Innovation, Education, and Enterprise: The Way to Freedom and Prosperity

“[Civilization] . . . gets started with developments of a creative sort—innovation of products.”—Andrew J. Galambos

 “Optimism is an essential ingredient of innovation. How else can the individual welcome change over security, adventure over staying in safe places?”—Robert Noyce

INNOVATION—A PRINCIPAL SOURCE OF BETTERMENT OF HUMAN LIFE

Innovation by means of discovery and invention has been a principal source of the progress of human civilization, since even before the advent of Homo Sapiens as a distinct species some 100,000 or more years ago.

English philosopher Thomas Hobbes (1588-1679) described human life as “solitary, poor, nasty, brutish, and short.” That was true of all human history up to Hobbes’ time, and for the next two centuries as well. That Hobbes’ gloomy observation is no longer true for a majority of human beings is due to innovation—discoveries and inventions—in science and technology.

Globally, life expectancy at birth was generally less than forty years everywhere on earth until the 19^th century. ¹

The development of agriculture ended the hunter-gatherer way of life wherever people engaged in farming. Agriculture allowed the growing, harvest, and production of wheat, other cereals, and rice for food, and the domestication of animals in order to use their labor and to consume them as food.

Before the 19^th century, slavery was common in Africa, Asia, Australia, North America (including Mexico), Central America, and South America. In Europe, slavery and serfdom, a form of enslavement, were common until the gradual rise of trade and commerce and technological innovations made slavery and serfdom uneconomical.

The Spanish conquerors of the western hemisphere enslaved large numbers of indigenous peoples in Mexico, Central America and South America. Before the Spanish conquest, slavery was customary and widespread among the Aztec, Maya, and Inca civilizations of the New World.

According to University of Nebraska Professor David P. Forsythe, as late as “. . . the beginning of the nineteenth century an estimated three-quarters of all people alive were trapped in bondage against their will either in some form of slavery or serfdom.” ²

In Africa, enslavement of Africans by other Africans was common before Europeans took advantage of this African custom to buy slaves from African slave traders. As of the early 21^st century, slavery persisted in forty of the forty-nine states of Sub-Saharan Africa. ³ Until very recently, slavery was common in Asia.

Beginning in the late 18^th century in England and the United States there was a small but steadily increasing number of people who advocated abolition of slavery on moral grounds. However, abolition of African slavery in America was not an issue that elicited strong feelings among the great majority of Americans. Abolition was only advocated by about 2% of Americans. ⁴

It was innovation that ended slavery, due to development of labor-saving devices that made slavery uneconomical. Labor-saving devices in agriculture and the development of money as a means of exchange allowed more production without slavery. It was cheaper to hire laborers and pay them wages in cash rather than to enslave them and provide for their minimum sustenance.

INNOVATORS—A FEW BENEFIT THE MANY

In the 1970s the number of humans who have inhabited the earth was estimated to be 80 billion. Thirty years later that estimate had grown to around 100 billion. ⁵

Out of these many billions of people, only a very few have been responsible for innovations that advanced human civilization, improved the life and  health of humans, and enabled the human species to grow in number to its present size. Discoveries and inventions by humans caused advances in productivity in agriculture, manufacturing, trade, and commerce that gradually freed humans from laboring from dawn to dusk just to produce the food necessary for subsistence and survival.

When thinking of the benefits most of humanity enjoys because of the very few innovators and discoverers, there comes to mind the statement of Winston Churchill about the several hundred pilots of the British Royal Air Force who in 1940 defeated a bombing campaign of the air force of Nazi Germany intended to terrorize the English into submission through massive air raids on London and other cities. Churchill said of those pilots: “Never in the field of human conflict was so much owed by so many to so few.”

It can be said rightly about human civilization that all of humanity, numbering historically in the tens of billions, owes to a small number of innovators and discoverers most of what is most beneficial in human existence.

Three of the most important innovations of all time were by innovators whose identity has been lost in the mist of times long past: the invention of the controlled use of fire, invention of the wheel and the invention of the number “zero” in counting. 

The controlled use of fire was likely an invention of Homo Erectus, predecessor to Homo Sapiens, during the Early Stone Age, also known as the Lower Paleolithic Age. Early evidence of controlled fire used by hominids has been found in sites in Africa, the Middle East, China, and England between 1.6 million and 200,000 years ago. ⁶ Controlled use of fire since the Neolithic stone age was basic to the advance of human civilization through cooking food, producing heat and light, making tools, and eventually powering steam engines.

Wheeled vehicles appeared during the late Neolithic period in several cultures in Western Asia and Eastern Europe around 3500 to 3350 B.C.E. ⁷ Through most of the history of the human species muscle power of humans and animals was the main motor of technology. However, since the marvelous invention of the wheel and axle, things that go around and around as long as they’re driven have played a central role in human technology. ⁸ Wheels have become ubiquitous, appearing in carts, chariots, clocks, steam and hydroelectric turbines for generation of electric power, jet-powered turbine aircraft engines, aircraft and boat propellers, printing devices, lathes, drills, steering wheels and flywheels in motorized vehicles, food mixers, and a myriad of  other applications.

The idea of zero as a number was developed in India around the fifth century C.E. or perhaps as much as 200 years earlier. According to the great mathematician, Pierre-Simon Laplace (1749–1827),

“It is India which gave us the ingenious method of expressing all numbers by means of ten symbols, each symbol receiving a value of position as well as an absolute value, a profound and important idea which appears so simple to us now that we ignore its true merit.  But its very simplicity, the great ease which it lent to all computation, puts our arithmetic in the first rank of useful inventions and we appreciate the grandeur of this achievement the more, when we remember that it escaped the genius of Archimedes and Apollonius, two of the greatest men produced by antiquity.” ⁹

THE IDEOLOGICAL PROGRAM FOR PRODUCT DEVELOPMENT

Andrew Galambos created a graph, reproduced below, to illustrate what he called the “Ideological Program.” Galambos taught that the ideological program was a method for developing products; that freedom was a product; and that freedom could be built by use of the ideological program.

In the graph the letters I, E, A, and M stand for concepts Galambos defined as follows.

• I stands for innovation
• E stands for education
• A stands for advertising; and
• M stands for Maintenance

Innovators are further defined as people who make discoveries and inventions. Isaac Newton was an innovator who discovered laws of nature. Wilbur and Orville Wright were innovators who invented a technology, the first heavier-than-air flying machine capable of sustained flight carrying a human being.

In the ideological program Education represents the process by which innovators communicate their discoveries and inventions to other people.

Between I and E in the graph is a bar which represents what Galambos calls the Disclosure Barrier (explained below).

Advertising in the graph means image transference. The A position in the graph is not limited to conventional advertising. It is any means by which a product or service is symbolized by an image intended for wide dissemination. For example, companies adopt logos, which are symbols to identify their products and services. Thus, General Electric, IBM, and McDonald’s all use logos incorporating initials from the company name.

M (Maintenance) in the graph stands for any and all activities by which a business organization tries continually to improve the quality and the market acceptance of its goods or services. For example, Microsoft Corporation provides software for personal computers. Microsoft tries continually to eliminate any problems that may occur in its software and tries also to develop and sell improved versions of its software. That is an example of product maintenance.

The terms “hot” and “cold” beneath the graph are a metaphorical symbol—derived from molecular physics. With increasing heat molecular activity speeds up; with decreasing heat molecular activity slows down. The word “hot” at the left side of the graph, adjacent to “I” for innovation, symbolizes that intellectual activity is greatest where innovation occurs. The word “cold” at the other end of the graph, and the arrow pointing from hot to cold, signify that intellectual activity slows down the farther one is from the realm of innovation.

The disclosure barrier 

The striped bar between I and E in the graph represents the disclosure barrier. The disclosure barrier consists of impediments to communication of an innovation to those who may learn from and benefit from the innovation, and may be willing to pay for use of the innovation. Innovators may want to communicate their innovation solely for the recognition they would receive, or for valuable compensation, or both. However, in the process of communicating an innovation, the innovator may be attacked for his ideas because they are unwelcome to some people. If the ideas are welcome the innovation may be used without payment of compensation to the innovator.

Examples of operation of the disclosure barrier include the following.

