Thursday, January 24, 2008

Ignorant Billionaire Fashions Noose

Karl Marx once said, “The last capitalist we hang shall be the one who sold us the rope.” Bill Gates has been selling long stretches of that rope lately. In his speech today at the World Economic Forum, a gathering of leading businessmen, politicians and aid officials, Bill Gates said, “We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.” He went on to exhort fellow business leaders to devote their personal time and energy to finding ways of helping the poor.

Admittedly, Gates calls on executives to serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” Just how businessmen are to make profits in regions, such as the Third World, that have essentially outlawed market forces is not explained.

Gates’ premise in these statements is that capitalism serves only the rich. Moreover, capitalism, on its own, is incapable of benefiting the poor.

This premise is dangerously wrong. A clear-headed reading of economic history, a clear understanding of economic science and, most importantly, a proper understanding of philosophy, will prove the correct point. Economic history tells us that capitalism is the only system that radically lifted the standard of living of the poor, such that today’s poor in Western, industrialized, semi-capitalistic countries are far wealthier than even the rich of the Middle Ages or ancient times. Their lifespans have more than doubled, they have comforts such as air conditioning and heat and entertainments such as television and the Internet that no one could have imagined in ancient times. These advances did not materialize out of thin air. Rather, they were the result of capitalists who made billions by inventing and selling the life-enhancing and labor-saving devices that improved human lives, such as vaccines, mass-produced automobiles and food, and electricity. High on this list is the benefit of mass-scale, low-cost computing that Bill Gates himself helped to pioneer.

Economics tells us that all wealth must be created by profit-seeking businessmen, or at the very least by self-interested individuals pursuing their own benefit. Without profits, businessmen lack both the incentive and the means to create. Factories are not built out of thin air, nor are salaries paid out of thin air. The accumulated capital borne of profits pays for the creation of factories and the goods those factories produce.

Bill Gates is also ignorant of philosophy. Philosophy teaches us that certain conditions are required for men to exert the effort required to produce goods. Specifically, production depends on having secure property rights, which means the right to make an unlimited profit. Together, philosophy and economics teach us that one man’s gain is another man’s gain, if everyone deals with each other through the principle of trade. This means that no one can use force to steal the wealth of another. Underpinning the right to property and the principle of trade is every person’s right to his own life, which means the right to use his own mind to produce the things he needs, without interference from others.

Bill Gates is not explicitly calling for stealing the wealth of the rich in order to give it to the poor. He hopes, somehow, that businessmen can serve “a twin mission” of “making profits” while simultaneously “improving the lives of those who don’t benefit from market forces.” But isn’t that what businessmen already do today, at least to the degree to which countries respect property rights and allow them to earn a profit?

What Bill Gates is calling for, without explicitly naming it, is for businessmen to give away their wealth and personal energy the way he has to corrupt Third World countries where it is all but impossible to earn a profit. Where businessmen can serve the twin masters of making a profit and helping the poor, they are doing it already. They do it simply by selling their goods for a profit. Isn’t that what Coca-Cola or McDonald’s or Microsoft (to name three products widely enjoyed by both the poor and rich in Western societies) are already doing in Europe, the United States and Japan?

Capitalists are not selling products in Africa because they are subject to the arbitrary vagaries of dictatorial governments that will steal their wealth at every opportunity. They will steal their wealth through arbitrary and confiscatory taxation, nationalizations, inflation and, endemic throughout the Third World, Mafia-style extortion and bribery demanded to do business. Property rights are an unheard-of concept in the Third World. They are violated every day, egregiously, with one consistent result: massive poverty and frequent episodes of death due to disease, starvation and mass murder.

The only cure for all this is one thing: capitalism. But capitalism is what Bill Gates is setting out to destroy whether he intended to or not. Bill Gates is destroying capitalism by smearing it with the Marxist falsehood that it only serves the rich and does not help the poor. Bill Gates cited a laundry list of books that have influenced him, some of which are quite good, such as the writings of the economists Adam Smith, Julian Simon and Hernando de Soto. However, the one author who best explains the roots of capitalism, and therefore the roots of prosperity, is the one not mentioned: philosopher/novelist Ayn Rand. I would commend to him, at a minimum, her novel Atlas Shrugged, and her collection of essays, Capitalism: The Unknown Ideal, if he wishes to learn what it truly takes for individuals and societies to become wealthy.

What Bill Gates doesn’t get is that wealth is only created through the productive efforts of businessmen. Businessmen and everyone who benefits from their products – i.e., all of us -- need capitalism, the system based on the recognition of the right to property and its root, a man’s right to his own life. Bill Gates just doesn’t get it, and the world is poorer as a result.

20 comments:

Mike N said...

I just got through reading about this on my comcast news page. It's really sad that even the most successful of businessmen can fail so completely to understand the nature of the system that made their success possible.

This is a great example of why all businessmen should read "Why Businessmen Need Philosophy" available at the Ayn Rand Bookstore.

