Charlie Munger USC Law Commencement 2007

Accounts and Attitudes that have worked for me

Core Ideas

1. Safest way to get what you want is to deserve what you want

2. No love that is so right that is admiration based love and that love should include the instructive dead

3. Wisdom Acquisition is a moral duty
a. Warren Buffett is a continuous learning machine
b. The skill that got Berkshire through one decade would not have sufficed to get it through the next decade

4. Rapid advance of civilization came only when men invented the method of invention

a. You can progress only when you learn the methods of learning
b. Learning should be continuous
c. Half of Warren’s time is sitting on his ass and reading the other half is spent talking on the phone or in person to highly gifted person that he trusts and trust him

5. Learning all the big ideas in the big disciplines
a. Not good if you don’t practice it
b. Multi disciplinary approach can be dangerous – it works so well – that you can be in front of an expert and you will see a correct answer that he has missed and must be tactful to avoid causing offense
c. Cicero famous for saying (my paraphrase): a man who doesn’t know what happens before he is born is doomed to go through life like a child
d. Learn them in such a way that they form a mental latticework in your head that you can use in everyday life situations

6. Work Problems in Reverse
a. Inversion will help you solve problems that otherwise couldn’t be solved

7. Avoid sloth and unreliability

8. Avoid really dead ideology
a. I tell myself I’m not entitled to have an opinion on a subject unless I can state the arguments against the position better than the people who are supporting

9. Avoid self serving bias
a. You should not believe that you are entitled to do whatever you want to do
b. Live below your means – Mozart was mostly miserable because of this

10. Avoid Self Pity
a. Disastrous behavior
b. Avoid it in yourself but allow for it in others
c. When encounter it try to reflect it by appealing to the interests of that person, do it of lofty motives
d. Never improves any situation

11. Avoid Perverse Incentives system
a. Can cause you to behave foolishly

12. Avoid Perverse Associations
a. Don’t work for people you don’t admire
b. We are all subject to control of authority figures so try and figure out how to work under people you really admire

13. Objectivity Maintenance Routines Required
a. Pay attention to disconfirming evidence (i.e. Darwin)
b. Have checklist routines to avoid a lot of errors (i.e. mental checklists)

14. Non Egality
a. Get power and practice to the right people who have the best aptitude and are learning machines
b. Two types of knowledge – people who really understand the subject and people who can just repeat what they have heard (just described every politician)

15. Intense interest in the subject is key is indispensable
a. Only way to be really good in something

16. Have a lot of Assiduity
a. Sit down on your ass until you accomplish what you’re set out to do
b. Choose partners who follow this rule

17. Life can be unfair so use every mischance as an opportunity to behave and well and learn something
a. Spoke about how his grandfather saved his uncle’s bank by providing capital when the bank experienced difficulties
b. Make sure your heroes would be pleased with your actions
c. Go through life anticipating trouble and be ready to perform adequately if trouble comes

18. Highest form of civilization – seamless web of deserved trust
a. Not much procedure just totally reliable people trusting each other

“My sword I give for him that can wear it” – CM ending quote.

[Source: FocusInvestor.com.]

Here are some excerpts:

I can, in all humility, claim that ours is one party that has consistently followed a policy of supporting private enterprise and voicing our opposition to the license-quota-control regime even in those years when there was hardly any debate on economic reforms. Indeed, the Soviet model of government control was the dominant political fashion and intellectual obsession at the time.

He says that the BJP has had a consistent pro-enterprise economic philosophy.

It has always been our belief that the dharma (duty) of the raja — or the democratically elected government in our times — is to govern, whereas the dharma of the community engaged in business, commerce, industry and agriculture is to create wealth, generate gainful employment and fulfill the material needs of society. A proverb in Hindi says, ‘Raja Bane Vyapari, Praja Bane Bhikari’ (People become paupers when the rulers handle business.)

I agree with the wisdom of the saying above. The government should not be in business and businesses should not be in the business of governance. Basic specialization and division and labor. That principle is accessible to any reasonable adult. So the disregard of that basic truth by powerful people in the government – especially the Nehru-Gandhi variety – was willful and motivated by the simple lust for power. They knew that it would impoverish the nation but that was not their primary concern. Perhaps they did not deliberately seek to impoverish the nation; they just had to accept the resultant poverty as an unintended consequence of their own self-interest.

Advani goes on:

To be sure, the special situation after India gained independence, and the preceding centuries of de-industrialization under foreign rule, necessitated the state to establish big industries and run all the utilities. Even today, it is necessary for the state to stay engaged in select strategic industries, and ensure the provision of social and economic infrastructure.

It is important to remember that the British systematically de-industrialized India. I am glad that Advani points it out.

But what does “the state to stay engaged in select strategic industries” mean? Does it mean that the state has to regulate them? I would agree because there are externalities that need to be compensated for and which can only be done through regulation. Does it mean that the state may have to create the conditions that would encourage competition in those sectors? I would agree because under certain conditions, monopolies can grow to the detriment of social welfare. Does it mean that the state should lend a helping hand when the industries face conditions that are recognized sources of market failures – such as very high fixed costs, credit constraints, incomplete insurance markets, etc? Yes, I would support state intervention to correct for those market failures and then let the market grind out the solution.

What I would not support is the state in any way getting into the business of providing goods and services. The state should not be in the business of running utilities, or railways, or airlines, or bakeries.

