There is a lot of talk about “social entrepreneurship” and “Doing Well by Doing Good”. What is almost completely ignored, however, is the inherent social function of all entrepreneurship. What people need to become more familiar with is the opposite of the usual phrase; they need to become familiar with the notion of Doing Good by Doing Well. A great primer on the social function of all entrepreneurship is the essay Profit and Loss by Mises.
In recent years, those who earn their wealth from regular, “non-social” entrepreneurship have been expected to give nearly all of it to charity before they die, under the prodding and the example of billionaires like Bill Gates and Warren Buffet.
Now there’s nothing anti-liberal about voluntary charitable giving (and certain kinds charitable giving are positively pro-liberty: like, of course, donations to organizations like the Mises Institute and the Foundation for Economic Education). However, much charity of the “bleeding heart” variety is rife with inherent inefficiencies and negative impacts (some of which are covered in chapter 18 of Defending the Undefendable by Walter Block), especially when compared to the alternative of investing resources in business instead.
One billionaire who, to some extent, realizes this is Carlos Slim.
From a Wall Street Journal blog post:
The Mexican billionaire, who Forbes still lists as the world’s richest man, said in 2007 that he could do more to help fight poverty by building businesses than by “being a Santa Claus.”
Mr. Slim’s signature also has been noticeably absent from the Gates-Buffett Giving Pledge. At a conference in Syndey last month, Mr. Slim said that charity accomplishes little.
“The only way to fight poverty is with employment,” he said.
The man has a point, although he makes the common mistake of thinking it’s about jobs. Ultimately, it’s not about jobs; it’s about consumers’ goods and services.
For example, Warren Buffet is obviously an extremely competent investor. Successful investing not only enriches the investor; it directs capital toward enterprises that most abundantly provide consumers’ goods and services to the masses. Rather than giving it all away to charity, Buffet’s billions would probably be directed more efficaciously for society by him personally (or by other value investing gurus commissioned by him) under the guidance of profit/loss signals.
And it’s not just money. Time, expertise, and judgment all serve humanity most effectively in the market. For example, Microsoft did a lot better under Bill Gates than it has under Steve Ballmer (as you can see from this chart). So it is arguable that, rather than spending his time on his foundation, Gates would help the needy more by returning to the Microsoft helm, and hopefully improving Microsoft’s products and the delivery of those products, which in turn could improve global white collar productivity, which in turn could make the world economy run more efficiently, which in turn would free up resources for the production of more consumers’ goods and services for the masses.
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Ugh, the Buffett thing again. HE IS NOT A COMPETENT INVESTOR! If you take his portfolio and strip out all the companies that he lobbies to get subsidized by the Government, his success rate is just as good as throwing darts at the stock listing page. Basically, just as competent as any other investment professional. He is heavily involved in subsidized industry. The bulk of his vast wealth is thanks to the US taxpayer. A few wonderful examples include GoldmanSachs and the Burlington Northern Santa Fe Corp. railroad.
And Carlos Slim? You do realize he has an effective state-sponsored monopoly over nearly the entire Mexican telecom industry? His companies owns 90% of the Internet, landline, and cellular market in Mexico. His vast telecommunications empire that got him his billions was financed partially by forced taxation of Mexican citizens.
If these individuals were such good, why are they constantly putting their hands out for subsidies?
The only reason I would be open to stripping these individuals of their fortunes is out of desire to return legitimately stolen property.
I agree. I wonder what Buffet’s net worth would be if none of the bailouts since 2008 occurred.
Regarding Buffet, you’re going to need to provide a lot more details than that to show that the success rate of someone who has invested in as many companies as he has over such a long career as his has nothing to do with entrepreneurial judgment, and everything to do with directly-lobbied-for subsidies.
Regarding Slim, I could see a stronger case made for his wealth being almost totally due to political entrepreneurship. However, with him, I was simply discussing the point he made in his quote; I didn’t say anything about whether he has been or can be a competent entrepreneur (although he did buy 3% of Apple in 1997 and has held onto it since).
