Ask your average American about communism and, after they’re done spitting on the ground, you’re likely to hear a smug: “Communism isn’t such a bad idea… it’s just that it doesn’t account for human nature.” They may like the idea that everyone could benefit in a fair an equitable society, but they know human nature will throw a wrench in the works. Some will take more than their fair share without contributing themselves, or people won’t work if they’re not incentivized.
Ask your average American about U.S. politics and, after they’re done pulling out their hair in disgust, you’re likely to hear how “politicians are in the pocket of special interests. They care more about raising money and getting re-elected than doing what is right.” Folks are dissatisfied with politicians but, even after inadvertently hinting at the problem, and here I mean money, they miss the connection.
Society’s ills don’t stem, as some will claim, from elitists out of touch with average Americans. The Founding Fathers were absolutely elites of society. And it’s not just the wealthy. At the beginning of the industrial revolution, a few lucky individuals fell into success, but the majority of our historic captains of industry rose to prominence through sweat and savvy. Back then, the free market system naturally separated the wheat from the chaff; the cream from the milk.
No, elitism is part of what made this great country. Smart, hard working Founding Fathers went out of their way to install a system that protected the rights of people they would likely never meet let alone deign to associate with. Ruthless elitism, the notion that one’s ideas are better than everyone else’s, drove early industrialists to invent products and even whole business models that have (and often continue to have) vast, and usually positive, influence over our lives.
But lately, we’ve started to see a problem or two with “the system”. To see what it is, let’s look at an exception.
Peter Buffet describes himself as a “composer, author, and philanthropist” He’s also the son of one of the world’s richest men, Warren Buffet. Peter Buffet tried working in his father’s firm but it wasn’t for him. Like the rest of the Buffet children, he received Berkshire Hathaway stock valued at $90,000 when he was 18 years old. He decided to invest that tidy sum into his own happiness and pursue his career as a musician. Today, Peter Buffet is 53 years old and that $90,000 would have been worth $70 million had he simply left it where it was but, he says he “would much rather have invested in [himself]…as opposed to having a pile of money that essentially belongs to someone else’s success.”
Peter Buffet is happy and down to earth but almost as rare as his father. Warren Buffet describes the problem that results from what happens to the offspring of many wealthy, successful people as “the ovarian lottery.” “The odds of having a son or daughter, who is as passionate and excited and driven as the founder of a business was…are incredibly small.”
The odds of your daughter being the best person to run your successful company are tiny, but the list of companies run by children of founders is long and uninspiring. Successful people give their children every opportunity they can and often bequeath large amounts of money on them as well. The problem is that there is no reason to believe that these children will be the most efficient recipients of the capital. Paris Hilton is merely a celebrity example of wealth being squandered significantly less productive children, but she’s hardly alone.
It’s not only the kids of rich industrialists. Politicians do their best to pass influence and power on to their descendants. Just look at the George Bush Sr. and Junior, (not to mention brother Jeb), George and Mitt Romney, or the Kennedy’s. After the first generation, little has changed since the days of royalty; people pass power and influence on to their children who have done nothing to earn this opportunity beyond being born of powerful parents.
None of this is how capitalism is intended to function. The free market is about having a level playing field where the best will be rewarded for their genius and effort. (Note: even in this purest form, it’s still just an “ovarian lottery” where those fortunate enough to have been born smart and ambitious will be more successful. Few will likely have much problem with that, but I digress.) It’s just human nature to pass on the fruits of our labor to the most treasured people in our lives, our children. Unfortunately, it’s no good for capitalism. Remove this incentive to pass on our empires and you take away a critical motivator for success. Unfortunately, the power that wealth brings no longer remains in the hands of elites, born with skills and abilities beyond the masses. Instead, that power is handed down, to the next generation, regardless of worth, who may squander it, or worse, misguide our economy, even our democracy to despair.
Loyal readers will know I am a strong supporter of markets and individual freedoms. Capitalism may be the best of the flawed systems available to us. Still, I’d like to hear from readers if they agree and what they suggest as a solution to this problem.
Meanwhile. I find myself imagining a parallel universe where smug, successful, soviet intelligentsia are sitting around the kitchen table ticking off their thoughts about alternative economic systems. “Capitalism,” they opine, “isn’t such a bad idea. It’s just that it doesn’t account for human nature.”