New Industries Come From Crazy People – Palladium

image

Library of Congress/Thomas Edison, John Burroughs, and Henry Ford

In the year 1800, a team of burglars broke into a factory in England to steal the workers’ payroll. The factory belonged to Matthew Boulton, an industrialist and inventor, as well as a polymath who hosted discussions with intellectuals like Benjamin Franklin, Joseph Priestley, and Erasmus Darwin.

Boulton got wind of the burglars’ plot. Like any sensible person, he decided the responsible thing to do was to assemble a posse of his friends and employees, give them guns, and lie in wait. As one biographer told the story:

The robbers…were allowed to break in and seize their booty, and were making off with 150 guineas and a load of silver, when Boulton gave the word to seize them. A quantity of tow soaked with turpentine was instantly set fire to, numerous lights were turned on, and the robbers found themselves surrounded on all sides by armed men. Four of them were taken after a desperate struggle; but the fifth, though severely wounded, contrived to escape over the tops of the houses in Brook-row.

Boulton enjoyed the adventure immensely, as he wrote in letters to family and friends. Boulton had other escapades as well. He organized vigilantes to chase counterfeiters through secret passages, and turned his workforce into a makeshift militia when rioters threatened to sack his factory.

However, we don’t remember Boulton as an eccentric adventurer. Rather, he’s remembered for his role in kick-starting the Industrial Revolution. After James Watt invented his steam engine and spent years laboring in a fruitless partnership with John Roebuck, Boulton befriended Watt and bought out Roebuck’s stake. Boulton quickly expanded his factories, which had previously made knick-knacks like vases and buttons, and began large-scale manufacturing of the steam engines which so far had been only prototypes. These steam engines were soon powering industry across Britain, and within half a century led to the development of railroads and steamships.

So why was a leading businessman like Boulton so prone to chasing burglars? Antics like his might be chalked up to youthful enthusiasm, except that he was 72 when he ambushed the burglars. You might expect such a long-standing captain of industry to be sober and conservative, rationally maximizing his gains with a minimum of noise and fuss. Perhaps his business life was more moderate?

Hardly. Even before he met Watt, Boulton was heavily overleveraged, staying ahead of creditors by expanding into new businesses with borrowed money and charm. After diving into the steam engine business, Boulton found that his earliest customers—copper mines—were on the verge of bankruptcy. To help keep them afloat, he invested heavily in the mines and bought large loads of copper. To make use of his new stockpiles, Boulton then personally designed a steam-powered machine to mint copper coins. When counterfeiters began copying these coins, Boulton grew dissatisfied with the police, organized his vigilantes, and hunted them down.

This is not unusual behavior for a man in Boulton’s position. Any survey of groundbreaking industrialists will reveal that they’re almost always a bit nuts. There are a great many examples cut from the same outlandish cloth as Steve Jobs, Howard Hughes, and Henry Ford. To restrict ourselves to people from our own time: Jeff Bezos declared in high school that he meant to move all of humanity into space and preserve the Earth as a huge international park; Peter Thiel is some kind of shadowy philosopher-vizier; Larry Page has poured a fortune into futuristic prototypes ranging from augmented reality glasses to self-driving cars to high-altitude balloons that broadcast internet service wherever they go; Elon Musk is Elon Musk. Mark Zuckerberg is almost unique in being a groundbreaking technologist who is a normie at heart—though it’s possible his obsession with Augustus Caesar, including the haircut, is more than just curiosity.

Where does this leave our archetype of the sober captain of industry? Are these people just a myth? Not at all. Pick five major corporations out of a hat, and in four of them, the leadership will be risk-averse managers whose vision of progress is one of incremental improvement to the status quo. There are a lot more Arvind Krishnas than Larry Ellisons.

The difference is that the sober captains of industry are rarely responsible for building new industries. The best of these people can guide an existing enterprise to ongoing success, as with Tim Cook, who developed Apple into the world’s most highly-valued company; or they can build new enterprises using technologies and business models that have been proven elsewhere, as with Leland Stanford, the railroad baron who linked California and the American Southwest to the rest of the country. But large-scale economic innovations require different skills and a different mindset.

