From the Publisher
Praise for The Company by John Micklethwait and Adrian Wooldridge
“Remarkable . . . True believers in the free market faith and heretics alike will profit from knowing this history.”
–San Francisco Chronicle
“A swashbuckling journey through the past and into the future of the modern company.”
–Los Angeles Times
The authors take up [the corporation’s] tale with brio and wit . . . . Worthwhile for almost anyone with an interest in the subject.”
–The Wall Street Journal
“The limited-liability joint-stock company is a very marvel of the modern world economy, a historical force to rival religions, monarchies, and even states. The Company tells the colorful story of its birth and maturation—and its pervasive social and cultural consequences—with rare concision and flair.”
—David M. Kennedy, author of Freedom from Fear and professor of history at Stanford University
“A fascinating and delightful investigation both of how the guilds and ‘corporate persons’ of the Middle Ages turned into the institution from which so many people today directly and indirectly earn their daily bread and of the issues facing the company in the twenty-first century.”
—Daniel Yergin, author of The Prize and coauthor of The Commanding Heights: The Battle for the World Economy
The Washington Post
In The Company, a highly readable history that manages to be both brief and magisterial, Economist staffers John Micklethwait and Adrian Wooldridge convincingly argue that the modern corporation was one of the prime innovations that fueled the Industrial Revolution. — Daniel Gross
Considering the astounding impact companies have had on every corner of civilization, it's amazing that the development of the institution has been largely unexamined. Economist editors Micklethwait and Wooldridge present a compact and timely book that deftly sketches the history of the company. They trace its progress from Assyrian partnership agreements through the 16th- and 17th-century European "charter companies" that opened trade with distant parts of the world, to today's multinationals. The authors' breadth of knowledge is impressive. They infuse their engaging prose with a wide range of cultural, historical and literary references, with quotes from poets to presidents. Micklethwait and Wooldrige point out that the enormous power wielded by the company is nothing new. Companies were behind the slave trade, opium and imperialism, and the British East India Company ruled the subcontinent with its standing army of native troops, outmanning the British army two to one. By comparison, the modern company is a bastion of restraint and morality. In a short, final chapter on the company's future, the authors argue against the fear, in antiglobalization circles, that "a handful of giant companies are engaged in a `silent takeover' of the world." Indeed, trends point toward large organizations breaking into smaller units. Moreover, the authors argue that for all the change companies have engendered over time, their force has been for an aggregate good. Agent, Andrew Wylie. (On sale Mar. 4) Copyright 2003 Cahners Business Information.
We take the company for granted; it is how businesses are typically organized. In this engaging and well-written short book, the authors, both correspondents for The Economist, demonstrate that although there are some older antecedents, the modern company dates from the mid-nineteenth-century United Kingdom and United States. The modern company has two key characteristics: a separate, indefinite legal existence and owner liability limited to the capital advanced to the company. The former permits the company to make contracts for buying and selling and to outlive its founders, while the latter allows it to raise capital in abundance. The modern company has proven to be a remarkably productive form of social organization and it has adapted very well to a wide variety of conditions. But as the authors remind us, it is not truly independent, remaining a creature of the political system to which it is ultimately responsible.
Economist editors Micklethwait and Wooldridge (coauthors, A Future Perfect: The Challenge and Promise of Globalization) present a concise yet sweeping history of the limited-liability joint-stock company-"the world's most powerful institution"-and the swath it has cut through economic history. Beginning with Sumerian families who traded along the Tigris and Euphrates rivers, this intriguing story continues to the growth of chartered companies in the 16th and 17th centuries; the slave trade and early industrialization; the rise of big business in America in the early 20th century; business conglomerates in Britain, Germany, and Japan from 1850 to 1950; post-World War I managerial capitalism and the company man; and the greed of the 1980s, all the way to the present-day dot-com bust and accounting scandals. The authors close with a succinct history of the multinational and provide a cautionary projection of what may lie ahead for the company. This handy history nicely supplements the larger works of Alfred Chandler (e.g., Strategy and Structure) and exemplifies the grand tradition of Fernand Braudel's magisterial "Civilization and Capitalism" series. Essential for academic libraries supporting business and organizational dynamics curriculum and recommended for public libraries as well. [Previewed in Prepub Alert, LJ 11/1/02.]-Dale Farris, Groves, TX Copyright 2003 Reed Business Information.
