Rich Men, Poor Men, Businessmen, and Scholars

The market collapse in the technology sector has gouged the net worth of several dot-com moguls, and knocked them off their pedestals, but that hasn’t altered the fundamental reality: The tech-driven economy has made a lot of people fantastically rich in an incredibly short period of time. It took John D. Rockefeller and Andrew Carnegie decades to become billionaires. Jeff Bezos of Amazon.com, Jerry Yang of Yahoo!, Meg Whitman of eBay, and Steve Case of America Online all did it in fewer than five years. Each of them now has a net worth that exceeds the gross national product of some small countries. As for Bill Gates, every few weeks the fluctuation in his net worth roughly equals the G.N.P. of Tanzania. Notwithstanding the doldrums of the past year, the magnitude of entrepreneurial rewards doled out by the economy since the mid-1990’s has provoked excitement, incomprehension, and envy throughout the world. Nowhere is this bewilderment and hostility stronger than in academe. “I just don’t understand what people do that justifies such ridiculous levels of compensation,” frets Michael Walzerof the Institute for Advanced Study at Princeton. Some intellectuals continue to proclaim the new economy a bubble and its riches illusory. Then they read about the $40-million house, in the style of a Japanese imperial palace, that Oracle C.E.O. Larry Ellison is building in Woodside, Calif. Now convinced that “paper wealth” isn’t just an abstraction, they conclude that it must be the product of selfishness, greed, and corruption. Only wickedness could have made people so rich so fast. Or so the reasoning goes.

Entrepreneurs often dismiss professorial hostility toward capitalism as largely the product of jealousy. That this is frequently the case, no honest person familiar with academe can deny. But, as the work of Walzer, Robert Reich, Laura D’Andrea Tyson, and others shows, the animus of intellectuals toward the reward structure of capitalism is also rooted in a genuine concern for social justice. Many professors, especially in the humanities and social sciences, passionately argue that the gargantuan prizes of capitalism are obtained at the expense of others. In their view, the net worth of entrepreneurs is merely the measure of how ruthlessly and effectively they have engaged in exploitation.

Moreover, professorial hostility to capitalism springs from the wounded sense that we live in a society where the most deserving, that is, the most intelligent, don’t get the biggest rewards. When I was a student at Dartmouth in the early 80’s, I noticed that one of my professors could not stop talking about his brother who had an inferior education but had gone on to become a successful businessman. “That idiot,” he would say. “That philistine.” Eventually I came to see why he was so resentful. Professors typically consider themselves the smartest people with the highest I.Q.’s. How can they respect a system that pays a distinguished philosopher $80,000, while a fat Rotarian with a gold chain on his chest pulls in millions for coming up with a new way to market term life insurance?

The academic grievance against entrepreneurs is understandable, but it is wrong-headed. Too often, intellectuals make assumptions about capitalism that cannot survive the slightest scrutiny. Consider the old axiom that the rich acquire their wealth at the expense of other people. This notion is widely held in academe, but is it true? Who lost because Michael Dell gained? Who exactly has Steve Case exploited? Aren’t the people who own a Dell Computer or use America Online, not to mention the people who have invested in those companies, better off as a consequence of Dell’s and Case’s actions? To ask these questions is to answer them. The broad academic prejudice against capitalism and its practitioners is largely based on a fundamental lack of understanding of what entrepreneurs do.

That ignorance is not surprising. Most professors are sheltered from the risks and vicissitudes of markets. That truth came home to me recently when I advised a professor, who was completing a book on a dull and obscure subject, to give his work an engaging title so it could find the widest possible audience. “But I don’t care about finding the widest possible audience,” the professor retorted. “I am writing for an audience of seven--the tenure committee.”

