Event Videos Feb 20 2016

Adam Smith Society National Meeting: Keynote Address by Andy Puzder

Andy Puzder, CEO of CKE Restaurants, delivered the keynote address at our Adam Smith Society's National Meeting in New York City. The Adam Smith Society is a project of the Manhattan Institute — a community of business school students and alumni who believe that business, entrepreneurship, and commerce are wellsprings that keep this country vibrant, creative, prosperous, and free.

Thank you David for that generous introduction – and I will try and live up to my badass reputation now that you have established it. I also want to thank  the Manhattan Institute and the Adam Smith Society for  giving me the opportunity to be here today to discuss the importance of free market capitalism, an economic system that truly has lifted more people out of poverty and  created more freedom and prosperity than any system ever devised.  It’s a particular honor to do so before young men and women who belong to a society or are considering a society named for that system’s founding father, Adam Smith.

As David mentioned, I’m Andy Puzder, CEO of CKE Restaurants, which you’ll know as Carl’s Jr. if you’re from the West. If you are from the Midwest or Southeast you know it as  Hardee’s. If you are even in New York now, we have a couple of restaurants, and a couple in New Jersey.  By training, I’m an attorney, I went to Washington University in Saint Louis. I became a CEO about 15 years ago because this company was failing and heading towards bankruptcy. And they said: “Let’s see if the khaki lawyer can fix it”. But, due to a team effort and an entrepreneurial approach, we’re doing very well today. 

Now, while I’m a CEO and an attorney, I didn’t grow up rich.  I grew up in a working class family from Cleveland, Ohio.  My first job where I got a paycheck was scooping ice cream at Baskin and Robbins for about a buck an hour, which was  then the prevailing minimum wage.  I worked my way through college and law school without government or family assistance by painting houses, cutting lawns, busting up concrete with a jack hammer in St. Louis in the middle of the summer.  For those of you who are from St. Louis you will know how unpleasant that was.

I worked all sorts of jobs, and I was always grateful to have the work and never felt that any of this work was below me.  

But I grew up in a different time with different attitudes.  I was a kid in the 50s and 60s and was always taught that I could be whatever I wanted to be if I was willing to do the work.  I was never told that other people had more than they deserved or that we had less than we deserved.  

My Dad supported our family as a car salesman – he sold Fords When I was about 10 he took me with him – that was about  1960, I went with him to deliver a car to a very wealthy individual in a very wealthy area: kind  of Downton Abbey wealthy, in a place called Hunting Valley, Ohio. Gates Mills

We pulled through the ornate gate and I saw this huge beautiful house that dwarfed, really dwarfed the little ranch house the five of us lived in. And as my Dad drove past it, I asked why he didn’t stop.  He told me it was the guest house. We then drove by these imposing stables that were really far more impressive than the  little ranch house we lived in. Horses, and guys in livery and those dark woods. I didn’t know what I was going to see next.

So, we finally, pulled up to the main house, which was just stunning. We walked up to the main entrance and surprisingly Mr. Humphrey, who owned all of this, came to the door himself, took the keys, thanked my Dad and gave my Dad the keys to his trade in.  

So, we are walking back, I am dumbfounded, this  incredible wealth that surrounded , sowe walked back to the car And I ask my Dad what does Mr. Humphrey do.  My Dad said, “He’s a lawyer and he owns a business” and I can still remember thinking: “A lawyer, I could be a lawyer.”  

So I looked up at my Dad and asked:  “What’s a lawyer.” 

But the notion that it mattered what percent we were in or that Mr. Humphrey had so much wealth while we had so little never even occurred to me.  What occurred to me was that:  “I could do that.” 

Now, there’s never been a nation where a working class kid like me could aspire to that level of success with any realistic chance of achieving it.  And I want to talk to you about why I felt that way, and why it was important and the depth of the tragedy that would ensue if we lose that attitude.  

So let’s start with what brought about the biggest material change to the human condition in history: Adam Smith’s free market capitalism. 

 This’ll be a very general overview and will have the problems that come with generalities, but I think it sets the context for understanding the incredible positive power of free markets and individual liberty as well as the destructive nature and the destructive power of consolidating power in the hands of a few individuals through the oppressive force of government.     

Prior to the 18th century, economic power was essentially limited to landed aristocracts or urban patricians who controlled the government.  Concepts of liberty and freedom were intended to protect their privileges against the increasing privileges, or increasing power of absolute monarchs.  Those with power maintained a level of freedom for themselves while subjugating the majority of the population; if necessary, by force.  

