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  • Bob Burg

“Just in my second year in business, I'm on track to do over a MILLION DOLLARS in commissions!”

~ Cal Faber, Agent, RE/MAX - Victoria, BC

What The “Occupy Wall St.” Protesters Are Actually Protesting

October 17th, 2011 by Bob Burg

Like many, I’m often asked my thoughts regarding the protests taking place, first on Wall St. and now in cities throughout the world. And, my typical answer includes that often annoying term I use, “false premise.” And, truly, I can’t think of anything that is based more on a false premise than this. And, apparently, neither Democratic nor Republican politicians are aware of it.

One often hears it is an assault on Capitalism; that Capitalism and the greedy bankers for which it stands has ruined the economy, creating a 1 percent super-rich and 99 percent everyone else. That seems to be the summation.

However, not one of the protesters is actually protesting against Capitalism. Oh, I know they believe they are. But, they are not. They are protesting against Corporatism, where big business is given special advantages and privileges by the politicians they buy (err, to whose campaigns they contribute). There is a significant…significant difference and it needs to be understood in order to be dealt with effectively.

Corporatism is often referred to as “Crony Capitalism.” I wish that advocates of Capitalism and Free Enterprise would stop using that term because, well, it has the word “Capitalism” in it. And, that confuses people.

Please understand (warning…here comes a tweetable quote) :-):

“Crony Capitalism is to Capitalism what Chinese Checkers is to Checkers.”

So, I’m not telling the protesters they shouldn’t be protesting. I’m only suggesting that what they are protesting is not what they think they are protesting, and they are protesting to the wrong people. Here are my thoughts for the protesters:

“You are right; Wall St. helped ruin our economy. But they could ONLY have done so with all the special rules based on corporatism enacted by government. So, if you want to protest anywhere, it should be in Washington, D.C., and only Washington, D.C.! And protest, not for more rules and regulations, but for government to STOP making rules and regulations that allow both corporations and government-sponsored entities (i.e. Fannie Mae and Freddie Mac) the ability to take excessive risks with no consequences.”

Not that anyone who truly hates the idea of Capitalism/Free-Enterprise will listen. They will only tweet out their disagreement using all the technology made possible by Capitalists/Free-Enterprisers (Holy irony, Batman!). But, at least for everyone trying to intelligently reason out the issue, it will make sense, and  cause those on the fence to look a little deeper than the sound bites they are hearing from the usual media outlets.

80 Responses to “What The “Occupy Wall St.” Protesters Are Actually Protesting”
  1. A voice of reason in the middle of such chaos. Thank you for weighing in on this Bob.

  2. Excellent article, Bob… So on point … And I love your humor! Thank you for making what seems complicated, real… And easy to understand!

  3. Doug Evans said at 7:51 am on

    Bob, all power as you say comes from Washington–not Wall Street. Protestors should live in DC because political nonsense shall not stop for many years if ever. The two current political party system is broke for the reasons you state. We live in “let’s buy a politician” world. Washington needs true leaders which are few and far between vs “gift wrapped” politicians.

    Polticians with guts (boy did I clean that up) are surely needed !

    Doug Evans

    PS Geez I did write all this without 4 letter adjectives !

  4. jason said at 7:57 am on

    Wow, you won me over with that very clear explaination. I do THINK both sides sand the part in the middle could agree that Cron Cap is the issue needing fixing.

  5. Beth M. Anderson said at 8:20 am on

    Thanks, Bob! You articulate it very well, and now I have a better way to say it too.

    Four letter adjectives, Doug? I was thinking more along the lines of 5s and 7s, but ok. :-)

  6. Holy irony Bobman!
    that you managed to inject humor and good sense into this chaotic topic is a sweet summation of your skills as a communicator.
    You assisted in sorting out my own thoughts on this phenomenon-I have cherished the pleasures of capitalism all my life – in 1942 I fancied myself a little capitalist with his own business (a shoeshine box equipped with all the product necessary to put a gleam on your foot as you stepped out into the world) and cherished the power of purchase that thin beautiful dime would bring.
    So when you made the distinction between ‘corporatism’ and ‘capitalism’ I said “Aha!” “Perfect!”
    Wayne

  7. I agree, they’re not really directing the protest at the right thing, however what it IS doing is bringing more awareness to the situation, and I believe that will be helpful in changing the culture of “Corporatism”, which I believe will be a good thing.

    Although ideally, what I’d simply like to see is more corporates that are concerned with the well being of people in general.

    I can’t wait to see a time when “happiness indexes” are a part of the shareholders reports, along side “profit”.

    :)

  8. Maralene said at 8:42 am on

    As always, Bob, well articulated with the calm reasonableness of understanding the foundational truths of issues and solutions.

  9. rich bonn said at 8:51 am on

    Bob:
    Great start to diagnosing this issue, however, I believe that you are missing some of the major factors that have brought us to where we are today. The mortgage crisis, which is the cornerstone of todays issues was not brought on by Wall St. In fact, Wall St. was a pawn in the government’s plan. Fannie Mae and Freddie Mac (at that time quasi-governmental entities–now fully owned by the government) essentially strong-armed major banks, MI companies, etc… to make the loans easier to get to increase home ownership in the US. Some congressional leaders tried to stop this as early as 1998, but were rebuffed by groups such as the ACLU, LULAC and others. When banks tried to avoid making these loans, the government sponsored entities would increase the pricing on “A” paper loans, essentially putting the banks out of business.

    The banks reluctantly made these loans–because Fannie Mae and Freddie Mac “guaranteed” them and waived the reps and warrants that the lenders traditionally had to agree to–that is until the performance deteriorated. The government sponsored oligopoly then started extorting capital from banks, insurance companies, etc… creating an environment where the bailouts of the wall st firms were required.

    This entire mess was created by the government forcing actions and has been blamed on corporations. This is not a case of crony capitalism that has created these issues, but a malignant blend of facism/socialism.

    As far as preferential treatment of corporations, please consider this: Any tax on any corporation or business is a tax on you and me. When taxes increase for corporations, please do not be under the impression that the corporation is where the tax stops. The tax is passed down to us in many forms such as higher prices and fewer jobs. If you feel that you are not paying enough taxes, please send a supplemental check to the government with whatever amount you feel is necessary in order to assuage your guilt. Please do not make the poor pay more taxes by burying them in the prices that they pay for staple commodities such as bread, butter, meat, etc.

  10. Bob Burg said at 10:03 am on

    Appreciating everyone’s feedback so very much. Thank you!

    A couple of quick points, if I may:

    Claire: I love your heart and good intent. Be careful though. You cannot legislate emotion, caring, etc. What *can* be legislated is an environment where everyone must play by the same rules, without special rules for any one company or special interest group. That way, providing value to customers/end users is rewarded; the lack of such is punished. Begin with THAT premise and much of everything else will take care of itself. By the way, corporations are simply legal entities run by human beings/individuals. When they provide value to their employees (by being good employers) they get more loyal employees that in turn help provide more value to the customers, and greater profit is made. This is still another reason why Pure Capitalism works so well; there is a vested interested for everyone to provide value to everyone else. One other thing: Where you write that even though they are not protesting the right thing, it will bring more awareness to the situation, please follow that thought through. If they are not protesting the right thing (false premise) then the awareness will *not* be brought to the right thing (false conclusion). False premises do not result in correct conclusions.

