Intellectual Capital

New York City
“Scary,” says Marilyn Fedak. She looks out the window from her corner office. Outside, a winter storm is raging. Whirling snow obscures the view of the Empire State Building and Rockefeller Center from her 39th-floor windows. In a few hours, the heavy snowfall will snarl travel and down power lines from D.C. to Boston. She pauses for a moment.

“It was so scary,” Fedak explains. “It’s not like I haven’t been through bear markets before. But this one was different. I don’t think people realize how close we came to the system breaking down. I felt like everything I had learned about the markets and investing over 40 years wasn’t working as it should.”

“I literally did not sleep through a night from Labor Day of 2008 until probably April,” she says. The daily bad news of the financial crisis kept her awake, fretfully watching business news on TV. Fedak knew first-hand how dire things looked for the financial markets; at the time, she was vice chair for investment services at Alliance Bernstein. All the while, her anxiety about the capital markets was compounded by another set of worries.

“I began to realize that capitalism was being vilified, in ways we haven’t seen since the Great Depression,” adds Fedak. “The rhetoric was terrible. ‘Something has to be done to support capitalism,’ I realized. ‘What can I do?’”

After all, she reasoned, “capitalism has been very good to our country and our citizens. And I could see that from a very personal perspective.” Her grandfather emigrated from Russia at the age of nine. He started out selling pencils and newspapers on Manhattan’s Lower East Side. He bought a luggage store, which Marilyn’s father and uncles grew into a wholesale business. Growing up in Yonkers, Fedak taught herself to touch-type and started working as an office clerk at 14; she saved enough to pay for her first two years at Smith College.

In 1984, Fedak joined Sanford C. Bernstein & Co., which was then a smallish firm with 200 employees and $1.8 billion under management. (For more on the Bernstein story, see Philanthropy, Fall 2010.) Fedak prospered as an investment manager at Bernstein. In 2007, she was included in Fortune’s list of the 25 highest-paid women in business. “All along the line, I’ve loved to work, to be judged on the basis of my own merits,” Fedak says. “In the investment business, you get a report card every day. You see how your portfolio performed against the markets.” When Fedak retired to an emeritus role at the end of 2010, Alliance Bernstein had 4,500 employees and nearly $500 billion under management.

Fedak sees capitalism through the lens of her experience at Bernstein. At its best, the free market produces a “virtuous cycle,” but it has to be rooted in trust and the rule of law. “Trust and predictability are everything.” She leans forward to make her point. “Capitalism is based upon the idea that, implicitly or explicitly, you’re making contracts with people all day long, and if you can’t trust that the laws in place will prevail and that the other person is going to fulfill their side of the bargain, well, then no transactions are going to take place.”

And that is why Fedak is not so concerned about bubbles. “It’s human nature,” she explains, “and you don’t want to put so many obstacles in place that you eliminate them, because some very good things come out of bubbles. A lot of the technologies we have in 2011 were born out of seeds planted in the tech bubble of 1999.” What worry her are government intrusions that disrupt the virtuous cycle. She points to what happened in the Chrysler “bankruptcy,” when junior creditors (including politically favored employee unions) were moved ahead of senior debt holders in line to be paid. “This was one of the biggest catalysts for me in this project,” Fedak explains. “I walked in and said to our bond guys, ‘How do you value a bond today? How do you have any faith in your standing as a creditor?’ You need trust and you need predictability.”

But most of all, she was increasingly worried about what she sees as the lack of understanding of how capitalism works and its benefits among young people today. “I’ve known so many young people in the investment business who didn’t see the moral benefits of the system,” she explains. “They haven’t been taught how the free markets interact with our institutions, personal liberties, and social mobility.”

Fedak decided that she wanted to work with college students, to teach them about the very real virtues of free markets. Working with the Center for the American University at the Manhattan Institute—which she and her husband, Michael, a physician, have supported for decades—she launched the Marilyn G. Fedak Capitalism Project.

“We seek to encourage colleges and universities to expose their students to the linkages between our country’s economic system and our political institutions, liberty and democracy,” she explains. “We believe that such an understanding is critical for the future leaders of our country to ensure the preservation of all that has made the United States such a great country.”

