Saturday, March 23, 2019

"Debunking the Capitalist Cowboy"

There is more money to be made flouting or changing the rules than there is being creative/inventive.
From the Boston Review:

Business schools fetishize entrepreneurial innovation, but their most prominent heroes succeeded because they manipulated corporate law, not because of personal brilliance.
Capitalism, like the United States itself, has a mythology, and for five decades one of its central characters has been the nineteenth-century maverick cigarette entrepreneur, James B. Duke. Duke’s risk-taking investment in the newfangled machine-made cigarette, so the story goes, displaced the pricey, hand-rolled variety offered by his stodgy competitors. This, in turn, won Duke control of the national, and soon global, cigarette market. Repeated ad nauseam in business and history journals, high school and university curricula, popular magazines, and websites, the story has taught that disruptive innovation drives capitalist progress.
The problem? The Duke story is false: mid-century business historians fabricated it to accord with the theory of creative destruction, developed by libertarian economist Joseph Schumpeter. For generations, we have learned from this myth to fetishize entrepreneurial innovation as the engine of capitalism, while missing Duke’s instrumental role in rampant corporate empowerment.

Duke’s true “innovation” came not in the 1880s, when the cigarette machine transformed the production process, but in the 1890s, when business corporations shed the fetters of state regulation and radically redefined themselves. Duke’s American Tobacco Company (ATC) moved to the cutting edge of this process when it repelled legal challenges to its monopoly by drawing on new notions of corporate personhood in the wake of the Fourteenth Amendment. Passed during Reconstruction, the Fourteenth Amendment established federal protections of property and due process, rights previously controlled by state law, so that freed slaves would be able to claim full citizenship no matter where they resided. Though the amendment referred to “persons born or naturalized in the United States,” which suggests human persons, lawyers attempted to use the amendment to shield corporate “persons” from state regulations. With the ATC’s win in court, the corporation claimed an enhanced legal personhood, protection from states, and status as a private rather than public entity. Unrestrained, the ATC rapidly gobbled up companies across the United States and the globe, catapulting Duke to spectacular wealth and power. These changes in the corporation, though dramatic and unprecedented, came to seem so natural that they became nearly invisible. And what is natural and invisible is impervious to critique.
section separator
The myth of Duke has enjoyed a decades-long career legitimating free-market capitalism. Born at the Harvard Business School in the years after World War II, the myth took shape in the Research Center in Entrepreneurial History. Established in 1948 with a grant from the Rockefeller Foundation, the interdisciplinary Research Center linked Harvard’s economics department with the business school and business historians. Joseph Schumpeter joined the faculty in the economics department in 1932 and was a founding member of the Research Center. Much like an urban legend, the Duke myth was not the result of conscious lies. Rather, the economically flush and ideologically siloed space of the Research Center led to a narrowing of critical debate and a cascading failure of rigorous historical methods.

Schumpeter eagerly used the Research Center to promote ideas on innovation that he had been developing since the 1930s. Schumpeter’s theory narrated a drama of capitalism in which the entrepreneur entered as hardnosed antihero, the driver of capitalist innovation and progress. Schumpeter gave the entrepreneur “glamour,” in the words of economist Arthur Smithies, by painting the entrepreneur as a prescient rogue. While most businessmen are “fenced in by social habits or conventions and the like,” the innovative entrepreneur, Schumpeter claimed, is “the most rational and the most egotistical of all.”
He is “more self-centered than other types, because he relies less than they do on tradition and connection and because his characteristic task . . . consists precisely in breaking up old, and creating new, tradition.” In other words, if you see an antisocial, egotistical entrepreneur leaving a path of wreckage in his wake—destroyed markets, lost jobs, bloated monopolies—you should celebrate rather than lament, because this is how the capitalist market revitalizes itself. Schumpeter never referenced the cowboy explicitly, but his antihero entrepreneur markedly resembled a John Wayne character. (Incidentally, Schumpeter loved riding horses and often showed up to Harvard faculty meetings in his jodhpurs.)...

HT: sadly, I don't recall how the article came into our possession.