    Will respond to Rich next.

  11. Bob Burg said at 10:27 am on

    Rich: Thank you for sharing your thoughts. When you write that the post is missing some of the major factors that have brought us to where we are today, of course it is…this was one brief post regarding one specific issue. I believe that if you’ll read some of my past posts regarding Capitalism you’ll see I’ve covered much more of these. If you clicked on the link (http://www.burg.com/liberty.html) in the second paragraph from the bottom of today’s post, you’ll have seen two articles explaining the banking situation in more detail. You’ll also notice that I even mentioned “Fannie and Freddie” in that same paragraph so I’m not sure I totally understand your point. Rich, the following is very important: when you talk about Wall St. being a pawn in the government’s plan, indeed, at first they were coerced into making bad loans. However, they soon became very “willing participants” in the charade which eventually led to the current situation. It was no longer a case of “reluctantly” making the loans because they were guaranteed; they started coming up with all sorts of ways to make the loans. Yes, the government absolutely did start the fire (which, again, Rich, was the point of my post). But, both the government and the corporations buying their special favors are to blame. Of course, while what those corporations are doing in buying influence is immoral…what the government is doing is absolutely unconstitutional. But, as the saying goes, “there are no virgins in this game.” And, the citizens who have so willingly traded their freedoms for security are – to paraphrase Franklin – seeing neither. When you say that “This is not a case of crony capitalism that has created these issues, but a malignant blend of facism/socialism”…Rich, they are basically the same. And, it is indeed “Corporatism/Crony Capitalism.” Not sure how you can try and deny that. Corporatism/Crony Capitalism is indeed another form of socialism. Fascism is actually a bit different but that is hardly the point of this response and I don’t wish to go off-point. Regarding your very last paragraph, I agree with you completely other than your use of the term “preferential treatment of corporations.” My article addressed the preferential treatment of those corporations who have *bought and paid* the politicians for that treatment. Please don’t confuse that issue. It’s very important. Of course, I agree with everything else you wrote in your final paragraph. People don’t realize that taxing corporations actually hurts the poor more than it does everyone else. But, again, that’s another post.

  12. Randy Gage said at 10:44 am on

    Thanks for being a voice of reason in the darkness!

    -RG

  13. DeWayne Pope said at 10:45 am on

    Great post, Bob! I think you hit the nail on the head — the protests should be against the government that created the environment that has allowed corporations, especially financial entities like brokers and banks, to take tremendous risks without fear of repercussions. I was shocked to learn some of the details of the “corporatism” that had taken place when I watched the documentary “Inside Job.” Capitalism isn’t the problem — the problem is, as you stated, giving special advantages and privileges to one group of people/entities at the expense of others.

  14. bfilbert said at 11:24 am on

    Bob for President!

  15. Steve Burnett said at 11:31 am on

    Great post, Bob!

  16. Claire Boyles said at 12:19 pm on

    legislate emotion good heavens NOOOOO!! Last thing in the world I’d advocate! I was imagining how awesome it would be if well being was considered as highly as profit in business, and I think that’s going to happen, with freedom of choice ie capitalism.

    “When they provide value to their employees (by being good employers) they get more loyal employees that in turn help provide more value to the customers, and greater profit is made” You and I know that, but from experience, working within BIG corporations, they haven’t quite grasped it yet! Some of course, are better than others!

    Point taken about my flawed logic, I guess what I meant is that the awareness that’s being raised is creating a curiosity, which many people are going out to learn for themselves about economics, how the banks work etc. More knowledge to the people, for me, must mean a good thing!

    I am of course naive and I like it that way, it’s my childish naivety that will help me find a way to make reality how I envisage the world as I would like it to be ;)

  17. Larry Boyer said at 12:31 pm on

    Great post Bob! You bring great clarity to the issue.

    Having seen much of the crisis develop from the inside (I developed financial risk models at Freddie Mac) I have seen a number of problems that lead to this crisis.

    One is Wall Street group think. Fannie and Freddie both managed themselves pretty prudently until 2000 when their executives were ousted over differences of opinions on derivative accounting rules. When that happened, the new executives that were brought in were all Wall Street insiders. The business models of both Fannie and Freddie changed to mimic that of an investment bank. Unfortunately these executives didn’t understand the difference between an investment bank and a GSE. As Wall Street took away business the mantra became “We have to do the deal regardless of the economics to remain RELEVANT”.

    There was a massive failure of leadership. Everyone bought into the argument “This is the market price, it’s must be ok”, just like lemmings running off the cliff. A total failure of leadership.

    Unfortunately I believe we’re going to continue having problems for a long time because the powers that be continue to try to solve the problem with the same techniques and policies that created it – massive tinkering with the financial system.

    I have one small quip with your suggestion of suggesting that DC is the only place to protest. I would suggest it is the last place. I would suggest the offices of 435 Congressmen and Congresswomen and 100 Senators. Protests in DC make for a nice news story, but backfire on the politicians who just find them annoying because it makes getting home hard.

  18. Great post, Bob. Thank you.
    False premises, yes.

  19. You hit the nail on the head, Bob. I would add that corporations’ only moral obligation is to return a profit for their shareholders. Aside from shareholder accountability, they are amoral entities. Therefore, where there is no economic incentive to be socially responsible (customer/employee feedback), some government regulations are needed. It is when government picks winners and losers via subsidies and special taxes that we accelerate toward an “Atlas Shrugged” state.

  20. Bob Burg said at 1:27 pm on

    So appreciating everyone’s feedback. Please pardon my not responding to all of you, but please know I am reading (and enjoying) all of your comments, and appreciating them/you greatly!!

  21. Eric Johnson said at 1:38 pm on

    I’ve found it very ironic that there is so little protesting about lack of proper oversight by Congress. When Rep Barney Frank can say Freddie & Fannie are in fine shape just 3 weeks before they collapse and then he gets a huge pass for it! Not only that, he’s chosen to lead the writing of the excessive Financial Bill to fix everything, except it does affect Fannie & Freddie. Huh?

    Big government needs more things to do and favors to hand out. While small government has to focus on the essentials of protecting good people and pursuing the crooks that want to harm us.

    Goldilocks had it right. We have to keep testing to find what is just “right” for government involvement & oversight.

  22. Beth York said at 2:32 pm on

    Wonderful article. They must not know about the goose the lays golden eggs, and how you have to feed that goose well or smaller and smaller eggs come out. Instead, they want to just cut the goose open, get whatever might be left, share it amongst themselves and then starve to death.

    It’s really too bad they only read articles, blogs and signs that support their own flawed ideas.

  23. Maralene said at 3:11 pm on

    Bob, It came to mind that perhaps there is some merit in what some employees are so frustrated with the corporate structure and often the employees feeling their contribution is not always appreciated or valued… case in point has been that program “Undercover Boss”. It has been noticed that the CEO and/or leadership have really “seen and heard” how their employees perceive not only their responsbilities but how they feel about the corporation. It’s not that corporate leadership is so bad, but sometimes getting away from the board rooms and headquarters and really working in the day to day trenches of their employees puts too far a distance…especially making decisions of how productivity may be increased when they haven’t looked just beyond the numbers or how things are set up or the minor/major changes their employees could recommend… It’s not that corporations are bad; but perhaps more often not in tune with employees who have valid contributions to make which ultimately allows for recognition of their value “to the corporation”…not just another number on the payroll… Just some tho’ts… It can happen even in non-profits as well when they enlarge… thanks again for your contribution to helping all of us recognize the details… Maralene

  24. Amy Wells said at 3:18 pm on

    Thank you!

