Tuesday, September 06, 2011

Let Business Pioneers Do What They Do Best: Create New Wealth, Not Redistribute Wealth

From Thomas Sowell's latest column:  

"A recent New York Times article criticized Apple CEO Steve Jobs for not contributing to charity as much as the New York Times writer thought he should. The media in general are full of praise for business people and their companies for giving away substantial amounts of their wealth. Indeed, that is one of the few things for which many in the media praise businesses and the wealthy.  

Judging businesses or their owners by how much wealth they give away -- rather than by how much wealth they create -- is putting the cart before the horse. Wealth is ultimately the only thing that can reduce poverty. The most dramatic reductions in poverty, in countries around the world, have come from increasing the amount of wealth, rather than from a redistribution of existing wealth. 

What kind of world do we want -- one in which everyone works to increase wealth to whatever extent they can, or a world in which everyone will be supported by either government handouts or private philanthropy, whether they work or don't work? 

It is not an abstract question. We can already see the consequences on both sides of the Atlantic. Those who have grown used to having others provide their food, shelter and other basics as "rights" are by no means grateful. 

Let business pioneers do what they do best. And let the rest of us exercise more judgment as to how much charity is beneficial and how much more simply perpetuates dependency, grievances and the polarization of society."

26 Comments:

At 9/06/2011 8:04 AM, Blogger Methinks said...

What kind of world do we want -- one in which everyone works to increase wealth to whatever extent they can, or a world in which everyone will be supported by either government handouts or private philanthropy, whether they work or don't work?

I think what we're seeing (and to which the left is blind) is that this world is fleeting.

 
At 9/06/2011 8:21 AM, Blogger Jim said...

There is a synergistic point here as well.

We look to wealthy entrepreneurs like Gates or Buffet for economic advice. Why?

Why does a person who gets rich in software, partly because IBM did not want to use existing PC operating systems, and thought the PC was a fad and not worth introducing their own OS, qualified to speak about the welfare of the nation?

Gates puts hundreds of millions into African development. There is little reason to believe he has done any good yet. Still, it is better than spending my money through government politicized channels, because he is free to do whatever he likes.

There is little reason to believe Gates could even be successful if he chose to compete in a different software industry; say, hospital legacy systems.

The idea that he can save even a part of the world from poverty may be laudable, but it is highly suspect to the extent that he takes a macro approach as opposed to a highly specialized, entrepreneurial approach.

 
At 9/06/2011 9:19 AM, Blogger morganovich said...

"There is little reason to believe Gates could even be successful if he chose to compete in a different software industry; say, hospital legacy systems."

jim-

that's a pretty outlandish claim.

i've met bill. he could have succeeded in damn near anything. microsoft was NOT luck.

your whole premise seems absurd. someone who has turned a garage company into one of the largest and most successful companies in the history of the world has a great deal of experience evaluating opportunities and markets, making investment decisions, and knows precisely what sort of government policies make business run better and worse.

contrast that to the experience of most of our politicians, and yes, i'd claim he is VASTLY more qualified to make such pronouncements than they are.

what has barak obama ever done that makes him even qualified to have a conversation with mr gates regarding business?

you also seem to have some strange ideas about macro.

for those of us who were not trained to be keynsians, they sound absurd.

ask the chicago school or the austrians about what you need to understand macro, and they will say "micro".

macro is the sum of micro decisions. figure out how micro will respond to policy/situations, and sum it, and the macro picture emerges.

that's how i was trained as an economist.

for that sort of approach, gates is very well prepared (and most university professors are not).

 
At 9/06/2011 10:56 AM, Blogger Methinks said...

Morganovich,

I think you misunderstand Jim's comment.

Bill has specialized knowledge and he is competitive in the field he's in. He is unlikely to be equally competitive in every industry.

Unfortunately, Bill Gates imagines that because he's successful with Microsoft that he can come up with top down solutions for the entire economy. I've heard him babble such nonsense repeatedly. He knows what's good for you. He doesn't know that food is a component of GDP, but he's figured out how to "fix capitalism".

