The Rise of the Commercial Society: The Business Leader as Hero

By Mark Skousen
Editor, Forecasts & Strategies

Keynote Address at Annual International Assembly for Collegiate Business Education (IACBE), April 18, 2013, Orlando, Florida

“It is business that creates wealth, not countries or governments.  It is businesses that decide how well or poorly off we are.”   —Shlomo Maital, MIT managerial professor

Tomorrow my wife Jo Ann and I celebrate our big 40th (ruby) anniversary. We were married on April 19, Patriot’s Day, in 1973 in Utah.

Last week we went to Hawaii to celebrate.  When we arrived at the Marriott Waikiki Beach Resort in Honolulu, we were given a small room with only a queen size bed and no view of the famous Waikiki Beach.  I asked the desk clerk if there was any chance we could have a room with a king bed.  He said nothing was available.

I suspect he knew that we used Priceline to get a discount on the room.

In addition, the desk clerk insisted that we had to pay a $25 daily fee, for which we would get free Internet service, two free drinks, and a few other amenities. When we told him we didn’t drink and wouldn’t be using the Internet, he still insisted that it was mandatory for all guests of the hotel.

At some point during the conversation I used the “Two Magic Words” that marketing king Ted Nicholas’s recommends for getting the best table at a restaurant, best seats in the house, or the best room in a hotel:  “We’re celebrating!”  I told the clerk that we were in Hawaii to celebrate our 40th wedding anniversary.

But nothing worked.  A bit disappointed, we headed up to the room and started unpacking.

The phone rang — it was Justine, the desk clerk, telling me he had good news. He had found another room with a king sized bed and asked us if we wanted it. We agreed immediately and changed rooms.

It turned out to be a junior suite with a view of Waikiki Beach — and a complimentary (non-alcoholic) beverage on the house! And he said we could get a refund on the $25 daily fee.

Apparently Ted Nicholas’s “Two Magic Words” technique still works.

It is an honor to be here today and speak before a group of business deans, professors and administrators who know the value of a business education and are doing everything they can to prepare students to be successful in finding work and fulfillment in the exciting world of global business and high finance.

I’ve always enjoyed teaching students over the years.  In addition to writing and running various businesses, I’ve always kept one foot in the academic world by teaching as an adjunct professor at various schools, including Columbia, Barnard, Mercy and Rollins College.  I always have admired the working men and women who have taken the time to go back to school as adults.

Business as the Ideal Social Institution 

You are engaged in a noble work.  As Shlomo Maital, an MIT managerial professor, has written, “The health and wealth of a large number of individual businesses — small, medium, and large — determine the economic health and wealth of a nation.  It is business that creates wealth, not countries or governments.  It is business that decides how well or poorly we are.”

And it is business that generates the jobs, income and taxes that keep a country going.

The late great management guru Peter Drucker contended that the large corporation — not the state, the church, alma mater, or nonprofit organization — is the “ideal non-revolutionary social welfare institution” to provide retirement income, medical and life insurance, advanced education and training, paid vacations, and other benefits.

Gallup recently did a survey indicating that the number one determinant of happiness is a “good job.”  That makes sense since most adults spend most of their waking hours working and developing their closest relationships at their jobs.  And private business is the number one source for satisfying employment.

Drucker was quick to point out that government is a lousy business and is more likely to create problems than to solve them.  In fact, corporate executives are often left to deal with problems created by government.  ObamaCare is a good example.  Congress in its wisdom created an additional financial and regulatory burden on business.  But there’s a silver lining to ObamaCare.  Recently the Wall Street Journal reported that major corporations are now encouraging employees to eat more healthy foods and exercise, and penalizing workers who are overweight.  Why?  Because companies want healthier employees, which means fewer medical bills and lower premiums.

It’s the invisible hand of capitalism at work.  As Adam Smith wrote in The Wealth of Nations (1776), “The constant effort of every man to better his condition…is frequently powerful enough to maintain the natural progress of things toward improvement in spite of the extravagance of government and the greatest errors of administration.”

The Benefits of a Commercial Society

John Mackey, co-CEO of Whole Foods Market, contends in his new book Conscious Capitalism, Liberating the Heroic Spirit of Business, that the commercial society, the voluntary shared passion of individuals, “can create a world in which all people live lives full of purpose, love, and creativity—a world of compassion, freedom, and prosperity.”

Adam Smith taught that commerce encourages people to become educated, industrious, and self-disciplined.  He was influenced by the French political writer Charles Montesquieu, who emphasized the benefits of doux commerce (gentle commerce) as a countervailing bridle against the violent passions of war and abusive political power.  “Commerce cures destructive prejudices,” Montesquieu declared in The Spirit of the Laws (1748), “it polishes and softens barbarous mores…The natural effect of commerce is to lead to peace.”  Commerce improves the political order:  “The spirit of commerce brings with it the spirit of frugality, of economy, of moderation, of work, of wisdom, of tranquility, of order, and of regularity.”

