Part II The Solution Small Business Incentive Program
Ref. Part I The Problem (Previous Blog)
The Problem. Every small business took a major cash flow hit based on the 2008/2009 financial tsunami. For many they can’t continue because they can’t buy or purchase raw materials to produce goods to stay in business. For sure, grow and expansion are not options. For most, survival means cut back and jettison programs, projects and employees. And, forget innovation.
Prime the Pump. The small business capital source is the unlikely and unwilling local/regional bank. It is not and should not be the government. Fortunately, it does not have to be the Government.
The Solution. The government needs to return to a thirty year old practice of insuring Small Business Loans to banks – but with a new set of “RULES” designed around today’s capital economy, financial institutions and void of the historic paperwork nightmare birthed in the 1930 post depression recovery.
In Principal. It forces the banks to save their local small businesses because when they thrive – the local bank thrives. The community thrives. It is a true back to work program. It is not minority based, but merit based. The SBA program can be sold, managed and administrated by the local bank. The Government sets the standards and insures the banks loan portfolio for small businesses that meet the 2009 SBA Recovery criteria. By SBA setting the recovery criteria it becomes the antidote to today’s point scoring and rooted in the belief that only a few percentage of the businesses that meet the criteria will ever go bad. The bank portfolio is covered by the SBA Insurance and the government payout is minimal compared to the increased revenues by successful small businesses
2009 SBA Incentive Program. The new rules address three (3) small business needs. They are (1) existing business that suffered a LOSS in the 2008/2009 Tsunami, (2) successful businesses that need capital to grow and (3) new business ventures. The SBA Incentive program is called the SBA IP.
The major success factor. Local banks are the master at complying with regulations. They will promote, sell, execute and administrate the program without bias, exception or corruption. The SBA IP program will be done right.
The major requirement. The SBA IP approval must be automatic and online with adequate protection to detect scams and fraud across multiple banks and lending institutions. In the past, the SBA program was more paperwork and hassle and for both banks and small business – not worth the hassle. Consumers going directly to the SBA for loans or even guarantees was even a worse nightmare. The SBA is not in the small business loan business. They are in the insurance business where they issue a policy to the bank and they process claims from the bank. When the bank is compliant – the SBA pays the claim. This also positions the government to start any recovery of back taxes or other claims that may be applicable in default or closing of a local business.
Criteria. A progressive coverage, much like a deductible, could be instituted by the SBA and the bank. 100% criteria means 100% coverage at favorable interest rates. Plans or exceptions with partial criteria could be covered with a partial percentage and different interest rates. This enables the bank to offset the void with collateral from the small business. Lower interest rates could be available to businesses with green or energy related businesses. Small business who meet the banks traditional criteria and point scores do not qualify for the SBA IP program. The SBA can set this criteria to insure the bank is not insuring all loans through the SBA. The SBA is designed for companies with an existing track record that have been impacted by the financial tsunami.
Existing Business Working Capital Loan Criteria
5 years or more in business
Tax returns with one year profitable before any loss carry forward
Loan amount equal to 2x the revenue shortfall of the previous year (4 Qtr 2008 vs. 2007)
All back taxes paid with proceeds
Interest rate at bank favorable rate
Existing Business Growth Capital Criteria
5 years or more in business
Tax returns with 2 of the last three profitable
Loan amount not to exceed 10% of last years revenue
All taxes current an paid in full
New Business Criteria
Established Business or University sponsor (Affidavit)
Raise matching funds – Deposit in the bank
Business Registration and all initial filings.
Business Plan showing launch within one year Revenue year 2
Have all Business and merchant accounts within the bank
SBA IP allocations for new business based on banks service area and number of small business clients.
Fraud and Abuse. This is mitigated by the banks due diligence. They can feel, see and touch their local businesses. The existence of income tax records, 941’s combined with commercial personal, business and government data base confirmation make fraud difficult. The bank absorbs the risk if the loan for loans placed that have been submitted with falsified information.
Results. The SBA IP and Recovery Act passed by congress will jump start small business and allow businesses damaged with the 2008/2009 Tsunami recover. The health and revitalization of America’s small business will lead to more hiring, more production and profits that will produce more taxes for the government. The business growth and new business criteria will fund and fuel innovation from the business marketplace. Small business owners with existing successfully businesses are the ideal and untapped platform from which to launch innovation. Academic innovation will continue to be fueled by government research grants.
Larry White
www.elink.to/1ltLarryWhite
Friday, December 26, 2008
Laying Off Small Business - Part I
Part 1. The Problem
Small Business America is the countries largest employer and also the largest contributor to government revenues (i.e. taxes on profits, matching contribution to SSN, unemployment taxes.)