• Nicholas Copernicus (1473-1543) developed the idea of a sun-centered solar system at a time when the Roman Catholic Church considered that to be heresy that must be extirpated. Because Copernicus knew of this attitude of the authorities in the Church, he refrained from publishing his work for many years, until the year of his death at age 70, in the year 1543. His caution was justified as shown by the persecution of two men who later published writings espousing the heliocentric theory of Copernicus: Giordano Bruno (executed by burning alive in 1600), and Galileo Galilei who was convicted of heresy by the Catholic Inquisition in 1633 and spared death because he recanted. For his heresy, Galileo was sentenced to home confinement for the rest of his life.
• 

  Nicolaus Copernicus heliocentric model of the solar system

  NOTE: In the early 16^th century, before the invention of the telescope, no one  except a genius like Copernicus could have imagined what is shown in the illustration above. It must have been exceedingly frustrating to Copernicus to delay publication of his ideas out of fear for his life. That is what the disclosure barrier can do to innovators. The delay in publication was magnified by a further delay of more than 100 years in wide dissemination of Copernicus’ discovery due to the Catholic Church labeling it as heresy. That set back advances in the physical science perhaps a century compared to what might have occurred without the Church’s persecution of any who expressed approval of the ideas of Copernicus.

• Isaac Newton (1642-1727) delayed publishing his theory of gravitation for twenty years, out of reluctance to encounter criticisms and attacks of the kind he had suffered previously from people denigrating his ideas or claiming the ideas were not original to Newton.
• The hostile reaction to the thesis of Charles Darwin (1809-1882) in his landmark book Origin of Species (1859) that the diversity of life forms is the product of a process of evolution over time. Darwin’s ideas were met with hostility, a prospect that he feared and that had caused him to delay publication of his work for twenty years. He published then only when he learned from Alfred Russel Wallace that Wallace had independently arrived at the same discovery about origins of species.
• Ignaz Semmelweis (1818-1865) was a physician in Vienna who discovered that an often fatal sickness, puerperal fever, was being transmitted by physicians to women during childbirth. Semmelweis observed that physicians’ failure to use antisepsis—washing their hands after performing autopsies—was infecting their patients. For advocating that physicians wash their hands before touching a patient, Semmelweis was reviled and driven out of the medical profession in Vienna.
• Nikola Tesla (1856-1943) found employment in the Edison Machine Works of the famous inventor Thomas A. Edison (1847-1931). In 1885, the manager of Thomas Edison’s factory offered Tesla $50,000 (worth more than $1 million in the early 21^st century, adjusted for inflation) if he redesigned Edison’s inefficient electric motors and generators, making an improvement in both service and economy. Tesla solved the problem. When he inquired about the $50,000 payment for his work, Edison replied, “Tesla, you are still a Parisian. When you become a full-fledged American, you will understand an American joke,” thus repudiating the agreement made by his manager. ¹⁰
• Wilbur Wright (1867-1912) solved the problem of human flight with his crucial innovation in the design of the shape of the wing of an airplane. That design produces the airflow under and over the wing that causes the phenomenon of “lift,” by which the wing carries an aircraft up into the air and sustains powered flight. Other pioneers of aviation created successful aircraft three years or more after the Wright aircraft showed the way. No one else flew successfully until the Wright Brothers had done so. Wilbur’s brother and aviation partner, Orville Wright believed that Wilbur’s early death was related to his frustration over competitors’ use of his innovative design for the wing of an airplane without acknowledging the achievement it represented or paying for using it. NOTE: The photograph below may be the most famous photo of the 20th century
  

  Wright Brothers First Flight, Kitty Hawk, North Carolina, December 17, 1903

ENTERPRISE AND ENTREPRENEURS

Entrepreneurs are a vital part of the process whereby innovations generate products or services that are useful to other people. Without an entrepreneur to undertake development of an innovation, products based on that innovation would never come into existence.

The term entrepreneur is derived from the French word “entreprise,” meaning “undertaking.” An entrepreneur is one who undertakes the planning, organization, start, and operation of a new business, offering a product or service for sale, with the expectation of profit.

Note: In the usage employed in the lectures of Andrew Galambos, and in this book, the term “profit” is not limited to monetary and financial gain. Rather, profit is defined as any increase in happiness acquired by moral means.

Every innovation that is manifested in a product or service does so because of an entrepreneur. Usually entrepreneurs take the risk of failure that attends any new business. Since all businesses and especially new businesses have inherent risk of loss, entrepreneurs knowingly assume the risks of the business.

Every business, no matter how small, exists because one or two individuals were its entrepreneurs: they undertook to start a business with an idea they wanted to develop and carry to fruition. Some very large businesses started extremely small, for example the business founded by Phil Knight (see below).

Some prominent American entrepreneurs

• Phil Knight (born in 1938) had a dream for a business, a dream that at first he described as “a crazy idea.” It was to import athletic shoes from Japan for sale in America at a time when German-made athletic shoes dominated the American market. In 1962, at age 24, Knight went to Japan where he negotiated for the right to sell a Japanese company’s athletic shoes in the United States. His starting capital was just $50.00, used to pay for the first few pairs of shoes. This fledgling business grew into Nike, a company that fifty-three years later had global manufacturing and retail operations employing 74,000 people. In his memoir, Shoe Dog (2016) Phil Knight tells the story of his dream for the new business, and how the infant business started out, surmounted obstacle after obstacle and grew to a size and a success far beyond that originally anticipated by Knight himself.
• John D. Rockefeller (1839-1937) was already a successful business man at age 24 when he and two partners built an oil refinery in order to participate in the then fledgling but unprofitable oil production business. Rockefeller went on to create organizational structures that were fundamental to transformation of the always risky petroleum industry into one of the largest, most efficient and profitable in the world.
• Thomas Edison (1847-1931) left school as a young boy, thereafter pursuing education by home study with his mother, who was a teacher, and by extensive reading. He went to work at age twelve. Always interested in mechanical things, by age 20 he had already embarked on a career as an inventor, becoming an entrepreneur in order to market his own inventions. He is most famous for invention of the phonograph, the electric light bulb, electric lighting systems, and pioneering work in the technology of motion pictures.
• Wilbur Wright (1867-1912) and his brother Orville Wright (1871-1948), built the first engine-powered aircraft capable of carrying human beings into the air in sustained flight. To build that first, successful airplane, the Wright Brothers invested a little less than $1,000 of their own capital, equivalent in the second decade of the 21^st century to a worth of about $25,000. ¹¹ By doing so, they launched the aviation industry. It was over a decade after that first flight before the Wrights could realize any financial reward for their entrepreneurial success. Before then Wilbur Wright had died.
• Robert Noyce (1927-1990) was a technological innovator and an entrepreneur. Noyce solved problems necessary to creation of a workable integrated circuit comprising a single structure that includes the necessary mechanical components for processing data in a computer. Noyce was also one of the founding entrepreneurs of Intel Corporation, where he oversaw development of the first microprocessor, the device that incorporates all the components of a central processing unit into a single silicon chip. Intel’s industry-leading microprocessors are fundamental to what has become the nearly ubiquitous use of digital computers in a wide variety of functions.
• Bill Gates (born 1955) began at age thirteen to write machine-readable instructions, known as software, that direct a computer’s processor to perform specific functions, such as word processing, accessing the internet, and controlling peripheral devices such as monitors and printers. At age nineteen Gates left Harvard University to join with his friend Paul Allen in a proposal to write operating systems software for a new personal computer using an Intel microprocessor. That entrepreneurial venture soon became Microsoft Corporation, the company that well before Gates reached age thirty was producing the most widely used software for personal computers.
• Steve Jobs (1955-2011) and Steve Wozniak (born 1950) pioneered the personal computer industry with the Apple computer, created and produced in 1976 when they were in their 20s. Wozniak invented the Apple computer; however, it was Jobs’ entrepreneurial talent and drive that enabled the business to get its start and to grow rapidly into a successful and profitable company. Long after Wozniak left Apple, Jobs was CEO when Apple developed three highly successful products: a portable media player (the iPod); a mobile phone capable of photography, internet access, and much more (the iPhone); and a popular tablet computer (the iPad).

Innovation is transmitted to entrepreneurs who use the ideas of innovators to create new products and services. This is how mobile telephones and MRI machines came into existence.

Mobile Telephones

Mobile phones did not exist until the 1970s. Forty years later, by the second decade of the 21^st century, worldwide there were over seven billion mobile phones in use, a number about equal to the number of human beings. Mobile phones were in use not only for telephone calls, but sending text messages, taking photographs, internet access, and use of services available online through various applications. ¹²

The mobile phone had its genesis in the cosmological innovations of Nicolaus Copernicus (1473-1543) (heliocentric theory), Johannes Kepler (1571-1630) (elliptical orbits of planets), Isaac Newton (1642-1727) (laws of motion and gravitation), Michael Faraday (1791-1867) (electromagnetic current) , James Clerk Maxwell (1831-1879) (electromagnetic wave propagation), and Heinrich Hertz (1857-1894) (demonstration and proof of Maxwell’s theory of electromagnetic wave propagation); and the technological innovations of Nikola Tesla (1856-1943) (wireless electricity transmission), Konstantin Tsialkovsky (1857-1935) (theory of rocket science and space travel), Hermann Oberth (1894-1989) (principles of space travel via rocket), Robert Goddard (1862-1945) (first liquid-fueled rocket flight), Alan Turing (1912-1954) (stored-program computer), and Martin Cooper (born 1928) (invented first wireless telephone).

