Startup Nation

The Country That Invented Itself

Even before the pandemic cratered our economy, we were faced with a scary question: how do we find jobs for 100 million Indians entering the workforce over the next decade? Delivery and mobility startups aren't going to do it. Learning to code to become an Elon Musk isn't going to do it either, despite what those terribly annoying ads tell you. How do we create and spread prosperity, allowing a billion of us access to lives and livelihoods that go beyond subsistence? Our problem is unique in scale, and we can't emulate anyone else. We can, however, learn from the best. 

From the birth of Jesus Christ to about 1820, a man unfortunate enough to be born a commoner (and that was pretty much everyone) knew he would spend his short life, and his children and grandchildren would spend their short lives, tilling the same plot owned by a landlord. And we know this because economic growth was around 0.11 percent a year, or about 11 percent a century. And then, the world's greatest ever engine of prosperity kicked into gear. Within 200 years, this engine would help us nearly triple our lifespans, save us from killer diseases, and bring us electric lighting, greased lightning, televisions, washing machines, tractors, highways, plastic, mass manufacturing, the 9-to-5 workday and of course, the internet and Coca-Cola.

Even if some of these life-changing devices weren't actually invented there, this remarkable engine of prosperity spun them out in large numbers and made them affordably available to its citizenry. How did the United States of America achieve this miraculous feat? How was an empty space on a map, a vast and roaring wilderness, so utterly transformed in a few short centuries?

That's the question these three great books attempt to answer (Americana, An Empire of Wealth, Capitalism in America). There's overlap as they are all weaving the same historical facts into narrative. And all are enjoyable reads, but if I had to pick one it would be Americana by Bhu Srinivasan. This is a superb, accessible and entertaining retelling of economic history. Its 35 short chapters mark era-defining milestones, from tobacco, steam and railroads, to computing, finance and startups. But this is no linear recitation of facts. Americana vividly brings to life the social, political and cultural forces — and regulatory guidelines — that enabled these innovations and their inventors and popularizers.   This is history, economic history as the slowed-down, well-examined inner workings of a dynamic system.

This is also the greatest startup story with the unlikeliest of pivots.

The founding of Jamestown, the first American colony, was made possible by profit-seeking venture capitalists backing a religious minority adopting a literal "blue ocean" strategy, and heading across the North Atlantic. Four hundred years later, it was the religion of golden-arches capitalism that ended up winning. The venture was made possible because of two innovations, one technological and the other financial. A joint-stock company allowed shareholders to pool finances and mitigate risk, and the full-rigged ship allowed for the long non-stop journey required to cross the Atlantic. Early investors didn't get their 100x returns, but the venture they backed ended up transforming the world.

What can this story teach us about prosperity and job-creation?

That we were dreaming of America in the first place was the result of a national tragedy. India, a poor country with hundreds of millions of people one or two steps removed from starvation, had gone to great expense to educate doctors, engineers, and scientists. Yet somehow this investment had turned the country into a third-world finishing school to provide the first world with talent. The educated began leaving India. They weren’t searching for freedom or fleeing persecution—India was, and is, the largest democracy in the world. No, for decades, Indians, like millions of others, had been drawn to the dividends of American capitalism, not the liberties of its constitution. We were economic refugees.

This is the author Bhu Srinivasan talking about why his parents left their "homeland, culture, family, and large parts of self-identity" in 1984, and paid the "immigrant's price of admission" to access economic opportunity. We have surely made progress in the last forty years, thanks mainly to the economic liberalization of the early nineties. But we still have a long way to go to to educate and then retain the millions of ambitious young Indians who might otherwise be forced to retread the same path. How do you create an unmatched engine of growth and prosperity?

This isn't an unabashed love letter to capitalism, which has its ills and flaws. Growing inequality and the leaching of opportunity for many sections of society are all too evident and reason for political upheaval. That, however, shouldn't stop us from admiring the greatest hits of its American avatar.

So, what are some of the lessons?

The first invention to launch America into the era of industrialization was the cotton gin. The gin (short for engine) drastically cut down the time it took to separate cotton fibers from their seeds. It would be the first of many labor-saving devices that American inventors would come up with. Freeing up time, speeding up travel, these inventions would allow for the production of surplus that not only lowered prices, but allowed America to become an important part of the global supply chain.

But what allowed these inventors to take on the risk of costly experiments, which might have taken years of frustration and tinkering? Just four years before its invention by Eli Whitney, a far more foundational invention, an abstract one, was codified in the newly drafted U.S  Constitution. This was the first constitution in the world to protect intellectual property rights.

The framers of the American Constitution had understood intellectual property protections as fundamental to the “progress of sciences and useful arts.” Before addressing the freedom of speech or religion through amendments, the American Constitution relegated to the federal government functions such as minting money, maintaining a postal service, and declaring and financing war, and the granting of copyrights and patents to protect “writings and discoveries.” When granted, this formal recognition of the government in effect created property rights out of thin air, based on ideas and abstractions.

Other inventions required the remaking of towns and territories beyond them to be truly useful, and this was no easy task. Inventors, planners, visionary politicians and bureaucrats, and financiers had to work together to make this possible. While the steamboat had greatly expanded the geography of trade, it was still largely coastal. The Appalachian mountain ranges made the entire Western part inaccessible. Boats could obviously not go through -- unless you cut through them. How do you even dream of taking on such a task? Robert Fulton, the developer of the first commercially viable steamboat, was up to it.

