19. The Best System to Shape Society (Socialism or Capitalism?)

Hi Systems for Success Family!

Well we just finished the 2018 midterm elections and it seemed there was more focus and more debate generated by these elections than any I remember in many years.  And some of the conversations and debates around this have made me want to address something in this episode that I think is really important to the future of this country.  

I had a conversation with one millennial recently who was really frustrated with some of their friends for thinking they could just not vote and still complain about the way things were going…or that other of their friends could vote for politicians and policies that focused on increased government control, taxes and redistribution of wealth and still expect to see the same abundance for their kids as they experienced. 

Then there was a public opinion poll from Harvard's Institute of Politics, that came out right before the elections that said likely voters claimed to favor socialism over capitalism by something like five points, and the majority supported things like single-payer healthcare, federal job guarantees, and free college. According to Harvard's new poll, millennial Americans have grown to distrust capitalism and free enterprise.  

There was also a Fox News poll earlier this year that showed an uptick to 36 percent of the people polled who had the view that moving away from capitalism and toward socialism would be a good idea.  The article I read said that Historical surveys from the late 1930s to the late 1940s show that only a tiny fraction of Americans embraced the socialist label.  And now 36 percent are in favor of heading that way?  What’s up with that?

Let me be clear, this isn’t about the voting that happened last week.  I think everyone should get out and vote their conscience.  This is not a political commentary podcast and I’m not trying to turn it into that.

What I’m talking about here goes way beyond political viewpoints.  I’m talking about a system for success that built this country and I think really built our world…a system for success is now at risk.  Political victories are temporary bandages over what I see as severe national threat posed by the revival of historically discredited systems like socialism as the system for success in societies.

Somehow there have been all kinds of purveyors of global capitalism, from free-trade champions like Bill Clinton to way right-wing leaders like Paul Ryan, have failed to persuade young Americans that the free market has been significantly responsible for global income per person increasing tenfold--that the free enterprise system has been responsible for eradicating poverty for hundreds of millions of people around the world, and a massive increase in both the length and quality of life.  Many people, especially it seems in the younger generation, have begun to imagine that a fatally flawed system of having government control of who gets what will create long term success in societies.

So in this episode, I want to share with you some thoughts about what I think is the antidote to that flawed system. Let me tell you what I love about the system for success of a free market economy.  I share some of these thoughts in my book, Beyond Business, that will be published the last week of November. So if you want more inspiration on how business shapes our world, you can get that on Amazon soon.  

So here’s what I love about the free enterprise and why I think it is the best system to shape healthy societies.  I love that it is a system where money is earned by serving someone else well.  It’s a system where there is a built in incentive to serve someone well enough to make them happy with what you provided. If I paint your house, fix your car, make a certain tool that you need, you give me money. That money is in essence a certificate proving that I served you. With these certificates of service that you have given me, I can then go online and order some new tool I need from Amazon that some other business leader made well enough that others traded their certificates of service for it and were served well enough that they gave it a five star rating.

Essentially, Amazon says, “When you place your order, you’re making a claim on something that some other business leader created. You’re asking this other business leader to provide value to you. But first can you prove that you provided value to someone else?” And I say, “Of course I can!” Amazon essentially says, “Prove it.” So I enter my PayPal account linked to my reservoir of certificates of service and prove that I have provided enough value to others to receive the value of this new tool I am buying for myself.

Commerce is really an exchange of value. Money is just the symbol of value exchanged.

Obviously, some people are more effective at creating value for society than others. Is it magic that they receive more certificates of service (make more money) than others who provide less value? Think about Bill Gates, for example. Why is his income so much more than mine? It’s because millions of people use the software his business created. I'm using the software he created right now as I type this manuscript, because it makes me more productive than just writing it all by hand. The mission of Microsoft is to empower every person on the planet to achieve more. Their mission is not to make money. Their mission is to serve people by helping them achieve more. I pay hundreds of dollars a year to the company Bill Gates started because it empowers me to be more productive. People pay me less than they pay Bill Gates because I haven't provided as much value to as many people as he has.

            There are some who would say it is not fair that Bill Gates makes so much, especially compared to others. They would even cheer the government on in trying to take more money from him (and other wealthy people like him) and give it to others. In doing this they are basically announcing to the world that they don't agree with the deliberate decisions of millions of people to give Gates’s company their hard-earned certificates of service. They are negating the decisions of millions of people who felt they were getting more value than they were giving up when they bought the products and services of his company. Instead, they are suggesting that we should use the arbitrary control of government to nullify all of those deliberate, independent decisions and redistribute those certificates of service without regard for the value created.

Just as an aside, when you think through this lens, it almost appears that income redistribution is just a government-authorized version of what a robber does. They take what rightfully belongs to one person for the benefit of someone who didn't actually earn it.

Free Enterprise Is a Gift to Humanity

 

Think about the self-perpetuating system of positive regard for humanity that is built in to this free enterprise system of business. There is a built-in incentive to provide value to others before I receive value myself. There is a built-in system to reinforce the positive principle that the greatest servant will become the greatest success. There is a catalytic mechanism to encourage the Golden Rule of doing for others as we would want done for ourselves.

Harvard Professor Steven Pinker says, “Commerce, trade and exchange . . . mean that people try to anticipate what the other guy needs and wants. It engages the mechanisms of reciprocal altruism.”

That, in a nutshell, means that business makes people want to serve others’ needs. That sounds to me like a real gift to humanity!

