Getting more from our aristocracy

Downton Abbey, the Jane Austen works, and the riveting collection of historical dramas from all over the world include the keys to our economic and social future. These stories, rooted in the concept of entail, contain the elements of political success. We, most of us, do not even know that such keys exist. Imagine the study of mathematics without the modulus or investigation into biology without knowledge of genetics. The same goes for the study of disease ignorant of the characteristics of bacteria and viruses. Without understanding such core issues, we are left flailing around, buffeted from left and right, ignorant of the source of our problems.

We learned so many lessons in the last century, but we lost sight of the major victory of a previous era, the partial conquest of aristocracy and entail in the eighteenth century. In terms that we may understand, how was Downton Abbey rescued in the late nineteenth century? By a marriage between the daughter of an American industrialist and the scion of a great British family. Why was this necessary? Because the failure to transfer aristocracy and entail to the British colonies and the resurgence of new economic classes in Britain and the colonies from manufacture and trade upset the centuries-old balance of power. As a literary example, Jane Austen's elites were not at risk; as the decades played out, they were.

In our time, wealth is no longer principally derived from the land. On the other hand, that is where much of it ends up. John Kenneth Galbraith declared about a half century ago that principal economic and political power was represented by corporate assets, by the wealth and power of large, entrenched corporations. That opinion was held in question at the time. George Gilder and others, including Peter Drucker, declared that entrepreneurial successes were effective at redistributing and recycling economic and social power. The whole venture capital mystique from the 1970s on grew out of the ashes of Galbraith's declaration to the point that he reversed himself.
With the notable exception of the electronics industry and its novel funding community, we must take another look at Galbraith's 1960s view of the economic arena. Wealth concentration of recent decades has to be viewed in the light of a lack of competition and dramatic concentration in key economic sectors.

I had an interesting conversation with one of my children last week on this point after watching one of the popular "time capsule" movies. Many of the areas when I was a boy that we thought were susceptible to great change are fundamentally the same, though some predicted gadgets such as picture phones have appeared. Ford Corporation's admission of its seventy year old "archive" of potential, but unused innovations attests to this fact. There is no chance that the political and economic elites of our time, from either of the prevalent political parties, will relinquish their holds on these longstanding markets. Whether it be laziness or a preference for manipulation in lieu of risk, their white-fisted grip is fixed on the necks of any that would upset the current economic apple-cart.

Buying up politicians? Nothing could be easier for these people. They have been at it for a long, long time. They can be very subtle. As Fussell has indicated, if the families of great wealth were frightened by the French and American revolutions, they were highly informed by the Great Depression, which taught them the importance of invisibility.

Inheritance is the issue as much as it was in the time of the Downton Abbey tale, which does have its historic roots. This is not the modest inheritance that allows you to provide for the basic needs of your spouse and children. This is inheritance on a scale that transfers the reins of wealth and power from generation to generation in the form of interests in longstanding stores of wealth.

I live in the American West. Most of the people around me could be considered tea party conservatives. They profess a hatred for those labeled as progressives. They call for a return to the past, a message thick with references to the American Revolution and the American Constitution. They quite adamantly believe in American exceptionalism. Nonetheless, when I point out the structural changes brought on by the American political innovators to disallow entail and the aristocracy, they tend to fall silent. It is, ironically, an idea that does not resonate with them. Rather, it is new to them, and they have a professed resentment for new ideas. This is one of the chief complaints they bring forward with regard to their political opposites, the progressives.
Just because the entail issue is new to them, however, it does not mean that the idea itself is new. On the contrary, there is overwhelming evidence of the effects of entail and aristocracy. Britain alone had almost a thousand years of it. Reread the great books of the time. The intelligentsia of Europe was  obsessed with the issues. Even Adam Smith had a few things to tell.

As a result of our ignorance and inattention to the issue, we have a kind of half-baked entail and related aristocracy. We continue to call for social equality in the United States, but we do not search out meaningful ways of resolving our fundamental systems of inequality. Questioning inheritance on almost any level would be a form of political suicide of untold proportions, alienating parties from the political left as well as from the right. It seems we would all like to establish something of an aristocracy of our own. In fact, this can be said to be one of our greatest motivations, particularly when we see the ineffectiveness, the corruption, and the cupidity of our government and its agents. Until government can show to be more reflective of the needs and interests of individuals and of families, voluntarily abdicating power by a family of wealth truly would be suicidal.

