Four-Plus One Streams of Wealth: The First Two Streams

This story is Part Two of Four. The first is 

Education, Training and the Middle Class

Wealth Creation

I propose that there are Four-Plus-One Streams of Wealth creation, all driven by work, which creates and distributes wealth.

The rest is meta-work, which does not create wealth but rather takes it from those who create it. Meta-workers are government workers, attorneys, and, as much as I loathe to say it, most consultants (not me, of course.) Real work is part of an economic river along which wealth flows. Meta-workers merely divert flow from the stream of wealth, leaving less and less for those who do real work. Diversions also make remove the incentive to do the hard work of wealth creation, without which there will be no middle class.

The first two and oldest streams of wealth are based on agriculture and small farms. There are few left in the United States, but they flourish in parts of Asia.

The next two, which created the middle class, are as recent as the industrial revolution, and based on manufacturing and its supply chains. These are long chains and a lot of people get to participate, adding value as the stream flows, thus creating a middle class. I guess it can be said that the middle class supports a middle class as long as they buy the stuff they make.

The newest stream, which I called Plus One, creates massive wealth, but isolates it in the hands of a few. This new wealth stream is often called high-tech. It is mostly based on microchips and programing and making the devices that carry them. Products are made on large scales in the most productive factories in the world, often with cheap labor and automation of repetitive tasks (using high-tech) in Asia. These devices are manufactured in short economic chains with the most creative elements being software, which is created by a few people, electronically flashed into chips, and then massively distributed, such as iPhones, iPads and iMacs. The wealth is concentrated in a few, and not in a middle class. (For example, Snapchat made two kids billionaires and helped no one get into the middle class.)

Given a short economic chain and the scale, there is little opportunity for building a middle class. San Francisco in an example of substantial wealth being created and concentrated in a few, driving prices higher and higher, becoming a city only for the extremely wealthy and the very poor.

In fact gadgets have become so powerful, they are threat to not only the middle class, but to those at the bottom of the economic ladder, as the minimum wage is raised to $15 an hour by government edicts helping no one. The government needs a better idea. I will propose a few.

The First Stream: Grow-and-Cut

The first tools of civilization (not weapons) might well have been a hoe, a shovel and a rake. Shortly thereafter, some clever person, maybe a woman, saw that the family grew a bit more food than needed, and decided to trade it to the neighbor in the next cave or hut for a piece of meat or a hide. The first stream of wealth had been created. It allowed a group of people to stay in one place, rather than roam around, building more permanent structures and stronger families. The family was needed to make grow-and-cut work. Thousands of years ago, we learned that families are the basis for civilization. We have never shown it to be any different.

Americans think Asians have strong families. Well, they do, but not in the way Americans imagine. Far more Asians than Americans understand the first principles of operating a small business:

  1. Nothing happens until something is sold
  2. Keep the cost down (family labor)
  3. Turn the inventory over
  4. Cash is king
  5. Everybody works

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Those who grow-and-cut need a family to work together, just like an efficient small company. They grow, harvest, transport and set up a stand in town. In Laos, Cambodia, Thailand, Vietnam, and China, I have seen three and four generations working together, with small children working in fields, transporting the days yield to town, and helping at the market, just a few miles away.

Every step of this short economic chain is visible and performed by family members. Several families meet daily at the town market, which has been there for decades, likely interrupted only by war. They have had the same spot for years, set up, tear down, clean, and then go home at the end of the day. It is orderly, with no fighting for space. They set up in the same spot every day, maybe on a table or a tarp. If you see an open spot, someone didn’t show up.

Some sell what they grow and cut, while a few add value in a cook pot, and have food stands. There are no holidays or sick leave, no vacation or health care benefits. You work or you don’t eat. You work or lose face in the family. There is not the closeness of love Americans think of, but the closeness of honor, respect, and obligation.

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Asians have managed to hold onto this culture of work as they have migrated to the west, at least for a couple of generations.

Many Chinese immigrated to Panama in the early 1950’s to escape Mao. Many businesses are still operating that were started then, and passed from generation to generation. There is a responsibility to support the family, and it is taken seriously.

I know one family where a teenage family member travels from one city to another to work for the family of his mother when school permits. His mother is of Chinese descent, has never been to China, but speaks Cantonese, the language of her parents. The son, whose father is Panamanian, only speaks Spanish. The culture his grandparents brought from China is fading.

The son runs the cash register in a pharmacy for one part of the family in the morning, works at a small hotel cleaning rooms in the afternoon, and works on his uncle’s farm digging and planting on the weekends. His aunt hands him a few dollars once in a while so he can go out with his friends. She treats him well. He is loved, but he better get out of bed and get to work. He knows his place. He is expected to work.