True, not all academics are so insulated from the world of commerce. There are professors, mainly in the business schools, who are engaged in entrepreneurial ventures while teaching. Then there are the “intellectual entrepreneurs,” like Alan Dershowitz, who have become adept at selling themselves as a product. These are interesting exceptions, but they are few in number. Finally there are super-successful entrepreneurs like Jim Clark and Irwin Jacobs who started out as professors, but have long departed the academic world. By and large, professors inhabit an island of socialism in a sea of capitalism. They know no more about running a business than the typical business executive knows about the doctrines of Lucretius.

To see what skills entrepreneurs possess that justify the size of their financial rewards, we need to explore the concept of “entrepreneurial I.Q.” If intelligence is measured in the Ivy League sense, it must be conceded that entrepreneurs are not, in general, very smart people. I don’t just mean that they say unsophisticated things, or that they don’t know the century in which the French Revolution occurred or that Max Weber’s name is pronounced with a V. I mean, rather, that the mode of thinking, the ensemble of traits, that many of us associate with intelligence--a broad background knowledge of the world, a curiosity about one’s place in space and in time, an ability to formulate ideas and arguments, a capacity to anticipate and understand objections, and a facility for articulating positions and responding to criticism--is seldom found even among leading entrepreneurs.

A couple of years ago, my wife and I were at a Forbes dinner and seated right between us was a computer tycoon whose name you would recognize. At the time, I was writing a book about President Reagan, and I posed to this man the following question. Why did the silicon revolution erupt in the 1980’s? Why wasn’t it launched in the 1970’s? The tycoon gave me a funny look, which indicated that he didn’t see what I was getting at. So I elaborated. In 1980, I said, not many Americans had a personal computer. Did the technological explosion of the 1980’s occur because the physics just happened to work at that point, or were Reagan’s policies--tax cuts, privatization, deregulation, the celebration of the entrepreneur--a catalyst for providing venture capital as well as a social context in which the silicon revolution could flourish?

The tycoon hemmed, hawed, and mumbled. “It is, as you say, an interesting issue,” he said. “I suppose how you think about it determines how you come out on it.” After some irrelevancies the man finally concluded, “So, yes, I think you are right. The issue is an important one and your question is, indeed, a question.”

At this point my eyes met my wife’s across the tycoon’s shoulders, and we were both thinking the same thing: This is Mister Ten Billion Dollars? How could we square his public reputation as a genius of the new economy with this private display of glossolalia? Samuel Johnson’s line came to mind: “He was dull in a new way, and that made many people think him great.” But surely those assessments were too severe. As my wife and I talked about this later, we concluded that although our interlocutor did not appear to be smart in the way that we defined the term, he must have a high entrepreneurial I.Q. Judged by his success, he is undoubtedly very good at what he does, but what he does is apparently not captured by our definition of intelligence.

I have been reading a lot of what leading entrepreneurs have to say, and a fair amount of it is risibly inane. “I’m a deep thinker,” Ted Turner says. “I have traveled all over. I have more access to information than anyone on the planet.” In addition to non sequiturs, Turner also shows a facility for broad claims unsubstantiated by evidence. Discussing global warming on the Larry King show, Turner resorted to everyday experience to prove his point. “Haven’t you been outside lately? It’s hotter than hell out there. The polar ice caps are melting. I got an island, and I know the ocean is rising because I watched my beach get washed away.” Poorly paid logicians are tearing out their hair, while Turner basks in fame and riches.

So what is it that people like Ted Turner do that the rest of us don’t? Clearly, entrepreneurial I.Q. is not synonymous with regular I.Q. Some entrepreneurs have plenty of both. Vinod Khosla, a venture capitalist, says he got the idea for making big investments in telecommunications start-ups in the mid-90’s. “I remember being on vacation in April 1995, lying on the beach on Hawaii, reading about the physics of optical communications.” An odd fellow. But no doubt a high-I.Q. one.

