the Verdi FAQ

Reprinted from an interview published in the Tradewinds December 27, 1995

TRADEWINDS. Although you have promoted personal web pages for many Youkalites, you have never written one of your own. Why the sudden change of heart?

VERDI. I have resisted the urge to shoot off my mouth, err, contribute to the knowledge base of personal home pages on the web, because I felt that there were already plenty of opinions being voiced on the web on Youkali’s pages as well as in the outside web-world. However, the upcoming election season in the States, combined with the increasing polarization and abuse of the political process there, annoyed me to the point that I felt a need to speak out. I certainly hope that these opinions are inflammatory…that is, to people who disagree with me…isn’t that the whole point of the net, to encourage free speech and discussion…By the way, it is essential to note that the views expressed in this interview are mine only, and don’t represent the official policy of Youkali island; nor do they necessarily reflect the opinion of any other Youkalite.   In fact, I’m sure a number of them would disagree strongly with what I have to say…

T. What is the most important issue that the world’s leaders must face today?

V. The United States as well as the developed and developing world are experiencing increasing polarization in terms of wealth and income. In this post-cold war era, the new global conflict centers not on ICBMs, nor on an economic ideology such as communism, but rather on the disparity of wealth between the developed Northern nations and the developing Southern nations (to make a broad geographical oversimplification), and, within the developed nations such as the States, the disparity between the wealthy and the poor.

This wealth disparity is increasing, and analogous to the tensions that build along an earthquake fault, the unseen tension rises within the disadvantaged peoples of the world both in America and abroad. Ultimately, one either finds ways to relieve the tension, or a sudden disruption will occur: in the case of the fault line, an earthquake; in the case of the wealth disparity, widespread rebellion and global terrorism. This is not a condemnation of any person or group, either rich or poor;  it is simply a logical consequence of continuing current policies.

The current epidemic of global terrorism is merely the beginning, if the leaders of the developed world do not wake up to the fact that they do not rule solely by having the biggest cache of nuclear arms or the largest collection of capital and economic might. Think back to the bombing of the World Trade Center in New York City several years ago. While that was a horrible tragedy, it would have been incalculably worse if it had been even a tiny thermonuclear weapon by today’s standards. Certainly that would have been in the realm of possibility both logistically and economically for the agents of any developing country or political faction. In fact, it requires not even the existence of such a bomb, but just the credible threat of such a bomb, to bring a great nation like the United States to its knees. THAT is the future of global disputes….global terrorism on an unprecedented scale.

That is, unless the leaders of the developing and developed world learn to work together on formulating strategies that provide for mutually beneficial growth until ultimately there is wealth and prosperity for ALL. The key factor we have, the reason why this is not the utopian thinking of perhaps a century ago, is that modern technology has increased human productivity to the point where this is likely an achievable goal. That is if, and this is the big IF, if the developed world can come to grips with the idea that all people of the world are brothers and sisters…and that they can abandon some of the inflammatory xenophobic, racist, nationalistic rhetoric that seems to fill more and more of the airwaves today.

T. What are the dimensions of this “wealth” disparity?

V. Wealth is comprised of more than just a quantity of resources or foreign exchange: it also consists of the aggregate of technical knowledge and skills embodied in the workers of a nation. This is why the universities, public and private educational systems, trade schools, and so on, are the most important institutional resources that any nation can have. Particularly in this era of remarkable technological progress and extraordinarily high agricultural and industrial productivity, the need for unskilled workers is steadily decreasing, while there continues to be a shortage of workers with specialized technical skills, particularly in the computer and health care fields (more about that later). Clearly, nations with highly skilled workforces will excel in productivity in today’s world. In addition, nations which can take steps to ease the educational disparities between their citizens stand the best chance of peaceful economic and political co-existence within their borders.

Unfortunately, the trend in America as well as in other nations has been to shift attention away from education funding to focus either on direct or indirect subsidies to business, or onto cutting expenditures in the quest of a balanced budget. It is also important to realize that education of workers does not occur in a vacuum; it makes no sense to fund a community college program that seeks to improve the job skills of single parents without a provision for child care during school times. Thus, a comprehensive worker-friendly policy of life-long education is the only reasonable course for a modern nation to take. This plan must include provisions for child care and reasonable financial assistance to assure that socioeconomic status does not raise a barrier to advanced education.

Indeed, the greatest cost of obtaining postgraduate education is often foregoing the income that would have been earned from full time work during the long arduous years of graduate or professional school. Because American policies do little or nothing to encourage students in their pursuit of graduate degrees, it should come as no surprise that the ranks of graduate schools in engineering and technology in America are filled with citizens of other countries.

While this “brain drain” has a positive effect on reducing the American domination of certain technical fields, it has also led to calls for cutbacks in funding of education in America on the grounds that America should not educate the rest of the world: this brain drain would supposedly decrease American global economic competitiveness! This is definitely akin to throwing away the baby with the bathwater. The objective should be to improve the quality of human existence worldwide…and this can only occur by INCREASING the amount of education by the citizens of all nations, not decreasing it or limiting it by narrow-minded xenophobic policies.

