Aside from education, the biggest fiscal challenge facing local governments is fixing our transportation infrastructure without increasing pollution. The President has proposed that we switch to hydrogen within ten years. This is nice, but does not solve all the problems of accidents and congestion we currently face. Accidents still kill too many people. Congestion is still too much of a problem. Forcing people to use more public transportation is not the answer, because people will never give up the freedom and convenience offered by owning your own car. An integrated solution provides for systematic traffic control, increased mass transit and individual or rented car ownership.
We currently have the technology to switch to an entirely electric system, with vehicles on major roads and highways drawing power from overhead cables in the same manner that passenger trains and electric buses do. A roof is put over these transmission lines, and grass grown on these roofs. In cities and new developments, roads with this feature are even put under street level. These transmission lines also double as an electric transmission system to houses.
Practical electric cars, with electric motors in the axels, are already under development. Automatic control technology is also improving. Extending a transmission line from a car to an overhead power and control system is only a baby step. Once this step is taken, interstate travel is revolutionized, as vacationers set their cars to their destinations and go, working, watching television or sleeping while the car does the driving.
Funding
A key advantage to this system is that it is either entirely private, or a mix between public and private funding. However it is funded initially, the driver provides a link to a debit or credit account to the system and the trip begins provided funds are available. Rental cars are even used, either for single trips or cross-country excursions, relying on the same premise. Of course, taxicabs as we know them are replaced by this technology.
Workers at employee-owned inter-independent firms get their car loans through their workplaces. Firms even include the stock of the evolving transportation companies in their retiree investment portfolios, so that travel expenses in retirement are covered by stock dividends.
Daily Travel
For daily travel, the system adjusts itself to limit congestion. When road congestion is high, rates for “downtown” trips are raised, while rates to public transportation facilities are lowered. If public transportation is overloaded, rates to drive downtown are decreased. Over the long term, fuel usage, auto production and road construction and maintenance are integrated and fees are set to optimize the system and remove gridlock. Since the system is largely under ground, it does so without tearing up the landscape. The solution to the parking problem is the best part, with empty vehicles returning home to park and coming back at the end of the day. Is this science fiction? Not any more.
Energy Sources
This solution to our transportation problems is an ideal way to increase the use of clean burning natural gas or hydrogen generators to power the electric grid, or even to harness long neglected nuclear power technology. Recent breakthroughs in developing fusion technology also show promise. Physicists are close to generating a sub critical reaction that is used to provide power generation. When this occurs, the system described here is ideal, provided the right industrial partners are brought on board to prevent obstruction. Cars also have reserve batteries, which charge while in the system for use on those streets that have not yet been improved.
Overcoming Resistance
Individual drivers are less likely to resist this system than mere appeals for more public transit, since privately owned vehicles are a component of this system. Another major selling point is that people are able to program their destinations and go, taking their minds off the road. Automobile accidents are a thing of the past, especially drunk driving. This system actually encourages travel, and the production of more comfortable vehicles to travel in - with television and Internet access. This development also lowers the price of airlines and hotels, given the realistic alternative of driving straight through.
Saturday, August 30, 2003
Monday, August 18, 2003
State and Local Goverment Finance
This essay covers two separate strategies to improve state and local finance, one based on the current system of taxes and the other based on the proposal for a Business Income Tax discussed above. Both of these proposals are related to the situation in Virginia. First, though, let us look at the fiscal situation generally.
Reforming Tax Structures
Two recent events in the early 2000s put most states, and their localities, into financial crisis. The first is the 2001 tax cut, which is exacerbated by the 2003 tax cuts. The new "Great Recession" has exacerbated these issues. Any state that ties its income tax structure to the federal structure loses money unless they increase tax rates. The second is the collapse of the Internet bubble. Prior to the collapse, revenues grew with income, which was overstated by the acquisition of paper millions. Most jurisdictions based their future revenue projections on this funny money and cut tax rates accordingly. These rate cuts have not been reversed, as it is easier to cut taxes than to raise them.
