Monday, September 27, 2010

Solutions Part One: Informal Enterprise

Devising solutions requires an accurate assessment of the problem to be addressed. In the U.S., that requires a painful appraisal of all that we prefer not to see.

Readers often ask for solutions to the pervasive problems we face, individually and as a nation, and this week I will do my best to offer solutions. My solutions will not be reducible to easy-to-digest bullet-point policies, nor will they align with standard-issue ideological "solutions."

I consider these topics "important," which means my readership will plummet. (Readership spikes on "preaching to the choir" about how rotten the system is; far-ranging solutions which cannot be reduced to simple policy tweaks are deeply unpopular.)

Everybody agrees the system is rotten and broken. But once you break through the thin brittle crust of surface agreement, then that unanimity is quickly revealed as fragile. Nobody can even agree on what the problems really are; many cling to the ideologically convenient closed-circle of policy tweaks (raise taxes, print money, give more government benefits, send in more troops, offer tax breaks for small business, etc.)

In my view, we all long past the time that ideologically convenient policy tweaks will be useful; the problems are far deeper than the tax structure or even the Global Empire.

What we must face is the global fantasy of "endless growth of consumption and debt" is ending. Yet what we find in the political/financial status quo and the mainstream media is a uniform consensus of "liberals" and "conservatives" that what the U.S. economy needs is "a resumption of growth"--that which is impossible for a variety of macro-economic reasons I have catalogued in Survival+.

One key tenet of the Survival+ critique is that how we frame the "problem" defines the "solution." For a "problem" to be ideologically convenient to "solve," it must be narrowly defined.

Thus we end up with intrinsically trivial "debates" between "liberals" and "conservatives" and "libertarians" on tax breaks for small business, the policy parameters of sickcare "reform," the exact nature of various Imperial occupations of foreign territory, and so on.

The core reason why these "solutions" will solve nothing is that the actual problems are being ignored and denied. To use a well-worn metaphor, all the "political" debates in the U.S. are akin to the squabbles on the Titanic about who gets to enter the first-class lounge and who is relegated to steerage as the ship sinks steadily lower in the water.

A few prescient souls from the upper-class decks are already away in sparsely populated lifeboats; those left on-board will drown regardless of what class they inhabited in their last moments of life.

As the ship goes down, the "politicians" are in effect arguing about what music should be played in the second-class public rooms to placate the passengers and give them the comforting illusion that everything is under control, and scurrying around to re-arrange the proverbial deck chairs so they don't slide away as the bow sinks into the freezing sea.

If we define the problems accurately, then the level of pain skyrockets. In this way, nations are precisely like individuals. As individuals, an honest appraisel of our problems requires probing everything we seek so desperately to avoid seeing, much less exploring.

There is much suffering in the U.S. right now. The level of suffering is not uniform; perhaps a fourth of Americans are largely untouched by the Great Recession: Federal employees, members of the Armed Forces, the millions of people living off contracts with the ballooning Federal National Security State and Empire, retirees with fixed pensions (government/military/state) and the Wall Streeters divvying up their $117 billion in employee compensation. The top 10% of earners--those who account for fully 37% of all spending--have been touched lightly if at all.

For these fortunate few, incomes have remained unaffected, though their perception of their relative wealth may have declined. Another 10% - 20% have been affected, but their lifestyle changes have been modest. (Cutting back eating out from five nights a week to two, etc.)

Cities with global tourist trades (New York, Los Angeles, San Francisco, etc.) have seen their coffers swell with tourist dollars; the health of the city's finances may appear to be improving. The streets are crowded now, but it's all a false dawn.

The ranks of those left unscathed will dwindle with time; by 2014, many who reckoned themselves secure will have discovered otherwise.

There is always human suffering present, regardless of the wealth held by any group or society; but beyond this baseline, suffering can quickly rise to unbearable heights.

What constitutes "unbearable" depends on the baseline. Humans habitutate very quickly, and what is at first unbearable soon becomes normal.

This is part of what I term the politics of experience. Like the frog in water slowly raised to a boil, we as a society have "normalized" situations, behaviors and situations which are visibly destructive and perverse. Accepting this twisted self-destruction as "normal" means we have entered a place with no exit.

So the first step is to examine what we fear most, what is verboten to speak or question, to uncover all the inadequacies we want so desperately to avoid owning up to, and correctly identify the problems we face. If we cannot do that because it is inherently painful and will require systemic change, then we have failed before we have begun.

