Entrepreneurship, the Possible Dream; W. Peterson

688 his human capital by hitting on a new and better study technique, to a Washington hostess coming up with an innovative dinner table seating arrangement, to a novelist working out a fresh plot construction and-to cite perhaps a bigger dream-to a Vi etnamese "boat person" establish ing a restaurant in Los Angeles. All these individuals must shape and reshape their plans to fit chang ing conditions and invest in a de manding if not capricious situation in an uncertain future. All of them reflect entrepreneurial behavior the entrepreneurial spirit in action. Perhaps without knowing it, they are enterprisers all, at least in de gree. Shakespeare sensed this entre preneurial spirit when he had Ham let observe: "Every man hath business and desire, such as it is." So did Adam Smith sense the spirit of ENTREPRENEURSHIP, THE POSSffiLE DREAM 689 enterprise when he declared in The Wealth of Nations (1776): "In all countries where there is tolerable se curity, every man of common under standing will endeavor to employ whatever stock he can command, in procuring either present enjoyment or future profit." Colonel Harland Sanders, founder of Kentucky Fried Chicken, expressed his own streak of entrepreneurship this way: "I was 66 years old. I still had to make a living. I looked at my Social Security check of $105 and decided to fran chise my chicken recipe. Folks had always liked my chicken."

Thus the aspiring enterpriser or entrepreneurial manager might ask himself: Are you ready to be an entrepre neur, to be an entrepreneurial man ager (sometimes called an "intrapre neur"), to be a success? If so, what have you done to merit it? Have you developed a marketable specializa tion? Have you developed something fresh and unique that would be of in terest at your workplace or to your customer, real or potential? Are you fully applying and capitalizing on it? And, just what have you done to pro mote your ideas? The message here, then, is: The spirit of enterprise seems latent if frequently dormant in human na ture. It is a national as well as an individual resource. It can be nur tured and developed. Above all, it can be self-applied. The Entrepreneurial Choice Yet enterprise is not a free good. It has a price. It is implied in the econ omist's concept of opportunity cost, the idea that whatever man seeks he must sacrifice something to obtain it, that he must give in order to get, deny himself the yield from the in vestment of time, effort or capital in options denied, that he must engage in the calculus of costs and benefits arising from different choices, that, indeed, he may miscalculate-incur losses, lose his capital and become a business mortality statistic. Yet, cor rect choices can be creative, inno vative, beneficial to community and entrepreneur alike.

Yes, enterprise, success, the pos sible dream. So I ask: Inside and out side the world of business, just what is it that ignites the spark of inge nuity, of creativity, that causes the enterprisers, whoever and wherever they are, to try something dramatic, dynamic and bold, that enables them, frequently, to till new ground, see new horizons, break through once-impenetrable barriers? Now, what of entrepreneurship, the child of enterprise? What impels entrepreneurs to scout for new market or production possibilities, to come up with some thing novel, daring, risky, even per ilous in terms of losing precious time and accumulated capital? What makes them try to spot and meet the shifting needs and demands of the 690 THE FREEMAN November ever-fickle, at times cruelly dictato rial and always most sovereign consumer? Whatever the answer, the break throughs start in the mind. Just how did Thomas Alva Edison come up with the idea of an electric light (apart from literally hundreds of other patented ideas), Willis Car rier with the concept of an air con ditioner, Clarence Birdseye with the thought of frozen food, Gail Borden with the invention of condensed milk, Rowland Hussey Macy with the notion of a department store, Wallace Abbott, M.D., with the idea of "dosimetric granules" or mea sured-medicine pills, Gustavus Swift with a vision of "an ice-box on wheels" to get fresh-dressed beef and pork by refrigerated fast rail to pop ulation centers in the East, Ray Kroc with the thought of franchised fast food restaurants, Stephen Jobs with the concept of a personal computer, Mary Kay Ash with the idea of "beauty consultants" merchandis ing Mary Kay Cosmetics, Rocky Aoki with the scheme of a chain of Benihana Japanese steak houses and more recently with a line of fro zen Oriental packaged food for the home?

