Book Reviews: The Rise of the Corporate Commonwealth

Article excerpt

Galambos and Pratt provide an insightful and fast-paced account of the growth and development of the American corporate economy over the past century. At a time when American business is yet again in the midst of a crisis, the book is a timely reminder of the value of history in analyzing contemporary problems. Free enterprise and the government have had various relationships over the years: friendly, adversarial, and sometimes both. The authors present in their book a dynamic picture of U.S. business and public policy in the twentieth century, which portrays the flexibility of the American business system and its tradition or successfully adapting to change.

The reader is led from the world of J. P. Morgan at the turn of the century, where a few powerful private investment bankers could control an economy dominated by the entrepreneurial firm to the world of Iacocca in the 1980s, where the power of any individual is subordinate to that of the government. The authors make effective use of these powerful symbols of the American way of doing business during their times.

The framework for analyzing the development of institutions over time is their ability to strike a balance between innovations, efficiency, and environmental control. The authors also portray the changing role of the government in three major areas over the century: single industry regulation, cross-industry regulation, and government-directed activities.

J. P. Morgan's era saw the rise of the combine from the entrepreneurial firm of the nineteenth century. The entrepreneurial firm, with its flexibility to innovate, played a vital role in the nation's rapid economic expansion during that period. Out of its inability to take advantage of economies of scale and its lack of capital, came the centralized corporate combine. The authors suggest that Morgan and investment bankers, because of their unique role of selling securities to finance the combines, became the chief architects of the system. The authors describe the outstanding record of technical and organizational change and economic growth that characterized the Morgan era on one hand, and the abuses of power and natural resources and growing tensions between the corporations and society on the other.

The period 1901-1930 was characterized by an expanding public presence, generally intended to limit the power of private interests to manipulate the economy. The development of independent regulatory commissions, the passage of the antitrust laws, and the creation of the Federal Reserve System marked significant turning points in business-government relations. The authors characterize the process of change in these relations as "piecemeal, uneven, and at times, haphazard." These measures were, the authors claim, "a curious innovation," and "a political and intellectual compromise." It was also a "distinctively American approach to balancing public and private interests," a way to have more government without more politics. The coming of the Federal Reserve signalled the demise of the world of J. P. Morgan.

This was also an era when business consolidated its controls. Managers had to learn to balance the firm's need for innovation against the need for control of its environment, and the need to achieve high efficiency in mass production and distribution. Most of the large firms of this era were created through mergers of competitors. There was a need for administrative controls using more active and systematic forms of management. The results were organizations structured along functional lines, with increased specialization, a changed workplace in response to mechanization, more formalized labor relations, and vertical integration to achieve better control of the environment. The need for innovation and the great expansion of science and engineering at the turn of the century saw the beginnings of research and development and the modern industrial laboratory. Companies took a long-term view. …