Category: Capitalism

87% of American Liberals Support Some Merit-Based Income Differences

In my Openness to Creative Destruction, I claim that most people do not care as much about inequality per se, as they do about unfair inequality. What they care about is the differences in income be roughly related to differences in contribution. I illustrate this by recounting a famous experiment that Frans de Waal conducted with capuchin monkeys. The evidence in the study quoted below, supports my claim.

(p. B3) In 2018, four economists at the Center for Experimental Research on Fairness, Inequality and Rationality at the Norwegian School of Economics conducted a huge experiment — mostly via face-to-face interviews — using the Gallup World Poll. The Norwegian team — Bertil Tungodden, Alexander Cappelen, Ingvild Almas and Erik O. Sorensen — worked with Gallup to survey 65,000 people across 60 countries about their beliefs related to the gaps between the rich and the poor.

Part of the survey was an experiment. Respondents were randomly assigned to different conditions and presented a real-life scenario: Two people were recently hired to independently complete a short assignment; they were both paid, but one was given an additional $6.

In the first group, survey takers were told that the additional $6 was given out randomly. In the second group, they were told the $6 went to the worker who was more productive in completing the assignment. In both cases, respondents were asked how they would divide the additional earnings: whether they would transfer none of it, some of it or all of it to the other worker.

. . .

American conservatives might assume liberals are averse to merit-based compensation. The experiment proves that’s not so. When told the bonus payment was made only to the most productive worker, only 13 percent of the liberals transferred all of the money equally to the less productive worker, which is within the margin of error of the American conservative response (10 percent).

Americans both liberal and conservative were more likely than most people worldwide to accept merit-based income differences. As one of the study’s investigators, Mr. Tungodden, mentioned in his public presentation on the study, people in richer countries were more likely than people in poorer countries to allow merit-based differences. In the rich and more egalitarian country of Norway, 88 percent of respondents transferred the bonus payment equally when told it was allocated by chance, but only 33 percent did so when allocated by merit.

For the full commentary, see:

Jonathan Rothwell. “THE UPSHOT; Think Only Liberals Will Share the Wealth? A Survey May Surprise You.” The New York Times (Friday, February 14, 2020): B3.

(Note: ellipsis added.)

(Note: the online version of the commentary was last updated February 14, 2020, and has the title “THE UPSHOT; Experiment Shows Conservatives More Willing to Share Wealth Than They Say.”)

The soon-to-be-published version of the research discussed above, is:

Almås, Ingvild, Alexander W. Cappelen, and Bertil Tungodden. “Cutthroat Capitalism Versus Cuddly Socialism: Are Americans More Meritocratic and Efficiency-Seeking Than Scandinavians?” Journal of Political Economy (forthcoming 2020).

My book, mentioned above, is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

For Venturesome Amazon Toilet Paper Shoppers, “Like Sandpaper” Is “Better than Nothing”

(p. B5) Where name-brand products sell out, off-brand products sold by third-party sellers have filled the void. Many of the top search results for toilet paper with regular Prime delivery were novelty rolls with zombies or the faces of politicians like Hillary Clinton.

In early April, Arielle Ogletree and her mother, who live near Tampa, Fla., were almost out of toilet paper when they turned to Amazon. They found a 16-pack of the large commercial toilet paper rolls found in public restrooms for $42. A few days later, it was at their door.

“It was the only one they had, and we figured it would last a while,” Ms. Ogletree said.

The roll, too big for a regular holder, sits awkwardly on their bathroom counter. Though the single ply feels “like sandpaper,” Ms. Ogletree said, it was better than nothing.

For the full story, see:

Karen Weise. “Confusion And Chaos At Amazon.” The New York Times (Saturday, April 18, 2020): B1 & B5.

(Note: the online version of the story has the date April 17, 2020, and has the title “When Even Amazon Is Sold Out of Exploding Kittens.”)

To Survive, Venezuelan Socialists Retreat from Socialism

(p. 14) CARACAS, Venezuela — After decades of dominating its oil industry, the Venezuelan government is quietly surrendering control to foreign companies in a desperate bid to keep the economy afloat and hold on to power.

The opening is a startling reversal for Venezuela, breaking decades of state command over its crude reserves, the world’s biggest.

The government’s power and legitimacy have always rested on its ability to control its oil fields — the backbone of the country’s economy — and use their profits for the benefit of its people.

But the nation’s authoritarian leader, Nicolás Maduro, in his struggle to retain his grip over a country in its seventh year of a crippling economic crisis, is giving up policies that once were central to its socialist-inspired revolution.

For the full story, see:

Anatoly Kurmanaev and Clifford Krauss. “Economy Mired in Crisis, Venezuela Quietly Surrenders Control of Its Oil.” The New York Times, First Section (Sunday, February 9, 2020): 14.