Is the corporation a soulless and soul-killing construct, an instrument of unmitigated evil, as Genoese streetfighters and latter-day Naderites are wont to argue? Not necessarilyand not even usuallywrite two Economist reporters. Whoever came up with itand several nations and times can lay claim to itthe company is a brilliant idea. From the outset, the creation of a business entity that had some of the rights, and some of the traits, of an individual person allowed cash-strapped governments to secure the wherewithal for projects ranging from securing shipping lanes to conquering half the world, and it allowed single investors to form blocs and gain wealth unattainable to anyone without a cannon. Some of the earliest companies, write Micklethwait and Coolidge, were quasi-governments in themselves. The British East India Company, for instance, commanded a private army a quarter of a million soldiers strong, far larger than the British army. The Virginia Company transported goods to and from the American colonies while encouraging democratic ideas that helped get the king’s hand out of the tillfor which reason James I called the firm "a seminary for a seditious parliament." Fueled by a logic that the economist Ronald Coase identified as the desire to minimize the transaction costs involved in coordinating a particular economic activityget everyone under one roof, and coordination is a breezesuch companies grew and diversified, yet did not become giants until the late-19th and early-20th centuries, when master planners such as James Buchanan Duke, the tobacco giant; Thomas Watson, the paternalistic founder of IBM; and the good folks at Procter &Gamble pulled together to corporatize all aspects of societyin the case of the last, the authors wryly remark, also "ruining modern culture by creating the soap opera." Yet, they argue, despite widespread fears to the contrary, big corporations are steadily losing their power, while small onesand there are more than 5.5 million in the US aloneare becoming the norm, allowing for healthy diversity and even doing some good. An entertaining and even charming excursion in business history, largely unburdened by formulas and numbers but full of debate-stirring data all the same. Agent: Andrew Wylie
Read an Excerpt
Merchants and Monopolists
3000 b.c. — a.d. 1500
Before the modern company came of age in the mid-nineteenth century, it had an incredibly protracted and often highly irresponsible youth. The merchants and marauders, imperialists and speculators, who dominated business life for so many centuries might not have formed fully fledged companies as we know them, but they nevertheless created powerful organizations that changed commercial life.
As long ago as 3000 b.c., Mesopotamia boasted business arrangements that went beyond simple barter. Sumerian families who traded along the Euphrates and Tigris rivers developed contracts that tried to rationalize property ownership. The temple functioned as both bank and state overseer. The Assyrians (2000–1800 b.c.), a group one normally associates with biblical savagery, took this farther. One document shows an Assyrian ruler formally sharing power with the elders, the town, and the merchants (or karum, named after the word for quay, where they sat). There was even a partnership agreement. Under the terms of one such contract, some fourteen investors put twenty-six pieces of gold into a fund run by a merchant called Amur Ishtar, who himself added four. The fund was to last four years, and the merchant was to collect a third of the profits—terms not dissimilar to a modern venture-capital fund.
The Phoenicians and later the Athenians took this sort of capitalism to sea with them, spreading similar organizations around the Mediterranean. The expense and time involved in maritime commerce made some type of formal arrangement even more necessary than its land-based equivalent. So did the ever-present danger, for investors and creditors alike, that a sea captain would simply disappear. (Homer, the first of a long line of storytellers to distrust traders of all sorts, denounces merchants from Tyre for being duplicitous.)
The Athenian model stood out because it relied on the rule of law rather than the whim of kings, and because it was unusually open to outsiders. A banker and ship owner named Pasion, who died in 370 b.c. as one of the city’s richest men, originally arrived as a barbarian slave. Yet, Athenian businesses remained small beer, typically mustering no more than a handful of people; even shield factories, the largest-known businesses, seldom employed more than one hundred slaves.
The societates of Rome, particularly those organized by tax-farming publicani, were slightly more ambitious affairs. To begin with, collecting taxes was entrusted to individual Roman knights; but as the Empire grew, the levies became more than any one noble could guarantee, and by the Second Punic War (218–202 b.c.), they began to form companies—societates—in which each partner had a share. These firms also found a role as the commercial arm of conquest, grinding out shields and swords for the legions. Lower down the social scale, craftsmen and merchants gathered together to form guilds (collegia or corpora) that elected their own managers and were supposed to be licensed.
