(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.