When more than 200 years ago a small group of disparate men locked the doors of Independence Hall and eventually emerged with a document called the Constitution of the United States, few observers gave it much chance of survival. When Benjamin Franklin came out of the meeting, he was accosted by a lady who demanded, "What kind of government have you given us?" Franklin replied, "A Republic, madam, if you can keep it." Since then the spotlight of public interest has focused on one political problem after another, but the craftsmanship was so good that it has balanced political power for two centuries. The lady's descendants proved to be pretty good conservationists.

While politics always attracts much interest, I would remind you that the founding fathers also had commerce very much in mind. Their industrial policy was simple and straightforward. It was to promote entrepreneurship by federally granted patents, or in the words of the Constitution: "The Congress shall have the power to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." They were motivated by the notion that people who do creative work should be rewarded for it--because it would encourage creativity. This section of the Constitution was implemented by the Act of 1790 which created a patent board consisting of the Secretary of State, the Secretary of War and the Attorney General. It was a prestigious group: Thomas Jefferson, Henry Knox and Edmund Randolph. Although Jefferson never patented any of his own inventions, his experience on the Patent Commission persuaded him that if arts and manufactures were to flourish, then inventors must be given the same rights in their ideas as the rest of us have in our real estate. As he watched the flow of ideas, Jefferson later said the patent law "has given a spring to invention beyond my conception." Abraham Lincoln, who himself obtained a patent, later observed, "The patent system added the fuel of interest to the fire of genius." Since the first patent was granted on July 31, 1790 to one Samuel Hopkins for a method of making Pot Ashes, well over four million patents have been granted.

When the patent laws were recodified in 1836, they included a unique stipulation that each applicant was required to "furnish a model of his invention...of convenient size to exhibit advantageously its several parts." In true bureaucratic fashion, the patent office required these models--no matter what the invention--to be "not more then twelve inches square." The model requirement was rescinded by Congress in 1870, although the Patent Office continued to require them for some years thereafter. When the model requirement was finally dropped, legend has it that models were still required of inventors of flying machines and of perpetual motion machines, both of which were judged by the Commission to fall into the same category.

Our government servants who administered the Patent Office did not always have the vision of the entrepreneurs who burdened them with new ideas. Henry Ellsworth, the Commissioner of Patents in 1844 opined that the flood of inventions "...seems to presage the arrival of that period when further improvements must end." Later, a Director of the Patent Office urged President McKinley to abolish the office since "everything that can be invented has been invented."

Although I cannot build a model for you today within a twelve inch square as used to be required, I would submit that we have before us a living model of a perpetual motion machine in America, and that those who learn how to manage and encourage it will survive and those that can't or won't will not. The machine is not physical, but social. The Darwinian theory of change and renewal, or extinction as the alternative, is as true of corporate life as of biological life. The constant change in the names and rankings of the companies in Forbes 500 is a contemporary scoreboard of those companies that adapt to a new world and those that do not.

Large companies often build expanding bureaucracies which, like all bureaucracies, need to grow to protect the bureaucrat's turf. Eventually most bureaucracies come to view new ideas and products with alarm. It has been said that the first priority of every bureaucracy becomes the protection of its own members. The layers of management and the growing length of memos answering other memos, and the decline of face-to-face conversation all work to curb innovation. And without innovation, companies die over time. One of the central tasks of management, therefore, is to overcome, or thin out the underbrush and to keep alive and well the spirit of entrepreneurship. This spirit can invade both products and marketing. Many successful products were invented before there was any demand for them. The parachute, for example, appeared about 300 years before the airplane.

Among the discoveries that no one anticipated needing until they suddenly arrived were X-rays, radio and television, photography, sound-recording, Einstein's relativity theory, transistors, lasers ... the list is almost endless. The telephone was not something the public clamored for at the time. In 1879, Sir William Preece, the chief engineer of the British Post Office, testified in the House of Commons that the telephone had little future in Britain. "There are conditions in America which necessitate the use of such instruments more than here. Here we have a superabundance of messengers ... the absence of servants has compelled Americans to adopt communications systems."

Looking back, it is clear that these judgments are partly funny and partly tragic but most companies are still making similar decisions about tomorrow's markets.

It is no accident that of the roughly 20 million new jobs created in the U.S. in the last decade, all but about one million were created in new or small entrepreneurial businesses. The explosion of today's technology and marketing is not entirely unlike the explosion of mechanical devices in the late 19th century and will no doubt have just as profound an effect. The familiar cycle of an entrepreneur with a great idea whose marketing is so successful that the business gets out of control and gets into financial difficulties will repeat itself. At the last moment, a professional manager is finally brought in with his accounting and financial controls, the business is saved from bankruptcy, but the entrepreneurial spirit that built it may die.

