Expanding Choice and Opportunities for Entrepreneurship

Capitalism and the Third World. Individual choice and the welfare state. Nonprofit corporations run on government funds—the basic education business. Nonunion job placements. The possibilities.

Something important happened, I think, to a large number of people, a lot of blacks among them. And at the risk of simplification, I would say that a number of people who have been concerned about social problems reached the crossroads fairly recently. One road leads toward what I would call a benign or not-so-benign authoritarianism. Another road leads toward individual choice and responsibility. I find myself choosing individual choice and responsibility, although a lot of people I have worked with are going down the other road.

How is the existing economic system going to offer new opportunities for individual private entrepreneurs who are not dependent on the state?

The fundamental question for this conference is how, over the next ten years, can we work out practical programs to combine a new synthesis of free choice, free market methods and goals, with a commitment to Third World communities? Unless capitalism in its present phase is able to reach some kind of reconciliation at home and abroad with Third World peoples, capitalism, in my opinion, will be a passing phase, because liberty often is not what humanity has chosen -- or rather, has had chosen for it.

Another way of phrasing that question is: How is the existing economic system going to offer new opportunities for individual private entrepreneurs who are not dependent on the state? In other words -- put very bluntly -- how are we going to make an environment where thousands and millions of new capitalists are going to be grown and encouraged? Because, unless there are additional people who are not only converting to free-market thinking but who also are starting to participate in private-enterprise solutions to problems, we will not long survive.

There is no way that I can give you anything approaching a comprehensive solution. So let me focus on one area where there may be the opportunity for fruitful action by a number of us over the next ten years. That is the question of opening up the governmental structure -- the welfare state -- to individual choice or, if you will, privatizing the welfare state. I am encouraged about the possibility of this approach. Let me refer not to theory but to what people are doing, because I think practice is often ahead of theory. The ordinary citizen is doing things that are not even dreamed of in academe.

The head of this corporation is dependent on government funds and is in the nonprofit sector

Last year I spent going around talking to various nonprofit economic-development corporations, which are kind of thirdgeneration graduates of the war on poverty. Let me describe one of these, set up to run a job-training program that subsists primarily on federal money.

In the conventional labeling that goes on in political groups, certain people would consider the head of this corporation to be beyond the pale because he is dependent on government funds and he is in the nonprofit sector. But ten years ago he had an organization with an annual budget of $800,000; he now has an annual budget of $19 million. This indicates a certain entrepreneurial ability on his part -- some may view it as misguided, but it is an entrepreneurial ability nonetheless. In speaking with the founder and president, I found that even though he is in the nonprofit world, he definitely considers himself an entrepreneur. He sees people whom he deals with in terms of two types: the regulators who want to control people's lives, and the entrepreneurs.

His business is training or retraining people who are coming from farm work and dropout status to be electronics workers in areas of the electronic industry's expansion. His corporation's efforts receive a lot of support from employers, who have been its major supporters with the Department of Labor. What's in it for employers? He delivers a labor force, first of all, that charges a little bit below the prevailing wage yet has a higher than average productivity. In addition, he admitted, his firm is almost totally nonunion.

I was shocked. This was a man who had supported Cesar Chavez for years. Yet he is training a nonunion labor force with federal funds. Why? It turns out that he sees himself as an alternative to the white-dominated trade unions, although he would never say so publicly.

In this private program, if people do not show up for class somebody goes out to their homes to get them

But unions are not the only things he is an alternative to. He is in the basic education business -- call it "retraining" or whatever. And his staff does a better job because a direct result is tied to its teaching -- a job at the end. Its members are not engaged in an adversary relationship with the student, and they get more money if the student graduates. However, they are not permissive. The public school system has the worst of both worlds. It is in an adversarial relationship where it is permissive at the same time. In this private program, on the other hand, if people do not show up for class somebody goes out to their homes to get them. And if the students miss more than twice, staff members start working with all members of the family. They get results that way.

Federal funding is a form of low-interest capitalization and the nonprofit status is used as a tax shelter

That is not all that they do. Although, again, they would not admit it publicly, they are actively competing with public agencies. They get grants to do job placements, which the federal government does through the Employment Service. The government gets about $600 million a year which is siphoned out through the Wagner-Pizer Act to the various states. This private organization does the same thing, and has found itself in direct competition with the local Employment Service office. Its record? In the last six years it has beaten the service in numbers of placements, mainly because it works on a piece-rate basis.

So it turns out that we are talking about a de facto kind of subterranean organization. In terms of capital, it is pretty hard to get in the private market at 20 percent interest rates. You might say that, for this enterprise, federal funding is a form of low-interest capitalization and the nonprofit status is used as a tax shelter. Its main stock in trade is labor, and there will be no reindustrialization or tax-free loans or anything else with tax concessions -- there also has to be a hardworking, cooperative, labor force. The existing system has failed. This private economic-development corporation is succeeding.

I asked the owner what would most help his enterprise to expand. He said, quite simply, opening up the whole government regulatory and welfare system so that his organization can compete with it. He said he is happy to go profit or to stay nonprofit -- it does not matter too much. What he would really like to get into is the public schools. The organization is doing it already; he figures it might as well get paid for it.

This is what I mean when I say that there are new and hopeful possibilities for privatizing the welfare state.

IV. Business and the Professions Table of Contents Five Policy Proposals