Premise. The fourth quarter, peak holiday season 2008 financial tsunami, fueled by our political process, media, energy shortage and real estate/mortgage loan meltdown, will carry over into the 1st quarter 2009 and is so severe that few of our nations small business can survive an unprecedented two quarter consumer spending boycott. Even the good merchants and their suppliers cannot survive 50% drop-offs in revenue or selling merchandise below cost.
We are a nation where our Consumers have the power to NOT spend and even conserve on necessities. Consumers demonstrated they can even hold off driving and impact the supply/demand ratio with gasoline. Consumers are a powerful dynamic in capitalism. Fueled by the media, NOT spending is almost in vogue. For others, it is good old fashion fear. Small business and major corporations react. They jettison employees, scale back production into a self-fueling, self-made depression frenzy similar to a run on the banks. It is a run on consumer spending. If consumers can do it over the biggest spending season – they can really do it in non-peak times.
Consumers are smart. They know their sacrifice has a silver lining. Capitalism will yield to supply and demand and the end result will be bargains galore…from the price of gas, to consumer retail goods, to housing. Waiting is smart and will yield a major dividend.
Or will it? A tsunami is too much of a good thing – gone bad. A perfect storm is too many bad things combined to create a major disaster. Can this happen to capitalism. Can we stretch the traditional limits of the supply/demand model to create a tsunami that undermines the infrastructure of our small business and destroys Americas largest business and largest employer creating downward spiral to where the only jobs – are government jobs. Isn’t that called socialism?
How did we get into this cycle? It was a combination of self-inflicted body blows. The mortgage loan was a major catalyst. The failure to recognize the real problem was not lowered loan standards forced by the government fair housing act that went bad – but accounting practices devaluating real estate assets on the books impacting the net worth of the mortgage holders resulting in a reduction of credit lines, stockholder confidence and net worth leading to insolvency at the primary and all secondary markets. It impacted the asset valuation of the big boys who had real estate as a part of their investment portfolio. (i.e. Lehman Bros and AIG) with required public disclosure.
The Governments tried and true “Greenberg” throttle of tweaking interest rates could no longer regulate the consumer confidence engine – driven primarily by Wall Street. A shaky stock market tanked. Government bi-partisan efforts to bail a couple of majors to restore consumer confidence and avoid a run on financial institutions and the stock market did not work. When the consumer confidence tanks, spending tanks. The first to go, or put on hold, are vehicles, home purchases, recreation and pleasure travel. This forces the shaky big three to declare a state of emergency and soon to follow will be the government subsidized airlines.
Kick yourself in the groin. Add to this scenario the media propensity to hype anything negative to make it a headline and you brainwash the guy who pays the bills – the consumer. It only gets worse when one political party amplifies the problem for their political gain and when in office, claim they inherited the problem from the other bad guy.
Do it right and you turn the consumer confidence snowball into a capital consumer confidence crisis that is the “perfect storm” that now dramatically impacts consumer spending for “everything.” Now the problem is not just big ticket items….it is non-necessities like restaurants, clothing, travel, family vacations, and electronics. Consumer driven items represent 62% of our economy and in a tsunami, it just went away, along with the supporting wholesale and distribution infrastructure. It is beyond stimulus checks from our government. Guess what – Government (state and federal) revenues take a major hit on every front.
Add another dynamic to the 2008/2009 financial tsunami. We are talking about the big “C.” Not cancer, but the equally powerful…CREDIT. Yes, credit funds major corporations, and also consumers who buy houses and cars, TVs and Appliances. Credit was acknowledged as a “problem” for big business, with little mention about its impact on the nations largest employer – small business. Credit drives both the wholesale buy and consumer sell side of small business. From the consumer side, credit cards make up over 70% of all purchases.
Credit is vital to start and sustain a small business. However, even in good times, credit is impossible to get from banks who view small business as a bigger risk, with less security than holding a mortgage. At least they can sell a mortgage to the secondary market, unlike most small business loans. The small business value to a bank is checking and savings accounts, money markets, merchant banking and maybe stock portfolio management. When a business fails – it is a major hassle and business assets worth nothing. When is the last time you saw a business foreclosure sign? Therefore, banks make small business owners personally guarantee and collateralize loans for the full loan amount – or more. Imagine if that were a requirement to buy a house. When collateral devalues in a down stock market, the bank forces the small business owner to add collateral or liquidate assets to cover the loan.
Enter a new 2000 dynamic. It is the emergence of the credit score. First on individuals and now business point scoring is rapidly following the consumer model. Credit scoring is an unregulated black art. It is more than the 1899 historical credit reporting tradition of objective reporting on how bills are paid.