Steamboats, Canals, and the debut of Mickey Mouse

In 1796, while in London, he published his dense 100-plus-page manifesto titled Treatise on the Improvement of Canal Navigation. Fulton, awarding himself the title of civil engineer, went on to detail the geography of multiple nations, centuries’ worth of history on the canals of Europe and China, and the economic advantages of free-flowing commerce, along with technical detail after technical detail about a locking system that would enable large-scale canals. Fulton had tables detailing the unit economics of road-based transportation versus the projected costs via canals.

This yesteryear slide-deck alone wouldn’t have been enough. It would have to be a monumental and collective engineering, financial, and political undertaking. 

Newspapers scoffed at the plan’s expense and impracticality. Various provincial interests throughout New York needed to be mollified, lobbied, and coalesced. The basic issue was how to pay for the canal

Vision had to be backed up by execution and innovation from private and public sector participants.

In financing the canal, New York brokerage houses sold Erie Canal bonds to wealthy individuals, overseas investors, and savings banks, making it one of the first public projects to raise money for a specific purpose tied to a revenue stream—“revenue bonds” in contemporary municipal finance terms.

Upon completion, the immediate financial success was evident, and copied by various states. 

The initial projection of 500,000 annual tons of goods within twenty years was exceeded within ten. Within twenty years of its opening, over a million tons per year were being transported on the Erie Canal.

Overnight, the commercial implications were clear. Goods from Cleveland could end up in New York within days. Chicago was completely accessible by water from New York through the Great Lakes. With the Mississippi River already the conduit to New Orleans, a very large part of the United States could now be accessed by waterways. The Erie Canal’s financial success set off canal mania in other states

If you are not from the U.S. you’ve most likely not heard of the Erie Canal. Now, it is largely used for leisurely cruises and recreational boat rides. That’s another feature of the American economic story. With every technological advance, public and private partnerships at a grand, nationwide scale would end up obsoleting earlier infrastructure. Railroads replaced canals; highways replaced railroads; container ships replaced manufacturing hubs. And the internet is replacing offline retail.  Each new wave of change, restless and relentless, remade lives, mostly for the better. Change is tough, life-upending if you are among the affected, and something the preceding millennia just did not prepare us for, and yet it is remarkable that each new wave was allowed to wash away the old. No other country has so fully embraced the idea of creative destruction.

Each of these upheavals also gave rise to the enormously wealthy. Canals and steamboats powered the wealth of Cornelius Vanderbilt, steel forged the prosperity of Andrew Carnegie, and oil fueled the riches of John D. Rockefeller.  The onlining of retail is doing the same for Jeff Bezos. Their contributions are rightly celebrated, but if anything, the stories woven together show it is the system, well lubricated with legal, political, financial, and cultural forces operating together, that made the emergence of these titans possible.

Command economies generally excel at large-scale infrastructure undertakings, but not at the innovations that make them technically possible. Command economies also do not allow for dissenting voices to seek change and new paths when the balance tips away from general well-being. For every Rockefeller, the American system produced an Ida Tarbell. The excesses and attendant cruelties of industrialized meatpacking gave rise to the likes of Upton Sinclair. Funnily enough, the marketplace rewarded these so-called muckrakers too with stellar sales for their exposés.

There are so many other interesting and revelatory stories. Here are a few:

On Sears, the catalog-sales behemoth, the Amazon before Amazon:

In 1894, Sears, Roebuck & Co. was producing a catalog about half the size of Montgomery Ward’s. Sears, however, had twice the exuberance in terms of colorful language, especially in its watch section. “Hampden Watches Slaughtered” read one page. “We say slaughtered because we are offering Hampden for less money than any other wholesale house in America.” Another description, channeling the economic populism in the air at the time, screamed: “Down with Monopoly! Down with Watch Trusts! Down with Prices!”

On the democratic spread of prosperity:

As the price of the Model T Touring model dropped to $360 by 1916, the American equation for prosperity came into focus: A mere seventy-two days of labor, less than three months, at the $5 wage per day equaled the purchase of a brand-new car. The formula made Henry Ford a national hero and an international celebrity, a man who directly touched the people through the sturdiness of every chassis assembly and door hinge, who made owning an automobile a fundamental mark of citizenship, an essential characteristic of what it meant to be an American. That an economic system would be able to provide automobiles to virtually an entire nation in the opening decades of the twentieth century was a staggering achievement, access to the open road symbolizing another form of freedom

On the innovate use of technology:

Most incongruously, so did the United Fruit Company, which primarily grew bananas. Before the war, the company was perhaps the largest industrial user of wireless telegraphy. Across countries in Central America and islands in the Caribbean, the company owned millions of acres on which it grew fruit. Employing large native populations in these “banana republics,” the company matched its landholdings with the equivalent of a private navy. Unlike other industrial goods, fruit was perishable. Once an area was picked of its fruit, say, bananas in a remote part of Jamaica, the fruit needed to be placed on board a steamer with refrigeration. The ability to communicate with ships at sea and route them to the right location eliminated costly spoilage and allowed fruit picking to be optimized. In a real sense, radio communications lowered the cost of bananas for consumers in New York.

On the invention of suburbs:

Within a year, Levitt had built four thousand homes, more than any other developer in America. He named the development Levittown. He was as adept at selling houses as he was at building them. Pricing each home identically at $7,990, he included a refrigerator, bookshelves, and a washing machine. Making Levittown even more accessible, Levitt offered to rent the homes for $65 per month.

There are so many such nuggets in Americana, so you might as well just read it. Coming back to the prosperity and jobs question, what it reveals is that merely fostering startups isn’t going to do much for us. We will need large and sustained investment in education and infrastructure, financial and structural reforms, and law and governance not just in name and on paper, but in execution. And rather than hitching rides in small boats on the current wave of technical innovation, which might already be receding rapidly, we will need a system that has the capacity to create many new ones. The people, we already have; hundreds of millions ready to answer the call.