Fedak and her Manhattan Institute colleagues are currently developing their plans. Among their ideas thus far: sharing course syllabi and using multimedia platforms to distribute lectures. She is also intrigued by the possibility of creating course content for law and business students. “Something like 70 percent of law courses are about business, but many of these kids have no understanding of the business world, much less how capitalism really works.” Other ideas include a course reader on capitalism that professors could use, or a business-school counterpart to the Federalist Society. “Let’s try a lot of different ideas with relatively small amounts of money behind them,” Fedak says, describing her approach, “then see which ones are worthy of larger funding.”

In the end, Fedak hopes that future leaders will see and appreciate capitalism’s inherent virtues. “The flexibility, the mobility, the serendipity that one has in a free-market environment is quite extraordinary if you think about it relative to the way socialism works, or even more closed political and economic environments around the world.”

Fedak is joining the ranks of many donors who are promoting a return to the first principles of free enterprise. And through these efforts, these donors hope to make a long-term investment in strengthening the American economy.

“Capitalism Is a Moral System”

John Allison was chairman and CEO of BB&T when the financial crisis hit. Based in Winston-Salem, North Carolina, BB&T Corporation is one of the nation’s largest banks. It was experiencing what he calls a “flight to quality”—as venerable but precarious financial institutions tottered, BB&T’s sound management was making it a refuge in the storm.

Even though BB&T was healthy, it was told to take some medicine: the Troubled Asset Relief Program, or TARP. Under TARP, all of the nation’s largest banks—healthy and failing alike—were supposed to accept government money in exchange for equity warrants. “TARP was a rip-off for healthy banks like BB&T,” says Allison. “We had to pay high interest rates for money we didn’t need. It cost us over a hundred million dollars.”

“I was personally, adamantly opposed to TARP,” he adds, but “we were under intense regulatory pressure.” BB&T was forced to take TARP money and give the government a stake of the bank. “I didn’t see how bad it was going to be,” he explains. But he’s referring not to the extent of the crisis but to the government response. To Allison, the financial crisis was not a wake-up call. Instead, it confirmed his core principles.

“Government policies really caused the financial crisis,” he explains. “We haven’t had a failure of markets.” He points to a series of government policy decisions, from the Federal Reserve’s low interest rate and inverted yield monetary policies to the creation of Fannie Mae and Freddie Mac, that exacerbated what would otherwise have been a normal—and much-needed—correction.

Thus, Allison argues, what America’s business leaders need to do is return to free-market principles. Allison modeled this kind of leadership, even when it appeared to intrude on the bottom line. After the Supreme Court’s infamous Kelo decision, BB&T was the only major bank not to provide financing for projects that used land seized through eminent domain for private purposes. “We thought that was a violation of a principle that is necessary for a free society,” Allison says. The bank’s decision “turned out to be great economics, which doesn’t surprise me at all.”

“Far more important than the economic issues are the philosophical issues,” says Allison. “The real causes of the financial crisis are philosophical: a combination of altruism and pragmatism. Pragmatism is what we tend to teach in our business schools: do what works. A lot of things that work in the short term are very destructive in the long term.”

“I’ve been a student of economics for a long time,” he continues. “But my real intense interest began with Ayn Rand.” He picked up a copy of Capitalism, the Unknown Ideal and read it during his senior year at the University of North Carolina. He was hooked. “Atlas Shrugged was a tremendously powerful book for me. For me and for many people I’ve talked to, it was a huge a-ha! It was an argument from an entirely different perspective.”

What Allison found in Rand was an imaginative expression of something inherent to the free market system: a moral framework. “Most people realize that capitalism produces a higher standard of living,” he explains. “But it is perceived by most people as amoral, if not immoral.” His voice rises a bit. “Capitalism is a moral system—the only system that is consistent with man’s nature as an independent thinking being who needs to be free in order to be innovative and productive.”

For Allison, capitalism’s morality is rooted in human nature. Man has rational capacity, and a capitalist system allows him the greatest freedom to exercise that capacity for creativity and innovation—and to be rewarded accordingly. “It is, in a very deep sense, a just system,” he explains. That people tend to thrive more in capitalist economies, not to mention enjoy more freedom, is just the icing on the cake.

Like Fedak, Allison witnessed the morality of capitalism up close over the course of his career. He joined BB&T after graduating from college, and he worked his way up in the ranks. He became CEO of BB&T in 1989, and began the company’s transition from a small regional bank into the nation’s 10th-largest financial holding company, growing BB&T’s assets from $5 billion when he became CEO to $152 billion when he retired at the end of 2008.