So I salute all of you in this room who are engaged in this great cause.

Creating a Positive New Brand of Capitalism

You face an uphill battle in our effort to create a positive new branding of business.  The science of business management is a relatively new discipline.  From its origins a hundred years ago, it has evolved and improved through the Herculean efforts of management gurus such as Frederick Taylor, Alfred Sloan, Edward Deming, Louis Kelso, Peter Drucker, Steve Covey, Jim Collins, and John Mackey.

Business has come a long way from the “robber baron” days of Carnegie, Rockefeller and Morgan.  Yet even as the global marketplace has raised the standard of living a hundredfold in the past century, the accusations keep pouring in—that capitalism promotes inequality, materialism, greed, environmental degradation, and short-termism on Wall Street, and that fraud, deception, and corporate welfarism would run rampant if it weren’t for Sarbanes-Oxley, Dodd-Frank, and a host of government regulatory agencies (FDA, SEC, FTC, etc.).

In the latest Gallup poll on the trustworthiness of various professions, business executives come out little better than lawyers and used-car salesmen, far below the ethical standings of medical doctors, engineers, and police officers.  The battle lines have been drawn between labor and capital, and between consumers and producers, into the 21st century. Workers live in constant fear of being underpaid, overworked, or unemployed thanks to the upper hand of management, while consumers are deceived by “hidden persuaders” into buying “bads” rather than “goods.”

After countless how-to books and MBA courses on business ethics, leadership, and corporate culture, the question remains: can the business world develop a system beneficial to all the stakeholders in a firm—owners, consumers, workers, investors, suppliers, and the community at large?

I think it can, and I’m sure you in the audience agree.  But we have our work cut out for us to create a balanced stakeholder philosophy, which involves “creative entrepreneurial capitalists”; “loyal, trusting customers”; “passionate, inspired team members”; “patient, purposeful investors”; “collaborative, innovative suppliers”; “flourishing, welcoming communities”; and “a healthy, vibrant environment” (to quote John Mackey in his book Conscious Capitalism).

According to Mackey and his co-author Raj Sisodia, professor of marketing at Bentley University, company can “conscientiously” develop sterling reputations to attract loyal customers, employees, and suppliers and to generate community goodwill. If they do, superior returns can be achieved in earnings and the stock price, but as a byproduct, not as a primary goal.  Everyone in society benefits if a business is run “conscientiously.”

Mackey and many other CEOs have been amazingly successful in achieving these lofty goals.  Whole Foods Market has been the most successful grocery chain in recent history — and he was able to do it without ever taking a business class in college!

My Career in Business

Now I have something to confess.  I earned a B. A., M. S., and Ph. D. in economics without ever taking a course in accounting, finance, or business.  That says something more about economics as a discipline than it does about business.  I’ve always had an entrepreneurial streak in me, and had to learn business techniques on my own.  I’ve written an investment newsletter for 34 years, and run several multi-million dollar businesses (publishing, conferences) profitably without taking courses in running a successful business.

As an applied economist, I’ve had experience in all three sectors of the economy — working for the government (CIA), for non-profits (Foundation for Economic Education), and running several successful for-profit companies.

It’s good to see more business schools hiring successful business entrepreneurs.  The Acton MBA program in Dallas uses only current CEOs and CFOs to teach as adjuncts.  I hope this is the wave of the future.

Three Lessons Teaching at Columbia Business School

In the mid-2000s, I had the privilege of teaching economics and finance at Columbia Business School, thanks to my mentor John Whitney (who himself did not have an advanced degree) and a letter of endorsement from the Nobel Prize economist Milton Friedman.  I learn some important lessons at Columbia.

First, ivy-league B schools should hire economists who have business experience to teach their economics courses.  I was surprised to learn that CBS’s economics courses were taught purely by academics, and their textbooks were not that practical for MBA students.  It was a lot of high theory.  That’s fine in the economics department at Columbia, but at the B school the professors should have real-world experience.

My own textbook, Economic Logic, starts with the P&L statement, which students find useful in understanding the dynamics of the global economy.  Supply and demand are drawn out of the income statement.

Second, MBA programs should have courses on the history of Wall Street and financial crises to help them navigate their businesses when the next recession hits.  There is a trend in economics and finance to eliminate courses in history.  The focus now is almost entirely on what works now, not the evolution of financial institutions.  MBA students were taught all about how zero coupon bonds work, but knew nothing of their origin.  I argued that the MBA student who does not know history is condemned to repeat it.

My recommendations were initially rejected by the dean, but then the financial crisis of 2008 hit, and I noticed that Columbia recently introduced a popular new course on “History of Financial Crises” and the “History of Capitalism” into their curriculum.

Third, MBA students need to be taught the importance of balance in their lives.