Today’s subjective weighted credit risk point score measures open credit vs. available credit along with other factors, such as who is looking at my credit report, or has turned me down. Miss a monthly payment, and instantaneously, your computerized score and even credit line comes down further impacting your credit score.
The Credit Score is what banks and other credit grantors use to justify offering higher rates to “high-risk” consumers. Gone are subjective factors like years in business or credentials of the owners. With major bank consolidation – loan decisions are made using ONLY the point score. It is efficient, the first step and pass or fail saves needless investigation by bank officers who were tellers a couple of weeks before.
In business, credit grantors use the officers/owners personal credit score if they cannot get adequate scores on the business. My point….play it forward and imagine the aftershock of the 2008/2009 financial tsunami will have on credit reports and the ability to get credit – even if the credit markets were to reopen. This credit reporting age is not your fathers “wonderful life” loan arena. Big Brother will impact…..no it will KILL any recovery for the merchant owners of small business.
Forecast. Small Business has taken a direct hit in the fourth quarter 2008 and it will continue in full force during first quarter 2009. It will get worse because we live in the age of the rich and plenty, where consumers can easily abstain and don’t have to buy anything except bare necessities. It is more than a consumer course correction. A legitimate small business (one that is not a hobby) cannot cover a two quarter consumer boycott and loss in cash flow. Even the good cannot survive. Selling the majority of a retailers merchandise at below cost is not sustainable and without major reporting consequences. Add fuel to the fire, when small business credit lines (like the big boys) are secured with stocks that have been devalued. Slow pay, personal or business and with today’s electronic reporting – good luck getting credit to bail out. It won’t happen!
Laying off Small Business. Our Government is sensitive about laying off the employee work force. We have unemployment compensation and the business pay unemployment insurance to insure they don’t lay anyone off without cause. The more business layoffs - the business owner is accessed a higher unemployment premium to offset the government expense.
What happens when we lay off a small business owner? The owner must pay the Government ALL taxes due. The owner must liquidate all business debts and personal guarantees. If they can’t satisfy all debtors, they must defend in law suits in court, or file bankruptcy and hope the courts decision on asset disposal is equitable. This action will immediately impact (and destroy) the business and business owners (even executives) personal credit reports. This will cause all existing card holders to recall and/or reduce their credit limits to the minimum. Unlike the unemployed, the small business owner has no job, no credit, can’t qualify for anything. They may not be able to get a job if the employer checks credit as a condition of employment. Also – forget about getting insurance or buying a car or house. They check credit. With today’s credit scoring, this condition exists with or without filing bankruptcy! This is free enterprises finest hour. The good news is…the stigma and residual only lasts for seven years. Good luck. You would be better off in federal prison.
How do we get out of this mess? The traditional rule of thumb says… it just has to play itself out. The weak will fail and the strong will survive. The consumer will – when they are ready, bounce back and start spending. Some will argue bargain hunting will force consumers out of their cave. This holiday season even 75% off didn’t work. Consumers can’t buy the $2 million dollar house for $700,000, if they can’t sell their current house, or they are unemployed.
Can we stretch the dynamics of our capital economy too far where even the strong cannot survive? Worse, will it be the offshore strong who come in and scoop up the deals. That is an issue in good times. Or, has our economy impacted the global economy to level the playing field? Not really for the aggressive.
Can the government or anything bail out Small Business? Consumer stimulus checks didn’t really work. Bailing out wall street didn’t work. Saving GM from GM is a finger in the dyke. Saving small business is tougher – or is it? The government cares about small business. They even have a GM Czar for small business called the SBA. You may have missed their testimony before congress on their bail-out plan to restore this countries largest employer responsible for 62% of our consumer spending. I am not sure if it was before or after the GM, Roger Clemons, or the Freddie Mac/Fanny Mae hearings. You missed it because it didn’t happen. The executive team representing small business did not have to fly in on private jets – they live inside the beltway.
Bailing out Small Business. As presented in PART II, I believe we have a simple solution for small business and one that works within a revitalized and technology proficient SBA. Unfortunately, it follows the scenario that an ounce of prevention is worth a pound of cure. If implemented at traditional speed of government, and after the damage impacted by the 2008 financial tsunami, the damage and aftershock will already be done making recovery long and painful - if even possible. It will be another New Orleans. However, it could be more than a bailout. It could be a stimuls to revitalize America. It could not only SAVE, but refocus, reenergize and put the locals back to work in their community.
Larry White
www.elink.to/1ltLarryWhite
Small Business America is the countries largest employer and also the largest contributor to government revenues (i.e. taxes on profits, matching contribution to SSN, unemployment taxes.)
