Art Diamond's web log
Source of book image:
http://ecx.images-amazon.com/images/I/51E2APGW55L._SS500_.jpg
(p. 241) In May of the following year [i.e., in May 1851] Gorrie obtained a patent for the first ice-making machine.
. . .
But he was unable to find adequate backing, and in 1855 he died, a broken and dispirited man.
Source:
Burke, James. Connections. New York, NY: Little, Brown, and Co., 1978.
(Note: ellipsis and bracketed information added.)
“Rails to riches: An 1870 cartoon depicting James Fisk’s attempt to stop Cornelius Vanderbilt from gaining control of the Erie Railroad Company.” Source of caption and cartoon: online version of the WSJ article quoted and cited below.
I have read H.W. Brands’ Masters of Enterprise book and found that it contained some interesting anecdotes, but not very insightful interpretation. From Amity Shlaes’ useful review quoted below, I would expect the same from Brands’ most recent book.
(p. C7) Mr. Brands laments that capitalism’s triumph in the late 19th century created a disparity between the “wealthy class” and the common man that dwarfs any difference of income in our modern distribution tables. But this pitting of capitalism against democracy will not hold. When the word “class” crops up in economic discussions, watch out: it implies a perception of society held in thrall to a static economy of rigid social tiers. Capitalism might indeed preclude democracy if capitalism meant that rich people really were a permanent class, always able to keep the money they amass and collect an ever greater share. But Americans are an unruly bunch and do not stay in their classes. The lesson of the late 19th century is that genuine capitalism is a force of creative destruction, just as Joseph Schumpeter later recognized. Snapshots of rich versus poor cannot capture the more important dynamic, which occurs over time.
One capitalist idea (the railroad, say) brutally supplants another (the shipping canal). Within a few generations–and in thoroughly democratic fashion–this supplanting knocks some families out of the top tier and elevates others to it. Some poor families vault to the middle class, others drop out. If Mr. Brands were right, and the “triumph of capitalism” had deadened democracy and created a permanent overclass, Forbes’s 2010 list of billionaires would today be populated by Rockefellers, Morgans and Carnegies. The main legacy of titans, former or current, is that the innovations they support will produce social benefits, from the steel-making to the Internet.
The second failing of “Colossus” is its perpetuation of the robber-baron myth. Years ago, historian Burton Folsom noted the difference between what he labeled political entrepreneurs and market entrepreneurs. The political entrepreneur tends to compete over finite assets–or even to steal them–and therefore deserves the “robber baron” moniker. An example that Mr. Folsom provided: the ferry magnate Robert Fulton, who operated successfully on the Hudson thanks to a 30-year exclusive concession from the New York state legislature. Russia’s petrocrats nowadays enjoy similar protections. Neither Fulton nor the petrocrats qualify as true capitalists.
Market entrepreneurs, by contrast, vanquish the competition by overtaking it. On some days Cornelius Vanderbilt was a political entrepreneur–perhaps when he ruined those traitorous partners, for instance. But most days Vanderbilt typified the market entrepreneur, ruining Fulton’s monopoly in the 1820s with lower fares, the innovative and cost-saving tubular boiler and a splendid advertising logo: “New Jersey Must Be Free.” With market entrepreneurship, a third party also wins: the consumer. Market entrepreneurs are not true robbers, for their ruining serves the common good.
For the full review, see:
AMITY SHLAES. “An Age of Creative Destruction.” The Wall Street Journal (Sat., October 16, 2010): C7.
(Note: the online version of the article is dated October 29 (sic), 2010.)
The book under critical review by Shlaes:
Brands, H.W. American Colossus: The Triumph of Capitalism, 1865-1900. New York: Doubleday, 2010.
The Folsom book rightly praised in passing by Shlaes is:
Folsom, Burton W. The Myth of the Robber Barons. 4th ed: Young America’s Foundation, 2003.
Source of cartoon: http://filipspagnoli.files.wordpress.com/2009/11/innovation-cartoon.jpg?w=361&h=364
The NYT ran the above cartoon by New Yorker cartoonist Leo Cullum as part of Cullum’s obituary.
