The People of Enterprise

Originally Published in Flourishing May/June 2013

 Linda and I were in Beloit on May 24 to visit the Green Mound Cemetery in the southeast corner of Mitchell County.  Green Mound occupies five acres in the northeast corner of the 160 acre farm homesteaded by Linda’s great, great-grandfather, Karl Petterson.  Karl had emigrated from Sweden, and his first home on the property was a sod-covered dugout.  That’s a sobering thought, isn’t it?  One of Karl’s great, great-grandsons now lives on the farm, and he’s currently remodeling Karl’s second house.  Power tools.

Anyway, our primary purpose for visiting the cemetery that day was to buy our own burial plot.  It was $100 for the two of us.  It did seem like a long way to drive for a bargain—about one hundred and ninety miles—and the digging is extra.   But, as we told the caretaker, we’re in no hurry for that, and our kids can afford it when the time comes.  We drove on to Hays that day to visit my parents’ grave site.  I was reminded by the bordering lilacs of  my mother’s thirtieth birthday; she would have been ninety-two on May 26.  I pulled out my calculator to be sure, and yes, I am that old.  I miss my parents, of course, but their newest great-grandson, Teague Michael Harvey, came to visit us the next day.  Teague was a year old on May 12.  Did you know that you can take pictures of your grandchildren and post them instantly on Facebook?   Beam me up, Grandpa!

About the time that Karl Petterson was crossing from Sweden, Harold Warp’s Norwegian immigrant parents were settling into their new sod home about one hundred and twenty miles northwest of Green Mound in south central Nebraska.  Harold was born in that house in 1903, and educated in a nearby one-room country school.   Harold was the youngest of the Warp’s twelve children.  He didn’t have digital cameras, power tools, or the Internet, but young Harold was fascinated by that era’s high-tech industries, especially plastics. 

As a teenager, Harold noticed that young chickens grew faster and that hens laid more eggs in the summer than in the winter.  So, he spent his high school years developing a clear plastic sheeting that could provide greater warmth and sunlight to the chickens through the harsh Nebraska winters.  He documented the chicks’ improved health and productivity and applied for a patent.  While he waited, he saved.  When his patent was approved, Harold and two of his brothers moved to Chicago—the center of the direct mail universe—and starting with $800, began manufacturing “Flexo-Glass”.  They advertised.  That was in 1924. 

Initially, the Warp’s marketed their product to chicken farmers for use in hen houses, but rural Americans soon found other uses.  What was good for hen houses, worked just as well on home windows and doors.  As sales increased, Harold reinvested  his profits in still more production and advertising, and by the time he was forty, he was a wealthy man.

From his own experience, Harold could appreciate how rapidly American entrepreneurship had  transformed the world.  He thought that knowledge of that transformation should be shared.  As you’ve travelled the highways of Kansas and Nebraska these past sixty years, you’ve probably seen Harold’s billboards proclaiming “See How America Grew”.  If you haven’t yet been drawn to Harold Warp’s Pioneer Village, it’s not too late.   Linda and I, guided by my cousin Robert and his wife Debbie, visited for the first time on May 9 through May 11. 

Harold Warp lived most of his life in Chicago, but his real legacy lives on in tiny Minden, Nebraska, where he grew up.  Seventeen buildings house more than fifty-thousand artifacts.  You can see a one-room school house, the books unopened since 1937, a genuine Nebraska “soddie”, a pony express station, a blacksmith shop, a church, and other frontier buildings.  There is a collection of American kitchens dating from 1820.  There are ox carts, surreys, and horse-drawn sleighs; and a Wells Fargo stage coach.  The Wright brothers and “Lucky Lindy” are represented, along with Henry Ford, Ransom Eli Olds, the Dodge brothers, John Deere, and hundreds of other American inventors and entrepreneurs.  And, notably, virtually all the displays are protected by Harold Warp’s Flexo-Glass.

On Friday morning, May 10, Robert, Debbie, Linda and I looked for a place in Minden to have breakfast.  Feeling frustrated, we finally joined a group of bikers at the local Subway Sandwich Shop.  The bikers and their dog were also visiting Pioneer Village; and like us, they really wanted a big, farm-style breakfast.  God bless ‘em anyway, but that’s not what Subway does. At least the bread was warm.

But at lunch time, we found the downtown square flooded with cars, pick-ups, and SUVs; and the several very good restaurants (none of which served breakfast) were packed with patrons.  We hadn’t seen a big crowd at Pioneer Village, so we were puzzled.  But after lunch, we solved our mystery when we stopped to check out the beautifully restored Minden Opera House on the north side of the square.  The playbill was still posted on the door: Featured speakers that day were Jack Welch, Condoleeza Rice, Mike Krzyzewski, David Allen,  and John Maxwell.  Well, no; those high-powered individuals weren’t actually in Minden.  But, Minden had turned out in full force that morning to see and hear them via a closed-circuit telecast sponsored by the restaurant chain Chick-fil-A.  Harold Warp really was prescient.  The American spirit of innovation and enterprise is alive and well in Minden, Nebraska.  And, if it survives in Minden, it must be  secure all across America.  mh

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Fishing for the Truth

Originally published in Flourishing April/May 2012.

It’s been said that a fish is unaware of the water in which he lives.  Similarly, many Americans have no awareness of the nature or institutions of capitalism, which make modern life the miracle it has become.  Ignoring pandemic corruption in government, and thanks to swarming political demagogues, abetted by a similarly corrupt and swarming mainstream media, many people see only instances of corruption on Wall Street and conclude that capitalism itself is corrupt.