I've met lots of very powerful and very successful people just like Gates in my lifetime. I wouldn't want them centrally planning either.

 
At 9/06/2011 11:23 AM, Blogger morganovich said...

methinks-

you may be correct, but i have some doubts.

i think the greater point is that there is NOONE who is capable of central planning.

it's simply not possible.

i have never heard gates opine on the desirability of such. (which does not mean he hasn't)

i still take issue with jim's points. he seems to think gates got lucky, like the guy who invented the cabbage patch doll. that is far from the case.

and comments like this "
There is little reason to believe Gates could even be successful if he chose to compete in a different software industry; say, hospital legacy systems"

are just absurd. "even be successful" seems like an awfully strident claim. you don't build one of the most successful companies in human history and survive for 30 years in one of the most competitive markets around by luck. there is little evidence that i could have made it as a used car salesman either (because i've never tried) but having succeeded in many other endeavors, i suspect i could. his whole argument in that respect is sophomoric.

i think you may be giving jim more benefit of the doubt that his comments seem to warrant.

if we was speaking about the inadvisability of central planning, then why single out gates and never mention the impossibility of the task? he seems to believe that someone can do it, just not bill.

lots of business leaders have a keen macro understanding. IBM is renowned for issuing bonds at precisely the top of markets.

i also take issue with his separation of macro and micro. that's just artificial nonsense foisted by keynes etc.

macro is the sum of micro.

if you know how the individuals respond, you can predict the whole.

the gates foundation has done a good job of focusing on basic welfare promotion through things like immunization, education, better varieties of crops, and mosquito netting.

his foundation is not trying to centrally plan. he's trying to look at the individuals and say "what would make you more productive and let you work, build wealth etc." then provide it.

he has deliberately avoided the terrible traps that UN agencies create through top down macro.

if aid trucks come with food every tuesday, why farm, why open a store, why build the basics of a food economy?

he's not targeting gdp growth or employment figures or any other macro goal.

i think gates is working bottom up, not top down.

i think jim has completely mischaracterized him and the knowledge needed for politicians to aid economic success.

what "top down nonsense" from gates are you referring to? mostly, i've seen the opposite from him.

i've heard his speak on the desirability of more work visas for skilled foreigners, but that again is a bottom up view.

i'm hardly a student of bill gates, so perhaps you have some data i don't, but your characterization of him seems quite dissonant with most of what i have seen.

 
At 9/06/2011 11:37 AM, Blogger juandos said...

"microsoft was NOT luck"...

Well you got that right morganovich, it was theft of an OS first put together by Gary Kildall if rumors are to be believed...:-)

 
At 9/06/2011 11:53 AM, Blogger morganovich said...

juandos-

that's one (biased) interpretation.

but i am left asking "so what"?

what about all the developments since then? what about office? (the real cash cow) exchange? successfully keeping dominance for 30 years in the face of competition from technology titans? even realizing the future was PC's at all was a big move in the late 70's.

lots of people have stolen one piece of technology. few have ever made a franchise out of it.

 
At 9/06/2011 11:57 AM, Blogger morganovich said...

also:

having an idea is not valuable. there are lots of good ideas and people with good ideas that never amount to anything.

it is only taking an idea and making it happen that matters economically.

if gary had kept the IP, who is to say it would have ever amounted to anything? he might have just been another failed OS that never struck the right deals to succeed, failed to make a transition to windows, got outflanked by competitors or fell apart due to financial imprudence.

it is extreme survivor bias to assume that it was DOS that mattered and not the team the figured out how to sell it.

ask informix how much good having a better database did them against larry elison.

 
At 9/06/2011 12:15 PM, Blogger Shane Leavy said...

Sowell adds: "they are more angry, lawless and violent than in years past, whether they are lower-class whites rioting in Britain..."

I doubt this. There seems to be some myth that Britain was traditionally peaceful and safe and only the latest generation is violent. Look, though, at the decades of brutal recreational violence enjoyed by massive mobs of soccer hooligans, peaking in the 1970s and 80s. Riots are nothing new.