Advani:

But what we saw from the 1960s onwards is that state control became dogma, red-tapism set in, entrepreneurship was frowned upon, with this came the culture of political and bureaucratic corruption, and the Indian economy suffered badly.

Our roads remained narrow. Our ports remained small. Our airports, even in big cities, remained archaic. We did not expand or modernize our railway network adequately. We did not take steps to remove power and water scarcity to meet the needs of our growing population, as also the growing needs of our agriculture and industry. Hundreds of our irrigation projects suffered from cost and time overruns. We did not improve our colleges and universities to widen the access to quality higher education and to create opportunities for well-educated Indians within India. Our system of primary education and primary healthcare suffered badly, as a result of which India, even today, is stuck with a very unfavourable ranking in the UN Human Development Index.

The negative effect of all this was not only in the economic sphere. It was also psychological in nature. Tens of thousands of young, ambitious and talented Indians started to believe that they could realize their dreams only by going abroad. There was also a subconscious belief that anything of quality, anything state-of-the-art, has to be of foreign origin. Hence the craze for imported goods and a tendency to associate inferiority with Indian goods.

Actually, it is not a psychological affliction to judge inferior goods as inferior. Most goods produced by the socialist license quota permit quota control raj were in fact inferior.

Advani again:

We must develop a long-range vision for India’s development

Friends, viewed from a historical perspective of the wasted decades in the past, what do these recent achievements convey to us? According to me, they convey that it is the duty of India’s political, economic and intellectual elite to look several decades ahead. In a world that is rapidly changing, we need to gain a good understanding of India’s needs, challenges and opportunities from a future, strategic perspective. The tendency, especially in the political and governing class, to only think of the near-term in office or of the next election, can do no good to India.

I urge the business community also to develop a long-term perspective for themselves and the nation.

I still don’t understand why anyone has to tell businesses what businesses should do. It normally pays businesses to take the long-term view. Those that do, succeed in the marketplace; those that don’t, get weeded out. Telling them that the future matters for them is needless and vacuous moralizing. Businesses are not pre-adolescents and treating them as if they were is both silly and counter-productive.

Later Advani goes on about the growing inequality:

How can we tolerate this reality? No, we cannot. We must not. The BJP and the NDA certainly will not. We shall take bold and innovative measures to ensure that wealth is distributed across regions and across social classes.

Indeed, I urge the business community itself — and also the media — to ponder over how we can make the current growth story more equitable and sustainable. I seek your suggestions in this regard.

I approve of his attitude which seeks answers to how a problem can be solved instead of declaring the solution. Staggering economic inequality is a moral disgrace. It should not be tolerated. But what are the reasons for the inequality and what does one propose to do about it? One way is redistribution – and do by taking away from the rich and giving it to the poor.

Just by the by, I find it interesting that people who propose redistribution of wealth as a means of eradicating inequality do not generally set the example by redistributing their own wealth. They are always proposing to redistribute other people’s wealth. Charity, it appears, does not begin at home for them.

Moving on, Advani goes on to define what a future NDA government would concentrate on: Good governance, Development, and Protection – or GDP. It is the usual rhetoric about moving from swaraj (self-governance) to su-raj (good governance). He claims that the NDA had followed that principle during its six year tenure and Narendra Modi’s performance in Gujarat has only strengthened the BJP’s conviction that that is the way forward.

Summing up, I think Advani’s speech is definitely more palatable to me than Dr Manmohan Singh’s speech to CII about corporate social responsibility was a few months ago. I hope that the BJP has better luck in clubbing together a good set of coalition partners and delivers India from the clutches of the UPA and Madam Gandhi. I do believe that this time around, the NDA may have a more realistic public policy considering that Modi will most certainly have a greater say in framing it. I am certain that if Modi ever becomes the prime minister of India, he would be better than any previous prime minister.

I am sensing that the budget would be a disaster. Why? Because it will attempt to appeal to the UPA vote banks with a view to a quick early general elections. The budget will therefore be short-sighted and damaging to the prospects of long-term development.

But despite all my doom and gloom, I do see a light at the end of the tunnel. My feeling is that Indians are moving ahead despite the best efforts of the rulers to keep them dependent on the government and in poverty.

Link: Full text of Advani’s speech at Offstumped.

This is the concluding part of my re-write of PM Dr Manmohan Singh’s speech to the CII. (Previous part on Social Contracts here.) The PM in his speech had quoted from Tagore’s Gitanjali. I suppose the irony of quoting Tagore in the context of the government’s sustained effort to divide the country along caste and religious lines is lost on him. Severe cognitive dissonance perhaps. I have critically examined the PM’s speech for what it was, an attempt to browbeat the Indian industrialists into further crippling the Indian economy. It is all very sad.

Ladies and gentlemen, our society is not today that heaven of freedom which Tagore prayed for, where “the world has not been broken up into fragments by narrow domestic walls. . .” The industry did not create these walls. The fragmentation of our society along caste and religious lines is the doing of political policies. Our policies of favoring special groups arise out of “the dreary desert sands of dead habit” of dividing the country for narrow-minded mean political gains.

The industry did not create the divisions in society, it cannot be expected to correct these distortions, and it must not be commanded to perpetuate these odious divisions by hiring based on caste and religious categories. The destruction of whatever Indian industry has accomplished must not be lost in the cesspool of communal politics. Industry did not create the deep social inequalities. The government by raising the specter of violent social revolt to force industry to assume responsibility for the divisions in society is guilty of blackmail, criminal negligence and gross dereliction of duty.