Premise. The fourth quarter, peak holiday season 2008 financial tsunami, fueled by our political process, media, energy shortage and real estate/mortgage loan meltdown, will carry over into the 1st quarter 2009 and is so severe that few of our nations small business can survive an unprecedented two quarter consumer spending boycott. Even the good merchants and their suppliers cannot survive 50% drop-offs in revenue or selling merchandise below cost.
We are a nation where our Consumers have the power to NOT spend and even conserve on necessities. Consumers demonstrated they can even hold off driving and impact the supply/demand ratio with gasoline. Consumers are a powerful dynamic in capitalism. Fueled by the media, NOT spending is almost in vogue. For others, it is good old fashion fear. Small business and major corporations react. They jettison employees, scale back production into a self-fueling, self-made depression frenzy similar to a run on the banks. It is a run on consumer spending. If consumers can do it over the biggest spending season – they can really do it in non-peak times.
Consumers are smart. They know their sacrifice has a silver lining. Capitalism will yield to supply and demand and the end result will be bargains galore…from the price of gas, to consumer retail goods, to housing. Waiting is smart and will yield a major dividend.
Or will it? A tsunami is too much of a good thing – gone bad. A perfect storm is too many bad things combined to create a major disaster. Can this happen to capitalism. Can we stretch the traditional limits of the supply/demand model to create a tsunami that undermines the infrastructure of our small business and destroys Americas largest business and largest employer creating downward spiral to where the only jobs – are government jobs. Isn’t that called socialism?
How did we get into this cycle? It was a combination of self-inflicted body blows. The mortgage loan was a major catalyst. The failure to recognize the real problem was not lowered loan standards forced by the government fair housing act that went bad – but accounting practices devaluating real estate assets on the books impacting the net worth of the mortgage holders resulting in a reduction of credit lines, stockholder confidence and net worth leading to insolvency at the primary and all secondary markets. It impacted the asset valuation of the big boys who had real estate as a part of their investment portfolio. (i.e. Lehman Bros and AIG) with required public disclosure.
The Governments tried and true “Greenberg” throttle of tweaking interest rates could no longer regulate the consumer confidence engine – driven primarily by Wall Street. A shaky stock market tanked. Government bi-partisan efforts to bail a couple of majors to restore consumer confidence and avoid a run on financial institutions and the stock market did not work. When the consumer confidence tanks, spending tanks. The first to go, or put on hold, are vehicles, home purchases, recreation and pleasure travel. This forces the shaky big three to declare a state of emergency and soon to follow will be the government subsidized airlines.
Kick yourself in the groin. Add to this scenario the media propensity to hype anything negative to make it a headline and you brainwash the guy who pays the bills – the consumer. It only gets worse when one political party amplifies the problem for their political gain and when in office, claim they inherited the problem from the other bad guy.
Do it right and you turn the consumer confidence snowball into a capital consumer confidence crisis that is the “perfect storm” that now dramatically impacts consumer spending for “everything.” Now the problem is not just big ticket items….it is non-necessities like restaurants, clothing, travel, family vacations, and electronics. Consumer driven items represent 62% of our economy and in a tsunami, it just went away, along with the supporting wholesale and distribution infrastructure. It is beyond stimulus checks from our government. Guess what – Government (state and federal) revenues take a major hit on every front.
Add another dynamic to the 2008/2009 financial tsunami. We are talking about the big “C.” Not cancer, but the equally powerful…CREDIT. Yes, credit funds major corporations, and also consumers who buy houses and cars, TVs and Appliances. Credit was acknowledged as a “problem” for big business, with little mention about its impact on the nations largest employer – small business. Credit drives both the wholesale buy and consumer sell side of small business. From the consumer side, credit cards make up over 70% of all purchases.
Credit is vital to start and sustain a small business. However, even in good times, credit is impossible to get from banks who view small business as a bigger risk, with less security than holding a mortgage. At least they can sell a mortgage to the secondary market, unlike most small business loans. The small business value to a bank is checking and savings accounts, money markets, merchant banking and maybe stock portfolio management. When a business fails – it is a major hassle and business assets worth nothing. When is the last time you saw a business foreclosure sign? Therefore, banks make small business owners personally guarantee and collateralize loans for the full loan amount – or more. Imagine if that were a requirement to buy a house. When collateral devalues in a down stock market, the bank forces the small business owner to add collateral or liquidate assets to cover the loan.
Enter a new 2000 dynamic. It is the emergence of the credit score. First on individuals and now business point scoring is rapidly following the consumer model. Credit scoring is an unregulated black art. It is more than the 1899 historical credit reporting tradition of objective reporting on how bills are paid.