It's also worth pointing out that violent crime rates have fallen dramatically in Britain, peaking in the early 1990s.

 
At 9/06/2011 12:26 PM, Blogger Methinks said...

Morganovich,

he seems to think gates got lucky, like the guy who invented the cabbage patch doll. that is far from the case.

Your success, my success and Bill Gates' success is in part due to luck. None of us were born in North Korea, for instance. None of us were born retarded. None of us were born without ambition. My parents chose to move to the United States and out of the USSR. Your mother came here, etc.

Of course, people can be born into enormous opportunity and do absolutely nothing with their lives. So, all success cannot be attributed to luck. But, it is disingenuous to not recognize that luck plays a role.

you don't build one of the most successful companies in human history and survive for 30 years in one of the most competitive markets around by luck.

Establishing that I do not believe that Microsoft's success is all due to luck, I will remind you that there is significant advantage in being, as Microsoft was, the first mover. Once Microsoft established itself as the standard, competing with it became very difficult. That it was Microsoft that had that advantage was lucky.

if we was speaking about the inadvisability of central planning, then why single out gates and never mention the impossibility of the task? he seems to believe that someone can do it, just not bill.

That's not how I read it. Jim takes issue with Gates' advocacy of a top down vs. bottoms up approach to solving certain problems.

if you know how the individuals respond, you can predict the whole.

That's the lie of macro. Individuals are far too complex to be able to predict by aggregating them. We each have our own desires and values.

the gates foundation has done a good job of focusing on basic welfare promotion through things like immunization, education, better varieties of crops, and mosquito netting.

I don't care about any of that. How Gates spends his money does not interest me and it's not of my business. As long as he's spending his and not mine, he can do what he wants.

Bill heaps praise on Chinese leaders. From his Davos speech:

"They're smart," he said with emphasis.

"They have this mericratic way of picking people for these government posts where you rotate into the university and really think about state allocation of resources and the welfare of the country and then you rotate back into some bureaucratic position."

He is a lover of Socialism (which he understands rather poorly). He knows exactly nothing about socialized medicine, but pontificates nonetheless:

"I happen to like the Swiss system and the German system the best, which are not a single payer Canadian or British type system, but I’d take any rich country’s medical system over ours. Ours is provably the worst. [Audience laughter]. It is the most expensive and the least equitable."

That would all be fine if he didn't join up with his buddies to advise government how to confiscate the product of my labour to piss away on things like "green energy" and how to "fix capitalism" (he didn't figure out that to "fix" it, you leave government out of it).

All evidence points to him being one of those smart guys who is too stupid to know the limits of his knowledge. Actually, he seems too stupid to know that his knowledge has limits. He doesn't realize the very obvious - that central planning is an impossible task. Even if you're really smart.

 
At 9/06/2011 12:31 PM, Blogger Methinks said...

that's one (biased) interpretation.

Morganovich, you're not labouring under the mistaken assumption that your interpretation is not biased, are you?

 
At 9/06/2011 1:12 PM, Blogger Hydra said...

What good is increased wealth if it is not distributed?

This isn't a question of increasing wealth OR distributing existing wealth. The question is how to create more wealth AND ensure that everyone who contributes to making the wealth is compensated appropriately.

Otherwise, why would I care if buffet or gates gets another billion?

 
At 9/06/2011 1:23 PM, Blogger Buddy R Pacifico said...

Methinks,

The consumers decided that Microsoft was lucky and good-- on the grandest of scales.

 
At 9/06/2011 1:29 PM, Blogger morganovich said...

methinks-

"Your success, my success and Bill Gates' success is in part due to luck."

this is so broad as to be meaningless. our continued life is in part luck too. you could have been hit by a meteorite this morning.

i think you are just picking nits.

lots of people are born in the US, many into much more family wealth and position than bill gates. they didn't turn into him despite even better luck.

