Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
In the early postwar decades America’s large multi-divisional corporations, of which General Motors was the best-known example, were seen in Europe as the model for how big business should be run. These were the companies which, some people believed, would soon be ruling the world.
That did not happen. As Richard Langlois shows in his illuminating history, The Corporation and the Twentieth Century, many of those much-admired companies have not survived the gale of creative destruction which has swept through American business since the 1980s.
A combination of technological change, globalisation and the emergence of a new type of investor has changed the face of American capitalism, replacing one-time leaders such as General Electric and Du Pont with a raft of newcomers, not just the technology giants like Apple and Microsoft but also entrepreneurial firms in other sectors. They are organised in a very different way from their predecessors — less hierarchical, less vertically integrated, more reliant on “intangible” assets such as knowhow and intellectual property.
Langlois’s account of the rise and fall of managerial capitalism begins in the second half of the 19th century, when the railway companies, larger and more complex than the standard owner-managed firm, recruited salaried specialists to run their operations. Then came the tycoons — Rockefeller, Carnegie and the rest — who built huge empires in industries such as steel and oil with the help of well-trained engineers and managers.
By the early 20th century control of these corporations was beginning to shift away from the founder or their descendants. In many, ownership passed into the hands of small private investors, giving managers in the head office greater freedom to run their businesses as they saw fit. This was the start of what the political theorist James Burnham described as the transition from a capitalist to a managerial society.
What was also happening in the interwar period was a trend towards industrial concentration, as companies such as GM and Ford squeezed out their smaller competitors. Some of them used their financial strength to diversify by takeover into other industries, a practice that was adopted more widely after the war. An extreme case was Harold Geneen at ITT, who converted what had once been a telecommunications company into a conglomerate; Geneen believed that his management skills could be applied to virtually any industry.
The corporate structure of the early 1960s was seen by writers such as Peter Drucker and Alfred Chandler as “not only inherently stable but as the foundation on which rested the economic stability of the larger society”.
That stability fell apart for a mixture of reasons, one of which was the shift in the investor base from individuals to institutions and a new focus on shareholder value rather than size as the appropriate target for managers. Corporate raiders like T Boone Pickens (who appeared on the cover of Time magazine in March 1985) took aim at over-diversified companies, often breaking them up and generating handsome gains for shareholders. Venture capital and what later became known as private equity were powerful drivers of the restructuring process.
The impact of government, often impeding rather than facilitating industrial change, is an important part of this book. In some periods antitrust has been used not to promote competition but to preserve competitors, reflecting a distrust of big business which has been a long-running strand in American politics. The continuing influence of Louis Brandeis, a defender of small business who served on the Supreme Court in the interwar years, can be seen in the current attempts by the Biden administration — largely misguided in Langlois’s view — to hold back the growth of “Big Tech”.
The idea that direct government intervention has been a source of strength in the US is given short shrift in this book. As Langlois, professor of economics at the University of Connecticut, rightly points out, the internet, often cited as an example of successful industrial policy, was in many ways the antithesis of state planning. “It was the product of a radically decentralised and lightly governed collective invention among a large number of private and state actors, none of whom planned or foresaw the outcome of their joint activities”.
This is a long book, with some sections which readers may find overdetailed. But it is entertaining as well as scholarly, and it sheds interesting light on many of the personalities who have shaped or reshaped the American corporation. It is also a valuable corrective to some widely held misconceptions about American capitalism.
The Corporation and the Twentieth Century: The History of American Business Enterprise by Richard N Langlois Princeton $50/£42, 816 pages
Geoffrey Owen is a former editor of the FT
Join our online book group on Facebook at FT Books Café
Read the full article here