Archive for the ‘Interviews’ Category

Interview with Lall Singh on Entrepreneurial Finance in England

Wednesday, November 30th, 2016

[This is the full interview with Lall Singh which was published in our Kaizen newsletter.]

Lall Singh on Entrepreneurial Finance in England


Lall Singh is CEO of Capital Instruments based in London, England. Capital Instruments is an investment consulting firm that provides finance, management, and marketing expertise in several European companies as well as projects in Canada and Dubai.  

Education and early career

Kaizen: Where were you born?Singh-Lall-8

Singh: I was born in England in a little town called Solihull back in 1969. That makes me 44 this year.

Kaizen: Where is Solihull?

Singh: It’s near Birmingham, which is the second largest city after London. It’s between there and Manchester  —  there is always a competition Birmingham and Manchester about which is the second largest city. But both are growing cities. Solihull is just on the outskirts of Birmingham, which is located in the west midlands. We aren’t too far from Meriden, which marks the center of England.

Kaizen: Your parents came from India?

Singh: That’s right. They emigrated back in 1960 from Punjab, which is north India, from a little town called Jalandhar.

Kaizen: What brought them here?

Singh: Partly it was the farming communities and partly the attraction of increased income, the ability to work and make a living. And with the prospect of returning to India after retiring, which was the case. My parents did indeed decide to retire early and head back to India. You know, you always heard the old record that once you come here, you’re stuck here. This isn’t the case, of course. There’s nothing stopping them from going back. We suggested that they take an early retirement and go back to India. The funny thing is that they stayed there for about nine months and decided that “home” is where the heart is. They decided that they would spend most of their time here in England and perhaps two or three months a year in India.

Kaizen: What was your schooling like?

Singh: My schooling was predominantly here in England — in and around Birmingham, the major city. You start with nursery here, equivalent to your kindergarten; then junior school, and then secondary education.

Kaizen: By the time you were into secondary education,, did you have some career ideas? Or were your parents nudging you in a direction?

Singh: At that stage, I would say about the age of 11, I wasn’t probably thinking about any career or definite decisions about them. But business in general or some money-making aspect were attracting me. We came from a very poor family here in England — general working class. And, obviously, with my parents being immigrants and starting off on the first rung of the ladder, so to speak. My father worked as a dress welder, as it’s called, for one of the aerospace companies here in England. It was really economizing and watching the pennies. So in those days, I suppose, I was attracted more toward business as a means of making good money and living a lifestyle most people cherish.

Kaizen: Were particular types of businesses attractive?

Singh: Originally I was interested in economics. It was essentially looking at current affairs and looking at the micro and macro perspectives.

Kaizen: This would have been when you were a little older?

Singh: A little older, from age 12 and into my teenage years  —  when you are really trying to decide what it is you really want to do. I suppose the people around me were more interested in the sciences. I was a bit different. I remember that of most of the options that you have when you are about 14, the ones I leaned toward were more of the mathematical type, probably at that stage heading more toward a career in accounting.

Kaizen: You were good at math from a young age?

Singh: That’s right. Yes.

Kaizen: You went to King Edward VI grammar school in Birmingham. What kind of school was that?

Singh: It’s referred to as a select education. So it is endowed with quite generous funds. However, they tend to restrict the number of entrants, and they have an entrance test. In those days, it attracted about 2,000 people, but they could only offer 200 places. So if you were in the top 200, you would get in.

Kaizen: Did you get a good, basic education?

Singh: I was very privileged to have made the place. It was rated something like fourth-top in the U.K. It is still, I believe, one of the top schools in the country.

Kaizen: You went through A-levels, which the equivalent of high school in the U.S.?

Singh: It’s actually the continuation of secondary education, which is referred to here as sixth form college.

Kaizen: College prep years.

Singh: That’s right.

Kaizen: Then you went to Birmingham University. How old were you when you started university?

Singh: About 18.

Kaizen: You mentioned an interest in business and economics in your teens. Did you go in with a firm major in mind?

Singh: I had done economics and accounting at A-level, so at that stage I opted for a broad major in accounting and finance. With the view to perhaps combining with economics at a later stage. But my major was essentially in finance.

Kaizen: Accounting and finance?

Singh: That’s correct.

birmingham university campusKaizen: What was the attraction of accounting?

Singh: At that stage, it was one way to get into looking at businesses from an accounting perspective. It gives you an appreciation for how businesses function. My attraction was more toward management accounting as opposed to accounting in practice. The difference being that accountants in practice tend to compile numbers in order to fulfill statutory obligations of compliance; whereas management accounting has more to do with management decisions, where you are looking at investments, ways to reduce costs, and it is essentially looking at a business and how better it can function in terms of productivity, operations, how it can utilize its own funds better.

Kaizen: So using the accounting as a set of tools for management decisions?

Singh: Accounting as a feedback tool as well as looking at what options are available given to you given the financial restrictions.

Kaizen: The other side was finance. What was the attraction of finance as a major?

Singh: I was interested in capital markets, looking at ways of leveraging different types of gearing ratios, and how businesses can function and grow through the use of finance.

Kaizen: Is “gearing ratio” a technical term?

Singh: It’s the debt-to-equity ratio. You look at your own capital you are putting into the business, or shareholders are putting in, in proportion to what sort of debts the businesses are taking on. And over the years, you find different gearing ratios tend to be better given high interest rates — you want to have high debt with low equity; given low economic times, such as now, you tend to have a high gearing ratio, which is easily at one or two percent.

Kaizen: At university, did you take courses in the science, arts, or humanities? Or was it a more narrow education?

Singh: When you are in England, up until the age of about 14, you take a very broad range of subjects, which tend to cover what is called O-levels, which is the precursor to A-levels. Across those, in fact, I took a lot of the sciences: chemistry, physics, math, English, of course, and geography. After that, with the A-levels you can start specializing. So at A-level I went for more of a math, accounting, economics route. But we also do a general studies course as well at that stage. So that was my combination. I suppose it gave me the platform to look towards specializing further in accounting and finance. At that stage, I chose accounting and finance, but later on I decided to undertake an MBA where I got more interested on the marketing side. And that’s once you actually work for companies, you get an appreciation for it.

Kaizen: What was your first job after graduating from Birmingham?

Singh: My first job was actually for a publishing company. In fact, before then, I did work for an accountancy practice, Coopers and Lybrand, which is now part of PwC (PricewaterhouseCoopers). I had shied away from that, knowing that practice accounting would meant laborious three-year contract, looking at mainly statute reporting. Instead, I looked to publishing as a training accountant, and I specialized in management accounting as opposed to practice accounting.

Kaizen: Then you decided to go for an MBA?

Singh: That’s correct. I worked for a few years and then I opted to go for an MBA at Aston Business School. Given that I had already experienced accounting and finance, I decided — I was self-funding at this stage — I was going to make the most of the whole course and decided to specialize in marketing, which was something I didn’t have that much exposure to. I became particularly interested in market segmentation.

Kaizen: What was interesting about marketing to you?

Singh: I have always felt that accountants are shielded from looking at ways to moving business forward in terms of how to innovate and how to generate more business. Yet they’re more in-tune with costs and how to reduce costs. And I think accountants sometimes get blinkered, but combine it with a marketing approach, where you know it is essential for a company to breathe and grow by looking at different markets, how to nurture them, how to grow them, how to invest money in order to get returns on your capital. I think that’s a skill where you find that any company with corporate governors you have a board, you find that the accountants and the marketers are always at loggerheads given that accountants want to reduce costs and keep everything contained and marketers want to spend more and have a marketing campaign in order to generate business. I think what that gave me was a unique insight into both areas where you could actually have a cross between knowing the accounting function as well as the marketing function.

Kaizen: At this point, still in your twenties, were you thinking that you would be working independently or within existing firms?

Singh: I couldn’t imagine myself, at least at that stage, working independently. I was really trying to build a career and to align myself with better qualifications so I could offer that little bit more in general management for some of the larger corporations.

After my MBA, I ended up working for a conglomerate, which was looking to create companies from the old East European block where, for instance, in Romania they were privatizing a lot of the state-owned assets. Some of them were quite large: pharmaceutical companies, aviation companies, engineering companies, etc. We looked to acquire these companies and put Western-style management in there. For instance, we looked to bring a pharmaceuticals company we bought up to Good Manufacturing Practice (GMP) status. That allowed us to subcontract to some of the majors like SmithKline Beecham, producing some drugs in a very cost-effective way.

Kaizen: What years were you working in Romania?

Singh: That was from about 1998 onward. I worked for a company called Litchfield Continental. Eventually it was reversed into a shell company on NASDAQ, and we floated the whole structure. That gave us access to capital markets and a shareholder structure with institutional investors, which allowed us to expand and continue to the next stage.

Kaizen: At the poSingh-Lall-20int that you were working for the conglomerate, what was your function, in particular in the Romanian operation?

Singh: I originally was the head of finance, but then it became more of a strategic role as the Chief Financial Officer. I oversaw all of the subsidiaries and I was responsible for raising the financing in order to continue to acquire other companies. Also, we were restructuring a lot of those companies in terms of making them more efficient and making sure that we could produce goods, such as aircraft, at a price that was quite competitive.

Kaizen: That requires a number of skills, including finance and management. How did you acquire the management skills?

Singh: With Energy Publishing, once I qualified, I moved as an accountant to general management. That’s when I felt that I needed to sort of prop up my skills with an MBA to get more broad experience in operations. It was after the exposure to a lot of the conglomerates and looking at turning around some of those companies that I actually learned some general management. In fact, I also studied a qualification we have here in England, which is an economic chartered director, which is mainly corporate governance. It was quite a new qualification in those days, but now it is quite popular here in the U.K. as a means of showing that you have the corporate governance skills that is required to govern from a private to a public company. I was one of the first handful of chartered directors in the U.K.

Kaizen: What is a chartered director?

Singh: It’s a qualification. Anyone can start their own company as director of the company; but to standardize the qualification, they put together the program. We have a well-established institution here in the U.K. called the Institute of Directors. They decided to produce a qualification very much like being a chartered accountant or chartered engineer. To be chartered means you have your own set of by-laws.

Kaizen: This would be like a managing director’s position — acquiring the skills and knowledge to do that?

Singh: Yes. It gives you the whole breadth of skills. There is also a panel interview where they assess whether you have the skills.

Kaizen: How does that compare to being a company president in the United States? Or a CEO?

Singh: A company president or CEO would give you the basic skills in corporate governance required for people management, managing a board, finance, operations, and marketing. This would bring them together in coordinating activities.

Kaizen: To go back to the Romanian operation — in addition to the management and finance skills, there were also cultural issues.

Singh: Yes. Also language barriers.

Kaizen: Also political issues: dealing with people who have been trained under a communist regime and trying to change their culture to be more market-friendly. How did you handle that?

Singh: In fact, we had nuclear scientists who were working on the shop floor because hard currency was hard to get in those days in Romania. We had a surplus of skilled labor. To manage that, we had our own operations people. Most were from London and some of our own people in Bucharest. We had translators to assist with the cultural differences.

In terms of dealing with the politicians, at that stage, Romania wanted to become part of the EU, so it was obligated to privatize a number of their industries. In fact, that is one time where the state was actually trying to help us. [Laughs] They helped us with introducing Western-style management and practices, making the companies competitive, and embracing Europe as an open-market. It was really introducing a capitalistic extension into Romania, which helped the economic circumstances by employing a lot of people.

One of the engineering companies we took over had something like 4,000 employees. It was almost a town in itself with its own little railway station. They made clutch parts for Mercedes-Benz and, obviously, Mercedes-Benz controlled the quality. They rubber-stamped them as Mercedes parts, but they were actually manufactured in Romania. So we were quite impressed with the quality they were bringing out.

It was essentially turning that from a communist regime to where they have the normal more profit-oriented objectives: generating profits, keeping business goals in sight, having a vision of the company in terms of quality, where they position themselves in the market, and looking at values that they deliver and how they are going to deliver that. The people are a huge aspect, and for them it was quite a privilege working for a Western company — and one of the forefront companies, especially in the pharmaceutical buyer’s market. It was one of the more prestigious pharmaceuticals that had been long-established. We also bought Romero, which is part of the aerospace company and that was part of Bucharest Airport at that time. That brought in a lot of joint-ventures. For instance, we had an Israeli company that was interested in importing MiGs from the Russians, putting in an electronic platform, and then selling them off to the Romanian Air Force.

Kaizen: Did you say Russian MiG airplanes?

Singh: Yes. Obviously, putting in a lot more technology. And they sort of bought in to Bucharest Airport and some of the hangars there in order to process the orders.

Kaizen: So the British conglomerate that you are working for is running a number of operations in Romania: pharmaceuticals, some biological enterprises, Mercedes parts, and so forth.

Singh: That’s correct. It was also a U.K. operation that was mainly insurance-oriented. Lloyd’s of London, a subsidiary we bought called McCall’s, and also biotechnology, which was more in Manchester and included looking at different ways to use innovative biotechnology.

Kaizen: And the overall company was Litchfield?

Singh: It was originally Litchfield that bought the assets; but once it was floated, we used a NASDAQ shell, which essentially is a company that was called — in those days — Global. You can buy a shell on NASDAQ where you can actually clean up and then you can get that to take over your company, which was Litchfield. And what Litchfield would do in exchange is to have a convertible debentures over the stock of the company and eventually it buys out. The debenture is converted into stock. So we had a controlling stake in the shell company, which is a little easier to list on NASDAQ than having to go to the traditional IPO structure, which means you have extensive up-front costs in terms of producing the prospectives and complying with all of that.

Kaizen: How many years were you with this organization?

Singh: A good four years.

Kaizen: In the late 1990s?

Singh: That’s correct. Into 2000.

Kaizen: At some point you left there. Is that because the Romanian operations were finished? Did other opportunities come along?


Singh: There were a lot of opportunities that I was faced with, and a lot of them were smaller projects that got me really interested. Many of my colleagues left to look at financing different projects, and I saw their success mushroom. I thought that I should try a hand at it. So I left that company to move on to Capital Instruments.

Kaizen: In 2001?

Singh: That’s correct.

Kaizen: Is this an entrepreneurial firm?

Singh: Yes. We specialized in raising funds for small-to-medium size companies looking to grow. We have a number of investors that we have who are looking for investing into small-to-medium size enterprises with the prospect of growth. We essentially marry the two.

Kaizen: Who is the “we” early on?

Singh: A network of financiers I work with. They all have their specific expertises. If there is a project, for instance, a biofuel plant or a harbor project or an aviation project, we can assemble a team and relative expertise and look to champion either raising finance or find certain investments.

For example, one of my earlier projects when I started off as a financier was to look at insurance assessors. This was a small-size English company, which had insurance assessors up and down the country who would go out and value your vehicle after you’ve had an accident. This was very early on when we had in England the third party loss-recovery market beginning to take hold. What we did was develop that company and combine it with in-house assessors that the insurance company was wanting to off-load to reduce their costs. So we created a national, insurance assessing business, which in itself was quite innovative in those days.

We could quite easily use IT and technology. Our team had a certain number of people who were more IT-literate. The way we grew the company was the insurance assessors had in those days what would probably be equivalent to an iPad. A gadget with its own cradle in his car. They would do off their report when they would see a vehicle. It was similar to the internet in that the cradle sent a signal through the phone back to the mainframe; it would turn around the reports quite quickly. We combined that for what we called the litigation departments and with the insurance companies as well; so we could actually cover both markets. Before it was bought out, it became a key player in the British insurance market.

Kaizen: At Capital Instruments, you came in as CEO in 2001 and put together financing for small-to-medium size companies. Your value-added is your network of people who have the financing available and how to structure finance for these organizations. In some cases, you implemented the management practices — putting together a team of people to make the company better-financed and better-operated.

Singh: That’s correct.

Kaizen: So it’s actually a combination of financial and management consulting.

Singh-Lall-22Singh: Yes. And the marketing aspect as well because in order to attract investment, investors are really looking to companies that are in the growth phase; they are looking to grow. So it is essentially marrying the two. You have a very good project; you have management in place; you’re overseeing their investment; they are looking to grow their investment. So it was quite a mutually-beneficial relationship that we were brokering.

Kaizen: How would the compensation work? Would it be a percentage of the overall financing deal? Or are you taking investment positions yourself?

Singh: Sometimes a combination. Sometimes we could negotiate a private placement ourselves and sometimes we would get paid in equity as well as cash compensation. And sometimes it was a case that we would see two or three companies in the same field and see ways that we could create synergy by combining the companies. So we would look to approach venture capitalists and banking relationships ourselves to put together a financing package to buy two or three companies. Then we would be the nominees to the board to oversee the company. Once it was where we wanted it, we would spin it off for sale or continue having some sort of a stake in it.

Kaizen: A small-to-medium size company — can you put some numbers to that?

Singh: Anything from a £2 million turnover to £10-15 million.

Those were the initial-sized companies; later on the numbers got a lot bigger. We had hotel developments, such as the Brussels Sheraton. That was getting the investors to finance a purpose-built structure for the likes of Sheraton or the CORE Group, which do InterContinental Hotels, and then lease it back.

Kaizen: How do deals come along? You did insurance-adjusting in Britain and then a hotel in Belgium. How do you find projects as diverse as that?

Singh: Essentially, we built up good relationships with lawyers, bankers, venture capitalists, and private equity. And there were a lot of opportunities — like one of the key developments in Brussels in the Prince Royal area, which was essentially a strategic plot of land; it was a sale on a bankruptcy where we identified the site. It was in the right location where we thought this could actually be built. It was a case of us putting together the deal. This came to us by way of one of the bankers looking to refinance the site because they were struggling. We took the problem away from the bank and made it profitable ourselves.

