1942 book, Capitalism,
Socialism, and Democracy, asked this question in Part 2:
“Can Capitalism Survive?” He made this prescient observation regarding
the successful businessman:
genius in the business office may be, and often is, unable outside
of it to say boo to a goose — both in the drawing room and
on the platform.
There is a
reason for this: the division of labor. Those who can, do. Those
who can’t, talk. As Schumpeter’s book warned, those who can talk
are envious of those who can do, and who then make fortunes doing
it. The financial success of these verbal bumpkins enrages the eloquent
folks who can talk a blue streak but cannot forecast the market
or meet a payroll.
of ideas, Schumpeter argued, is not a level playing field. The critics
of capitalism get a better press than the entrepreneurs who create
wealth. Why? Because the press is geared toward people who read
and is operated by people who write.
last essay, finished the night before he died, “The March into Socialism”
(1950), was added as an appendix to the final edition of Capitalism,
Socialism and Democracy. He argued that Marx was wrong. The
triumph of socialism would not come — if it comes — from a proletarian
revolution, but from the hand of the government bureaucrat.
In short, the
invisible hand will be tied up by endless red tape. The red tape
of bureaucracy, not the red flag of Communism, is the heart of the
march into socialism.
As it turned
out, Schumpeter — an eloquent writer — got it mostly wrong. Socialism
is no longer seen by even ex-socialists as the wave of the future
today. Socialism is the dead cat that did not bounce. The collapse
of the Soviet Union in 1991 killed socialism. Socialists had worshipped
state power above all, and then the most powerful centralized state
in history stabbed them in the back by visibly going bankrupt.
the red tape artists are still with us. They strangle productivity
whenever they can. They are entrepreneurs who deal in red ink.
GENIUS OF SAM WALTON
was the perfect representative in the history of big business. Nobody
else comes close. He was not a megalomaniac, as Henry Ford was.
He was not a secretive conniver, as Rockefeller, Senior was. He
was not a pushy kid, as Bill Gates was before his wife turned him
into a sensible adult. He was a down-home good old boy who never
moved out of his 1950s home in Bentonville, Arkansas.
He was very,
very smart. He was also by far the most public relations-savvy multi-billionaire
we have ever seen. He connected emotionally and visually with the
kinds of people who shopped in his stores and worked in them. He
was one of them, only richer. He amassed wealth on a scale never
before dreamt of (pre-Gates). Yet he personified great wealth not
He drove an
old pickup truck. When asked why he drove such an old truck, he
said that his hunting dogs would mess up a new Cadillac. It was
the perfect answer. The Arkansans loved it, and the media’s city
slickers were speechless. “What’s a hunting dog?”
seeing a 1984 photo of him on Wall Street, dressed in a grass skirt,
doing the hula. The previous fiscal year, he had made a bet that
the company’s pre-tax profits would not exceed 8%. They did. He
lost. He danced.
served consumers in small towns. He used Mao’s strategy to take
down Montgomery Ward and speed past Penney’s and Sears. He went
into the countryside. Mao had said that the correct military strategy
is to surround the cities. Get control of the countryside; then
make your move. This is what Walton did.
Sears did this
in the late nineteenth century, but then focused on the cities after
1920, leaving rural America to be content with the famous Sears
Catalogue. Walton beat Sears by modifying its original strategy,
taking his stores into towns under 5,000. By the time he had the
multi-store buying power to get huge volume discounts from his suppliers,
it was too late for the retail chains to respond.
heirs are not equally smart or remotely as media-savvy. They are
like the poor, speechless souls described by Schumpeter two generations
The heirs build
huge homes, which Walton would not allow his top executives to do.
They live media-secluded lives, which Walton knew was suicidal for
a successful big business. The company’s leadership is faceless.
No one admires them or even knows their names. Once again, this
has transferred PR power to the enemies of capitalism. They can
scream about Wal-Mart’s “anti-labor” policies, i.e., allowing workers
to bid for jobs. One of the company’s senior representatives has
actually called for a hike in the minimum wage. This indicates a
lack of familiarity with basic economic theory equal to Senator
Kennedy’s. No, it’s worse: Kennedy at least promoted the de-regulation
of airline pricing in the late 1970s, recognizing that the Civil
Aeronautics Board established price floors that hurt less wealthy
It is always
this way in every organization. The second generation never matches
the first. Sociologist Max Weber (“Mawx Vayber”) a century ago called
this “the routinization of charisma.” Wal-Mart’s senior executives
are the poster children of this process. They all wear smiles and
Zorro masks. They use plastic swords.
hired Ivy Lee after the Ludlow mining massacre in 1914, where striking
miners’ tents were burned by the Colorado state militia, whose wages
were paid for by Rockefeller, and a dozen people died in the blaze.
A dozen more were machine- gunned. Rockefeller owned controlling
interest in the mining company.
Lee was the
first of the public relations masters, unless you asked Freud’s
nephew, Edward Bernays, the other grand master. Lee told Rockefeller
to tell the truth. There was no other way, he said. The strategy
Lee sold his
services to Rockefeller and other barons of big business. They at
least understood the value of the man who described himself as the
courtier to the crowd.
As far as I
can see, Wal-Mart’s senior executives either do not understand this
principle of institutional self-defense or, more likely, haven’t
a clue as to whom to hire to make the company’s case to the public.
They are the victims of their own success. They know how to sell
products, but not ideas. Again, it is a question of the division
of labor. They do not know what Walton understood instinctively
If there is
a public relations division at Wal-Mart, it should be disbanded
— every one of them sent into the wintry cold, dressed in a hula
Here is Wal-Mart’s
public relations problem. Public relations experts have one main
task: keep the bosses happy. The PR team must sell itself to the
boss before it can sell the company’s merits to the crowd. These
two markets are different. The PR team that understands the boardroom
market will do better financially than another team that understands
the crowd, but not the boardroom. (This same sales principle applies
to mass-market advertising.)
CURRENCIES, SEPARATE SKILLS
The “best and
the brightest” are trained in the best universities. As Schumpeter
wrote in 1942, the best universities are run by a class of people
who resent successful businessmen. The enemies of capitalism train
the heirs of the businesses’ founders.
Rare is the
businessman who understands the free market as an idea and as a
social system. They understand only how to sell goods and services
to consumers. This is what consumers pay for, and this is all they
get for their money.
understand how to sell bad economic ideas to voters far better than
businessmen know how to give away good economic ideas to voters.
The politicians are paid in votes — the currency of their realm
— by appealing to the voters’ base motive: theft. Politicians
therefore invoke a modified version of one of God’s commandments:
“Thou shalt not steal, except by majority vote.”
are ideologically and institutionally defenseless. They are unfamiliar
with the original commandment and its crucial service in undergirding
the free market social order. So, they are ill-equipped to counter
the modified version.
The red tape,
red ink masters triumph in the voting booth.
This does not
mean socialism: the state’s ownership of the means of production.
It means fascism: the state’s leech-like control over the owners
of the means of production. It is the difference between a virus
that kills its host and barnacles that slow down great ships.
consumers get what we pay for. We get befuddled businessmen who
deliver the goods and conniving politicians who deliver the loot
— after deducting 50% for handling.