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Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Roots of Prosperity

The new merchants of northern Italy traded east along the Silk Road as far as China. Marco Polo was one of them. In the West, Italian merchants reached Greenland and traveled throughout Europe as far as the North Sea. Everywhere they went they brought their business practices. Northern Italy finally fell to the feudal empires of Spain and France around 1500, but the seeds of the Venetian system had already been spread.

The Rhine became the greatest European trading river, because it led from a vast fertile hinterland to a major free trading city on the sea, Amsterdam. All of Holland threw itself into some kind of business. In the countryside, the Dutch grew crops for sale. In the towns, they worked in crafts or commerce, shipping goods up and down the Rhine and everywhere else Dutch ships sailed. For example, the farmers around the town of Oudewater specialized in growing hemp, and the town made it into rope. Each sailing ship needed about 10 miles of rope. The town workshops also used hemp to make clothes, paint, oil, and soap. The hemp business alone employed thousands of Dutch farmers and workers. Leiden specialized in wool cloth, which employed even more workers than hemp. Delft made fine pottery. The countryside around Gouda and Edam produced cheeses. The financing, transport, local sale, and export of these products created more jobs. Add to those the imports from overseas trade, such as spices, tea, coffee, and Asian cotton. With no competing system such as feudalism, everyone in Holland worked in business, and its general population rose out of poverty.

In 1602, the Dutch East India Company thus became the world’s first company financed completely by public shares. Seven years later it declared its shares nonrefundable. If a shareholder wanted out, those shares had to be sold to someone else. And so was born, in 1609, the first modern corporation. The buying and selling of shares made Amsterdam the first true stock exchange in the world.

The Dutch system spread quickly to England; London became a smaller version of Amsterdam. But the English stock exchange took another century to develop, because England’s feudal system fought back far more fiercely than Holland’s had. The business-friendly system continued to spread, most notably to the colonies of America — especially New York, founded by the Dutch in 1624 and taken by the English in 1674. These colonies eventually won their independence from the more feudal-minded English king. Their victory in 1781 helped inspire the French Revolution eight years later, and then the other monarchies of Europe fell one by one, first to Napoleon and then to what historians call the “bourgeois revolution,” when the business class replaced feudal aristocrats across Europe. In the 19th century, this business culture became the source of the Industrial Revolution and the resulting increases in wealth and power in Europe and North America.

Fostering a Business-friendly Climate

Emerging nations that want to create economic growth have to do what others have done before them — put in place the elements on the Doing Business list, and deliberately create a more business-friendly climate. Some countries are doing just that. Most notably China and India, but also Rwanda, the Kyrgyz Republic, Macedonia, Belarus, the United Arab Emirates, Moldova, Colombia, Tajikistan, Egypt, Liberia, Georgia, and Mauritius, among others, are putting in place the necessary reforms. According to Doing Business 2010, initial studies indicate positive results: more registered businesses, increased employment, and falling prices, thanks to competition from new entrants.

Although the 10 criteria listed by Doing Business provide a road map for governments, governments alone cannot be effective in creating a healthy climate for business. In many cases, they will move slowly; other parties will naturally be impatient to act. For private citizens, there is a clear path. If you have enough education, wealth, skills, or opportunities to make a difference at home, look first toward joining or assisting your local business sector. Promote pro-business policies for your government. Go to your local business school; if your local business sector is so crippled that you find no opportunity there, work for a foreign business in your country or elsewhere. Do whatever you can to equip yourself to help your local business sector when the tide shifts.

 
 
 
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Resources

  1. R. Glenn Hubbard and William Duggan, The Aid Trap: Hard Truths about Ending Poverty (Columbia University Press, 2009): A concise look at global poverty and the optimal solution of a business-friendly climate, including perspectives on how the current government- and NGO-based foreign aid system could profitably reform.
  2. R. Glenn Hubbard and William Duggan, “The Forgotten Lessons of the Marshall Plan,” s+b, Summer 2008: The other half of the Hubbard/Duggan prescription for combating poverty, specifically in Africa: redirect foreign aid to foster local business.
  3. Art Kleiner, “The Philosopher of Progress and Prosperity,” s+b, Summer 2004: The World Bank’s Doing Business project is based in part on the “mystery of capital” uncovered by Peruvian economist Hernando de Soto; this article introduces his theory and related practices.
  4. Sylvia Solf et al., Doing Business 2010: Reforming through Difficult Times (World Bank, International Finance Corporation, and Palgrave Macmillan, 2010): The seventh edition of the influential and well-researched comparative analysis of business-friendly conditions.
  5. Muhammad Yunus, Creating a World without Poverty: Social Business and the Future of Capitalism (PublicAffairs, 2007): Recounts the founding of Grameen Danone Foods and the concept of social business.
  6. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective