Fault Lines: How Hidden Fractures Still Threaten the World Economy

by Raghuram G. Rajan

Rich early developers such as Australia, Canada, and the United States built their complex organizations over time. New industries often started with many small firms, some of which were exceptionally innovative or well managed. These generated larger profits than their competitors, hired more employees, and, over time, built effective and stable organizational structures. Initially, these firms grew slowly, both because it takes time to build the social relationships, the organizational norms, and the organizational procedures that allow the firm to function efficiently and because the availability of outside finance to an untried, unproven organization is limited. Eventually, some firms gained reputation and wealth: many of these were family firms like Anheuser-Busch or Cargill in the United States, whose reputation could transfer down through generations.7 Because banks would accept these firms’ reputation and wealth as collateral for financing, they could grow faster. All in all, however, growth was slow and steady, with many firms falling by the wayside; failure rates for small, new firms are spectacularly high even today.8

nations who develop early in an industry do so gradually without much govt intervention, with fair and trustworthy services and business policies