8.1 Foundations of Business and Economics

The development of human societies through the various phases from hunter-gatherer through agrarian and industrial to the present information age has been accompanied by--and on occasion driven by--the techniques of business and economics as much as by any other kind. Early economies were based on transactions as informal and unregulated as the peoples who undertook them. Surplus fish might be bartered for firewood, meat, or berries. Metal and arrows might be traded for clothing. Rates of exchange for one transaction, if they were remembered at all, had no necessary bearing on other barters in the surrounding neighborhood, or even on those conducted by the same individuals at a later date, and no records were kept except mentally. Each exchange was unique and set its own rules, and there was no notion of profit and loss in any "bottom line" sense.

Even hunter-gatherers sometimes developed more elaborate economies with the passage of time. The division of labour into hunting, weaving, gathering, administering, transporting, war making, and spirit consulting necessitated the development of formal, if unwritten, sets of rules for trade and commerce and eventually caused the introduction of various media for exchange, that is, currency. These could be hunted objects such as teeth or hides, gathered objects such as shells, stones, flints, or metals, and even manufactured objects such as arrows, cured foods, or beaded belts. For example, for more than a century the currency of British North America was the beaver pelt. The prices of guns, whiskey, utensils, blankets, and other trade goods were all measured in these furs. In the case of blankets, a number of colored bars called "points" were woven into one side of the blanket to indicate its price. Thus, one spoke of a "three point" blanket or a "five point" blanket, and this meant that it cost three or five beaver pelts, respectively.

There were also rules of thumb for testing the quality of the trade goods. For example, to prevent traders from cheating on the alcohol content in the whisky, those to whom it was offered would spit a portion into the fire. If the drink was of sufficiently high proof, the fire would flare up; otherwise it would not--thus the origin of the term "firewater."

Agrarian societies had relatively more complex trading problems to solve, for by their very nature they produced local surpluses of foodstuffs that had to be taken to distant markets. Surpluses, the lifeblood of those societies, fed citizens, armies, and distant peoples. Surpluses also fueled the search for trade routes to exotic lands and their goods, creating further trading complexities. These societies all developed metal-based exchange media in order to create smooth running and convenient business environments. They also developed the means to keep permanent records, taxation, corporate partnerships, trading cartels, sophisticated transportation, and international trade routes. In addition, the economies of agrarian societies came to depend more and more on government, for only the state was strong enough to protect trade routes, guarantee the value of currency, settle disputes, and regulate the growing techniques of the economy.

The industrial age brought with it a greater dependence on capital accumulation and therefore on the means of recording these accumulations. Thus, double-entry bookkeeping was added to the techniques of accounting, which began to become systematized and regulated, that is, to become a collection of formal techniques. For the same reason, banks were developed to assist in capital accumulation on a large enough scale to finance industrial undertakings--for some had grown too large to be within the means of any single private individual. Banks made it possible for both the nobility and the wealthy middle class to loan money to industrialists without direct participation in or even knowledge of the actual use to which it was being put. The anonymity of the capital pool allowed the nobility to profit from industry without the "taint of trade." It allowed others a relatively safe return on investment by virtue of the diversification of the lending institution.

Organizational techniques for the conduct of business also developed. These included limited liability companies, corporate groupings, and holding or investment companies. A variety of state-run enterprises also sprang up, some operated directly by governments, and others through stock holding partnerships with private enterprises. Still others were maintained at a fictional arms length by the state as "crown corporations." In some cases, only the state could undertake a venture, because only it could risk sufficient capital--both because of its power to accumulate such funds, and because of its lack of accountability to shareholders.

Flexibility and liquidity were improved, as were the means of raising still larger capital sums, by the introduction of publicly traded stocks and bonds and by the subsequent development of technical apparatus needed to support such trade in the form of stock and bond markets, brokerage houses, regulatory authorities, and so on. In the industrial age, these trading enterprises have sometimes grown to enormous proportions, occasionally taking on the status of international conglomerates or monopolistic cartels that in some cases were more powerful than the states of which they were nominally citizens.

At the same time, the state itself has become progressively more involved in trade and commerce, regulating such conduct to the minutest detail and even entering the marketplace directly on its own behalf. When large corporations have failed, governments have sometimes bailed out the owners and employees by taking over the operation, an action that would have been beyond the ability, or beneath the interest, of even the largest groups of private investors. In some situations, governments have felt compelled to intervene to force the breakup of very large companies into smaller entities. In all such cases, the governments involved have had to walk a tightrope between the need to manage the economy and the danger of taking it over entirely--a danger clearly illustrated by the bankruptcy and collapse of the former Soviet Union and its client states. The public-sector economy is important, but no market forces exist within it and it has therefore relatively little incentive to be efficient, unless the state itself approaches bankruptcy.

By the late twentieth century, the systematic and methodical application of management technique to business and the economy in most developed parts of the world was widespread and very advanced. At the same time, Western democratic governments' economic involvement and interference in their economies was scarcely less than what had been attempted in Eastern Europe, through such control achieved far more success in the West in terms of material benefits for the majority of citizens.

The information age owes its existence in large part to the freedom of individuals to innovate, to employ venture capital, and to operate as entrepreneurs. The ability of freely flowing capital to back new ideas and make them winners in the marketplace before any government has been able to respond with new regulations has been critical in the development of computer hardware and software, communication systems, the Internet, medical and other technologies. Major developments in all these fields have taken place primarily in countries like the United States, where new things are freely allowed until they become subject to regulation.

Revolutions are periods of rapid change; they do not take place unless conditions allow such change. Thus the information age cannot even start unless information can flow freely from one individual to another--a state of affairs that still exists in the West, but did not under the closed economies of the former Soviet Union, where new ideas were routinely forbidden until regulations were changed to allow them. The inability of these nations to compete in a rapidly changing world, and their subsequent disintegration, also illustrates that it is not change, however rapid, that endangers a people, but stagnation.

In each phase of economic development thus far, a certain level of technique has been required before the next stage began. For example, an agrarian society must trade and will not thrive unless that trade becomes international in scope. An industrial society requires banks and cannot finance its enterprises without them. Ultimately, the growing complexities of the industrial age brought forth the automation of both production and record keeping. Thus was born the computer--the characteristic and necessary technology for the information age.

Like the others before it, the information age not only has been accompanied by a transforming technology that in itself necessitates the rise of many new enterprises and the demise of those made obsolete, but also has produced fundamental changes in society and in the attitudes of citizens. It has therefore demanded new ways of viewing the conduct of business and the management of the economy. These changes will result in many "winners" and "losers" among individual business enterprises, various corporate sectors and among national economies. Some corporations and peoples are in a much better position than others to exploit the new paradigms and become the next era's economic and political leaders. The remaining sections of this chapter give a more detailed examination of a few of these issues.

The Fourth Civilization Table of Contents
Copyright © 1988-2002 by Rick Sutcliffe
Published by Arjay Books division of Arjay Enterprises