Since Kent Walked In

Eugene Henninger-Voss - Brazil


August 27, 2016

Today Kent Walker, Senior Vice President and General Counsel for Google, gave a talk to us Global Citizen Year Fellows about “Social Good and Justice”.   He was by far the most controversial speaker we have had to date.  His talk was all about how much good capitalism has done for the world in a stated attempt to spark a dialogue with us Fellows, which he certainly did.  To paraphrase, Kent said that to date capitalism has been the best method found of distributing recourses in an economy.  He said that the power of the system lay in four areas. One I forget, Sustainability (a transaction is beneficial to both parties), accountability (each company is responsible to itself to get things done, if it does not it fails), and flexibility (much easier to adapt a company than a government.).  Importantly, Mr. Walker made a point of separating unbridled capitalism, which he reminded us leads to a world such as Dickensian England, from a regulated capitalism.  Unfortunately, the discussion got mired (from my point of view) in a discussion of the social role of capitalism in westernizing indigenous societies and by people who seemed to be strongly objecting to the idea of pure capitalism.  I think both these groups distracted the session from what I felt to be its core, the economic question of whether or not capitalism has improved the well-being of society as a whole as Kent argued.  

Although I never thought this would happen, I agreed with almost everything the pro-capitalist said.  There are only two real points that we differed on, but two points I would have loved to discuss with Kent.  The first was his use of generalized trends and second is whether or not he was actually talking about capitalism.

First off, one of Kent’s main arguments is that GDP per capita stayed at an almost constant $1,000 per year until the advent of capitalism, when this metric of economic success started to grow rapidly and has been ever since.  I don’t disagree with that.  Later Kent was more specific, saying that over the past 100 years of capitalism every class in the US has seen economic growth.  This may also be true. However, if we zoom in even closer this trend disappears.

 

http://www.cbpp.org/research/poverty-and-inequality/a-guide-to-statistics-on-historical-trends-in-income-inequality

As this graph shows, while the past 70 years of capitalism has helped every class, the last 40 years has done nothing to help the bottom 20th percentile. (In 2015 the bottom 20th percentile is at 100% of its 1973 income, showing no change.)  Since capitalism is a constant in both the 1947-1973 and 1973-2015 years yet each time period seems to show radically different trends the relative gains of classes, it implies that capitalism by itself is not responsible for the universal gains of all classes over the past century that Kent attributed to it.

Moving on to a more general argument, I am not even sure Kent was talking about capitalism.  None of the strengths he attributed to capitalism have to do with the private ownership of capital. What I believe Kent was giving a talk on the benefits of a market system and the profit motive, not capitalism. Kent lauded capitalism because it is sustainable, accountable, and flexible.  Sustainability does not come from the private ownership of capital, as according to Kent capitalism’s sustainability comes from the inherent sustainability of a transaction. His example: If I buy an apple from you for one dollar both parties are happy.  I believe that apple is worth more than a dollar, or else I would not have bought it and you value the dollar more, or else you would not have relinquished your hold on the apple.  No private ownership of capital there.  Next, accountability.  The market system provides the opportunity for one entity to out compete another, and the profit motive compels them to do so.  Again, private ownership of capital free.  Lastly, flexibility.  It is not because I company is owned by one person that makes it flexible. Indeed, most public companies are owned by a whole host of people and run by a board of directors.  Companies derive their superior flexibility (as opposed to that of a federal government in a command economy) from their smaller size.  Each company involves, is run by, and responsible to/for, less people.  The market system lets smaller companies sense shifts in the economy quicker than the large government of a command economy.

As a means of proof that Kent was really talking about the benefits of the combination of the market system with profit motive, consider an economic system that does involve a market system and profit motive but does not involve private ownership of capital. For example, a society exactly like modern US except where capital is owned by those who work it, the laborers, not privately held by the ‘owner’ of the company.  In this society, there is still a profit motive because if profits go up each worker’s pay check goes up because just like the owners of our world, in this thought experiment the worker-owner get to keep the profit.  The market system is still in place because each entity the would like to sell its goods still competes for buyers in the same way they do now. So, is this thought experiment economy sustainable? Yes. Every transaction maintains its win-win situation status.   Is it accountable? Yes.  If a company does not deliver or somehow does not function effectively it will be outcompeted by those that do.  Is it flexible? Yes.  Each company will be able to sense the changes in the economy just as effectively and, depending on how they are led, be able to adapt just as quickly. 

Therefor it seems that the private ownership of capital is not what gives the system of capitalism its strength, as it can be taken away without compromising the integrity of the system.  It is from the market principals and a profit motive that the strength of capitalism come from.  While a profit motive and market system are an integral part of capitalism, so is private ownership of capital.  Kent did say that capitalism was the best economic system that has been found so far, not that it is the best possible.  Perhaps this is because no other economic system that also incorporates a market system and profit motive has been successfully implemented.

            From what I got from Kent’s speech we both truly view capitalism very similarly: like an ax. (These are all my own words.) An ax is merely a tool.  An ax can be a very useful tool that improves the state of a society by chopping up wood for fires or for houses, but it can also be used for horrible, destructive, ax-murderer purposes.  So capitalism can be used as an effective means to distribute goods in a way that improves the conditions for all involved or it can be a horrible tool for exploitation and oppression.

Overall, I think that Kent had many great ideas. Even those I don’t agree with can be explained away.  Yes, he glossed over data to support his position, but he was also purposefully trying to raise controversy and may have done so on purpose.  And while it may have been a certain subset of the properties of capitalism that are not unique to capitalism that really allowed so much positive change, and while it may have been primarily other factors that drove this growth, the globe under capitalism has seen a greater increase in economic metrics of success than it has under competing mercantilist, traditional, and command economies.  I am very glad Kent came to talk to us Global Citizen Year Fellows because it made me think about things I have not in a long time, ignited a little fire of curiosity and thought within me.  I hope reading this gave all of you some delicious, tantalizing food for thought.  

 

 

Eugene Henninger-Voss