(Note: the online version of the story was updated Feb. 18, 2020, and has the title “To Survive, Venezuela’s Leader Gives Up Decades of Control Over Oil.” The online version says that the article was on p. A8 of the print version. But it was on p. 14 of my National Edition print version.)

Millennials Blame Capitalism for “the Crushing Burden of College Debt”?

(p. A22) “Millennials don’t remember the Cold War,” said Maurice Isserman, a history professor at Hamilton College who has studied democratic socialism. “They don’t react in the same way to the word ‘socialist’ and associate it with totalitarian communism.”

Instead, young voters have experienced a structural shift in the economy, including the 2008 financial crisis and the crushing burden of college debt, that has given them a more critical view of capitalism, he said.

For the full story, see:

Patricia Mazzei and Sydney Ember. “Sanders’s Views on Cuba Split Young and Old Voters.” The New York Times (Saturday, February 29, 2020): A22.

(Note: the online version of the story has the date Feb. 28, 2020, and has the title “Sanders Is Stirring Cold War Angst. Young Voters Say, So What?.”)

Chinese Communist Officials Rewarded for Loyalty, Not for Competence or Boldness

(p. A1) The Chinese people are getting a rare glimpse of how China’s giant, opaque bureaucratic system works — or, rather, how it fails to work. Too many of its officials have become political apparatchiks, fearful of making decisions that anger their superiors and too removed and haughty when dealing with the public to admit mistakes and learn from them.

“The most important issue this outbreak exposed is the local government’s lack of action and fear of action,” said Xu Kaizhen, a best-selling author who is famous for his novels that explore the intricate workings of China’s bureaucratic politics.

“Under the high-pressure environment of an anticorruption campaign, most people, including senior government officials, only care about self-preservation,” Mr. Xu said. “They don’t want to be the first to speak up. They wait for their superiors to make decisions and are only accountable to their superiors instead of the people.”

The Chinese government appears to be aware of the problem. The Communist Party’s top leadership acknowledged in a meeting on Monday [February 3, 2020] that the (p. A9) epidemic was “a major test of China’s system and capacity for governance.”

. . .

Chinese officials are spending as much as one-third of their time on political studying sessions, a lot of which are about Mr. Xi’s speeches. Political loyalty weighs much more in performance evaluations than before. Now the rule of thumb in Chinese officialdom seems to be demonstrating loyalty as explicitly as possible, keeping everything else vague and evading responsibility at all costs when things go wrong.

. . .

On social media, low-level cadres are complaining that they are receiving so many instructions from the higher-ups that they spend most of their time filling out spreadsheets instead of getting real work done. In a social media post headlined “The Formalism Under the Mask,” the author wrote, “Most people in the system don’t do things to solve problems. They do things to solve responsibilities.”

For the full story, see:

Li Yuan. “In China, Virus Spurred Rush of Blame Shifting.” The New York Times (Wednesday, February 5, 2020): A1 & A9.

(Note: ellipses, and bracketed date, added.)

(Note: the online version of the story was updated Feb. 14 [sic], 2020, and has the title “Coronavirus Crisis Shows China’s Governance Failure.”)

Cheering Entrepreneurs “Because They’ve Lived the American Dream”

(p. B1) Wall Street’s disdain for the bottom-up populist campaigns of Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont has gotten a lot of attention. The candidates’ full-throated attacks on corporate greed, extreme wealth and banking excesses are backed up by ambitious plans to upend the industry’s everyday operations.

Wariness extends far beyond an elite financial fellowship, though, to many small and medium-size businesses whose executives are not reflexively Republican but worry that the ascendancy of a left-wing Democrat would create an anti-business climate.

. . .

Michael Brady, the owner of two employment franchises in Jacksonville, Fla., is one of the independent business executives interviewed who feel unappreciated. “I get up before 6 o’clock every morning and work hard,” he said. “I put 200 people to work every week.”

Mr. Brady, 53, said he voted for Barack Obama in 2012 and Mr. Trump in 2016. Since then, he said, some of the president’s actions and “some of his tweets” have made him cringe.

He said he could vote for a Democrat this year. But he finds several of the economic proposals from the party’s left wing off-putting, mentioning free college tuition and a nationwide $15-an-hour minimum wage.

What particularly irks Mr. Brady, though, are some of Ms. Warren’s statements about successful entrepreneurs’ not having built their businesses entirely on their own. Attacks on the country’s wealthy elite have also grated.

“When did the word millionaire or billionaire become a bad word?” he asked. “I cheer those people on because they’ve lived the American dream.”

For the full story, see:

Patricia Cohen. “Employers Are Leery Of Warren And Sanders.” The New York Times (Saturday, January 18, 2020): B1 & B5.

