Here's an approach to securing student participation in
class discussions. At the beginning of the very first class (even before
the housekeeping chores), I ask a seemingly simple question. "What makes
Switzerland prosperous?"
Over the years, I've asked that question of hundreds
(perhaps thousands) of students in my "international" courses. After
first temporarily ruling out participation by "Prior" students, I've
never yet gotten an immediate response. Just silence. So after waiting a
few moments, I continue.
"It is prosperous, you know-one of the most prosperous
nations in the world. And before we can realistically approach these
international business problems we're studying here in class, we've got
to understand why Switzerland is prosperous and why so many other
nations aren't prosperous. If we can't figure that out in advance, we
have no reliable guidelines to direct our business decisions abroad."
Still nothing. But I can almost see some of those sharp
minds beginning to come awake. And the "prior" students who remember
what comes next, usually are grinning broadly and enjoying the whole
charade. Then I make the students an offer they can't refuse. "The first
one of you who comes up with an answer - any answer - on the secret of
Swiss prosperity gets an A for the next test, and you needn't even take
the test."
Usually (but not always) that produces a response. At
any rate, everybody's now awake, and the answers then begin to come. I
always keep my promise to the first one an automatic A for a major test.
And if there's an argument concerning who was first (it sometimes
happens), I award an A to both. For I learned early in my teaching
career that an A and F both require exactly the same amount of time to
print, and they use up precisely the same amount of ink from my pen.
Since that's true, why not go first class whenever possible!
I've never yet gotten an early response that even comes
close to what I'm convinced is the basic cause of Swiss prosperity. But
at any rate, the discussion is off and running, and it continues (off
and on) throughout the semester with a series of nine or ten
mini-discussions on the subject.*
* If you the reader would like to participate in this
serious game, then at this point please give your own appraisal of the
basic cause of Swiss prosperity- I can't guarantee that my answer is
correct, but I'm confident that your answer and mine will vary in
several particulars. So place your bets and come on along.
Almost all of us agree quite quickly that we'd rather
invest in a prosperous nation than in a non-prosperous one. Sometimes a
particularly sharp student will say, "No, the best procedure is to
invest in a nation that's not yet prosperous but shows every sign of
becoming so." To him (it's frequently a "her," of course), I award
another A and say, "Agreed, but what criteria are you going to use to
decide which countries are most likely to become prosperous?"
It's still the same question. And intelligent
businessmen want to understand the basic issue behind it before they
expand abroad in any capacity. Otherwise they'll never maximize their
long-range profits, and they may even lose their entire investment.
Size?
The first obstacle the students (and, I'm convinced,
most businessmen) have to overcome is the ingrained conviction that
prosperity is somehow determined by size. That's one of the reasons I
use Switzerland as an example. Why we even have counties in Texas that
are about the size of Switzerland! And Russia and Brazil and China
(fairly large nations) aren't exactly noted for prosperity.
Finally, the students are willing to admit (albeit
reluctantly) that size is no guarantee of prosperity. And obviously,
small nations can be prosperous. I don't dare tell them that if a
correlation exists between size and prosperity, it's more likely to be
negative than positive, e. g., subsistence-level Japan with its empire,
and prosperous Japan without it. The possibility of that correlation
would be just too much to ask them to consider. But I can quickly think
of several small nations that lost their empires after World War II,
with a resulting increase in prosperity. For example, tiny Holland
without its vast empire is now more prosperous than ever.
Resources and People?
After size, resources seems to be the most popular
answer as the cause of prosperity; for everybody knows that nations with
vast amounts of natural resources are automatically richer and more
prosperous than resource-poor nations. That's why those European nations
went into the "empire business" in the first place, i.e., to get all
those natural resources.
I've never yet found a student who immediately said,
"The esource-argument is false, totally false." But it is. Just look
around.
With the temporary exception of a few (not most) of the
oil-rich nations, you can't find anything that even looks like a
positive correlation between prosperity and resources. While resources
may (or may not) be available in prosperous nations, that's not what
caused it. Then I take them back to resource-poor Switzerland-which by
now, some of the students wish didn't exist. It seems to disprove most
everything they've always believed about the cause of prosperity.
About the only natural resource Switzerland has is snow
for skiers and then it melts into running water that can be used to
generate a little electricity, but is really used mostly to fill those
lovely lakes you can sail boats on and fish in. No, natural resources in
Switzerland are not in any way related to Swiss prosperity.
And while we're looking at that conventional
resource-argument, don't forget the enormous natural resources in Zaire
in Africa. And remember the subsistence-level of living of those one
million or so Indians who inhabited our own vast and resource-laden land
when Columbus arrived on the scene. Actually, when I look at Venezuela,
Colombia, and similar poverty-ridden countries, I'm almost tempted to
conclude there's an inverse relationship between resources and
prosperity, i.e., the more they've got, the less prosperous they seem to
be. At any rate, there's no correlation between prosperity and the
natural resources that exist within a nation.