Today’s subjective weighted credit risk point score measures open credit vs. available credit along with other factors, such as who is looking at my credit report, or has turned me down. Miss a monthly payment, and instantaneously, your computerized score and even credit line comes down further impacting your credit score.
The Credit Score is what banks and other credit grantors use to justify offering higher rates to “high-risk” consumers. Gone are subjective factors like years in business or credentials of the owners. With major bank consolidation – loan decisions are made using ONLY the point score. It is efficient, the first step and pass or fail saves needless investigation by bank officers who were tellers a couple of weeks before.
In business, credit grantors use the officers/owners personal credit score if they cannot get adequate scores on the business. My point….play it forward and imagine the aftershock of the 2008/2009 financial tsunami will have on credit reports and the ability to get credit – even if the credit markets were to reopen. This credit reporting age is not your fathers “wonderful life” loan arena. Big Brother will impact…..no it will KILL any recovery for the merchant owners of small business.
Forecast. Small Business has taken a direct hit in the fourth quarter 2008 and it will continue in full force during first quarter 2009. It will get worse because we live in the age of the rich and plenty, where consumers can easily abstain and don’t have to buy anything except bare necessities. It is more than a consumer course correction. A legitimate small business (one that is not a hobby) cannot cover a two quarter consumer boycott and loss in cash flow. Even the good cannot survive. Selling the majority of a retailers merchandise at below cost is not sustainable and without major reporting consequences. Add fuel to the fire, when small business credit lines (like the big boys) are secured with stocks that have been devalued. Slow pay, personal or business and with today’s electronic reporting – good luck getting credit to bail out. It won’t happen!
Laying off Small Business. Our Government is sensitive about laying off the employee work force. We have unemployment compensation and the business pay unemployment insurance to insure they don’t lay anyone off without cause. The more business layoffs - the business owner is accessed a higher unemployment premium to offset the government expense.
What happens when we lay off a small business owner? The owner must pay the Government ALL taxes due. The owner must liquidate all business debts and personal guarantees. If they can’t satisfy all debtors, they must defend in law suits in court, or file bankruptcy and hope the courts decision on asset disposal is equitable. This action will immediately impact (and destroy) the business and business owners (even executives) personal credit reports. This will cause all existing card holders to recall and/or reduce their credit limits to the minimum. Unlike the unemployed, the small business owner has no job, no credit, can’t qualify for anything. They may not be able to get a job if the employer checks credit as a condition of employment. Also – forget about getting insurance or buying a car or house. They check credit. With today’s credit scoring, this condition exists with or without filing bankruptcy! This is free enterprises finest hour. The good news is…the stigma and residual only lasts for seven years. Good luck. You would be better off in federal prison.
How do we get out of this mess? The traditional rule of thumb says… it just has to play itself out. The weak will fail and the strong will survive. The consumer will – when they are ready, bounce back and start spending. Some will argue bargain hunting will force consumers out of their cave. This holiday season even 75% off didn’t work. Consumers can’t buy the $2 million dollar house for $700,000, if they can’t sell their current house, or they are unemployed.
Can we stretch the dynamics of our capital economy too far where even the strong cannot survive? Worse, will it be the offshore strong who come in and scoop up the deals. That is an issue in good times. Or, has our economy impacted the global economy to level the playing field? Not really for the aggressive.
Can the government or anything bail out Small Business? Consumer stimulus checks didn’t really work. Bailing out wall street didn’t work. Saving GM from GM is a finger in the dyke. Saving small business is tougher – or is it? The government cares about small business. They even have a GM Czar for small business called the SBA. You may have missed their testimony before congress on their bail-out plan to restore this countries largest employer responsible for 62% of our consumer spending. I am not sure if it was before or after the GM, Roger Clemons, or the Freddie Mac/Fanny Mae hearings. You missed it because it didn’t happen. The executive team representing small business did not have to fly in on private jets – they live inside the beltway.
Bailing out Small Business. As presented in PART II, I believe we have a simple solution for small business and one that works within a revitalized and technology proficient SBA. Unfortunately, it follows the scenario that an ounce of prevention is worth a pound of cure. If implemented at traditional speed of government, and after the damage impacted by the 2008 financial tsunami, the damage and aftershock will already be done making recovery long and painful - if even possible. It will be another New Orleans. However, it could be more than a bailout. It could be a stimuls to revitalize America. It could not only SAVE, but refocus, reenergize and put the locals back to work in their community.