If we stay within the comfortable confines of ideologically convenient definitions of the "problems," the "solutions" will intrinsically be nothing more than giving the alcoholic a free beer or the gambler another few free chips to play and lose.

The suffering in the nation affects me deeply. I cannot absorb too much of it lest it cripple my own efforts to take care of myself and those around me. I think in this way I am quite average.

I am also quite average in terms of the standard metrics of our economy: my total gross unadjusted income in 2009 was $38,000 (according to the Census Bureau, average earnings in the U.S. are about $42,000 annually); my taxable income was considerably lower, but high enough that I paid thousands of dollars in Federal income tax, self-employment tax and hundreds of dollars in California state tax. I am not poor; like many Americans, my primary asset is real estate, and we pay five-figure property taxes for the privilege of owning a bit of land in California.

Perhaps atypically, our household doesn't receive any government check or benefit; almost half of all households do: (Obstacle to Deficit Cutting: A Nation on Entitlements.)

Even the vaunted "middle-class entitlement" of mortgage interest deduction doesn't mean much to us; with a 15-year mortgage heading to zero in a few years, the interest we pay is not enough to make much of a difference in our taxes. (The vast majority of the mortgage payment is principal.)

Ironically, if you pay your mortgage down quickly, all that cash comes out of your taxable income. The system doesn't reward escaping debt-serfdom, it rewards taking on more deliciously deductible debt.

Why does any of this matter? It matters for the same reason that ethnicity, locale and religion matter in America. Though on a superficial level, popular culture binds us all together, behind this media-saturated facade there are many quite different Americas. Which ones you see, much less experience, depends heavily on your income, class, job, asset base, ethnicity, locale and religion.

Longtime readers know my family contains a lot of ethnic diversity: my niece is African-American/Anglo, my stepmom is Mexican-American (born in the U.S.), and my wife is Asian-American (born in the U.S.). I have often lived in situations in which I (paleface) was a minority (inner-city Detroit 1968, for example).

I mention this because the reality is stark: if all one knows is prosperous suburbia, leafy streets and stable, lucrative employment in the government, academia or corporate America, then one's knowledge of America is paper-thin.

This is why most of the avalanche of "policy papers" spewed by think-tanks and other ideology mills are worthless. The research and the writers come with pre-set ideological and experiential blinders which render their "solutions" ("policy fixes") meaningless to the lived experience of many Americans.

One's ethnicity, locale (urban, suburban or rural), class/wealth/education/income, religion (or lack thereof) and family ties will shape and define the politics of your experience of America.

This is important to stipulate because what I say next may strike you as "untrue" or "unfair" if your experience of America is highly selective/protected (i.e. you live and work in posh enclaves of N.Y.C., L.A., S.F., northern Virginia, etc.)

Urban America has acquired many of the negative attributes of Third-World cities and few if any of the positives. What are the positives of teeming, overcrowded Third World cities? I cannot speak to all such cities--some "work" and some don't--but cities such as Bangkok are teeming with the opportunities offered by informal enterprises.The opportunities to improve one's income by enterprise and hard work are what draws poor people to such cities. That was once the case in America, too.

There are street vendors hawking everything from watch bands to handmade sweets to haircuts. Are these people wealthy? No. Are they productive? Yes. Are they getting by? Yes. Do they have self-respect? Yes. Do they have the dignity of labor and making their own way? Yes. Are they performing useful services? Yes. Are they operating with integrity? Yes, or they would not have any customers. Are they begging? No. Over three extended trips over the past decade, I don't recall being hit on by a single beggar in Thailand (though many locals icily assumed my wife was a prostitute, as she is ethnically Asian and accompanying a round-eye.)

I am sure many of you have similar experiences in various other countries; in some, begging is ubiquitous (my "Big Nose" friend and I were constantly beset by hordes of beggars in Chinese train stations, for example) and relatively rare in other equally poor nations.

Culture matters. It's not just a statistical matter of relative wealth or poverty or the redistribution /skimming of wealth via the Central State.

In Bangkok, certain streets completely change-over three times a day for various types of commerce. In the early morning, vendors set up for the breakfast crowd. These vendors pack up and leave as noon approaches, replaced by the lunch vendors. By late afternoon, these vendors are gone and the evening enterprises set up their stalls and carts. Huge numbers of people earn livelihoods in each single block.

