The Self-Made Myth, Part III: Fairness Is Not Class Warfare

Monday, May 14th, 2012

(By NCrissie B)

This is the last of three posts looking at Brian Miller and Mike Lapham’s new book The Self-Made Myth. In the first post, we considered how the “self-made man” myth of the Horatio Alger stories morphed into the “makers vs. takers” meme of Ayn Rand and her followers. Then we saw stories that illustrate what Miller and Lapham call “The Built-Together Reality.” Today we conclude with how “The Build-Together Reality” calls for different policies to support innovation and entrepreneurship.

Brian Miller is the executive director of United for a Fair Economy. Over the past 20 years, Miller has worked to build cross-class alliances of citizens from all walks of life – business leaders, workers, family farmers, seniors, students, and others – to work together for change, promoting healthy communities and an economy that works for all Americans.
 Mike Lapham is the founding director of Responsible Wealth, a project of United for a Fair Economy. Responsible Wealth amplifies the voices of more than 700 progressive business leaders and other affluent individuals in public policy debates to promote progressive tax policy and greater corporate accountability in Congress, in the media, and in corporate boardrooms.

Motivational Speaker Syndrome

Google {keys to success} and you’ll get over 32 million hits, including many books and lectures by motivational speakers. Many are sincere and based on interviews with successful people, such as ABC’s 20/20 episode titled Who Wants to be a Billionaire? 20 Keys to Success from the Superrich. Miller and Lapham quote a simpler version by J. Paul Getty: “Formula for Success: rise early, work hard, strike oil.” In terms of personal motivation, such bromides are useful. They encourage us to find what we do well, learn to do it as well as we can, look past immediate satisfaction to long-term goals, and other success-enabling attitudes and behaviors. It’s easy to ‘get’ that doing these things will improve our chances to succeed, and that’s why the Self-Made Myth is so attractive.

But not all successful people rise early and work hard, nor do all of them practice all 20 of the keys offered by the billionaires on 20/20. Far more important, tens of millions of other people in the U.S. and around the world do rise early and work hard – and practice those 20 keys – yet never achieve financial success. The Self-Made Myth may be useful for personal motivation, but it’s still a myth and when we base policy on that myth, we fall for what I’ll call Motivational Speaker Syndrome: focusing on individual attitudes and behaviors as if improving those were enough to ensure prosperity.

The Wealth of the Commons

While Miller and Lapham acknowledge that successful entrepreneurs do work hard and make sacrifices, they also recognize that:

Try as we may, it is simply impossible to completely untangle the contributions of the individual from those of society in making individual success possible. The entrepreneurs and the business leaders profiled in this book have all benefited, both personally and in their business activities, from the investments and structures made possible through governmental action. The personal testimonies of these successful individuals are a powerful rejection of the self-made myth in the United States.
[...]
In addition to the central role of government, there are nongovernmental actors that contribute to individual success. Images of community barn raisings come to mind as do the supports that many receive through our deep and rich network of nonprofit organizations. Even these nonprofit organizations, however, are supported in part by special provisions of the U.S. tax code. Any comprehensive understanding of individual success must take these societal contributions into account.

As we saw in the previous post in this series, well-regulated markets account for 30-50% of a publicly-owned company’s value, as measured both by what happens when a privately-held company goes public and by what happens when key regulations are repealed or ignored and the market confidence fails. Add the value of other hard and soft infrastructure – roads, ports, utilities, law enforcement and emergency services, education, scientific research, intellectual property and contract law, and of course the internet – and most of the wealth in the United States is created by the commons: shared resources and institutions created and/or maintained primarily by government.

Qui Bono?

That Latin phrase translates to “for the benefit of whom,” and it’s an important question to ask about the commons. As Miller and Lapham note, while no individual created or maintains the commons, those shared resources and institutions do not benefit everyone equally. For much of our nation’s history, women and non-whites were excluded from many of those benefits and the authors acknowledge that “Race, gender, class, birthright, and other factors still weigh heavily on one’s prospects in life.” They add that “Even though the story of the self-made man is a myth, we should not cease striving to create the conditions under which every American has a real opportunity to succeed in this world, free of the societal barriers that privilege some groups over others.”

