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Chapter 1
RECESSION
Take a moment to look back on economic history in America through the rose-tinted glasses of innovation. You will see the same history, but with a softer tone and a vision of hope. The story is told with a clear focus on innovation. Once you experience the economic tides of innovation, you will understand the ocean of opportunity in a new light.
Terrible times are no match for innovation. A number of great companies have been started during economic downturns. For the purposes of this book, I limited my criteria for what I call a great company to those that have continued operations or brand equity through 2009. This eliminates many great innovations, but nevertheless provides a substantial list of companies for the purposes of demonstrating the powers of innovation.
Before we begin our excursion, letās develop a semantic guide to the evolution of the terminology of terrible times. As America has matured, so has the economic language we use to describe bad economic times. The softening of the language is an effort to calm and restore the confidence of people, which plays a huge part in the ebbs and flows of the economy.
In the 1700s, the preferred description of terrible times was panic. Itās a word that describes the frenzied scramble to keep the economy afloat. This term stayed in vogue for a while, but lost ground to the dual terms of depression and recession. These terms have varying degrees of difference, but describe the same kind of economic disaster. That is, until you precede the word depression with the adjective great. At that point, you have reached the pinnacle of terrible times terminology.
There can and will only be one period in U.S. history described as the Great Depression (1929 -1939). This term should describe the worst of the terrible times. It is the standard by which all terrible times terminology will be compared in the future.
Accordingly, we have retreated to the reliable term recession, but have introduced even more palatable, situation-specific expressions such as oil crisis or bursting the dot-com bubble.
Furthermore, if we must admit that there is a recession, we tend to understate the label in a sort of economic optimism. You might hear terms like downturn or slowdown. We even find terms that refuse to admit the downward trend, such as a sideways movement.
For the purposes of this book, I really donāt care what you call it. Whatever term gives you more comfort is the one I recommend, but please understand there is not a dimeās bit of difference between them as it relates to innovation.
(Note: Unemployment rates werenāt calculated by the U.S. Bureau of Labor Statistics prior to 1929. All sections on post-1929 recessions will include that data.)
PANIC OF 1797 (1797-1800)
Sailing back to 1797 allows us to experience the first recession in the United States. America was a new nation back then and this turbulent time wreaked havoc on its young economy. The major culprit was the Bank of England. The Bank was already reeling from the effects of the French Revolutionary War between England and France. This war had caused deflationary repercussions in England. The bank was tied into American commercial and real estate markets and caused the first major disruptions in Americaās fledgling economic system.
As the American economy began its first battle with a recession, innovations and start-up companies were flourishing. Of course, this young country needed financial servicesāspecifically, banking and investment assistanceāto fund and foster business growth. Two companies would emerge from this recession to create financial forces that would impact the American economy for generations to come.
Great companies that started during this panic include what would eventually become the largest American bank, Chase Manhattan; and the first company to organize an IPO, Alex, Brown & Sons.
DEPRESSION OF 1807 (1807-1814)
In 1807, U.S. President Thomas Jefferson and Congress passed the Embargo Act. This bill barred trade between the United States and other nations. Eventually the bill was proved unenforceable and was repealed in 1808, but not before it had devastated the shipping industry and caused serious stress to the economy. Many people who worked in the shipping industry were unemployed and the businesses associated with the industry were devastated.
Innovation was introduced into industries ranging from publishing to textiles, home appliances, insurance, pottery, and liquor, to name a few.
Great companies that began during the depression of 1807 include John Wiley & Sons, The Hartford, Rogers Orchards, Roper Industries, Bybee Pottery, and Woodford Reserve.
PANIC OF 1819 (1819-1824)
The panic of 1819 is considered the first major financial crisis in American history, and for good reason. After the War of 1812, the U.S. economy saw an enormous and robust expansion. However, as the panic of 1819 began to have its full impact, the United States began to experience a crisis that would be pervasive and damaging. It spanned the areas of real estate, banks, manufacturing, and agriculture. Unemployment rates reached levels never before seen in this young country.
This panic produced giants in the fields of manufacturing, food processing, publishing, and energy.
Great companies that began during the panic of 1819 include William Underwood Company, Consolidated Edison, Fairbanks Morse, and HarperCollins.
PANIC OF 1837 (1837-1843)
The introductionāor rather, innovationāof paper currency initially had a devastating effect on the U.S. economy. Speculation was widespread at this time, but the realization that the banks would be circulating paper instead of gold and silver coins created a panic. Confidence in the banking system collapsed and the result was the failure of many banks across the country.
