In defense of profits and capitalism


Carly Reilly

This past April I was lucky enough to attend the Berkshire Hathaway annual shareholders meeting – colloquially known as the "Woodstock of capitalism." For those who aren't familiar with the somewhat famed event, it takes place in Omaha, Neb, the hometown of Berkshire Hathaway Chairman, Warren Buffett and Vice Chairman, Charlie Munger. Its primary purpose, like that of all company shareholder meetings, is to report on the company's yearly performance while offering shareholders the opportunity to ask questions about the years' decisions and updates. Unlike other shareholder meetings, however, Berkshire Hathaway's is a weekendlong event for which more than 40,000 people from around the world flood the midWest.

I loved every minute of it. But what impressed me most about the meeting was not the shopping opportunities, or Buffett and Munger's hilarious and folksy yet informative answers to shareholder questions, or even the astounding number of people who had pilgrimaged to the not exactly sprawling metropolis of Omaha, but rather something far less quantifiable. I was struck, above all, by the event's pervasive sense of positivity and optimism. Amidst a political landscape that is highly, and rightfully, preoccupied with the excesses of Wall Street greed and rising rates of economic inequality, the shareholder's meeting served as a bright spot, rare these days it seems, of capitalist achievement.

I was surprised to realize how surprised I was by this. I had grown so accustomed to the antianythingthatiscapitalistandthereforeimperialistandgreedy mentality that reverberates through liberal college campuses (having just graduated from Tufts University) that I had expected to grimace at an event centered around explicit talk of the stock market and implicit

talk of getting richer. Instead, however, I left the meeting feeling a little bit prouder to be an American. And so, with the Fourth of July just recently behind us, it seems like a good moment to reflect upon the experience.

First, it is worth noting that Berkshire Hathaway's investment philosophy stands in contrast to the norms of Wall Street. Berkshire Hathaway, and the people who run it, believe and have successfully demonstrated, that consistent profits come from making long term investments in companies with strong business fundamentals and a track record of proven success. This thinking stems from the idea that investing in a stock should be done in the same way one would buy a business: by assessing the management team, evaluating the business' past performance, learning about the industry's competitive landscape and, with that, coming to a determination about what a reasonable price to pay for the business (or stock) would be.

Consider some of Berkshire Hathaway's biggest holdings: KraftHeinz, CocaCola, Wells Fargo, American Express. These staple American companies are a far cry from the derivatives, CDOs,and myriad other financial products and instruments that predominate the portfolios of many of Wall Street's largest institutions (and lead up to crises like that of 2008). If every firm and every investor acted more like Buffett, there wouldn't have been a 2008 at all (I know, Buffett owns some derivatives too. Let's not go there just now - this premise still holds.).

Berkshire's strategy also means that it succeeds when American businesses succeed. Berkshire's growth is predicated upon the growth of the subsidiaries they own, most of which are large companies that employ hundreds to thousands of American workers. When Berkshire Hathaway acquires or invests in a company, they provide it with the capital and resources to expand. This, in turn, creates broader job opportunities and helps the American economy across classes and sectors.

Republicans today are fond of using the term "job creators" and I roll my eyes every time they do. The shareholders meeting, however, reminded me that there is, in fact, some truth to the job creator narrative. Though it has been, unfortunately, co-opted and perverted by the Fox News types to justify corrupt corporate greed and tax cuts for "the rich," the idea that American capitalism has helped to raise living standards across the country and, frankly, around the world for over a century is not devoid from fact and is, perhaps, something worth celebrating.

In this way Berkshire's capitalism, though flawed as any system is (and it is highly flawed – Berkshire's board and executive team could do with a lot more diversity and don't get me started on the state of food policy in this country, read: Coca Cola, HeinzKraft – some of Berkshire's biggest holdings), is nevertheless one in which profitmotives reign with care and consideration.

The private sector has, no doubt, greater incentives to be efficient than does government which leads to a better allocation of capital, benefitting the economy across the board. Berkshire Hathaway reminded me that capitalism doesn't need to inevitably lead to a state of existentially threatening inequality. When we get the incentives right, when we can get morality involved, capitalism does some good. I guess I'm saying: Happy belated birthday America, sometimes you get it right and for that, I am proud.

Carly Reilly is a recent graduate of Tufts University and a resident of Manchester.


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