Miller and Lapham also recognize the role of luck:

For every successful business person who rose early and worked hard, there are thousands of others who rose equally early and worked equally hard, but their work did not pay off with the same level of success due to factors beyond their control. An awareness of the randomness of luck should give us pause when we elevate some above others, as though their relative success and wealth is a measure of their work ethic, risk taking and inventiveness and somehow suggests a lack of effort on the part of others.

And they add the issue of historical timing, which can seem like another form of luck:

Unlike true luck, however, timing is often a reflection of public policies of the era. Those who came of age during the economic boom of the 1950s and 1960s – when unions were strong and the government was making massive investments in the United States and its citizens – had significantly more economic opportunity (provided they were white and male) than those entering the workforce now, amidst the Great Recession and a significantly weakened public sector following 30 years of tax cutting for the wealthy.

To argue that fairness is defined by market outcomes, as Mitt Romney does, is to ignore the structures that allow a privileged few to capture most of the benefits from the vast wealth of the commons.

And Many Wealthy People Agree

Although opt-in online polls are weak evidence, one such survey conducted by the Spectrem Group found that 68% of millionaires support tax increases for those earning more than $1 million per year. United for a Fair Economy’s Responsible Wealth project is:

[A] network of over 700 business leaders and wealthy individuals in the top five percent of income and/or wealth in the U.S. As beneficiaries of economic policies tilted in their favor, these individuals advocate for fair taxes and corporate accountability. Their message is simple, and surprising to some: we can afford to pay more; we don’t need any more tax breaks.

Members of Responsible Wealth recognize that their own prosperity and success would not be possible without the foundation of a strong public education system, an effective transportation network, a strong legal system and more. RW members are bound by their commitment to supporting the public investments from which they have greatly benefited.

The policies advocated by Responsible Wealth members include a more progressive income tax, taxing capital gains and dividends as earned income, extending the estate tax, and ensuring that corporations pay their fair share. United for a Fair Economy and Responsible Wealth also advocate investment in rebuilding our infrastructure, both hard infrastructure such as roads, bridges, ports, and utilities and soft infrastructure such as support for public education and scientific research.

And they recognize that social safety nets and an economic floor, rather than the “moral hazard” argued by conservatives, help encourage the entrepreneurship and innovation our nation needs:

One fact that may surprise many readers is that Europe, with its more expansive welfare state and universal health care, has a much higher rate of small business ownership than does the United States. Only about 7% of Americans are self-employed, compared with 9% of French, 12% of Germans, and 26% of Italians. Even when measured by small (fewer than 20 employees) and medium-sized (fewer than 500 employees) firms, the United States is at or near last among Organisation for Economic Co-operation and Development nations.

Finally, Miller and Lapham write:

If you are a progressive activist or community leader, challenge those in your group who may instinctively, and mistakenly, assume that all business leaders are against you. Some are, but many others are not. Seek out the business leaders in your community with an open mind and foster cross-class alliances that build greater political power and, ultimately, help better all of our communities. When you see local business leaders speaking out in favor of funding important public services, let them know they are not alone. Applaud their leadership and build new relationships where you can.

A fairer economy is not about “class warfare.” It’s about recognizing that most of our nation’s wealth is created by the commons, and advocating policies that maintain and build that commonly-created wealth to benefit all of “We the People.”

 

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))

 

The Self-Made Myth, Part II: The Built-Together Reality

Saturday, May 12th, 2012

(By NCrissie B)

This is the second of three posts looking at Brian Miller and Mike Lapham’s new book The Self-Made Myth. In the first post, I considered how the “self-made man” myth of the Horatio Alger stories morphed into the “makers vs. takers” meme of Ayn Rand and her followers. Today we see stories that illustrate what Miller and Lapham call “The Built-Together Reality.” In the third post, I conclude with how “The Build-Together Reality” calls for different policies to support innovation and entrepreneurship.