Just what is behind the some 600,000 new firms appearing on the American scene every year, in good times and bad (with bad times of course raising the business mortal ity rate)? Encouraging New Ideas In short, how does the entrepre neurial mind work? What makes it tick? What encourages it, discour ages it? How can we nurture enter prise, productivity, creativity, fore sight-entrepreneurial ideas? What attitudes, values, customs, mores, habits, laws, institutions, traditions, conditions, and the like give rise to this vital social asset? Just what prods the entrepreneur to hazard markets with' innovative and fre quently untried ideas, to risk failure and the loss of capital~ to overcome conscience which, as Shakespeare's Hamlet again observed, "does make cowards of us all"? These questions are basic to the care and cultivation of entrepre neurship. The questions are also basic to the character of the econ omy, for the entrepreneur, according to a host of economists including Richard Cantillon, Jean-Baptiste Say, F. Y. Edgeworth, Francis Walker, Joseph Schumpeter, Frank Knight, Ludwig von Mises and Is rael Kirzner, is the central figure of economic activity.

Whatever the answers, clearly en trepreneurship is a function of the mind-the conditioned mind, the imaginative mind, the disciplined mind, the entrepreneurial mind. Consider the entrepreneur as an individual possessed of perception and nerve, of vision and gumption. His is, as a rule, a dual personality: 1985 ENTREPRENEURSHIP, THE POSSIBLE DREAM 691 He is a perceiver and a doer. He sees and he acts. He beholds and he grasps, even when the brass ring eludes him, i.e., when he is wrong. Still, he remains the personification of mind over matter, of a dream come true-even if the dream fades away, or even if the dreamer and the doer are occasionally two different indi viduals' with the doer (perhaps in the personage of a partner or a venture capitalist) the activator of the enter prise, the realizer of the dream. Nonetheless, as we will see, the entrepreneur, sparked by an entre preneurial spirit, dominated by the consumer, conditioned by his in stitutional environment, makes things happen; he spurs supply; he enriches mankind; he is an unsung hero.

Thoreau caught the spirit of en terprise when he wrote in Walden: "If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them. All men want, not something to do with, but something to do, or rather some thing to be." Item: Not long ago Seiko, the Jap anese watchmaker, developed a wristwatch that calls Moslems to prayer at the right hour five times daily. Thus Seiko gently reminds Moslems to face Mecca, their holy city in Saudi Arabia, and pray, no matter where the Moslems may be. The time-reminder also comes as a table clock and pocket-watch. The price of these timepieces runs around $100, and the potential market is es timated at hundreds of millions of people. This is entrepreneurship at work, bringing the Seiko people, their dealers and Moslems together in far-reaching social cooperation, in mutual and peaceful advantage, in an all-around win-win-win situation.

Item: Joseph J. Pinola, C.E.O. of his Los Angeles-based First Inter state Bancorp, long had a vision of a nationwide banking system under one management. The cloud over such a vision was the uniform state banking rule that no bank could op erate outside its state borders. But the entrepreneurial concept of Pi nola was to hurdle state borders via the holding company or affiliation route, i.e., to have a First Interstate Bank of California, a First Inter state Bank of Arizona, a First Inter state Bank of Nevada, and so on. To day First Interstate services consumers at more than 1,000 bank ing offices in 14 states with more than $45 billion in assets. As entre preneurially -minded Joseph Pinola wrote on February 19, 1985 in First Interstate's 1984 annual report: There's a saying that gives a sage ad monition: "To the blind, all things are sudden." Hence, in our view, trying to manage in today's environment without any foresight of a framework for change 692 THE FREEMAN November is pure folly. Our framework is our stra tegic plan, which has a clear objective: The development of First Interstate into a profitable, nationwide supplier of a broad range of financial services. (Italics added.) Item: Sears, the giant department store and mail order house under the leadership ofC.E.O. Edward R. Tell ing, recently moved four-square into the financial services business. Long in the auto and life insurance busi ness with Allstate, Sears recently launched Discover, a new credit card to compete with Visa and Master Card. Sears also bought out the Dean Witter Reynolds stock brokerage firm, the big California-based na tionwide real estate firm of Coldwell Banker, the Greenwood Trust Com pany of Delaware and a bank in South Dakota, thereby enabling Sears to set up its own financial em pire and giving commercial banks like Citicorp, BankAmerica and First Interstate fears of powerful competition from this so-called "nonbank bank." Sears' move into financial markets to better serve their customers is not without risk.

