This should be required reading for all Americans.
It has an often repeated axiom that a person can learn a whole lot about a society by how it treats its poor. But just as much can be learned by looking at how that society treats its rich. Indeed, the economic future of the poor – and our nation – will be determined in the coming decades by how we treat the people in this country who create great wealth. It will be determined by our understanding of the so-called rich. And our ability to protect this minority.
It is an unpopular thing to say, I know. Rich people need help? Rich people need to be protected? Rich people a minority? Give me a break. They just seem to keep getting richer! Regrettably, too many Americans, and far too many intellectuals and politicians, don’t understand these people we call “the rich.” And how it is they got rich in the first place.
Because most of us don’t actually know any of these rich people, we instead experience them in the abstract, through policy debates and statistics, and always through the prism of our own ideological lens. We look at the raw data to state our case either against or for the richest among us. In the end, our view of the rich has much to do about how all of us view “capitalism” itself. Indeed, in that respect, our opinions about the rich are a sort of Rorsach test, revealing more about ourselves than anything else.
To those on The Left who think capitalism creates unfair outcomes, they have statistics to confirm their outlook. It seems absurd on its face that the top 1% of American families own 90% of the nation’s wealth.
Wouldn’t it be possible to contrive an economy that is just as prosperous but with a fairer distribution of wealth? Couldn’t we cap the earnings of the rich at $50 million? Or even $100 million?
Most defenders of capitalism and free markets say no. They contend that the bizarre inequalities we see are an indispensable part of the processes that create wealth. They imply capitalism doesn’t make sense, morally or rationally, but it makes wealth. So don’t knock it.
What nonsense it all is! And how little to do with the reality of the rich. And how sad that defenders of the rich – or the rich themselves – can’t come up with a better economic or moral case! Quoting Adam Smith and supply side economists just doesn’t cut it.
So who are the so called rich? As someone who is rich (and would love to be even richer), and has spent a lifetime working with people who create wealth, I thought I’d explain who they are, where they come from, and why we should care about their wealth – and their desire to hold on to it.
To begin, it is not exactly a list of the Who’s Who and Most Likely to Succeed in high school or college, this group of Americans called the rich. They are certainly not the best looking. They didn’t get the highest SAT or ACT scores in high school, they probably weren’t voted most likely to succeed in any yearbook, and they certainly didn’t get where they got through the force of their personalities, charisma or celebrity.
A great number of the richest among us never finished high school, and many who went to college never managed to graduate. That’s because the rich in this country are chosen not by blood, credentials, education, or services to the establishment. The rich are chosen for performance, and for their relentless desire to serve consumers.
The entrepreneurial knowledge that is the crux of wealth creation has little to do with glamorous work, or with the certified expertise of advanced degrees. Great wealth usually comes from doing what other people consider insufferably boring.
The treacherous intricacies of building codes or garbage routes or software languages or groceries, the mechanics of butchering sheep and pigs or frying and freezing potatoes, the murky lore of petroleum leases or housing deeds, the ways and means of pushing pizzas or insurance policies or hawking hosiery or pet supplies or scrounging for pennies in fast-food unit sales, all of those tasks are deemed tedious and trivial.
In short, our rich – America’s best entrepreneurs – perform work that most others spurn.
Whether it was Henry Ford or Apple’s co- founder Steve Wozniak, much of America’s greatest wealth creators began in the “skunk works” of their trades, with their hands on the intricate machinery that would determine the fate of their companies. Bill Gates began by mastering the tedious intricacies of programming languages. Familiarity with the very material, the grit and grease, the petty tedium of their businesses liberates entrepreneurs from the grip of established expertise and gives them the insight and confidence to turn their industries in new directions. All had to stoop to conquer the American economy.
Because these men and women often overthrow rather than undergird establishments, the richest among us usually begin as rebels and outsiders. Often they live in places like Bentonville, Ark.; Omaha; or Mission Hills, Kans.; mentioned in New York chiefly as the butt of a comedy routine.
The truth is, great wealth is often created by the launching of great surprises, not just the launching of great enterprises. Unpredictability is a fundamental part of great wealth creation, and as such, defies every econometric model or centralized planner’s vision. It makes no sense to most professors, who attain their positions by the systematic acquisition of credentials pleasing to the establishment above them. By definition, innovations cannot be planned
So we now know a bit more about who the rich are, and how they got rich. But the richest among us are faced with another equally daunting task once they have accumulated great wealth, and that is maintaining and increasing that wealth.
