The Real Meaning of Free Enterprise


By HENRY W. WRISTON, President, Brown University

Delivered before the National Association of Manufacturers Second War Congress of American Industry, New York City December 10, 1943

Vital Speeches of the Day, Vol. X, pp. 197-200.

FREE enterprise is a subject upon which, when definitions are avoided, nearly everyone can agree. Few people will talk against it, but many give it public support on the basis of unspoken definitions which leave little substance to the idea.

If this discussion is to be useful, it must be clear, though not entirely palatable. The lessons of experience must be learned) even when they are hard. I propose to analyze the phrase, discuss its real meaning, and suggest ways in which businessmen can serve free enterprise.

We should begin by admitting that there is no necessary connection between freedom and enterprise. From one point of view that is self-evident; the very use of the word "free" to qualify the word "enterprise" implies that there are instances of enterprise without freedom. If freedom had a monopoly upon industry and resourcefulness, courage and faith, we should not be at war; or if war started through some political folly the totalitarians could never gain an initial advantage; nor should we welcome a communist state as an ally.

What logic suggests, experience confirms. Impressive manifestations of energy, imagination, skill, and daring in invention, development, and production have occurred under tyranny. The oil industry, chemicals, pharmaceuticals, biologicals, yarns, fabrics, and many others have had to compete with I. G. Farbenindustrie. They have good reason to know that between the two wars German business was enterprising.

The Soviets have astounded friend and foe alike. They have led the world in the application of higher mathematics to engineering problems, substituting exact calculations for wasteful empiricism. In medicine, and more particularly in surgery, they have shown vigor in conception, resourcefulness in technique, and skills which have produced modern miracles of healing. The construction and operation of Magnetogorsk and the other cities beyond the Urals are impressive illustrations of enterprise.

Even the Japanese, that faceless and selfless, but fearless, and energetic people, have shown enterprise. Without natural resources, without an industrial tradition, without widely diffused wealth, they boldly proclaimed an enterprising program. They snatched markets from beneath our noses, and territories from beneath our feet. We are hard put to win them back.

While we were hearing about our mature economy, about balancing professional and vocational training with shrinking opportunity, about balancing production with consumption, about balancing labor with management, about social balance —about every kind of balance except budgetary—we rested on balance while the totalitarians showed enterprise. It was not a question of population; we have more than either Japan or Germany. It was not a problem of resources; we have vastly more than any of our Axis enemies. There was no shortage of capital; we had it lying idle. There was no lack of skill or training or capacity or ingenuity. There was want of faith and conviction; "safety first" which began as a mere traffic slogan was woven into the fabric of our economic system.

Energy was wasted in warfare between government and business. Mutual suspicion absorbed attention from constructive purposes; as confidence waned, enterprise flagged. Second and third generation men fled the responsibilities of ownership, until a disproportionate amount of industry is owned by women and often managed almost as much in the spirit of trusteeship as of enterprise. Recently the president of the New England Council said: "Everywhere we find conviction that risk-taking is essential to free enterprise, and everywhere we encounter a reluctance to take risks .. . . We all know advocates of free enterprise who are contradicting their aspirations with their actions by putting their own once dynamic dollars to sleep in the manacled hands of a trust fund."

The decade before the war furnished adequate evidence that a devoted Communist or a convinced Nazi will display more enterprise than a defeated and discouraged democrat. The pre-war demonstration that there is no exclusive relationship between freedom and enterprise has been doubly proved Bince the war began. Our production is at an all time high; national income is at a new peak. The war has given us a surge of enterprise in the midst of marked restrictions on freedom. Much of the risk capital is supplied by the taxpayer; the government is the entrepreneur; the government allocates materials; the government buys the bulk of the product; the government determines the labor policy and controls wages; the government fixes prices and limits profits.

Indeed, many have concluded that the way to more enterprise is by less freedom and more government planning—a managed economy. How else account for the constant reiteration that wartime controls will have to be maintained after peace, perhaps indefinitely? How explain otherwise why we hear so little or freedom for enterprise and so much of freedom from want and freedom from fear?