The government has failed so far to address the real concerns of its citizens. Universal primary education, although guaranteed by the constitution, is still not a reality after 60 years of independence. It is shameful that half the world’s illiterates are Indian. Surely, the failure of the Indian education system cannot be laid at the doorsteps of Indian industry. Indeed, Indian industry itself suffers as a consequence of the massive failure of the government in providing education. If Indian industry can build world-class corporations, surely it is quite capable of efficiently educating the population – provided of course that it is allowed to do so.

Indians are as talented a people as any other. Wherever they have enjoyed economic freedom, they have been among the best, in everything from steel manufacture to high technology. Let’s ask ourselves why Indians in the US do so well, to just take one example out of scores of places where Indians shine. They succeed more often outside India than within India because in India they are denied economic freedom. They are forced to leave India to concentrate their entrepreneurial and innovative skills in building things rather than stay and fritter away all their energies in fighting our impossible bureaucracy. Our laws and regulations are so onerous that it can sap the strength – if not kill – the most talented and dedicated of our entrepreneurs. We have to radically change our regulations and our labor laws.

Indians thrive when they are free to get into the rough and tumble of the competitive marketplace. But our socialistic policies have crippled India’s industries. Allow me to quote Pranab Bardhan, one of India’s foremost economists at UC Berkeley (India loses fine academicians and researchers as well, not just engineers and doctors, due to a lack of freedom). “Leftists are understandably wary of the ‘wastes of competition’ and of the ‘anarchy of the market-place.’ But the last several decades of socialism have shown us unmistakably that the waste and anarchy of the bureaucratic command system are far more injurious to the health of the economy. Without competition in the sense of rivalry among firms (public or private) and a mechanism for exit for chronically sick firms, no economy can attain or retain its vigour and dynamism.”

The market rewards excellence and punishes underperformance. The government does not have to worry about whether you are doing your job to the best of your abilities or not – you would not be here if you were incompetent. But in government and politics, competency is not that much of a barrier to entry. The ability to manipulate the system is more valued. It appears that it is politics, not patriotism, which is the last refuge of the Indian scoundrel. Hardened criminals sit in our legislative bodies and we all are apparently powerless to change it. But there is a way out, I believe. If you, the captains of the Indian industry, were to support clean political candidates, you can make a difference. It is choice that you can exercise as citizens of this great democracy.

In conclusion, thank you for helping build the nation. You have my gratitude and you have my promise that I will do everything I can to help you create wealth so that no Indian is poor. Let’s make India a great nation.

I have a strong aversion to sanctimonious hypocritical idiotic talk (just to spell it out) but it happens, as they say. Perhaps it doesn’t just happen, it is demanded. A sort of reverse Says’ law, “demand creating supply.” If not actually demanding it, sufficient people are not disgusted by it that the supply is maintained. Lack of aversion, or at least a publicly stated aversion to the peddling of it.

With that, here is part four of my re-write of PM Dr Manmohan Singh’s speech to the Confederation of Indian Industries.

Friends, the primary job of industries is to produce goods and services. The first necessary condition for a successful economy is that it produces sufficient amount of stuff. If industry cannot meet that goal, all other activities are futile. Distribution of insufficient production – however equitably – will not solve the problem that we face. Nor will merely generating employment because employment is a means, not a goal, of economic activity. Let’s not confuse means with ends. Given sufficient production, the problem of equitable distribution can be tackled if necessary by the government.

Which brings us to one important distinction between industry and government. Baldly stated, industries engage in productive activities whereas the government, at best, engages in activities that are sterile. A government takes part of the production in the form of taxes and redistributes it according to some objective function that is arrived at through a process of political bargaining among the electorate. This redistribution is often necessary but is not costless. Part of what it extracts with the purpose of redistribution, the government “consumes” in the process of redistribution. That is a “deadweight loss” which grows not just with the size of the amount redistributed but also with the size of the government mechanism doing the redistribution. One of our former prime ministers, Mr Rajiv Gandhi, had famously stated just only 15 paise out of every Re 1 gets redistributed; the deadweight loss is 85 percent in India. Therefore increasing the efficiency of distribution is paramount if taxes have to be reduced without actually reducing the transfer to those who need it.

Reducing the size of the government is important for increasing the efficiency of transfer, of course. But there is another more compelling reason: reduction of corruption. It is a simple matter to recognize that the larger a government is, larger the control it has, which in turn creates an incentive for people and firms to “capture” the government. It creates an unholy nexus between the government and industry, with the former being lobbied by the latter for licenses, permits, and quotas.

We both, the industry and the government, have a social contract. Yours is to produce efficiently without imposing social costs, and to make a profit. Market forces will ensure efficiency and the laws will ensure that externalities are compensated for. Our social contract is to make and enforce the laws fairly and efficiently, and to correct for any imperfections that exist in society.

Let’s take the matter of employment to distinguish between the two social contracts. You will compete in the marketplace to employ the best that you can. Who you hire and how much you pay is not our business. Today your survival in the global marketplace is determined by how well you run your business. The government will not dictate how you go about conducting your business. If your employment policy discriminates against people based on any criterion not relevant to the job, the discipline of the market will weed you out in short order.

