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.
Your feedback as always is greatly appreciated Thanks much for your consideration
40 Comment(s)
Jim McKnight said... Hi Ziad ... much thx., thoughtful & provocative with which I mostly agree ... however, as in much, the devil is in the details ... specifically, what about the Gini Coefficient? ... history seems to suggest that if the income/asset differential is too steep, then that has a socially destabilizing effect ... we as a society need to be much more concerned with equality of opportunity rather than equality of outcome, but if the top & bottom get too separate, are we courting our own doom? ... best rgds. ... j. On Monday, July 05, 2010 8:03 PM
Chuck Gunn said... Ziad: This is a fabulous article that should be read by everyone, especially Congress. Also, I would like to answer Jim's questions: Q1. Why, if lowering taxes on the wealthy create more revenue, did Clinton raising of taxes increase revenues and create a surplus? A1: Clinton raised taxes in 1993 but then cut them in 1997. The surpluses occured in 1998, 1999, and 2000. Q2: Why when Bush lowered taxes on the rich, did revenues nose dive for six years and turn a surplus to deficit? A2: Bush's so called taxes on the rich occured in 2003. Revenuse did not nose dive but went up in 2004 and then set records for revenue collected in 2005, 2006, and 2007 only droping slightly in 2008. The government provides all of the data. Feel free to read it. http://www.gpoaccess.gov/eop/tables08.html The first table under Government Finance. On Sunday, July 04, 2010 9:57 PM
Pierre Accari said... Hi Ziad, Your article is a an honest and preventive message to the Administration since it shows them the benefits of not stiffling the activity of entrepreuners and taxing their productivity. In support of your argument, I add the following: 1. The government has proven its mismanagement of the public funds. The budget is increasing a great deal, the offerings to the public are decreasing a great deal and the debt is increasing a great deal. The programs such as Social Security and Welfare are in trouble and are not delivereing their intended purpose. So why would a new program be any different? 2. The legislative system is a corrective system, in the sense that it waits until a problem occurs and then it takes actions. It does not forsee the problems before they occur and take the necessary legislations. The way the current state of affairs is going, the new program will fail after a great amount of resources would be lost. 3. Capping the productivity and the ambitions of people would lead to the reverse affect. Those people would either flee this environment to find ways to make less taxed riches. Therefore, the amount of moeny going into the program would be less. 4. "Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for life." Giving money to the poor keeps them poor in most of the cases. 5. An interesting way to help the poor is Mother Theresa's way. She got the rich talking to the poor and helping them. She did not take from one to give to the other which creates animosity. It would be interesting if the goverment or whomever can get the rich and the poor to finds way to work things together for the benefit of all and the government create the proper economy. American are very good hearted and I am sure they would not refrain from helping when it is coming from them. God bless you. On Sunday, July 04, 2010 3:45 AM
william said... there is one reason why Clinton left a surplus when he left eventhough he raised taxes and it would have happened under any president in the white house at the time. The whole world had been scared to death that at the turn of thr 2000 the whole whole world was going to go black because all systems that used a computer were going to fail. Every business, private or public, was spending like hell to upgrade the technology infracstructure. All it takes is to go back and read earnings reports of tehnology companies in the 90s. the economy boomed in spite of Clinton not because of him. On Saturday, July 03, 2010 6:58 PM
Big Bob said... An excellent and thoughtful piece that should be required reading for every American. However, the white print on a dark background makes it difficult for some of to read. What's wrong with black print on a light background? It's served us well since the days of Johannes Gensfleisch zur Laden zum Gutenberg. On Saturday, July 03, 2010 7:20 AM
Tim said... Exactly right. The environment that allows all this to happen is private property which includes land, capital, and other assets. Once those are taxed or regulated to a certain tipping point, they are no longer really private property and the environment is spoiled. A stable, predictable government free from rampant corruption that defends and protects private property through law enforcement and its judicial system is the other required factor. These simple truths escape 90+% of the world's population include a good 1/3 of Americans. On Friday, July 02, 2010 9:51 AM
ck2_nd said... Great Article, two points that were touched on by DianneB and Jim that probably were not covered sufficiently. There is capitalism, and there is crony capitalism. Most liberals/socialists/progressives/collectivists don't seem to get that in any economic systems the people who focus on the "correct" things for that system get ahead. In Capitalism the "Correct" thing is meeting customer demand ad Ziad points out. In Crony capitalism and statist systems the "correct" thing is working the government to game the system. As far as a new aristocracy. When Garth Brooks retired from County music he said that he made more money than his grand kids would ever be able to spend. Hank Williams Jr. relied that he thought that Garth was seriously underestimating the abilities of his future grand kids. There are plenty of examples of fortunes made and fortunes lost in real capitalism. In crony capitalism those who have money attempt to use the systems to protect from competitors and create barriers to entry. On Friday, July 02, 2010 9:42 AM
