Roger Kerr 1945 – 2011

A service to honour Roger’s life was held on Thursday 3 November at 2.30pm at Old St Paul’s in Wellington. 

A selection of public tributes to Roger:

Mary Kissel, Wall Street Journal’s Political Diary

Roger Kerr: An Appreciation by Richard A Epstein

George Mason University professor and Marginal Revolution blogger Tyler Cowen

Prime Minister John Key

The New Zealand Green Party

ACT New Zealand leader Don Brash

New Zealand Herald business columnist Fran O’Sullivan

Kiwiblog

Cactus Kate

Whale Oil

Homepaddock

Stephen Franks

You can share your own tributes and memories of Roger in the comments.

 

STEVE JOBS: THE WORLD’S GREATEST PHILANTHROPIST

Writing in September this year for the Harvard Business Review, nonprofit sector expert Dan Pallotta argued that– contrary to widespread opinion – Steve Jobs was the world’s greatest philanthropist.

Pallotta begins:

A student at one of my talks on the non-profit sector asked if I could name a for-profit company that was making a difference on the scale that nonprofits do. I said I’d be hard-pressed to name one that wasn’t.

His reply highlights one of today’s great misconceptions.

Our youth are growing up with the strange notion that the only way to make a big difference in this world, or to be of service, is to work for a non-profit organization, or become the next Bill Gates and establish a private foundation, or to start some kind of “social enterprise,” often without any understanding of what that means.

Indeed Bill Gates has done much more   for society by improving the lives of hundreds of millions of people through the benefits derived from access to computers than he could ever hope to accomplish through his laudable personal philanthropic work.

The word philanthropy comes from the Greek philanthropos which comes from philein for “to love” and anthropos for “human being.” Philanthropy means love of humanity.

Which brings me to Steve Jobs.

Shortly after he returned to Apple in 1997 Jobs allegedly ended all of the company’s corporate philanthropy programs to cut expenses until the nearly bankrupt enterprise regained its footing. Some have claimed the programs were never reinstated.

A 2006 Wired article on Jobs, “Great Wealth Does Not Make a Great Man,” reported that even though his wealth was estimated at $3.3 billion, Jobs’s name did not appear on Giving USA’s list of gifts of $5 million or more for the previous four years, nor on another that list showing gifts of $1 million or more. (The article acknowledged that he could have been giving anonymously.)

The article took a cheap shot: “Jobs can’t even get behind causes that would seem to carry deep personal meaning…he is a cancer survivor. But unlike [Lance] Armstrong, Jobs has so far done little publicly to raise money or awareness for the disease.” It went on, “…he’s nothing more than a greedy capitalist who’s amassed an obscene fortune. It’s shameful…[Bill] Gates is much more deserving of Jobs’ rock star exaltation. In the same way, I admire Bono over Mick Jagger, and John Lennon over Elvis, because they spoke up about things bigger than their own celebrity.” Yes, but in part their own celebrity was connected to the things they spoke up about.

In a 1985 Playboy interview, Jobs acknowledged that it takes enormous time to give money away, and stated that, “in order to learn how to do something well, you have to fail sometimes…the problem with most philanthropy-there’s no measurement system.. you can really never measure whether you failed or succeeded…So…it’s really hard to get better.” He added that, “When I have some time, I’m going to start a public foundation.”

In 1986, he did, but closed it after 15 months. According to the man he hired to run it, “He clearly didn’t have the time.” Jobs’s friends told one reporter, “he figures he can do more good by expanding Apple.” And thank God for that.

Indeed, a typical business firm employs resources, such as labour and capital, and transforms them into goods and services desired by consumers – such as the almost ludicrously desirable iPod. Highly-profitable businesses such as Apple succeed in the process of cooperation and exchange that occurs through voluntary buyer and seller transactions in a competitive market economy that rewards and encourages innovation. Competition and the profit motive drove Apple’s extraordinary innovation, and the business has obviously been enormously successful.

What a loss to humanity it would have been if Jobs had dedicated the last 25 years of his life to figuring out how to give his billions away, instead of doing what he does best.

We’d still be waiting for a cell phone on which we could actually read e-mail and surf the web. “We” includes students, doctors, nurses, aid workers, charity leaders, social workers, and so on. It helps the blind read text and identify currency. It helps physicians improve their performance and surgeons improve their practice. It even helps charities raise money.

We’d be a decade or more away from the iPad, which has ushered in an era of reading electronically that promises to save a Sherwood Forest worth of trees and all of the energy associated with trucking them around. That’s just the beginning. Doctors are using the iPad to improve healthcare. It’s being used to lessen the symptoms of autism, to improve kids’ creativity, and to revolutionize medical training.

