By Fred L. Smith, Jr.
Director, Center for Advancing Capitalism
Speech delivered at Hillsdale College
September 18, 2015
It is an honor to have the opportunity of discussing my new CEI role, as Director of CEI’s Center for Advancing Capitalism, here at Hillsdale with this youthful audience.
As the title of my talk suggests, I believe that to date conservatives have failed to recognize the critical need to resolve the mind/body problem: to advance our ideas in both the intellectual/Thinker sphere but also in the business/Doer sphere. In market democracies, reforms are viable only if supported by strong moral/intellectual (ensuring that the reforms are compatible with the values of our society), as well as economic interests (likely to advance the self-interests of our citizenry).
The renowned Clemson University economist Bruce Yandle coined the colorful phrase, “Bootleggers and Baptists” for such intellectual/economic alliances. The phrase arose in southern state “dry” jurisdictions (restricting legal alcohol sales). In such areas, efforts to legalize alcohol sales would often be fought fiercely by ad hoc alliances of religious groups (seeing legality as encouraging sin) and economic groups (those enjoying the monopoly profits available to illegal purveyors of alcohol). Bootlegger/Baptist alliances have long been employed by those seeking special privileges, cronyists. Trial lawyers and environmentalists work to raise fears of toxic chemicals. Consumerists and labor unions fight for tighter safety regulations.
But Bootlegger/Baptist alliances can and have also been organized for virtuous purposes. An example is freight rail deregulation which was championed by the Cato Institute and other free market policy groups, as well as rail and shipper economic interests. Such alliances offer a new approach to checking Leviathan and, in my view, we should be doing much more to attract business allies to this effort. The logic is obvious: libertarians and conservatives support economic liberty on moral grounds, while most businesses find it easier to create wealth under capitalism.
Those favoring political control over the global economy have long championed such alliances. Their flagship achievement is the annual World Economic Forum in Davos. Wealth creating businessmen pilgrimage to Switzerland, knee in the snow, kiss the ring of some anti-business critic, apologize for their capitalist crimes and then – if the apology is accepted – are granted a puff piece in The New York Times.
This is shameful. Our goal should be to create a more honorable and justly proud alliance of intellectuals and business capitalist advocates who would meet periodically to strategize on defending and advancing capitalism. Our Davos in Exile?
I suspect you Hillsdale students already understand the values and virtues of liberty. Hillsdale is one of the few islands of rationality in a world dominated by progressive ideology. Many of you already are familiar with the arguments for capitalism, for liberty more generally.
I was not so fortunate. I grew up in rural Louisiana during the post-WWII, depression era. That era was perhaps the high point of the progressive ideology in America – the belief that the “Best and Brightest”, trained in scientific management, serving in independent regulatory agencies, and given power and resources could be relied upon to quickly bring about Heaven on Earth.
Imbued with that Fatal Conceit, I went off to Tulane, graduated with honors and after wandering around the academic world for decades joined the newly established Environmental Protection Agency. Adopting the same approach of Keynesian macro-economists, EPA would develop massive computer models that would track the flow of materials (food, wood products, metals, plastics, glass, etc.) from extraction or harvesting through to disposal, ensuring at each stage optimal efficiency. And, God help me, as a knee jerk liberal technocrat, I bought into all this – for a while.
But after a few years in that crazy bureaucracy, my progressive faith vanished. One performance review – “Mr. Smith, you’re keeping too many balls in the air!! Tsk! Tsk!” I suggested we focus on protecting the environment the way we protected gardens and pets – let people own it! EPA wasn’t interested then – or now. Wanted out – and one day musing through a used book store, I stumbled across Hayek’s “The Role of Knowledge in Society.” Lights lit up and I became a libertarian.
I moved over to a new libertarian business group, the Council for a Competitive Economy. Sadly that group went bankrupt but, by then, I was a committed liberty warrior, so I crafted a modified business plan and shopped it around. Went to AEI, Cato and Heritage – they liked my enthusiasms but noted it was not quite their cup of tea. They suggested I launch my activist plans myself – and I did, finding myself at 40, a reluctant entrepreneur.
