Originally published in Forbes Magazine.
Capitalism has won the economic debate, but it has not yet won the moral debate. The New Economy has produced gigantic fortunes and in record time. It took Henry Ford and Andrew Carnegie decades to become centimillionaires. Jeff Bezos of Amazon.com managed the feat in three years. Now Bezos has a net worth that exceeds the gross national product of small countries like Fiji and Iceland. A number of billionaires on this year’s Forbes 400 list--among them David Filo and Jerry Yang of Yahoo, Jay Walker of Priceline.com, Pierre Omidyar and Margaret Whitman of Ebay and Steve Case of America Online--all made their fortunes in less than five years (the list starts on page 44).
Outside and inside the U.S., there is great excitement, but also considerable incomprehension and trepidation, over reports of these entrepreneurial success stories. From Paris to Beijing, many people want to discover America’s entrepreneurial capitalism formula and make it work for them. But others are deeply skeptical. “It’s a bubble,” they say. “The money isn’t real.” Then they read about the $40 million house, in the style of an ancient Japanese imperial palace, that Oracle CEO’s Larry Ellison is building. Now convinced that “paper wealth” isn’t just an abstraction, they conclude that it must be the product of sin and corruption. Only wickedness--unrelenting greed--could make someone so rich so fast. Or so the reasoning goes.
Even in the American high-tech sector, a few super successful entrepreneurs show signs of defensiveness about what they call a resurgence of greed in the New Economy. “When greed becomes this prevalent,” warns Craig McCaw, the telecom mogul, “something bad always happens.” Kim Polese, the founder of Marimba, says, “I worry about the greed factor.” In a recent article, Jim Collins, the author of the best-selling book Built to Last, indignantly asked: “What happened to the early Silicon Valley ideal of making better products and lasting companies so that the world would be a better place?” Collins charged that today’s entrepreneurs have simply lost their sense of higher purpose. “All that you greedy capitalists want,” he complained, “is to go out and make obscene amounts of money!”
When the media tycoon Ted Turner announced that he was donating a billion dollars to the United Nations, John Stossel of ABC News asked him, “Why are you throwing your money away like this? Why not invest it in your companies; create more jobs and make people better off?” Turner angrily stormed off the set. He could not bear the thought that his commercial activities might provide greater social benefits than his philanthropy. In a similar vein, many entrepreneurs today speak of their philanthropy in terms of “giving back” to the community. There is nothing wrong with endowing a museum or writing a check to a cancer society, but the term “giving back” implies that these entrepreneurs have, in their own minds, been taking from the community and feel a need to atone for their sins.
From the vast human suffering created by the 20th century’s experiments with socialist planned economies, we now know that capitalism is the best way of producing wealth. But it remains unclear in many minds whether the capitalist is worthy of emulation. The contemporary protests against greed echo an old concern that goes back not just to the 1980s--dubbed by some the Era of Greed--or to the writings of Marx, who described capitalism as a form of selfish exploitation. The prejudice against the merchant and the trader is much older than this. Traditionally, in the West and in other cultures, the merchant was regarded as a low, even contemptible figure.
Is this moral critique of the entrepreneur justified? Should entrepreneurs hang their heads in shame, or at least suffer a split in their psyche between the desire to do well and the desire to do good?
To answer these questions, let’s begin with the founding father of capitalism, Adam Smith. Smith was not sentimental about the motives of entrepreneurs. In his Wealth of Nations, published in 1776, Smith famously wrote, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their own interest. We address ourselves not to their humanity, but to their self-love, and never talk to them of our own necessities but of their advantages.”
Smith’s psychological premise is that human nature is self-interested. This is not a noble thing, he writes, but by itself, it is not a bad thing. Is it reasonable to ask that the farmer in Norfolk or northern Thailand get up at four o’clock in the morning and toil so that Londoners and the middle classes of Bangkok can have food on their plates? Should people stop working for personal gain and labor only for the good of society? Smith recognized that such notions are impractical and absurd. The primary motive of entrepreneurs is the same as that of other workers: to support themselves and their families. It is rooted in self-interest, but it is self-interest ennobled by filial attachment and responsibility.
Moreover, why focus exclusively on the motivations of entrepreneurs? Let’s look at what they actually do. Smith articulated the paradox that while self-interest is the driving force of entrepreneurial activity, the entrepreneur is in his everyday activity entirely oriented toward meeting the wants and needs of others--not because he wants to but because he has to.
At Dell Computers, employees are trained not simply to assemble computers to sell online but to address the individual problems of customers. “We used to focus on how many calls we could take per hour,” says Manish Mehta, senior manager for Dell services online. “Now we focus on first-time resolves--solving the problem once and for all--even if that means talking longer with a customer.” Michael Dell is now worth $16 billion because he has focused on consumers’ needs.
