by Dr. Robert H. Krieble
(Article ghostwritten by Steven R. Van Hook)
Dr. Robert Krieble retired as chairman and co-founder of the Fortune 500 Loctite Corporation in 1986. He then formed the Krieble Institute based in Washington, D.C. Since that time, he and his cadre of volunteer executives and political experts have trained more than 12,000 students throughout the former Soviet empire in basics of leadership and business skills. To date, the Krieble Institute has held free conferences and seminars in 67 cities of 21 countries throughout the former Soviet Union and Eastern Europe. Krieble Institute trainers volunteer their time, and even pay their own travel expenses. Following are some of Dr. Krieble's words on why he founded the Krieble Institute, a few of his institute's accomplishments, and what is yet to be achieved in the FSU.
Roots of the Krieble Institute. When the Krieble Institute began its work behind the Iron Curtain, all the physical evidence of the Soviet Empire remained -- the Berlin Wall, the Red Army, the KGB. We were confident, however, that Communism's days were numbered. Our early efforts to nurture pockets of democracy inside the Soviet Union were so effective that I personally was named an "Enemy of the State" by the Supreme Soviet.
Because the Krieble Institute is privately funded, it has not been hampered by governmental constraints. We are in a unique position to make a difference. We realize that there is no institution in the world that can loan enough money to make a significant difference in the lives of 350 million people. They are going to have to generate the wealth they need for their material well-being themselves.
The Russians sent us the message, "Don't give us theory. We've had 75 years of Marxist theory, and it didn't work. Now we want concrete examples of entrepreneurial start-ups that did succeed." They say, "You've built a business with very little money. What did you do first, what did you do second? What did you do wrong, what would you do differently?" They wanted anecdotal information from executives who know what it takes to build a company from scratch.
For our seminars, we take along three or four businessmen who have started their own companies and they tell their case history. Most American businessmen are generally like me; they're not only willing but eager to devote their time and money to some of the major causes of the world that they think are worthwhile. That goes for all of our executives that volunteer their time and pay their own expenses. Our trainers range from CEO's of Fortune 500 companies to entrepreneurs employing less than ten people. And when you get people like Tom Hansberger, CEO of Templeton with $81 billion under management, or Jean-Pierre van Rooy, president of Otis Elevator (which provided most of the elevators in all the high-rise Stalinist buildings); for them to take two weeks off is really quite something.
About a third of the people in our audiences are serious entrepreneurs who will put the information we share to practical use in building some business activity. About another third may be involved in government at some level and are interested in our material and how they might apply it to their own policy development in business and economics. Many in our audiences are young people who are either now in business or want to get into one. We also attract a number of scholarly types, people who are simply interested in the dialogue and want to know more about how the West sees economic activity. Our seminars run for three days, in each of the three cities we visit over the two-week excursions that we take five times a year.
The success of the Krieble Institute in identifying and training key people in our seminars is due in part to a unique asset, our field team. Our field workers are local people who have achieved some prominence sufficient so that they came to our attention when we were recruiting. We have about 40 field representatives located throughout the former Soviet bloc; all of them have been to the United States for training in both business and political techniques. The seminar participants are invited by our field representatives through direct contact and media announcements. Lately we have divided our coverage area into five regions, each of which will have a regional manager to simplify our supervision of this large force. They all have e-mail so they can talk to each other. We're working up a bulletin board so each field representative can get news that any other uncovers in his or her particular territory.
Our seminar material is constantly under revision and being upgraded. We started teaching elementary basics of free market systems, but now our audience is more and more interested in very specific information. How do you accomplish a particular job? How do you establish a travel agency? How do you establish a real estate office? Our seminars now include such varied subject matter as drafting a business plan, manufacturing and production, public relations, managing and motivating employees, pricing products and services, customer relations and marketing -- all taught by American executives and experts in those fields.
We teach seminars on how to win political elections and what to do once you've won them. Some alumni of Krieble Institute political training include current and former Russian leaders such as Secretary of State Gennadi Burbulis, Moscow Mayor Gavriil Popov, Moscow Chief of Police Arkady Murashev, almost the entire Armenian parliament, more than 50 members of the Bulgarian parliament and over 500 members of the Russian Parliament and other governmental bodies.
