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Common Currency: Time has come to say 'yes' to new taxes

Alan Zemek

Diversification, quality circles, empowerment, out sourcing, globalization, lean manufacturing, sigma six.

From conglomeration to core competency, efficient market theory to black swan events, the academic business world has sold a lot of "goods" over the last few decades to corporate managers and CEOs looking for the magic formula of higher profits and greater shareholder value.

In the '60s and '70s conglomeration was supposed to make very large corporations better by owning a diversified mix of businesses across the economy, so if one company in the conglomerate was not performing well, another company in the conglomeration could make up the difference.

In theory, stable profits, dividend growth, and the ability to allocate capital internally to higher growth businesses was supposed to lead to superior stock price performance.

In reality, all it did was create a lot of mediocre companies led by mediocre managers. The "conglomerate" corporate model disappeared during the '80s as well funded "corporate raiders" realized the individual businesses were more valuable than the conglomerate whole, bought them up, broke them up and sold them piecemeal. The leveraged buy-out was practically invented for this purpose.

Outsourcing was supposed to make companies more competitive by allowing them to focus on their "core competency." If your basic expertise as a consumer appliance manufacturer was bending metal, then it really didn't matter if your in-bound customer service calls were handled by a third party subcontractor, except that in the consumer's mind the perceived value and loyalty to your brand name was pretty much destroyed in the process, along with your profit margin.

The painful lesson learned was that if you treated your customers as a commodity, they could do the same to you.

Theory, practice, adaptation. Building a successful business model requires the ability to construct a theory of how the market place is working, test the theory in practice and then react to what you have learned. In the world of profit and loss, this process is pretty much second nature. And if anything, this has become hyper accelerated in the age of Microsoft, Google, Twitter and the iphone.

In government and politics, attitudes and practices take longer to adjust and in some cases, become so sclerotic and fossilized it takes a major upheaval before a theory that isn't working anymore will be abandoned for something new.

In some parts of the world it happens in the form of civil unrest or a collapse of social order. We are fortunate to enjoy the peaceful transfer of power through an election cycle every four years that helps us course-correct along the way, as ideas and theories come in and out of favor.

Here is one political message that worked pretty well for awhile, but has outlived its usefulness: "No New Taxes." The sentiment is perfectly legitimate as an expression of the idea that there is an upper limit on the level of taxation a private economy can support. Economics is the study of costs and benefits at the margins, and at some point taxation that goes beyond a reasonable level becomes punitive and counter productive.

But in practical application a "No New Taxes" ideology locks us into an 18th Century model of governance that doesn't work in a 21st Century economy. Why do we still use a property tax system invented in the middle ages as a proxy for taxing wealth? Once upon a time land alone was the most productive sector of the economy. Then along came the industrial revolution that brought with it value added manufacturing and the output-per-hour economy.

As the economy adapted and evolved at higher levels of productivity, so did methods and processes of taxation to keep abreast with the change.

For hundreds of years, through the Middle Ages and even to the end of the industrial revolution, taxation used to correlate to geographic location. But with Amazon and FedEx, physical location, taxation, and economic activity have all become disconnected from each other. We have been arguing about taxation for a generation now and the result has been dismal. It's time to find a new theory and completely reform the model because the one we have now is not working anymore.

And yes, that may mean "new" taxes.

Alan J. Zemek is a Park Rapids area developer and author of "Generation Busted: How America Went Broke in the Age of Prosperity." You can follow his blog, or comment on this article on his website, www.genera