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Speaker 1: Robert Smith, consider, if you will, the company.

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Speaker 2: The company, the corporation, the firm.

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Speaker 3: Not any company, not a company, but the idea of

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Speaker 3: the company.

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Speaker 2: Which seems like this big concept that almost exists in nature, right?

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Speaker 2: You have the state... The state is how human beings

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Speaker 2: organize themselves politically, and then you have the company.

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Speaker 1: The company is up there with the state, right?

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Speaker 3: The company, in terms of powerful institutions in the modern world,

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Speaker 3: those are clearly the big two. It's really interesting to

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Speaker 3: look at the history of business, as one does, and

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Speaker 3: realize that the company... especially the company as we know it,

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Speaker 3: has not always been around. It is a human invention

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Speaker 3: that was invented in a very specific time and place.

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Speaker 3: That time and place is England in the mid-1800s. And

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Speaker 3: then the company went on to conquer the world.

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Speaker 1: I'm Jacob Goldstein.

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Speaker 2: I'm Robert Smith. This is Business History, a show about

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Speaker 2: the fundamental, basic history of business, which is the company.

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Speaker 3: And Robert, you and I both read years ago, before

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Speaker 3: we started the show, we read a book called The Company,

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Speaker 3: a short history of a revolutionary idea.

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Speaker 2: I picked it up a couple weeks ago and looked

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Speaker 2: at it again and found that I had underlined probably

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Speaker 2: half the book. Like, loved it. Great ideas in this book.

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Speaker 1: Yeah, full of ideas and stories.

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Speaker 3: And so for today's episode, we are interviewing one of

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Speaker 3: the co-authors of the book, Adrian Wooldridge. He's an opinion

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Speaker 3: writer at Bloomberg News now, has been covering business and

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Speaker 3: economics for decades at this point.

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Speaker 1: We talked to him about the history of the company.

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Speaker 1: That's what today's episode is.

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Speaker 2: And we're going to cover some of the big things

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Speaker 2: that have happened since Adrian wrote the book. The rise

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Speaker 2: of companies in China, for instance, artificial intelligence. That'll be

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Speaker 2: at the end of the show. But mostly we talked

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Speaker 2: about the older history because it really is fascinating.

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Speaker 3: In particular, we started with this list that is in

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Speaker 3: the book of the four things that came together, at

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Speaker 3: least in Wildridge's argument, the four things that came together

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Speaker 3: to create the modern company. The list is this. One,

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Speaker 3: artificial personhood. Two, tradable shares. Three, limited liability. And four,

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Speaker 3: open entry, meaning anybody who wants to can start a company.

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Speaker 3: And so, of course, we started with number one on

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Speaker 3: the list, artificial personhood.

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Speaker 4: A corporate body is something that can live forever. It's

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Speaker 4: more than the sum total of the individuals who constitute it.

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Speaker 4: And it can live globally in all sorts of ways.

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Speaker 4: It's not defined by the boundaries of either place or time.

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Speaker 4: And the people who really develop a lot of the

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Speaker 4: legal thinking behind the notion of a corporation, a corporate body,

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Speaker 4: are the Romans. It's a very important fact of Roman law.

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Speaker 1: The word, right?

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Speaker 3: Like it's cognate with corpse. It means formed into a body. Yeah.

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Speaker 3: So what is this sort of proto-corporation that we see

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Speaker 3: in ancient Rome?

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Speaker 4: Well, you could have a town could be a corporation

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Speaker 4: or a guild could be a corporation. There are groups

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Speaker 4: of people who form organizations to pursue collective ends. There

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Speaker 4: are fishmongers, fishermen people who gather together to represent the

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Speaker 4: interests of people who are involved in fishing and things

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Speaker 4: like that. Yeah, I think the whole, it's the notion

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Speaker 4: that when you form a collective, It has a collective existence,

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Speaker 4: which is more than just the existence of its individual members.

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Speaker 4: It's a body which has an immortality, has an ability

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Speaker 4: to exist outside the rules of space and time.

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Speaker 2: Did it need a contract? Did it need rules?

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Speaker 4: I mean, in Rome, yeah, of course. Everything is defined

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Speaker 4: by contracts and laws and rules. These are business-minded rules.

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Speaker 4: But a legion is a corporation. An army would be

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Speaker 4: a corporation. Things like that. It's certainly something that is

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Speaker 4: a collective entity.

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Speaker 3: And then you talk about this flourishing of corporations in

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Speaker 3: medieval Europe when we first get the word company. Which

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Speaker 3: comes from like eating bread together.

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Speaker 4: Yeah, breaking and eating bread together. And the Middle Ages

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Speaker 4: is the medieval times. There's an obsession with corporations. The

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Speaker 4: Middle Ages is a world in which you have towns,

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Speaker 4: you have guilds, you have bodies of people. who have

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Speaker 4: collective existences, collective rights, and they are forming these in

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Speaker 4: a way that's both enduring and also puts constraints on

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Speaker 4: the power of the state. So the Middle Ages is

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Speaker 4: almost a world that is honeycombed. with corporate bodies and,

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Speaker 4: of course, the church.

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Speaker 1: The Corporation of London is from that time.

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Speaker 4: I'm sitting at this very, very moment in the City

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Speaker 4: of London, the Corporation of London. This old City of

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Speaker 4: London is absolutely full of these corporate bodies. And then

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Speaker 4: you have things like, let's say, the guilds, the fishmonger

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Speaker 4: halls and things like that. These are bodies that have

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Speaker 4: been in existence for, Many, many, many centuries in which

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Speaker 4: at one point in their lives regulated trade in all

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Speaker 4: sorts of things. Now they basically regulate their own dinner times.

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Speaker 3: So you have this kind of corporate personhood in a

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Speaker 3: general way going on for a long time. It seems

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Speaker 3: like a big kind of step function, a big moment

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Speaker 3: in the life of the company comes around 1600, right?

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Speaker 3: When you get the chartered companies, the Dutch East India Company,

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Speaker 3: the English East India Company.

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Speaker 1: Which bring, you know, to go back to our list.

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Speaker 3: So we've had corporate personhood, tradable shares kind of exist

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Speaker 3: for a while before this, but tradable shares kind of,

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Speaker 3: as we know them today, come to be a big

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Speaker 3: deal with the chartered companies around 1600. So tell me

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Speaker 3: about these companies and tradable shares.

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Speaker 4: Well, well, Chartered companies essentially exist in order to.

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Speaker 5: Do trade with chunks of the world. The East India

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Speaker 5: Company does trade with East Indies. The Africa Company does

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Speaker 5: trade with Africa. And they're basically given monopolies by.

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Speaker 4: The state, have the right to issue shares, which give

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Speaker 4: limited liability to people who invest in those companies. So

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Speaker 4: you're bringing together some very, very important of the components

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Speaker 4: of the company, as we've talked about so far.

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Speaker 2: So when we have these companies, and we've heard about

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Speaker 2: them in history class, the English East India Company, the

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Speaker 2: Dutch East India Company, what exactly were they bringing in

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Speaker 2: terms of products? If I were someone who lived in London,

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Speaker 2: how would my life have changed through the import of

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Speaker 2: what we were getting from the East India Company?

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Speaker 4: Spices would be a very important thing. you know, Indian spices,

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Speaker 4: all of the sort of things one associates with the

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Speaker 4: Far East, or tea, or precious metals, or diamonds, or rubies,

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Speaker 4: all of these sorts of things that are available in India,

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Speaker 4: you go out and get them. So there's a sense

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Speaker 4: of enormous adventure. It's like sending a rocket out to

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Speaker 4: the moon and it comes back with a bunch of

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Speaker 4: things that aren't really very common in your country. And

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Speaker 4: suddenly people haven't seen these things before, haven't had them,

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Speaker 4: and suddenly they're addicted to them. One is coffee. That's

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Speaker 4: primarily bought in from Turkey. Another is tea, primarily bought

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Speaker 4: in from China, but also from India. All of these

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Speaker 4: things are coming on these boats, which are controlled by

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Speaker 4: these limited liability trading companies. They're given these monopolies by

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Speaker 4: the states in return for doing certain favors to the state.

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Speaker 4: So they're They're sort of used by the state to

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Speaker 4: control parts of the world. The British East India Company

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Speaker 4: lends the state ships. And quite frequently, the British East

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Speaker 4: India Company is bailed out by the state if it

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Speaker 4: gets into trouble.

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Speaker 1: They're called trading companies.

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Speaker 3: We think of trade as like, well, we'll sail over

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Speaker 3: there and sell them some stuff and buy some stuff

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Speaker 3: from them.

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Speaker 4: Yeah, it's not quite as nice as that.

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Speaker 1: They were private imperial companies. forces, right?

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Speaker 3: I mean, the English East India Company had an army

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Speaker 3: and a navy and they invaded and took over India, essentially.

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Speaker 4: Well, when it starts off, it's a bit more gentle

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Speaker 4: than that in the sense that they've got ships, they've

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Speaker 4: got guns, they shoot people who are their rivals, but

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Speaker 4: they're basically engaged in trade with parts of the world

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Speaker 4: that they reach. As the East India Company, as it develops,

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Speaker 4: it evolves from being primarily a company that's engaged in

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Speaker 4: trading with primarily a company that's engaged in ruling. Essentially,

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Speaker 4: they take over the administration of India because they conquer

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Speaker 4: India and they take over the taxation of the Indians.

