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Defending the capitalist

    I recently saw the movie “Aviator” about millionaire eccentric Howard Hughes, who inherits a thriving business and a bunch of money from his parents then decides to make his own movie and use the profits to break into the aviation business. As with any story about success, there are plenty of obstacles in his path and plenty of nay-sayers whispering in his ear.
        They tell Hughes he’ll never make money with his unorthodox movie. (He sets records.) They tell him his planes won’t fly. (They break the sound barrier.) Then they say his domestic airline will never compete with international powerhouse, Pan-Am. (It does.)
        Interestingly, Pan-Am tried to keep Hughes and his company, TWA, out of international passenger service. Pan-Am execs got a U.S. senator to propose legislation, written by Pan-Am execs, which granted a monopoly to Pan-Am and prevented TWA from competing.
        This is when I usually hear a cry of, “Of course, those dang greedy capitalists! Evil, greedy capitalists.”
    I’m here to defend the capitalists.
     Before we go any further though, I divide businessmen into two camps: capitalists and corporatists. A fine distinction needs to be made between the two.
        A capitalist competes. He’s an entrepreneur. He’s skilled. He’s talented and full of energy. Losing drives him to improve his quality, quantity — something to improve the bottom line. He respects his workers and understands that 10 or 100 or 1,000 minds all voluntarily working toward a common goal is better than going it alone. He needs people. He serves people and realizes the more people he serves the wealthier he becomes.
       On the other hand, a corporatist protects the corporate interest, a.k.a. shareholders — large shareholders — a fairly select group of wealthy individuals. They have connections. They have board meetings. They stifle competition using politicians. Sometimes so many other corporations own a corporation it’s hard to tell who owns what. Share price trumps customer satisfaction and employee morale every time. They have an army of lawyers. Corporate lawyers.
        (I’m not disdainful of corporate lawyers. In some respects, they’re simply following the entrepreneurial credo: “find a market niche.” Profitable niche.)
        Corporatists are only interested in the short term — how can I get the value of the stock to rise 20 percent so I can sell? What else would some stranger, with some stock in some mutual fund, know or care about the business anyway?
       Capitalists take the long-term view and value long-term customers. Ask any businessman — it’s easier to keep an existing customer than it is to find a new one. Therefore, it’s almost always in the best interest of the capitalist to make his customer happy. Better service equals better profits.
        The true capitalist is also respectful of capital and the things it can buy — namely assets — and is not always interested in the quick buck, which is often counterproductive long-term. Assets, especially income producing assets, are best kept in good shape and well maintained so his customers stay satisfied and well served.
        Let’s take two property owners with similar houses in the same neighborhood. The first landlord tries to maximize his profit by over charging and neglecting standard maintenance. The second landlord charges slightly more than market rate but is a stickler for upkeep and regular equipment check-up.
        Sure, landlord number one makes more per month in the short term, but over time the house breaks down for lack of care. As the condition of the house worsens, number one is able to charge less and less rent and the house may eventually become unusable.
    A corporation can often act in this manner because assets are seen merely as entries on a balance sheet. It’s a depreciating asset, subject to write-off, instead of a tangible residence in a familiar neighborhood. It has monetary value instead of tangible value.
        Number two however makes a little less per month but keeps the house in better shape for the long run. Two consistently gets above market rates because of the higher quality of the property. Over the long run, this is the more profitable position.
        And your neighbors will like you more.
    One other thing, it’s the capitalist who’s always accused of being self-interested or greedy. But isn’t that a failing we all share? And if greed is a naturally occurring human weakness, doesn’t it stand to reason that government officials and politicians are also subject to the allure of greed? And if government folk are susceptible to greed and corruption, wouldn’t it stand to reason that they would seek funding and use their influence to receive campaign donations or more powerful positions? Then influence policy decisions? Which undermines the whole purpose of regulation in the first place — namely, to protect the consumer.
    “There are those who see the free market as an enemy. But the market is an invaluable instrument for human development. Every act of commerce is an act of mutual service. Even though it can be motivated by personal interest, the market system channels that selfish energy towards assisting others.” (Fred Kofman)
    Yep.

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