Capitalism In China

Success in capitalist enterprise is often associated with the Protestant work ethic. However, study of three major entrepreneurs from the golden age of American capitalism reveals systematic leisure seeking and limited involvement in day-to-day business operations. There is reason to believe that this detachment may have been important to their success, enabling more effective decision making. All three relied on hard working and gifted partners but were kept informed by frequent, detailed reports. Important strategic decisions were never delegated. The major conclusion is that long hours of work are not essential for entrepreneurial success.

The entrepreneurs studied were Andrew Carnegie, John D. Rockefeller, and J. Pierpont Morgan. Despite their partial withdrawal of involvement their enterprises continued to expand at very rapid rates. All three had built effective organisational structures using the partnership approach and then closely supervised the performance of their subordinates. Most importantly, each retained effective control over important strategic decisions.
The time the principal decision maker spent away from routine business was an important factor in his success. Because the entrepreneurial function depends critically on the ability to perceive opportunities, excessive time spent in routine business activities may lead to less effective entrepreneurial decisions. Leisure, in particular time for thinking, is an important part of the creative process.

This pattern of limited involvement in day-to-day business operations was principally after their enterprises had passed through the survival stage and had reached the point of take off into sustained growth. Typically, the business had experienced an initial “surge of success’ which provided the basis for rapid accumulation and internally funded growth, This released the principal decision maker from the necessity of spending long hours fighting for the survival of his firm and enabled him to concentrate on planning strategies for future growth and responding to challenges and opportunities presented by the external environment.

What is noteworthy in the cases studied is that the entrepreneur disengaged himself from the enterprise to such an extent that the casual observe might be excused for regarding him as semi-retired. Typically he would be absent from the business for extended periods, either on trips abroad or staying at a summer house and only visiting the place of business when absolutely necessary.

It is significant, however, that the entrepreneur’s partial withdrawal from his enterprise did not slow its growth or impede his own accumulation. Limited involvement continued while each of the three achieved national dominance in his area of activity suggesting strongly that appropriate entrepreneurial choices were being made. However, the fact that the founder was frequently absent does not mean that he had abdicated the decision making role. Important strategic decisions were never delegated. In addition, all three maintained a watchdog role which anticipated modern business practice by requiring frequent and detailed reports on key aspects of the firm’s operations.

Andrew Carnegie

Two of Carnegie’s biographers focus on his lack of the diligence normally associated with building a great business. One describes him as an “absentee employer”. The other points out:

Carnegie was never a hard worker – not a hard worker, that is, in the grindstone sense; he spent at least half his time in play, and let other men pile up his millions for hi. He was the thinker, the one who supplied ideas, inspiration and driving power, who saw far into the future, not the one who lived laborious days and nights at an office desk … [A]fter his thirtieth year he was a roving spirit, organising great industries, endowing them with his fire and enterprise, selecting the associates who could best transform his visioning into deeds, assuming the main responsibility for success but leaving the drudgery to others.

At the age of thirty-two, Carnegie moved from Pittsburgh to New York. For the rest of his life he would live at a distance from the business activities which provided him with ever increasing wealth. This was particularly the case with the summer months. After suffering sunstroke during the Civil War he had developed a chronic intolerance for hot weather, so from early June to late October he would retire to his summer house at Cresson, Pennsylvania, high up in the Alleghenies. In later years he would spend the summer in Scotland.

Carnegie’s lifestyle was obviously only possible if he could rely on the ability of his partners and managers. Throughout his career he displayed and extraordinary faculty for surrounding himself with gifted subordinates. He also maintained an intense scrutiny of their performance. Whether he was in New York or Scotland, Carnegie constantly bombarded his managers with memoranda about the most minute detail of their costs. He also insisted on being supplied with complete minutes of the meetings of partners, including full voting lists.

John D. Rockefeller

Rockefeller freely admitted that, once well established in business, he was not what could be called a diligent business man. “The real truth is that I was what would now be called a ‘slacker’ after I reached my middle thirties.” In fact, during his whole period of active work, “which lasted from the time I was sixteen years old until I retired from active business when I was fifty-five, .. . I managed to get a good many vacations of one kind or another.” He acknowledged that his ability to do this was “because of the willingness of my most efficient associates to assume the burdens of the business.” Wherever he was John D. kept in touch with the office via telegraph wire. Each morning he received a report containing statistics such as the amount of crude on hand and shipments of refined for the previous day.

