John Micklethwait

Adrian Wooldridge
The Company

The company has been one of the West's great competitive advantages. Of course, the West's success owes much to technological prowess and liberal values. But Lowe and Gladstone ushered in an organization that has been uniquely effective in rendering human effort productive.

The idea that the company itself was an enabling technology is something that liberal thinkers once understood instinctively. 'The limited liability corporation is the greatest single discovery of modern times,' proclaimed Nicholas Murray Butler, one of the great sages of the Progressive Era; 'even steam and electricity would be reduced to comparative impotence without it.'

Economists have elaborated on why such institutions are crucial to economic development. Companies increase the pool of capital available for productive investment. They allow investors to spread their risk by purchasing small and easily marketable shares in several enterprises. And they provide a way of imposing effective management structures on large organizations. Of course, companies can ossify, but the fact that investors can simply put their money elsewhere is a powerful rejuvenator.

A cluster of competing companies makes for a remarkably innovative economy. Nowadays, you only have to look at Silicon Valley to grasp this point. But in the mid-nineteenth century, the effect of Western governments delegating key decisions about which ideas to back to independent firms was revolutionary. Rather than being trapped in government monopolies, capital began to search for the most efficient and flexible companies; and rather than being limited by family partnerships, it came together in bigger and bigger conglomerations. By contrast, civilizations that once outstripped the West failed to develop private-sector companies—notably China and the Islamic world—fell farther and farther behind. It cannot be just coincidence that Asia's most conspicuous economic success is also the country that most obviously embraced companies—Japan.