Secrecy and Security

Tuesday, January 30, 2001

Prosperity can be upsetting.

Just ask John Little, chief executive of Portal Software. As “the billionaire next door,” he was cover boy for the Forbes 400 in 1999. But a guy next to him on a flight, seeing the headline but not connecting the photo to his neighbor, erupted: “I’m so sick of these rich Internet brats! I’ve got years of experience. I work 10 hours a day, and these 25-year-olds make millions overnight while I’m struggling to feed my family.”

Little fumes: “The guy undoubtedly thought I got the idea for my company last week, and this week I’m worth a billion dollars. Actually, I’ve been in this business for 14 years. I’ve worked my butt off, and finally it’s come together.”

After piling up more than they ever dreamed of, America’s top entrepreneurs now face a moral challenge: By what right have they so much more than others? What have they given in return?

The Party of Yeah versus the Party of Nah

If the affluent are agonizing over such questions, so, too, are Americans in general beginning to debate them. On one side are the pioneers of technocapitalism. They have a vision for the world, they are making it happen, and they are being rewarded for it. This group champions new companies and products, welcomes the rapid pace of change, sees ahead a cornucopia of pleasures and possibilities. Call it the Party of Yeah.

Its opponents argue that the New Economy is a fraud and that no upsurge in the Dow or the Nasdaq can compensate for the moral and social havoc being produced by technocapitalism. These critics charge that unfettered markets and runaway technology, far from bringing us closer to the promised land, destroy cherished values. This ideologically diverse group is made up of cultural pessimists, environmentalists, traditionalists, egalitarians, and technophobes. Call it the Party of Nah.

This clash reflects the special concerns of an era of prosperity. Capitalism has won the economic war, but it has not yet won the moral war.

The Party of Yeah is led by people like Steve Jobs, Jeffrey Bezos, and Stephen Case. By and large, it is a young people’s party, and it dismisses past social policymaking as a failed attempt to allocate scarcity. The scientist, engineer, and entrepreneur, on the other hand, are now able to promise what cybercowboy John Perry Barlow terms the Great Work: to eliminate scarcity, to feed and clothe and heal the world. Dewang Mehta, a leading software entrepreneur in New Delhi, believes that the computer industry will realize Gandhi’s dream of “wiping a tear from every Indian’s face.”

A world without scarcity is one in which income or wealth differentials should cease to have much effect. That would lift a great moral weight off many of the new rich. But there’s more: this group wants to turn workers into free agents and, via the Web, give everyone the same access to information and markets. The Internet still has a fairly limited reach, says physicist Freeman Dyson, but “the new Internet will end the cultural isolation of poor countries and poor people.” The Party of Yeah promises that cyberspace will bring people together by fostering “electronic neighborhoods” based not on geography but on shared interests.

And after that? Virtual-reality experiences that cannot be duplicated in the real world. Chips in our brains that will expand our minds. Antiaging drugs and genetic modifications that will make future generations healthier, better looking, smarter, more artistic, perhaps even more caring.

So is all this new wealth justifiable—because it’s going to save humanity?

Despite all the talk of a “digital divide,” Internet access today seems about as serious a problem in the United States as “telephone access” or “automobile access.” Today a computer doesn’t cost much more than a TV set, and Internet use costs little to nothing..

On both the political left and the political right there is vocal resistance to technocapitalism. It comes mainly from intellectuals, clergy, naturalists, and people who have found themselves on an economic treadmill while their neighbors have surged ahead. The left-wing critique is in the name of nature and equality. The right-wing critique is in the name of community and morality. These critiques are merging and becoming one. To the Party of Nah, technocapitalism is unleashing a gale of creative destruction that is wrecking the ecosystem, exacerbating inequality, eroding personal privacy, weakening the family, and uprooting communities.

What about the Party of Yeah? It, too, is deeply divided. When Ted Turner announced he was giving a billion dollars to the United Nations, John Stossel of ABC News asked him: Why are you throwing your money down such a rat hole? Why don’t you invest in your own company, create more jobs, and make people better off? Turner angrily stormed off the set. Could he not bear the thought that his business practices themselves might be socially beneficial?

Turner has been accused of guilt-trip capitalism—but his premises seem to be shared by some of the market’s strong defenders. Innumerable chief executives speak of “giving back” to the community. But that implies that you have been taking from the community.

