Category: Capitalism

“Rand’s Entrepreneur Is the Promethean Hero of Capitalism”

(p. B1) Few, if any, literary philosophers have had as much influence on American business and politics as Ayn Rand, especially now that Donald J. Trump occupies the White House.

President Trump named Rand his favorite writer and “The Fountainhead” his favorite novel. Secretary of State Rex W. Tillerson has cited “Atlas Shrugged” as a favorite work, and the C.I.A. director, Mike Pompeo, said the book “really had an impact on me.”

. . .

(p. B2) In business, Rand’s influence has been especially pronounced in Silicon Valley, where her overarching philosophy that “man exists for his own sake, that the pursuit of his own happiness is his highest moral purpose, that he must not sacrifice himself to others, nor sacrifice others to himself,” as she described it in a 1964 Playboy interview, has an obvious appeal for self-made entrepreneurs. Last year Vanity Fair anointed her the most influential figure in the technology industry, surpassing Steve Jobs.

. . .

“Rand’s entrepreneur is the Promethean hero of capitalism,” said Lawrence E. Cahoone, professor of philosophy at the College of the Holy Cross, whose lecture on Rand is part of his Great Courses series, “The Modern Political Tradition.” “But she never really explores how a dynamic entrepreneur actually runs a business.”

. . .

“Mention Ayn Rand to a group of academic philosophers and you’ll get laughed out of the room,” Mr. Cahoone said. “But I think there’s something to be said for Rand. She takes Nietzschean individualism to an extreme, but she’s undeniably inspirational.”

As the mysterious character John Galt proclaims near the end of “Atlas Shrugged”: “Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won, it exists, it is real, it is possible, it’s yours.”

For the full commentary, see:

James B. Stewart. “COMMON SENSE; Tough Times For Disciples Of Ayn Rand.” The New York Times (Friday, July 14, 2017): B1-B2.

(Note: ellipses added.)

(Note: the online version of the commentary has the date July 13, 2017, and has the title “COMMON SENSE; As a Guru, Ayn Rand May Have Limits. Ask Travis Kalanick.”)

Ayn Rand’s magnum opus, quoted above, is:

Rand, Ayn. Atlas Shrugged. New York: Random House, 1957.

Democrat Warren Buffett Admits to Being “a Card-Carrying Capitalist”

(p. B1) The most prominent face of capitalism — Warren Buffett, the avuncular founder of Berkshire and the fourth wealthiest person in the world, worth some $89 billion — appeared to distance himself from many of his peers, who have been apologizing for capitalism of late.

“I’m a card-carrying capitalist,” Mr. Buffett said. “I believe (p. B3) we wouldn’t be sitting here except for the market system,” he added, extolling the state of the economy. “I don’t think the country will go into socialism in 2020 or 2040 or 2060.”

There is something oddly refreshing about Mr. Buffett’s frankness.

. . .

Mr. Buffett’s moral code is one of being direct, even when it is not politically correct. In his plain-spoken way, Mr. Buffett, a longtime Democrat, acknowledged that the goal of capitalism was “to be more productive all the time, which means turning out the same number of goods with fewer people or churning out more goods, with the same number,” he said.

“That is capitalism.” Two years ago at the same meeting, he bluntly said, “I’m afraid a capitalist system will always hurt some people.”

. . .

. . . at his core, he believes that the pursuit of capitalism is fundamentally moral — that it creates and produces prosperity and progress even when there are immoral actors and even when it creates inequality.

. . .

One prominent chief executive I spoke with after the meeting said he wished he could speak as bluntly as Mr. Buffett. He said in this politically sensitive climate, he often has to tiptoe around controversial topics and at least nod at the societal concern of the moment.

Therein lies the truth of the particular moment that the business community faces and one that, at least so far, Mr. Buffett, at age 88, may be immune from.

And so while Mr. Buffett may have missed an opportunity to use his perch, he comes to his views of a just business world honestly.

For the full commentary, see:

Andrew Ross Sorkin. “Buffett Still Champions Capitalism.” The New York Times (Monday, May 6, 2019): B1 & B3.

(Note: ellipses added.)

(Note: the online version of the commentary has the date May 5, 2019, and has the title “Warren Buffett’s Case for Capitalism.”)

Australia’s 28 Years With No Recession Challenge Business Cycle Cliches

(p. 6) I had flown 16,000 miles . . .  to study . . .  the remarkable resilience of the Australian economy, which has gone nearly 28 years without a recession.

