Tuesday, May 22, 2012
There is a raging debate on the outcomes of Republican
Presidential candidate Mitt Romney’s investments at Bain Capital. Romney did
pretty well. His investors made money. In most cases, the companies he invested
in made money and added to the GDP of the economy. In traditional capitalistic
terms, that’s a success.
However, not when viewed through the lens of values
driven capitalism-or normative capitalism.
E.J. Dionne writes, “In this election, we’re not having
an argument that pits capitalism against socialism. We are trying to decide
what kind of capitalism we want. It is a debate as American as Alexander
Hamilton, Andrew Jackson and Henry Clay”.
Somehow, I don’t think any of those guys would be on the
side of Obama when it comes to capitalism.
People of Dionne’s persuasion fail to understand how
capitalism truly works. If you look at certain data points, capitalism can be
merciless. Some people wind up out of work, some lose money. There is risk in
capitalism. But, without risk there isn’t reward.
But when you look at a capitalistic society in sum, it
raises all boats faster and improves entire societal standards of living more
quickly than centrally directed government programs. Critics of the US welfare
state like to say that we have the richest poor people in the world. They are
correct. It’s no fun to be poor in the US, but it is a lot better being poor
here than it is in India, China, Brasil, Russia, or anywhere else on the
planet. That’s because of capitalism.
Creative destruction and risk are two elements that scare
the Luddites that decry capitalistic methods to improve society. Older
businesses get ripped apart by new innovation. To start a new business involves
assuming risk. Will it work? Will it get overwhelmed? Will older businesses innovate
faster and crowd out the new business? There is a lot of uncertainty in
capitalism. But uncertainty breeds opportunity.
There isn’t a hard and fast scoreboard for capitalism.
It’s not like a government budget where one scion of bureaucracy decides who
gets what and how a fixed pie is divided. Capitalism is an amoeba. It goes
where incentives and market forces take it. That’s why Milton Friedman said if
the government ran the Sahara Desert, after a few years we would be out of
sand. Governments don’t have to respond to the market.
Think of it in terms of transportation innovation.
Centuries ago, we travelled on foot in sandals. Then we harnessed animal power,
camels, donkeys and horses to travel. On oceans, we rowed, then harnessed the
power of wind to move around. It wasn’t until the last half of the 18th century
that we used an engine to efficiently move people around. That engine has been
consistently improved to the point I can go anywhere in the world within hours
if I am in a jet. What force developed those engines? Government or people
trying to solve problems?
My argument is that if government were tasked with the
responsibility of developing the next mode of transportation, we’d be arguing
about who’s leather tannery to use to make the strap on a new sandal model.
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