Luck and Its Role in Business Success
On average, people with high success have been more fortunate than people without success. Taxing top success more and ordinary performance less is therefore fair. This must be taken into account in the discussion about a tax shift.
Ben Bernanke, then chairman of the U.S. central bank, spoke to the graduates of the elite Princeton University last year.
Bernanke stated that you are already very lucky if you are born into a supportive family with talent and good health. In a meritocracy as our society tries to be, however, you have double luck: you not only have talent and support, but you also become the most successful in a meritocracy.
Such luck is considered something like what you can only dream of or at least what you see only in a dream, which some people look for an تفسير حلم (Interpretation of a dream).
According to Bernanke, such a system only passes the ethical touchstone if those ‘lucky bags’ share their happiness.
His vision goes against the idea that successful people owe their success entirely to themselves. Marc Coucke built his business empire from the ground up himself, right? Hard work, talent, and daring distinguish Coucke from the rest. And instead of being envious, we should make sure we have more such successful business people.
Such statements miss an important point: there are already many people with talent who work hard and take risks. The only thing that distinguishes them from Coucke is the factor of chance. That was very favorable for Coucke, but not for all those other hardworking, talented people.
The self-made man who has built up his own success does not exist. To be successful, you need things you don’t deserve yourself: talent, good health, and a supportive environment; you can’t control favorable market conditions either. All of that takes luck, and a few exceptions will be statistically very lucky. You also have to work hard and take risks for that success, but many people do that, and without (top) success.
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Paul Krugman rightly remarked that Bernanke’s speech shows that he has a Rawlsian vision, ‘in which you think of life as a lottery in which you draw a lottery ticket that includes your genetic predisposition and the wealth of your parents’. In order to achieve a just society, you must then set the rules of that society as if you do not yet know what is on your ticket.
So you do not know whether you will be a man or a woman, rich or poor, talented or not, born into a disadvantaged or promising family. You are under a ‘veil of ignorance’.
That thought experiment of the political philosopher John Rawls is, in my opinion, an essential tool for achieving a just society. After all, the ‘lucky bags’ of the 21st century have a lot of their happiness for their entire lives. So they may forget that they underestimate chance.
Because they have been used to the happiness that has been in their hands all their lives, or because thinking that your success is due to yourself is more pleasant. Rawls forces you to acknowledge the role of chance in success and put yourself in the place of the less fortunate.
He stated that the outcome of the thought experiment was that you improve the situation of the least fortunate to the maximum. Through redistribution, in which the successful share their happiness with others.
Of course, that redistribution is limited. Otherwise, there is no incentive to work hard and take risks. Two factors besides happiness are also necessary for success. So an optimal load structure is possible that redistributes as much as possible, without slowing down hard work and risk-taking too much.
And because the role of chance is underestimated, a correct estimate leads to a tax shift, in which low incomes – who already pay a lot of taxes in Belgium – are taxed less, and top incomes even more.