On Youkali island, education is the single highest priority of the government. Literacy here is essentially 100%. We _have_ to achieve this degree of literacy because most of our economic output is now devoted to either highly automated agriculture, like that of Yuban’s coffee plantation, or to the provision of high-tech data processing and information transfer services to the rest of the world. There are actually more computers than people on Youkali island, in contrast to our pre-high-tech days, when sheep outnumbered people.

While estimates vary as to the ability of the world to support the population in a reasonable manner in terms of basic human needs, it is clear that social policies that are humanistically oriented, such as the examples I have given in terms of education policy, are the only way in which we have a chance of achieving a peaceful long-term co-existence as the developing world progresses. The rational approach is a combination of short-term solutions such as direct aid, combined with long-term infrastructure and human capital investments such as education, in order for developing nations to achieve self-sufficiency and parity with their wealthier neighbors.

T. Youkali island seems to have escaped the world-wide debates about health care financing. Despite very low expenditures, Youkali is the envy of much of the developed world in terms of longevity, infant mortality, overall quality of life, as well as low monetary expenditures. How do you manage Youkali’s health care services?

V. When we re-organized Youkali’s health care delivery system, we looked to the states, where we thought we saw the most technologically advanced medicine. However, an objective examination of the fiscal side of American medicine revealed a system fraught with inefficiency and unbelievably high transaction costs. After an in-depth analysis, we targeted three major areas of inefficiency:

1) The basic entrepreneurial nature of American medicine. Each individual practitioner set up practice as an independent business, despite the total lack of business training, talent, or interest on the part of the doctor;

2) The tying of health services to employment, which guaranteed that there would be a number of unemployed individuals including children and the elderly that would not be able to participate in the mainstream of the health care system; and

3) The widespread practice of “cherry-picking”, in which the for-profit insurance companies would choose which persons they wished to insure based on the low likelihood of their filing a claim, while excluding those who were sick or likely to become sick. We observed the most outstanding abuses: for example, an entire hairdresser shop was denied health insurance on the basis that male employees of the shop were presumed to be gay and therefore at risk of developing AIDS! This was an obvious abuse of the incredible discretionary power of the insurance companies. But even when the system did not make such irrational inferences, people who were most likely to become ill were least likely to be covered by insurance and therefore fell into the auspices of an underfunded and overworked public health care system, while stockholders of the for-profit insurance companies enjoyed unprecedented returns on investment.

Now, as you know, Youkali values personal (including business) freedom above almost all else. However, we could not abide by the rapacious and malignant behavior of for-profit insurance companies as demonstrated by their performance in the states. We looked to the example of the American state Hawaii, which instituted a simple policy of community rating as the law of the land. This prevented the insurance companies from discriminating against potential policyholders based on their health or demographic histories.

The for-profit insurance companies fled the state for greener pastures, and today Hawaii enjoys excellent health at low cost provided by two non-profit entities, Blue Cross and Kaiser. Because there are two, there is competition on the basis of price and quality; because they are non-profit, no precious health care dollars are sucked off into the pockets of stockholders.

We adopted a similar policy. Today health care is provided in an analogous fashion by a staff model HMO similar to Kaiser, as well as private care paid through a non-profit insurance company. The government picks up the tab for those unable to pay, which turns out to be a very small number of people due in part to the fact that the transaction and administrative costs of this system are minimal.

Youkalites also realize that the health of their neighbor is very closely related to their own health; that is why many communicable diseases simply don’t exist here, because health care is available to all. We attribute our low perinatal mortality and high longevity to the promotion of health through universal, accessible preventive health care. It truly seems like a utopia, and it is hard to believe that in the much wealthier nation, the United States, that similar results cannot be achieved.

Why did such a simple reform not take place in the states last year? Well, the way it looks from Youkali island, it is because private lobbying groups took over the entire process, which also took place behind closed doors so that the American people could not see that ugly machinery at work. The obvious work of the American Medical Association, the American Hospital Association, and the insurance company lobbyists was to derail and dismantle all attempts to change the status quo, and that is exactly what happened.

It’s amazing to Youkalites that Americans allow their votes to be stolen away by the influence of lobbyists. We teach our school children that America is based on the ideal of one person, one vote, and deal in detail with the intricacies of the “great compromise” that resulted in their magnificent Congress. Yet despite all the effort spent on ensuring fairness to both states and persons, it seems that no mandate of the voters can be enacted unless the lobbyists concur! Clearly there is a need for campaign reform, and that should not be limited to campaign financing. But I digress. Sorry.

By the way, there is one other observation that I must make with respect to American health services funding. The trend in the interaction between health services providers and insurance companies is moving toward a policy of capitation. Now, I need to quickly point out that the essential function of insurance is to DISTRIBUTE RISK. In return for assuming that risk, the insurance company is entitled to charge a fee commensurate with that risk in order to pay for the real cost of taking on the risk.