The government’s job is to ensure that every citizen – irrespective of caste, religion, sex, or economic status – has an equal opportunity to be what he or she is capable of being. The government must enforce equality of opportunity but cannot, and must not attempt to, enforce equality of outcome. Discrimination is abhorrent and the government will not practice it nor force the industry to do so. To give equal opportunity, the government will support the education of the poor without discrimination. That is, the playing field will be level but who plays well and who doesn’t will depend on the individual.

Your job is to produce as much as you can and as efficiently as you can. Our job is to make the rules and ensure that everyone has a fair shot at playing in the game. To level the playing field, we have to do some appropriate redistribution of production. We must keep the amount we redistribute within reasonable limits so that we don’t cripple the industry. We have to become more efficient in effecting the transfer and this means we will reduce the size of the government.

[Concluded in part 5.]

Why has profit become such a profane word in India? I believe that it is due to a failure to fully comprehend the nature of what humans do when they engage in economically productive activities and what results from that action. If you believe that the world is static in the sense that there is only a limited amount of stuff to go around irrespective of what one does, then naturally you would believe that it is a zero-sum game, a game in which Ramesh gains only at the expense of Suresh. But perhaps the world is dynamic and when economic activity takes place, the available amount of stuff goes up and Ramesh’s profit is not necessarily Suresh’s loss. True, the question remains about the distribution of the total gain from the activity: perhaps Ramesh gains disproportionately more than Suresh. But even in that case, it can be argued that it is better for society to allow that activity than to prohibit it merely because of the unequal division of the gain.

Anyway, on with our continuing series (earlier bit here) on what the PM should have said at the CII address.

Ladies and gentlemen, poverty is a fact in India. The vast majority of Indians – over 80 percent – actually live on less than Rs 100 a day. They are poor and have been for decades. The socialistic policies followed since independence did not allow for rapid economic growth. Inward-looking autarkic policies isolated India from the economic growth that propelled the economies of East Asia. Only after the mid-80s was the country granted a very small degree of economic freedom, and that too was in response to a severe balance of payment crisis facing the nation.

By the time India gained political independence, it was a very poor country, impoverished by the dictates of colonialism. But why did prosperity elude India even after independence? Could it be that we – the leaders of independent India – failed to provide the economic rules that promote and sustain economic growth? A dispassionate review of the facts force us to answer that question in the affirmative.

A lot of self-congratulatory chest thumping can be heard from some quarters of the government for having liberalized the economy to some limited extent. But that is like a man claiming that he is a wonderful husband because he has reduced the severity of the daily beatings of his wife. Liberalization of the economy has given us some gains but certainly not enough liberalization has been done. What the government has to do is to reduce the interference of the government in the economy so that the economy can be truly free to grow.

Big governments that control every aspect of the economy are harmful for social welfare for an obvious reason: it creates an incentive for individuals and corporations to seek profit not legitimately by providing goods and services in a competitive marketplace, but by bribing the politically powerful and thus influencing policy to gain undue advantage in the marketplace for making monopoly profits. Big governments force people to engage in what Jagdish Bhagwati, an illustrious son of our soil and one of the most celebrated economists in the world, calls “Directly Unproductive Profit-seeking” or DUP activities.

In this discussion on “Inclusive Growth – the Challenge for Corporations” I mention the failures of the government because the government is the greatest challenge that corporations face in what they are supposed to do, namely, produce goods and services so that the economy grows. We must remember that inclusive growth is predicated on growth.

Ladies and gentlemen, every segment of any modern large complex economy has distinct roles to play. It can be considered as a higher-level division of labor. Failure of even one segment to properly discharge its duties and responsibilities has repercussions for the whole economy. The government’s duty is to create a society that is free, fair, equitable, just and peaceful. Unfortunately, we are well aware that we have not achieved the ideal society and to a very large extent it is the failure of our government. Although it is fashionable in certain circles to lay the ills of our society on corporate doorsteps, I will not do so because it would be clearly hypocritical of me. Furthermore, it would be pointless to expect corporations to address those social ills which it has neither created nor has any particular expertise in addressing.

So what is the basic responsibility of corporations? Stated most simply it is this: To make a profit. Ours is a deep and ancient culture. Our cultural legacy not only includes profound spiritual values but also ethical business values expressed compactly in the dictum of “Shubh Labh” or “Fair and just Profit.” When you make a profit honestly supplying goods and services to society, it implies that society gains since the benefits (represented by the price paid) exceed the costs incurred to produce the good or service precisely by the amount of profit. Making that fair and just profit is your corporate social responsibility and nothing else.

I am here not to ask what corporations can do for the government (or even for the society at large) but rather to promise what the government should do to help corporations. Let’s examine that next.

[Continued in part 4.]

Yesterday I posted the first part of the fake speech that I wish the real PM of India had delivered. The message in the first bit was simply that there are things that the government is supposed to do and there are things that individuals and the private sector is supposed to do. There is a natural division of labor arising from comparative advantages of the competing parties. The government has a comparative advantage in governance, not in producing stuff. The government must stick to governance. Here’s why.

Ladies and gentlemen, the sole objective of a government has to be to provide governance. The raison d’etre of a government is the creation of social capital, to be a guarantor of civil rights, to maintain law and order, to correct for externalities, to create an environment where individuals and corporations have the freedom to create wealth. The government has to be an enabler in the process of wealth generation, not an inhibitor that it has been for so long.

