PrintNovember 4, 2010
The Price of Equality
The story of Facebook as told in the recent movie The Social Network left me thinking about the rapid rise of such companies and whether such extraordinary success is unique to the American economy and culture. Here is a company, started in a dorm by a very young Mark Zuckerberg, with roots in juvenile curiosity more than financial ambition. In about six years, this "entrepreneur" has built a company worth billions with no significant hard assets like real estate or manufacturing equipment, nor a hard product like an iPhone or a computer. Facebook is certainly about software, but it is more about an idea that has become so ubiquitous that if it goes public, the founder at 26 years old may become one of the wealthiest men on earth.
Facebook gets more hits a day than Google, another incredibly fast-growing idea started by the very young Sergey Brin. Apple has passed Microsoft in market capitalization. We are seeing massive rapid growth in start-up and super innovative companies as new ideas hit the marketplace.
Part of this is the nature and speed of the new digital and hyper-connected economy. Some of it is luck. But much of this is about an American culture where a combination of a healthy skepticism for authority and precedence is a remarkable fertilizer for new ideas.
Zuckerberg clearly was not motivated simply by money, and he has turned down billions already. Most such successes were nurtured by much higher ideals and objectives than greed. The belief that greed is its driving force is the most misunderstood concept about capitalism. Capitalism is about the competition of ideas.
When ideas are allowed to compete, many will fail, but the best will be allowed to flourish to a degree most other cultures could not imagine. This new era of business development with many failures and a few huge successes makes the questionable value of greater equality ever more elusive.
Many may admire nations that have attained greater equality without sacrificing modernity, but everything has a cost, and the modern societies with more equal distribution of wealth seem to lack the huge successes that seem so uniquely American.
The biggest threat to the conceit of growth resulting from the competition of ideas is when the government usurps competitive markets to make decisions. Without the competition of ideas, we never find out if the "good" idea derived from bureaucrats would appear lame compared to the great idea that is never allowed to see the light of day. In the marketplace of ideas, yesterday's great idea is merely mediocre today. The marketplace is sloppy and brutal in discarding older, less effective ideas. Government, on the other hand, worships the institutions built around yesterday's ideas as if they were primitive religious icons.
While we may envy the health care system of Europe with its open and free access to health care, we must question if bureaucratic control of this critical service chokes off the stellar breakthroughs that would come from a more competitive market. Europe's bureaucracy is more tied to a merit-based management than the political cronyism that plagues our bureaucracy. But even with a more efficient bureaucracy, are we not better off with greater innovation and progress, even with our other health care issues?
This reliance on government solutions affects not only health care. The result of the massive regulations and legislation to equalize wealth is that entrepreneurial start-ups have ground to a halt. As the established businesses are cutting back and laying off to survive, there are few new businesses being formed to replace those lost jobs. This is in stark contrast to the Reagan revolution, which brought forth huge numbers of new businesses and industries. It was during this period that computer technology made huge leaps, cellular phones became cheap and common, the internet took root, and companies like Amazon changed the face of retailing.
Quick access to capital quickly propelled instant giants like Google and Facebook from college dorms to worldwide acceptance. Brin and Zuckerberg may not have been initially motivated by mere financial gain, but the capital that sought them was. High taxes and regulation and the government's consumption of the capital pool are a threat to such access to such capital.
Capitalism redistributes wealth based on risk, productivity, and even luck. But this is a far more effective method than government engineering, which is replacing the competition of ideas with an elitist decree.
If government regulates the equality of wealth, it may come at the cost of big private successes and immensely valuable breakthrough ideas. It comes at the cost of much less innovation and growth.
Henry Oliner blogs at www.rebelyid.com.
