In 1974, Ken Langone formed a venture capital company, Invemed, and started scouting for opportunities. As the company’s name suggests, he initially focused on healthcare, but couldn’t shake off the idea of a giant opportunity in home improvement. Everybody liked to improve their homes, not least Langone himself, who had grown up in poverty, but the home-improvement sector was archaic and fragmented — lots of mom-and-pop stores with high prices and limited inventories. Why not create well-organized superstores that could provide everything you need at everyday low prices?
Langone spent months in the fruitless search for people who shared his vision before striking up a relationship with Arthur Blank and Bernard Marcus. They planned their operations meticulously, coming up with the name Home Depot for their new venture. In 1979 the three opened their first two stores in Atlanta — high-ceilinged warehouses covering 55,000-75,000 square feet — and waited for the customers to come. Two years later they went public.
Home Depot Inc. proved one of the great business success stories of the era, transforming the home improvement industry and turning the three founders into billionaires. Langone is one of New York City’s great philanthropists, having given more than $200 million to New York University’s medical school. But, as he emphasizes in his ebullient autobiography “I Love Capitalism!,” he is just as proud of the fact that Home Depot turned 3,000 early employees, from the cart-collectors in the parking lot upward, into multimillionaires and currently provides 400,000 with solid jobs.
The parallels between the 2020s and the 1970s grow more numerous by the day. The economy faces the threat of stagflation. Fuel prices are surging, and shortages loom. Politicians are flailing. The international environment is deteriorating. The Supreme Court is revisiting the 1973 Roe v. Wade ruling. The homicide rate is soaring amid a general sense of social breakdown. On a recent trip to New York City, I was struck by the dismal state of midtown Manhattan, as regular citizens abandon the streets, particularly at night, to the homeless and mentally ill. How long before Joe Biden addresses the country about the national malaise, or a streaming platform decides to remake Charles Bronson’s “Death Wish?”
The obvious response to the prospect of a 1970s rerun is to retreat from the world. If you can work from home, abandon the big city for the suburbs, ex-urbs, or, better still, the countryside; if you have enough savings, retire early. Throw out the TV and cultivate your garden instead. “This is an hour of history that troubles our minds and hurts our hearts,” President Gerald Ford said when he took office in 1974, as the 1970s really began to bite. “I have begun to think that the seventies are the very worst years since the history of life began on earth,” Joseph Alsop added in the same year. Surely the last thing that we want to do is to live through that again.
But a closer look at the 1970s also suggests a more optimistic story to tell. For all the Schumpeterian destruction, there was a lot of creation as well; and for all the nonsense, there was a good deal of sense: A group of far-sighted intellectuals and policy makers developed solutions to the world’s ills that have renewed relevance today.
The 1970s was a period of extraordinary entrepreneurial vigor: While old-line companies struggled to survive, young visionaries not only invented new companies but also created world-transforming industries, most notably the personal computer and biotechnology. The list of start-ups from the supposedly dismal decade is impressive: Southwest Airlines Co., Federal Express Corp., Nike Inc., Genentech Inc., SAS Institute, Oracle Corp., Visa Inc., Ben & Jerry’s HomeMade Inc., Charles Schwab Corp., Price Club, Microsoft Corp, Apple Inc. and, of course, Home Depot. Silicon Valley’s top two venture capital firms, Sequoia Capital and Kleiner Perkins Caufield & Byers, were both started in 1972.
At the very least, this demonstrates that good business ideas will continue to thrive even if the prevailing economic winds are against you. Technological innovation continued despite rising inflation and stagnating growth. Intel’s development of the 8080 microprocessor in the early 1970s, under the direction of Gordon Moore and Robert Noyce, provided the guts of the personal computer. Oddballs and hobbyists then competed feverishly to produce a workable PC regardless of what happened on the stock market or in Iran. Steve Jobs and Steve Wozniak sold fewer than 200 of the Apple 1, launched in 1976. When Apple went public on Dec. 12, 1980, at $22 a share, it achieved a market capitalization of $1.8 billion and created 300 millionaires. Bill Gates and Paul Allen spent the late 1970s tinkering with the primitive Altair 8800 PC and writing a BASIC program for it before a deal with International Business Machines Corp. in 1980 made their fortunes.
Eternal business verities such as economies of scale and improved logistics continued to pay dividends. Fred Smith doggedly pursued his idea for delivering packages via a super-hub, despite the “C” that his professor at Yale gave him for the paper in which he first broached the idea, a surge in fuel prices and the $29 million in losses his company, FedEx, racked up in its first two years. Dee Ward Hock quickly captured 20% of the US charge card market by linking independent banks together, becoming America’s pre-eminent purveyor of “plastic.” Price Club used the same technique as Home Depot of applying economies of scale to a fragmented market.
The entrepreneurial successes of the 1970s may also demonstrate something even more fundamental: that hard times may be positively good for business innovation, as talented people are shaken free from old institutions, regular people are forced to search for bargains, and the market for distraction booms. The Great Depression saw the birth of an unusual number of corporate icons: Morgan Stanley, Texas Instruments Inc., Krispy Kreme Inc., Knoll Inc., United Technologies Corporation, Polaroid Holdings Corp., and, providing glamor and escapism in a dismal decade, Revlon Inc. and Walt Disney Co. The Nevada legislature legalized gambling in 1931, in part because the market for divorce had collapsed, as couples decided to stay together in tough times. Hewlett-Packard Enterprise Co. was founded during the 1939 “depression within the depression,” Hyatt Hotels Co. during the 1958 recession, and Google during the 1998 dot.com crash.
The 1970s also saw public intellectuals developing powerful solutions to the era’s problems, solutions that were eventually forged into neoliberalism, neoconservatism and various combinations of the two. The American Enterprise Institute and the Brookings Institution, working together, made the case for deregulation, starting with the airline sector. Michael Jensen and William Meckling laid out the solution to the problem of managerial self-indulgence in “Theory of the Firm” (1976), with its vision of an active market in corporate control. Milton Friedman suggested a solution to the problem of inflation in the form of monetarism. Periodicals such as The Public Interest and Commentary spent the 1970s pointing to the ways in which “the loud misrule of chaos,” to borrow a phrase from Milton, generated by progressive policies on policing and law and order, was destroying America’s cities (though it was not until 1982 that James Q. Wilson and George Kelling introduced their “broken windows theory”).
It will not be enough simply to reapply these solutions wholesale to the problems of the 2020s: The neoliberal revolution of the past few decades has produced fresh problems of its own, notably soaring inequality and growing business concentration, that require fresh solutions. But we can take comfort from two things as the comparisons with the 1970s become ever more striking. The first is that we have encountered problems just as bad as the ones we have today and overcome them, through a mixture of intellectual boldness and gritty determination. The second is that the spirit of entrepreneurship can flourish however hostile the terrain and inclement the weather.
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