What all this suggests is that the moral divide over affluence and technology doesn’t just run between ideological camps; it runs through our own hearts. The Party of Yeah and the Party of Nah dwell, in a sense, within us. We want to do well, but we also want to feel morally justified in claiming our rewards. We pursue wealth while wearing faded jeans and buying old Shaker furniture to prove that we have not been consumed by greed and materialism. We respond to political candidates who, somewhat implausibly, vow to produce an economy that “leaves no one behind.” We want to integrate prosperity into something higher and more meaningful. Can we achieve these disparate, sometimes contradictory, goals? Can the division between the two contending sides, which is also a division within our psyche, be healed?

The Rich Get Richer (But So Do We)

Philosophers on the left charge that the winnings of the New Economy are profoundly unjust and have nothing to do with individual merit. Moreover, they say that inequalities have reached intolerable proportions and that the gains of the New Economy have gone almost entirely to a small segment of the population. A broader accusation, launched by many clergy and some political conservatives, is that greed, materialism, and self-indulgence have taken over our economy and our culture and that these vices—or, in Christian terminology, sins—are encouraged by the free market. It is easy to pooh-pooh these charges, but let us try to answer them.

First, inequality. It cannot be denied that the New Economy has contributed to staggering inequalities of wealth. The top 1 percent of the population owns more than one-third of the wealth in the United States. The top 10 percent has two-thirds. The net worth of the 30 richest Americans equals approximately $500 billion. There are 35 million black people in the United States. The annual earnings of this community add up to $450 billion. It’s not quite fair to compare annual earnings to net worth; even so, it remains a remarkable fact that 30 people in this country have assets greater than the gross annual earnings of black America.

The Party of Nah is convinced that there is no justification for these inequalities. Do the youngsters who start Internet companies really deserve to be centimillionaires? Perhaps, as Amy Dean, business manager for the AFL-CIO in Silicon Valley, recently put it, the new wealth is the result of “a bunch of young white guys being in the right place and winning the lottery.” Eric Schmidt, chief executive of Novell, says that, in the tech world, as everywhere else, networks and social connections determine success. According to Schmidt, it’s a myth that anyone with a good idea can raise the necessary venture capital: “Yeah, right—anybody can raise capital for an Internet company if they know the same guys that I do.”

The traditional mantra about inequality is that the rich are getting richer and the rest are getting poorer. In the past two decades, however, the rich have gotten richer and the rest have also gotten richer, although not at the same pace. According to a study by John Weicher of the Hudson Institute, median household wealth has climbed from $57,000 in 1983 to $72,000 in constant 2000 dollars. Why should people feel aggrieved that the rich are pulling further ahead if they are also moving forward? If you drive a Mercedes and I have to walk, that’s a radical difference in lifestyle. But is it a big deal if you drive a Mercedes and I drive a Hyundai? If I have a 4-bedroom condo, should I be morally outraged that you have a 12-bedroom house?

More than ever before, today’s wealth is a product of personal achievement rather than inheritance. More than half of those on the latest Forbes list of the 400 richest Americans made their own fortunes. Thomas Stanley and William Danko, authors of The Millionaire Next Door, estimate that 80 percent of Americans whose net worth exceeds $1 million are “ordinary people who have accumulated their wealth in one generation.” So you can’t argue that most of today’s affluent got that way by choosing their parents carefully.

A second characteristic of successful people today, especially evident in the high-tech world, is that they come from diverse ethnic backgrounds. At companies like America Online and Microsoft, there are now caucus groups and cafeteria sections not for Asian Indians but specifically for Gujaratis, Bengalis, and Keralites. Each group speaks a different native language and savors a different cuisine. Economist Gary Becker, a Nobel laureate, reports that more than a third of the 1 million people employed in Silicon Valley are foreign born. True, African Americans make up a tiny percentage of senior personnel in the computer and telecommunications industries, but that’s because blacks earn less than 2 percent of Ph.D.’s in fields like engineering, physics, mathematics, and computer science.

Social networks, as Eric Schmidt suggests, are a reality in high tech as in other fields. Still, what is striking is how successfully nonwhite immigrant groups have established networks of their own. When Indian-born Sabeer Bhatia first came up with the idea for Hotmail, he was rejected by a series of venture capitalists. As a “person of color,” he naturally felt he was a victim of discrimination. But, he says, “I quickly realized that being foreign born was no barrier, it was only a barrier in my mind.”

