|Author(s):||Landes, David S.|
Baumol, William J.
Published by EH.NET (May 2010)
David S. Landes, Joel Mokyr and William J. Baumol , editors, The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times. Princeton: Princeton University Press, 2010. xv + 566 pp. $49.50 (hardcover), ISBN: 978-0-691-14370-5.
Reviewed for EH.NET by Reuven Brenner, Desautels School of Management, McGill University.
Carl Schramm, who wrote the Foreword to this book, and who, through the Kauffman Foundation, paid for it, states clearly that the book is about “entrepreneurship? as people ? entrepreneurs in particular ? understand the term: Someone who creates a business that, in some respects, differs from existing ones.
Yet, just two pages later, William Baumol writes in his Preface that the book is about both “redistributive” and “productive” entrepreneurship, the former covering warfare, crime, bribes, lobbying ? any innovative ideas. Since this covers just about everything from Napoleon and his Code to Robin Hood, and from Muhammad, the merchant and one of the very few of Heavens’ intermediaries on this Earth to 35,000 registered lobbyists in Washington ? it is little wonder that most of the 18 chapters, written by 18 different academics are all over the map, and provide little illumination on Schramm’s targeted subject matter. If one just went from the Foreword and Preface straight to the Index of the book, one could immediately realize that. “Finance, credit, debt” appear in less than 40 pages of the 541 pages of text, and the terms “equity” and “partner(ship))” do not even appear in the Index, though the few relevant chapters in the book highlight the importance of both in financing entrepreneurial ventures across some countries and time. How can one write anything about entrepreneurs without starting the examination with the ways they were financed? Where was the risk capital coming from and in what shapes and forms? And if there was no risk capital ? then why not? Even if just parts of the book dealt with “productive entrepreneurs,” these should have been the questions framing the discussion in the 18 chapters.
Susan Wolcott’s chapter, “An Examination of the Supply of Financial Credit to Entrepreneurs in Colonial India,” is among the exceptions that actually does that and sheds light on the unusual features of India’s credit markets. The chapter describes the options entrepreneurs faced if they wanted their businesses to grow; how the lack of openness of its credit markets forced entrepreneurs to rely on family savings; how the caste system and the English come into the financial landscape. This chapter provides insights into the financial difficulties of launching and growing a business when capital markets are in their infancy, and also a brief glimpse into how lack of tolerance hinders entrepreneurship.
The only other chapters that cover these topics are Oscar Gelderblom’s and Timur Kuran’s. The first is about “The Golden Age of the Dutch Republic,” which shows in detail how equity combined with limited liability financed the Dutch entrepreneurs, though even he gets distracted at first by categorizing things and then stating that Amsterdam’s 2,600 shopkeepers (butchers, bakers, cobblers etc.) were the city’s entrepreneurs. Luckily, after only three pages, he forgets about this, and deals with the ways “entrepreneurs and innovations” were financed as the Dutch Republic became both the first religiously tolerant place in Europe, and also allowed its financial markets to thrive, with sophisticated futures trading on the world’s first stock exchange. Timur Kuran’s chapter deals with the same topics but is focused more on obstacles to entrepreneurs under Islam.
Although here and there other chapters mention in a few paragraphs financial conditions (though I cannot recall anyone in the book ever using the term “risk capital”), often the topic is more about impediments and antagonism to the notion of “business.” Authors make reference to usury laws and the low social status of businessmen and traders in many societies ? from Babylon to Rome, Cicero defining their endeavors as “vulgar and dishonest.” This latter view resonates centuries later within Islam (with the doctrine of bid’a, in Kuran’s good piece subtitled “Inhibitive Roles of Islamic Institutions”) and later in the English view of commerce: Jane Austen referred to the endeavor in a similar vein as a violation of aristocratic principles, though with timeless humor. And yes, this anti-business view resonates across all countries and time with Jews, always the Jews.
