The Mystery Of Twenty-First Century Capitalism

Bewildered by what I was hearing this morning on CNBC, which covers bidness and financial happenings, I thought I must be missing something. Surely, I didn’t just hear John Chambers, Chairman of the Board and CEO of networking equipment giant Cisco Systems, say that despite his company’s robust profitability and despite his rosy outlook for the future, that he nevertheless finds it necessary to cut 5% of Cisco’s workforce, some 4,000 jobs?

Yes, I must be missing something. Or capitalism, as practiced by today’s multinational corporations, is an impenetrable mystery. It has been weird enough that throughout this slow-motion economic recovery corporate profits have been soaring, even as job growth has been relatively stagnant. Now it appears that profits don’t just lead to stagnant job growth, but to job cuts!

At least I wasn’t the only one who couldn’t understand John Chambers reasoning this morning. He was asked twice to explain why he was planning on eliminating jobs in the face of good news about his company. I confess that I did not understand either explanation and I suspect the panelists on CNBC didn’t either.

Here, watch below and see if you can figure it out and then explain to me the finer points of twenty-first century capitalism, in which a company can earn $2.27 billion (versus $1.92 billion last year), project long-term revenue growth of 5 to 7 percent, and still find it necessary to eliminate thousands of jobs. Please, I await some enlightenment:

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20 Comments

  1. A lot of confusing business speak.

    I think he saying that the 4,000 jobs that are going away would not deliver the product that they will need to be selling. I’d think a lot new jobs would come to be and some of those being laided off might be able to to move into other positions with Cisco. It is amazing how corporate executives (and politicians) can talk a lot and not say much.

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  2. A firm being profitable, even increasingly so, doesn’t obligate it to retain all their current employees as some jobs become no longer needed. I think that’s what he’s saying.

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  3. Cisco Systems has long been a prime driver of the internet revolution. They make the stuff that makes the internet work, so they are well positioned for connecting all the moving parts of it, including the fast-changing field of entertainment systems, such as Netflix, as well as vehicles, utility-monitoring systems, smart phones and tablet computers of all sizes. I see it as a big Monopoly game and Cisco is laying off workers in order to buy more “hotels”, or as the CEO calls it, in order to get “resources for acquisitions”. Cisco is just the kind of company to take best advantage of productivity and the current job situation spells opportunity. Why? Because even good jobs are scarce, so when you lay people off and ask those remaining to pick up the slack, they do it, and that includes contributing bright ideas for getting computers and other machines to do what people once did. That, I submit, is also why real wages have stagnated while working hours have edged up since the 1980’s. It’s just “bidness”, Duane. Despite assertions by the SCOTUS and Mitt Romney that companies are people, they have no heart. Company loyalty, up or down either one, is not the factor it once was.

    This is a good example, I submit, of why the old economic models are obsolete. In those, workers were a prime factor, but assembly lines have changed. People are out, robots in. Meaningful work increasingly means services: sales, design, quality assurance, testing. (There will always be a place for executive secretaries, however, pulchritude being the prime qualification.) The rest of the jobs are destined for the bottom of the food chain, something we all know is becoming less like a pyramid and more like a long-necked chemistry beaker. Accordingly, if the electorate doesn’t wake up and allow Democrat policies I think we are headed toward a new Gilded Age like we had in the nineteenth century. And maybe it will happen even if we do. Even in the 1930’s Aldous Huxley envisioned a future that had no meaningful work for the masses.

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    • Jim,

      Your assessment makes me shiver. Especially this:

      Accordingly, if the electorate doesn’t wake up and allow Democrat policies I think we are headed toward a new Gilded Age like we had in the nineteenth century.

      I agree with that completely, but the problem is that even some Democrats are afraid to (openly) articulate the policies that would at least put a brake on the coming new Gilded Age. And there is an entire industry, what some call the conservative media complex, that makes money itself by brutally tearing down the people and the policies that would help mitigate some of the income and opportunity inequality we see before us today.

