- The Washington Times - Saturday, July 19, 2003

THE COMPANY: A SHORT HISTORY OF A REVOLUTIONARY IDEA

By John Micklethwait and Adrian Wooldridge

Modern Library, $29.95, 211 pages

REVIEWED BY ROGER FONTAINE

Ms. Barbra Streisand may have gotten one thing right: She reads The Economist to remain well informed. John Micklethwait and Adrian Wooldridge, are longtime journalists with that newspaper (which its editors insist on calling their magazine) and their latest collaboration, “The Company,” proves how right the entertainer is.

The authors in less than 200 pages write a capsule history of the private company (they prefer the term joint-stock company) as it has evolved since the first Sumerian traders went about their business on the Tigris and Euphrates rivers 5,000 years ago.

Their thesis is straightforward. The company is the most important human institution ever to spring from the mind of man. So much for Hegel, Marx, Lenin, and a myriad of others who either ignore the company or seek to destroy it. For such a large claim about a much-despised entity, it is even more remarkable that few histories of the company even exist. The authors note, for example, that in the New Oxford History of England, covering the crucial middle years of the 19th century for its development, there is not a single mention of the company in its 720 pages.

The book reads like an extended Economist Survey and is divided into bite-size chapters. That means it is studded with colorful details such as in the Italian Renaissance, it was customary for the Church to withhold the sacrament from prostitutes and bankers. The reader’s attention should therefore rarely wander as the authors uncover and unravel this controversial and indispensable creator of wealth. A strength of the book is the clear-eyed view of today’s corporate malfeasance is hardly anything new in the history of business.

The malefactors at Enron and World.Com have everything in common with those who managed the South Sea Company and other earlier swindles, like the infamous Mississippi Company. In that regard, the authors rightly point out that preventing another Enron, another South Sea Bubble, often does more harm than good. The Bubble Act of 1720 was so draconian in effect that it retarded the development of the company in Britain until its repeal a century later by which time the former American colonials had begun to catch up to the old metropole in business acumen.

In the case of the Mississippi Company’s collapse, it is not an exaggeration to suggest that the Bourbon dynasty was shaken to the roots, but this mother of all financial disasters most assuredly contributed to the upheaval of the French revolution and increased enormously the French penchant for dirigisme from which it only has recently escaped in part.

State-sponsored company failures, however, are only part of the story. Britain’s East India Company and the Dutch Vereenigde Ost-Indische Compagnie from which London got the idea in the first place, were in their time great successes. One of the VOC’s lesser successes was the founding of New Amsterdam. In fact, its rival, the East India Company (b. 1599) lasted well into the 19th century, a total of 285 years. Not too bad — General Electric should do so well.

The authors point out that neither company ever enjoyed a good reputation — indeed, it is remarkable the East India Company survived that long since its charter had to be renewed every 20 years by Parliament — and there were inquiries particularly regarding its swashbuckling activities in India. By mid-19th century, the state-controlled joint stock companies like East India, had been replaced by an emerging private sector complete with capital markets. (In America by the mid-1850s, thanks to the railroad boom, the New York stock exchange was dealing in hundreds of thousands of shares daily. Twenty years earlier, several hundred was a good day on Wall Street.)

There is Britain first, of course, but then America and on to Germany and Japan in this business history tour of the world. In 200 pages, inevitably, the authors pay relatively little attention to France and Italy, and none whatsoever to Imperial Russia and China, not to mention what was once called the Third World.

They are not really missed much as the authors dwell on such questions as to why the British private sector flagged by the end of the penultimate century and America became top nation — at least for now. Their argument is convincing, and not very flattering to Albion.

Like other aristocracy-based cultures, doing business was looked down upon and the rewards, especially the psychic income of respect, were few. The talented went into politics or the military or better, did nothing at all. Meanwhile, the gentlemen owners of the typically family owned firm had only a dim idea of what they were doing allowing the much despised managers (mere clerks) to carry on as best they could.

Britain’s relative decline despite the repeal of the Corn Laws in 1846 and the 1862 Companies Act that did much to spur the private sector only proves that culture ? the wrong culture — can do more damage than wise legislation can repair.

Meanwhile, in egalitarian America blessed with hordes of eager, hardworking immigrants who literally had no nowhere to go but up turned a minor, sideshow economy of yeoman farmers and petty merchants into the world’s largest economy in a matter of decades. Already by 1913, we are told, the United States already supplied 36 percent of the world’s production of steel while Germany’s share was 16 percent and Britain lagged behind with 14 percent.

In the 20th century, “The Company” covers the major issues: the controversy over corporate responsibility — shareholder vs. stakeholder, the rise and fall of conglomerates, why General Motors triumphed over Ford. Aldous Huxley if he had been more prescient would have dated “Brave New World” after Sloan rather than After Ford since Alfred Sloan virtually invented the multidivisional firm while Henry Ford dabbled in various crank enterprises at the end of his career.

The two world wars only cemented the American economy’s sheer dominance of the world’s economy. Even the much-ballyhooed Japanese economy of the 1980s proved ephemeral. No one worries about Tokyo dominance anymore or probably again — a Japanese financial implosion with global implications is the worry de jour.

The book clearly demonstrates yet another facet of business history. For conservatives, there is the reminder that there is no Golden Age of free enterprise. No economy has ever been totally free of regulation and there simply wasn’t a time when a man’s word was necessarily his bond. Always read the fine print and be ready to go to court — if one is lucky to have a functioning legal system.

On the other hand, the old liberal straw man of a laissez-faire economy is a fairyland. It never existed. Indeed, as the authors point out, the progress of the company with all its defects has been made possible by almost unimaginable technological advances and a judicious, but not unlimited freeing of private enterprise from state control. They also pithily assess the globalist, anti-globalist controversy ? if that is the right world. To the marchers in Seattle, Washington, Genoa, Gothenburg, that “globalism” has been around for some time.

Another major point the authors make is that the shape and form of the joint-stock company will continue to change. We are no more stuck forever in the age of the multi-nationals than the Age of the Robber Barons. Companies or something like them will adapt and the authors suggest several possibilities. One thing is clear, however, something like the company will be around until the planet is reduced to space dust.

Roger Fontaine was a member of the National Security Council staff during the first Reagan administration.


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