The role of the government is to set the rules, not play in the great economic game. Nobel prize-winning economist Douglass C. North noted that “economic history is overwhelmingly a story of economies that failed to produce a set of economic rules of the game (with enforcement) that induce sustained economic growth.” It is a cautionary observation and clearly underlines what lies at the root of our failure so far in sustaining our economic development: the government has abdicated its primary function of designing the rules and enforcing them fairly, and instead entered the game as a player.

The results of the government’s involvement in production rather than in rule-making and enforcement are plain to see. Just to take a very critical example, consider the generation, transmission, and distribution of electrical power—the life-blood of a healthy economy. Public sector power corporations have let us down. The shortage of power is severe, acute, and chronic. Just in the state of Maharashtra, demand outstrips the supply of 15,000 MW by over 5,000 MW. It is a crisis for consumers, but even more for our industries, the producers of wealth. It raises the production costs of our manufacturers and they are handicapped in the global marketplace.

In an era of globalization and international competition, Indian corporations face challenges that are mainly derived from government interference and control. Indian industry faces an acute shortage of trained human resources. It is regrettably reported that only about a quarter of our college graduates are employable—a sure sign of our failed education system. Once again, the government needlessly prevented the private sector to be in education, and instead took monopoly control of the sector. The results are as could be expected: poor quality, extreme shortages, and high costs.

The production of goods and services is not the job of the government; that is the job of the private sector. By getting into production – too often as a monopolist – the government has demonstrated its abject failure. And this is understandable because governments are not capable of inventiveness, entrepreneurship and innovation; qualities that it does not have and thus cannot compete in the marketplace. By wasting its energies on activities that it has no comparative advantage in, the government has neglected what it is required to do: design the rules and enforce them, and create the environment where contracts can be made and enforced. That failure is as costly – if not more – than the failed attempts by the government to produce goods and services efficiently and in sufficient quantities. Consider the functioning of our legal system, as an example.

Among the institutions of governance are the legislature, the executive, the bureaucracy, and most importantly the judiciary. The statistics of the inadequacy of the judiciary are staggering. There are an estimated over 20,000 cases pending in the Supreme Court, around 3 million in the high courts, and a mind-numbing 22 million cases in the rest of the legal system. There are cases in the high courts which date back to the 1950s. Aside from the deep concern that justice delayed is tantamount to justice denied, the backlog of cases has a detrimental effect on the conducting of business in India. When contracts cannot be enforced, the economy loses from potential trades that do not take place.

The limited liberalization of the economy from the shackles of socialistic control has given us an economy growing at a respectable rate of 7 to 9 percent annually. But unless the governance of the economy is improved, even further liberalization – which is sorely needed – will be insufficient to sustain growth. And if growth is not sustained, the hundreds of millions so long trapped in poverty will not have a reasonable shot at economic emancipation. Let’s consider what needs to be done.

[Continued in Part Teen.]

The “fake”qualifies the “speech” and not the PM, I hasten to add lest there be any misunderstanding. You must have come across the much celebrated speech that appointed Prime Minister Dr Manmohan Singh gave the other day at a CII conference. I read it with rising disappointment and dismay. Smeared with high-sounding socialistic rhetoric, the message was clear: take care of the mess or else dire consequences will follow. Never mind that the mess was not the creation of the Indian industries, that it is not their responsibility, and most importantly that they are not equipped to clean up the mess.

It appeared that the PM’s speech writers are ill-educated socialists. You can’t get good speech writers for the money the government is willing to pay, I suppose. (Even the PM is paid Rs 30K a month.) Now if they had hired me to write the PM’s speeches, that would be a different matter. But then, I suppose they can’t afford me. So as a public service, I present in five easy-to-read parts the speech as I would have written it. This is the fake speech.

Dear Members of the Confederation of Indian Industries:

I am very honored to be invited to share my thoughts with you on the subject of “Inclusive Growth – the Challenges for Corporate India.” I appreciate deeply the critically important role that Indian corporations play in the present – and will continue to play – in the economic growth and development of India. For that, you have my gratitude; not just mine but the gratitude of the people of a nation that is on the move.

You, more than any other group, certainly understand the source of all wealth – production. And what is more, you know how to create wealth. Wealth does not drop like gentle rain from heaven; it does not come as a gift from some government agency; it does not spontaneously arise from some softly spoken magic spell; it does not materialize out of the vain electoral promises of some demagogue; it does not flow unbidden from the earth like some volcanic eruption. No, you know as well as anyone does that it requires hard work, entrepreneurship, risk taking, imagination, skill, investment, and vision to create wealth.

Production – that is, the creation of wealth – matters because ultimately that is what gets distributed as income to the people. If production were inadequate for whatever reason, even equitable distribution of that production would not eliminate poverty. The problem of a fair distribution of wealth is a much more tractable problem than the production of wealth. Society rightly burdens you – the corporations of the economy – with the task of producing wealth, and relieves you of the burden of correcting for any unfair distribution and assigns that task to the government. It is an understandable division of labor. Corporations have a comparative advantage in creating wealth. If any redistribution is necessitated, then it is the job of the government to do so.

You – the private sector – have to do what the government cannot do. The government does not create wealth; you do. In every sphere, wherever you have been allowed to go ahead with your job – producing wealth – you have surpassed all expectations. Decades of government involvement in attempted production of wealth had resulted in diminished expectations from India and Indians. You have demonstrated that if given the chance, India and Indians are second to none.