This panic may have frightened the faint of heart, but for innovators this period produced a banner crop of companies that remain today as icons of innovation.
Great companies that started during the panic of 1837 include Procter & Gamble, Tiffany & Co., Berkshire Hathaway, Dun & Bradstreet, Motts, and Stanley.
PANIC OF 1857 (1857-1858)
The failure of the New York branch of the huge Ohio Life Insurance and Trust Company sent shock waves throughout America and Europe. This resulted in a drastic decrease in European speculation for U.S. railroads, consequently crippling many railroad-related businesses and putting great pressure on U.S. banks, which lost consumer confidence. The jobless rate soared all over the United States and brought with it regular protests by laid-off workers. This was the first recession that was fueled by a reactive European influence, and the first to demonstrate the interrelated effects that a world economy can cause.
Nonetheless, new inventions and companies sprouted up across America that would become part of Americana forever. Great companies that started in the panic of 1857 include Macyās, Bemis Company, Fifth Third Bank, Cooper Chemical Company, and First Hawaiian Bank.
THE LONG DEPRESSION (1873-1879)
The Long Depression, resulting in a nationwide downturn, was caused by two significant economic events. First, on May 9, 1873, the Vienna Stock Exchange in Austria crashed. This had a crushing effect on the largest American Bank, Jay Cooke & Company in Philadelphia, which eventually declared bankruptcy on September 18, 1873. Second was the adoption of the Coinage Act of 1873, which embraced gold as the standard and demonetized silver. Together, these events had a rippling negative effect through the U.S. economy that lasted seven years.
The Long Depression produced an even longer list of innovators that would build companies that would stand the test of time. Great companies that started in the Long Depression include Adolph Coors Company, Barnes & Noble, Cincinnati Bell, Kohler Company, Puget Sound Energy, Ralphs, Zions Bancorporation, ADT Security Services, Bank of America, Pacific Press Publishing Association, R.J. Reynolds Tobacco, Chagrin Falls Popcorn Shop, Conoco Inc., Performance Food Group, Prudential Financial, Stacy Adams Shoe Company, Thomas Organ Company, A. Schwab, BVD, BernzOmatic, Diebold, Eli Lilly and Company, Hendrick Manufacturing Company, Jockey International, Ladenburg Thalmann, Spalding, Bee Group Newspapers, Burpee Seeds, E.W. Scripps Company, F.W. Woolworth Company, Geiger, Menen, Mohawk, St. Louis Refrigerator Car Company, Bankers Life and Casualty, Chattem, Chevron Corporation, General Electric, Inglenook Winery, McNeil Laboratories, I. Magnin, Principal Financial Group, and Scott Paper Company.
PANIC OF 1893 (1893-1896)
Railroads were the speculatorsā choice of investment in the late 1800s. When they went bad, they had a crippling effect on the economy. The Reading Railroad (yes, it was an actual railroad before the PBS show) of the United States failed, which influenced European investors to withdraw their investments, which in turn crushed the economy.
The broad-based effects of this bankruptcy caused the loss of many jobs, and it also affected the stock market as investors began to pull their money out of the markets. In addition, many banks failed. These major activities also caused a run on gold and incited panic throughout the financial markets.
As you now might suspect, this depression did not keep the innovators down; in fact, many would say this crop of companies might be the sweetest of them all.
Great companies that started in the 1890s recession include IBM; The Hershey Company; Maytag; Weber-Stephen Products Co.; Popular, Inc.; Tootsie Roll Industries; Stagsā Leap Winery; Stewart Information Services Corporation; Eckrich; G.R. Kinney Company; Gelco; Cowles Publishing Company; Melville Shoe Corporation; Stromberg-Carlson, Tutor Perini Corporation; DePuy; Elliott Company; Harris Corporation; Lennox International; Lincoln Electric; Malheur Bell; J.C. Newman Cigar Company; Post Foods; Schwinn Bicycle Company; Anchor Brewing Company; Church and Dwight; Macmillan Publishers; New York Telephone; Schmitt Music; T. Marzetti Company; and the Wisconsin Energy Corporation.
PANIC OF 1907 (1907-1908)
The first major financial crisis of the nineteenth century was precipitated by the failure of several Wall Street brokerages and the collapse of the Knickerbocker Trust Company. This resulted in a contracted money supply, which led to the failure of many businesses and financial institutions.