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Speaker 4: They use the taxation of India to employ soldiers. We've

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Speaker 4: got a global trading empire administered through a sort of

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Speaker 4: private company with its own army, its own navy, costing

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Speaker 4: the taxpayer and the state nothing, but nevertheless extending Britain's

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Speaker 4: sphere of influence in Asia.

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Speaker 3: There were people at the time who didn't like the

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Speaker 3: East India Company because it was doing bad things, because

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Speaker 3: it was, you know, killing people in some instances. Interestingly,

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Speaker 3: Adam Smith also didn't like the East India Company. And

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Speaker 3: this is obviously well after it was founded, right? This

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Speaker 3: is the second half of the 1700s. But he didn't

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Speaker 3: like it for economic reasons, right? Why didn't Adam Smith,

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Speaker 3: what was Adam Smith's problem with these people?

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Speaker 4: Smith's essential problem with the East India Company is it's

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Speaker 4: a monopoly. The East India Company has a monopoly of

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Speaker 4: trade with India, China, other parts of the world, a

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Speaker 4: whole range of different places. It has a monopoly. In

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Speaker 4: return for that monopoly, it has limited liability.

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Speaker 1: It gets to be a company, right? That's the deal

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Speaker 1: it's making.

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Speaker 4: So it's really much– he sees it really as an

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Speaker 4: arm of the government, a pretend free trade organization. It's

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Speaker 4: a monopoly. And a lot of East India employees will

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Speaker 4: go on to sit in parliament. I think about a

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Speaker 4: quarter of the MPs in Britain at one point are

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Speaker 4: former East India employees. And– whenever the East India Company

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Speaker 4: has bad periods, as it does do, whenever it goes

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Speaker 4: bankrupt or close to bankruptcy, it's always being bailed out

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Speaker 4: by the government. So it will pay a lot of

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Speaker 4: money into the government.

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Speaker 1: So he's making the libertarian case, the free market case.

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Speaker 4: It's a free market case because this is not really

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Speaker 4: a free market organization, partly because of monopoly, partly because

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Speaker 4: of constant subsidies coming in. So the East India Company

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Speaker 4: will pay out for a number of years and then

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Speaker 4: it will get into trouble and it will require big subsidies,

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Speaker 4: which the government always does it because it's got this

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Speaker 4: bunch of East India men sitting in parliament voting in

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Speaker 4: favor of it. So it's a very peculiar, very peculiar organization.

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Speaker 1: So we've done corporate personhood. We've done tradable shares. Let's

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Speaker 1: talk about about limited liability.

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Speaker 3: And let's talk about it, you know, as time goes on,

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Speaker 3: limited liability remains controversial into the 1800s. And it's interesting

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Speaker 3: to me because limited liability we take for granted today.

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Speaker 1: But it's not obvious that the world should be that way.

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Speaker 1: And in fact, it's kind of weird, right?

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Speaker 3: Like if you, whatever, give somebody $ 1, 000 to buy something

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Speaker 3: from them, to buy flour from them, then the company

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Speaker 3: goes bankrupt. And they're like, oh, we're not going to

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Speaker 3: give you that flour you bought. And you can't have

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Speaker 3: your $ 1, 000 back because we went bankrupt. And then you

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Speaker 3: go to the house of the CEO or the guy

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Speaker 3: who was running the company or owned the company.

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Speaker 1: And he's still super rich. He's got a big house.

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Speaker 1: He's got a ton of flour. And you're like, just

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Speaker 1: give me that flour. I bought it. And he's like, no, no,

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Speaker 1: the company went bankrupt. And I don't owe you anything.

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Speaker 2: I'm fine. I'm fine.

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Speaker 4: Absolutely.

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Speaker 1: That's weird.

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Speaker 4: I wonder who you're thinking about. Anyway.

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Speaker 1: Yeah.

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Speaker 4: I mean, I should emphasize the fact that we've been

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Speaker 4: talking about a certain sort of company, which are limited

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Speaker 4: liability companies. And they're big trading companies which enjoy these monopolies.

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Speaker 4: But there are lots and lots and lots of other companies.

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Speaker 4: The vast majority of companies are partnerships.

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Speaker 1: Historically, you mean up until the 1800s? Historically.

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Speaker 4: So when you've got the East India Company, big massive

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Speaker 4: organization doing all of this stuff, you've got thousands upon

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Speaker 4: thousands of partnerships. And they basically consist of, they have

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Speaker 4: corporate personhood to some extent. They're people who come together

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Speaker 4: and agree to do business with each other, but they

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Speaker 4: don't have limited liability.

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Speaker 1: Which is amazing, right?

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Speaker 3: Like in that setting, if the company goes bust, the

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Speaker 3: partners go bust.

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Speaker 1: You can't be rich.

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Speaker 4: And have your company.

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Speaker 1: Down to their cufflinks. Lloyd's. We did the Lloyd's story.

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Speaker 3: That's Lloyd's of London had unlimited liability until the What?

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Speaker 1: End of the 20th century, basically. Anomalously.

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Speaker 4: So what tends to happen because of the risk of

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Speaker 4: unlimited liability is that these organizations remain small. They tend

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Speaker 4: to be people who know each other very well, quite

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Speaker 4: often who are related to each other. And they tend

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Speaker 4: not to last for hundreds of years. They're born and

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Speaker 4: they die. They dissolve quite quickly because they're networks and

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Speaker 4: they can go spectacularly bankrupt. So this separation between these

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Speaker 4: big trading companies with their limited liability on the one

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Speaker 4: hand and these very small partnerships, mostly of people who

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Speaker 4: know or are related to each other, which come and

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Speaker 4: go very, very quickly. So there are two different sorts

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Speaker 4: of worlds. If you go to the time of the Medicis,

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Speaker 4: let's say, there are large numbers of companies, but those

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Speaker 4: companies will be partnerships.

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Speaker 1: And family. I mean, the Medici, famously, it's a family.

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Speaker 4: And the Rothschilds. The Rothschilds. It's very common.

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Speaker 3: The chartered companies, the trading companies are so big and

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Speaker 3: so risky that the government's like, OK, we'll make an

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Speaker 3: exception for you. You can have limited liability because nobody

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Speaker 3: could handle unlimited liability.

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Speaker 1: The risk is too big. But what is it that

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Speaker 1: changes in the 1800s?

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Speaker 3: Why does it flip from limited liability being the exception

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Speaker 3: to limited liability being the norm as we know it today?

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Speaker 4: The heart of this whole thing is the advent of

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Speaker 4: the railroad. Because the railroad requires a lot of capital.

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Speaker 4: And it requires big risks on the part of a

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Speaker 4: lot of capital. And the government really, really wants railroads

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Speaker 4: to be all over the place. So instead of having

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Speaker 4: to go through the rigmarole of getting a bill through

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Speaker 4: Parliament to grant this person or that person the right

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Speaker 4: to build a railroad, the government comes along and it says,

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Speaker 4: why don't we have this idea of making limited liability automatic?

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Speaker 4: If people apply for limited liability, let them have it.

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Speaker 4: All they need to do is fill out the right forms,

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Speaker 4: have the right corporate structure. And so instead of being

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Speaker 4: a privilege granted in order to achieve certain ends. It

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Speaker 4: should be a right that you have so long as

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Speaker 4: you do follow the rules.

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Speaker 1: And when people say that, other people say, that's crazy.

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Speaker 2: Especially with railroads, you've got a giant iron thing that

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Speaker 2: can hurdle through space, kill people, like of all the

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Speaker 2: things to give them liability for, limited liability.

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Speaker 4: Absolutely. So there are a lot of people, and we

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Speaker 4: shouldn't forget here the role of ideology, that in a

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Speaker 4: world in which you have... the predominance of patronage. place, position,

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Speaker 4: feudal values. It sort of makes sense that you have

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Speaker 4: to ask for privileges from the government and the government

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Speaker 4: will give you those privileges in return for doing things

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Speaker 4: for the government. That's how the old world used to work.

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Speaker 4: Everything was about patronage and deference and personal relations. Then

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Speaker 4: come along a group of people who we might call

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Speaker 4: neoliberals if you wanted to be a little bit anachronistic,

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Speaker 4: but they're They.

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Speaker 1: Call themselves liberals at the time.

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Speaker 4: They're classic liberals who say, well, the world works better

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Speaker 4: if it's a nexus of contracts and if we presume

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Speaker 4: that people are going to do the right thing and

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Speaker 4: if the market works. So we should have a market

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Speaker 4: with establishing companies just like all sorts of things. So

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Speaker 4: a group of liberal reformers of whom the most famous

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Speaker 4: is William Gladstone come along and say, well, this should

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Speaker 4: be an automatic thing. Granted, if you obey certain rules,

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Speaker 4: tick certain boxes, rather than the privilege that you ought

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Speaker 4: to be groveling to the government about. So it's essentially

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Speaker 4: at the heart of the liberal reforming movements of the

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Speaker 4: mid-19th century. There are two things that they're obsessed by, really,

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Speaker 4: in my view. One is that you should have open

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Speaker 4: competition for jobs or for academic positions or for places

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Speaker 4: at universities.

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Speaker 1: A free market in labor.