Larry White
www.elink.to/1ltLarryWhite
Tuesday, January 1, 2008
STABILITY
25 January 2008 (DRAFT)
Sam Holliday
HERE ARE SOME THOUGHTS ON STABILITY. THIS PROJECT IS A LONG WAY FROM BEING READY FOR PUBLICATION. HOWEVER, ANY COMMENTS OR SUGGESTIONS WOULD BE APPRECIATED. SHOULD I CONTINUE THIS PROJECT?
An alternative to the Hegel’s dialectic theory is needed; now that theory influences our behavior even though we are unaware of how it shapes our perceptions or how we are being moved toward Hegel’s utopian vision. A theory of ‘stability through equilibrium’ would be better. The dialectic moves us toward centralization—the “whole” of which Hegel speaks; stability would move us toward decentralization and freedom. The dialectic requires endless self-perpetuating conflict; stability requires self-regulating systems of conflict and cooperation that maintain a stable system through coordinated responses of its parts.
Today political, economic, security, and social issues are argued from extremes positions (thesis and anti-thesis) in searches for a whole solution. The dialectic is widely accepted as the way to make decisions. Most lawyers, politicians, members of media, and professors of the humanities rely on it. Debates, conscious raising, intimidation, bribery, and compromise are tools of the dialectic. In politics the final utopian vision would be world government with the power to enforce “the rule of law” in every corner of this planet.
If more people understood the Hegelian dialectic the odds are that political, economic, security, and social alternatives would be analyzed and compared with the aim of achieving greater freedom. Rather than the aim being a specific outcome, the aims would be a climate of order and satisfaction, which avoids the extremes of both the status quo and chaos. Self-regulating (homeostatic) stable systems involve the interaction of conflict and cooperation in many spheres of human activity: (1) peace - irregular warfare - war, (2) secular - sacred authority, (3) centralization – decentralization governance, (4) indivisible unity - freedom/liberty.
It does no good to debate Hegel’s intentions and motivations, but it is essential that people recognize the outcomes of the Hegelian dialectic in its pursuit of utopian visions. It supports the view that in order to achieve peace people must surrender to absolute rulers. It has allowed demagogues to spin perceptions, and distort reality, in ways to increase their power. It has turned capable, intelligence, people with free will into narrow minded, xenophobic troops for adventures of conquest. It has insured perpetual conflict. It teaches that the only way to spiritual satisfaction is through conflict. It ignores the need for individuals to have an inner compass to guide their behavior.
Many might accept that the way to truth is through thesis, anti-thesis, and synthesis, but this cannot be proven it be better than other ways (scientific methods, sacred authority, and secular authority) to determine truth. No matter how the Hegelian dialectic is defined, or the arguments make to support its validity, it remains an unproven theory that leads to conflict, uniformity of thought, a lack of freedom, and world governance.
With all of the limitations of Hegel’s dialectic theory there is certainly reason to seek an alternative. But what is the theory of ‘stability through equilibrium’ and why is it a better theory?
Stability is an important concept. Yet probably no concept is more misunderstood and misused. The word stability is a code for several old and complex concepts. In Western culture it is the Golden Mean: the pragmatic approach that avoids extremes. In Chinese culture it is Yin-Yang: the equilibrium among opposites. In physics it is a stable state: a condition of continual change within an overall state that is not changed. In systems theory it is homeostatic equilibrium: a system that maintains balance among its parts through continual adjustments. Unfortunately many people think of stability as permanence, or preservation of the status quo.
Equilibrium means self-regulating (homeostasis), i.e. the internal stability of the system is maintained through coordinated responses of its parts to any internal disruptions or input for its external environment. Equilibrium requires responsiveness to reciprocal and endless interactions. Stability is not a sub-set of equilibrium; stability is an outcome, or end, while equilibrium is a means. In human affairs equilibrium involves conflict and cooperation.
Conflict and Cooperation is a dynamic whole with two interacting parts. It includes:
Struggles for dominance: Each actor attempts to satisfy its interests, regardless of the impact on others.
Collaborating: Some actors seek to satisfy the concerns of others.
Compromising: Some actors are willing to give up some interests.
Avoiding: An actor withdraws from or suppresses conflict.
Accommodating: An actor gives priority to the interests of others.
Just as with the Hegelian dialectic, ‘stability through equilibrium’ can be applies to all human affairs. However, here it will be described only for international relations.
War – Irregular Warfare – Peace includes three conditions of international relations all involving conflict and cooperation. Each condition has its unique means, methods, strategy, tactics and techniques. To sever total war, conventional war, insurgent warfare and peace is artificial; at best, such separations are a convenience use to classify relative conditions. The use of force is actually a continuum including no use of force (extreme cooperation) to unlimited use of force (extreme conflict)--from zero intensity to maximum intensity. One part of the continuum stresses no use of force (diplomacy if external to a state, and politics if internal). Diplomacy and politics both use identity, argument, spin, propaganda, manipulation, economic pressure, coalition formation, party loyalty, ideological commitment, "horse trading", bribery, and intimidation. The other part of the continuum stresses the use of force during war and irregular warfare.
