The new century’s continuous procession of business scandals, collapsing bubbles, and financial meltdowns have left defenders of capitalism nonplussed. The business leaders who have been most prominent in the news are a peculiar mix of the incompetent, the sleazy, and the criminal, as the names Jack Grubman, Bernie Ebbers, John Rigas, Jeff Skilling, and Ken Lay attest.
Pundits’ predictions that computers and communications would lift America to unimagined heights of productivity and the stock market to unheard of levels (Dow 36,000) turn out to have been hype. And many of the nation’s companies, even whole industries, can be found running to Washington and other government capitals for special subsidies or even bailouts.
I conclude as much after years of research and writing following December 3, 2001—the day I was suddenly jobless after working for sixteen years at Enron Corporation. My quest to understand what happened to the company that Fortune once ranked as “America’s most innovative” has taken me as far back as the Industrial Revolution and as deep down as postmodern philosophy.
Missing: Advocates of Capitalism
Worse than the intellectual shirkers are those business leaders who publicly appease anti-capitalists. They become traitors to the economic system behind prosperity and create a great problem for capitalism’s defenders, as well as for capitalism itself. As Ayn Rand declared in her last public speech:
The Mobil Oil of her day now would be the many energy companies that have succumbed to ideologically motivated critics of carbon-based energy by timorously implicating their own emissions as causing potentially deleterious climate change. It is as if the physical science is settled in favor of climate alarmism (it is not), and government intervention to “stabilize climate” is cost-beneficial (it is not).
"He who lives by a legalized sword will perish by a legalized sword." -Ayn Rand
As a group, businessmen have been withdrawing for decades from the ideological battlefield, disarmed by the deadly combination of altruism and pragmatism. Their public policy has consisted in appeasing, compromising and apologizing: appeasing their crudest, loudest antagonists; compromising with any attack, any lie, any insult; apologizing for their own existence. Abandoning the field of ideas to their enemies, they have been relying on lobbying, i.e., on private manipulations, on pull, on seeking momentary favors from government officials. Today, the last group one can expect to fight for capitalism is the capitalists.
Economics versus Politics
The first is the economic means, whereby goods and services are voluntarily produced and sold to consumers in open competition. When profits are won by such economic means, private and public wealth is created, and virtually no one, except less-efficient competitors, are made worse off.
When political capitalists win, consumers, business rivals, and/or taxpayers lose.
Free-market capitalism is the institutionalization of the economic means. Under this social system, entrepreneurs formulate their business plans based on economic calculation, but consumers ultimately determine the number, size, and functions of firms. Profits reward the successful participants, shifting the resources of land, labor, and capital from the less able to the more able. A growing economy allows more firms to succeed than fail, but no enterprise is forever. The “invisible hand” of the market includes the process of creative destruction. Even bankruptcies are manifestations of progress amid change in a free economy, as good replaces bad and better replaces good.
But a second instrument of possible business gain is also available: the political means. Entrepreneurs who take this route are “political capitalists”: individuals who turn to government to supplement, and even override, consumer choice. And whenever these political capitalists win, consumers, business rivals, and/or taxpayers lose. Examples of political entrepreneurship include an industry establishing certification requirements to block the entry of new competitors, or a domestic seller acquiring tariffs to hamper foreign rivals.
The Two Types of Businessmen
What Rand describes here is a distinction on the level of politics and economics—the distinction between the true capitalist and the political capitalist. But Rand’s philosophic mind took her deeper and deeper into the nature of the distinction between these two types. From the level of politics, her descriptions moved to the level of morality, psychology, and epistemology: Capitalism versus interventionism became independence versus dependence, substance versus sham, and reason versus emotion. In the end, as one would expect of a novelist, two distinctive archetypes emerged.
The true businessman, for Rand, begins with a foundation of meaningful, inspired work. He is “committed to his work with the passion of a lover, the fire of a crusader, the dedication of a saint and the endurance of a martyr,” with “his creased forehead and his balance sheets . . . the only evidence of it he can allow the world to see.” The true entrepreneur, Rand continues, “learns everything he can about the business, much more than the job requires.” The capitalist is a doer, not a talker, and proceeds in the spirit of John D. Rockefeller, who once said, “We do not talk much—we saw wood.” He is a George Stephenson, the British railway entrepreneur, described by Samuel Smiles as “diligent and observant while at work, and sober and studious when the day’s work was over.” The rational, indeed heroic, business leader practices frugality, attends to detail, and strives for continual improvement, even perfection. His firm is reality-centered, forward-looking, and authentic. He does not seek government favors—he seeks market solutions. And he does not glorify money for its own sake nor for its purchasing power alone, but as the just reward for a job well done.
Against this type, in Rand’s world, stands the pseudo-businessman. He is an “essentially noncreative [person], who seeks to get rich, not by conquering nature, but by manipulating men, not by intellectual effort, but by social maneuvering.” He “hires personal press agents and postures in the public spotlight” and “flaunts his money in vulgar displays of ostentation; he craves ‘prestige’ and notice and hangs eagerly on the fringes of ‘café society. ’” This style-over-substance leader has a gift for making his businesses popular and receiving “good press.” He is detached from the nitty-gritty of the home office, working on what is considered bigger things in a marquee city. He has “Washington ability,” whereby skillful actions result in legislative favor. His firm produces glossy annual reports and he makes many speeches. Of great importance to him is the company’s slogan, symbol, and “noble plan.” The flawed leader seeks security in hiring “very promising young men, all of them guaranteed by diplomas from the very best universities.” The CEO looks upon himself as a Great Man, creating a legacy with an autobiography in mind. He is extremely confident, believing that reality will be what he wants it to be. And when things go sour, he is full of excuses.
For former employees or students of Enron, Rand’s description of the fake company under the phony leader is eerily familiar.
Defending Capitalism—Not Business
It is high time to distinguish between real and fake capitalism—and between real and fake capitalists. Defenders of the free market should not allow the system to be discredited by the failures and machinations of political capitalists. Just because an individual runs a private-sector business, such as Enron, does not make him or it an example of the free market. Nor are their failures free-market failures.
In self-defense, therefore, those of us who are pro-capitalists must invest even more time and effort denouncing the political capitalists of the private sector than we devote to denouncing the interventionists of government. The latter are at least open and honest enemies and may be opposed as such. But the former are fifth-columnists—capitalism’s “enemy within,” who must be rooted out and shamed.
Until capitalists are clearly distinguished from political capitalists in the public mind, capitalism has little chance of winning the hearts and minds of ordinary people. Nor should it—because a system that fails to distinguish producers from parasites or predators is worthy of little respect.