      Shivering,
      Duane

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  4. Duane,

    Well this is what happens when technocrats get their Harvard MBAs and then move up the ladder to their level of incompetence. Back in the day, we used to call the stuff Chambers was saying, “gobbledegook.” Now I just call it noise.

    By my count, Chambers was asked six times why Cisco was cutting 4,000 jobs, and six times he managed to change the subject. And the questioners are not dumb. I’ve seen many of them on CNBC before and they are very knowledgeable of finance and bidness. Anyway, let’s just say that if this guy was in my business communications course, he would get an F.

    All that said, I’ll give you what I think Chambers should have said, but was afraid to.

    In a capitalist economy, the two most important characteristics are competition and free markets. Under this system, prices and production levels are determined by unrestricted competition between businesses, markets have little or no government regulation, and there are few or no monopolies.

    But competitiveness means that businesses must always keep costs as low as possible. And since labor is usually the largest fraction of these costs, businesses are inclined to hold labor to a minimum, thereby keeping prices low, while increasing profits. Then, too, labor is often replaced, or at least augmented, by technological advances (better machines, computerization) so that productivity is improved, thus making the companies more competitive. Likewise, expatriating jobs to countries with lower wages is another way to help minimize costs.

    So, under the current environment, businesses can keep sales and prices at about the same level, which they have, but keep labor cost as low as possible, which they also have. The result is higher profits for the companies, lower inflation rates for the economy because prices are relatively unchanged, and slower growth of GDP, because increasing the sales volumes of sales is not as important as cutting costs.

    Of course, that strategy is good for stockholders, but not so much for stakeholders. Cisco is going to put 4,000 people on the streets looking for jobs in a terrible job market. That means these newly unemployed won’t be paying income taxes for a while, and likely will be receiving unemployment checks, and more likely, will end up with lower paying jobs. As a consequence, tax revenues fall, the cost of government social services goes up, and these 4,000 consumers have fewer dollars to spend on goods and services; again, impacting economic growth.

    And there you have it. The decision by the private sector to increase profits at the expense of their employees can and does affect taxpayers and the whole economy in general. But, unless we’re stockholders, we the people have no say in Cisco’s decision. This is kinda like paying taxes without representation. You know, like the taxes on tea we protested 240 years ago.

    On the other hand, we have really really fast and reliable network systems.

    Herb

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    • Herb,

      I appreciate your explanation, particularly your final analysis:

      Of course, that strategy is good for stockholders, but not so much for stakeholders. 

      My impression of the CEO’s evasiveness was that he didn’t just want to come out and nakedly say he was killing those jobs in order to a) make Wall Streeters and stockholders happy, and, thus, b) keep share prices up.

      In any case, your analysis presents us with a problem, no? How do we, in a capitalist economy and a free society, first measure whether the bad (” tax revenues fall, the cost of government social services goes up, and these 4,000 consumers have fewer dollars to spend on goods and services; again, impacting economic growth”) outweighs the good (“really fast and reliable network systems”), and then, if the bad does outweigh the good, what should we do about it?

      Let’s say every single American manufacturing business decided, tomorrow, to move all of their operations to, say, Mexico because of cheaper labor. And then let’s say they all planned on exporting their manufactured goods back here to the USA.  Should something be done about that? Should a tariff be erected to prevent such a thing and encourage domestic production again? Or should we just say that we all somehow benefit by having cheaper goods manufactured in Mexico and sent here? In other words, collectively, as a people, could we justify a comprehensive tariff (or some other scheme) designed to “have a say” in what American companies do?

      Well, of course we could justify it. And once that door is open (it’s been opened since the dawn of capitalistic practice), then it seems to me that we have admitted that laissez fair capitalism is unworkable, especially in the modern world. Restraints on business decisions are necessary, if we are to flourish as a free society with widely-shared prosperity. Otherwise it appears to me to be a race to the economic bottom, even if we have speedy Internet connections.

      Duane

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  5. ansonburlingame

     /  August 17, 2013

    Brucetheeconomist said it and he is correct in my view. Cisco has sustained both profits and growth in a bad economy. Jim showed why that is the case. No Cisco, no “Netflik” or other streaming things (in the future) on the internet as just an example.