Kaizen: So through the grapevine?

Singh: Yes. Through the bankers who made the referral to us. In early 2000 a lot of companies had over-expanded and the banks were looking to foreclose; so it gave us opportunities to go in with our management and successful track record. That was quite unusual because while the banks were willing to foreclose on existing proprietors, they were willing to lend to you to make that a success operation. It was really quite interesting in that a lot of deals could be picked up like that.

Kaizen: So the banks are making a judgment about your management and business skills. They don’t think that the existing people can pull it off. Fresh ideas and so on.

Singh: That’s right.

Kaizen: So even though you have no hotel experience per se, it’s the general business experience that is important.

Singh: Yes. Absolutely. Also, certain expertise can be brought in. Like in this case with the hotel experience.

Kaizen: That can be a commodity that you bring in.

Singh: There was a colleague I worked for who was part of a property development company that had already done small-size hotels, so he had the mechanics already in place as an expertise. Once we brought him onto the property, he was looking to create a purpose-built hotel, but the problem was financing. In fact, we got Kuwaiti funds. They were willing to finance the structure of the hotels, then this leads obviously to an operator, in which case he would share in some of that.

Since then we’ve acquired, as well, hotels back in Nottingham, leased to CORE Group, which again has very successful operations. We have other recent developments that are revolving structures — 55-story skyscrapers in Dubai. We also have an Indian company interested in doing something similar in India; that is an exciting type of project.

Kaizen: So the first decade of this century, what other projects were you involved in?

Singh: Some of the larger ones included a biofuels plant in Canada that was producing ethanol from biomass, which is very innovative.

Kaizen: In northern Ontario?

Singh: That’s correct.

Kaizen: How did that one come across your horizon from all the way across the Atlantic?

Singh: We built a lot of relationships in New York, having had a listed company on the NASDAQ exchange. We knew a lot of the banks and consultants there. I also had to be familiar with the federal security laws and the SEC practices. So we came across the project in Canada by way of a referral. At that stage, you in the U.S. had started feeling the pinch in 2006 and 2007. Capital was drying up. So they were looking towards European banks and they saw me as someone they already had a relationship with who had an established relationship with European banks. They signed me on a retainer to say that if I was able to finance this project in Europe, then they would be willing to compensate us. However, we actually felt that the engineering company that had actually designed it wasn’t actually capable of seeing the plans come to fruition.

Kaizen: So Americans were financing this project in Ontario, but American funds were drying up in the lead-up to the financial crisis. So they came to you in Europe.

You mentioned the engineering expertise. You need to get other consultants who have the engineering expertise because you don’t know biofuels personally, right? Although, you can read up on it.

Singh: Absolutely. I was quite fortunate that one of my colleagues had a Ph.D. She was an expert in sustainability. She went on tour for one of the major fuel companies. They were very interested in the project. I have another colleague of mine from a capital fund, who were interested in the project itself given that it was a sustainable project.

We had U.S. and European banks because they saw this as a way of  legislation, because at one stage 10 percent of ethanol formed a part of the fuel pumps — most Americans don’t know that, but they actually pump 10 percent ethanol and they were looking to increase that to 20 percent. So they knew that there was a huge market for it. Corn prices — ethanol being from corn — were going through the roof in the Corn Belt. So that was very unpopular. But here we had innovation and technology, and we had Foster Wheeler at the forefront of developing commercial processes in order to convert biomass into ethanol, which is a tricky process.

Kaizen: What do you mean by “biomass”? Tree bark and whatever is left over from lumbering operations?

Singh: That’s right. Whatever is left from lumbering operations or from natural waste in the forest that needs to be cleaned up. Also some woodchip derivative parts. In Canada there are huge sites accumulated over years and years. We inspected one site that was something like 100 hectares. They were seen as dump sites and they didn’t understand why we were interested in them. [Laughs]

Kaizen: Free raw materials.

Singh: Yes. Free raw materials. That’s one of the reasons the pension funds were interested: we were getting our raw materials free and producing a product.

Kaizen: Were these U.S. or British pension funds?

Singh: Canadian. And we had one of the Netherlands banks.

Kaizen: What dollar value is this operation?

Singh: That was about $320 million (USD).

Kaizen: Much larger. What years were you working on this one?

Singh: 2006.

Kaizen: Was it an R&D project primarily, or was the R&D done and it was more an engineering issue to make it happen?

Singh: The R&D was completed. However, upscaling to mass production was a problem that needed specific expertise. That came from a British company, in fact, Foster Wheeler. Wheeler is known more in the petroleum industry for resolving problems using mass furnaces.

Kaizen: When did this project come to completion?

Singh: It’s still partly financed because we had a project that was taken over by a drawback of Scotland. Things pretty much came to a halt at that stage. Now with financing again becoming more available, we are hoping to move again.

Kaizen: You are working on a project in Ireland involving a port?

Singh: Yes. That’s correct.

Kaizen: How did you hear about this one?

Singh: This came from one of my clients who looked to finance this development and thought that it was far too large for them in Ireland — he’s based in Dublin himself. He asked whether this would interest me; it was a marine project at that stage. While I was in London, I floated the idea to the banks, one of the banks being the European Bank of Reconstruction and Development. It was quite fascinating because it qualified in the European Union grants for an infrastructure project since we were developing a port. But the scale of it didn’t actually allow it to qualify for some of the larger grants; I was told at that stage that it was probably easier to procure larger numbers from European investment as opposed to going for something smaller.

Kaizen: Is this Euros? Sterling?

Singh: Sterling. So instead of trying to finance something for about £25 million, they were asking us to look to upscale the project.

Kaizen: So they can loan you more money. [Laughs]

Singh-Lall-15Singh: That’s right. And here in Europe it qualifies as a sort of private-public partnership, where private money is being matched by public grants and loan financing. This was essentially driven by EU legislation: mandated fishing vessels — mainly Spanish fishing vessels — shipping in the Irish waters have to dock for a certain number of hours after each fishing trip, which meant that they would have to travel all the way back to Spain; but here they could put a facility that was localized. On top of that, we had a wind farm and rigs off-shore, near the facility, without having to go to Dublin or Cork. This would justify having a base there. Also, on the West Coast there is a lot of tourism, which attracts cruise liners and so on. So it mushroomed into a much larger project.

Kaizen: The projects you’ve worked on are quite geographically diverse: Romania, Belgium, Britain, Ireland, and even Canada.

Singh: [Laughs] There are a few developments in France as well.

Kaizen: Fair enough. [Laughs] There doesn’t seem to be a pattern there. It seems it is more of the matter of when and where a deal comes up.

Singh: That’s right.

Kaizen: The projects are also in all sorts of different areas: insurance, hotels, biomass, and so on. Of all of the deals that are possible, what makes one attractive to you? It doesn’t seem to be geography or industry specific. What are the features that interest you?

Singh: I’m quite privileged to receive more projects than I could possibly allocate my time to. The projects that attract my interest … it really is about the people I’m working with. I have a great admiration for our management; it’s really the people who make the projects happen. I tend to pick and choose projects with people I can really work with and see their passion. Also, I even find that even though it’s across different industries, the mechanics of making a project work are quite fundamental. The mechanics distill down to good marketing, good numbers, an eye on the numbers, good productivity, a business plan that is realistic, and so on.

Kaizen: That is more abstract than the particular product or place.

Singh: Yes. I’ve developed those fundamentals having come from a management background, combined with marketing and corporate governance. It’s about how to oversee a project and how to take that “pilot” or strategic view. You can make it happen from start to finish and you have the people and elements in place.

Kaizen: The first thing you mentioned was the people that you get to work with. You deal with a wide range of people in many different countries. It’s not always the same financiers from private equity and venture capitalists. Is it people that you know and you’ve worked with before?

Singh: Actually, you look at the merits of the project and you know your own resources of people. Also, with some projects you look at the existing management already in place. What’s their passion? Where are things going wrong? Where do they lack the skills to do it themselves? And where can we make it a mutually-beneficial relationship? So I’m very interested in who actually spearheads the project itself.

For instance, we were quite fortunate in the Ireland project. We have someone who has 25 years of experience in the industry. He’s built up a family business, which has gone pretty much as far as it can go, because you can’t break the threshold of a family business into a more corporate structure, which takes structured financing and attracting the likes of what we would call “merging capital.” It would be highly capital-intensive and then dealing with a lot of the blue chips to get relationships to make a support development work. It’s beyond their agreement. But you have the people on the ground at the local level who are there and willing to see it through with you at the end of the day.

Kaizen: How much of this can you do from your home office? How much of it requires you to travel — boots on the ground?

Singh: In the early days, I used to travel a lot. But now I try to manage remotely, being a family man. [Laughs] But it is difficult; I’m still traveling.

Kaizen: Do you have more junior people whom you can farm the travel out to in order to do the leg work?

Singh: Yes, we do. We have a lot of junior people who’ve come through the ranks who have worked with us on several projects. Also, technologies such as Skype and so on make it so much easier.

Kaizen: The company is still Capital Instruments?

Singh: It certainly is, yes.

Kaizen: How many people work at Capital Instruments?

Singh: About 25 people.

Kaizen: You’re CEO of the organization?

Singh: Yes.

Kaizen: With 25 people, how many projects in an average year?

Singh: We take on a variety of projects. Some years it may be like 12 projects, which might be fairly small. And some years we may take as little as two or three projects in a year because they take a lot of time and are a lot more involved. It really depends. Some of the companies may be in high-growth fields, like biotechnology, which doesn’t really need too much key-input, but they do want the ability to raise financing. We’re pretty much putting together their business plan and pitching for them to banks and helping them in an almost hand-holding approach that isn’t so resource intensive. Whereas if you are developing a completely new project, like with the port development, for instance, we have to sort of scrap the original plan to look at something far bigger that involves some key players that we have to resource or to incentivize to work with us in order to bring to fruition.

Kaizen: So the 25 people who are part of your staff, how many of those people would be finance? How many would be marketing? How many would be management? Or does that breakdown even make sense?

Singh: Most of us are all-rounders. Either we have a financial background or a marketing background, and sometimes an operations background. We come from a particular industry where we’ve managed either to grow a company or projects within a larger company where we’ve had hands-on experience. We’ve been through the “mill,” as we say, having experienced capital-rationing problems, problems with not having enough resources — human resources and so on. So most of the people are quite experienced.

Kaizen: You mostly hire people who’ve been through the fire.

Singh: Yes.

Kaizen: Do you recruit out of universities for junior people?

Singh: We do recruit from universities. A lot of the younger chaps are post-graduates. Some of the research, especially the desk-based research, we do resort to Ph.D.-level students who we can contract.

Kaizen: Speaking of a Ph.D., you spent some time at Warwick Business School pursuing a Ph.D. while you were also doing your full-time career. What was your motivation for pursuing the Ph.D.?

Singh: I had a professor who was very interested in my MBA dissertation who convinced me that I should develop it more and make a dissertation that would be worthy of a Ph.D.

Kaizen: What was your thesis?

Singh: I was looking at specific market segmentation in the leisure industry. In order to motivate myself, the subject had to be marketing, some aspect of segmentation, and it would also have to involve an area that I really haven’t looked at, but interested me. It ended up being the leisure segment. I went through the academic side of it, but I was still very much working and I was pulled away by certain projects. Unfortunately, that has been shelved for the time being. I would love to go back to that.

Later Career and Advice

Singh-Lall-17Kaizen: So when you have some leisure, you can finish up your Ph.D.

Singh: Yes. That’s right.

Kaizen: You are in a good situation now. You are in your middle 40s; you have a prosperous company; you have more deals in front of you than you can handle, so you can be choosy. What do you see yourself working on for the next few years?

Singh: I think the mix of projects at the moment with the port development, the new, revolving skyscraper …

Kaizen: Yes, we do need to come back to the revolving skyscraper. [Laughs]

Singh: [Laughs] That’s kind of interesting, yes.

Kaizen: So the port project in Ireland, a revolving skyscraper in Dubai, and a project in India, is that right?

Singh: Yes.

Kaizen: Those will keep you busy for a couple of years.

Singh: Yes. Those are the immediate projects. The biofuel project is also coming back on-stream. So those will keep me busy for a while. I’ll have to light a candle to try to fit my Ph.D. in between.

Kaizen: Let’s talk about Dubai, where all kinds of engineering marvels are happening. How did you get involved in this project?

Singh: This was from an old business associate who went out to Dubai. He had been there for a number of years and sold something to the tune of $200-$300 million in property there; so he became quite a significant property dealer there in Dubai. He was involved in Jumeirah Beach Resorts, which is one of the prime lands in Dubai. We had a very good relationship there. He based himself in Dubai and is looking at a way of presenting something at the height of the highest structure in Dubai at the moment, Burj Khalifa.

Dubai was priming itself to be one of the major hubs that you can actually stopover when you are flying from, for example, Birmingham to the East. So when I take a trip to India, I have a chance to stop off in Dubai and have a chance to enjoy a lot of the 5-star and even 6-star and 7-star hotels they have there. As well as some of the water parks — they even have a ski resort there. It is a very exciting place. Obviously, they took a battering during the financial crisis and everything almost came to a halt. My business colleague there is struggling, having had a lot of boom years in property sales.

However, there is still a niche market of those interested in innovative property ideas. He’s working with Atkins Engineering to develop a revolving structure. What became popular is what is called “villas in the sky,” where people buy whole floors of a building in order to have an apartment that stretched across a whole floor.

Kaizen: So the idea for this one is that the entire building rotates?

Singh: It rotates, yes. He got the technology and wants to build on prime land as its first prototype. He approached me for the financing aspect because we have the hotel experience and the type of investors who may be interested being that it is at the forefront of innovation — that’s always a risky venture. He was having a difficult time financing, which is why he approached me.

Kaizen: How much is it to finance this project?

Singh: About $200 million. It’s a 55-story skyscraper.

Kaizen: Part hotel and part villas in the sky?

Singh: His idea initially was to have all residential. We changed to thinking that you are perhaps better off selling the first 15 or 20 floors to a hotel. At the moment we are working with the Core Group, who are quite interested in the first 15 floors.

Kaizen: This project is still relatively early and you are still working on the financing?

Singh: Yes. We have a Swiss group and an Indian group interested. We’ve acquired the land where it is going to be built, so we can put those stages together to satisfy both of the criteria and maybe bridge debt to finance the difference.

Kaizen: The engineering is a “go?”

Singh: Yes. Apparently the technology has been patented as a joint patent between Atkins and my business colleague.

Kaizen: Does the property have a name so we can keep our ears open for it?

Singh: Yes. You can look at the website; it’s Time 55. It’s very exciting. I can very easily imagine somewhere like Las Vegas having a revolving structure like that. It would be quite unique. Perhaps New York as well. In fact, the company itself, Time 55, wants to put a building on each timeline. I think that’s quite ambitious; at this stage we are focusing on getting the initial one off of the ground.

Kaizen: It could serve as a prototype for lots of others.

Singh: That’s right. So we are trying to get the prototype off of the ground, and once we know that’s done, to replicate it will be easier. Right now it’s about getting the prototype financed and workable and to make it a worthwhile hotel — to make it successful by having full sale on the residential as well.

Kaizen: So your major projects currently are a revolving skyscraper in Dubai, the biomass case in Canada, and a large port structure in Ireland. Your plate is quite full.

Singh: Yes. [Laughs] Of course, I’m not the only one working on these. We have a number of people involved.

Kaizen: Yes, a whole team of people. Of your 25 permanent people, are they divided among these three projects? Or is everybody doing a little bit on each?

Singh: They are pretty much divided. Each of them has their expertise.

Kaizen: And there would be a smaller group of you who are in a general oversight position — or perhaps just you?

Singh: The oversight I’m heading on each of those major projects; so I need to coordinate and orchestrate who’s working on those to make sure that we are still on target and things get done.

Kaizen: Over the twenty years or so since you finished schooling, what’s the thing you’ve enjoyed the most about all of the projects you’ve worked on? Is there one element you’ve liked the most?

Singh: The fact of the achievement. You see a very small company that grows. Like Biofarm Conglomerate has grown into something that has become very exciting because we started from a pharmaceutical company and then acquired a whole sequence of opportunistic acquisitions and ended up the life of the group at that stage. It was very fast, in a couple of years. And I enjoyed the bounce in our stock price — we went from $0.20 to $8.00.

Kaizen: Wow. That’s forty times the original price.

Singh: Yes. So the shareholders benefited — it made a lot of money for a lot of people and they were very happy. It was a very exciting time; reflecting back on it is very pleasant. But also seeing some of the smaller projects come to fruition are very good. The insurance assessors — when we became a major player in the market on a very small concern. A $2 million turnover went up to about $40 million. It was quite good. The growth is what I tend to reflect on.

Kaizen: It’s a happy measure.

Singh: That’s right.

Kaizen: Have you had any projects that ended in failure, projects that just didn’t work out?

Singh: Oh yes. I’ve had my fair share of deals that didn’t work out. Sometimes you do reflect on them and think, “Maybe if I had done it differently.” But that is part of the learning process.

Kaizen: Are there any common threads, things you’ve learned from those deals that fall through that inform your decision-making the next time around?

Singh: Sometimes it comes down to negotiations. Sometimes it’s best to try to find a common platform in order to make projects work. I’ve lost out on a fair share of projects where you try to get your shareholders the best deal, but it wasn’t quite right for everyone.

Kaizen: Over-extended? Too pushy?

Singh-Lall-10Singh: Maybe “over-extensive” is more appropriate. [Laughs]

Kaizen: So it has to be win-win. Though, going into negotiations, you’re both in a separate ballpark.

Singh: It’s usually very complicated and difficult to keep all of the connections.