Galileo Blogs said...

It is sad and perplexing that Bill Gates is so ignorant of the nature of the system that made him wealthy. I wonder that he cannot see what a foolish thing it is for him to piss away his fortune in such a wasteful manner.

If he really read the economists he cites, he has failed even to understand them properly. For instance, one of the authors he mentions, Hernando de Soto, vividly attributes the poverty of Third World countries to the failure of their governments to respect and enforce property rights. If Gates got this lesson, how could he give money to despotic African governments knowing that the money will be dissipated?

James said...

This is beautifully written, Galileo, and I enjoyed it. You led me through the necessary base ideas while artfully linking them to your main point.

Thank you for taking the time!

Galileo Blogs said...

Thank you, James. I appreciate your feedback and am glad you benefited from the article. When I write something like this, I am also reminded of how many people I have benefited from who have written so astutely about capitalism, such as the authors I cited, and many others.

Starting with Ayn Rand, but continuing with many others, the preponderance of evidence and argument in favor of capitalism is enormous. That is all the more reason why Bill Gates' ignorance is unforgivable. I admire him greatly as a businessman, but his great capability in building Microsoft is matched by an equally great inability to understand the essence of the system he thrived in. That contradiction is perplexing, maddening and fascinating all at the same time.

Ergo said...

Galileo,

Very well-written article; of course, I agree with all of your points.

But I would add that what third-world countries need is not capitalism, but a thing more fundamental--a revolution in thought: particularly, the rise of enlightenment philosophy and ideas.

I say this because I see the case of capitalism in India: free marketers are at an unfair disadvantage. The entire political system here is antithetical to capitalism and freedom. The Indian constitution recognizes no right to property. The Indian constitution explicitly requires "Socialism" in its preamble and in the manifestoes of all political parties.

Capitalism here is not just floundering but is being choked and squeezed. Despite that, India is being incredibly benefited by the power of freedom and the incentive of selfish pursuits. But the Indian people see the free market as still an evil and brutal system. Their philosophy is still either socialist or concrete-bound pragmatic.

Until the philosophical mindset does not change, until the intellectual ground does not become fertile in these nations for capitalism, whatever haphazard, half-baked instances of free market systems they have will be short-lived, because the roots barely go deep.

Galileo Blogs said...

Nice hearing from you, Ergo, and thanks.

I agree with you. People must accept the metaphysical principle of this-worldliness, the epistemological principle that man can (only) gain knowledge through the exercise of reason, and the moral principle of egoism. When none of those are in place, the case for capitalism cannot be made successfully because these principles are capitalism's base.

In other words, if the culture is otherworldly, dominated by religion and self-sacrificing, how can capitalism take hold in an enduring manner?

At the same time, from my vantage here in the U.S., it is exciting to see India advance. I wish Indians the highest levels of future prosperity. The small openings of liberty in India appear to be well-exploited by some very enterprising people.

As for Bill Gates, with his wide context of knowledge, why doesn't he "get it" about capitalism?

Burgess Laughlin said...

"As for Bill Gates, with his wide context of knowledge, why doesn't he 'get it' about capitalism?"

The problem is wrong (nonobjective) context. He has false premises (context) and so his conclusions are false.

To reach correct conclusions he needs to replace his false principles with true ones. For example, he needs to know that capitalism is primarily a political system, one which protects individual rights, especially to life, liberty, and property. A flourishing economy is a result. It is not a primary.

To hold allegiance to capitalism, as a political system, one must hold egoism as a guide in ethics. Likewise, he must hold reason as one's only path to knowledge.

Until he adopts these premises explicitly, his conclusions will continue to be false. If his premises are mixed, his conclusions will be confused too.

Galileo Blogs said...

Thank you, Burgess. You are right. Your comment and a similar one by Harry Binswanger on the HB List (hblist.com) are good ones. Without the correct philosophical premises, Gates will mis-interpret the evidence he sees. Moreover, his faulty premises will guide him improperly as to what constitutes evidence for a conclusion. His faulty premises will also guide him as to what types of conclusions are possible. As an example, altruism would prompt him to look for evidence of capitalism's weaknesses or injustices.

That explains what is incredibly surprising to me, that Gates could look at an African slum and call it a failure of capitalism, or that he is unable to grasp why the Asian countries prospered while Africa has been stuck in poverty.

My original point, more properly stated, is that I would have supposed that even though he began with faulty premises, a man of such intelligence with such wide-ranging experiences with business and people, and having read even the books he cited, would have found it possible to check some of his premises and reach different conclusions.

But he didn't.

Emotionally, it just bothers me that a man who was so innovative in pioneering personal computers and becoming the world's wealthiest man can be so dense when it comes to philosophical/political/economic matters!

But the power of bad philosophy is great indeed. There are innumerable examples of highly successful businesspeople, scientists and others who achieve great things in one field while advocating inane ideas in other areas. Example: Isaac Newton who, in addition to his achievements in mathematics and physics, wrote many tracts on Christian theology.

