It's not the market, stupid: It's the attitude

By Marilyn Barnewall

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There are two groups of dynamic, wealthy people. Each supports one or the other of wealth's purposes. This is true in all parts of the world, but this article focuses on wealth in America.

One group – we'll call it "A" – has money today and invests it in today's jobs. Their wealth supports those who work in jobs at big companies. They invest in the economy via the stock, bond, commodities, futures, and precious metals markets.

Jobs exist at big companies because people with money invest in that company's stock. It is one of the reasons the wealthy must not be excluded from tax breaks. Their stock investments in the "now" culture provide jobs.

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The other group – "B" -- will have money tomorrow. Computer gurus, before the technology revolution, are good examples of this group. What they invest today is time, energy and a lot of discipline required to achieve their dreams. Their "wealth" supports tomorrow's economy.

For example, until members of group B moved technology onto center stage, America was an economy driven by industry and manufacturing – which was supported by group A. That changed in 1964 when for the first time more people were employed by service, information and technology companies than by industry and manufacturing firms.

Today millions of Americans are employed because of the dreams of those who saw the potential of technology. Without Group B, those jobs would not be there.

Until the 1860s, the American economy was once driven by agriculture. Henry Ford and a lot of entrepreneurs and inventors from Group B introduced us to the (at the time) miracles of manufacturing and industry. The Model T and the factory production lines that emerged to make it available to consumers created millions of new jobs. So did the telephone.

Nowhere is a law of nature more abused than the one pertaining to wealth. Group A pays too little attention to economic progress for future generations. Group B is so focused on the future, it gives too little support to the existing economy.

No economy survives without balanced support given to both groups. One of the major problems with today's economy is that too much support is given to Group A (which is cutting jobs) and too little is given to Group B (which creates jobs).

Back in the 1980s, Paul Volcker suggested I make a presentation to the people (men) responsible for training national bank examiners. I did. The CPA who was handling the bail-out of a major Chicago bank that had participated in bad oil loans made by a small Oklahoma bank went with me. Had it not been for this man, both banks would have failed. After the presentation and recommendations for bank examiner training were made, the supervisors coolly said they planned to leave things as they were.

The CPA responded: "You mean the way loans have been made that caused oil and gas banks to fail? You mean the way they've been done to cause farm banks to fail?" He gave a few other examples. The head supervisor responded, "yes." Such is government understanding of free markets.

It is all but impossible for entrepreneurs to start new businesses that create jobs when they must pay for costly environmental impact studies and OSHA requirements. Increased taxes that impact per employee costs – from health insurance to unemployment insurance – create a no new jobs environment.

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Another of nature's laws is at work here: Two opposing forces of equal strength, left unfettered, create balance by fighting for their positions.

Government intervention via regulatory controls does not leave the marketplace unfettered. Bank inflexibilities that remove access to wealth creators do not leave the marketplace unfettered.

So, aside from new jobs that could be created by Group B but are not, how does all of this impact Americans?

How many billions of dollars has the U.S. government, the World Bank, and the International Monetary Fund spent trying to establish democracies in third world nations? Who is teaching the Iraqis about free enterprise and open markets? How successful will they be?

Third world nations can prosper under free enterprise and democracy. For that to happen, however, Group A needs to understand the important contribution made by Group B – and, vice-versa.

New business startup risks are understood and taken by Group B, not Group A. Remember, Group A is made up of people who work for large companies. Guess which group is on the ground in Iraq, Afghanistan and other areas of the world trying to implement capitalism? It is not Group B.

To build and grow a capitalist economy requires the risk management capabilities of Group B. Too often, members of Group A think all it takes is money. Based on performance, they seem to believe all you have to do to create democracy and capitalism in poor countries is build several big office buildings. You then get a few Fortune 500 companies to move in and hire people.

That is not the way capitalism and open markets work.

When implementing free enterprise and democracy in third world nations, wealth creation must precede wealth management. Until wealth is created, there is nothing to manage. Thus, Group B should have primary responsibility for helping implement a system of capitalism when one needs to be created. Without them, no middle class evolves and capitalism looks sadly lacking in solutions.

Independent business owners have been totally excluded from this process. As a result, wealth creation strategies have been given no priority when trying to establish new, independent economies around the world. That, perhaps, is why the failure rate is so high.

Just as it required the risk management skills of Group B to build a nation called America, the same is required in Haiti, Bosnia, Russia, Afghanistan, Iraq, and in all the nations that made up the former U.S.S.R.

When we help poor nations move from a totalitarian form of government to democracy with capitalism at its base, we need to remember that America did not spring from the womb complete with multi-national companies.

Risk management is an acquired, not an inherited skill. Our system of free enterprise evolved over time. So, too, did the personalities capable of creating, managing and running it.

The point is, risk tolerance sufficiently strong to build a capitalist republic results from attitude. To create broad-based wealth such as is seen in America, the learning of risk management skills is a must. It must start small and grow big… just as it did in America.

It takes time to develop the confidence required of free people who make risk-based decisions, daily. It takes a lot of time when the people who live in the nation being converted to free enterprise have no risk-management skills. Those entrepreneurial skills foreigners think come so naturally to Americans are carefully honed by a competitive marketplace, not dictators.

To help others, it appears we need to remember our own history. It's not the economy that builds democracies, stupid. It's the attitude.

Marilyn Barnewall, in 1978, was the first female to be named vice president in charge of a major loan and deposit portfolio at Denver’s largest bank. She started the nation’s first private bank, resigned to start her own firm and consulted for banks of all sizes in America and other countries. In June 1992, Forbes dubbed Barnewall “the dean of American private banking.” Author of several banking texts, she has written extensively for the American Banker, Bank Marketing Magazine, and was U.S. consulting editor for Private Banker International (Lafferty Publications, London/Dublin). Article originally appeared in the Grand Junction Free Press. Marilyn can be reached at [email protected].