Knowing Business History is as important

This blog has written in many a posts the importance of knowing and remembering economic history.

HBSWK has an interview of Geoffrey Jones, Harvard University Prof who is a Business Historian. He has written a handbook on the subjectand the interview deals with findings and business history.

Over the last few decades, business historians have generated rich empirical data that in some cases confirms and in other cases contradicts many of today’s fashionable theories and assumptions by other disciplines, says Harvard Business School professor Geoffrey Jones, who edited the volume with University of Wisconsin-Madison professor Jonathan Zeitlin.

But unless you were a business historian, this data went largely unnoticed, and the consequences were not just academic.

“This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past,” says Jones. For example, current accepted advice is that wealth and growth will come to countries that open their borders to foreign direct investment. “The historical evidence shows clearly that this is an article of faith rather than proven by the historical evidence of the past,” says Jones.

🙂

Q: Why does business history research remain in a silo?

A: I think there are at least three reasons.

First, business historians often write big books on big issues, whilst the preferred outlet for much management and social science research is specialist, peer-reviewed journals.

Second, much research takes the form of case studies and is often qualitative rather than quantitative. In disciplines where standardized social science methodology, especially multiple regressions, has become the accepted norm of rigor, it is hard to understand the significance of this empirical literature, and quite easy to dismiss it as anecdotal and unscientific.

Third, many business historians still work within national frameworks. As a result, much literature is placed within the context of the histories of particular countries rather than addressing analytical issues, such as why firms grow big. Moreover, whilst English may be triumphant in the world of business, in the world of business history, scholars still write in local languages. There is a rich literature on Japanese business history in Japanese and on Latin American business history in Spanish, as well as a good understanding of European business history that requires knowledge of multiple languages.

As editors, Jonathan Zeitlin and I insisted that the contributors of our chapters focus on key issues and not national frameworks, and at a minimum address the literature generated in North America, Europe, and Asia, and ideally elsewhere. The references in almost every chapter contain multiple citations to literatures not published in English.

He points to couple of beliefs which are mistaken as people do not understand history:

Q: Is there a major theme running through the book?

A:For me, a major theme is the importance of historical knowledge in truly understanding business, and how the growing ahistorical nature of much management and economics literature has seriously compromised its legitimacy.

In a well-documented process, the spread of quantitative and standardized social science methodologies has driven business and economic historians from economics departments and journals, and from many second-tier business schools.

This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past. As Gary Herrigel’s chapter on corporate governance argues, much of the contemporary literature distinguishing sharply between dispersed/outsider (e.g., United States/United Kingdom) and concentrated/insider systems (e.g., Germany/Japan) is problematic, because in reality countries have historically both moved between different systems and, more importantly, combined elements of different systems for long periods.

Another instance is the highly influential “law and economics” literature, which emphasizes the importance of the common law tradition in protecting minority shareholders in contrast to the civil law tradition, and in stimulating financial and economic development. This has sometimes been used to explain why the United States performed so much better economically than Latin America. Yet there is now a formidable amount of evidence from business history, not least the outstanding research by Harvard Business School’s Aldo Musacchio in the BGIE Unit, showing that this hypothesis has little empirical support. A careful study of 19th-century French and American law, for example, found little difference between the two countries in the legal system’s responsiveness to business organizational needs. Indeed, U.S. law offered entrepreneurs fewer options on how to organize their businesses.

And then in another question he says:

…….As I write in my essay in the Handbook, and have explored in other work with my HBS colleague Tarun Khanna, the history of globalization delivers a rich set of data for current debates and literature on globalization. At the crudest level, historical evidence avoids spurious labeling of some phenomena as “new,” and by so doing can challenge current explanations of their determinants.

Historical evidence is crucial to exploring the causal relationship between foreign direct investment and long-run economic development. Today’s world policy advice to all countries, and even more so to poor ones, is to open their borders to foreign multinationals because they will generate wealth and growth. The historical evidence shows clearly that this is an article of faith rather than proven by the historical evidence of the past. Or more precisely, there have been a wide variety of outcomes, but one persistent generalization is that foreign direct investment does not bring sustainable development unless the host country has a business system that is able to learn and absorb new knowledge, and an appropriate public policy framework.

Wow… So much of  what I thought to be standard fare and accepted eco seems to be just an “article of faith”.  One can also read the findings he mentions in the book, in his papers here.

