Richard Koch: 'Individualism is replacing managerial capitalism'

From the Halifax lecture, delivered at the Royal Society for the Arts in London

EM Forster wrote: "Failure or success seem to have been allocated to men by their stars. But they retain the power of wriggling, and in the universe the only really interesting movement is this wriggle."

I am going to argue that there is a lot more wriggling going on nowadays; given enough wriggling, the nature of the whole system changes. Individualism is replacing managerial capitalism. What is the evidence for the rise of the individual?

Consider how the economy grows. Does it grow because big companies march ever forward, or because small companies grow from nothing into big companies?

Take Microsoft, a company that did not exist 30 years ago. Just 20 years ago it was worth almost nothing; today nearly $300 billion. Yet at Microsoft, there is no separation of ownership from control. The chairman, Bill Gates, owns 12.3 per cent, other directors another 5 per cent and employees in total more than a third. Microsoft has been made by a very few creative individuals and runs largely for their benefit. It is not on the stock exchange because Microsoft needed capital, but because this route makes Mr Gates and his chums wealthier. And, as Gates says, "take away our 20 most important people, and I tell you we would become an unimportant company".

Capital is becoming less important. Now much less capital is necessary to create a really valuable business. For the first time, individuals who start a business that becomes really valuable can typically retain a significant chunk of ownership. Microsoft's original external capital need was less than $100,000, well below the level at which stock markets become relevant.

In 1986 Microsoft went public, raising a wholly unnecessary $44m. Last time that I looked, the company was worth $286bn. When you get a return of 6,800 times the 1986 capital, or more than three million times the original capital, you know that capital is not the decisive factor. Individualism is replacing capitalism. "The emperor of the future," said Winston Churchill, "will be the emperor of ideas."