Delivered to a business group in central Ohio....

     The best way I know to describe the phenomenon that is beginning to occur in your cities is to remind you of a Catholic school, where everyone had to attend regular religion courses. The old communist system under the Soviets was no different. K-through-12, every child got a regular dose of their religion, Karl Marx, Lenin and the omnipotent Communist Party. And they were taught pretty much the same way...with a teaspoon of thrill and wonder, and a tablespoon of reverence.
     Just for a moment, think back to when you were 17 and imagine yourself in a mandatory religion class, and consider what was important to you then. It was really no different than a classroom in Moscow in say 1985. Let's say the class size was 45.
     What you will find in that class will be four, five, maybe six students sitting up front, their arms at attention, ready to jump straight up, "Oh, oh, pick me, comrade teacher, pick me." Every class had that few who just ate that stuff up...or who may only have been pretending to, kissing up to the teacher for high grades. In fact, we never know, except the Soviet system fell down in part because the commies could never tell the difference either...between those who actually hung on every word of Karl Marx, the true believer...and those who were just looking for a decent, effortless white collar career inside the only real paying game in town.
     Make note of this type for we've seen the rise of the same type in both the corporate and government world here, and the American free markets have suffered greatly by their rise. They are everywhere in the new reality.
     In almost all the rest of the classroom you will see yourself, perhaps. It isn't that those 35 or so 17-year olds were indifferent to communism's "god", it's just that, at 17, that was hardly central to their lives. Romance, futball, music, blue jeans, if you could find them, all those things were more important...as were finding ways...mostly illegal in those days...to make a few extra rubles to buy those things in the black market shops off Arbot Street.
    Some of these 35 or so students would prove high aptitude in all sorts of things, science, engineering and would move onto a technical institute to further their studies. Others would display proven skills in leadership and problem solving having nothing to do with higher education and would soon find themselves being melded into the fabric of the dozens of factories around the city, as workers...for whom the Soviet state was created.
     What bound all those students together, beside their general disinterest in the "national religion" at that particular time of their life, was the fact that, once they entered the work force, they would all find themselves being tested, scrutinized, and bossed by those six people sitting up in the front row...or someone exactly like them.
 
     But I'm not finished. I've left out some students, for you see, on the back row of that class of 45, sat two or three fellows, and while not dressed like the Fonz, were as contrary to authority as any motorcyclist or gang-banger.
     Now they loved Karl Marx, too, only not for reasons preached by the teacher. You see, they listened rapturously while the teacher explained how capitalism exploited the poor and stole from the working class. And their hearts nearly burst with joy and excitement, "Yeah, that's for me!" They wanted to be that kind of capitalist.
      It's a simple math I've laid out here. Put 45 people together, and 36 of them will pursue their lives according to whatever the rules dictate, while five or six will do everything possible to be at the front of the gravy line...and two or three will always be criminals.
    
      I described this classroom as a way to introduce you to a type of thinking that I believe you will need in order to deal with the new realities in Washington, your state capital and in local government, for all those types I just described exist within your own business community and have already begun to show themselves.
     I notice from the register that we have small manufacturers in after-market, several service suppliers in commercial and residential real estate, as well as a few business lines, if my sense of proportion is correct, that probably have little or no competition.
     For sake of symmetry let's draw a model along the lines of the Soviet classroom. You can make whatever corrections fitting your own circumstances, or for a few dollars an hour, you can call me and we can work on it together.
     Let's say our model is a commercial property service business, in which, according to business reports, had grown from a $45 million a year business in this area in 1992, to over $80 million in 2008. Now in recession, it is beginning to slide backwards, perhaps 10%-15% this year.
     Just like that classroom, let's say there are 45 companies chasing after that $80 million, the majority of which never existed in 1992.
     You all advertise, you all have sales departments, inside or outside, or both, and you have reporting to tell you what kind of bang for your buck you're getting. You know where you stand vis a vis your competition.
     These are all necessary parts of a running a business in a highly competitive arena. You spend a lot of  time studying trends, listening to gossip about competitors and clients, and you go to what seems like an endless number of chicken dinners just to pick up that gossip. More than anything else, depending on how well local reports can tell you about market share, you are most concerned about that company just one peg ahead of you, at slot number 6, let's say...and that company that is one peg below you at #8, just nipping at your heels.
      There aren't enough hours in the day...I know.
      But here I come, offering up yet another calculation to consider. Well, not exactly, for you see, the calculation I'm sharing with you will be the answer to three, maybe four members' dreams in that group of 45 companies who share your business here. For the rest of you, there's not really much you can do...except to maybe understand the nature of the cancer that will kill your business, and begin planning on an exit strategy.
      For you see, the great prize, some say the greatest prize of all, for those 3-4 survivors, is that there will be no further need for hours and hours of pouring over reports, chicken dinners, extra strength Tums, or sleepless nights. They will be secure, for isn't that what every capitalist wants, no more competition?..just fixed markets, fixed shares, fixed clients, and fixed prices. or so the think.
      OK, then, surveying your group of 45, who will get those sacred slots? More to the point, what kind of businessman will get them?
      