The current shortfalls also point to the lack of thought given to the mix of taxes at each level of government. Most state governments collect an income and/or sales tax on a statewide basis and property taxes at the local level, while funding education at the local level and welfare, social services, mental health and corrections at the state level. Roads are paid for at both the state and local levels. Additionally, most states give grants to localities, as they are more efficient tax collectors. Surveys show that the tax that is least resented is the state income tax, although that is certainly not true in all states – some of which have no state income tax at all. Currently, governments with unified budgets collect taxes from many sources and spend it on a variety of programs. There is a better way. Link revenue sources to the social purpose that the public agency is trying to accomplish. There are five kinds of revenue sources: income taxes, sales taxes, property taxes, permit fees and transportation taxes and fees.
Income taxes are redistributional in nature, so link them to the redistributional functions of government. The ultimate form of redistribution is public education, so fund all public education with state income taxes with the state distributing these funds to localities based on the needs of each jurisdiction. Money for schools is allocated based on student population and inversely related to student family income (disadvantaged areas get more money). State and local income taxes also support welfare programs, as well as mental health and family services. Property taxes are no longer used for education, as poor districts have little to draw on to fund education where it’s needed most. States which tie their income taxes to the federal system need to introduce an automatic rate increase or decrease in each bracket to compensate for changes in the federal tax code, so that federal tax cuts do not provoke a fiscal crisis in state government and tax increase do not doubly penalize state taxpayers.
Property taxes are the ideal way to fund and protect infrastructure, so they fund local streets, housing inspection and a portion of public safety. Fees collected for home building inspection, titles, etc. also support these activities. Debt service is also tied to this tax. A jurisdiction uses capital budgeting to redevelop blighted areas, with future tax collections paying off these investments. A portion of gasoline taxes also goes for local streets. Property taxes are administered at the lowest possible level, possibly even the neighborhood. Organizations like the Advisory Neighborhood Commissions in Washington, DC are given decision authority on street funding and service deployment, starting the evolution to a more direct form of democracy and service, shrinking the reach of government.
In metropolitan areas, there are often several jurisdictions responsible for the highway and mass-transit system. Washington, DC is a classic example, with a Federal District, two states, and multiple counties responsible for bus, highway, subway and commuter train systems. Competition within the system, such as price competition to minimize gas taxes, often causes other the whole system to break down with inefficient bus routes, gridlock, and deteriorating roads. For both single and multiple jurisdictions, regional authorities to pursue a common building and funding strategy for both major roads and public transportation are desirable. These authorities set gasoline taxes for the entire region, share the resulting revenue, recommend property tax rates for roads, set rail and bus fares and establish routes, establish toll roads and develop highways and rail lines. When congestion occurs on one part of the system, or to fight high levels of pollution, tolls or gasoline taxes are be increased or decreased or alternate service provided. Inefficient bus routes, which are a hold over from before light rail's reemergence, are rerouted to support the rail lines rather than compete with them. Such authorities also issue debt instruments tied to future revenue to upgrade the system.
Sales taxes fund commercial regulation, inspection, business services and public health, as well as the portion of public safety serving business interests. These funds are also distributed to jurisdictions that have greater infrastructure and public safety needs than their property tax base can meet. Sales taxes are especially useful to fund a more service oriented regulatory structure. Ombudsmen are assigned to each business or institution to coordinate all other government contact, a regulatory “cop on the beat” to handle all taxes, inspection and compliance activities at all levels of government, from the federal level to the local level. If a business needs a permit that involves coordination by more than two agencies, the Regulatory Specialist creates an electronic consolidated questionnaire that automatically files all paperwork.
Virginia’s Revenue Crisis
This menu of reforms is especially needed in the Commonwealth of Virginia, which is experiencing serious financial difficulty due to the end of the car tax and to population growth in Northern Virginia. Linking spending to revenue functions helps determine whether income taxes are adequate to fund such items as education, corrections and social services. If they are not, the obvious answer to is to raise the tax rate, which is lower than in nearby areas. Likewise, if gasoline and property taxes are inadequate to fund needed improvements, these are increased. The establishment of toll roads, especially on interstate routes between Washington and Virginia Beach also merit careful consideration. Nothing causes air pollution like idling traffic. Much of this traffic is from out-of-state travelers, so toll roads are most appropriate.
