Friday, May 16, 2014

The Woodstock of Capitalism

Capitalism encourages individual initiative. Socialism and Communism squelch it. By responding to the profit motive, productivity is increased as is innovation. By comparison economies predicated on the collectivity are less expansive. When the Soviet Union and China opened their economies to free enterprise they experienced huge growth spurts. However, while a free society may lead to the growth of private enterprise and mercantilism, it requires a kind of regulation that is not necessary in the already regulated economy which Marx termed “the dictatorship of the proletariat.” Individuals as Thomas Hobbes would have agreed have to be protected against each other or self-will will run riot. That’s why it’s almost disconcerting to read that one of the great capitalistic juggernauts of all times, Warren Buffett’s Berkshire Hathaway, is run totally on trust. Thomas Hobbes would have been shocked to read the headline of Andrew Ross Sorkin’s recent Dealbook, “Berkshire’s Radical Strategy: Trust” (NYT, 5/5/14) In the piece Charlie Munger, the vice chairman of Berkshire, is cited on the occasion of the company’s annual meeting, which Sorkin describes being “known as  'Woodstock for Capitalists.'” “By standards of the rest of the world, we overtrust,” Sorkin quotes Munger as saying. “So far it has worked very well for us.” Sorkin offers another Munger quote from 2007 thusly: “A lot of people think if you just had more process and more compliance—checks and double checks and so forth—you could create a better result in the world. Well, Berkshire has had practically no process. We had hardly any internal auditing until they forced it on us. We just try to operate in a seamless web of deserved trust and be careful whom we trust.” Herbert Spencer, who was responsible for the term “survival of the fittest," turned Darwin’s natural selection into a capitalist concept which rendered a dog eat dog view of human existence. But Munger obviously puts much stock in altruism which in the Berkshire model can also be naturally selective. If there had been a stock called Altruism, it would hit the ceiling every time Berkshire held one of its Woodstocks.

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