One day, when he thought his workday was over, his aunt said, “You have to run the cash register until closing. One of the Panamanian workers didn’t show up.”

“Aunt, you treat me like a slave. You never even pay me.”

I said, “Get to work and stop complaining. She doesn’t have to pay you. You are part of a Chinese family.”

Asians bring the culture of work to the U.S. as well. I wish it were more visible. Indian families buy and run hotels at every freeway stop, and newspaper stands at airports and in large cities like New York. Koreans buy and run vegetable and fruit-stands in New York. Chinese run restaurants in every city and town. Arabs run gas stations. I wonder what Americans do?

Asians understand what it takes to operate a small business, to feed themselves and the family, to stay out of the way of government. They ask the government for little more than the structure to operate, no matter where they go. Asians have left Asia not just to become capitalists, but to get away from communism and corruption. They make good Americans.

There are other cultures within the U.S. that see it as the responsibility of the government to support them without work, or to give them jobs that consist of meta-work, from which they cannot be fired once hired.

The Second Stream:; Grow and Kill

 There isn’t much difference between grow-and-cut and grow-and-kill. I suspect that grow-and-kill followed grow and cut. If animals were easy to hunt, then husbanding animals was not worth the effort. One could hunt for enough meat. Once trade was developed then animals were husbanded, protected and fenced or tied. This also strengthened families. The first corporate structure, the family, with a man and a woman in charge, working, teaching work, distributing work, defending, marketing and taking to market, and getting a fair price.

Textiles, fishing, sewing, creating shelter all took form based on growing and cutting, and growing and killing.

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Great wealth was usually not created but a lot of people were kept out of poverty. You didn’t get filthy rich, but you were part of a family, as the family was the central structure. Families are important to every culture. Without families, there is no culture, and no country to be held together. None of this works with a high rate of illegitimacy. If you are not part of a family, you are part of nothing.

In U.S. most high school graduates have no knowledge at all of these two fundamental forms of wealth creation. Food is carted out the front door of the grocery store. We have no idea how it got there. We have never seen the back door, or seen where it comes from. Most have never even seen a cow, pig or goat. Hardly any of us could tell wheat from barley. Few of us have planted anything, not even a flower, and far fewer have butchered a chicken. Few certainly have never stood over the anything the family has grown and taken to market, knowing if it does not, they will do without.

Those who work and live as a family in the first two streams of wealth understand far more than where food comes from. They know how a small business operates. They don’t look for a job. They look for a way to start and operate a business. The average American doesn’t know as much about the fundamentals of business as the average ten year old Asian. Asians know small family business.

In Asia, you might see a hog gutted and draped over the back of a motorbike, taken to market cut up and sold on a small stand, with the mother or sister sitting surrounded by hog parts.   You would see fish in plastic tanks on the sidewalk, pulled out, gutted and cut, about as fresh as you can get them. You would see a motorbike with racks of chickens tied feet to a rail, pulled off, then handed to you. For a bit extra, you can have its head cut off, gutted and plucked. The markets are all crowded with people walking. There are no cars in the way. It’s fun. It’s a community. People talk to one another, rather than push a cart and text or talk on the phone, and buy things in pretty boxes that are chemically preserved.

This system might be thought of as backward in so-called first world countries. The West is far more efficient. But there is a cost to our efficiency, and that cost is associated with the knowledge Asians have of work, working together and business fundamentals at an early age. Asians know that NOTHING happens until something is sold, whereas few Americans have ever sold anything. They want jobs and meta-work, not work.

Government by Thieves, Tyrants and Kings; Democrats and Republicans

Shortly after these two ancient and stabilizing forms of wealth through work and trade were developed, lazy groups were formed, all thieves. They stole through violence, raiding and killing. Land barons saw the need for building defense systems, funding in the only way possible; taxation of the productive class. As they grew powerful, the taxing protectors saw themselves as superior, claiming themselves kings, and the basis for civilization and order. It changed form over time, as we held elections, but the culture of meta-work was established.

I hope we can reverse it.

Part three is to follow soon

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Education, Training and the Middle Class

Americans don’t resent the wealthy, nor do people around the world. Most know they will never be rich.  They don’t care. What they do expect is to have economic hope, a sense that they will be free from fear of economic insecurity.

There is flexibility in defining hope and expectation, which are different around the world. Some want more, expect more, and are fortunate enough to get it. There is, however, no flexibility in hopelessness.  Americans expect, or used to, that hard work would provide freedom from economic fear. They knew that being an American meant there was opportunity for the willing worker.

