Excerpts from “The Science of Success”
by Charles G. Koch -- John Wiley & Sons, 2007
Incentives
Ludwig von Mises posits three requirements must be present for individuals to take action. These are: (1) unease or dissatisfaction with the present state of affairs, (2) a vision of a better state, and (3) belief that they can reach the better state.
We mow our lawns only when we are dissatisfied with their present condition, believe they will look better and know how to mow them. Customers switch when they become dissatisfied with their current supplier, believe another supplier will serve them better and are able to switch. When just one of these requirements is missing, people will not act.
Companies that fail to provide conditions that meet all three requirements create a culture of inaction. Companies that encourage creative destruction, provide a vision of how to create value and facilitate decision making, create a culture of Principled Entrepreneurship.
[...]
Private Property
Private property is essential for both a market economy and prosperity. There cannot be a market economy without private property, and a society without private property cannot have prosperity. [...]
Without a market system based on private property, no one can know how to effectively allocate resources. This is because they lack the information that comes from market prices. Those prices depend on voluntary exchanges by owners of private property.
[...]
The biggest problems in society have occurred in those areas thought to be best controlled in common: the atmosphere, bodies of water, air, streets, the body politic and human virtue. They all reflect aspects of the “tragedy of the commons” and function much better when methods are devised to give them characteristics of private property.
The “tragedy of the commons” ?
Huh, what's that? THIS is the source of Society's "Biggest Problems" according to Charles Koch ... must be important ...
Tragedy of the Commons
De Young, R. (1999) Tragedy of the commons. In D. E. Alexander and R. W. Fairbridge [Eds.], Encyclopedia of Environmental Science.
Posted on umich.edu
Ecologist Garrett Hardin's "tragedy of the commons" (Hardin, 1968) has proven a useful concept for understanding how we have come to be at the brink of numerous environmental catastrophes. People face a dangerous situation created not by malicious outside forces but by the apparently appropriate and innocent behaviors of many individuals acting alone.
Hardin's parable involves a pasture "open to all." He asks us to imagine the grazing of animals on a common ground. Individuals are motivated to add to their flocks to increase personal wealth. Yet, every animal added to the total degrades the commons a small amount. Although the degradation for each additional animal is small relative to the gain in wealth for the owner, if all owners follow this pattern the commons will ultimately be destroyed. And, being rational actors, each owner ads to their flock:
Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit -- in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own interest in a society that believes in the freedom of the commons. (Hardin, 1968)
Despite its reception as revolutionary, Hardin's tragedy was not a new concept: its intellectual roots trace back to Aristotle who noted that "what is common to the greatest number has the least care bestowed upon it" (see Ostrom 1990) as well as to Hobbes [...]
Hardin immediately recognized that this concept applies in its broader sense to a great many modern environmental problems (e.g., overgrazing on federal lands, acid precipitation, ocean dumping, atmospheric carbon dioxide discharges, firewood crises in less developed countries, overfishing). Simply stated, we face a serious dilemma -- an instance where individual rational behavior (i.e., acting without restraint to maximize personal short-term gain) can cause long-range harm to the environment, others and ultimately oneself .[...]
FAQ: Frequently Asked Questions
–- The Science of Success,
by Charles G. Koch
What is Principled Entrepreneurship™?
Principled Entrepreneurship™ is the practice of maximizing long-term profitability by creating real value in society while faithfully acting lawfully and with integrity.
What is Creative Destruction?
Joseph Schumpeter on Creative Destruction: "The… process of industrial mutation… incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of creative destruction is the essential fact of capitalism.”
Creative Destruction, really ? (Koch should "Trademark" that one too.)
Is that the same thing as Economic Innovation? as Adam Smith's "invisible hand" of market competition? Or Glenn Beck's "Sink or Swim" concept?
Or is it really more about picking "winners and losers" ... about "ravishing" the opportunities before you, before some other Industrialist does?
Before us "Commoners" do? (allocate our resources)
Schumpeter and capitalism's demise
wikipedia
Schumpeter's most popular book in English is probably Capitalism, Socialism and Democracy. This book opens with a treatment of Karl Marx. While he is sympathetic to Marx's theory that capitalism will collapse and will be replaced by socialism, Schumpeter concludes that this will not come about in the way Marx predicted. To describe it he borrowed the phrase "creative destruction", and made it famous by using it to describe a process in which the old ways of doing things are endogenously destroyed and replaced by new ways.
Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. The intellectual and social climate needed to allow entrepreneurship to thrive will not exist in advanced capitalism; it will be replaced by socialism in some form.
There will not be a revolution, but merely a trend in parliaments to elect social democratic parties of one stripe or another. He argued that capitalism's collapse from within will come about as democratic majorities vote for restrictions upon entrepreneurship that will burden and destroy the capitalist structure, but also emphasizes non-political, evolutionary processes in society where "liberal capitalism" was evolving into democratic socialism because of the growth of workers' self-management, industrial democracy and regulatory institutions.[8]
Schumpeter emphasizes throughout this book that he is analyzing trends, not engaging in political advocacy. In his vision, the intellectual class will play an important role in capitalism's demise. The term "intellectuals" denotes a class of persons in a position to develop critiques of societal matters for which they are not directly responsible and able to stand up for the interests of strata to which they themselves do not belong.
[...]
Schumpeter and Innovation
Schumpeter identified innovation as the critical dimension of economic change.[9] He argued that economic change revolves around innovation, entrepreneurial activities and market power and sought to prove that innovation-originated market power could provide better results than the invisible hand & price competition. He argues that technological innovation often creates temporary monopolies, allowing abnormal profits that would soon be competed away by rivals and imitators. He said that these temporary monopolies were necessary to provide the incentive necessary for firms to develop new products and processes. [...]
