Notes on Great Founder Theory

The origins of industrial civilisation can be understood by analysing its key players and institutions. Great Founder Theory explains how.

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Introduction

From Istanbul's rooftop restaurants, a concrete sprawl wades up the hills on both sides of the Bosphorus, desperate to escape the city squalor for air. The ruins of Rome, the sultan’s palaces, and imperial mosques are squeezed in this uncontrolled urban sprawl, the ancient brick and marble darkened by soot and the decay of time. The sheer scale of industrial life imposes itself brutally upon the ruins of the old world. The size of modern cities is a product of the size of their populations, which in turn exists only because of the industrial-scale production of food and medicine. Without industrial production and global supply chains, modern cities could not exist.

The scene of Istanbul’s concrete sprawl and ‘mega’ infrastructure is found in all major cities around the world owing to the homogenisation of urban cultures and environments. Why does every country aspire to the same design? If every state desires to become a modern nation-state, then who designed the nation-state? If every country desires to embed itself in the global supply chain for the sake of prosperity, what companies play a critical role in the functioning of the chain?

Great Founder Theory (‘GFT’) offers a means of identifying the designers of the modern world. A continually updated manuscript of essays written by Samo Burja, his central thesis is that a small number of institutions, founded by an equally small number of founders, form the core of society. These founders are ‘live players’ whose novel theories and practices are embodied as traditions of knowledge in institutions. The trend towards homogeneity that we see every day in the transformation of cities all around the world is driven by most institutions attempting to imitate the few, functional institutions that are delivering results. The key to understanding industrial civilisation lies in identifying the institutions that are being mimicked and what their successful practices are.

The Political Economy of the World

Industrialisation does not happen by accident. Statesmen devote large amounts of resources, manpower, and legislation to try and encourage economic growth. Why some nations succeed whereas most fail is one of the most enduring questions of political economy. GFT takes us beyond contemporary debates that reduce the complexity of industrialisation to protectionism vs free trade, policy tinkering, centralisation vs decentralisation, etc. Instead, to understand why nations successfully industrialise, we should look at the individuals and institutions that pioneered industrialisation in their respective nations. Who were these people, how did they manage their institutions, who did they learn from and how did they build upon that learning?

If we scratch the surface of these institutions, we find a startling correlation of ideas and even a shared ecosystem of knowledge networks extending back into the earliest days of the Industrial Revolution, when the basic principles of industrial policy were still being devised. These principles in turn would become mimicked by industrialising nations throughout the 19th and 20th centuries until today. Tracing the influence of a small number of theorists and practitioners in determining the industrial development of the modern world brings us closer to understanding the homogeneous features of our time. Their fingerprints are all over the globe. Cities as a focal point for industry required a specific set of political, economic, and social designs to work. Any nation hoping to industrialise therefore had to emulate these designs to a great degree.

One of the early intellectual ecosystems of industrial policy was the American School from which all successful examples of industrial policy in the 20th and 21st century have built on. Alexander Hamilton was one of the founding fathers of America and laid much of the groundwork for America’s political, financial, and industrial institutions. Hamilton was one of the first ‘state capitalists’ of industrial civilisation. His Reports on Manufactures established the principles of a protectionist economy in which the state would subsidise and protect core industries against foreign competition until such a time as when they could enter the ‘open market’ and compete on their own two legs. That is to say, that the industry would be so powerful that foreign competition would be negligible. The economic theorist Friedrich List and Senator Henry Clay also played a role in the development of Hamilton’s ideas, which came to be known as the American school. Their ideas (among other great thinkers) came together to form this very American tradition that was built on by later statesmen like Abraham Lincoln, Theodore Roosevelt and Franklin D. Roosevelt. This was the first leg of the development of a state capitalist genealogy of ideas.

By 1945, America was the industrial powerhouse of the world. It was in the post-war era that the economic principles of the American School, which had created America’s prosperity, started to become discredited and largely forgotten. Industrial policy became the bogeyman of the postwar school of neoclassical economics which believed in unfettered global trade and off-shoring manufacturing to developing countries. State involvement in the economy was seen as inefficient and contrary to the principles of a Smithian free market (although Adam Smith himself made some arguments in favour of protectionism).

In the time America was forgetting its legacy, East Asia was building on the American school and developing its own branch of a state capitalist philosophy. They devoted themselves to intense study of the successful practices of western states to foster industry and develop both economic and political power on the world stage.

