"Capitalism is best understood as an expression of human creativity. It is propelled by the dreams, aspirations, and efforts of individuals." So says HBS professor Thomas McCraw in his preface to Creating Modern Capitalism: How Entrepreneurs, Companies, and Countries Triumphed in Three Industrial Revolutions, a book edited by the Pulitzer Prize-winning historian, and published by Harvard University Press.

The 700-page work is the culmination of a three-year research effort conducted under McCraw's leadership in conjunction with the development of a new business history course for Harvard Business School's required curriculum.

When HBS went about a major review of its MBA course of study in the mid-1990s, it recognized that providing a thorough grounding in the roots of modern capitalism would be a vital element. To accomplish this, it turned to McCraw, who quickly concluded that such an offering would have to be international in scope.

	Assuming that the essential elements are in place... then capitalism can flower in a diverse range of social and political environments

"The chief obstacle we faced," he says, "was the commonly held notion that the United States comes closer than any other nation to being a pure free-market economy and therefore a model that every other country must emulate. In fact," McCraw notes, "many countries where capitalism has been very successful -- including Germany, France, and Japan -- do not fit the American model at all." It was also decided that the project's research should examine the myriad relationships between entrepreneurs, organizations, and governments -- a cauldron of interactions that create modern and prosperous capitalist systems.

To help with this huge multinational, multifaceted undertaking, McCraw enlisted the help and expertise of seven other HBS business historians: Professor Richard S. Tedlow, Associate Professor Nancy F. Koehn, Assistant Professor David A. Moss , Postdoctoral Fellow Jeffrey Fear, and Research Associates Jeffrey R. Bernstein, Peter Botticelli, and Rowena Olegario. The resulting volume, a major collaborative effort in the HBS tradition, focuses on four national economies -- Britain, Germany, Japan, and the United States -- and at least two companies from each country -- Wedgwood and Rolls-Royce; Deutsche Bank and Thyssen Steel; Seven-Eleven Japan and Toyota; and IBM, Ford, and General Motors.

Josiah Wedgwood's Guide to Marketing (c. 1760) More than two centuries ago, Josiah Wedgwood successfully employed marketing strategies that we tend to think of as contemporary in origin. Nancy Koehn's research for Creating Modern Capitalism and her more general work on the demand side of the industrial revolutions recently unveiled this entrepreneurial British potter's imaginative solutions to a diverse set of marketing challenges. Direct Marketing/Inertia Selling: Seeking a larger market than Britain alone afforded him, Wedgwood shipped unsolicited pieces of his popular china creamware to a thousand members of the German aristocracy. Each package included an invoice and a promotional letter offering the option of paying or returning the item. Experiential Retailing: Wedgwood reasoned that his exquisite vases and tableware would only be fully appreciated when viewed in the refined setting for which he created them. He therefore ordered that his London showroom be arranged to display various table and dessert services, completely set out, along with vases and other accessories, and that the layout be frequently changed and updated. Brand Management: Brand marketing was nearly nonexistent in the mid-eighteenth century, except for a few luxury brands such as Chippendale furniture and Meissen porcelain. To position his own works in the luxury category and minimize forgeries, Wedgwood insisted that every piece that left his factory carry his name, imprinted on the back or bottom of the item. Celebrity Endorsements: Aware of the marketing value a highly respected name could lend to his work, Wedgwood presented settings of his creamware, and later a tea set, to Queen Charlotte, wife of George III. She responded by appointing him "Potter to Her Majesty" when he was just 35 years old. Wedgwood's creamware quickly became known as Queensware and attained enormous commercial success.

Chapters surveying and analyzing the creation of each nation's business system give the reader a long-range vantage point. "These very detailed country chapters provide an overview of the innovation and constant change that are the defining characteristics of capitalist systems," McCraw observes, "a process described by the economist Joseph Schumpeter as 'creative destruction.'" Although the countries under consideration are among capitalism's greatest success stories, each of them evolved in a singular way. The interaction of cultures, social norms, natural resources, education, and governmental structures combined to create four very different stages on which capitalism has played.

The volume also provides biographical portraits of the entrepreneurs who guided the companies in question to prominence. "We sought intriguing individuals who possessed extraordinary vision, leadership, and creativity," says Nancy Koehn. "It is people like Josiah Wedgwood, August Thyssen, Henry Ford, and Sakichi Toyoda who are truly the linchpins of this effort."

Their stories provide lasting lessons about building a business and confronting management challenges, from Wedgwood's precocious marketing genius (which laid the foundation for his company's ability to sustain its brand name for more than two centuries) to the tale of Toshifumi Suzuki's success in building Seven-Eleven Japan into a retailing powerhouse amid constraints in a country bound by tradition.

McCraw credits the uncommon and difficult methodology of comparative research across multiple analytical units (i.e., economies, firms, and individuals) as the basis of the project's success. The most profound finding, he says, is the extreme power and flexibility of capitalism. "There is not just one ideal model," he says. "Assuming that the essential elements are in place -- private property, the rule of law, and a few other things -- then capitalism can flower in a diverse range of social and political environments." Adds Koehn, "This is a particularly important revelation for some Anglo-Americans who have often lived in an incubator that validated their own particular conception of capitalism." The connection between democracy and capitalism is another critical area on which the team's research sheds new light. "At a certain stage," McCraw explains, "there is a likely, and perhaps necessary, convergence between a democratic economic system and a capitalist economic system. But looking back from this point in history, we do not find a binding one-to-one relationship," he continues. "It didn't exist in Japan or Germany in the 1890s, for instance, when both countries were capitalist but certainly not democratic. We don't see it in China today."

Finally, with its insights into several hundred years of business history, Creating Modern Capitalism puts a new emphasis on the advantages of long-range time horizons. "Managers these days often seem to assume that one or two financial quarters comprise a geological epic in the half-life of capitalism," Koehn concludes. "Such is not the case with the companies in this study. Leading an organization is very serious business, and we learn from this extensive body of research that it can and often should be done with an eye toward the very long term."

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