Enlightened self-interest propels a free society

"... Americans are becoming increasingly dependent when it comes to making the decisions that most affect their [well-being].... We must find a way to return to our citizens more control over their lives."

In THINKING ABOUT what kind of society is good for business and investing, we need to remember two things. First, enlightened self-interest is a powerful and positive force for good in a free society. As economist Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," In this light, it is a worrisome fact that Americans are becoming increasingly dependent when it comes to making the decisions that most affect their interest--e.g., decisions about caring for their health, educating their children, and spending their earnings. If we are to keep the U.S. and its economy on the right track, we must find a way to return to our citizens more control over their lives.

Second, the love of neighbor is the most powerful means changing things for the good. It was with this in mind that Pres. George W. Bush asked each of us in his 2001 inaugural address "to do small things with great love." Too often we create and depend on grandiose bureaucratic programs to address social problems and, in the meantime, allow ourselves to forget about real people. For those of us with faith, it is enough to remember that we are called on by the Lord not to eradicate poverty, but to help our neighbor. For all of us. it should be clear enough by now that bureaucratic programs, such as the 40-year-old War on Poverty, tend to be counterproductive, whereas private and local efforts--what what I call lighthouse missions--bear real fruit.

Let me tell you a story to explain what I mean by lighthouse missions: An elderly couple living in a small coastal village approached the lighthouse keeper one day and explained, "We are out of oil for our home, and it is cold." He gave them oil. The next day, a young couple petitioned for oil for their lamps so their children could study after dark. He gave them oil as well. As a result of these and other well-meaning deeds, he ran out of oil. and without the light that it was his duty to provide, two ships crashed on the rocks, killing hundreds of sailors.

It is not good or productive to allow ourselves to lose focus on our individual lighthouse missions, no matter how well meaning the thing that distracts us. The same general principle adheres politically: Our local, state, and national governments have lighthouse missions--responsibilities or duties that they are best suited to perform. and on which they should focus. In the case of the national government, these responsibilities are assigned by the Constitution. For instance, it is charged with providing the whole people a defense against foreign threats, for which it is uniquely suited. It is not, on the other hand, tasked with providing individuals with their various unique needs. When attempting to do the latter, it usually makes things worse.

Let me speak of just two examples of this--health care and education--before returning to the idea of individual responsibilities. Our current health care system is neither efficient nor cost-effective. To fix it, we must cease to treat patients as captive victims. Instead, we must allow them to be informed and independent consumers. The first step toward this goal is to restore the direct connection between the recipient of health care and the doctors and hospitals delivering the service. Physicians should not be paid by an agent who did not receive the service. Nor should recipients of service be limited in selecting where or from whom they receive it.

Second, the idea of health insurance must be divorced from the idea of prepaid health care. If car insurance operated on the same basis as health insurance, we would be reimbursed for windshield wiper blades, headlights, tires, oil changes, and gas.

Not surprisingly, we find that the source of much of the difficulty with health care reform exists at the national level, where individual needs are not--and cannot be--best understood. Changing a single line of the Internal Revenue Service code would allow the needed reform to proceed. That one line would permit individuals, rather than employers, to deduct health care benefits. Instead of sending money to HMOs, employers would deposit money into employees' individual health care accounts, where it would be nontaxable and portable from one job to another.

These accounts could be called "Spend-It-or-Keep-It" (SIKI) to emphasize their key feature: They encourage individuals to capitalize on health care savings generated through increased exercise, healthier diets, etc. The SIKI would be similar to an Individual Retirement Account, providing a means for tax-free investment and becoming part of a person's estate. Once a certain level of health care security is reached, the excess could be spent for any purpose. Shifting control of health care spending to the consumer in this way would create millions of cost control centers--individuals in charge of themselves and their health care accounts. At the same time, it would increase productivity by freeing companies to focus on their own lighthouse missions: producing goods and providing services.

With a SIKI system in place, voluntary health care cooperatives could be formed to negotiate pricing, monitor outcomes, and educate members about health issues. These cooperatives could be organized within companies, through fraternal organizations, or in several other ways. Catastrophic policies with high deductibles could be purchased with a portion of the SIKI accounts, with balances to be used for direct payment to providers or for purchasing a prepaid health care plan. Uninsurable neighbors could be assigned to these cooperatives or, if necessary, placed in special pools that receive subsidization from local or state governments, ensuring that none go without care.