  25. Gos Blank said at 3:43 pm on

    Holy Irony indeed, Batman!

    …Since, in fact, the satellite technology that made it possible for Capitalists/Free Enterprisers to create things like the internet and cell phones was pioneered by — wait for it …..Communist Russia and a little government program that we call NASA!

    At what point in the past 40 years would corporations have foreseen enough profit in satellite technology to lay out the billions of dollars in investment capital necessary to develop the technology that allows us to launch satellites into space? According to my calculations, without government funding for the space programs of Russia and the US, corporations would have launched the first satellite into space on the 32nd of Neveruary, AD two-thousand-and-f***ing-NEVER.

  26. Adrian Ransome said at 3:47 pm on

    Bob, you are right on the money. It is corporatism that has skewed the scales of capitalism. The unfortunate part is that this corporatism has failed the 99%. The banks are to blame, the government is to blame, the FED is to blame, the media is to blame – but from here on in, the blame must fall on the general public, the 99%. With the banking fraud, the unconstitutional FED, the unconstitutional Tax system, the corruption of the leadership and the money in government fully exposed, the citizens of your country must stand up and make their voices heard. They must let them know that this ends now! These Occupy movements are the ground swell that should harken a call to action. I see it as the new Paul Revere but will they be heard or will the invasion be over before everyone understands they have lost their life, liberty and the american dream?

  27. Eric Johnson said at 4:44 pm on

    The news media is portraying most of these protestors as college students and graduates. If so, how come their message is so very confused and disorganized? I’m wondering if the fault is the higher education system or a lack of effort on their part.

    Either way, we need to be very concerned about the abilities of this generation of young people.

  28. Randy Allen said at 5:05 pm on

    Great article Bob. I believe you spoke on Corporatism before this too. It’s amazing how people get things turned around in their own heads. At least these folks are speaking out – even if they are not as cohesive as they could be. They are celebrating the rights granted to them by our Constitution and I applaud that. I just hope we can get things on the right track soon.

  29. Mark Scuderi said at 5:24 pm on

    Well said Bob, in fact that may sum it up better than anyone I have heard.

  30. Tshombe said at 5:31 pm on

    Bob,

    Thanks so much for offering these clarifying thoughts regarding the “Occupy Wall St.” situation. The confusion is not unlike most (all?) political (or religious, for that matter) issues where it’s easy for folks to grasp onto emotional sound bites when they feel they have received the short hand of the stick.

    I have to admit I haven’t been following the Occupy Wall Street phenom. very closely at all. However, I always that the protests were Corporatism and the institutionalized system of things that produced and perpetuates it. Protesting in other cities, I assumed, was simply to raise public awareness of the situation throughout the country.

    That may or may not have been the case, but I see through your article that, by protesting Wall St and referencing Crony Capitalism, not only are the real issues confused/mixed up, attention is diverted from the core system of things that created the situation in the first place.

  31. Tshombe said at 5:36 pm on

    By “I always that…” I meant to say “I always THOUGHT…” LOL

    And, I subsequently omitted “against,” (can we say “Proofread, Tshombe, before submitting your comment”?), such that the sentence should have read “I always thought the protests were against Corporatism…”

    Oh well.

  32. Bob Burg said at 11:01 pm on

    Once again, my huge thanks and appreciation to/for all of you who have shared your feedback and wisdom with us. And, my apologies for not responding individually as I often do. Allow me, if I may, to respond to the feedback and thoughts posted by the person identifying themselves as “Gos Blank.”

    Gos, thank you for sharing your thoughts with us. My first response to what you wrote is that, your using Communist Russia as an example of how a government is better suited for creating abundance than is the free market would seem (to me, anyway) to be a very counter-persuasive argument. It brings to mind the well-known “Dr. Phil” type question: “So, how’d that work out for them?” And, in terms of the technology that either their or our government introduced, please note that it was not until free market entrepreneurs became involved that the masses were able to benefit from those technologies.

    Look at how fast the internet grew once (and only after) it was commercialized in the 1990s. The PC was not funded by the government. Look at how Apple has changed the world with its innovative products.

    And, in terms of your conclusion…with all respect, it’s nothing more than an opinion. That you felt you had to state that opinion by employing cursing along with some other sarcastic wording to make your point I don’t believe makes it any more persuasive.

  33. Mardy said at 1:58 am on

    Bob,

    Thank you for sharing your thoughts. I would like to add that shareholder’s interests demand excessive (greedy) profits no matter the consequences to the public. Where is the vested interest when companies cut employee benefits, wages, lay-off employees and do not create jobs etc, whereas the top executives continue to reap huge pay increases due to record profits? There are no accountability and transparency with corporations which in turn creates a lack of trust. To close the trust-gap, big and small businesses must start a shared vested interest in their people, customers, community and environment.

    Great leadership is not contingent on regulations nor government interventions to be amazing companies. There are many companies that didn’t buy into the hyper-profitability for the sake of growth.

    We the people must vote with our wallets. Buy, invest and work for the “Trust-Enablers”. Companies that inspires significance– ESOPs, Cooperatives, B “Benefit” Corporations, the “Small Giants” community, Conscious Capitalistic companies, “Great Companies to Work For”, Local community banks, as well as, credit unions. Boycott, sell and leave companies that don’t have a mutually vested interest in you, employees, customers, community and environment.

    Those my friend are the premises of Occupy Wall Street. I welcome your comments.

  34. Hi Bob,

    I am starting the “Occupy Your Wallet” movement, where individuals take full responsibility for their financial situation. These folks are *for* growing their own prospering enterprises and let the *against* crowd waste their precious energies on fighting, which is always a low energy and non-prospering choice.

    Thanks for sharing the important distinction Bob ;)

    Ryan

  35. Juan Conner said at 9:25 am on

    Very well Articulated Bob!!! I don’t know of ANYONE who has written a better article on the subject. Capitalism STILL works, despite all the evil done in it’s name.

  36. Alexis Neely said at 9:55 am on

    Bob, what I am seeing is that the investment bankers/financier wormed their way into the government and now the governmental system that is supposed to protect and serve us has been corrupted by capitalism. We the people are totally disenfranchised as a result. From what I can tell the only answer is (r)evolution of the system, much like we had when the US was founded by those looking for a separation between church and state. The call now has to be for a separation between money and state. I’d love your thoughts on that.

  37. Mark Riffey said at 10:07 am on

    Capitalism never corrupted anything. When the people working in a capitalism-based system are ethical, so is that system. When too many of them are not, it isn’t.

    Blaming capitalism is like blaming money, such as in the oft-misquoted “money is the root of all evil”, when the quote is actually “the love of money is the root of all evil”.

    Money isnt the problem. Some of the things done in the name of acquiring and controlling it, that’s a different story.