Then how about people? It's obvious that if you don't
have people, you can't have prosperity. Well, if "people" is the answer,
we can know for sure that China and India are the most prosperous
nations in the world; for along with a lot of resources, they've also
got a lot of people. The entire country of Switzerland doesn't have even
as many people as Chicago.
No, there's no relationship between the size of the
population (be it large, small, or in between) and prosperity. None
whatever. China, with its enormous population, could quickly become as
prosperous as Switzerland (probably more so) if its leaders only knew
what causes prosperity. But since they don't, it won't.
Education and Effort?
Well, perhaps it's due to education, e.g., the high
literacy rate in Switzerland. But that answer begs the question. How did
Switzerland become prosperous enough to be able to take all those people
out of the work force and put them in school for so many years?
Education (as contrasted with mass training) is the result of
prosperity, not its cause. The British laws against child labor didn't
take those kids out of the factories and put them in schools. Prosperity
did it. And that's why it's so vital to our future (individually and as
a nation) that we understand what causes prosperity.
Don't forget that Russia is forever bragging that the
literacy rate there is higher (much higher) than in the United States.
Perhaps so, but that only proves that literacy is not the cause of
prosperity. Admittedly, it could be that the Russians have deliberately
decided to continue an existence-level standard of living in order to
devote resources to more education. Probably not. But even if it's so,
their inability to understand what really causes prosperity will only
mean they'll continue to be the most literate people the world has ever
known with such an unbelievably low level of material existence.
But back to the Swiss. Perhaps they just work harder
than other people. Maybe that explains their high standard of living.
No, they don't work harder, not really. True, one of their national
heroes, John Calvin, told them that's what God wanted them to do. And
while I lived there for two years, I observed that they do work hard.
But they don't work any harder or longer than, for example, the Indians
I observed cutting cane in Guatemala. Anyway, the more prosperous the
Swiss become, the less they work. That's to be expected. In fact, that's
why most of us work in the first place. We want to become prosperous so
we can work less and enjoy more. No, hard work doesn't necessarily bring
prosperity; there just isn't any positive correlation, individually or
collectively.
Agriculture?
Well, perhaps it's because the Swiss have big farms
with rich soil to grow those delicious vegetables and to provide
pastures for cows to be milked to make that famous cheese. Everybody
knows that prosperity is based on agriculture. I hear it everywhere,
especially in the farming areas here in Wisconsin where I teach. And
it's simply not so. That's an old fallacy that came to prominence again
when the farming areas of East Germany were separated from West Germany.
With the loss of their farmlands, surely the West Germans would starve,
and the East Germans would grow fat. The reverse happened. The
agricultural capacity of a nation is not necessarily related to its
prosperity.
As my old professor in Geneva, Wilhelm R6pke, said,
"It's simply astounding that almost nobody seems to understand why it
worked out the way it did in Germany. The East German leaders are
totally baffled when they must go again to the West German leaders and
beg for some more food. They simply have no comprehension at all
concerning the cause of the abundant supply of food in West Germany."
Anyway, there are no big farms in Switzerland. And the
few they've got are poor and mostly located on the sides of steep
mountains. People have actually fallen out of them and been killed.
Literally. So stay out of those Swiss farms, especially the vineyards;
they're dangerous,
Form of Government?
Eventually, some student is sure to suggest that
Switzerland's prosperity is due to its democratic form of government.
Close, but no A for the semester-not yet, at any rate. We've first got
to understand how the Swiss form of government is totally different from
any other form of government in the world today; then perhaps we can see
the relationship of government to the basic cause of prosperity.
The essential difference between Swiss democracy and
the other democracies around the world is well-illustrated by this true
story. I asked a Swiss fellow-student, "Who's the president of
Switzerland?" He thought awhile and then said, "I don't know. It doesn't
make any difference anyway. So we just don't pay much attention. I
think," he concluded, "they sort of take turns."
Then I discovered a startling fact. The Swiss
constitution for its national government is somewhat like the Articles
of Confederation of the original 13 American states-except that the
Swiss national government doesn't have nearly as much power as did our
old Continental Congress.
The tiny nation of Switzerland is composed of 25
"federated states" and in many respects, each state operates much like
an independent country. Talk about states' rights! The states operate as
a unit for the armed forces, communications, foreign relations, tunnels
and bridges, and other "common problems." Otherwise they protect their
languages and ethnic cantons with a fierceness you wouldn't believe. You
are free to move from one canton to another if you wish to do so. And
you can conduct unrestricted business in all of them, But don't you dare
mess around with the different cultures, languages, religions, and
ethnic groupings. They're convinced (rightly, I suspect) that if
Switzerland ever becomes an integrated nation with a common language,
they would soon lose their prosperity and disappear into a neighboring
country.