I’ll give you an example. We owned an aviation subsidiary in the Isle of Wight and that was one of three manufacturers of aircraft here in the U.K. What we wanted to do was to take over a small concern in Yorkshire, where they produced single-pilot, two-seater aircraft. So you get these ex-military pilots to buy the fuselage first … this is a very nice plane where you can detach the wings, put them on the back of a trailer and reverse it into your garage. That really interested me.

Given that we had the production line in Romania and the Isle of Wight, we could actually put those into full production. And we had the usual federal licenses and CAA licenses for production. But in negotiations, it meant buying the company outright; we had some very tough negotiations there. Obviously, you are concerned about the risks you are taking. But upon reflection, I often think perhaps that would have come around. And those aircraft are still around, but not manufactured and not as popular if they were in full production, which would have lowered the price quite drastically. At that time we were looking at something like $10 million for the company, which was a lot of money at that time. But I wish we had acquired it at that time. That would have been a different story. So there are always difficult negotiations because you have lawyers there to represent your interests and you are almost negotiating with a whole team across the board. It’s very difficult. You wonder sometimes if maybe you could orchestrate a board that would do a little better. But it depends on timing and a lot of other issues as well.

Kaizen: Juggling a lot of balls.

Singh: And blades at that time, yes. [Laughs]

Kaizen: Thinking about younger people still in school. How important was your formal education was in enabling you to do what you have done? If someone has smarts and ambition but not the formal schooling, can he do what you did? Or is the formal schooling important?

Singh: You know, I think I ride the learning curve a lot faster. Formal education is the way to go. You have to load yourself with the key thinking. I found that originally — and this was having qualified as an accountant — you’ll still find yourself blinkered in the market because you don’t understand the marketing aspects; you don’t understand the operations; you’ll also get pigeon-holed in a specialization that is self-restricted. I broadened my horizons and tried to get better perspectives by looking at other areas and I became interested by accident in marketing; it wasn’t a subject that really appealed to me.

Kaizen: And that wasn’t until your MBA level.

Singh: Right. Nowadays in business to get ahead of the game, you need to be more of a generalist, but see the woods from the trees by having enough knowledge in the various aspects: numbers, accounting, managing operations, managing people, as well as being able to see a vision for the company in terms of goal setting and where you are positioning your company relative to the competition.

Kaizen: Two other things come to mind here. You consistently mentioned knowing people — having people bring things to you and having your own network of people you can call on. What goes into being the kind of person who can be a part of a network like that? Are personality and character important? And can they be taught?

Singh: I think in business your reputation is extremely important as well as your ability to deliver. And more importantly, as we say in England, an old phrase that is, unfortunately, being emptied of meaning: “Your word is your bond.” Integrity. Loyalty to your principles.

Kaizen: Developing a reputation as being someone who can deliver but also being a person who delivers what he says he’s going to deliver.

Singh: That’s correct.

Kaizen: Part of that is the skill- and knowledge-set, and part of that is being smart enough to have the formal schooling.

Singh: Yes.

Kaizen: You mentioned that most of the deals you’ve put together have had common elements — you are able to see certain, abstract patterns. But in each case, since the industries you are so different, you have to plunge into the particulars of that industry. It strikes me that you’d have to be a pretty quick self-starter to learn about biomass, ports, pharmaceuticals, airplanes, and so forth.

Singh: Yes. That’s correct. That’s the interesting aspect. In terms of brokering a deal in order to make something grow, to make it appealing to shareholders, to make it appealing to the people who are going to buy the products, and to any stakeholders who are in the business — putting those elements together. The only term I can think of is cross-functional integration. You have to see the woods from the trees. You make everyone strategically coordinate in the same way. And sometimes it’s like marketing to move the company forward, but then you know the numbers fed back to you to see how you perform. I think I have a good mix of the two.

Kaizen: Some questions about Britain’s business climate and the European climate, more broadly speaking. From your perspective, there are opportunities all over the place.

Singh: There are always opportunities, yes.

Kaizen: Do you get the sense that Britain now has an entrepreneurial culture? In one sense, Britain is the birthplace of modern economics and has a strong entrepreneurial history. Is the climate healthy? In decline?

Singh: I think the entrepreneurial spirit in Britain has always been quite strong. It’s weathered the recessions and the booms that we experience here. We have a very good entrepreneurial structure here where people are given the freedom to look at developing and incubating new businesses. We are probably more risk-averse than the Americans are. When you are in New York and pitching a road show and people are buying your stock — the Americans are more risk-seekers. Obviously, you have to speculate to accumulate, but the British tend to be more conservative. We see that through venture capitalists.

The recessions and so on tend to polarize people. You get those who are looking for opportunities and are more risk-seeking, and you have some people looking at the austerity measures going on at the moment and are risk-averse. They draw their funds in more and securitize them in gold and silver and not be willing to invest at this stage. But there is still an entrepreneurial culture that has weathered the differences in available financing.

Kaizen: Britain traditionally has strong ties with North America and more broadly the Commonwealth. But also, due to geography, close connections with Europe. Are the American connections more important now, or the European?

Singh: The American relationship has always been great. For Britain, I think, that is a huge market that is readily available. The European market is a little more fragmented; it’s always been a little more difficult because it has essential differences all across Europe. But, again, it’s an open market, which will continue despite differences in the currencies or whether the Euro dies or whatever.

Kaizen: Europe’s temporary troubles. Britain is in some ways part of the European Union, but it does have its independent currency and it guards its sovereignty. To what extent do current troubles with the Euro affect business in Britain?

Singh: The Euro is a fluctuating market at the moment with the economic climate. But the British Pound is still really relatively strong. Although, for exports, it makes your price a bit more expensive across the continent.

Kaizen: Zeroing in on the so-called “PIGS countries” [Portugal, Italy, Greece, Spain], there is a current instability. Does that impact your decision-making about whether you take on investments there?

Singh: We certainly do because of the political instability. I would certainly be an advocate, but if all the debt was actually liquidated, it would be a lot easier to get the next generation to have it fall on their shoulders the burden to liquidate this debt bubble. Inflating each time isn’t the solution. 

Kaizen: So solve the problem now?

Singh: I certainly would. In some ways it will come to the crunch because Greece is a recurring problem. You saw the problem with Cyprus, which is the first time 30 percent was just wiped off of accounts. It may well be that at this stage that Germany is not willing to further inflate and dilute their own currency, the Euro. This would create a domino effect where Portugal, Italy, Ireland, Spain, and Greece are all impacted, which might be the best thing that’s ever happened to Europe. But I think the most likely scenario is that they will hop-along. The austerity measures will be quite drawn out. I mean, we are having riots and so on in the various countries about this, including the U.K. We are, obviously, not sheltered from it here. It’s quite unfair. A lot of assets are being depreciated due to this bubble. And business perceptions are impacted. It’s a shame that it has to come to this. But this is the result if you want these cycles — and quantitative easing is actually adding to the problem and deferring the solution as opposed to offering a long-term solution.

Kaizen: Younger people. What advice would you give to those starting out in business? Do they need to work on personality issues? Character? Or acquiring formal knowledge? You also mentioned being able to see the forest through the trees, so cultivating a big-picture, abstract ability? Understanding markets? Politics?

Singh: I think people in college now have a lot more opportunities these days, especially with the information age where we have the internet.

Kaizen: Research costs are way down.

Singh: Absolutely. And we have readily available information through the internet. Researching opportunities and social networks are developing and have changed marketing in of itself. And communication can happen almost instantly across the globe. And we can almost travel anywhere in the world. I think it is a very exciting time for someone in college.

Kaizen: What from your college experience has stood the test of time?

Singh: I would certainly invest in knowledge-development by gearing yourself up through formal education. Also by looking at the common denominators of what make businesses work.

Kaizen: So lots of case studies.

Singh: A lot of case studies, which are, again, readily available. It’s almost gaining experience through someone else’s eyes without actually doing it. Because the best experience, I always say, is experience.

Kaizen: Also learning from failure cases?

Singh: Absolutely. Failure cases as well as successful cases. One of the big things I enjoyed in my MBA looking at was real companies that either got it right or wrong. And even some live cases. Or even simulations where you are designing a product  —  I think that is a very good way of learning. In those days we competed against each other in a marketing simulation and we had a product that was the equivalent of, let’s say, a 3D gadget like a navigation device. It gives you a good taste of business given that you can never have perfect information; you’ve got to make guesses sometimes. The other thing that you do learn is to follow reason through  —  everything has a cause and effect. To understand that and to build your character in terms of experiencing all the virtues we derive from reason.

Kaizen: So lots of experience whether through case studies or simulations, and getting internships and actual jobs as you can. Then combining that with high-level knowledge and judgment skills as well.

Singh: Yes.

Kaizen: The internet is a boon in making tons of information available, but one still must sort through that information and say what counts and what doesn’t and then exercise good judgment.

Singh: Yes. You have to be able to make that meaningful to your own goals. The other aspect, which is very essential in the earlier part, is combining your personal goals with the goals of your organization. And self-development is something that you really have to invest in from the outset. Putting time aside to look at your weaknesses and how you can improve them. There is  a lot of talk about positive thinking, but I always promote what I call “negative thinking.”

Kaizen: Objective self-evaluation is part of the process.

Singh: Yes. In terms of constructive negative thinking. With negatives, sometimes we have to overcome them. The positive things look after themselves.

Kaizen: When you were younger and your family was poor and working class, a big part of your motivation for going into business was to earn money. Now you are comfortable financially and wouldn’t have to work anymore if you didn’t want to. So the money is part of your motivation, but what also is motivating you to continue to work hard?

Singh: I think it gives you the emotional fuel in terms of knowing that you are valuable, that you can contribute and make a difference. I’m happy to grow businesses  —  to see our starting position and where we could make a contribution towards that business and make it grow. And if anything is attractive, it is probably the achievement from having done it — moving companies and making a difference. That excites me.

Sometimes you have a project that gets me thinking about how we could do it. I always find that if there are complicated financial project, many people don’t want to get into the messy details of finding a solution. But I’m wired in the way that it gets me excited to find a solution to it. From an early age, I tend to think about how I can make things work. Perhaps I can get certain investors or banks interested and maybe partly venture-capital financed. If I can break that project down to phases, then …

Kaizen: So you enjoy the process of problem-solving, seeing the problem solved and watching as the business grows.

Singh: Well, not always is it growing! [Laughs] Sometimes it is something you didn’t envisage and I think, “Why didn’t I think of that at the time!” But it is all part of the learning curve. You get better as you experience more.

This interview was conducted for Kaizen by Stephen Hicks.


Montessori in Chile — interview with Bernardita Jensen

Thursday, April 7th, 2016

Entrepreneurship and Montessori Education

Berna 1Bernardita Jensen is founder and rectora of the Pucalán Montessori School in Colina, Chile. Before founding Pucalán Montessori, Jensen studied at the Houston Montessori Center and founded three other Montessori Schools in Chile. We met with Jensen to discuss her passion for education and the Montessori method.

Kaizen: Where in Chile were you born?

Jensen: In Santiago, but I lived in southern Chile in my childhood and adolescence in Temuco. It’s beautiful and similar to western Canada.

Kaizen: Chilean Patagonia.

Jensen: Yes, near Patagonia. As a young child, I lived on a farm in a beautiful place with trees, volcanoes, and lakes. It was marvelous.

Kaizen: What was your education like?

Jensen: My schooling was traditional. Nevertheless, for me the farm environment was very important, and my mother had a significant role in my education. She gave me more confidence. She was a very creative woman. In my childhood I played a lot, read a lot, imagined a lot, and dreamed a lot.

Kaizen: Was it a small town or big town?

Jensen: It was a small town.

Kaizen: And so your formal education was traditional Chilean schooling?

Jensen: Yes, it was a typical traditional education; with very little space for personal initiative. However, in high school I had a very fantastic teacher who was Japanese. His name is Josuke Kuramochi. My life changed with this teacher.

Kaizen: What did he teach?

Jensen: Spanish literature.

Kaizen: And you were reading a lot, so you were the right student for that class and that teacher?

Jensen: Exactly.

Kaizen: You say it was life-changing. In what way? When you were a girl, were you thinking that you would become a teacher or go to university?

Jensen: My life was changed because he was a teacher who truly knew me and helped me to develop a deep sensitivity. He helped me learn to love reading and also brought out in me leadership skills. I learned from him to love what I do. I also learned diversity from him, being the open and accepting person he is.

When I was a girl, I liked education and psychology. I’m not sure, but I think I studied education because of the influence that my teacher had on my life.

Kaizen: And what age were you when you took the course with him?

Jensen: I was seventeen.

Kaizen: In that time, were you thinking about becoming a teacher?

Jensen: Though I wasn’t sure I would be a teacher, I had by that point begun thinking about teaching. My passion was always to work with people, even better with children or adolescents.

Kaizen: Did you go to university immediately?

Jensen: Yes, in Santiago at the Catholic University. I studied psychology for two years and studied education for four years.

Kaizen: And you graduated with a diploma that enabled you to become a teacher?

Jensen: Yes.

Montessori-School (16)Kaizen: Did you at this point have any work experience other than on the farm?

Jensen: I had, as a young adult, some experience working as a volunteer in areas of social work.

Kaizen: Did you immediately become a teacher after finishing university in Santiago?

Jensen: Yes, and I also began to study Montessori education in Santiago and then in Mexico. I was simultaneously working and studying: both in the field of education.

Kaizen: How did you first hear about Montessori?

Jensen: At the university. In a methodology course, I had to study a current pedagogy and, by happenstance, the topic that chose me was Montessori education. I had been intuitively drawn to Montessori studies and had even found a book by Maria Montessori in the library and had resonated with it.

Kaizen: Completely independently?

Jensen: Yes. I found that book and read it—and then I read all Montessori books in the library every day.

Kaizen: Were the ideas in Montessori similar or different to your formal education for teaching?

Jensen: Completely different. Despite amazing and sincere professors, my university courses on pedagogy weren’t true for me but Montessori changed all that.

Kaizen: So you wanted to be a teacher, but you didn’t like what you were being taught and you were looking for other alternatives.

Jensen: Yes. I loved the kids but not the curriculum in university.

Kaizen: You said you got some formal Montessori training in Santiago. Where?

Jensen: Exactly, I studied in Centro de Estudios Montessori Chile with Mexican or North American teachers who came to Chile to teach us. This would have been in the early ‘90s.

Kaizen: And then you went to Mexico for further training?

Jensen: That’s right.

Kaizen: There is a formal certification process for Montessori?

Jensen: Yes. In the United States I studied for three years. I travelled during my vacations in the summer program to the Houston Montessori Center. I studied in the middle- and high-school program there.

Kaizen: Your interest as a teacher was at the high-school level primarily?

Jensen: Somewhat. I did study the Montessori Method for elementary and middle school as well as high school students. My interest, more than a specific age, was to see the complete development of the child. I understood from this that Montessori is not just a method but an educational philosophy.

Kaizen: So you were working in Santiago and self-studying Montessori and then going for formal training as well. How many years altogether did this take from

university to the time you finished your training in Houston?

Jensen: I studied at university from 1984 to 1990. From 1990 to 1995 I worked and studied Montessori. I studied in Houston from 1999 to 2003.

Kaizen: That’s a long time. During all of that time when you were working were you teaching in a high school in Santiago?

Jensen: No, first I taught upper elementary, ages nine to twelve. And then I studied the adolescent program and worked with adolescents. Before the current Puculan School, I co-established three other Montessori schools in Santiago.

Kaizen: When did you start your first Montessori school?

Jensen: In 1991.

Kaizen: Soon after finishing university. Who were your partners?

Jensen: Elena Young. She had a solid background in Montessori for young children, after having studied in the United States. She was an important woman in Chile promoting Montessori education. Elena and I formed one of the first Montessori school in Santiago: Huelquen Montessori School.

Kaizen: Were other people involved?

Jensen: Yes, there were three other teachers. It was very small. There were only twenty students in a little house with no back yard for play, so we would go to the town square for recess and the children would climb the trees, play hide-and-seek and other games.

Kaizen: You said you founded three schools. Did the first one fail?

Jensen: No, it’s still operating. I took time off because I had my first child. And then I formed the other schools with other people: the second was formed in conjunction with the Boy Scouts. Are you familiar with Boy Scouts? Montessori and Boy Scouts—they have ideas that work quite well together.

Kaizen: Starting chapters and different troops?

21Jensen: Yes, with the Chilean Association of Boy Scouts.

Kaizen: So you started one in Santiago, and that was successful. Then you had your child and took a year off before starting your second one.

Jensen: Yes, exactly. I was also always studying and deepening my understanding of Montessori education.

Kaizen: Who were your partners for your second one?

Jensen: I started the second school with Paola Bianchi. She was another Montessori teacher, who had studied Montessori for elementary age children with the AMI in the United States.

Kaizen: Was this school similar to the first with just a few teachers?

Jensen: Yes, it was the same.

Kaizen: And how long before you started the third one?

Jensen: Three years.

Kaizen: Same story? The second school was also successful so you started a third one?

Jensen: Yes, pretty much. I moved from Santiago to a more rural area outside of the city. And there the parents knew me and asked me to start a new Montessori school there.

Kaizen: Did you have any special challenges with attracting students?

Jensen: Not really. Young families found Montessori attractive: connection with nature, an interest in healthy lifestyles, etc. Apart from this, most of these young families in this small rural area knew each other and were interested in keeping their community tightly knit.

Kaizen: Yet you were starting the first Montessori schools in Chile—what did they know about Montessori?

Jensen: Montessori is new in Chile. However, traditional education has been in crisis for some time and it has been a great moment to encourage and speak about the benefits of Montessori. Families are interested in holistic development, individual development, emotional development, in diversity and respect toward the environment: the fundamentals of Montessori, even if the name “Montessori” is new. The parents listened to me speaking passionately about this new model of education and, as they were also looking for something new, the response was overwhelming.