Rockefeller’s lifestyle was facilitated by his ability to compartmentalise his thinking. Having dealt with a matter his mind could switch off, allowing him to move on to other business. “It has been that way all my life, find a problem, work at it, solve it as well as I can, put the administration in good hands, and then go on to the next.”

He clearly perceived the advantages of his business methods and was never tempted to adopt a more orthodox approach. “I feel sincerely sorry for some of the business men who occasionally come to see me; they have allowed their business affairs to take such complete possession of them that they have no thought for anything else and no time to really live as rational human beings.”

J. Pierpont Morgan

Morgan led a leisurely and privileged lifestyle with frequent trips abroad. It was his custom to leave his office at three or four and drive in Central Park or on Fifth Avenue before going home for a nap prior to dressing for dinner.

From his mid-thirties it was customary for Morgan and his family to spend the winter months at their New York home and the rest of the year – usually from April to October – at “Cragston”, their country place at Highland falls on the Hudson. In addition each spring Morgan travelled to London to maintain contact with his father’s office and to take a short holiday on the Continent. Gradually these annual pilgrimages became longer and more elaborate. In 1887, when he was 40, Morgan spent almost a year abroad, chartering a steamer to go up the Nile. On later trips to Egypt Mrs. Morgan stayed at home but the travelling party usually included glamorous female companions.

The amount of time which Morgan devoted to business was further reduced by health problems. His son-in-law recalled that when he was in his early forties, “almost invariably once in every month he had a bad cold and had to spend two or three days in bed.”

His attitude to work and leisure is best summed up by his reported comment that he could do a year’s work in nine months but not in a year. His subordinates might have benefitted if they had been able to follow their chief’s example. By the end of the century virtually all of his early partners were dead or had retired broken. Morgan reached his seventies before he retired and lived to seventy-five. Carnegie and Rockefeller fared even better. Carnegie was eighty-three when he died while Rockefeller, after almost half a century in retirement, died at ninety-seven.

The significance of the leisure factor

To the extent that the critical factor in entrepreneurial success is the ability to perceive new opportunities then, beyond a certain point, additional time spent in routine business activities may have an opportunity cost in terms of less effective entrepreneurial decision making. That such decision making does not require the commitment of prodigious amounts of time is evidenced by the fact that Carnegie built the foundations of his business empire in his spare time while working as a salaried employee.

Extensive leisure certainly provides an opportunity to “recharge the batteries”. But it may do more. It permits time for thinking and reflection. The broad picture of business strategies can be reviewed and revised. This must be particularly important with proposals to diversify or to otherwise change the direction of business growth. Rockefeller certainly recognised the value of thinking time. In retirement he recalled his association with Henry Flagler:

For years and years this early partner and I worked shoulder to shoulder; our desks were in the same room. We both lived on Euclid Avenue a few rods apart. We met and walked to the office together, walked home to luncheon, back again after luncheon, and home again at night. On these walks, when we were away from the office interruptions, we did our thinking, talking, and planning together.

Undoubtedly a major factor in the success of each of the three entrepreneurs was the quality of their partners. But in many instances those partners had developed their executive skills within the business. The delegation of authority made necessary by the principal partner’s absence undoubtedly contributed to that development. However, such delegation was limited both in the degree of responsibility and in time. It essentially embraced managerial rather than entrepreneurial functions and detailed scrutiny continued from a distance. Further, whenever the principal partner returned from his wanderings, he would involve himself in all details of the firm’s operations.

The fact that three of the greatest entrepreneurs of this golden age of enterprise prospered while taking extensive breaks suggests that long hours of work are not essential for entrepreneurial success. There is also reason to believe that extensive leisure, not to be understood as idle pleasure-seeking, may lead to more effective entrepreneurial decision making.

(Excerpted from Bruce W. Ross, “The leisure factor in entrepreneurial success: a lesson from the ‘Robber Baron’ era,” The Economic and Social Review, 20:3, April 1989, pp. 243-55. Full text available online at The leisure factor in entrepreneurial success: a lesson from the ‘Robber Baron’ era)