Mark said...

Very good article. Very well thought out. Very well written.

Some people would argue that Gates is not a capitalist, but more a monopolist. A monopolist does not like capitalism (competition).

If you look closely at the Microsoft products, almost all of them are copies of already developed ideas. Gates with the guidance of his father (Property Rights Attorney), copyrighted many of these products before others new better.

A true capitalist "creates" doesn't he?

In my opinion Gates is an incredible opportunist who made money by capitalizing on other's ideas.

I mention his business history because I believe it points to his character. Compare him to some of his contemporaries. Many of them would not even think about copying others. They had to much pride.

I think Gates' perception of capitalism is skewed by the way that he built Microsoft.
His perception is further re enforced by his unquestionable vast fortune that he built this way.

What is Gates' real point? Does he believe that capitalism is immoral? How would one get that idea? Personal experience?

I think his speech in Davos is consistent with his actions and his character.

Galileo Blogs said...

Mark,

You make a remarkable claim about Bill Gates that you would have to prove. From all the evidence I can see, Gates created his wealth and has earned every penny of it.

Gates may be tragically wrong about the nature of capitalism, but that does not change the fact that he is one of the greatest capitalists/entrepreneurs in our country's history.

Every day I use my personal computer, I think about how much Gates' software has improved my life.

If Gates stole his ideas, there are billions of dollars worth of monetary damages waiting for whoever can prove it. The fact that no such lawsuit has been prosecuted is telling to the veracity of your assertion.

The burden of proof is on you, my friend.

Mark said...

Excel spreadsheets is a copy of Lotus.

MS Word is a copy of Word Perfect.

Windows is a copy of the Mac operating system.

I can't think of any truly unique MS products on my computer.

There have been lawsuits in the $100's of millions against Microsoft for exactly these types of infringements. IE Apple settlement of about $250 million within the last ten years.

Think about it.

Galileo Blogs said...

Yes, and a Lexus is a copy of a Mercedes.

Pepsi copied Coca-Cola.

Burger King copied McDonald's.

Businessmen always compete to offer improved versions of existing products. As long as there is no theft of a copyright or patent, it is moral and value-creating.

Most of the judgments against Microsoft are antitrust judgments, not copyright or patent infringement. As such, they represent immoral thefts of Microsoft property by jealous competitors. I have blogged about some of this, for example in Europe. Look for my posts under the "antitrust" keyword.

Mark said...

The Netscape litigation was anti trust in nature.

Apple Computer, Inc. v. Microsoft Corporation, 35 F.3d 1435 (9th Cir. 1994) was a copyright infringement lawsuit. Microsoft made a cash payment to Apple of between $150mm - $250mm to settle.

My original statement is factually correct.

My main point has been missed.

I enjoy your blog very much.

Galileo Blogs said...

Assuming your facts are correct, a $150-$250 million judgment 13 or 14 years ago hardly invalidates Microsoft's achievements. Those achievements amount to hundreds of millions of units of software sold and hundreds of billions of dollars of stockholder wealth created over the years. Bill Gates had the vision of "a computer on every desktop, a computer in every home," [quoting from memory] and he achieved that vision by offering products that millions of customers wanted.

Of course, to the extent Microsoft did or does steal from another company, it should pay compensation and/or be punished under the law. If Microsoft at its core was a den of thieves, there would be a lot more successful lawsuits against the company than one or a few from Apple.

Mark said...

I am not trying to invalidate Microsoft's achievements.

Microsoft at its core is a profit making enterprise (and it should be). Its history speaks for itself. Microsoft acted pragmatically to get ahead. Business ethics was not its strongsuit.

I just find it interesting that the richest man in the world now wants to change capitalism.

Maybe he feels a little guilty for his achievements.

Gate's going to Davos and making this speech is like the Godfather going to confessional.

I don't find this great contradiction in his character that others seem to be puzzled with.

He's a hypocrite.

Galileo Blogs said...

"Maybe he feels a little guilty for his achievements."

Yes, an unearned guilt.

Anonymous said...

Microsoft has settled dozens of intellectual property lawsuits in the last 5 years for over $1 billion.

Anonymous said...

I think Bill Gates "gets it" everything he says is just to give the average person the impression that he is a "compassionate" and "caring" person in spite of his vast wealth.

I wouldn't take anything in this article he says too seriously. I doubt Mr. Gates really believes all that nonsense.

Burgess Laughlin said...

What argument, proceeding logically from facts of reality, supports the notion that Bill Gates is actually a consistent egoist but that he is fooling people into thinking he is an altruist?

Specifically, "Anonymous," what are your reasons for your thoughts and doubts?

Anonymous said...

Since Bill Gates became a billionaire because of DoJ anti-trust against IBM, it's doubtful he will enjoy reading Ayn Rand!