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Speaker 4: And secondly, that you should have the same sort of

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Speaker 4: principles with companies. But there is quite a significant group

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Speaker 4: of free market thinkers who raise a big question mark

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Speaker 4: at the time. And John Stuart Mill being the most

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Speaker 4: prominent of these people. And they say, what do you

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Speaker 4: mean by limited liability? So you're going to impose the

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Speaker 4: cost of risk, which is consciously taken by certain people

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Speaker 4: on the whole of society. Why should the whole of

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Speaker 4: society passively have to accept the consequences of business practices

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Speaker 4: going wrong?

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Speaker 3: Yet there's a world you can make a free market

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Speaker 3: story where like a state of nature is obviously unlimited liability, right?

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Speaker 3: Like if some guy is running a company and owns

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Speaker 3: a company and loses a bunch of money and owes

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Speaker 3: me money and he has money, then he should give

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Speaker 3: me money in a state of nature, you could argue.

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Speaker 4: So the public, ultimately, somebody has to pay if things

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Speaker 4: go wrong. And ultimately, it's the public that pays it.

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Speaker 4: One of the things that happens from the middle of

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Speaker 4: the 19th century onwards when you get this mass production,

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Speaker 4: you get a lot of public limited liability companies. There's

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Speaker 4: an enormous bubble in the sense that there's a lot

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Speaker 4: of fraud. There are lots of companies that are badly run,

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Speaker 4: lots of companies that go bankrupt. it becomes a feature

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Speaker 4: of British or American capitalism. A lot of companies are

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Speaker 4: a bit dodgy. And the word company has a pretty

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Speaker 4: rakish name. One of the great books written in the 1870s,

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Speaker 4: I think, is The Way We Live Now, which is

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Speaker 4: by Anthony Trollope. And it's a book about companies, people

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Speaker 4: who create companies, basically to build railroads in the middle

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Speaker 4: of America, which they know nothing about. The people who

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Speaker 4: are running the companies are are a bunch of idle

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Speaker 4: aristocrats who think that they're going to get free money

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Speaker 4: for putting their names on boards. And there's this character

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Speaker 4: who's the heart of this book called August Melmut, who's

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Speaker 4: basically a massive fraudster. And this book is, you know,

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Speaker 4: not only extremely popular at the time, but it's telling

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Speaker 4: the story of a lot of financial fraud that goes on.

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Speaker 1: We're going to take an ad break. We'll be back

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Speaker 1: in just a minute.

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Speaker 3: By the way, if you want to listen to the

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Speaker 3: show without ads, you can sign up for Pushkin Plus.

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Speaker 3: at pushkin.fm slash plus. In that model, you give us

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Speaker 3: money and you don't have to listen to ads.

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Speaker 2: It's kind of like time travel because you'll jump forward

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Speaker 2: many minutes.

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Speaker 1: A few minutes.

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Speaker 2: And we are back from the break. with our guest today,

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Speaker 2: Adrian Wooldridge.

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Speaker 1: So I want to just go back a moment.

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Speaker 3: So there's this debate over limited liability, and there's sort

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Speaker 3: of a free market case against it. You could also

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Speaker 3: make a free market case for limited liability, which is

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Speaker 3: whatever consenting adults want to do, the government should let

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Speaker 3: them do. So if I want to start a limited

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Speaker 3: liability company and somebody wants to do business with my

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Speaker 3: limited liability company, as long as they know what they're

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Speaker 3: getting into, they should be allowed to.

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Speaker 2: And they will because it's in the name. You attach

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Speaker 2: limited liability company to the name.

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Speaker 1: It's LTD in the UK, right? It's Corp or Inc

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Speaker 1: in the US. It's AG in Germany.

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Speaker 4: Yeah, that's right. And so the pragmatic minded people such

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Speaker 4: as Gladstone and his Chancellor of the Exchequer, who's an

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Speaker 4: extraordinary figure called Robert Lowe.

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Speaker 1: You call him the father of the company.

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Speaker 4: I think in many ways he is the father of

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Speaker 4: the company because he's the chancellor of the Exchequer. He's

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Speaker 4: an extremely educated, articulate man. And he's actually an albino.

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Speaker 4: He's almost blind. He's this white. wizened sort of looking

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Speaker 4: figure he can't see but he's an extraordinary forward-looking thinker

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Speaker 4: and he talks about companies his phrase for them is

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Speaker 4: little republics these are little republics because they will run

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Speaker 4: business they will create prosperity and they'll do it without

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Speaker 4: the government really having much to do with them so

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Speaker 4: instead of the government being involved in all of these

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Speaker 4: decisions such as who trades with the with the indies

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Speaker 4: or who builds bridges The government just lets the market

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Speaker 4: get on with these things, lets people of their own

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Speaker 4: free will form collective entities which produce this, that and

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Speaker 4: the other, run railroads, do all of these things. They're

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Speaker 4: little republics. They limit the power and the responsibility of

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Speaker 4: the state.

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Speaker 3: Yeah, Elo says up until now, forming a company has

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Speaker 3: been a privilege. We hope to make it a right.

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Speaker 4: That's right. Absolutely.

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Speaker 1: And he does, right? There are these specific, a couple

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Speaker 1: laws that get passed through Parliament in the mid-1800s.

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Speaker 3: Yep. That bring all of these things together, corporate personhood,

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Speaker 3: tradable shares, limited liability for.

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Speaker 1: Anybody who wants it. That's right. And the company as

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Speaker 1: we know it becomes a thing in the world.

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Speaker 4: Yes. And it doesn't take much. I mean, it doesn't

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Speaker 4: take much in terms of parliamentary legislation. You know, you

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Speaker 4: put these, as you say, these four things are put together.

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Speaker 4: These bills are passed. And very, very quickly, you get

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Speaker 4: corporations becoming corrupt. mainstream. You get buying shares in private

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Speaker 4: companies rather than these big public trading companies becomes mainstream.

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Speaker 4: Gilbert and Sullivan writes an opera about companies. They're saying

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Speaker 4: these companies have become a massive feature of British society,

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Speaker 4: also American, German, French society, very, very quickly. They move

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Speaker 4: from being oddities to being central organizations in society with

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Speaker 4: great speed as a result of legislation, which is essentially

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Speaker 4: very elegant, enabling legislation. None of your American style 10,000

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Speaker 4: page documents saying this, that and the other. They're enabling

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Speaker 4: documents of a very modest type of legislation, I think.

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Speaker 3: And yet, despite the relative elegance and simplicity of the

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Speaker 3: British corporate law relative to the overwrought, overlong American corporate law,

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Speaker 3: American corporations took off in the following century.

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Speaker 4: No, no, I think your corporate law at that time

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Speaker 4: was as elegant as our corporate law was. I was

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Speaker 4: thinking about your current Sarbanes-Oxley and all of this sort

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Speaker 4: of bloated sort of stuff.

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Speaker 1: Fair enough, which is why the UK is kicking our

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Speaker 1: ass now. Oh, wait, sorry.

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Speaker 5: I do.

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Speaker 4: No, so corporations... take off very quickly, and they cover

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Speaker 4: the world very, very quickly. And I think that Britain,

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Speaker 4: in my mind, is one of the great innovators in this,

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Speaker 4: although similar things are going on in other countries, and

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Speaker 4: they're going on in the United States at the same time.

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Speaker 4: This move from a privilege to a right, this move

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Speaker 4: from corporations capable of issuing limited liability, being auditors to

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Speaker 4: being the central institution of the time. But what happens

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Speaker 4: in the United States in the second half of the

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Speaker 4: 19th century with an extraordinary speed, I think, is a

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Speaker 4: revolution of scale that you get in the United States,

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00:24:27,109 --> 00:24:31,400
Speaker 4: just gigantic organizations. Up until then, it's only really states

438
00:24:31,820 --> 00:24:34,660
Speaker 4: and state armies that employ people on that scale. We're

439
00:24:34,700 --> 00:24:38,560
Speaker 4: talking hundreds of thousands of people. being employed by private

440
00:24:38,580 --> 00:24:39,600
Speaker 4: sector organizations.

441
00:24:39,980 --> 00:24:42,560
Speaker 2: At the same time that you're talking about here, we're

442
00:24:42,640 --> 00:24:46,880
Speaker 2: also seeing a lot of regular people move into owning

443
00:24:46,940 --> 00:24:50,179
Speaker 2: stocks and trading stocks. And we've done shows before about

444
00:24:50,619 --> 00:24:54,240
Speaker 2: the manipulation that started to happen, insider trading, pump and

445
00:24:54,260 --> 00:24:56,620
Speaker 2: dumping stock was what we'd call it now, and Jay

446
00:24:56,660 --> 00:25:00,380
Speaker 2: Gould and this whole thing. Was there a movement to

447
00:25:00,520 --> 00:25:04,869
Speaker 2: have protection for shareholders or... Did people think if you

448
00:25:04,910 --> 00:25:08,169
Speaker 2: have the money to invest in shares, you know, buyer beware?

449
00:25:09,290 --> 00:25:11,230
Speaker 4: I think there's not much of a movement at first.