Amid the growth, Allison put his stamp on BB&T’s corporate charitable giving. Like much corporate philanthropy, BB&T’s giving a decade ago was going to good causes, but it wasn’t particularly strategic. “The money that was being spent wasn’t going to promote the well-being of our company or our country,” he explains. “We needed to focus our contributions on something that will matter, and we think that presenting the concepts that undergird capitalism is essential for both BB&T’s well-being and the well-being of the society in which we live.”

Allison’s approach: small, active centers on college campuses, designed to give the best and brightest college students an introduction to ideas they weren’t likely to get in their other classes. “One of the principal goals for BB&T is to encourage a rational discussion of the fundamental moral principles underlying a free society and free markets,” he says. “The best way to have the biggest effect in the long term is by impacting future leaders.”

Allison started at Duke, where he earned his MBA and later served on the board of the business school. “I had long argued that business schools needed to do more on leadership and ethics—at an individual level, at the business level, and at a societal level. The people at Duke got interested in that idea.” And thus was born Duke’s Program on Values and Ethics in the Marketplace. Next came a program exploring the ideas underlying a free society in the philosophy program at the University of North Carolina at Chapel Hill.

Dozens of other centers followed. Today, BB&T supports 65 university centers—serving nearly every major college and university in the bank’s core operating areas in the southeast. The centers are housed in a wide spectrum of academic departments, although most of them are in economics departments and business schools, where they reach future business leaders, entrepreneurs, and job creators. Last year, nearly 25,000 students participated in some way in a BB&T-supported program.

BB&T today contributes about $6.9 million per year to the centers. (Although Allison retired as BB&T’s CEO at the end of 2008 and as chairman a year later, he remains at the helm of BB&T’s charitable support for these centers.) When it launches a new one, it usually makes a 10-year commitment, ranging from $500,000 for a small college to $1.5 million for a major university. “The university makes a profit on it because they’re leveraging their existing faculty,” says Allison.

When Allison launches a new program, he looks first for a faculty member who’s passionate about the idea. “Execution is almost totally driven by the faculty member’s interest in doing this,” he explains. “We won’t do it unless we find a faculty member who’s genuinely interested.” That professor’s interests often drive the focus of the program—the campus centers range in topics from public choice to broader questions of morality. Much like the capitalist system they seek to explain, the centers are neither centrally planned nor administered. “Our goal is not to indoctrinate students, but for them to hear—often for the first time—an ethical defense of free markets,” says Allison.

The centers do share some elements in common: a course on the moral foundations of capitalism; distribution of classic books on free enterprise (such as F. A. Hayek’s The Road to Serfdom, Ludwig von Mises’ Human Action, and Milton Friedman’s Capitalism and Freedom); and a seminar, lecture, and debate series. Faculty members design their own syllabi for the moral foundations course, but they don’t select the readings in a vacuum. “One of our goals is to network faculty,” says Allison. “Universities are definitely silos, but there’s some real thinking going on when we get top-flight intellectuals from philosophy talking to economists, and top-flight economists talking to political scientists.” One of the places this happens is at the BB&T-sponsored summer conference for faculty at Clemson University. At several universities, BB&T has also partnered with the Charles G. Koch Charitable Foundation to cultivate social science and economics Ph.D. candidates with an appreciation of capitalism.

Another common element of the BB&T programs—and one that is occasionally controversial—is the inclusion of Atlas Shrugged in the curriculum. According to Allison, Rand inspires a uniquely hostile response from the left. “I think it’s because Rand provides a secular, integrated defense of capitalism,” he explains. “The left likes to believe that they own all the secular arguments. They’re scared of Rand. She poses a far bigger threat, because she challenges a lot of the fundamental premises on which statist arguments are based, on their own terms. If she wasn’t having an effect, they wouldn’t pay any attention to her.”

Atlas Shrugged is also unique among capitalist classics in that it’s a well-plotted novel that—excepting the dense monologues that run up to 90 pages—zips along like a train gliding on Rearden Metal. “That’s one of the reasons I really encourage Atlas,” says Allison. “For many students, a novel is a much more compelling presentation than an economic argument. They might not totally agree with Rand, but that’s not the point. It’s the book that helps them think in a different way, separate from an economic argument.”

