Business History: General Business History

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Positive and Normative Judgments Implicit in US Tax Policy and the Costs of Unequal Growth and Recessions

What does United States tax policy reveal about Americans' values and beliefs, and about how those values and beliefs have changed over time? In this paper, the researchers use theory and data to back out the implicit priorities and judgments in US tax policy over the last several decades. They find a dramatic shift in the mid-1980s that persisted, and even continued, over the next 25 years and that cannot be reconciled with conventional assumptions about these values and beliefs. They explore evidence on a number of possible explanations for this shift, including a link between economic and political inequality. They also attempt to use their results to estimate the welfare costs of two key phenomena—rising inequality and recessions—and find that these estimates are highly sensitive to the explanation one adopts for the evolution of US policy. Overall, the researchers argue, uncovering the judgments implicit in policy provides a promising path toward both a better understanding of policy priorities and more objective comparisons for policy evaluation. Read More

The Art of American Advertising

Harvard Business School's Baker Library is hosting a historical exhibit that examines the advertising industry in a bygone era. Open for comment; 2 Comments posted.

Debating the Responsibility of Capitalism in Historical and Global Perspective

The concept of corporate responsibility is often assumed to be recent in origin. This is far from accurate. Indeed, a recent study has traced the long history of corporate responsibility concepts in the United States back to the eighteenth century. This working paper puts this United States evidence in a wider comparative and global perspective. The paper proceeds chronologically, beginning with the era of the first global economy during the nineteenth and early twentieth century, and going forward to the present day. Overall, the author demonstrates that from the nineteenth century, American, European, Japanese, Indian, and other business leaders discussed the responsibilities of business beyond making profits, although until recently such views have not been mainstream. Read More

In Strange Company: The Puzzle of Private Investment in State-Controlled Firms

Why do "mixed corporations" exist? In which conditions could they become efficient organizational forms? In this paper, the authors argue that the effectiveness of mixed enterprise depends on a hybrid governance structure combining elements of private ownership with public checks-and- balances against uncertain governmental interference. This is a delicate equilibrium to obtain and one not without challenges. Exploring the promise and perils of this approach by looking at the recent experience of a sample of national oil companies (NOCs)-Brazil's Petrobras, Norway's Statoil, and Mexico's Pemex-the authors suggest that from the perspective of a social planner, the coexistence of minority private investors with state actors can generate improvements in operational and financial performance. From the perspective of private shareholders, there are risks that can be outweighed by some of the advantages of state-owned enterprises. Three different factors explain private investor interest. These are 1) the existence of countervailing privileges from partnering with the government, 2) the resort to improved corporate governance and legal constraints that limit the opportunity for political abuse, and 3) ex ante price discounting. Read More

These Are the Good Old Days: Foreign Entry and the Mexican Banking System

In this paper, the authors take on an aspect of contract design that is fundamental to explain economic development and financial stability. They study the incentives contained in the "partnership" contract between bankers, the government, depositors, and bank shareholders, and examine how the incentives that come out of that contract explain the volatility of the banking system. The main insight is that bankers in developing countries with weak property rights demand rents (such as high barriers to entry) and lax regulation, as a way to compensate them for the political risk they face of being expropriated by the government or used for policy objectives (for example, if the government forces banks to buy its debt). Depositors, on the other hand, demand deposit insurance in case bankers are reckless, while minority shareholders demand high returns to compensate for the risk of insider lending or reckless behavior on the part of bankers. Then, the combination of high barriers to entry, lax regulation, and deposit insurance induces bankers to take on more risks to try to maximize their rents, and does not encourage depositors and minority shareholders to monitor bankers either (as the government limits downside risk for them). This dynamic, in the case of Mexico, led to frequent banking crises between the 1970s and the 1990s. This was the case until 1997, when the government allowed foreign bankers take over the largest domestic commercial banks and improved the monitoring of banks. This increased the stability of the system. There has not been a crisis since then, partly because of improvements in regulation and partly because foreign bankers have been more conservative, not only because they have standardized procedures to deal with risk but also because they are closely monitored by their parent banks abroad. Read More

The Messy Link Between Slave Owners and Modern Management

Harvard-Newcomen Fellow Caitlin C. Rosenthal studies the meticulous records kept by southern plantation owners for measuring the productivity of their slaves, some of which were forerunners of modern management techniques. Closed for comment; 53 Comments posted.

