Look at Khrushchev and Mao and their failures in agriculture. You can see the same mistakes reflected with business leaders. People like Henry Ford, who got some calls absolutely right early on in his career, but then for the rest of his life got them increasingly wrong. His mistake was to believe that his inspired judgment was the basis of business success.
S+B: Heroic leadership is still very much alive in both political and business thinking.
KAY: That isn’t surprising. If you have an aggressively individualistic perception about how the world works, then it is hard to understand that it’s the corporation as a sort of organism and entity that is the strength of market economies.
S+B: There seems to be a bit of a paradox here. You say the American business model is a myth. Yet you also say the U.S. economy works very well. Can you reconcile this?
KAY: When I’m asked the question, which I frequently am, “How do you reconcile your criticism of this American business model with the success of the American economy?” the answer is that the American economy is not built on the kind of caricature model I was describing earlier, and couldn’t be.
The U.S. economy, like other successful market economies, is based on disciplined pluralism over a long period. Or to put it another way, the wealth of the richest 20 countries in the world today is a product of two centuries or more of political, social, and cultural evolution. It is naive to imagine that the lessons of that can be distilled into a few easily transferable maxims — and that is why our efforts to promote economic development in poor countries have enjoyed so little success and why the experience of post-Communist Russia has been so poor. We can only find real solutions to these problems when we understand that there are no simple solutions. As happens so often in business and economics, we are looking for prescriptions when we have very little understanding of the issues or the diagnoses.
S+B: One of the other great perceived strengths of the U.S. economy is the entrepreneurial culture. But there seem to be many instances where the originator of an idea does not reap the commercial rewards — which seems like a market failure. Do markets actually reward innovative talent?
KAY: The answer is yes, but very roughly. There are lots of reasons the inventor or originator of an idea may not get the lion’s share of the rewards. In the book, I talk about the history of the personal computer industry; few of the firms that made the innovations that were really important to the ultimate development of the industry succeeded commercially from it. The most important company in the inventive sense is probably Xerox, which is not there at all today and has never been there in terms of commercial success in that industry.
The other really important question to ask is: If you take the most important innovations of the 20th century, who paid for them? And the surprising answer to me when I looked into it was not only that it wasn’t private companies, but it wasn’t government either: It was private philanthropies of various kinds.
S+B: Can you give us an example?
KAY: My list of these innovations includes computers, antibiotics, “green revolution crops,” and television. If you take just these four for the moment — with computers, the basic idea was academic and then developed in the war by the British government. Antibiotics were discovered famously by Alexander Fleming in a hospital in the 1920s, then nothing happened for 10 years. It was only when the Rockefeller Foundation put money into research and development that things started to happen. Both the British and American governments in World War II also picked up that one.