Nuclear medicine and magnetic resonance imaging (MRI)

A similar path of knowledge expansion led to the creation of magnetic resonance imaging (MRI) technology and other nuclear medicine technologies. Nuclear medicine is used to help diagnose a wide variety of diseases and disorders using a gamma camera, which takes pictures and measures how parts of the body are functioning. Computers are used to process the information and produce images of the body’s internal organs and skeletal-muscular structure. Magnetic Resonance Imaging (MRI) is a type of nuclear medicine.

Examples of diagnostic uses of nuclear medicine include:

• Analysis of traumatic injuries for the presence of broken bones, damaged ligaments and tendons and presence of foreign bodies
• Heart function testing via stress test
• Examining body tissue for evidence of cancer

In nuclear medicine, the patient is given a radioactive compound which travels through the body to the specific organ being studied. The radiation dose is usually less than a routine chest X-ray. Nuclear medicine has supplanted x-rays in much of the diagnostic analysis of conditions in the human body.

The cosmological basis for nuclear medicine technology goes back in most pertinent part to the discovery of atoms and molecules and the work of John Dalton (1766-1844) (atomic theory in chemistry), Dmitri Mendeleev (1834-1907) (periodic table of chemical elements), Niels Bohr (1885-1962) (atomic structure and quantum theory), Henry Moseley (1887-1915) (atomic numbers and molecular structure), and Albert Einstein (1876-1955) (energy and atomic structure). A technological innovation of importance in nuclear medicine was the invention of the Magnetic Resonance Imaging machine MRI by Raymond Damadian (born 1936). ¹³

Other innovations that are part of the intellectual heritage that enabled development of nuclear medicine and creation of the MRI machine include the discoveries in electromagnetism and electromagnetic wave propagation by Faraday, Maxwell, Hertz and others.

Innovation in medical science and biology

English physician William Harvey (1578-1657) was the first to describe completely and in detail the systemic circulation and properties of blood being pumped to the brain and body by the heart.

Anesthesia was discovered by noted English scientists Humphrey Davy (1778-1829) and Michael Faraday (1791-1867). The first two users of anesthesia for surgery were American dentists Crawford Williamson Long (1815-1878) and William Morton (1819-1868). Surgery became relatively safe when anesthesia and surgery were accompanied by asepsis, the process of bringing about absence of disease-causing microorganisms during and after surgery.

Hungarian physician Ignaz Philipp Semmelweis (1818-1865) pioneered the clinical practice of asepsis. Semmelweis’ advocacy of asepsis was first rejected by the medical profession, then accepted after the work of Louis Pasteur (1822-1895) established the germ theory and English surgeon Joseph Lister (1827-1912), practiced and operated, using aseptic methods, with great success.

Edward Jenner (1749-1823) was an English physician and scientist who was the pioneer of smallpox vaccine, the world’s first vaccine. He is often called “the father of immunology.” His work is said to have led to the saving of more lives from disease than the work of any other human. The idea of immunization was a giant step forward. Other innovators found cures by immunization and otherwise for other diseases that had been a scourge of humans. Examples include:

• Immunization for polio, Jonas Salk (1914-1995) and Albert Sabin (1906-1993)
• Immunization for those exposed to typhus, Rudolph Weigl (1883-1957)
• The deadly disease cholera was conquered through the efforts of several individuals, including most notably English physician John Snow (1813-1858), Italian anatomist Filippo Pacini (1812-1883), Spanish physician Jaume Ferran i Clua (1851-1929), and Russian-Jewish bacteriologist Waldemar Haffkine (1860-1930).
• Louis Pasteur (1822-1895), Ferdinand Cohn (1828-1898) and Robert Koch (1843-1910) made discoveries in the fields of microbiology and bacteriology that led to the eventual development of antibiotics.
• Tuberculosis was an incurable and often fatal disease that became curable only with the discovery of the antibiotic streptomycin by Selman Abraham Waksman (1888 – 1973) and his laboratory staff. Streptomycin was introduced in 1946.

All told, beginning with Edward Jenner in the late 18^th century, innovators and discoverers have enabled humanity to be rid of many highly lethal diseases that were formerly scourges of mankind.

Charles Darwin (1809-1882) and Alfred Russel Wallace (1823-1913) originated and developed a brilliant explanation of the evolution of life by natural selection. Their discovery inspired unprecedented advances not only in biological science, but in the integration of biological and physical science. The impact of Darwin and Wallace on biological science is comparable to that of Copernicus and Galileo in physics.

The insights of Gregor Mendel (1822-1884) in genetics led in the 20^th century to identification of DNA as the molecular structure of living organisms. The work of Francis Crick (1916-2004) and James D. Watson (born 1928) showed the structure of DNA, revealing how genetic inheritance works. Since the discovery of DNA there has been an exponential increase in knowledge in biology.

Innovation, education, enterprise and profit in eradicating disease

In 1880 a French Panama Canal Company  began excavations for construction of a canal through Panama to connect the Atlantic Ocean to the Pacific Ocean. After nine years the French company gave up the canal project. Of the tens of thousands of workers constructing the French canal, over 85% were hospitalized and 22,000 died, primarily due to Yellow Fever. ¹⁴

In 1881 Cuban physician Carlos Finlay (1833-1915) published his hypothesis that yellow fever was contracted through the bite of a mosquito. This was a novel idea—an innovative hypothesis—contrary to other then prevalent ideas about the etiology of yellow fever.

Walter Reed (1851-1902) was a U.S. army doctor specializing in pathology and bacteriology. In  1900 the Army appointed Dr. Reed to head a commission for examination of the causes of yellow fever and other tropical diseases in Cuba. Reed led experiments that corroborated Dr. Finlay’s mosquito bite hypothesis of the etiology of Yellow Fever. Dr. Reed always credited Carlos Finlay with being the innovator of the mosquito bite theory of Yellow Fever.

William C. Gorgas (1854-1920) was a U.S. army physician. In 1899, after the conquest of Cuba by the United States during the Spanish-American War, Dr. Gorgas was appointed Chief Sanitary Officer of the City of Havana. There he became acquainted with Dr. Carlos Finlay and his Yellow Fever mosquito bite hypothesis. At first Dr. Gorgas was dubious about Finlay’s idea. Gorgas changed his mind after learning of the results of investigation by Dr. Walter Reed’s commission on the cause of Yellow Fever.

Gorgas then turned to elimination of breeding places of the mosquito as the surest way to rid Havana of Yellow Fever. At the time there was considerable skepticism among physicians about the mosquito bite theory of transmission of Yellow Fever. Eradication of breeding places for mosquitos worked. It rid Havana of the mosquitoes.

In 1904 Dr. Gorgas was charged with the task of eradicating Yellow Fever carrying mosquitos from nearly 500 square miles of jungle in the Panama Canal Zone. He  unleashed a formidable eradication campaign that worked. New cases of Yellow Fever plummeted to single figures by the end of the program’s first year. After November 1906, there were no further deaths from the disease in the Panama Canal Zone.

With yellow fever eradicated and malaria vastly reduced by similar means, the United States undertook the work of building the Panama Canal; it was completed in 1914. ¹⁵

This account of the eradication of Yellow Fever illustrates the operation of the concept of the Ideological Program, also described by Galambos as the Product Development Program.

• Innovation: Finlay was the innovator of the mosquito bite hypothesis of the etiology of Yellow Fever.
• Education: The Innovation of Dr. Finlay was communicated to Dr. Reed, who organized and supervised the work of testing the hypothesis of Dr. Finlay.
• Enterprise: The hypothesis of Dr. Finlay and the scientific testing of the hypothesis by Dr. Reed’s commission was communicated to Dr. Gorgas who undertook to apply the hypothesis to eradication of the mosquito that transmitted the disease of Yellow Fever. The role of the entrepreneur existed in the work of Dr. Gorgas who undertook to eradicate the mosquitos, not as part of a profit-seeking enterprise, but in carrying out his duties as a U.S. Army physician.
• Finlay’s hypothesis was elevated to the status of theory through corroboration by the work of the commission led by Dr. Reed and the work of Dr. Gorgas in virtually eliminating incidence of Yellow Fever by eradicating the mosquitos that transmitted this disease to humans.

