Joseph Schumpeter’s 1942 book, Capitalism, Socialism, and Democracy, asked this question in Part 2: “Can Capitalism Survive?” He made this prescient observation regarding the successful businessman:
A 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.
The marketplace 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.
Schumpeter’s 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.
Nevertheless, the red tape artists are still with us. They strangle productivity whenever they can. They are entrepreneurs who deal in red ink.
THE GENIUS OF SAM WALTON
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 at all.
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?”
I remember 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.
He initially 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.
SAM WALTON’S INSTITUTIONAL HEIRS
His institutional heirs are not equally smart or remotely as media-savvy. They are like the poor, speechless souls described by Schumpeter two generations ago.
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 consumers.
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.
Rockefeller 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 worked.
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 skirt.
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.)
SEPARATE 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.
Politicians 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.”
Business executives 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.
We 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.
January 16, 2006