Thus it's true that the Swiss form of government does
indeed have something to do with their prosperity. But that's still not
the basic reason for their high level of living. Anyway, that restricted
(almost nonexistent) Swiss form of national government is not what my
students have in mind when they say "democratic." In fact, they're
thinking that prosperity comes from a strong central government-that
permits lots of voting, of course.
Right to Vote?
For some unfortunate reason, "democratic" seems to be
equated totally with voting in the United States. That's too bad,
really; for it pulls us over into the age-old concept that "might (the
majority) makes right." At the end of that seductive road is death
itself. And you're still dead forever, even if it's the will of the
majority.
So while sometimes there seems to be a relationship
between right-to-vote and high-level-of-living, it's too tenuous to
depend on. They vote in India, for example-in truly free elections in
every sense of the word, just as in the United States. In fact, I once
discussed democracy with the prime minister of India who succeeded
Indira Gandhi because his party got more votes than her party. That
prime minister truly believed in democracy, and would willingly die for
it if necessary.
India also has people, resources, and one of the
largest educational systems in the world. But they haven't the vaguest
idea what causes prosperity. Until they find out, they're doomed to
their low (and decreasing) level of living. Making their educational
system even more universal, as they are continuing to do, is more likely
to decrease prosperity than to increase it. In any case, there's no
positive correlation. If you recommend that your company build its
factories in India, you surely must be mad at your bosses and are trying
to get even.
There's voting in Chile, Peru, Argentina, Mexico, and
in almost all the new African nations. It's a real popular pastime.
Hitler made good use of it. Stalin enjoyed voting, and he insisted that
everyone else should vote, too. In at least one country in the
democratic Western World, they'll fine you (democratically, of course)
if you don't vote.
When I was in school in Switzerland in the late 1950s,
women couldn't vote. We Americans chided our Swiss fellow-students about
that.
They (including the women students) simply couldn't
understand why that seemed to perturb us. As they said, "The women's
vote would not in any way change anything. It's not really an issue. But
even so, we'll eventually get around to changing the law to give the
vote to women if for no other reason than to prevent any more pointless
arguments with our friends." They changed the law. Women now vote. And
Switzerland is still precisely what it was.
No, if you mean that the right to vote in truly free
elections will lead any nation to prosperity, you're in for a shock.
There's no fixed correlation between voting and prosperity. In truth,
most of the world's people (including us here in the United States) are
using our votes to endorse measures that will surely decrease
prosperity. In England, the world's oldest democracy, the people voted
to nationalize mines, railways, banks, and anything else their leaders
called to their attention. That didn't exactly increase prosperity
there.
Here's an all-important caveat, however-an explanation
to prevent any possible misinterpretation. It's absolutely vital that we
preserve the right to vote in the United States. While it doesn't cause
or preserve prosperity, it definitely does preserve our right to change
officials. Thus it's the mainspring of the most precious ideal of
all-human freedom; for our own leaders will surely destroy us if we
leave them in power long enough. The right to vote "western style" is a
sort of insurance against total tyranny. And that's worth a high price,
including even a decrease in our standard of material living if
necessary. When all is said and done, it's even worth dying for.
Capital Formation?
Finally the students arrive at the answer they just
know I've been waiting for. "Capital formation!" they shout, and wait
for the expected shower of A's. I truly hate to disappoint them again,
but I must. Capital is not the answer to prosperity, not really; capital
formation is the automatic result of something else, which is the real
cause of prosperity.
The Russians, for example, have more capital (machines
and such) than you can find in Switzerland measure it any way you like.
And the Western World keeps sending vast amounts of additional capital
to Russia, as we've been doing steadily since the early 1930s. And, of
course, the Russians themselves produce vast numbers of machines of
various kinds. The fact that their material level of living (prosperity)
is actually decreasing is not really the fault of all those machines. It
just doesn't seem to be related to it one way or the other. That
enormous accumulation of capital throughout the country is of almost no
value to the Russian people in raising their level of living. They're in
much the same position the Japanese were in 1940. The Russians use that
capital mostly to maintain their empire, while the people continue to
stand in line for something to eat.
That's one of the sights that most impresses our
students when they go to Russia under our "Russian Seminar" program-the
long lines of people waiting patiently to get some food, or shoes, or
any other desirable good.
Increasingly we are encountering the same sort of lines
here in the United States. And they occur here for precisely the same
reason they appear in Russia, i.e., governmental interferences in the
market place. For example, the evening TV newscasts are forever
featuring long lines of Americans who actually camp out overnight to get
first shot at government-subsidized interest rates, government-created
jobs, government disbursements of food, and so on. And as these
governmental interferences increase "to help the people," the lines will
grow longer-and the "stuff' up front will grow shorter.
