Rule of Law and Societal Stability

Rule of Law and Societal StabilityRule of Law is a general understanding and respect for a state of order.  Observance of law, generally in conjunction with democracy (or representative republic) has historically worked well for societies to create prosperity so long as the people feel represented and can execute change if needed.   Importantly, this is also a requirement for sustainable growth.

Amy Chua, in her book World on Fire, presents a broad analysis of America’s export of raw capitalism and democracy when she states, “The belief in the possibility in the upward mobility has characterized America since inception.  No doubt it reflects in part our history of westward expansion and our distinctive immigrant foundation.  More fundamentally, it is sustained by an impressive number of rags-to-riches stories.”   These stories inspire.  In recent years, many household names emerged: Steve Jobs, Jeff Bezos and Amazon, Howard Shultz and Starbucks, and Oprah Winfrey.  I could go on and on especially in the tech area (Microsoft, Intel, Google, Yahoo, eBay,).

The US has the right ingredients that help create this environment including, relative political stability and rule of law, especially when it comes to personal property rights.  This encourages risk taking and innovation.  (it also encourages politicians to leverage this stability through debt, see and upcoming post titled Lather,  Rinse and Repeat)

Other global brands such as Coca-Cola, Nike and Visa, are taking advantage of new markets as more economies open.  These companies have perfected their brands domestically and are now exporting them worldwide with regional marketing modifications.

Facebook and Other Comments

Bond manager Bill Gross commented “I know a bubble when I see one”, referring to the Facebook IPO.

Bubble?  Time will tell.  Certainly there was a considerable amount of effort put into the “roadshow” prior to the official launch to build awareness and demand.  However, analysts and thinkers will debate the $38 Facebook IPO (over $100 Billion implied valuation) price in the short term the market.  The long term price will be driven by Facebook’s ability to monetize it’s nearly 1 billion (1/6 of the world population) users.

What becomes lost in the hype and chatter is the broader, remarkable, rapid increase in technological innovation and dizzying levels of wealth that can be created.  Along with some of the above mentioned names, what still amazes many is that in 8 short years, Mark Zuckerburg went from Harvard dorm room to one of the 100 wealthiest people in the world.

While America does have a fertile and growing technology sector, a little help along the way is nice.  Technology is a “favored” industry in the US.  Looking at overall tax rates of the big tech companies, they certainly under pay their corporate taxes.  They aren’t breaking laws, they are just dancing and shifting money around as any rational entity would do.   Apple’s effective corporate tax rate was 9.8% in 2011.  The 35% corporate tax rate is a myth in America for technology companies; however this provides them a leg up on international rivals.   Oscar Wilde, the Irish poet and author said, “Moderation is a fatal thing.  Nothing succeeds like excess.”  The 2001 tech bubble was excess.  Now a new more resilient class of technology companies have emerged led by Apple and Google.   These companies have real earnings and products, not just promise.

Lastly, places like Bangalore, Hong Kong, Tel Aviv and Seoul already have strong foundations and have built enviable centers of technology and innovation that will challenge each other, those in America as well as new, emerging centers.  The creation of new centers of innovation will be dependent on various developing and emerging societies accepting rule of law and order and perhaps adapting these ideas for cultural differences.

About Matthew Kolesky

Matthew Kolesky is a Principal at ACM, Inc. and joined the firm in 2004. Matthew Kolesky was born and raised in Alaska and has served on many Anchorage area non-profit boards.