Solving the Problem of Poverty
President and Founder, National Foundation
for Teaching Entrepreneurship
After years of teaching public high school in such notorious area as bedford-Stuyvesant in Brooklyn and Fort Apache in the South Bronx, Steve Mariotti discovered that teaching inner-city students how to start their own businesses is not only the most effective way to help them learn basic skills but also to help them overcome disillusionment, disaffection, and dependency.
This presentation was delivered last May at Hillsdale's Shavano Institute for National Leadership seminar, "The Future of American Business," in Memphis, Tennesse.
I know a secret which, if fully understood by our government, business, and community leaders, could have enormous positive implications for the future of our society. Simply put, the secret is this: Children born into poverty have special gifts that prepare them for business formation and wealth creation. They are mentally strong, resilient, and full of chutzpah. They are skeptical of hierarchies and the status quo. They are long-suffering in the face of adversity. They are comfortable with risk and uncertainty. They know how to deal with stress and conflict.
These are the attitudes and abilities that make them ideally suited for breaking out of the cycle of dependency that so often comes with poverty and for getting ahead in the marketplace. In short, poor kids are "street smart," or what we at the National Foundation for Teaching Entrepreneurship (NFTE) call "business smart."
Precisely because of their poverty-that is, because of their experience surviving in a challenging world-they are able to perceive and pursue fleeting opportunities that others, more content with their lot in life, tend to miss.
Destructive Welfare Programs and Tax Laws
Children born into poverty have all the characteristics of the classic entrepreneurs like Henry Ford, Andrew Carnegie, and Thomas Edison-the heroes of our capitalist system. It stands to reason, therefore, that as a society we should make special efforts to encourage the development of entrepreneurial skills among low-income youths. But we have done just the opposite, spending over $1.5 trillion since the beginning of the "War on Poverty" in the 1960s on public assistance programs that are actually designed to protect children from the free enterprise system.
In today's dollars, $1.5 trillion world would be enough to purchase half of all the Fortune 500 companies in America. Such a colossal malinvestment has cost millions of dollars in lost revenue, and it has also discouraged millions of would-be young entrepreneurs from ever entering the marketplace.
This is a particular personal tragedy for children born into poverty, for, as the Nobel Prize winning economist F.A. Hayek once noted, the free market offers the most effective way of identifying what we are good at and how our comparative advantages can be developed. Public assistance limits and, in many cases even prevents, its recipients from engaging in this vital process of self-discovery. As a result, generation after generation of children born into poverty are settling for the security of welfare while missing out on the thrills and challenges of competition. Property developed, their skills might be highly valued in the marketplace-but they will never find out.
Even more misguided than our national welfare strategy is our 7.5-million-word tax code. Even the most respected tax experts can't claim to understand fully this maze of vague and often contradictory rules that runs no less than 38,000 pages.
How can we expect young people who have never even seen a W-2 form make sense out of the thousands of tax regulations that apply to starting and running a business?
The U.S. tax code has been a terrible burden for the business community, but for low-income youths it has been absolutely devastating.
Besides the length of the tax code, there is something even more insidious: The code itself changes all the time. There is no constant body of information that can be regarded as definite and enduring. For this reason, studying the current tax laws is like studying alchemy and finding that there are not basic principles!
To summarize, the financial loss represented by the $1.5 trillion I mentioned earlier has been minimal in comparison with the psychological damage to millions of people who have been told, in effect, by welfare and tax bureaucrats that they are
"worthless goods" in the marketplace and that they will be rewarded for unproductive behavior.
I founded the National Foundation for Teaching Entrepreneurship (NFTE) on the premise, which is still a secret to most, that children born into poverty have enormous potential in business. Let me share with you some of the history of NFTE.
After receiving an M.B.A. from the University of Michigan, I won a Liberty Fund fellowship to study Austrian economics at the Institute for Humane Studies (HIS) with F.A. Hayek, who had just won the Nobel Peace Prize in Economics. Although I was well versed in free market principles because of my contacts at places such as Hillsdale College, this fellowship enabled me to increase my knowledge of Austrian trade cycle theory and international finance.
After leaving HIS, I spent the next 30 months at Ford Motor Company as the South African and Latin American treasury analyst. Then I pulled up stakes and moved to New York to open an import-export firm specializing in African small business. This was great fun, and my business was profitable. But, as it happened, in 1981, I was robbed and beaten by a group of young men.
As a way of working through this traumatic event, I began a career as a special education teacher in New York's most difficult impoverished neighborhoods. My first year was almost as traumatic as the mugging. I was assigned remedial students. In each of my classes, there was a group of six or seven students who behavior was
so disruptive that I had to stop the class every five minutes to get them to quiet down. On one occasion, in my third-period class, I was forced to throw out all the boys.
Ironically, it was these "troublemakers" who provided me with the valuable insight that set me on the road to teaching entrepreneurship. I took them out to dinner one evening and asked them why they had acted so badly in class. They said my class was boring and that I had nothing to teach them.* I asked if anything I taught in class interested them. One fellow responded that I had caught his attention when I had discussed my import-export business. He rattled off various figures I had mentioned in class, calculated my profit margin, and concluded that my business was doing well.
I was dazzled to find such business smarts in a student whom the public schools had labeled "borderline retarded." This was my first inkling that something was wrong not only with my teaching but also with the standard remedial education curriculum.
Meanwhile, the situation at school worsened. I began to lost control of my classroom, almost on a daily basis. One student set fire to the back of another student's coat-the student with the coat was as astonished as I was. In a rage, I ordered the arsonist out of class, and he was expelled the same day. Days later, I was locked out of my eighth-period class. The students wouldn't open the door. Finally, just as I was going to admit defeat and find a security guard, one of the girls took pity on me and opened it.
I didn't know how to deal with this kind of nightmarish situation. I wanted to walk out of school and call it quits. After a minute or two, I realized that I couldn't do that. I stepped into the hallway to regain my composure. I thought about my
dinner with the young men from my third-period class. They had said I was boring-except when I talked about business and about making money. I walked back into
the classroom and, without any introductory comments, launched a mock sales pitch, selling my own watch to the class. I enumerated the benefits of the watch. I explained why the students should purchase it from me at the low price of only six dollars. The students quieted down and became interested in hearing what I had to say. I didn't know it at the time, but his incident, born of desperation, was pointing me toward my real vocation-teaching entrepreneurship to low-income youths.
After I had gained the students' attention, I moved from the sales talk into a conventional arithmetic lesson: If you buy a watch at three dollars and sell it for six dollars, your profit is three dollars, or 100 percent. Without realizing it, I was touching on the business fundamental concept of "buy low/sell high," and on the more advanced concept of "return on investment."
Before long, I began offering a special class, "How to Start, Finance, and Manage a Small Business-A Guide for the Urban Entrepreneur." During the next seven years, this course became so successful that even the most challenging and disruptive students settled down and learned a great deal. In my last teaching assignment in the Fort Apache area of the South Bronx, 100 percent of my students started small businesses and reported that they experienced major positive changes in their lives. The difference teaching entrepreneurship seemed to be making in regard to student behavior was incredible; I noticed among my students that chronic problems such as absenteeism, dropping out, pregnancy, drug use, drug dealing, and violent behavior seemed to be significantly alleviated.
The overwhelming success of this class gave me the confidence to launch the National Foundation for Teaching Entrepreneurship (NFTE) in 1988. NFTE's mission is to teach low-income youths the basics of starting their own businesses by creating a curriculum, training teachers, and providing graduate services. NFTE has year-round programs in eight cities and license agreements in Scotland, Belgium, and soon, Argentina. We have 21,000 graduates, all of whom have learned the basics of the free enterprise economy.
*This account is adapted from The Young Entrepreneur's Guide to Starting and
Running a Business, co-authored by Steve Mariotti.