I well remember my first class at Columbia Business School, when I wrote this quotation on the blackboard by Lin Yutang, the great Chinese philosopher known for the “art of letting go.”

“Those who are wise won’t be busy, and those who are too busy can’t be wise.” 

The quotation was not well received.  A third of my class, stooped in a 24/7 mindset, dropped my class (fortunately the remaining members gave my class high marks).

Yet there is wisdom in Lin’s statement. If you are too busy in your work, you don’t have time to learn new ideas, to discover new truths, to enjoy life’s little pleasures, or perhaps to pick a winning stock! Beating the market requires you to look down untrodden paths, and you need the free time to do it.

Lin Yutang criticizes most Americans for being too busy, and therefore slaves to the business culture and the old ways. They worry themselves to death. In his book, The Importance of Living (1937), Lin writes, “The three American vices seem to be efficiency, punctuality and the desire for achievement and success. They are the things that make the Americans so unhappy and so nervous.” Gee, I thought they were American virtues!

Life in the West, according to Lin, is “too complex, too serious, too somber, and too involved.” Following Taoist philosophy, Lin warned against “over doing, over achieving, over action . . . of being too prominent, too useful, and too serviceable.” The “perfectly square” house, the “perfectly clean” room, and the “perfectly straight” road rankle in him. He goes on to say, “O wise humanity, terribly wise humanity! How inscrutable is the civilization where men toil and work and worry their hair gray to get a living and forget to play!”

Lin offers the secret to success for the businessman (busy man?) in this statement: “Actually, many business men who pride themselves on rushing about in the morning and afternoon and keeping three desk telephones busy all the time on their desk, never realize that they could make twice the amount of money, if they would give themselves one hour’s solitude awake in bed, at one o’clock in the morning or even at seven. There, comfortably free, the real business head can think, he can ponder over his achievements and his mistakes of yesterday and single out the important from the trivial in the day’s program ahead of him.”

But the West has won the cultural war. Today, 70 years after Lin’s critique of the three American vices, it is the Japanese, the Chinese, the Koreans, and the Indians who dress in Western business suits and spout the Western philosophy of efficiency, punctuality, and goal-setting, and who work 14-hour days and forget to play. In the new China, the roads are straight, the houses are perfect, and everything works. I suspect Lin Yutang would not like the new Asia, especially the regimented Singapore. It’s a paradise lost.

I didn’t last at Columbia.  After one semester, the chairman of the department (a hard-core Keynesian) decided not to renew my class.  I’ve often thought of this event as well as others where I was “let go.”  If you haven’t been fired, you haven’t lived!  By a show of hands, how many of you have been fired from a job?  [About half the audience raised their hands.]  At the time, it might have been traumatic, but how many of you agree that looking back it was the best thing that happened to you?  [Almost every hand went up.]  We live in a dynamic economy of “creative destruction,” as Joseph Schumpeter called it.  I dare say workers who are permanently employed by a firm (like IBM employees years ago) are likely to find life ultimately unsatisfied and unchallenged.

Sadly more and more Americans are either permanently employed (by the federal government), or permanently unemployed (on welfare or ousted from the labor force by minimum wage laws and other government regulations).  According to the latest data, only 63% of able-bodied adults are employed, the lowest rate in US history.

However, there’s an exception.  Employment is actually rising among seniors age 65 and over.

Traditionally the idle class has been the wealthy seniors, and the working class the young, and we worried about not having enough young workers to finance Social Security and Medicare payments of the elderly.  But we are witnessing an upside down world, where the new working class is the elderly and the new idle class is the young.

The labor force is the most dysfunctional market in the country today, where discouraged workers are on the rise, and 40% of male black teenagers are out of work.  This trend cannot last without creating a cultural and financial disaster.

You have your work cut out for you to train students to get productive employment when they graduate.

But if you do it right, we are capable of entering a new Golden Age of Capitalism.  There are visionaries among us — giants in the land — who are showing us the way.  They include Charles Koch and his Market-based Management, which has catapulted Koch Industries into the world’s second largest private company….John Allison and his Objectivist/Randian Model that transformed BB&T into the fastest growing regional bank in the country (he is now the president of the Cato Institute)…..and John Mackey, co-founder and co-CEO of Whole Foods Market, who more than anyone has developed the revolutionary “stakeholder” model in Conscious Capitalism.  I urge all of you to read and study his new book.

This year at FreedomFest, we are going to have a session, “The Libertarian CEO Panel,” that will compare and contrast these three incredible successful firms by having representatives speak on Koch’s Market-Based Management, Allison’s Objectivist/Randian model, and John Mackey’s Conscious Capitalism.

Their work reminds me of one of my favorite quotes from Benjamin Franklin, the father of American business:  “It is incredible the quantity of good that may be done in a country by a single man who will make a business out of it.”