The Meiji restoration saw Japan end centuries of isolation and take a path of unparalleled industrialisation and empire-building. This process was only possible due to numerous Japanese figures who went to Europe (and America) to study their science, statecraft, and industrial policies, and to bring it home. The Chinese and other East Asians followed the Japanese. Within decades, these individuals formed their own intellectual ecosystem that would go on to define post-war East Asia’s industrial policy and statecraft. The Japanese-built Kenkoku school was one such incubator. Initially built by the Japanese as part of their state building project, their defeat in WWII saw the proliferation of Kenkoku students across East Asia to pioneer industrial policy. One of these students was Park Chung-he who would take over South Korea in a coup and implement wide ranging reforms to industrialise South Korea.

In China, Deng Xiaoping was keenly aware of the development taking place in neighbours like South Korea, Japan, and further afield in Singapore. Xiaoping was deeply influenced by Singapore’s founder Lee Kuan Yew, who was part of the intellectual ecosystem that had transmitted ideas from the American school, Bismarckian Germany, and Japan to build post-war East Asia. The ideas of the American school which had spread through Kenkoku and other intellectual networks had deeply impacted the region, although China under Mao Zedong was one of the exceptions. Deng’s succession of Mao and his time in power would prove to be consequential for world history. He engaged with state capitalist ideas and implemented reforms that would not only secure China’s sovereignty (particularly against the American threat), but also create a powerful industrial base to enrich the nation. This would be done by turning America’s free trade dogma against itself, bringing in foreign investments and, more importantly, knowledge transfer for the manufacture of important technologies. As America was drained of its knowledge, China would gain without ever having to take down its walls.

Throughout the 1990s-2000s, China recorded double digit growth even as American free trade tsars trumpeted the benefits of this arrangement, blithely unaware of the grand strategic aim China was undertaking by opening up without opening up; American economists were castigating industrial policy while China was implementing its own. Fast forward to 2021, China’s model is mounting a successful challenge to the American world order, while American politics is in quagmire and its society is tearing at the seams. It is at the changing of the guard that the incumbent, declining power realises the perils of abandoning its own manufacturing base.

From Alexander Hamilton to Lee Kuan Yew and beyond, there exists a shared genealogy of ideas relating to industrial policy and statecraft that have shaped the foundations of industrial civilisation. The nations that adopted state capitalism have, for better or worse, successfully industrialised. The nations who opted for commodity-driven exports and free trade, or autarky, have largely failed to industrialise. The question of how to industrialise is not just relevant to political sovereignty or economic prosperity, but impacts everything down to the way we build our cities, consume our food, and organise our day around the 9-5. Ideas matter, and understanding the intellectual ecosystems which nurtured them is just as important if we want to understand why the world is the way it is today.

Industrial Traditions of Knowledge

While individuals, intellectual ecosystems, and statecraft are important to foster the process of industrialisation, corporations also play a crucial role in fostering innovation and ensuring the successful transfer of knowledge. Just as there is an ecosystem of knowledge for industrial policy, there is an ecosystem of knowledge for any aspect of manufacturing. East Asian countries had to engage with and learn from western manufacturers, often by going to the West, or by inviting western manufacturers to set up factories and labs back home. Singapore under Lee Kuan Yew consciously pursued this strategy of technological knowledge transfer by having western corporations set up in Singapore and hire Singaporeans before then being able to launch domestic competitors. China has also pursued this strategy, although with the added dramatic value of corporate and academic espionage (to note, all nations engage in espionage).

One of the key geopolitical battlegrounds between China and America concerns the fate of Taiwan, and more importantly, the Taiwan Semiconductor Manufacturing Company (‘TSMC’). Morris Chang painstakingly built TSMC from the ground up by transferring his experience working in American semiconductor companies to build TSMC into the powerhouse of chip manufacturing. Today, TSMC controls over half the world market share for chip manufacturing. With leading American companies like Intel falling behind TSMC, there is now growing demand for the re-shoring of industries critical to American national security - like chip manufacturing. If China succeeds in annexing Taiwan (and it seems poised to do so some time in the 2020s), they will control the world’s lion share of chip manufacturing. In an era where commerce and communications are completely reliant on computer chips, the leverage China would have over America simply by controlling Taiwan and TSMC would probably result in America having to play second fiddle to China.

