Kessler on the Ultimate Philanthopist

ANDY KESSLER, "The Capitalist as the Ultimate Philanthropist,". The Wall Street Journal, June 24, 2015

The Ford Foundation vows to fight inequality but will have a hard time beating Henry’s example.

On June 11, the $11 billion Ford Foundation announced that it will pour its resources—about $500 million in giving a year—into fighting inequality. “We are talking about inequality in all its forms—in influence, access, agency, resources, and respect,” Darren Walker, the charity’s president, wrote in a letter.

Oh, the irony. I won’t join the public intellectuals having hissy fits over how people choose to give away their money, beyond being annoyed that since the Ford Foundation is tax-exempt, we’re all subsidizing it. Here’s the real problem: The foundation is getting exactly backward what its namesake, Henry Ford, understood. Society benefits from making, not giving.

The bulk of the Ford Foundation’s assets came when it received 88% of the nonvoting shares in the Ford Motor Company, most after Henry Ford died in 1947. Ford hated inheritance taxes, then a punitive 70%. In 1956 Ford Motor went public at $3.2 billion. Most of the shares sold were from the Ford Foundation, about a quarter of its holdings. The foundation’s charter stated the money should go “for scientific, educational and charitable purposes, all for the public welfare.” How times have changed.

This story matters because people have lost sight of where foundations got the money they’re donating. Ford Motor was worth $3 billion 60 years ago because it was profitable and investors had high expectations, not because the company raised wages to $5 an hour, a popular myth. Ford Motor was profitable because Henry Ford created scalable assembly lines, reduced the cost of the Model T to under $300, and sold 15 million of them.

Model Ts made millions of businesses and workers more productive and created that “public welfare” that the Ford Foundation struggles to achieve. Ford Motor created wealth for society, as well as for Henry Ford, and you can’t do the latter without the former.

Think about it: No one would invest $300 in a Ford unless he thought that he could make at least that much using it—to deliver milk, to get to work, whatever. At least 15 million drivers made that choice, and the rest of Americans benefited from cheaper milk and Corn Flakes. In other words, the Ford Motor company increased living standards, and as a result its owner became fabulously wealthy. This may have increased the perception of inequality, yet everyone was better off.

A company’s profits are the minimum value of the work it does for you and for society. Google, to take another example, generates huge profits. CEO Larry Page has an estimated net worth of $30 billion. But Google offers you a valuable service, and society benefits to the tune of trillions, yes trillions, of dollars in commerce that happens thanks to Google searches, mail and maps. Similarly, an iPhone 6 is worth a heck of a lot more than $600; you can hail a car, trade stocks, call your mom, all without being chained to a desk.

Everyone should stop focusing on an entrepreneur’s wealth and instead focus on the value the customers gained from his products. I can’t dig for oil, let alone frack, but I am happy to pay Exxon a premium for my high-test gas. Collectively, we are richer because of Exxon. So inequality is not a bug of capitalism; it’s a feature.

The Ford Foundation plans to focus on six areas of inequality: civic engagement and government; creativity and free expression; gender, ethnic and racial justice; inclusive economics; Internet freedom; and youth opportunity and learning. Hard to argue against all that namby pamby. But none are productive, none drive profits, and none will achieve the huge leaps in public welfare that Henry Ford pulled off so long ago.

At the end of the day, there are only four things you can do with your money: You can spend it, pay it to the IRS, give it away or reinvest it. Consumption is on the receiving end of productivity—furthering personal instead of public welfare. Government spending is by definition not productive, as you realize every time you step into a DMV. Same goes for charitable giving—no profit means no measure of value or productivity.

And so the most productive thing someone can do with his money—the only thing that will increase living standards—is invest. If the Ford or Clinton foundations really wanted to help society, they’d work on lowering barriers to business formation and cutting the regulatory chains that inhibit productive hiring in the U.S. and globally. But what fun is that? Better to boast about reducing inequality, public welfare be damned.

Mr. Kessler, a former hedge-fund manager, is the author of “Eat People” (Portfolio, 2011).

Fernández-Armesto on Daniel Bell's The China Model

Felipe Fernández-Armesto, “In Praise of Petty Politics,” The Wall Street Journal, June 8, 2015.

Review of  Daniel A. Bell, The China Model, Princeton, 318 pages

Americans may never vote another Jefferson or Lincoln into the White House, but at least democracy gives us the chance. 

“You are coming to the meeting, aren’t you?” I shuffled with shame: “I trust you to decide for the best without me.” My head of department looked stern: “We’re democratic in America. You must come and make your voice heard.” It was my first day in a U.S. job. I sat, astonished, while my colleagues earnestly discussed the arrangement of chairs in the common room. After more than an hour, the proposer of the new disposition seemed to argue against his own proposal. I begged for an explanation. “Well,” he replied, “I just didn’t think the other side of the case had been adequately expressed.” At last I understood what democracy in America means: The legislature may be gerrymandered and the executive plutocratic, but the give and take of universal participation is alive and well in localities, schools and sodalities.