We've added a third track, and that is a venture capital program in which we ask each of our 40 field representatives to pick the best venture that is proposed to them by would-be entrepreneurs in their oblasts, and we give them start-up capital in exchange for shares in their companies. We put up starting capital of, say, one-to-five thousand dollars. That sounds like peanuts, but it's a lot of money in Russia to start a company. Hopefully some of these will succeed. A lot of them will go bust. We would like to have a fund of venture capital that grows rather than shrinks, and that's to help more and more companies get started.
Krieble Institute goals. What we are interested in, of course, is helping to build a new economy based on entrepreneurial activity. We don't believe it makes all that much difference who owns the huge, obsolete state-controlled enterprises. We believe they should be privatized, but that isn't where Russia's future lies. Those plants are obsolete, and they are not going to build prosperity to the level of a western-style democracy by going private. It will help if you can break them up into smaller units which are much more growth-oriented and manageable by entrepreneurial-type managers.
But the big focus, in our view, is to encourage the development of a new parallel economy led by the entrepreneurial element of Russian society -- which is there and very much alive, but has some bad habits and needs very much to be re-focused. The guys on the Arbat in Moscow, those are the entrepreneurial guys simply devoted to trading. That's because the infrastructure, the legal structure, was so uncertain there was not a firm basis for making longer-term commitments like setting up a factory to make consumer goods. And our western businessmen feel the same way. Two things have got to be top priority for a prosperous Russia: right to private property, which is heavily emphasized in Russia's new constitution. Private property must be sanctified as it is in the West. And secondly, they've got to have a currency which is stable, reliable, and a store of value.
Currency Board for stability. Professor Steve Hanke of the Johns Hopkins economics department has published voluminously on the subject of a currency board with private money issued by a group of highly respected citizens, based on a basket of foreign currency or other assets tradable on world markets. The colonies, before there was a United States, used currency boards and private money. The Russians themselves under the last 20 or 30 years of the Czarist periods used currency boards. Many of the eastern countries -- the young tigers of the Pacific Rim -- have used currency boards.
There's a long history of two or three centuries on currency boards as the answer to a situation such as you have in Russia, where the official currency isn't worth a damn. And I preach this, but it works against the interest of a business community that is still largely governmental and bureaucratic rather than a free market, and so they don't listen. But it is the answer.
World models for Russian reforms. The founding fathers of the United States recognized very clearly that the enemy of freedom is the state. Thomas Jefferson summed up the legitimate power of government: "Defend our shores, provide a sound currency, maintain law and order." This is the sum of good government. As he saw it, the only limit to freedom should be laws that prevent any citizen from infringing on the freedom of others.
A result, America's fledgling economy was managed not by government, but by the free market. The market is a wondrous way of organizing an economy without the need for government to exercise any authority. Adam Smith's invisible hand provided all needed guidance. People trading freely with each other determined what producers would supply, by their choice of what they were willing to buy. Competition among producers determined prices. People naturally chose to buy the products offering the best value. Producers were thereby motivated to improve their products and to find more efficient ways of making them in order to take business from their competitors. The market thus provided a constantly widening range of products, in ever increasing abundance, and ever falling prices.
This has been the experience of all countries that enjoy a high degree of freedom, practically without exception. Perhaps the best measure of market success is growth in Gross National Product (GNP) per capita, expressed in figures that have been corrected to eliminate the effect of inflation.
Following World War II, an economic miracle recreated the demolished Germany as a prosperous world power under the leadership of Adenauer and Erhard, who essentially freed German industry from regulation and restored the free market. In a surprisingly short time of 25 or 30 years, Germany was able to reestablish itself as a world industrial power. Today its real GNP per capita is one third higher than that of the United States, and is second only to Japan among the major nations.
Japan is an even more striking example. It, too, was devastated in World War II. It has no natural resources, but the virtues of its population -- disciplined, hard working people with an incredible will to succeed -- regained Japan a prewar position in the rank of industrial nations by the mid-70's. Today, Japan is the richest major country in terms of real GNP per capita, if you exclude the oil exporting countries of the Arabian peninsula.