Power to the People: The Unexpected Influence of Small Coalitions

J. Gunnar Trumbull discusses his new book, Strength in Numbers, in which he argues that diffuse groups—environmentalists, consumer activists, farmers—wield great influence in areas of regulation including trade to product safety and labor policy. Closed for comment; 1 Comment posted.

Book Excerpt: Strength in Numbers

In his new book, Strength in Numbers: The Political Power of Weak Interests, Gunnar Trumbull shows how consumer groups can effect change by forming interest-driven alliances among activists, regulators, and corporations. Open for comment; 0 Comments posted.

Not Your Father’s State-Run Capitalism

The face of state-owned companies in Russia, China, and other countries has changed dramatically over the last several decades, says professor Aldo Musacchio. What capitalists need to know about these increasingly powerful competitors. Closed for comment; 1 Comment posted.

America Needs a Manufacturing Renaissance

In their new book, Producing Prosperity: Why America Needs a Manufacturing Renaissance, Harvard Business School professors Gary P. Pisano and Willy C. Shih discuss the dangers of underinvesting in the nation's manufacturing capabilities. This excerpt discusses the importance of the "industrial commons." Closed for comment; 0 Comments posted.

Penn State Lesson: Today’s Cover-Up was Yesterday’s Opportunity

While leaders may rationalize that a cover-up protects the interests of their organizations, the inevitable damage harms their institutions far more than acknowledging a mistake, says professor Bill George. Closed for comment; 16 Comments posted.

What Do Development Banks Do? Evidence from Brazil, 2002-2009

Private firms in developed and developing markets find themselves competing with the so-called "national champions"—private and state-owned enterprises that receive entitlements, mostly trade protections and/or subsidized credit from the government. Most of these national champions get support by proposing long-term projects with large capital investment that would usually not be easy to fund using private capital. This paper, written by Research by Sergio G. Lazzarini, Aldo Musacchio, Rodrigo Bandeira-de-Mello, and Rosilene Marcon, uses evidence from Brazil to look at what happens to firm performance, investment, and financial expenditures when companies get subsidized credit from the Brazilian National Bank of Economic and Social Development, known as BNDES. Read More

The Forgotten Book that Helped Shape the Modern Economy

A British merchant's long-forgotten work, An Essay on the State of England, could lead to a rethinking of how modern economies developed in Europe and America, and add historical perspective on the proper relationship between government and business. An interview with business historian Sophus A. Reinert. Open for comment; 11 Comments posted.

From Social Control to Financial Economics: The Linked Ecologies of Economics and Business in Twentieth Century America

No transformation looks more consequential for the history of American higher education than the extraordinary rise of business schools and business degrees in the twentieth century. Marion Fourcade (UC Berkeley) and Rakesh Khurana (HBS) analyze the changing place of economics in American business education as reflected in the teaching of three elite business schools over the course of the twentieth century: the Wharton School (1900-1930), the Carnegie Tech Graduate School of Industrial Administration (post World War II), and the Graduate School of Business at the University of Chicago (1960s-present). Read More

How Foundations Think: The Ford Foundation as a Dominating Institution in the Field of American Business Schools

What causes institutions to change? This paper adds organizational and exogenous perspective to existing theories by looking at the idea of "dominating institutions"—a class of formal organizations purposively designed to change other institutions. HBS professor Rakesh Khurana and colleagues look at the Ford Foundation and its work reshaping America's graduate schools of management between 1952 and 1965 through funding of "centers of excellence" at a number of schools, including Harvard Business School. Read More

A Brief Postwar History of US Consumer Finance

The growth of the consumer finance sector after World War II provided a bevy of new financial options for Americans. These options led to a "do-it-yourself" approach to consumer finance, and an increase in household risk taking. In this paper, Harvard Business School professors Gunnar Trumbull and Peter Tufano, along with former HBS research associate Andrea Ryan, discuss the major themes that dominated the expansive postwar sector, including some of the factors that set the stage for the recent subprime mortgage crisis. Read More

Modern Indian Art: The Birth of a Market

Before 1995, there was little market for twentieth-century Indian fine art. That's when artists, auction houses, critics, and others defined a new product category—modern Indian fine art—resulting in worldwide demand and soaring prices. Professor Mukti Khaire explains the dynamics behind new market categories. Read More

