In his 1941 State of the Union address, President Franklin Roosevelt articulated four iconic freedoms:
- Freedom of speech
- Freedom of religion
- Freedom from want
- Freedom from fear
In our current situation, capitalism needs a fifth freedom, the freedom to fail
The Systematic Destruction of the Freedom to Fail
In the 1950’s, Dr. Benjamin Spock’s child rearing advice focused on a child’s self-esteem rather than discipline, performance, success or accomplishment. This emphasis correlated to a new and pervasive permissiveness which sought to prevent failure as a childhood experience rather than process it for personal growth when it inevitably occurs. And so the advent of the “Lake Wobegon effect:”
where ‘all the women are strong, all the men are good looking, and all the children are above average,’ … used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities in relation to others. The Lake Wobegon effect, where all or nearly all of a group claim to be above average, has been observed among drivers, CEOs, stock market analysts, college students, parents, and state education officials, among others.
And so we coddled the Baby Boom Generation. If our child failed a course, get a tutor. If College Board scores were not high enough, enroll the child in a review course. Everyone was entitled to a college education, a house and a good paying job. Originally, affirmative action was designed to overcome discrimination. It morphed from its original intent, equality of opportunity, to equality of outcome. In the corporate environment, one’s status (that is, minority, female, disabled among others) many times trumped one’s accomplishments. I am in favor of the original purpose of affirmative action, but not its wrong-headed incarnation.
The Financial Crisis and the Freedom to Fail
The government stepped into the breach to prevent major institutions– AIG, GE, American Express, Capital One, GM, Chrysler, Fannie Mae and Freddie Mac– from failing. In an economic analogy to Dr. Spock parenting, the Fed reacted as a permissive and nonjudgmental parent to a child eminently deserving of a failure experience from which to learn something. By not permitting these institutions to fail, we may have exposed ourselves to much larger systemic failure with a default or devaluation of our currency.
Failure is Integral to Success
We should think about our own personal life paths. Did we learn more from success or failure? If we are honest with ourselves, we would admit that we learn much more from failure. It builds resilience, humility and, if we absorb the lessons, a path to success. It is almost immoral to take away the ability to fail and learn.
Joseph Schumpeter, an Austrian economist, in Capitalism, Socialism and Democracy, theorized that “creative destruction” was integral to capitalism:
the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . .
Failure is an excellent teacher. Permitting smaller failures after the internet boom would have saved the country the anguish of millions of people losing their houses, the near destruction of our banking system and the collapse of the stock market.
Now the government would be prudent to permit business failures regardless of business size or political connections. Sparing the rod of failure only spoils the childlike business with more reckless behavior. Without the “hell” of failure, there can be no “heaven” of success.
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- Trust Once Lost
- The President Wakes Up and Smells the Election Results
- Why do all Irrational Structures Fail?
- Can We Continue the Status Quo?
- Labor and Employment Laws: The Hidden Job Killer
Tags: AIG, American Express, Capital One, Chrylser, creative destruction, Dr. Benjamin Spock, failure. affirmative action, Four Freedoms, GM, Joseph Schumpeter, Lake Woebegon
