Losers Magazine (tm) Article No. 9 (10/6/95) by Carl E. Person
Why the Rich Get Richer and the Middle Class and Small Business Get Poorer
This article is really a summary of things which people should know to understand why the economic pie is not being fairly divided, and is being divided more unfairly every day, with no relief in sight. The rich get richer because they have stacked the ca rds to prevent others from competing with them. How they have done this is quite sophisticated and not obvious, which contributes to why the rich are getting richer. Most of the rest of us haven't found out what is happening, and the wealthy and powerful who know, including their wholly-owned news media, aren't telling us, which is why Losers Magazine is needed.
One sign of this is the stock market, which is always going higher, which means that the rich are getting richer. It might be interesting to note that the wealth represented by the stock market doesn't necessarily redound to Americans, since stock is hel d by persons and organizations all over the world. Money made by Columbians in U.S. drug deals might be now represented by stock issued by exchange-listed companies held in an unnumbered Swiss bank account, for example, so that the increase in stock pric es may be benefitting Columbians and Swiss bankers more than any Americans.
The ultimate wealth of America may well be represented by America's natural resources, America's citizens and residents, and the creativity, all of which are harnessed in a variety of ways to be transformed into sales and money through business activities . The persons who control America's businesses control the amount which persons are paid for their services and ideas, and this amount is declining at a time when big businesses are making more and more.
The size of business determines who gets what share of the pie. The larger the business the greater the unfairness in the division, starting at the top, where the president of a large company may get $30,000,000 per year for working 12 hours per day, six days per week, while others in America doing the same job for small business might be lucky to earn 1/1000th of that amount (or $30,000) per year.
The size of a company depends on the capital is has, and unless a small businessman has access to capital, there is little likelihood that the business will be able to expand out of earnings in the lifetime of its owner, which consigns small business to b eing small during its owner's lifetime, in most instances.
Large companies usually started off as small businesses, but the difference is, I believe, the ability of someone to raise capital for the company instead of having to wait for capital to be saved out of earnings, after confiscatory taxes.
I have been a securities lawyer for many years, representing underwriters and companies seeking to raise money, and can tell you that the system for raising capital doesn't work. I've tried myself on about 10 occasions, and the system just does not work. Capital cannot be raised for small business or for good ideas, with rare exceptions, similar to the changes of winning a state lottery (perhaps not as good).
The federal laws require all sorts of filings and prospectuses, or at least the services of accountants, lawyers and underwriters or venture capitalists to take a small businessperson (who may know how to make pizzas), at a cost of time and money and prob ability of no success which makes the effort of trying to raise capital for most small businesses something analogous to drug addiction or a tidal wave destroying the pizza shop. The effort at raising money costs money, seldom succeeds, is very disruptiv e, takes a lot of additional time, and often causes the business to lose money (go below breakeven) because of these factors which tend to destroy a successful business.
Federal securities laws have a lot of mumbo jumbo which are the province of highly paid attorneys who spend their lives dealing in their highly specialized field, which works well for General Motors but doesn't have any semblance of reality when applied t o small business. What all this mumbo jumbo represents, in fact, is another toll bridge which General Motors can afford to cross, but small business cannot.
Even when small business pays the toll, the next barrier is that they can't sell the securities anyway, for various reasons that the market place doesn't finance small or new businesses; instead, they generally move money around to finance and refinance o ld ideas, which is what leveraged buyouts have been doing for years. Getting new money to buy old businesses, with none of the money usually being used to create new jobs; instead, the money has been used to destroy jobs.
State securities laws are another barrier, with each state having its own rules about who can raise money, with the rules generally being (but not in New York State) that new or small businesses cannot raise money publicly. The stated reason for this mass ive prohibition against the raising of capital by small business is to protect the public from being cheated. So, we permit billions of dollars to go down the tubes with the savings and loan disasters; and a billion dollars in one bank scandal caused by one person during September, 1995; and countless other situations where billions or hundreds of millions of dollars are lost, for which the U.S. government often steps in to cover the loss. But we maintain still that small business can't get financing fro m the public (and often private) investors because the public might lose some of its savings.
The people have not decreed this state of affairs; nor has small business shot themselves in the foot. Instead, this denial of access to capital is a direct result of the rich putting up barriers for small business to try to compete with major corporation s and their owners, and they have been able to get by with this for years, but at a cost to the country.
You might wonder what would happen if there were no securities laws. The answer is that governments would prosecute persons for fraudulent activities under the laws in each state (and some federal laws) prohibiting fraud and deception generally. There re ally is no need for securities laws other than to stop small business from raising capital to compete with big business.
One self-help solution for the problem of governmental restraints on the raising of capital by small business is to have downsizees, underemployeds, unemployeds and unprofitable small businesses join together in a for-profit organization (formed around in ternet and specialized web sites) to raise capital for investment in promising small businesses and new ideas. This would be a way to profitably employ persons needing high-income employment and as a by product help to finance small businesses which are u nable to attract financing through the present monopolization of capital sources by big business and restraining rules and regulations.
The large companies have gotten larger by reason of this neat way of stifling competition from small business, but the result is that large corporations without competition are not forced into become efficient and they then lose their place in the highly competitive worldwide economy which doesn't prohibit small business from getting financed.