450
00:25:11,290 --> 00:25:14,119
Speaker 4: I think that there's an asymmetry of knowledge and information

451
00:25:14,160 --> 00:25:17,500
Speaker 4: of an extraordinary sort and a bilking of the public

452
00:25:17,980 --> 00:25:22,979
Speaker 4: on the part of the companies, the organizations. People just

453
00:25:23,020 --> 00:25:24,960
Speaker 4: don't know very much. And the railroads are some of

454
00:25:24,980 --> 00:25:27,700
Speaker 4: the worst. But there isn't really a regulatory frame. We

455
00:25:27,720 --> 00:25:29,900
Speaker 4: don't have a Federal Reserve even or an SEC.

456
00:25:30,260 --> 00:25:32,639
Speaker 1: There's nobody to do the regulation. There's nobody to do

457
00:25:32,720 --> 00:25:33,480
Speaker 1: the regulation.

458
00:25:33,850 --> 00:25:38,550
Speaker 4: And there's no information available to people. So you're constantly,

459
00:25:38,609 --> 00:25:42,169
Speaker 4: and again, thinking of novels, you know, Edith Warden's novels

460
00:25:42,230 --> 00:25:46,490
Speaker 4: are full of people, respectable, prosperous people who are being bilked.

461
00:25:47,080 --> 00:25:50,639
Speaker 4: by big companies and who are bankrupted by that. And

462
00:25:50,660 --> 00:25:53,620
Speaker 4: the only person who really tries to bring some order,

463
00:25:53,660 --> 00:25:55,460
Speaker 4: not the only person, but the person who's a bit

464
00:25:55,480 --> 00:25:58,470
Speaker 4: prominent in terms of bringing some order in this sort

465
00:25:58,490 --> 00:26:02,950
Speaker 4: of capitalism, I think is JP Morgan. And, you know,

466
00:26:03,369 --> 00:26:07,810
Speaker 4: the banks are doing it more than any regulatory body.

467
00:26:07,609 --> 00:26:08,109
Speaker 2: Is doing it.

468
00:26:08,210 --> 00:26:10,730
Speaker 4: So a lot of people lose a lot of money

469
00:26:10,790 --> 00:26:11,430
Speaker 4: on the railroads.

470
00:26:11,450 --> 00:26:14,180
Speaker 3: I mean, that's how Carnegie made his first money was

471
00:26:14,240 --> 00:26:16,639
Speaker 3: working for the railroad and essentially insider trading.

472
00:26:16,950 --> 00:26:23,040
Speaker 4: People like Rockefeller and Carnegie, the companies that they create

473
00:26:23,080 --> 00:26:26,650
Speaker 4: are not regular limited liability companies. They tend to have

474
00:26:26,810 --> 00:26:30,480
Speaker 4: massive control over them. They tend to have shares which

475
00:26:30,820 --> 00:26:33,960
Speaker 4: only give them the right of control. They're titans. They're

476
00:26:33,980 --> 00:26:37,200
Speaker 4: sort of dictators of their own company. So, you know,

477
00:26:37,220 --> 00:26:40,409
Speaker 4: capitalism is messy. It takes a long time. But I

478
00:26:40,450 --> 00:26:40,910
Speaker 4: don't think.

479
00:26:41,350 --> 00:26:44,010
Speaker 3: Unlike today when all the big companies are run by

480
00:26:44,030 --> 00:26:44,810
Speaker 3: the shareholders?

481
00:26:44,830 --> 00:26:47,930
Speaker 4: Just kidding. We might talk about that a bit later.

482
00:26:48,369 --> 00:26:54,230
Speaker 4: But when, you know, when Carnegie, the shareholding company is

483
00:26:54,470 --> 00:26:59,600
Speaker 4: only really tidied up... by J.P. Morgan, I think, who

484
00:26:59,640 --> 00:27:02,320
Speaker 4: comes up and starts introducing some rules of these things.

485
00:27:02,380 --> 00:27:05,020
Speaker 3: And much more so in the 30s, in the Depression, right?

486
00:27:05,060 --> 00:27:07,040
Speaker 3: That's when we get the modern regulatory regime.

487
00:27:07,400 --> 00:27:07,860
Speaker 2: Absolutely.

488
00:27:08,060 --> 00:27:09,860
Speaker 1: So let's talk about the 20th century.

489
00:27:10,200 --> 00:27:13,240
Speaker 4: If you look at the American capitalism after the Second

490
00:27:13,270 --> 00:27:18,190
Speaker 4: World War, it's not today's American capitalism in the sense

491
00:27:18,250 --> 00:27:23,770
Speaker 4: it's more, it has more notion of stakeholders. You have

492
00:27:23,790 --> 00:27:29,200
Speaker 4: stable people big companies that often conduct themselves in a

493
00:27:29,280 --> 00:27:32,400
Speaker 4: way that takes into account stakeholders. And sometimes people talk

494
00:27:32,440 --> 00:27:35,240
Speaker 4: about stakeholders, sometimes they don't. But there's this notion that

495
00:27:35,280 --> 00:27:37,070
Speaker 4: it's the job of the company to be a sort

496
00:27:37,090 --> 00:27:40,830
Speaker 4: of stabilizing force. So I think America goes through a

497
00:27:40,890 --> 00:27:44,109
Speaker 4: big revolution in the 1980s in terms of its version

498
00:27:44,150 --> 00:27:46,650
Speaker 4: of capitalism. And you have this notion in America, I mean,

499
00:27:47,170 --> 00:27:50,730
Speaker 4: John Kenneth Galbraith is a classic example of this, whereby

500
00:27:50,790 --> 00:27:54,560
Speaker 4: you have this notion that we should have countervailing forces.

501
00:27:54,580 --> 00:27:57,369
Speaker 4: You have the big company, you have big governments, and

502
00:27:57,400 --> 00:28:00,290
Speaker 4: you have big trade unions, and they sort of balance

503
00:28:00,330 --> 00:28:05,270
Speaker 4: each other out. But companies are not pursuing short-term profits,

504
00:28:05,290 --> 00:28:08,890
Speaker 4: and they're not only pursuing short-term profits. You have three

505
00:28:08,950 --> 00:28:11,609
Speaker 4: big companies, as it were, in every sort of area.

506
00:28:11,830 --> 00:28:14,710
Speaker 4: It's a much more stable version of capitalism after the

507
00:28:14,750 --> 00:28:17,609
Speaker 4: Second World War. And you could call it stakeholder. I

508
00:28:17,650 --> 00:28:23,260
Speaker 4: don't think Galbraith uses the term stakeholder. But it's different

509
00:28:23,280 --> 00:28:25,560
Speaker 4: from what happens after the 1980s. It's not greed is

510
00:28:25,600 --> 00:28:28,290
Speaker 4: good capitalism. It's stability is good capitalism.

511
00:28:29,010 --> 00:28:30,650
Speaker 1: So let's get to the present.

512
00:28:31,070 --> 00:28:31,290
Speaker 5: Yeah.

513
00:28:31,490 --> 00:28:33,869
Speaker 1: After thousands of years. Yeah.

514
00:28:33,990 --> 00:28:36,850
Speaker 3: So you wrote this book more than 20 years ago now.

515
00:28:36,990 --> 00:28:39,030
Speaker 3: Holds up very well. It's a great read still.

516
00:28:39,870 --> 00:28:40,820
Speaker 1: What has been.

517
00:28:41,790 --> 00:28:45,229
Speaker 3: Particularly surprising to you over the last 20 years when

518
00:28:45,250 --> 00:28:47,890
Speaker 3: you think about this long history of the company versus

519
00:28:47,910 --> 00:28:49,330
Speaker 3: what we've seen since you wrote the book.

520
00:28:49,690 --> 00:28:53,710
Speaker 4: I think there's been an enormous evolution in companies since

521
00:28:53,770 --> 00:28:57,490
Speaker 4: about the year 2000. It's been a very, very dynamic

522
00:28:57,560 --> 00:29:01,460
Speaker 4: period that we had this notion in writing this book.

523
00:29:01,540 --> 00:29:03,700
Speaker 4: And I think more generally, there was this sort of

524
00:29:03,780 --> 00:29:06,800
Speaker 4: notion that there were these things called public companies, which

525
00:29:06,940 --> 00:29:12,060
Speaker 4: issued shares, enjoyed limited liability. for issuing those shares. And

526
00:29:12,120 --> 00:29:15,660
Speaker 4: that was the sort of template of modern capitalism. And

527
00:29:15,700 --> 00:29:18,200
Speaker 4: since then, since we wrote that book, we've got a

528
00:29:18,720 --> 00:29:22,740
Speaker 4: lot of different forms of companies, which, you know, they're

529
00:29:22,780 --> 00:29:25,200
Speaker 4: almost as if they're private companies, which can also issue

530
00:29:25,240 --> 00:29:29,090
Speaker 4: shares and have limited liability. We've had a retreat from

531
00:29:29,110 --> 00:29:32,470
Speaker 4: the stock market. We've had all these things, LLCs.

532
00:29:32,490 --> 00:29:35,190
Speaker 3: The idea that you would have a company worth a

533
00:29:35,270 --> 00:29:39,110
Speaker 3: trillion dollars, as we do now, that is not a

534
00:29:39,170 --> 00:29:39,830
Speaker 3: public company.

535
00:29:39,880 --> 00:29:42,340
Speaker 1: Yeah. I mean, if there was no company.

