The news media and business sector have gone ga-ga about Google, as if its initial public offering were a new reality-TV show "Who wants to be a billionaire?"
In Google's first days as a public company, we've already seen a flood of stories about how Google's founders Larry Page and Sergey Brin have joined the billionaires club just nine years after meeting as Stanford University graduate students. They are now both worth $3.8 billion, vaulting them into the top 20 of the Forbes 400, past Ted Turner, Steven Spielberg, and Donald Trump.
The New York Times editorial page writes that Google's "founders got very rich yesterday, and deservedly so." But all this talk is an opportune moment to reflect on how such extraordinary wealth creation is possible.
Google is a dramatic case study of the ways in which societal investment creates a fertile ground for private wealth creation. Taxpayer funded institutions, which enable a Google wealth explosion to occur, are unparalleled on the planet. Consider the role of public research, regulated market mechanisms, property rights protections and a wide range of public infrastructure that makes the Google story possible.
This is not to undervalue the creative contribution of the company's young founders and all their colleagues. But it is important to do a proper accounting of society's role in their good fortune. And it reminds us of the historical rationale for progressive
taxation: to those whom society has facilitated great wealth, much is expected.
We've heard inspiring stories of Google's early venture capitalists, one of whom was in a hurry so just wrote them a check for $100,000. But we shouldn't forget the greatest venture capitalist the world has ever seen is not one of those demi-Gods who live on Sand Hill Road in Silicon Valley but Uncle Sam.
Google is a built on a foundation of taxpayer funded research and development. The company emerged out of the research and technology synergy of Stanford University and Silicon Valley. Google's owes its entire existence to the growth of internet technology, which was created by the U.S. Government's Advanced Research Project Agency with public tax dollars and nurtured through a continuing partnership of government, universities and industry.
Google's early investors are seeing their long-term equity investments
dramatically appreciate. Why? When Google issued its IPO and became a
publicly traded company, the global liquidity provided to old and new
investors dramatically enhanced their personal wealth. This liquidity is
worth some 30-50 percent of the value of newly public enterprise, according to IPO advisors.
How is this possible? A regulated global marketplace, with rules governing disclosure and accounting practices, is what gives investors the confidence they need to part with their money. The wealth possibilities are only as good as the social institutions that maintain the trust.
If you doubt this, consider how the accounting scandals behind Enron and WorldCom affected the market value of dozens of publicly-owned technology companies. Hundreds of billions of dollars in wealth vanished overnight. Wealth expansion depends on trust, credible institutions, access to information and independent oversight. Cook the books, shake the public trust, and the watch the wealth disappear.
It is rare but refreshing when we hear wealthy and successful people talk about society's contribution to their success. Warren Buffett, the second wealthiest man in America, reflects "I personally think that society is responsible for a very significant percentage for what I've earned. If you stick me down in the middle of Bangladesh or Peru or some place, you'll find how much this talent is going to produce in the wrong kind of soil, I would be struggling 30 years later, I work in a market system that happens to reward what I do very well, disproportionately very well."
In the field of scientific research, there is a tradition of recognizing the contributions of those who have come before, through acknowledgement and copious footnotes. Albert Einstein said "A hundred times a day, I tell myself that my inner and outer life are based on labors of other men, living and dead and I must exert myself in order to give in the same measure as I have received and am still receiving."
But these statements are unusual. Why is it so hard for the beneficiaries of wealth explosions to recognize society's role in their riches and understand the obligations that come with it.
One obligation is to give back to society through charitable giving. The founders of Google have already pledged a percentage of the company's stock to a foundation.
The second obligation, however, is to pay your individual and corporate taxes with gratitude for the privilege of doing business in this unparalleled marketplace. Rather than drilling the tax code for every possible loophole, it means paying back society so we can create the fertile ground the next Google to emerge.
Chuck Collins is co-author with Mike Lapham and Scott Klinger of the report, I Didn't Do It Alone: Society's Contribution to Individual Wealth and Success, published by United for Fair Economy (www.faireconomy.org)