Thus, the major corporations have been able to destroy small business opportunities in the United States, but this has not made the large corporations able to dominate elsewhere than in the United States. The result is that small business, the area of th e economy which could and should have created economic opportunities for most persons in the United States, was not allowed to do its job, and instead persons had to go to work for big business to reach the standard of living they wanted, and when big bus iness faltered in the changing worldwide economy, small business was not there to pick up the slack.
Accordingly, what this country needs to make a fair division of the economic pie is an elimination of the barriers which prevent small business from prospering. Remember, small business is no more than a former employee of General Motors trying to make a living on his/her own, and with millions of persons having been downsized by big business and big government, there has got to be a corresponding growth of small business, which can happen only when certain barriers are removed, including the prohibition s (complicated federal and state rules and regulations) relating to the raising of capital.
But this is not all. We need to have an equal playing field by eliminating the costly, time-consuming requirement of having the individual small businessperson withhold, pay and report payroll taxes for the one to three employees which the small businessp erson might be able to hire, but for the various government rules and regulations which are a burden on small business and make it easier for the small businessperson not to hire at all. Elsewhere in LawMall (tm) I have set forth materials under the titl e Curing the Nannygate Problem.
In addition, small business needs personnel who are trained before being hired by a small businessperson. I as an individual small businessperson don't have the time to train anyone. I find it easier to do things myself rather than to try to find, hire, train and supervise someone who will always know less than I know, who will see no major opportunity to advance, and will always leave my business in a period of 3 weeks to 1 year or so, making it most unprofitable for me to do any training at all.
What I need is highly skilled persons helping me out, but only as needed. This means that we need specialized training programs, to be set up by for-profit schools (which currently could not be done because of excessive governmental regulation in many sta te), and a means for making these skilled services available on an hourly basis as independent contractors (which lends itself to internet and websites, similar to LawMall - tm).
Also, various other restraints have got to be eliminated from the law, by a reduction of bureaucracy, rules and regulations, to give small business a chance.
If small business gets going, as it is going to have to do to put the downsized, underemployeds and unemployeds to work, significant competition will develop for big business, which will cause them to be more competition in the U.S., for the benefit of th is country, and more competitive in the worldwide market place, which will also be for the benefit of this country.
Also, without attempting to be exhaustive on this subject, we should have rules prohibiting goods from being imported into this country when produced pursuant to competitively unfair standards (such as government owned businesses, which could sell goods f or the direct costs of production; by use of prison labor, involving more than the economic unfairness since there would be overtones of forced labor masquerading as punishment). If the law created the standards, the nation's lawyers could enforce these laws without any involvement by the highly-political executive, legislative and administrative branches of government.
The rich get richer because they have the capital to expand, and as part of the expansion to move jobs out of the United States, without stopping sales efforts to Americans who are still asked to buy the goods and services of the corporations which are de nying them the chance to work directly, or indirectly (by being responsible for the laws which make it difficult for small business to compete). These laws should be rewritten to permit small business to grow and create opportunities for downsizees, under employeds, unemployeds and unprofitable small businesses before it is too late.
If this is done, the decline into third world status for most of Americans can be stopped, and turned around, and the economic pie can be expanded with enough for all.
I might add, that if there had been adequate enforcement of the nation's antitrust laws the rich would not have been getting as rich as they have been getting. The antitrust laws were designed to prevent abuses against small business, but the courts and attorney general have pretty much decided that antitrust law enforcement would restrict the growth of big business and have failed to enforce the laws as needed.
This official governmental and media attitude, that the economy depends on big business, an attitude purchased by big business through political contributions and lobbying among other things, has sacrificed the opportunities of the masses and caused the d eteriorating condition of the U.S. economy.
The wealth of the United States is mainly in its people and their ideas, and this vast potential for wealth can only be unleashed if small business is permitted to be financed; if educational institutions can train people to work for themselves and for sm all business instead of for General Motors; if the nation's antitrust laws against big business are enforced fairly; if governmental corruption and control by big business is substantially decreased; and if the judiciary is adequately financed to enable i t to have the time to give justice to all instead of a select few.
Meanwhile, until this occurs, downsizees, underemployeds, unemployeds and unprofitable small businesses will have to use their ingenuity to find other ways to compete successfully, such as by organizing for virtual business through internet to eliminate o verhead costs, obtain the specialized services needed to accomplish the business objectives, and to expand a new business throughout the nation using downsizees and unemployed or underemployed persons in lieu of capital. As an example, I did this myself i n the making of a full-length feature film, entitled Ramblin' Gal, by giving the actors/actresses and production personnel 50% of the film in exchange for their services. There's no reason why people can't join together and create a business of significan t size without having access to a large amount of capital, and create opportunities for themselves as partners of the business in the process. The lack of communication facilities seems to be the biggest barrier, and such barrier no longer exists for thos e with access to internet and web browsers.
The persons who are not getting their fair share of the economy can obtain their share in absence of overall reform, and they must do this to obtain the needed reforms. American ingenuity can be put to work to overcome the myriad of obstacles which have made small business difficult and caused many people to seek the relative security of employment by big business, but now that such security has been seen as virtually non-existent, what needs to be done by excluded persons is obvious. Good luck.
Copyright © 1995 by Carl E. Person. Permission is given for non-commercial users to send a copy of the data processing file for this work by electronic means to a specific individual for his or her own use, and then only if the entire file is sent, including this copyright notice, but no permission is given for anyone to copy or transmit this file for or to any person for public viewing or downloading. It is intended by the author of this work that the work shall be made available in electronic fo rm only through LawMall (tm).