  38. Bob Burg said at 10:15 am on

    Alexis, thank you for your comments. While I agree with much of what you write, I must respectfully disagree with your statement saying that government has been corrupted “by capitalism.” Capitalism is a concept and cannot corrupt anyone. It’s the politicians who allowed themselves (through their weakness in character – not Capitalism) to be corrupted by the power they gave themselves (and were allowed by the citizens) to “operate outside the chains of the Constitution.” This has nothing to do with Capitalism/Free Markets, which is simply the voluntary trading of products and services between two or more willing parties, with government’s legitimate function being nothing more than protecting its citizenry against force and fraud. The bankers and others from big business have bought and paid for the special rules, regulations and such that has provided them with an unfair advantage. This is immoral, to be sure. Remember, though, if those in Congress were forced to actually uphold and defend the Constitution (as they swore to do), those big companies trying to buy special rules and favors would be impotent in their quest. Capitalism is not the cause of what has happened. However, it is the solution to getting our citizenry to live in an age of increasing prosperity and abundance.

  39. Kathy Zader said at 10:36 am on

    Thank you for the clarity you provide on this topic. You are right on the mark that Capitalism is not the cause of what happened. In fact, if the free market/Capitalism had been allowed to function, then the banks would have failed and they would have suffered the consequences of their actions. It should not be up to the government to pick winners and losers.

  40. Andrew said at 10:38 am on

    Hey Bob,

    I actually agree with you that there’s a big difference between Corporatism, and Capitalism. I think some of the protesters recognize this and some of them don’t. I was at the protests on the weekend and I overheard a debate between two of them on this very subject: one arguing your opinion here and one arguing that capitalism facilitates corporatism – an interesting discussion.

    I do think however, there might be a problem with this line of reasoning:

    “but for government to STOP making rules and regulations that allow both corporations and government-sponsored entities (i.e. Fannie Mae and Freddie Mac) the ability to take excessive risks with no consequences.”

    So “stop” making rules that allow corporations to take excessive risk with no consequences?

    Which government imposed rules can you point to that “allow” corporations to take excessive risk with no consequences? The counter argument would of course be that it’s precisely the “lack” of rules and oversight that allows corporations to take excessive risk with no consequences. How would less regulation be of benefit there?

    To give a concrete example, we can look at the Glass Steagall act. After great depression it’s introduced (by “government”) “seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds.” (agreed at the time to be a primary cause of the financial crisis of the 30s). 1999 it’s overturned by congress after years of lobbying pressure. (After lobby groups lead by Citibank and others spent a few hundred million to get the appropriate congressmen to push it though… do you call that a “government” legislation or a “corporate” legislation?) The same practices begin again, and within 10 years, contribute to a similar crash as in the 30s.

    “Government” has the ability to make regulations that can curb practices that are of detriment to the entire country. It’s hard to imagine how free enterprise is going to curb these practices on their own. For what incentive is there to do so? Perhaps if the banks partaking in bad practices were left to fail, then we’d see what kind of corrective power “the market” might have. But the owners of these troublesome mega corporations won’t allow “free enterprise”. They want “free enterprise” until they screw up, then they need “government” to bail them out.

    My 2c anyway.

    Andrew

  41. Bob Burg said at 10:42 am on

    Mark, thank you for your comments, and I certainly agree. I think we can take it even a step further and say that – in an actual Capitalistic/Free Enterprise-based system, those who do unethical things in the name of acquiring money would be punished, not rewarded. Currently, the opposite is true. And, in a truly Capitalistic/Free Enterprise-based system, remember that one can make money ONLY by providing value that another is willing to pay for. So, again, those who operate unethically will be punished and those who operate ethically will be rewarded. When the marketplace is allowed to operate, business people understand that it is in their own best interests to be good and to do good.

    Kathy…right on. What a great point!!

  42. Mardy said at 10:55 am on

    Bob,

    Capitalism may have a solution to increase prosperity and abundance but it does not necessarily equate to happiness. There are several non-capitalistic countries ahead of our capitalistic USA in overall happiness.

  43. Josh Hinds said at 11:43 am on

    Bob, terrific post my friend. And one that I hope everyone will take a moment to re-tweet and share with others. As I’ve told you many times I greatly appreciate your ability to break complex issues into simple to understand topics :-)

    Without getting into a long story (and accidentally hijacking this post with my comment..lol) our family was in the mortgage industry for a number of years (I began working in the family business at 15). I mention this because I got a first hand look at what happened, and how while most folks tend to place the blame on “wall street” — the reality is as was rightly pointed out in several comments and of course your post — that never would have happened without Fannie & Freddie having been mandated (i.e. pushed) into making the type of loans they did.

    What most folks forget (or perhaps have no idea of :-)) is that for many years the mortgage industry worked just fine — the free market was alive and well. In fact, Fannie and Freddie pretty much only did the highest credit worthy borrowers (and required a safe loan to value, or you had to get PMI, or primary mortgage insurance, which basically helped covered their risk even more should the loan default — again this was the free market in action :-)).

    You had an entire secondary market — sometimes called, B,C,D lenders (this was also the free market in action — when it was allowed to work :-)) which believe it or not, you even had some private lenders which would make very high risk mortgages (literally to the point where some would pay people out of bankruptcy). Anyway, long story short, frivolous lawsuits and such began springing up, plus the government getting involved in an effort to “increase home ownership”, these are just two things that happened which I recall from my time in the industry — and flash forward several years and all the sudden you have Fannie & Freddie making many of the type loans which were previously done by other lenders (who by the way actually used realistic loan to value ratios, etc. while as we all now know, many of the loan products underwritten by Fannie and Freddie did not).

    As I mentioned, this is just a brief overview of what I saw first hand, but I do think it is worth everyone taking the time to understand what actually happened to cause the problem. Because if we allow ourselves to believe the false premise that “wall street” just made a bunch of bad loans we remain vulnerable to repeat what the actual problem was — because the politicians who actually pushed the policy which (no matter how well intentioned) caused the problem will simply end up repeating it again.

    In summary, one very important point to understand is that Fannie and Freddie underwrite the loans (essentially giving a a thumbs up or down) and without their up or down vote, no private bank or wall street entity would have had a bad loan or any loan to sell as a mortgage backed security in the first place. :-)

  44. Beth York said at 11:48 am on

    Alexis – did you know that the “separation of Church and State” is an interpretation and not actually writting into the U.S. Constitution or the Bill of Rights? It’s a common misconception.

    Here is what the 1st Amendment states about religion: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…” and goes on to discuss freedom of speech and so on.

    Just an FYI.

  45. Beth York said at 11:56 am on

    Wow – I need another cup of coffee.
    “…not actually writting into” should be “WRITTEN”….yes, I do have a BA in English and French.
    Uffda. (I’ll toss in some Norwegian-American just for fun.)

    Bob – heading out for Dunkin’ anytime soon? Can you send me a cup of cyber coffee, please?

  46. Mary Silva said at 12:20 pm on

    Woweeeee! Thank you!! I need another cup of coffee….. and maybe even a cigarette (haha just kidding about the cig)!

  47. Josh Hinds said at 12:50 pm on

    As I was reading the comments above… Gos Blank’s especially, where he talks about government funding. It’s always interesting to me when we use that term, because where do the funds the government has in the first place come from. The taxpayers (yes, individuals, and yes, corporations, which in most cases corporations are not some big larger then life entity — often they are people, yes, your friends and neighbors even).

