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 spent some of my
formative years in the Far East, where, as Kipling pointed out,
"the best is like the worst" — or, at any rate, the
best can turn into the worst with amazing rapidity. One of my first
employers was a gentleman in Taiwan who had made a modest fortune
running a business he described vaguely to me as "import-export,"
which in that part of the world can cover anything from shipbuilding
to opium trafficking. I found out from other sources that this particular
entrepreneur — I'll call him Mr. Wu — was perfectly legitimate,
and had made his pile selling cheap toys to South America. I taught
English for a while to his kids at the family home, a sumptuous
apartment in a well-appointed quarter of Taipei.
Visiting the
island six years later, I happened to run into this very same gentleman.
He was selling tourist gewgaws from a tiny stand in the street.
I was flabbergasted. What happened? I asked him. Oh, he explained,
he'd lost his business. There'd been a string of bad luck —
a factory fire, some letters of credit gone bad, exchange-rate problems...
Mr. Wu was not the least bit downhearted about it, though. "Hey,
see how I lucked out, getting this concession! Right near the big
hotels!" He had no doubt, in his own mind, that one day he'd
get rich again. He was probably right — I don't know, I lost
track of him.
There you have
the spirit of entrepreneurial capitalism. Now, I had better confess
right away that Mr. Wu's lifestyle is not for me. I'm not one of
nature's capitalists. I've never come up with a decent idea for
separating my fellow creatures from their money — writing is
about the least efficacious way of doing this, next possibly to
shining shoes. (And it was ever thus: "Mark what ills the scholar's
life assail: Toil, envy, want, the garret, and the jail." —
That
was written in 1749.) I can't even imagine the stress involved
in making a fortune, losing it, then calmly setting out to make
another one. For most of my life I've been what the Japanese call
a salariman, tucked away in a cube in some big company, not
being paid very much in return for not being required to do anything
very risky or difficult. Hey, it takes all sorts to make a world.
However —
here's the main point of the piece — I believe that Mr. Wu's
experience is the core experience of life in a capitalist
society. Capitalism is nothing more than economic freedom; and freedom,
as anyone who has raised children knows, can never be uncoupled
from risk. Oh, sure, you can shun risk, or you can go out looking
for it, according to your temperament. In matters economic, as I've
just confessed, I am a natural risk-shunner, a salariman.
I'm not a fool, though, and I'm not a socialist either. I understand
that the risk-reward equation governs everyone's life in
a free society, to a greater or lesser degree. As Trotsky remarked
about war: You may not be interested in risk, but it's interested
in you.
Now, of course,
there is risk and there is risk. In a society under the rule of
law, there is legally sanctioned risk — slot machines in Vegas,
buying and selling securities, bungee-jumping — and there is
the other kind: The risk that your counterparty in a business transaction
might turn out to be a smooth-talking crook. Society has a right,
in fact an obligation, to restrain the activities of smooth-talking
crooks, so far as it's possible to do so. There is a limit, however,
to how much of this society can do without shutting down entrepreneurial
activity altogether. The buccaneer element is not an undesirable
by-product of capitalism, to be utterly eliminated: It is the very
essence of the thing. Capitalism consists of me making or buying
something for X dollars, then persuading you to buy it off me for
X + Y dollars.
What's a fair
number for Y? There isn't one, metaphysically speaking. In a mature
market, where I am one of many well-established vendors, competition
and familiarity will trim down the Y to a rough equilibrium value.
In a fast-moving economy with lots of innovation, though, I may
be among the first to offer my product or service to the public.
Then the value of Y depends mainly on the perceived desirability
of whatever new thing I'm offering, and on my powers of persuasion
— on buccaneer chutzpah, basically. It is at this point
that the smooth-talking crooks congregate, along with a lot of perfectly
honest entrepreneurs. Until the new product or service is familiar
and its value generally agreed upon, it's going to take an expert
to tell the crooks from the honest vendors. There may, in fact,
be a period when even the experts (most of whom, after all, are
salarimen — or government employees, which means salarimen
squared) are behind the curve. That's when the crooks really cash
in.
The place of
government in all this is to keep the marketplace fair, as far as
it's possible to do so. Alas, that is not very far. My own years
of experience in the world of securities trading, which I'll tell
you all about another time, suggest to me that the average securities
trader is much smarter and way better motivated than the
average auditor, and not always sleepless with concern for
the folk at the bottom of the securities food chain. (Listen to
the professional catchphrases of the trading desks. "When the
little guy gets in, it's time to get out." "There are
two kinds of equity: insider equity and the other kind." Etc.
etc.) Those years also tell me that bodies like the SEC, charged
with regulating this most-regulated of all business sectors, can't
cope with the regulations they currently have, so that if Congress
were to dump another 2,000 pages of regulations on the auditors'
desks, that would just be so much more underbrush for the crooks
to hide in.
Not that there
isn't anything that might be done to lengthen the odds against con
men. I think a few more "Chinese walls" could be established
without adding to the regulatory burden. It seems crazy to me that
someone on the fifth floor of a securities firm can be offering
investors advice on the value of securities that someone down on
the mezzanine was responsible for underwriting or bringing to market.
I think it's double crazy that a firm whose employees are writing
code for a company's systems can be responsible for auditing those
systems. (I would have loved to be responsible for auditing
my own systems! How come nobody ever asked me?) There are some clean,
simple things that might be done. I'd also like to see suggestions
for enforcing the Mr. Wu principle: that if your business fails,
you end up personally broke. That doesn't seem to happen
any more in the U.S. — not, at any rate, without the intervention
of law enforcement (and not much even then).
What can't
be done is the purging of all risk from capitalism. That would be
a contradiction in terms. And as long as risk is there, it will
follow simple statistical rules, with lots of people taking lots
of tiny hits all the time, then once in a while some poor unlucky
schmo taking a really big hit — like a meteor striking the
surface of the moon. That's the game, that's capitalism. Love it
or leave it; there are regular flights to Cuba and North Korea.
Or, for that matter, to France and Germany, where the little guy
is so thoroughly well protected nowadays that economic activity
has pretty much ground to a halt, unemployment runs 9.5 and 8.1
percent respectively (U.S.A. figure: 5.5), The Economist
start-up index is at -0.2 and 0.4 respectively (U.S.A.: 2.0), and
the last new product anyone brought to market was the daguerreotype.
So what would
I say to former Enron employee Deborah Perrotta, blubbing away into
her hanky before the Senate Government Affairs Committee earlier
this week because she'd lost $40,000 in her 401(K) plan? ("Her
Dreams End in Tears" — New York Post headline.)
Well, first I'd say: Stop making a spectacle of yourself in public,
woman. Show some good American backbone — there's a war going
on, and the world, including our enemies, is watching. There are
plenty worse off than you, with less to blame themselves for than
you have. You didn't have to buy the frigging stock, did
you? It's in the nature of dreams to end in tears; and it's in the
nature of tears to stop and dry up after a while.
So suck it
up, Deborah. This is life in a free society; and those grave well-fed
persons on the dais in that committee room are not, on the whole,
friends of freedom. Don't go to them asking for any favors. Oh,
they'll give you your favors all right, if they see any votes in
it: but what the cost of those favors will be to the rest of us,
and to our liberties, we won't find out until it's too late. Walk
out of that committee room with your back straight and your head
held high. Go get yourself a little street concession close to some
big hotels, and see what you can make of it.
It's a jungle
out here. Most of us, however, prefer jungle to desert, and those
are the only two economic alternatives the human race has yet been
able to come up with. Caveat emptor.
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