gary kuhn said... Mr. Abdelnour, Thank you very much for making it clear that in America, we have the God given right to life, liberty and the ownership of property. We also have the right to pursue mediocrity, which is a right that Capitalists and entrepreneurs typically select as their quest. On Friday, July 02, 2010 8:16 AM
Joe K said... An excellent and long overdue article Ziad. Americans need to learn more about the nature of wealth creation as a means of achieving the same for themselves, instead of being envious and tyrying to us the "Nanny State" as a means of punishming the wealthy and redistributing the wealth (private property). And in response to Dianne B., put the Communist/Socialist playbook down long enough to realize that the realities of today, disprove your thesis. Capitalism does not lead to an "aristocratic oligachy, feudalism and ultimately totalitarianism". The simple reason is competition in the marketplace. Using the example of GM. In the 70's they owned the automobile industry and GM was the largest corporation in the world. Then there was a little event called the oil embargo happened and a small, unknown company offered a simple solution, better gas mileage. They did not compete on power and torque, not on flashy design and ornamentation, nope just better gas mileage. Today, that company, Toyota surpassed GM in production/sales and that was before the bailouts. There can be no oligarchy as long as there is competition and as long as the government doesn't use regulation to choose winners and losers. Competition and innovation keep companies honest and nimble or it replaces them. Ford replaced the horse and buggy, MP3s replaceds CDs that replaced Cassette and 8-track tapes, that replaced albums. And so it goes. That is also why if you look at the Fortune 100 companies of ten years ago, it is different than the Fortune 100 of 20 years ago and different that the Fortune 100 of today. New problems create opportunity for new companies that provide the new solutions. And please understand the difference between the "producers" who create value for their customers as the means to create wealth - Bill Gates and Steve Jobs versus the children the wealthy who may be famous but are not wealth producers, merely high end consumers. As long as their are problems to solve, their will be individuals who will take the risk to create a solution as long as the potential reward is worth the risk. On Friday, July 02, 2010 12:43 AM
Morgan Seegmiller said... Thank you for taking the time to write this. IT'S URGENT THAT WE ALL BEGIN TO TAKE THE TIME OUT OF OUR LIVES TO ENSURE THAT THIS GREAT SOCIETY THAT WE ALL ENJOY REMAINS A GREAT SOCIETY. Basic economic understanding is fundamental to maintaining our capitalist system and we all must educate our kids and our friends. Thank you for doing your part in writing this essay. --Morgan Seegmiller On Thursday, July 01, 2010 9:06 PM
Bob Halvin said... You can not tax wealth (income) unless you allow wealth to be created. Government does not create wealth but it can creat an enviornment to allow wealth to be created. If government creates an enviornment where no one can fail then the irresponsible will engage in high risk business activities knowing that the government will bail them out. If government creates an enviornment where a safty net becomes a way of life, those indiviuals rely on it will not work. On Thursday, July 01, 2010 7:58 PM
Dennis said... Ziad, This is a very well-stated essay that explains pretty well how the wealthy (those who really produce, not just those who have or have been paid a lot of money like celebrities) are essential to the economy. Without taking care of this group we run the risk of them going elsewhere. Since when is the "American Dream" done better elsewhere? Since the entrepreneurial types among us have been restricted. It is not that the wealthy are essentially more moral than others, and they need to be ethical in their businesses, but if they are gone, this economy will go the way of Greece, Spain, and Portugal. Worse case scenario: we redistribute the wealth and then all of us become poor. Look at Cuba, the Soviet Union, and precapitalist China if you want to see what a culture without wealthy is like. Not for me, thank you very much. On Thursday, July 01, 2010 7:38 PM
william said... Jim... Buy a history book and read it. Facts are important and stubborn things. For example: One of great urban myths of American business history is that the head of GM once said "what's good for General Motors is good for America." That line is once again getting a lot of press today. There's one problem -- it's not true. Here's what happened. In 1953, President Eisenhower nominated GM's CEO Charles "Engine Charlie" Wilson to be Secretary of Defense. During the hearings, when asked if as secretary of defense he could make a decision adverse to the interests of General Motors, Wilson answered affirmatively but added that he could not conceive of such a situation "because for years I thought what was good for the country was good for General Motors and vice versa." On Thursday, July 01, 2010 7:08 PM
