Why his­tory mat­ters for en­trepreneurs

In or­der to un­der­stand why cer­tain strate­gies com­pa­nies used suc­ceeded (or failed), it is vi­tal to have a firm grasp of the times and con­text in which they came into be­ing.

Finweek English Edition - - OPINION - By Jo­han Fourie ed­i­to­rial@fin­week.co.za Jo­han Fourie is as­so­ciate pro­fes­sor in eco­nom­ics at Stel­len­bosch Univer­sity.

iteach eco­nomic his­tory at Stel­len­bosch Univer­sity, and of­ten have to ex­plain to busi­ness stu­dents, many with lit­tle in­ter­est in his­tory, why they should care about the past. Broadly, there are two rea­sons why eco­nomic his­tory mat­ters. First, his­tory ex­plains the present. It would be in­cred­i­bly dif­fi­cult to un­der­stand – or be­gin to ad­dress – ed­u­ca­tion, un­em­ploy­ment or in­equal­ity in South Africa with­out un­der­stand­ing its his­tor­i­cal ori­gin. Lo­cal un­em­ploy­ment is a prob­lem of the 1970s, for ex­am­ple, when wages started in­creas­ing at a much faster pace than pro­duc­tiv­ity, a re­sult of poor-qual­ity black ed­u­ca­tion in com­bi­na­tion with the mo­bil­i­sa­tion of black labour unions. While SA is cap­i­tal-scarce, most firms, in re­sponse, adopted cap­i­tal in­ten­si­fi­ca­tion, fur­ther in­creas­ing the wage gap be­tween skilled and un­skilled labour. In­equal­ity wors­ened.

Eco­nomic his­tory mat­ters too, be­cause it is anal­o­gous to the present. Ben Ber­nanke, chair of the US Fed­eral Re­serve when the Great Re­ces­sion hit in 2007, wrote a 1994 re­view pa­per on the “macro­eco­nomics of the Great De­pres­sion”, so when fi­nan­cial mar­kets tum­bled in 2007, Ber­nanke was acutely aware of what not to do. This al­lowed him to im­ple­ment mea­sures – like quan­ti­ta­tive eas­ing – to soften the deep­en­ing cri­sis.

The field of busi­ness his­tory has also gained pop­u­lar­ity, most no­tably at Har­vard Busi­ness School. Of­ten case stud­ies writ­ten by Har­vard busi­ness his­to­ri­ans form the core of case stud­ies used by busi­ness schools glob­ally.

As Ge­of­frey Jones, fac­ulty chair of the Busi­ness His­tory Ini­tia­tive, puts it: “In the present tur­bu­lent age, it has never been more im­por­tant for busi­ness prac­ti­tion­ers and pol­i­cy­mak­ers to have a crit­i­cal and rig­or­ous un­der­stand­ing of the past.”

Busi­ness his­to­ri­ans teach not only in busi­ness schools, but also in de­part­ments of man­age­ment, fi­nance, en­trepreneur­ship, ac­count­ing and eco­nom­ics.

Places like Har­vard in­vest in busi­ness his­tory be­cause of in­tel­lec­tual hon­esty. An­drew God­ley, di­rec­tor of the Cen­tre of En­trepreneur­ship at the Hen­ley Busi­ness School, ex­plained to me in 2015: “Al­most all MBA sub­jects are taught us­ing case stud­ies. Case stud­ies are, by def­i­ni­tion, his­tor­i­cal. They are jus­ti­fied as de­vices to aid stu­dent learn­ing of a par­tic­u­lar theme (e.g. di­ver­si­fi­ca­tion strate­gies).

“But be­cause they are his­tor­i­cal by def­i­ni­tion, any suc­cess­ful in­ter­pre­ta­tion of the case study (and so any suc­cess­ful learn­ing out­come) de­pends on the stu­dents un­der­stand­ing the his­tor­i­cal con­text fac­ing the de­ci­sion-mak­ers in that par­tic­u­lar firm. Ac­knowl­edg­ing ex­plic­itly that con­text mat­ters and that con­text changes, there­fore leads to the fur­ther ac­knowl­edge­ment that MBA stu­dents need some sort of ground­ing in busi­ness his­tory meth­ods to be able to cor­rectly in­ter­pret (and so learn from) case stud­ies.”