The most successful entrepreneurs go beyond identifying people’s wants and then supplying them: They anticipate wants even before their potential customers are aware of them. In the mid-1980s, Scott McNealy, Bill Joy and a team of computer scientists at Sun Microsystems invented the slogan, “The network is the computer.” No one had any idea what they were talking about. The insight of the Sun team was that a single computer on a desk is a mere word-processing, number-crunching machine. But when computers throughout a society can communicate with each other, forming a single network, then we have a transformational technology on our hands. The enormous rewards that McNealy and others at Sun have harvested are directly attributable to figuring out where the computer was really going to make a difference in people’s lives and in building products that made that vision a reality.
Akio Morita, the legendary head of Sony, once told me how he got his idea for the Sony Walkman. He would go to the beach with his children, and the kids and their friends would listen to loud music from boom boxes from morning to evening. Teenagers are a cultural plague that we must all endure, you say. But not Morita. He asked his engineers to figure out a way to build a small radio and cassette player that would sound like a high-quality car stereo and yet could be attached to people’s heads: that way they could take their music with them and listen to it without annoying others.
The Sony staff was dubious. After all, there was no public demand for such a contraption. No one was asking for little radios they could attach to their heads. But Morita insisted, and the rest is history: The Sony Walkman stormed the market. Morita’s genius was to anticipate the want and address it; his reward was to see his idea vindicated as consumers embraced his product. Capitalism’s moral critics focus on the result--the personal wealth created by Morita and other gifted entrepreneurs--rather than the process that generates the wealth.
Adam Smith noted that by pursuing his own interest the businessman advances the welfare of society even more effectively than when he tries to do so directly. Smith’s analysis of capitalism is entirely based on the beneficial social consequences of entrepreneurship. Indeed one could say that over the years the entrepreneur has in practice done more to serve people than all the goodwill efforts sponsored by governments, churches and philanthropic organizations put together.
What Smith overlooks, however, is the way in which entrepreneurial activity makes us better people by putting our imagination and efforts at the behest of others. Indeed capitalism in a broader sense promotes virtuous conduct by inducing people to behave better than they otherwise would. Consider the example of T.J. Rodgers, who runs Cypress Semiconductors in Silicon Valley. One of Rodgers’ favorite sayings is that “money is the root of all good.” He does not hesitate to portray himself as a tough-minded businessman who would not hesitate to take advantage of others. But he confesses that on most occasions when he gets the chance to do it, he doesn’t.
He recalls a recent case. “I know this chip supplier of mine who was in a financial crunch. Now I could screw the guy and pay him way below the market value for this stuff. I’d get it too, because he was in trouble. But I paid him the market price, because I’ve been in this business a while, and I know there will come a time when the demand for chips is very heavy, and the supply is running behind. So that’s when this guy is in a position to screw me. I don’t want that, so I treat the guy fairly even when I have a chance to take advantage of him.”
Gary Winnick, the founder of Global Crossing, recalls that when he was raising capital for his telecommunications company he encountered a financier who said to him, “Your idea is crap and you are a jerk. I am going to bankrupt you.” Winnick’s reaction was rage. “If I was ten years younger I would have punched him,” he says. “But being more mature and a bit more frail, I decided to make him my best customer. And today he is.”
By his own account, Winnick is not an altruist or a lover of humanity. He is a lover of money and success. In dealing with an antagonist, however, his avarice for gain forced him to suppress his natural instinct and “turn the other cheek.” Winnick’s ability to transform insult into cordiality and a potential adversary into a business partner is one of the reasons he is worth $3.2 billion today (see page 52).
What these examples show is that capitalism works to civilize greed, just as marriage civilizes lust. Greed and lust are human emotions: They cannot be eradicated by all the exhortations of well-meaning central planners and theologians. Indeed, to the degree that greed leads to effort and lust to pleasure, who would want to eradicate them?
Capitalism channels greed in such a way that it is placed at the service of the wants of others. Destructive forms of greed, in which we seek to seize and appropriate other people’s possessions, are outlawed in a capitalist society. We can acquire what others possess only by convincing them to give it to us, and the best way to do this is to give them something of equal or greater value in exchange. The point isn’t just that capitalism makes society better off; it makes us better people by limiting the scope of our vices.
Entrepreneurial capitalism, in short, is not merely efficient. It is also moral. There is no reason whatsoever for entrepreneurs to feel guilty about being successful, because their success is proof that they have effectively met the wants and needs of customers. More than any other social type, except perhaps the clergy, the entrepreneur is in everyday conduct oriented to the noble task of helping and serving others. An entrepreneur’s net worth is merely the register of how much he has improved the lives of his fellow human beings.
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