Kaizen: So you are a credible person and you are passionate about it and you speak about it well.

Parents also look at the expense. Traditional schooling is “free” because it is covered by tax money, and at your school they pay tuition?

Jensen: Yes, and it is not cheap. However, the system in Chile is such that, even traditional schools are not free. The public schools are the only ones covered by tax money and they are considered very low-level.

Kaizen: For young families starting out, it likely looks expensive. So you attract parents who are very committed to their children’s education, and if they think it’s good they will find a way to pay for it.

Jensen: Yes. We have even seen some families that choose the school and then decide to move here due to it being the right choice for their children.

Kaizen: So you now have started two schools in Santiago and one in Colina?

Jensen: I have actually started two schools in Colina. The name of the first school in Colina is Rayen Mahuida. I started this school with the other people for profit. It’s a beautiful school which we designed with an architect.

Kaizen: You designed it from the ground up? So you are not starting in a house now?

Jensen: That’s right. This was the first school where we bought the land, and worked with a team to design and build it. It was a fabulous project: the school was specifically designed for Montessori education. For three years I worked with these people, but then I broke away from this group because my vision was different from theirs. For me, education should be non-profit, and the school was for profit and, due to this, our relationship was broken.

Kaizen: Was the divide was solely about mission and money issues?

Jensen: Yes, exactly. I broke away from this organization, and the parents told me to start a new school again.

Kaizen: How would you describe the business organization of the new one? Is it a cooperative or a non-profit trust or foundation?

Jensen: Yes, that’s how Pucalan was founded; it is a private non-profit foundation. The board is made up of parents, and my work is with the parents, and sometimes it’s not easy.

Kaizen: As the rectora?

Jensen: That’s correct.

Montessori-School (13)Kaizen: The new school is called Pucalán and is north of Santiago. What year did you start it?

Jensen: Yes, it started in 2000 in a lovely building we rented in the area which had been a horse stable that we remodeled and used for 12 years.

Kaizen: You still have expenses to pay and a new facility. Is everything paid for out of tuition or did you have to do financing with banks?

Jensen: The operation of the school is financed by tuition. Three years ago, we bought a new space and built a new building, which was financed by a bank but is thankfully no longer a rented space.

Kaizen: How many students?

Jensen: 550.

Kaizen: How many teachers?

Jensen: 95.

Kaizen: About one teacher per every five students. How many administrative staff?

Jensen: 12.

Kaizen: You are the rectora, and your board is made up of parents??

Jensen: Yes, mostly parents.

Kaizen: Do you have other people on the board of other expertise?

Jensen: Different expertises but not in education. We have architects, lawyers, psychologists, and so on.

Kaizen: What is the cost of tuition for parents?

Jensen: 300,000 Chilean pesos per month, which is about $430.00 US Dollars.

Kaizen: And a school year is how many months?

Jensen: Ten.

Kaizen: So the cost for a year would be 3,600,000 Chilean pesos. What is the current exchange rate for U.S. dollars?

Jensen: Right now, the exchange rate is about 690 pesos per dollar. The annual tuition in dollars would be about $5,200.00 per year.

Kaizen: Did you have any problems with regulations starting a private school?

Jensen: Yes, especially in the beginning. The national curriculum is required for any new school. It’s a very strict and linear curriculum based on cognitive skills based on memorizing information, which is quite different from Montessori. Montessori is a holistic structure which is more concerned about learning processes rather than just information. The emphasis is not only cognitive in the Montessori model, but also social and emotional integration of the child. Breaking away from a very traditional system, we have had a great deal of success and have, over time, gained more respect from the community. In fact, many Schools of Education have requested to come and observe our school, as this new system is becoming more attractive.

Kaizen: You’ve done this several times. Did it get easier each time?

Jensen: No, it didn’t get easier. Of course, I had more experience but the conditions were still such that it was, each time, quite challenging. I learned to develop more confidence each time and understand the system better but the system hasn’t radically changed.

Kaizen: What challenges stand out aside from the amount of paperwork?

Jensen: One of the most interesting challenges of Montessori is that it is not only an educational system; Montessori requires a certain ethic, community involvement, a radically different paradigm than the individualistic society we’re used to. This can be difficult to sustain over time, as each member must commit fully to this paradigm in order for the project to work. Overall, this is the greatest challenge and beauty of Montessori: it is a way of life.

Kaizen: So when you are applying for the permits, it doesn’t translate well to what the education establishment is looking for. How do you get past the hurdles?

Jensen: To a certain degree, we haven’t fully overcome all the hurdles. We submit to the most essential regulations imposed by the educational establishment, but these regulations don’t necessarily impede our work as Montessori educators. In a way, we are still running risks by doing what we do, yet ultimately, the results speak for themselves.

Kaizen: So after you’ve done the Montessori schools and you have a track record and can show that it is working, then it becomes easier. But at the beginning you would have to be convincing government officials.

Jensen: Yes. The results we’ve had have been very positive. This is primarily because many of our students that we have by the time they are in high school have strong leadership skills, a critical awareness of their environment, and many of our graduates have gone on to entrepreneurial pursuits in the areas of their interest.

Kaizen: Are there any other kinds of regulatory challenges that you face?

Jensen: No, because the standard is higher in Montessori schools. Furthermore, we have generally had great results on the standardized tests that dictate the regulatory requirements, which is typically all that the government officials look at.

Montessori-School (8)Kaizen: When you are talking to parents, what do you tell them about why you believe Montessori is right for their child?

Jensen: I talk about freedom and educating the whole person—emotional, personality, spirituality, and the social aspect—not only cognition. This is an important point for parents. Education involves thought process and emotion, as well as spirituality, and our spirituality program is very significant in the school; not a religion program exclusively but a spirituality program. I also speak to them about the parallels between the Montessori Method and today’s scientific discoveries about how we learn as humans.

Kaizen: So you emphasize the freedom element—the uniqueness of each child—and being well-rounded. You grew up on a farm, and Montessori herself liked agricultural education. Do you incorporate that into your schooling?

Jensen: Yes, there is a lot of hands-on experience. We have a tree nursery which the children look after and will then plant those same trees around the school. We also have gardens cared for by the children which were designed by a permaculture team. Do you know permaculture?

Kaizen: Yes, that you can do anywhere. That must have been a challenge in Santiago, a large urban area, earlier.

The other issues about responsibility—learning household things, cleaning up after yourself, and these kinds of things—how do you teach that in your school?

Jensen: It is very important to teach responsibility for their actions. The students clean the school and put the materials in order. This is the first step to responsibility. And this idea is also very important to the parents. This is a revolutionary idea in the school because it seems a waste of time to let the child labor over cleaning up their space, but lost time is not lost time. They can learn a lot. When the children learn these skills and responsibilities, they feel more involved in the community – they feel a stronger sense of belonging. In fact, some of our high school students, in a community service program, will build a playground on our school grounds for use by the younger students.

Kaizen: I visited your new campus for Pucalán school in Colina last year. It was built in 2013?

Jensen: Yes.

Kaizen: It is huge and impressive. When did you decide to build the new campus?

Jensen: In 2008 I started thinking about it, because the rented campus was old and very expensive. I had the experience of seeing many beautiful Montessori schools in the United States, Mexico, Italy, Spain, and New Zealand which inspired me to consider designing our own school here.

Kaizen: So you chose the best of everything that you liked?

Jensen: Yes, I was inspired by the best parts of all that I saw and we then had to adapt to our reality. We chose a spiral form, relating to the cyclical development of the individual. This is comprised of 8 large modules. Each module is a space for each stage of development as described by Montessori as well as an additional module for Music and Art.

Kaizen: And with a successful school running and a supportive board you were able to build your ideal school?

Jensen: Yes, but it was not easy.

Kaizen: So you had more financing to do and an architect to work with?

Jensen: Yes, I worked with an architect from Sweden. The design of the school was very important. The students and the parents and teachers had input in the design of the school. It was a community project, really.

Kaizen: How did you choose this architect from Sweden?

Jensen: He is a Swedish architect but he has lived in Chile for some time. He is well-versed in indoor and outdoor space design as well as sustainable design. This was what we found most attractive about working with him.

Kaizen: The school’s land has several acres.

Jensen: Yes, five hectares, which is 50,000m². This translates, I believe, to just over 10 acres.

Kaizen: That’s substantial, and you have about eight pod-like buildings built in a nautilus-like spiral shape. It is very organic and flowing, and with a large central courtyard area.

Jensen: Yes, it is a peace garden, still under construction.

Kaizen: And then in the outlying areas you have a gymnasium and play fields.

Jensen: That’s right.

Kaizen: You had the idea in 2008. When did you start building?

Jensen: 2011, and the construction lasted two years.

Kaizen: When I saw it in September of 2014, everything was operational but you still had some landscaping to do. And you said over 500 students?

Jensen: Yes, well, 550.

Kaizen: You are still young, so what do you have planned for the future?

Jensen: I want to start a school of education to prepare Montessori teachers in Chile. If there is no preparation for Montessori teachers here, the whole Montessori system will be very vulnerable.

Kaizen: Will that be in Colina?

Jensen: Right, the idea is to be centered in Colina, as it’s absolutely necessary to teach by doing; to use Pucalan as a “living laboratory” of education. To be centered in Colina doesn’t necessarily mean disconnected from the rest of the world—we also want to link with other schools for Montessori teachers around the world.

Kaizen: Will this require new buildings and a new location?

Jensen: Not necessarily. This could possibly be an addition on the same school grounds.

Kaizen: You will bring them to your campus for on-site training?

Jensen: That’s exactly the idea. It is fundamental for teachers to experiment in different environments. They need to be trained by experience and not only theory.

Kaizen: Do you have relationships with the formal Montessori organizations internationally?

22Jensen: Yes, with the American Montessori Society. This is because my training was in the United States in a Montessori school for teachers founded by the AMS. Our school is not accredited by the AMS, yet we do have the connection to them due to my background.

Kaizen: I understand there is a split between different camps of Montessori.

Jensen: Yes, there is AMS and AMI. AMI is European, while the AMS is American. There are some differences between the two but I see these differences more in execution than principle.

Kaizen: You have been a serial entrepreneur, as we say, in the field of education. What has been the most rewarding thing to you about being an entrepreneur in education?

Jensen: I love creating jobs for other people—and significant jobs. It is very important. The people respond very well when working with big ideas. I love creating work for other people, not just for me. I also love creating a community, as I believe wholeheartedly in community work. Ultimately, though, the reward is watching children grow into confident, compassionate and peace-making adults.

Kaizen: Over the years what has been the most frustrating thing for you?

Jensen: It is not easy to work with the parents. Working with the children is very easy. The problem with the adults is because they are focused on results and not the process. Also, as I stated earlier, Montessori requires a lot of commitment. There are occasions where some teachers don’t want to spend the time doing inner work that will make them good Montessori guides. The commitment in doing this inner work is not a very popular idea in our culture and there can be conflicts on account of this.

Kaizen: So that is many conversations?

Jensen: Of course, there is much conflict-resolution every day, but it is vital. It is part of the community building. This involves the teachers and the parents, really the whole community, and it is important to sustain these conversations with everyone.

Kaizen: When people talk about entrepreneurship, there is often difficulty even if you are passionate about what you do. There are frustrating problems, you have to be able to visualize new things and have good communication skills to make your vision real to others. Also, you have to persevere. What character traits seem to you to be the most important to become a successful entrepreneur?

Jensen: There is not just one. There are many characteristics, but perseverance with confidence and balance. You have to believe in the idea and have courage and love. Finally, self-discipline is also very important.

Kaizen: When you say love, is that the same as passion?

Jensen: Yes, I use them synonymously and this requires an inner burning energy.

Kaizen: You have to master yourself.

Jensen: Yes. I must learn before I can begin to teach anyone else. I practice meditation and sometimes fight with my ego.

Kaizen: To return to your own education: In many cases, traditional education is rote-learning and uniform, and the students are disengaged. That doesn’t help them become entrepreneurs, so what made you different? Is there anything that helped you become entrepreneurial when you were a girl?

Jensen: Well, not everything can be explained in a completely rational way. But, things like autonomy are very important and believing in your personal characteristics and making dreams. My family always encouraged a high level of autonomy alongside taking good care of each other. I had a great deal of space to dream, as well. Dreams are not always logical and they are very mysterious. Nevertheless, the most important characteristics I was able to develop were autonomy, confidence, self-discipline and having room for mistakes.

Kaizen: Suppose you were to give advice to other teachers who are young and perhaps dissatisfied with their teacher training. Or perhaps they are working at schools and don’t find it fulfilling, and they are thinking of starting their own schools. What advice would you give to them?

Jensen: Create a community. Don’t work alone, work together. Develop empathy and listen. Again, most importantly, create community. It is not possible alone.

Kaizen: If you’re a teacher, does create community mean having relationships with people who have financing or parents or other teachers and people who will form a network and will help you start the school of your dreams?

Jensen: Right, any project like this, needs to be founded in community. Everyone is learning by growing together and working together. This must be interdependent work—everyone is contributing to the original dream.

Kaizen: Thank you, what a good story your career is.

Jensen: Thank you.

This interview was conducted for Kaizen by Stephen Hicks.

Read more Kaizen interviews with leading entrepreneurs.

© 2015 Stephen R. C. Hicks. All rights reserved.

Video Interview with Professor William Kline — Transcript

Tuesday, March 1st, 2016

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I am Stephen Hicks, executive director of CEE, and with us today is Dr. William Kline, who is Assistant Professor of Liberal Studies at the University of Illinois in Springfield. Professor Kline is a Philosophy professor, primarily specializing in business ethics, which is why we invited him here to Rockford College to speak to our Business Ethics class earlier this evening.Kline,W-UIS

Now, Professor Kline, in your approach to business ethics you take issue with the usual statement that business ethics is a contradiction in terms or that it’s an oxymoron. Or what we might refer to as the negative approach to business ethics — which is primarily about focusing the Enron and the Bernie Madoff cases — all of the scandal cases, and presenting an unrelenting litany of problems as representative of what business is all about. What is wrong with that approach to business ethics?

Kline: One of the things that struck me is — I was teaching business ethics at the time that Enron happened in Tyco — and everybody wanted to talk about that, everybody asked, “Wow, what about WorldCom?” And you had, just in terms of corporations and not in terms of business overall, on the New York Stock Exchange something like 3,000 enlisted companies and, on the NASDAQ, I believe something on the order of 5,000. And I might be short on that. It might be easily be higher than that. So we are talking about 8,000 business and five did bad things. That’s actually a pretty good record.

So why not talk about the 7,995 good cases that have gone right and what we can learn from that? Rather than, you know, the same old boring story that, well, somebody pilfered the company funds and ran off to some exotic location, which we all know is wrong. I don’t need business ethics to tell me that’s wrong.

Hicks: Is it your point, though, not that we can’t learn from the negative cases just as a doctor can learn from disease cases, but that we have more to learn from the good cases or successful cases?

Kline: I hear what you say, and it’s not that we can’t learn from the negative cases. Of course, you need rules to protect property and contracts. I think there are real issues with what stock ownership entitles you to, and those rules need to be worked out, but they just get overemphasized. Nobody is looking at all of the good that happens through business, and specifically, the individual good when you decide to enter into business or a business person decides to enter into business, how that might be conceived of as morally good.

Hicks: And here your major theme was putting your business life, including the choice to go into business, this approach to business, or choosing this particular business in the context of your life overall, putting an emphasis on the good life in a very Aristotelian sense? Can you say more about that?

Kline: I think, quite frankly, it’s tragic. I’ve had students graduate now. I’ve been teaching long enough. And I’ve had students that have gone into things that they loved and students that have gone into things that they’ve hated. And this notion that, well, here is my business and professional life, and that’s totally separate from my personal life, and totally separated from the good things I do in the world, and it’s its own entity, I don’t find that works that often. The happiest people I met are the people who have incorporated their business life into their broader goals, their broader aspirations, and see it serving a purpose within their lives. And so, yes, that’s how I want to talk about business ethics. And then in the Aristotelian version of it, what we want to talk about is a flourishing life, and that requires taking a holistic approach to one’s life, including business in that.

Hicks: Right, so if you then ask what are the constituent elements of a flourishing life, and then once we articulate what those are, we can then place one’s business activities in the context of that and many of the same things carry over to that. So, if we are then to ask in an Aristotelian sense, updating Aristotle, what is a flourishing life, or what are the major constituent elements here? You had a list of six features, I believe, no that we have time to talk about all of them, but what are we talking about here?

Kline: Yeah, let me just take a few. What we’re talking about is this: in order for us to flourish as beings, we have to recognize both constrains on what we are and what we can’t do but also certain abilities that we possess and that need exercising. As Mill said famously, to be Socrates dissatisfied is better than being a pig satisfied. And quite frankly, I think part of the reason for that is really to live a life of a pig is either exceedingly boring or, if you look at people who’ve lived purely hedonistic lives, is quite self-destructive. So, the question on the Aristotelian line is: given the kind of being I am, how can I do well iaristotle-bustn the world? Some of the characteristics of a flourishing life that we looked at today were that the flourishing might have to be some sort of standard for flourishing conducts, something that goes beyond my preferences, something that goes beyond my whim, or some sort of guide post to let me know when I am doing better or worse. And one of those objective elements that I pointed out today that we should consider is that there is something fundamental about us in trading. Aristotle said that we are social creatures; Adam Smith said we have a natural propensity to truck and barter. I don’t see why it’s something we should deny. It’s something we should embrace, and it’s a good thing. When we explorers go exploring and they want to make contact with new people, they take stuff to trade.

Hicks: Yes.

