Capitalism's no bed of roses either

While history has shown that socialism taken to extremes has failed everywhere, capitalism never seems to proceed to its theoretical end game. I guess the reason for this is that to a point the competition it fosters is self policing, as no one is really good enough to take the game to its end.

But as the world has evolved, maybe this presumption is no longer the case because uncontrolled corporations of global scale are a relatively new phenomena. Due to apathy and portfolio theory such corporations are no longer accountable to owners. Thus we have inept regulators instead.

So before I tell you my dream, although I think most of you can guess it by now, I thought it was time to tell you another kid's story. Rangi, this time no lollies. This time it is not my story but I have altered it slightly for an adult audience as some of you thought the lolly scramble story was too simplified.

This story is better, as it intertwines the three elements that drive human activity, greed, competition and the need to belong. This was a kid's cartoon that I watched with my kids around 14 years ago.  It is set in an American school ground with a whole lot of kids characters including the nice guy and girl, a bully, a smart (of course Asian) kid and a bunch of other characters including simpletons.

This particular cartoon dealt with the issue of kids collecting things and trading with each other. If you have observed real life kids activity, they will, by about the age of 10 trade in anything. My kids had pokemons, marbles and Blay blades. Competition. The way they deal with each other is real life, watch it some time. It is the lolly scramble upgraded.

So now to the kids' story and its explanation of capitalism. The kids are at school playing at lunch time. Some are on the jungle gym, others are playing baseball some basketball, some are doing hopscotch. The kids are busy and happy. One kid comes to school with a collection of bottle tops of many colours, with different patterns. The kids just love them, and thus a collection frenzy starts. By the way business uses this to drive sales. Do you remember as kids the fizzy drink bottles that had pictures under the cork? For a while they drove a collection frenzy, sold lots of Coca-Cola too.

The next day at school it is life as normal except that on the edges a trade in bottle tops is starting and it goes viral. It grabs the imagination of the kids. (For those of you who are a bit slow, this is the creation of money in real life. So Rangi, lollies and bottle tops are money).

Now the story of one kid's quest for playground domination.

One kid, call him Andy has no bottle tops. The big bottle top holders won't trade with him and he is a bit of an outcast. So Andy offers the holders of bottle tops a deal, he will do chores for them in return for bottle tops. (I.e. he works. First lesson of capitalism, everyone has to work out how to be useful in order to belong).

Andy then becomes accepted and with his nest egg of bottle tops he commences trading. He just trades smarter than most of the rest of the kids. Some are better than him so he just picks on those less smart than him and increases his bottle top pile. The bullies still beat kids up and steal their bottle tops. (Next lesson of a trading society, the smart and the thugs dominate).

Andy doesn't trade with crooks and people who always beat him, but he strives to understand how they beat him. (More work). Andy gets better. Andy then decides that there are new trading opportunities that the others aren't exploiting. (Next lesson of capitalism, - creation and innovation, although in a playground example it is over simplified).

Andy decides to corner the basketball market, so he hires a couple of kids ( paying them some of his bottle tops) to block the door to the sports equipment room and charge kids who want equipment bottle tops to get the gear. He progressively extends this regime to the entire playground taking a clip of everything and employing more and more kids to regulate the activity of the others. Eventually he takes over the top level of the jungle gym to run his empire from and employs the smart Asian kid to run his books.

He now has control of all activity.  In essence he has a corporation. Some belong to his corporation as workers and they all belong to the playground kids group. Others are still trying to compete with Andy. The kids are still trading and playing, it is just that Andy gets a clip on everything and his bottle top pile is increasing at an enormous rate.

One day a depression comes over the playground, the kids are milling around doing nothing, the play gear is left un purchased, no kids are coming to the door with bottle tops to buy from Andy's trading posts. The Asian kid and a group of bullies who now work for Andy are at the top of the gym, The Asian Kid tells Andy he has 90% of all bottle tops ever produced in his possession and that he must release some into playground circulation to restart activity. Andy says: "No, no I want them all" (greed) and the game continues on.

I will now divert from the kids story, as it ends here when the next day the kids arrive at school and they are all playing happily. Why? Because they no longer collect bottle tops they are now fascinated with something else. (The revolution that redefines the whole game). Andy's bottle tops are now worthless.

