------------ EH.NET BOOK REVIEW --------------
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_.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be
copied for non-profit educational uses if proper credit is given to
the author and the list. For other permission, please contact the
EH.Net Administrator ([log in to unmask]). Published by EH.Net (May
2010). All EH.Net reviews are archived at
http://www.eh.net/BookReview.
-------------- FOOTER TO EH.NET BOOK REVIEW  --------------
EH.Net-Review mailing list
[log in to unmask]
http://eh.net/mailman/listinfo/eh.net-review