    So Cisco wants to sutain growth, about 5-7%. But to do so they must lay off 4,000 workers. Are those all American workers? I don’t know. But if they intend to continue to grow, which all businesses try to do, they must …………

    The better question, for the CEO would have been “If you do not lay off any workers, what is your predicted growth over the next …… years?” If he said NEGATIVE, would that be OK with you guys?

    If Cisco fails to develop and sell the next round of technology underlying internet performance, who will take their place, I wonder? My guess is it will be a growing and profitable company, in the end.

    Anson

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  6. Duane,

    Yes, we definitely have a dilemma here. Well, actually, if you are in the 1%, you probably don’t, at least not at the present time..

    We’ve become a country of unforgiving materialists. The accumulation of wealth is now the be-all and end-all measure of success. Financial capital is much more important than human capital. In fact, it may be fair to say that our values – the things that are most important to us as a society – have been monetized.

    If your goal is to best the best teacher, the best mechanic, the best salesperson, the best trash collector, well, good luck with that. You must be an entrepreneur – start your own business. This is according to the libertarian/conservative ethic that says the 99%, if they just work hard enough, can become the 1%. Never mind that this is a completely absurd and irrational argument. Just “trust us.”

    I’m glad you picked up on my point about the “good” vs. the “bad.” Implicit in this is another problem: That planning is all short-term – to the next quarterly dividend or the next election. Let the future take care of itself.

    Some time ago, probably in the Reagan era, we evolved the economic philosophies of Hayek, Friedman, and Rand, thereby pitting free enterprise against the government and giving us the idiotic “trickle down” wealth distribution model. Unfortunately, the middle class got caught in the crossfire. The war was almost strictly between business and government. And labor became a disposable commodity.

    So, what to do? What to do? Damned if I know. During the financial crisis in the fall of 2008, I was inclined to follow the Republicans and let the chips fall, let the too-big-to-fail companies fail. I thought maybe the fall-out from that would help us, like it did in the Great Depression, get our priorities straight. Now, all we’ve done is put off the inevitable, which will just make it worse.

    To these points, and your comments, It may be helpful to revisit part of a post on my blog where I’m discussing human rights and globalization (http://theabsurdityindex.wordpress.com/2011/12/14/28/):

    “Dr Samir Naim-Ahmed in his April 21, 2007, essay, ‘Human Rights And Globalization’ writes:

    “[With globalization] Everything has to be dealt with as a market commodity judged by its economic value rather than its social value.

    “So governments find themselves in a very paradoxical situation. If they try to abide by UN human rights agreements which they signed, they would be violating the globalization agreements, which they also signed! and they would be criticized or even penalized for this violation ( by cutting the aids offered to them by international institutions ), and if they try to abide by globalization agreements they would be necessarily violating the human rights agreements and would be criticized for that in the human right reports and the UN statistics on human development would show them lagging behind in indices of human development!!

    “Transnational corporations which are steering the economic globalization are not at all directed by ethical or humanitarian principles. The maximization of profit is the major if not the only driving force for all their activities.

    “[Therefore, what is needed is] a government which is capable of making economy in the service of man instead of making man a victim and a slave for the market economy.”

    “To the extent Capitalism dominates economic globalization, then the objective of profit maximization means that workers are disposable, natural resources are expendable, individual liberties are compromised, accountability and responsibility are diminished, and authoritarianism and imperialism breach the social contract and eat away at democracy.”

    Depressing isn’t it.

    Herb

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    • It’s depressing all right. Economics has been properly called “the dismal science”. However, I recently listened to a Planet Money podcast that gave me some hope. It features a respected economist admitting that the (so-called) discipline that is called “economics” is not only not a science, it is so complex and unpredictable that it defies control and raises suspicion of most any analysis. Thus, what we are left with is simply broad ideological principles and various tools to examine not what will happen, but what did happen. It also reminded me of various components of an economy that are often missing from formal analyses such as intangible enterprises (art, cinema, etc.), tax avoidance, the black market, and crime, including the illegal drug market. And unpredictable human nature. Think “chaos theory”.

