We are in the middle of an entrepreneurial revolution that has surprised everybody, from monetarists such as Milton Friedman to the budget balancers who fear that venture capital won’t be forthcoming as long as billion dollar deficits hang over our heads. The econometrists haven’t caught the pitch because they have not found a way to feed the X factor of human ingenuity into their computers. The true prophet of the age is George Gilder, whose The Spirit of Enterprise (New York: Simon and Schuster, 274 pp., $17.95) proves the case for his contention that it is what individualists make and manage, not what economists measure, that constitutes the real economy.
What struck me, when I was immersed in writing a history of American business, was the way that new enterprises took off whether money consisted of greenbacks or gold, or whether the country had venture capital to spare or not. Bright ideas such as the Colt revolver and the first Tin Lizzie made their own markets and found backers despite money panics and strikes and even government-sponsored efforts to build railroads that led to nowhere. This does not mean that questions of money are not important. But it does mean that the X factor of the human mind, if it is permitted to function freely, will override all the other factors that make for easy statistical tabulation.
Gilder is convinced that we are in the middle of a so-called knowledge revolution whose boundaries defy charting. While the companies comprising the Fortune 500 were having their troubles, and actually employing fewer people, the new small businesses in the United States jumped from a 180,000 figure for 1963 to 600,000 for 1983. The publisher of Inc. magazine, Bernard Goldhirsch, notes that when big IBM was missing the mini-computer market, little Digital Equipment Company seized the opportunity to become a giant in its own right. California’s Silicon Valley phenomenon was born in the garages of students who had learned their physics and chemistry from some remarkable instructors at Stanford University. The Stanford students didn’t have venture money of their own. But the microchip found its way into industry nonetheless.
Roundabout Creativeness
George Gilder makes his points about the roundabout creativeness of the entrepreneurial process by telling some remarkable stories. He notes that while the pampered children of “entitled” parents “ache at the burden of laboring from nine to five,” the entrepreneurs, willing to hold three jobs at one time, rise before dawn and work happily from five to nine. The entrepreneurs ignore politics. But the politicians who ignore the entrepreneurs are amazed when, in the periods when Atlas shrugs, “the great physical means of production . . . dissolve into so much scrap, ruined concrete, snarled wire, and wilderness.”
In Idaho George Gilder ran into a character named Jack Simplot. Simplot’s father had scratched a living from 120 acres of sand grubbed out of the sagebrush mainly by hand. Though the young Simplot did not abhor work, he saw no need of punishing himself when there were more ingenious ways of making a living available. The adolescent Simplot made his first killing by collecting”bum” sheep (extra lambs from broods of twins and triplets that could not be suckled) from neighborhood farmers. When the time was ripe he sold the sheep back to the farmers for the princely sum of $140. When the price of pork went below the cost of producing it, Simplot used his lamb money to buy up runt pigs that might otherwise have been doomed to mass graves. He fed the runt pigs on unwanted potato culls. Meanwhile the disgruntled pig farmers were getting out of the pork business. Eventually Simplot was able to dispose of his pigs in a most favorable sellers’ market.
From his knowledge that even stored potato culls could be worth money, Simplot started to explore methods of keeping vegetables in cold storage. He also began drying potatoes and onions for the army. He emerged from World War II a “bold and happy business warrior,” ready with the capital and the technical knowledge to take on a contract for supplying French fries for Ray Kroc’s McDonald’s chain of restaurants west of the Mississippi. It was at this point that the millions started to roll in.
From Gold Mines to Silicon Chips
George Gilder’s point is that no econometrist in the world could have foreseen the happy accidents that led from Jack Simplot’s first purchases of unwanted lambs and pigs to his connection with Ray Kroc’s fast food business. The final chapter in the Simplot story is the most amazing. With money burning in his pockets Simplot planned an adventure in Latin American gold mining. He visited the Dominican Republic, where the high price of gold had suddenly made a mine started by Christopher Columbus’s son, Diego, extremely profitable. But the Dominican government proved to be too grabby about the split it demanded from mine profits.
So it was back to Idaho for Simplot. Close to home he discovered some young scientists and entrepreneurs who had ideas about crowding more and more memory items on to a silicon chip. Though he could not have made a semi-conductor by himself, he liked what the “farm boys” of the Micron Company had to say. Deciding to give them a run, he asked, “What’ll it take to get her rolling?” The answer was “four million.” “All right,” said Simplot, “we’ll go for it.” So the lamb and pig and French fry potatoes money went into a high-tech business that has flouted the belief that silicon chips can be assembled into packages more cheaply in offshore plants than at home. The whole roundabout process by-passed the capital markets of the East and the computers of the econometrists in Cambridge, Massachusetts and Philadelphia.
Going on from Simplot, George Gilder proves that the process he has been tracing from an obscure beginning in a potato patch is far from being singular. His account of how John Masters, a 1948 Yale graduate, hit upon a great natural gas reservoir in Alberta and British Columbia is just as thrilling as the Simplot saga. Masters, an unemployed explorer from Tulsa, Oklahoma, had no money and owned no oil reserves. But he had some ideas and some brilliant friends. He went into the mountains of western Canada when all of the big oil companies were pulling out. As he summed up his problem, “The process of finding oil is essentially analytical reconstruction of geologic history in order to determine the probable hiding place of oil and gas accumulations that are buoyant, mobile, and constantly seeking upward escape . . . It has elements of a detective story, a spy mystery, the search for a hidden tomb.”
To solve the labyrinthine puzzle in western Canada, Masters took the data from old electric log books and integrated the information with the knowledge acquired by fresh drilling. Following from outcropping to outcropping, Masters hit upon some massive telltale cliffs of pebble conglomerate which had the “sorting and grading” of an ancient beach. “You could hear the seagulls,” Masters said. “They were screaming across a hundred million years of time.” The conglomerate outcropping was the key needed to confirm Masters’ theory of an immense basin of natural gas. Unfortunately the nationalistic policies of Pierre Trudeau have militated against the full exploitation of Masters’ discovery.
The new Proposition Two-and-one-half property tax limitation in Massachusetts came in time to help one of George Gilder’s heroes sell a cheap and effective water purification system to the town of Pittsfield. As long as there was no limit to the tax money available to municipalities Milos Krofta could not persuade the politicians to listen to his claims that he had a better purification method that would cost the taxpayers less money. But when the law actually took money away from the town councils, Krofta began to get a hearing.
Gilder’s sections on Japanese entrepreneurship point up his purely American chapters. The story of Honda, who owed nothing to government, should surprise nobody who is conversant with the story of Henry Ford. Gilder has theories about the spiritual motivation of the entrepreneur, and in many cases they may very well be true. But motivation doesn’t really matter as long as the entrepreneur’s independence is respected. The big lesson is to leave the enterprisers alone. If we do, they’ll take care of all of us.