Note:   It may be suggested that entrepreneurs are those who seek a financial profit in the market place; that Dr. Reed and Dr. Finlay were not engaged in profit-seeking activities; therefore  they were not entrepreneurs. This view of entrepreneurial motivation is based on a restricted view of profit: that profit means financial profit. For purposes of this book, the definition of profit is that coined by Andrew J. Galambos in his V-50  lectures, that is: “Profit is any increase in happiness acquired by moral means.” As physicians, in accordance with the time honored Oath of Hippocrates, Dr. Reed and Dr. Gorgas sought to save lives by eradicating a terrible disease. That was their undertaking. Success in that undertaking was their profit—an “increase in happiness acquired by moral means.”

INNOVATION IN FINANCING HEALTH CARE

Medical Expense Security

The cost of medical care for serious or catastrophic sickness or injury can be far beyond the means of most individuals and families. Two innovations in medical cost insurance could solve what have seemed to be intractable problems, namely:

• Providing relatively inexpensive insurance for people with chronic medical conditions entailing expenses far beyond the means of most people to pay on their own
• Providing for complete care, medical and otherwise, for people born with severely disabling birth defects

Health Status insurance

Health status insurance is an innovation designed to protect people from becoming uninsurable, or becoming subject to extremely high insurance costs due to development of a serious, chronic disease or sickness. Bradley Herring and Mark Pauly are respectively, a professor in the Johns Hopkins University School of Public Health, and a professor in the University of Pennsylvania, Wharton School, Health Care Management Department. Herring and Pauly analyzed the probable cost of medical cost insurance providing guaranteed renewable lifetime coverage in the event of the development of serious chronic sickness or disease.

Herring and Pauly concluded that in the case of someone who took out the insurance before developing a serious chronic sickness or disease, lifetime, guaranteed insurability could be provided at a cost not much greater, if any, than the expected cost of lifetime insurance for someone who did not develop serious chronic illness. ¹⁶

That is so taking into account that some people will recover from the chronic condition, others will die of it earlier than their normal life expectancy, and the group as a whole will not be so large as to overwhelm the ability of the insurer to honor its commitments.

The concept of health status insurance is actuarially sound for those customers who take out the insurance before developing serious, chronic illness or sickness. Actuarial calculation and underwriting will enable the insurer to determine the amount to be charged to insure each individual who takes out the insurance before onset of chronic sickness or illness. Actuarial science and under writing are discussed in Chapter 23 on Insurance.

The concept of health status insurance is similar to level premium term life insurance taken out to provide life insurance coverage over a long-term period, such as ten, twenty, or thirty years in which the insurance coverage is guaranteed. That cost is more, but not excessively more, than annual, renewable term life insurance in which the premium cost goes up every year.

Birth defect insurance

Birth defect insurance is an innovation conceived of by Andrew J. Galambos in the 1960s. ¹⁷ The function of birth defect insurance would be to provide insurance protection for parents of congenitally disabled children as well as the children themselves.

In a study published in 2015, an insurance company in the United States reported that birth defects constituted 4.3% of the cost of claims for medical expenses during the years 2011-2014. The analysis reported on the experience arising out of coverage of five million employees of 1,800 self-insured companies.  The study was carried out by Sun Life Financial, an insurance company that provides stop-loss insurance against catastrophic medical expense losses of self-insured employers.

In the study, birth defects were the fifth costliest medical expense category, after three types of cancer and kidney disease. Congenital birth defect costs amounted to 4.3% of all claims for medical expenses in the study. ¹⁸

For birth defect insurance to be a viable insurance product, birth defects would have to be defined by an insurance contract with precision sufficient to enable the insurer to calculate the risks and the cost of the risks that it would insure, and the insurance would have to be purchased before occurrence of the insured risk. That is true of all types of insurance. Thus, birth defect insurance would be available only before pregnancy.

Insurance for birth defect expense could include not only medical expenses, but also the cost of care for developmentally disabled persons who by reason of birth defect are unable to work or even to care for themselves. The costs of medical expenses for some birth defects and maintenance of people developmentally disabled due to birth defect would be far greater than the resources of all but the wealthiest parents. That makes birth defects an ideal subject for catastrophic expense insurance.

THE SPIRIT OF ENTERPRISE AND THE WAY OUT OF POVERTY

In the absence of impediments to work, enterprise, and saving, the human spirit can overcome the poverty that has been the lot of most human beings throughout the history and pre-history of the human species. The way out of poverty is, and has always been work and saving. In a free market people can pursue happiness in their own way; their work and saving are rewarded.

The spirit of enterprise can be stifled but not eliminated. It persists under the most adverse conditions. Even in Russia in the era of the communist Soviet Union, with its avowed purpose of eliminating private property, the spirit of enterprise was manifested in many ways. The communist state, while forcing peasants into virtual slave labor on state-run collective farms, eventually allowed peasants to operate small private plots of land in order to grow food and sell it freely. The private plots provided the peasants with a large part of their food and income and accounted for 20% or more, of total food production in the Soviet Union. ¹⁹ An immense underground or “black market” economy developed in the Soviet Union. The black market could exist only because of corruption in the state, but corruption was ubiquitous as state officials sought payoffs for allowing private enterprise. ²⁰

In the 21^st century, the nations of the world differ greatly in terms of incomes and standards of living. The wealthiest countries are those with institutions that respect and protect private property and free enterprise, and also have a political system that allows citizens to remove  politicians from office and from power by peaceful, democratic means. The poorest countries are those where the ruling political regime disrespects and plunders private property and those in political power stay in power indefinitely by force and terror against the people. ²¹

Where people are free to interact with each other economically they will create a vibrant prosperity that could never occur under political planning and controls. Around the world, on every inhabited continent, there are myriad examples of individual entrepreneurs rising out of poverty by means of their enterprise, and consequently raising many others out of poverty through employment in their enterprise.

Japan—The Triumph of Enterprise

Geographically, Japan is an island nation located in a mountainous volcanic archipelago, having no fossil fuel resources—coal, petroleum, or natural gas—to fuel the nation’s large industrial capacity, and little else in natural resources. In 1941 the military-dominated government of Japan went to war with the Netherlands, Britain, and the United States in order to seize the natural resources of Indonesia and Malaysia which included an abundance of petroleum and other raw materials necessary for Japanese industry and the nation’s military.

During the war Japan suffered three million military and civilian fatalities. Japan was devastated by World War II. Two American experts on Japan wrote that, “. . . [Japan’s] merchant marine and industrial cities, both of which were essential to its livelihood, were all but wiped out; [due to its military aggression and the brutality of its armies] the country emerged from the war a pariah nation, shunned by most of the nations with which it had to trade if it were to live; it lacked most natural resources, not even being able to feed itself. . .” ²²

Food aid from the United States staved off famine. However, in 1950, five years after the end of the war, Professor Edwin O. Reischauer of Harvard University, said “The economic situation in Japan may be fundamentally so unsound that no policies, no matter how wise, can save her from slow economic starvation.” ²³

In 1961 President John F. Kennedy appointed Professor Reischauer U.S. Ambassador to Japan, a popular appointment in Japan because of Reischauer’s fluency in the Japanese language and his Japanese wife. By 1961, although damage from bombing of the principal cities remained incompletely repaired, Japan was well on its way to achieving what has been called an economic miracle, the growth of Japanese industry into a producer of high quality goods valued and purchased around the world. Three decades later Professor wrote that “by the 1980s ‘made in Japan’ signified excellence in every field . . . Japan was recognized as not only a genuine economic giant but also a world leader in every type of industrial production.” ²⁴

Following the war, Japan of course renounced military conquest. Japanese industry was able through peaceful free trade and commerce to obtain all that it needed to rebuild its cities and fuel its manufacturing capability. Comparing the appearance of Tokyo at the end of the war and several decades later, one could wonder how the Japanese achieved such a remarkable post-war success. That success generated prosperity in which the average standard of living of the people of Japan nearly equaled that of the people of the United States and Canada.

The vitality of the Japanese economy after World War II is attributable in significant part to some of its leading entrepreneurs, including for example, the leaders of Casio, Hitachi, Honda, Kawasaki, Kyocera, Matsushita, Sony, Toshiba, and Yamaha. Among these, Honda and Sony were virtually startups, creating dynamic new businesses despite minimal capitalization and myriad obstacles.

