Zippers are everywhere. On shirts and jeans, shoes and boots, bags and parcels and tents and diving suits. Whoever invented the simple zipper surely made a fortune.
Except he didn’t. Elias Howe received the first patent for an “”Automatic, Continuous Clothing Closure”, but couldn’t figure out how to market it. Sewing machines were so ubiquitous, he reasoned, that the zipper was a mere curiosity.
Such stories of entrepreneurial failure are common in America. The most famous, at least in our times, is Xerox’s rejection of a graphical user interface developed by some schlub named Gates.
These stories are common, but misunderstood. We routinely think “Xerox failed to appreciate the manifest brilliance of the GUI,” or “Elias Howe was obviously shortsighted”. Israel Kirzner put the lie to that kind of hindsight bias, and explained how entrepreneurs are more or less gamblers in his “Competition, Regulation, and Market Process”:
The speculative entrepreneur who, anticipating a rise in price of a particular item, buys now at the low price in order to reap pure profit by selling tomorrow, or in 20 years’ time, is acting upon the stimulus of his “alertness’ to an absence of coordination between what is available today and what will be needed tomorrow, or in 20 years’ time. If this speculative entrepreneur turns out to have been correct, this absence of coordination will be seen retrospectively as arising out of the errors of those others who failed to anticipate correctly the future market trends.
If Matt Damon has taught us anything, it’s that gambling is as much about skill as it is about luck. Bill Gates had a certain skill set, as well as a lot of luck, that Elias Howe didn’t. If you rely on someone else, be it a regulator or a corporation, to make these kinds of experimental decisions for you and for everyone else, than you foreclose an entire process that identifies coordination problems, and gives people many opportunities to fix them. This is not to say markets are “always efficient”; there are problems which are beyond the scope of markets to solve. But markets continually churn up good evidence of where coordination problems exist. This gives interested parties a chance to fix them, while the problems are still relatively small.
The point is that regulation may be responsible for such absences of coordination not being discovered. The marvel of the competitive-entrepreneurial market is its ability to inspire coordinative activities the very need for which would, in the absence of the market, never be revealed.
So next time you zip-up a beloved sweatshirt, think about how much knowledge had to be sifted, how many problems of production and marketing and design and logistics, and how much energy, from how many people, it took to bring you this one tiny zipper.