Generally these systems were based on military conquest.  You won the war, you parceled out the land to your supporters, and they ruled as aristocrats with little or no concern for the masses.  

Aristocrats owned the land ; the land produced wealth.  There simply weren’t enough jobs for everyone and people generally either found a trade (like blacksmiths), joined the military, joined a religious order, worked the land as serfs or starved.  

As oppressive as this economic system was, there simply wasn’t a system  that was capable of feeding everybody, , much less allowing people to improve their lives or even imagine a better life or a better future for themselves or their children.  

Then came capitalism.  -- Artisans’ shops which had previously catered to the privileged class became factories catering to the masses, many of whom were now employed in those very factories.  

Capitalism and the industrial revolution are often criticized for mass production, but it’s important to keep in mind it was mass production for all, rather than limited production for the wealthy.   

Consumers -- not ruling aristocrats – would make decisions through their collective purchasing power that would guide the economy, determining whether one business succeeded and another failed.  The serving class, the peasant class became the consumer class.  And, those who ran the economic engines now became subject to the desires of that greatly expanded consumer class.  

Henry Ford didn’t build Fords for aristocrats. He built them for the masses.  Steve Jobs, over a century later, he didn’t build I-Phones for aristocrats; he made them for the masses.  

Rather than impoverished masses catering solely to a ruling elite, who controlled society’s economic benefits, the ruling elite were now concerned with finding the best way to please the masses.  

Over time, the slaves and the serfs disappeared.  They became patrons, buyers, consumers who - in an economic form of democracy - voted with every dollar they spent, no longer restrained by the whims of an aristocratic hierarchy that believed it was entitled to rule due to its superior intellect and birth.  

By unleashing the will to succeed, capitalism encouraged innovation across a broad spectrum of society with people from every walk of life striving to come up with the next great idea, the next great service or product that consumers couldn’t live without.  

It also increased productivity, making work pay and vastly increasing the number and value of jobs: Adam Smith’s invisible hand was lifting more people from poverty to prosperity than the oppressive fist of government ever had.   

In the United States, the release of this dynamic entrepreneurial energy resulted in the most innovative society the world has ever known, creating more wealth and spreading it across broader demographics than any nation ever had.   

In 1776, as you all know,13 colonies, 13 backward colonies by the world’s standards at the time rebelled against the ruling aristocracy because of government economic repression.  By 1885, within merely 110 years, these backward colonies became the world’s largest economy proving the thesis of Adam Smith’s seminal work, The Wealth of Nations.   

Noew, think about the difference that this created for common men and women.  My grandfather grew up impoverished in the Austro-Hungarian Empire just before WWI where a ruling class of aristocrats still controlled all economic benefits, where consumers’ desires were irrelevant if not distained, and where the opportunity to improve your position was non-existent.   

His future held little opportunity to be anything other than a peasant lucky to eke out a living as a serf beholden to a landed aristocrat.  As a teenager, he left and came to America.  

He died having fulfilled his dream of owning his own home and having two children with high school educations, small dreams by today’s standards.  Huge dreams at the time.  

His grandson,  me, started his career scooping ice cream at Baskin and Robbins, saw no barriers to his dreams of a better future and became a lawyer who now runs an international corporation. 

But for the economic opportunities of our free market economy, which drew my grandfather like a magnet to leave his home and his family for a better life while still a teenager, I’d probably be a bald and toothless farmer sitting on a porch in Slovakia today rather than a CEO addressing this great group of students. 

There’s never been a nation or an economic system that offered millions of people like my grandfather the opportunity to make a better life for themselves and for their families; that opened the door to success solely based on the commitment to give an honest day’s work for an honest day’s pay or where success was determined not by your birth but by your desire to work harder, longer or smarter than the next guy. 

Another person who took advantage of this opportunity and to whom I owe a great debt was named Carl Karcher.  Carl was a bread truck driver also from Ohio with an 8th grade education and a belief in the American dream. In 1941 he and his wife Margaret borrowed $315, and bought a hot dog cart and started a business on a street corner in South Central LA.   

That $315 investment has grown into CKE Restaurants, CKE stands for Carl Karcher Enterprises, the international corporation it has been my privilege to lead for the past 15 years with a system that today employs close to 100,000 people worldwide and generated over $4 billion in system wide sales last year and over 3,600 Carl’s Jr. and Hardee’s quick service restaurant in 44 states and 37 foreign countries. 

