Makers vs. Takers – Entrepreneurs Create Wealth, They Do Not Confiscate It

Saul AlinskyCommunity Organizer Saul Alinsky categorized people into three classes; (i) the Haves, (ii) the Have A Little, Want Mores and, the (iii) Have Nots. He wrote Rules For Radicals to instruct, “…the Have Nots on how to take it away” from the Haves.

Mr. Alinsky preached that wealth was relatively static. In Alinskyland, if you were a Have Not, your only alternative to attain wealth was to take it away from a Have, preferably with the assistance of Government-sanctioned coercion. Mr. Alinsky rationalized such legalized theft with the oft-repeated phrase, “the ends justify the means.”

It is difficult to believe that Mr. Alinsky actually believed this fanciful, binary view of reality. Yet the simplistic nature of his Marxist-based Haves / Haves Not argument did not stop him from encouraging a generation of under-educated people to believe that their only opportunity to obtain wealth was to gather around him so he could sufficiently intimidate wealth creators into giving away some of their lawfully earned fortune.

Mr. Alinsky provided a malevolent disservice to his followers. Rather than cajoling his supporters to snatch wealth from the hands of those who created it, he should have encouraged them to become wealth creators, as opposed to wealth confiscators. Mr. Alinsky incited his followers to demand something for nothing. Such thievery is the antithesis of the entrepreneurial approach of creating something from nothing.

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Heroes And Villains

Your opinion of entrepreneurs is likely rooted in your understanding (or lack thereof) of the source of wealth. If, like Mr. Alinsky’s followers, you believe that a finite amount of wealth is controlled by the “Haves”, then you probably consider entrepreneurs “evil” and feel justified in supporting government measures to redistribute as much of their wealth as possible.

Conversely, if you understand that the opportunities to create wealth in the US are open to anyone willing to make the necessary sacrifices and you realize that entrepreneurs’ efforts benefit everyone in society, they you may consider entrepreneurs to be hard-working heroes.

Something From Nothing

PieLet’s say I bake a pie. Mr. Alinsky would demand that I cut slices from my pie and give them to people who did not make an effort to create a pie of their own. This approach would obviously reduce my incentive to make more pies, while only temporarily satisfying the hunger of Mr. Alinsky’s minions. Instead of fighting over a single pie, everyone benefits when they join forces to create a pie factory.

In all of my startups, every employee owned a portion of the pie factory via Option Grants and thus we all were motivated to build a company that created the tastiest pies we could make. This approach short circuits the “us vs. them” mentality that Mr. Alinsky so effectively (and sadly) exploited.

Bill Whittle’s video illustrates how wealth creation impacts all members of a society and not just those responsible for creating the wealth.

LA 1870Consider Los Angeles, California. In 1870 it was home to approximately 15,000 farmers and merchants. In 2000, it was inhabited by 3.7 million people who worked in tens of thousands of industries, each of which created wealth that benefitted hundreds of millions of people locally, nationally and globally.

If Mr. Alinsky had been an effective Community Organizer in Los Angeles, circa 1870, he might have been successful in coercing the owners of the feed stores to give away some of their grain and citrus farmers to involuntarily “donate” some of their fruit to the common good. However, if Mr. Alinsky’s coercive formula of wealth transfer had been in place for the past 100 years, the Los Angeles of 2010 would not be very different from the filthy, destitute pueblo of the 1800’s. As the numerous failed communist regimes so aptly demonstrated, a populace, which knows that anything they create will be arbitrarily “shared” by everyone, will create minimal wealth.

Hoping For A Change

According to Mr. Alinsky, “The organizer’s job is to…get people pregnant with hope and a desire for change…” He preached that the status quo had to be modified for the Have Nots to accrue anything. Ironically, Mr. Alinsky’s goal was legitimate, but the means by which he intended to change the status quo were not – theft, in any form, is never justified.

Fortunately, enlightened entrepreneurs during the latter half of the 20th century did not share Alinsky’s dogmatic “means justify the ends” philosophy. Their means was wealth creation, rather than wealth confiscation. By offering all employees ownership in their adVenture, they effectively transformed everyone into a Have, while simultaneously aligning each individual’s financial rewards with the company’s overall success.

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John Greathouse has held a number of senior executive positions with successful startups during the past fifteen years, spearheading transactions which generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.
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John Greathouse

John Greathouse is a Partner at Rincon Venture Partners, a venture capital firm investing in early stage, web-based businesses. Previously, John co-founded RevUpNet, a performance-based online marketing agency sold to Coull. During the prior twenty years, he held senior executive positions with several successful startups, spearheading transactions that generated more than $350 million of shareholder value, including an IPO and a multi-hundred-million-dollar acquisition.

John is a CPA and holds an M.B.A. from the Wharton School. He is a member of the University of California at Santa Barbara’s Faculty where he teaches several entrepreneurial courses.