(p. A22) Leo Cullum, a cartoonist whose blustering businessmen, clueless doctors, venal lawyers and all-too-human dogs and cats amused readers of The New Yorker for the past 33 years, died on Saturday in Los Angeles. He was 68 and lived in Malibu, Calif.
Mr. Cullum, a TWA pilot for more than 30 years, was a classic gag cartoonist whose visual absurdities were underlined, in most cases, by a caption reeled in from deep left field. “I love the convenience, but the roaming charges are killing me,” a buffalo says, holding a cellphone up to its ear. “Your red and white blood cells are normal,” a doctor tells his patient. “I’m worried about your rosé cells.”
. . .
His most popular cartoon, from 1998, showed a man addressing the family cat, which is sitting next to the litterbox. “Never, ever, think outside the box,” he says.
For the full obituary, see:
WILLIAM GRIMES. “Leo Cullum, New Yorker Cartoonist, Dies at 68.” The New York Times (Tues., October 26, 2010): A22.
(Note: the online version of the obituary is dated October 25, 2010.)
(Note: ellipsis added.)
Source of book image: http://ffbsccn.files.wordpress.com/2010/07/the-most-powerful-idea-in-the-world.jpg
The range of William Rosen’s fascinating and useful book is very broad indeed. He is interested in THE question: why did the singular improvement in living standards known as the industrial revolution happen where and when it did?
The question is not just of historical interest—if we can figure out what caused the improvement then and there, we have a better shot at continuing to improve in the here and now.
I especially enjoyed and learned from William Rosen’s discussion, examples and quotations on the difficult issue of whether patents are on balance a good or bad institution.
Deirdre McCloskey taught me that the most important part of a sentence is the last word, and the most important part of a paragraph is the last sentence, and the most important part of a chapter is the last paragraph.
Here are the last couple of sentences of Rosen’s book:
(p. 324) Incised in the stone over the Herbert C. Hoover Building’s north entrance is the legend that, with Lincoln’s characteristic brevity, sums up the single most important idea in the world:
THE PATENT SYSTEM ADDEDTHE FUEL OF INTEREST
TO THE FIRE OF GENIUS
In the next few weeks I will occasionally quote a few of the more illuminating passages from Rosen’s well-written account.
Book discussed:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.
“David Wetzel tried for two years to sell his New Jersey hardware store.” Source of caption and photo: online version of the WSJ article quoted and cited below.
(p. B1) Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.
A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices–factors similarly affecting home sellers–has left the small-business marketplace at a standstill.
. . .(p. B4) “Owners still think their businesses are worth what they used to be,” says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many “small companies just aren’t earning what they used to earn,” he says.
For the full story, see:
SARAH E. NEEDLEMAN. “Businesses Put Up for Sale Smack Into Harsh Reality.” The Wall Street Journal (Thurs., OCTOBER 14, 2010): B1 & B4.
(Note: ellipsis added.)
Below I quote from the comments that Home Depot co-founder Ken Langone addressed to President Obama:
(p. A21) A little more than 30 years ago, Bernie Marcus, Arthur Blank, Pat Farrah and I got together and founded The Home Depot. Our dream was to create (memo to DNC activists: that’s build, not take or coerce) a new kind of home-improvement center catering to do-it-yourselfers. The concept was to have a wide assortment, a high level of service, and the lowest pricing possible.
We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.
If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it’s a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase–never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.
Meantime, you seem obsessed with repealing tax cuts for “millionaires and billionaires.” Contrary to what you might assume, I didn’t start with any advantages and neither did most of the successful people I know. I am the grandson of immigrants who came to this country seeking basic economic and personal liberty. My parents worked tirelessly to build on that opportunity. My first job was as a day laborer on the construction of the Long Island Expressway more than 50 years ago. The wealth that was created by my investments wasn’t put into a giant swimming pool as so many elected demagogues seem to imagine. Instead it benefitted our employees, their families and our community at large.
For the full commentary, see:
KEN LANGONE. “Stop Bashing Business, Mr. President; If we tried to start The Home Depot today, it’s a stone cold certainty that it would never have gotten off the ground.” The Wall Street Journal (Fri., OCTOBER 15, 2010): A21.