Brian Miller is the executive director of United for a Fair Economy. Over the past 20 years, Miller has worked to build cross-class alliances of citizens from all walks of life – business leaders, workers, family farmers, seniors, students, and others – to work together for change, promoting healthy communities and an economy that works for all Americans.
 Mike Lapham is the founding director of Responsible Wealth, a project of United for a Fair Economy. Responsible Wealth amplifies the voices of more than 700 progressive business leaders and other affluent individuals in public policy debates to promote progressive tax policy and greater corporate accountability in Congress, in the media, and in corporate boardrooms.

Peter Barnes – The Value of the Commons

Peter Barnes’ father was the son of immigrants. Like his father, Barnes attended New York City public schools before attending Harvard University. He worked in journalism for 15 years before opening “a socially responsible investment firm” called Working Assets. The firm began by offering credit cards and then telephone services, and is now Credo Mobile.

At one point, Barnes and his partners almost decided to make Working Assets a publicly-traded company. Although they decided to keep the firm private, simply exploring a public stock offering led Barnes to to a surprising discovery:

What we, the private shareholders, learned was that our business was worth a whole lot more as a public company than as a private company. What added this extra value? It wasn’t that we’d make more sales or profit – these numbers would be the same either way. The extra value came purely from the fact that our stock would be liquid – we could sell it to any Tom, Dick, or Harriet, any day of the week. According to our investment banker, liquidity alone would add 30 percent to the value of our stock.

It seems counter-intuitive that a publicly-traded company would be worth more – almost one-third more – than a privately-owned company with the same balance sheet. Yet it makes sense. Buying into a privately-owned company usually requires a large investment and a long-term commitment. If the company goes under, its owners will rarely be able to get even a portion of their money out. But anyone can buy into a publicly-owned company, often for only a few hundred or a few thousand dollars, and they can sell that stock the next day if they change their minds. More important, if they sense the company is failing, they can sell their stock and recoup at least some of their initial investment. That makes a publicly-traded company less risky, and more valuable, than if it were privately-owned.

Barnes’ own talent and hard work – nor even the combined talent and efforts of he and his partners – would not have added that value to his business. That 30% – another of the entrepreneurs Miller and Lapham interviewed estimated it as high as 50% of a publicly-traded company’s value – exists in what economists call the commons, resources and institutions that are shared by all. But the value of our financial markets is not merely liquidity.

Amy Domini – The Value of Regulation

Amy Domini’s mother was a public school teacher. Her father owned an eggplant processing plant in Connecticut. She wanted to work in the financial industry and, with the help of her grandfather, got a job as a clerk in a brokerage firm. There were almost no female brokers in the industry at the time, but Domini arrived early at work and for meetings, did more than was asked, and rose through the secretarial ranks. Finally she asked her boss if she could take the training to work as a broker, and to her surprise he agreed. She later learned that four women had just sued Merrill Lynch for gender discrimination, and realized that case may have colored her boss’ decision.

In the mid-70s, Domini explained, stock ideas came “over a squawk box from some smart person in New York,” and brokers would then pass them on to clients. But she noticed something as she made those calls: some clients were offended when she called to offer them stock in weapons manufacturers, or tobacco companies, or other activities that conflicted with their values. So Domini added a new question to her call script: “Is there something you don’t want me to talk about, something you have deep commitments to, or something you don’t want to be an investor in?”

To her amazement, almost everyone said “Yes.” Although their preferences differed, almost every client wanted to avoid some industry or another. She began developing and teaching classes in Ethical Investing, wrote a groundbreaking book on the topic, and eventually founded Domini Social Investments. She quickly recognized that her clients needed reliable information about the companies she began listing in her mutual fund, and found almost all of that available in the reams of disclosure forms required by federal regulations:

I could not have started my business without federally mandated disclosures. For instance, if I am trying to evaluate a company, I look to the company’s own reporting. [...]