Note: All of my advice in this blog is that of a layman. I am not a lawyer and I never played one on TV. You should always assess the veracity of any third-party advice that might have far-reaching implications (be it legal, accounting, personnel, tax or otherwise) with your trusted professional of choice.

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  • I agree. Governments and citizens to this day do not understand the implications of policies that transfer wealth. A more equitable distribution would be ideal, but in a global economy where corporations and the wealthy have increasing opportunity to choose where they want to be citizens, these policies can have disastrous effects (for everyone!).

    Fortunately, entrepreneurship, which is a huge vehicle for growth, is being taught more frequently. Although, it seems the “execution” is being taught more than the “ideation”. I suppose execution is significantly more “teachable”, and still valuable in itself.

  • John Greathouse

    Henry,

    Your point is well taken.

    I teach entrepreneurship or should I say, “I teach entrepreneurs”. Having received my MBA at Wharton in entrepreneurship and then teaching it for a number of years, I am pretty convinced you can’t teach someone to “be an entrepreneur”.

    Students drawn to entrepreneurship classes tend to understand the wealth creation vs wealth confiscation conflict. Unfortunately, such students make up a small minority of the entire university population…

    Thanks for taking the time to share your thoughts.

  • John, I agree that taxation can destroy some of the desire to create more wealth. However, there are very few people who decide against starting a business because of high taxes and few companies close because of high tax burden. As you know, that’s simply because businesses are taxed on profits.

  • Jim Palmer

    Thank you for resisting the temptation of turning this into a right wing anti-socialist screed — aside from your link to the always shrill Pajamas-wearing Bill Whittle. (Most Americans today have no idea what the word “socialism” actually means, anyway). However, anyone looking at other economic powerhouses such as Germany, France, India, Italy, Brazil, the UK and others will understand that any debate about the virtues of capitalism and entrepreneurship cannot be adequately explored in black and white terms as favored by those espousing “American exceptionalism” (are people still clinging to this excuse?). Rather than debating the merits of “redistributing” wealth, its always more useful to consider what role government should actually play in ensuring a reasonable quality of life for all its citizenry while creating an ideal environment for investment and economic growth yet judiciously keeping corporations from having too much power and running roughshod over the interests of voters, taxpayers and the nation. On these counts the U.S. would appear to be falling significantly behind the rest of the western industrialized world (i.e.: Wall Street deregulation leading to global recession, trillion-dollar warfare misadventures, embarrassing poverty and infant mortality rates, expensive and increasingly inaccessible higher education, foreign debt, shrinking middle class, etc.) If China overtakes our economy in the next decade or so, I wonder who or what we’ll blame then?

  • John Greathouse

    Denis,

    I agree that entrepreneurs are afflicted and will start businesses because they can’t help themselves. However, they now have the ability to start such business in environments that are most conducive to them retaining more of the the wealth they create.

    California continues to be an engine of tech growth, despite placing onerous tax and regulatory burdens on those who take risks. Governments need to balance their desire for spending (in the name of buying votes) with the reality of squeezing the golden goose too hard.

    My point in this essay was that Mr. Alinksy would have better served his followers if he had empowered them to take control of their destinies, rather than attempting to take wealth away from others.

    Thanks for your comment.

    John

  • John Greathouse

    Jim,

    I don’t consider myself anti-anything. I am a believer in setting high expectations for all, as I find that most people will live up to such self-fulfilling prophecies, if given the chance. Those who are told they will only profit by taking from others tend to believe that this is their only road to wealth.

    Mr. Alinsky was less concerned about motivating people to “be all they could be” (to steal the Army’s tagline) than he was about amassing a power base by which he could apply pressure to “The Man” (i.e., anyone he arbitrarily identified has having unjustly earned their wealth). I believe that all societies should frown upon such thuggish behavior whether the thug is liberal, conservative or otherwise.

    Thanks for contributing to the debate!

    John

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  • Kuy Gawasaki

    First, I’d like to say I enjoy most of your posts and have learned a lot from your class thus far. But this article is ridiculous, and I can’t believe you assigned us to read it. Did you steal this from a Gingrich pamphlet? I would expect that someone with integrity teaching a course to hundreds of students would not assign a reading that is so biased.  
    Are there studies out there that support your pie analogy? If you’re going to make claims like this, I would hope you have the evidence to back them up. Do you actually believe that if we raise income tax by say 5% that this would significantly hurt productivity across the board? You can say intuitively, lower incentives and you get some incremental lowering of effort. But if I’ve learned anything from this class, people don’t exactly respond rationally to external forces. Communism is a complete removal of incentives. There’s a middle ground that you fail to point out. I hope you can either post a response here or to the class. 

    Also, your claim that LA would be some undeveloped slum if we had wealth transfer is a ridiculous statement. There are ways to empower the poorest Americans without creating some dystopic communist regime. It’s this type of fear-mongering that tricks dumb Americans into believing claims that cutting tax on “job creators” would get America out of this recession. Do people even know what socialism is?

    Stick to the sales techniques Mr. Greathouse. You’re better at that stuff. 

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