A key question raised in the 2002 tax referendum debates was whether to allow Northern Virginia to levy a higher rate for education and transportation. Central and southwest Virginia leaders stated that such a levy magnifies differences between the northern counties and the rest of the state. Whether these fears are justified or not, they must be taken into account, as well as the higher revenue needs of Northern Virginia. Most of these needs reflect the costs that go with being located in the Washington metropolitan area. Therefore, the only justification for higher income or gas tax rates is to fund regional education, social welfare, mental health, corrections or transportation partnerships, or as an offset to a much feared non-resident income tax in the District. I suspect that, given the record of mismanagement in the District government, most Northern Virginians favor the establishment of regional authorities to such a tax.
Business Income Taxes
If the federal government restructures its tax system as outlined above, and even if it does not, consider the abolition of the income tax and the sales tax and their replacement with a business income/value added tax along the lines discussed for the federal government. Such a tax includes the same credits and deductions as suggested on the federal level. Local jurisdictions with higher costs of living mandate high enough dependent tax credits so that the combination of the federal and state credits provides an adequate income. Some states where the cost of living is lower provide a lower credit, while high cost areas award a higher credit. Credits might even be set on a county-by-county basis to reflect the cost of living.
Additional deductions are established for social service contributions are also be adopted, allowing vast portions of state and local government to be replaced by faith-based organizations, includin education, mental health care, aid to needy families, workforce development and corrections.
Tax rates are set high enough to provide incentive to use these credits. If these are used the actual amount of taxes collected is very low indeed. As businesses shift to employee-ownership, which is discussed below, the need for regulation by the state will lessen. Employee-owned firms are more likely to provide safe products and workplaces (since the employees know their futures are directly on the line). As most regulation is handled by business and professional standard setting bodies, the role of government in this area diminishes.
Non-profit entities and governmental organizations also pay this tax, or an automatic contribution equivalent to the tax. Tax rates for organizations that do not rely on commercial sales are lower, although those organizations that do sell products pay an equal levy because they use the same level of government service in supporting commercial regulation. Governmental organizations make a contribution based on their total payroll, rather than their total budget, much the same way they collect state and local income taxes for their employees.
The key to understanding this tax proposal is to recall that employers collect most income taxes already. Shifting to a value added tax approach continues this, while shifting what is now a shared reporting liability by the employee and the employer totally to the employer. Such a proposal also allows most individuals to end reporting miscellaneous income from savings and investment (which are mostly taxed as part of the Business Income Tax anyway.).
In Virginia, if federal structural reform occurs first, no change is required to the Virginia Constitution to adopt this tax reform (in fact, in the event of a federal change, a constitutional amendment is required to maintain the status quo). If Virginia wishes to take the lead in tax reform, however, a constitutional amendment is necessary. Constitutional reform is also required to introduce a tax credit for faith-based schools and social services. This is needed to overturn the Blaine Amendment banning public support for religious schools. While a tax credit is not the same as direct public support, it is safer to pass an amendment, if only because some anti-Catholic bigot in civil libertarian’s clothing is likely to challenge the provision in court.
Reforming Tax Structures
Two recent events in the early 2000s put most states, and their localities, into financial crisis. The first is the 2001 tax cut, which is exacerbated by the 2003 tax cuts. The new "Great Recession" has exacerbated these issues. Any state that ties its income tax structure to the federal structure loses money unless they increase tax rates. The second is the collapse of the Internet bubble. Prior to the collapse, revenues grew with income, which was overstated by the acquisition of paper millions. Most jurisdictions based their future revenue projections on this funny money and cut tax rates accordingly. These rate cuts have not been reversed, as it is easier to cut taxes than to raise them.
The current shortfalls also point to the lack of thought given to the mix of taxes at each level of government. Most state governments collect an income and/or sales tax on a statewide basis and property taxes at the local level, while funding education at the local level and welfare, social services, mental health and corrections at the state level. Roads are paid for at both the state and local levels. Additionally, most states give grants to localities, as they are more efficient tax collectors. Surveys show that the tax that is least resented is the state income tax, although that is certainly not true in all states – some of which have no state income tax at all. Currently, governments with unified budgets collect taxes from many sources and spend it on a variety of programs. There is a better way. Link revenue sources to the social purpose that the public agency is trying to accomplish. There are five kinds of revenue sources: income taxes, sales taxes, property taxes, permit fees and transportation taxes and fees.