Kline: It’s far better than just annihilating who you meet. And trading is social. It’s not antisocial, not at all. Once again, Smith points out that economic transactions are a way of communicating, a way of persuading, which I find highly interesting. If one took a Hayekian model, one can say it’s a way to trade information. That’s exactly what I am doing when I am trading price information. I will take this for that much, and you’ll take that for that much. This is a fundamental type of communication.

Hicks: So, in a broader context, the constituent element of a human flourishing life is social?

Kline: Yes.

Hicks: The rich values that we get as social beings interacting with each other, that then carries over to the business world, which is essentially social through trade. And we’re trading lots of things back and forth, and we’re productive individuals trading with each other to mutual benefit. The point that you are making, then, is that business is tapping something deeply social in us.

Kline: Well, absolutely.

Hicks: And, positively, the social is a constituent of a good life.

Kline: Yes, exactly. I mean, people recognize that when they meet at the local club, that they are being social. People will recognize when they meet on Facebook, they are being social. People aren’t as apt to recognize the fact that when you meet to trade, whether it’s in a bazaar or a Walmart, you actually are being social.

Hicks: However, you might not know much about particular people you’re trading with.

Kline: Right, but that’s a good thing too. I don’t need to know everything about somebody to trade. I can productively engage in a fun, social interaction that mutual benefits both of us and I need not worry about what religion you are or what political beliefs you had. How horrible that would be if I had to litmus test everybody on their political views or religious views before I interacted with them.

Hicks: And another element of the social boldness that you mentioned is that business, in its propensity to trade with each other, leads people then to be willing to overlook a lot of the things that they ordinarily wouldn’t overlook in history, like their ethnicity, their race, religion, or gender. So, people in business, to the extent that they engage in this propensity of truck and barter, are more likely to be tolerant and peaceful?

Kline: Tolerant, peaceful, and there are real incentives in the market and in business to not discriminate. There are real incentives to include anybody within your trading or productive enterprise as long as they can in turn trade or be productive with you. I am not saying that answers all questions or solves all problems in humanity, but there is a critique of market systems out there that they are inherently racist or inherently sexist, and that’s simply not true.

Hicks: All right, to go from flourishing in general, if we look at business in particular, in the former you mentioned Aristotle a lot, and now in your methodology in talking about the nature of business you rely on Hume a lot; you are very empirical. What is it that makes business business? It’s one thing to say here is the ethics that we should be applying here, but we also have to understand enterprise in its own place. So, what makes business a distinctive kind of human enterprise?

Kline: I think that the purpose of business is to produce a good or a service for trade. That that’s what makes distinctive. Someone would argue that perhaps the purpose of businesses is to serve a social good. For various reasons, I don’t think that that’s the purpose of a business. That’s the purpose of charities. That might be the purpose of certain political mechanisms. But if you look at what business is, it fundamentally involves trading. It involves using money as a method of calculation for making your decisions. To overlook that is to overlook the nature of business.

Hicks: If the purpose of business is not primarily to produce a social good, then what is the contrast purpose to that? Is business primarily individuals mutually satisfying their individual purposes?

Kline: Business allows you to do that, but I can solve my individual purpose. I can be an artist, I don’t have to trade. I can make my art works. I could be a philosopher. Socrates didn’t trade his thoughts and he had, you know, a life of his own that satisfied his preferences. I really think that saying that you are going into business means that you are accepting a body of rules and goals and obligations that center around this notion that I am going to productively engage with other people on the basis of trade. If I am not trading, if I am just giving you something as a gift, that’s not business. If I am just taking from somebody, that’s theft: that’s not business. Once we engage in this mutual give and take of what’s called trade with goods that we have produced without violating property rights or contract rights, then that’s business.

Hicks: You are also critical of two of the major models that are currently dominant in business ethics discussion: the stakeholder model and what’s sometimes called the stockholder model. And you use Milton Friedman as the major representative of the stockholder model. You’re critical of the idea that business should be defined in terms of a social responsibility to produce profit. What is wrong with that definition or account in your judgment?

Kline: The majority of my business colleagues know the purpose is to make a profit. Well, stop. If one is on the financial services industry where the good or service one provides is actually an optimization of money accounts, whether it through hedge funds, mutual funds, monetary instruments, or derivatives, then that’s true. But that doesn’t mean that it applies to everything. I mean, people get involved in family businesses because they like the business. People start second careers in different businesses just because they’ve always wanted to operate a tiny theater in a small town. I am thinking of Berkeley, West Virginia. There is a small theater that people opened up because they just  always wanted to do that. Profit is important; without a profit you go out of business. As I said before, money is a method of making your decision procedures. And profit also allows you to get what you want out of life, so it’s very important. I am not saying it’s not, but I don’t think it’s the purpose of business to gauge how well you’re doing business.stockholders

Hicks: Would you put that in the context of a corporation, say, where there’s a division of labor between management and the stockholders? Is there any role for saying that the managers have a fiduciary responsibility to maximize profit for the stockholders? Or is that merely a limited case of business closer to the hedge fund people, for example, you mentioned earlier?

Kline: There is a tendency in business ethics to over corporatize everything so that if you want to talk business ethics we have to talk about either Enron or GM. And, if you look at the business sensitive data, at least half of all businesses are smaller than, I think, five-hundred people, with sizable chunks even in the lower registers. So, the reason I don’t like talking about, you know, fiduciary responsibilities of managers to stockholders isn’t because it isn’t important. It’s because everybody is talking about it, and what I want to talk about is this practice called business. And whether you’re a corporation, a privately-held company, a professional, or whether you’re operating out of your garage or some multi-billion-dollar complex, this is something that has importance to you.

Hicks: So, the profit as the primary purpose model which is sometimes called the stockholder model, you criticize that. But you also equally criticize the stakeholder model. And what was your criticism of the idea that the purpose of business is to satisfy the interest of all relevant stakeholders?

Kline: That is my objection. The purpose of business is to produce a good or service for trade. Once you figure the good or service you want to offer, that you want to be an accountant, that you want to make widgets, etc., and you’re now doing that and making trades, there are multiple decisions one has to make in the means of production, where one wants to locate, who one’s going to hire. And money is the method to make these decisions. What am I going to get if I invest in this? And it’s a multi-attribute decision problem made on the basis of money. That’s the key, as I said, methodology of business. Stockholder thesis says no, if that’s all you are taking into consideration, you actually being immoral. I have to equally consider the interest of all my stakeholders. So, if I make a decision, I have to consider the interests of the community, interests of the workers, the interest of consumers, interest of the suppliers, the interest of…I am probably missing one now. Stockholders, actually count as well. Or the interest of the owners, mighty nice that they count sometimes, huh? And so, I have to balance all their interests. Well, if it’s not going to be with money, then how do I balance it? And it turns out that it’s a political decision process to balance it. So, that notion of business ethics I actually think it’s antithetical to business. It’s political ethics.

Hicks: But rather relying on the narrow stockholder approach or the narrow stakeholder approach as you’re arguing here, we need to think more generically about the nature of business, which can come in many forms and serve many different purposes with different individuals. And so, your definition of business as purpose-driven production of goods and services for the purpose of trade, that’s where we should start. All right, so then, on the positive side of business ethics, you say that this then generates a kind of principled commitment that can come out in an ethos, right, that if you want to decide what it is to be a good business professional or what it is to commit to the best kind of business life, you think of what are the needs of the production part of the business and what are the needs of satisfying the trade, so being committed to productivity and being committed to trade. That’s how we should approach things. And then, equally, towards the end of the discussion you mentioned that this serves as a principle for deciding what is unethical in business. And even if we rule out the clear cases of crime and so on as not being part of business, how does your account of what business is help us deal with cases like discrimination, say, in the workforce or the owner who uses the business as his personal piggy-bank and so on? How does it provide us a guide in the negative cases?

Kline: Okay, let me go back to the positives briefly.

Hicks: Fair enough.

Kline: Well, remember we are looking at us as human beings, and the trading actually touches something within us, something that’s very peaceful, something that’s exciting, something that’s social. That’s important. Business can serve that because trading is a fundamental aspect of business. I’m producing goods and services for trade. So, in general, business is a good thing. Now, I have to decide specifically what I want to do within business. This is a good way to live, but I don’t live a way, there is something specific I have to do. I want to be an accountant or whatever. And so that funnels down. Now I’ve decided to be an accountant, or I’ve decided that I want to make hamburgers, or I have decided I want to sell whatever. Now, I have specific obligations that go along with each of those. If I am going to sell chicken, I have a specific obligation not to kill people with salmonella or kill people with E. coli. I have these specific obligations as I provide this on the market, certain things that I have to do. So it’s very action guiding in a good sense to tell me what ought I focus on that just making a profit doesn’t, right, as I am focusing on these productive activities. Now, to help me on the other side with when I’ve gone wrong, right, so what am I going to do right? Well, I want to focus on the productive side and the trading side, but when I’ve gone wrong I have stepped outside of this. And people will do self-justification all the time. It’s my business, so I can discriminate. Or, it’s my business, so I can hire the secretary to sleep with. Well, that’s precisely just self-justification. And why is it just self-justification? Because you’ve agreed and you’ve broadcast that you’re in business. We have said that this is what business is and now you’re doing entirely opposite. You don’t get to have your cake and eat it too. You are really doing business or you’re not. And if you are using it as your personal piggy-bank, if you are using it as your personal sex-playpen, or if you are using it just to lord it over other people, you are not engaging in business and I think you are violating the telos of it. I think you’re doing something fundamentally wrong. And, by the way, in the process of that, people say, well, you’re violating the goals. But remember what you’re violating. You’re violating this trading, right, so we’ve gone from a trading model to an authoritarian model which doesn’t serve flourishing the way the trading does. You’re not being productive in this sense. You’re actually probably being some sort of, wish I could find a better term, but some sort of leech. You are sucking the productive abilities out of people or the company. You are not engaging in this mutually productive trade anymore. So when I say you violate the goals or the ends of business, there are some very real effects, both on your individual flourishing and on the flourishing of those around you as well.

Hicks: All right, so think of business as a principled calling in the context of a flourishing life, given the kinds of beings that we are. When you then enter into business you’re committing to productivity and trade. Take those seriously, internalize them, and then also externalize them in business and remain true to that. That’s business as a noble cause?

Kline: Yes, and if you don’t want to do that then do something else.

Hicks: Fair enough. Thank you, Professor Kline.

Kline: Thank you.

[The video interview with Dr. Kline follows.]

Video Interview with Professor Arielle John — Transcript

Tuesday, February 2nd, 2016

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I’m Stephen Hicks. Our guest today is professor Arielle John, who is teaching fellow in the Department of Economics at Beloit College. Professor John was here to speak with us on culture and entrepreneurship with special reference to Trinidad, her native country. arielle-john-500-px

In your talk you gave us some striking statistics about the relationship between culture and entrepreneurship. You started with a breakdown by ethnicity, or the various segments of Trinidadian society. And, to contrast to that, with the participation in self-employment and entrepreneurship. What were those numbers like?

John: Trinidad is an interesting country ethnically. The two majority segments of the population are Indians, who are descendants from Indian indentured servants; they comprise 40% of the population. African Trinidadians comprise about 37%, so they are about equal. Beyond that, about a fifth of the country, or 21% of Trinidadians, report themselves to be mixed; usually that implies they are a mix between Indian and African. And there is a small minority of individuals who are European descendants, also Chinese and Syrian-Lebanese and they comprise two percent of the population. They are the smallest group in the population.

Now, when we look at self-employment statistics we find that within that minority group [European, Chinese, and Syrian-Lebanese descendants], about 35%-36% of those individuals are self-employed — they are business owners. The next group with the biggest category of business owners are the Indians. About 25% of those individuals are considered self-employed. Mixed individuals, perhaps about 20% of that group are self-employed, and blacks in Trinidad have a below average self-employed rate at about 16%. So that’s the breakdown.

Hicks: So, your area of investigation is the effects of ethnic culture, and possibly racial culture, on the widely varying self-employed entrepreneurial ranges.

You also spoke about entrepreneurship and entrepreneurship is complicated in some respects, but you broke it down into two basic moments that you call the Kirznerian moment or the Schumpeterian moment. What are those?

John: Obviously, the decision to become an entrepreneur involves many factors over time and place. For Israel Kirzner, the defining moment of being an entrepreneur is the moment when you discover an opportunity, and usually that happens in a surprise fashion. You are going about your way, and suddenly you realize there are needs that people want met and you know exactly how to do that. So for Kirzner the defining moment is identifying the opportunity.

Hicks: He is emphasizing the cognitive elements in entrepreneurship.

John: Absolutely. For Joseph Schumpeter, what defines an entrepreneur is the doing. For Schumpeter, exploiting the opportunity and actually bringing a product to market or changing how a supply chain works or changing some aspect of production — that is what makes you an entrepreneur. So, in doing something creative, destroying the old way of doing things, the doing aspect of entrepreneurship is what Schumpeter focuses on. So there appears to be two moments of entrepreneurship, the moment when you identify the opportunity and the moment when you actually exploit the opportunity.

Hicks: Okay, so the next question is about culture and those two moments of entrepreneurship. So, in trying to figure out how well or not well a culture fosters the identification of opportunities and the exploiting, right, of those opportunities. joseph_schumpeter You also had a definition of culture earlier, an explication of what culture is. What is culture?

John: Culture is one of those words that is ambiguous and hard to make concrete because it’s so abstract. But I think there is a very good definition of culture from the anthropologist Clifford Geertz. He refers to culture as an historically transmitted pattern of meanings, a system of inherited conceptions. So culture is essentially defined as the shared meanings individuals have about the objects and about the people and about the actions in their lives. They share meanings together, and those differ from culture to culture.

Hicks: So one then asks what meaning, so to speak, entrepreneurship has within a group of people, and to what extent there is a history; those will be connections that we want to make.

Coming to Trinidad in particular, you had three hypothesis about the intersection. One was about Kirznerian entrepreneurship — the identification of opportunities and how that is in Trinidadian culture. What is your hypothesis there?

John: Well, my hypothesis there is that Trinidadians across all of the ethnic cultures are fairly prolific in identifying opportunities. I confirm this by doing interviews with Trinidadians, and I sat them down and asked them: Tell me about your job, or your dream job, and instead of people identifying opportunities to be technicians, to be doctors, to be educators, people identified specific entrepreneurial activities. So they saw themselves as being self-employed one day, and not only did they know that they wanted to own trucks and rent trucks, or start restaurants, or start hairstyling businesses, they had actual plans for how they were going to achieve these businesses. They had a diverse number of reasons, but what really struck me was that they were good at discovering gaps where consumers had demands that were not being met. They were very good at identifying opportunities.

Hicks: And that was across all of the different ethnic cultures that you identified earlier?

John: Yes.

Hicks: With respect to Schumpeterian moment in entrepreneurship, what is your hypothesis there for Trinidad?

John: Well, clearly according to the statistics I mentioned earlier, the ethnic cultures are not equal exploiters? According to the data, the white, Chinese, and Syrian-Lebanese Trinidadians are the best exploiters, and the blacks are not necessarily good exploiters. Indians are seen as the emergent business class.

Now there can be several cultural reasons for that. When I looked at the history of the different groups, I realized that there could be some historical, cultural reasons for these disparities. White, Chinese, and Syrian-Lebanese, to some extent, brought their cultures with them, from where they came from, e.g., from China, from Syria. They brought with them their entrepreneurial attitudes.

Not only that, once they arrived in Trinidad they kept close kinship ties and they formed business associations. So, an individual who belongs to that ethnic group has a support system, has a group of people who are aware of what it takes to be a good exploiter. They have technical advice, they keep their kinship network close, and that’s fairly true for Indian Trinidadians as well. But when it comes to black Trinidadians, they don’t have those close kinship ties. They never developed them across their history.

Hicks: Is that because they were largely brought in as slaves?

John: They were.

Hicks: And that destroys kinship connections?

John: That destroys kinship connections. Over the years blacks, as opposed to Indians and Chinese, have given different meanings to certain jobs. Public service, education jobs, and professional jobs are highly valued in the African culture in Trinidad. So an individual who is trying to climb the social ladder or make something out of himself, you know, chases prestige, is not likely to use business to exploit those dreams. They are likely to become more educated and avoid business altogether.

Hicks: Professional jobs in established institutions. You also mentioned some dimensions of dependence versus independence in post-colonial history of Trinidad. Trinidad became a country, you mentioned, in 1962. So this is within a couple of generations that we have a new culture, but nonetheless, dependence and independence are not equally distributed. What are the issues there?

John: I believe that coming out of colonialism, more people started to see business opportunities as something that they could do, they could take charge, they could aspire to be anything they wanted to be, which is why, I think, across cultures, Trinidadians are opportunity identifiers. But they are not necessarily, in terms of the ethnic groups, all equal opportunity exploiters, for these dependence reasons. So blacks and Indians coming out of independence were more dependent on the state, even after Trinidad was not a colony anymore.

There were social programs to try to get them to become businessmen, to take care of them, and I think that decreased their incentive to try to make it on their own. Within those families, living with your family well into adulthood and relying on your parents for money, that is still seem as normal in those ethnic groups. And so, again, that diminishes the incentive to become an entrepreneur and to make one’s own way through life. So, these cultures’ dependence transmits across generations and determine who actually, even though they may have ideas, feels a sort of real need to exploit the opportunities. And those who are more dependent don’t feel that need strongly.

Hicks: They are striking — the statistics on differences in entrepreneurship participation across ethnic groups and racial groups. Also, according to the degree of education.

