The Heroes of Capitalism
BY NICHOLAS LEMANN
THE SPIRIT OF ENTERPRISE by . Simon and Schuster, $17.95.
GEORGE GILDER’S LAST book, Wealth and Poverty, coincidentally published at the beginning of the Reagan Administration, was adopted by the President’s aides as a kind of anthem, a stirring philosophical call to the political work they were beginning. The book’s thesis was that capitalism was insufficiently appreciated not only by liberals but also by conservatives, who customarily defended it solely on the grounds of its brute efficiency as a generator of wealth and a distributor of resources. In fact, Gilder argued, capitalism is really based on altruism, in that the capitalist must invest without knowing what the return will be, and so lays out his funds purely in a spirit of gift-giving.
The bounty of capitalism, Gilder maintained, was such that cuts in the tax rates would spur economic activity to the point at which the government’s revenues would increase. Cuts in social programs, by the same logic, would help the poor by pushing them toward the generosity of the private economy. Gilder was not the sole inventor of these policy arguments, but through a combination of timing, fervor, and big-picture perspective Wealth and Poverty gained a readership and an immediate impact on the world that is rare for an abstract work about public affairs.
What would he do for an encore? Would he change his views to account for the differences between the time of Reagan’s inauguration and that of his putative re-election? During the seventies conservative writers perfected a tone of lonely, courageous rebellion against the established culture, of daring at great personal cost to tell the truth; this was the tone of Wealth and Poverty. Now American conservatism is firmly in power for the first time in years, which raises the question of whether conservative writers should adopt a measured, Council on Foreign Relations-ish tone or feign continued embattlement. Also, though the country is arguably prospering economically, the prediction by Gilder and other supply-siders that cuts in the tax rates would lead to tax-revenue increases has not come true. Now that revenues are down and, largely as a result, deficits are up, some explanation would seem to be in order.
Gilder slides past the tax issue with a believer’s faith that a general truth is more powerful than specific examples to the contrary. Anyway, taxes don’t occupy center stage in this book; the life stories of entrepreneurs do, and the tenor of the times notwithstanding, Gilder insistently portrays them as prophets without honor, plagued not only by the constant toil and risk that are their natural lot but also by the sneers of professors and bureaucrats.
“A bold and happy business warrior” named J. R. Simplot, an Idaho potato magnate, is the first of Gilder’s entrepreneurs. Then come an oilman, a sewagetreatment tycoon, a flock of Cuban immigrants, Japanese auto and electronics executives, and pioneers in Silicon Valley. Finally, Gilder returns to Idaho (“a land of business legends”) for the story of Micron, a manufacturer of random-access-memory chips partly financed by Simplot. All the men and endeavors are described in terms so heroic and language so florid as to make Wealth and Poverty seem restrained. In the preface to an earlier book Gilder named Joan Didion’s writing as his stylistic ideal; now his admiration for entrepreneurs is so boundless and his resentment for their burdens so sharp that he seems to have switched role models, to Ayn Rand.
Introducing J. R. Simplot’s birthplace, he says, “It was in this one-room cabin that ‘Jack,’ as he came to be known—before his name resounded widely through the region as ‘J.R.’— first exercised his echoing voice and sturdy limbs.” A little later; “He knew at eight the process of investment—forgoing present candy for future bags of lollipops and then forgoing the lollipops as well.” Gilder’s generalizations about entrepreneurs are even more empurpled. For example: “Always beleaguered, beset by Damoclean governments, they rule the only world that endures: the world of knowledge and nature, mind and art, inspiration and industry, the world that sustains the life of man as he struggles within the nets and maps of power and the past.” One more irresistible sentence, from the next-to-last paragraph of the book: “These men are legion, the true legislators for the silent and silenced majorities of the globe.”
The thought process that produces this perfervid language is also evident in Gilder’s ecstatic description of everything his entrepreneurs do. Gilder has always been a great admirer of marriage, so when J. R. Simplot gets divorced, it’s because, contrary to how it might look, Simplot admires marriage—so much that he “married his company.” While admitting that many entrepreneurs don’t go to church, Gilder insists that they’re all “shaped by religious values.” When another of his heroes, Milos Krofta, operates his family’s Yugoslavian paper mill for the Nazis during the Second World War, it’s okay with Gilder—in fact, positively admirable: “He embraced his conservative role with full fervor and resourcefulness,” Gilder says, and he “fought to preserve jobs.”
Gilder is so sure that government always holds back the entrepreneur that he feels no qualms about presenting a great deal of evidence that minds less certain might interpret as proving the opposite. Simplot’s first big success comes from supplying the Army with rations during the Second World War. Krofta gets rich in America building sewage-treatment plants mandated by federal regulations. Armando Codina, one of the Cuban immigrants, makes his fortune by designing a software program to help doctors with the complex recordkeeping required by Medicaid, and his first financing comes in the form of a federal Small Business Administration loan. To Gilder each man is only responding to market conditions set by government, and thus retains his credentials as a pure creature of the marketplace, but Gilder does not belabor this explanation. His preferred tactic when confronted with what look like chinks in his theory—or, for that matter, with any of the world’s complexity—is not debaters’ legerdemain but a blithe barreling onward.
