A MODEL FOR POOR NATIONS TO FOLLOW What Business Contributes to the National Welfare Upon reading David Wessel's discussion on "Why Economists Are Still Grasping for Cure to Global Poverty" in The Wall Street Journal, I considered my own experience in the U.S. as an entrepreneur for clues to why I was able to start a business and why it succeeded and contributed to the benefit of the employees, the community and the nation. In other words, what was so special about that experience and what was necessary to make it possible. Just think, I speculated, if the people in poor nations could do what I did, they could alleviate much of their poverty. As the business grew and hired on more employees, (at one point more than one hundred) everyone involved prospered. It was obvious that the fallout had beneficial ramifications well beyond our relatively small operation. Our employees became more prolific consumers, they paid more taxes, and knowing that they had relative security they felt good about themselves. I as their leader felt good about myself for what I enabled them to achieve. But how much credit could I really claim? Wasn't I merely an instrument taking advantage of certain conditions that made it all possible? I recall reading William Easterly's conclusion that a major solution to poverty is to provide people with an incentive. Of course, that lesson is clear especially after witnessing the downfall of the Soviet system which restricted the independence of the individual. How does a government create an environment in which incentive abounds? For me it began with a college education paid for entirely by the government. After returning from WWII most veterans took advantage of the GI Bill. Ever since, I've been a proponent of a government subsidized college education for those who qualify. Whenever I tell people this they mention the enormous cost that such a program would entail. Yet we manage to spend hundreds of billions to conduct a war, but not to support universal college education, or universal health insurance, or guaranteed future retirement benefits, or infrastructure improvement, and so on? The GI Bill helped create the success of the postwar generation and the many years of prosperity that followed. I saw what my education did for me and many of my contemporaries. But I had only a liberal arts degree which in the world of business ostensibly qualifies you for nothing. Only later when my company began to grow did I learn that it was the best possible education to have as training for managers since business at bottom is really based on relationships. After graduating from college I didn't have a cent to my name, and went from job to job, at one point even waiting on counter in a restaurant. Still, the desire to start my own business burned within me. How then do you start when you have no capital? Again, the government came to my rescue via the SBA which guaranteed the bank loan that became my seed money. So now besides college we have two other crucial institutions that were necessary for me to begin: a bank, and a government agency. Much more was needed to ease the way to start a business such as no necessary permission to do so, no confiscatory government fees, ample tax property breaks from the community for the first years, the freedom to hire and fire without consequences, the freedom to call on any prospective customer, and the absence of corruption. All these conditions existed more or less when I began. We did encounter some local corruption early on when a city assessor had his hand out to reduce our property tax. We refused and it eventually led us to relocate from his city. We also ran into purchasing agents and executives who wanted to be paid off for doing business with us, so we stopped calling on them, but there were enough honest customers available to keep us growing. During the early years when we operated at a loss, or made lean profits, we were not concerned with income taxes. But as the company prospered, the corporate income tax which at that time was fifty percent became a serious burden, inhibiting our growth. Often I would wonder whether it was worth it. Eventually, I found a way to get around such a high tax by introducing an ESOP, a device for utilizing a portion of our profits to fund employee stock ownership, thus returning profits to our cash flow while at the same time giving everyone on board a stake in the business. Again our government played a decisive role by providing a scheme which contributed not only to the welfare of the company but also to the common good. Eventually, when we sold the company the capital gains tax rate had been drastically reduced, so that all the stockholders, including myself, the major risk taker, made out for our years of struggle and ultimate success. So what is the lesson that a poor country can learn from this? For one thing, an economy depends on how conducive a national government is to starting and encouraging business. And, of course, its success or failure is reflected in its population's standard of living. A country's officials, both elected and appointed, must be continually monitored for their honesty and integrity and when they go astray, severely punished. Education is essential, sixteen years of it per person paid for by the government. Taxes on business must be low, or not at all, and instead all government revenue should derive from individual income at preferably a flat percentage rate, proven to be effective in so many Eastern European countries, including Russia. Indeed, witness China; it appears that democracy is not essential for these conditions to prevail, although it has a way to go to eliminate poverty, but so do we in the U.S. To sum up, the unobstructed freedom, the existence of secure institutions and laws, the encouragement by our government in an atmosphere void of corruption and threat, motivated me to start my business. Indeed, the ability to do so is the very source of our nation's prosperity. I believe any poor nation whose leaders have the will and generosity of spirit to follow our country's example can readily replicate its economic success. But without such leaders no poor nation will rise from poverty. It would be hopeless.