The Challenge of Business: T. Rose

The Challenge of BUSINESS TOM ROSE CONGRATULATIONS on the success ful liquidation of your Junior Achievement Companies. That none of your companies ended up its fiscal year with a loss in a way disappoints me, because losing money can provide a very instructi ve lesson: Our American enterprise system isn't only a profit system - it is a profit and l088 system. As a Junior Achiever, these are some of the things you might have learned about business in general: 1. A business corporation is not a cold, impersonal, legal entity. Rather, it is a living and dynamic association of people. And each person in it has his own mixture of strengths and weaknesses, hopes and fears. Each corporate From a speech delivered at the Future Un limited Banquet, May 5, 1966, Junior Achieve ment, Fort Madison, Iowa. Mr. Rose is Di rector of Economic Education, Associated In dustries of Missouri. 158 member has a worthwhile con tribution to make. Each is a sacred creature of God - who, as such, merits your respect and coopera tion, even your brotherly love.

2. If there is one word that de notes the essence of our modern business world, it is the word "voluntarism." Or, if we want to use two words to signify this es sence, we would use the words "voluntary cooperation." A company - whether it is a small one-owner organization, a partnership, or a large interna tional corporation - is, above all, a voluntary association of in dividuals. Each participant is free to terminate his association when~ ever he chooses. And the mastic which is used to. cement each in dividual to this voluntary associa tion is his hope to gain personal profit from it. For some, this profit or benefit is received in the form of wages; others receive it 1967 THE CHALLENGE OF BUSINESS 159 in the form of dividends. And to many, the benefit is received as both wages and dividends. Many employees in modern corporations play a dual role of worker and owner. In this respect, they are self-employed.

The point I want to make is this: the catalyst of all voluntary cooperation between individuals is the hope of mutually benefiting through such cooperation, Le., mutual profit. This is what makes big companies and little companies beneficial to· all. 3. Now, a word about problems. A problem is an opportunity in work clothes. N ever complain about problems in the business world; because without problems to be solved, a business isn't a business at all. It's an extinct fos sil; it is dead. Business problems - and they come in all sizes, shapes, and dis guises - are simply opportunities for personal growth. In talking about problems, let's recognize that no one solves all of them successfully. At times, every one pulls a boner; and at such times, it's wise to remember the difference between failure and stumbling. Failure is what hap pens when a person quits. It is final. Stumbling - i.e., falling down and picking yourself up to go on is turning temporary failures into profitable experiences. This happens when you use the stumbling blocks you encounter as building blocks for a stairway to success.

J ames Russell Lowell said, "Mis haps are like knives, that either serve us or cut us, as we grasp them by the blade or handle." 4. Let's back away from this word "business" and take a look at it. What is business? Isn't it simply the cooperative process of anticipating and responding to consumer needs in hope of making a profit? And wasn't the efficiency with which your own J. A. Com pany met consumer needs meas ured by the profits it earned, or by the losses it sustained? Your Company provided you with a two-part lesson about our free enterprise system that some people never seem to learn. And I hope you have learned it well. A. First, that everyone bene fits from a profitable business in a free market economy. And why is this? Because, in the free market, every aspect of business is voluntary. Business owners and business workers voluntarily cooperate in the process of selling goods and services to consumers. In doing this, they can't help but benefit each other. Consumers, on the other hand, are free to buy or not to buy what producers offer for sale. Since no one volun tarily continues an unprofitable 160 THE FREEMAN March relationship, the continuing co operation of consumers, work ers, and owners isproof in itself that each group benefits from the role it plays.

B.. Second, that losse·s in the free, market are limited, to risk takers. Losses are limited to those dynamic entrepreneurs who are always seeking new ways to maximize profits. They personally stand all losses be cause, in the free market, there is no way for them to impose their losses on the public. A'nd this is good ! It is one of the essential differences between free enterprise and socialism. In a socialist state, the public is forced to share business losses through payment of government subsidies and taxes. Specific Lessons Now, to touch upon some specific lessons from your own J. A. Com pany which you can apply later on to real life situations: 1. Investrnent: When you ven tured out to sell shares of stock in your Company, you learned that investment in businesses doesn't "just happen." The tools, facilities, and materials you used to produce your products didn't materialize out of thin air. They had to be rented or purchased.

This took investment moneymoney that. first had to be saved. From your personal e,fforts in raising capital, you, should have learned this basic" economic fact: Investment money to buy tools ,of production. reslJ.lts from saving, Le., from postponing current con~ sumption. In ,other words, in ,order to create a surplus Jor investment purposes, "each investor had to re: frain from., currently consuming the amount he invested. And the incentive for people to fqrego spending in order to accumulate risk capital is the hope for profit. Remember this lesson for later in life. Some day you,. may want to start a business of your own. 2. Profit. The legitimate pur pose of all business' enterprise is to earn a profit. If it were not for profit, your J. A. Company would not have been formed in the first place. The same holds true for the companies where your fathers are employed. Therefore, the realiza tion of profit calls for no apologies.

