Blog | Entrepreneurship

America’s View of Capitalism

How to define true capitalism and why we need a financial reeducation

I often quote from Dr. Frank Luntz’s book, What Americans Really Want...Really. I appreciate his comments on whom Americans respect today and whom they hate. I want to repeat what he wrote here, because it is so aligned with one of the key points of Rich Dad, the idea that our schools don’t teach a financial education; they teach students to be needy and greedy.

“...it’s hard to tell which has become the stronger emotion: respect for entrepreneurs or hatred towards CEOs.”

Dr. Luntz also states:

“In fact, by better than a 3 to 1 ratio, Americans now trust entrepreneurs more than they trust successful CEOs…. In today’s world, ‘Capitalists’ frighten people, and ‘capitalism’ is short hand for CEOs taking tens of millions of dollars on the same day their pens wipe out 10,000 jobs.”

Dr. Luntz found that Americans respect entrepreneurs still pursuing the American Dream. He writes:

“The small business owner, even if she (female-owned small businesses are among the fastest-growing components of the shrinking economy) is successful, isn’t making bonuses totaling tens of millions. She has no golden parachute, unless her business is providing skydiving lessons. She has to look her employees straight in the eye when it comes time to lay them off rather than just issuing a corporate edict. She has endured a lifetime of sleepless nights, tossing and turning about whether the business really was going to make it and whether she was going to let her employees down.

“Americans realize that there is far greater risk in investing your own time, your own money, and your own heart into starting a small business—and it’s even harder to make it a successful one. And these risks made by the small-business owners are all in search of far less financial reward than their CEO counterparts.”

Capitalists vs. managerial capitalists

John Bogle, an entrepreneur and true capitalist, is the founder of Vanguard Funds, one of the world’s largest mutual fund companies. He is very critical of managerial capitalists.

In his book, The Battle for the Soul of Capitalism, Bogle addresses, “How the financial system undermined social ideals, damaged the trust in markets, robbed investors of trillions.”

In an interview about his book he stated, “We have had what I describe in my book as a pathological mutation from traditional owner’s capitalism, where the owners put up the lion’s share of the capital and got the lion’s share of the rewards, to a new form of manager’s capitalism, where the managers are putting their interests ahead of the direct owners.” By direct owners, Bogle is referring to the shareholders of pubic companies.

Bogle is saying that many of our largest corporations are led by managerial capitalists, not true capitalists. They are employees—not entrepreneurs. Many managerial capitalists are “A” students, graduates of the finest business schools. Managerial capitalists are not entrepreneurs. They did not start the business. They do not own the business. As managerial capitalists, they have responsibilities, but take no personal financial risks.

They get paid whether they do a good job or bad job. They get paid...whether the business thrives or fails and even when employees lose their jobs or shareholders lose their investment.

CEOs and redefining success

John Bogle is especially critical of Jack Welch, former CEO of General Electric. Jack Welch was a managerial capitalist, an employee of GE. Thomas Edison is the entrepreneur who founded General Electric. Thomas Edison did not finish school and his teachers labeled him “addled.”

Jack Welch, on the other hand, is a highly educated man, a chemical engineer with a doctorate degree from the University of Illinois. He is also one of the most respected CEOs in the world. Many believe him to be one of the best CEOs. Jack Welch is a frequent guest on financial talk shows as an authority on business.

Bogle disagrees, describing Welch as a managerial capitalist who did a great job for Jack Welch in lining his own pockets, but a poor job for General Electric’s employees and shareholders.

Clearly, we need to redefine success. A proper financial education, one that doesn’t reward executive-level greed or prize “A” students, will help get us there.

Be part of the solution

At the end of the day, it’s easy to complain about the system. It’s much harder to be part of the solution. For decades, I’ve tried to be part of the solution. I’ve built successful businesses, and I’ve used the rules of the money to make a lot of money—and provide a good living for many people.

What America needs more now than ever is entrepreneurs and investors with a high financial IQ, who have the financial education to understand money and how it works. My plea to you is to build your financial education. Start great companies. Make great investments. Be part of changing the culture of managerial capitalists by becoming a true capitalist today. You’ll be better off for it—and so will America.

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