Still, Khosla isn’t typical. Henry Rosovsky, the longtime dean of arts and sciences at Harvard, liked to say that Harvard’s policy was to keep its A students to get graduate degrees and become professors; its B students it would send back to the business world to run the nation’s enterprises. I do not doubt that professors with Ph.D.’s have, on average, higher I.Q.’s than entrepreneurs. But most professors are woefully lacking in the skills that, in a capitalist society, bring the biggest financial rewards.

Those who do get the biggest rewards seem to operate with a very different set of skills than academics. They move fast, while in the academic world speed is considered a sign of superficiality. Professors hearing the comment “It took me just six months to write my book on the French Revolution” would not think the book worth reading. Entrepreneurs take a lot of risks, looking to the prospect of gain, while academics are famously cautious, calculating what they stand to lose. Finally, entrepreneurs are gregarious and typically have the capacity to build teams and motivate others. Those qualities are rare in the academic world, where narcissism is in abundant supply and achievement is usually the result of individual excellence.

But if there is a single trait that most distinguishes entrepreneurs from others, it is this: They have an uncanny ability to anticipate and supply what large numbers of people want. For them, opportunities aren’t given, they are created. Indeed, if there is a central entrepreneurial skill, it is the ability to see a problem where other people see only inevitability or one of life’s necessary inconveniences. As the inventor and entrepreneur David Levy described his modus operandi to The New Yorker, “When I lie in bed, I try to think of things that suck.”

Akio Morita, the legendary founder 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 all day. Teenagers are a cultural plague that we must all endure, you say. But not Morita. He asked himself, “Why should I have to listen to this ghastly music?” And further, “Why should they have to carry those cumbersome boom boxes?” Morita 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 a person’s head. That way, people could take their music with them, they could listen to it without annoying others, and they could ride bikes and do other things with their hands while listening to music. The Sony staff was dubious, but Morita insisted, and the rest is entrepreneurial history.

Morita illustrates the “supply-side” truth that truly novel ideas never emerge as a direct response to consumer demand. No one was asking for little radios that they could attach to their heads. Morita intuited that something like that would be useful and desirable, and he produced it. Then he found out that his intuition was right. His offering was eagerly seized by millions of consumers. The skill is to anticipate the want and produce a product that addresses it; the reward is to see your idea vindicated by consumers embracing your product.

Entrepreneurial intelligence mainly reveals itself as insight into what consumers are likely to want in the future, and how those wants can best be supplied. In the mid-1980’s Scott McNealy, Bill Joy, and a team of computer scientists at Sun Microsystems came up with the slogan, “The network is the computer.” No one, not even forward-looking computer geeks, 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 computers throughout society communicating with each other, forming a single network, create a transformational technology.

The Internet, which became a mainstream phenomenon only in 1995, vindicated the Sun team’s insight. The company suddenly found itself at the epicenter of the Internet revolution. 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.

Mark Cuban and Todd Wagner, the co-founders of Broadcast.com, got their concept for a company at Indiana University. The two basketball fans figured out that the Internet would be a great way to listen to games all over the country, since radio typically aired only local games. So they founded a company called Audionet, and then renamed it Broadcast.com when online video made it possible not only to hear but also to watch sports events all over the country. Today Broadcast.com enables viewers to use the Internet to watch virtually every college and pro team play various sports on hundreds of TV stations and cable networks.

In a capitalist economy, success is the ability to anticipate and meet the needs and wants of customers, and the most successful entrepreneurs are those who do this best. This is not to say that people’s wants are always wise--I have little admiration for the entrepreneurs who sell cigarettes, drugs, or hard-core pornography. But for the most part, people want things that make their lives better and more enjoyable, and the entrepreneurs who supply those wants are performing a morally praiseworthy and socially valuable task. Notwithstanding their academic detractors, entrepreneurs in general have no cause to feel guilty or defensive about their wealth. Far from being the product of exploitation, their profits indicate the degree to which they have effectively helped and served their fellow man.

Dinesh D'Souza is the Olin Research Fellow at AEI.

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