Another major problem with health care today is that doctors practice "defensive medicine" to avoid the overbearing consequences of malpractice suits. Along the same lines, more than 20 obstetricians in the Las Vegas, Nev., area have announced that they may have to close or move their practices to another state to avoid excessive lawsuits and increasingly unaffordable insurance premiums. A survey taken by the Nevada State Medical Association revealed that 28% of physicians already have closed their Nevada practices due to high liability costs.

This is a nationwide problem and extends into many other areas besides health care. What is needed to solve it is tort reform that revives the idea of real responsibility and ensures reasonable awards when fault is found. This requires legislation. Yet, in keeping with our principle of lighthouse missions, one would hope that state governments--which are perfectly capable--would address this situation before the Federal government finds it necessary to intervene. As Pres. Dwight Eisenhower once said, "Our best protection against bigger government in Washington is better government in the states."

Common sense in education

Friends of mine who homeschool their five children, ages seven to 15, told me the following story: At one point, Dad suggested issuing report cards like other schools. Morn replied, "Fine, but they'd all get A's." Classic material favoritism, the father thought at first--then was astounded when Morn added, "Because we don't move them on until they get it." Consider this mother's radical common sense: If our entire education system were converted to learning levels based on real progress rather than grade levels determined by age--and if the pernicious concept of social promotion were eliminated--the door would be open to significant achievement.

Under this "radical" policy, a student would go over the multiplication tables or the important dates in history until he or she knows them. Age would be irrelevant. A 10-year-old could be at level three in math, level six in history, and level eight in science. No child would be left behind because no child would advance before he or she is ready. In order for this policy to get off the ground, however, we must break the current and disastrous public school monopoly.

Charter schools and vouchers are mechanisms that are gaining ground as a way of giving the children of poor and middle class parents the same education opportunities as the wealthy. Yet, why is it like pulling teeth to extend such opportunities? Why do so many parts of the government oppose it with such a vengeance? Would we tolerate being told where to buy our groceries, gas, or clothing? Yet, by and large, we put up with this command-and-control system for the education of our children.

Returning to the individual level, one of the greatest educational advances we can make in the next two decades will come through one-on-one volunteer mentoring efforts. These are expanding all across the country, and everyone who is able should consider taking part.

Americans today cede too much power to elected representatives, and they need to take that power back. Legislators continue to find increasingly creative ways to misappropriate the hard-earned money of taxpayers. Consider the $50,000 procured by Rep. Lois Capps to cover the costs of tattoo removal for her constituents in and around Santa Barbara, Calif. This immoral misuse of workers' earnings must be stopped. Citizens should determine tax rates, e.g., by demanding of their elected officials that those rates be capped at no more than 25%. This way, legislators can be held responsible--not for being less wasteful than their colleagues, but for setting the fight priorities with limited resources.

To regain this authority over our own lives in such a way as to be able to keep it--in other words, to remain free--we will need to become individually responsible by helping our neighbors and not demanding special treatment for ourselves.

On the first point, I like to contrast churches that define their success by the beauty of their physical facilities and the size of their congregations and financial budgets with those that define it by the percentage of their members who have lighthouse ministries of their own outside the church. A church with 100 parishioners, of whom 90 perform some kind of service in their community, is more successful than 8,000-member churches with what has been called "ingrown congregations which exist to minister to their own needs."

On the second point I like to quote former British Prime Minister Winston Churchill: "The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery." A free society mandates that constituents know how to live free and not as slaves to their passions.

Contrasted to Adam Smith's insight that free people in pursuit of their own self-interest will, in the process, fulfill the needs of others, there was a humble carpenter 2,000 years ago who encouraged us to give selflessly of ourselves to others. The economic success of our country depends, in a sense, on our ability to attend simultaneously to both of these ideas.

Foster S. Friess is founder and chairman of Friess Associates, Greenville, Del., an investment firm that manages more than $7,000,000,000 in assets. This article is adapted from a lecture given at Hillsdale (Mich.) College.

COPYRIGHT 2005 Society for the Advancement of Education
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