Testing NFTE's Impact
In 1993, in conjunction with the Heller School at Brandeis University, we completed a study which found that NFTE program graduates were far more likely than their peers to start a business. Here are some specifics: 32 times more NFTE graduates than nongraduates were running a business. And in 1998, the
David H. Koch Charitable Foundation sponsored one of the most comprehensive examinations of entrepreneurship training ever conducted. An organization known as Research & Evaluation for Philanthropy tracked two different randomly selected groups: one comprised of 120 low-income Washington, D.C. residents between the ages of 18 and 30 who had completed the NFTE program and one comprised of 152 of their peers who had received no training. Here are some of the highlights of the Koch study:
-91 percent of the NFTE alumni stated that they wanted to start their own business, compared with 75 percent of the comparison group of 50 percent of the U.S. public.
-NFTE alumni were two times more likely to be current business owners (12 percent in the NFTE group vs. 5 percent in the comparison group). In fact, the rate of business formation was substantially higher than the 1-3 percent rate for minority adults nationwide.
-NFTE participation increased the likelihood of starting a business four-fold.
-NFTE increased high school students' exposure to business and entrepreneurship training fourteen-fold.
-88 percent of NFTE alumni stated that they gave serious consideration to going into business after completing the program.
-99 percent of NFTE alumni indicated that the program gave them a more positive view of business, and they were two times more likely to predict that they own a business in five years.
-68 percent of NFTE alumni were the first in their families to start a business.
-97 percent of NFTE alumni reported improved business skills and knowledge.
-100 percent said they would recommend the program to others.
-NFTE alumni were two times less likely to prefer government employment over business ownership and corporate mangement.
Going to Scale
This study demonstrates that teaching about the free enterprise system and
encouraging children to start businesses and create wealth are powerful tools that promote independence and self-sufficiency.
Today, we at NFTE are confident that our program is adding significant value to thousands of young people's lives. We plan to "go to scale" and create a national movement in which every low-income child is taught entrepreneurial skills and elementary business principles.
Our plan is two-fold. First, we intend to recruit the best business and academic minds to help us in our efforts. NFTE's board and sponsors now include some of America's leading businessmen and philanthropists.
Second, we intend to use high technology in all of NFTE's teaching models. This will help our students to compete in the 21st century. Through an exciting partnership with Microsoft, NFTE has developed BizTech, a state-of-the-art learning site that offers an on-line curriculum. BizTech lets students anywhere in the world access information on entrepreneurship 24 hours a day, seven days a week. Under the direction of NFTE's CEO, Michael J. Caslin III, BizTech will also enable them to begin trading on-line.
BizTech is currently operating as a pilot program in dozens of schools, and it has generated a huge positive response. Fortunately, we are now able to deliver much of our program at a fraction of the initial cost. And a great selling point for the program is the fact that the administrative record-keeping function is on-line,
which liberates the teacher from cumbersome paperwork and allows him to become a true guide and coach. Perhaps most exciting is the news that NFTE, in cooperation with some of the country's leading educators, is developing state-of-the-art lesson plans that fully integrate information technology into a classroom environment.
At NFTE, the future is bright for low-income youths. By combining the most recent technology with the time-tested principles of capitalism, we are developing solutions for one of the most serious threats to our society: poverty. Sure, we are small, but we are growing like a mustard seed.
One of our greatest strengths is the unquenchable optimism of the young men and women we serve. As one of NFTE's graduates put it so aptly, "My dream is not to die in poverty, but to have poverty die in me."
STEVE MARIOTTI is the founder and president of the National Foundation for Teaching Entreprreneurship (NFTE), a nonprofit organization with programs in cities across the United States. Since 1988, NFTE has taught more than 20,000 youths how to start their own small businesses.
Mr. Mariotti has been the subject of special profiles on virtually all the major news networks and in such publications as the Wall Street Journal, the New York Times,
the Boston Globe, Inc. magazine, Success, Entrepreneur, U.S. News & Work Report,
and Investor's Business Daily. Among the awards he has received are the Leavey Award for Outstanding Achievement in the Field of Free Enterprise Education, and
NFIB's Best Business Teacher of the Year Award.
Mr. Mariotti received an M.B.A. in 1977 from the University of Michigan and has pursued additional studies at Harvard, Stanford, and Brooklyn College. He has
co-authored Entrepreneurs in Profile (1990) and The Young Entrepreneur's Guide to Starting and Running a Business (1996).