In 1946 two young men, Masaru Ibuka (age 38) and Akio Morita (age 25) founded Sony Corporation with an initial capitalization in an amount equivalent to six hundred U.S. dollars. The company struggled for several years. Its first manufacturing facility was in a bombed out building in Tokyo. Its first product was a rice cooker that failed to sell because it did not operate properly. By 1950 Ibuka had perfected a tape recorder, which became a success. Ibuka and Morita had to make their own magnetic tape for the recorder, using paper as a base, because 3M’s magnetic plastic tape for recording was unavailable to them. Subsequently, Sony developed the first commercially successful transistor radio and many other consumer electronic devices. By the 1960s, shares in Sony were publicly traded not only in Japan, but also in the United States. Eventually the company’s stock market value exceeded US $50 billion. In the second decade of the 21^st century Sony employed about 50,000 people in Japan over 10,000 in the United States, and another 60,000 or so in the rest of the world.

Shoichiro Honda (1906-1991) in his youth became enthralled by automobiles, airplanes and all things mechanical. After World War II, Mr. Honda saw a need in Japan for inexpensive, motorized personal transportation. To address this need he attached to a bicycle a small gasoline engine. Honda sold such motorbikes all over Japan.

In 1948 Mr. Honda and his colleague Takeo Fujisawa (1910-1988) co-founded Honda Motor Co. Ltd. (HMC) to build high quality motorcycles. HMC’s first original designed and engineered product was the “Dream” D-type motorcycle produced beginning in 1949.

The company developed a corporate culture that fostered innovation and exacting quality of manufacture. For example, the Honda CVCC engine introduced in the early 1970s met all U.S. pollution requirements without use of a catalytic converter. From 1948 to 2017 HMC and its various subsidiaries produced more than 80 million automobiles and 250 million motorcycles, as well as a variety of other engine-powered products. In the second decade of the 21^st century, Honda and its various subsidiaries employed over 200,000 people worldwide, including people at manufacturing facilities in Japan and twenty-four other countries in North America, South America, Europe, Africa, Asia, and Australia. ²⁵

In 2006, the centennial of the birth of Shoichiro Honda, American Honda Motor Co. announced the establishment of Honda Aircraft Company to build business class jet aircraft. As of the second decade of the 21^st century Honda Aircraft built the fastest, highest-flying, quietest, and most fuel-efficient plane in the business jet class of aircraft. ²⁶ The headquarters of Honda Aircraft Company was established in North Carolina, not far from the location of the Wright Brothers first flight. ²⁷

Micro-lending to the poor: from destitution to enterprise and a better life

One of the great benefactors of poor people in the 20^th and early 21^st centuries is Muhammad Yunus (born 1940), a Professor of economics in Bangladesh. In his quest for a way to help destitute people in his country, Yunus became an innovator and an entrepreneur. He innovated the concept of micro-lending—that is loans in very small amounts to the poorest of the poor, to enable individuals to derive more benefit from their work. He also created an enterprise—a new  kind of bank—to implement his innovation. With the benefit of micro-loans from the specialized bank founded by Yunus, millions of people were able to escape extreme poverty and virtual destitution.

Bangladesh is one of the poorest countries in the world despite its location on the fertile Bengal Delta. Its 150 million people live in an area the size of the American state of Florida (population 19 million).

In 1972, Yunus became a professor of economics at the University of Chittagong in his native Bangladesh. In 1974, during a period of famine and starvation among poor people in Bangladesh, Yunus went into the villages near the university to see if he could do anything to alleviate the poverty and hunger.

Yunus’ observed a group of women who were barely surviving on earnings from making bamboo stools by hand. To get the money to buy bamboo they borrowed from village money lenders. The money lenders took the stools in payment of the loans, allowing the stool makers 10% of the cost of the materials, equivalent to about $US 0.02 (two cents) a day for their work. It took all day to make one stool by hand. Needless to say, two cents a day of income was barely a subsistence wage even in rural Bangladesh.

Yunus saw that the stool makers were condemned to a life of hard work just for subsistence; that most of the benefit of their work was going to the money lenders, who had money, while the stool makers did not.

Yunus decided to try to reverse the cycle of dependency and poverty among these women. He loaned US $27 to a group of forty-two stool makers, about US $0.64 each. It was enough for them to pay off the money lender and keep all the revenue from selling their stools. Such small loans have allowed the borrowers to escape from destitution and raise their standard of living above a subsistence level.

From this minuscule transaction grew Grameen Bank (Village Bank), an institution which by 2013 had loaned a cumulative total of $11 billion to 8.5 million borrowers. 97% of the borrowers in Bangladesh have been women; they made good use of the loans to care for their children. The repayment rate of these poor borrowers was 99%. This so-called “micro-lending” and “micro-finance” has spread to almost every country in the world, including the United States. ²⁸

The Nobel Peace Prize for 2006 was awarded jointly to Muhammad Yunus and Grameen Bank “for their efforts to create economic and social development from below.” ²⁹

Enterprise in parent-funded schools among the poor of Asia and Africa: How the poor are educating themselves

Professor James Tooley of Newcastle University on Tyne, England made a surprising discovery in Hyderabad, India in the year 2000. While the middle and upper income classes were generally sending their children to private schools, so were the poorest people, those living in slums and shanty towns in and around Hyderabad.  Tooley discovered the existence of  more than five hundred low cost private schools in one of the poorest areas of Hyderabad,  a city of approximately six million inhabitants.

Tooley found that in Hyderabad:

• Without exception such schools serving the poor were operated as businesses by teachers from the slums themselves, for parents who chose to pay tuition rather than sending their children to government public schools where no tuition is charged.
• Tuition costs in these schools were the equivalent of US $1 to $2 per month, paid by parents whose incomes are about US $50 per month. The schools provide no charge or discounted tuition to children of parents unable to pay part or all the tuition.
• The population of Hyderabad was then 65% Hindu and 30% Muslim. Muslim parents were as eager for their daughters to have schooling as they were for their sons.
• Parents in such schools chose them in preference to government schools that charge no tuition. The parents’ reasons are that their children get a much better education in the parent-funded schools because in the government schools teachers don’t teach. By that the parents meant that absenteeism was prevalent among government school teachers, and when the teachers were at school they showed little interest in actually teaching, sometimes sleeping or reading newspapers at their desks.

In accounting for the absenteeism and poor performance of teachers in government schools, Tooley observed that they had to travel a long way each day from their homes in middle class areas to the government schools in the slums. Also, some of the absenteeism was due to the teachers going on strike to protest the government’s failure to pay their salaries.

Mohammed Wajid, age 27 when Tooley met him in 2000, is representative of the teacher-owners of parent-funded private schools for the poor in Hyderabad. According to Professor Tooley’s account:

“Like many I was to visit, [Wajid’s] school was in a converted family home. . . Wajid told me that his mother founded Peace High School in 1973 to provide ‘a peaceful oasis in the slums’ for the children. Wajid, her youngest son, began teaching in the school in 1988, when he was himself a 10^th-grade student in another private school nearby. [After receiving] his bachelor’s in commerce at a local university college and beginning training as an accountant, his mother asked him to take over the school in 1998, when she felt she must retire from active service. She asked him to consider the ‘less blessed’ people in the slums, and that his highest ambition should be to help them, as befitting his Muslim religion. [Although he had other ambitions] Wajid felt obliged to follow his mother’s wishes and so began running the school. . .

“The school was called a high school, but like others bearing this name, it included kindergarten to 10^th grade. Wajid had 285 children and 133 teachers . . . and he also taught mathematics to the older children. His fees ranged from 60 rupees to 100 rupees per month ($1.33 to $2.22 at the exchange rates then), depending on the children’s grade . . . These fees were affordable to parents, he told me, who were largely day laborers and rickshaw pullers, market  traders and mechanics—earning perhaps a dollar a day.” ³⁰

What Professor Tooley found in parent-funded private schools in Hyderabad was representative of what he found elsewhere in India and in several of the poorest countries in Africa and Asia. From 2003 to 2005 Tooley headed a research program exploring the nature and existence of schooling for children in parent-funded  private schools for the poor in India, Ghana, Nigeria, Kenya and China. ³¹ Tooley found authoritative reports indicating that in urban slums and shanty towns in poor countries of Africa and Asia about 80% of children were in private, parent-funded schools, while in rural areas over 30% of children were in such schools. ³²

After testing 24,000 children, it was found that children in the low cost private schools significantly outperform children in public schools, after controlling for background variables and the school choice process. ³³

Parent-funded schools for the poor in India and Africa, like Peace High School of Mohammed Wajid in Hyderabad, India are part of the “informal” economy. The term “informal” refers to enterprises that are not registered with or approved by the state, and usually are not in compliance with state regulation. It is virtually impossible for schools like Wajid’s Peace High School  to comply with state regulations that are unrealistic for the slums in which the schools exist.