A pot of honey attracts flies as well as bears, and it doesn’t take long for the bureaucrats, politicians, raiders, robbers, revolutionaries, short-sellers, managers, business writers and missionaries who think they are entitled to a portion of the winnings (or who think they can spend the money better than the owners who created that wealth) to come calling.
All owners are besieged by aspiring spenders, but only the legal owners of a business have a clear interest in building wealth for others rather than squandering it on themselves. Leading entrepreneurs in general consume only a tiny portion of their holdings. Usually they are owners and investors. As owners, they are initially damaged the most by mismanagement or exploitation or waste of their wealth.
As long as Steve Jobs is in charge of Apple, it will probably grow in value. But you put some random manager in charge of Apple, and within minutes the company would be worth half its present value. As other software companies, such as Oracle and Lotus, discovered in the early 1990s, a software stock can lose most of its worth in minutes if fashions shift or investors distrust the management.
As a Harvard Business School study recently showed, even if you put “professional management” at the helm of great wealth, value is likely to grow less rapidly than if you give owners the real control. A manager of Google might benefit from turning it into his own special preserve, making self-indulgent “investments” in company planes or favored foundations that are in fact his own disguised consumption. It is only Sergey Brin and Larry Page who would see their respective wealth drop catastrophically if they began to focus less on their customers than on their own consumption.
The key to their great wealth is their resolution not to spend or abandon it, but to continue using it in the service of others. In a sense, they are as much the slaves as the masters of Google.
This is the other secret of the richest among us, and of capitalism itself. Under capitalism, wealth is less a stock of goods than a flow of ideas. Economist Joseph Schumpeter propounded the basic rule when he declared capitalism “a form of change” that “never can be stationary.” The landscape of capitalism may seem solid and settled and ready for seizure, but capitalism is really a mindscape.
Volatile and shifting ideas, and the human beings behind them– not heavy and entrenched establishments — are the source of our nation’s wealth. There is no bureaucratic net or tax web that can catch the fleeting thoughts of the greatest entrepreneurs of our past. Or future.
In this mindscape of capitalism, all riches finally fall into the gap between thoughts and things. Governed by mind but caught in matter, an asset must have an income stream that is expected to continue if the asset is to retain its value.
Wealth is valuable only to the extent that others think it will be valuable in the future, and that depends on running the fortune for the needs of the customers rather than for the interests of the owners. Its worth will collapse overnight if the market believes the company is chiefly serving its owner, rather than the owner serving it, or that it is being run chiefly for the managers rather than for the people who buy its wares. Look at the recent BP debacle and see for yourself.
Socialist regimes try to guarantee the value of things rather than the ownership of them. Thus socialism tends to destroy the value, which depends on dedicated ownership. In the United States, on the other hand, the government normally guarantees only the right to property, not the worth of it. The belief that wealth consists not in ideas, attitudes, moral codes, and mental disciplines but in definable and static things that can be seized and redistributed is the materialist superstition.
It stultified the works of Marx and other prophets of violence and envy. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly all conglomerateurs, who believe they can safely enter new industries by buying rather than by learning them. Capitalist means of production are not land, labor, or capital but minds and hearts.
The wealth of America isn’t an inventory of goods; it’s an organic, living entity, a fragile, pulsing fabric of ideas, expectations, loyalties, moral commitments, visions, and people. To vivisect it for redistribution would eventually kill it. As Mitterrand’s French technocrats found early in the 1980s, the proud new socialist owners of complex systems of wealth soon learn they are administering an industrial corpse rather than a growing corporation.
That is why the single most important economic issue of our time – and one that impacts the poor and middle class alike – will be how we treat the very rich among us.
If the majority of Americans smear, harass, overtax, and over regulate this minority of wealth creators, our politicians will be shocked and horrified to discover how swiftly the physical tokens of the means of production collapse into so much corroded wire, eroding concrete, and scrap metal. They will be amazed at how quickly the wealth of America is either destroyed, or flees to other countries.
As someone who admires those men and women who create wealth, I hope this will serve as a “Wealth Creation 101 Course” to the millions of Americans – and the majority of our leaders in Washington DC – who don’t fully understand the economic implications of demonizing the rich. And the implications of enacting policies that treat them like villains in a cheap economic thriller.