“Crossing the Sulphurous River.” Source of caption and photo: http://www.flickr.com/photos/33506763@N00/211985842#/photos/sparlingo/211985842/lightbox/
In The Venturesome Economy book, and later (pp. 129 and 142) in the book quoted below, Bhidé describes the entrepreneur’s decision process as “improvisation.”
(p. 18) Entrepreneurs who start uncertain businesses with limited funds have little reason to devote much effort to prior planning and research. They cannot afford to spend much time or money on the research; the modest likely profit doesn’t merit much; and the high uncertainty of the business limits its value.
Sketchy planning and high uncertainty require entrepreneurs to adapt to many unanticipated problems and opportunities. One entrepreneur likens the process of starting a new business to jumping from rock to rock up a stream rather than constructing the Golden Gate Bridge from a detailed blueprint. Often, to borrow a term from Elster’s discussion of biological evolution, entrepreneurs adapt to unexpected circumstances in an “opportunistic” fashion: Their response derives from a spur-of-the- moment calculation made to maximize immediate cash flow. Capital-constrained entrepreneurs cannot afford to sacrifice short-term cash for long-term profits. They have to play rapid-fire pinball rather than a strategic game of chess.
Source:
Bhidé, Amar. The Origin and Evolution of New Businesses. Oxford and New York: Oxford University Press, 2000.
[Note to self: the search phrase “jumping rock stream” seems most productive of relevant images]
“Chris and Andrea Jumping from Rock to Rock Up a Stream.” Source of caption and photo: http://picasaweb.google.com/lh/photo/Q-FvMT8GFG7kZdvUm8d_Jw
“Girl (10-12) jumping on rocks in river.” Source of caption and photo: http://cache4.asset-cache.net/xc/200447463-001.jpg?v=1&c=NewsMaker&k=2&d=B3B7071D257FC0393BFC8E309AE4811E35B7CE0CF91BE8709437A3EAE6A5D3E800123AA3B5A18ED0
Entrepreneur Joe Ricketts. Source of photo: online version of the Omaha World-Herald article quoted and cited below.
I used to teach an Economics of Technology course in the UNO EMBA program (until a curriculum committee axed the course). As a long-shot I once invited Joe Ricketts to speak to the class. I was surprised that he accepted, and maybe also surprised that he clearly invested some time and thought in his presentation. The class was riveted not only by the story of his own entrepreneurial challenges, but also of his views of the policy issues of the day. I remember his good-natured persistence in arguing with one student who challenged him on his view of the importance of tort-reform.
From his manner, and some of the stories he told, he seemed to be the sort of entrepreneur who exemplified George Gilder’s view that great entrepreneurs have a kind of humility that leaves them open to learning, at least in key areas related to their business goals. By all accounts, Sam Walton was another example. And I heard Charles Koch speak this summer and saw him interact with some of his executives; he also gave the impression of being down-to-earth, and open to learning.
(Of course, then there’s Steve Jobs and Larry Ellison—generalizations on entrepreneurship are hard to come by!)
Ricketts and Koch also share another trait—this one too rare among successful entrepreneurs. They are both willing to invest a considerable part of their hard-earned wealth in order to preserve and protect the institutions of limited government that will make it possible for future entrepreneurs to succeed. In Ricketts’ case, for example:
(p. 7A) WASHINGTON — Joe Ricketts wants to bring down at least one Capitol Hill lawmaker who seeks earmarks so he can get the rest of Congress’ attention.
The founder and former CEO of what is now TD Ameritrade has started a new organization called Taxpayers Against Earmarks, which will seek to highlight what he describes as the evils of legislators setting aside money for pet projects back home.
. . .
Ricketts said that while some earmarks support worthy projects, he is against them all because the process is flawed. He compared those who support earmarks to addicts and criminals.
“I’m sure that all over the country there are people that like earmarks and people come to defend earmarks, and those are the people that are on the dope,” he said.
Ricketts said those who seek earmarks are asking legislators to spend other people’s money for their purposes.