Jim said... There is a great deal of historical revisionism happening here. Liberals and progressives don't hate or even begrudge wealthy people. We do have a problem with crooks who use our retirement to gamble on casino derivatives, and then expect the federal government to bail them out (there is an example of socialism for you--privatizing the profit and socializing the risk). Recent wall street action and other corporate maleficent beg the question of Ziad, does wealth accumulation really indicate moral integrity? Does that suggest that people who aren't rich, don't have moral integrity? I don't think rich people necessarily lack moral integrity, but I don't think it is an indication of it either. There are other great attempts to revise history by the far right especially in an attempt to make Hoover into a progressive, so conservatives don't have to take the blame for the great depression. Hoover was against regulation. The favorite phrase of the Republican presidents in the 1920s was "What is good for GM is good for America." This is what led to the great depression. Hoover did implement some tariffs after the depression hit, but that was a drop in the bucket compared to what came after FDR. The GDP drop from the great depression hit a few months after FDR took office. It skyrocketed up over the next several years--unemployment went down by half by 1937. Questions for you who see class envy from those espousing liberal policies? If redistribution is so bad then why, since the income tax was passed (1916), has the US built the strongest economy and middle class known to the world? If Keynesian economic is not successful, then why from 1933 to 1980 (Nixon said "we are Keynesians now) did the US experience explosive economic growth? If redistribution and Keynesian economics are so unfair to entrepreneurs, why was has there always been a thriving wealthy class since the US inception even during the New Deal and Great Society era? Why, if deregulation is so troublesome, did we not have banking and financial calamities like the Savings and Loan scandal, stock market crashes, and the derivative blowup from the time of FDR until Ronald Reagan come along and dismantled the regulatory infrastructure? And my favorite historical revision attempt: Why, if lowering taxes on the wealthy create more revenue, did Clinton raising of taxes increase revenues and create a surplus? Why when Bush lowered taxes on the rich, did revenues nose dive for six years and turn a surplus to deficit? On Thursday, July 01, 2010 2:25 PM
Lissa said... More importantly Alex, will the fools every LEARN?! On Tuesday, June 29, 2010 12:22 AM
Michael Anatolievich said... It is a damning indictment of the Obama administration that they need to be told what they should already know. On Monday, June 28, 2010 10:34 PM
Ronald Wopereis said... Hi Ziad, A nice blog indeed! IMHO there is a rationale behind all this: people just don't understand how money works. Recently i came across a very enthousiastic person. He was collecting money to build a school in Ghana, Africa. I asked him: what will you do with the money? He said: build a school in Ghana. I repeated: what will you do with the money? He gazed at me, and repeated: build a school in Ghana. He still did not understand what i was asking. I was asking what he was going to do with the money he collected. So i clarified my question. I said: will you give the money to a local construction company? Or will you buy materials in Europe (this was in Holland) and ship them to Ghana? Some other people in the room started to get where my question was leading. He still didn't. He said: I haven't thought about it yet. So i went on to explain. I said: i give you a 100 euro note. this is the physical money. when you give this note to a constructor in the local village in Ghana, he will have the money. so he will go to the bakery, and give the money to the baker. and the baker will pass the money on. This is how money works! Ziad, you'd think that people who ask for money know why they want it. But the reality is different. Best regards, Ron On Monday, June 28, 2010 3:35 PM
RM Vehar said... "Oliver Stone, Carl Marx you insolent impertinent "putzes", your character Gordon Gekko is a putz! It's not greed that drives this nation, or the "doers", or the titans of this great nation; it's Ambition, incentive, and the pursuit of The American Dream!!"¦.. (Not the European Dream, the Soviet Dream, "¦.the Socialist Dream,"¦"¦or the "Obama Dream" "¦.it is THE AMERICAN DREAM!). "¦.Work ethic, hard work and taking risks for the enjoyment of the fruits it produces. "¦And it will be shared with whomever the producers are willing to share it with. You don't decide with whom I share my prosperity (success)"¦"¦"¦"¦I DO! You have every right to pursue happiness and wealth. Be not ashamed of doing so. Your founding Fathers penned it in permanent ink: ""¦..We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness"¦." (The unanimous Declaration of the thirteen united States of America -In Congress, July 4, 1776) I am willing to pledge all I have to preserve this promise, this hope, this Dream. I will "not go quietly into the night"! The government will not take these liberties away without a fight to the end. As long as there is just one shred of a chance for the "pursuit" of happiness, The American Dream is alive and I will give my full measure, if necessary, to preserve Her for me and my family. Be "resolute". Pass this on now or risk the fate of working the rest of your life to come out from under the tyranny of socialism, the strong arm of government and the suppression imposed on you by the "Statists". On Monday, June 28, 2010 3:21 PM
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