Of course Apple’s products have also improved business efficiency in many ways with positive knock-on effects for society, such as providing more efficient delivery of goods and services. We can now do our banking, shop for books, and even do  our weekly grocery shop, from our telephones.

And you can’t say someone else would have developed these things. No one until Jobs did, and the competitive devices that have come since have taken the entirety of their inspiration from his creation.

Without Steve Jobs we’d be years away from a user-friendly mechanism for getting digital music without stealing it, which means we’d still be producing hundreds of millions of CDs with plastic cases.

We would be without Pixar. There’s a sentence with an import inversely correlated to its length.

We would be without the 34,000 full-time jobs Apple has created, just within Apple, not to mention all of the manufacturing jobs it has created for those who would otherwise live in poverty.

How often this point is forgotten by anti-big business groups.

We would be without the wealth it has created for millions of Americans who have invested in the company.

We would be without video conferencing for the masses that actually works. Computers that don’t keep crashing. Who can estimate the value of the wasted time that didn’t get wasted?

We would be without a whole new way of thinking. About computers. Leadership. Business. Our very potential.

Last year Change.org wrote of Steve Jobs, “It’s high time the minimalist CEO became a magnanimous philanthropist.”

I’ve got news for you. He has been. What’s important is how we use our time on this earth, not how conspicuously we give our money away. What’s important is the energy and courage we are willing to expend reversing entropy, battling cynicism, suffering and challenging mediocre minds, staring down those who would trample our dreams, taking a stand for magic, and advancing the potential of the human race.

On these scores, the world has no greater philanthropist than Steve Jobs. If ever a man contributed to humanity, here he is.

Read the full article here.

Thomas Sowell, who gave the Business Roundtable Sir Ronald Trotter Lecture in 1996, also recently wrote about philanthropy and Steve Jobs. Read it here.

I blogged on how businesses gives back to society last week.

US INITIATIVE TO ACCEPT WARREN BUFFETT IRD LARGESSE

From time to time advocates of forcing people to pay more taxes say that they would be happy to pay more themselves. Well, why would the state not give those who want to pay more the opportunity to do so? There is no provision in New Zealand’s tax law for people to voluntarily pay more tax than that required. The issue is currently a live one in the United States given Warren Buffett’s recent declaration. The promoters of this proposal reckon that it could clear both Congressional Houses. If it does, there will be considerable interest in the level of voluntary payments of tax.

CARBON PRICE COLLAPSE SHOULD REMIND US OF THE CARBON TAX ALTERNATIVE

The NZBR has long advocated a modest carbon tax for New Zealand at $5-$10 per tonne of CO2 rather than the current ETS for several reasons, one of which was that it would provide greater certainty for firms and households than the vagaries of prices struck in thin ETS markets. It was no surprise in 2008 to see the Australian Productivity Commission recommending much the same for Australia – see for example this 2008 media release here]

This Reuter report of extraordinary volatility this year in the international price for United Nations carbon credits is of interest in this context.  I leave it for readers to assess whether the reported record low is a welcome sign that it is much less costly to achieve given emissions targets than has been thought, or whether it reflects the inability of the authorities to indicate with any clarity how many credits will be issued.

HOW GOOD ARE OUR TEACHERS?

I’ve followed with interest the progress of an ongoing Los Angeles Times project investigating and reporting on the effectiveness of the city’s schools and teachers.

Since launching last year they’ve been analysing the last eight years’ maths and English test scores and an array of other classroom data, all of which has been helpfully collected and filed by the Los Angeles School District but never actually put to use.

Individual teachers, they found, make an impact on students’ performance three times greater than that of the schools they opt to attend. Students lucky enough to have teachers in the top 10 percent of effectiveness can expect to be 17 percentile points higher in English and 25 points higher in maths, on average, than those unfortunates stuck with teachers in the bottom 10 percent.

Interestingly, the Los Angeles Times’ analysis could find only a very small correlation between the level of experience, education and training teachers had and their ability to educate effectively. They found instead that good teachers varied hugely in age, style and personality, although they did all tend to set high standards, promote critical thinking and maintain a semblance of order in the classroom. 

The New Zealand public school system – like Los Angeles’ – ties teachers’ salaries to their levels of education and experience, factors easily gauged and processed by a central bureaucracy. Unfortunately, the factors that make some teachers great are not so easily computed, and as a result our system consistently fail to recognise and reward the teachers who actually provide the best value to students.

We have a pressing need for better quality educators for the thousands of children who are underachieving at schools throughout New Zealand.  As in most other professions, principals and parents/students, ie the managers and customers, are surely best placed to gauge the success and effectiveness of teachers. It’s high time individual schools and principals were given the freedom and responsibility to pay top rates to top-performing teachers and attract more, much-needed bright young talent to the profession.

