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December 2002, Volume 20, Number 12

The True Spirit of Enterprise

Don Mathews

Does business run on greed?

More than a few commentators are saying so. Reacting to the corporate accounting scandals and the bursting of the Internet stock bubble, some pundits are claiming that recent business events are symptoms of a larger crisis. “Capitalism itself is corrupt,” the pundits say. “The spirit of enterprise is nothing more than the spirit of greed.”

The charge is not just an overreaction; it’s wrong. It needs an antidote. A good, strong, historical antidote, an antidote that reminds at least the pundits what it is that businesses do and where wealth comes from.

Harvard University business historian Richard Tedlow offers such an antidote with his book, Giants of Enterprise: Seven Business Innovators and the Empires They Built.

Giants, Tedlow writes in the very first sentence of his book, “is a book about what Americans do best—founding and building new businesses.”

That simple sentence reveals what the true spirit of enterprise is all about. It’s not about greed. It’s about creating. It’s about building. It’s about discovery. And it’s about innovating.

So many critics of capitalism assume that economic growth and development are inevitable, that economies are somehow impelled to grow by historical forces of progress or some other abstraction.

But growth and development are not inevitable. Food, medicine, houses, and other goods don’t automatically appear, nor do the operations that make such goods. There are no historical forces of progress. There is only human action, the action of individuals.

Individuals create wealth. They do so by creating and building enterprises that combine labor, capital, and materials to make things that didn’t exist before, things that people value. The consequence of their actions is economic growth and development.

That might be lost on the pundits, but it’s not lost on Tedlow, and it won’t be lost on anyone who reads Giants of Enterprise.

Giants describes the careers of seven great American businessmen: Andrew Carnegie, the steel magnate; George Eastman, creator of Eastman Kodak; auto pioneer Henry Ford; Thomas Watson, Sr., IBM’s first CEO; Charles Revson, who built Revlon cosmetics; Wal-Mart’s Sam Walton; and Robert Noyce, inventor of the integrated circuit and co-founder of Intel.

These men were quite different from one another. They were from different time periods—Carnegie was born in 1835, Noyce in 1927. They had different backgrounds—Revson’s parents were Russian-born Jews, Ford was a Michigan farm boy. And they had different personalities—Eastman was quiet and soft-spoken; Walton, cheerful and gregarious. There was nothing typical about any of them.

But then, there is nothing typical about any of America’s business leaders. Such people  comprise a heterogeneous group. So don’t bother searching for the typical American business executive. “There is no typical American business executive,” Tedlow informs us.

Business leaders do have some characteristics in common, however. They are confident and ambitious, and are tireless workers. They are not afraid to take risks, but they are not reckless, either. And they are adept at seizing opportunities that others miss—opportunities to create and to build. 

Tedlow’s seven businessmen were builders and creators of the highest order. They became very wealthy, for which they are disparaged by the critics, who view the economy as a zero-sum world. What the critics neglect is that Tedlow’s seven became wealthy by building large pieces of the American economy.

Quite literally, in Carnegie’s case.

Railroads were still using cast iron rails in 1875 when Andrew Carnegie began his career in the steel business. Cast iron was brittle and inflexible and cracked all too frequently under great weight. Steel rails were far superior in strength and durability but were prohibitively expensive, even after Henry Bessemer discovered a better method of producing steel in 1856.

Carnegie made the Bessemer method economical. Fabulously economical. Carnegie was neither a scientist nor a technician.  He was a practical businessman who figured out that the Bessemer method could be made economical by producing on a massive scale.

He was also an organization man. To academic economists, economies of scale are datum, but in the real world of business, they must be built and organized—no easy feat.  Andrew Carnegie pulled it off in grand fashion.

Carnegie opened his famous Edgar Thomson steel mill in 1875. That year, the mill produced 5,840 tons of steel rails. By 1900, it produced 626,900 tons of steel rails. It sold them for $20 a ton. The price in 1856, the year Bessemer made his famous discovery, had been $265 a ton.

Steel was not only used to build the railroads, it was also used to construct large buildings in America’s rapidly growing cities. By 1900, steel had become, in Tedlow’s words, “the material basis of civilization.” It was largely Carnegie’s doing.

The other six biographical essays in Giants are also remarkable tales of creating and building. And in each case, the creating and building benefited large masses of Americans.

For Eastman, Ford, and Walton, that was the plan from the beginning. Eastman took up photography as a hobby in 1877. Taking pictures back then was an expensive and complicated affair. Eastman paid $50 for his first camera and photographic gear, which included an alarming array of chemicals, and then had to pay $5 for lessons to learn the craft. Still, he became convinced that photography could be made easy and inexpensive, and when it was, people would take to it in droves.

Eastman had difficulty finding investors for such a bold project, but the ones he found never had regrets. In 1888, Eastman introduced the first Kodak camera. The price: $25. In 1900, he introduced the Kodak Brownie. Price: $1.

What Eastman did for photography, Henry Ford did for the automobile. Ford’s stated goal was to improve people’s lives by providing inexpensive, quality transportation.

“I will build a car for the great multitude,” said Ford, “constructed of the best materials by the best men to be hired after the simplest designs that modern engineering can devise . . .  so low in price that no man making a good salary will be unable to own one—and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.”

This was an audacious statement when Ford made it sometime around 1903. Most everybody in the fledgling automobile industry was convinced that the automobile was and would always be a luxury for the rich man. In 1900, no one even knew whether gasoline, steam, or electricity would emerge as the dominant source of power for the vehicle.

On June 16, 1903, the Ford Motor Company was incorporated. In 1908, Ford rolled out the first Model Ts. The original price of the Model T was $825, and in 1908 the company sold 5,986 units. Eight years later, Ford had driven the price down to $360, and the company sold 575,000 units. This luxury for the rich man had become a staple for the common man.

Sam Walton’s market strategy was to cater to people of modest means in more rural, under-served areas. It was a good strategy. Wal-Mart is now the largest corporation in the nation.

Tedlow’s seven giants of enterprise were not saints, and Tedlow doesn’t describe them as such. Each had his quirks and qualms, and some had serious flaws. They were not immune from greed. Nor were they unmoved by the temptations of power.

But the most valuable lesson of Tedlow’s Giants of Enterprise is that great businessmen, for all their humanness, are creators and builders and are driven by, above all else, the desire to create and build. And it is the drive to create and build that is the true spirit of enterprise. .FM

 

Don Mathews teaches economics at Coastal Georgia Community College (dmathews@cgcc.edu).

 

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