Comments C.E.O. Telling, according to Time (August 20, 1984): "Taking chances is a fact of economic life. Business must risk to grow. Fear of what mayor may not happen is no excuse for avoiding challenges." So we begin to see how entrepre neurship and challenge are practi cally one, how entrepreneurship serves as a bridge between produc ers and consumers, with consUmers as the bridge-tenders, determining which producers get to cross the bridge and in what strength-i.e., in what share of the market. We also see how the role of the con sumer is, as noted, sovereign-cen tral, crucial, pivotal to the success or failure of entrepreneurship. The en trepreneur has to satisfy King or Queen Consumer, the person ever looking over the entrepreneur's shoulder, ever having the final say. The consumer applauds with profits, punishes with losses, ever com manding: Do better, do better-or else. The consumer, in' other words, is the master, even a. virtual dictator over the entrepreneur. The con sumer holds the almighty power of the purse. He picks and chooses among competitors. He accepts some and rejects others. He thereby has every entrepreneur by the jugular, occasionally withholding patronage, strangling a woebegone entrepre neur to death. Here is the way that Ludwig von Mises put the entrepre neurial situation inHuman Action: The direction of all economic affairs is in the market society a task of the en trepreneurs. Theirs is the control of pro duction. They are at the helm and steer the ship. A superficial observer would be lieve that they are supreme. But they are not. They are bound to obey uncondition ally the captain's orders. The captain is 1985 ENTREPRENEURSHIP, THE POSSIBLE DREAM 693 the consumer. Neither the entrepreneurs nor the farmers nor the capitalists deter mine what has to be produced. The con sumers do that. If a businessman does not strictly obey the orders of the public as they are conveyed to him by the structure of market prices, he suffers losses, he goes bankrupt, and is thus removed from his eminent position at the helm. Other men who did better in satisfying the demand of the consumers replace him.

So you see that this Captain Consumer-King or Queen Customer is rough and tough, and that the entrepreneur knows it. Entrepre neurial ideas are fine, they may be realized, Le., brought into being, if approved over and over again by the sovereign consumer. So quality or value of product or service, given the level of pricing, is ever critical. Con sumers demand it, expect it, and when it is missing they take um brage and may well strike back-do without or switch support to another vendor-thereby imposing losses on the offending entrepreneur. Quality. Value. Worth. The most for the least. These are the simple parameters of the marketplace. Hence the recent rise of employee quality control circles in stores and offices, mills and factories in Japan, North America and Western Europe and now practically around the world. Perfection becomes the entre preneurial goal. As father-and-son Management Professors Michael and Timothy Mescon (respectively at Georgia State and the University of Miami) noted in SKY Magazine, September 1984: Perfection. When was the last time you observed, experienced, or participated in an act of perfection? When was the last time you witnessed a flawless perfor mance, purchased a flawless product, or were treated with flawless service? Can you recollect receiving excellent treat ment or accurate delivery in the past week, month, or year? Perfection, flaw lessness, excellence, and accuracy are words that don't easily come to mind. In deed, terms like these are difficult for many of us to vocalize. We have for all too long accepted the mundane, promoted the average and rewarded the mediocre.

But as the Mescons further note, in our global business market peo pled by sharp, hungry, enterprising competitors, little but perfection will do the trick. Excellence is not fan tasy. Its pursuit is mandatory, com petition demands it. Relatedly, pro ductivity improvement becomes make-or-break. Hence perfection be comes more and more the norm. It more and more is rewarded both by the consumer and, increasingly, by the quality-minded, competition-at tuned employer-entrepreneur. Item: A recent IBM ad states in a bold headline: If Your Failure Rate Is One In A Million, What Do You Tell That One Customer? The ad con tinues to explore the simple point that controls all work at IBM: zero defect performance. Still, concludes the ad, if an IBM product does some694 THE FREEMAN November how need attention, IBM stands ready, willing and able to furnish er ror-free and precise service. Perfec tion, even for that isolated customer, is the ideal that must be ever borne in mind, a litany that must be rei terated to employees over and over again. This, say the Mescons, is the way to keep the concept of perfection at work.