What is absolutely striking about most of urban America is how devoid it is of informal enterprise. We in America have overly formalized and thus destroyed vast swaths of enterprise. Food must be prepared in approved kitchens (which all cost thousands of dollars a month to lease), goods must be sold from storefronts and restaurants with handicap-accessible bathrooms, and so on.

A very powerful capitalistic form of self-help and upward mobility has thus been destroyed. I think this is the "secret" behind the often-remarkable upward-mobility successes of immigrants from Asia, Africa and the Americas: they come from societies which enable and thus reward (not as "official policy" but as a culture) small-scale entrepreneural hustle and thrift.

That culture has largely been extinguished in the U.S. by regulation and high-overhead formalization. Thus to "start a small business" in America you must borrow tens of thousands of dollars and have enough capital to survive the long permit/licensing process. You start business deep in debt and with horrendous overhead: high rent, high fees, high taxes, payroll taxes, healthcare costs, and on and on.

Is there any wonder why so many storefronts, factories and business parks are empty in America? You have to be insane to start a formal small business here, and insane to hire formal employees.

This is the hallmark of Third World countries: the "formal" layer is populated by government bureaucrats and workers, and those employed by a handful of global or regional cartels with enough wealth to navigate the formal bureaucracy (via bribes in the Third World, via "food safety compliance" and other regulatory enterprise-traps in the U.S.)

Between the State and its favored cartels and the informal "black market" economy is a desert. Legimitate small business is relentlessly squeezed out of existence by the pricing power and politically enforced advantages of global cartels and the taxation, bribes and fees of The State.

Saddled with high State-imposed overhead, formal small businesses can't compete with street vendors, unlicensed contractors, etc. So they go broke and close their doors, either slipping into the informal economy or becoming dependent on The State.

This is the reality of present-day America: the engine of small business is being destroyed. This is why I have long predicted that the 127 million jobs in the U.S. (down from 136 million in 2007) will slowly erode to the 100 million-job level as small business is further ground down.

Yes, if your firm manufactures highly specialized equipment for the global cartels, you can make a living. If your business is profitable, the cartels will probably buy it up, or buy a competitor and start pricing you out of business.

It is my informal observation that most of these sorts of still-successful small businesses were founded a decade or more ago. Very few are recent startups. Upward mobility via enterprise and thrift has ground to a halt in America. Yes, a few outliers are constantly hyped in the Mainstream Media--Twitter! Facebook! (together they employ about 3,300 people--whoopie, the nation is being saved by the vast engine of social media)--but how many new small businesses do you know of first-hand that are not just clinging on but prospering?

There are multiple ironies in this. So-called "American-style capitalism" is basically the global, Imperial domination of cartels and capital; on the streets of America, The State has squeezed formally legitimate enterprise out of the culture.

Those with no experience of actual small business cannot understand this. They point to the well-tended streets in tiny European countries with a third the residents of Los Angeles County and wonder why those highly regulated, high-tax environments can't be replicated in our nation of 320 million.

The sad truth is formal small business is being ground down in Europe, too, except where the Central State subsidizes them instead of taxing them to death. Up to 40% of the economy is informal/black market in nations such as Italy.

The flip side of suppressing/eradicating informal, bootstrapping-type upward mobility is the institutionalization of dependency and addiction. More on that tomorrow.

The solution to rising poverty and insecurity is cultural as well as political: it is to stop destroying small-scale enterprise and instead enable micro-scale informal businesses.

Here is a final irony to consider. Street food is ubiquitous in Thailand, but if you read traveler accounts, you rarely if ever encounter food poisoning as an issue. The food is brought in fresh in the dark hours of early morning, and it is cooked fresh for customers over high heat. The culture is one of cleanliness.

More people are sickened and killed by Corporate Agribusiness-spread food poisoning in America than all the street food stalls in Thailand. The truth is that agribusiness--stuffing tens of thousands of genetically distorted chickens in warehouses and dousing them with chemicals to suppress disease, for example--creates the ideal environment for contagious and hard-to-control animal-borne diseases.

Small-scale, informal food chains drawing from a variety of farms and sources are inherently less prone to dangerous infections.

The more you concentrate wealth, power, and indeed, chickens, the more vulnerable your system becomes to distortion, runaway feedback and collapse.

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