The Call of the Entrepreneur

Monday, saw another film put on by the film society I recently joined. The film, The Call of the Entrepreneur was produced by the Acton Institute and based on a book by its director, Father Robert Sirico, who was one of several “talking head” commentators during the film.

The narration put the framing question early: are entrepreneurs virtuous or vicious? Is being an entrepreneur a virtuous activity or just selfishness?

The film is organised looking a three different entrepreneurs. As someone commented in the discussion after the film, one of the virtues of the film was being able to watch an entrepreneur’s mind at work.

We start with Brad Morgan, who talks about turning a losing-proposition dairy farm into one of the most productive herds in Michigan. Then milk prices plummeted.

So he went into composting in a big way: he can now turn manure into compost in 50 days. He produces a range of different compost products. Manure that was costing him about $25,000 a year to get rid of was now producing turnover over about $1.5m a year (including manure from other farmers).

Interspersed with this (and continuing with the other entrepreneurs), we get comments from Father Sirico (Acton Institute) on virtues of what entrepreneurs do and what it requires. Including the comment that regulation was a restriction on creativity. We also get comments from writer Samuel Gregg and Michael Novak.

They articulate a vision of the entrepreneur as patient, displaying perseverance, having faith and vision, being other-directed, creative and risk taking. Including that the risks involved are real, given most new businesses fail.

A point that is not made directly, is that if we take away risk we also take away achievement—one of the more subtle dangers of government intervention.

The film presents as a counterpoint for what the commentators have to say various excerpts of religious leaders denouncing the business class. The film is very much aimed at an audience that is used to religious terms framing public debates. In particular, it is a conversation within Catholic debates over social justice.

One of the points made in the film is that greed is universal: it is not specific to businesspeople. Another is that the success of the entrepreneur seems inevitable after the fact, which is a quite false way to look at wealth creation and what an entrepreneur does.

The next example moves into the world of the money-lender—the film deliberately uses the term with its negative Biblical connotations—and Frank Hanna, merchant banker.
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Hanna talks about going around with his father as a boy, collecting rent, doing maintenance work on properties and being taught by his father how business works. Hanna argues an entrepreneur has to be a bit of an engineer: the question of “how does this thing work” is fundamental.

Hanna studied law, then practised for a couple of years. He examined the law firm he worked in, and went to a junior partner and talked about how compensation worked in the firm (something which was a tightly held secret). The partner ended up asking him “how do you know this?” to which the response was that the law firm was still a business and he had worked out how it worked as a business.

Hanna and his brother pooled some funds, borrowed further money with it as a down-payment, then loaned out the funds and kept doing that. They were now managing about $1.5bn in funds. (I did wonder, during the film, how they had weathered the Global Financial Crisis.)

In the process, we are treated to a very clear explication of the basics of how capital markets—which Hanna has a very clear grasp of and could explain well—interspersing his explanations with narrated animations.

The entrepreneur gathers information and then decides where the capital should be employed: good decisions mean more wealth. “If he makes bad decisions, he will not be making such decisions for very long”. (Unless, of course, government subsidises failure by bailing firms out: but this film predates the recent bailouts.)

Hanna explains credit as a time-transfer and how spreading the risk allows more capital to be lent, so no one bears the entire cost of an individual failure. “Hopefully you create wealth, and hopefully money is a representation of the wealth created”. The key is to understand the time value of money and the benefits of risk diversification.

Hanna waxes lyrical about the role of insurance—specifically maritime insurance—in creating the United States. It is a nice discussion of the role of insurance (particularly Lloyds of London) in commercial shipping. Calculating risks allowed risks to be shared (and thus dispersed).

In the discussion after the film finished, it was pointed out that Lloyds was started by religious refugees (Anabaptists, Quakers, Jews: mainly from Catholic Europe) who met in a cafe.

Back in the film, we are treated to a denunciation of the picture of capital markets put in the film Wall Street as the most insidious mis-representation of the market. Markets are not a zero-sum game. Wealth “did not come from someone else, it was created.”

Commentator George Gilder argues that the notion of zero-sum economy is the most evil economic idea: leading to violent, confiscatory, destructive behaviour and social arrangements. In other words, to death, oppression and unnecessary poverty.

Frank Hanna is so articulate on how markets and entrepreneurship works, he continues to comment throughout the rest of the film.

We then meet the person with the most moving story, Jimmy Lai. He was about four when the People’s Republic and Mao’s revolution came to his village. His family was a rich family, so “enemies of the people”. Their property was confiscated and their mother allowed home from the labour camp only on weekends to look after her three young children (who otherwise had to look after themselves).

Jimmy Lai tells us how, in communist society, surrounded by all the lies, the outside world is a scary place. But he worked in a railway station, so he got to see outsiders. They were information carriers: they were well-dressed, and treated railway porters much better than local people did (in China, carrying bags meant you were a marginal person). Then, as part of a tip, one of the outsiders gave him a chocolate bar. He was (as normal) hungry, so he bit into it immediately. It tasted wonderful, the best taste he had ever had. So he asked what it was. When the man, who was from Hong Kong, explained it was chocolate, Jimmy Lai decided he had to go to Hong Kong (he was 11 ½ years old). It took him a year to convince his mother that he had to escape to Hong Kong (who was frightened that, if he left, she would never see him again).

At the age of 12 ½, he got a visa to Macau from a policeman friend, and (at 12 ½!) went in crowded fishing junk to Kowloon. His mother’s sister paid $HK370 to smugglers even though they were very poor people. Jimmy was sent to work the night he arrived. There he smelled food he had never smelled before. He worked long hours, eating and sleeping in the factory, but he remembers it as a very happy time because he knew he had a future.