You cannot save something which has not been born, and the saviors are rarely equipped to be the mothers or fathers. The model I would suggest to you for perpetual motion is the marriage of management with entrepreneurship. This requires the willingness to listen, to take risks, to realize that some new products or services are customer driven, and some are supply driven. Aluminum, for example, was supply driven. Aluminum pots and pans did not occur in large volume until almost 50 years after the invention, and more decades passed before the airframe manufacturers would call on aluminum makers to supply many parts. It was, for years, a substance looking for a market. On the other hand, the world began running out of silk worms, and to keep the ladies supplied with stockings DuPont quickly invented nylon.

Then there are some things invented for one purpose that end up doing something else. The phonograph comes to mind. When the telephone was invented, one could not transmit very far so the idea of a repeating station presented itself. Thomas Edison invented the phonograph as a repeating station. He believed that very few people would be able to afford a telephone and that their messages could be recorded in a central place where one could come and hear them as one would go to a post office to collect mail. He also believed that the most profitable use of the phonograph would be by lawyers recording their clients' last wills and testimonies. For this, and doubtless other reasons, it took almost 15 years to recognize that the phonograph might have a potential for home entertainment.

In what he later admitted to be his greatest mistake, Edison also opposed the advent of alternating current-- possibly because he already had a large investment in the direct current generators which he had invented. Even Homer sometimes nods.

On a more mundane plane, it is recorded that a whole business was conceived by a man watching college students throwing pie tins to each other instead of returning them to Frisbee Pie Company in Bridgeport. The man called Morrison took the idea to Wham-O who made and marketed them by the millions. The Frisbee Pie Company is no more, but the Wham-O product lives on. It's not exactly a hi-tech piece of hardware--some may not judge it to be socially useful--but it has created jobs and profits for those who saw its commercial prospects.

When we think about how to measure the growth and momentum of our own companies we have to acknowledge that some markets are oversupplied--like steel, which is now being produced by 85 countries--and some markets are just emerging like that for one megabit silicon chips. Some countries try to preserve industries when there is gross over capacity and some let the market work as new jobs take the place of old. So, how do we keep in the survivor's column? In my view you do it by creating a climate in which innovation can grow and that means planning for the longer term change, applauding change, not fighting it.

When we perceived that if consumers were paid a fair return on their savings, there was no way a brick and mortar branch network could earn any money for our stockholders, we invested heavily in technology for our Citicard machines. When we did that some years ago, we were told by experts in other financial institutions, financial analysis and, of course, by the media that: A) older people would not use them, B) younger people would not use them, C) men would not use them, and D) women would not use them. As it turned out, none of the above was true, and we now handle 70 million transactions a year over the network. We have created a customer and have built a profitable consumer business when others were getting out of the market.

So the model of the perpetual motion machine I would suggest is to cultivate the climate in which innovation can grow and to listen to the market; for business, as Drucker said, has no other purpose than to create a customer. Most good ideas come from customers who want something new or want what you sell packaged in a better way, or want it faster at a cheaper price. But there are also things the customer does not know he wants, like Frisbees or X-rays, which have to come from the innovators.

Just before his death Andrew Carnegie said: "You have a dividing line between the businessman and the non-businessman; one is the master and depends on profit, the other a servant and depends on salary...I do not believe that even the presidents of these corporations, being only salaried men, are to be classified as businessmen at all."

Let's go back a moment to Economics 101. We were taught in those days that there are various ways to earn a living. Work, and you get wages. Own some real estate, and you get rent. Have some money and you can deposit it with your friendly neighborhood banker and collect interest. Notice that we have not mentioned profit.

If wages come from work, rent from real estate, and interest from savings--where do profits come from? The answer is that profits come from risk. The essential difference between the bureaucrat and the entrepreneur is the willingness to take risks. But without the risk-takers, the bureaucrats will ultimately have nothing to administer or regulate.

Obviously, there are unacceptable risks. But the fact that "risk" is a four-letter word does not mean that we should ban it from our vocabulary. It is the engine that makes the perpetual motion machine work.

The great economist, Joseph Schumpeter, addressed this problem back in 1942. He imagined a world in which Henry Ellsworth, the patent commissioner of 1844, finally turned out to be right. We arrived at "that period when further improvement must end" or when "everything that can be invented has been invented." Here's what Schumpeter predicted:

"A more or less stationary state would ensue. Capitalism, being essentially an evolutionary process, would become atrophic. There would be nothing left for entrepreneurs to do. They would find themselves in much the same situation as generals would in a society perfectly sure of permanent peace...The management of industry and trade would become a matter of current administration, and the personnel would unavoidably acquire the characteristics of a bureaucracy."

Such is my faith in the perpetual motion machine as it exists in the United States that I don't believe that this will happen. But the perpetual motion machine consists of us, and if we want to keep it running we have to work at it.

Thank you.