To illustrate this difference, let’s compare two men who led the same company. Both embodied the American dream, rising from rural poverty to the forefront of business and public affairs. But the resemblance ends there.

Thomas Edison received no formal education. He was a self-taught tinkerer who supported himself as an itinerant telegraph operator and poured his meager salary into parts for makeshift inventions he would cobble together in rented rooms. He eventually achieved success and modest fortune with two advances in telegraphy: the quadruplex telegraph and an early stock ticker. At this point, an ambitious man in the “sober captain of industry” mold might have sought a high position in an existing company, or perhaps even started a new telegraph company of his own. Instead, Edison founded his famous Menlo Park laboratory, where he invented the incandescent light bulb, and even more importantly, the public power plant to distribute electricity to new light bulb owners. He could have had an illustrious career at the head of the Edison Electric Light Company. But instead, he turned to developing yet more industries. Edison would go on to found a dizzying array of companies. He mass-produced new inventions, including the phonograph and the motion picture, as well as expensive boondoggles in mining and cement manufacturing. Meanwhile, he reluctantly handed off operational control of his power company, which eventually became the General Electric Company (GE) after several mergers.

A later chairman of GE was Owen Young. He was born in a farmhouse in upstate New York in 1874, the same year Edison sold his quadruplex telegraph. Young scraped together an education, and by 1900 his drive and intellect had made him a hotshot young lawyer. Young was deeply involved in several cases and negotiations involving electric companies. This brought him to GE’s attention, and they recruited him as Chief Counsel in 1912. There he finessed negotiations with suppliers, labor unions, politicians, and the press. During World War I, he helped throw GE’s weight behind the American war effort.

Soon after the peace treaty, the United States Navy asked Young to organize a buyout of the British-owned Marconi Company, in order to put crucial radio infrastructure under American control and prevent the British from eavesdropping on secret American communications. Young led the buyout, and from 1919 he headed the resulting Radio Corporation of America, manufacturing radios in close collaboration with GE, where he became the chairman in 1922. A decade later, GE would sell its ownership in RCA to avoid antitrust concerns. Under Young’s leadership, GE and RCA became enormous manufacturers of consumer goods and appliances, cementing their positions as household names. Young was also selected by statesmen for key roles on two commissions renegotiating the payment of German war reparations: the Dawes Plan and the eponymous Young Plan.

Both these men are representative examples of their types. Edison was independent-minded and insatiable. Even after transforming the world around him by introducing lighting, power, and the day’s most popular entertainments—even when he was widely hailed as the age’s most brilliant champion of progress—he risked his fortune on new industrial ventures which could and eventually did fail spectacularly. If you were looking for someone to conservatively manage a piece of necessary infrastructure so that it would still be intact in 40 years, Edison would make a terrible choice. He did not fit into organizations or social roles established by others. He has a popular reputation as, frankly, an asshole, and this reputation was well-earned. Edison had the same pathological need to build that led Boulton to invent a new type of mint just to dispose of his excess copper. It’s difficult to say whether Edison would have approved of Boulton ambushing burglars, but he certainly would have understood.

On the other hand, it’s difficult to imagine Young reacting to Boulton’s reckless antics with anything other than befuddlement. Young was a man of the system, for whom everything should be done by the proper authorities acting through the proper channels, and he was extremely skilled at navigating those channels. He was ambitious enough to rise to the highest positions in industry. But while a man like Edison determined his own ambitions, Young’s ambitions were always received from figures in polite society—initially from wandering Unitarian professors, and later, directly from men like Woodrow Wilson and Herbert Hoover. Young was more than able to oversee the expansion of GE and RCA from manufacturers of heavy industrial capital goods into world-class manufacturers of consumer goods as well, but he would have no idea how to approach novel tasks like scaling up production of Watt’s unproven steam engines or building the world’s first public power plant.

Men like Young are necessary for any industrial society. As stewards of the major businesses and institutions, they keep the lights on and drive incremental progress. It is fortunate, then, that nearly every society encourages or tolerates the ambitions of such men. Countries like China and South Korea, which have reached the forefront of modern industry and continue to push forward the state of the art by small steps, have done extremely well by cultivating this type of leader, even as they limit those who would go further.

However, if we wish to achieve industrial breakthroughs and large-scale economic innovations, then we must also tolerate men like Boulton and Edison. Most societies will not do this. The natural reaction is to shut them down as dangerous threats to social order and economic life, and this is not completely wrong. Even their defenders use terms like “disruption” or “creative destruction” to describe the effects of their projects. Meanwhile, those who buck the status quo face media attacks and lawsuits, and more importantly, inescapable social pressure in their everyday interactions. In some places, the forces of conformity also wield unfavorable legislation, trumped-up corruption charges, or popular riots. Social technologies like American individualism, or the tolerance England once had for a gentleman’s eccentricities, are necessary if a society is to permit these madmen to run their experiments on the social fabric.

An illuminating case is the spat between Elon Musk, surely a mad founder if ever there was one, and the U.S. Securities and Exchange Commission (SEC). In 2018, Musk lied about Tesla’s financing on Twitter, likely to manipulate the stock price as part of his personal vendetta against short-sellers. The SEC sued, alleging securities fraud. If the SEC had used this as a pretext to remove Musk from power entirely, they might well have succeeded outright, and could at least have launched a major legal battle that would have dragged Tesla down for years. If this had happened in a conservative country like Germany or France, where regulators are hostile to economic disruption, such an attack would have been very likely.

Instead, Musk and the SEC reached a settlement two days after the suit was filed—a pace unheard of in America’s sclerotic legal system. Musk and Tesla were fined a combined $40 million, and some largely cosmetic changes were made to Tesla’s organizational chart which left Musk decisively in charge. Apparently, the SEC wants to make it clear that such behavior will be punished, but has no desire to destroy Tesla in general or Musk in particular. For American regulators, the idea of a major industry being run by a nonconformist oddball doesn’t raise red flags the way it would in most other countries.

Or for an older example, take the case of Guglielmo Marconi, who developed the first practical radios. His work was ignored and mocked within his native Italy. One of Marconi’s requests for patronage was later found buried in a government minister’s papers, with a scrawled note reading “to the Longara”, an insane asylum. In search of better prospects, Marconi emigrated to Britain in 1896, which at the time was a powerhouse of industry and technological innovation. Marconi was not even admitted into the country before a customs agent found the strange apparatus in his luggage and alerted the government. With the state’s backing, he soon founded a wildly successful company, dominating markets and making the world’s first transatlantic radio transmissions. Twenty years later, the United States Navy would mastermind Owen Young’s buyout of the American branch of Marconi’s radio company, which had become critical to national security.

While Italian society’s de facto top concern had been to keep Marconi in his place in order to avoid rocking the boat, in Britain the culture and institutions threw their weight behind his rise, even at the risk of rendering obsolete British interests in the trans-Atlantic telegraph cable, which had been the most advanced method of communication for 40 years before Marconi’s trans-Atlantic radio transmissions. Once Marconi had achieved fame and fortune in Britain, Italy was happy to welcome him back as a hero. For Britain before the World Wars, such support for disruptive innovation was not unusual. More than a hundred years before Marconi arrived, Boulton’s business succeeded in part because he persuaded Parliament to pass a special act extending the patent on his fledgling steam engines from 14 years to 25 years.

Tolerant institutions and culture have been a necessary component of industrial supremacy since the dawn of the Industrial Revolution. America was not always the only country that permitted breakthrough industrialists to build unproven new industries and upend the economic order, but it is today. If any other society wishes to match or outpace America in this regard, it will have to do the same.

Ben Landau-Taylor studies industrial economics. He works at Bismarck Analysis, a consulting firm that investigates the political and institutional landscape of society. You can follow him on Twitter @benlandautaylor.

Related