Consider for a moment those things that India is known globally for in the world of excellence and achievement. Every sphere in which India competes and comes out among the leaders has been the result of private enterprise, whether it is in IT and ITES, or in manufacturing. What about the government and political leadership? While the captains of our industries – the Tatas, Birlas, Kalyanis, Mallyas, Ambanis, and others – compare very favorably globally, our political leadership is infamous for being a haven for criminals. The percentage of criminals among the politicians is an order of magnitude greater than that in the general population. That is a fact that we have to keep in mind when we talk about governance of this great nation.

Ladies and gentlemen of the CII, in my talk here I will remind you of your responsibility and your duty, of course. But I will also take this opportunity to remind us of what the government’s responsibility is. I further assert that the industry and the government have distinct and important roles, and that separation of industry and government must be maintained if we have to have growth.

[Continued in Part Duh -- Governance.]

There are too many lines that need highlighting. So I will just post the entire transcript below.

Safest way to get what you want is to deserve what you want.

Deliver to the world what you would buy if you were on the other end.

There is huge pleasure in life to be obtained from getting deserved trust. And the way to get it is to deliver what you would want to buy if the circumstances were reversed.

There’s no love that’s so right as admiration based love and that love should include the instructive dead.

Wisdom acquisition is a moral duty. It’s not something you do just to advance in life. As a corollary to that proposition which is very important, it means that you are hooked for lifetime learning. And without lifetime learning, you people are not going to do very well. You are not going to get very far in life based on what you already know. You’re going to advance in life by what you learn after you leave here.

I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.

…so if civilization can progress only with an advanced method of invention, you can progress only when you learn the method of learning.

Nothing has served me better in my long life than continuous learning.

I went through life constantly practicing (because if you don’t practice it, you lose it) the multi-disciplinary approach and I can’t tell you what that’s done for me. It’s made life more fun, it’s made me more constructive, its made me more helpful to others, its made me enormously rich. You name it, that attitude really helps. Now, there are dangers in it because it works so well that if you do it, you will frequently find you’re sitting in the presence of some other expert, maybe even an expert superior to you (supervising you), and you’ll know more than he does about his own specialty, a lot more. You’ll see the correct answer and he’s missed it. That is a very dangerous position to be in. You can cause enormous offense by being right in a way that causes somebody else to lose face. And I never found a perfect way to solve that problem. My advice to you is to learn sometimes to keep your light under a bushel.

Marcus Cicero is famous for saying that the man who doesn’t know what happened before he was born goes through life like a child. That is a very correct idea. If you generalize Cicero , as I think one should, there are all these other things that you should know in addition to history. And those other things are the big ideas in all the other disciplines. It doesn’t help just to know them enough so you can [repeat] them back on an exam and get an A. You have to learn these things in such a way that they’re in a mental latticework in your head and you automatically use them for the rest of your life. If you do that I solemnly promise you that one day you’ll be walking down the street and you’ll look to your right and left and you’ll think “my heavenly days, I’m now one of the of the few most competent people in my whole age cohort.” If you don’t do it, many of the brightest of you will live in the middle ranks or in the shallows.

The way complex adaptive systems work and the way mental constructs work is that problems frequently get easier, I’d even say usually are easier to solve if you turn them around in reverse. In other words, if you want to help India , the question you should ask is not “how can I help India ”, it’s “what is doing the worst damage in India ? What will automatically do the worst damage and how do I avoid it?”

In life, unless you’re more gifted than Einstein, inversion will help you solve problems.

Let me use a little inversion now. What will really fail in life? What do you want to avoid? Such an easy answer: sloth and unreliability. If you’re unreliable it doesn’t matter what your virtues are. Doing what you have faithfully engaged to do should be an automatic part of your conduct. You want to avoid sloth and unreliability.

Another thing I think should be avoided is extremely intense ideology because it cabbages up one’s mind. You see it a lot with T.V. preachers (many have minds made of cabbage) but it can also happen with political ideology. When you’re young it’s easy to drift into loyalties and when you announce that you’re a loyal member and you start shouting the orthodox ideology out, what you’re doing is pounding it in, pounding it in, and you’re gradually ruining your mind. So you want to be very, very careful of this ideology. It’s a big danger. In my mind, I have a little example I use whenever I think about ideology. The example is these Scandinavia canoeists who succeeded in taming all the rapids of Scandinavia and they thought they would tackle the whirlpools of the Aron (sp) Rapids here in the United States . The death rate was 100%. A big whirlpool is not something you want to go into, and I think the same is true about a really deep ideology. I have what I call an iron prescription that helps me keep sane when I naturally drift toward preferring one ideology over another and that is: I say that I’m not entitled to have an opinion on this subject unless I can state the arguments against my position better than the people who support it. I think only when I’ve reached that state am I qualified to speak. This business of not drifting into extreme ideology is a very, very important thing in life.

Another thing that does one in, of course, is the self-serving bias to which we’re all subject. You think the true little me is entitled to do what it wants to do. And, for instance, why shouldn’t the true little me overspend my income. Mozart became the most famous composer in the world but was utterly miserable most of the time, and one of the reasons was because he always overspent his income. If Mozart can’t get by with this kind of asinine conduct, I don’t think you should try.

