The Rise And Fall Of Managers.

"The Corporation and the Twentieth Century

By Richard N. Langlois

Princeton, 799 pages, $50

The corporate behemoths that once dominated American business are easy to mock as bastions of conformity and hypocrisy, but in their day they were world-beaters. One reason was vertical integration; a paper-products company, for instance, might own forests, factories and delivery trucks.

Another reason was management. Unlike earlier firms, run by the entrepreneurs who created them or by the tycoons who gobbled them up, outfits like General Motors and IBM were run by salaried professionals, many highly specialized, on behalf of widely dispersed shareholders. Say what you will about "managerial capitalism," but for the better part of a century it made America rich.

In recent decades, things have changed. America still has world-beating companies, but the likes of Alphabet (Google), Microsoft and Tesla focus tightly on their core businesses, and they matured under the enduring influence of founders. Apple, to cite perhaps the most iconic example, achieved greatness under co-founder Steve Jobs. It mostly leaves the production of its phones and computers to contract manufacturers in China -- and is today the world's most valuable company.

Students of business have long argued about why managerial capitalism arose and what led to its demise. At the heart of this debate is an age-old conundrum: What should the boundaries of a corporation be? What goods and services should it produce and which should it buy from others? Executives stake careers on such questions, but economists, historians and social critics have tried to answer them as well.

It is in such a context that Richard Langlois offers "The Corporation and the Twentieth Century," a monumental history of American business during the eventful decades when managers ruled. Among much else, he makes the argument that firms embraced managerial capitalism in response to the century's cataclysmic events and the heavy-handed government intercessions they prompted. When the crises and related policies finally fell away, we saw the resurgence of the focused, entrepreneurial enterprise that predominates today.

Mr. Langlois, an economics professor at the University of Connecticut, pushes back in particular against the explanation laid out by Alfred Chandler, the father of American business history, in his great work, "The Visible Hand" (1977). For centuries, Chandler said, firms were limited in size, run by their owners, and coordinated by the invisible hand of the marketplace. But running the booming railroads of the 19th century created unprecedented needs for capital and coordination. Instead of a single owner, there would be many investors and, to work for them, an army of salaried managers. The same system made sense for the era's nascent industrial giants, whose growth the sprawling new railroads would abet.

Bringing functions in-house offered big advantages over dealing with an array of outside vendors and contractors. The benefits included greater reliability, easier communication, and the development and retention of know-how. Individual managers could cultivate technical specialties, and capital could be shifted around as needed. Once established, managerial capitalism took on a life of its own. "The hierarchy itself," Chandler wrote, "became a source of permanence, power, and continued growth."

But Mr. Langlois tells a different story, contending that managerial capitalism didn't truly flourish until later. He notes that, despite a wave of mergers, most large firms in the early 20th century were still controlled by their owners, thanks to the extensive shareholdings of financiers such as John D. Rockefeller or investment banks such as J.P. Morgan -- owners not especially known as silent partners. The real heyday of the managers was yet to come.

Enter the reform-minded Progressive movement, which aimed to curtail the excesses of just such tycoons. Easily distinguished from today's progressives by their capital letter and lack of stated pronouns, the Progressives held that scientific techniques had solved the problems of industrial management and would do likewise for those of government administration, which was to be entrusted to "experts."

These Progressives brought with them a hubristic "managerial model of the world" that called forth a managerial form of capitalism, one designed to clasp the meddlesome hand of government. The ensuing era of federal regulation offered big business relief from haphazard and potentially more radical state regulation, but it also shifted power over firms toward Washington and the federal judiciary.

The ground was thus laid for managerial capitalism to be turbocharged by "the great catastrophes" of World War I, the Depression and World War II. All were hugely disruptive in themselves, but they came with federal policies on regulation, antitrust, intellectual property and economy-shaping "industrial policy" that had the effect, Mr. Langlois says, "of buttressing the large managerial corporation and insulating it from the impulses of change."

The Interstate Commerce Commission, created in the 1880s to rein in the railroads, set the pattern -- and would sow inefficiency and stagnation in freight transportation far into the next century. The Federal Trade Commission, established in 1914 to battle "unfair" competition, embarked on an ever-evolving campaign of antitrust enforcement that paradoxically fattened the managerial beast. The New Deal, by means of which the Roosevelt administration flailed at the Great Depression, further expanded federal power over business and stifled the workings of the marketplace. "Industrial regulations of various sorts," Mr. Langlois writes, "distorted technological choices and retarded technological advance."