Why Work and Save?
No, we'll never solve the secret of prosperity until we
understand why people save their money and devote it to capital
formation in the first place. That's the key to prosperity; not capital
formation itself but what causes you and me to create it and to use it
to produce whatever it is we choose to produce and for whatever reason
we choose to do it.
No one "works and saves" because the country is large
or has resources or votes or because of any of the other half-truthed
fallacies we hear everywhere. You and I work and save (form capital) for
one simple reason. We expect to gain individually by doing it, to have
more later on by using less of what we produce today. And if that
expectation is absent for any reason, we cease saving and just consume
whatever we've got, a sort of hand-to-mouth existence.
Of course, there is one other reason people produce and
"save"-and that is because brute force is applied against them by
whatever type of government happens to be in power. But while compulsion
does indeed produce capital formation, it's not exactly the best way to
encourage creative thinking and effort. Anyway, it's seldom the type of
capital that's designed to meet consumer demands.
Finally the students give up. They claim they've
covered every possible cause of prosperity. "So what's the answer?" they
ask. There's an excellent reason for their wanting to hear what I think
is the cause of Swiss prosperity. They can then hand back the "correct"
(i.e., the instructor's) answer on the test they're sure will be coming
along shortly. That's known as "student realism," and they've developed
it to a fine point over a period of four years or so.
But they never get such a test from me. No student is
ever held responsible for my particular viewpoints and prejudices. My
tests in "policy and opinion courses" consist of research and term
papers, plus prepared tests supplied by the authors of the texts
themselves. And even on the papers, I'm generally more interested in
their grammar, spelling, and composition than anything else. (For good
writing will prove valuable, no matter what careers they follow.) You
see, when all is said and done, I don't know the answer any more than
they do. The best I can do is to tell them what I think, and why I think
it.
Actually, the students are already familiar with the
secret. They're always a bit disappointed when it doesn't turn out to be
mysterious and complicated-with a formula to memorize and a model to
help them get the answer. The answer (as I see it) is so well known and
obvious and simple that no student ever seems to bother to say it and to
spell it out a bit.
The Cause of Prosperity
The cause of prosperity in Switzerland (or anywhere
else) is the competitive free market economy. It always leads to
prosperity. Always. All the other supporting causes necessarily flow
from it and are caused by it.
For example, there can be no free market if the
government restricts it with wage and price controls, tariffs against
competition, subsidies to various groups, and so on. Thus a government
with strictly limited powers is an automatic result of the free market
economy.
In a free market economy, there's also private
ownership of all resources and all means of production and distribution.
True, it's possible to have a form of private ownership under a
dictator-Hitler, for example. But it's impossible to have a free market
economy under dictatorship. When a group of producers are controlled or
enslaved (or even exterminated), only a madman could refer to it as an
economy wherein all peaceful persons can produce whatever they wish to
produce.
When the market economy exists, the government
automatically assumes the position of "night watchman." The government
then becomes merely an organization (a mechanism) we use to preserve the
peace, to keep out robbers (both foreign and domestic), and to make sure
there's no organized effort to disrupt the workings of a free people,
freely trading with each other on mutually acceptable terms.
In a competitive market economy, there'll be all the
prosperity there can be. Any restrictions imposed upon it, i.e., imposed
against peaceful you and me, will automatically result in less
prosperity than could be. If the nation happens to be large and to have
an abundance of natural resources, fine-but they're not in any way
necessary for prosperity.
For example, Switzerland is a poor nation when the
customary "size and resource" criteria are used. But the Swiss actually
have the largest possible market-the entire world with all its natural
resources and skills. The exceedingly high standard of living enjoyed by
the Swiss is based on trade-not so much in Switzerland as through
Switzerland and all over the world. They invite you to send your capital
to Switzerland. They'll keep it safe for you; they won't even tell
anyone you sent it. And they'll supply you with the world's best
managers of capital-for a reasonable fee, of course. They'll invest it
for you throughout the world, including a large portion of it right back
here in the United States.
That's the secret of Swiss prosperity - the free market
economy, backed up by the resulting strictly limited government, private
ownership, tax and banking laws favorable to capital accumulation, good
financial managers, and trade all over the world with anyone (under any
form of government) who wants to trade. They learned long ago that
prosperity can't really be created; it just seems to show up
automatically when and where there's a favorable climate for it.
At the time of the original publication, Dr. Russell
was Professor of Management School of Business Administration,
University of Wisconsin at La Crosse.
Reprinted with permission from The
Freeman, a publication of The Foundation for Economic Education, Inc.,
February, 1984, Vol.34, No. 2.
Yourname@libertyhaven.com