I believe that those who see in the present situation a vindication of the planned economy are wrong. In fact, the current surge of enterprise may well show that business has learned the lessons of the Twenties and Thirties; that despite bureaucratic confusion and administrative mismanagement, business leaders believe so profoundly in the American tradition of freedom that they are determined to recover and protect it. If you are to persuade the American people to that point of view, however, it will not suffice to exemplify the virtues of enterprise. You must show forth the faith and the fruits of freedom.

Freedom! To think about the word honestly, we must leave security and safety-first behind. It is no word for a tired or hesistant people. It is for men of courage and faith; risk is ever an essential quality.

We might just as well be perfectly candid. For over a decade our government has not been very perceptive about the substance and the implications of freedom. In many ways it has impaired free enterprise; illustrations abound. But government is not alone to blame, for at a critical moment business united with government in the NRA, which in its conception, its execution, and its aftermath proved detrimental to freedom—and even to enterprise.

The test of faith in freedom does not come when the business cycle is on the rise, profits are satisfactory, and employment is regular. The acid test comes when things are going badly, and a little help would be most welcome. The NRA was the product of crisis; that is its significance for this discussion.

The proposal came from men influential in business circles. It has well been said that it reflected "feeble, if not paralyzed, initiative," and the wavering faith of political officers and businessmen in "the more fundamental institutions of our economic system. In such a scene it seemed to groups with varied, even conflicting views to offer an instrument for forwarding their aspirations and for generating economic advance."

Whether or not it really represented business opinion generally, it constituted a strange alliance between "conservative" industry and a statesman who sought to embody the "liberal" point of view. The "liberal" statesman abandoned a 50-year opposition to monopoly, and businessmen invited government interference in things which theretofore had been left to free enterprise. Nothing could more fully epitomize the essential incoherence of the alliance.

The NRA was not the product of theorists, determined to commit us by devious means to a managed economy. It was dominated by practical men who knew so little theory that they did not recognize obvious similarities to fascism.

Fascism was the union of an enemy of capitalism, a renegade socialist who believed in state control, with the representatives of large business enterprises, who were willing to surrender initiative and freedom in exchange for security and the discipline of the laboring classes. There is another terrifying parallel in the support of Hitler, who hated capitalism, by Fritz Thyssen and other industrialists. Whatever the business acumen of Thyssen, it is overshadowed by his political stupidity, by his failure to see that in the search for order, freedom would be lost.

A profound truth was expressed by Count Sforza when he declared: "The significant symptoms of the mental disease which . . . seized upon European thought is this, that there should have been . . . 'conservatives' who rejoiced in the destruction of laws, . . . who failed to realize that in vindicating regimes destructive of freedom they thereby disavowed their own fundamental principles." That mental

disease by no means left America unscathed. It will remain one of the paradoxes of history that it took a so-called "horse and buggy" Supreme Court to prevent a professedly liberal administration from committing us to many principles and practices of fascism.

The NRA failed to cure unemployment. If that were the whole story, it could be written off and forgotten. Unhappily, lat failure did not close the account. The continuing vital importance of the NRA is that it left us legacies which have bedeviled both government and business ever since. The government acquired new powers and new habits which still linger, long after the instrumentality has disappeared.

The first legacy was a strengthened tendency to substitute a government of men for a government of laws. Instead of accomplishing its purpose through general statutes, applicable to all industry alike, the NRA gave broad discretionary powers to an administrative agency which combined legislative, executive, and quasi-judicial powers. Indeed, its function was like that of the Italian Fascist Ministry of Corporations—a "central administrative organ of coordination." Both were based upon bureaucratic management. Businessmen unwittingly helped Marxian theorists plant and implement the concept of a managed economy in America.

The application of the business technique of fluid judgment to the processes of government proved disastrous both to efficiency in government and to freedom in business. It destroyed an essential of free enterprise—knowledge of the rules of the game, and confidence that they will not be changed quixotically. At the same time the NRA encouraged government to modify the sound techniques developed by long experience, and employ methods which disregard the democratic process, and functioned only at the sacrifice of freedom.