He noticed that English was an advantage in getting ahead, so he learnt English, and could read and converse in it when left factory at 14. At 18, he got a job as garment salesman. He arrived in New York, a new place for learning and experience. He had mentor, and he stayed with him and his wife. In 1967, at a dinner at a retired Jewish lawyer’s, Jimmy says he was “speaking rubbish” but, as he left, the lawyer lent him a book and said “read this, it will be good for you”.

The book was Hayek’s The Road to Serfdom. Jimmy Lai tells us, with tears in his eyes, “that book changed my life”. He said that he could “read between the lines his [Hayek’s] passion for freedom.”

Back in Hong Kong, he became a manager at garment factory, where he got bonus ($HK7,000) which he invested in stock market. Before doing so, he bought a lot of books on the stock market. With the profits from that, and a wealthy business partner, he built a clothing factory and then went retail, starting in, 1981, a clothing store chain (Giordano: named after an Italian restaurant in New York).

Things went well, and Jimmy Lai made lots of money. Then the Tiananmen Square protests and massacre occurred. The protests (and their repression) affected him greatly. Jimmy Lai tells us that he had always run away from China, particularly emotionally. “All of a sudden, it was like my mother was calling in the darkness of night”.

He did things such as printing supporting t-shirts, then he went into the media business founding a monthly magazine, Next. As he says “the media delivers information, which is choice, and choice is freedom”.

Next ran pieces critical of the Chinese regime, including Premier Li Peng. The CEO of Giordano told Jimmy Lai that he had to sell his shares in the business otherwise it was finished, so he did.

He launched a newspaper year later, Apple Daily and is a significant player in the crowded Hong Kong/Taiwan media market. As Lai says, “Taking a risk is dashing into hope”.

Interspersed with Jimmy Lai’s story, the film makes the point that, when he got to Hong Kong, Hong Kong was booming while millions were starving in China. The differences were property rights and rule of law.

Jay Richards and Peter Boettke are added to the interspersed commentators. Boettke makes the point that, in much of the world, the threat of government or neighbour confiscating wealth leads to economic activity being largely limited to “bazaar” (immediate swap) markets.

The film also criticises mainstream economics for ignoring entrepreneur. Gilder complains that defenders of capitalism exalt free markets, not free men or free ideas. Boettke says that capitalism begins with enterprise. Father Sirico that an entrepreneur is like a orchestra conductor coordinating people some of who he will never meet, that being an entrepreneur was not a purely individual activity.

Frank Hanna tells us, “an entrepreneur is hopeful, flexible and adaptable,” while Brad Morgan observes, “the success of what I have done will be assessed after I am long gone”.

The film moves back into the religious mode, talking about God as creator, and the creative impulse as connected to the divine., that what calls the entrepreneur is the desire to create. Father Sirico explains the theological conception that humans are called to work with God in a continuation of the creation of the world.

In the discussion after the end of the film, the comment was made that the film was about the moral re-armament of entrepreneurs, to give them a sense of what they do as a moral, and morally worthy, activity. Quite so.

The film was very clear that wealth is created by human action. It was also clear in the discussion that the religious element jarred somewhat on Australian sensibilities. But, of course, the target audience is a rather different (and much more religious) society.

There was also criticism of the film as not making enough of a case for self-interest—for making selfishness (characterised as greed) too much of the thing defined against—and basing its arguments too much on virtues and not enough on beneficial outcomes. The argument being that a framing in terms of altruism gives too much away to the critics of capitalism, that a framing implicitly against self-interest gives too much sustenance to the anti-capitalist impulse.

Perhaps, if that is the only way the argument is ever made. I am less convinced it was a flaw in the film, since contesting the language of virtue and other-directedness also seems appropriate.

It was also suggested during the discussion that that much more could have be made of the Judaeo-Christian notion of personal responsibility for actions.

Owning morality
It was clear in the discussion that one reason that the religious element jarred on people is that they objected to any implication that religion was needed for ethical behaviour. That ethical business behaviour in particular is not religion-based.

This raises wide issues. It seems to me one aspect that makes the “culture wars” so poisonous is the competing claims to “own” morality. One gets it both from the progressivist-pc-left and the religious-right. It is a status claim that offends people it is made against strongly: indeed, it more than offends. We are status-concerned beings and part of what morality is about is binding us in a moral community. The claim to “own” morality both makes a hostile status claim and implies that those who disagree are outside the moral community: the former invokes resentment and the latter a sense of hurt; a sense that their personhood has been denigrated, even in some ways denied.

But that is, of course, precisely how bigotry strikes at one. The trick is to not drink the bitter wine offered: but that can be a very hard trick to learn. The harder, indeed, the more other-concerned a person one is.

The discussion also touched on other aspects of US culture and law. People noted that, in the US, work is honourable (in a very overt way) and that access to venture capital in the US is high. That failure is permitted: the people who try are generally worth supporting. The further point was made that about 30 states had “non-recourse” laws. That, once you handed the asset you borrowed to buy back, the lender had no further recourse. Naturally, those states also had higher interest rates.

The power of anti-capitalist sentiment was noted—such as President Obama responding to the upset Republican Senatorial win in Massachusetts by attacking banks and crashing the stock market 400points in two days. It was doubted how genuinely popular such antics were.

Speaking as a (very) small businessperson, I enjoyed The Call of the Entrepreneur lots. It did make me feel much more positive about what someone like me does. But it was also uplifting in its sense of celebration of human endeavours and the efforts of others. I also appreciated how intelligently informative it was. I enjoyed the film, and the discussion afterwards, a great deal.