Nonetheless, more transparency is clearly needed. Is it possible that we could make a more explicit deal with the families of wealth and power that so clearly are controlling political and economic affairs in our time? We need to dispense with the trappings and the distractions of our current politics and open up a clear and definitive dialog with the "invisible" powers Fussell refers to. They need to purposefully and expertly build new industries to replace the old in energy, in health, and in transportation. These new industries need to use existing science, not subvert it. They need to dismantle the old models -- never an easy task. As in biology, when a healthy organism encounters a cancerous or no longer useful cell or tissue, it kills it in favor of a new replacement. Our bodies constantly do this in order to maintain our health. This needs to be done to the body politic by the elites themselves, even when existing stores of wealth will likewise be ruined. To the elites, we must say, "You have wealth and influence. Use them to build up new, more valid stores of wealth. If it is your wealth, that is OK, as long as we can get along with our lives as we wish to live them."
I might add a little sarcasm here, pointed at the masses of our society that do not really aspire to more in life. Your opiate, your Great Distraction, is none other than cable TV. Perhaps that is a good thing, better than other options. It seems something of a shame, however.

If you look at the last time the fundamental wealth of American elites was seriously in jeopardy -- well, not counting the energy and inflation crises of the 1970s -- that was the combined challenge of the Great Depression and World War II. Tax rates on wealth were substantially higher for the period. I looked this up years ago and have the documentation somewhere. The wealthy families made an unprecedented commitment to preserve the status quo and the structure of our economy by supporting economic reform and the war. We need a similar commitment now. Somehow, for example, we should be able to adjust to inexpensive personal vehicles that create minimal pollution and other substantially improved transportation. We should be able to eliminate the bizarre medical system that is dependent on high levels of chronic disease to sustain itself. The technology and the science exist to resolve such issues and many more.

To follow the Downton Abbey example, the upstairs family needs to get its affairs in order so that the downstairs crew can continue on. Personally, I would like to see something more egalitarian and, well, progressive, but I don't see the will, the commitment, or the understanding of these issues to even begin to imagine something different.

Mitt Romney, David Koch, and the consumption of cake

There has been considerable concern over a recent elite fundraising event in support of Mitt Romney's presidential campaign by David Koch. Justin Ruben lists several potential problems with such a collaboration as he imagines will result from a Romney/Koch alliance. His concerns are most likely valid. With support from like-minded individuals, Romney is likely to assume what can be characterized as a "business-friendly" approach to politics that is highly skewed in favor of certain kinds of businesses, against their rivals and against parties that may otherwise lay claim to sources of profit and power -- labor, local government, environmental causes, etc. This is basically an old school approach, what have been historically considered "robber baron" and "union buster" politics.

They wield power that they never had to earn. In their attempts to consolidate and extend their family empires, they run roughshod on our political and economic institutions with little knowledge or concern for the implications of their actions. By living out an aristocratic-oriented version of the American Dream, they trample on the republican one. The problem with entail is that the math doesn't work.

I recall a question in a debate addressed to Steve Forbes when he was seeking the Republican Presidential Nomination in the late 1990s. The moderator asked Mr. Forbes whether he personally had a mortgage on his home. When Mr. Forbes answered in the positive, there was almost a general sigh of relief. One commentator noted that Mr. Forbes was thus "one of us". The question of inherited power and influence runs much deeper than this. A mortgage is sign of astute financial management. He could have signed one over to himself if he so desired. A more meaningful question would have been whether he had ever been turned down for a mortgage, for example.

The point is that such a childhood and youth could never be equivalent to that of a typical youth who knows from the outset that he or she is going to have to make a way for himself or herself. This is obviously one of the most galling shortcomings of Mr. Romney politically; he is wholly ignorant of the ways in which he is entirely different from the rest of us. In medieval times and in many countries in the current environment, Mitt Romney and David Koch would most likely have aristocratic titles. They would be "dukes" or "barons" or "lords" or the like. They would surely have been knighted by now. They would have explicit political position, with preferential access to others within the aristocracy or monarchy. They wouldn't be shy about the perquisites of inherited power.

