Category: Entrepreneurship

Private Property Rights Would Help American Indians

(p. W11) The main problem with Indian reservations isn’t, as some argue, that they were established on worthless tracts of grassland. Consider the case of Buffalo County, S.D., which Census data reveal to be America’s poorest county. Some 2,000 people live there. More than 30% of the homes are headed by women without husbands. The median household income is less than $13,000. The unemployment rate is sky high.

Just to the east of Buffalo County lies Jerauld County, which is similar in size and population. Yet only 6% of its homes are headed by women without husbands, the median household income is more than $30,000, and the unemployment rate hovers around 3%. The fundamental difference between these two counties is that the Crow Creek Indian Reservation occupies much of Buffalo County. The place is a pocket of poverty in a land of plenty.
Maybe we should give land back to the rez-dwellers, so that they may own private property the way other Americans do. Currently, the inability to put up land as collateral for personal mortgages and loans is a major obstacle to economic development. This problem is complicated by the fact that not all reservations have adopted uniform commercial codes or created court systems that are independent branches of tribal government — the sorts of devices and institutions that give confidence to investors who might have the means to fund the small businesses that are the engines of rural economies.
. . .
. . . the real tragedy is that reservations, as collectivist enclaves within a capitalist society, have beaten down their inhabitants with brute force rather than lifting them up with opportunity. As their economies have withered, other social pathologies have taken root: Indians are distressingly prone to crime, alcoholism and suicide. Families have suffered enormously. About 60% of Indian children are born out of wedlock. Although accurate statistics are hard to come by because so many arrangements are informal, Indian kids are perhaps five times as likely as white ones to live in some form of foster care. Their schools are depressingly bad.
Even if casino revenues were able to address these soul-crushing problems — a doubtful proposition — most reservations are too isolated geographically to profit from big-dollar gambling. Yet the rise of the casinos may help point the way forward: Their ability to flourish contradicts the tenured Marxists in ethnic-studies departments who claim that communitarian Indian cultures aren’t compatible with market capitalism. After all, it takes entrepreneurship to run some of the world’s biggest casinos.
What’s more, this modern-day entrepreneurship is part of a long tradition: Meriwether Lewis (of Lewis & Clark fame) described the Chinooks as “great hagglers in trade.” I once visited Poverty Point, a 3,000-year-old set of earthen mounds in Louisiana; the museum there displayed ancient artifacts found at the site, including copper from the Great Lakes and obsidian from the Rockies. These prehistoric Americans were budding globalizers, and there’s no reason why their descendants should remain walled off from the world economy.

For the full story, see:
JOHN J. MILLER. “The Projects on the Prairie.” The Wall Street Journal (Saturday, January 27, 2006): W11.(Note: ellipses added.)

Good Rules Encourage Entrepreneurship, Resulting in Vibrant Economy

Some useful observations from the 2004 co-winner of the Nobel Prize in Economics, Edward Prescott:

Good tax rates, . . . , need be high enough to generate sufficient revenues, but not so high that they choke off growth and, perversely, decrease tax revenues.  This, of course, is the tricky part, and brings us to the task at hand:  Should Congress extend the 15% rate on capital gains and dividends?  Wrong question.  Should Congress make the 15% rate permanent?  Yes.  (This assumes that a lower rate is politically impossible.)
These taxes are particularly cumbersome because they hit a market economy right in its collective heart, which is its entrepreneurial and risk-taking spirit.  What makes this country’s economy so vibrant is its participants’ willingness to take chances, innovate, acquire financing, hire new people and break old molds.  Every increase in capital gains taxes and dividends is a direct tax on this vitality.
Americans aren’t risk-takers by nature any more than Germans are intrinsically less willing to work than Americans.  The reason the U.S. economy is so much more vibrant than Germany’s is that people in each country are playing by different rules.  But we shouldn’t take our vibrancy for granted.  Tax rates matter.  A shift back to higher rates will have negative consequences.
And this isn’t about giving tax breaks to the rich.  The Wall Street Journal recently published a piece by former Secretary of Commerce Don Evans, who noted that “nearly 60% of those paying capital gains taxes earn less than $50,000 a year, and 85% of capital gains taxpayers earn less than $100,000.”  In addition, he wrote that lower tax rates on savings and investment benefited 24 million families to the tune of about $950 on their 2004 taxes.
Do wealthier citizens realize greater savings?  Of course — this is true by definition.  But that doesn’t make it wrong.  Let’s look at two examples:    First, there are those entrepreneurs who have been working their tails off for years with little or no compensation and who, if they are lucky, finally realize a relatively big gain.  What kind of Scrooge would snatch away this entrepreneurial carrot?  As mentioned earlier, under a good system you have to provide for these rewards or you will discourage the risk taking that is the lifeblood of our economy.  Additionally, those entrepreneurs create huge social surpluses in the form of new jobs and spin-off businesses.   Entrepreneurs capture a small portion of the social surpluses that they create, but a small percentage of something big is, well, big.
Congratulations, I say.  Another group of wealthier individuals includes those who, for a variety of reasons, earn more money than the rest of us.  Again, I tip my hat.  Does it make sense to try to capture more of those folks’ money by raising rates on everyone?  To persecute the few, should we punish the many?  We need to remember that many so-called wealthy families are those with two wage-earners who are doing nothing more than trying to raise their children and pursue their careers.  Research has shown that much of America’s economic growth in recent decades is owing to this phenomenon — we should encourage this dynamic, not squelch it.

