Book Reviews

And the rekindled job generation machine known as American small business leaves Euro peans astonished and envious." A Trinity College professor, Gerald Gunder son, has just published a notable book called The Wealth Creators: An Entrepreneurial History of the United States (New York: E.~ Dut ton, 278 pages, $18.95). Gunderson has a unique faculty for questioning in the middle of summa rizing. American entrepreneurs, he says, "are not immobilized by the prospect of competing with Japanese imports, because their prime function is opening new areas of competition. When Ameri cans withdrew from serious competition in ocean shipping at the beginning of the nineteenth cen tury, better opportunities were also bidding away its resources. The current American advantage in international trade is the entrepreneurial func tion of creating new enterprises or equity. Not only are Americans unchallenged in creating the new systems of participatory management, but they are the world's leader in creating new busi nesses as well. No other society prompts so many of its members to take the plunge to fashion their own ventures." In writing his history Gunderson avoids the quest for villains. He even has good words to say for Jay Gould. "The elevation of Gould into a symbol of all that was evil in the robber baron era," he says, "was not an accident.

It helped many cope with their deep-seated con cern that society was getting out of control by providing a personification of a new environment in which ordinary individuals were losing control of their lives. A strong indication of the attraction of this approach was that it applied to almost ev ery famous entrepreneur of the era, including the one who took up the role of Jay Gould in rail roads, Edward Harriman." Like Gould, Harriman became a symbol of de velopments that worried much of the population. "They thought he had too much power. But the ability of such people as Carnegie, Rockefeller, Harriman and Gould to control markets was much less than the creative contribution that they made to their respective industries." Gunderson's calm approach plays down the of ten fractious role of individual writers in ridding the entrepreneurial scene of myth. It took Louis Hacker some 20 years to turn Andrew Carnegie into something better than a monster. John T.

Flynn had to labor long and hard to prove that Rockefeller's rationalization of the oil business helped to benefit the consumer. The Rockefeller rebate scheme fell through before it could get go ing. Rockefeller might have been able to raise kerosene prices above the competitive level of ten cents a gallon in the Nineties, but, as Gunder454 THE FREEMAN • NOVEMBER 1989 son says, it "would have required an unimagin able effort to put them back up to the level of one dollar a gallon, where they were when he be gan operations in the 18608." It bothers me that the names of Louis Hacker and John T. Flynn are neither in the Gunderson index nor in the annotated bibliography. It is bothersome, too, to search in vain for the names of Ida Tarbell and Lincoln Steffens and other muckrakers of the early 19OOs. Tarbell was cer tainly prejudiced in fighting her family's battle with the Rockefellers, but she is part of our jour nalistic history. It is strange, too, that Gunderson can frequently mention the robber barons with out listing the title of Matthew Josephson's best seller.

But Gunderson, after all, did not set out to write journalistic history. He wanted merely to tell a story. He has done it in a relaxed way that is reminiscent of the style of Hendrik Willem van Loon's The Story of Mankind. An incidental virtue of Gunderson's story is its economic insights. For example, the factors of production in economics are usually listed as land, labor, and capital. But many of Gunderson's enterprisers had nothing much to work with other than their brains. So labor has to be ex panded as a category to include the ability to foresee and to manage. Sometimes the ability to foresee misfires.Gun derson tells some of the market failures that have resulted. Procter and Gamble couldn't get a prof itable share of the market for its potato chips, Pringles.Du Pont couldn't market Corfam, its substitute for leather. But there is serendipity, too. The story of the accidental discovery of peni cillincannot be told too often. D LEXICON OF ECONOMICTHOUGHT by Walter E. Block and Michael A. Walker The Fraser Institute, 626 Bute Street, Vancouver, B.C., Canada V6E 3M1 -1989 - 390 pages - $29.95 (U.S.) cloth, $19.95(U.S.) paper Reviewed by Robert W McGee A s the title states, this book is a lexiconof . economic thought. Each of the several hundred economic definitions is one to three pages in length. But unlike other lexicons and dictionaries, t~is one presents a point of view-the free market view-rather than just a series of dry definitions. The definitions and ex amples take a Canadian slant (the book is pub lished in Canada) but have value to a worldwide audience.

Many of the references contain humor. For ex ample, the entry for "scalpers" starts off: "Next to husbands, scalpers are the most misunderstood group in our society." The "politics" entry cites H. L. Mencken's famous quote that elections are a kind of futures market in stolen property. The "social justice" definition sounds like it could have been written by R A. Hayek. Social justice does not exist. Only indIvidualscan be just or un just, and only individuals can be treated justly or unjustly. The concept of social justice is used by government as an excuse to justify all kinds of in tervention ranging from affirmative action to the progressive income tax. "Economic justice" is explained as follows: While entitlements are always expressed positively,such as, "she has a right to support from the state," the truth of the relationship is quite different. In fact, the only way somebody can be delivered the right to support is if some other person is denied access to the resources they have earned. In the most prosaic terms, for every person who receives a dollar they didn't earn, somebody else earns a dollar they don't receive.

Affirmative action means that employers must look not only at an applicant's intelligence, char acter, and experience, but also at whether the person is a woman, a native Canadian, or handi capped. The American view of affirmative action would include other groups as well. The authors state that this policy is unjust and give economic and ethical reasons for their view. In the "airline deregulation" entry, the authors mention George Stigler's position that govern ment regulation really doesn't protect consumers, but serves to create a kind of producers' cartel. Airline regulation limits competition, thereby putting up barriers to market entry. This stifles competition, so there is less pressure to reduce prices or improve quality, and the consumer suf fers. Since Canadian and U.S. airlines have been deregulated, prices have fallen and more people travel by air. The increase in air traffic has caused some congestion because the same number of airports now must handle more traffic.

The authors also debunk the fallacy that deregulation has caused travel-related deaths to increase. One study they cite found that lower air fares caused some travelers to take airplanes rather than cars, which reduced auto fatalities. Since air travel is safer than auto travel on a pas senger mile basis, overall safety has increased since deregulation. The entry on "broadcast regulation" debunks some of the more popular myths about this wide ly misunderstood subject. The,authors relate the story of the hearings that the Canadian Radio Television and Telecommunications Commission has been holding on whether religious organiza tions should be allowed to have broadcasting li censes. They point out that having to ask permis sion to broadcast is the same, in substance, as having to ask government permission to publish newspapers, magazines, and journals. Broadcast ing is a form of free speech, and just like other forms of free speech, there should be no need to ask government permission.

However, the argument goes, broadcasting is different from other forms of free speech. The electromagnetic spectrum isn't the kind of thing that can be privately owned. It is a public good, and as such, must be controlled by government. But this is not so. All that is needed is to insure that proper boundaries are set on the spectrum so that one station doesn't encroach on another's wave length. It is a property rights solution. Another common argument is that there aren't enough frequencies to go around, so government must allocate them. But this argument just points out that economic scarcity exists, which is noth ing new. Scarcity is nearly a universal phe nomenon. Government isn't needed to allocate other scarce goods and services,so why is it need ed to allocate airwaves? Each topic in this book is short and can be read in a minute or so, which makes it attractive to someone who doesn't have large blocks of time to devote to reading. The book is also a handy reference for those who want to take a quick look at the free market position on a par ticular subject. D ProfessorMcGee teachesaccountingat Seton Hall Univer sity.

OTHER BOOKS 455 IF EVERYBODY BOUGHT ONE SHOE: AMERICAN CAPITALISM IN COMMUNIST CHINA by Graeme Browning Hill & Wang, Keystone Industrial Park, Scranton, PA 18512 • 1989 • 189 pages • $18.95 cloth Reviewedby E. CalvinBeisner C hina has been every merchant's dream for centuries: a quarter of the world's . population as potential customers. The possibilitiesfor profit are staggering. But for cen turies merchants have dealt with unique obstacles in trading with China. And after 1949, when the Communists took over, the dream turned to a nightmare. The doors slammed shut, seemingly forever. Until 1979. Then, with a flourish, China threw open its doors. It invited foreign businesses to en ter joint ventures with (mostly state-run) Chinese companies and to sell (mostly through state-run companies) to the Chinese people. The dreams turned rosy again. But will reality match the dreams? If the expe riences of most American firms operating in Chi na in the past 10 years foreshadow things to come, not likely.