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  7. ansonburlingame

     /  August 20, 2013

    Not bad at all, Herb and Jim. We at least agree that we have a dilemma, maybe a moral dilemma on our hands today, globally and domestically.

    For sure I agree that academics related to social sciences are not science in any way. SOME economics is “science” as good math can show at least part of a path to solutions. But then economics becomes widely unpredictable as well, yet some think such predictions are scientifically accurate. Baloney in my view.

    Today I begin my academic study of sociology, a course I have never taken. I am already arguing with the text book, before the class begins. I can’t wait for the professor to show me how SCIENCE can resolve general issues by looking only at “particulars” for example. That is the text book definition of the “sociological persepective”!!!

    To me that is trying to predict with anecdotes!!

    Here is a text book example. The book encourages a “global sociological perspective”, in chapter one, right off the bat so to speak. Then an example is given in the same chapter. A man loses his job in America because the job went overseas, due to globalization. Another man in India got the job for less money. That of course is “bad” for a man in America to lose a job, sociologically.

    Well my guess is the man getting the job in India thinks it a great deal for him and he is quite happy to work for “half the pay”.

    So go analyze that, sociologically. If a union worker in the North loses his job to a non-union worker in the South, one willing and able to work for lower wages, well obviously government should stop that tradgedy, right???

    Boy am I looking forward to resolving such issues in an academic environment with some “real world” input as well.

    Incidentally Jim, my professor has already told me that viewing societies as “tribes” is outmoded thinking today!!! No one likes to be called tribal, so obviously it is wrong to do so, right!!! She also has told me that she is a passivist. Man I just can’t wait to hear more!!

    Anson

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  8. Duane,

    In the for-what-its-worth department, I cleaned up some of the comments I posted here (made them a bit more coherent) and submitted the same to the Glob as an Op-Ed piece, which I titled “The Cost of Profits.” And you, my friend, are given credit for the inspiration, right up there in the first paragraph. Don’t know if it will be published or not, just thought I’d give you a head’s up if it is.

    Jim,

    And don’t forget environmental damage, intermediate goods (batteries, tires), second hand sales (Goodwill, Salvation Army), purely financial transactions (buying stocks, bonds, derivatives, options), opportunity costs (infrastructure repairs, world peace, individual health), and under-reported income.

    So, you’re right, the GDP and GNP just tell us where we’ve been, not where we’re going. And even the metrics that show where we’ve been are poor at best, and grossly (pun intended) understated.

    I too have thought about the butterfly effect on the economy, well, actually on civilization itself. But I don’t believe in the randomness of events. Instead, I’m big on causation, or what some call the “domino effect,” kinda like a chain reaction. Except my version is non-linear. And, uh, I think I’ll just stop there.

    Anson,

    Just remember there will be other students in your sociology class who are trying to earn a grade. So you may have to bite your tongue from time to time. Just saying . . .

    Herb

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  9. ansonburlingame

     /  August 21, 2013

    Herb,

    I am well aware of my responsibilities to other students and for sure do not or will not “sound off” in class. But with the privilege of auditing a class I have full access by email to the professor, while I remain a student. That is where my “ideas” will be further developed and explored, only with the professor, poor thing!!

    As for your future column in the Globe, I will read it with interest as always, and maybe a reply, privately, online or even a column of my own, depending. IF you focus on “moral” dilemmas, it will be interesting to see your points, as well.

    Try this on for thoughts.

    Government, any government has grave difficultly dealing with morality, per se. Whose morality should prevail, I wonder? There are all differents forms and substance of morals all over the place. Who get’s to judge the correctness of same, God or “something else”.