. . .

America is on the verge of its own economic milestone: The current expansion is on track to reach its 10th birthday this summer, which would also put it on record as the nation’s longest streak without a recession.

During the decade I’ve spent chronicling that growth as an economics writer, a persistent whisper has been: How long can it go? The run has been uneven, underwhelming and repeatedly on the verge of unraveling, including scary moments in 2010, 2015 and this past December. Seemingly every commentator without a good cliché blocker has referred to it as “long in the tooth.” Continue reading “Australia’s 28 Years With No Recession Challenge Business Cycle Cliches”

“Seek Truth from Facts”

(p. A15)  . . . 2019 . . .  marks the anniversary of the result of a . . . defiant protest—one that will receive little attention in or out of China, even though it launched the economic reforms that kick-started the country’s rise.

Forty years ago this spring, corn farmers in Xiaogang village, in the central province of Anhui (where Pearl Buck set “The Good Earth”), reported a grain yield of 66 metric tons. This single harvest equaled the village’s total output between 1955 and 1970—but for once the figure was not exaggerated. In fact, villagers underreported their actual yield by a third, fearing officials would not believe their record haul.

What caused this massive spike in production? A new fertilizer or hybrid seed? Better equipment? A catchy, rhymed propaganda slogan? No; Xiaogang’s farmers were starving. After taking power in 1949, China’s Communist Party had effectively abolished private land ownership, grouping farms into “people’s communes” subservient to the state. By 1978 villages were crippled by quotas that seized most of what they grew for redistribution.

Continue reading ““Seek Truth from Facts””

“If You Write a Best-Selling Book, You Can Be a Millionaire, Too”

(p. A14) WASHINGTON — Senator Bernie Sanders, whose $18 million fund-raising haul has solidified his status as a front-runner for the Democratic presidential nomination, said Tuesday [April 9, 2019] that he would release 10 years of tax returns by Tax Day on Monday and acknowledged that he has joined the ranks of the millionaires he has denounced for years.

. . .

Reminded that he is a millionaire, he did not shirk from the description.

“I wrote a best-selling book,” he declared. “If you write a best-selling book, you can be a millionaire, too.”

For the full story, see:

Sheryl Gay Stolberg.  “Sanders Says He’ll Release Tax Returns.”  The New York Times (Wednesday, April 10, 2019):  A14.

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

(Note:  the online version of the story has the date April 9, 2019, and has the title “Bernie Sanders, Now a Millionaire, Pledges to Release Tax Returns by Monday.”)

Innovative Entrepreneurs Bring Prosperity to the Poor

(p. A17) As the economist Joseph Schumpeter observed: “The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”

For Schumpeter, entrepreneurs and the companies they found are the engines of wealth creation. This is what distinguishes capitalism from all previous forms of economic society and turned Marxism on its head, the parasitic capitalist becoming the innovative and beneficent entrepreneur. Since the 2008 crash, Schumpeter’s lessons have been overshadowed by Keynesian macroeconomics, in which the entrepreneurial function is reduced to a ghostly presence. As Schumpeter commented on John Maynard Keynes’s “General Theory” (1936), change–the outstanding feature of capitalism–was, in Keynes’s analysis, “assumed away.”

Progressive, ameliorative change is what poor people in poor countries need most of all. In “The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty,” Harvard Business School’s Clayton Christensen and co-authors Efosa Ojomo and Karen Dillon return the entrepreneur and innovation to the center stage of economic development and prosperity. The authors overturn the current foreign-aid development paradigm of externally imposed, predominantly government funded capital- and institution-building programs and replace it with a model of entrepreneur-led innovation. “It may sound counterintuitive,” the authors write, but “enduring prosperity for many countries will not come from fixing poverty. It will come from investing in innovations that create new markets within these countries.” This is the paradox of the book’s title.

