Saturday, May 1, 2010

Politics of envy will kill wealth creation

By Luke Johnson
Published: April 27 2010 (Financial Times)

[My comments: Mr. Johnson is head of Risk Capital Partners, a private equity firm located in London, UK. His commentary hits at the core of why fundamentally all forms of socialism fail. He brings to the forefront the ethical link that economists and politicians alike do not regard when it comes to policymaking. The art of theft is well camouflaged in their intentions to do go. Indeed, as someone once said, it is easy to do "good" with resources that belong to somebody else. Our human nature is to obtain something with the least amount of energy spent. Current economic theories and political rhetoric try to exploit this loophole in human nature to advance the perceived credibility of their proponents. Theft is wrong and immoral. No amount of "proofs" of the opposite will change that.]


Politics of envy will kill wealth creation

Is envy a helpful motivator for those who want to succeed? I rather think not. It strikes me as a negative, destructive emotion, usually possessed by small-minded individuals who see economics as a zero-sum equation. Entrepreneurs I meet very rarely covet another’s possessions: what they want to build is their own business, independent, better than the competition.

Politicians all too often pander to the envious tendencies among the electorate. As George Bernard Shaw said: “A government which robs Peter to pay Paul can always count on Paul’s support.” Socialism, or “progressive” politics as it is now called, essentially encourages envy under bogus intellectual arguments about equality and egalitarianism. As Sir John Rose, chief executive of Rolls-Royce, put it in this newspaper last week: the proponents of redistribution programmes are so obsessed about how the cake is sliced they forget about enlarging the cake – to everyone’s detriment.

The pessimistic, leftwing view of the world sees it as a place of rapidly shrinking resources, where any elites should be levelled down so that we can all be immiserated together. Thus the Liberal Democrat cure for unemployment and a fiscal deficit is to increase capital gains tax in Britain to 50 per cent, the highest rate in the world. In almost all countries it is half that, or less – in rapidly growing economies like Singapore, Hong Kong, Brazil, Russia and India it is 15 per cent or zero. But their Treasury spokesman Vince Cable, who claims to be an expert in finance and business, (although he has never actually dealt with a payroll in his life) expects entrepreneurs to take all the risk, and the government to take half the reward. At a stroke they would kill initiative, and send a massive signal to wealth-creators: do not invest here.

Almost trebling capital gains tax in the UK would be especially stupid. It would probably raise no extra revenue for the state, and would drive talent and capital elsewhere. Research shows that most job creation in the private sector in recent decades has taken place in companies less than five years old. In sensible economies they cherish start-ups – not burden them. Founders of new ventures make considerable sacrifices to realise their dreams.

Recently I met the chief executive of a dynamic business who has certainly struggled. Five years ago he sold his flat to fund his business, and slept on the sofa in his office for two years. Now his creation is booming and he has a real home again. Building a company from scratch is a perilous task – but the west desperately needs such heroism if it is to generate the surpluses to pay down debt and provide work.

The issues facing the west are straightforward. Possibly the biggest change to impact society in recent decades has been the growth in the number of full participants in the global economy from 700m to 3bn. The arrival of China and India and other developing nations alters everything. India alone graduates 350,000 qualified engineers a year. These young, hungry workers are competing for jobs, wealth and commodities with 21-year-olds from Europe and the US. Average wages in China are less than 5 per cent of average wages in Britain. Investment in education and infrastructure means these emerging superpowers are rapidly catching up with the west in terms of productivity.

If we do not genuinely encourage entrepreneurs to invent and invest here, to search for competitive advantages and to boost productivity, then I can see no alternative but relentless decline – certainly relative, but perhaps even in absolute terms. Big government and a culture of dependency and entitlement is a recipe for disaster. Instead we must grow the private sector, which is the engine for innovation and exports, and the only cure for unemployment. But if we elect amateurs to high office who stimulate jealousy and punish dynamism, they will foster a society rank with stagnation, underinvestment, worklessness and despair. A sense of grievance and adoption of the victimhood complex – all ailments promoted by certain politicians – are the opposite of what is needed. When will they ever learn?

No comments: