Additional Titles









The Difference Between Wealth and Profit











By Marilyn M. Barnewall
September 5, 2010

The difficulty of morphing from ruler to leader

As I watched President Obama’s speech last Tuesday night – a speech that was supposed to be about America’s new military role in Iraq, but turned out to be mostly about economics and finance – it appeared he was trying to project a different image.

The “see how important, light-hearted and well-spoken I am” Obama was morphing into a “see how serious and concerned about middle class America I am.” It was happening right before my eyes. He was moving from an on camera image of “I, the Great One, am telling you, the little people, what you need to know,” to one of Bill Clinton telling us he could feel our pain. His attempt at “I’m one of you” failed.

Obama did not credibly achieve his new image because it takes time and practice to morph into a make-believe figure. Sure, he appeared properly serious and well informed, but to credibly project a new image takes practice. All seasoned actors know that. One does not simply stand before a camera, reading words of empathy from a teleprompter. Clearly, he will not receive an award for best actor anytime soon.

As someone who ran my own company for years, it is apparent that when speaking of entrepreneurs and independent business owners, President Obama is speaking not from knowledge but from statistical data. His words do not come from an understanding heart, but from the pen of a speech writer looking at rows of poll numbers and writing text supportive of them. I would wager that other independent business owners and entrepreneurs felt the same disconnect I did.

Even liberal broadcaster Chris Mathews (MSNBC) who once got a “thrill” down his leg when Obama mesmerized him with campaign rhetoric in the McCain-Obama debates said: “If he doesn’t get rid of that damned teleprompter! It’s like an eye test.” And, “He’s reading words now. It’s separating him from us.” Obama never gave me a thrill down my leg – rather a chill up my spine – but I can relate to what Mathews is saying.

Every politician running for office in 2010 is talking about the need for job creation. Of course they are! Polls say it’s your number one concern! They don’t, however, have the vaguest idea of how to create jobs. When your candidates speak publicly about this, please ask them: “Specifically, what will you do to create them?” Will you recognize a correct answer when given?

The first conflict the present administration has with entrepreneurs is the lack of recognition that independent businesses function and plan future growth on an evaluation of risk management.

Put simply, liberals have no concept of risk management. To them, risk is something to be avoided. Risk frightens them. They view risk as something that is taken, not managed. That’s why they want government to remove risk from everything from health care to Wall Street investments. To liberals, that line of thought is normal. Liberals fear risk. Conservatives manage risk.

One thing that was very clear in President Obama’s statements is that he does not understand the difference between risk taking and risk management. They are two totally different things. On June 13th, I wrote a two-part article about APES – the Active/Passive Energy Syndrome. You can find it here. It describes the different personality traits of Actives and Passives. If President Obama wants to be taken seriously by that part of the business community on which he is dependent for new jobs, he needs to read it.

He needs to understand that he – and most politicians – is a Passive who has literally no understanding of how Actives think and behave. Since Actives are independent business owners and since independent business owners create the majority new jobs, it is a significant lack.

Socialism – or, to be blunt, progressive liberalism – believes government should remove risk from daily life. To achieve that objective, government regulates or otherwise takes over things liberals view as “risky.” Health care is a good example because government has so recently taken over the business of medicine.

Does our health care system need an overhaul? Of course it does. Whenever an industry or profession has been around a long time, it needs reform. Power elites rise to the top and exercise their power for the good of the group and not those served by the industry or profession. The same is true of government – and politics. Is the government the best entity to initiate reform of health care? Please! Take a look at Nancy Pelosi’s non-drained Congressional swamp and that answer hits you over the head!

The problem with removing risk from the marketplace: When risk is removed, freedom and the motivation to perform well will disappear. A capitalist economy requires risk management to function properly. Socialism does not. Competition involves risk… the risk of losing. Since capitalism is based on a competitive marketplace, it requires risk management.


How are new jobs created?

All endeavors must be allowed to fail. Without failure as an alternative, the glory of success is diminished. When the glory of success is diminished, the risk management bar is lowered and people are willing to manage less risk to achieve it. It is quite similar to rewarding losers rather than winners. When you do that, losers rise to the top. The glory of winning is diminished and suddenly losers become the focus of society’s function. I’ve known a lot of poor people. None of them have ever created a job. Obama’s re-distribution of wealth rewards losers and punishes winners. Like poor people, losers do not create jobs. It’s why socialism always fails.

The Rule of Law must be respected. Without appropriate respect for law, businesses cannot grow and an honest marketplace cannot exist. Who puts themselves at risk to build a company -- to hire – when the Rule of Law, like Rodney Dangerfield, gets no respect. When government shows a willingness to violate the Law of the Land – our Constitution – the business community shows a willingness to – well, make liar loans and create worthless derivatives from them. The law is the law. When citizens allow government to have no respect for it, that lack of respect is not contained to what some perceive as “harmless offenses.” It starts small, with false advertising, and ends up big – as products that bankrupt or kill people.

When politicians – conservative or liberal – impose their social views on the marketplace, it boomerangs. Look what happens when the minimum wage is increased. A loss of jobs follows. I well remember the days when pulling into a service station for gas meant someone filled your tank, washed your windows, checked your radiator, oil and the air in your tires. As the minimum wage rose, those jobs were too costly and became expendable. So too were theater ushers and other jobs predominantly held by teenagers. Now we build neighborhood basketball courts because teens need to be engaged. Convenience and quality service is lost. The ability for teenagers to learn responsible workplace behavior is, too.

When politicians impose their environmental views on the marketplace, there is another boomerang. New businesses don’t start because people can’t afford costly environmental studies and the other myriad of government regulations piled on new start-ups. Job creation is lost.

When politicians flex their taxation muscles, independent businesses properly view it as an unpredictable impact to earn enough profit to make the risks that must be managed worth the effort. So they don’t start new businesses that provide jobs. The primary reason government doesn’t function well when injecting itself into the private sector is that government doesn’t understand the private sector. And, a CNN poll comes out showing 56 percent of Americans are worried that the federal government poses a direct threat to their freedom. Who creates jobs in that kind of environment?

As a bank consultant, I rewrote loan policies that made possible business purpose loans to individuals rather than corporations. Why? Business loan policies in commercial banks rely on the success of the venture contained in the loan’s purpose for repayment. For example, when Proctor & Gamble creates a new hairspray, repayment of the loan is documented to come from hairspray sales. If the new product fails, P&G as a corporation absorbs the loss and pays the loan.

A critical factor is lender expertise in analyzing the corporation’s ability to absorb the loss and repay the loan if the new product fails. For large corporations, such a loan structure makes sense. For individuals with speculative business borrowing needs, it does not.

When an entrepreneur starts a new company, he or she usually needs a business purpose loan. To safely structure the loan, the banker must look not to the success of the venture contained in the loan’s purpose (as commercial business bankers are trained to do). Instead, the banker must look to personal assets and cash flow that have nothing to do with the loan’s purpose for repayment.

That sounds simple, but commercial bankers know little about how to analyze the personal cash flow (not income, cash flow) of individuals – though they have great expertise in analyzing corporate spreadsheets.

President Obama talks about the enhanced Small Business Administration (SBA) loan programs his administration has implemented. For years, I managed a large credit area at a major bank that specialized in analyzing personal assets and cash flow so we could effectively make business start-up loans to individuals. (As an aside, our loan losses were the lowest in the bank.) Our customers laughed mightily at SBA loans as an alternative. It was impossible, they said, to borrow for the kinds of job-creating investments they wanted to make.

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What kind of investments did our customers make? They invested in themselves. They started small, independent businesses that created jobs.

And that’s what Washington doesn’t understand. Independent businesspeople invest in themselves. When individuals are insecure about the actions taken by government, they don’t invest. New jobs aren’t created.

That, Mr. President, is your problem.

� 2010 Marilyn M. Barnewall - All Rights Reserved

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Marilyn MacGruder Barnewall began her career in 1956 as a journalist with the Wyoming Eagle in Cheyenne. During her 20 years (plus) as a banker and bank consultant, she wrote extensively for The American Banker, Bank Marketing Magazine, Trust Marketing Magazine, was U.S. Consulting Editor for Private Banker International (London/Dublin), and other major banking industry publications. She has written seven non-fiction books about banking and taught private banking at Colorado University for the American Bankers Association. She has authored seven banking books, one dog book, and one work of fiction (about banking, of course). She has served on numerous Boards in her community.

Barnewall is the former editor of The National Peace Officer Magazine and as a journalist has written guest editorials for the Denver Post, Rocky Mountain News and Newsweek, among others. On the Internet, she has written for News With Views, World Net Daily, Canada Free Press, Christian Business Daily, Business Reform, and others. She has been quoted in Time, Forbes, Wall Street Journal and other national and international publications. She can be found in Who's Who in America (2005-10), Who's Who of American Women (2006-10), Who's Who in Finance and Business (2006-10), and Who's Who in the World (2008).

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What kind of investments did our customers make? They invested in themselves. They started small, independent businesses that created jobs. And that’s what Washington doesn’t understand.