"Establishing that I do not believe that Microsoft's success is all due to luck, I will remind you that there is significant advantage in being, as Microsoft was, the first mover. Once Microsoft established itself as the standard, competing with it became very difficult. That it was Microsoft that had that advantage was lucky."

they were not the first mover. IBM was. they were the first to become dominant. lots of first movers fail and lots of later movers win. apple was not first into mp3 players, nor oracle into databases. napster was first in file sharing. who can even remember who the first investment bank was. first movers lose all the time. i think it's the most overrated industry position there is. you make all the mistakes, someone else sees them and gets it right the first time.

 
At 9/06/2011 1:37 PM, Blogger morganovich said...

"That's not how I read it. Jim takes issue with Gates' advocacy of a top down vs. bottoms up approach to solving certain problems."

on what do you base that? i have re read it about 6 times and see nothing like that, just a misunderstanding of what gates does.

"Gates puts hundreds of millions into African development. There is little reason to believe he has done any good yet."

this is just flat out wrong. he is not investing in africa, he is investing in africans. it's bottoms up, not top down.

jim has erected a straw man. the gates foundation is explicitly entrepreneurial, not top down UN style aid.

"That's the lie of macro. Individuals are far too complex to be able to predict by aggregating them. We each have our own desires and values. "

no, it's the limit of macro. business react the same way to lots of stimuli. so do individuals. you cannot ever predict every one, and nor should you try. but to claim that it's not perfect that therefore we should not theorize is absurd. you make the good extinct in service to the perfect. clearly, there are enormous limits to what can be know (and therefore what anyone ought to try to manage) but that is true in any feild.

should we stop treating cancer or mental illness until our understanding is perfect?

 
At 9/06/2011 1:42 PM, Blogger morganovich said...

regarding gates-

i agree with you on his healthcare views. that's just populist limousine liberalism masquerading as sophistication.


regarding bias, i am not operating under the illusion that i know what happened around DOS and microsoft.

i have read accounts from both sides. i presume both are biased and i do not have the data to proclaim the truth.

juandos just read "they made america" and is quoting therefrom.

 
At 9/06/2011 1:48 PM, Blogger morganovich said...

ahh, the hydra marxist viewpoint surfaces.

and just who is going to "ensure that everyone who contributes to making the wealth is compensated appropriately."?

who decides what is "appropriate" and wields the power to redistribute?

bill gates has helped generate staggering amounts of wealth for shareholders, employees, customers, partners, you name it. they in turn, spent money on lots of other things from yachts to hot dogs. thus, wealth creating breeds wealth creation.

so how are you going to step in and "ensure appropriate compensation"?

for someone who gets so upset at being called a marxist, you sure sound just like das capital ranting about alienated labor.

 
At 9/06/2011 6:23 PM, Blogger juandos said...

"what about all the developments since then? what about office? (the real cash cow) exchange? successfully keeping dominance for 30 years in the face of competition from technology titans?"...

Well morganovich if you had noted my comment you would've guessed I was being a bit sarcastic...

BTW without MSDOS there would've never been MSOffice...

"lots of people have stolen one piece of technology"...

Yes indeed and the moral of the story here is that if Gary Kildall had had his act together (which Bill sr & jr Gates did) he could've been the modern Bill Gates...

Kildall was by far the more technically gifted and astute of the two people but he lacked the 'hungry' pragmatism the Bill Gates had/has...

 
At 9/06/2011 6:30 PM, Blogger juandos said...

How about these (ha! ha!) pioneers, are they creating wealth?

From Fox News: American Corporate Investors, With Help from U.S. Treasury, Poised to Profit From 'Green' Light-Bulb Production in China

As the Obama administration gets set to enforce a controversial federal law phasing out old-fashioned incandescent light bulbs next year, two large U.S. firms have positioned themselves to profit handsomely from the production of more environmentally friendly lighting -- in China.

 
At 9/07/2011 1:39 AM, Blogger Don Culo said...

Wealth is ultimately the only thing that can reduce poverty.

*******************

That is true if the poor become wealthy.