State inspectors visit such schools regularly, not to enforce compliance with state regulations, but rather to be “made happy” by bribes paid by school owners to stay open and operating. ³⁴

As explained further below in discussion of enterprise among the poor in Peru, the informal economy in poor countries is not a phenomenon of criminal activities designed to skirt state taxing and regulation. Rather, according to Nobel Laureate Mario Vargas Llosa, “the informal economy is the people’s spontaneous and creative response to the state’s incapacity to satisfy the basic needs of the impoverished masses.” ³⁵

Although often in crowded, dirty, and deplorable physical conditions, the private schools throughout the poor areas of Asia and Africa are preferred by parents because the schools are accountable to parents, who can withdraw their children if they are not satisfied with the teaching. Therefore, private school owners are responsive to parents’ requirements for quality teaching for their children. In contrast, in the government schools there is no accountability to parents; if government school teachers don’t teach they cannot be fired for their failure to teach. ³⁶

Latin America: Enterprise and optimism surviving political oppression and corruption

In Latin America private enterprise gives people cause for hope in the future, despite the fact that at present ³⁷, Latin America is home to 200 million destitute people, almost one in three out of a total population of around 620 million. ³⁸

Widespread poverty among the peoples of Latin America is due not to any defect or deficiencies in these peoples, nor to any lack of natural resources, but rather to traditions and practices having their source in 500 years of political oppression and corruption beginning with the conquest of indigenous peoples by Spanish and Portuguese adventurers starting early in the 16^th century.

The impediments to enterprise throughout Latin America are political laws and practices that place obstacles in the path of individuals striving to achieve a better life through work and saving. These political impediments include crime, corruption, dictatorship, stifling regulation, taxes, inflation, and lack of capital.

• Crime: The state fails to provide law and order. People go about their daily activities in constant fear for their lives and safety due not only to criminal activities of outlaws, but also due to criminal activities by agents of the state itself.
• Stifling regulation: Government regulations control almost every aspect of life, regulations that usually are promulgated arbitrarily by agencies of the state, rather than being enacted by a legislature where the democratic process could ameliorate and attenuate overly rigid regulation.
• Corruption: Those in political power take advantage of their position to steal from the state itself, and frequently to require bribes as the price of granting permission to engage in activities that the state regulates.Throughout Latin America the public in each country was polled about corruption in the year 2016 by the organization Transparency International. The polling showed that on average in 2015 as many as half the people paid a bribe for accessing basic government services, and over half the people say their government is doing a bad job of fighting corruption. ³⁹
• Dictatorship: In some countries the people cannot rid themselves of a tyrannical, unjust state by democratic voting, because their political rulers have established a one party dictatorship enforced by violence and terror. Many Latin Americans have escaped dictatorship, literally, by emigration. ⁴⁰
• Taxes: The state imposes taxes on income, sales, imports and even on exports. The totality of the taxes is heavy in Latin American countries.
• Inflation: In order to extract more from the people than can be taken from taxes alone, the state confiscates indirectly a part of the property of the people by stealing their money through inflating the state’s fiat money.
• Lack of capital: Through the combination of taxes, corruption, and inflation, entrepreneurs in Latin America are deprived of capital that otherwise would be available for investment. Capital investment by foreign investors is deterred by corruption, counterproductive taxation, and outright expropriation of foreign-owned business enterprises. ⁴¹ Corrupt practices include the requirement of payment of bribes for permission to start and conduct new businesses. Some, if not all, Latin American countries levy taxes on exports, thereby raising the cost of domestic production and making it less competitive in foreign trade. For example, until late in 2015, Argentina imposed heavy export taxes on agricultural products. ⁴²
  

The spirit of enterprise at work in Peru

During the decades of the 1950s through the early 21^st century, the population of Peru’s capital city, Lima, grew from one million to around ten million as of the early 21st century. The population growth was due mainly to immigration of poor people from rural areas coming to Lima to seek a better life. At least 30% of Lima’s people live in deplorable, filthy, and unsafe urban slums and shantytowns.

Lima has a thriving “informal” or underground economy, a so-called black market. In the  Peruvian economy, informal businesses account for 60% of overall economic activity. ⁴³

The reason for this large underground economy is the enormous complexity of Peru’s laws. Hundreds of new regulations are passed each week. No private entrepreneur can hope to deal with this level of regulation. Accordingly, startup companies cannot possibly afford the money and resources in personnel to obtain state approval to start a new business. However, informal businesses are started all the time without compliance with state laws and regulations.

According to noted Peruvian writer, and Nobel Laureate, Mario Vargas Llosa, “In countries like Peru, the problem is not the black market but the state itself. The informal economy is the people’s spontaneous response to the state’s basic incapacity to satisfy the basic needs of the impoverished masses.” ⁴⁴ 

Peru has had big economic and political problems from crime, corruption, excessive regulation, predatory and counter-productive taxation of trade and commerce, etc. It also has some surprising success stories of enterprise among poor people. One such story is that of Ajegroup, a soft drink company founded in 1988 by the Añaños family of Ayachuco, Peru. Kola Real is the brand name of the principal product of Ajegroup.

Due to terrorist attacks on shipments of Coca-Cola and Pepsico, those soft drinks were in constant short supply in Ayachuco province. One entrepreneurial family, the  Añaños family, looked upon this as an opportunity to develop a new, domestically produced soft drink for the Ayachuco market. They called their product Kola Real.

According to an account by Peruvian economist Daniel Córdova, ⁴⁵

“In the late 1980s, the Añaños family made their living from a small farm in the department (province) of Ayachuco, Peru, the cradle of the Maoist terrorist movement known as Sendero Luminoso, or Shining Path. The region’s isolation, caused by . . . civil war [between the government and the Shining Path], gave the Añaños an opportunity to [create] Kola Real in 1988. . . Twenty-five years later they [were] the main transnational manufacturers of nonalcoholic beverages in Latin America . . . placing their Big Cola . . . [brand] right behind Coca-Cola, Pepsi, and Sprite, with more than eight million consumers in 2005. Today ⁴⁶ the Añaños have fourteen manufacturing plants; they employ eight thousand workers, . . . and their [annual] sales are estimated at US  $1 billion. The Añaños case demonstrates that even in the environments most hostile to investment, free enterprise can allow people to achieve unimaginable development goals.” ⁴⁷

The spirit of enterprise throughout the poorest countries in the world

The spirit of enterprise animates people living in poverty throughout Peru, the rest of Latin America, and throughout the world. A few examples appear in this chapter. Far more examples are described in the growing literature on the entrepreneurial spirit among the poorest peoples in the world. Three books of special merit in this regard are listed in the note accompanying this paragraph. ⁴⁸

SECURITY, GOVERNANCE AND FREEDOM

Security is a basic human need. Without security for persons and property there can be no human freedom.

The rationale and justification for human government is to provide security of persons and property. This is recognized in the  American Declaration of Independence, wherein it is stated

“All men [and women, of course] are . . . endowed by their Creator with certain unalienable Rights . . . Among these are Life, Liberty and the pursuit of Happiness . . . To secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. Whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”

In the 21^st century it is an observable fact that governments in various nations have failed to provide security for persons and property. What is worse, governments in some nations have become the biggest threat to security of persons and property and to the freedom of the people over which such governments exercise power and control.

At present, in the early 21^st century, prime examples of this perversion of government exist in the nations of Cuba, Venezuela, and Nicaragua in Latin America, North Korea in Asia, and Zimbabwe in Africa. These nations are ruled by dictatorships that through force and violence hold power over people, virtually enslaving them. Examples of the perversion of government appear to some degree in every country of Latin America in addition to those mentioned immediately above.

Freedom cannot be established in such countries by means of violent political revolution, as demonstrated by the example of Cuba, Venezuela, Nicaragua, and Zimbabwe. In each of those nations there was overthrow of a political regime that ruled by oppression, theft, force, and violence. In each case, a new political regime was instituted that also ruled the people by oppression, theft, force, and violence.

This was also the outcome of political revolutions in France in the 18^th century, ⁴⁹  and Russia, China, and a score or more of other nations in the 20^th century.

Political democracy in the United States of America has been somewhat of an exception to these failures of political revolutions. However, the United States itself has failings of governance indicating that it, too, is on the path towards eventual decline and fall. This hypothesis is set forth and elaborated in chapters eleven through fifteen of this book.

Humanity has an alternative to the proven failure of political revolutions. Humanity can develop non-coercive government that protects persons and property fully, without ruling, exploiting, and injuring the people whom supposedly it has undertaken to protect. The path towards non-coercive governance is suggested below, and will be examined in greater detail in subsequent chapters.

The path towards non-coercive governance will not be designed by anyone. Non-coercive governance will develop as people recognize that security and government are marketable services. As people cease relying on political governance because it fails them, it will be natural for individuals and companies to offer non-coercive security and governance services and for individuals and companies to subscribe to such services. That is already occurring all around the world.