How many people died in the workplace last year? That is federally mandated disclosure, so that is available to me in most cases. Are there any environmental liabilities? I look to the 10K, which must by law reveal this (although it is admittedly under-reported). Further, the Toxic Release Inventory [is a] federally mandated data source.[...]

Not only do my investors know that the product I offer has robust federal oversight, but the data I rely upon to create that product does as well.

The Value of Government

This transparency – a direct product of federally-regulated audits and filings – adds to the value of our financial markets. When people lose trust in that transparency, that value evaporates … as happened after the Enron scandal in 2001 and even more painfully in 2008 when the housing bubble exposed the risks of arcane derivatives.

Miller and Lapham offer several other stories of entrepreneurs who acknowledge the importance of other hard and soft infrastructure in the commons: roads, public schools and college financial aid, water and other utilities, food safety rules, intellectual property and contract laws, scientific research, and of course the internet. But I found the interviews of Barnes, Domini, and others who talked about regulation to be both the most surprising and the most compelling. Far from “strangling the economy,” as conservatives so often complain, effective regulations create much of the wealth in our economy. We can measure that by what happens when a privately-held company goes public, and by what happens when key regulations are repealed or not enforced and people lose confidence in our markets.

No individual can claim credit for that 30-50% of our nation’s wealth that exists in the Built-Together Reality of our regulated markets. As Warren Buffett said, “If you stick me down in the middle of Bangladesh or Peru, you’ll find out how much this talent is going to produce in the wrong kind of soil.”

Acknowledging that Built-Together Reality has dramatic policy implications, which I’ll discuss in my next post.

 

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))

 

Horatio Alger, Ayn Rand, Paul Ryan, and the Self-Made Myth

Tuesday, May 8th, 2012

(By NCrissie B)

Over my next three posts, I’ll be looking at Brian Miller and Mike Lapham’s new book The Self-Made Myth.  In this post we consider how the “self-made man” myth of the Horatio Alger stories morphed into the “makers vs. takers” meme of Ayn Rand and her followers. In the next post we’ll see stories that illustrate what Miller and Lapham call “The Built-Together Reality.” We’ll conclude with how “The Build-Together Reality” calls for different policies to support innovation and entrepreneurship.

Brian Miller is the executive director of United for a Fair Economy. Over the past 20 years, Miller has worked to build cross-class alliances of citizens from all walks of life – business leaders, workers, family farmers, seniors, students, and others – to work together for change, promoting healthy communities and an economy that works for all Americans.
 Mike Lapham is the founding director of Responsible Wealth, a project of United for a Fair Economy. Responsible Wealth amplifies the voices of more than 700 progressive business leaders and other affluent individuals in public policy debates to promote progressive tax policy and greater corporate accountability in Congress, in the media, and in corporate boardrooms.

Success, Morality, and Stories

Most Americans have heard of author Horatio Alger and his “rags to riches” stories of young men who made good through self-discipline and hard work. Alger was a Unitarian pastor and his books are morality stories. They were written to warn boys away from the vices Alger decried and toward the virtues Alger celebrated. Boys who strayed from the virtuous path came to ruin, while those who tied the line made good. In fact the “rags to riches” meme is a myth that grew around rather than within Alger’s stories. Few of his protagonists became wealthy. Instead they were hired into mostly low-level jobs that – coupled with their moral uprightness – were presented as the baseline for middle-class respectability.

Still, the persistent themes of his stories were that any young white man could escape poverty through hard work, and that success was based on individual merit and moral worth. Alger did not write about the lives of young men of color, and the women in his stories were temptresses to be avoided or victims to be rescued rather than persons who might achieve their own successes. Despite (or perhaps because of) their narrow scope, Alger’s stories came to define one version of the American Dream and remained popular until the Great Depression left such dreams in tatters.

