May 4th, 2012
12:54 PM ET

Watch GPS: An unlikely defense of the 1%

On "Fareed Zakaria GPS" this week: the global economy, China, the war on terror and a controversial defense of the 1%.

Fareed kicks things off with his Take: How Americans may have won the war on terror, but they don’t look like a people who have won a war.

The Financial Time's Martin Wolf and TIME’s Rana Foroohar help make sense of the U.S. jobs numbers, the recession in Europe and more about the global economy.

Then, exclusive to GPS, an unlikely defense of the 1%. Former Bain Capital Managing Director Ed Conard argues in a new book, “Unintended Consequences," that inequality is not necessarily bad. The rise of the 1% is good for the 99%, he argues.

Finally, the great historian Robert Caro on the years of President Lyndon Johnson, why he mattered and what we have to learn from him now.

All this on GPS Sunday at 10 a.m. and 1 p.m. Eastern. Excerpts below:

Conard defends the 1%:

ZAKARIA: Leaving aside the economics, do you see how the politics or the tone of the book is going to rub people the wrong way? Because it sounds like sometimes you’re saying, look, just let the 1 percent get richer and richer. They’re making investments that good for everybody, and it’s you middle class folk who actually are not pulling your weight in the economy.

CONARD: Well, "The New York Times" article is going to get everybody antagonized, which I suppose is great, because it will sell more books. It hardly says that the middle class is not pulling their weight. If anything, it says that the most talented people are not pulling their weight, because they need to take more risk and find more innovation to accelerate the growth in the economy.

ZAKARIA: How do you do that?

CONARD: I think one of the things you do is you don’t reduce the payoffs for risk taking. How do you get people to take the risk that 99 percent of the time what they’re trying to do is going to get pruned away, and they’ll be set back as a result? And that’s what we want to happen in our economy because the opportunity for innovation has changed dramatically.

We’re not exploiting the value of capitalizing on the value of cars today.

We are 13 guys and a computer can create enormous value. So when it comes to what happens to the distribution of income in the economy, we need a million Steve Jobs.

You know, getting one more of them or two more of them or three more of them in the short run causes some income inequality before we get enough of them where it changes course and goes to the other direction, I would say what’s the priority, getting the economy to grow faster? Getting more innovation to pump up employment and wages? Or dampening down income inequality?

I’d take the first over the second. That would be my priority and I think beneficial to the middle class and the working poor.

Conard on the 1%:

ZAKARIA: Explain to me – Why is the rise of the 1% good for the economy?

CONARD: Sure. It’s not really the central focus of the book, the book is about how to get the economy to grow faster, that growth in the long run is powered by innovation and risk taking, and part of what the book argues is that the payoffs for risking are essential to getting more risk taking and that’s good for the middle class and the working poor

ZAKARIA: So you want people to invest, take risks with their capital so that you spur innovation?

CONARD: Yes, although I think the economy has changed significantly from where it was in the 1950s, when capital investment to build an automotive industry and a highway system were essential growth to once a day where 13 guys on a computer can create Instagram and a billion dollars of value in two years.

It’s now much more powered by risk taking than it is by the funding of investment.

Conard on Romney:

ZAKARIA: What do you think of Mitt Romney as an executive?

CONARD: I thought he was an outstanding executive.

He’s everything that you could expect - and it’s hard to watch the cartoon portrayed on the TV. He’s brilliant. He has a deep understanding of how business works. He’s great at consensus building.

He’s decisive when he needs to be decisive. He’s surrounded himself with the most capable people. He encouraged those people to challenge him and to challenge each other so that there was enormous preparation when you went into the room to talk to him, and he had the highest level of integrity.

Bain Capital statement: "Ed Conard retired from Bain Capital in 2007 as one of over 50 managing directors, and he has no present role with our firm. The views he expresses in his book are his own. The personal views of one former employee do not reflect the views of our 900 Bain Capital team members who work every day to grow companies and build businesses. For example, Bain Capital and our employees are proud of our commitment to the communities in which they live and work, and they support hundreds of charities and serve on over 75 charitable boards."

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Topics: Economy • Elections • GPS Episodes • GPS Show • Occupy Wall Street

soundoff (67 Responses)
  1. Fedman

    Why is it always one at the exclusion of the other? USA needs both a strong middle class with disposable incomes and job creators who take risks. In the recent past, there is a rapid decline in the middle class numbers as the middle class is increasing overseas (where corporations are actually investing) while the job creators at home are making more money on their investments. True that Google got lot of equity investment (read permanent donation without certainity of growth or assurance of dividends) from pension funds. But before Google reached that stage, the founders were not having fixed income like the way people who choose to become employed do, there is always the threat of the firm going belly up, it is not a joke to run a pay roll and have enough working capital. They do take enormous risks, spend time, money and give up family life to achieve what they do. So, let's not beat up the job creators. On the other hand, it is equally important that there are sufficient number of middle class population with decent living conditions and disposable income to be able to afford the products like smart phones, Disney rides or air travel. What we have now is a shrinking middle class, thanks to heavy automation and advantage of labor arbitrage with the developing countries, neither of which is going to disappear anytime soon.