Continue reading “Innovative Entrepreneurs Bring Prosperity to the Poor”

Innovative Entrepreneurs Improve Life for All

(p. A19) In a free-market system, society’s most productive members tend to facilitate upward mobility for all of us, not just for themselves. And not only through their philanthropy.
Oil refining made the Rockefellers rich, but in the process, they made oil products much cheaper and thus more widely available to the poor. Prior to Standard Oil, whale oil and candles were a luxury that only the wealthy could afford. The rest had to go to bed early to save money, explains Burton Folsom, a professor of history at Hillsdale College. “By the 1870s, with the drop in the price of kerosene, middle- and working-class people all over the nation could afford the one cent an hour that it cost to light their homes at night. Working and reading became after-dark activities new to most Americans.”
Rockefeller got rich and America got more productive. Henry Ford did something similar in auto manufacturing, as did Sam Walton of Walmart fame with respect to big-box discount stores. Bill Gates has done more for humanity creating his computer-software fortune than he will ever do giving it away through his foundation. Wealth creation plays a far bigger role than philanthropy or government transfer programs in improving our standard of living, something that those forever trying to “stick it to the rich” either don’t understand or choose to ignore out of political expedience.

For the full commentary, see:
Jason L. Riley. “UPWARD MOBILITY; How a Billionaire Spends His Money Is His Own Business; Progressives are more interested in scapegoating the wealthy than they are in relieving poverty.” The Wall Street Journal (Wednesday, Jan. 30, 2019): A19.
(Note: the online version of the commentary has the date Jan. 29, 2019.)

Hickenlooper Should Be Proud He Worked Hard to Build a Business Under Capitalism

(p. A21) John Hickenlooper ought to be a poster child for American capitalism. After being laid off from his job as a geologist during the oil bust of the 1980s, he and his business partners turned an empty warehouse into a thriving brewery.
. . .
Yet there he was on MSNBC’s “Morning Joe,” squirming in his seat as Joe Scarborough asked if he would call himself “a proud capitalist.” Hickenlooper protested the divisiveness of labels. He refused to reject the term “socialism.” He tried, like a vegetarian who still wants his bacon, to have it both ways: “There are parts of socialism, parts of capitalism, in everything.”
But Hickenlooper did allow this: “We worked 70, 80, 90 hours a week to build the business; and we worked with the other business owners in [Lower Downtown Denver] to help them build their business. Is that capitalism? I guess.”
He guessed right.
. . .
An economy in which private property is protected, private enterprise is rewarded, markets set prices and profits provide incentives will, over time, generate more wealth, innovation and charity — and distribute each far more widely — than any form of central planning.
. . .
To the extent that Sanders’s concept of democratic socialism has gained traction, it’s not because capitalism has failed the masses. It’s because Sanders, beyond any of his peers, has consistent convictions and an authentic persona.
To prevail, a moderate Democrat will need to behave likewise. The message can go like this: Capitalism has worked for millions of Americans. It worked for me. We need to reform it so it can work for everyone.

For the full commentary, see:
Stephens, Bret. “Capitalism and the Democrats; The most successful economic system shouldn’t be a dirty word.” The New York Times (Saturday, March 9, 2019): A21.
(Note: ellipses added; italics in original.)
(Note: the online version of the commentary has the date March 8, 2019, and has the title “Capitalism and the Democratic Party; The most successful economic system shouldn’t be a dirty word.”)

“Profit Feeds Impact at Scale”