    So if the funds the government has to use come from its citizens in the first place, why in the world shouldn’t things they fund make their way back into the private sector? Or perhaps even better let the private sector do the investing & building out of worthwhile endeavors in the first place — while you can certainly find examples of the public sector undertaking things that worked out well — I think it is safe to say that by and large the government doesn’t do a very good job at all of picking winners and losers.

    I like to say it like this… the free market works 100% of the time — when it’s allowed to operate as a true free market.

    Of course, that’s my opinion, and no doubt we’ve all heard what they say about opinions :-)

  48. Andrew said at 2:43 pm on

    Hey Josh,

    To say “the free market works 100% of the time” is quite a claim, not to mention lacking a definition of “works”.

    Can you point to a scenario from history where a totally free market has “worked”? Because extensive study has been done on scenarios where aggressive free market policies have failed horribly, such as Milton Friedman’s free market experiments in Latin America in the 70s-80s.

    Our disagreement aside, if you do have such examples, I’d love to know about them.

  49. Bob Burg said at 3:47 pm on

    Hi Josh, thank you. I always enjoy hearing from those who’ve been in the trenches of the mortgage business. We had one person comment earlier who was with Freddie Mac and I actually knew someone who at one time who was with Fannie Mae. I remember him telling me that he left them because he knew what they were doing was wrong. I’ll never forget one thing he said in particular that I felt summed it up: “People were getting loans to buy homes, who had absolutely no business getting loans to buy homes.” And, this person was not what I’d call political in any way; he just witnessed things that he knew were wrong.

    I also agree with you regarding the term “government funding” and how that term is simply accepted by so many people. Of course, talk about a hugely false premise…because the government doesn’t “fund” anything; it’s the taxpayer who funds it, via the force of government. Even without judging whether or not this is ever called for (after all, government does have several very specific and enumerated legitimate functions) it is STILL not government funding, but taxpayer funding.

    Regarding your comment, “the free market works 100% of the time — when it’s allowed to operate as a true free market.” I agree with that, as well, and I also understand Andrew’s point about defining the term, “works.” So, let’s do that.

    Andrew, in this case, may I define works as meaning, “accomplishing what is intended.” The intention of the Free Enterprise System is to ensure liberty and property rights of the individual, resulting in a more abundant society for the masses. To the degree that the Free Enterprise System has been allowed to operate, it has done that, in every country, ever time. No exceptions; none whatsoever.

    For background, please see my initial article in my Capitalism vs. Socialism series by clicking on this link: http://www.burg.com/2008/12/capitalism-vs-socialism-%E2%80%93-understanding-premises-part-1/ The first couple of articles will, I believe, be a good explanation.

    Two quick points Andrew:

    1. When we say that it “works” that does not mean Utopia. We do not have Utopia and most likely never will. (Of course, history has shown that neither Socialism or Communism are Utopic, but rather brutal for the masses who must do without). What it does mean is that it is as beneficial as possible for the greatest number of people, and allows society to be in a position to help those who cannot help themselves.

    2. In this world, we have never had a truly and completely Free Enterprise-based system, where government’s sole function was to protect the citizenry from force and fraud. Again though, to the degree we have had it, the masses have thrived and general, overall abundance has greatly increased. I discuss this in the above linked-to article, as well.

    One more thing, I disagree with you regarding Milton Friedman’s experiment. You might be reading only those studies that confirm a viewpoint you already have. And, by the way, you said, “such as.” Do you have *other studies* that prove that free markets ever failed? I’d be interested in seeing some links to these studies. Keep in mind, for a free-market experiment to fail…there must actually be a significant part of it that is free-market.

  50. Josh Hinds said at 3:51 pm on

    Hi Andrew, you’re right it is quite a claim. I guess I should tone it down a bit :-) Instead I guess I’ll just cite the following examples. I would say — the free market was working for example when Steve Jobs and Steve Wozniak were able to take there idea from a garage and turn it into the great success that it was. You could say the same was true for Edison when he was getting started, and you might say that it isn’t working well when you look at power companies, or utilities (those typically don’t have competition). It’s not working for example, when the government tries to prop up specific companies, or industries that for whatever reason are not developed to the point that there’s a viable market to support them. Or for example, that they can’t stand on their own and succeed. When they do that, they take away the “free market” part of the equation. Which leads to bad customer service, higher pricing, etc. In a free market you have competition, etc. — as I mentioned in my first post specifically talking about the mortgage industry, it worked great when it was operating more in “free market” mode — and wasn’t until the government (through mandating Fannie and Freddie as they did) got in there and muddied the waters, and changed the rules. If you look at the industry now, you’ll notice that much of the regulation that’s been put into place to “correct” the problems is now also greatly hindering things in ways that they shouldn’t be — and wouldn’t be if it were a more “free market” as it has been in the past. I guess my point is that when the free market isn’t working, typically it is because it’s not actually a free market any more.

    But again, that’s just my opinion based on the countless real world examples I’ve seen. And as I said before, we’ve all got opinions :-)

  51. Bob Burg said at 3:53 pm on

    Terrific, Josh!!

  52. Beth York said at 4:05 pm on

    Exactly. We declared ourselves independent from Great Britain in order to have the right to PURSUE happiness…not receive it in a nice, big package from the U.S. Government wrapped up with a red bow paid for by “the rich.”

  53. Andrew said at 4:24 pm on

    Hey Bob,

    Thanks for your reply. And nice job on laying out a definition of “works”. That definitely helps the discussion.

    I think the next job is to lay out a definition of “free market”. Because as you correctly note in point 2, we have basically never had a completely free market system on the earth, though the latin american experiments are the closest I’m aware of.

    The case of Chile is of course the most famous, and the facts there speak for themselves:

    “In 1973, the year General Pinochet brutally seized the government, Chile’s unemployment rate was 4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real wages declined by 40% under military rule.”

    That Milton Friedman’s free market policies were helpful to Chile is now quite widely discredited.

    - http://www.gregpalast.com/tinker-bell-pinochet-and-the-fairy-tale-miracle-of-chile-2/
    - http://www.guardian.co.uk/commentisfree/cifamerica/2010/mar/03/chile-earthquake

    There’s a decent book “The Shock Doctrine” by Naomi Klein that looks at other cases from the 20th century where countries that have had to accept free market type reforms (for example as conditions when receiving IMF loans) tend to see greater income inequality, rising inflation, and the people at the bottom being “left behind”.

    Final point:

    When you say that the free enterprise system has worked, I would argue that what has worked there has not really been very “free enterprise”. I think it’s free to the extent that it’s basically capitalism, where people are free to pursue their self interest, not too greatly restrained by their government in a prosperous environment, but there’s also been plenty of the kind of “intervention” that free marketers would rally against…

    Some examples are “bailouts” that have been happening for years (long before 2008); You can look at Reagan’s subsidizing of the steel industry in the 80s to keep up with Asian imports; You can look at the way American Agriculture has been subsidized by the government the past 100 years; You can look at the way the internet was developed (started as a tool for the military, and was largely developed through public funds in the beginning), and so on and so on.

    Makes me wonder what part exactly of the “success” you mention is a result of a “free market”.