Ditto J. Murray, and Bill Gates has about as much to do with free enterprise as FDR had to do with pulling us out of GD I. Gates was lucky to be able to build his company in an era when there were no software patents, then put together a ginormous lobbying machine to strangle competitors with government IP restrictions.
Gates has moved on to pursue his real career goal: eugenics.
Ugh, the Buffett thing again. HE IS NOT A COMPETENT INVESTOR! If you take his portfolio and strip out all the companies that he lobbies to get subsidized by the Government, his success rate is just as good as throwing darts at the stock listing page. Basically, just as competent as any other investment professional. He is heavily involved in subsidized industry. The bulk of his vast wealth is thanks to the US taxpayer.”>
Right. And how come he seems to be the only one who notice there was money to be made that way? Or to put it in a different way: why aren’t there hundreds or thousands of people who made as much money as Buffet by doing what you say he does? Answer: he saw an opportunity, he seized it, he plays the game better than any one else. Well, this is pretty much the definition of a good investor.You may, however, question whether his investment portfolio really “does good” in the sense the article claims.
Buffett’s father was a long-term Senator, which gave Buffett the insider ability to just call up people like Bill Nelson on the phone at whim to talk turkey. He isn’t a good investor, he’s a good lobbyist. There’s a big difference between the two.
I would disagree. There was a time when Buffett was excellent. His investment philosophy was sound and he had great returns. His wealth was compounded by his partnership with Charlie Munger, who is also very shrewd. It’s just in the past couple decades Buffett’s gone off the deep end. (Munger as well.) Both are just cheerleaders now.
The best book on Buffett, in my opinion, is The Snowball by Alice Schroeder. Its a well researched book, and you’ll get to see all the mistakes and strange episodes in Buffett’s life. The book makes the case that although his investment strategy is maverick compared to the mainstream, Buffet’s main preoccupation is with being respected and accepted. A grandfatherly guy that everybody likes.
http://www.amazon.com/Snowball-Warren-Buffett-Business-Life/dp/0553384619/ref=sr_1_1?ie=UTF8&qid=1287423161&sr=8-1
I can’t stand what Buffett says nowadays. His stupid views regarding the bailout which he personally benefitted from, irritate and sadden me. The guy used to be great and now he’s just talking nonsense.
I’d agree with most of what this article says but why would returning Gates to Microsoft make people better off? According to the graph posted in this article, Microsoft is losing market share to apple. That means apple has better products according to the market measured in that graph, putting Bill back in charge would only change the ratio, not the standards of living of most people.
Now if he were constantly starting new businesses, doing cutting edge stuff, or the only company delivering a usable product, then I’d agree he’s an asset to the market. I say this not being an apple-phile at all, just my perspective from my limited understanding.
It’s very simple. The point was that Bill Gates demonstrated that he was more profitable than Ballmer. It is only a guess that Gates could improve the company, but it is an educated guess. That’s what one does when one invests. It is conceivable that the most highly-educated, well-known, talented, smart, experienced, and all-around inspiring potential employee could come work for you and immediately fall into fits of depression and binge drinking, but the assumption to the employer is that those qualities for which the employee was hired are worth trying him out.
So the same applies if Microsoft decides Bill Gates should take the reigns again. He has proven himself before. He may or may not be able to do it again, but he’s a better investment than…I don’t know…me. Or you. Or most people, as far as the corporation could say. It’s certainly an easier choice than voting for a president. Or a governor. Or Mayor.
There’s a joke in there somewhere. Something about saying “Ooh, look! It’s Bill Gates! He can make money!” With the appropriate statist response of “Yeah, but so can Ben Bernanke!”
Great post Lilburne. Doing good by doing well is walking the walk.
Actually, spurious employment can be thought of as a form of charity: not only are you giving somebody money that could just as easily wind up in your pocket, you’re also giving them experience and references to pad their resume.
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