On Indian business history he says:

India’s rich business past is still only partially documented, despite some first-rate research in India and elsewhere. There is still only one overall survey of Indian business history. As Indian companies such as Tata become global giants, we need to understand where they came from.

What did you expect??

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6 Responses to “Knowing Business History is as important”

  1. Knowing Business History is as important « acc3ss.info Says:

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  2. Knowing Business History is as important « Mostly Economics | Money Blog : 10 Dollars : Money Articles. Says:

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  3. 2Dinternational.com » Knowing Business History is as important « Mostly Economics Says:

    […] the original post:  Knowing Business History is as important « Mostly Economics This entry is filed under Business. You can follow any responses to this entry through the RSS […]

  4. Knowing Business History is as important « Mostly Economics « Business Blog Says:

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  5. bill greene Says:

    BUSINESS HISTORY TRUMPS ECONOMIC THEORY

    It is much more helpful to understand the history of business in the broadest form rather than get lost in the statistical or theoretical details being produced on every facet of economic activity. After all, everything has been tried in the past and it is not too difficult to see what worked and what didn’t.

    For example, either civil law or common law (or some other law) will help an economy provided it accomplishes certain basic requirements of a free economy–the law must protect property and personal rights, offer timely and just decisions, and maintain law and order. The Phoenicians had a system that worked to those ends that preceded what we think of as civil or common law–the specific law system is just a means to an end.

    Similarly with foreign investment, it will neither make nor break an economy. The essential issue is whether the nation has in place an open and free economy. If it does, it will build from within. Some foreign investment may help accelerate economic activity, but it is no substitute for empowering resident citizens to build their own businesses. As Julian Simon wrote, the most essential “natural resource” is a nation’s people, and if they are not fully involved, and free to apply thier genius, their nation will remian poor.

    Any look at history reveals that 90% plus of the world’s people stagnated in poverty throughout all periods of time. Certain Empires did and still do attain great luxuries for a small elite, but they are basically slave/serf/peasant economies. We are interested in economies where a fairly large percentage of the people attained a degree of prosperity–and that only happened in a few isolated locales.

    Phoenicia, classical Greece and Republican Rome were the earliest examples of widespread prosperity. These economies were built on trade, shipping and the involvement of a large number of their people who enjoyed a good degree of economic freedom and private property rights. Victor Davis Hanson’s “The Other Greeks” speaks to this origin of free farm families around 800 BC as a foundation stone of future progress. There was some combination of independence, self-sufficiency, and freedom of action that made the whole difference.

    After that, the Italian city states, the Hanseatic cities, 16th century Holland, 17th century Scotland, and eventually England, France and the U. S. reached the ultimate of prosperity. Nowhere else in the world was there anything else like it. In “Common Genius” I have traced these rare “laboratory societies” (as Jean-Francois Ravel calls them) and shown the unique features that made them become prosperous and why the absence of those features in all other societies held most of the world back.

    This same viewpoint has been documented by Hernando deSoto. Most of the world’s poor have assets–more assets than the millennia program could give them over the next 70 years–but they hold it in ineffective “illegal” form. Their nation’s legal and financial systems do not let them convey, mortgage of finance their property. Most of the world’s poor are thus forced to operate underground as “illegals” simply because they lack the legal and financial mechanics developed in the few successful economies of the world. Nevertheless, such places as Singapore, Hong Kong, and now Dubai have adopted those mechanics and have demonstrated the positive and direct results.

    There is little theory to any of this, which may be why academic economists ignore the obvious. The systems that made America “work” were simple–like the parts to a gas engine : A Registry of Deeds, Banking laws establishing corporate institutions to lend and borrow money, the obvious court systems, police protection within the country, border protection from invaders, corporate law and stock exchanges, and, above all, a free and open economy with minimal regulatory and licensing requirements–the sole purpose of all those mechanical parts is simply to allow every citizen easy entrance into the nation’s enterprises and the ability to start their own businesses.

    Looking at the historical record, there really is no need for economists or economic theory at all. From 1620-1850, over a 230 year period, the Americans built the richest nation on earth from a wilderness by simply having all the mechanical parts enumerated above–and no economists.

    And we have seen over the past 60 years that all the economists in the world cannot make a single 3rd world nation prosper, despite massive aid, loans, training, and macro-economic counselling–because the esential mechanical systems are not in place..

  6. History of global beauty products industry « Mostly Economics Says:

    […] Addendum: Read an earlier interview of Jones here […]

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