For the full commentary, see:
EDWARD C. PRESCOTT. “‘Stop Messing With Federal Tax Rates’.” The Wall Street Journal (Tues., December 20, 2005): A14.

Industrial Giants Succeeded in Philanthropy in the Same Way They Succeeded in Business

(p. 3) . . . the Gateses were not the first to see that money could sometimes move mountains in public health. They are following in the footsteps of the industrial giants of the late-19th century, said Dr. Howard Markel, director of the University of Michigan’s Center for the History of Medicine.

These men also brought their fortunes to bear on social problems, and believed that they could succeed in philanthropy in much the way they had succeeded in business.
The donors of the robber-baron years started their philanthropy while still alive – a novel idea then. Andrew Carnegie, for example, gave away hundreds of millions of dollars to build libraries long before his death.
The largest bequest in American history prior to Carnegie’s time was from Johns Hopkins, a Baltimore merchant, who left $7 million to found the eponymous university and hospital in 1873 – after he died.
But the closest parallel to the Gates approach to philanthropy is that of John D. Rockefeller, said Dr. Markel and Robert E. Kohler, a medical historian from the University of Pennsylvania.
Rockefeller built Standard Oil. Like Mr. Gates, he was the richest man of his time, and like him he was reviled as a greedy monopolist.
Rockefeller, like Mr. Gates, hired a professional to run his charities. And he, like Mr. Gates, used his money systematically to identify and attack important public health problems.
Rockefeller hired Frederick T. Gates, a former minister (and no relation to the Microsoft co-founder) as his philanthropic executive. Mr. Gates read an 1892 medical textbook that convinced him that diseases had causes, like germs and worms, that could be fought by science – not a universally accepted idea at the time.
The most famous health campaign he started with Rockefeller money was the drive, begun in 1907, to rid the rural American South of hookworm. Called “the germ of laziness” because it caused anemia and made victims lethargic and dull-witted, hookworm afflicted up to a third of Southerners.
The foundation set up clinics that administered purgatives and – because the worm is shed in feces and picked up by bare feet – taught people to dig deep privies and wear shoes. More Rockefeller money underwrote some of the 20th century’s great public health drives, many using research done at Rockefeller University. Clinics were built in 50 other countries to eliminate hookworm worldwide. The effort failed because the worm can survive in soil and reinfect people; but the problem diminished, especially in parts of Asia.
In 1915, the foundation declared war on yellow fever; by 1932, scientists had realized that monkeys were also a reservoir for the virus, making eradication impossible, but by then Rockefeller scientists had invented the vaccine still used today.
Patty Stonesifer, chief executive of the Gates foundation, said she and William H. Gates Sr., the father of the software pioneer and co-chair of the foundation, consider the Rockefeller campaigns especially instructive. “We stood on their shoulders,” she said.
. . .
As Ms. Stonesifer said admiringly of the Rockefeller campaign against hookworm: “A lot of people would say, ‘you’ve got to reduce poverty to get rid of hookworm.’ But the Rockefellers said, ‘You don’t need a 20-year intervention. You can use shoes.’ “

For the full article, see:

DONALD G. McNEIL Jr. “The Rich, Sometimes, Are the Best Medicine.” The New York Times, Section 4 (Sun., December 11, 2005): 3.
(Note: ellipses added.)