Entrepreneurs will offer governance services. They will do so in the free market. The nature and extent of such services will evolve through trial and error. They will not evolve through planning by a centralized political power. This is because, in the words of Peter Drucker, “planning is actually incompatible with an entrepreneurial society and economy. Planning is the kiss of death of entrepreneurship.”

ENTERPRISE DURING AND AFTER FAILURE OF THE STATE

Security: protecting persons and property

Mexico has long had a big problem of crime and corruption in government. Public officials, the police, and the army often have been corrupted by criminals, even becoming criminals themselves. ⁵⁰

The problem of violent crime and lack of security has been exacerbated in Mexico by the “war on drugs” being waged by the governments of the United States and Mexico. In a recent tragedy, the Mexican police and army stood by doing nothing while a drug gang took revenge against supposed informants by a massacre of at least one hundred people in a Mexican town near the U.S. border. ⁵¹

When political government failure to provide security is long persistent, people will seek to protect themselves.

In Mexico City, the national capitol of Mexico, muggings and other street crimes occur frequently; victims seldom go the police for help, or to report crimes, because doing so is futile, even counter-productive as authorities treat complaining victims as trouble makers, or as criminals themselves. According to a young Mexican woman who had been mugged twice in the capitol in three months, “It never crossed my mind [to report her muggings to the police] . . . The police don’t feel like a protective element in Mexico. When you’re in danger, they’re the last people you think to go to.” ⁵²

Note: In the capital city of Mexico the government is failing in a primary duty—to provide safety on the streets of the city. That is also true of the United States. According to the New York Times Washington, D.C.  is known as the murder capital of the United States. ⁵³ The U.S. government fails to provide safety on the streets of the city of residence of the President, the Congress, the Supreme Court, and the principal administrative agencies of the U.S., including the FBI, the chief law enforcement agency of the federal government.

According to the Los Angeles Times, drug gangs in rural Mexico extort payment from people, and commit violent crimes against their victims. In some towns, citizens force out Mayors known to be complicit with the drug gangs. ⁵⁴

According to an account in the New York Times, in 2016, “businesses and middle-class Mexicans are hiring private security in record numbers. . . Rural communities . . . have formed ‘self-defense’ militias to run off gangs and [corrupt] mayors alike.” ⁵⁵

The street crime dangers of Mexico are not unique to it. High levels of street crime are common in many, if not all, the larger cities of Latin America. ⁵⁶

NOTE: A state’s police attacking citizens in third world countries is not uncommon, a phenomenon that is readily verified by an internet search. ⁵⁷ Even in economically advanced, political democracies, sometimes police become robbers, victimizing people they are supposed to protect. Thus, according to an account in 2018, in The New York Times, “In a trial in Baltimore federal court, witnesses and even the officers themselves have described an elite squad gone rogue, taking every opportunity to rob those they were supposed to be policing or protecting, and barely bothering to cover up their deeds.” ⁵⁸ 

When crime is so prevalent that no one feels safe, and political government does nothing about it, or even cooperates with criminal gangs, this book posits that efficient and affordable protection will become available not only for the well to do, but also for people of modest means; that such protection for people of moderate means would occur through the engagement of private security by owners of residential rental properties, neighborhood associations, by owners of commercial enterprises patronized by the public, and by the owner-operators of streets, roads, and highways. This concept will be developed in a subsequent chapter to be entitled “Problems and Solutions.”

How this would come about would be analogous to the financing of large-scale defense against external aggression, as explored in Chapter 26 entitled “Insuring and Assuring Defense.” It is anticipated that the manner in which such protections will develop will be entrepreneurial and evolutionary in nature.

Honest Money: protection against state expropriation of money

Historically, money was created by people, not governments. Governments imposed monopoly control of money and used that power to steal through devaluation of the money, as explained in Chapter 20, entitled “Money.”

“Fiat money” is the term that signifies money issued by the state, that the state can devalue at will, and that must be accepted as legal tender for all debts. People cannot stop the state from stealing its fiat money by devaluation through inflation of the supply of fiat money.

Over the course of the 20^th century and into the 21^st century, in various countries around the world, wherever a nation’s fiat money became of questionable utility, or even worthless, due to high inflation, people have turned to using the U.S. dollar as a currency. That is what has happened in Zimbabwe. According to a report from the British News Agency, Reuters,

“In Zimbabwe the misrule of Robert Mugabe and his Zanu-PF political party since it took power in 1980 has left the nation lurching from one bout of starvation, disease and hyperinflation to another, while the country’s rulers enrich themselves. Zimbabwe was once Africa’s bread basket. . . [A]fter Mugabe ordered seizure of the best farms in the country, the collapse in output that followed was one of the worst economic depressions of modern times. By 2007-2008 inflation topped out at 500 billion percent [emphasis added] . . .  [Mugabe’s] followers used violence to suppress a growing domestic opposition . . . The economic implosion has destabilized the region, sending millions of poor laborers [from Zimbabwe] to neighboring South Africa.” ⁵⁹

About 90 percent of Zimbabweans work in the informal economy, where cash is a necessity for virtually all exchanges of goods and services. Although the Zimbabwe dollar was worthless, the people still needed money for trade and commerce. The people responded by using foreign currencies, including the U.S. dollar and the South African rand. The U.S. dollar became the preferred money. In 2009 the government of Zimbabwe recognized officially what was already an accomplished fact, and declared the U.S. dollar to be the nation’s’ official money. At the time  there were national currencies of eight different countries circulating in Zimbabwe, illustrating the fact that a single money is not required for the operation of normal trade and commerce, although a single, strong, honest money is preferable. ⁶⁰

A shortage of the preferred U.S. dollars in Zimbmabwe resulted in people being unable to make cash withdrawals of U.S. dollars from bank accounts. Consequently, people started to pay for goods and services by using bank debit transactions. ⁶¹

Venezuela is an oil-rich nation that was until the early 21st century one of the most prosperous in Latin America. Due to the policies and actions of the Socialist Party dictatorship in Venezuela, in the second decade of the 21st century, extreme shortages of food and medical supplies developed. ⁶²

Over the five years ended in 2017, the national currency of Venezuela became virtually worthless due to hyperinflation. U.S. dollars became the preferred money in Venezuela, for those who could acquire them. Many could not as a large proportion of the people have been impoverished by the consequences of policies of the Venezuelan Socialist Party, which has made itself a dictatorship over the people. Those Venezuelans who have no dollars to pay for their needs have been reduced to barter to accomplish exchanges of goods and services. Unlike Zimbabwe, in Venezuela the ruling political party refuses to recognize the fact that the U.S. dollar has become the people’s preferred money, despite efforts of the state to prohibit its use ⁶³

Private issue money

Historically there have been many instances in which money was issued by private, non-state sources and was widely used by the public. An example occurred in England in the late 18^th and early 19^th centuries.

Due to widespread counterfeiting of coins issued by the British Royal Mint, the Mint ceased coin production for nearly a half century, from 1773 to 1821. Consequently, employers became unable to pay their employees in money acceptable in trade and commerce. Gold and silver coins were too expensive for wage payments and paper money had not yet come into usage in England.

Matthew Boulton, a manufacturer in Birmingham, England decided to manufacture copper coins for payment of wages to his employees and the employees of other manufacturers. Beginning in 1788 doing coinage business under the name Soho Mint, Boulton manufactured millions of coins not only for local use by businesses in England, but also for sale to the British East India Company, the United States, Russia and Sierra Leone. In 1797 the Royal Mint of Britain authorized issuance of Boulton’s coins to the public.

Thereafter Boulton’s coins were issued in large quantities and were widely used in trade and commerce in Britain until the British Government reasserted its money monopoly in 1821. ⁶⁴

Boulton’s coinage illustrates a theme of this chapter—the ability of entrepreneurs and free enterprise to take over what was formerly a function of the state when the state fails to satisfy the needs of the people.

 

FREEDOM AS A PRODUCT AND AS AN EVOLUTIONARY OUTCOME

Andrew J. Galambos posited that human freedom is a social condition that can be created, like a product, by innovation and technology. However, freedom cannot be manufactured and sold like a tangible product such as a telephone or a television receiver. Rather, freedom is similar to the television and telephone service that is needed to use television receivers and telephones. Television receivers and telephones are of no use without the television and telephone service provided by companies organized to provide those services.

Although there is not now and never will be a tangible product known as freedom, nevertheless Galambos’ idea of freedom as a product is not irrational, impractical or utopian. Rather, it is visionary. It foresees a future of non-coercive human government quite different than the political government of the present and the past. This is neither impractical nor utopian. On the contrary, it is unreasonable to believe that all the failures of human government of the past can be repeated indefinitely without continuation of the perennial warfare among political nation-states, and the misery arising out of the imposition of political dictatorships on the people of many nations.