Income taxes are redistributional in nature, so link them to the redistributional functions of government. The ultimate form of redistribution is public education, so fund all public education with state income taxes with the state distributing these funds to localities based on the needs of each jurisdiction. Money for schools is allocated based on student population and inversely related to student family income (disadvantaged areas get more money). State and local income taxes also support welfare programs, as well as mental health and family services. Property taxes are no longer used for education, as poor districts have little to draw on to fund education where it’s needed most. States which tie their income taxes to the federal system need to introduce an automatic rate increase or decrease in each bracket to compensate for changes in the federal tax code, so that federal tax cuts do not provoke a fiscal crisis in state government and tax increase do not doubly penalize state taxpayers.
Property taxes are the ideal way to fund and protect infrastructure, so they fund local streets, housing inspection and a portion of public safety. Fees collected for home building inspection, titles, etc. also support these activities. Debt service is also tied to this tax. A jurisdiction uses capital budgeting to redevelop blighted areas, with future tax collections paying off these investments. A portion of gasoline taxes also goes for local streets. Property taxes are administered at the lowest possible level, possibly even the neighborhood. Organizations like the Advisory Neighborhood Commissions in Washington, DC are given decision authority on street funding and service deployment, starting the evolution to a more direct form of democracy and service, shrinking the reach of government.
In metropolitan areas, there are often several jurisdictions responsible for the highway and mass-transit system. Washington, DC is a classic example, with a Federal District, two states, and multiple counties responsible for bus, highway, subway and commuter train systems. Competition within the system, such as price competition to minimize gas taxes, often causes other the whole system to break down with inefficient bus routes, gridlock, and deteriorating roads. For both single and multiple jurisdictions, regional authorities to pursue a common building and funding strategy for both major roads and public transportation are desirable. These authorities set gasoline taxes for the entire region, share the resulting revenue, recommend property tax rates for roads, set rail and bus fares and establish routes, establish toll roads and develop highways and rail lines. When congestion occurs on one part of the system, or to fight high levels of pollution, tolls or gasoline taxes are be increased or decreased or alternate service provided. Inefficient bus routes, which are a hold over from before light rail's reemergence, are rerouted to support the rail lines rather than compete with them. Such authorities also issue debt instruments tied to future revenue to upgrade the system.
Sales taxes fund commercial regulation, inspection, business services and public health, as well as the portion of public safety serving business interests. These funds are also distributed to jurisdictions that have greater infrastructure and public safety needs than their property tax base can meet. Sales taxes are especially useful to fund a more service oriented regulatory structure. Ombudsmen are assigned to each business or institution to coordinate all other government contact, a regulatory “cop on the beat” to handle all taxes, inspection and compliance activities at all levels of government, from the federal level to the local level. If a business needs a permit that involves coordination by more than two agencies, the Regulatory Specialist creates an electronic consolidated questionnaire that automatically files all paperwork.
Virginia’s Revenue Crisis
This menu of reforms is especially needed in the Commonwealth of Virginia, which is experiencing serious financial difficulty due to the end of the car tax and to population growth in Northern Virginia. Linking spending to revenue functions helps determine whether income taxes are adequate to fund such items as education, corrections and social services. If they are not, the obvious answer to is to raise the tax rate, which is lower than in nearby areas. Likewise, if gasoline and property taxes are inadequate to fund needed improvements, these are increased. The establishment of toll roads, especially on interstate routes between Washington and Virginia Beach also merit careful consideration. Nothing causes air pollution like idling traffic. Much of this traffic is from out-of-state travelers, so toll roads are most appropriate.
A key question raised in the 2002 tax referendum debates was whether to allow Northern Virginia to levy a higher rate for education and transportation. Central and southwest Virginia leaders stated that such a levy magnifies differences between the northern counties and the rest of the state. Whether these fears are justified or not, they must be taken into account, as well as the higher revenue needs of Northern Virginia. Most of these needs reflect the costs that go with being located in the Washington metropolitan area. Therefore, the only justification for higher income or gas tax rates is to fund regional education, social welfare, mental health, corrections or transportation partnerships, or as an offset to a much feared non-resident income tax in the District. I suspect that, given the record of mismanagement in the District government, most Northern Virginians favor the establishment of regional authorities to such a tax.