In the United States and in most industrial nations, there are no traditional or formal aristocracies or monarchies. We cringe at the idea of an inherited title. Such things run counter to our sense of justice and equality. Though many of us enjoy the occasional royal wedding, we scoff at the notion that the opulence of the few makes up for economic deprivation of the rest of us.

It is more than a little curious that much of the public opposition to a Romney/Koch collaboration is made up of people steeped in business, be they MBAs, finance specialists, commercial attorneys, accountants, etc. Such people can hardly be characterized as being anti-business. Their opposition is more nuanced. These people paint a much more subtle, more sophisticated picture than has previously been presented as commercial criticism in the arena of politics and economics.

Much has been learned in the last century about the many connections between society and the economy. Lessons thus learned continue to inform our successes and help to maintain cohesion and civility. Much of this extends into international economic relations. Nonetheless, something is wrong. Something is missing in the discourse, in the economic relationships among people, and within civic and commercial organizations on a national level. It may also extend to the international dialog with regard to political and economic policy. Though the Occupy Movement and the Tea Party initiative provide bookends of criticism, something is missing in that analysis that is not an explicit part of either message.

The Romney/Koch situation represents a key to understanding the problem. There is something curiously awry with what Romney and Koch are up to, but prevalent criticism rings hollow. Cronyism in politics should be a given. "Spoils to the winner" is the point of politics. Parties in agreement with one another, who have a common rival, should be able to form alliances. They should be able to work for some form of shared success by neutralizing the efforts of a common foe.

The democratic ideal is that all parties in play enjoy some level of equality and influence in such a process. The point is this: The Kochs and the Romneys are not equal with the masses. Members of both families benefit from their inherited wealth and position. The nature of their inheritance extends beyond comfort and security, they have inherited the underpinnings of great political and economy power. They were raised as "taipans", as future presumptive social and economic leaders. The waters always have parted as they passed. They have received every privilege. They not only benefited from the wealth and prestige of their parents, the groundings for their current power were given to them without having had to earn them.

This is not to say that they haven't done good things with the gifts thus received. In both cases, Mitt Romney and David Koch have expanded on the wealth and influence of their family estates. Such has been the challenge of all of the great families since the beginning of society itself. The question is in how such economic dynasties work to achieve these objectives, particularly given the typical stages of development of the family's sources of wealth. In second and third generation estates, there is much work for family member/managers to carry out. Based on the original success of their founding fathers and mothers, they are typically required to branch out into new and different markets, to establish positions in new industries. Dynasties extend themselves in different ways from how their original entrepreneurial successes occurred. They use their influence and prestige. They become much more active politically. They make every social, legal, and political effort to extend the franchise.

In the case of Mitt Romney, he did so by joining the circles of business and political elites of Harvard and Boston. That world serves as a global magnet for business challenges and opportunities, benefiting from marriage between consulting and finance. There was no opportunity at his father's firm, American Motors, but the family position and resources were very applicable in the super-heated culture of Bain and in the Boston consulting culture. Mitt Romney found himself in a veritable land of lost [corporate] toys, many of which brought opportunities if not unfulfilled value. Bright young know-it-alls with the money to back up their hunches are in position to expand on family wealth in a hurry, which is what Mr. Romney and his friends did. As to the Kochs, they were able to continue right on where their father left off. After buying out their siblings, they have extended the firm outside of its base in petroleum in true taipan fashion.

Were these successes to have occurred in England, the growth of the dynasties in question would have been accompanied by aristocratic titles -- knighthoods to be sure, and possibly baronies and dukedoms. They would likely have "married in" to some of the great families, which is one way that Briton's aristocratic families survived in the nineteenth and twentieth centuries.

In the United States, we profess abhorrence to the trappings of aristocracy, yet we wholly embrace its substance. Though entail and the failings of primogeniture were hotly debated in the time of the American Revolution, we hardly know the meaning of these terms in our time. We do know that there were Tories at the time of the Revolution, but we do not understand what they represented. They were the aristocratic young lions, the Kochs and the Romneys of the time who objected at being stripped of the trappings of power and privilege earned over the generations by their families. They had wanted the aristocratic model to prevail in the American colonies and were most upset with the alternative plan offer up by the locals. The American Revolution was about the dissolution of entail and aristocracy more than it was about home rule.