This brings up an interesting question:  Why do even the avowed anti-capitalists rely so thoroughly on the products and institutions of capitalism?  They do it, because – as a fish lives in water – they have no choice.  Capitalism and its institutions are how human beings deal with each other spontaneously, naturally, rationally, and harmoniously.  The alternative, as history testifies – and much of Europe shows currently – is not some other viable and lasting system, but mob violence and the virtual collapse of all economic activity. 

Capitalism is the system used by anyone who wants to get things done through peaceful and voluntary cooperation with others.  Even where it has to work outside of the law, capitalism still finds some kind of traction.  Indeed, this underground capitalism, the global black market, has grown into a vast $10 trillion shadow superpower1.  We’re not talking drug dealers and human traffickers here, but networks of peaceful entrepreneurs quietly trading everything from sand and shovels to haircuts and hosiery. 

This underground capitalism is one of the world’s largest employers.  Nearly two billion people are working in jobs that are neither registered nor regulated2. They are usually paid in cash and they are frequently avoiding income taxes.  At best, this is a primitive form of capitalism, and the inexhaustible Peruvian economist Hernando de Soto3 has repeatedly shown that this is the price paid by corrupt and over-regulated economies for ignoring the virtues of free markets and the institutions of capitalism, including – most notably for de Soto – property rights and the institution of bank lending, which those rights engender.

However, we’re talking about America, the world’s most sophisticated economy.  So, suppose an American entrepreneur begins by borrowing against his savings or other valuable and legally titled assets at his local community bank; and that as his business grows, he decides to incorporate and sell shares in his business to investors.  If growth continues, he might then expand further by seeking foreign direct investment in his business in the form of additional loans that would allow him to manufacture and sell his products in countries like China and India, or Chile, Brazil and Argentina –even Europe.  But, such erudite investors might not commit to making these loans unless they’re able to limit their liquidity risk by securitizing those loans for potential resale to other investors in secondary markets, or to limit their exposure to default risk with a type of financial insurance known as a credit default swap.  How many business owners do you suppose have the ability to do all this without help?

Exactly!  That brings us back to our local community banker who first helped our “little guy” get started with a loan against his home, or his farm, or his VW microbus. Much later, perhaps, come those guys in expensive suits and ties, who know how to make billion dollar deals over dinner at Del Posto4 in New York.  We may not see it, nor fully understand it, but this is indicative of the cooperative division-of-labor process that can provide us with the miracles of modern life – from  iPods to artificial hips.  It also helps make America the world’s richest, deepest, and most resilient economy5.  [The European Union (EU) is ranked number one in GDP ($15.39 trillion versus $15.04 trillion); but of course, the EU consists of twenty-seven countries.]

Community banks are essential to local prosperity, and most of us recognize that.  But, we must also know that international banking and finance are necessary for First World prosperity and, not coincidentally, for turning New York City into a superlative urban playground, not only for the well-turned-out, but for you and me, too.

Despite the improvident pejoratives hurled by its critics, if modern capitalism didn’t exist, we would simply have to invent it.  My proof is that where it doesn’t exist, people do try to invent it. To truly prosper, a country must make it possible for savings to become capital. That means that we require banking and all of the people and institutions involved in raising, managing, and distributing capital to its highest and most effective uses.

The truth is that capitalism and its institutions of high finance are the water we swim in; and corruption aside, Wall Street’s profits are a small price to pay for our innovative and bountiful civilization.  mh

1 http://www.foreignpolicy.com/articles/2011/10/28/black_market_global_economy

2 ibid

3 The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else,  Hernando de Soto, PhD.  Basic Books, 2000.

http://delposto.com/home.htm

5 https://www.cia.gov/library/publications/the-world-factbook/rankorder/

Fred and Pete Go To Market

Originally published in Flourishing March 2012

I received an unsolicited email recently from the self-described marketing genius, Dan Kennedy.  Dan is a serial entrepreneur and a self-made multimillionaire.  Dan doesn’t have a college degree; in fact, he never attended college.  He inherited nothing from his family, but a strong work ethic.  However, this isn’t about Dan; or not just about Dan.

In his email, Dan tells the story of a seventeen year old kid named Fred, who was scouting for a way to make some money beyond his minimum wage job.  It was 1965, and the minimum wage was about $.75 an hour.  Fred went to see a family friend for advice.  The friend’s name was Pete.

Pete suggested that Fred open a little sandwich shop, and offer food that was less fattening and more healthy than the sandwiches at McDonald’s and other fast food stores.  Pete and Fred formed a partnership, with Pete investing $1,000 and Fred investing his time.  The first store opened in Bridgeport, Connecticut to very limited success.

Fred and Pete were sure they had a good product, so they attributed their limited success to the store’s location, and they opened a second store.  But, the second store also produced mediocre results.  At that point, most people would have given up, but not Fred and Pete.

Fred enjoyed the business so much—and was so confident in his product—that he convinced Pete that they should try a third location, one with more visibility.  And, they agreed that they should spend more money on marketing and advertising.

As you may have guessed, Dan is trying to sell me some marketing ideas, but that’s not really the point of his story.  I’ll get to that in a minute.

First, you need to know that the Fred in this little story is Fred de Luca, and Pete is Dr. Peter Buck.  

The name that they gave their little sandwich shop back in 1965—Subway.

In case you haven’t been counting, there are now more Subway stores (33,749 as of May 2011) than there are McDonald’s. Fred and Pete went to market and became billionaires.  Both are now on the Forbes 400 list of wealthiest Americans.

So here, according to Dan, are the business lessons this story teaches:

Don’t be afraid to collaborate.

Look for ways to do the opposite of what almost everyone else is doing.

Focus relentlessly on your goal.

Don’t let your own lack of money stop you.

There is, I think, one more lesson; and that is that America still offers boundless opportunity to everyone with a well-defined purpose to fulfill.   mh