Daniel A. Bell does not seem to have noticed this, as his new book often seeks to disparage the American model in favor of the distinctive—and in his view praiseworthy—manner of governance forged by the likes of Deng Xiaoping and Xi Jinping. Specifically, he aims to question “the idea that democracies will continue to perform better than political meritocracies” in the coming age.

In “The China Model,” Mr. Bell argues that despite China’s authoritarian reputation, “democracy at the bottom” is a strength of Chinese governance, evident in “village committees” that are responsible for the ideological education and supervision of villagers whom higher authorities have deprived of political rights. The committees he praises are rigged and reined—frustrated by party apparatchiks and higher levels of government. A “real source of dynamism in China,” he says at another point, is “that the government usually takes a hands-off approach to dealing with local affairs.” If only!

Similarly, the meritocracy that Mr. Bell locates “at the top” in China is, by his own admission, seriously flawed or, as he prefers to say, “insufficiently developed”: “selected and promoted . . . on the basis of political loyalty, social connections, and family background.” Chinese leadership-selection is not meritocratic but bureaucratic, rooted in examinations that, rather than screening for merit, act as a screen for corruption and patronage. Like most of us academics, I daresay, Mr. Bell is good at examinations, but his faith in their ability to identify merit or “politically relevant intellectual qualities” is Panglossian. As Nicolas Sarkozy implicitly noted when he questioned the usefulness of knowledge of the novels of Madame de La Fayette to a minor official, examinations can serve to ease the path to power of candidates hallowed by class or culture. They may also, if suitably framed, help in identifying technocrats. But the qualities that Mr Bell seeks—“ability,” “emotional intelligence,” “social skills,” “virtue”—are untestable except in the field. 

Even in Singapore, which Mr. Bell often invokes approvingly, leaders are “not selected . . . on the basis of positive virtues.” When we read that “the Chinese government has . . . a high degree of political legitimacy (in the sense that the people think the government is morally justified)” we feel we might as well be in Neverland or North Korea. The model Mr. Bell advocates is not to be found in China, or Singapore, or any of his historical divagations, but in his own head. It seems fantastic.

Nor does Mr. Bell do poor old democracy—with all its warts—anything like justice. Yes, voters are dumb, corruptible, gullible and selfish, and many candidates are immoral and opportunistic. It is possible to fool most of the people for much of the time. And it is true that the world’s most pressing problems cannot be solved by unaided democracy, because turkeys do not vote for Thanksgiving. Humans, similarly do not vote for posterity, or the planet, or reduced consumption, or, usually, for austerity. On the other hand, democrats find it harder to start wars than despots, and to retain power once voters detect iniquity or incompetence at the top. We may never vote another Thomas Jefferson into the White House, but at least democracy gives us the chance. We may get more Chamberlains than Churchills, but at least we get an occasional Churchill.

Mr. Bell claims that China “has performed relatively well compared to democratic regimes of comparable size.” Strictly, of course, there are no such regimes, but—even if we leave the U.S. out of account, and judge on the basis of narrow economic criteria, without giving much weight to freedom, human rights, self-fulfillment, and environmental considerations—Brazil, India and even, to some extent, Indonesia and the Philippines have shown that representative multiparty democracy in giant states is compatible with measurable achievements in prosperity. Mr. Bell under-appreciates the American dream, dismissing as “false” Americans hopes that you can “start . . . poor and become rich” without help from corruption or dishonesty. But it does happen, and not just in Disneyland.

Democracy—as Mr. Bell fatally fails to realize—can properly be localized not only in village institutions but also in central government, as long as the rule of law and an independent judiciary are at hand to restrain the excesses of legislatures and executives. He thinks that in democracies judicial experts “must be accountable, if only in an indirect way, to democratically elected leaders,” but his formulation is highly misleading. Some judges are democratically elected in the U.S., but that anomaly does not affect higher courts. Elected legislators have the power to remove judges in Britain, Germany and the U.S., but almost never exercise it.

Anyway, what’s wrong with preferring regular guys to Platonic guardians, or agreeable subalterns to superheroes and saints? Virtue is great in a spouse, but equivocal in a prince, who, as Machiavelli said, should be good but should know how to do ill when necessary. God preserve us from too much intellect allied to too much power: What chance would we ordinary subjects and citizens have against it?

Mr. Fernández-Armesto is a professor at Notre Dame and the author, most recently, of “Our America: A Hispanic History of the United States.”