Financial journalist Graeme Browning tells these firms' stories in fascinating style. The ma jority of her book' is built on interviews with American executives who tried-or still are try ing-to do business in joint ventures in China. Most of the stories are of high hopes crippled or crushed by harsh reality. All of them are of American businessmen meeting obstacles they never could have imagined in their worst night mares. The horror stories are impressively consistent: workers so undernourished they can't stay awake on the job, so undisciplined they won't work when they can, so used to being taken care of that they figure they needn't work, so unskilled and lacking in tools that they can't work produc tively even when they want to; bureaucracies so tangled that they're almost impenetrable, bu reaucrats so corrupt that nothing gets done with out bribes; a legal system so infantile that con tracts are unenforceable and almost never fulfilled;an infrastructure so fractured and unde456 THE FREEMAN • NOVEMBER 1989 veloped that getting from place to place by rail, air, phone, or road takes many times longer than in almost any other part of the world-if it can be done at all. One wonders, after reading the book, why anyone bothers to try to do business with China.

The answer is obvious: Even if everybody in China bought only one shoe, that would be a bil lion shoes sold. The potential market is so huge that companies that can afford to look far into the future almost can't afford to ignore it. They want to get in on the ground floor of relations with China, if they possiblycan. But that potential market must not be mistak en for a real market. For example, the yuan, the Chinese unit of currency, isn't exchangeable into dollars on the world market. And even if Chinese per capita annual take-home pay were around $450 (a generous estimate; the real figure is near ly impossible to estimate with any degree of accu racy), the resulting $450 billion annual market would be only about 15 percent of the size of the American market, with its mere 240 million peo ple. And at that, the vast majority of Chinese in come must be spent on things necessary to sur vival-items that now make up only a small part of the total American economy.

To make matters worse, even companies that get in on the ground floor can have no rational sense of security,because they never know when even that will cave in under them. The Chinese government that massacred students in Tianan men Square could, at any moment, nationalize all investments, close the doors to trade, raise taxes to confiscatory levels, and invalidate all contracts. The Chinese market, despite its great poten tial, is presently incongruously small and fright fully shaky. There is plenty of reason to doubt that it will develop into a major market in less than 50 years. Its track recQrd certainly gives no reason for confidence. At best, productivity in China's state-owned industry grew by 0.7 percent per year during the last two decades, when the rest of Asia was booming; at worst, it shrank by 0.2 percent per year. (The difference in estimates, both made by the same World Bank economist, demonstrates another frustration of doing busi ness in China: There's no sound accounting and pricing system, so estimating economic perfor mance is nearly impossible.) Nonetheless, if, against all odds, the Chinese market does over come its seemingly insurmountable barriers to growth, it will become so huge that many busi nessmen will find it hard to resist the temptation to take the risks involved in entering the China trade.

If Everybody Bought One Shoe, while not con sciously polemical, has the interesting side effect of revealing the reasons for the failure of socialist central planning to engender a healthy economy. A socialist economy lacks the incentives to get people to do more than the bare minimum for survival,.the information-processing mechanism to distribute resources according to needs, and the flexibilityto support innovation. The book is informative, well researched (but poorly documented and with no index), and up to-date. It deals with a country that, for most Americans, has been a mystery,yet could become one of our major trading partners and competi tors in the next century. Anyone could gain un derstanding of China by reading it. Certainly any one considering doing business in China and who isn't already an expert on the subject could profit from reading it. D E. .Calvin Beisneris the authorof Prosperity and Poverty: The Compassionate Use of Resources in a World of Scarcity.