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A Spanish Entrepreneur vs. The State

November 1, 2005

St. Bernardino de Sienna discussed the bold willingness of entrepreneurs to take risks. Six hundred years since that writing, schools of economic thought focusing on the importance of entrepreneurs have been relegated to lower academic leagues. Outside the Austrian School, few theoreticians study the characteristics of the best entrepreneurs. The role of the entrepreneur, on the whole, is misrepresented or outright ignored by mainstream theories. Passion is one of those unquantifiable traits that raise an entrepreneur above the din. It catapults his labor above others.

Bureaucrats using the coercion of the state in whatever capacity consume capital in the course of their duties. The result of coercion and its related expenditures are ultimately paid through price inflation, high taxes, or interest rates that do not reflect the natural conditions of the market. What is not widely discussed is the damage these bureaucrats inflict on the passion of risk takers.

Spain's environment of control in everyday commercial life is the first blow to the psyche of the entrepreneur. Few motorcycle companies, for instance, existed during the dictatorship of Francisco Franco. The only major motorcycle manufacturing operation was formed by an individual with special political connections with Franco. Others were dissuaded from entering the market ultimately by the force of the state. This is the first blow to passion leveled by the state.

Competition emerged when a pair of driven entrepreneurs with a zeal for motorcycles broke through the political barriers of the state, the aftermath of Spain's civil war, and the isolation imposed by neutrality during World War II. Pedro Permanyer and Francisco Bultó opened Montesa in 1944 to create sporting motorcycles able to traverse Spain's uneven war torn lanes and rugged mountains.

Racing victories came right away. Montesa was successful in trials, motocross, and speed competitions and cemented Montesa's place among the prominent European manufacturers of the early 1950s. These designs were celebrated in time by the Associació de Disseny Industrial del Foment de les Arts Decoratives. Montesa was awarded the top prize for best industrial design in 1962. The racing victories belong to the riders, but they reflect the passion and risk made by Permanyer and Bultó.

The second blow to passion came with business cycles created by ill-conceived monetary policy. Montesa's growth in exports and domestic sales led Permanyer and Bultó toward increasing debt and expanding the size of their manufacturing facilities. Spain's economy struggled with Franco's National Stabilization Plan, interventionism, and price inflation in the mid 1950s. These external factors sent false entrepreneurial signals to Montesa's management encouraging expansion that may not have been justified.

Firms facing a business cycle must correctly calculate the complexion of production during an inflationary business cycle if they intend to remain in the market. Distortions in the fragile telegraph wires (prices) that signal entrepreneurs to produce which good at what time most likely sent Montesa to its creditors seeking the capital to expand. When Bultó and Permanyer realized the error of their entrepreneurial calculation, they scrambled to correct the distortion by selling off assets, cutting expenses, and returning to correct production levels.

Bultó and Permanyer disagreed about the reallocation of capital and parted company in 1958. Bultó, who supported racing efforts at Montesa, formed Bultaco with a variety of products including competitive motorcycles for sporting riders. Bultaco grew, as did Montesa, but the cloud of social planners eclipsed the hard work of the enterprise. In the 1970s, labor unrest was driven by political agitators who did not always have the best interest of labor in mind. Picketing workers, for example, barred Francisco Bultó from entering his own firm and burned him in effigy.

The spirit of the Spanish electorate became increasingly anticapitalist from the 1950s to the 1980s and reflected the labor agitation Bultó faced. Election results of the time resulted in the Spanish Socialist Workers' Party PSOE holding 30% of the vote in the Congress of Deputies. Another 10% of the election result was for PCE — Communist Party of Spain. Remaining votes were for other statist parties. The PCE and PSOE would gain majority electoral success in the Congress of Deputies with 59% combined control in 1982. The egalitarianism enforced by Spanish deputies and the mindset of the electorate was the third iron fist to strike a blow to passion's body.

The Bultaco factory was closed by the Bultó family on December 22, 1979 despite a history of producing world-class motorcycles for export around the world and a successful history of racing. The heroic transformation of less valuable iron ore to a high value durable good aimed at the satisfaction of riders makes Bultó and his firm a praiseworthy enterprise. The death of his factory is the death of the human spirit. What killed Bultaco? Hostility fueled by envious labor and the burden of central planning by governments around the world. The United States government, for example, passed emissions standards that effectively barred Bultaco from remaining in the US market.

 

Why America Prospers. $26

The assets of Bultaco were rejoined with those of Montesa and bathed with millions of dollars seized from Spanish taxpayers. After receiving this largess, Montesa was promptly bought by Honda, a leading competitor in the field.

Regulation in the United States continues at a pace that destroys small business by redirecting capital to less useful ends and enticing entrepreneurs to drop out of the market order. Between 1963 and 2005, the number of bureaucrats staffing the social regulatory agencies increased from 38,819 to 207,405. Include another 242,376 regulators managing the economic regulatory agencies[1] and it is no surprise that manufacturing firms flee to other nations. This is a symptom of the death of passion.

Lessons: A nation with hostile labor-management relations is doomed to troubled production, regardless of the desirability and quality of its manufacturing. Right- and left-wing political intervention in the market order creates distortions, shocks, business cycles, and it corrupts entrepreneurial calculation. Unworkable theories forwarded by statist agitators killed some of Spain's passion. Sadly, it is ailing here.


Sterling Morton is an economist living in Conway, AR, and can be contacted at macrouca@hotmail.comComment on the blog.

1. Data from the staffing summary table in the annual report Upward Trend in Regulation Continues: An Analysis of the U.S. Budget for Fiscal Years 2005 and 2006. Susan Dudley, Melinda Warren. p5. Mercatus Center and the Murray Weidenbaum Center on the Economy, Government, and Public Policy.


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