Alger was a minister, not an economist. He neither gathered nor presented empirical data to support his thesis of success through individual virtue and merit. Yet his books embodied an American economic ethos because – as Miller and Lapham emphasize in their introduction – cultures are shaped by stories. The stories that supplanted Alger’s took the myth of success through individual virtue and merit to new extremes.

The World According to Rand

Born and educated in Russia, Ayn Rand visited the United States in 1925 and stayed. She moved to Hollywood and worked various studio jobs until 1940, when she and her husband volunteered to work for Republican presidential candidate Wendell Wilkie’s campaign. That work led to contacts with other laissez faire proponents, and in 1943 she wrote The Fountainhead. The book’s success brought her to New York City where she acquired a group of followers including future Chairman of the Federal Reserve Alan Greenspan. She led them in discussions of the philosophy she called objectivism, while writing her most famous work: Atlas Shrugged.

Atlas Shrugged is a story of wealthy industrialists, scientists, and artists besieged by a government intent on spreading their riches to the masses. They leave for a mountaintop hideaway, where they create an independent free economy that flourishes while the rest collapse into poverty and chaos. Where Alger portrayed any hardworking young man able to make good, Rand presents the masses as lacking the essential intelligence and vigor to create anything or maintain civilization without the guidance of the wealthy. As Austrian School economist Ludwig von Mises wrote in a letter to her:

You have the courage to tell the masses what no politician told them: You are inferior and all the improvements in your condition which you simply take for granted you owe to the effort of men who are better than you.

Like Atlas holding up the world, Rand portrays the wealthy as demigods upon whom the burden of civilization rests. They are, in Rep. Ryan’s parlance, the “makers” from whom the rest of us are merely “takers.”

Meet Your Makers

Miller and Lapham offer critical biographies of Donald Trump, H. Ross Perot, and the Koch brothers, each of whom is often portrayed as a “self-made man.” As Miller and Lapham show, Trump’s father used Federal Housing Authority programs to build his real estate business, and Trump himself relied on eminent domain rulings and bank bailouts to grow and sustain that enterprise. Perot’s business was built on state government contracts to administer Medicare and Medicaid.

The Koch brothers inherited a $300 million business from their father and their far flung holdings now include cattle grazing on and timber harvested from public lands, eminent domain rulings to build pipelines, and government subsidies to produce ethanol. They are also partners in a state-run fertilizer firm in Hugo Chavez’ Venezuela, a firm that receives millions in subsidies each year. Indeed working with socialist leaders is a Koch family tradition that began with their father, who got rich by launching the Russian oil industry for Josef Stalin.

And just this week Edward Conrad, former Bain Capital partner and fervent supporter of Republican presidential candidate Mitt Romney, was profiled in the New York Times Magazine. Conrad’s forthcoming book Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong is virtually a tribute to the Randian worldview. The problem with our economy, Congrad says, is not that income inequality is too wide but that it is not wide enough. He argues – reasonably – that all of the easy business and technology problems have been solved and it is becoming harder to find successful new ideas. Conrad concludes – less reasonably – that the only solution is to offer ever greater rewards to the wealthy investors, who must sift through more new ideas to find fewer that succeed.

Conrad and other believers of the self-made myth ignore the “sidewalk ballet” of innovators who spark each others’ ideas, the workers who turn ideas into tangible goods and services, and the hard and soft infrastructure that enable those to meld and create wealth. In the Randian worldview, all of that wealth is created by those at the top, and any wealth that lands elsewhere was “stolen” from them.

This is what Rep. Ryan – an Ayn Rand acolyte himself – means when he speaks of “makers and takers.” Unless you are among the chosen few at the very top, “You are inferior and all the improvements in your condition which you simply take for granted you owe to the effort of men who are better than you.”

And anyone who argues otherwise is an “elitist snob.”

 

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))