(Note: ellipsis added.)

(Note: the online version of the story has the date Jan. 17, 2020, and has the title “Trump Fans or Not, Business Owners Are Wary of Warren and Sanders.”)

“Openness to Creative Destruction” Discussed on Power Trading Radio

John O’Donnell interviewed me at 6 PM 11/8/19, about my book “Openness to Creative Destruction” on his weekly Friday show on Power Trading Radio. (In the screen capture above, Merlin Rothfeld is on the left and John O’Donnell is on the right.)

“To Be Profitable, You Have to Have a Purpose”

(p. F2) When a group of the nation’s largest companies said last month that they had changed their mission strictly from making profits to also include benefiting “customers, employees, suppliers, communities and shareholders,” it was generally applauded as an important step in the right direction.

. . .

Treasury Secretary Steven Mnuchin in his first public comment on the topic, flatly told me: “I wouldn’t have signed it,” stunning a room of policymakers and business leaders in Washington at last week’s DealBook DC Strategy Forum.

His explanation was nuanced: “To be profitable, you have to have a purpose. I think it’s not as simple as saying we either have a purpose or we have profits. I think the problem with creating a simple answer is it doesn’t fully explore the issues.”

He added: “I do think companies should be long-term oriented. I don’t think companies need to necessarily be focused on quarterly profits and hitting Street earnings numbers. But I think, ultimately, a business’s job is to deploy the capital correctly and to make profits.”

Stephen A. Schwarzman, the co-founder and chairman of Blackstone Group and one of only a handful of members of the Business Roundtable who declined to sign the document, also went public with his explanation in a conversation with me earlier this week: “I know why we’re in business: because people give us money to manage. They want us to earn a lot of money to give them back or else they would give us nothing.”

He said “the idea that business should be concerned” with employees, customers, suppliers and the community should be a given. But, he said, he objected to the idea in the Business Roundtable statement that profits should be listed as simply equal to the other four issues.

“I have trouble managing when I don’t know what I’m supposed to be doing,” he said, suggesting the statement gives managers too many masters. “I know what I’m supposed to be doing, which is making good investments, safely, and making a great contribution to these pension funds and regular people.”

For the full commentary, see:

Andrew Ross Sorkin. “Profits or Public Interest?” The New York Times (Thursday, September 19, 2019): F2.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Sept. 18, 2019, and has the title “Profits or the Public Interest: The Debate Continues.”)

Boston Brahmins Invested in Western Industrialization

(p. A13) One of history’s ironies is that, even though New England birthed the abolition movement, many of Boston’s most prominent families offered less than total support for freeing the slaves. Their prosperity required a steady supply of cotton to feed New England’s growing textile industry. Even after slavery ended in 1865, wealthy Bostonians were reluctant to abandon their traditional business. Henry Lee Higginson, 30 years old and freshly discharged from the Union Army, bought with his partners a 5,000-acre plantation in Georgia with the goal of turning a profit by growing cotton. But the 60 former slaves living on the plantation thought the wages and terms offered to be grossly inadequate; the land they had worked in chains for generations, they believed, should belong to them. The enterprise soon collapsed.

As similar episodes played out across the South, Boston’s business elites looked for new places to invest their money. “They began to reenvision American capitalist development, not in modifying and salvaging the arrangements of earlier decades but in a far more ambitious program of continental industrialization,” Noam Maggor writes in “Brahmin Capitalism.” “They retreated from cotton and moved into a host of groundbreaking ventures in the Great American West—mining, stockyards, and railroads.”

. . .

Especially representative of the Bostonians’ transformative influence was Higginson’s next enterprise. Far removed from Georgian cotton, his interests landed on a copper mine in northern Michigan’s remote Keweenaw Peninsula. Copper had been discovered there 20 years earlier, but extraction had been small-scale and labor intensive; the high cost per unit meant that mining was profitable only for veins that contained at least 40% copper. In a short time, high-yield mines in the area began to show signs of depletion. But with Higginson’s capital—alongside investments from other Brahmins—large-scale copper extraction could take place as a continuous operation, making mining profitable on belts that contained only 2%-4% copper. In this way, Higginson’s Eastern capital transformed Western mining and launched a career that would make him one of Boston’s leading financiers.

For the full review, see:

John Steele Gordon. “BOOKSHELF; Enterprising Bostonians; Contrary to stereotype, the Brahmins of New England crisscrossed the continent and took bold risks in search of higher yields.” The Wall Street Journal (Monday, June 26, 2017): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date June 25, 2017, and has the same title as the print version.)

The book under review is:

Maggor, Noam. Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age. Cambridge, MA: Harvard University Press, 2017.