Now Indian entrepreneurs like Bhatia have set up their own “curry network,” complete with regular deal-generating powwows, an annual conference, a magazine, and a web site. Indian-born venture capitalist Vinod Khosla remarks that in Silicon Valley it’s almost a case of reverse discrimination: “People almost assume that if you’re Indian or Chinese you’re smarter, and you get the benefit of the doubt.”

What about the “digital divide” and the sarcastic comment by civil rights activists that the Internet should be renamed the World White Web? It is certainly true that not everyone uses the Internet equally. Whites and Asian Americans are more likely than blacks and Hispanics to log on, and the affluent are far more wired than the indigent. These differences do exist, but do they reflect a problem of “access”? After all, Internet access today seems about as serious a problem in the United States as “telephone access” or “automobile access.” Today a computer doesn’t cost much more than a TV set, and Internet use costs little to nothing. The real digital divide is that some people and some groups are more adept at using the web than others.

The egalitarian critique is a limited one because it merely says that the blessings of capitalism are not being extended to all. A more fundamental criticism challenges the ethical basis of the system itself. This view holds that the very engine of technocapitalism is greed and selfishness.

Several leading tech entrepreneurs have warned that such rapacity, never in short supply, has reached new heights in the New Economy. “When greed becomes this prevalent,” remarks Craig McCaw, the telecommunications mogul, “something bad always happens.” In a recent article, James Collins, coauthor of the popular business book Built to Last, wagged a finger at all the young entrepreneurs rushing to take their companies public and strike it rich. Collins indignantly asked, what happened to the early New Economy ideal of making better products and lasting companies so that the world would be a better place?

Who has done more to eradicate poverty and suffering in the Third World, Bill Gates or Mother Teresa? To the extent that he has placed the power of information technology at the disposal of millions of people, the obvious answer is Gates.

Some in the Party of Yeah seek to meet this criticism by denying their base motives. Today’s high-tech entrepreneurs want us to believe that they aren’t selfishly chasing big bucks, that their motives are creativity and passion. The magazine Red Herring suggests profits are a by-product of a labor of love: “Money comes to those who do it for love.”

Before we are lulled into sentimentality, let us ask: Aren’t profits the raison d’être of commercial enterprise? Profits aren’t merely a barometer of customer service, they are the ultimate rationale of the whole enterprise. True, many Internet companies forgo profits in order to expand their customer base. But they do this only because they expect to harvest vastly greater profits in the future.

Without denying that many entrepreneurs love what they do, it hardly follows that they are doing it “for love.” If that were truly the case, then they would never ask about their stock options.

Illustration by Taylor Jones for the Hoover Digest.


“Money Is the Root of All Good”

One entrepreneur who is candid about his selfish motives is T. J. Rodgers, chief executive of Cypress Semiconductors. Rodgers is an admirer of philosopher Ayn Rand, whose defense of capitalism is summarized in the title of her book The Virtue of Selfishness. “I don’t mean to disagree with anyone’s religion,” Rodgers says, “but my own view is that money is the root of all good.”

Rodgers adds, “I keep hearing feed the poor, clothe the hungry, give shelter to those who don’t have it. The bozos who say this don’t recognize that capitalism and technology have done more to feed and clothe and shelter and heal people than all the charity and church programs in history. So they preach about it, and we are the ones doing it. They want to rob Peter to pay Paul, but they always forget that Peter is the one that is creating the wealth in the first place.”

To pose Rodgers’s point in its most provocative way: Who has done more to eradicate poverty and suffering in the Third World, Bill Gates or Mother Teresa? To the extent that he has placed the power of information technology at the disposal of millions of people, the obvious answer is Gates. It doesn’t follow that Gates deserves a higher heavenly perch than Mother Teresa. Still, if the moral value of actions were to be judged solely by their consequences, Gates and other tech entrepreneurs have done an awful lot of good, far more good than their detractors in the Party of Nah.

Implicit in Rodgers’s comments is the insight that capitalism civilizes greed, just as marriage civilizes lust. Greed and lust are human emotions. As such, they cannot be eradicated. And to the degree that greed leads to effort, and lust to pleasure, who would want to eradicate them? At the same time, it is widely recognized that these inclinations can have corrupting and destructive effects. So they have to be regulated or channeled. Capitalism channels greed in such a way that it is placed at the service of the wants of others—even unknown wants. Think about this: before cell phones existed, who even knew that we—rich or not—couldn’t get by without them?