communism). In 1932, Joseph Stalin went one step fur- ther. He saw the rich land-owning farmers (Ku- laks) in Ukraine as a threat. They had been seek- ing independence from the influence of Russia, and now, since the 1917 Bolshevik revolution, the Soviet Union. Stalin seized their land and food. From that point, the farms were managed by government collectives. Notice he skipped a step—the government was still there—neces- sary to shepherd and manage the process. Seven million Ukrainians died through government purges and starvation. Capitalism makes the wealth "pie" bigger, regardless of the size of the slices. Government collectivism, whether social- ism or communism, is concerned in different degrees with the size of the pieces of the wealth "pie." In the spirit of social justice, the govern- ment feels it is their responsibility to conduct the social engineering necessary to control the slice size. It is cliché, but history has borne out the truth at its core: that pure capitalism makes everyone unequally rich, and pure socialism makes everyone equally poor. The Public and Private Sectors There are two general umbrellas that com- panies reside under in a capitalist economic sys- tem: A company is said to be in either the pub- lic or private sector. Companies in both sectors require money, or capital, to start-up, operate and grow. The difference between the two is simply how that money is acquired. A private sector company initially issues stock to the company's owners when the corpo- ration is formed. The share of equity an owner is allocated is typically based on their contribu- tion, both monetarily and intellectually, to the company's start-up and operation. If 100 shares are issued and an owner is given 40 shares, she owns 40% of the company. DO THE HIGH PAID MANAGERS IN YOUR ORGANIZATION ADD VALUE? " Marx saw private property as the source of economic class creation and conflict. "

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