Fran, my wife, had a good job and was tired of my moping around, so I went without salary, we slashed our spending and in 1984, as my “first act” in the liberty movement, I launched the Competitive Enterprise Institute. I did so in the belief that the then dominant right-of-center groups, the “think tanks,” needed to become more active in the policy arena.
But about six months later, I told Fran – “Think I’m going to have to close down CEI!” “Why,” she asked? Well, it’s been six months and I haven’t raised any money yet. But, you didn’t expect to raise any money in the first six months? Yes, but now it’s true? No – you don’t she said – and I stuck it out and CEI began to grow.
My idea was that, following Hayek’s advice, think tanks had focused – almost exclusively – on replenishing the intellectual arsenals to wage the War of Ideas. Given the status of conservative thought in that post-World War II era, this was a logical priority, but it left to others the challenge of moving those munitions to the battlefront, seeing that they were deployed and targeted effectively. Too often, these downstream tasks weren’t undertaken.
During my EPA days, I’d noticed that environmental groups, wishing to ensure that their policy ideas reached the policy battlefield, had taken this more active “downstreaming” approach. CEI, I decided, would develop its own innovative Issue Management Approach. Like traditional think tanks, CEI would craft and analyze policy reform proposals, but we would also market our findings to those interest groups relevant to that issue, mobilize allies, and advocate our policy preferences in the most appropriate venue – from the Courts to Congress to the Executive Branch. This integrated game plan, by having free market groups passing, running and kicking in the policy world as appropriate, I thought, would prove more effective.
CEI employed that approach creatively over the last decades, slowing or fending off some horrific government interventions, winning some valuable victories, and encouraging other groups to also become more activist. We reached out often to business representatives, acting as a Battered Business Bureau for firms that had the grasp of an issue but lacked credibility. Today, many free market groups downstream their work, expanding on CEI’s approach. The result has been a much improved free market policy game.
But these alliances were tactical and episodic and left unmet the need to create the larger strategic alliance that I believe were needed.
Note, however, our movement remains relatively young so perhaps we’re impatient. After all, Hayek’s Road to Serfdom appeared only in 1944, but remember that the modern Progressive movement goes back to the writings and activism of the Progressive writers of the 1890s, many decades earlier.
Yet, from these origins, the classical liberal movement of today grew. And grow it certainly has: The Atlas Network lists some 470 pro-liberty groups in over a hundred nations. In the United States, free market policy groups exist in all fifty states with hundreds of affiliated supporting policy groups. Even in the academic world, there have been some liberty gains – Hillsdale being one of the premier examples. Yet, Leviathan continues to lurch on, intervening in more and more of our lives, threatening most aggressively our economic and civil liberties – and our future.
In the immediate aftermath of World War II, the government was perhaps 20 to 25 percent of the economy; regulations were significant but largely sector-specific, such as in transportation or communications. Today, government is massive, intervening in almost every part of the economy.
Regulations alone are estimated to impose around $1.8 trillion in annual costs.
CEI was doing well but something more, I believed, was needed. Since the clock was steadily ticking and I’d enlisted late in the liberty movement, when I reached my 70th birthday (and my younger brother died of a heart attack), I decided to ensure CEI’s continuance by seeking a successor. Lawson Bader is that successor and has proven more than capable of overseeing CEI’s efforts. By stepping down, I was now free to explore the missing elements in our economic liberty strategies. My talk today deals with that missing element – our failure to craft an effective Thinker/Doer alliance, to bring business leaders into the liberty struggle.
II. Schumpeter’s Challenge: “Can Capitalism Survive?”
The best explanation for the persistent assault on capitalism was proposed by the great economist Joseph Schumpeter in 1942. His masterful essay, “Can Capitalism Survive?” He thought not, believing that the dramatic success of capitalism that would lead to its demise. Capitalism would succeed in creating vast wealth, distributing it widely, yielding the utopian paradise sought by Marxists. Moreover, its transformational changes would yield two new disruptive change forces: the intellectual and the entrepreneur.
