ARTICLE

Roberto and Fidel: Two Versions of Share the Wealth

Societies That Stifle Voluntary Exchange Waste the Talents and Resources of Their People

APRIL 01, 1998 by T. NORMAN VAN COTT, CECIL E. BOHANON

Cecil Bohanon and T. Norman Van Cott teach in the department of economics at Ball State University, Muncie, Indiana.

The October 1997 death of Roberto Goizueta, the former CEO of Coca-Cola who fled Fidel Castro’s Cuba in 1961, offers an opportunity to make a telling comment on the Cuban economy. To wit, the corporate regime of a single Cuban emigrant generated sufficient wealth to more than double the average living standard of Cuba!

The market value of the Coca-Cola Company increased by $141 billion ($4 billion to $145 billion) between 1981 and 1997, the period when Goizueta led Coca-Cola. Suppose you invested $141 billion in the stock market. What yearly return, on average, could you expect from your investment? The usual approach to such a question is to look at previous returns in the stock market over a long period of time.

It turns out that the Standard & Poor’s 500 Index grew at an average annual rate of 10.7 percent for the 70 years between 1927 and 1996. Investing $141 billion at this rate of return yields an average yearly income of $15 billion. CIA statistics say that Cuba’s national income is $14.7 billion. In other words, the increase in Coca-Cola wealth under Goizueta can be expected to generate more income than 11 million Cubans under Fidel Castro!

Admittedly, Goizueta wasn’t solely responsible for the more than 36-fold increase in Coca-Cola shareholder value. He had help from Coca-Cola’s 32,000 employees, the opening of world markets, and a booming U.S. stock market. Nevertheless, Goizueta was at the helm when the wealth-increasing decisions were made. The buck stopped at his desk.

Regardless of how one partitions the $141 billion between Goizueta’s efforts and other factors, he garnered but a small fraction of the increase. Most of the increase went to other shareholders; at his death, Goizueta is reported to have held $1 billion of Coca-Cola stock. This is less than one percent of the rise in the value of Coke stock. Moreover, the increase in the value of Coca-Cola stock actually understates the wealth created under the Goizueta regime. Additional value, not captured in the stock price, accrued to Coca-Cola employees, suppliers, distributors, and consumers.

Creating wealth entails expanding the network of voluntary exchanges in the marketplace. Roberto Goizueta never forced anyone to drink a Coke, never expropriated anyone’s assets, and never forcibly drafted anyone into Coca-Cola’s service. Rather, he was a talented wealth creator who shared his wealth among many.

Then There’s Fidel

Fidel Castro is another Cuban of Goizueta’s generation who has talked a lot about sharing wealth. Fidel Castro’s methods, however, differ radically from those of Roberto Goizueta. Confiscation of wealth, forced labor, and jail sentences for opponents have been the hallmark of his regime. Is it any wonder that Roberto Goizueta and 32,000 Coca-Cola employees can outdo Fidel Castro and his 11 million “slaves”?

Some might interpret all this as a justification for Fidel Castro and others like him prohibiting emigration from their countries. That way, goes the argument, Goizueta would have produced wealth for Cuba instead of Coca-Cola. This misses the point completely. Even if Fidel Castro had been prescient enough to recognize Goizueta’s managerial/entrepreneurial potential in 1961, and then prevented his departure, it is safe to say that Goizueta’s talents would have languished in a communist quicksand of perverse incentives. Cuba’s current living standards would be little changed.

In the end, societies that stifle voluntary exchange waste the talents and resources of their people. That’s why Fidel will never match Roberto when it comes to sharing wealth. You can’t share what you don’t have.