Rioting Caused by Economy Closed to Creative Destruction

FrenchRiots11-2005.jpg Source of photo: WSJ online version of article quoted and cited below.

The French rioters face very high unemployment. French restrictions on the labor market, and the economy more generally, cause the high unemployment. For example, the French make it hard for firms to fire employees, so as a result, firms are more reluctant to hire workers in the first place, resulting in higher unemployment. Although they do not know it, the rioters are rioting because France is closed to creative destruction. The following commentary is on point:

(p. A16) Like other Americans, immigrants often dramatically improve their quality of life and economic prospects by moving out to less dense, faster growing areas. They can also take advantage of more business-friendly government. Perhaps the most extreme case is Houston, a low-cost, low-tax haven where immigrant entrepreneurship has exploded in recent decades. Much of this has taken place in the city itself. Looser regulations and a lack of zoning lower land and rental costs, providing opportunities to build businesses and acquire property.

It is almost inconceivable to see such flowerings of ethnic entrepreneurship in Continental Europe. Economic and regulatory policy plays a central role in stifling enterprise. Heavy-handed central planning tends to make property markets expensive and difficult to penetrate. Add to this an overall regulatory regime that makes it hard for small business to start or expand, and you have a recipe for economic stagnation and social turmoil. What would help France most now would be to stimulate economic growth and lessen onerous regulation. Most critically, this would also open up entrepreneurial and employment opportunity for those now suffering more of a nightmare of closed options than anything resembling a European dream.

For the full commentary, see:
Joel Kotkin. “Our Immigrants, Their Immigrants.” The Wall Street Journal (November 8, 2005): A16.

Taiwan: “Barren Rock in a Typhoon-Laden Sea”

(p. 262) The ideal country in a flat world is the one with no natural resources, because countries with no natural resources tend to dig deep inside themselves. They try to tap the energy, entrepreneurship, creativity, and intelligence of their own people–men and women–rather than drill (p. 263) an oil well. Taiwan is a barren rock in a typhoon-laden sea, with virtually no natural resources–nothing but the energy, ambition, and talent of its own people–and today it has the third-largest financial reserves in the world.

Source:
Friedman, Thomas L. The World Is Flat: A Brief History of the Twenty-First Century. New York: Farrar, Straus and Giroux, 2005.
(Note: italics in original.)

Enterprise and Government in Harry Potter

A long time ago (30 or 35 years) I attended some sessions on film and ideology at a week summer conference sponsored by the Intercollegiate Studies Institute. At one session they screened Frank Capra’s Mr. Smith Goes to Washington, and then the faculty panelists, with help from the audience, proceeded to thoroughly trash Capra for left-wing, anti-capitalist, populist bias. I sat and frowned and fumed, but the session ended without me having the courage to defend Capra. What I wish I had said was that Capra may have been a left-leaning populist; his economics may have been all wrong; but if that’s all you say, you miss the main point. The main point of Capra is loyalty, and persistence, and courage and good-humor. One can reject Capra’s implied economics and still love his movies.
Well on the night of Friday, July 15, 2005, with my wife and daughter, I hung out at the local Border’s book store with a huge crowd of other fans, waiting until the stroke of midnight to be allowed to purchase Harry Potter and the Half-Blood Prince. Similar scenes played out all over the country, and in other countries as well. Apparently the book, like its predecessor, is setting all kinds of sales records.
And analyses have begun to appear about Harry Potter’s economics and politics. (The July 15, 2005 Wall Street Journal ran a piece suggesting that Dumbledore is Winston Churchill and Voldemort is Adolph Hitler.) They too miss the main point.
The main point is that the leading heroes of the Potter books display loyalty, and persistence, and courage, and good-humor. And the characters are constructed as real people who we come to care about. And the books are well-written. And plot matters too–you need to find out what’s going to happen next.
Still, if you want to play the socio-political-economic interpretation game with the Potter books, I suggest the following facts might be relevant. Two of the minor heroes of the books, Fred and George Weasley, are successful entrepreneurs. The heads of the governmental Ministry of Magic are at best ineffectual, dishonest, pompous buffoons. And the seed money for Fred and George’s successful enterprise is provided by that most famous of venture capitalists: Harry Potter.
[Details on WSJ article: Jonathan V. Last. “History According to Harry: Appeasement Fails with Warlocks Too.” Wall Street Journal (Friday, July 15, 2005)]