“Integrating Theology and Economics”

Like John Allison, Robert and Patricia Kern believe in the urgency of making a moral case for free enterprise. The Kerns, however, bring to the conversation a different perspective and a different set of priorities. “We’re striving to connect the topic of economics with the concerns and culture of faith-based communities,” explains James Rahn, president of the Kern Family Foundation. “That’s not in contrast to a more secular, libertarian approach, mind you. We are taking a different perspective, looking at the same fundamental issues, but through different lenses.”

“In the second half of the 20th century, the case for free enterprise was taken over by people with a utilitarian moral theory,” says Greg Forster. He is program director for American history, economics, and religion at the Kern Family Foundation. The Kerns, Forster adds, have great respect for those, Friedman and Hayek among them, who have made this case. But, adds Forster, “there is a shallowness to the utilitarian view of the universe and human life, which is evident in its understanding of economic systems. If the case for free markets is shackled to this reductionist anthropology and morality, it’s not going to be persuasive to people who start from a faith-based perspective.”

Although “free markets have performed better than any other system devised,” Forster continues, “no social system can maintain itself over time unless it is constantly infused toward renewal. There is more than morality at stake here. This is about our understanding of the whole universe and our place in it, and there is a spirit that needs to infuse the social system. If you want to talk about that, you have to go beyond morality and talk about theology.” Hence, Forster explains, the Kerns believe in making the case for the free enterprise system’s roots in the Judeo-Christian moral tradition: centered on the freedom of the individual—and the individual’s relationship to God.

Robert and Patricia Kern, now in their 80s, met while they were undergraduates at the University of Illinois—Robert, in the school of engineering—in the 1940s. In 1959, they founded a generator company in a rented garage in Wales, Wisconsin. He produced electrical generators and grew the firm—later known as Generac Power Systems—into one of the world’s largest producers of engine-driven generators, with a specialty in 5-to-500 kW systems for emergency and stand-by residential and light commercial uses. Kern grew Generac to nearly 2,100 employees before he sold it, using the proceeds to establish the Kern Family Foundation.

The Kerns have also been active in the life of their church. Robert is the son of a Baptist minister, and Patricia served for 22 years on the board of a Baptist seminary—including 6 years as chair, the first woman to do so. Both Kerns have a strong sense of the unity of their vocations in the world and their callings as Christians, and they believe that today’s evangelicals need a better understanding of the role of economic activity in a life of Christian discipleship. Through the Kern Family Foundation, the Kerns have worked to promote K–12 education reform, engineering education, and pastoral education.

The Kerns’ approach to reviving faith-based economic understanding works through higher education, with two prongs: Christian undergraduates and evangelical seminarians. These two prongs reflect the Kerns’ beliefs about vocation: that all people have a calling to use their gifts in service to others, and that the church is to urge its members to find this calling.

In 2009, the Kern Family Foundation launched a major effort to reach evangelical college students through the American Enterprise Institute (AEI). AEI president Arthur Brooks brought to the think tank a trademark interest in the connection between economic and moral well-being. “Arthur really understands that economics is not about whether we get an extra quarter-point of growth in GDP this year,” explains Forster. “Economics is about people living into their callings and making a contribution to the common good. What Arthur has done is gather together several other superb economists at AEI and build a project that translates economics into a language that speaks to those concerns, and particularly that speaks to the spiritual hunger that evangelicals have to know what God wants from their working lives.”

That project is called the Common Sense Concept, and it taps into the Kerns’ concern that evangelical young people no longer see the connections between following God and serving others in a free marketplace—indeed, that they are increasingly attracted to leftist arguments for “social justice” and its resulting dependencies. AEI’s outreach includes a series of short books for college students written by AEI scholars. Steve Hayward offers a biblical perspective on humans and the environment. Financial expert Alex Pollock writes on booms and busts, proposing that the roots of financial collapses are a consequence of human moral failings. Finally, Arthur Brooks and Peter Wehner argue for the morality of democratic capitalism. “They lay out the case for why free enterprise is morally good, but also requires the vigilance of people infusing a moral spirit into it,” says Forster.

AEI also hosts a lecture and debate series for college students and young professionals. Last year at Wheaton College in Illinois, Brooks debated liberal minister and commentator Jim Wallis on whether capitalism has a soul. “We didn’t think we’d be able to get something as good as a debate between Arthur Brooks and Jim Wallis,” says an impressed Forster. “It was a smash hit from our perspective.” At AEI’s Washington headquarters, “new monastic” and peace advocate Shane Claiborne debated microfinance leader Peter Greer on loving one’s neighbor in the 21st century.