War is violence between symmetrical armed forces of states to gain territory or to weakening an opponent’s will to resist. When insurgents gain control of part of a country, establish a rival government, and create armed forces symmetrical to the armed forces of the original government, they are a defacto state, or embryonic state; since the combat includes aspects of both irregular warfare and war, but it is within the territory of one country, it is considered a civil war. Irregular warfare and war often overlap.
Irregular Warfare is protracted asymmetrical violence between insurgents and those in authority for influence over people. It is a condition resulting from a breakdown of peace yet not violence between the armed forces of states. Irregular warfare is often conducted simultaneously with peace or war. Irregular warfare and peace often overlap.
Peace is a condition without violence to affect political change; no one has the will to use violence for political purposes even though the underplaying reasons for potential violence might still exist. Peace is an unstable equilibrium preserved through the dynamics of interactions between conflict and cooperation.
Within a state peace exists when there is an absence of political violence, the outcome of acceptance of the structures and processes of governance. Peace within a state results in stability with order and a climate of satisfaction. The violence that does exist is criminal, not political. Peace within a state depends upon a social contract between states and the people within the territory of those states. In Western Culture a social contract (written or unwritten) between the people and their government is the way the structures and processes of governance are accepted. However, in many non-western societies the same is achieved through custom and tradition.
Among states peace exists when there is an absence of war, i.e. the armed forces of states are not engaged in combat, and disputes between states are resolved through negotiations. However, during peace there can be irregular warfare within some states as non-state actors attempt to weaken or overthrow those in authority.
Conclusion. The theory of ‘stability through equilibrium’ would be better than Hegel’s dialectic theory in the shaping of our perceptions and in determining how to conduct human affairs. Hegel’s theory causes conflict in attempts to achieve a utopian vision in the future. The theory of ‘stability through equilibrium” causes conflict and cooperation in attempts to achieve order and a climate of satisfaction in the present and future.
Copyright © 2008
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Permission is granted to forward this article by e-mail to friends or colleagues on a fair use basis. For reprint permission, contact Armiger Cromwell Center at armigercc@comcast.net
25 January 2008 (DRAFT)
Sam Holliday
HERE ARE SOME THOUGHTS ON STABILITY. THIS PROJECT IS A LONG WAY FROM BEING READY FOR PUBLICATION. HOWEVER, ANY COMMENTS OR SUGGESTIONS WOULD BE APPRECIATED. SHOULD I CONTINUE THIS PROJECT?
An alternative to the Hegel’s dialectic theory is needed; now that theory influences our behavior even though we are unaware of how it shapes our perceptions or how we are being moved toward Hegel’s utopian vision. A theory of ‘stability through equilibrium’ would be better. The dialectic moves us toward centralization—the “whole” of which Hegel speaks; stability would move us toward decentralization and freedom. The dialectic requires endless self-perpetuating conflict; stability requires self-regulating systems of conflict and cooperation that maintain a stable system through coordinated responses of its parts.
Today political, economic, security, and social issues are argued from extremes positions (thesis and anti-thesis) in searches for a whole solution. The dialectic is widely accepted as the way to make decisions. Most lawyers, politicians, members of media, and professors of the humanities rely on it. Debates, conscious raising, intimidation, bribery, and compromise are tools of the dialectic. In politics the final utopian vision would be world government with the power to enforce “the rule of law” in every corner of this planet.
If more people understood the Hegelian dialectic the odds are that political, economic, security, and social alternatives would be analyzed and compared with the aim of achieving greater freedom. Rather than the aim being a specific outcome, the aims would be a climate of order and satisfaction, which avoids the extremes of both the status quo and chaos. Self-regulating (homeostatic) stable systems involve the interaction of conflict and cooperation in many spheres of human activity: (1) peace - irregular warfare - war, (2) secular - sacred authority, (3) centralization – decentralization governance, (4) indivisible unity - freedom/liberty.
It does no good to debate Hegel’s intentions and motivations, but it is essential that people recognize the outcomes of the Hegelian dialectic in its pursuit of utopian visions. It supports the view that in order to achieve peace people must surrender to absolute rulers. It has allowed demagogues to spin perceptions, and distort reality, in ways to increase their power. It has turned capable, intelligence, people with free will into narrow minded, xenophobic troops for adventures of conquest. It has insured perpetual conflict. It teaches that the only way to spiritual satisfaction is through conflict. It ignores the need for individuals to have an inner compass to guide their behavior.