    Every action has a reaction, some unintended. A car for example provides GREAT transportation. But along with cars come pollution, death from drunk drivers, crazy drivers, etc. And SOME people cannot afford to have a car thus inequality sets in, just as an example. As well, I wonder, exactly what a new car might cost IF there were NO government controls on what that car must do, period. But of course most of those government controls on cars were mandated for “moral” reasons, safety being a big one. Would a $20K car only cost, say $10K without all the “add ons”?

    America was founded on the idea of limited federal government, only certain things should be debated and decided, nationally. All else was left to States to decide. So some states thought other states were governing immorally and thus more federal intrusion, based on ideas of morality as a primary concern.

    Nationally, as originally founded, voters, nationally had to be only certain citizens, men (only) that were (by old standards) “responsible” men. That has changed, dramatically over the centuries and decades. Today mobs have great political influence on just about ANY topic of concern, to that mob, conservative or progressive, or just plain idiots.

    I have been “lectured morally” for many views provided herein, this blog. If I take a position against some domestic program that helps “the poor” I am called a ……. Usually my objection is based on being able to pay for the program, generally speaking. I believe driving a country bankrupt is “morally” unsound. But in saying just that in some many words I get told the equivalent of “We need it, no matter what it costs”.

    Needs will always “out vote” restraint in any society. It takes deep and careful consideration to understand how to “regulate needs”. I don’t think mobs (or placid herds) do so very well at all.

    Anson

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    • Anson,

      First, my Op-Ed has only one sentence on morality, “And that doesn’t include the moral implications here.” (You have read the whole thing to see what “that” refers to.) I let the reader decide what’s moral or not.

      But this brings up another point that is worth several Op-Ed’s, not to mention numerous posts in the blogosphere. A close cousin of morality is responsibility. I remember Paul Harvey used to say, “Freedom without responsibility is anarchy.” So, maybe we could say here that Capitalism without responsibility is immoral. A company, for example, that has as its primary objective to make as much profit as possible regardless of the means to do so, that views its employees as objects of cost rather than contributors to the success of the company, that uses natural resources without regard to the impact on human health and the environment, that fails to be a good citizen in the communities that it operates in, and that manages its affairs by using fear and authoritarianism rather than enlisting cooperation, is, among other things, and IMHO, being irresponsible and thereby immoral.

      Of course, morality is relative, although some would argue there are certain acts where morality is absolute. Slavery is a good example of relative morality. It was perfectly OK for thousands of years until the objections to it became so widespread that it was abolished. But its abolition had to come at the hands of government. In the case of the U.S., it was the 13th Amendment. But many in the South have refused to accept that that morality has changed. So we have the KKK and the White Supremacy groups, etc.

      Who is to say what’s moral or not? Well, in terms of the economy, it’s Congress. But according to an NBC/Wall Street Journal poll released last month, “83 percent of Americans disapprove of the job Congress is doing in Washington, an all-time high in the poll. Just 12 percent approve of Congress’ job, while 57 percent they would replace every member of Congress if they could.”

      The only thing we as citizens can do on our own, when we see a company behaving badly, is to boycott or, under certain limited circumstances, file a law suit. I, for example, do not shop at Wal-Mart, except as a last resort. No, it is the collective opinion of members of Congress to decide what’s moral or not and then to make such laws and approve such regulations as needed to fix such problems. We the people voted them into office to serve the public good, to do so without any conflicts of interest, and to bring their own sense of morality with them, as demonstrated by their own morally pristine background.

      So, if you want to keep the regulations that apply to commerce to a minimum, ask your congressman and senators. If you’re tired of seeing the national debt spiraling out of control, see your elected representatives. This is how a democratic republic is supposed to work. They are in office to act responsibly and to carry out their moral obligation to the nation. That’s the government our founders left to us. Of course, over the last 226 years it has evolved into something else; something I think most would agree is not good. If you have any ideas on how to fix it, I’m all ears, as are, I’m sure, millions of others.

      Herb

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      • @ Herb,

        I had you pegged for a pragmatic guy, until, that is, you said,

        The only thing we as citizens can do on our own, when we see a company behaving badly, is to boycott or, under certain limited circumstances, file a law suit. I, for example, do not shop at Wal-Mart, except as a last resort.