You also had to break down by sex, and there is a marked difference in the participation between males and females in all ethnic groups and all levels of education. What are your thoughts on the gender or sex differentiation stats?Flag_of_Trinidad_and_Tobago.svg

John: There are gender differences in employment across cultures, across nations, across time, and across jobs, right, so not just self-employed versus employed. Most fields, right, you see that choice gap. And I am not clear what the reason is, but I do think sometimes men have different goals. Sometimes women have more family goals, whereas men may aspire to be businessmen or to be very involved in their jobs. And I think there is a fundamental difference when it comes to the actual choices men and women decide to make on their own.

Hicks: The male/female rates in Trinidad aren’t different from male/female rates in other cultures and places?

John: I don’t think that they are, even here in the USA, I don’t think that they are. Well, there may be a higher percentage of women becoming entrepreneurs in the USA, but women here also generally are more self-sufficient and have a higher income.

Hicks: Okay. Toward the end of your talk, after emphasizing various elements of culture, you said your research shows an importance of institutions of certain sorts in fostering or squelching entrepreneurial participation rates. What do you mean by institutions in the Trinidad context? How does that fit in to your research?

John: When I talk about institutions, I am talking about the formal rules of the game within a society. The rules that tell you what you are allowed to do, where you are allowed to participate and not allowed to participate. I am not really talking about informal rules. I am talking about formal, official rules within Trinidadian society.

Hicks: Would informal rules be on the cultural side? And formal rules would be institutions?

John: Yes, informal rules refer to norms. The formal rules, the institutions operating in Trinidad, certainly apply to everyone. Of all ethnic groups in Trinidad, these are rules that are on the books. They don’t apply to blacks any more than they apply to whites or Indians. So there are institutions in Trinidad and Tobago that I believe, and that I think economic theory would predict, that are beneficial to entrepreneurial identification and exploitation in the first place. In Trinidad and Tobago, private property rights are respected and enforced, so if an individual decides they see an opportunity and they want to follow through with it, they can purchase the piece of land, they can purchase the building, and they don’t have to worry about it being confiscated. Private property rights are perhaps not as strong as in more developed nations, but, still, if individuals want to own properties, they could. Also, in Trinidad, I think the rule of law is respected, so individuals aren’t treated differentially. And so I think in Trinidad, as economic theory predicts, this incentivizes people to be comfortable with coming up with business ideas and going after these ideas because they know that, if they do the face the law in any point in their business dealings, they won’t be treated unfairly or differentially,

Hicks: So the law is noble and consistent, and so people can factor that in and that encourages entrepreneurship?

John: Definitely.

Hicks: All right, a fascinating set of issues. Thanks for being with us today.

John: Thank you, thank you very much. It was great to talk at Rockford University.

[The original video interview with Professor John follows.]

Robert Salvino on entrepreneurship and public policy — transcript of video interview

Wednesday, December 30th, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: Hi. I’m Stephen Hicks. Our guest today is Professor Robert Salvino, who teaches Economics and Entrepreneurship at Coastal Carolina University in South Carolina. He spoke with us today on entrepreneurship and public policy. robert-salvino

One of your initial themes was the importance of entrepreneurship as a driver of the economy. Innovation, business startups, employment, and so forth. And you were pointing out what we actually do know about entrepreneurship. What are the traits that go into entrepreneurial success?

Salvino: Right. When we think about entrepreneurship, we think of a very positive-oriented type of person’s behavior, somebody who is a problem-solver, who sees obstacles and is already thinking about ways to get around those obstacles and accomplish things in spite of barriers that might seem to be very big for the rest of us.

Hicks: Right. And then the question then is: if we want to encourage entrepreneurial behavior, what kind of institutional framework is going to make that happen — or retard it? In your lecture, you made a distinction between a more active approach to public policy, when government is trying to foster entrepreneurship by picking winners and losers, so to speak, and a more indirect approach, where the government sets very general conditions within which entrepreneurship can flourish. What is the difference between these two approaches?

Salvino: An active public policy approach would be literal programs, if you will, that would maybe subsidize start-ups. If you start a small business, there will be credits that will be given to you or job training will be provided, or these types of things, trying to get people to start things. A passive approach to public policy would simply just to allow things to happen. So, have a very favorable business climate in the first place without somebody having to check the regulations and licenses and requirements and see what kind of things they could do. And maybe if you are in this type of industry, you can get better subsidies or things, so, taking that away and letting things just kind of run their course.

Hicks: So the argument there is: you take away particular types of policies, and you create an environment in which entrepreneurship will flourish. Whereas the other is to have that plus particular programs directed to stimulate entrepreneurship. In your talk you also in passing contrasted some regimes around the world that seem actively to discourage entrepreneurship. North Korea is an example. And then the example of cellphones was very striking. What was that?

Salvino: Just a few years ago, Eric Schmidt with Google and, I believe, Josh Cohen went to over to North Korea. They’ve got a book coming out that talks about technology and its role in the spread of prosperity and the changing of oppressive regimes. Just a few years ago, you were not allowed to have a cellphone in North Korea without some sort of authorization. The majority of population did not have a cellphone. Then, they later allowed a million people in a very large country to have a cellphone, but it was a controlled cellphone.

Hicks: If we try to evaluate, then, the two entrepreneurship-friendly approaches, where we assume that entrepreneurship is a good thing and we want to foster it, how do we evaluate whether a more active hands-on government fostering of entrepreneurship works better than a more relaxed government approach?

Here you took us through some history, asking us to look at some of the great entrepreneurial success stories, Google, Apple, AT&T earlier, Standard Oil, and so forth. What is the lesson that we learn from those examples, on your reading?Steve_Jobs_Headshot_2010-CROP

Salvino: Right. Those companies, those technologies — nobody would ever predicted the emergence of these new industries. Ford Motor Company, you would not have been able to identify a group of people whom might have been more likely to be successful. Try to take a group of people from MIT and put them in a room and say: ‘create the next big thing’. People like Steve Jobs and Bill Gates — nobody would have ever identified them as people likely to create the things that they did.

Hicks: So the argument there is just having a culture in which creative, innovative people can do what they want to do, you’re going to get entrepreneurship. And then on the negative side, you had examples like Solyndra, where active public policy trying to promote certain kinds of entrepreneurship blows up in our faces with a huge price. Stay more with that one.

Salvino: Solyndra was, I believe, awarded about $500 million in subsidies through the federal government because they were in a favored industry working in green technologies. And Solyndra went bankrupt within, I believe, a couple of years of forming. If the company, a start-up, had able to get private investors to back them to the tune of $500 million, it’s very unlikely they would have gone bankrupt in two years. So, the difference is between what went into the development of a company like Solyndra versus a company like Apple.

Hicks: Okay. Are we able to step back and cite statistics and say that here is the more relaxed, entrepreneurial-friendly environment, and in that environment, you get a certain number of entrepreneurial successes — Apple, Google, and so forth — but that we’re also going to have a whole lot of failures?

Salvino: Sure.

Hicks: Contrasting that with a government that is more hands-on and tries to pick entrepreneurial winners and losers, they are going to have a lot of failures, but they also have some winners. Are you able to quantify the relative success rate of those two approaches?

Salvino: I haven’t looked at that in my research, but I think if you look at it just from a theoretical perspective and think about resources that are invested in any and each of those, certainly you are going to have many, many failures in the private market with experimentation. But the difference would be the amount of leverage of that investment and the people who suffered as a result of that. If it truly is a market process, the spread of failure is not going to have the negative impact on all of society that something like many Solyndra-type things would.

Hicks: Okay, so we have one 500 million dollar failure that has to be put against then 500 one-million dollar failures, and so forth.

Salvino: Exactly. It is spread throughout the whole system.

Hicks: Now, you also had one particular example of public policy that seemed more indirect, and that was health insurance, where this is not directly intended to have an impact on entrepreneurship or not. But for various other reasons health insurance is a desirable goal, so the government wants to encourage the greater provision of entrepreneurship. But, nonetheless, indirectly it has an impact on entrepreneurship as the example you presented. How does that work?

Salvino: Okay, if we talk of a different types of entrepreneurs, a self-employed individual as one type. So, employer-provided health care as it emerged over time took years and years to grow and become kind of cemented into our culture as an expectation of a good job were good benefits. And so the rate of self-employment just seems to, over the same period of time, been about cut in half. And so, there is a real cost to acquiring Barack Obama, Chris Gronethealth insurance on your own in this independent market versus when you are with a large company. When you are with a large company that provides the benefit, there are direct policies that make it easier for a large company to provide the benefit to the employee. And so there is a hurdle that is created there, whether it was intended or not.

Hicks: Okay, so the way this works then is health insurance is a desirable thing for individuals. Government creates a policy that encourages employers to provide health insurance for employees. That makes employment with a company that’s providing health insurance more attractive than self-employment, so self-employment rates go down.

Salvino: Right. That’s kind of the idea that I have looked at and to see if there is a causal relationship between the two. Certainly, we can see at least anecdotally this idea that we place a very high premium on benefits. There was a survey done a couple of years ago throughout the world asking adolescents what do they want when they become adults. And most of them said they want a good job with good benefits. So this has been cemented into our culture.

Hicks: Okay, then public policy responds to that directly.

Salvino: And public policy responds and, in some cases, has helped propel that idea, that expectation.

Hicks: Scaling out then: your proposal was that we should have the more indirect, passive approach to public policy by creating general conditions within which entrepreneurs are free to innovate and experiment. What are those general conditions that you think work best?

Salvino: So, for example, just a sound monetary system that allows us to make long-term contracts and have an idea or expectation of what interest rates are going to be, what the rate of inflation might be, and how that affect us. Property rights, so that when we go into an organization, we form a corporation, we conduct business, we know that our rights are protected and that there is a judicial system that is going to help us solve disagreements and such things. Contract enforcement is another example of an institution that helps. When contracts are not going to be enforced, individuals, investors, or entrepreneurs may be very leery of forming partnerships with people that they may not know very well.

Hicks: You gave the example of China, part way through, as a very striking example. One of things we’re interested in is wealth creation. And wealth creation certainly is an important value if we are already comfortable. Nonetheless, we would like to be more prosperous and make sure our kids are more prosperous.

But wealth creation is important when we think about poverty and places in the world that are still ridden with poverty. You mentioned China as a very striking example. In the last generation, something happened that has never happened before in human history, namely, half a billion people were lifted out of dire poverty into a basic minimum standard of living. Can you track China’s success in doing so to public policy changes in China? And if so, what do you think those were?

Salvino: Right. If you go to China a generation ago, we think of China as a communist country. And still today people associate China with communist regime. But it is going in a different direction than many developed countries in the world. It is kind of backing down from that and going from a completely communist institution to state capitalism. Maybe it’s state-directed capitalism with capital ownership, but still it’s a step in the opposite direction, towards allowing markets to flourish more than previously had. And if we think about it from the perspective of our country, many American businesses over the past generation have put operations in China. And over the period of a generation it has become easier for these businesses to operate in China, to maintain their own property rights.

An individual came and spoke to a group of business leaders in South Carolina a couple of years ago and talked about an operation when they first went into China. In order to start their company they had to give away majority ownership of this subsidiary in China, so they were very leery to do that. And over the past few years, that went away to where they were not any longer required to give away that type of ownership of their company. And as more companies have been able to go into China, not having to give up certain of those property rights, more companies will go in there and conduct business. So there are jobs created in China by American companies and other companies throughout the world. And over a generation that has been one factor, I would say, that has helped to alleviate some of their problems.

Hicks: So China is moving in the right direction?

Salvino: Right, they are moving in the right direction.

Hicks: Thank you for being with us today. Interesting material.

Salvino: Thank you.

[The original video interview with Dr. Salvino follows.]

David Henderson on Seven Myths of Free Markets — Transcript

Tuesday, December 1st, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I am Stephen Hicks, here at the Center for Ethics and Entrepreneurship with Dr. David R. Henderson, an economist visiting from the Naval Postgraduate School in Monterey, California.david-henderson

Dr. Henderson is the author of many books and articles, notably The Joy of Freedom, a semi-biographical exploration of economic themes and his career. Also The Concise Encyclopedia of Economics, a widely-used textbook in economics available both online and in print. Dr. Henderson was here today to speak on the seven myths of free markets. Actually, on seven myths of free markets, leaving open that there might be more.

You mentioned that economics has the moniker, the dismal science, but people don’t often know the actual origin of that. What is the story there?

Henderson: Yes, and the origin is fascinating. The way most people or most economists who think of themselves as informed think is that it came from Thomas Robert Malthus because he was dismal. He thought, two-hundred years ago in his essay on population, that agricultural output could grow only arithmetically and that population would expand exponentially, and, therefore, we would have mass starvation. That turns out not to be the reason at all. The term was coined by Thomas Carlyle, a British anti-capitalist author in the early 19th century. And his objection to economics — you have to remember, economics was dominated by very free-market economists at the time, two-hundred years ago — that those free-market economists who dominated economics strongly opposed slavery. So Carlyle is saying economics is dismal because economists oppose slavery.

Hicks: You then proceeded to the topic about the seven myths with respect to the free market, how people think and evaluate free markets. This is important because it leads to lots of policy issues here. We can run through the seven. The first one ties into Carlyle’s anecdote that free markets, in some sense, promote racism. What do you think about that one?

Henderson: Yes, that’s the myth. And, in fact, free markets undercut racism. This is the typical case people think of when they think about markets and racism. Think of a white employer who is faced with the chance of hiring a black employee who is productive, but because this employer is racist, he says, ‘No’. Free markets make him bear a cost for that action because if he gives up the chance to hire a productive black employee he gives up the potentially profitable opportunity. It doesn’t mean he won’t do it, but it does mean that it will make him bear a cost, and, therefore, the employers who come to get bigger market share are the ones who are the least racist because they are making out best financially. And that, then, gives an incentive even to racist employers not to care as much.

Hicks: Okay, so the less racist employer will hire the black employee, get the productive worker, and then will have a competitive advantage against the less tolerant employer.

Henderson: Exactly. And, in fact, governments were the ones that promoted racism. And the example I mentioned in my talk was street car companies, which one-hundred years ago in the South, were required by law to segregate by race. They had been segregating, but they had segregated smokers from non-smokers. And they were required, instead, to segregate by race, and they fought those regulations tooth to nail until the government got harder and harder on them and they finally gave up.

Hicks: What you call the second myth is the standard slogan, “The rich get richer under free markets and the poor get poorer under free markets.”John_D._Rockefeller_1885

Henderson: Right, and it’s half-truth. The rich get richer, the poor get richer, and in between get richer. And what I would point out is that, if you look at what Rockefeller, the richest man in the world one-hundred years ago, he had stuff that all but our very poorest people have. College students with very little money have cellphones, but he didn’t have that. He couldn’t fly very many places for most of his life. He couldn’t telephone people from most of his life. And then, even more important, if he got sick he couldn’t use penicillin or any other drugs because almost no other drugs existed. And that was key.

Hicks: So, the rich get richer and the poor get richer as well under free markets. Other standard criticism is the dynamic of free market capitalism is to lead to monopolies, and monopolies have various economic pathologies. What about that one?

Henderson: Yeah. Actually, free markets break down monopolies, and the reason is that, when there is a monopoly, the monopoly is making money. Those high profits attract new entrants into the industry the way honey attracts ants. And so, monopolies under free markets tend to be temporary until some better competitors or better product comes along. And an example is the Blackberry, which now is being displaced by the iPhone. What’s interesting is that the Federal Trade Commission was suing Apple for a while on the grounds that they were dominating and whoever gets there first dominates. Well, that’s absurd, because the people who get their first were Blackberry.

Hicks: Okay, fair enough. Capitalism or free markets are bad for the environment. Another myth?

Henderson: Another myth because, in fact, what’s bad for the environment is socialism, because no one has an incentive to care for the environment under socialism. Property is not privately owned, so no one has an incentive to care for it. I have a chapter in my book, The Joy of Freedom, entitled “The Environment Owned and Saved”, and the idea is that if you own something you tend to take good care of it. And, imagine we can get in time travel and travel around the world, what we will find is that in 1990, before the former Soviet countries had a chance to develop out of socialism, you saw pollution. You saw lakes that were destroyed. The Soviet Navy had dropped nuclear waste in the ocean on purpose. If you go to Africa in this time travel, you find that the countries that have the strictest poaching laws are losing the most elephants. But the ones that have poaching laws and also allow the local villagers to share in the benefits from the tourism that elephants give rise to, those villagers have an incentive to then watch out for poachers, and those elephant populations are growing.

Hicks: So, the time travel argument is kind of an historical argument. If you look at the nations that are more socialistic, the environmental record is terrible. In the more free-market countries that have property rights, the environmental problems are either solved or less severe.

Henderson: Yes, solved or less severe is completely accurate.

Hicks: Okay. Free markets lead to war. Another standard one?

Henderson: Yeah, in fact, trade promotes peace because part of free markets is free trade across borders. And if two countries have a lot of trade they have an incentive not to make war. It was interesting that when there was the big conflict between the United States and China in the first couple of months of the Bush Administration, when the Chinese forced a U.S. Navy plane down, and they were held prisoners for about a week to two weeks, the multinational corporations went to Bush and said, “however you resolve this, don’t do it by making war, because China is a great trading partner and we want to keep that going.” And it was resolved. And, in fact, these two economists found that the larger the interaction or the larger the amount of trade between two countries, the lower the probability of conflict is.Henderson-Joy-of-Freedom

Hicks: Interesting. Another myth you call the “Stinginess myth.” Capitalism and free markets are all about money, about getting money, hoarding money, being like Scrooge, and so, those nations are stingy compared to more benevolent modes of organizations.

