Fairness to Whom?

In a new and clever appraisal of the evolving sociopolitical world, David M. Smick’s book The World Is Curved: Hidden [...]

October 8 2008 by JP Donlon


In a new and clever appraisal of the evolving sociopolitical world, David M. Smick’s book The World Is Curved: Hidden Dangers to the Global Economy offers an insight that is commonplace yet startling. “At the heart of today’s globalized new economy rests the notion that every individual is a potential entrepreneur,” he writes. “Notice that this is not simply capital formation, but capital mobilization. Capital is more than money. (Emphasis added.) Capital is productive ability and thus exists in the minds, hands, and hearts of people. The challenge for policy makers is how to encourage these potential wealth and job creators to undertake the risks in the first place.”

Recently I was interviewed for a forthcoming TV documentary on Barack Obama, and was asked why business leaders (apart from those in the entertainment and hedge fund industries) were underwhelmed by him, largely as a result of his taxation policies, based as they are, not on efficacy to the Treasury, but on “fairness.” Smick’s book anticipated the correct response. Entrepreneurs are motivated by a lot more than making money. When Bill Gates dropped out of Harvard to nurture Microsoft in the 1980s he wasn’t taking advice from his accountant. But don’t be fooled that money doesn’t matter.

“Levels of taxation and the general political climate toward entrepreneurship and risk matter enormously,” Smick observes. “This is particularly true in the early stages of a new venture. Entrepreneurs are counting on the fact that if they make a lot of money, it won’t be largely taken away by the government. That is why tinkering with the system to make it seem fairer, or to use confiscatory taxation to try to create a feeling of greater security for society in general, carries with it the potential to produce unintended consequences.”

At the DNC convention in Denver VP nominee Joe Biden attacked oil companies and their well paid executives and suggested that an Obama Presidency would halt such CEO pay windfalls. (An interesting choice of target considering that Biden’s grandfather was an executive with American Oil Co., also known as Standard Oil of Indiana, now part of BP). No doubt there are bosses who are overpaid, but the problem in a highly entrepreneurial economy is that “it is difficult if not impossible to micromanage wealth distribution without serious negative countereffects.”

The fact is, capital roams the world seeking the highest reward. And so, in the end, do entrepreneurs who by their efforts and risk-taking raise the standard of living for all of us. But if one’s goal is attaining something as elusive and transcendant as “fairness,” one might drive away the very people necessary to create the means to achieve it.