THERE IS ONE point on which Gilder’s constant pose as the debunker of respectable opinion goes beyond pretense, and where, therefore, the bluntinstrument quality of his writing is useful. Respectable opinion is of course a moving target, but judging at least from this year’s publishers’ lists, respectable economic opinion is that we must emulate the protectionism and industrial policy-making of the Japanese government in order to regain our strength. Author after author sings the praises of MITI, the Japanese Ministry of International Trade and Industry, which supposedly has nursed entire industries along to robust health; more generally, economic success tends to be portrayed as the result of premeditated policies of government, the big corporations, and the unions as these work their way down into millions of individual pockets.
Gilder’s view is entirely the opposite. He presents MITI as a comical blunderer, keeping crucial raw materials out of the country, bankrolling terrible ideas, and standing in the way of post-Second World War Japanese entrepreneurs like Soichiro Honda and Akio Morita (of Sony). He is derisive, and funny, on the subject of industrial policy, especially the kind that tries to foster innovation and manage economic change. He says it can never work, because economic success is so utterly random, and his life stories of entrepreneurs are persuasive evidence of this if not of their subjects’ perfection. In every case it would have been impossible to pick out in advance either the people who became successful entrepreneurs or the ideas that got them there.
Most new oil is discovered by independents, not by the Seven Sisters. Products that changed the life of the country, from the Model T to the Apple II, were invented by uneducated garage tinkerers. Any new booming economy, like that of Silicon Valley today or the Anadarko Basin a few years ago, will be dominated by a crew far more motley than any rationally selected group of the talented, such as, say, the freshman class at Yale. As it is with individual successes, so too with large-scale shifts in the economy: when the Second World War ended, almost no one foresaw the twenty-year boom that was coming, and in the mid-sixties most economists thought the gross national product would keep growing by three percent a year forever. Gilder also argues that to try to make large institutions the locus of innovation, especially if doing so reduces the flexibility of the rest of the economy, cuts off a great source of economic strength.
Possessed by an enthusiasm that inflates every point and makes acknowledgment of fallibility impossible. Gilder, in this as in other matters, overstates his case. The best example is his bizarre attack on the federal government for failing, in tabulating the GNP, to classify computers as a separate industry. To Gilder this is “a colossal blunder” that “reveals and symbolizes a fundamental incapacity to measure economic growth, capital accumulation, productivity, or inflation.” One feels he’s reading in meaning where there is none—and even if he isn’t, can the issue really be that important? In another place Gilder says it’s impossible to tell whether government jobs programs help people; in fact there are studies that measure what Gilder would consider the real question about such programs, namely whether their beneficiaries go on to jobs in the private sector. Still, wdth economic writing and debate so heavily concerned with macroeconomic questions, a primal scream in service of the view that the economy follows a quirky, idiosyncratic path is useful.
ODDLY, AFTER devoting so much thought to the human vagaries of business innovation, Gilder is the purest of macroeconomists on the subject of encouraging entrepreneurship: the one and only way of doing so that he will acknowledge is through lowering tax rates. His discussion of this point is almost perfunctory, as if his heart isn’t in it. He makes an excellent case against the tax system’s many preferences for real estate, which lead entrepreneurs to tie up their wealth in land rather than start new ventures. But then he says, “A tax code perforated for avoidance is preferable to a system of the same rates with no loopholes.” He says that entrepreneurship depends on letting the rich keep their wealth—but his entrepreneurs tended to do their most creative work before they were rich, and only rarely were they even funded by the already rich. Amid his stories of fantastic chances taken with, he says, financial reward as only a secondary motivation, he blandly repeats the supply-side doctrine that all citizens at all times stand ready to withdraw from productive life the minute the tax rate gets too high.
Certainly there is some connection between the tax rates and entrepreneurial motivation, but Gilder’s own evidence shows that it’s not as precise and all-determining as he claims. None of his entrepreneurs thought hard about taxes until after doing most of the work that has warn Gilder’s admiration. Even if you believe, as Gilder doesn’t really, that externalities create or destroy entrepreneurship, why must taxation be the only one? The personal-computer boom seems to have been caused by the opening of a technological window in integrated circuitry much more than by the 1978 cuts in the capital-gains tax rate. Gilder, an apostate preppie and moderate Republican, has written and spoken convincingly in the past about how the cultural milieu he grew up in nipped entrepreneurs in the bud. The formal American meritocracy, which selects bright young people in their teens, parks them in school through their late twenties, by which time their sap has stopped rising, and then offers them risk-free six-figure-salary jobs as doctors, lawyers, and consultants, could not discourage entrepreneurship more efficiently if it were designed for that purpose. But Gilder won’t let forces like these into the story.
There is a variegated literature emerging that tries to explain economic innovation at the ground level, in terms of cultural and economic forces acting on people rather than as a matter of grand policy. The Spirit of Enterprise, which could have been a part of this literature, instead just whets the appetite for it—for works that share Gilder’s way of looking at the economy from the bottom up but not his one-eyed view of human nature.