Business Income Taxes
If the federal government restructures its tax system as outlined above, and even if it does not, consider the abolition of the income tax and the sales tax and their replacement with a business income/value added tax along the lines discussed for the federal government. Such a tax includes the same credits and deductions as suggested on the federal level. Local jurisdictions with higher costs of living mandate high enough dependent tax credits so that the combination of the federal and state credits provides an adequate income. Some states where the cost of living is lower provide a lower credit, while high cost areas award a higher credit. Credits might even be set on a county-by-county basis to reflect the cost of living.
Additional deductions are established for social service contributions are also be adopted, allowing vast portions of state and local government to be replaced by faith-based organizations, includin education, mental health care, aid to needy families, workforce development and corrections.
Tax rates are set high enough to provide incentive to use these credits. If these are used the actual amount of taxes collected is very low indeed. As businesses shift to employee-ownership, which is discussed below, the need for regulation by the state will lessen. Employee-owned firms are more likely to provide safe products and workplaces (since the employees know their futures are directly on the line). As most regulation is handled by business and professional standard setting bodies, the role of government in this area diminishes.
Non-profit entities and governmental organizations also pay this tax, or an automatic contribution equivalent to the tax. Tax rates for organizations that do not rely on commercial sales are lower, although those organizations that do sell products pay an equal levy because they use the same level of government service in supporting commercial regulation. Governmental organizations make a contribution based on their total payroll, rather than their total budget, much the same way they collect state and local income taxes for their employees.
The key to understanding this tax proposal is to recall that employers collect most income taxes already. Shifting to a value added tax approach continues this, while shifting what is now a shared reporting liability by the employee and the employer totally to the employer. Such a proposal also allows most individuals to end reporting miscellaneous income from savings and investment (which are mostly taxed as part of the Business Income Tax anyway.).
In Virginia, if federal structural reform occurs first, no change is required to the Virginia Constitution to adopt this tax reform (in fact, in the event of a federal change, a constitutional amendment is required to maintain the status quo). If Virginia wishes to take the lead in tax reform, however, a constitutional amendment is necessary. Constitutional reform is also required to introduce a tax credit for faith-based schools and social services. This is needed to overturn the Blaine Amendment banning public support for religious schools. While a tax credit is not the same as direct public support, it is safer to pass an amendment, if only because some anti-Catholic bigot in civil libertarian’s clothing is likely to challenge the provision in court.
Monday, August 11, 2003
Coopertative Trade
Union-owned multi-national corporations are an invaluable tool for modernizing the rest of the world. They have every incentive to do so. The extent to which foreign workers, especially workers in the same conglomerate, are under-paid, that is the extent to which American workers are at risk. When American workers adopt union-ownership, it is in their interest to extend the same system to each of their overseas factories. Likewise, when overseas worker learn of the good fortune of their fellows, they demand equal treatment.
Doing so dramatically alters the economies of the nations where union-owned firms have facilities. These facilities are quickly seen as the best place to work, so that American union-owned multi-nationals have the pick of the best workers and the best students. Firms establish universities in these nations or send their employees to the United States for school. Such firms also look to workers in the lower classes to find geniuses who have been ignored because of their color or class. As workers become owners and pay is increased, living standards rise and a middle class is formed. As living standards rise and elites have less economic influence, these nations become freer and more stable. Political reform sweeps the planet.
Trade, Currency Exchange and Conversion
As economies continue to integrate currency exchange rates become less exploitive of the third world, which in turn preserves the jobs of many American workers. Union-owned multi-nationals need to develop a better means of currency conversion for transfer pricing and trade. These methods rely on developing a common market basket of goods relevant to the needs of all of their workers. This market basket is then priced in both currencies, comparing the cost difference with the exchange rate difference. To be true to all of its employee-owners, it makes internal pricing decisions based on the single market basket, while capitalizing on these differences for other economic decisions.
Comparing the various market baskets cost differentials and the price differentials is also the measure of how much one economy exploits another. An examination of the effect of tariffs and subsidies is part of this analysis. Knowledge of these disparities is useful ammunition in defeating or modifying exploitive trade agreements, such as the North American Free Trade Agreement (NAFTA), as well as subsidies and tariffs. Publishing this information widely also has an effect, as the information itself affects the performance of trade and currency markets.