Americans do not expect hopeless economic conditions. That’s part of being American. They expect that the government understands its role to provide the structure, both economic and cultural, under which they retain the rights granted by God, to life, liberty and the pursuit of happiness.  And that means a place to work where the future is bright, and another place to find a job if it isn’t.

In the last fifty or sixty years, it might be fair to break down Americans as they reached their early 20’s into four groups.  One could argue the four groups are not enough, but it’s enough to capture most people.

There are those who graduated from college or graduate school with a job in hand or got one shortly thereafter, and looked forward to several years of hard work and economic gain. They were confident in their ability and the structural conditions under which hard work combined with their ability, would pay off.  (In the early 70’s I left the U.S. Navy after six years, four years later graduated from a university, thinking my ability to succeed was based on my willingness to work hard. Never once did I think the American economic engine would falter, inhibiting my chances.) University graduates had high expectations, and most lived up to them.  The opportunity was there.  Economic growth was consistent.  All you had to do was to have the right degree and be willing and able to participate.  It wasn’t that hard.

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Second, there were those trained to do things, skilled tradesmen, often self-employed.  They were also confident, and part of the economic backbone of a thriving middle class.  Their ability to thrive was not so much based on education, but on training. Education without training means a country full of those can do little beyond read, type, double-click, text, swipe, copy and paste. Training means doing important tasks. (I am one of the fortunate few who was trained while in the U.S. Navy to operate a nuclear power plant, then educated in the engineering sciences in a university. That order of things turned out to be important to the things I did.)

I have traveled much of the world, worked in factories in the U.S., Mexico, China, Japan, Thailand, Malaysia, Korea, India, Cambodia, as well as South America, and a dozen countries in Europe.  I have made my way through small shops and large companies, and admired the skills of those I could not talk to.  Skills are learned from training, not education.  Skills from training are the foundation of the middle class.  Without training, there is no middle class.  Without a middle class, there is no hope, no freedom and no country. Without a strong and confident middle class, there is no America.

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In the U.S. we clamor for more spending on education, in my opinion, a waste. (I just heard on the news about the riots in Baltimore that education spending there is 2nd in the country.)  There is too much education, and not enough training.

A society with a solid middle class is a function of training, not education.  When a middle class is lost, as is happening in the U.S., education will not fix it. A real education is a life-long endeavor for those of us who take it as a personal responsibility, not that of the State. A real education is never over. Training means teaching people, more appropriately, showing people,  to DO things.

In the U.S. what can people DO that is useful upon graduation from high school?  Virtually nothing.  People need training to make stuff, however we have been deluded into thinking we are in a post-industrial society.  Maybe we are, but if so, we are also a post-middle-class society, and post-America.

Where can a high school graduate go to work and earn more than a menial wage? After 12 years of school, all you can earn is a few dollars an hour?  Outrageous. What do the taxpayers get in return for the $10,000 to $20,000 per student per year for a public school education?  We should have people graduate from high school able to work and pay taxes, and they would if they could DO something. A government with nothing to offer but an increase in the minimum is populist, with no understanding of how economics work. Does higher education solve the problem?

I used to live at 18 Congress Street, Portsmouth, NH, across the street from Starbucks before I decided to move onto my sailboat and head south to the Caribbean and around the world.  I had a coffee there every day for several years at 6:30AM.  I got to know all the “baristas.”  I don’t know what Starbucks pays, but I suspect it is just a bit above minimum wage.  Nearly every barista had graduated from college with a liberal arts degree, most private schools, mostly paid for by well-healed parents.  A few were highly indebted. I estimated that there had been over $2,000,000 spent on higher education preparing these good folks to work at Starbucks.  A few found proper work and left, replaced by another graduate. There are too many highly educated, untrained people serving coffee.

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Few cultures provide education and training by those who can teach and transfer skills. Training comes from a specialist, a crafts person or a mentor, not a general teacher passing himself off as an “educator.”  The U.S. Department of Education?  Don’t need it. A Department of Training?  Maybe.

The lack of American tool makers especially, and other skilled tradesmen is frightening.   These are people I looked up to, like Ed Drury when I worked at Rehrig Pacific Company many years ago.  Tool makers were clever and creative, able to take abstract ideas and turn out the jigs and fixtures needed to build the tools that factories needed to turn out the goods that kept the middle class employed in useful work. The question is, can we survive as free country without the ability to make tools?  Have we deluded ourselves into thinking that a post-industrial society can import tools and manufactured goods? We have enough lawyers.  Perhaps we can we retrain a few.