(p. 1) Eric Reynolds will tell you that he is on the verge of freeing much of humanity from the deadly scourge of the cooking fire. He can halt the toxic smoke wafting through African homes, protect what is left of the continent’s forest cover and help rescue the planet from the wrath of climate change.
He is happy to explain, at considerable length, how he will systematically achieve all this while constructing a business that can amass billions in profit from an unlikely group of customers: the poorest people on earth.
He will confess that some people doubt his hold on reality.
“A lot of people think it’s too good to be true,” says Mr. Reynolds, a California-born entrepreneur living in Rwanda. “Most people think I am pretty out there.”
The company he is building across Rwanda, Inyenyeri, aims to replace Africa’s overwhelming dependence on charcoal and firewood with clean-burning stoves powered by wood pellets. The business has just a tad more than 5,000 customers and needs perhaps 100,000 to break even. Even its chief operating officer, Claude Mansell, a veteran of the global consulting company Capgemini, wonders how the story will end.
“Do we know that it’s going to work?” he asks. “I don’t know. It’s never been done before.”
Inyenyeri presents a real-world test of an idea gaining traction among those focused on economic development — that profit-making businesses may be best positioned to deliver critically needed services to the world’s poorest communities.
Governments in impoverished countries lack the finance to attack threats to public health, and many are riddled with corruption (though, by reputation, not Rwanda’s). Philanthropists and international aid organizations play key roles in areas such as immunizing children. But turning plans for basic services into mass-market realities may require the potent incentives of capitalism. It is a notion that has provoked the creation of many businesses, most of them failures.
“Profit feeds impact at scale,” says Mr. Reynolds, now in the midst of a global tour (p. 8) as he courts investment on top of the roughly $12 million he has already raised. “Unless somebody gets rich, it can’t grow.”
More than four decades have passed since Mr. Reynolds embarked on what he portrays as an accidental life as an entrepreneur, an outgrowth of his fascination with mountaineering. He dropped out of college to start Marmot, the outdoor gear company named for the burrowing rodent. There, he profited by protecting Volvo-driving, chardonnay-sipping weekend warriors against the menacing elements of Aspen. Now, he is trying to build a business centered on customers for whom turning on a light switch is a radical act of upward mobility.
. . .
To succeed, a stove had to be so convenient and clean burning that women preferred it over their existing cooking method.
Mr. Reynolds began testing stoves made in Italy, India, the United States and China. He tried making his own.
He came to realize that the magic was in the combination of stove and fuel. He experimented with making charcoal out of corncobs. (“A stupid idea,” he says.) He tried burning banana leaves. Then he discovered wood pellets, which involve compressing wood and eliminating water, the element that produces much of the smoke.
He settled on a Dutch-made stove that reduces wood down to clean-burning gases. Using pellets reduced the need for wood by 90 percent compared with charcoal. But those stoves cost more than $75.
Then came the epiphany: Inyenyeri could supply the stoves for free while collecting revenue from subscriptions for pellets. Rwanda was urbanizing rapidly, and city dwellers rely on charcoal. They would be eager to switch to pellets, which were 30 to 50 percent cheaper.
. . .
(p. 9) The business model would get more attractive as the cost of charcoal climbed, and as innovation inevitably made stoves more efficient. Inyenyeri would also stand to collect revenue from an arrangement it later entered into with the World Bank to sell credits for reducing emissions.
In 2010, Mr. Reynolds sold his house in Boulder and went all in on Inyenyeri. He unloaded his wine cellar, liquidated his retirement accounts and moved to Rwanda with no plan to leave.
. . .
“This business model will happen,” he says. “If it’s not Inyenyeri that’s the first mover, then it will be someone else who learns from our mistakes and does it better. It’s too big of an opportunity.”

For the full story, see:
Peter S. Goodman. “‘A Low-Cost Fix for Africa’s Silent Killer.” The New York Times, SundayBusiness Section (Sunday, Dec. 6, 2018): 1 & 8-9.
(Note: ellipses added.)
(Note: the online version of the story has the date Dec. 5, 2018, and has the title “Toxic Smoke Is Africa’s Quiet Killer. An Entrepreneur Says His Fix Can Make a Fortune.”)

Distorted Incentives Can Lead to Short-Termism or to Long-Termism

(p. B1) Capitalism is often accused of fostering short-termism, making companies chase quarterly profit numbers to satisfy shareholders.
A better criticism is that the targets corporate executives aim for are grossly simplified, thanks to the twisting line of responsibility from corner office to fund manager to pension fund and ultimately to the savers who own the company.
These distorted incentives sometimes lead to short-termism; at other times, shareholder enthusiasm pushes executives to focus far too much on the long run, as in the wild mining boom that turned to bust in 2011, or the dot-com bubble.

For the full commentary, see:
James Mackintosh. “STREETWISE; Fixing Capitalism, One Disclosure at a Time.” The Wall Street Journal (Wednesday, Nov. 28, 2018): B1 & B12.
(Note: the online version of the commentary has the date Nov. 27, 2018.)

Young Back Choi Offers Advance Praise for Openness to Creative Destruction

In this excellent book, Arthur Diamond offers a spirited defense of open and free market system, saying that much of the complaints against capitalism is based on (1) mistakenly conflating free market competition with cronyism, and (2) grossly under-appreciating the innovative entrepreneur’s ability to solve problems in all sorts of areas–in the past and in the future. One of the central claims of the author, based on his understanding of the epistemology of innovation, namely, the necessity of self-funding of all breakthrough entrepreneurs, underlines the need for open and competitive markets if we are to enjoy in the future benefits of innovative dynamism, as we have in the past.

Young Back Choi, Professor of Economics and Finance, St. John’s University. Author of Paradigms and Conventions: Uncertainty, Decision Making, and Entrepreneurship.

Choi’s advance praise is for:
Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, forthcoming June 2019.