Civilizing Greed

Capitalism has won the economic debate, but it has not yet won the moral debate. Even in the American high-tech sector, several highly successful entrepreneurs are bemoaning 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, 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 media tycoon Ted Turner announced 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. Turner 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 writing a check to the 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 produced by the twentieth-century 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 an admirable person, worthy of emulation.

The contemporary protests against greed echo a very 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 greedy 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. The Greek philosophers argued that even conquest was a superior form of acquisition to trade. The Bible contains many stern admonitions about wealth, including the famous assertion that “love of money is the root of all evil.”

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?

Adam Smith, the founding father of capitalism, acknowledged in Wealth of Nations that capitalism is motivated by a self-interested desire for gain. Smith didn’t see this as a bad thing, because human nature is selfish. Is it reasonable to ask that the farmer in Idaho get up at four o’clock in the morning and plant potatoes so that New Yorkers can have steak and potatoes for dinner? Should people stop working for 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. This is not a wicked impulse; it is a decent impulse. 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.

At Wal-Mart, for instance, Sam Walton worked tirelessly to develop an efficient inventory control system so that he could monitor consumer preferences and satisfy them as promptly and cheaply as possible. 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 worth $16 billion because he has focused on meeting 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 Internet, which only became a mainstream phenomenon in the mid-1990s, vindicated the Sun team’s insight. 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.

Teen-agers 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 could 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 that they could attach to their heads. But Morita insisted, and the rest is history: the Sony Walkman stormed the market. Morita’s offering was eagerly seized by millions of customers.

Morita’s skill was to anticipate the want and address it; his reward was to see his idea vindicated as consumers embraced his product.

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 defense 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–to meet their material needs and raise their standard of living–than all the goodwill efforts sponsored by government, churches and philanthrophic organizations put together. In this sense, Michael Dell has done more for the good of humanity than Mother Teresa.

What Smith overlooks, however, is the way in which entrepreneurial activity promotes virtuous conduct by inducing people to behave better than they otherwise would.

Consider the example of Gary Winnick, the founder of Global Crossing. Winnick recalls that when he was raising capital for his telecommunications company he encountered a financier who insulted him and threatened, “I am going to bankrupt you.” Winnick’s reaction was rage. “If I was 10 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 undoubtedly one of the reasons he is a billionaire today.

What these examples show is that capitalism civilizes greed, just as marriage civilizes lust.

Greed and lust are human emotions. As such, they cannot be eradicated. Indeed to the degree that greed leads to effort, and lust to pleasure, who would want to eradicate them?

At the same time, it is widely recognized that these inclinations can have corrupting and destructive effects. So they have to be regulated and channeled in such a way that they serve us, and society, best. Just as the institution of marriage is designed to channel lust in such a way that it promotes mutual love and the raising of children, so also capitalism steers 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 only acquire what others possess 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, but that it makes us better people by limiting the scope of our vices.

It follows that entrepreneurial capitalism 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 profit is merely the register of how much he has improved the lives of his fellow human beings.

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