In a capitation system, however, the insurance company, which is paid by policyholders on a capitated basis, merely transfers that money, minus a substantial administrative fee, to the medical group or doctor, which then must provide all the health care for that person with the capitated amount (less the insurance company’s cut). Now we would see two major violations in ethical behavior that would prohibit this arrangement under Youkali’s professions and businesses code. First, the doctor has a direct conflict of interest with the patient; essentially, provision of medical care services comes directly out of his or her pocket, which puts the interests of the doctor 180 degrees against that of the patient. Secondly, the insurance company commits fraud, because it does not in fact provide insurance; it merely acts as an administrative agency.

We find this phenomenon appalling. It is hard to believe that such an economically and technologically advanced nation as the United States could abide by such a blatantly unethical professional policy in what should be the most ethical profession, medicine. It is a little known fact that the Youkali government has needed to ferry several ill Youkalites by Lear Jet air ambulance from the states to Youkali General because we were concerned about the quality of the health services in the US.

T. What is the culpability of the modern corporation for these problems?

First, I want to preface my answer by stating that I am categorically pro-commerce: every nation’s leader must be, as business and commerce are the engines that drive not only government and services (through taxes), but also provide the jobs that keep one’s citizens busy and happy. However, there is a balance to be struck; our Asian heritage tells us that balance is the key to much of success in life. In the case of corporations, the people of the developed world, and particularly America, have been suckered into thinking categorically that what is good for the giant multinational corporations is what is good for them, their country, and the world. If that ever is true, it is purely by coincidence. Let me explain why this is so. Back in the pre-industrial days, and even into the early days of the industrial revolution, the owner of a business had a huge investment in his or her community. The blacksmith worked in close concert with the farmer; the merchant dealt directly with the manufacturers of the goods. Relations with labor were intensely interpersonal and relied heavily on trust and good will. A key feature of this scenario is the sole proprietorship of commerce; there were few passive investors whose sole interest in the enterprise was their return on investment. In these admittedly idyllic days, business did not deliberately harm the customer, the environment, or the employee; such behavior had drastic consequences that would result in ostracizing the offender from the community and the market. However, the complexity of modern business enterprises requires passive investors that are not bonded to the community and often have little or no knowledge of even the products made by the firm, or even that they own the firm at all (in the case of mutual fund investors, for example). These investors can hardly be depended upon to ensure ethical behavior by the firm.

The operations of a corporation are delegated to a “board of directors”, which, interestingly enough, has a fiduciary duty to place above all else the return on investment to the stockholders! This takes precedence over all else: environmental protection, humane treatment of workers, fair treatment of customers…So it is foolish to look at the members of corporate boards, as some consumer advocates posit, as evil or unthinking people. That is not true. They are just doing their job! If they were to behave in any other fashion, including cutting a little slack for the earth, the customer, or labor, then they would be in violation of their fiduciary duty to the stockholders and could be held personally liable for the loss.

So if neither the investors nor the board are at fault for the persistent inappropriate behavior by the corporations, then who is to blame? Well, this is what is known as a system problem: everyone is doing his or her job well, but the net result is suboptimal.

In fact, the net result is horrendous. Look at the recent example of a school bus manufacturer that was put on notice to revise the location of gas tanks and even DRILLED THE HOLES to do it, but failed to relocate them because the American federal standard would not come into effect for a few days. Subsequently, one of the buses was involved in a horrendous accident that would likely have been much less tragic had the company done the right thing instead of cutting corners for a few pennies.

So what is the solution? I see it as two-fold. First, we cannot expect business to act in the public interest; the rules are designed for it to follow the route of highest profitability, which often does not coincide with the public interest. So there must be continued careful, thoughtful regulation of business that seeks to promote productivity while ensuring that the public interest is served. Needless to say, the lobbyists must be banished entirely from this sort of discussion.

Secondly, there is an extreme need to develop a not-for profit sector of the world economy that can compete effectively for customers. The non-profit, non-governmental entities of the world are flourishing when they are allowed to: witness the Red Cross, the universities and colleges, the non-profit hospitals before the era of cherry picking by the for-profit hospital corporations, the countless organizations that function to provide essential economic needs that are not addressed by the for-profit sector. The concept of not-for-profit organizations should be extended into the fields traditionally considered solely the province of the shareholder owned endeavors. And what keeps this from happening?

Well, of course…the for-profits and the combination of their lobbyists and the extensive propaganda campaigns that they wage to try to convince consumers that they are acting in the public interest. Now of course, I do not advocate the total absence of for-profit business activity. I DO advocate the abolition of measures that do not permit not-for-profits to compete on a level playing field, and I also advocate the encouragement of non-profit activity by governments world-wide. And above all, I advocate accountability of corporate boards to scrutiny by the public.

T. Thank You.

V. You are most welcome.

Stay tuned for the next installment of the Verdi FAQ, when Verdi will discuss the cost disease of the handicraft occupations, California politics, immigration, the Internet, and whatever else he can conjure up…