Using this information in these ways is as close as the world comes to the adoption of a single currency, although wide publication of this information is a first step in that direction. As tariffs and subsidies lessen and third world economies develop currency rates stabilize. When this happens, agreements on money supply growth targets are made between national reserve banks, controlling inflation and further stabilizing both prices and currencies, facilitating long-term growth and prosperity on a more global scale. These actions diminish the need for such institutions as the World Bank and the International Monetary Fund and their failed fiscally conservative policies. In fact, the spread of Cooperativism leads to a wide adoption of tax and social insurance policies suggested in this volume. Such policies are the antidote for the failed policies of the World Bank/IMF.
These metrics are also useful to accurately measure the health of developing economies and ease the transition to a free market system in the formerly Communist world.
Doing so dramatically alters the economies of the nations where union-owned firms have facilities. These facilities are quickly seen as the best place to work, so that American union-owned multi-nationals have the pick of the best workers and the best students. Firms establish universities in these nations or send their employees to the United States for school. Such firms also look to workers in the lower classes to find geniuses who have been ignored because of their color or class. As workers become owners and pay is increased, living standards rise and a middle class is formed. As living standards rise and elites have less economic influence, these nations become freer and more stable. Political reform sweeps the planet.
Trade, Currency Exchange and Conversion
As economies continue to integrate currency exchange rates become less exploitive of the third world, which in turn preserves the jobs of many American workers. Union-owned multi-nationals need to develop a better means of currency conversion for transfer pricing and trade. These methods rely on developing a common market basket of goods relevant to the needs of all of their workers. This market basket is then priced in both currencies, comparing the cost difference with the exchange rate difference. To be true to all of its employee-owners, it makes internal pricing decisions based on the single market basket, while capitalizing on these differences for other economic decisions.
Comparing the various market baskets cost differentials and the price differentials is also the measure of how much one economy exploits another. An examination of the effect of tariffs and subsidies is part of this analysis. Knowledge of these disparities is useful ammunition in defeating or modifying exploitive trade agreements, such as the North American Free Trade Agreement (NAFTA), as well as subsidies and tariffs. Publishing this information widely also has an effect, as the information itself affects the performance of trade and currency markets.
Using this information in these ways is as close as the world comes to the adoption of a single currency, although wide publication of this information is a first step in that direction. As tariffs and subsidies lessen and third world economies develop currency rates stabilize. When this happens, agreements on money supply growth targets are made between national reserve banks, controlling inflation and further stabilizing both prices and currencies, facilitating long-term growth and prosperity on a more global scale. These actions diminish the need for such institutions as the World Bank and the International Monetary Fund and their failed fiscally conservative policies. In fact, the spread of Cooperativism leads to a wide adoption of tax and social insurance policies suggested in this volume. Such policies are the antidote for the failed policies of the World Bank/IMF.
These metrics are also useful to accurately measure the health of developing economies and ease the transition to a free market system in the formerly Communist world.
Sunday, August 10, 2003
Aerospace Firm Management: Mature and Startup
Two types of firms apply here, consortia of existing firms and start-up firms. Consortia of established firms find suggestions here on how to adapt their operations for life in the new century. Start-ups find suggestions on how to use the principles set out in this volume to create new capital, both human and physical.
Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.
Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.
Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.
New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.
21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.
Employee-ownership
Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.
Total Quality Management
Quality is important in the development of aerospace equipment, since the effect of defects is catastrophic. It is not enough to have a TQM program, it must be central to the culture. For both established and start-up firms, responsibility is assigned to the lowest possible level. Of course, everyone who knows anything about TQM already knows this. What they don’t know is that pay and bonus structures have to mirror this change of responsibility. In traditional capitalist firms, responsibility was assigned to the highest level and delegated down, with pay structures reflecting the assignment of responsibility. TQM and Baldridge are looked at as merely management fads in most organizations because the failure to change compensation systems has signaled employees that management is not really serious about the program. When decision systems are flattened while compensation systems remain hierarchical, employees take the implicit hint that their efforts are not as valued as those are within the hierarchy, and ignore the system accordingly. In employee-owned aerospace firms, if responsibility is assigned more evenly in a TQM culture, pay mirrors that assignment or the TQM program is doomed, as are the people who depend upon the hardware and software developed by that culture.