William Blackstone, the great eighteenth-century jurist, claimed that the honor of inventing companies “belongs entirely to the Romans.” They certainly created some of the fundamental concepts of corporate law, particularly the idea that an association of people could have a collective identity that was separate from its human components. They linked companies to the familia, the basic unit of society. The partners—or socii—left most of the managerial decisions to a magister, who in turn ran the business, administered the field agents, and kept tabulae accepti et expensi. The firms also had some form of limited liability. On the other hand, the societates were still relatively flimsy things, “mere groups of individuals,” as one historian puts it. Most tax-farming contracts were for short terms. And most wealth was still concentrated in agriculture and private estates.
When Rome crumbled, the focus of commercial life moved eastward—to India, and particularly to China and the Islamic world. The prophet Mohammed (569–632) was a trader. If the religion that he founded banned usury, it nevertheless encouraged responsible moneymaking: while Christian businessmen often found their work at odds with their creed, Muslim merchants like Sinbad could be heroes. To this moral advantage, they could add a couple of geographic ones. First, they sat between West and East. Thousands of Muslim merchants had reached China before Marco Polo appeared. And, second, many Arabs lived in barren places with only rudimentary agriculture. In Mohammed’s Mecca, there was precious little for a young man to do other than become a trader.
The Chinese, meanwhile, opened up a huge technological lead over the West. Within a decade of William the Conqueror dispatching Harold at the Battle of Hastings (1066), Chinese factories were producing 125,000 tons of iron a year—a figure Europe would not match for seven hundred years. The Chinese pioneered paper money. During his travels in China in 1275 to 1292, Marco Polo marveled at trading junks large enough to provide sixty merchants with their own cabins. Even by the time that Vasco da Gama made it round the Cape of Good Hope to East Africa in 1497, his much- better-dressed hosts, accustomed to China’s huge ships, wondered how he could have put to sea in such puny craft.
The debate about why the Chinese and Arabs lost their economic lead to the West is a huge one. Suffice to say here that their relative failure to develop companies was part of their broader geographic and cultural shortcomings. Islamic law allowed for a form of flexible trading partnership, the muqarada, which let investors and traders pool their capital. But, for the most part, the law relied on oral testimony rather than written contracts. And the inheritance law rooted in the Koran rigidly divided up a dead partner’s estate between countless family members (as opposed to the European system, which usually allowed partners to nominate a single heir). This tended to prevent Muslim firms from growing to a size where they needed to raise capital from outsiders.
In China’s case, the idea of permanent private-sector businesses was undermined both by culture and by state interference. Chinese merchants evolved elaborate partnerships: by the fourteenth century, there were a number of different categories of investor and merchant. But these partnerships seldom lasted much longer than a few voyages.
Meanwhile, many of the big “companies” that did emerge in China relied on the state. Hereditary bureaucrats ran state monopolies in many industries, including porcelain. These businesses often enjoyed huge economies of scale—until the eighteenth century, Chinese factories were far more impressive than anything the West could offer. Yet, the state monopolies suffered from the opposite problem from the businesses of merchants: they were not temporary enough. The very vastness of China counted against them. As we shall see, European state monopolies were also inefficient and corrupt, but they were at least kept on their toes and prevented from becoming so bureaucratic by having to compete with state monopolies from other countries.
In the end, China’s determination to look inward proved fatal. Arguably the zenith of Chinese economic imperialism came in the early fifteenth century, when the Ming emperor Yung Lo, who ascended the throne in 1403, built a fleet of huge treasure ships, which he dispatched around Asia. But after Yung’s death in 1424, his son stopped the treasure ships and gave their most famous seafarer, Zheng He, a landlubber’s job. Crucially, he also ordered all mercantilist exploration to stop. Later emperors rebuilt trade relations with other Asian countries, but their ambitions were limited. In 1793, the Chinese emperor sent a message to Britain’s George III: “As your ambassador can see, we possess all things. . . . There is therefore no need to import the manufactures of outside barbarians in exchange for our own produce.” This was an unfortunate attitude, for by then China’s merchants faced a formidable new form of business organization.
From the Hardcover edition.