Rather, the absence of profit can't long, be tolerated in any business. Samuel Gompers, the founder of the American Federation of La bor, said: The 'greatest crime against the workingman is a company without profits because a company without profits means workers without jobs. Profit isn't a cost borne ,and 1967 THE CHALLENGE OF BUSINESS 161 paid for by consumers. Profit isn't added on to the market·. price of·· what we buy"" It is residual. Profits are earned by companies which ,are successful in reducing and keeping .production '. costs un der market prices .. Because .profits are so hard to come by, some busi nessmenoccasionally say some thing to the effect that "every company is· entitled to a fair prof it." If so, who is to determine what "fair" is ?The owners of a company? . . . certainly not. The workers? no, again. The government?, heaven forbid! N.o, only. consumers can fairly determine what rate of profit a company should earn. They do this through buying or refusing to buy the company's products on the competitive market. Sometimes this rate of profit will be very high. Other times it will be very low-or even nonexistent. What ~ver it is, if consumers determine profit by free choice, it is ·sure to be fair .. When allowed to function freely, the free market is abso lutely fair to· all concerned~ 3. Losses: We've been talking about profit. How apout the nega tive aspect of profits, that is, losses?

The fear of financial loss isa good thing .. It is a necessary .part of .our free market system. The fear of losing money, like the hope for profit, acts as. a powerful. spur in stimulating businessmen to serve consumers more efficiently. In shqrt, profits and losses serve as traffic signals to. businessmen: The red signal of loss says "Stop! You're not doing too well." The green signal says "You're doing fine! .Keep up the good work!" With the red light of. loss, con sumers signal. a businessman to reduce investment and employ ment.,. With the green signal of profit, they invite him to increase investment and employment where he is meeting consumer needs most efficiently. Thus, losses as well as profits serve a useful pur pose in directing production to benefit consumers. 4. Wages: Wages depend on productivity. And high productiv ity takes good tools, good tech nology, and willing cooperation with manage:rnent.

An increase in real wages goes hand-in-hand with increasing pro ductivity. A good wage" structure needs a solid foundation of pro ductive effort to support it. 5. Costs and Prices: Many peo ple have the mistaken idea that there isa direct relationship be tween production costs and prices. They think that businessmen can compensate for increased :p,roduc tion costs by. boosting prices to consumers. People· who. hold this 162 THE FREEMAN March mistaken idea forget about the voluntary role of consumers in our free market system. They forget that consumers are free to find cheaper substitutes or, in many cases, to do without. Prod uction costs don't deter mine market prices. Rather, it's the other way around: market prices limit the total amount of costs a businessman can· allow to go into the product he sells. The fun and challenge of producing something for use in the free mar ket is to· determine what consum ers will pay for it, and then to man age your company so .that produc tion costs will be less than this figure. This~thechallengeofthe free market.

6. Business-Workers and Busi ness-Owners: There are elements in our society that strive to create dissension between business owners and business-workers. They divide society into little compart ments called "labor" and "manage ment." Then they try to foment "war" between the groups they themselves have created. The well-being of employee and employer cannot be separated. They are two sides of the same coin. What is good for one is good for the other. The mutual interest of employees and employer far outweighs any artificial differences that might be created between them by others. This common in terest is to serve consumers, a company's only source of income and to serve them at a profit. This calls for helpful cooperation in stead of harmful strife. Class warfare is a Marxist idea. If workers and owners serve con sumers efficiently, a competitive labor market will assure fair dis tribution of the consumer dollar.

The reason a free market so ciety will outproduce any other society is individual freedom; Le., the right and freedom of each person to uS,e his property and talents as he sees fit, with a min imum of interference from others (and especially from government) . The reason why individual free dom works to the advantage of all is that the owners of land and capital can't get much benefit from their wealth unless they use it to serve the needs of consumers. And, in considering the challenge of business, may we remember that the difference between mediocrity and outstanding success is seldom very great. The difference is not found in brilliant flashes of genius. Rather, it lies in a small degree of extra performance and hard work put out over an extended period of time. This also applies to organizations. Thus, a com pany's economic success depends on the number of individuals who understand and cooperatively ap1967 THE CHALLENGE OF BUSINESS 163 ply this secret at all levels of the organization.

I would close with this inscription, dated 1692, from the wall of Old St. Paul's Church in Baltimore: Organized Irresponsibility CLARENCE B. CARSON MUCH of the criticisrnof govern ment officials, bureaucrats, and politicians is beside the point. Stories are legion of attempts to contact the appropriate bureau crat to deal with some matter, particularly in Washington, and getting the run-around instead shunted from one person to an other, told that the proper official is in conference, that he is on leave, that he cannot be reached at present, and so on. The diffi culty may well become insur mountable if there is an attempt to place the blame for some ac tion. Such experiences may build pressure for yet another commis sion to be appointed, in the man ner of the old Hoover Commis sions, to investigate the bureauc racy and recommend change. A new President may become so exDr. Carson is Professor of American History at Grove City College, Pennsylvania.