    Again, I’m really not against Capitalism and “free enterprise”, I think it’s just become clear that for it to work and curb the inevitable excesses that are to the detriment of everyone, it needs the oversight of a democratic and responsive government.

    Andrew

  54. [...] this week, Bob Burg wrote an excellent post on the Occupy Wall Street movement.  In my opinion, Bob hit the nail on the head when he pointed out that the protesters, in spite of [...]

  55. Esha said at 4:43 pm on

    Great post Bob – and this is a wonderful discussion all!

  56. [...] Read the rest of this post:  Link Filed Under: [...]

  57. Bob Burg said at 10:30 pm on

    Hi Andrew, thank you for your response. Actually, regarding Chile, it was not free enterprise that didn’t work. I discussed this with a friend of mine who I suspected knew more about the specifics than I did, which is strictly on a surface level. And, I hesitate to discuss those things I really don’t know about specifically. So, he will post something on this soon. In terms of what you wrote after that, it’s important to be sure and correctly check premises when discussing whether or not the concept of true “Free Enterprise” was actually in play. For example, when you say…

    “{there’s a book} that looks at other cases from the 20th century where countries that have HAD TO ACCEPT free market TYPE reforms (for example as conditions when receiving IMF loans)”

    I capitalized the three words above because, by the very nature of *having* to accept something, it is not free enterprise. And, the word “type” is key. And, what is called “free enterprise” in these cases is actually not free-enterprise at all, but the very worst type of Corporatism there is. Unfortunately, this has happened in many, many countries. So, again, please…just as my entire original article was about, let’s not call “Corporatism” “Capitalism” or Free Market. It’s not.

    In your paragraph under “Final Point”…Andrew, you are making the case for me. Bailouts and subsidies…That is NOT Capitalism/Free Market…that is the very Corporatism I’m speaking of. And, it never, never results in any kind of overall net gain in prosperity; it only enriches the politicians, special interests, and lobbyists who benefit directly from it. The rest of us citizens pay for it in taxes, loss of freedom, and higher prices.

    So, again, please, let’s not talk Capitalism/Free Markets when what we are talking about is Corporatism. Does that make sense?

    Again, please know I’m happy to discuss this with you. I only ask that before you write about something being “capitalistic or free market” that you please just ask yourself it that IS what it is, or if it is the Corporatism that I discussed during the article. I think that if you do that we’ll then both be starting from the same place. We might still disagree on certain things, but at least we’ll be facing the same direction.

  58. Zita Gustin said at 1:54 am on

    Bob, I want to thank you for starting and facilitating this discussion. I must admit that I have not followed this too closely as I am news phobic by choice lately due to the overwhelm of negativity in the news. With that said, I love how respectful this discussion has been in this thread. It is the courteous exchange of ideas that sparks my curiosity to want to know more. I feel that I’ve gained a balanced understanding of what is at the heart of this issue and I want to thank everyone who has contributed above to that!

  59. Andrew said at 5:21 am on

    Hey Bob,

    Ok, how about this:

    You bring up a time in American history where you think free markets worked, or that you think had some high degree of free market capitalism, and we’ll discuss whether THAT worked? Then we’ll know we’re both talking about the same thing. Cool?

    And I know the things I mentioned in that paragraph are the antithesis to free market theory. That’s why I bring them up. Because many times when people think “free markets” are in action, they are not. Remember Ronald Reagan’s campaign slogan: We’ll “get government off your back”. He touted himself as a lover of the free market, here to save us all from government intervention… while proceeding to be one of the most protectionist presidents of the modern era.

    So let me know.

    P.S. Excited to hear your friend’s comments about Chile.

  60. Bob Burg said at 8:16 am on

    Zita, thank you. That is very kind of you to say. Fortunately, in all but a very few cases, people writing in (even those who disagree) tend to be very respectful; thus, we are all able to learn from each other and more easily accept when we might not have all the answers without having to feel a defensiveness about it.

    Andrew, I’m not sure I’m quite understanding your question. To the degree that we have had free markets, they’ve always worked. That is why we grew to be the economic power we became. And, as I’ve pointed out in pretty much every article I’ve written on the topic, beginning with http://www.burg.com/2008/12/capitalism-vs-socialism-%E2%80%93-understanding-premises-part-1/, we have never (nor has anywhere in the world ever) had truly free-markets. (Again, a free-market doesn’t mean a “free-for-all” with no rules, but rather a context where government’s legitimate function is to protect the citizenry from force and fraud and protect people’s rights.)

    What this shows is the *power* of free markets…that as much as it has been held back by that which has tried to stifle it, it has created prosperity wherever it has been allowed. Please read at least my first article, referenced in the above paragraph. We need to be careful that this discussion doesn’t ask me to rewrite my articles. It’s already getting a bit too far from the post itself, though I am very grateful you have these questions and seem to genuinely care about the answers.

    Regarding your following paragraph (the one beginning with “And I know the…”) again, I’m not sure of your point. It’s exactly what *I* have pointed out. There’s nothing for me to respond to. I hold no sacred cows when it comes to government; I don’t care if there is an R or a D after their names.

    And, yes, looking forward to the Chile comments.

  61. Andrew said at 8:30 am on

    I think we’re making progress Bob.

    You say that “to the extent that we’ve had them, free markets have always worked”, and at the same time, that “we’ve never had truly free markets”.

    You say that in these conditions where there’s been an extent of freedom coupled with a lot of restrictions… how can you be sure that it’s the “free” parts that contributed to the success, and not the “restricted” parts?

    Because a lot is known about the protectionist history of the United States. How while it was developing as a world power, it protected it’s borders with some of the highest tariffs ever seen, in order to build up local markets and protect them from British and European imports. Those are facts that no economic historian denies. There’s a great, quite recent book on it here: http://www.amazon.com/How-Rich-Countries-Poor-Stay/dp/0786718420

    I’m saying that when you look at a time from history and say that, there we had an amount of freedom of markets and an amount of protectionism, you can’t isolate what was the cause of whatever success or failure resulted. And therefore it’s hard to point to anything that suggests the efficiency of free markets beside nice sounding theories.

    What do you think?

  62. Bob, great article. You are dead on about OWS.

    Andrew made a good point too, that to talk about the free market sensibly we have to have a definition. Andrew said:

    >>>I think the next job is to lay out a definition of “free market”. Because as you correctly note in point 2, we have basically never had a completely free market system on the earth, though the latin american experiments are the closest I’m aware of. <<<

    I think a consensus definition, captured by the Wikipedia entry, is sufficient: "A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts. Free markets differs from situations encountered in controlled markets or a monopoly, which can introduce price deviations without any changes to supply and demand. Advocates of a free market traditionally consider the term to imply that the means of production is under private, and not state control or co-operative ownership."

    No country in Latin America has approached anything like this in the modern era, including Chile. I believe Andrew is referring to the fact that in an act of desperation, dictator Pinochet called in University of Chicago economists to advise on getting Chile out of its economic quagmire. They were helpful and indeed offered some innovations that are helpful today (such as their semi-private Social Security scheme) and also their more traditional pro-market advice has led to Chilean outperformance versus most of Latin America, but the country never came close to escaping the top-down government model. The very fact that Chile was a military dictatorship at the time makes it clear that this was so. Dictatorship by definition is government management.

