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The Legitimacy of the Entrepreneur

It certainly seems like a special thing that our modern world has reached a turning point in which all stereotypes (regardless of their occasional accuracy) are generally considered offensive and are a simple indication of poor social posture. For the most part, this is good news. Be that as it may, obviously this was not always a familiar attitude. There is no question that prejudice and unjust group classifications used to be entirely acceptable modes of thought, even in our own recent past. In spite of this new war on labels, however, there is still one group upon whom an unofficial “open season” has been declared: the entrepreneur. Specifically the private equity community, who not long ago was likened to a “swarm of locusts.”1 This seems to be a shared sentiment among many.

Private equity firms are simply not seen as innovators. They are not seen as providers of capital. They are “greedy” because they own or control a disproportionate share of “society’s” wealth. There are dozens of obvious examples of this lazy characterization.2 The common joke, of course, is that “business ethics” is an oxymoron and the two concepts – business and ethics – are at a fundamental tension with one another. This confusion in moral and economic thinking can be seen by the fact that little moral sanction is granted to private equity firms, and many of the individuals are often accused of carrying around “more guilt” than the average person.

In fact, the two concepts are not mutually exclusive, but rather they have a very special ability to go hand in hand. The quest for success and knowledge is a simple, ontological desire, and an undeniable part of our human constitution. Regardless of a person’s skills, interests, or occupation, the pursuit of excellence is always a motivating force. While private equity firms don’t deserve unfair criticism, it’s important to note that they also don’t deserve to be treated like victims of unfair discrimination. That being said, their chosen profession certainly deserves to be legitimized by the people. The only way this can be accomplished is by acknowledging the value of private equity firms, the talent it takes to be a part of one, and the tangible benefits that are conferred onto society by them.

If private equity firms are indeed valuable, why the powerful divide? How is it that well meaning, generally “moral” people have difficulty grasping the moral fortitude or basic principles of a free economy? Most likely it is due to an alarming lack of economics training. Private equity is about producing wealth, not redistributing it. There is no zero-sum game. Entrepreneurs make money – they don’t simply collect it. The only way this can happen, though, is for them to offer something of value in exchange for payment. In other words, some party upstream has to actually pay them. “Greed” alone is nothing more than an attitude and can’t add even one cent to a person’s income. And even though it’s probably more accurate to characterize private equity investment as wealth creation rather than job creation, the obvious reason for this is that no business could survive with the chief goal of creating jobs. For example, Mitt Romney was recently criticized for only seeking net profits rather than job creation, and that “any job creation [at Bain Capital] was accidental.”3 Indeed, he amassed great wealth for Bain Capital, but isn’t it the goal of every single commercial enterprise to be profitable?

Another likely reason for the vitriol toward wealth is the unavoidable mass-media exposure to the terrible poverty that exists here and around the world. Strong emotional reactions to poverty are entirely proper, and morally incumbent on those who have the ability to assist. A problem develops, however, when this good sentiment is combined with the economic ignorance explained above to fabricate a sort of cause and effect relationship between the wealthy class and existing poverty. This reaction is understandable but mistaken. People who react this way fail to recognize that the most successful method for bringing people out of poverty is through a free market and wealth production.4

Moreover, private equity deals are never a guaranteed success. These firms put their money, time, and property on the line to ensure security for their investors and the companies they are creating efficiency for. These benefits necessarily run through to the entire market they are being supplied to, which includes individual consumers and employees. Only people with the competence, creativity, and guts to undertake such massive risks succeed.

As a free people, we have a moral obligation to attack uncertainty in an enterprising way. The private equity entrepreneur is a shining example. They look courageously into the future with a great sense of opportunity. They create newer, more efficient enterprises which allow more people to choose the way the earn income and develop their skills. Immoral behavior is at least as prevalent, if not more so, in any other industry. What’s important, though, is that categories of immoral behavior aren’t applied to the private equity community with more fervor than any other industry or trade. Particularly, the assertion that private equity firms are motivated by nothing more than “greed.”

1 Op-Ed, Marx or Markets: German Politicians Debate the Dangers of Capitalism, SEIGEL ONLINE, May 5, 2005,
2 See, e.g., WALL STREET (Twentieth Century Fox 1987), AMERICAN PSYCHO (Lions Gate Films 2000), Dallas (Warner Horizon Television 2012).
3 Steven Rattner, Tall Tales About Private Equity, N.Y. TIMES, May 22, 2012, at A23.
4 Mary Tupy, Capitalism Will Eliminate Poverty In Africa, CATO INSTITUTE, Apr. 20, 2012

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DJ Hill

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