The Cleveland administration worked closely with J.P. Morgan to restore order by channeling money from larger institutions to smaller ones. This crisis led the country to eventually pass financial reforms and establish the Federal Reserve System, an innovation in itself.
The woes of Wall Street had little impact on the surging innovation and entrepreneurial spirit in America at the turn of the century, as demonstrated by the many new ideas and companies that were created during this period.
Great companies that started during the panic of 1907 include Bessemer Trust, Block Drug, Blue Bell Creameries, Bƶwe Bell & Howell, Dairylea Cooperative Inc., Dr. Schollās, Dutch Boy, Faygo, Integrys Energy, Leupold & Stevens, Moody National Bank, Neiman Marcus, Praxair, The Hoover Company, UPS, Western Publishing, Briggs and Stratton, Bush Brothers & Company, CIT Group Inc., Converse, Fileneās Basement, Fisher Body, General Motors, Harley Ellis Deveraux, Holler House, Pero Vegetable Company, Speed Queen, Williams Companies, and Yale University Press.
POST-WORLD WAR I RECESSION (1918-1922)
The end of World War I brought with it extremely high employment and inflation. This reflected the decrease in manufacturing production that was no longer necessary during peacetime. Not only did people who had jobs during the war lose them, but troops returning from war struggled to find employment as well. This combination drove unemployment to record highs. With no precedent with which to compare, America was unprepared to deal with this confluence of negative factors in the economy.
This adjustment may have caused the increase in the amount of innovative activity that was demonstrated by the many new ideas and companies that sprouted up during this period.
Great companies that were started in the post-World War I recession include A-Treat Bottling Company, AgStar Financial Services, Brookville Equipment Corporation, Celanese, Cowen Group, Dominickās, Houchens Industries, Peragallo Pipe Organ Company, Ritz Camera Centers, TIAA-CREF, The Timberland Company, Universal Corporation, West Coast Shoe Company, Woodmanās Food Market, Zenith Electronics, Allen Family Foods, Boone Drug, Charles of the Ritz, Columbia Pictures, Columbus Tubing, Community Coffee, ConAgra Foods, Cornwell Tools, Cummins, Fanny Farmer, Ferro Corporation, Foster Grant, Great Western Bank, Gr iffith Laborator ies, Haliburton, Hess Corporation, Hilton Hotels, Holdings of American International Group, Jervis B. Webb Company, KitchenAid, Malt-O-Meal Company, Musso & Frank Grill, Ovson Egg, Peter Paul Candy Manufacturing Company, Pioneer Instrument Company, RCA, Red Ball Corporation, Rosendin Electric, Shawās Star Market, Tandy Corporation, Toro, United Artist, AMC Theatres, Arizona Public Service, Ben Franklin Stores, CR England, Cameron International Corporation, CoorsTek, Dobson Cellular, Dorrance Publishing, and White Castle.
RECESSION OF 1926 (1926-1927)
Arguably the most forgotten recession in the United States because it came before the Great Depression, the recession of 1926 caused much pain to many people as business activity dropped 12.2 percent and trade/industrial activity went down by 10 percent. The recession was caused primarily by labor strikes in Britain and Germany, as well as the widespread effect of Henry Ford halting production for six months to switch over from the Model T to the Model A (innovation can cause recessions just as much as it can pull economies out of them).
This period was a foreshadowing of devastation to come and provided insight on how the world economy was becoming more interdependent.
Even though this period lasted only 13 months, many new companies were born from innovative ideas and inventions. Great companies started during the recession of 1926 include Catawissa Bottling Company; Container Corporation of America; Cooper Tire & Rubber Company; Crane Merchandising Systems; David Sunflower Seeds; Haggar Clothing; Howard Miller Clock Company; IGA Supermarkets; Jel Sert; Maid-Rite; McKinsey & Company; Mt. Olive Pickle Company; NBC; Nationwide Mutual Insurance Company; Nocona Athletic Goods Company; Orange Julius; Oregon Steel Mills; Paul K. Guillow, Inc.; Selective Insurance Group; Spring Air Company; Swiss Colony; Trailways of New York; UAL Corporation; Quick Tires; 7-Eleven; American Family Insurance; Arthur J. Gallagher & Co.; Bali; Blue Bird Corporation; Bonne Bell; Browning Arms Company; CBS; Community Supermarkets; The Derrydale Press; Eaton Harbors Corporation; Fairchild Camera and Instrument; Georgia-Pacific; Gerber Products Company; Growmark; Herbergerās; Jays Foods; Kinder Morgan; La-Z-Boy; Marriott International; Mutual S...