536
00:29:42,020 --> 00:29:44,320
Speaker 3: Worth a trillion dollars, even if you adjust for inflation.

537
00:29:44,340 --> 00:29:46,580
Speaker 3: But if there were, the idea that one of the

538
00:29:46,580 --> 00:29:48,680
Speaker 3: 20 biggest companies in the world would be an American

539
00:29:48,720 --> 00:29:50,960
Speaker 3: company that hadn't issued shares would be unthinkable.

540
00:29:51,060 --> 00:29:52,660
Speaker 1: Absolutely. Why did that happen?

541
00:29:53,020 --> 00:29:55,840
Speaker 4: Partnerships going onto the market and things like that. I mean,

542
00:29:55,860 --> 00:29:58,260
Speaker 4: it's essentially an American phenomenon because there's so much more

543
00:29:58,300 --> 00:30:01,760
Speaker 4: capital available. in so many different forms. You also had

544
00:30:01,780 --> 00:30:05,330
Speaker 4: this notion, well, the people who own companies are you

545
00:30:05,370 --> 00:30:07,790
Speaker 4: and me. They're regular people who own them through shareholding

546
00:30:07,830 --> 00:30:10,850
Speaker 4: and that's the way that they're dealing with their savings.

547
00:30:10,970 --> 00:30:12,930
Speaker 4: Now you have these people who are buying and selling

548
00:30:12,990 --> 00:30:16,350
Speaker 4: companies in very aggressive ways who You have pools of

549
00:30:16,430 --> 00:30:22,890
Speaker 4: capital that belong to a very small number of people

550
00:30:23,310 --> 00:30:28,120
Speaker 4: who are getting the benefits of limited liability.

551
00:30:28,600 --> 00:30:32,320
Speaker 3: That is quite striking to me. The basic private equity

552
00:30:32,360 --> 00:30:35,980
Speaker 3: model is... borrow a ton of money, buy a company

553
00:30:36,340 --> 00:30:37,850
Speaker 3: and try and sell it for a lot more in

554
00:30:37,870 --> 00:30:41,070
Speaker 3: a few years. And what the borrowing, the leverage means

555
00:30:41,250 --> 00:30:43,270
Speaker 3: is if you sell it for a profit, you make

556
00:30:43,310 --> 00:30:46,530
Speaker 3: a ton of money. And what the limited liability means

557
00:30:46,750 --> 00:30:51,130
Speaker 3: is if you don't and you fail, then you stay

558
00:30:51,190 --> 00:30:51,760
Speaker 3: rich and you.

559
00:30:51,690 --> 00:30:53,960
Speaker 1: Form another limited liability company and try it again.

560
00:30:54,040 --> 00:30:54,620
Speaker 2: Absolutely.

561
00:30:54,800 --> 00:30:58,440
Speaker 3: Like that really seems to be taking advantage of the

562
00:30:58,640 --> 00:31:00,340
Speaker 3: asymmetry in limited liability.

563
00:31:00,500 --> 00:31:01,720
Speaker 1: Do you think it's bad? Absolutely.

564
00:31:02,460 --> 00:31:05,370
Speaker 4: Do I think it's bad? I'm sort of sentimental about

565
00:31:05,390 --> 00:31:07,930
Speaker 4: these things. Yes, I do think it's rather bad. I mean,

566
00:31:08,450 --> 00:31:11,560
Speaker 4: I think that the sort of public company model was

567
00:31:13,040 --> 00:31:17,920
Speaker 4: a good way of having popular capitalism. and of bringing

568
00:31:18,000 --> 00:31:23,850
Speaker 4: together society's savings, society's risks, and the benefits of capitalism

569
00:31:23,970 --> 00:31:28,150
Speaker 4: and distributing them widely. Now we do seem to have

570
00:31:28,170 --> 00:31:32,540
Speaker 4: a system whereby some people have all the rewards and fear.

571
00:31:32,360 --> 00:31:32,900
Speaker 2: Of the risks.

572
00:31:33,400 --> 00:31:34,680
Speaker 1: I mean, I will say....

573
00:31:35,920 --> 00:31:37,620
Speaker 3: I don't have the numbers in front of me, but

574
00:31:37,880 --> 00:31:40,290
Speaker 3: lots and lots of people do own shares now.

575
00:31:40,590 --> 00:31:40,970
Speaker 5: Absolutely.

576
00:31:41,030 --> 00:31:43,210
Speaker 3: This might be different in six months, but certainly at

577
00:31:43,250 --> 00:31:45,310
Speaker 3: this moment, if you have owned an S & P

578
00:31:45,310 --> 00:31:48,150
Speaker 3: 500 index fund or just whatever boring thing in your

579
00:31:48,190 --> 00:31:51,190
Speaker 3: retirement account for 10 years, you have done quite well.

580
00:31:52,120 --> 00:31:55,120
Speaker 3: ordinary people, at least as of now, are doing okay.

581
00:31:55,280 --> 00:31:58,500
Speaker 4: That's the thing which limits my worry about it. And

582
00:31:58,560 --> 00:32:02,420
Speaker 4: because America, which has been the prime sort of innovator

583
00:32:02,460 --> 00:32:06,200
Speaker 4: in terms of different sorts of ownership and private equity

584
00:32:06,220 --> 00:32:08,600
Speaker 4: and things like that, also has been the country which

585
00:32:08,640 --> 00:32:10,360
Speaker 4: has done the best in terms of, you know, if

586
00:32:10,380 --> 00:32:12,600
Speaker 4: you invest in the stock market in America, you will

587
00:32:12,640 --> 00:32:14,280
Speaker 4: have done really quite well, better than you would have

588
00:32:14,300 --> 00:32:17,000
Speaker 4: done in Europe. So it is creating a great deal

589
00:32:17,020 --> 00:32:18,950
Speaker 4: of wealth But I also think it is creating a

590
00:32:18,970 --> 00:32:21,350
Speaker 4: great deal of risk, which does worry me.

591
00:32:21,450 --> 00:32:24,580
Speaker 2: What is the risk of having so much of our

592
00:32:24,620 --> 00:32:25,780
Speaker 2: economy in private companies?

593
00:32:26,240 --> 00:32:29,740
Speaker 4: The risk I see at the moment is I think

594
00:32:30,040 --> 00:32:34,620
Speaker 4: that the risk is that we have crashes and that

595
00:32:34,660 --> 00:32:36,600
Speaker 4: the cost of those crashes, as happened in 2007, 2008,

596
00:32:36,570 --> 00:32:43,300
Speaker 4: is borne by the public in general. And that creates

597
00:32:43,320 --> 00:32:45,220
Speaker 4: an addiction to risk on the part of all sorts

598
00:32:45,260 --> 00:32:47,320
Speaker 4: of people. And I think we had an addiction to

599
00:32:47,360 --> 00:32:50,560
Speaker 4: risk in the financial sector, which has been dealt with

600
00:32:50,600 --> 00:32:53,520
Speaker 4: to some extent. But now we have an addiction to

601
00:32:53,600 --> 00:32:56,180
Speaker 4: risk with AI and things like that. So I think

602
00:32:56,280 --> 00:32:59,420
Speaker 4: putting all of your risk in one basket, I think

603
00:32:59,440 --> 00:33:04,459
Speaker 4: it is a risky thing. So systemic risk. is a problem.

604
00:33:04,780 --> 00:33:06,800
Speaker 2: Are public companies too over-regulated?

605
00:33:07,260 --> 00:33:11,360
Speaker 4: I think the problem with the over-regulation of public companies

606
00:33:11,440 --> 00:33:14,830
Speaker 4: is a problem of size. I think that because of

607
00:33:14,890 --> 00:33:20,030
Speaker 4: the burden of regulations that were imposed because of a

608
00:33:20,130 --> 00:33:24,470
Speaker 4: number of very bad bits of behavior by some quite

609
00:33:24,490 --> 00:33:29,110
Speaker 4: big companies such as Enron, it's quite difficult for smaller

610
00:33:29,170 --> 00:33:32,320
Speaker 4: companies to get off the ground. The cost of the

611
00:33:32,360 --> 00:33:34,700
Speaker 4: Sarbanes-Oxley and the rest of it is very big for

612
00:33:34,740 --> 00:33:37,970
Speaker 4: small companies. And what we're seeing in capitalism.

613
00:33:37,990 --> 00:33:40,670
Speaker 3: This is why companies stay private longer, in part, is

614
00:33:40,730 --> 00:33:42,950
Speaker 3: because the costs of going public are higher.

615
00:33:43,110 --> 00:33:45,330
Speaker 4: And I think one of the things that we're seeing

616
00:33:45,350 --> 00:33:47,850
Speaker 4: at the moment is not only companies staying private for longer,

617
00:33:48,250 --> 00:33:51,530
Speaker 4: but we have a version of capitalism in which we

618
00:33:51,570 --> 00:33:57,180
Speaker 4: have a big amount of consolidation, big companies dominating more

619
00:33:57,220 --> 00:33:59,520
Speaker 4: and more areas of the economy, in tech, obviously, but

620
00:33:59,580 --> 00:34:03,610
Speaker 4: not just in tech. And companies are staying around for

621
00:34:03,650 --> 00:34:06,550
Speaker 4: longer than they were, let's say, in 2000. They're bigger

622
00:34:06,570 --> 00:34:10,170
Speaker 4: than they were, let's say, in 2000. They're employing more people.