Given the advances in the physical and biological sciences since the end of the 19^th century, a continuation of political government as in the past would most likely lead to warfare utilizing the weapons of mass destruction created through use of technological advances derived from the physical and biological sciences. Humanity narrowly avoided that fate in World War II (1939-1945). Had weapons of mass destruction then been developed in Nazi Germany or Imperial Japan there seems little doubt that these two political states would have used them.

Without a turning away from the forms of governance that produced the wars of the past, it appears reasonable to say that  humanity cannot much longer avoid catastrophic wars with weapons of mass destruction.

Galambos’ vision of a better world for the future starts out with the recognition that all civilizations of the past have declined and failed due to political coercion. The eventual fate of all political states is characterized by the title of Edward Gibbon’s famous book, The History of the Decline and Fall of the Roman Empire. ⁶⁵

A study of history demonstrates that all political states perish in a manner similar to the decline and fall of the Roman Empire. Galambos posited that all human governments of the present are headed down a similar path of self destruction. In the 20^th century self-destruction was the fate of political government in the former Soviet Union. For over 70 years the Soviet Union was ruled by a dictatorship of the Soviet Communist Party that seemed capable of extending its control indefinitely. Then, suddenly, in 1989-1991, that regime collapsed.

By the term self-destruction in regard to a nation, this essay refers to those cases where the political government of a nation succumbed to internal contradictions and inherent social pathologies rather than to violent overthrow internally or attacks by external enemies.

For freedom to come into existence in human society there must be innovative, technological creation of voluntary, non-coercive protection services—that is services which protect people from risks that threaten life, liberty, and property.

Even more than the risks of all but the worst catastrophic losses due to natural disasters, ⁶⁶ the biggest risk to human security is the social institution called political government. Coercive political governments of necessity to their acquisition, holding and retention of power authorize and require coercive actions by their agents in administering and enforcing politically engendered laws. This was an important insight not only of F. A. Hayek (1899-1992), in his most popular book, The Road to Serfdom (1944), but also of George Orwell (1903-1950) in the two books that made him famous, Animal Farm (1945) and 1984 (1949).

TRANSITION TO NON-COERCIVE GOVERNANCE

Civilization cannot be created or improved by politics and legislation. These involve the imposition of rules of conduct imposed on people by rulers, including rulers chosen through what are considered democratic processes.

Progress in human civilization occurs as an evolutionary process. Writing, mathematics,  science, law, contracts, money and insurance evolved as means and tools to explain nature and to improve human existence.

Freedom has been evolving and is actually emerging through changing attitudes. Emancipation of women is an example. Until recently in human history, in virtually every nation, women were denied the same rights as men to control their lives and property. As the nineteenth century drew to a close, in some cultures, notably in Western Europe and the English-speaking countries, changing attitudes began to lead to the emancipation of women from legal and financial disabilities vis-à-vis men. As of the early 21^st century, in much of the rest of the world the emancipation of women has not begun, or is only partially accomplished.

Political emancipation does not truly emancipate women. In the communist states that came into existence in the 20^th century, women were accorded full political and legal rights, such as they were in those countries. Equal legal status in a country like the former Soviet Union did nothing more for women than allow them to share equally with men in the miserable existence of almost everyone. Even the opportunity to become chief of a political state does not emancipate women generally, as shown by the status of women in India and Pakistan, where women became head of state in the 20^th century. ⁶⁷

The emancipation of women has proceeded most rapidly in those countries and cultures where increasing freedom, productivity and a higher standard of living have liberated men, women, and children alike from menial labor in order to eke out the bare minimum subsistence necessary for survival. However, as of 2013, more than one billion people worldwide had incomes of less than US $1.25 per day. ⁶⁸ That seems almost incomprehensible and beyond belief to most people in the United States and other relatively prosperous countries where the average per capita annual income approaches or exceeds US $100 per day, and those considered to be living in poverty have incomes above US $30 per day.

As developed in this book, especially in chapter 16 ⁶⁹ it is capital, namely income saved and then reinvested in productive assets, that enables increases in productivity and higher standards of living.

Freedom evolves through innovation of products and services that protect life, liberty, and individual property. Examples of freedom products include insurance, private security (now a large industry), and encryption of intellectual property. Provision of security services may include tangible products such as the TV receivers used in closed circuit television or a home security system that includes an alarm and exterior lighting actuated by motion sensors.

Human freedom and security are indissolubly linked. Without security for life, liberty, and property, there can be no freedom in human society. F. A. Hayek (1899-1992)  explained how security and freedom evolved as a necessary characteristic of the enlargement of human civilization to its present size and order. Hayek wrote that

“What are chiefly responsible for having generated this extraordinary [human social] order, and the existence of mankind in its present size and structure, are the rules of human conduct that gradually evolved (especially those dealing with several property, honesty, contract, exchange, trade, competition, gain, and privacy).

“These rules are handed on by tradition, teaching and imitation, rather than by instinct, and largely consist of prohibitions (‘thou shalt not’s) that designate adjustable domains for human decisions. Mankind achieved civilization by developing and learning to follow rules (first in territorial tribes and then over broader reaches) that often forbade him to do what his instincts demanded . . . Civilization is not only a product of evolution—it is a process; by establishing a framework of general rules and individual freedom it allows itself to continue to evolve.” ⁷⁰

In addition to the evolutionary nature of civilization humans could speed up the process of securing and increasing freedom through conscious innovation of technologies and social arrangements that increase human security and freedom. Such conscious innovation would be the means by which freedom is manifested in products and services. Some such innovations are discussed in this chapter, and elsewhere in this book.

Security after the decline and fall of a state

Providing security of persons and property is a governmental service. When political governments fail in their duty to provide security, individuals and companies step up and provide security services. In the early 21^st century private security is a large and growing industry worldwide, as explained in Chapter 24 on Security. This book posits that private security would be available not only to businesses and the well to do, but indirectly to everybody through the businesses that provide places of employment and residential accommodations, neighborhood associations, and privately owned public places, including streets, roads and highways. This would be accomplished similarly to the provision of large-scale defense against external aggression, discussed in Chapter 26, entitled “Insuring and Assuring Defense.”

Money after the decline and fall of a state

There can be no freedom of individuals as long as political states have the power to tax and to control money.

When a political state goes through collapse so profound that it cannot restore itself to power and control, because it has become bankrupt financially and morally, people will be free to adopt such money as to them shall seem most beneficial and useful.

The principal characteristic of useful money is that it is a medium of exchange. Ideal money would be acceptable as payment anywhere in the world; it would hold its value, and would be a reliable unit of account for recording the assets and liabilities and the profits and losses of individuals and businesses.

No single money would be required to establish reliable money, that is one acceptable widely as a medium of exchange that retains its purchasing power and serves as a means of accounting for economic activities. Competition among issuers of money will result in people being free to choose the most reliable and useful money.

With the political state out of the way, the offering of viable and reliable monies would be a function of the free market. There have been private issuers of reliable money in much of human history. There is no reason this could not occur again once the state is out of the way.

In the 21^st century, the only thing stopping private issuers from offering money has been the jealousy and coercive power with which the state guards its money monopoly.

This book posits that state monopoly issuers of money are in process of becoming discredited gradually by constant over-issuance and consequent depreciation of fiat currency; and that eventually people will reject state issued monies in favor of monies issued by competing, non-state issuers who will keep the supplies of their monies so limited and safe as to retain purchasing power value over the long term.

As the political state fails around the world, state fiat money will fall into disuse as it always has done when its utility is destroyed by the state that issued it. Witness ancient Rome, 20^th century Germany after World War I and after World War II, and Zimbabwe and Venezuela at present.

Innovation will develop monies that are stable, possess integrity, and will improve over time due to usage and innovation. The creation, establishment, and maintenance of useful money by free enterprise will arise out of the operation of the free market for human exchange—the very institution that has led to the unprecedented rise in prosperity and standard of living wherever a free market is allowed to operate. This is the subject of much of this book, especially chapter 16 entitled “The Paradox of Socialism and the Paradox of Capitalism.”

SOCIAL AND CULTURAL EVOLUTION AND FREEDOM

The decline and fall of all political states throughout the world appears to be a certainty. The question is not whether this will occur, but when, and whether after the fall of a political state people will try to establish another political state in order to provide for law and order and security. Any such attempts to provide security by re-introducing a coercive political state will fail to achieve security for the people. Therefore, it seems inevitable that eventually in one nation after another, people will turn to a better way: voluntary and non-coercive governance achieved through innovation and enterprise.