Tuesday, October 2, 2012

The vital importance of a value agenda

The global economy is in a state of suspended animation ... the leadership in the financial and corporate sectors seems unable or unwilling to do anything significant to get the economic system into a state where it is able to serve society in an equitable way.

The financial and corporate leadership point to government as the villain ... whether it is in Europe or in the United States ... but it is their own failure that is the real problem.

Chairman Bernanke and the US Federal Reserve has done as much as is reasonable for them to do ... maybe more than they should have ... in an attempt to goad the economy into delivering more jobs. In my view they are effectively 'pushing on a piece of string' and their efforts are likely to come to nought. The problem rest with the people who run the financial sector and the people who run major corporations.

I was a corporate CFO and I understand the dynamic of business operations and profit. In a money profit world it is easy to make more profit ... fire a well paid American in the USA and recruit an underpaid Chinese worker in China. This is the business model that has worked so well for Apple and a host of other famous ... infamous ... American companies.

But the bankers and corporate executives should be thinking not only about profit for investors and executives, but also impact on society both in the USA and around the world. In my view, the purpose of economic activity is to produce goods and services that satisfy needs. The processes that produce also employ workers and the wages enable people to pay for what they need. This is the multiplier at work. Without wages, a business will eventually have no market.

In the short run profits go up when wages go down.

In the long run when wages go down, market demand goes down, profits go down ... and companies go down.

Courtesy of a creative financial system, demand has been pumped up by creating credit to replace wages ... something that is totally irresponsible and stupid.

The Central Banks are able to created 'State Money' Commercial Banks are able to create 'Bank Credit' or 'Bank Money' These players are only interested in financing economic activity that produced money profit ... they will not do things that are important ... valuable ... needed ... but not money profitable. I argue that there should be a way to have a 'Job Bank' that can create 'Job Money' so that people can be put to work and  be paid to do things that our society needs, but for which there is no appetite in the existing financial and corporate sector to initiate.

With educated youth unemployment in many countries at around 50%, it is clear that the leadership of our financial system, corporate organizations and government are failing. The money profit capitalist market economy needs an overhaul and some new parts. The 'Job Bank' and 'Job Money' is a place to start. And of course, the TrueValueMetrics system is a framework of metrics that will enable something like this to be done responsibly with appropriate metrics

Peter Burgess

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