Recruitment and Compensation
Recruiting the best possible people is essential in succeeding in this high stakes business. The suggestions offered in the essay on the 21st Century Career apply to both established firms and start-up firms, albeit in different ways.
Established firms have the financial wherewithal to attract the best employees by paying them bonuses for education already earned or by paying tuition, salary and living expenses for the best students in the country, thereby gaining competitive advantage. The downside is that they already have an established culture, so an education and pay audit is completed on every single employee to determine the extent their salaries have compensated them as well as they would have been compensated if they had been brought in under the new rules. Management then takes the difficult step of lowering the salaries of employees whose pay to date has been adequate compensation (which is better than the current practice of laying off senior workers and replacing them with two younger workers for the same price). Failure to do so results in two different pay systems, one for long term employees and one for new employees, leading to demands by the newer employees for higher salaries with time. For employees who have been under-compensated, cash bonuses and stock grants are awarded to make these employees whole. This benefit is also used to attract new, mid-level employees who have been under-compensated in prior jobs or who have outstanding educational debt. Firms purchase and pay off that debt and award stock to reflect the cost of going without while going to school.
New firms have a different problem and different opportunities. Unlike older firms, they have no existing culture that needs to be dealt with. However, they also are without existing funds in order to pay students to pursue their educations or the lines of credit to underwrite student debt. In order to compensate for this, venture capital is required for payment of student tuition and salaries as well as employee salaries. The extent to which venture capital funds, rather than revenue pay for these human assets is the extent to which venture capitalists own the product of their labor – a situation that employee-ownership was designed to overcome. If venture capital is used, agreements are made up front on the extent to which venture capitalists receive profit. As revenue is earned, there is a transition period during which the percentage awarded to workers gradually increases until it matches their costs relative to the total cost of the operation, leaving the venture capitalists with the profit for physical capital only. Why would a venture capitalist accede to such circumstances? Self-interest is the reason, as even with a mandated profit-sharing program, firms following this business model have the best employees and produce the best innovations, producing more profit than any competitor, as not only planned, but also unplanned innovations result.
21st Century Housing
Of all the industries on the planet, employee-owned aerospace is the most likely to offer long-term contracts to employees which contain home mortgage financing provisions for the purchase of an environmentally-efficient domicile. Any firm with designs on space colonization, whether it is a pre-existing consortium or a startup, should strongly consider offering whatever environmental system is built for space to their earth-bound employees. It goes without saying that employees who actually live and work in space or on lunar or Martian colonies also have this feature as part of their employment contracts. Newer firms are possibly in a better position to do this, since their usually younger employees do not already own homes. Existing firms also offer this benefit to those employees who wish to sell their existing home and sink these funds into a 21st Century Home with a smaller mortgage.
Employee-ownership
Companies are urged to adopt employee ownership structures along the lines described above, using either Employee Stock Ownership Programs (ESOPs) or cooperative forms of organization. Newer firms, which are in the process of creating wealth through sweat equity use stock grants in lieu of pay for both performance, innovation and to compensate for existing education with stock rather than payroll. ESOP plans are not necessary unless the firm uses venture capital financing, in which case using an ESOP is just the ticket to buy out the venture capitalist. Whatever the structure, employees must have their say, either as individuals or through their labor or professional organization, in the operations of the firm. While all employees are heard, using share ownership as a voting method gives more experienced employees a greater voice. This is wise, since lives are in the balance when some decisions are made. Employees who come to the firm from another firm convert their retirement equity to equity in the new firm, giving them a voice commensurate with their experience while putting them at stake. Providing greater control and ownership to older employees allows for the creation of a flatter wage structure. This also has the effect of decreasing expenses while rewarding loyalty. A caution is in order, however. While older employees gain greater shares each period as dividends are reinvested, basic share awards are equal. Nothing destroys motivation among junior employees like combining unequal ownership and unequal acquisition. Awarding the same number of basic shares prevents this perception, improving morale all around.
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