“That’s theft,” he said. “As Tom Coburn says, that’s intergenerational theft. So those people that like earmarks, you can consider thieves.”
. . .
Ricketts said . . . the process encourages lawmakers to throw their support behind other spending bills to gain other lawmakers’ support for their earmarks.
“A lot of elected officials like the earmarks, but they’ve never had anybody like me or anybody else push back. … So now the scales are going to balance a little bit,” he said. “I’m going to spend as many years and as many dollars as it takes to be successful.”
For the full story, see:
Joseph Morton. “Joe Ricketts Will Put Up Big Bucks to Fight Earmarks.” Omaha World-Herald (Friday, October 1, 2010): 7A.
(Note: all ellipses added, except for the last one which was in the original.)
(Note: the online version of the article has the title “Joe Ricketts will help fight earmarks.”)
(p. 118) The incubation stage is the most mysterious of the three stages of divergent thinking. Sometimes it appears as if the problem-solving process has stopped altogether.
Incubation is the absolute opposite of the normal business processes of the operating organization. It is often totally unpredictable. But since it is also the heart of the creative process, it creates a dilemma for the business executive who wants to support innovation but has little patience for unfocused activity. In the incubation period, observations stew on the edge of consciousness until something clarifies. As Newton observed, “I keep the subject constantly before me, and wait until the first dawnings open slowly, little by little, into the full and clear light.”
There is no way to plan “enough” incubation time. What, then, can one do to improve the productivity of this period of incubation? One useful tool is what psychologists call “suspending disbelief–suspending judgment on data or observations that seem to make no sense. It allows time for the rearrangement of data, allowing one time to find new images that explain or illustrate how things might work. Suspending disbelief (p.119) is essential to avoiding premature closure on an issue, or entrenchment in existing ideas and approaches. Suspending disbelief helps to improve one’s chances of finding a fresh view of the universe. It is an unnatural act for an operating organization, but an essential trait for an innovative organization.
A second useful tool is to deconstruct the problem so that you can recombine elements of it and gain fresh insight. Sir James Black, Nobel Prize winner for the discovery of histamine antagonists, suggests that one “turn the question around.” Dr. Black prefers an “oblique attack” to a problem rather than a direct one.
One way to change context, Csikszentmihalyi observes, is to position yourself at the intersection of different cultures or disciplines: “where beliefs, lifestyles, and knowledge mingle and allow individuals to see new combinations of ideas with greater ease. In cultures that are uniform and rigid it takes a greater investment of attention to achieve new ways of thinking. In other words, creativity is more likely in places where new ideas require less effort to be perceived.”
Source:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.
“Serafin Blanco is the owner of Ñooo! ¡Que Barato!, a huge discount store in Hialeah, Fla., where recent arrivals stock up on $1.99 flip-flops and other items for relatives to resell in Cuba.” Source of caption and photo: online version of the NYT article quoted and cited below.
(p. A6) “Things move very slowly in Cuba be-(p. A9)cause they are very, very concerned about breaking the balance of power with economic reforms,” said Jorge Sanguinetty, president of the Association for the Study of the Cuban Economy, a research group. “This is the reality. They don’t want to emulate Gorbachev when he started making reforms in Russia and the whole thing came down.”
Mr. Sanguinetty, who served as a senior economic official with the Cuban government until he resigned in June 1966, said that Cuba might be just beginning the long, painstaking process of rebuilding the most basic economic relationships. He noted that Cuba even eliminated accounting schools in the first decade after the 1959 revolution because officials thought money would be unnecessary, and that many Cubans had no experience with credit cards, banks or checks. Now, he said, the government must move forward — with import-export licenses, with clearer communication about rules — if it hopes to make entrepreneurs a vital element of the economy.
For the full story, see:
DAMIEN CAVE. “Near to Cuba, Wary Kin Wait for Proof of a New Path.” The New York Times (Weds., September 22, 2010): A6 & A9.
(Note: the online version of the article is dated September 21, 2010 and has the slightly different title “Near Cuba, Wary Kin Wait for Proof of a New Path.”)