Generally speaking, envy, resentment, revenge and self-pity are disastrous modes of thoughts. Self-pity gets fairly close to paranoia, and paranoia is one of the very hardest things to reverse. You do not want to drift into self-pity. It’s a ridiculous way to behave and when you avoid it, you get a great advantage over everybody else or almost everybody else because self-pity is a standard condition, and yet you can train yourself out of it.

Of course the self-serving bias is something you want to get out of yourself. Thinking that what’s good for you is good for the wider civilization and rationalizing all these ridiculous conclusions based on this subconscious tendency to serve one’s self is a terribly inaccurate way to think. Of course you want to drive that out of yourself because you want to be wise, not foolish. You also have to allow for the self-serving bias of everybody else because most people are not going to remove it all that successfully, the human condition being what it is. If you don’t allow for self-serving bias in your conduct, again you’re a fool.

The correct answer to situations like [the Saloman case] was given by Ben Franklin, “If you would persuade, appeal to interest not to reason.”

Another thing, perverse incentives. You do not want to be in a perverse incentive system that’s causing you to behave more and more foolishly or worse and worse – incentives are too powerful a control over human cognition or human behavior. If you’re in one, I don’t have a solution for you. You’ll have to figure it out for yourself, but it’s a significant problem.

Perverse associations, also to be avoided. You particularly want to avoid working under somebody you really don’t admire and don’t want to be like. We’re all subject to control to some extent by authority figures, particularly authority figures that are rewarding us. Getting to work under people we admire requires some talent. The way I solved that is I figured out the people I did admire and I maneuvered cleverly without criticizing anybody so I was working entirely under people I admired. You’re outcome in life will be way more satisfactory and way better if you work under people you really admire. The alternative is not a good idea.

Objectivity maintenance. Darwin paid particular attention to disconfirming evidence. Objectivity maintenance routines are totally required in life if you’re going to be a great thinker. There, we’re talking about Darwin ’s special attention to disconfirming evidence and also about checklist routines. Checklist routines avoid a lot of errors. You should have all this elementary wisdom and then you should go through a mental checklist in order to use it. There is no other procedure in the world that will work as well.

The last idea that I found very important is that I realized very early that non-egality would work better in the parts of the world that I wanted to inhabit. What do I mean by non-egality? I mean John Wooden when he was the number one basketball coach in the world. He just said to the bottom five players that you don’t get to play. The top seven did all the playing. Well the top seven learned more, remember the learning machine, they learned more because they did all the playing. And when he got to that system he won more than he had ever won before. I think the game of life, in many respects, is about getting a lot of practice into the hands of the people that have the most aptitude to learn and the most tendency to be learning machines. And if you want the very highest reaches of human civilization, that’s where you have to go. You do not want to choose a brain surgeon for your child from 50 applicants where all of them just take turns doing the procedure. You don’t want your airplanes designed that way. You don’t want your Berkshire Hathaway’s run that way. You want to get the power into the right people.

[Told the story of Max Planck and his chauffeur. After winning the Nobel Prize, Planck toured around giving a speech. The chauffeur memorized the speech and asked if he could give it for him, pretending to be Planck, in Munich and Planck would pretend to be the chauffeur. Planck let him do it and after the speech someone asked a tough question. The real chauffeur said that he couldn’t believe someone in such an advanced city like Munich would ask such an elementary question and as such, he was going to ask his chauffeur (Planck) to reply].
In this world we have two kinds of knowledge. One is Planck knowledge, the people who really know. They’ve paid the dues, they have the aptitude. And then we’ve got chauffeur knowledge. They have learned the talk. They may have a big head of hair, they may have fine temper in the voice, they’ll make a hell of an impression. But in the end, all they have is chauffeur knowledge. I think I’ve just described practically every politician in the United States .

And you are going to have the problem in your life of getting the responsibility into the people with the Planck knowledge [and away from the people with the chauffeur knowledge]. And there are huge forces working against you. My generation has failed you a bit…..but you wouldn’t like it to be too easy now would you?

Another thing that I found is that an intense interest in the subject is indispensable if you’re really going to excel in it. I could force myself to be fairly good in a lot of things but I couldn’t be really good at anything where I didn’t have an intense interest. So to some extent, you’re going to have to follow me. If at all feasible, drift into something where you have an intense interest.

Another thing you have to do, of course, is to have a lot of assiduity. I like that word because it means: sit down on your ass until you do it. Two partners that I chose for one little phase in my life had the following rule when they created a design, build, construction team. They sat down and said, two-man partnership, divide everything equally, here’s the rule: if ever we’re behind in commitments to other people, we will both work 14 hours a day until we’re caught up. Needless to say, that firm didn’t fail. The people died very rich. It’s such a simple idea.

Another thing, of course, is that life will have terrible blows in it, horrible blows, unfair blows. And some people recover and others don’t. And there I think the attitude of Epectitus is the best. He said that every missed chance in life was an opportunity to behave well, every missed chance in life was an opportunity to learn something, and that your duty was not to be submerged in self-pity, but to utilize the terrible blow in constructive fashion. That is a very good idea. You may remember the epitaph which Epectitus left for himself: “Here lies Epectitus, a slave maimed in body, the ultimate in poverty, and the favored of the gods.”