       The process I am about to describe won't occur over night. We're almost a year into it now. It will take what I call a "bureaucratic generation", approximately fifteen years. I use this term not because of anything that will start at your end of the business, but rather at the top. It simply takes awhile for things to trickle down from Washington to Columbus, or Topeka, or Richmond, then onto city of county governments. These changes may come by way of new reporting requirements, new regulations for operating, required changes in hardware, software, taxes, employee management....or all of the above.
       These changes will force some of the 45 to drop off rather quickly and your thinking would be those quickest to fall will be same ones, the Johnny-come-latelies, who only showed up after the boom of 1992-2005.
       Don't bet on it. The flaw in your thinking is that you're using free market notions of business to determine who will survive the new sea changes in your business. In fact, probably most of the bottom dwellers will be among the first to go...unless they are among those six on the front row or three on the back. If so, they may just surprise you, for they are quicker to "get it", this new reality than you may be.
       Just don't forget the General Motors/Chrysler examples already reported. Some unnamed czar in the White House ordered them to close certain dealerships. The claim went out early that they were unfairly targeting those who were big GOP supporters. I'm certain that is true, but only to a point, for, in order to disguise this crime, several solid Democrat party supporters also had to get the axe, even over the protests of local Democrat congressmen. You'd agree then, then, that as sacrificial lambs, they were just as unfairly singled out.
       But if you understand this, then you understand the new rules of  "competition" in this new market reality. The lessons to be learned are several. First, all rules are arbitrary, and you have no power over them. Fairness no longer matters any more than the general rules of business success do; i.e., better price, better service, better product. The rules of competition are, or soon will, become history.
       This is the new reality, and of the 45 in your "classroom" who will be the quickest to figure it out and adapt to it?
       I can almost promise you that one of those guys on the back row, with that hole in his soul, will be one of the last men standing, as will a couple of the teacher's pets on the front. None of the 35 will survive.
       So, how do they pull the wool over your clients eyes? More even, how do the pull the wool over the 35-who-are-about-to-die eyes?
       As long as the majority of you believe the shaking out that is occurring is economic in nature...and not political...you will intensify your efforts to survive, but by conventional methods because you think the old rules apply. That way, when you fail, it will appear to be just bad luck in a bad economy.You can see why it is important then, for the government to keep you in the game as long as possible, to make you believe you are still struggling inside a free market and that it is nothing other than bad times that are keeping things down...and that good times are just around the corner.
      In this way you won't notice that the $80 million a year market is slowly being reduced to about $60M, then $40M, say in fifteen, twenty years...by which time there will be no more than three, maybe four companies vying for that market by the end of the cycle. Even then, they will all be made to look like they are competing, but really no more than when the various Sicilian families divided up Chicago, Jersey, the Bronx, etc. It will all be about territory.
      For the 3-4 survivors, this will be heaven. For no more will they have to worry about competition. Like Philip Morris, General Electric, General Motors, Goldman Sachs and a lot of companies you haven't heard of...yet..."there's no business like no competition"...and there's no business like being the government's pet.

      I am not about to tell you exactly how the new "state-driven market forces" will select the three survivors in your class of 45. Actually it doesn't even matter, for while in the first bureaucratic generation a new government enterprise such as this, the puppeteers at the top tend to be very doctrinaire and rigid in their selection process...and will favor those kiss-ups on the front row. But political zeal becomes diluted over time, especially if it has to trickle down through three tiers of government, so by the time it works its way to the business on the ground it will move by grease and graft, and the boys on the back row are just as apt to be winners as those on the front.
      In other words in fifteen years, the quality of product or service will probably still be a reasonable facsimile of what you all provide now, only cost won't really matter. But after that, all memory of quality as you know it today, both in  product design and customer service, will have fallen apart. And within 30 years all memory of how things used to be will also be lost, so no one will even complain.
      This is when the very infrastructure that propped up your business line in the first place will begin to crumble, for you see, the law under the new reality will not allow new competitive start-ups in some guy's garage to try to fill that void by taking business away from the appointed ones. That is the "capitalism" they always hated...going all the way back to Karl Marx.
     
      I cannot tell you how you should react to this new reality as it begins to take shape. Some of you will, from your own outlooks on life, freedom, simply come to a point where you have to make too many moral or ethical concessions to compete, and will just quit. Trust me, the state will allow you an equitable retreat, and they will always be able to find jobs for your employees. They have plenty of picks and shovels. That's sort of the point, in fact. That this is a recipe for destruction, no one will notice, or mind.
      All that you need to know is that wealth will be "appointed", it will be "allowed", and a different kind of person than you will line to get the "contract" as merit, hard work, or quality and cost consciousness will have nothing to do with it. Life's winners will come from that front row or the back row in your class. They really will be lottery winners.
      Some people ask whether this is socialism or communism. It is a kind of socialism, as our best guess is that wealth will not be done away with in America. Rather it will be parceled out. There will still be a private sector, even a large one, albeit 25%-35%-even 50%-smaller than the one we knew in 2008. And as such, it will not be strong, much less vibrant. But it will be totally subservient to the public sector. It will almost be like Dicken's London all over again, each class living in distinct neighborhoods, with absolutely no vertical mobility.
      We already know where this ends. As to its name, it has a special one with the socialist family; it is fascism.
Vassar Bushmills