In fact large chunks of the book are more about the topic of inhibitions to enterprise and both the variety of ideas people came up with to rationalize them and the institutions rulers and governments put in place to enforce these ideologies. Strangely there is only passing mention of Latin America, Russia and communism ? and though there is a chapter on China, the twenty pages jumping from 200 BC to our days offer not one insight. It first concludes that politics there is “as central as ever, and having no access to party officials remains a critical impediment to any successful entrepreneurial operation,” yet the last sentence reads “if the past record is a guide, [the entrepreneurs] will overcome future challenges that come their way.” I am no expert on Chinese history, but as far as I know it has been well documented that under the Ming, and even more under the Manchu dynasties, when rigid Confucianism was imposed by state power, Chinese inventiveness ceased for centuries ? about which the chapter is mum.
Unfortunately most of the chapters dealing with the topic of inhibitions miss the forest from the trees, as not one addresses what is to me the basic issue when examining “the invention of enterprise.” There is nothing more threatening to an established order ? any order ? than opening up, deepening, democratizing capital markets ? accountably, allowing people to leverage their inventive, enterprising spirit. True, this would also disperse power ? political power in particular. The deeper capital markets would also threaten established industries and commerce. Entrepreneurs, brilliant and ambitious as they might be, are not a threat. They can be sent to Siberia, forced into complacency by the Maos of this world, and the opportunistic ones will channel their ambition through the established powers.
But entrepreneurs with access to different, independent sources of risk capital ? now that’s threatening, be they Brin and Page, Jobs or Milken at the time (quickly taking away much of the banks’ bread and butter of providing loans). Understanding this, even if not wanting to articulate it, provides enough incentives for those in power to subsidize, spread, and promote ideas and institutions inhibiting the deepening of capital markets under a wide variety of jargons, and thus inhibiting the invention and reinvention of enterprises. With time, people get accustomed to these institutions, their origins lost in the mist of time, inhibiting entrepreneurship and business for centuries. Today this may be happening a bit before our eyes. Suddenly, everything becomes a “bubble” ? Internet, oil, houses, gold, bonds. Guess what: if everything is ? why have capital markets to start with? If pricing no longer offers guidance to allocate capital; if stock and bond markets are not there to help correct mistakes faster ? why should they continue to exist? And if they do not exist, who else remains but politicians, bureaucrats and the academics surrounding them ? none of whom ever worked in a business even one day in their lives ? who would then tax and borrow and subsequently allocate capital and “invent enterprises” based on ? well ? whatever.
While I know who Schramm had in mind with this project ? and it is a worthy project ? I do not know what the editors wanted to convey with their selections, or who they had in mind as an audience for this book. Baumol warns that “entertainment is not the purpose of this book.” That’s an unnecessary warning: 90 percent of its pages are dry, tedious, and some ? especially those with bombastic titles such as “History of Entrepreneurship: Britain, 1900-2000,” “History of Entrepreneurship: Germany after 1815,” and “Entrepreneurship in the United States, 1920-2000” ? are little more than jargon-ridden, superficial texts, providing zero insight. They are filled with taxonomies and referenced sentences such as “Computer and computer-based technologies in particular, later collectively known as information technology, extended across all boundaries (Coopey 2004)” or “The one thing that it is impossible to have too much of is good judgment (Casson 2000)” ? Casson quoting himself on this observation. Apparently both sentences were unheard of before the years 2000 and 2004.
Even just a little judgment by, perhaps, talking to some entrepreneurs and following them in the daily execution of their ventures before writing treatises about them, could have reshaped this book into something far more concise, sharply written and surprising. After all, learning means being surprised. There were very few pages where I was.
Reuven Brenner, Repap Chair, Desautels Faculty of Management, McGill University, is the author of Force of Finance: The Triumph of Capital Markets (Thomson/Texere) and A World of Chance (Cambridge University Press). His early books, History: The Human Gamble (Chicago), Betting on Ideas (University of Chicago Press), and Rivalry (Cambridge University Press), were, in part, about entrepreneurship. His latest article, “Venture Capital: Building (or Restoring) National Wealth,” appeared in the Winter 2010 issue of the Journal of Applied Corporate Finance.
Economywide Country Studies and Comparative History
Markets and Institutions
|Geographic Area(s):||General, International, or Comparative|
|Time Period(s):||General or Comparative|
20th Century: Pre WWII
20th Century: WWII and post-WWII