    The U.S. and Western Europe, for all their imperfections, are still the historical models of market economies. And there are glaring imperfections: look at the historic bailouts, subsidies and protections that the Bush and Obama administrations have doled out to banks, unions and manufacturers over the last few years. As Bob says, utopia is not an option.

    But history shows some systems work over time better than others and those that relied more on markets have performed better in terms of well being of the common man. I don't think Andrew would dispute that is the case.

    (Andrew, I am using 'work' above in reference to shared goals such as living standards as a benchmark, but the truth is that markets ALWAYS work whether we like the result or not, as the free market is an environment and a process, not a conscious plan with a intended result. So if a market is in place and prices of, say, oil go up *or* the price of oil goes down, in both cases the market is functioning, whether we like the result or not. Just to split hairs…)

    Andrew again: Reagan "touted himself as a lover of the free market, here to save us all from government intervention… while proceeding to be one of the most protectionist presidents of the modern era."

    Yep. Just go back to the definition. There is nothing "free market" about protectionism. It's just more crony capitalism again. What we need is to free up markets and stop the protection, subsidies, shields from liability, loan guarantees, special tax breaks and other favors doled out to favored corporate and government interests.

  63. Bob Burg said at 8:49 am on

    Hi Andrew, in your third paragraph, you asked, “How can you be sure that it’s the ‘free’ parts that contributed to the success, and not the ‘restricted’ parts?” You’re going to need to study some history here. And, not only from those who who disparage free-enterprise. While it’s good to read both sides of an issue, you need to also not just ask the questions but also try and figure out the logic behind the answers (checking their and your premises), combined with checking timelines and other areas of similarity and such. Even now, look at industries that are highly-regulated and those that are not so regulated and see where the high quality, low prices and consumer choices are much more prevalent. Look at countries south as South Korea and North Korea, where their ethnicity, language, location and other factors are very much the same and note which people have more prosperity and which ones live in poverty. Same with Hong Kong and China (before China allowed for a certain amount of free enterprise), and even compare China against China, the general prosperity of those in the Free Enterprise Zones and those who still live as they always did. One of what was known as “The Great Experiments” was East and West Germany. Once the Wall came down, the world was shocked by how poor East Germany was and how abundant West Germany was. Same people and same location, divided simply by a wall of Socialism and (mainly) freedom. There’s a wonderful book you can read on this, but again, it’s dependent upon your really wanting to know the answers to this and not simply trying to disparage free enterprise. It’s entitled, “The Capitalist Manifesto” by Andrew Bernstein. You can find it on amazon at http://amzn.to/qzYJzK. Please read it and form your own opinion. I’ll be interested to know your thoughts if you choose to do so. No pressure, of course.

    One more thing, regarding your paragraph beginning with, “Because a lot is…” again, please know (and I realize I’m repeating myself) that protectionism does *not* build a country’s economic prosperity. It only helps those who benefit directly (the politicians and special interests, including those industries buying the special protection from government) while overall harming the masses and lowering prosperity for the nation in general.

  64. Bob Burg said at 8:54 am on

    Philip, thank you for your very thoughtful and well-thought-out response. Excellent!

  65. Andrew said at 9:23 am on

    Hey Philip,

    I actually agree with you that:

    “history shows some systems work over time better than others and those that relied more on markets have performed better in terms of well being of the common man.”

    “Markets”, yes. “Free” markets without government intervention: I’ve not seen any evidence. As we’ve all agreed, there’s never been a time of true free markets, so what can we point to as a success of the free market in the real world? And I don’t consider the improvement of industries that have undergone deregulation as conclusive evidence in themselves. They might be a start, but that’s it.

    I’ve read a decent bit about the situation in Chile in the 70s and I can assure you that what was achieved there was a complete obliteration of the top down government model (at least economically). Yes there was military dictatorship (to help implement the policies that were completely against the wishes of the people), but can that really be held responsible for the brutal rising inflation and unemployment? Those are economic consequences of economic decisions.

    Love to hear your thoughts.

  66. Andrew said at 9:26 am on

    Bob,

    When you say “please know (and I realize I’m repeating myself) that protectionism does *not* build a country’s economic prosperity.” do you have facts to support that or is it more of a personal belief?

    The protectionist history of the United States is not in dispute. For example, trade “tariffs were the largest source of federal revenue from the 1790s to the eve of World War I”. Protectionism in the form of those tariffs is the main way the country had prosperity for all that time, and that wasn’t even close to the end of it. http://en.wikipedia.org/wiki/Tariffs_in_United_States_history

    In fact the US government itself publishes papers about it. Check out this one about Protectionism in the interwar period: http://history.state.gov/milestones/1921-1936/Protectionism

    But I suspect you know this because we’ve already agreed that there has never NOT been protectionism and government intervention. We only divide because you think free markets have succeeded despite protectionism whereas I wonder whether the country itself has succeeded because of a combination of the two – both equally as necessary.

    There are volumes that have been written on this, so – and I do say this with respect – you can’t make a statement like “protectionism does not build a country’s economic prosperity” without some evidence. I submit that protectionism has and does create economic prosperity and I will back that up with more facts like the above if it’s helpful.

    Andrew

  67. Mardy said at 3:59 pm on

    Hi Bob,

    I’m enjoying the comments from everyone.

    I have a different perspective of your statement, “Corporatism is often referred to as “Crony Capitalism.” I wish that advocates of Capitalism and Free Enterprise would stop using that term because, well, it has the word “Capitalism” in it. And, that confuses people.”

    I am a life-long raving proponent of Capitalism. Although, I prefer to use the term “Revolutionary Capitalism”. I respectfully disagree that using a modifier “Crony” confuses the meaning (of Capitalism) but rather helps define and label the degree of “Laissez-faire” form. Capitalism is evolving. We the People need to know that corporations do have the freedom of choice and it doesn’t matter if they’re handcuffed to regulations or governmental interventions. In the spirit of transparency and accountability, We the People want to inspire corporations to “choose” to identify themselves as either “Crony” or “Conscious” Capitalist. “Conscious”and “Capitalism” does not have to be mutually exclusive. Occupy Movement want Conscious Capitalism not Crony Capitalism.

    I also believe there is a logical reason the protesters are Occupy Wall Street not Washington. Washington maybe a great place to protest, as well, but, Washington is not the iconic symbol of Capitalism.

    Imagine how the world would look if Wall Street started sharing the wealth via legal, free enterprise structures like ESOPs, Co-Ops and B Corps.

  68. Mardy said at 4:07 pm on

    There is a big difference between capitalism and “conscious capitalism”. Capitalism is shareholder-centric, whereas, “Conscious Capitalism is stakeholder-centric.

  69. Lauren said at 7:21 pm on

    Amen and thank you, Bob, for your intelligence and insight!
    When are we going to D.C.? …And, can you get this printed in the NYTimes
    by any chance? :-)

  70. Bob Burg said at 7:34 pm on

    Thank you, Lauren. Somehow, I doubt the NYTimes would be interested in this kind of common sense. :-)

  71. Bob Burg said at 8:21 pm on

    Hi Andrew, I believe this will be my last response to you as Josh, Philip’s and my answers have answered your questions; yet you seem to, by and large, keep bringing back the same arguments. So, as I don’t see this really going anywhere productive, let’s end the discussion.

