Another Perspective

Embrace the Wealth Gap

It's what drives so many people to achieve.

By 5.8.07

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In a recent op-ed, economist Robert Samuelson said "there is something unsettling about extremes of wealth and poverty." He obviously meant it pejoratively, but in truth, extremes of wealth and poverty are the very source of the economic advances and creativity that we regularly witness around the world. As Canadian economist Reuven Brenner wrote in his 1983 book, History: The Human Gamble, "it is the perception of inequality that induces people to take risks."

USA Today founder Al Neuharth recently wrote about the career paths of himself and CNN's Larry King. Neuharth observed: "[King] was a poor Jewish kid from Brooklyn whose father died when Larry was in grade school. I was a poor German-Russian kid from South Dakota. My dad died when I was two. Larry and I both knew we'd have to take some big risks if we wanted to make it big time. He gambled on a late-night radio talk show that he got syndicated nationally in 1978. It ultimately developed into CNN's Larry King Live. I gambled on USA Today in 1982. It became 'The Nation's Newspaper."

At one point, British author J.K. Rowling spent time on the "dole" in England. Her gamble was the Harry Potter series of books that have sold 377 million copies worldwide, and which have made her the second richest female entertainer in the world behind Oprah Winfrey. The latter was born to an unmarried teenage couple, and experienced an early life of molestation by a cousin, family friend, and uncle. Winfrey's ambition took her to mostly smaller media markets around the country until 1983 when she gambled on a low-rated talk show called AM Chicago. Within months, the show went from last place in the ratings to besting the talk-show juggernaut Donahue, and today she's arguably the most influential woman in the world.

Near suicide due to mounting debts, a broken family, alcoholism, and a drug arrest, Dominic Dunne fled Beverly Hills in the '70s in shame and rented out a room lacking television and telephone at the Twin View Resorts in rural Oregon. Finished as a Hollywood movie producer, Dunne was in his fifties when he gambled on a career as a writer. Though his first script was roundly criticized, and his first book (The Winners) was a flop, Dunne wrote in his journal, "I have never believed in myself more than when I was writing my script. I was never happier with myself." With a burning desire to succeed while in possession of very few options, Dunne persisted and today is one of the best-known writers of criminal fiction in the world.

At the age of 35, Bernie Brillstein wrote in his autobiography (Where Did I Go Right?), "I owed money, and I'd begun to believe that I might not make it in life." Constantly burdened by the success of others in the entertainment industry, and his own relative failure, Bernstein gambled on what became his eponymous talent management company; one that ultimately morphed into Brillstein-Grey Entertainment, the most prominent firm of its kind in the entertainment industry. Brillstein's firm had a hand in everything from Saturday Night Live to The Muppet Show to Ghostbusters, along with more recent blockbusters such as The Sopranos. Inequality fueled his creative fire.

Patillo Higgins was a one-armed mechanic utterly convinced that there was oil beneath a hill in Beaumont, Texas. Even though numerous geologists ridiculed his ideas, he bought a book on geology, read it passionately, but couldn't find anyone who shared his belief that a big oil find was in their midst. Desperate, he placed an ad in a magazine and found an Austro-Hungarian engineer named Anthony Lucas who began drilling in 1899. Despite near-universal ridicule, neither Patillo nor Lucas had anything to lose. Their gamble was Spindletop, the greatest oil find of its time, and the catalyst for the Texas oil boom of the early 20th century.

New York Mayor Michael Bloomberg was fired by Salomon Brothers in 1981. Driven by burning ambition and an ego to match, he chose not to sit on his $10 million severance package, and instead gambled on the idea that investors and traders desired access to market information that up to that time had been very diffuse. Bloomberg LP was his creation, and its terminals line trading floors around the world.

Michael Milken was hired by Drexel Harriman Ripley out of Wharton in 1969. With his firm mostly a bit player relative to the "white shoe" investment banks who led the rush to conglomeration by established U.S. â€"based companies in the '60s and '70s, Milken gambled on "junk bonds." The latter were in truth sources of finance for ventures that establishment banks would not go near in terms of financing. Milken's innovation funded the gambles of other entrepreneurs, including Ted Turner's challenging the big-three networks with CNN, and Steve Wynn's shake-up of Las Vegas with the creation of the Mirage.

Milken's financing innovations led to an efficiency-enhancing buyout boom, and the formation of other spectacularly successful firms, including the Blackstone Group. Pete Peterson and Stephen Schwarzman founded the latter after losing a power struggle with Lew Glucksman at Lehman Brothers in the mid-80s. Their gamble is about to go public, and most accounts suggest what began as a small venture will command a market capitalization of $40 billion once the shares are floated.

Importantly, none of the people described here started out rich. Indeed, while the fortunes of many are presently the source of unease about wealth gaps, there was a time when all were on the outside looking in. If income equality were the norm in the world, it's arguable that some would not have taken the risks that are at the root of our economic vibrancy today. As such, fears of income inequality are misplaced. The latter is the driver of economic and human creativity, so rather then bemoan it, we should embrace it.

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About the Author

John Tamny is editor of RealClearMarkets. He can be reached at jtamny@realclearmarkets.com