That’s countries as diverse as Russia, China, Viet-Nam, Saudi Arabia, Egypt, Brazil, Mexico, Kazakhstan, India, Iraq, Australia, New Zealand, Denmark and Turkey.  This year we’ll open in Japan and Cambodia.  All from a $315 investment in a hot dog cart and a belief that in America, if you had the will to succeed, you’d have the opportunity.

So, what are we doing with this incredible gift of a free enterprise system that gives everybody the ability to dream big and the potential to succeed beyond those dreams?  Well, over the past six years, we’ve seen a disturbing move away from individual responsibility and reliance on free markets to a dependence on government.  

Whenever government expands, individual freedom contracts.   When government takes power, it takes it from somewhere or someone.  That someone is you.  

Whenever government gives you something, it takes something from you, your independence, and your freedom. 

So, why do people want to expand government power and diminish this incredible free enterprise system?  

Some are well intended, they believe government can be a force for good and government certainly serves a role.  The Constitution’s preamble states that our government was formed to establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the Blessings of Liberty.  

But we shouldn’t ignore the reality that government inevitably falls under the control of people who view themselves as an elite group better able to make decisions for us because they believe we are incapable of making those kind of  decisions for ourselves or for society.  

They would take Adam Smith’s invisible hand, the millions of consumers guiding economic growth and innovation, and replace it with the very visible fist of government.  Rather than the guiding hand lifting people up they prefer the rough and destructive fist of government knocking dreamers and doers down. 

Over the last 7 years this very visible fist has been particularly destructive.  We’ve seen $800 billion in so called government “stimulus” spending putting money in the hands of businesses and individuals that the government selected. Now, that issomething the government does very poorly.  Think about Solyndra and Fisker.  The promised economic growth never materialized.  GDP has stagnated at about  2%.  

Government spending in projects intended to infuse cash into the economy created nothing real or permanent.  The problem is  businesses don’t invest in growth tomorrow based on temporary government benefits today.  Think about cash for clunkers.  

But what about infrastructure investments?  Well. while investment in infrastructure is both a proper function of government and necessary, at best it’s a temporary driver of growth.  

Businesses obviously need roads and bridges to get goods to market and people obviously need them to get to their jobs.  Politicians hoping to show at least some short term economic growth often find these projects very appealing.  

But, you don’t build roads and bridges to create jobs.  That’s Field of Dreams economics.  Build it and they will come.  You build roads and bridges because people have jobs and businesses need to get goods to market.  It’s American workers and businesses that create the need for roads and bridges, as well as the tax dollars to pay for them.  

You create a sustainable job by building a business, not a bridge. 

We’ve also seen the effects of the Dodd-Frank legislation intended to regulate the financial sector but resulting in massive closures of community banks, unable to afford the costs of compliance.  Those are the very banks that small businesses depend upon for growth.  And the economy, in turn, depends on those small businesses for its growth.  

Obamacare, where do I start? Still unpopular with its mandates and penalties oppressing business growth, is rapidly entering a death spiral as the economic assumptions upon which it was based collapse.  

The brutal truth is that the American economy has experienced a discouragingly anemic recovery since the Great Recession ended.  

While the six other recoveries since 1960 averaged 4 percent GDP growth and, the Obama Administration promised 4% GDP growth if Congress approved the $800 billion in stimulus spending, economic growth has averaged a paltry 2 percent.  That means catching up to pre-recession employment levels has been agonizingly slow.      

After more than six years of “recovery,” 4.3 million more people are working now than were working when the Great Recession began in December of 2007. But the employable population has increased by over 19 million people—that’s over four times the number of people who found jobs. 

Perhaps more disturbing, only 1.5 million of those who found jobs found full time jobs.  In other words, about two thirds of those people are working part time.  

A part time job may well be the path to a career but there needs to be a career at the end of that path.  With anemic economic growth and business closures exceeding business startups throughout the Obama Presidency, that is the first time that’s ever happened: careers are in short supply. 

The labor force participation rate, I know you are all business students, but that’s the percentage of people working or actively looking for work, that has been below 63 percent for 22 consecutive months.  It was last as low as 63 percent over 37 years ago when Jimmy Carter was President and before women entered the labor force in large numbers.  It was at 62.7 percent in January.  

Noew, keep this in mind when you hear the Obama Administration tout how the unemployment rate has declined.  For purposes of the official unemployment rate, people who are working part time, let’s say as little as 2 hours a week, are considered fully employed even if they’re working that job solely because they can’t find a full time job.  The BLS reported, the Bureau of Labor Statistics reported, that, in January, 6 million people were working part time because they couldn’t find full time jobs.  For purposes of calculating the unemployment rate, they were considered fully employed.