Con­text is par­tic­u­larly im­por­tant in the de­vel­op­ing world. As Har­vard’s Aldo Musac­chio sug­gests, emerg­ing mar­kets have spe­cific “in­sti­tu­tional voids” that en­trepreneurs must over­come to be suc­cess­ful. This may be any­thing from a poor ed­u­ca­tion sys­tem to se­vere labour mar­ket reg­u­la­tions. How busi­nesses re­act to th­ese voids de­ter­mines the type of firm es­tab­lished.

Our lack of un­der­stand­ing how in­sti­tu­tional voids gave rise to in­dige­nous busi­nesses is es­pe­cially acute lo­cally. Stel­len­bosch Univer­sity his­to­rian An­ton Eh­lers has writ­ten about the black eco­nomic em­pow­er­ment project of Pep Stores in the 1970s. A sep­a­rate com­pany, Pep Stores Penin­sula Lim­ited, was cre­ated in 1973, with the ma­jor­ity of shares sold to mem­bers of the coloured com­mu­nity at 50c/share and a mi­nor­ity of shares owned by the par­ent Pep Stores. When the Group Ar­eas Act was re­pealed in 1991, coloured share­hold­ers were of­fered shares in Pep Stores or cash of R35/share, an in­crease of 7 000% over 18 years, a re­mark­able suc­cess story. And im­por­tant lo­cal “case study”.

But much more can be done. What were the in­sti­tu­tional voids that gave rise to firms like SAB, Dis­cov­ery or Black Like Me? We need to un­der­stand the his­to­ries of pub­lic util­i­ties, NGOs, and banks (Eh­lers also pub­lished the his­to­ries of Boland Bank and Capitec).

The rise of African cap­i­tal­ism over com­ing decades will re­quire a large pool of skilled man­agers that both un­der­stand the do­mes­tic com­plex­i­ties and global sup­ply chains. May th­ese man­agers, trained in Africa’s lead­ing busi­ness schools, draw from lessons of our own his­tory and con­text. My chal­lenge to SA’s top busi­ness schools: En­cour­age dis­ser­ta­tions on the his­to­ries of lo­cal busi­nesses; in­tro­duce a course in busi­ness his­tory; ap­point a ten­ure-track pro­fes­sor to re­search the his­to­ries of African busi­nesses; and cre­ate an ar­chive of busi­ness his­tory to pro­tect the doc­u­ments that fu­ture gen­er­a­tions will need to un­der­stand our cur­rent suc­cesses and fail­ures. (What are the lessons, for ex­am­ple, of the fail­ure of Mxit? What a great case study!)

Th­ese chal­lenges are not easy to ful­fil in the time and re­source-con­strained busi­ness schools of to­day, where ac­cred­i­ta­tion is para­mount. Yet we must try harder if we are to in­cul­cate the next gen­er­a­tion of busi­ness peo­ple with the com­pet­i­tive ad­van­tage of con­text.

As Stephen Mihm from the Univer­sity of Ge­or­gia re­marks: “Busi­ness his­tory – or the his­tory of cap­i­tal­ism – is not a sci­ence. It’s a way of look­ing at the world that ac­knowl­edges the messi­ness of hu­man eco­nomic ac­tiv­ity even as it prom­ises to ex­plain both the re­cur­rent pat­terns of the past and the unique fac­tors that led up to the present. For busi­ness school stu­dents, his­tory breeds recog­ni­tion that the present is noth­ing more than the lead­ing edge of the past.” ■

“In the present tur­bu­lent age, it has never been more im­por­tant for busi­ness prac­ti­tion­ers and pol­i­cy­mak­ers to have a crit­i­cal and rig­or­ous un­der­stand­ing of the past.”

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