623
00:34:10,210 --> 00:34:12,650
Speaker 4: They have more levels of hierarchy. So we're getting a

624
00:34:12,730 --> 00:34:17,469
Speaker 4: consolidation of capitalism. And that worries me for many reasons,

625
00:34:17,590 --> 00:34:19,550
Speaker 4: partly because I don't think we get the vigor of

626
00:34:20,290 --> 00:34:23,799
Speaker 4: entrepreneurial self-renewal, but also because if you've got a smaller

627
00:34:23,840 --> 00:34:27,460
Speaker 4: number of companies, the likelihood of disaster if one of

628
00:34:27,480 --> 00:34:28,799
Speaker 4: them comes crashing down is bigger.

629
00:34:29,620 --> 00:34:31,620
Speaker 3: Yeah, you wrote in the book, you wrote, the East

630
00:34:31,680 --> 00:34:36,319
Speaker 3: India Company lasted for 258 years. It would be remarkable

631
00:34:36,480 --> 00:34:39,239
Speaker 3: if Microsoft reached a quarter of that lifespan.

632
00:34:39,260 --> 00:34:39,520
Speaker 2: Yes.

633
00:34:40,739 --> 00:34:44,600
Speaker 3: So when you wrote that, Microsoft was about 25. Now

634
00:34:44,660 --> 00:34:47,030
Speaker 3: Microsoft is about 50 years old.

635
00:34:47,390 --> 00:34:48,790
Speaker 1: So it'll pass the.

636
00:34:49,030 --> 00:34:53,150
Speaker 3: Quarter mark in 2040, which I would definitely bet on, right?

637
00:34:53,190 --> 00:34:53,930
Speaker 1: Like Microsoft.

638
00:34:54,870 --> 00:34:59,069
Speaker 3: is this wild giant that, to its credit, has largely

639
00:34:59,120 --> 00:34:59,939
Speaker 3: reinvented itself.

640
00:34:59,980 --> 00:35:02,540
Speaker 4: Absolutely. When we were writing this book, it was a

641
00:35:02,600 --> 00:35:07,180
Speaker 4: period in which it looked as though capitalism was going

642
00:35:07,219 --> 00:35:10,460
Speaker 4: through a very entrepreneurial phase. And we were talking a

643
00:35:10,500 --> 00:35:13,200
Speaker 4: great deal about virtual companies, about the life cycle of

644
00:35:13,260 --> 00:35:16,340
Speaker 4: companies getting shorter. Silicon Valley seemed to be this place

645
00:35:16,390 --> 00:35:21,410
Speaker 4: where companies were being born and dying. Now, capitalism seems

646
00:35:21,450 --> 00:35:23,990
Speaker 4: to be much more going through a phase of consolidation.

647
00:35:24,680 --> 00:35:27,419
Speaker 4: Even companies that start off from nothing, they race very

648
00:35:27,500 --> 00:35:30,950
Speaker 4: rapidly to become big, as Facebook did. And then they

649
00:35:30,969 --> 00:35:33,670
Speaker 4: consolidate very quickly. They build up their defenses and all

650
00:35:33,690 --> 00:35:36,170
Speaker 4: of that sort of thing. And it does look as

651
00:35:36,210 --> 00:35:41,590
Speaker 4: though the average life cycle of companies that reach the

652
00:35:41,630 --> 00:35:44,450
Speaker 4: top of the tree is getting longer again. The size

653
00:35:44,469 --> 00:35:47,430
Speaker 4: of companies is getting longer again. The number of levels

654
00:35:47,469 --> 00:35:50,719
Speaker 4: of their hierarchies is getting bigger again. We're going through

655
00:35:50,739 --> 00:35:54,290
Speaker 4: a period of consolidation. It's quite interesting that I think

656
00:35:54,310 --> 00:35:57,370
Speaker 4: there's a sentence of Alfred Chandler, the great business historian,

657
00:35:57,770 --> 00:36:01,009
Speaker 4: who said that the history of American companies is the

658
00:36:01,050 --> 00:36:05,060
Speaker 4: history of very brief periods of entrepreneurial vigor, followed by

659
00:36:05,120 --> 00:36:08,060
Speaker 4: very long periods of consolidation, that he was talking about

660
00:36:08,100 --> 00:36:10,299
Speaker 4: what happens just after the Civil War, when you had

661
00:36:10,340 --> 00:36:13,570
Speaker 4: a period of Entrepreneurial vigor, then consolidation, and many of

662
00:36:13,590 --> 00:36:17,090
Speaker 4: the companies that established themselves in the 1880s, 1890s are

663
00:36:17,110 --> 00:36:20,190
Speaker 4: still around today. And it does look as though Chandler

664
00:36:20,390 --> 00:36:21,350
Speaker 4: was right about this.

665
00:36:21,390 --> 00:36:22,750
Speaker 1: Punctuated equilibrium.

666
00:36:22,850 --> 00:36:25,970
Speaker 4: Punctuated equilibrium. And you put very interestingly to the example

667
00:36:25,989 --> 00:36:29,640
Speaker 4: of Microsoft, because Microsoft really is a fascinating story of

668
00:36:29,700 --> 00:36:34,000
Speaker 4: a company that looked a bit sort of stolid and staid.

669
00:36:34,060 --> 00:36:35,919
Speaker 4: And it's gone through a great process of reinvention.

670
00:36:35,940 --> 00:36:39,290
Speaker 3: Because they had an operating system and like... A spreadsheet

671
00:36:39,450 --> 00:36:41,649
Speaker 3: and a word processor, right?

672
00:36:41,670 --> 00:36:42,089
Speaker 4: That's right.

673
00:36:42,110 --> 00:36:44,469
Speaker 1: When you wrote the book. And now they are a

674
00:36:44,650 --> 00:36:45,490
Speaker 1: cloud company.

675
00:36:45,510 --> 00:36:48,109
Speaker 4: Absolutely. No, no. It's a great company. And it does

676
00:36:48,130 --> 00:36:52,620
Speaker 4: look as though Google has the capacity for reinvention, Amazon,

677
00:36:52,660 --> 00:36:56,060
Speaker 4: the rest of it. So I would rewrite that sentence.

678
00:36:56,400 --> 00:36:59,259
Speaker 2: We'll have more of our interview with Adrian Wooldridge in

679
00:36:59,340 --> 00:37:04,009
Speaker 2: just a moment. Those are the ads. This is the

680
00:37:04,070 --> 00:37:06,190
Speaker 2: interview we're talking with Adrian Wooldridge.

681
00:37:07,430 --> 00:37:09,089
Speaker 3: What do you think AI is going to mean for

682
00:37:09,130 --> 00:37:11,020
Speaker 3: this story, if you want to take a stab?

683
00:37:11,540 --> 00:37:17,299
Speaker 4: There is quite a possible similarity between AI and the

684
00:37:17,360 --> 00:37:20,580
Speaker 4: railways of the 19th century. In the sense that with

685
00:37:20,600 --> 00:37:23,009
Speaker 4: the railways of the 19th century, you've got a transformative

686
00:37:23,050 --> 00:37:28,540
Speaker 4: general purpose technology. which absorbed a huge amount of investments.

687
00:37:28,940 --> 00:37:32,220
Speaker 4: You have to sort of invest before use, as it were,

688
00:37:32,300 --> 00:37:35,040
Speaker 4: because you've got to invest a lot of money to

689
00:37:35,080 --> 00:37:37,839
Speaker 4: build the railroads, increase the value of the land.

690
00:37:37,860 --> 00:37:39,839
Speaker 1: So you've got to build all the data centers to

691
00:37:39,860 --> 00:37:40,820
Speaker 1: train the next model.

692
00:37:41,070 --> 00:37:46,150
Speaker 4: It's very, very capital intensive. It goes through booms and busts.

693
00:37:46,770 --> 00:37:51,770
Speaker 4: It involves a lot of organization. It creates very big

694
00:37:52,070 --> 00:37:56,469
Speaker 4: societal benefits. Railroads created massive societal benefits. This will probably

695
00:37:56,489 --> 00:38:00,190
Speaker 4: create massive societal benefits. It creates an enormous amount of wealth.

696
00:38:00,350 --> 00:38:04,750
Speaker 4: The railroads produced all of these great tycoons. And it

697
00:38:04,850 --> 00:38:07,770
Speaker 4: does a lot to bankrupt a large number of small people,

698
00:38:08,690 --> 00:38:11,130
Speaker 4: which the 19th century investment in the railroads was a

699
00:38:11,170 --> 00:38:14,089
Speaker 4: terrible investment for most ordinary investors. Partly because, you know,

700
00:38:14,110 --> 00:38:16,890
Speaker 4: you had railroads competing on the same line, and one

701
00:38:16,910 --> 00:38:20,170
Speaker 4: of them would go bankrupt. And so the game in

702
00:38:20,190 --> 00:38:23,020
Speaker 4: the 19th century was, was that, you know, it's a

703
00:38:23,120 --> 00:38:26,569
Speaker 4: sort of sense of winner-take-all or winner-take-most if you're building

704
00:38:26,620 --> 00:38:29,110
Speaker 4: the railroad that takes you to the West Coast. And

705
00:38:29,150 --> 00:38:30,950
Speaker 4: that's the same thing that's going on now. They think

706
00:38:30,989 --> 00:38:33,710
Speaker 4: that the winner will be the standard setter and will

707
00:38:33,750 --> 00:38:36,390
Speaker 4: take most. Somebody has to lose from that, and a

708
00:38:36,410 --> 00:38:39,650
Speaker 4: lot of small businesses will lose from that. In America,

709
00:38:40,469 --> 00:38:44,830
Speaker 4: in the 19th century, the railway busts following the railway

710
00:38:44,870 --> 00:38:50,160
Speaker 4: booms almost brought the economy down on several occasions, 1873. 1893.