    However, while I’m not going to take time to respond to some of your questions that I believe have been asked and answered, I will to a couple of points. (And, if you’d like to write back with the “last word” feel free to do so.)

    You wrote: Trade “tariffs were the largest source of federal revenue from the 1790s to the eve of World War I”. Protectionism in the form of those tariffs is the main way the country had prosperity for all that time,”

    Andrew, “Federal Revenues” does not equal a country’s prosperity. It has nothing to do with prosperity. It is simply revenues to the government. Nothing more; nothing less. And, certainly, the Smoot-Hawley Tariffs caused *terrible damage* to our country’s prosperity and had much to do with the Great Depression. Equating Tarrifs and the revenues it brings in to the government as equal to prosperity simply (with all respect) makes no logical sense. The link you provided takes us to a site that says Tariffs were the largest source of federal revenue until the Income Tax. Surely you cannot believe that Income Taxes, now the government’s largest source of revenue, equals our prosperity.

    In your response to Phil, you wrote,” there’s never been a time of true free markets, so what can we point to as a success of the free market in the real world?”

    The power of the free markets is so strong that it has brought us prosperity wherever it has been even partly allowed to operate. That there’s never been a truly free market (which is the point I continually make) is irrelevant. Actually, it only proves how strong freedom and free markets are. To the degree they are allowed to operate, people thrive. Again, see the comparison’s of people/countries in my last note to you. And, yes, I can back it up, have already partly answered it, and could list every invention or improvement that has happened with very little hindrance (and sometimes, even with major hindrances) as proof. But there is no need to do that. I want YOU to do that. Because, you’re not listening to Josh, Phil and me. I believe that *you* need to think on it, ask yourself these questions, and answer them.

    One more point, regarding Chile again, (in response to Phil’s point that it was ruled by a dictator which – by the nature of the thing – removes the key element of freedom), you wrote: Yes there was military dictatorship (to help implement the policies that were completely against the wishes of the people), but can that really be held responsible for the brutal rising inflation and unemployment?

    Yes, Andrew; where this is dictatorship there is not freedom. Just like the Forced Capitalism (which, again, by it’s very nature, is NOT Capitalism/Free Market) that the author you mentioned earlier was talking about, it doesn’t work. A Freedom is economic and freedom is personal. You must have both for it to function correctly. Again, before you bring up again that which I continually say – that we’ve never had truly free markets – when a country is even “mostly free” it prospers. When it’s “mostly unfree” it suffers. (Again, think South Korea vs. North Korea and some of the other several examples I provided earlier.)

    Again, will give you the last word so please feel free.

  72. Andrew said at 7:26 am on

    Hey Bob,

    Sad this will be your last word, because I’ve enjoyed our discussion.

    Let me then also make my final reply on the US prosperity in the face of free markets/protectionism, and on your examples of free market success.

    I actually like your argument that in itself, Federal Revenue doesn’t equal prosperity. To offer more detail:

    - I think we can agree that the country did HAVE prosperity during that time, right? Through whatever means, the USA did pretty well. From 1820-1910, GDP per capita increased from (undeniably an economic measure of standards of living) 1257 to 5301. So that part’s beyond question.

    - We also agree (I think) that there was great protectionism through that time. You didn’t argue against that, only that the federal revenues figure doesn’t equal prosperity. Protectionist measures were responsible for most of the governments money through that time of great increase of standard of living but just because they happened at the same time, doesn’t mean one caused the other, right?

    Source: http://eh.net/encyclopedia/article/steckel.standard.living.us

    - We’d have to know what the government did with the money to get an idea of how much the federal revenue added to prosperity, right? So what did they do? Amongst other things they:

    Funded the railroad and waterway system which helped open up new markets for industry. They spent a tonne of money on defense of course, which is questionably helpful to prosperity, but they also began systems for health care, education, pensions, AND continued to subsidize key industries to – again – help protect them against foreign imports.

    Now if NONE of that contributes to prosperity, I must have a different understanding of prosperity. But if some of it did, and the money that paid for it came mostly from protectionist policies, it’s pretty hard to argue that protectionist policies didn’t create prosperity.

    Finally: Re: Your other examples.

    From what I can see, you answered my question by using the examples of North/South Korea and East/West Berlin. I don’t know enough about East/West Berlin, and I’m going to look further into it as a result of this discussion – so thanks. But North/South Korea…

    Basically if South Korea’s prosperity is your example of how well a free market can work, you might want to reconsider.

    From the beginning of South Korea’s economic growth they used protectionist measures to guard their local industries:

    “In the 1970s, South Korea even introduced additional import restrictions in order to deepen the substitution process towards the heavy and chemical industries (HCI). South Korea and Taiwan, province of China, used protection during their EOI phases as an effective and subtle mechanism to foster the internal backward linkages of the rapidly growing export sectors in consumer durables” – http://www.ucm.es/info/eid/pb/ilas98.htm

    Now…

    In the 1980s, Korea opened up more, introduced lesser restrictions, and liberalized trade in the way free marketers like. And that did help.

    http://www.ieas.or.kr/vol13_3/13_3_1.pdf

    But this is only once they had a strong economic base that was built up through protectionism. This is the same as the United States. They developed their markets with protection, then as they became strong enough to compete internationally, they opened them up to the world.

    Bottom line, pointing to South Korea as an example of the success of a free market is futile at best, and that’s why I don’t believe my question of “an example of real free market success” has really been answered.

    Final word:

    I’m yet to see concrete evidence (outside of theory) that “truly” free markets will allow greater prosperity for the majority, and I believe there’s meaningful evidence that the right kinds of protection and intervention upon otherwise “free” markets, for the right countries at the right times has resulted in that prosperity.

    Questioning free markets doesn’t make you a Socialist Bob. You can still be an entrepreneur, still be rich, still believe in “markets”, still be prosperous and conscious while questioning “free” market doctrine based on historical evidence.

    Have a great day!

  73. Leigh said at 8:58 am on

    Well stated as usual. I started reading “It’s Not About You” last night and like your other books it’s really a turn pager. I’m still pushing for you to make the “Go Giver” into a play. Every high school in the Nation would put it on because of the values it teaches.

  74. Bob Burg said at 9:42 am on

    Leigh, thank you. I appreciate that. And, glad you are enjoying the new book. We do have a Go-Giver curriculum being written at this time that we hope to get into the schools soon.

  75. [...] than those politicians (from both parties), bureaucrats and special interests participating in Corporatism and other special [...]

  76. As usual Bob, your insight is on the money. Thanks for something to chew on this morning. I love that you can deliver a message without attacking. This is the sign of a great leader. Congrats.

  77. Bob Burg said at 9:20 am on

    Stacy, thank you so much. I take all of that as a great compliment!!

  78. [...] and resulting overall prosperity. And, in a free-market based economy (not to be confused with Corporatism or Cronyism), one can only become wealthy by providing value that others are willing to pay for, and by [...]

  79. [...] He even makes the distinction a number of times between what’s often called “Crony-Capitalism” and Free-Market [...]

  80. […] understand the difference between Cronyism and Capitalism. I’m afraid that at this point most people think they are the same. And, that is a huge […]

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