World War II, while enormously profitable for industries that performed the feats of production so crucial for Allied victory, inevitably led to an even more vigorous suppression of normal market activities. It also left the U.S. a global colossus with little serious business competition in a world short of nearly everything. Huge, heavily capitalized firms were well positioned to take advantage.

Sometimes, of course, growth and innovation have been boosted by government, as in the development of the railroads and creation of the internet or the funding of basic science. But in Mr. Langlois's chronicle examples to the contrary abound. In 1945, he notes, Bell Labs developed a proposal for what was then the American Telephone and Telegraph Co. But the Federal Communications Commission, still nursing hopes that the ultra-high-frequency radio spectrum could be used for television, wouldn't grant any UHF space for the plan. The federal agency finally began accepting cellular license applications -- in 1982.

The author's most persistent culprit is what he sees as Washington's incoherent tilting against "anticompetitive" behavior. He doesn't seem ever to have met an antitrust action he approves of, and in his telling the whole effort has served only to penalize success. Some giants were splintered, but all had an incentive to avoid organizing themselves into efficient and discrete operating units that could, in an antitrust action, easily be broken off. Compulsory technology licensing in antitrust settlements discouraged innovation, Mr. Langlois argues, and some firms naturally found themselves "propitiating the antitrust authorities by failing to compete aggressively."

Today's readers may be surprised to learn that deregulation, when it came, was often a liberal cause, as when Sen. Ted Kennedy and future Supreme Court Justice Stephen Breyer (counsel to a Kennedy subcommittee) set out in 1974 to liberate the airlines. At the time, the Civil Aeronautics Board controlled fares, routes and entry, Mr. Langlois notes. The effect was to assure "the dominance of the four major trunk carriers, American, Eastern, TWA, and United," freezing in place routes that were "uninformed by any market test."

After President Jimmy Carter signed a deregulation bill in 1978, the incumbent airlines adopted a hub-and-spoke system, bought more efficient planes and found themselves battling lower-cost upstarts. The results were revolutionary. "Whereas flying was once synonymous with the beau monde -- the jet set -- air travel after deregulation became increasingly available to the hoi polloi," the author writes. In 1971, 49% of the American population had been on an airplane; by 1997, 81% had.

"The Corporation and the Twentieth Century" is a remarkable achievement, not least for its detailed case studies of firms and whole industries that instantiate the author's points. Yet the argument that managerial capitalism flourished largely due to muffled price signals, over-regulation and over-zealous antitrust tells only part of the story. 

Surely the nature of mass production, a giant domestic market, a growing middle class and a world in ruins made the large vertically integrated corporation, guided by careful professionals, a suitable vehicle for delivering the goods while earning oodles of profit.

There is also a cultural dimension to the story that Mr. Langlois doesn't sufficiently address. Managerial capitalism was powered by a relatively homogeneous tribe of company men, many of whom had served in the armed forces, and their faith in authority, in science, and in planning helped shape the business ethos of their time. The 1960s, the Me Generation and the end of conscription marked a cultural shift that would further transform the world of business, as would the mass entry of women into the workforce and the resumption of large-scale immigration. As if to symbolize the changes, the traditional management uniform of suit and tie has gone the way of the IBM Selectric.

Mr. Langlois recognizes that the deregulating spirit of the 1970s was part of a change in the Zeitgeist. He describes, for example, how the Bay Area's hippie ethos intersected with the rise of the personal computer. The resulting digital revolution upended corporate hierarchies and changed much of America's output from the physical to the intangible. Ascendant tech firms ushered in a new entrepreneurial paradigm. The center of business gravity shifted from Manhattan boardrooms and Midwestern factories to the freewheeling West Coast.

Vietnam and inflation, meanwhile, sapped faith in government as well as in the dollar, and a series of countries (lately China) would soon replace the U.S. as the world's factory. The unbundling of corporations was accelerated by low-cost overseas manufacturing and by the new "barbarians at the gate" from Wall Street. These have made us richer, yet the distribution of benefits has been lopsided, and the author takes little note of the consequent painful social dislocation.

The questions at the heart of "The Corporation and the Twentieth Century" are interesting and important, but it doesn't matter whether you accept the author's answers or not, because they are plausible enough and because in any case they serve as the engine of a remarkable alternative history of what Henry Luce famously called the American Century. It's a work propelled by vast learning, a focus on business and a consistent point of view in favor of free markets. Imagine that." [1]

1. REVIEW --- Books: The Rise And Fall Of Managers. Akst, Daniel. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 01 July 2023: C.7.