Essay on entrepreneurial wealth; adapted from Recapturing the Spirit of Enterprise.
Because the process of making money is the best education for making more money, our society's wealth can grow only if the people who create it control it. Divorce the financial profits from the learning process and the economy stagnates.
Although many of them are too busy to notice, the entrepreneurs of the Inc. 500 are performing a near miracle of personal wealth creation. Most started their companies only a few years ago on relatively meager capital. (See "Behind the Scenes," October 1992, [Article link].) Now, zapping their companies with police radar as they zoom by at a growth rate of some 50% per year, we can guess that several of those entrepreneurs are worth as much as $100 million and dozens command a net worth of scores of millions. Soon they will be knocking on the doors of truly supreme wealth. Like their Inc. 500 predecessors Bill Gates of Microsoft, Charles Dolan of Cablevision, Robert Levine of Cabletron, and Larry Ellison of Oracle, among others, some of the current Inc. list will speed onward to the Forbes 400, which has an entry point near $300 million in net worth.
Many American intellectuals think there ought to be a law against such a reckless rush to riches. Tax it away, they say, and give it to people who need it more. Capitalism, it is widely believed, would work better without all these superrich capitalists.
America's entrepreneurs, after all, live in a world with 4 billion poor people. Vulnerable men and women, these business leaders command little political power or means of defense. Democratic masses or military juntas could take their wealth at will. Why on a planet riven with famine, poverty, and disease should this tiny minority be allowed to control riches thousands of times greater than their needs for subsistence and comfort? Why should a few thousand families command wealth far exceeding the endowments of most nations?
More specifically, why should John Kluge, the broadcast tycoon, have $7 billion while Suzie Saintly, the social worker, makes $15,000 a year? Or why should Harry Helmsley command a fortune worth more than $1 billion, and Harry Homeless live on a rug on a grate? Why should Gates, the chairman of Microsoft, be worth more than $7 billion while Dan Bricklin, the inventor of the pioneering Visicalc spreadsheet, is still working out of his home with one employee? And why should Michael Milken have ruled tides of billions while the president of the United States earns $185,000 a year?
Does any of this make sense?
In statistical terms, the issue arises just as starkly. Why should the top 1% of families own 37% of the nation's wealth, by some measures, while the bottom 20%, awash in debts, have no measurable net worth at all?
On a global level, the disparity assumes a deadly edge. Why should even this bottom fifth of Americans be able to throw away enough food to feed a continent while a million Ethiopians die of famine? Why should the dogs and cats of America eat far better than the average person on this unfair planet?
We all know life is not fair. But to many people, these huge disparities defy every sense of proportion and propriety. They apparently do not correspond to need or to virtue or to IQ or to credentials or to education or to social contribution.
Most observers now acknowledge that capitalism generates prosperity. But the rich seem a caricature of capitalism. Look at the Forbes 400, for example, and hold your nose. Many of them are short and crabby, beaked and mottled, fat and foolish. At least 10 never finished high school, and only 240 of the 304 who went to college managed to graduate. A society may tolerate aristocracy certified by merit. But capitalism exalts a strange riffraff with no apparent rhyme or reason.
Couldn't we create a system of capitalism without fat cats? Wouldn't it be possible to contrive an economy that is just as prosperous but with a far more just and appropriate distribution of wealth?
Wouldn't it be a better world if rich entrepreneurs saw their winnings capped at perhaps $15 million? That would allow you to make the Inc. 500, but if you wanted to go beyond that level, you would have to surrender the added gains to the government. Surely Sam Walton's kids or Harry and Leona Helmsley could make do on close to $1 million a year in annual income, five or six times as much as the president earns.
Most defenders of capitalism 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.
The usual case for capitalism maintains that greed may drive Leona Helmsley or Ivan Boesky to behavior that attracts the scrutiny of the feds. But greed also makes the system go. Because greed is less trammeled in the United States than in Ethiopia, Harry on the grate eats better than the middle class of Addis Ababa does.
That was essentially the argument of Adam Smith, the first and still most-quoted apologist of the system. He declared that it is only from the entrepreneur's "luxury and caprice," his desire for "all the different baubles and trinkets in the economy of greatness, that the poor derive that share of the necessaries of life, which they would in vain have expected from his humanity or his justice."