Henderson: There are two reasons why that’s a myth. The first is that the more economic freedom we have over time, the wealthier we become. The wealthier we are, all other things equal, the more generous we are. The other part is that when governments come in and try to be generous with other people’s money — which, by the way, is really a contradiction — they crowd out private individuals’ actions in that area. So, one reason that Europeans aren’t nearly as generous as we are — and it isn’t mainly wealth because the wealth differences isn’t that huge — is that the government does so many things for people that it never occurs those people to do it for others. So when we have any kind of a natural disaster or whatever, there is this huge outpouring of help, in money, in goods, in food, clothing, time spent, and so on. The economists which looks their nose down at American audiences even admit that we’re the most generous nation in the world. We give on average one weekly paycheck a year to charity, 2% of our income. The average person that volunteers, and the majority of us do volunteer, spend at least four hours a week in voluntary activities. That’s unheard of in most of Europe.

Hicks: The seventh myth on your list had to do with employer/employee relations, with the dynamic being kind of zero-sum. The employers have the upper hand and bargaining power, so free markets allow employers to dominate and not treat their employees properly.

Henderson: Right. That is a myth, and the reason is worker mobility. Within a certain community workers have choices of jobs, and even more important, they have a choice of moving to another community. Railroads, when they came along in the 19th century, made that much easier. And so, what really gives rise to worker power is mobility. Now, it is true that unions can bargain for a higher wage — and they were successful in doing so — but that doesn’t help workers in general. That gives higher wages to the employees who were lucky enough to keep their jobs, but at the higher wage, employers employ fewer people. Those people put out of work because of the unions’ high negotiated wage go elsewhere. They drive the wage down slightly elsewhere by being in that non-union sector. So the main effect unions have on workers is a wash, and it’s essentially a distribution of wealth from the non-union workers to the union-workers.

Hicks: Let me ask one question in conclusion. Why do we think these myths are so widespread, if indeed they are myths? You did present a lot of historical data, a certain amount of economic analysis that seems relatively straightforward. What’s the power that these myths have still?

Henderson: First of all, I think they are still taught in school. I think most schoolteachers don’t know they are myths. Second, there are now groups with strong incentives to push these myths because they want their particular, special deal. They want to have this restriction on capitalism, or they want that monopoly power. And so they push the idea that a free market is dog-eat-dog and all that kind of stuff. So, it’s a combination of bad education and incentives of people to propagate the myths.

Hicks: All right, thanks for being with us today.

Henderson: Thank you.

[The original video interview with Dr. Henderson follows.]

Video Interview with Professor Jerry Kirkpatrick — Transcript

Monday, November 2nd, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I am Stephen Hicks. My guest this evening is Professor Jerry Kirkpatrick from California State Polytechnic University in Pomona. He is the author of a new book, Montessori, Dewey and Capitalism. Tonight he gave a lecture to the Philosophy of Education class here at Rockford University, sponsored by the Center for Ethics and Entrepreneurship on the theme of “Montessori, Dewey, and Capitalism”.jerry-kirkpatrick

Now Professor Kirkpatrick, both Montessori and Dewey are known properly as modern and very progressive educators — and as two giant names in philosophy of education and education practice in the twentieth century.

What distinguishes them from the long line of traditional educational thinkers and practice over the course of two millennia plus?

Kirkpatrick: Right. The focus on constrain on the child — the whole child, not just communicating a lot of information. They focus on trying to develop the child’s independence, abilities of think for himself or herself and have a good self-directed kind of life.

Montessori uses the term “concentrated attention”, and it’s her primary aim in education to get the child to concentrate for long periods of time. This is something that increases as the years go by to adulthood, which, presumably, would be then a nice, productive career with strong concentration.

John Dewey talks about “undivided interest” in the sense that, first of all, we should have an interest in what we’re studying and be able to choose what we are learning as opposed to the traditional education that has been taught since at least Ancient Greece where, basically, information is drilled into you. Then you must recite it back, and if you make a mistake, you might actually get hit or spanked or whatever. It’s the modern, progressive view of being nice to children and understanding their emotions, their desires, and letting them pursue their own interests.

Hicks: Now, as you say, Montessori and Dewey are drawing on some historical figures in the traditional, not necessarily the dominant figures up until the modern time. Who do you single out as the major figures that both Montessori and Dewey are drawing upon?

Kirkpatrick: Well, there are quite a few since about a century before the Enlightenment, but it even goes back to the Roman educator Quintilian in the first century A.D. He was very concerned about his students and not having this harsh kind of discipline. He wrote a book that was lost in the Middle Ages and rediscovered in the Renaissance which then influenced a lot of other people. And we’ve got the Czech reformer Comenius. We have John Locke and Rousseau, who is called the father of modern education because he focused on the concept of interest, that the child should be able to pursue in his or her own interest and not just be forced into a situation by the traditional teacher. There was a Swiss practitioner by the name of Pestalozzi who had a number of schools. Johann Friedrich Herbart, a philosopher at the University of Königsberg and actually the successor to Kant coined the term pedagogy or science of learning or science of teaching. There was then also Friedrich Fröbel, the father of kindergarten. And kindergarten means “garden for children” as opposed to a very unfriendly kind of classroom type situation. His term kindergarten was supposed to apply all way through education, not just pre-first-grade that we think of today.

Hicks: Right, as you put it in class, a garden rather than a prison.

Kirkpatrick: Yes, right. There is a definite tradition, and I see Montessori and Dewey as the culmination of this whole trend.montessori-maria

Hicks: Let’s focus on a couple the more particular elements of parallel. For Montessori, the phrase is “concentrated attention.” For Dewey, it’s “undivided interest”. Both of them independently are focusing on this as a central part of education, and, in your judgment, it amounts to the same thing with different labels.

Kirkpatrick: Yes, very similar because Montessori wanted the child to learn how to concentrate for long periods of time. She developed these unique and very clever “didactic materials” as she calls them that the child works with. And it encourages the concentration, it relaxes them. Many problems just kind of fade away. Dewey was talking about the traditional classroom, where the child is bored and starts daydreaming. The interest, in other words, is divided, and that breeds dependence and becomes very discouraging to the child.

Hicks: And so, for both, the primary job of the teacher is to set the right conditions for the child to get into the state of undivided attention.

Kirckpatrick: Right. Montessori called it a “prepared environment”, and Dewey just says the teacher needs to develop certain experiences that will encourage this.

Hicks: And then the educational outcome, the primary one, is that then the student cultivates independent judgment. So, in both cases, the teacher is the facilitator of the environment so the student is able to concentrate and then achieve the ability.

Kirckpatrick: Now, I actually think I am extending this a bit to talk about it as independent judgment. Montessori calls it independence, and she and Dewey don’t really define it as specifically as I do. I think most people think of independence as you become an adult, you can pay your bills, and you have good, sound judgment. But independent judgment is going beyond that to, like, the boy in the story of “The Emperor’s New Clothes”. When everyone else is sitting idly by and ignoring it and denying it, the boy pipes up and says, “The emperor has no clothes on.” He sees it, he judges it, and he also acts on it. I would say that another parallel was the ability of revolutionary Americans to go to dump tea into the Boston Harbor, having the guts to really do something that’s not necessarily popular.

Hicks: So independence has both a cognitive component and an existential action component, right?

Kirkpatrick: Yes.

Hicks: You were stressing similarities between Montessori and Dewey, but through most of the twentieth century the perception has been that they are philosophically different, that there have been turf warfare issues. In your judgment, do you think that the differences are overstated or they are real?

Kirkpatrick: Well, they definitely are real to some extent because throughout the twentieth century it was progressive educators — not just Dewey. And Dewey was kind of on the sidelines for most of his career as a professional philosopher. There were people who were speaking for him or in his name, and I don’t think they necessarily followed what he was saying precisely.

But it is still true that Dewey advocated a more social orientation in his schools. He saw education as a tool of social policy and with a very significant political element. Montessori did not. That’s true of most of the European progressives; they didn’t have the strong political element to them. They focused really down at the class level, helping the child become independent and catering to their interests and individual differences.

deweyjohnHicks: One of the things you also mentioned in your talk and developed further in your book are the political and economic implications of these educational philosophies and your extensions of them.

In emphasizing this point of finding one’s own interest, being able to independently concentrate and work through various projects, and then developing the independence of spirit, of mind, and of action — your argument then is that both Montessori and Dewey, whether they were aware of it or not, really were preparing students for a modern, free, entrepreneurial approach to society.

Kirkpatrick: Specifically capitalism, yes. I do a real twist on these things because both Montessori and Dewey were socialists. But I took a look at their ideas and the whole trend of the progressive movement, and I saw what seemed like a contradiction to let the child blossom on its own, let it be free to choose and move around the room. Yet the whole thing is going to be imposed by the State, which is a tool of coercion. So, especially with compulsory education, you are forcing children to be free, which is a contradiction. And I said, “Well, no, they are both talking about independence and want children to grow up to be strong, courageous adults. That sounds just fine for capitalism.” And so I actually advocate a free market in education, removing government completely from the whole education process and having entrepreneurial capitalists providing the schools.

Hicks: The argument actually goes in two directions. One is, if you take the underlying educational philosophy that both Montessori and Dewey were advocating, that prepares students best not for a more bureaucratic top down socialist society but for an entrepreneurial, market society.

Kirkpatrick: That’s what I saw when I was reading them.

Hicks: Then also your argument that is if we want to actually institutionalize the kind of educational approach that Montessori and Dewey are advocating, that is going to be best realized not by state-run democratic institutions but will be best provided by entrepreneurial market approaches.

Kirkpatrick: Right. And both Dewey and Montessori are talking about not interrupting the child, you know, undivided interest, don’t divide the interest. Montessori says it’s very important not to interrupt the child, not to deflect the attention. Well, I see the connection there also at the political level that what government intrusion in the economy does is precisely that. It deflects attention of the entrepreneur and tries to move him in a direction that is away from what the real business is and that’s satisfying customers.

Hicks: Or developing the product to satisfy and deflecting it toward rule compliance and bureaucracy. Well, the book is called Montessori, Dewey and Capitalism by Jerry Kirkpatrick. Thanks for being with us today.

Video Interview with Professor Nicholas Capaldi — Transcript

Tuesday, October 6th, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: Our guest today is Professor Nicholas Capaldi, who is the Legendre-Soulé Professor of Business Ethics at Loyola University in New Orleans.capaldinick-crop

Professor Capaldi was here lecturing on business ethics. You framed your discussion on business ethics in terms of two broad narratives that have dominated the modern political thought and modern cultural thought: the Lockean and the Rousseauian. So, let me first ask you to summarize the main ingredients, so to speak, of the Lockean narrative. How does that go?

Capaldi: I call it, technically-speaking, the Lockean liberty narrative, and then I would flash that out in comparison to the Rousseauian equality narrative because I think the meaning they give to those terms tells you a lot about where they going. I would make a couple of very broad historical claims, namely, that there has been this ongoing debate or discussion between Lockeans and Rousseauians over a long period of time. And I will even strengthen the historical claim by saying that all the major spokespersons in public policy debates, etc., at one point or another, are defending or attacking either the Lockean or the Rousseauian point of view. To piggyback here on a Keynes remark, just as politicians are invoking some dead economist through a philosopher they haven’t read, I would say that a lot of contemporary theorists are repeating, in contemporary rhetoric, arguments that have been around since Locke first expressed his view and was critiqued by Rousseau.

Hicks: Is it fair then to say, in a historical context, as feudalism was declining, being overthrown, then the question in the modern world is: What are we going to replace it with? And we have two answers, a more Lockean answer and a more Rousseauian answer? Fair enough?

Capaldi: Sure. Locke is looking at this, even philosophically, from a very different point of view. He is thinking of wealth in a post-feudal world as something that is not finite, but can grow.

Hicks: Okay.

Capaldi: And it grows through labor and what we’ve come to call technological projects. So, industry, technology, etc. He is in a universe, in his mind, which is capable of potentially infinite growth. He thinks that this growth would be enhanced through a market economy. And in those places where Locke discusses market issues, he clearly comes out in favor of a market being as free as possible. He is certainly very famous for arguing in favor of limited government, and he thinks government should be limited in the interest of freeing the market economy. When he discusses legal matters he is a proponent of what has subsequently been called the rule of law, which, put in simple terms, means you put as many limitations as possible on government discretion so that it doesn’t overstep its bounds and interfere with the market. And finally, in many ways the most important point he makes is that none of these institutions can be understood nor can they work unless you have a certain kind of person, a person we’ve come subsequently to call the autonomous individual, and this is very important to Locke. Now, Locke’s assumption is that society is started on a contract. He means this in a metaphorical sense, but he understands a contract to mean the following: that all negotiation in the contract begins from the status quo. That you can’t have any negotiation unless you begin from status quo. That certainly privileges some people over other people. (more…)

Video Interview with Magatte Wade and Michael Strong — Transcript

Tuesday, September 1st, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.stong-wade_stossel

Hicks: Hi, I’m Stephen Hicks. I am executive director of The Center for Ethics and Entrepreneurship here at Rockford University, and my two guests today spoke at Rockford University on the themes of entrepreneurship and ethics. With me is Michael Strong, who is educated at Harvard, St. John’s College, and at University of Chicago. He is the author of a new book last year called Be the Solution, and the theme there is conscious capitalism and entrepreneurial solutions to major world problems and social problems. My other guest is Magatte Wade, who is a serial entrepreneur, originally from Senegal, Africa. She founded a business there that is quite successful and is now engaged in a new entrepreneurial venture here in the United States.

So, Michael, I will start with you. One of your provocative opening lines was an account of entrepreneurship as a kind of magic, as creating something out of nothing. What do you mean by that?

Strong: Well, you know, Magatte and I went to Rwanda this summer, and Rwanda is all subsistence agriculture, meaning it’s nothing but little tiny patchworks of people growing corn and potatoes, and so forth. In 1800 the whole world was full of basically people who lived in subsistence agriculture. Whenever we walk around the world and we see airports, computers, buildings, and chairs — all that stuff had to come from somewhere, and my point is that science and technology made certain discoveries that contributed to all of the stuff around us. When we walk around, we should be aware of the fact that if it were not for entrepreneurs creating profitable businesses that marketed goods and services that people wanted made from inventions and designs and so forth, we would all still be living at the level of subsistence agriculture. So we need to have some realization that, without the entrepreneurs, we might have scientists in labs, if, you know, maybe the kings could have a few scientists in a lab, and we would have subsistence agriculture, but we would not have the extraordinary life we have. I think we should bow down to the Industrial Revolution every day. This extraordinary life is entirely due to the fact that millions of entrepreneurs for the last two-hundred years have created millions of businesses that provided innovative goods and services, month by month, year by year, and have created and are still creating the world we live in today.

Hicks: Okay. The cultures that have become rich in the last two-hundred years beyond the normal standing point for humans for most of human history, what were they doing differently that hadn’t been done before? I mean, you mention the Industrial Revolution, but what were the components that were there?

Strong: A great question. And there are controversies in this. There is certainly a legal part and there is a cultural and intellectual part, but one thing that is becoming increasingly clear is that the legal structure is crucial. In particular, you need a secure and transferable property rights, you need rule of law, contract enforcement that is reliable and fair, and you need economic freedom, the freedom to create things. In my book I talk about this as the entrepreneur’s toolkit, where just as an artist can’t paint a painting if she doesn’t have a canvas and paints, so too an entrepreneur can’t create if they don’t know what they own, if they can’t exchange what they own if other entrepreneurs or other businesses and finally produce things freely for the market. So economic freedom, property rights, and rule of law are crucial. When you look at countries of economic freedom, every nation with economic freedom is wealthy; every nation without economic freedom is poor. It’s complicated, but in general as countries increase at levels of economic freedom they become wealthier. Hong Kong and Singapore are the two most economically free entities. For the last 50 years, they have been the fastest growing entities; they went from approximately African levels of poverty in the 1960s to now to the wealthiest sovereign entities on Earth. Hong Kong is not quite sovereign, but, still, has higher GDP per capita than Britain. They are both former British colonies.

Hicks: So, if you look at the continuing problem areas, the parts of the world that are still consistently poor, this then will indicate that the problem that needs to be dealt with is the economic freedom issue primarily including the legal component?

Strong: Absolutely. Africa is the most over-regulated region on Earth. It is easier to open a legal business in Denmark than any African country. It’s easier to fire an employee in Denmark than in any African country. Now I just mentioned Denmark because lot of anti-capitalists think of Scandinavia as a socialist haven. What they don’t realize is that Scandinavia is more free-market than the developing world. That’s why regions like Africa are poorer. African entrepreneurs need to be liberated so that they can create legal businesses, create wealth and jobs, and thereby have Africa become as prosperous as the developed world is.

Hicks: You mentioned one anecdote about having documents notarized to make them legal if you want to start a legal business. How expensive, on average, is that for an American entrepreneur compared to, say, a Mexican entrepreneur?

Strong: That’s huge. Mexico has a problem. In general, Mexico is not nearly as free market as the U.S. One of the specific ways in which there are obstacles to legal business creation are the notary publics. In the U.S., most of us can get a document notarized for less than ten dollars, often for free. And if you want to create a legal business, then you need a notarized document. No big deal, we don’t even think about it. In Mexico, notaries charge between 500 to 1000 U.S. dollars. Many business documents that will be required to create a legal business there cost so much money that unless you are already at upper-middle class or wealth Mexican, you don’t stand a chance of creating legal business in Mexico. As a consequence, it’s easier for a poor and uneducated Mexican to cross the border illegally into the U.S., create a legal businesses here, become wealthy, and go back to Mexico. They just don’t have that opportunity in Mexico.

Hicks: Now, I am going to turn to your experience in Senegal. What was your entrepreneurial venture there?

