Wriston's Law Still Holds


Wriston’s Law is named after the late Walter Wriston, a giant of banking and finance. In his 1992 book, The Twilight of Sovereignty, he predicted the rise of electronic networks and their chief economic effects.

Wriston said capital (meaning both money and ideas), when freed to travel at the speed of light, “will go where it is wanted, stay where it is well-treated.”

By applying Wriston’s Law of capital and talent flow, you can predict the fortunes of companies (and countries). All predictions about future performance must start with this most basic question: Do companies (and countries) attract money and talent, or repel it?

America’s success for most of its history owes to Wriston’s Law. Ambitious people and investment capital have always wanted to come here. America was a place where merit and investment could be rewarded–not just economically, but socially too. The rise of the American meritocracy after World War II coincided with the decline of Northeastern WASPs in America’s social hierarchies. In the early 1980s, writer Tom Wolfe predicted that Silicon Valley would usually beat Boston’s Route 128 in technology showdowns because Silicon Valley culture elevated the engineer and entrepreneur to higher social status. Thus Silicon Valley was a better magnet of talent.

America beat Germany to the atomic bomb in the 1940s because America welcomed talented immigrants–many of them Central European Jews–and Germany repelled them. It is appalling to think what might have happened if Germany had developed the bomb in 1943. The thousand-year Reich lasted only 12 years because Hitler rejected atomic science as a figment of Jewish minds.

America beat the Soviet Union to the moon in 1969 and then 20 years later to the Cold War’s victor’s podium because America had the immigrant X-factor. The Soviets did not.

The 25-year economic boom of 1982 to 2007 was built at the intersection of capital and talent. Lower tax rates on capital gains and income caused a miraculous reverse alchemy. Capital emerged from the dead hand of tax shelters and precious metals and began flowing to talented entrepreneurs in high technology. The capital flow from past to future acted as a magnet for the most talented entrepreneurs in the world, who came to the U.S. for the opportunity to build companies and get rich.

The reason for bringing up Walter Wriston and the late, great 25-year boom of technology, entrepreneurship and investment that was built on Wriston’s Law is–very sad to say–that America has reversed course.

On immigration, America has made it harder for educated and skilled foreigners to enter the country and become citizens. As immigration policy goes, it should be a no-brainer to hand out green cards to foreigners who get college degrees in the U.S.

As for capital, well, America’s tax burden is rapidly catching up to Europe’s. I like Europe as well as anyone–as a place to drink coffee and loaf. I really enjoy watching this year’s Tour de France on the Versus HD network on my 60-inch flat panel TV. France is really lovely, isn’t it? But France is not where global free agents go to build tomorrow’s dynamic companies. France rejects Wriston’s Law, and so it repels capital and talent.

Not so very long ago, America was the destination for capital and talent. Now America is just one country among many competing for these precious resources. Our relative advantage in the world is declining. Nothing I see coming out of Washington is helping matters. Quite the opposite. Capital and merit are under attack.

American policy is working against Wriston’s Law. As long as this continues, the American recovery will remain weak.