Many might accept that the way to truth is through thesis, anti-thesis, and synthesis, but this cannot be proven it be better than other ways (scientific methods, sacred authority, and secular authority) to determine truth. No matter how the Hegelian dialectic is defined, or the arguments make to support its validity, it remains an unproven theory that leads to conflict, uniformity of thought, a lack of freedom, and world governance.
With all of the limitations of Hegel’s dialectic theory there is certainly reason to seek an alternative. But what is the theory of ‘stability through equilibrium’ and why is it a better theory?
Stability is an important concept. Yet probably no concept is more misunderstood and misused. The word stability is a code for several old and complex concepts. In Western culture it is the Golden Mean: the pragmatic approach that avoids extremes. In Chinese culture it is Yin-Yang: the equilibrium among opposites. In physics it is a stable state: a condition of continual change within an overall state that is not changed. In systems theory it is homeostatic equilibrium: a system that maintains balance among its parts through continual adjustments. Unfortunately many people think of stability as permanence, or preservation of the status quo.
Equilibrium means self-regulating (homeostasis), i.e. the internal stability of the system is maintained through coordinated responses of its parts to any internal disruptions or input for its external environment. Equilibrium requires responsiveness to reciprocal and endless interactions. Stability is not a sub-set of equilibrium; stability is an outcome, or end, while equilibrium is a means. In human affairs equilibrium involves conflict and cooperation.
Conflict and Cooperation is a dynamic whole with two interacting parts. It includes:
Struggles for dominance: Each actor attempts to satisfy its interests, regardless of the impact on others.
Collaborating: Some actors seek to satisfy the concerns of others.
Compromising: Some actors are willing to give up some interests.
Avoiding: An actor withdraws from or suppresses conflict.
Accommodating: An actor gives priority to the interests of others.
Just as with the Hegelian dialectic, ‘stability through equilibrium’ can be applies to all human affairs. However, here it will be described only for international relations.
War – Irregular Warfare – Peace includes three conditions of international relations all involving conflict and cooperation. Each condition has its unique means, methods, strategy, tactics and techniques. To sever total war, conventional war, insurgent warfare and peace is artificial; at best, such separations are a convenience use to classify relative conditions. The use of force is actually a continuum including no use of force (extreme cooperation) to unlimited use of force (extreme conflict)--from zero intensity to maximum intensity. One part of the continuum stresses no use of force (diplomacy if external to a state, and politics if internal). Diplomacy and politics both use identity, argument, spin, propaganda, manipulation, economic pressure, coalition formation, party loyalty, ideological commitment, "horse trading", bribery, and intimidation. The other part of the continuum stresses the use of force during war and irregular warfare.
War is violence between symmetrical armed forces of states to gain territory or to weakening an opponent’s will to resist. When insurgents gain control of part of a country, establish a rival government, and create armed forces symmetrical to the armed forces of the original government, they are a defacto state, or embryonic state; since the combat includes aspects of both irregular warfare and war, but it is within the territory of one country, it is considered a civil war. Irregular warfare and war often overlap.
Irregular Warfare is protracted asymmetrical violence between insurgents and those in authority for influence over people. It is a condition resulting from a breakdown of peace yet not violence between the armed forces of states. Irregular warfare is often conducted simultaneously with peace or war. Irregular warfare and peace often overlap.
Peace is a condition without violence to affect political change; no one has the will to use violence for political purposes even though the underplaying reasons for potential violence might still exist. Peace is an unstable equilibrium preserved through the dynamics of interactions between conflict and cooperation.
Within a state peace exists when there is an absence of political violence, the outcome of acceptance of the structures and processes of governance. Peace within a state results in stability with order and a climate of satisfaction. The violence that does exist is criminal, not political. Peace within a state depends upon a social contract between states and the people within the territory of those states. In Western Culture a social contract (written or unwritten) between the people and their government is the way the structures and processes of governance are accepted. However, in many non-western societies the same is achieved through custom and tradition.
Among states peace exists when there is an absence of war, i.e. the armed forces of states are not engaged in combat, and disputes between states are resolved through negotiations. However, during peace there can be irregular warfare within some states as non-state actors attempt to weaken or overthrow those in authority.
Conclusion. The theory of ‘stability through equilibrium’ would be better than Hegel’s dialectic theory in the shaping of our perceptions and in determining how to conduct human affairs. Hegel’s theory causes conflict in attempts to achieve a utopian vision in the future. The theory of ‘stability through equilibrium” causes conflict and cooperation in attempts to achieve order and a climate of satisfaction in the present and future.
Copyright © 2008
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