Now think of the alternative. For the sake of contrast, let’s talk about socialism. A socialist economy can essentially say, “Lonnie, you don’t have to provide value to other people in order to deserve the value that someone else produces. As long as you’re a member of our party, we will take what your fellow man produces and give it to you based on equality or need rather than based on what you produce.” This system has been well proven throughout history not to create sustainable success in relationships or true abundance in society. When it comes to relationships, Alexander Solzhenitsyn, a Soviet dissident who won the Nobel Prize, said that the Union of the Soviet Socialist Republic was a government at war with its own people. The very nature of the socialist system diminishes the dynamics that cause sustainable success in relationships. Peace and prosperity for societies have not resulted from such systems; quite the opposite.

Socialism has demonstrated fairly well that if you take away the free enterprise business system of profit for productivity, it is likely that the real wants and needs of people won't be met as effectively. In our generation, some countries that have historically been most deeply entrenched in socialistic and communistic systems are now becoming more capitalistic in their approach to commerce. They simply realize that this creates healthier relationships and stronger societies. China is a great example of this transformation.

When I started making regular trips to China a few years ago, I would have never even put “communism” and “capitalism” in the same sentence. Yet now that I have done a lot of business in China over the last three years, I can honestly say that China, while still clearly communistic in government, is one of the most effectively capitalistic in business. I vividly remember getting off a bullet train in Guangzhou, and my Chinese business partner mentioned that this was considered one of the wealthiest cities in all of China.

I asked, “How does the Chinese government measure wealth in cities?” I was thinking he would respond with measures like we use in America: per capita income or average household income, but no. He said with great clarity, “In China we measure the wealth of a city based on the number of new businesses that are being started and the success of those businesses in providing value to people in the city based on how much profit they make.”

Wow! The Chinese government measures the wealth of a city based on these leading indicators of success rather than lagging indicators like household income. They clearly understand capitalism, maybe even better than some governmental systems in America. The rapid social and economic transformation of China over the last three decades has once again demonstrated the power of capitalism to improve societies.

            In general, in a free market society, people who are wealthy have become so by providing substantial value to other people. I’ll provide a few well-recognized and somewhat extreme examples to illustrate this point. Think about the extraordinary value these business leaders have provided to people that has enabled them to earn billions of dollars.

• Jeff Bezos, through Amazon's efficient shopping and data systems
• Steve Jobs, through Apple's revolutionary products
• Mark Zuckerberg, through making people more connected than ever before with Facebook
• Elon Musk, through developing Paypal to enable simple and secure online money transfers for people around the world and then creating Tesla’s most energy efficient yet powerful luxury cars on the market
• The Mayo Brothers through developing Mayo Clinic as the number one medical clinic in the world solving health challenges no one else can solve
• Richard Branson, through his four hundred plus companies that provide products and services that improve the lives of people around the world

Branson says, “I've always seen business as a group of people trying to improve other people's lives.” Zuckerberg started simply with a clear passion to help people be more connected. The Mayo brothers didn’t intend to build the number one medical center in the world. They began with a simple radical vision to eliminate disease in humanity. Often, these titans of business begin with an altruistic vision to provide value to society, and society rewards them handsomely when they do.

 Do we really mind that these iconic business leaders became very wealthy or that their companies made a lot of money? Do we really wish they had kept their ideas to themselves and not offered to sell them to us for an amount of money that would allow them to continue to make better products and services that we value? Do we begrudge them for making a lot of money? No, because they gave us so much “bang for our buck”! We’re grateful to them!

When Steven Jobs died, a cartoonist showed him entering heaven as he was welcomed by Benjamin Franklin and Thomas Edison. Is there any doubt that these three people contributed more value to society than they received? Ben Franklin contributed too many inventions and discoveries to name. How could we ever repay Thomas Edison for lighting up the world? How could we ever repay Steven Jobs for putting the world of information in our hands in the form of smartphones?

These people gave more value than they received by far. Isn't that a beautiful and virtuous cycle that we would want to see continue, whether on a large scale or happening at your favorite small local restaurant that continually makes better tasting, healthier food served in a great environment that fosters relationships? What these business leaders do with the free enterprise system is truly a blessing to humanity!

Profit Perpetuates Customer Satisfaction

 

            Whenever the profit incentive is missing, the probability that people’s wants can be safely ignored is the greatest. This is because the ability of a business to make a profit depends on two simple factors. The first is whether the business is producing a product or service that society values enough to pay what they are asking for it. The second is whether that business is well led enough to use limited resources in a way that is efficient and effective enough to consume less resources than the resources others are willing to give in exchange for it. That’s how profit is earned, and it makes profit dependent upon meeting people’s wants and needs.

As I have mentioned, I have spent a lot of time in both the non-profit and the for-profit worlds. I have led boards in both worlds, and I can tell you that in general there is a higher degree of consistency in customer satisfaction in the for-profit world than in the non-profit world. Why is that? I believe it is because in a free market economic system, profit is a built-in catalytic mechanism to constantly encourage service and value creation as of primary importance. Capitalism is compelled by the profit motive to look for and respond to people’s needs and wants.

I'm not saying that capitalism or the free market economic system always produces other-centered people or companies. Certainly, greed and corruption can and do enter in to this system just as they do in many other good systems. At the same time, this does seem to be the system that is most closely aligned with the principles of an ideal society where the one who serves others best becomes the greatest success. In a healthy free enterprise system, the pursuit of profit by serving people and the building of what some might call “God's kingdom on earth” are one and the same.

No one argues that the free enterprise system is perfect or free from abuses, but I believe it is the system that most effectively promotes the principles of God's ideal society where the greatest servant becomes the greatest leader.

So here’s the question.  Since free enterprise has proven to be a system for success that has build a better world wherever it is done well, what can you do to either spread the word or to actually get involved in free enterprise yourself.  Do something that will put some heat around this topic and continue to raise the value and appreciation for free enterprise as a powerful system for success to build a better world.