Well, my company basically is a company that is a U.S.-based company, but most of our main providers of the supply that we need are from Senegal. But the problem we had there was it that we had to create an entire supply chain from scratch. So, in a way, it’s already hard enough to start a company, but on top of that, if you have to create your entire supply chain, you can see you have an additional issue there. And what happened is that in Senegal we needed hibiscus because our main flagship drink was the hibiscus drink called Bissap from Senegal. So, there what we really had to fight was this notion that a lot of African women, Senegalese women, had. They had all of these NGOs come and tell them to grow hibiscus, and now it’s rotten in all of these warehouses. And so, by the time I arrived, none of them wanted to get into that anymore. And that’s in a way how the aid business has really tweaked, in the most negative way, a lot on the ground.

Hicks: You mentioned the supply chain issue had also been, in part, due to Coca-Cola coming into the country. You had the traditional drinks that were very popular and successful, but they were replaced by successful soft drinks. How can the smaller businesses in Senegal compete with a large corporation? How did you do that?

Wade: I think what we did is we really benefited from what I call a convergence of trends, but these are all really trends that are here to say. And what it is all about is that around the world we’re going back to a global consciousness. We’re going back to global consciousness meaning that, I think, all of us realized that something is not working, from the way we eat to the way we exercise. Our lifestyles, a lot is not right. And the type of wave that I am riding on is a wave that has to do with people wanting to go back to authentic and indigenous things, whether it is in drinks and foods and beverages or if it’s the type of lifestyle that you try to adopt. And so, a type of demographic I am going after is for us to say, you know, Coke is doing whatever Coke is doing, but we also know that there is a part of the population that is really interested in going back to our cultures and to the roots of a culture. Also, no one is interested in products that are not elaborated or sophisticated. So, if you can use authenticity and indigenous assets as a base foundation of a new brand you are about to build, but you surround that with modernism, you then have a brand new product that a whole group of people are looking for, and that’s where we’re going. And it turns out that that type of trend is actually contagious. Even the classical Coke drinkers are now interested. They are going away from Coke classic towards a drink that we’re creating, and that’s how we’re winning.

Hicks: So part of your solution is a marketing strategy that plays on innovative trends and what people are interested in as consumers. Your big challenge, in part, was destruction of supply chains that had been brought on by foreign competition. But your argument is that if you have a passion for your product as you do, then a supply chain can be rebuilt. That’s good for you and is also good for the indigenous farmers in Senegal. And the little guys, so to speak, can compete against larger corporations. You are now doing a second start-up business here in the United States. Are the entrepreneurial challenges easier or greater for you here?

Wade: I think it’s about different trade-offs. First of all, what happens is a lot of the supply chain, if I wanted to do my businesses and keep it in America, it would be so much easier, let’s be frank. But, if I find a way to get the Senegalese part involved again, it helps me build equity in my brand. And we also have found that if you are able to set up the right type of supply chain, eventually the cost will go down and be actually less than if I were just relying on an existing supply chain here in America. So it’s worth it, but the transition is not an easy one.

Hicks: Toward the end of the talk you were speaking more directly to the students here at Rockford University, and you had asked how many of them were considering being entrepreneurs and very few were. Most are considering a traditional career path, going to work for someone else. And it might be that they just don’t know very much about it or they find it a bit intimidating. Well, how do I become an entrepreneur, so to speak? What is the best advice you can give to young people to get them maybe to think more seriously about entrepreneurship as a career? Why should that be attractive to them? And if they are going to do that, how best should they go about it?Magatte

Wade: What I tell everybody is that entrepreneurship, first of all, is not for everyone, because it should be okay for everyone to know it’s not for everyone. It’s a small percentage of the population that are entrepreneurs, so that’s the number one thing I want to get out there. And then, the next thing now, let’s say you are amongst that small percentage. You have the type of personality that fits it and the type of guts to go with that. And there is nothing right, there is nothing wrong, it’s just who you are. So, if that’s who you are, what I would tell people is, you know, as I was saying earlier, people have to pay attention. We’re in a world in which everything moves so fast, so quick, that people have to pay attention especially to moments of superb enlightenment. Sometimes you’re dreaming of something completely new, but it’s in the world of dreams. That’s something worth writing down, wherever that finds you. Sometimes it is in a plane. Everybody else is sleeping in the cabin, and it happens to me all the time. I mean the plane is flying over the Atlantic, going from one place to another in the globe. I have no idea where I am going, but up there in the altitude while everyone is sleeping around me, I’m dreaming up a better world here or dreaming up new types of this or that. So I write it down. Sometimes something really frustrates you. Why does every seat in a plane have to be this stiff? So, there are also moments to think about what could solve your problem right now. And if you are seeing it systematically everywhere that this doesn’t work for you, if you are feeling that away, chances are most of the people feel that way. What happens is there’s just a small percentage of us who are capable of saying, this is not working or I dreamt of something and go after it. What happens is the masses, the rest of the population, they are going through these frustrations all the time. They are going through these dreams all the time, but never will it cross their minds to act on it. And I feel it is our job to do it, and when we come up with a solution or we make those dreams real, we’re finding that a part of the population are adhering. They are coming to us and then becoming consumers.

Hicks: So, you come up with a really good idea that you get excited about or, by contrast, you have a thing that’s really frustrating, a problem that you think really needs to be solved. Then, what’s that trigger that gets you and other entrepreneurs off the sofa so to speak and actually doing something about it? There must be many people with good ideas, but they don’t follow through. How can you encourage people to take that step?

Wade: That’s why I try to go back to the passion thing. Because, for me, I look at what makes me quit. With my first company, I quit my job, a very comfortable job, to go into this world of unknown. People were like, what are you going to do, a beverage company? You know nothing about beverages. I told them, excuse me, I know a lot about beverages because I am a huge consumer of beverages. It’s my passion. I make these beverages in my kitchen. I know how to tweak them. I know all of that. So that gives me the right to do what I have to do. So I think at some point it is just this attitude. It’s an attitude of criticizing by creating. I think that when Michael first told me that saying from Michelangelo, it just made so much sense. And I think that if people really want to stick to that, it will lead them to the right thing. It will lead to them jumping in. I know that for me it was a feeling that I wasn’t able to express, but it sums up the way I felt. To say, you know what, to heck with this. I am going do it.

Hicks: It strikes me listening to both of you that it’s a perfect teamwork going on here. You are focusing on the entrepreneur as an individual, finding your dream, finding your passion, and doing that makes you come fully alive, who you are. You are emphasizing that to the extent that entrepreneurs follow their dreams and passion, that works out best for all of us.

Strong: Absolutely.

Hicks: It’s to the social benefit, so it’s win-win all around.

All right, thanks for being with us today. Wonderful talk.

Video Interview with John Chisholm — Transcript

Tuesday, August 4th, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: Our guest today is John Chisholm. John is a serial entrepreneur in Silicon Valley, now based in San Francisco, involved in a number of ventures. And he was here today talking to the Business and Economic Ethics class about entrepreneurship and, more specifically, about how to think like an entrepreneur. Lots of fascinating material there.chisholm-john-headshot

One of the first things you mentioned was motivation, about why people might consider entrepreneurship as their option as opposed to working for an existing organization. What are the motivating values here?

Chisholm: Well, I can suggest three reasons. One is the freedom to do what you love. Two is security for you and your family. And one thing I remind students is that no one is going to provide for their security except for them. And do not rely on the government, because who knows what could happen there.

Hicks: Because they are young people who are looking 40 years down to the road to retirement.

Chisholm: Yes. And especially today since we have a government shutdown, that might seem particularly relevant

Hicks: Coincidentally, yes.

Chisholm: And third is opportunities that are unique to each and every one of us. Everyone has a unique set of skills, knowledge, relationships, and reputation. And these give each of us the ability to do something or start a business that potentially nobody else can. And so, developing that and taking advantage of that opportunity is one of drivers of entrepreneurship.

Hicks: When we get an entrepreneurship as a career, there are two things that we hear a lot. One is the positive motivation, about passion, about finding something you’re interested in and excited about and trying to pursue a career there. But we also hear that entrepreneurship is very hard work. It can be grueling, sometimes overwhelming, and so perseverance is important. Both passion and perseverance were central to your talk, but an interplay between the two was interesting. How does that work?

Chisholm: I see them as feeding on each other. They don’t necessarily go to together; you can have one without the other. For example, you can have passion without perseverance, and that is not likely to lead anywhere long term. I call it a passing fantasy. Or you can have perseverance without passion, but that’s drudgery and it isn’t likely to be very sustainable. But the combination of the two is very powerful, and they feed on each other. I call that combination flow. Some people call it flourishing. It goes by different names. But examples of passion driving perseverance are when you are so deeply engaged by an activity or a subject that you spend so much time that hours go by like minutes. And there your passion is driving perseverance. It’s making perseverance easy. An alternative example is perseverance driving passion. If you just dedicate yourself to working on or learning about a particular activity so that you start to get good at it and feel good doing it, then that’s an example of perseverance making you or helping you become passionate about something.

Hicks: Right. And in many cases you find out that you are passionate about something that you wouldn’t have become passionate about had you not persevered past a certain threshold.

Chisholm: Exactly.

Hicks: All right, good. The middle part of your talk focused on personal psychology. In many cases people can have self-defeating psychological habits rather than self-empowering psychological habits. One of the things, for example you mentioned was being careful about negative thoughts. How do you deal with negative thoughts? Of course we’re going to have negative thoughts, but what’s their place in the process?

Chisholm: One of things I say is: never say anything negative about yourself. And if you have to, use the past tense. That’s the way I used to be. But it’s not the way I am now, it’s not the way I am going forward, it’s not the direction I am going in. I emphasize that the human brain is like an iceberg, with only 20% of it consciously aware of the messages that come in and 80% unconscious. That unconscious mind is doing a lot of processing of messages, and some of those messages that we repeat to ourselves again and again are accepted as truth, so a negative idea can turn into reality. So, we don’t want to repeat negative thoughts about ourselves that will hold us back. So I suggest that for any negative thought that might creep into your mind, think of a specific incident, no matter how small, where you did the opposite. If it was at a party, you put everybody else at ease. If it was in a game, you were the star. Keep that specific incident in the fourfold of your mind. Think about, maybe write it down, maybe describe it in detail, and maybe tell others about it. And then let that push the negative thoughts out of your mind.

Hicks: How does that work with one’s self-evaluation, where sometimes it is appropriate to recognize that you do have deficiencies, weaknesses, and you make mistakes. And you do have to confront those in order to learn from them? So, we don’t want to get down the road of denying that one has weaknesses or that one has engaged in inappropriate behavior or whatever. So how do you balance what you were just saying with an honest self-evaluation, including evaluation of weaknesses that you have?

Chisholm: Well, as I said, it’s okay in the past tense to say that this is what I’ve done before or this was my performance before. And, maybe you can identify some improvement to that performance even since it happened. If so, great, that’s progress already starting. And then you can talk about the direction you’re going in and what you plan to do in the future.

Hicks: Two more social points: Entrepreneurs often are leaders, so they have to set the tone, so to speak. And so, cultivating the right kind of social, psychological atmosphere in a start-up firm is also important. And there you were also emphasizing the positives. Can you give us some examples of what you mean by that?

Chisholm: Well, one of things I say about culture is that it emerges; it’s emergent. It’s not directly controlled by anyone, even the CEO, although the CEO certainly has more influence over it than any other person because others will look to his or her example and follow that. But it is a combination of the interactions of everybody in the company, and I think two things that are particularly important in driving culture is how decisions are made and how people treat each other. And again, for both of these the CEO can play a very central role, including others in the decisions, delegating decisions, trusting others to make the right decision, and treating others respectfully in the same way that he or she would like to be treated.

Hicks: Including criticism, right? Criticism should be constructive criticism, not blame storming and all of that usual stuff that we hear about?

Chisholm: Something I often say is look for and find the good in the people around you. This is something I look for in other executives and try to work on in myself. And build on that good, no matter how small. So, just as it’s helpful to me to build on the small, good things I’ve done, it’s also really good for others to have me and others recognize the good things that they’ve done, acknowledge them, and build on them.

Hicks: So, an important part of the entrepreneur’s function is going to be selecting people who are in the team, and their psychology and their attitudes that they bring to the table are also going to be adding to the mix. So there might be people who are going to have the technical skill sets, but they might not be the right social mix if they don’t have that same ability to contribute positively, and so forth.chisholm-unleash_your_inner_company

Chisholm: So there is a lot there. On one hand, you want to find people who have a positive mindset, who will have a can-do attitude, and who will contribute to those cultural elements that we talked about, and, at the same time, you don’t want to get everybody identical in the company. Because if everybody is identical, then somebody isn’t necessary. And, there are lots of ways to think about diversity. The way that seems to be most valuable to any team as far as I can tell is cognitive diversity in a business team. So, how do different members of the team think about things? What are some of the ways people can be different? Some people focus on the big picture, some people focus on the individual components, some people are better dealing with relationships and with other people, and some people are more transactional. And having a mix of those different styles, I think, strengthens the team. In fact, Scott Page at the University of Michigan has done tests that find that teams that are diverse cognitively outperform teams that are stronger but less diverse or more homogeneous cognitively.

Hicks: Is there a double-edge sword with cognitive diversity, because then you have cognitive styles and they can clash, as well as being complementary to each other? So, is a part of an additional level of management being able to manage the clash constructively?

Chisholm: Yes, and I do think you can go too far and that there is an optimal middle ground. I think of them as three overlapping circles. Say, if we have a venn diagram, if they’re too overlapping that’s suboptimal, but if they are completely non-overlapping, the members of that team may have trouble working together.

Hicks: Issues of money and funding obviously come up a lot in entrepreneurship at all levels, but, particularly, the entry stage. Young people are often deterred because they don’t think they can raise the funding or they don’t know how to think about the funding process. And you did have advice about seeking funding, but not until you’re ready. What does that mean? When you are ready to seek funding?

Chisholm: Well, I do think there are a finite number of times in a company’s life that are optimal for fundraising, and they are right after the company has achieved a significant milestone that reduces risk to potential investors. And when will those times be? Here are some examples. If you are profitable, that eliminates the risk that you can’t generate revenue. If you can generate revenue, that eliminates the risk that you can’t get customers. If you have customers, that eliminates the risk that your prototype won’t work. And if you have a working prototype, that eliminates the risk that your idea can’t even be made to work in the first place. So, those are examples of milestones that would probably be perceived as significant risk-reducers by prospective investors.

Of course, the key question is how can an entrepreneur get to that point where they have reached one of those milestones. That’s going to perhaps take some funding just to get there, and so I encourage them to look at all of their resources. So we filled out that chart that has lots of different types of assets on it. I may have a spare bedroom. Great, that means that I don’t have to rent an office. I may have some computer equipment and access to the internet. Great, that means I don’t have to buy that equipment. I can find whatever friends and family I have that can provide initial funding. I can be creative about how I engage others to get involved with the company. I can perhaps offer a combination of stock and flexibility in addition to capital and in that way get additional funding.

Hicks: As well as getting people who are enthusiastic about the product or the project so the compensation necessarily will be lower, but they will get more psychological rewards. So being creative in all of those dimensions?

Chisholm: Absolutely.

Hicks: Towards the end you also talked about ethics, which certainly as an ethics professor I found refreshing, and you raised the provocative question of whether entrepreneurship is ethical, particularly since in business ethics we don’t hear a lot about entrepreneurship. So, what were your thoughts there?

Chisholm: Well, I do think it is one of the most ethical career choices you can make, and let me explain why I say that

Hicks: Sure.

Chisholm: First of all, we don’t often hear about entrepreneurship. What do we hear about is corporate philanthropy as being very ethical. We hear about graft and corruption and theft as being unethical. I don’t disagree with either of those, but I don’t think it’s the whole story, and I don’t even think it’s the most important part of the story.

And I think to see the full story it’s helpful to look at the stages of the entrepreneurial process. What does it require for somebody to become an entrepreneur? Well, they have to have an idea, which they have to develop. That takes rationality, creativity, and persistence. They have to have the courage to strike out on their own. That takes courage. They have to have intellectual honesty to reject an idea for which there is no customer demand as I was eventually forced to do with my first company, when I, after six months, finally accepted the fact that there was not customer demand for a cool, new technology called conditional voting. And you have to create win-wins with your employees and with your customers or else they are not going to deal with you. They are going to go somewhere else. So, all of these qualities in an individual that entrepreneurship demands are qualities, I think, we would like to see in the people around us, our neighbors and our co-workers.

Now, consider the social benefits that entrepreneurship generates. It’s impossible to be successful as an entrepreneur without making the world a better place by creating more choice, more innovation, lower cost, or some combination of the above. Because, again, if people don’t feel their world is going to be made better by your product or service, they don’t have to buy it. They are going to go elsewhere. Similarly, all of your stakeholders, employees, shareholders, customers, and partners have to, their worlds have to be made better or else they are going to go elsewhere. So, both individually and socially, I see lots of qualities that we would like in our co-workers and neighbors that entrepreneurship brings out in the people around us and which entrepreneurship demands if a person is going to be successful at it. And if you stand back and look at the tens of millions of entrepreneurs around the world who are all serving customer needs and creating these win-wins and innovating, they are driving improvements in quality of life, standards of living, and economic growth around the world.

Hicks: All of that is deeply ethical, absolutely.

Chisholm: And, incidentally, guess what’s funding most of the philanthropy in the world? Entrepreneurship. So given all of those factors, I rest my case that entrepreneurship is among the most ethical career choices you can make.

Hicks: So, as an individual, entrepreneurship requires certain virtues of character. For a venture to succeed, it has to be a network of win-win relationships that are developed. Those make the world a better place in a number of respects including philanthropy because of all of the extra wealth that it generates. Fascinating.

All right, thanks very much for being with us today. I am sure the students found it very eye-opening.

Chisholm: It has been very fun. Thank you, Stephen.