711
00:38:50,160 --> 00:38:53,610
Speaker 1: 1873, it did bring the economy down.

712
00:38:53,670 --> 00:38:55,630
Speaker 4: Yeah, it did. We have the Federal Reserve and all

713
00:38:55,650 --> 00:38:57,870
Speaker 4: sorts of things now, which they didn't have then. It's

714
00:38:57,890 --> 00:39:00,970
Speaker 4: a very risky process. These are huge sums of money

715
00:39:01,010 --> 00:39:01,720
Speaker 4: that are going in.

716
00:39:02,090 --> 00:39:05,219
Speaker 3: You've been talking about the first order effects of the railroads.

717
00:39:05,420 --> 00:39:08,740
Speaker 3: There's a second order effect, which is the railroads combined

718
00:39:08,760 --> 00:39:14,160
Speaker 3: with the telegraph drove industrialization much more broadly, made possible

719
00:39:14,200 --> 00:39:17,739
Speaker 3: these new giant companies, new kinds of companies. We could

720
00:39:17,780 --> 00:39:22,239
Speaker 3: talk analogously about potential second order effects of AI, and

721
00:39:22,260 --> 00:39:24,319
Speaker 3: I could see that going different ways, right? You could

722
00:39:24,390 --> 00:39:27,529
Speaker 3: imagine AI making it easier for one person to start

723
00:39:27,570 --> 00:39:30,870
Speaker 3: a billion-dollar company, something people talk about. You could also

724
00:39:30,910 --> 00:39:34,200
Speaker 3: imagine the models just kind of doing everything. I could

725
00:39:34,219 --> 00:39:38,340
Speaker 3: see two very different stories about entrepreneurship and new firm creation.

726
00:39:38,360 --> 00:39:39,379
Speaker 1: Do you have a view?

727
00:39:39,600 --> 00:39:42,490
Speaker 4: No, I have the same view as you do, which

728
00:39:42,550 --> 00:39:45,310
Speaker 4: is that I think we will get lock-in that some

729
00:39:45,350 --> 00:39:48,530
Speaker 4: of these very, very big companies, particularly if they're data

730
00:39:48,550 --> 00:39:52,670
Speaker 4: center companies or whatever, will stay at the top of

731
00:39:52,710 --> 00:39:55,469
Speaker 4: the system. So you will get the consolidation, a continuous

732
00:39:55,550 --> 00:39:58,460
Speaker 4: consolidation of capitalists. But I know lots of people who

733
00:39:58,620 --> 00:40:02,550
Speaker 4: are sort of one-person or two-person entrepreneurs who whose businesses

734
00:40:02,610 --> 00:40:04,690
Speaker 4: are being completely transformed by the fact that they can

735
00:40:04,710 --> 00:40:07,130
Speaker 4: get AI to do lots of things, which would have

736
00:40:07,390 --> 00:40:12,090
Speaker 4: meant that they'd have to hire some people. It's reducing

737
00:40:12,140 --> 00:40:16,900
Speaker 4: the cost of doing a lot of boring tasks, and

738
00:40:16,960 --> 00:40:21,240
Speaker 4: quite often boring but quite sophisticated tasks, almost to zero.

739
00:40:21,560 --> 00:40:23,960
Speaker 4: So it's been good. And if you look at the

740
00:40:23,980 --> 00:40:28,360
Speaker 4: American data so far, the number of tiny companies, solo

741
00:40:28,420 --> 00:40:32,340
Speaker 4: entrepreneur companies, after going through a long process of decline

742
00:40:32,400 --> 00:40:35,969
Speaker 4: and depression, is starting to zoom up again in America.

743
00:40:36,310 --> 00:40:36,850
Speaker 1: I could see a.

744
00:40:36,850 --> 00:40:42,430
Speaker 4: World in which you've got giant companies plus a flourishing

745
00:40:42,570 --> 00:40:43,650
Speaker 4: entrepreneurial economy.

746
00:40:43,870 --> 00:40:45,830
Speaker 3: When I think about the long arc we've been talking

747
00:40:45,910 --> 00:40:49,060
Speaker 3: about over the course of the conversation and the central

748
00:40:49,080 --> 00:40:52,480
Speaker 3: themes in your book, and I think about your book

749
00:40:52,520 --> 00:40:56,200
Speaker 3: being written in the early part of this century, to me,

750
00:40:56,400 --> 00:41:00,580
Speaker 3: maybe the most interesting change since your book has been written,

751
00:41:00,900 --> 00:41:06,240
Speaker 3: is China, the development of world-beating companies, in some cases,

752
00:41:06,320 --> 00:41:10,819
Speaker 3: in China. And I'm curious, in particular, does the success

753
00:41:11,940 --> 00:41:15,410
Speaker 3: of many Chinese corporations, has that caused you to update

754
00:41:15,469 --> 00:41:19,569
Speaker 3: your views at all on the relationship between companies and

755
00:41:19,590 --> 00:41:21,090
Speaker 3: the state, this central theme?

756
00:41:21,670 --> 00:41:22,010
Speaker 1: Totally.

757
00:41:22,270 --> 00:41:24,489
Speaker 4: There are two categories of company, which I think are

758
00:41:24,510 --> 00:41:27,390
Speaker 4: slightly shortchanged in this book. And this book is really

759
00:41:27,410 --> 00:41:30,840
Speaker 4: preoccupied by the public interest But there are two sorts

760
00:41:30,860 --> 00:41:34,940
Speaker 4: of companies that I've thought a lot more about since

761
00:41:35,000 --> 00:41:37,120
Speaker 4: writing the book. And I think are much more important

762
00:41:37,160 --> 00:41:38,670
Speaker 4: than I thought when I was writing that book or

763
00:41:38,690 --> 00:41:40,790
Speaker 4: we thought when we were writing that book. One of

764
00:41:40,830 --> 00:41:44,009
Speaker 4: which is family companies. Most companies in the world are

765
00:41:44,030 --> 00:41:48,750
Speaker 4: family companies. A lot of very big companies are actually

766
00:41:48,790 --> 00:41:53,140
Speaker 4: family companies, different family ownership. Tata, which is one of

767
00:41:53,160 --> 00:41:59,430
Speaker 4: the world's biggest companies. was a family company. The Indian conglomerate.

768
00:41:59,450 --> 00:42:04,509
Speaker 4: Tata and Sons. And family companies and the role of

769
00:42:04,590 --> 00:42:08,150
Speaker 4: family capitalism, family companies, is bigger than... accounted for in

770
00:42:08,170 --> 00:42:10,969
Speaker 4: this book. And there you get lots of different incentives.

771
00:42:11,390 --> 00:42:14,130
Speaker 4: A lot of family companies are limited liability companies, but

772
00:42:14,170 --> 00:42:18,060
Speaker 4: they also are bound together by blood relations and blood

773
00:42:18,120 --> 00:42:22,100
Speaker 4: trust and things like that. But the second is state-owned companies.

774
00:42:22,540 --> 00:42:24,380
Speaker 4: And the assumption in this book, when I was writing

775
00:42:24,400 --> 00:42:27,580
Speaker 4: this book, I think, is that state-owned companies were things

776
00:42:27,620 --> 00:42:30,700
Speaker 4: of the past, that these East India companies, which were

777
00:42:30,800 --> 00:42:35,529
Speaker 4: quasi-state-owned companies, were things of the past, that the sort

778
00:42:35,550 --> 00:42:42,370
Speaker 4: of corporate structures that's you had in nationalized companies were

779
00:42:42,530 --> 00:42:47,330
Speaker 4: a feature of post-Second World War capitalism, which were bound

780
00:42:47,410 --> 00:42:51,510
Speaker 4: to disappear. And what the Chinese primarily did, Singapore Chinese did,

781
00:42:51,820 --> 00:42:56,960
Speaker 4: was they invented new types of state-owned companies, in which

782
00:42:57,000 --> 00:43:01,540
Speaker 4: the state acts not through appointing the CEO and appointing

783
00:43:01,860 --> 00:43:04,020
Speaker 4: the board and running them as if they're sort of

784
00:43:04,340 --> 00:43:08,469
Speaker 4: public utilities, but through public ownership, through owning the majority

785
00:43:09,370 --> 00:43:11,770
Speaker 4: of the voting shares. They control the company. So the

786
00:43:11,830 --> 00:43:15,690
Speaker 4: companies act like private sector organizations in that they're global

787
00:43:16,070 --> 00:43:19,130
Speaker 4: or can be global, in that they have the disciplines

788
00:43:19,170 --> 00:43:22,450
Speaker 4: of the market, but they were owned by the state,

789
00:43:22,770 --> 00:43:26,210
Speaker 4: which provides them with their initial capital and which owns

790
00:43:26,250 --> 00:43:29,770
Speaker 4: the majority of the shares. And those sorts of state-owned companies,

791
00:43:30,290 --> 00:43:31,969
Speaker 4: I would have thought when I was writing that book,

792
00:43:32,610 --> 00:43:34,630
Speaker 4: I would have thought there were small players on the

793
00:43:34,670 --> 00:43:39,270
Speaker 4: world stage. They've actually always been quite big players on

794
00:43:39,310 --> 00:43:43,240
Speaker 4: the world stage. And they're getting much bigger because of China.