References
12) Greenspan, Alan (2007). The Age of Turbulence: Adventures in a New World. Penguin Press. p. 48. ISBN 9781594201318. "I've watched the process [creative destruction] at work through my entire career,"
Kind of makes you wonder if Libertarian Koch actually read the work of his Austrian School of Economics, "northern star," Joseph Schumpeter, eh?
Well, Greenspan seems to have been aware of and "condoned" Schumpeter's (misused) Principle of "Creative Destruction" ...
Anyone else we might know, who is in this neo-econ "school of thought"?
The Father of Creative Destruction
Why Joseph Schumpeter is suddenly all the rage in Washington.
wired.com -- Mar 2002
Adam Smith, make room: Joseph Schumpeter has come to Washington. Capital policy wonks may not yet be wearing Schumpeter ties, but the Harvard economist's ideas are cited by everyone from Federal Reserve chief Alan Greenspan to the warring parties in the Microsoft antitrust case.
Schumpeter argued that capitalism exists in the state of ferment he dubbed "creative destruction," with spurts of innovation destroying established enterprises and yielding new ones. This view seems far more current than Smith's Newtonian notion of an "invisible hand" generating stability in the marketplace.
Smith was a conceptual breakthrough for Europe, but he didn't say much about bone-jarring technological shifts or the crucial role of entrepreneurship.
[... according to then] House majority leader Dick Armey. "The market must clean itself out by taking resources away from the losers, so it creatively destroys the losing companies and reallocates resources to the winning companies. That's really what's going on."
[...]
In a paper presented at a recent Fed retreat, former treasury secretary Lawrence Summers and his ex-deputy Bradford DeLong observed that "the economy of the future is likely to be 'Schumpeterian,'" with creative destruction the norm and innovation the main driver of wealth. Products based on ideas -- music, software, pharmaceuticals -- require an enormous investment to develop but very little to keep making. And they're often subject to network effects, which reward those that achieve critical mass. Together, these factors -- high cost to create, minimal cost to produce, and a winner-take-all environment -- tend to generate natural monopolies, at least until the next innovation comes along. How regulators should respond is debatable, but clearly the rules that governed manufacturing economies don't apply.
Yet creative destruction is only half of Schumpeter's message. Far less in vogue is his projection that entrepreneurs will disappear as innovation becomes mechanized in corporate labs -- as it has today in Japan -- and that ultimately the very success of capitalism will beget socialism.
Will creative destruction give way to central planning? Not necessarily, says Harvard's Clayton Christensen. "What happened in Japan is exactly what Schumpeter envisioned," he argues. "But here, folks just leave -- they pick up venture capital on the way out, and they start new disruptive corporations." So as long as Washington encourages an infrastructure that supports entrepreneurship, creative destruction can continue after all.
Wow. LOTS to contemplate here. Don't you think.
Here are some general Questions, to help prompt further discussion, if you are so inclined:
1) When "creative destruction" causes more destruction, than it does creation -- Is it still really "working"? It would seem, for the workers it displaces, not so much.
2) If "innovation" is such 'prime directive' for them, why do the Koch-fund Groups wage such a Climate Mis-information war? It would seem innovative "Green Industries" would be the next big, obvious "value-laden" products, that would epitomize the core principles Koch is promoting. Hmmm, Charles Koch may be violating his Principled Entrepreneurship™ and also his company requirement of maintaining Individual Integrity, by all their workers?
3) Why and how can the “tragedy of the commons” and its very trivial example, be extrapolated to the Koch's Overall conclusion: that's ALL of Societal "common problems" are best handled and dealt with by Private Industry?
That seems a major disconnect to me. Common Problems, demand Common Solutions.
4) Are there ways our "common resources" can be used substantially and maintained, without the reliance on Private Industry to efficiently "divvy up" all our natural wealth?
5) How should Regulators deal with the “tragedy of the commons” problem (overuse of systems and resources) ? Clamp down on the violators? Or stand back and get out of the way of all their "creative destroying" ?
That kind of seems like a No-Brainer -- Regulators need to regulate. To be responsible to constrain bad actors, to prosecute the "exploiters" of "the Commons" to the extent that the law demands.
After the grand 'Schumpeterian' Free-Market exercise of the last decade -- we may have enough new information on the books, to draw some Brand New conclusions, on how "us commoners" have been faring ... under what could be cast as the latest incarnation of "supply side" economics.
Funny thing, according to Koch, adhering to Schumpeterian principles should "create prosperity and economic growth" for society ...
Summary of Presentation -- Sept. 12, 2005
Charles Koch:
First, how he [Charles Koch] applied the principles from the Austrian School of Economics to build Koch Industries, Inc., and second, how these same principles can be applied in society to create prosperity and economic growth.
Hmmm? I guess, maybe Koch should have mentioned, "create prosperity and economic growth" FOR WHOM exactly?
Which Society? Whose Society? ... Whose "commons" ?
SOOO ... if "Success" is to be defined strictly in terms of the size of your Bank Account, the Koch Brothers are clearly winning ... Hands Down!
Perhaps we need a BETTER Definition of "Success" eh? ... one not so prone to the unproven "Science" that the Koch Brothers run their empire by?
Thanks, for taking the time. Time is created ... Time is destroyed ... Life moves on.
The Koch Brothers get richer ... and more powerful ... as "our common clock" keeps ticking.