        You would probably agree that unless you somehow start a successful campaign engaging tens of thousands to rise up with you in indignation, Wal-Mart is never going to miss your business nor even notice. You might as well boycott fast-food joints for all the good it will do. You are revealed as an idealistic humanist, I would say.

        During my unconventional Navy career I actually worked for a Marine Colonel at one point. He had a personal philosophy such that if a retailer of whatever nature pissed him off in any way, he would never again darken their doors. I calculated that he had made at least half the stores in town off-limits to himself in the two years I knew him. Just a word to the wise. 😉

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        • Jim,

          We doth dithagree. I’m still a pragmatist. Well, ideally I’m a pragmatist.

          Your quote from my comment starts with, “The only thing we as citizens can do on our own . . .” Implicit here is the qualifying word “pragmatically.” So, I could have written, “Pragmatically, the only thing we as citizens can do on our own . . .”

          In contrast, if I were an “ideologue,” I would have called on people to march with their little picket signs, to camp out on the parking lots or in parks, to get on TV, and, yes, to boycott. I only suggested one of those things. Why? Because I’m a pragmatist, not an idealist.

          I don’t really care if Wal-Mart misses the few bucks I might spend there. By the same token, I won’t become a member of the Republican Party because I disagree with most, but not all, of their conservative philosophy. I am a registered Independent and proud of it. That fact alone should disabuse you of any notion that I am an ideologue.

          Then again, maybe we’re just using different dictionaries.

          Just a word from the wise.

          Herb

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        • By the way, I’m a retired “humanist.” They pissed me off almost as much as Wal-Mart. But the main reason I left was that they were too idealistic in attacking religion. As a pragmatist, I thought and still do that there more effective ways to get their message out. To that end, I created my own blog: “The Humanist Challenge.” Lot good that did.

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          • 😆 Thanks for the clarification(s). I hope you realize that by boycotting Wal-Mart that you could be losing track of what’s happening to the American human condition? Externally anyway. But never mind that. There’s an increasing segment, based on my own observations, that may not qualify as human. I’m babbling, I know. That’s what Wal-Mart does to you. I get it, I get it. 😆

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  10. ansonburlingame

     /  August 22, 2013

    OK, Herba and Jim, I admit that I have no idea “WHAT” I am with all the terminology available to pigeon hole people today.

    Shopping at Wal Mart today is EXACTLY like shopping at the Navy Exchange and Commisary which I did for years, in terms of price (relative), quality, quanity and level of service, as far as I can tell. Poorer people NEED Wal Mart. I only USE it when I really want to “go cheap”, etc. I could care less about the “politics” of Wal Mart and have several friends that work there and are happy as clams, women included.

    As for the “beast” of a corporate nature described above by Herb, I can only say I have never worked for such a company or seen such a company supplying “goods and services” to my “ship(s)” in the Navy. I endured the “wars” between General Dynamics and the NAVY over the Trident building program. I was right there on the ground watching it all transpire.

    Guess what, If I had been the CEO of Gen Dyn. I would have raised some hell too with the way the Naval Reactors rep pissed in their boots all the time, demanding outrageous perfection on really trivial matters. I could write a book over the “bad welds” fiasco that played out on a national stage and resulted in at least a one year delay in delivery of the ship!!!

    Gen Dyn, EG&G and Jacobs Engineering were the three major corps for whom I worked or worked with. Bechtel was one that I worked with as well as a civilian along with Fluor Daniels. ALL were well run, fair as they could be as far as I could tell and held great value in GOOD employees. The not so good never got much of a chance however!!!

    That by the way was the BIG difference, to me, between civilian and government employment, the “value” of employees, particularly management level employees but it perculated down to union levels as well. Good employees were HIGHLY valued and paid as such. Bad employees were let go ASAP, The marginal ones got SOME retraining, etc. but not a lot.

    Now wander the halls of any large government bureaucracy and just pick our the ones that should be, but never are, fired!!! They just “keep going” like the Energizer Bunny in my experience.

    Anson

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