Paying the Piper

Tom Peters

Have you invested most of your savings in starting up a shop, only to watch the trend you were chasing fizzle or a recession nip your well-laid plans in the bud? If so, welcome to bankruptcy court.

Did you start a disk-drive (computer information storage) business three years ago? The odds are you are out of business today and have joined 90 percent of the rest of your competitors who also failed to find gold at the end of the silicon rainbow.

These two stories are about classic, rough-and-tumble entrepreneurship; about high risk and high reward. That’s the essence of America’s capitalist spirit. Or is it?

Vice President George Bush recently begged Saudi Arabia’s Oil Minister Sheik Yamani to raise the price of oil, in the name of “market stability” and other euphemisms. But saving Houston is his real agenda. The rationalizations have been delightfully absurd: One cynic claims that a Saudi conspiracy aims to wean us back to our profligate, gas-guzzling days. Once high demand is locked in, the cynic says OPEC will lower the boom—that is raise the prices dramatically.

Texas and the other oil states are practicing a mutant form of American capitalism. I call it “upside entrepreneurship” or “enjoy the gain, avoid the pain.” They play swashbuckling entrepreneurs and espouse the free market—as long as the market is heading up. As soon as the worm turns, they beg the government for relief from “unfair competition.”

The New Republic Editor Michael Kinsley sheds a different light on the topic, in a recent editorial aptly titled “Let ‘Em Rot in the Sun” (a response, no doubt, to our friends in the oil states who not long ago sported bumper stickers with such catchy phrases as “Let the Bastards Freeze in the Dark.”) Kinsley concludes, “Texas’ decade of prosperity was made possible by a classic, illegal price-setting conspiracy. … They came to believe their good fortune was actually the result of moral superiority: a rip-roaring capitalist spirit not shared by the rest of the country. They saw the traumas of the Northeast and Midwest … as an occasion for sanctimonious lectures about the virtues of free enterprise.”

Although Texas and the other oil states are perhaps the most obvious culprits, they are hardly alone in reveling in the good times and begging for relief once the free ride ends.

The auto makers, for instance, delighted in the post-World War II boom, building ever longer and gaudier cars. Chrysler pulled one bonehead play after another, and was at death’s door by the late 1970s. With previously disdained workers’ jobs as the rationale, Chrysler joined with the United Auto Workers to successfully petition for mercy from the American public in the form of a gigantic bank-loan guarantee. In fairness, it was repaid ahead of schedule. But now Chrysler’s chairman has put out his tin cup again—this time in the form of a plea for trade protection. Again, the worker is the cause celebre. Again, the real reason is management’s failure to do right thing—in this case, to mount an effective quality improvement program to close the yawning gap between Chrysler and both its domestic and international competitors.

The image of the farmer is still that of the quintessential American yeoman. He ventured from England to Plymouth, Mass., and later from Puritan Plymouth into the wilds of the Appalachians, and finally, beyond. America’s farmers indeed have worked hard, but now they usually only venture out of state to Washington, to lobby Congress for “one more” handout support program. There probably are two pieces of legislation waiting for action, for each farm foreclosure. More to the point, bank after bank extended loans they should never have made, inducing farmers to leverage government-supported dollars in pursuit of inflated expectations about future land price escalation.

Ah, yes, those bankers. Lending money is the (quint?) essential risk takers’ game. And more banks have gone belly up or have been on the Federal Deposit Insurance Corp.’s endangered-species list recently than at any time since the Great Depression.

The FDIC bailout of Continental Illinois in 198_ is a prime parable of the upside entrepreneurship. It once was known for its aggressive, risk-taking MBAs who wrote mostly energy loans, some of which went sour even when oil cost more than $30 a barrel. When its $100 million load toppled, Continental was seen more and more in Washington and Springfield, seeking relief—for the good of the country, of course.

There are many tragic stories of bubbles bursting in every industry. But I believe our primary effort should be aimed at speeding up economic transformation, not impeding it. High risk, high reward entrepreneurship must supplant the upside entrepreneurship that merely postpones reality and ensures that when reality inevitably arrives, it will be grimmer than it needed to be. Ultimately, we will be forced to pay the piper.