But, even those who have given up work, if you have given up  looking for work for just 30 days, that is when you say people working or actively looking for work. Actively looking for month means you have looked in the past month. If you haven’t looked in 30 days you are not  counted as unemployed even if you want a job and even though you clearly are unemployed.  In January, 6 million people who wanted a job now were not deemed “in the labor force,” so were not considered unemployed, even though they clearly were unemployed.  

My point is that because of how the official unemployment rate is calculated, it is a very unrealistic indicator of economic health when labor participation is declining, as it has been since President Obama took office.   

The problem is that  people who would rely on big government instead of free markets simply do not understand how job and careers are created and end up relying on these statisticsTheir assumptions seems to be that the jobs will be there no matter what they do to expand government and impede the ability of businesses to grow.  Clearly, over the last 7 years, we’ve learned that just isn’t the case.  

Its American businesses that create jobs.  Let’s talk about how for a minute..    

Lets use CKE Restaurants, for an example just because that’s a business I am very familiar with.We’re over 90% franchised.  That means small business owners own most of our restaurants. Our franchisees create entry-level jobs and management careers every time they open a Carl’s Jr. or a Hardee’s, as you would imagine 

After opening, each restaurant creates about 25 permanent and self-sustaining jobs within the restaurant itself.  But the job creating impact of our restaurants is felt far beyond the restaurant itself.

Franchisees generally invest more than $1 million to permit, build and equip restaurants, creating jobs for architects, attorneys, construction workers and equipment manufacturers. 

Our approximately 3,000 domestic restaurants spend over  $1 billion every year on food and paper products. That creates jobs for  from the farmers who plant the seeds to the drivers who deliver these products to our restaurants. 

We also spends about $175 million a year on advertising. That’sgreat for actors and workers at ad agencies,  and I know David likes the actors and actresses in our ads, as well as radio and TV stations.

We spend $150 million annually on capital improvements, remodeling restaurants, and purchasing new equipment. That spurs opportunities for construction workers, equipment manufacturers and more. 

Then there’s the roughly $100 million put toward annual maintenance. Providing jobs for window washers, air conditioner repairpeople and landscapers.

These workers in turn spend their incomes on food, clothing, housing, medical care, education and entertainment—supporting even more jobs. The more restaurants we build, the more jobs and the more growth we create in local communities. 

Collectively with our franchisees, CKE provides employment directly for more than 75,000 people just in the United States, and we support jobs for tens of thousands of others outside our restaurants that you don’t see when.  Think of these ancillary jobs as concentric circles of job creation emanating from each of our restaurants.   

This incredible engine of economic growth applies to every part of the American economy. Whether it’s Ford, or Apple, or Caterpillar, or Wal-Mart or Coca-Cola, the web of job creation is the same and overlapping.

 So if a politician wants to solve the problem of too few jobs or too much income inequality for working class Americans limiting their path to the middle class, the solution is very simple:  Help businesses add jobs by simplifying the tax code, enacting regulatory reform and getting government out of the way.  Make it easy to create jobs and American entrepreneurs will take it from there.

American workers have not experienced meaningful job and wage growth for the past six years ago because the Obama Administration did not pursue a free market path dependent on Adam Smith’s “invisible hand” guided by America’s consumers and businesses.  

They chose the fist of government by choosing to increase both regulation and taxes while using government bureaucrats to allocate resources.  Their approach has caused American workers to suffer through the feeblest economic recovery since the Great Depression.   And we stand here today weakened economically should another financial crisis arise.

Free market capitalism has allowed us to build the single greatest engine of growth and shared prosperity that the world has ever known.  Free enterprise enables all of us to both “dream big” and  fulfill those dreams. 

But we must allow it to work its wonders—to create opportunity and foster innovation.  We should never succumb to the idea that a small group of elites, however they’re chosen, can create our futures for us.  As Fredrick Hayek, another brilliant economist, said that’s road the Road to Serfdom.  The very road my grandfather came to the United States  to avoid.  

History has shown there is only one road to empower consumers, inspire innovation, create opportunity for all, and restore America’s economic vitality, and that is Adam Smith’s free enterprise/capitalist system.  

Now, this kind of freedom imposes an obligation on business leaders to act honorably, to be conscious of the bottom line but to be fair. Good employers are the bedrock of America’s economy. Remember when you are out there that it’s possible to be successful and to be good.

May God Bless each one of you and may God Bless the last and greatest stand for economic freedom and individual liberty, The United States of America.  Thank you.