 
At 9/07/2011 8:06 AM, Blogger Seth said...

"i've met bill. he could have succeeded in damn near anything. microsoft was NOT luck."
-morganovich

morganovich - I'm honestly curious. What was it in your meeting with Bill that caused you to come to this conclusion? What specifically differentiated his behavior from the 100s of other driven, ambitious and intelligent folks you have probably met in your life, but have not yet achieved large measures of success?

 
At 9/07/2011 8:12 AM, Blogger Seth said...

"I will remind you that there is significant advantage in being, as Microsoft was, the first mover."
-Methinks

What was Microsoft the first mover in? DOS maybe, though I believe that was something he didn't start from scratch.

Apple was the first mover in the visual interface. Other spreadsheets and word processors came before Excel and Word. Netscape developed the browser.

I always thought Microsoft was known as being a successful second or third mover, but even that started waning in the Google/Facebook age.

 
At 9/07/2011 9:47 AM, Blogger morganovich said...

"What was it in your meeting with Bill that caused you to come to this conclusion? What specifically differentiated his behavior from the 100s of other driven, ambitious and intelligent folks you have probably met in your life, but have not yet achieved large measures of success?"

simple.

gates had an enormous amount to prove.

they guy was driven as hell, and insecure about success even as a billionaire.

he also had the energy and the intelligence and vision, but it's the first factor that multiplies those.

you do not become a guy like gates or elison by having a balanced personality. you need to be obsessive, you need to need it. most folks would slack off at $100 million. i've seen it time and time again.

to want to vault up to "dominate an entire world industry" you need something else, something more than ordinary motivation. it may well be pathological.

combine it with the skills, and you get a helluva result. pathological need to win + talent = big results. it's true of businessmen and top athletes alike. balanced people don't win gold medals.

gates could have won out in any industry that has the kind of change technology does.

you can't do it in say, plumbing supply, because it's all relationships, high capital costs, and massive fragmentation. it would take forever to take that over. but technology is fast. that's why it attracts guys like gates, ellison, and brin.

if you get a lead there, you can really take it all the way.

 
At 9/07/2011 11:10 AM, Blogger Anita said...

I think Sowell did not have any problem with the distribution of wealth. In my opinion, he was opposed to the fact that such distributed wealth does not create more wealth. People who are used to living on charity generally get comfortable with it and choose not to work anymore. As the last paragraph suggests, at some point, the charity will perpetuate dependency, grievances and the polarization of society.

 
At 9/07/2011 1:19 PM, Blogger Seth said...

morganovich - I don't want to take anything away from Gates. All the power to him. But, you've never met anyone with those qualities that didn't have at least a hundred million or wasn't a top athlete?

Read through his bio on wikipedia and ask yourself how things may have been different if certain things didn't happen. What if he didn't know Paul Allen in high school, or hadn't met Steve Ballmer at Harvard or if IBM hadn't awarded the OS contract to MS?

I'm sure he would have been successful if any of these things went differently, but maybe more like the other thousands of driven and smart folks out there that don't happen across their destiny in their teens.

(One thing I found amazing in there is how he rigged the class scheduling program to put him into classes with more females. In that respect, he seemed to share motivations with Zuckerberg).

 
At 9/07/2011 4:43 PM, Blogger juandos said...

"But, you've never met anyone with those qualities that didn't have at least a hundred million or wasn't a top athlete?"...

Seth I don't what wikipedia has on Bill jr but one thing for sure is Bill jr actually had something better than a $100 million, he had Bill sr., a very successful corporate lawyer in the Seattle area...

I knew/know Bill jr and occassionally used to enter his little contests of who could write the most compact code in MSBasic to do certain tricks on an 8086 based computer...

It was fun, it was learning experience, and one got to meet some seriously sharp individuals...

Bill jr has drive (to go with his well above average intelligence) like you rarely meet in most of the people you'll typically come across in life...

So I for one am not the least bit suprised that the 'Seattle dweeb' made it big, real big in the tech field...

 

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