Economics alone can't explain success or failure. Merely allocating capital or meddling with incentives to return chip manufacturing to America won't work. One of the core insights of GFT is how traditions of knowledge continue to play a crucial role in modern industries. We tend to view decision making on economic matters as a process of formal legislation and economic principles, but the existence of traditions of knowledge suggest that the ‘customs’ of corporations, not economic principles like free market mechanisms, plays the primary role in ensuring corporate continuity and industrial knowledge transfer.

This belies the 'dark matter' of chip manufacturing that depends not on monetary investment but the proprietary knowledge a firm has and to painstakingly transfer it. And this isn't an easy task; the whole is greater than the sum of its parts. Institutional knowledge cannot be dissected and transplanted like an individual unit of economy. Knowledge is deeply embedded in the ecosystem in which it was created and nurtured. To transfer knowledge in a haphazard manner risks "data corruption" if transfer is done without understanding its environment. Understanding the dark matter of an institution is an important sociological tool to fill the gap where purely economic approaches so often fail and for glaringly obvious reasons that are missed in the ivory towers of academia.

Even though talk of industrial policy and reshoring critical manufacturing is becoming a popular bipartisan agenda in America, the loss of industrial knowledge cannot simply be willed into existence through newspaper op-eds or legislation. Knowledge is built upon through successive generations of masters to apprentices, and embedded in an institutional ecosystem that provides it with several protections to foster its growth and spread. At best, the American school is dead. At worst, it’s lost. An interesting prospect for America is that it must relearn its own traditions of economics and industry from East Asia. This requires no small measure of humility as America must acknowledge that it has been surpassed and it has a limited window of time in which to recover this knowledge.

The Factory is the Product

Having an industrial policy and wanting to develop technology is good and well, but attempting to introduce new material technologies without having prepared society around new patterns of production and consumption will mean that the material technology is unlikely to be adopted. Statesmen are often as much social engineers as they are industrial policymakers and bureaucrats.

From the adoption of cars to factory rolled cigarettes, social customs had to change for these innovations to be adopted. GFT draws extensively on the social engineering conducted by Henry Ford to get his cars built (remember, the factory is the product) and sold to be driven by Americans in cities redesigned around the automobile. The introduction of highways radically reshaped urban settings, driving alienation in inner cities where human contact was decreased and human beings became second class citizens to the cars’ right of way, and helping in the creation of all-American suburbs which carry their own political, economic, and social repercussions.

By far the most important social engineering that occurred in industrialised societies was the subsumption of pre-industrial social organisation into the factory mode of organisation. Michel Foucault’s Discipline and Punish provides a rather bleak insight into the institutional models of schools, militaries, and prisons, suggesting a common purpose to fashion people for service across the panoplies of industrial society; military conscription, factory work, and paying taxes in a uniform manner. Men like Henry Ford played a critical role in creating new forms of human organisation which were then replicated across the world in the hope of achieving similar levels of industrial production to America. Before designing the output, someone had to design the factory. And before designing the factory, someone had to reorganise society around it.

Burja’s contention is that all institutions are bureaucracies of production; when Elon Musk said that ‘the factory is the product’, what he was saying is that the output (a Tesla car) is less impressive and difficult than  designing the factories to produce these outputs. In similar fashion, all institutions are bureaucracies of production in some way. The design of the institution itself to coordinate people and successfully produce outputs at scale is the real innovation. The factory is one example of a new method of organisation to coordinate human beings to achieve an objective, and its replication in all industrialised societies has in turn introduced a degree of homogenisation in the way their societies are structured.

More often than not, social engineering happens without a clear intent for it. Facebook’s name change to ‘Meta’ and Mark Zuckerberg’s stated intent to focus his efforts on becoming the main company building the ‘metaverse’ was treated as the beginning of society’s descent into a world increasingly defined by its digital forms of communications and relationships. However, Facebook is not the company that will usher in the metaverse; another company has already been building a metaverse for the past decade.

Apple’s iPhone came with a few ‘killer features’, among them being the in-built camera and an extensive app store. The app store enabled new social media apps that could scale alongside the iPhone’s distribution. Additionally, providing every person with the ability to have both a camera and a social network in his pocket meant that we could not only ubiquitously record our lives but share it online, too. Without the iPhone’s camera or its extensive app store, it is highly unlikely society today would be even willing to consider the metaverse. For the past decade and a half, our experience of life has come to be increasingly defined by our screens and digital relationships and conversations. Facebook’s success as a metaverse company is much more likely owing to Apple’s social engineering of society. Virtual reality headsets are not a disruption but an evolution of the status quo.

