Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - May 8th, 2012

History 101

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.

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