The following post is an excerpt from a recent Leadership Leverage radio show. The interview has been edited for clarity and length.
Dr. Denker: Today we’ll be exploring the topic of leadership from a unique perspective.
That is we’ll be gaining an understanding of the type of leaders we need to help capitalism stay alive and well.
Listen to the full audio version of this transcript or download the MP3:
In our discussion we will learn an intriguing yet simple definition of what capitalism is and what type of competencies leaders need to ensure capitalism grows and prospers in the years to come.
To help us navigate this journey, our guest today is the distinguished Mr. Steve Forbes, President and Chief Executive Officer of Forbes, Inc. and Editor In Chief of Forbes Magazine.
His book that he co-authored with Elizabeth Ames entitled “How Capitalism Will Save Us” forms the foundation for our dialogue today.
Steve Forbes, welcome to Leadership Leverage.
Steve Forbes: Good to be with you. Thank you.
Capitalism Doesn’t Have An Agenda
Dr. Denker: It’s an honor to have you.
Before we begin this discussion, I want to point out that Leadership Leverage was created to increase the awareness of current leadership thinking and to share some of the best practices as a way to further the profession of leadership across the globe.
Having said that, the show doesn’t have a political agenda and for that matter neither does capitalism, does it?
Steve Forbes: Well, that’s right.
Capitalism – true free markets – is about succeeding by serving the needs and wants of other people and Hollywood always portrays capitalism as based on greed, but greed means taking something that doesn’t belong to you.
In free markets, you may want money, but you’re not going to get it unless you provide things, products, services that other people want. It’s a transaction.
If you go to a restaurant for example, your restaurant wants your money, you want the food, you get the food, the restaurant gets your money.
Each gets something out of a transaction.
Now, human nature being what it is, some transactions we don’t like to do.
Nobody gets any thrill out of paying the electricity bill or paying the rent or other things.
Not as much fun as shopping for a new pair of shoes or something, but you do get something in return. You get the juice and the electric company gets your money.
Dr. Denker: I think that’s a very intriguing and simple definition of what capitalism is.
Why do you think that it’s misunderstood by so many people?
Steve Forbes: Well, I think that it’s because it’s like the fish in water.
The fish does not know it’s swimming in water and so it’s not very well explained.
It’s certainly not taught in schools not to mention most colleges.
The economics departments at most colleges and universities have this distorted perception of economics from the Great Depression of the 1930’s.
If you look back at the last 100 years, every major economic disaster has had as its core cause, massive government policy errors.
If government doesn’t get it right, don’t expect the rest of us to get it right, but unfortunately when the government makes a huge mistake like the Federal Reserve printing too much money, it’s the free markets that get the rap for it.
Leaders That Take Risks Are Better Capitalists
Dr. Denker: If we go back to this definition that capitalism is serving the wants and needs of others, how can leaders in general become better at that?
What are some of the key behaviors that you see in leadership that would reinforce and sustain that?
Steve Forbes: Well, I think true leaders are people who recognize that in addition to the characteristics of inspiring trust – having a shared goal – a leader has to be willing to take risks and be willing to do things that others might not be willing to do.
Risk means you don’t know if it’s going to work out.
Steve Jobs for example, when he did the iPod, who knew if it was going to work out.
It’s hard to believe, but 12 years ago Apple was on its deathbed and today it’s one of the most valuable companies in the world.
He did it by new products, but if those products had failed, Steve Jobs would be collecting unemployment.
The Role Of Government In Capitalism
Dr. Denker: I’ve heard you talk about these behaviors – about cooperation and being able to foster cultures that are creative and innovative – could you say more about that?
Steve Forbes: Well, one of government’s key roles is not to run the economy or dominate the economy.
A key role is to create conditions where entrepreneurs, people that are innovative creators, have a chance to flourish.
As you know, most new businesses fail, but you want an environment where people are willing to take the risk.
That means the rule of law that includes individual quality before the law so that a lone individual can, with a product, challenge an existing mighty powerful company or industry.
It means property rights, so the government can’t arbitrarily come in and seize what you have and give it to political favorites.
It means honoring and enforcing contracts unlike what happened with General Motors and Chrysler where the government stepped in and did a political deal.
So, after rule of law, another key factor is sound money. If the dollar is treated like junk, it hurts investment.
We should have learned that from the 1970’s.
Stable strong dollar, good for the economy, good for the world as a matter of fact.
Then low tax rates.
As you know, taxes are not only a way of raising revenue for government; they’re also a price and a burden.
The tax you pay in income for example is the price you pay for working or a tax on capital gains, the price you pay for taking a risk that works out.
If you lower the price of good things like risk taking, productive work success, you’ll get more of them.
Another basic principle government should be in is to remove barriers to doing business whether it’s trade barriers overseas or regulations that states or municipalities put here at home to keep people out of politically favored industries.
Political Leaders That Spurred Capitalism
Dr. Denker: Steve, in your experience and from your judgment, have there been some political leaders that have lead in a way to foster capitalism that have demonstrated these sets of competencies that you’re talking about?
Steve Forbes: Well, yes. Going back, Calvin Coolidge.