The second legacy was a new attitude toward labor relations. Under the corporative state in Italy the confederation of fascist labor syndicates and the confederations of fascist employers were legally recognized and their collective contracts made binding. Under the NRA long strides were taken in the same direction. There is no need to elaborate the consequences of the habit of exercising governmental power over wages and hours in industrial relations. It is a dominant factor in the current situation—for example, in the coal fields.

The third legacy was control of production. Once the assumption is made that government should "balance production with consumption," it follows that government must also make a distribution among the units of production. Such a function cannot be discharged by the enforcement of general rules; it requires bureaucratic management. Power over capacity to produce can go to extreme lengths. I remember a friend assuring me that "after six months it will require a certificate of convenience and necessity for a new competitive enterprise" to be established in his industry. He was not preaching or exemplifying the virtues of either freedom or enterprise; he was unconsciously attempting to exchange freedom for security. Events proved that he lost one without achieving the other. Government control of production left important residues in the habits of thought and action of the bureaucracy.

A fourth legacy was government price control. Price regulation, almost by definition, cannot be handled by general law; it requires administrative management. Disregarding the free decisions of millions of individual citizens as expressed in the market place, the bureaucracy determines prices. That process is the very reverse of economic democracy. Bitter experience has made it clear that prices can be controlled in a manner hostile to free enterprise even more readily than in its support. Calling the government into this activity opened Pandora's box.

A fifth legacy remains to plague free enterprise. The NRA strengthened a popular suspicion that business is really under the control of monopolists or quasi-monopolists. The perspective of history shows that the processes of the NRA were markedly monopolistic. Individual enterprise and little business did not fare well in that collective effort. They never do under collectivism of any sort; freedom requires competition. Monopoly is a form of collectivism to which the American people have long been bitterly hostile. The NRA was a temporary deviation from that sound tradition. I believe that business leaders are now convinced it was a mistake, but your actions must reassure the American people.

There is one other profoundly important legacy which involves a break with our fundamental tradition. The individual ceased to be the center of gravity; people were lumped into masses and dealt with in totals. In a review, accompanying a message from the President, the NRA was accurately described as "a rather radical experiment in incorporating interested economic groups as agencies of government." Moreover, it recognized groups as being partisan— labor on the one hand, industry on the other, and consumers as a third entity. It accentuated alleged class conflicts rather than the common stake of the whole American people. The interpenetration of their interests, their common elements, indeed their essential identity, were neglected. The solution of problems was approached not from the standpoint of the public welfare by freely elected representatives of the public, but by bargaining among special interest groups, each seeking to improve its own competitive position. There was no room for individualism in the NRA; the collective idea was dominant throughout.

The historical fact, therefore, is that in the last great crisis freedom was not implemented; enterprise was not stimulated. Instead rules restricted competition, protected prices, obstructed new developments, strove for stabilization. Secure status was the goal instead of hazardous freedom and vigorous enterprise.

Experience with the NRA supplies the clearest evidence that business should not undertake the function of government. There is equally good evidence that democratic government cannot take over the function of business. Business and government are different kinds of activities; neither should do the work of the other. Government should be primarily concerned with law and its enforcement, business with production and exchange in a free market. Government should operate principally by fixed rules made by representatives of the people, chosen in free elections. Business should function by fluid decisions that find their ultimate test in a free market, where the public reveals what it wants and what it is willing to pay.

Now we are moving toward a new crisis—the tremendous readjustment from war to peace. It was easier to make the transition from peace to war. That required energy and resourcefuless, but it could neglect economics and permit extravagance, for the taxpayer ultimately foots the bill.

The return to peace will furnish a fresh test of faith in freedom. Will it be sold short as in 1933, or have we learned our lesson so that we dare accept the tensions, difficulties, hazards, and frictions that freedom involves ? Thus far our political leaders have exhibited concern for security, dread of unemployment, fear of social tensions, doubts about labor relations. They seem immersed in problems rather than fired with enthusiasm for freedom. Fear still appears more frequently than faith in their basic vocabulary. Until the public reverses that psychology, we will hear more and more of the managed economy, and enterprise will not again be free.