Industrial Sovereignty

GFT forces us to contend with something crucial. If the 'secret knowledge' of the modern world are those traditions of industry which determine the wealth and leverage of a nation and even its military might, this knowledge and know-how is key to a nation's sovereignty. The affairs of companies involved in manufacturing anything from machine tools to computer chips is not for the market to determine solely through shareholder interests and profit-loss analysis. States have to take an active interest in who is manufacturing what, where, and how, to ensure that rival powers are not manoeuvring to threaten or hold these positions of power.

Whatever institutions of state, finance, or the military that polities all over the world try to establish, all seek to imitate these core functional institutions. They achieve this to varying degrees, although most fail and exist as modern states and societies on paper alone. The implication is that the few states that master this institutional knowledge are among the few truly sovereign and functional polities. The capacity to develop nuclear power is one example of what makes a nation sovereign, as very few nations have it, and those who do are more or less impervious to the threat of direct conflict with other great powers. Nations that do not possess nuclear weapons cannot rely on MAD as a defensive strategy, which is why Iran and North Korea are attempting to develop their own nuclear capacities.

The definition of sovereignty takes on a new dimension. Beyond the monopoly of power and control over a territory, a truly sovereign state must also have a developed industrial base and monopolies over the knowledge (be that of the material technology itself, or the type of institutional design necessary to produce it). The conflicts of the 20th century from the two world wars to the Cold War were driven by competition for the global industrial order. Nazi Germany and the Soviet Union were interested in creating their own ‘Fordist’ modes of industrial production that could outcompete America. We can reframe Clausewitz’ ‘war is politics by other means’ as ‘war is a byproduct of the drive for industrial monopoly.’

No Grand Theory of History

The main insight I have gleaned from reading history is that there is no grand theory or narrative. There is no linear progression that can be marked and tracked to forecast outcomes with reliable precision. Instead, history veers from crisis to crisis, and it is in these moments of crisis that live players take advantage of crisis to usher in vast reforms whose practices and methods of organisation are defined by a new set of institutions. Then these institutions form the new paradigm of society until they, too, are exhausted and have to be replaced. If they are not replaced, then that society joins the graveyard of civilisations.

Instead of grand theories driving history, we have to understand the institutional ecosystem of a particular period to understand why it developed the ‘solutions’ for the problems of their time. For example, America has undergone several sets of reforms. Its initial founding in 1776 was the 'first wave', with the next major set of reforms coming under Abraham Lincoln after the civil war, then Franklin D. Roosevelt's New Deal, and so on. The French are on their fifth iteration of the Republic. Each of these developments came after some sort of crisis in which reformers provided a new set of arrangements that previously would have been unthinkable. None of it was determined or inevitable. It took immense skill, great vision, and a heavy dose of luck for these reforms to occur.

The economist Milton Friedman hinted at this.

“Only a crisis - actual or perceived - produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes the politically inevitable.” ― Milton Friedman

GFT doesn't lay out a grand, sweeping narrative of history (as the manuscript title belies), instead offering a powerful repertoire of analytical tools to analyse industry, technology, and statecraft. The tools are general enough to be applied anywhere human beings are concerned, and to be extended and adapted where needed to provide a vernacular approach to the particular institutional makeups of a given society.

Conclusion

The modern world is extraordinarily complex, yet so much of it was shaped by so few institutions. Perhaps a hundred polities, firms, and social networks are the progenitors of the world system and the object of imitation by innumerable institutions that aim to be like them yet fall short of it. These institutions were mostly incubated in nations and empires like England, France, America, Germany, Japan, and Russia. China is on its way to contribute to this story. These nations are arguably among the few sovereign nations of the world and that sovereignty lies in the development of industrial bases, which they could only do by engaging with and building on the traditions of knowledge that gave rise to the industrial policy and statecraft conducive to building this base.

Burja is clear about what happens to the nations that forgo industry in The End of Industrial Society (an essay not yet added to the manuscript). The loss of industrial capacity and traditions of knowledge coupled with the loss of social technologies based around industrial production have resulted in a society now operating in freefall. It is apparent that to relearn lessons that have been lost can be just as difficult and capricious as the first time it was learned.

Burja’s conclusion is a springboard for action. If we come to understand industry not merely as a set of industrial practices and policies but as being embedded in a wider set of social technologies that shape society around the industrial mode of production, and the simultaneous loss of these social and material technologies being the result of our woes, then the answer is simple: we must form new social technologies based around industry once again, borrowing from the old and where we no longer can, developing novel solutions.

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