    July 8, 2012 at 11:54 am | Reply
  2. Fedman

    Ireland has the lowest tax rates, govt. has slashed spending but the economic growth rate is at an all time low and unemployment is at an all time high. While lower taxes do create a conducive environment for doing business, less taxes and no regulation alone cannot solve the current economic malaise. We refuse to believe that we have economic cyles and downturns. We are almost intolerant of slow growth. We are entering the era of deleveraging where consumer in the EU are trying to pay off their debts, so we can't expect economic growth. There is no wealth effect ( bloated home and equity prices) to make folks in EU feel rich and get out and spend more. Also, let's not forget that industries of the future (including Facebook etc.) are NOT LABOR INTENSIVE. Geography has become history with broadband Internet. Labor is the only major cost in a service industry. So, what would a corporation do? Increase revenues (even if it involves selling more stuff to middle class abroad) and cut costs (even if that requires taking jobs to low wage countries where there are no benefits or affordable benefits). The top 1% is doing what they were trained to do – they relocate, downsize, offshore and outsource. The 99% cannot relocate even within the country, thanks to under water mortgages. Thanks to structural unemployment, we are stuck with an aging labor force that is less mobile, not trained to meet the requirements of a modern service job and cannot compete with a hungry- willing-to-do-anything for minimum wage counterpart in developing countries. Globalization has turned tables and put middle class in developed countries at a serious disadvantage. Much of this has to be blamed on lack of a level playing field.

    July 8, 2012 at 12:16 pm | Reply
  3. Fedman

    What is the alternative – shut down globalization. Start making everything in the US of A, inflation will rise, but so will income of the middle class. Erect barriers to free trade, open immigration to attract only the best and brightest from around the world. Stop importing stuff from China, they will dump their investments in our treasuries, we will default like the former USSR and tell them to go to hell. Will they wage a war? Let's not forget all the investments made in China are by American and EU companies (the top Chinese exporters are all MNCs). But will increased incomes of 350 million people support all the fortune 500 cos? Before globalization, they did. As we stand today, 50% of revenues come from outside the US, so may be the fortune 500 will shrink by 50%, so what US middle class will be intact and our defecit will be wiped out. All money parked outside the US will come back, due to security or expropriation issues, if not for anything else. We spend more on defense to defend ourselves. USD will cease to be the world's reserve currency. So, what we will be self sufficient with Natural gas from Shale. Can we do all this? Is there a politician out there who is willing to shut down free trade and globalization? The idea is as radical as shutting down Wal-Mart and asking mom and pop stores to resurface. Are we ready for a radical change like this? Please comment

    July 8, 2012 at 12:28 pm | Reply
    • Y.Tse

      Nah, we don't need to do all that. We only need to get rid of the middlemen. Those 0.1 % thugs who control 20% of the wealth and profit the most from trades with china and globalisation and yet don't want to pay their fair share of taxation. we don't want to take everything that you've worked for, but gosh, you've got to stop being greedy and start thinking about giving back to the system which got you there.

      July 9, 2012 at 9:37 pm | Reply
  4. Fedman

    There is a fine distinction between a true pioneer/visionary/innovator like Steve Jobs/Bill Gates and a financial intermediary like a private equity firm. The pioneer businessmen are the creators of great enterprises, while the later facilitate efficient asset allocation, which now-a-days is happening at a very high price. Let's not confuse the job creation done by innovative and creative folks like Jobs/Gates/Ford/Rockefellars with financia intermediaries whose actions sometimes result in job creation but more often in downsizing. Restoration of a firm's profitability is the immediate motive of any private equity firm, job creation that comes from eventual growth is a consequence. For that matter, Steve Jobs also started a company, not to employ thousands of people, but to build a product that will change the way things are done, improve productivity and in the process gain name and fame. No human endeavour is devoid of selfishness. Some businessman are philanthropic but so are some private equity investors...

    All businesses need private equity at some point – venture capital or buy out. The arguments above are like who is important – the land owner or the share cropper? Both are important and are essential ingredients to a successful economy...

    July 8, 2012 at 12:53 pm | Reply
  5. Andy Greensfelder

    Where have we become where Conard believes that people even a little like Steve Jobs won't be incentivized by being left with 10s of millions after taxes or if more like Jobs, 100s of millions, or if another Jobs, 10s of billions, not that Jobs even cared about the money.

    July 29, 2012 at 2:26 pm | Reply
  6. Rocaroca

    All about Steve Jobs?

    November 20, 2013 at 2:52 pm | Reply
  7. Rocaroca

    All about Steve Jobs?

    November 20, 2013 at 2:54 pm | Reply
  8. Setar

    Some are waiting for The Massia/Messia. Allow me to tell you who he is. His name is Muhhummuht Yhah Ruccour Yullah. Take the Muh, add the cc, your will have Muhcc. Now add the Y as in Yullah, you will have Muhccy (pronounce mustsigh). Now add the Yhah and you will The Muhccyyhah. When he was of the earth several centuries ago, all took their dispute to him. As of June 2016 all will be able to take their dispute before Yeecchahr.

    January 24, 2016 at 9:39 am | Reply
  9. Panther

    This is really cool read and the show gonna be a blast.

    September 20, 2018 at 12:29 pm | Reply
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