On April 12, 2013, Rita Graft writes on the Harvard Business Review Blog Network:
There’s one big reason JCP would never be “Bloomingdale’s for the mass market,” as Johnson wanted it to be, and that’s because the mass market is gone. Because the middle class is gone, or at least rapidly going.
This reflects a troubling development in our economy, what some have termed the “hourglass economy.” This means that companies can reach both high-end and low-end consumers, but there’s no longer a broad middle to appeal to.
For years, a fundamental problem that Penney’s has grappled with is that their historical base of middle-income households is shrinking. If you compare charts showing how various slices of our economy are doing, you’d see growth at the bottom and growth at the top of the income spectrum, and shrinkage in the middle. Penney’s is not going to be able to overcome a demographic reality that is causing its historical customer base to go away. Indeed, economic forces are leading many employers of what would at one point have been middle-class jobs to push the economic risks to their employees, further limiting their disposable spending capacity.
The problem is that without a policy shift to broaden productive capital ownership simultaneously with economic growth, further development of technology and globalization will undermine the American middle class and make it impossible for more than a minority of citizens to achieve middle-class status.
Businesses employ both productive capital and people, but full employment is not an objective of businesses. Companies strive to keep labor input and other costs at a minimum in order to produce efficiently and profitably. Because of the ever-accelerating shift to productive capital to lower business operational costs, jobs are constantly being eroded. The other aspect impacting job security––the overwhelming source of income for the majority of Americans––is global competition and the sourcing of low-cost “slave” labor. As a result, American businesses seeking to compete in global markets and within the United States market, which is driven by low pricing demand, have out-sourced manufacturing to other countries whose labor costs are significantly lower and whose tax extraction rates and environmental regulations are respectively far less costly and stringent. Such out-sourcing is motivated by the market demand to produce their products and services more efficiently and more profitably.
This combination of free market forces means that private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever-increasing role, compounded by far less costly out-sourcing of production.
As a result, there are fewer and fewer “customers with money” to purchase the products and services that can be more efficiently produced with productive capital. Economic growth will always be stalled when there are high levels of economic inequality because there will be an imbalance between production and consumption.
Why is this happening?
The reason is simple. A relative few people OWN the preponderance of the nation’s productive capital wealth and are positioned to OWN the FUTURE productive wealth, from which they earn dividend income and valuable capital gains asset growth. This is why there is widening economic inequality resulting in class conflict between the so-called 1 percent “successful” ownership class and the 99 percent, who are capital-less or under-capitalized, and whose ONLY source of income is a job or taxpayer supported government welfare derived from tax extraction and national debt. This Income inequality is exponentially crippling the United States from realizing its creative and social and just economic potential.
Thus, there is the imbalance between production and consumption. A few wealthy people are thereby able to rig the “system” to manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital owner more productive. How much employment can be destroyed by substituting machines for people or lowering operational costs is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting “machines” for people or devaluing labor wages and salaries. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption, which is the problem with the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
For the nation to overcome widening income inequality, the obvious, logical solution is for people to OWN THE “MACHINES” and non-human means of production that result from technology. Broadening productive capital ownership should be the priority course of action for the FUTURE. “FUTURE” is capitalized to emphasize that the private property rights of ALL citizens MUST be respected, honored, and protected. Thus, ANY solution(s) to transform the United States into an OWNERSHIP CULTURE must not undermine or seize the private property of the 1 to 10 percent who now own up to 90 percent of the corporate wealth. Instead, the solution(s) MUST expand the ownership pie over time and result in EVERY American child, woman and man earning income to support an affluent life. The result would be that those who now own America would still be owners but their percentage of the total ownership would decrease, as ownership gets broader and broader, and benefits the traditionally disenfranchised poor and working and middle class, who will become sought-after “customers with money.” Thus, productive capital income would be distributed more broadly and the demand for products and services would be distributed more broadly from the earnings of capital and result in the sustentation of consumer demand, which will promote economic growth. This also means that society can profitably employ unused and idle productive capacity and invest in more productive capacity to service the demands of a growth economy.
This balanced Just Third Way approach to building a FUTURE economy that supports affluence for EVERY American is presently not in the national discussion. It appears that the President of the United States, the elected Congressional representatives and Senators, academia, and the media are oblivious to this principled solution that has the ingredients to power economic growth at double-digit GNP rates.
This goal requires investment in FUTURE income-producing productive capital assets while simultaneously broadening private, individual ownership of the resulting expansion of existing large corporations and future corporations. Not only is employee ownership the norm to be sought wherever there are workers but beyond employee ownership the norm should be to create an OWNERSHIP CULTURE whereby EVERY American can benefit financially by owning a SUPER IRA-TYPE Capital Homestead Account (CHA) portfolio of income-producing, full-voting, full-dividend payout securities in America’s expanding corporations and those newly created to produce the future products and services needed and wanted by society.
See my article “The Absent Conversation: Who Should Own America?” published by The Huffington Post at http://www.huffingtonpost.com/gary-reber/who-should-own-america_b_2040592.html and “The Path To Eradicating Poverty In America” at http://www.huffingtonpost.com/gary-reber/the-path-to-eradicating-p_b_3017072.html
Support the Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm
http://blogs.hbr.org/cs/2013/04/jc_penneys_real_problem.html