Businessmen must work toward that reversal of emphasis, for free enterprise can never be recovered as a thing apart. No demand for freedom for business, as such, will succeed. It can come only as an integral part of the larger idea of human

freedom. Only" those genuinely concerned with individual liberties really support free enterprise. This is so profoundly true that it is fair to say that the phrase "free enterprise" omits the key words. It must be understood to mean "free individual enterprise," for freedom is the characteristic not of society, or a union, or a corporation, but only of man. If we believe in free enterprise, we must make individual enterprise possible not only within the framework of the state, but also within the structure of the union, and within the fabric of the corporation.

A corporation can have only such rights as are granted by the state, for it is the creature of the law. It is not an ultimate, but merely an instrument, without innate capacity for freedom. It has no personality, no spiritual quality—those are the inherent and exclusive possession of individuals. Properly conceived, a corporation is only the servant of individuals. It serves the public by supplying desirable goods and services at prices determined by real competition. In that service, it remains subsidiary to the state, but in our democratic system the state, however powerful, is also the people's servant. It is perfectly obvious, therefore, that in a free government only the individual is entitled to fundamental rights—that is, rights against the state.

The system of free enterprise began with individuals. In all the history of the world there had never been such a release of individual energy as freedom supplied. By energy and imagination, by skill and wisdom, they succeeded. Sometimes an individual became so strong that he exerted his influence by power rather than by wisdom alone. But by the overwhelming fact of mortality, even the most powerful returned eventually to the common dust. Through the corporate structure, however, the accretion of power might gain a kind of immortality; it might prevent the dissolution of power by death and its resettlement among new figures upon the stage. In such circumstances power might remain more important than wisdom. That must be prevented if free enterprise is to flourish.

Business judgment is identical with the public interest only when it is the judgment of many individuals freely expressed in a free market. When a man makes his own individual decisions, he has to operate both as buyer and seller, both as producer and consumer; he is on both sides and wins or loses, in accordance as his judgment is wise or foolish. If through undue consolidation business judgment becomes collective rather than distributive, it is hostile to freedom. That is the source of the bitter opposition of the American people to monopoly, which is merely a manifestation of power, where gain or loss depends not upon wisdom or folly but upon power. We can observe that in political life. For a considerable period, Hitler and Mussolini appeared to succeed; the reason was that their decisions were not put to the acid test of right or wrong, but only to the false test of power against weakness.

In the interest of free enterprise business should avoid collectivism. It should not attempt to manage our economy or to govern; it should stick to its true function, which is to produce and market what the people want. If business indulges in collecitve judgments, then every other interest group will develop collective judgments. Furthermore, if judgments are based upon the power of a few and not upon the wisdom of the many, the most powerful interest group will ultimately prevail and others will be liquidated. Then collectivism, either in the fascist or communist form, has triumphed over free enterprise.

It becomes clear that any collectivist organization may limit the freedom and hamper the enterprise of the individual. It can be done by the state, and with that we are familiar. It may be done by the labor union which in representing the collective rights of workers may suppress their individuality and injure their personal dignity. It can also be done by the corporation, which may purchase labor without concern for developing initiative and the spirit of enterprise in the workers. In fact it may resent the difficulties created by individuality and prize docility and discipline more deeply. That was the tragic—indeed the fatal—mistake of European business. It rests therefore upon the corporation, in the interest of the preservation of the system of free enterprise by which alone it functions, to show a deep concern for, and active implementation of, individual initiative, personal freedom, and enterprise.

From Napoleon to the last World War there was a century without the profound shock of global strife. Indeed the World War was the first great conflict since the industrial revolution. The shattering nature of its impact and the dislocations of its aftermath were too little understood. The ensuing mistakes led first to a world wide depression and then to a new world war; those were the climax of a long series of economic and political failures.

Depression and war have proved rough schoolmasters; I hope we have learned our lessons. May we emerge from this struggle against autarchy and tyranny with a refreshed philosophy and a new faith in freedom, a revived respect for the individual citizen and the democracy that expresses his will. If we have learned that much we can advance with courage to the solution of our problems in the spirit of freedom, and with the immeasurable energy of free enterprise.