What Brazil Teaches About Investor Protection

When Brazil entered the 20th century, its companies were a model of transparency and offered investor protections that government did not. Can our financial regulators learn a lesson from history? HBS professor Aldo Musacchio shares insights from his new book. Read More

Ruthlessly Realistic: How CEOs Must Overcome Denial

Even the best leaders can be in denial—about trouble inside the organization, about onrushing competitors, about changing consumer behavior. Harvard Business School professor Richard S. Tedlow looks at history and discusses how executives can acknowledge and deal with reality. Plus: Book excerpt. Read More

Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930

Do endowments matter in determining the cost of capital for a country or state? Endowments, according to Banco de México's André C. Martínez Fritscher and HBS professor Aldo Musacchio, are the conditions that determine what kind of commodities can be produced and exported in a determined geographical region. Studying the determinants of the risk premium of the bonds issued by Brazilian states between 1891 and 1930—a period of extreme decentralization of fiscal revenues and expenditures in Brazil—the researchers find that risk premia are highly correlated with state public revenue per capita. Because these revenues came, to a large extent, from the taxes states levied on commodity exports, the researchers argue that endowments mattered to determine the cost of capital for states. Read More

The Return of the Salesman

Salesmen have received a bad rap over the years, but increasingly the profession is drawing scholarly interest. Business History Review coeditor Walter A. Friedman discusses the publication's recent themed issue on salesmanship. Read More

Business Summit: Introduction to the Future of Market Capitalism

Professor Joseph L. Bower discusses a two-year research project exploring the views of global business leaders and HBS faculty on what might threaten the world's economic progress. Read More

The Lessons of Business History: A Handbook

Compiling a handbook on the current thinking in any area of study seems daunting enough, but the just-published Oxford Handbook of Business History carries an even larger mission: bring the lessons of business history to current research in other disciplines and to the practice of business management itself. A Q&A with coeditor Geoffrey Jones. Read More

Remembering Alfred Chandler

Alfred D. Chandler Jr., who died in May, defined the field of business history and shaped the way we think about the modern corporation. Harvard Business School colleagues share their thoughts on his legacy as well as their personal reminiscences. Read More

Rediscovering Schumpeter: The Power of Capitalism

Economist Joseph Schumpeter was perhaps the most powerful thinker ever on innovation, entrepreneurship, and capitalism. He was also one of the most unusual personalities of the 20th century, as Harvard Business School professor emeritus Thomas K. McCraw shows in a new biography. Read our interview and book excerpt. Read More

Dividends from Schumpeter’s Noble Failure

Before influential Harvard economist Joseph Schumpeter wrote the seminal Capitalism, Socialism and Democracy, there came the difficult-to-digest Business Cycles. Although the book was a failure, professor Thomas K. McCraw, who has written a forthcoming Schumpeter biography, believes Business Cycles developed Schumpeter's thinking on capitalism and ultimately changed the practice of business history. Excerpted from Business History Review. Read More

Historically Speaking: A Roundtable at HBS

Harvard Business School faculty Richard S. Tedlow, Alfred D. Chandler, Nancy F. Koehn, and Debora L. Spar discuss the different research paths they took leading to their most recent publications. Read More

Setting the Stage: A Young Scholar at HBS

Rohit Daniel Wadhwani, the Harvard-Newcomen Fellow in Business History for the 2002-03 academic year, discusses his research work and his experiences as a Fellow at Harvard Business School in this interview with Laura Linard. Read More

It Came in the First Ships: Capitalism in America

The Virginians in Jamestown, the Puritans in Massachusetts Bay, the Quakers in Pennsylvania and other early settlers of what later became the United States all brought with them elements of capitalism, precursors of the future nation's market-driven direction. In this excerpt from his article "American Capitalism" in Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions, HBS Professor Thomas K. McCraw looks at the early years of capitalism on the North American continent. Read More

The Intellectual Underpinnings of Entrepreneurial Management

The term entrepreneur — literally, "undertaker"—has been around for over two centuries, but attempts to define it have remained elusive. In this excerpt from their article "Entrepreneurial Management: In Pursuit of Opportunity," HBS Professors Howard H. Stevenson and Teresa M. Amabile look back at the roots of entrepreneneurship as an academic field of interest and ahead to what they believe will be "the entrepreneur's century." Read More