October 10, 2011
America lost one of its brightest talents last week when Steve Jobs passed away at the age of 56.
Few have contributed so much positive change to the world in any field, and his innovations will live long after his death.
As we honor Jobs, there is no small irony in the fact that Wall Street protests are coinciding with his death. Jobs was hardly a financial wallflower: Besides his extensive holdings in and control of Apple (part of a fortune estimated at more than $6.5 billion to $7 billion by Forbes), he was the largest individual shareholder in Disney, thanks to the sale of Pixar a few years ago, and a member of its board as well. It’s likely that a large number of the youthful protesters in the Occupy Wall Street demonstrations rely on products Jobs either invented or improved; many might even be using iPhones and iPads to help coordinate their efforts. None of that would have been possible without capital risk-taking and Wall Street investment in Apple, among other companies.
Think of the world before Jobs, before a handful of bright young minds began exploring the potential of small, relatively inexpensive computing. Communication meant either writing letters or picking up a phone – with service largely provided by a national monopoly. Having access to research materials meant buying an encyclopedia and subscribing to yearbooks for updates to already obsolete data, or spending plenty of time at the local library. News from around the world came to most people either from the only major newspaper in town or one of three national broadcast networks. Social networking meant going to cocktail parties and company events.
Compared with today, that sounds positively medieval, doesn’t it?
Innovators like Jobs, his partner Steve Wozniak, Bill Gates, and others saw the potential for giving individuals data processing power. They put their own money into pursuing the efforts needed to produce products like the Apple and DOS, and got investors to back them when they needed more cash to succeed. All of the people in this equation took risks, with their money as well as their time. Not everyone succeeded, and not all innovations turned out well. Anyone remember the Lisa, or Commodore computers?
The risks of failure were significant -- at least as much as the potential for success and profit. Unfortunately, these days it seems that people have forgotten we require risk-taking by venture capital to create world-changing industries and innovation.
America has long hosted one of the great global centers of finance on Wall Street, where investors can meet innovators, and where both can buy and sell shares of ownership in companies, encouraging even more innovation and production. Like any other human endeavor, Wall Street has its flaws and problems, but its dynamism has pushed America to the forefront of global finance and technological dominance for a century.
But now our political debate has turned anti-capital. President Obama has pushed for higher taxes on the so-called “wealthy,” and argues for a “Buffett Rule” approach that rethinks tax policy on capital gains. We have had a long history of treating capital gains – the profit made from risk-taking and investment – differently than normal income. We tax the former at a lower rate to make risk-taking more attractive because successful ventures create jobs and more income to tax at higher rates. In a stagnant economy such as we have now, we should be searching for ways to offer long-term incentives for growth-producing investment, not reducing or eliminating our current incentives.
Furthermore, we should be looking for ways to get government out of the way of innovation. Yes, the breakthroughs from Jobs and his contemporaries didn’t all come from the private sector; the Internet was initially a a Defense Department project that created computer networking and the basic protocols of the Web. And communications innovation exploded when the government forced AT&T to end its telephone monopoly. However, Apple, Commodore, and IBM didn’t pioneer home-based computing based on government subsidies and specs that narrowly defined outcomes, nor did it take a blizzard of regulations to produce a graphical-user interface, file-storage standards, or peripheral compatibilities. The free market, with its complexities and its natural feedback mechanisms between innovators, investors, and consumers provided the answers to those challenges as they arose.
Contrast the explosive success of personal computing, which lacked heavy government direction, to that of solar and wind power. Federal and state governments have subsidized and regulated these industries for decades, and they have deliberately handicapped other traditional energy-production technologies to make the renewables more competitive. According to Reason Magazine, each megawatt-hour of energy produced by wind and solar power in 2007 was delivered via more than $20 of government subsidies, as opposed to $2 for nuclear power and a dollar or less for coal and oil – most of those in the form of tax incentives rather than direct subsidies.
With all of that effort over several decades, are we closer to mass-produced solar and wind power? Have these industries even matured to the point of producing jobs? The industries that Jobs, Gates, and their colleagues created through private-sector innovation based on technological success employ millions of people around the world. In 2009, President Obama got $38.6 billion in job-stimulus funding to create a “green jobs” explosion that would also employ millions. Thirty months later, we have spent $17.2 billion of those funds, and created less than 3,600 jobs, roughly at a cost of $4.85 million per position.
When it comes to capital investment in innovation, government performs much more poorly than the actual risk-takers, who reward success and don’t make decisions based on political connections and ideological agendas. The best way we can recognize Steve Jobs’ tremendous contribution and the benefits that it provides us all is to make it possible for the next Steve Jobs to do the same. We don’t need a war on capital; we need to unshackle capital and continue to provide incentives to risk-takers and dreamers like Jobs.