Capitalist Tool II: Defending Dynamism

An interview with Malcolm Forbes, Jr.

Virginia Postrel & Charles Oliver from the May 1991 issue

(Page 2 of 4)

Environmentalism and its cost obviously have impact on the economy, and to have a piece that says we should try to pay more attention to science and less to emotionalism doesn't seem to be a bad thing for anyone whether they're in business or out of business. Business today is a much broader subject, and it's subject to many more forces than it was 20 or 30 or 50 years ago.

Reason: How does a business magazine, particularly one that takes a tough stance on regulation and is critical of people like Nader, avoid becoming a sort of cheerleader for business?

Forbes: By having each one of our stories come to a conclusion, we avoid being a cheerleader for anything that shouldn't be cheered. The flaws of capitalism are people who don't know how to run businesses well. They waste capital. They wither it away. When I say drama critic, that means we praise and pan. Each issue has a number of stories that are critical. As a matter of fact, some congressional investigators say they get a lot of their ideas by reading Forbes because we seek out the shortcomings, the people who aren't doing well.

Reason: How would you describe your personal political views?

Forbes: I'm pro- growth. If that means enterprise zones, I'm supportive, and if it means increasing the earned income tax credit as a way of enabling people to get off the welfare treadmill, I would be for it. That's really the guiding compass: How do you let people develop their talents with a minimum of interference?

One of the dynamics of capitalism is that because it's in constant change, there are always people who feel they're going to be hurt by change and are going to resist it. Sometimes some of these subsidy programs are really bribes to allow change to take place, not block it. Look at the number of farmers today compared to 60 years ago. It's gone from 25 million to less than a million serious farmers. We threw in subsidies that shouldn't have been in there, but they didn't muck up the rest of the economy too much. That doesn't mean we should say we're all for subsidies. It just means you've got to recognize sometimes that, human nature being what it is, when something is threatened, don't let the forces of the status quo block the change.

The best way to get change is by doing something like reducing or eliminating capital gains taxes so that people on their own create the dynamic for getting ahead rather than having to go through an existing entity or get permission from existing political structures.

Look at an area like the Middle East. When the war is over, what we should be concentrating on isn't trying to find a favorable faction in Iraq and Kuwait or wherever else. We should push policies that would break the economic feudalism that has dominated that region.

Reason: For example?

Forbes: In order to set up a business, it's now almost as bad as Latin America in terms of getting the permission. Tax rates are much too high. Iraq is a very centralized economy. Egypt has improved, but it still has a suffocating bureaucracy. Algeria's made a little progress, so it's 98- percent hopeless, instead of 100 percent. Even Israel is in an economic straitjacket. The government owns the banks. The tax rates are too high. They've lowered the top tax rate. But if you add up individual tax rates, the value added tax, and all the other taxes they apply, it's an oppressing burden. Just as Ludwig Erhardt opened up Germany, sweeping away the war controls and rationing, so we should try to sweep away the obstacles to the entrepreneurial energy in that region.

Even if we don't get a favorable faction, we will develop eventually a middle class that will be more interested in getting ahead than waging war on their neighbors. Even if they hate their neighbors, it won't stop them from doing business with the neighbors.

We see that in Germany today. The Prussian disease has been largely eliminated. Today, instead of jack boots they are more interested in sneakers and demonstrating against the war rather than marching off to war.

Reason: Specifically, what can America do to foster these changes?

Forbes: We should ban the International Monetary Fund. If we have any other enemies, we should send the IMF to them, and that will undermine them very quickly. Maybe that's what we should do to Iraq, just send some IMF experts. That would knock them down very quickly.

We should advocate low tax rates. We should advocate not having to go through 50 different hurdles and having to bribe 300 different bureaucrats to set up a business.