The entrepreneur would explore new products and services and business models, often creating entire new industries in the process. When successful, entrepreneurs would drive the economy forward, while rendering obsolete once-highly valued firms, technologies, and skills. With greater innovation comes greater wealth, bringing even more people into an even wealthier middle class. Yet, entrepreneurs, Doers are also the creative destructive force that continually disturbs the existing economy, opening and expanding the economic frontier, making possible our sustainable growth economy.
Thinkers are conceptual, judgmental, and prone to idealism and utopian thinking. They write and speak about the world – and, thus provide the framework through which most of the populace sees the world. Intellectuals, having been honored in the university, would perceive, when they entering the business world, that the market did not adequately reward the life of the mind, and resent that lower evaluation. Psychologically, intellectuals would resent this perceived slight – “After all, if we’re so smart and good, why are others so rich?” Intellectuals would also recognize that a more politicized world creates far more positions of prestige and power for those of an academic bent. Who else can transform the aspirational words of legislation and executive guidance into explicit policy? And since as regulations increased, business would create subgroups to address those threats, advisory roles would expand in parallel in the corporate world.
Since intellectuals craft the narratives that frame issues for most people, most of us see most issues through collectivist lens. That America veers left is not surprising.
Still, the question remains: Why doesn’t the entrepreneurial class – the group that prospers most under conditions of economic freedom – oppose that trend? Schumpeter thought they would rarely resist these trends, because as the culture became more anti-capitalist, business leaders, lacking the conceptual skills needed to craft pro-business narratives, would retreat into a defensive crouch, hoping to defend their ever-shrinking sphere of action. Competence in the economic sphere rarely translates into expertise in the political world.
Moreover, since intellectuals would come to dominate the media, the academy, and popular culture, there are few open channels to transmit it to the populace. They could, of course, employ consultants to augment their weakness in politics and communicating in the political world, but those experts would often be recruited from the anti-business intellectual community. Absent strong management by business leaders, these intellectual experts might more often advise appeasement, accommodation, apologies, and surrender. Indeed, most business schools now argue that business should accept guilt, move toward corporate social responsibility. As Schumpeter notes:
Business rather than instructing its critics allows itself to be instructed by them, accepting sometimes reluctantly policies and beliefs incompatible with their survival.
When you have few allies, business comes to see surrender as logical.
And, as government intervention has become ever more pervasive and powerful, business leaders seek to avoid conflict, lest they invoke regulators’ wrath. Regulators have increasingly become more aggressive at retaliating against anyone challenging their authority.
With business largely passive, with intellectuals moving the culture steadily leftward, and with politicians implementing ever more costly interventionist policies, Schumpeter argued capitalism would slowly succumb.
III. Responding to Schumpeter’s Challenge
Schumpeter’s argument that capitalism would fail was a bit too pessimistic. Since 1942, Asian nations have moved in varying degrees toward capitalism. And while government intervention in Europe and America has grown dramatically over the last half century, entrepreneurial wealth creation continues.
To date, creative entrepreneurs have found innovative paths to wealth creation – sometimes via gaps left in the regulatory fences, sometimes taking advantage of unforeseen opportunities created by technological change elsewhere, sometimes by simply innovating without seeking approval. When entrepreneurs move quickly, they may create constituencies that can prevent government counter-attack. Overall, therefore, despite the shift to economy-wide regulatory interventions, government has not yet found ways to choke off growth and innovation completely. Still, studies do suggest that the rate of innovation is slowing.
Moreover, there now exists a significant minority of classical liberal intellectuals. And Hillsdale – as this audience indicates – is adding to those numbers steadily. But, these gains, while important, are not enough on their own to stem the anti-capitalist tide. First, the war of ideas is probably unwinnable. Our intellectual elite opponents are not likely to sacrifice their self-interests to our logic.
IV: A Brief Diversion to Discuss Value Based Communication
Therefore, we must reach beyond the War of Ideas, seeking to reach the electorate, the populace – that is, the large number of people who lead rich, full lives while giving little thought to politics. Social scientists note that this group is “rationally ignorant” – they recognize that there is much material – pro and con – and few have the time to educate themselves fully. Yes, they could review that material and make an “informed” decision for that specific issue. But, there are many policy issues. And, even if one became informed, what influence might one individual have on the decisions made by government? For that reason, as I’ve noted:
People aren’t stupid because they’re stupid. They’re stupid because we’re smart. And if we try to make them smart, then we’re being stupid!