If education is important to economic sustenance, training is even more so.  Without the ability to actually DO something, education and the educated are useless.  Training is about doing, about making things, taking ideas, and making things through work with a trained work force.

The third group is the large number of people who take jobs in factories. They are mostly trained to do their jobs by the employer.  They are trustworthy and capable. The work might be demanding, but workers knew they would be able to provide for their families, maybe save for retirement, and possibly buy a fishing boat and take a vacation once in a while.  They had families, and the families stayed together. These were good folks, with solid values. They respected hard work and demanded it from their children. Most Americans have a family history that runs right through a factory, whether it was assembling cars at General Motors, locomotives or appliances at General Electric, aircraft engines at Pratt & Whitney, or operating machinery at suppliers to these companies. These were good companies and good places to work. Now we have divested ourselves of factories in the U.S. Americans hardly invest in capital equipment in the U.S.

Apple computer is the largest company in the world.  Their investment in capital equipment in the U.S. is tiny compared to their revenue. Apple is a huge, clever, creative company that contributes little or nothing to the growth of the middle class.

The first three groups of people made up the large middle class of the U.S.A. Factories mattered; they were the basis of the huge American middle class.  Without factories, there will be no middle class.  These three groups constituted most of the American work force, a work force that was confident, liked being American, and lived the dream of escaping the fear of financial insecurity.  Escaping this fear happened to a higher percentage of Americans than any other country.  Factories provided real work, stable work, not meta-work, such as government jobs that are part of no economic stream of wealth creation, who for the most part interrupt the stream of wealth creation.

There used to be a U.S. government that understood sound economic principles, providing incentives for investors to build factories to make things and create wealth.  Then we began to elect those to represent us who do not know work, and a president who has never done a man’s work for a day.

The last category is those people who are hopeless.  When the hopeless are merely a few, the confident will support or imprison them.  The hopeless are those raised without fathers and cultural constraints and respect for themselves. If the hopeless class is growing, with no route for escape, and the government fosters hopelessness by supporting it, then the fear of economic insecurity the other three groups worked so hard to escape creeps into the rest of the population, destroying confidence. The hopeless need to be limited to a few for a free society to exist. They need a way out. History shows only one way; training and a place to apply that training in making things. In the best case, poverty is transitional, retaining hope. Poverty is a fearful place, worse without hope.  In the best case, the poor find a place in the stream of wealth creation, making things.If people lose hope, then they will never be in the middle class, and never really feel American by more than birth. Without a middle class, there is no America.

The hopeless used to be people we read about, those the church fed on Thanksgiving or the woman who shamefully used food stamps at the grocery store.  No longer.  Now there is fear everywhere.  Everyone knows those who have fallen from the confident middle class to the hopeless class sneaking into food banks, ashamed.  There are also those born into the hopeless class and know nothing else.  They are the dangerous among us. They are culturally weak, fearless, angry, have no role models, living a way fostered by a government that sees them as inferior but a growing and reliable voting block.

We now also have a generation of young adults, whose parents work, but cannot enter the shrinking middle class. Unlike when I graduated, they fear the future. They might work at Starbucks, afraid they will never be able to pay off student loans. Maybe hard work isn’t going to pay off for them. Maybe the America I knew is no longer.  They don’t know real work, are not trained, cannot get a job at the factory, because it is gone, and find a college education of shockingly little value. Many who are trained will likely do just fine. But even for those who are trained, there are few places to make stuff.

Americans now claim they need jobs.  Americans don’t need jobs…they need work. Work means being part of a stream of wealth creation. Americans need to make things again.. The rest is just meta-work.

What many really want is a place to go where they can get a paycheck and do meta-work, because our culture of work has been destroyed in just two generations. Americans no longer even like work; they don’t know what work is. Americans don’t know that work is the basis for the creation of wealth.  They think jobs and wealth come from government, that the government provides jobs for many, and free money for even more. This won’t last, and I fear the end that must come when a government is so dangerous as to think wealth comes from a printing press.

The American people who no longer understand, respect and revere the power of work and wealth, will not stand as free people. I fear they will lose their God given rights, taken by government. How did all this fall apart so fast?  How did we get to be so fat and lazy? In order to have a look, I think it matters to look at the creation of wealth and work, how it is different in across cultures, and how a few cultures have so much to teach us.
http://www.usatoday.com/story/tech/2015/05/07/taiwan-too-many-college-graduates/26945515/
Part 2 to follow.