“Theology lacks in itself the empirical understanding of human nature that we get from economics,” Forster says, explaining the other prong of the Kerns’ work. “There needs to be a dialogue between theology and economics. The theologians need to take into account how economics really works, and the economists need to take account of how human beings really work.”

To this end, the foundation has worked closely with the Acton Institute, which Forster calls “the premier organization dedicated to research integrating theology and economics.” The Kern Family Foundation is helping Acton to become a more influential resource for and participant in evangelical theological debates. The Kerns also support field learning, new courses, faculty projects, and other ways of infusing economic thought into the curricula of 13 evangelical seminaries. “We think this is really essential to the future of the church,” says Forster.

The Kerns’ efforts to seed the Judeo-Christian moral tradition of vocation into Christian colleges and seminaries are one part of their work in higher education. As an engineer who became a successful entrepreneur, Robert Kern also hopes to “instill the entrepreneurial mindset” into future engineers, says program director Tim Kriewall, who oversees the Kern Entrepreneurship Education Network (KEEN). KEEN is a network of 18 small, private colleges and universities—comprising more than 13,000 engineering undergraduates—that share the Kerns’ vision for entrepreneurial engineering.

“We’re trying to get people work-ready, so to speak,” Kriewall says, “so that when they graduate with a bachelor’s degree, they can make contributions to the firms that employ them without needing to go on to grad school.” The Kerns’ goal is not for every graduating engineer to be ready to start his or her own business, but rather for young engineers to adapt their talents to emerging opportunities. “It’s not about entrepreneurship; it’s about supporting entrepreneurially minded businesses,” Kriewall adds.

Like the Kerns’ programs on values and free enterprise, KEEN helps young people to understand their vocation—how, through their work, they can serve others and realize their callings. “We get out of bed in the morning to apply our God-given skills to help people,” Kriewall explains. “That’s what entrepreneurs do.”

The same moral imagination undergirds all of the Kerns’ efforts. “We’re talking about a curiosity level that leads you to understand what is taking place outside of the world that you’re living in, because your ideas can come from anywhere, and if you don’t have a breadth of natural interest, I don’t think it’s going to take you very far,” says Robert Kern. “There’s something new to be learned every day, and all of this, put together, wraps itself up in developing an entrepreneurial spirit.”

Investing in Influence

Back in her midtown office, Marilyn Fedak acknowledges that she is taking a different tack from John Allison and the Kern Family Foundation. Nonetheless, she is watching both efforts closely. Allison was “the very first person I spoke to,” she says, and she is intrigued by the Kerns’ efforts to reach evangelicals. But she intends to pursue a different strategy. “I really want to try to get to the future leaders of our society,” she says—students at Ivy League schools and America’s top law and business colleges.

While Fedak is just beginning to ramp up—and seek additional funding for—her project, Allison has reached the limits of what BB&T can do. It has a center at nearly every major college and university in its operating area. “The big opportunity I’m focused on is how we can take these programs out of the BB&T footprint,” he says. “We have a proven program that has been very successful, but we shouldn’t do it with BB&T money.” To expand the programs, Allison has created the Fund for Inquiry into the Morality of Capitalism, administered by the Center for Excellence in Higher Education. His goal: 200 new university centers in the next 10 years.

One of the difficulties of funding in the realm of ideas is that it can be hard to identify clear outcomes. Allison, Fedak, and the Kerns measure their work, but they are limited by the goals they hope to achieve. As Greg Forster puts it, “We want to build a basis for generational culture change.” These donors are not just exposing students to the benefits of capitalism; they hope to make the case for the rightness of the free enterprise system.

On this point, all four donors agree: For the economy to become healthy again, future leaders will need to understand why free enterprise is a moral good. They will need to understand the failures of 2008 and 2009, and how to avoid repeating them. They will need wisdom—as well as recognition of the wisdom inherent to the market.

The storm outside Fedak’s windows gathers force; snow piles in curves along the windowsills. In the distance, the Empire State Building is barely visible. Fedak turns away from the window. She knows the storm will pass. She has work to do.


This article was originally published in Philanthropy‘s Spring 2011 issue.