But, although one cannot educate the citizenry, it is critical that one find ways to communicate to them.
But what and how? Cultural theorists suggest that individuals tend to value a small array of cultural views toward society. Individualists (many of us) weigh freedom heavily. Hierarchists (conservatives, traditionalists) focus on stability and respect for established institutions. Egalitarians (liberals) are mainly concerned with justice and fairness.
While most share these values, we weigh some more heavily than others. When asked our opinion about some issue, we make a quick heuristic assessment as to whether that issue advances or threatens our core values – and we support or oppose it accordingly. In this way, humans can take positions on a vast array of policies quickly and efficiently. Note however that, while their values are deeply held, the link from these values to the policy is determined by how the link between the policy and our values are framed. Our values change slowly, the policies are what they are. Thus, our challenge is to find ways to craft narratives that might illustrate how our policies would advance their values.
I should note, by “narratives” we mean the stories, the videos, the books, pop culture, and story telling that fames most issues for most Americans. Narratives compete with one another, some emphasizing one set of values over others. One reason for allying with business is that they possess communication techniques (advertising) that could also communicate pro-capitalist values. Business has rarely taken this path, although a campaign by the American Plastics Council illustrates its potential. A pro-capitalist message would tout the company’s achievements and celebrate its success.
Contrast that with the apologetic approach we see all too often today.
Apologetics: “Buy our product, and we promise to pollute less in making it!”
Greenmail: “Yes, we do bad things but we fund novenas!”
Less of Bad Things: Don’t get credit for doing less if you have failed to establish positive credits.
How many of you will be going into business? Into politics? Journalism? Law?
Whatever field you go into, keep one thing in mind: You’re all going to be marketers, you’re all going to crafting stories about your goals.
Our challenge is to understand and use this value-based communication approach to reach out to the populace. There are two aspects of this value-based communication challenge: first, developing the skills to reach a specific cultural value type, and, second, finding ways to ensure that our communications can penetrate the filters out the liberty message.
Partnerships with business, if achievable, would go a long way toward addressing these problems. Firms often undertake costly and sophisticated marketing research efforts. And, while these largely focus on how well these messages encourage individuals to purchase the firm’s products or services, they might also gain legitimacy for the firm and its products.
Were business to employ such creative dual purpose (sale product, gain legitimacy) narratives (positive entrepreneur stories, heroic stories of business achievements, victories against anti-liberty bureaucrats) – we might go some way toward restoring the self-esteem so many businessmen now lack.
Alliances between intellectuals and business is important for a number of reasons.
- Improved Understanding of Costs of Government Intervention: As Hayek noted, all knowledge is local. We highlight and analyze the overall costs the regulatory state and the hindrances these create for wealth creation. Yet, only business experiences these costs directly, and can therefore produce a narrative, heartfelt account of their impact. By forging alliances with business, free market intellectuals can gain access to that local knowledge, to use it to critique the costs of government.
- Better Narratives: An alliance could do much to reach the electorate: intellectuals crafting narratives about the virtues of capitalism, stories illustrating not only the wealth and employment value of business but also its efforts to reduce discrimination, improve workplace safety, address pollution, and other worthy, non-pecuniary goals. Business has the information – free market groups have a comparative advantage in credibility.
- Mobilizing Business Resources: Every successful business sits at the center of an extensive network of win/win cooperative arrangements with the firm’s customers, employees, suppliers and investors. All of those groups are potential allies of the firm in its policy struggles. Some firms have mission statements – if those statements were extended to illustrate more emotively how business advances fairness and stability as well as freedom, it would be a much improved world.
- Addressing Gaps in Business School Training: Business schools have been negligent in helping business leaders operate in the political space of our mixed economy. An alliance might fill this gap by developing materials on how business leaders might best operate in the political sphere also.
Schumpeter did a masterful job of identifying the challenges capitalism faces. It also provides a template for thinking through what is needed to overcome these challenges, to defend and advance capitalism. We need a strong intellectual free market movement but, perhaps more importantly, that Thinker component must reach out to gain the missing Doer component. And this effort is something that you might well play an important role.