FRIDAY GRAPH: CIAO DOLLAR?

A spate of Sovereign credit downgrades is occurring, with Italy featuring prominently this week following New Zealand’s downgrades the week before.

This week’s chart shows how fundamentally different the situation is in one vital respect between New Zealand and Italy.

In contrast to Italy, and the OECD as a whole, New Zealand does not have a public debt problem (yet, but watch this space given our underlying fiscal deficit).

Whereas 11 countries in the chart have net public debt at or above 50 percent of GDP, New Zealand’s ratio is only 4 percent of GDP according to OECD projections for 2011.

New Zealand has been downgraded for external debt reasons, but since the vast bulk of this debt is between private borrowers and lenders–who have every reason in 2011 to balance risk and return carefully and judiciously–this is a very different situation from that facing Italy and the ten other countries in the chart where government debt is clearly the problem.

GIVING BACK VS CREATING WEALTH

Attempting to sell his new jobs bill earlier this month, which would include new taxes and fees focused on wealthier Americans, President Obama said:

All I’m saying is, if you’ve done well — I’ve done well –
then you should do a little something to give something back.

Elizabeth Warren, a former assistant to the President and now a candidate for the United States senate, was widely quoted recently expanding on the same theme:

You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.
Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.

This line of thinking portrays business owners as free riders who have ridden to success largely at the expense of the rest of the community. It suggests that investors in a successful business benefited from publicly-provided goods and services “that the rest of us paid for” and provided no compensating benefits to the community in return.

This representation is wrong on both counts. First, business activity is taxed all the way along the line. Imagine if the factory that Warren was describing were located in Manukau. The owner would have paid business, personal income tax, indirect taxes, ACC levies, and local authority rates. It would also pay the pre-tax wages of employees, thereby enabling governments to collect taxes on employment incomes. The taxes the government collects from investors in the business and the incomes drawn by its owners and employees will have continually contributed to the provision of all the goods and services mentioned by Warren.

Second, Warren’s statement ignores the contribution a successful business has already made to the wider community through the benefits it has conferred on its customers.
Economists commonly represent the benefit a business activity confers on the community as the sum of the surpluses accruing to consumers and producers. The consumer surplus is the difference between the benefit conferred and the price paid; the producer surplus is the difference between the price received and the cost of supply.

These surpluses are illustrated by the chart from Wikipedia below:

As competing businesses find ways of lowering the cost of supply, the supply curve in the diagram will move down, leading to a lower equilibrium price and an ever larger consumer surplus. Competition is a major mechanism for transferring the benefits
from productivity improvements from producers to consumers (and workers).

It follows that successful businesses “give back” to society every day by creating the very goods and services that allow people to be more productive, stay healthy or simply enjoy life, and commonly selling them for less than customers would be willing to pay.  While successful entrepreneurs often become rich, the amount they earn in their lifetime is likely to be only a fraction of the wealth their businesses generate for society at large (further reading on this point can be found in William Baumol’s book The Free-Market Innovation, Machine: analyzing the growth miracle of capitalism).

Notice also that the producer surplus will accrue to investors, which frequently include small investors and pension funds as well as the wealthy individuals that are the target of Warren’s statement.

I covered this issue in more detail some time ago in a speech on business as a vocation.

Warren’s arguments also assume that the best way to give back to society is by paying more tax or donating to charity (though it’s clear she strongly favours the former over the latter).  I’ve said before (for instance, here) that Bill Gates has contributed much more to the world through the creation of Microsoft’s software than he can possibly hope to achieve through his philanthropy. Andy Kessler makes the same point when writing about Wilson Greatbatch, the inventor of the pacemaker, who passed away last week:

History has proven that the road to increased standards of living and wealth was built on productivity—doing more with less. It was the Industrial Revolution that got us out of the growing fields and into factories, which allowed us to pay for roads and teachers and civil servants. And now the move out of factories into air-conditioned offices is creating anxiety. It shouldn’t. Labor replacement is productivity. James Spangler’s vacuum cleaner. The Walker brothers’ dishwasher. Clarence Birdseye’s flash freezing. DuPont’s Kevlar. And John Simpson’s guidewire catheter for angioplasty and heart stents — the list goes on. Each invention generated wealth because it improved our lives, not because someone “gave back”.
Aside from outsized government-assisted profits (think US telecom, asbestos removal and Derek Jeter), it is the delivery of these productive goods and services that increases our wealth. The inventors get wealthy but society gets wealthier. No forced giveback needed.

As we approach this year’s general election, it’s worth understanding which parties
are focused on increasing our productivity and which believe we need to “give back” more of our wealth. The former will help us move forward. The latter will result in the opposite.