Why History Matters For Entrepreneurs

In order to understand why certain strategies companies used succeeded (or failed), it is vital to have a firm grasp of the times and context in which they came into being.

- Johan Fourie

I teach economic history at Stellenbosch University, and often have to explain to business students, many with little interest in history, why they should care about the past. Broadly, there are two reasons why economic history matters.

First, history explains the present. It would be incredibly difficult to understand – or begin to address – education, unemployment or inequality in South Africa without understanding its historical origin. Local unemployment is a problem of the 1970s, for example, when wages started increasing at a much faster pace than productivity, a result of poor-quality black education in combination with the mobilisation of black labour unions. While SA is capital-scarce, most firms, in response, adopted capital intensification, further increasing the wage gap between skilled and unskilled labour. Inequality worsened.

Economic history matters too, because it is analogous to the present. Ben Bernanke, chair of the US Federal Reserve when the Great Recession hit in 2007, wrote a 1994 review paper on the “macroeconomics of the Great Depression”, so when financial markets tumbled in 2007, Bernanke was acutely aware of what not to do. This allowed him to implement measures – like quantitative easing – to soften the deepening crisis.

The field of business history has also gained popularity, most notably at Harvard Business School. Often case studies written by Harvard business historians form the core of case studies used by business schools globally.