Of course, in those days, power and privilege was more closely associated with property than corporate, productive assets. Based on a layered social structure, the elites depended on the work product of their poor neighbors who were impressed into service by a legal system that favored inherited wealth in the form of lands. The democratization movements around the world that decimated most monarchies turned much of this around. In the United States in the nineteenth century in particular, with a continent to conquer, the inheritance issue was put to sleep. In the early twentieth century, an economic and social elite surfaced, but the Great Depression drove them underground. Paul Fussell in his seminal book, Class, documents this development. If you can get a copy from an old bookstore, it is an excellent read. Actually, it does get a bit "catty". I got the point about 2/3 of the way through and put it down.

Class in the United States is a most subtle thing, but ever-present and highly nuanced. Though the dynasties exist, they have learned to hide in plain sight. As documented by Fussell, the flashy ones are not the elites, but their representatives. The Kennedys, for example, seem to have finally worked their way in based on the family's service to the cause in the last century. They will likely join with the anonymous ones as they assume their place in the ranks of the highest order. The Romneys and the Kochs are the new second generation. There is much to be done before they will be granted entrance and anonymity. It will happen to their descendants if things go well.

If there is a problem with the rule of the elites, it is that they are resoundingly conservative. In this, I do not mean conservative in a political sense, because many of them are liberal activists. They are conservative with regard to risk and market position. Though they may publicly appear otherwise, they do not have the least interest in anything new, new markets, new technologies, new opportunities. In part this is because the affairs of the economic elites are mostly taken care of by trustees and managers who are hired for the purpose of continuation. Attorneys, accountants, and the sort, such people are not in the least interested in "adapting to changing realities". They are highly motivated to bend realities to their will. They exert overwhelming effort to forestall innovation and new market development. In the early days of my career as venture capitalist, I remember being thrilled to learn of venture efforts by the Hillman and Rockefeller families in venture capital. They invented the concept, at least in the modern era. "Out with the old and in with the new", replacing old equities with new. That, it turns out, is very much the exception to the rule.

The dynasty builders have learned to function in most subtle ways to subvert markets to extend the franchise. How do they keep new markets from developing? They organize venture funds to capture entrepreneurs and water down their messages. They wear them out as they construct artificial barriers to entry to the markets in question. How do they stop scientific innovations from being commercialized? They fund scientists, consistently, just enough to keep them going. The scientific findings thus derived typically "fall off the end of the table" for lack of support. Such techniques were very effectively used by JP Morgan, for example, to keep Nikola Tesla from implementing his best ideas.

I believe that economics and politics are outgrowths of our biological foundations. This is also the case with regard to organizations. In nature, growth, maturity, and decline occur as the result of constraints. These include available sources of food and energy, the weather, and other necessary elements. All life thus exists "in a box" represented by constraints. Our economic world, our society, is an outgrowth of this. The problem with the elites is that they tend to exert their power to distort the economy and society to meet their preferences for continuity without risk. In this sense, our aristocracy views its corporate wealth in similar fashion as the great landed estates of baronial Europe of the Middle Ages were valued by their holders, as static property. Nothing should change. The status quo is to be achieved at all cost. The elites of our time have shown to be highly committed to distorting such constraints to extend their organizations, the ones that house their wealth. This is the problem with the Romney/Koch collaboration. They represent very public manifestations of this phenomenon.

It is only natural for an organization to do everything at its disposal to preserve itself as its prospects for success begin to shrink, all else being equal. This is a biological reality. In the Western United States, we have the general infestation of Dyers Woad as a reminder of this trait. Unbridled growth, however, becomes a cancer. Extending an organization, even an industry, beyond its natural life conveys cancerous outgrowths as well, a condition I have referred to as necronomy. What is wrong with a Romney/Koch collaboration? They will use every available resource to subvert innovation at all levels. They will do anything to continue and extend their dynasties.

Lets say, for example, that someone were to develop a technology that overnight were to invalidate the entire petroleum industry, a source of energy that resolved all of the economic, political, environmental, pollutive, and health-oriented problems associated with widespread use of fossil fuels. Interestingly, this is similar to an opportunity Tesla brought to Morgan, a means of using the earth as a resource for generating and transporting electricity pervasively and inexpensively. Morgan killed the deal for want of a meter that could be used to charge people for the service.