It was interesting when one of my kids was young he comes home with his crafted set of pokemons with a presentation case that he picked up out of the inorganic and says: "Dad this can't go on forever I think I will trade these for real cash while the going is good." He beat the revolution and guess what? The smart and rich in the capitalist model will do that too.

Now back to the playground and my embellishment of it. Andy says to the Asian kid: "No, no I must have them all."  Chong says: "Andy we must leave some in circulation or this depression will just get worse. What we could do Andy is lend the kids bottle tops and take from them IOUs".

Andy loves this and gets simple loan contracts written up, with interest of course and the bottle tops keep circulating. Andy now has a lot of bottle tops and a lot of IOUs owed to him, the bullies who work for him and his other staff want more wages so he pays them, in his own IOUs. Now the kids trade in both bottle tops and IOUs.

Andy's IOUs are the most collectible of all IOUs. He is a good credit rating. Andy now starts a business rating IOUs so that kids can have a star rating on the paper they hold, Andy's of course are triple A.

Chong comes to him and says: "Andy there is an awful lot of our IOUs paper out in the community now and we don't have enough bottle tops in the vault to cover it. In reality we can't collect on the IOUs we hold either for the same reason, so we will have to settle our IOUs with other people's IOUs and they are not all the same." "Shit," says Andy, "is the game coming to an end Chong?"

"No," she says. "We will turn your and only your IOUs into a share of the empire, we will now issue all holders of your IOUs shares with a higher promised return than the coupon interest on the IOU". "But then they might want a share of my profits," says Andy. "No," says Chong, "they just get a certificate". She gives him a copy of Catch 22 by Joseph Heller for night time reading and suggests that Andy float off his enterprise as Milo Mindabender Inc.

The deal is done. Milo Inc floats, the kids swap Andy's debt for Milo equity and the game continues. Progressively the kids end up owning a big chunk of Milo Inc and Andy is worried that they might turf him out. But he then progressively floats other enterprises and issues even more stock and makes the game really more complex.

The kids now have a collection of IOUs and shares as their "assets" and have all but forgotten about bottle tops. The kids start to worry about their "assets" and become confused as to how to play the game, so Andy employs on incentive some more kids and calls these guys planners. The kids are encouraged to own a bit of everything. Andy sees a new opportunity to capitalise on the growing level of worry among the kids, he sell them IOU insurance and rates all the IOUs who buy his insurance as triple A as well and so the game goes on.

Worried that the kids might see that all IOUs lead to Andy and the control of all activity does as well he comes up with a further plan to hide the extent of his control. He owns the basketball corp, the bottle top bank, the gym, the baseball, the planners, the rating agencies and, let us not forget, the insurance and the real estate.

He has even sold off or leased lots on the grassy area for lunchtime occupation and kept the best bits for himself for later, he has even set up companies to own these choice bits of retained grass land. Further on these choice bits of grassland he has issued IOUs with full insurance and discounted these off for more bottle tops which he has taken off site. Andy has now started trading with other schools on Chong's advice as Chong tells him this game hasn't got much longer to go. Andy spends a lot of time in other school grounds.

Chong tells the kids they don't have to worry about their assets if they hold a little bit of everything and Chong organises an investment bank to hold all the IOUs that people are worried about and issues certificates of proportional ownership. Chong says surly they can't all be bad, diversify. The kids buy this and go home happy and the game continues on.

By now the kids are so over burdened with debt that defaults start to occur. Kids leave school and don't pay back their debts, a confidence crisis develops, and everyone's IOUs are considered worthless. Andy's bank buys these back at enormous discounts and uses his bullies to try and extract real bottle tops out of the kids. Kids are beaten up, it gets real ugly. He is doing everything he can to mop up the last 10%.

The next day, the kids come to school and there are no bottle tops to be seen. The kids have stopped worrying. Some of the older kids are still holding onto their IOUs and think they might have some bottle tops repaid some time. But now the other kids are collecting football cards and bottle tops are worthless and a new game begins.

 Capitalism is no bed of roses either, but when tempered by democracy it works.