Historians don’t much like him because he wasn’t a big government activist, but he consciously fostered an environment through a sound dollar, restraint in spending, lowering tax rates, paying down the national debt that fostered an environment that lead to great prosperity and innovation.
You look at the 1920’s, all you see was a decade where the rise of radio, the rise of movies, cars became more affordable than ever before, great road building, electricity became more and more prevalent for consumers.
Extraordinarily innovative decade and of course in modern times, Ronald Reagan understood it very well.
You remember the 1970’s where a decade of malaise, 21 percent interest rates. Higher unemployment rate than we have today.
Reagan puts in his reforms and by golly the American – he knew this and he said it – let the American people unleash them and they’ll do the job and they did, we did.
Dr. Denker: But, it’s really providing wide parameters for people to operate in so they can flourish and grow and develop.
Steve Forbes: That’s right.
It’s like rules of the road for autos.
You have speed limits, so you don’t drive 100 miles an hour in a school zone. You’re not allowed to drive when you’re drunk, but that’s very different from the government coming in and telling you what to drive, where to drive and when to drive.
How You Can Foster Capitalism Through Leadership
Dr. Denker: So, what’s your best advice for leaders who are occupying political offices at the various levels in government today in a way that can help grow capitalism?
Steve Forbes: Well, I think leaders in addition to their other tasks like public safety and the like and education should see their task as indeed, what could they do to help create the environment [of capitalism]?
The conditions where entrepreneurs coming from the most unlikely backgrounds – Steve Jobs was abandoned by his biological parents; Larry Ellison, the billionaire who created Oracle was an orphan – can have a chance to succeed.
As Abraham Lincoln put it, improve their lot in life.
So, whether it’s a municipality, county or state, what they should be looking at is “Okay, if you are a business person, what stands in the way of you doing something productive?”
If you see it from that point of view, you’ll get a lot of good things done and people benefit from it.
Dr. Denker: If you look then at corporate leadership in corporate organizations today, what advice would you give these young people who are just emerging as leaders in order to behave in a way that does foster capitalism in the future?
Steve Forbes: Well, I think that they have to recognize that it’s a fine art of having sensible rules and updating the rules as new things come along.
For example, we’re still grappling with rules of the road for the internet for things like the distribution of video and for music and then recognize that if you give people latitude they will try to come in and be creative and innovative.
We should not get caught up in pessimism even though we’ve got some very, very serious problems at the moment.
Dr. Denker: I’m wondering as I listen to you, how you think that your knowledge of political history and your current involvement in the political arena has helped make you a more effective leader in the organization of Forbes, Inc.
Steve Forbes: Well, I think the experience of working with people all around the country when I ran for president, the experience of seeing the system up close in its glory and its not so glorious parts of it.
I came away with an appreciation for this country’s basic strengths despite some of our garbage in our culture and I think that it fortifies me in the belief even though my industry, the media industry, [has] been turned upside down by technology and by the recession.
Keep your eye on the main mission which is serving the needs and wants of our viewers and our readers.
My grandfather put it very well when he started our company back in 1917. He said, “The purpose of business is to create happiness, not to pile up money.”
Dr. Denker: That’s right.
It reminds me of what the business writer, Peter Drucker talked about.
The concept of business was gaining and retaining customers.
He said, sure, profit motive is there too, but the main purpose is to do that.
I link that up because it’s similar to what you’re saying here in your definition of capitalism and how it’s guided you to run your organization in the way that you have.
Steve Forbes: Peter Drucker made another very good point. He said, focus on your opportunities, not your problems.
Dr. Denker: Again, that’s another leadership competency isn’t it?
This optimistic perspective, this optimistic outlook?
Steve Forbes: It is. It doesn’t mean that you’re Pollyanna-ish and ignore the problems and challenges you have, but also gives you perspective that look for things that other people miss out there.
Innovation happens all the time.
We saw it in Chile in the rescue of those miners, a drill bit from a small company in Pennsylvania helped perform a miracle.
Gen X and Millennials Leadership
Dr. Denker: Steve as you travel around the country and you interact with the younger generation, you know, the Gen Xer’s and Millennials as they’re often referred to today, do you sense they’re wanting to get into business of their own to strike out and add to this innovation that you talked about earlier as a key foundation to capitalism or do you find them really not having that perspective.
Steve Forbes: Well, I think more than a focus on business, what you see is they want to be in control of their destiny.
The web has given them the sense that one, they can get a lot of information about things.
They don’t have to take things on trust – politician says thus and such – they can find out and see for themselves what’s happening or want to see what’s truly happening.
I think that fosters an entrepreneurial spirit that will flourish in the years ahead as we once again create an environment that you’ll see entrepreneurs come to the floor again.
Dr. Denker: I certainly hope so because it’s really the foundation of everything we’ve been talking about today in terms of prosperity, in terms of growth, in terms of even one’s personal development to be able to be out there in the wilds of the marketplace to take the risk and also get the reward, but not be so restricted that it becomes a turn off to do this.
Don’t you agree?
Steve Forbes: Absolutely.
Again, I think the bottom line is, [like] my grandfather liked to say, “You’ll learn more about the prospects of a company looking at the head knocker,” that’s what he called CEO’s, “than you do at the balance sheet.”
Management, leadership – that makes the difference.