How would a Romney/Koch collaborative deal with such a development? Would David Koch say, "Well, the gig is up, I guess we should get out of the oil business"? On the contrary, he would kill the deal so dead that it would never see the light of day. What about associated opportunities on the other side of the equation? The big ones, the important ones, will never see the light of day. Remember, it was Ford Corporation that recently predicted that it would rebound from recent problems because it could call upon seventy years of innovations "in their archives" to turn things around. Isn't that an admission that they had been killing innovations for at least that long?

You may have an idea by now of the issue in question. It is this: inheritance. This is the key issue. This is what is potentially wrong with the Romney/Koch alliance. In this, I am not making reference to your hand-me-down golf clubs from your father -- or insurance policies or homes or summer cabins. In this, reference is made to the inheritance of corporate controls, powers, and authority. Along with this, large stores of wealth. We need to understand the policy implications here. To decide in favor of such multigenerational transfers of power and wealth, we are voting in favor of entail and aristocracy, at least to a degree. We also are deciding that we must grant some space to these people to "do their thing" in spite of the fact that the implications of this are not in our best interests.

What we decide in this regard should be an explicit policy decision. It should not be a happenstance matter, given its importance. If we are in favor of supporting dynasties pretensions of families, we should hold them to a higher standard. For one thing, we should be better at understanding their objectives. They should be limits to how much they can pervert our economy and our social structure in their efforts to extend their economic preeminence.

The Romney/Koch alliance represents second generation, inherited power. This is not inherently a problem, but we need to be able to hold such people to a much higher standard. How do we do this is the question. Think of the relationship between the Starship Enterprise crew and the Ferengi, the inimitably commercial race with the big ears. The crew knew what they were up to. They were able to work with them. They knew what they were about. The Ferengi were not able to subvert the system, though they tried.

How do we know that David Koch this very day didn't buy off or otherwise economically eliminate an innovator that would provide us with very cheap transportation for $1,000 per vehicle? What reward could we give him for putting a $100 billion enterprise at risk for the simple reason that its technologies and products are no longer the best available option?

These are difficult questions in an open society that reveres private initiative. In an ideal situation, utmoded approaches shrivel up simply because no one is willing to pay for them. When necronomy enters in, however, opportunities are killed before they made the light of day. You never get the chance to buy that $1,000 vehicle that runs on solar power.

Some things could be done to mitigate the development of overly powerful dynasties. Why shouldn't they be made to buy companies rather than simply to inherit them? There is a brisk business in leveraged buyouts. This would possibly make them more market-oriented. The requirement to be sold could also free up capital and give others the opportunity to direct their activities.

Directing attention toward inheritance is surely equally odious to the political left as well as to the right. The fact is, current politics does not factor this critical phenomenon into the equation. For one thing, who doesn't want to start a dynasty? Isn't that an important objective of aspiring entrepreneurs in all fields, from technology to farming. We all would want to leave our descendants off better than we have been, if not at least equal. There is the enormous challenge brought on by government itself and its lack of institutional legitimacy. It would be nice to be able to say, "Let's tax the dead to relieve the burden on the living", but with our government, that comes out as more than a little creepy.

We should recognize Mitt Romney and David Koch for what they are. Economically and politically, they are the Kennedys of our era. We should form explicit pictures of their objectives and strategies. This is one disadvantage we have to the British. Their House of Lords is much more explicit than is ours. We have this weird red/blue dichotomy that seems eerily the same, campaign to campaign. We should be able to negotiate with these dynastic representatives. We should be able to get what we want and we allow them to get what they want as long as the two are compatible. Can they give us better governance? The red/blue political cadence that is so well depicted by Ben Garrison is really wearing thin. Can they fix the financial sector? This is something they know about. Can they restore the perquisites of growth? Can they bake us a fine cake, one that we can eat with a smile? Then we can help them to pay their dynastic dues and join the club of all clubs.

Just keep in mind that from a Revolutionary War point of view, if we choose to support the transfer of economic and political power through inheritance, we are Tories, too.