Chile, Korea and Singapore established the free market under farsighted dictators who relaxed their tight control of government in order to pursue prosperity, and the resulting improvements in education and perspective favored a higher degree of self-government. Chile adopted a free market economic system and its economy took off. It is now rich even by Western European standards, and the growth continues. In the last five years, Chile's growth in real GNP per capita has been six percent -- six times that of the United States -- and is exceeded only by South Korea, Thailand, Taiwan, and China. The success of the free market brought democracy in its wake. Hong Kong and Singapore are now approaching the United States in real GNP per capita. Taiwan and South Korea are not far behind. In all these cases, economic success fostered democratic government.
China is particularly interesting. Deng authorized the construction of a market economy, and the bureaucracy started to dismantle government control with surprising enthusiasm. China's real GNP per capita grew 7.7 percent in 1991, 12.8 percent in 1992 and an estimated 13 percent in 1993. If they can maintain that growth rate, China will be the largest economy in the world early in the 21st century.
So China is becoming rich. Well, you may ask, why not the republics of the former Soviet Union? My personal observation, from traveling throughout Russia and the region every few months for the last seven years, is that they are doing much better than they might admit. Where there were few cars, they now have traffic jams. Where before their stores were empty, now they are full of all the essential goods. Where six years ago living space was crowded and of poor quality, now we see the development of individual private houses in the suburbs of major cities. There is, indeed, substantial economic progress.
Their progress is much slower than in China, but the Soviet Union had been under communism for twice as long. Their older people have lost motivation. As the energetic young people take over control of their lives, reform's pace will quicken.
The countries that I've cited as examples of successful governments generally spend less than 25 percent of the GNP on government, leaving the rest to the private sector from whence comes the well-being of its citizens. In many countries of the former USSR, the government takes more than half of the GNP. This is more government than they can afford! It must be cut in half if the people of the new states are to approach the well-being of the people in China. Rising hope emboldened by highlighted success and sound economic policy throughout the fallen Soviet empire will, in time, produce the exuberance which is the fuel that drives modern China.
It's a long haul. And we keep plugging. We keep going back every two months. And we've got lots of help. Some of America's best businessmen go with us on a pro bono basis to teach Russians how to be potential competitors. The obvious question is, why? Because our executives and trainers believe the best world to do business in is a prosperous world, with all segments of business in the world being prosperous. We all prosper. Isn't that one of the secrets of capitalism? You can say it's based on greed, it probably is. But I say greed is a damn sight better motivator than envy, which is what seems to motivate the Russians. They'd rather be poor themselves than have someone else get rich on their resources. But Adam Smith's invisible hand makes sure that if anybody succeeds, the whole world benefits to some degree. And that's why these businessmen are willing to give me two weeks of their time, even paying their own expenses.
We have to think long-term. You can't start a manufacturing business of consumer products without thinking long-term. We're not talking about trading, which is what the average Moscovite has in mind when he talks about private enterprise. We're talking about the manufacturing of consumer goods, which is what the economy needs, and that takes at least five years to get off the ground.
But we've seen very promising results so far. I've seen a couple of guys who started off making concrete blocks for building houses. They had a $500 cement mixer, and did all the rest by hand. But with that capital, they formed a business where private contractors would drive up in their own trucks, load these cement bricks, then haul them off to a building site.
I invested in a little company that is making cosmetics in Moscow. It's been so successful because it turns out that Russian women, in fact like most women, would rather have cosmetics and pretty faces than have lunch. So this is going over like hotcakes. But what a contrast ... cement blocks and cosmetics! And everything else in between is starting to roll. But it only amounts to a few percentage points of the GNP, in distinction to Poland which has reported that 44 percent of its GNP is now coming from private enterprise.
We've heard some rather dismal predictions that it might take 20 to 30 years before things finally start moving in Russia and the region; some people are much more optimistic that we need just wait only five or ten years to see results. I'm on the lower end of that scale, but I think it will be a number of years. There are the two criteria that everybody insists on in the West before they will make broad-scale multiple investments: the sanctity of private property, and a stable currency. Nationalism, pride, and the limited ability of the bureaucracy to make nice profits out of currency; these are the three blocks to a currency board solving the problems of the ruble.
They have to recognize the need to build entirely new mental habits. They're used to taking orders, they're not used to being responsible for themselves. Other people do all the thinking, and their duty is simply to obey. Of course we know in the free world that doesn't work. And in the entrepreneurial world, the entrepreneur's ability to delegate with confidence in his people -- of their own free will -- to carry out the delegated program is the key to success. These people have to learn that, and it's going to be hard.
It just takes time.