Devoted to Managers and those that seek to improve their management skills

Where Warren Buffett gets capitalism wrong.

Warren Buffett was asked one time about the strengths and weaknesses of capitalism. His response to the weaknesses of capitalism show me that in the macroeconomic view, Buffett has it wrong.

One example he uses is in reference to a textile mill he used to own. Eventually he had to shut it down because it couldn't compete with other businesses internationally. He looked at this as a shortcoming of capitalism, when in reality it was a shortcoming in Buffett himself for not figuring out a way to run the company profitably, or buying into an industry that was declining in the U.S. because of international competition.

Buffett goes on to say that a marketplace implies losers, but I have to disagree. It may imply losers as far as someone running their business better and more efficiently, but it doesn't imply losers to those they're serving.

Even though a business by a certain name may falter, those it serves never will, and eventually the good workers will find new employment. To somehow think nobody should lose or fail is a form of socialism. Capitalism rewards the winners because they run a business better, provide better opportunities and continue to adapt and innovate.

If you get rid of those things, you get rid of capitalism. Socialism is what makes losers out of everybody as they try to make everybody equal. Buffett even says that there is a need for equality of opportunity, but that can never be true. Why should anyone that won't become as excellent as someone else be rewarded with the same pay and benefits; or even be hired in the first place?

Individuals must prepare themselves, have a great attitude and work hard to prove their economic worth to a company. Equality has nothing to do with it at all.

Buffett concluded about these casualites: "So the real challenge with capitalism is that you can't throw sand in the gears of greater output but you also want to care for the casualties. If you look around, it's clear that most people are burdened with real fear; fear is terrible and people shouldn't have to live with it. We should want to reduce societal fear of the things that they should never have to worry about - fear of going hungry, fear of going without medical care. These are the problems you should be thinking about solving."

The truth is these types of fears are grounded in a media that promotes them, or countries that are truly going socialist. People don't hear many of the stories of the Canadian health care system which is in shamble, even though they offer "universal health care."

People still have plenty of fears with it, as there are huge waiting periods for people needing crucial care, because they offer it to everybody, creating an artificial economic environment. As a result, they come to the U.S. to get care because of huge waiting periods. If they didn't they may not receive the care until it's far too late.

I think Warren Buffett says these things not because he really believes them, but he knows the politics and human nature of envy. Because he's a business celebrity, even if he doesn't want to be, he gets the type of attention he must underplay if he doesn't want the type of attention that could hurt him.

I've seen this through the years as he's started to back taxing productive people, retaining the death tax and taxing some luxury goods more than others. This comes from his own fears rather than something that would help someone.

This is why he plays the political game as much as many others, as he fears the ramifications if envy from others gets out of control.

Even so, Buffett should have the courage to stick to his capitalist beliefs, and not cave in to those who can't stand to see others succeed because of excellence.

Let's face it, the reason Buffett is the world's greatest investor is an ability to not only read data, but to interpret it and make the right decisions based on it. He does it better than anybody in history. Should he be penalized because of it? I don't think so.

If he wasn't that good at what he did, he wouldn't be able to give the billions to charity he does, that his expertise has created; neither would Berkshire Hathaway (NYSE:BRK-A) be one of the most admired companies in the world.

Other Buffett Resources:

Wisdom of Warren Buffett

Warren Buffett, investor

Warren Buffett: The trouble with being a legend

Warren Buffett: 'I told you so'

Company growth

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