Item: Motorola, the global elec tronics company, has charged all of its 90,000 employees to pursue ex cellence, to strive for product and service quality perfection. Through its Participative Management Pro gram (PMP) Motorola has forged a system of employee economic edu cation, including individual worker recognition, aimed at two-way com munications and work perfection. At Motorola's Mesa, Arizona plant, for example, PMP employees have es tablished a Perfection Award-rec ognition of achieving a 100 per cent explicit unmistakable standard: per fection. To date more than 3,600 Per fection Awards have been earned by Motorola employees in Mesa. Indeed, perfection-minded Moto rola does not use the word employees or workers: They are, according to Motorola, henceforth to be known as "associates." (Perfection, like entre preneurship, after all, is partly a matter of self-image and self-image is enhanced by being an associate rather than an employee or worker.) Writes Henry W. Bried, the firm's PMP director: Participative Management at Motorola is a system of management which encom passes a two-way exchange between and among management and our associates (being our employees). It is structured to meet the individual and common produc tion objectives of industry. Since 1974, when we first implemented it, this sys tem is the most successful and effective program to improve productivity in in dustry today.

Participative mahagement and quality circles are variations of en trepreneurship. They tie in with my theme of enterprise, the possible dream. Yet perhaps more than a dream, for, again, entrepreneurship is a relatively unexploited natural resource, embedded in human na ture, a vital strand that weaves in and out of every human psyche, or as Ludwig Mises put it in Human Action: "In any real and living econ omy, every actor is always an entre preneur and a speculator." Mises reminded us that man must ever cope with Adam's curse, with the inescapable fact of scarcity, with a stomach (or stomachs) to fill, with the need to get a roof over his head and clothes on his back, with his therefore having to ever entrepre neurially garner and commit re sources in every action. In a free so ciety, man the entrepreneur and speculator has to have a purpose in mind, shoot at a goal, work with his 1985 ENTREPRENEURSHIP, THE POSSIBLE DREAM 695 fellow man in a finely-tuned net work of social cooperation.

Human Action Embodies Entrepreneurship Entrepreneurship, then, is ever a matter of choice. Faced with count less alternative courses of action, man in and out of entrepreneurship must constantly choose, ever trade off one option for another, opting as a rather strict rule for the most re warding, obeying the economic "law" of Nobel Laureate George Stigler that $2 is better than $1 or, to put it in a less tongue-in-cheek way, more happiness is better than less. In any event, man is always his own bottom line, his own profit cen ter. Profit in this sense is, again, ever psychological and motivational, value-ridden, allowing for altruism and unselfishness, the mental cal culus of a unique individual, an in dependent as well as interdependent being. Profit is the universal spur, then, behind the spirit of enterprise. It is a force for-as conditioned by The Entrepreneurial Spirit ethics, by the absence of fraud and force-the public interest, the social good.

Enterprise is perforce dynamic. It moves with the ebb and flow of life, of history, of technology, high and low. It swings with the tone of poli tics, with the shape of political in stitutions. Man, the innate enter priser, the potential entrepreneur, realizes that conditions change, that the world is in a whirl, that, as Her aclitus noticed, he can never swim in the same river twice, that he lives in an environment of change, of uncer tainty as well as scarcity, that any one action may fail its mark, that he is inescapably a speculator. So all human action embodies elements of entrepreneurship and speculation. We are all, then, entrepreneurs and speculators in one degree or an other. Nobody is immune to the op portunities and uncertainties that life unfolds before us. Entrepreneur ship is a normal human capacity. It can be cultivated and developed. It is a possible dream. @ IDEAS ON LIBERTY HOWEVER you measure it, U. S. entrepreneurial activity is growing.

Business start-ups, which averaged 1,800 a day in 1950 and 4,000 in 1960, increased to an estimated 12,000 a day in 1983.... The vigor of our entrepreneurial spirit is the United States' greatest business treasure. GIFFORD PINCHOT m, Intrapreneuring To the Editor As many of you know, we recently conducted a Freeman reader sur vey. One comment we heard repeatedly was "please include letters from readers." In response to this suggestion, we are starting a new "To the Editor" column. We will share with readers the most inter esting and provocative letters we receive regarding Freeman arti cles. Since FEE's activities encompass more than just publishing The Freeman, we will also include, from time to time, reactions to other FEE undertakings. In short, we want this to be the space in which our readers share their opinions. Letters may be edited for purposes of clarity or space. Address your letters: To the Editor The Freeman Foundation for Economic Education Irvington, New York 10533 A Complaint To the Editor: I have a complaint.

