Looterism: The Cancerous Ethos That Is Gutting America
For those of us who came of age during the Reagan era, the fall of the Soviet Union marked the ultimate victory of capitalism over communism. But 20 years later, capitalism is facing a much greater threat, not from communism or socialism, but from a cancerous distortion of its own values.I doubt anyone can pinpoint the exact reason for the transformation. Perhaps it was the onset of the “Me” generation of the 1980s or the arrogance that comes with being the last remaining super power. But the ethos of American capitalism has made a dangerous shift toward the deification of pure greed.
Capitalism is supposed to be a system that rewards people for creating value, but it has been perverted into “Looterism,” where the mantra of maximizing one’s self interest is spoken like an incantation, and people believe that this is the only thing that matters. In the transformation from capitalism to looterism, our economy has mutated from one that believes in “private benefit from value created” to simply “private benefit, regardless of damage.”
The danger of looterism, of focusing only on maximizing self interest above the importance of creating value, is that it incentivizes the extraction of wealth without regard to the creation or replenishment of the value building mechanism. This was summed up in a 1996 paper by George Akerlof and Paul Romer of UC Berkeley:
…The normal economics of maximizing economic value is replaced by the topsy-turvy economics of maximizing current extractable value, which tends to drive the firm's economic net worth deeply negative. Once owners have decided they can extract more from a firm by maximizing their present take, any action that allows them to extract more currently will be attractive -- even if it causes a large reduction in the true economic net worth of the firm. A dollar in increased dividends today is worth a dollar to owners, but a dollar in increased future earnings is worth nothing because future payments accrue to the creditors who will be left holding the bag.What Akerlof and Romer didn’t know in 1996, when they referred to unnamed future “creditors who will be left holding the bag,” is that those creditors would ultimately be the people of the United States. In fact, the ethos of looterism has extended far beyond individual firms, and we are now in an age of looting the nation itself for short term private gain.
Despite the ongoing damage inflicted by looterists, they continue to fleece America by disguising their actions and motivations as proper “capitalist self interest.” The ease with which wealth extraction can be disguised as wealth creation is looterism’s most frightening aspect. By repeating the mantra that this is the “American capitalist way” over and over again, the evangelists of looterism gut the spirit of capitalism and serve up a dish that appears palatable to the uninitiated masses but provides no sustenance.
Ultimately, looterism is a matter of values. By removing the need to create value from the definition of capitalism we have twisted a positive economic system into one that threatens to destroy more than it creates. It has turned us into a nation obsessed with the measure of wealth but with no regard as to how said wealth is acquired. In a looterist nation, a bailed out banker fat from the trough of graft and public funds is held in the same regard as an entrepreneur who made her fortune creating a product that improves people’s lives. Not only does the end justify the means, but there is nothing to justify. The means aren’t even taken into consideration as long as the extraction of wealth is successful.
Communism was an easy enemy for us to see. The economic system was clearly different and there was a giant country with missiles pointed at us to represent the Red Scare. Looterism is an enemy of a different kind, an invisible enemy that eats us from within like a cancer. It is much harder to see, and like the devil convincing the world he doesn’t exist, the drift toward looterism has been almost invisible -- but it has undoubtedly occurred.
Our challenge now is to return America to being a nation of builders instead of a nation of takers. And to do that, we must rededicate ourselves to capitalism as a system that has at its core the creation of value and not simply a system of unadulterated self interest. The alternative is to let America be gutted from within.
[NOTE: Recently, several fascinating entrepreneurs reached out to me after reading my column, and four of us ended up having dinner that turned into an engaging three hour conversation about the evolution of education in America. It may not be possible to recreate such serendipity, but I'd like to try. If you're a regular reader of my column and enjoy intelligent conversation, ping me with your city and LinkedIn profile at Francisco@50Kings.com. Please no smankers.]
[Illustration by Hallie Bateman]