I’ve got a final little idea because I’m all for prudence as well as opportunism. [He talked about his grandfather, Judge Munger, who under spent his income all his life and left his grandmother in comfortable circumstances, which he had to because there were no pensions for federal judges back then. Along the way, he bailed out Charlie’s uncle’s bank back in the ‘30s by taking over 1/3 of his good assets in exchange for bad assets of the bank. He remembered his grandfather’s example in college when he came across] Housman’s poem:

The thoughts of others
Were light and fleeting,
Of lovers’ meeting
Or luck or fame.
Mine were of trouble,
And mine were steady,
So I was ready
When trouble came.

You can say, who wants to go through life anticipating trouble? Well I did. All my life I’ve gone through life anticipating trouble. And here I am, going along in my 84th year and like Epectitus, I’ve had a favored life. It didn’t make me unhappy to anticipate trouble all the time and be ready to perform adequately if trouble came. It didn’t hurt me at all. In fact it helped me.

The last idea I want to give to you…..is that this is not the highest form that a civilization can reach. The highest form a civilization can reach is a seamless web of deserved trust. Not much procedure, just totally reliable people correctly trusting one another. That’s the way an operating room works at the Mayo Clinic. So never forget, when you’re a lawyer, that you may be rewarded for selling this stuff but you don’t have to buy. What you want in your own life is a seamless web of deserved trust. And so if your proposed marriage contract has 47 pages, my suggestion is you not enter.

Well that’s enough for one graduation. I hope these ruminations of an old man are useful to you. In the end I’m like an old valiant for truth and pilgrim’s progress. “My sword I leave to him who can wear it.”

Best of all, you can see the video here. And for those who want to keep a summary of some of the important points, here’s a cheat-sheet.

[Hat tip: Yuvaraj Galada.]

Where was I? Oh yes, I was in Berkeley. One of the greatest privileges of being in a great institution of learning is that one gets to attend wonderful lectures. So that’s how I got to meet Matthieu Ricard one evening in early 1999. He and his father, Jean-François Revel, were on a tour following the release of the American edition of their book, “The Monk and the Philosopher: A Father and Son Discuss the Meaning of Life.” Harper’s magazine was sponsoring a panel of speakers at the UC Berkeley’s School of Journalism. Among the panelists were the philosopher (Jean-Francois Revel, the father), the monk (Matthieu Ricard, the son), and the skeptic (Christopher Hitchens, the holy ghost), Amen!

I had had the pleasure of meeting Hitchens some time before at the Berkeley Repertory Theatre during his conversation with Gore Vidal (as I wrote about here before.) Then I had congratulated him on his take on Mother Teresa (the Merciless.) This time around I did not get to chat with him because I was more interested in meeting Matthieu. In any event, the hall was packed way beyond capacity and it was hard to get around in the North Hall where the panel was held.

I had figured that it would be a popular event and had indeed gone there a good half-hour before the scheduled time. But guess what! When I got there, it was already overflowing. Still I pushed on and got to the auditorium. It was standing room only. Yet, way out there in the front row I could see an empty seat. Could it be, I asked myself, that it was not being kept for anyone but everyone assumed that it was reserved? As it turned out, when I went up to there, I was told that the seat was free. So I got myself a front-row middle seat, all eager for the treat.

Here’s the background. Mattheiu, the son of one of the most celebrated French philosophers, Jean-Francois Revel, got himself a PhD in microbiology at the Pasteur Institute in Paris. He was a rising star in his domain until he went off to India and learnt Buddhism and became a monk. Some years later, he tried to explain to his father, the philosopher from the Western tradition, what it was all about. Father and son spent 10 days in dialog and the transcript of that conversation was the book, TMatP.

It has been many years and so the details are hazy. The moderator was either the dean of the journalism school, Orville Schell, or the editor of Harper’s, Lewis Lapham. I also recall that one of the panelists was some guy from the Graduate Theological Union or something like that. It doesn’t matter. The panel discussion was excellent.

Revel was the first to go. I clearly recall one of his statements. He said in his heavily French-accented English, “The purpose of philosophy is to answer the questions of how should we live, how should we treat others, and how should we govern our society.” The man was as impressive as he was reputed to be. He explained that as a Western philosopher he was not exposed to the thinking of the East.

When it came to Matthieu’s turn, he was as one would expect a Buddhist monk to be: a study in calm and composure. Years of contemplating impermanence and change, of compassion and loving kindness, cannot but affect how one carries oneself. He spoke with a lightness of being that clearly indicated that he was solidly centered in his understanding of what was important. Hitchens tried his best to get a rise out of him but failed. I think that there probably is no polemicist in the world today who can match Hitchens. But in this case, Hitchens looked as if he was a schoolboy trying to pinch an elephant.

I don’t recall now what exactly the debate was about – or even if there was debate on any substantial issue. It was just a book launch after all. But afterwards, I walked up to Matthieu and introduced myself. Meeting him was not just a handshake – he put his arm around my shoulder as we walked towards the exit. As can be expected from someone who has mastered the art of being in the present, he was talking to me now and that was all that mattered.

You can get to meet Matthieu, thanks to the magic of the web. A few weeks ago, he delivered the “Tech Talk” at Google. If you have an hour to spare, I guarantee you that you can do worse than to listen to the talk. “Change your mind, change your brain.” I wish I had the time to transcribe that talk. I bet you dollars to donuts that you will learn more from that talk than from reading huge tomes.

I’ll be back with my commentary on his talk. Maybe.