795
00:43:43,780 --> 00:43:45,640
Speaker 3: One of the interesting things to me about the Chinese

796
00:43:45,700 --> 00:43:48,980
Speaker 3: model is when I think of state-owned companies, I think

797
00:43:49,020 --> 00:43:51,359
Speaker 3: of like a national champion. You know, you have your

798
00:43:51,400 --> 00:43:54,310
Speaker 3: national airline or the big bank and the government sort

799
00:43:54,350 --> 00:43:58,660
Speaker 3: of keeps it afloat and it's inefficient. But in China,

800
00:43:59,180 --> 00:44:01,640
Speaker 3: in a lot of the industries, there are 100 companies

801
00:44:01,739 --> 00:44:04,100
Speaker 3: that the government owns shares in, in the same industry.

802
00:44:04,120 --> 00:44:05,940
Speaker 3: You know, everybody starts a car company and the local

803
00:44:05,980 --> 00:44:07,390
Speaker 3: government backs it.

804
00:44:07,700 --> 00:44:10,799
Speaker 1: And then they fail, which is good, right?

805
00:44:11,060 --> 00:44:14,900
Speaker 3: So you don't have the kind of sclerotic company that

806
00:44:15,000 --> 00:44:18,460
Speaker 3: shouldn't succeed but just keeps getting subsidized. You have a

807
00:44:18,640 --> 00:44:22,140
Speaker 3: kind of startup capital and then the competitive pressure, like...

808
00:44:23,160 --> 00:44:24,180
Speaker 3: It's surprising.

809
00:44:24,200 --> 00:44:25,440
Speaker 1: I don't know.

810
00:44:25,600 --> 00:44:27,620
Speaker 3: Is it surprising to you that that worked? Like one

811
00:44:27,680 --> 00:44:29,759
Speaker 3: would not have predicted that 25 years ago.

812
00:44:29,780 --> 00:44:34,160
Speaker 4: Absolutely. So what state-owned companies used to be is sort

813
00:44:34,200 --> 00:44:39,690
Speaker 4: of national champions, CEOs appointed by the government, run like

814
00:44:39,750 --> 00:44:43,850
Speaker 4: utilities almost, couldn't fail. And what China did was to say,

815
00:44:44,250 --> 00:44:48,989
Speaker 4: let's just have the state as a share owner and

816
00:44:49,050 --> 00:44:52,830
Speaker 4: let's have competition between all of these companies. So they

817
00:44:52,850 --> 00:44:55,270
Speaker 4: would typically, I mean, almost always they have three, four,

818
00:44:55,350 --> 00:44:58,590
Speaker 4: five companies. They say, fight it out in the cage.

819
00:44:58,910 --> 00:45:01,750
Speaker 4: You know, have a cage fight. Let the best man win.

820
00:45:02,030 --> 00:45:05,870
Speaker 4: Sometimes you have the national government running, you know, owning

821
00:45:05,890 --> 00:45:08,390
Speaker 4: the shares. Sometimes state governments owning the shares. So the

822
00:45:08,430 --> 00:45:11,750
Speaker 4: different people own the shares. Sometimes, you know, weird organizations

823
00:45:11,790 --> 00:45:14,870
Speaker 4: will own the shares. But the principle is competition. And

824
00:45:14,969 --> 00:45:19,830
Speaker 4: they say, you're not just operating nationally, you're operating globally.

825
00:45:20,290 --> 00:45:24,410
Speaker 4: So you have a global mission. You probably have global talent.

826
00:45:24,450 --> 00:45:29,090
Speaker 4: You certainly have global benchmarks. And this means, as you say,

827
00:45:29,370 --> 00:45:32,860
Speaker 4: this means they can have a slightly longer-term focus in

828
00:45:32,880 --> 00:45:37,040
Speaker 4: that they have access to cheaper capital, probably, certainly on

829
00:45:37,080 --> 00:45:41,719
Speaker 4: the start-off level. But they have the disciplines of capitalism.

830
00:45:42,300 --> 00:45:44,620
Speaker 4: And I think the number of state-owned companies in the

831
00:45:44,660 --> 00:45:50,670
Speaker 4: world is almost certainly going up. that now that nations,

832
00:45:50,770 --> 00:45:54,350
Speaker 4: developing nations, when they used to just look at Western

833
00:45:54,410 --> 00:45:58,590
Speaker 4: companies as the model, very often now look at state-owned companies.

834
00:45:58,650 --> 00:46:01,109
Speaker 4: So if you take a country like Brazil, if you

835
00:46:01,140 --> 00:46:03,359
Speaker 4: go back to when I was writing this book, they

836
00:46:03,380 --> 00:46:05,760
Speaker 4: would probably say, oh, well, our old days of state-owned

837
00:46:05,800 --> 00:46:07,480
Speaker 4: companies are finished. We've got to get out of that.

838
00:46:07,520 --> 00:46:10,219
Speaker 4: We've got to move towards the American model. They'd now say, no, no,

839
00:46:10,260 --> 00:46:14,310
Speaker 4: state-owned companies are the thing of the future. You know,

840
00:46:14,390 --> 00:46:18,049
Speaker 4: this is the way forward. And, you know, you have

841
00:46:18,090 --> 00:46:20,330
Speaker 4: that and then you have these great state pools of

842
00:46:20,430 --> 00:46:23,430
Speaker 4: capital in the form of sovereign wealth funds. So the

843
00:46:23,610 --> 00:46:26,660
Speaker 4: state is back in a major way. So when we

844
00:46:26,719 --> 00:46:30,239
Speaker 4: started off talking about the East India Company, which is

845
00:46:30,260 --> 00:46:33,399
Speaker 4: a sort of protected by the state in certain ways,

846
00:46:33,460 --> 00:46:37,259
Speaker 4: now we have these things back again. So whereas in

847
00:46:37,320 --> 00:46:39,830
Speaker 4: this book, we sort of took the public company back,

848
00:46:40,510 --> 00:46:43,230
Speaker 4: as the model from which anything else is a deviation. Now,

849
00:46:43,250 --> 00:46:44,549
Speaker 4: I think we have a world in which we have

850
00:46:44,980 --> 00:46:46,719
Speaker 4: private equity and all of that sort of stuff. We

851
00:46:46,760 --> 00:46:48,600
Speaker 4: have a world in which we have big family companies,

852
00:46:48,640 --> 00:46:52,380
Speaker 4: particularly in the emerging world, and big state-owned enterprises. So

853
00:46:52,420 --> 00:46:56,109
Speaker 4: it's a much richer and more varied environment. And it's

854
00:46:56,120 --> 00:46:59,830
Speaker 4: an environment in which no particular type of company is

855
00:46:59,950 --> 00:47:02,330
Speaker 4: the standard against which everything else is measured.

856
00:47:02,850 --> 00:47:04,890
Speaker 3: It's been great to talk to you. Thank you so

857
00:47:04,910 --> 00:47:07,049
Speaker 3: much for your time. This was the second time I

858
00:47:07,090 --> 00:47:09,600
Speaker 3: read the book, and I liked it both times. Thank

859
00:47:09,620 --> 00:47:13,400
Speaker 3: you very much. It was a very enjoyable talk. I

860
00:47:13,520 --> 00:47:16,220
Speaker 3: enjoyed this interview a lot. I would love to do

861
00:47:16,300 --> 00:47:19,860
Speaker 3: some more interviews. Please write to us and tell us, A,

862
00:47:20,510 --> 00:47:25,050
Speaker 3: if you like the interview format, and two, if you do,

863
00:47:25,650 --> 00:47:31,170
Speaker 3: who else should we interview? You can email us at businesshistoryatpushkin.fm.

864
00:47:31,630 --> 00:47:35,489
Speaker 3: You can also find us on Twitter at a.k.a. X.

865
00:47:35,650 --> 00:47:38,990
Speaker 3: I'm at Jacob Goldstein. Robert is at Radio Smith. Radio

866
00:47:39,050 --> 00:47:39,490
Speaker 3: is what.

867
00:47:39,410 --> 00:47:40,109
Speaker 1: He used to do.

868
00:47:40,610 --> 00:47:41,650
Speaker 2: Keeping the faith alive.

869
00:47:41,810 --> 00:47:45,710
Speaker 3: Today's show was produced by Gabriel Hunter Chang, was engineered

870
00:47:45,750 --> 00:47:49,710
Speaker 3: by Sarah Bruguere, and our showrunner and editor is Jake Harper.

871
00:47:50,130 --> 00:47:50,870
Speaker 1: I'm Jacob Goldstein.

872
00:47:51,270 --> 00:47:52,570
Speaker 2: I'm Robert Smith. Thanks for listening.