I have been sending money every year to FEE for several years so that I could continue to receive The Free man. I don't want this to change. My complaint is my loss of sleep and damage to my health caused by each issue of The Freeman. When it arrives I sit up to all hours to read it from cover to cover, frequently write letters to compliment authors, and then usually mail my copy to a friend (or enemy). This process oc curs every month and it is causing 696 me to lose sleep, damaging my health, and prevents me from devot ing full time to the three novels I'm trying to write. The problem is that the magazine is too good. The solution is simple. Every other issue print mediocre ar ticles, or even just send out a blank magazine. This won't completely solve the problem, but at least I'd know that every other month I would receive some relief. I do trust that you will attend to this request promptly.

ROBERT T. SMITH Smyrna, Georgia TO THE EDITOR 697 On Industrial Policy To the Editor: I found Dennis Bechara's discus sion of industrial policy in your Au gust issue to be a useful source of documentation of the folly of agen cies such as the Reconstruction Fi nance Corporation and Japan's MIT! attempting to direct investment. In his discussion of the changing pat tern of the U.S. economy, however, he overlooks a major change taking place within the manufacturing sec tor which lends further support to his thesis. That change is the shift of manufacturing from a corporate sec tor which is sufficiently shielded from market forces in the short run to operate by planning to a compet itive sector which responds quickly to market forces. Zoltan Acs exam ines that shift in his book, The Changing Structure of the U. S. Economy: Lessons from the Steel Industry. That shift puts the lie to an ar gument long used to justify indus trial policy: John Kenneth Gal braith's view that the corporate sector is based on planning rather than prices, so that all that indus trial policy would do is transfer the planning from self-interested firms to supposedly public-interested bu reaucrats. Acs's study. shows that firms which use planning to resist market forces in the short run do not grow, but shrink, in the long run. In dustrial policy could prevent that shrinkage only at the expense of the growth of the innovative competi tive sector. Thus, the only possible reason to have an industrial policy in that case would be to undo a con dition brought about by industrial policy in the first place. One can read this into the lacocca quote which Be chara uses on the first page of his article. As with other interventions, the solution is to eliminate the orig inal intervention rather than to try to correct the problems caused by in tervention with more intervention.

ROBERT BATEMARCO Assistant Professor of Economics Manhattan College Riverdale, New York Getting Even To the Editor: The John Williams article in the September Freeman, "The Disease From Which Civilizations Die," caused me to reverse a fondly held idea with respect to the use of gov ernmental programs. The question is whether it is morally acceptable for me to accept government benefits such as Social Security and Unemployment Insur ance, should they become available. In the past, I thought yes, on the premise that it is some sort of return of stolen property. But Williams's argument clobbers 698 THE FREEMAN my little metaphor. His story starts with his being robbed by a pick pocket. Then at some future date he acquires some clout over the thief. If he participates in future loot, Wil liams is not recovering his property. R~ther, he becomes a partner in a new crime, not a victim enjoying a measure of restitution.

Williams's story of the pickpocket is a classic. MARSHALL FRITZ Chairman, Advocates of Self-Government Fresno, California Rational Self-Interest To the Editor: My congratulations to Professors Asmus and Billings for their excel lent article on "Human Nature and Human Action" in the October Free man. However, a few nagging ques tions remain unanswered. Allow me to play devil's advocate. Of primary concern to our Found ing Fathers was the connection be tween virtue and freedom. The Founders were certain that a just so ciety could not remain free unless its citizens were sufficiently virtuous. In other words, how will a market economy promote the necessary vir tues required to sustain a free soci ety? Indeed, what are the moral vir tues commensurate with liberal capitalism? What will prevent a free society from degenerating into cor ruption and licentiousness? Asmus and Billings are absolutely correct in identifying the relation ship between market economics and human nature and action. Absent from their central thesis, however, is a moral defense of selfish action. Yes, such action may be "purposeful," but it is selfish just the same. For the history of moral theory teaches us that selfishness is bad and sacrifices to others the morally good. What the defenders of capitalism desperately need is an ethical advocacy of egoism and rational self-interestedness. We must take the higher ground.

BRAD THOMPSON Senior History Master Appleby College Oakville, Onto Canada Help·ls on the Way! To the Editor: One of your authors showed me a copy of the July 1985 issue of The Freeman, and it was a breath of fresh air in an otherwise typically stulti fying Washington day. So that I might look forward to a few more such breaths, I would appreciate your adding me to the mailing list for future issues. JEFFREyLZUCKERMAN Chief of Staff Equal Employment Opportunity Commission Washington, D.C.