Romney's Capitalism

I keep going back to Romney's strange belief that "Syria is Iran's path to the sea," voiced in the last Presidential debate.  It isn't a new delusion. He's been saying this since February. Despite being repeatedly corrected, why does he keep saying it?  My only answer: because he is a CEO.  The contemporary CEO isn't accustomed to being told he is wrong.  Even when they are told, it doesn't seem to penetrate the layers and layers of exaggerated self-regard they carry around with them.  

Romney represents so many things that are wrong with contemporary American business culture.  His celebration of the "entrepreneur" and "job creators" is consistent with the modern MBA-class' idolization of the CEO.  Despite all of the evidence that successful organizations are successful because of their employees, their organizational culture, and a workplace architecture that facilitates creativity, guys like Romney continue to broadcast the idea that successful businesses are successful because of the solitary visionary occupying the executive suite.  This view provides the justification for the out-sized rewards top executives enjoy.

If you go back and reread Adam Smith you'll see that, among the many things he accomplishes in The Wealth Of Nations, Smith wants to criticize the accumulation of wealth for the mere purpose of accumulation. The problem with the aristocracy is they don't invest their wealth toward the production of improvements that increase the overall wealth of the nation. In The Wealth of Nations we find:

There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no effect. The former, as it produces value, may be called productive; the latter unproductive labor.

Romney's world view, consistent with the modern investment class, is that any activity that generates wealth is productive effort.  Smith saw things differently.  For him, the aim is to increase the wealth of the nation; it is the effect of our use of capital in improving the overall well-being of society that matters.  Romney's singular dedication to increasing his own wealth - by acquiring companies and stripping them of their assets, by closing plants, by avoiding taxes, by hiding his money in off-shore accounts, where it is not reinvested in productive activity, but merely accumulates, like the enchanted objects in Bellatrix's vault - is a much more selfish impulse.

If we track the origins of our capitalist system back to Adam Smith, we see an original concern with the employment of capital to create value - not just advance personal wealth. I think the term "capitalism" is often used imprecisely. Let's be clearer. For Smith, a nation's wealth should be placed into the hands of those who will invest it - with "skill, dexterity and judgment" - in improvements in industry and production. A system or a society built upon this ideal could be called "capitalist." It seems clear that enterprises that focus mainly on wealth accumulation, rather than its productive use, aren't "capitalist" enterprises, at least not by Smith's reasoning. Such enterprises - spending exorbitant amounts on executive bonuses or luxury decor for CEO offices - are closer in spirit to the aristocracy Smith was seeking to displace. Consider this quotation from an essay by a friend of mine, Gordon Medlock:

There is an entire movement of progressive companies, business leaders, managers, and scholars who are making the case for restoring the human side of capitalism. For the past 40 years or more they have been demonstrating that successful organizations are the ones that value and respect their employees, understand the needs and requirements of their customers, create quality products and services that satisfy (and even delight) customers, that engage in continuous improvement initiatives, that run lean, that grow gradually, and that assume a long-term strategic perspective.

If Smith were to peek at the business page of a 21st century newspaper, he would agree with Medlock - this is closer to the spirit of capitalism he imagined than, say, short selling would be or Wall Street titans spending $1.2 million on a bathroom.

One of the forgotten contributions of Adam Smith is his philosophical text, The Theory of Moral Sentiments. There he laments that:

wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue.

What is virtue? For Smith:

to feel much for others and little for ourselves, to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature.

This sentiment, voiced by the father of modern capitalism, suggests how far afield many practices on Wall Street have strayed from Smith's original blueprint. Our economic system has always functioned best - and is most admirable - when capital is reinvested in ways that build value and benefit the wider society. This simple idea is utterly foreign to Mitt Romney.

Update: October 25.  An essay by Nobel Prize winning economist Joseph Stiglitz in today's New York Times makes these points (not surprisingly) better than I can.  Here's a quote from the essay that links to my blog posting yesterday: 

Tax havens discourage investment in the United States. Taxing speculators at a lower rate encourages speculation and instability — and draws our most talented young people out of more productive endeavors. The result is a distorted, inefficient economy that grows more slowly than it should. 

Romney and the Republicans are wrong: the simple accumulation of wealth, divorced from any productive use of that wealth, doesn't improve the nation's economy. It weakens it.  It removes capital from more productive uses, and draws talent away from more vital creative and productive activities.  It starves government, and prevents us from investing in research and education and other worthwhile policy and investment choices.  Romney's tax policies will reward exactly this type of selfish, wealth-accumulating behavior, and continue to bleed capital away from better uses.