V. How Might You Contribute to this Effort?
A recent article in The Daily Signal, “Millennials are moving to New Orleans – and it’s not just for Bourbon Street”, tells the story of one such migrant, Brian Bordainick, who moved to New Orleans after Hurricane Katrina to work for Teach for America. After building the now famous “Field of Dreams,” a safe place for inner-city schoolchildren to play sports after school, Bordainick founded Dinner Lab, a company that identifies up-and-coming chefs and lets them test their menus at pop-up locations for small dinner parties. What is striking is that he says his is a “for-profit company” and he’s “OK with that!”
Bordainick’s statements might disturb some Baby Boomer professors who see a tension between being successful and being moral, but many younger people, many of you possibly, don’t see it that way. Creating wealth in a profession one loves is something capitalism has given to ever more people around the world. We must all develop a life skill that allows us a reasonable life but also advances our Dreams, our passions. Such life choice freedom was once rare. For centuries, many people simply followed in their parents’ footsteps. That could earn you an acceptable, even rewarding living, if it was a career you loved, but if it consisted of mind-numbing drudgery, you were stuck.
Capitalism has slowly legitimized the romance of change, of the creative destruction accompanying entrepreneur innovation. And Millennials may be the first generation to realize its value on an intuitive, almost instinctive level. They respect tradition and culture – which make places like New Orleans so attractive – but they understand that change and innovation are critical for their and America’s future.
They may well be quicker to oppose protectionist policies – such as regulations and occupational licensing – designed to protect the old and fend off the new. Those of you who enter business may be the first to fight to protect the freedoms that made their successes possible, to ensure that opportunities for newcomers aren’t foreclosed.
As noted, Schumpeter argued that capitalism was doomed. Intellectuals (the conceptual thinkers) would openly advocate for statism, while business leaders would remain passive, happy to defend the status quo and prevent too much from change. Millennials have an opportunity to upend that modus vivendi, as their lives follow a more intricate path, seeing no incompatibility between doing well and doing good. Millennial entrepreneurs like Brian Bordainick are “OK with that” and it may be that fact that saves capitalism.
Suggestions on how you might now contribute to the Liberty Struggle. Schumpeter’s analysis of the risk to capitalism suggests a course of action.
- First, establish a significant intellectual cadre to offset the statist tendencies of academia. You here at Hillsdale are well positioned to be a part of this effort, as committed individuals familiar with social media and well able to craft and evaluate responses to anti-capitalist arguments.
- You should now gain the skills and the understanding to play your role in either arena. Discuss what Thinkers and Doers must do – and how their comparative strengths and weaknesses make for a much more effective Team producing the narratives that might encourage business leaders to re-engage.
- Craft a story, a narrative that puts into context the charges levied against the firm? Note how the American Plastics Council found ways to reduce hostility to plastics.
- What strategies might dissuade firms from rent-seeking, cronyism? Can one encourage virtue in the corporate world? Can labeling, charges of hypocrisy, be effective?
- Review books such as “Excuse Me, Professor” providing counters to anti-capitalist charges. Review these and consider which might (or might not) persuade your liberal, conservative or libertarian friends? Can you craft narratives more persuasive to each value type? Might you not develop on-line panels of the key cultural value groups (egalitarian, hierarchic, individualist) and use these to market test your communiques?
- Videos – Have you seen I, Pencil: The Movie? Might you expand that idea to incorporate the Adam Smith problem
- Business History (Burton Folsom) Examine some attacks on business? Nestle infant milk formula attack, plastics, chemicals, coal…
The Liberty Struggle is never over. I hope you will join the effort to find ways to wage it more effectively. To do so, we need to create a virtuous meeting of business leaders and intellectuals to plan a path toward expanded global economic freedom. Businessmen need to stop apologizing in the hope of being granted a favorable interview in The New York Times. The left’s greatest victories have been cultural – in their ability to persuade business leaders and society at large that the wealth creation achievements of Microsoft are insignificant in comparison to the charity programs of the Gates Foundation.